1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 10-Q/A
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 2, 2001 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
40 West 57th Street, New York, N.Y. 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (212) 541-5757
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock outstanding as of July 17, 2001
was 33,172,690.
2
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
JUNE 2, 2001
(unaudited)
Explanatory Note:
This Amendment to Form 10-Q for the quarterly period ended June 2, 2001
corrects Part I - Item 1: Condensed Consolidated Statements of Cash Flows to
correctly reflect the presentation of "Provision for bad debts" and "Changes in
accounts receivable" under Cash Flows From Operating Activities. The corrected
presentation has no effect on the "Net cash provided by operating activities" in
such Condensed Consolidated Statements of Cash Flows. In addition, the Liquidity
and Capital Resources section of Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part I - Item 2 has been
corrected to reflect such presentation. Except as set forth above, no other
changes were made to the Form 10-Q for the quarterly period ended June 2, 2001.
INDEX
Page No.
Part I - Financial Information:
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets
As at June 2, 2001 and March 3, 2001 ...................................... 2
Condensed Consolidated Statements of Earnings
For the Three Month Periods Ended
June 2, 2001 and June 3, 2000 ........................................... 3
Condensed Consolidated Statements of Cash Flows
For the Three Month Periods Ended
June 2, 2001 and June 3, 2000 ........................................... 4
Notes to Condensed Consolidated Financial Statements ........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......... 12
Part II - Other Information ............................................................ 13
3
NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
June 2, 2001 March 3, 2001
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,347 $ 36,674
Short-term investments 5,773 5,546
Accounts receivable - net 87,500 105,269
Inventories 124,936 98,021
Prepaid expenses and other current assets 10,227 7,477
Deferred tax benefit 10,859 10,859
--------- ---------
Total current assets 249,642 263,846
Property, plant and equipment - net of
accumulated depreciation and amortization 114,959 101,361
Goodwill, net of accumulated amortization 68,429 5,243
Other assets 10,009 7,856
--------- ---------
$ 443,039 $ 378,306
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 35,000 $ --
Accounts payable - trade 48,666 43,881
Accrued expenses and other current liabilities 39,546 37,613
Income taxes payable 11,292 11,548
--------- ---------
Total current liabilities 134,504 93,042
Stockholders' equity:
Preferred stock - par value $.01; authorized,
2,000,000 shares; no shares issued -- --
Common stock - par value $.10; authorized,
100,000,000 shares; issued 44,620,000 shares
at June 2, 2001 and 43,329,000 shares at
March 3, 2001 4,463 4,333
Additional paid-in capital 91,734 71,766
Retained earnings 371,321 368,148
--------- ---------
467,518 444,247
Less:
Common stock in treasury - at cost;
11,498,000 shares at June 2, 2001
and March 3, 2001 (158,983) (158,983)
--------- ---------
Total stockholders' equity 308,535 285,264
--------- ---------
$ 443,039 $ 378,306
========= =========
The accompanying notes are an integral part of these statements.
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except share data)
(unaudited)
Three Months Three Months
Ended Ended
June 2, 2001 June 3, 2000
------------ ------------
Net sales $ 135,190 $ 121,274
Cost of goods sold 77,429 71,138
------------ ------------
Gross profit 57,761 50,136
Selling, general and administrative expenses 55,277 47,425
Net royalty income (2,345) (1,787)
------------ ------------
Operating profit 4,829 4,498
Investment income, net 272 558
------------ ------------
Earnings before provision for income taxes 5,101 5,056
Provision for income taxes 1,928 1,962
------------ ------------
NET EARNINGS $ 3,173 $ 3,094
============ ============
Net earnings per share of common stock:
Basic $ 0.10 $ 0.09
============ ============
Diluted $ 0.09 $ 0.09
============ ============
Weighted average number of common shares outstanding:
Basic 32,259,000 32,627,000
============ ============
Diluted 34,025,000 34,040,000
============ ============
Cash dividends per common share none none
============ ============
The accompanying notes are an integral part of these statements.
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Three Months Three Months
Ended Ended
June 2, 2001 June 3, 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,173 $ 3,094
---------- ----------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Deferred income taxes -- --
Depreciation and amortization 6,104 5,561
Provision for bad debts 304 352
Changes in operating assets and liabilities net of acquisitions
Short-term investments (227) (63)
Accounts receivable 21,435 21,522
Inventories (16,727) (13,247)
Prepaid expenses and other current assets (2,726) (2,285)
Other assets (2,125) (1,864)
Accounts payable - trade 2,870 12,242
Accrued expenses and other current liabilities (3,875) 1,668
Income taxes payable (256) (1,954)
---------- ----------
Total adjustments 4,777 21,932
---------- ----------
Net cash provided by operating activities 7,950 25,026
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for purchase of Earl Jean, Inc. (46,749) --
Payment for purchase of childrenswear business (6,681) --
Purchase of property, plant and equipment (17,479) (5,041)
---------- ----------
Net cash (used in) investing activities (70,909) (5,041)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 35,000 --
Purchase of treasury stock -- (27,592)
Proceeds from issuance of common stock 1,632 49
---------- ----------
Net cash provided by (used in) financing activities 36,632 (27,543)
---------- ----------
Decrease in cash and cash equivalents (26,327) (7,558)
Cash and cash equivalents at beginning of period 36,674 27,143
---------- ----------
Cash and cash equivalents at end of period $ 10,347 $ 19,585
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 2,198 $ 4,076
========== ==========
The accompanying notes are an integral part of these statements.
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 2, 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 generally accepted accounting principles 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
June 2, 2001 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 June 2, 2001.
NOTE 4 - The Company utilized the last-in, first-out "LIFO" method for
certain wholesale inventories as at June 2, 2001 and March 3, 2001
and for the three-month periods ended June 2, 2001 and June 3, 2000.
The "LIFO" inventory for the three-month periods ended June 2, 2001
and June 3, 2000 are based upon end of year estimates. Inventories
at June 2, 2001 and March 3, 2001 consist primarily of finished
goods.
NOTE 5 - As of June 2, 2001 and March 3, 2001, the Company had $175,000
and $150,000, respectively, in lines of credit with four commercial
banks. Such lines of credit are available for short-term borrowings
and letters of credit, collateralized by imported inventory and
accounts receivable. At June 2, 2001 and March 3, 2001, letters of
credit outstanding under the lines were $95,400 and $58,600,
respectively. At June 2, 2001, there was $35,000 of short-term
borrowings outstanding.
NOTE 6 - Basic net earnings per share excludes dilution and is computed
by dividing income available to common shareholders 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. 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 anti-dilutive, were
2,198,900 and 2,375,450 during the three months ended June 2, 2001
and June 3, 2000, respectively.
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 2, 2001
(unaudited)
(amounts in thousands, except share data)
NOTE 7 - The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which establishes reporting and disclosure
standards for an enterprise's operating segments. Operating segments
are defined as components of an enterprise for which separate
financial information is available and regularly reviewed by the
Company's senior management.
The Company has the following two reportable segments:
Wholesale and Retail. The Wholesale segment designs, markets,
sources and distributes sportswear, activewear, outerwear, a jeans
collection, a tailored clothing collection, robes and sleepwear for
men, and a jeans collection, robes and sleepwear for women, to
retail store customers. The Retail segment sells men's and women's
apparel and other Nautica-branded products primarily through 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 THREE MONTHS ENDED
JUNE 2, 2001
Net sales $105,017 $30,173 $ -- $ -- $135,190
Segment operating profit (loss) 2,256 2,393 2,344 (2,164) 4,829
Segment assets 322,962 69,201 8,687 42,189 443,039
Depreciation expense 4,706 330 107 513 5,656
Capital expenditures 11,095 5,193 -- 1,191 17,479
FOR THE THREE MONTHS ENDED
JUNE 3, 2000
Net sales $ 94,338 $26,936 $ -- $ -- $121,274
Segment operating profit (loss) 3,112 2,218 2,342 (3,174) 4,498
Segment assets 193,419 41,147 7,469 78,586 320,621
Depreciation expense 4,384 379 146 359 5,268
Capital expenditures 3,969 389 5 678 5,041
Net sales from external customers represent sales in the
United States, except for foreign sales of $1,970 and $787 for the
three months ended June 2, 2001 and June 3, 2000, respectively.
In the Corporate/eliminations column, the segment assets
primarily consist of the Company's cash and investment portfolio and
the segment operating profit (loss) consists of corporate overhead
expenses.
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 2, 2001
(unaudited)
(amounts in thousands, except share data)
NOTE 8 - During the three months ended June 2, 2001, the Company's
licensing unit terminated its license agreement with Hampton
Industries, Inc. ("Hampton") to market Nautica childrenswear, and
established a new business unit to assume certain of its operations.
The Company made a payment to Hampton of approximately $6,681 for
the purchase of inventory and certain other assets related to the
Nautica childrenswear business, and agreed to forgive specific
royalties and other expenses associated with the license agreement
contingent upon Hampton satisfactorily performing certain
distribution and logistics functions for the Company, for a period
of time.
NOTE 9 - On April 30, 2001, the Company, through a wholly-owned
subsidiary, acquired substantially all of the assets and assumed
certain liabilities of Earl Jean, Inc. ("Earl Jean"), a privately
held corporation. Earl Jean is a leading designer, manufacturer,
wholesaler, retailer and marketer of luxury women's jeanswear and
related apparel. The purchase price was $45,000 in cash, 1,122,271
newly issued shares of the Company's restricted common stock (valued
at $18,466) and an additional cash payment of approximately $1,800
for excess working capital. Furthermore, additional consideration of
up to $21,000 in cash may be earned if certain performance standards
are met during fiscal 2003-2012. The source of the cash
consideration was a combination of general corporate funds and
short-term borrowings from under the Company's existing line of
credit made in the ordinary course of business with certain banks.
The acquisition was accounted for under the purchase method of
accounting for business combinations and the results of operations
of Earl Jean have been recorded from the date of acquisition. The
purchase price plus acquisition expenses were allocated to Earl
Jean's assets and liabilities based on their estimated fair value.
The excess of the purchase price over the estimated fair value of
the net assets acquired of approximately $60,000 is being amortized
on a straight-line basis over twenty years.
At June 2, 2001, the Company was still compiling certain
information required to complete the allocation of the purchase
price of Earl Jean. Further adjustments may arise as a result of the
finalization of the ongoing review.
The following unaudited pro forma condensed results of
operations reflect the acquisition of Earl Jean as if it had
occurred on March 4, 2001 and March 5, 2000, respectively. The
revenues and results of operations included in the following pro
forma unaudited condensed statements of operations is not
necessarily considered indicative of the results of operations for
the periods specified had the transaction actually been completed at
the beginning of the period.
(unaudited)
Three Months Three Months
Ended Ended
June 2, 2001 June 3, 2000
------------ ------------
Pro forma net sales $ 141,326 $ 129,244
Pro forma net earnings 4,172 3,673
Pro forma net earning per share of common stock:
Basic $ .13 $ .11
Diluted .12 .10
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NAUTICA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 2, 2001
(unaudited)
(amounts in thousands, except share data)
NOTE 10 - A supplemental schedule of non-cash investing and financing
activities to the Company's Statement of Cash Flows is presented
below.
The Company acquired substantially all of the assets of Earl
Jean for $46,749 in cash, including acquisition expenses, and
$18,466 in common stock. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 69,363
Cash paid (46,749)
Common stock issued (18,466)
Amount due seller ( 1,800)
--------
Liabilities assumed $ 2,348
========
NOTE 11 - In April 2001, the Financial Accounting Standards Board's
Emerging Issues Task Force reached a consensus on Issue No. 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products." This issue addresses the
recognition, measurement and income statement classification of
consideration from a vendor to a customer in connection with the
customer's purchase or promotion of the vendor's products. While the
impact of this consensus on the Company's consolidated financial
statements is still being evaluated, it is expected to only impact
revenue and expense classifications and not change reported net
income. In accordance with the consensus reached, the Company will
adopt the required accounting beginning in the first quarter of the
year ending March 3, 2003.
In May 2001, the Financial Accounting Standards Board
established a transition provision in association with their review
of accounting standards relating to business combinations previously
issued within the Exposure Drafts, "Business Combinations and
Intangible Assets" in 1999 and subsequently reissued in February
2001 as "Business Combinations and Intangible Assets - Accounting
for Goodwill." Among other rules stated within the transition
provision, non-calendar year end companies with a year end after
December 15, 2001 will be required to continue to amortize goodwill
and other related intangible assets until the beginning of their
fiscal year that begins in 2002. At the transition date, goodwill
will no longer be amortized, but will be tested for impairment
annually, and any impairment charge resulting from the initial
application of the new rules will be classified as a cumulative
change in accounting principle. The Company is currently reviewing
the proposed literature and will assess any potential impact of the
final statement when it is issued in late July 2001.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (unaudited)
RESULTS OF OPERATIONS
---------------------
For the Three Months Ended June 2, 2001:
Net sales increased 11.5% to $135.2 million in the three months ended
June 2, 2001 from $121.3 million in the comparable prior year period. The
increase in sales is due primarily to increased unit volume rather than price
increases. The reported sales reflect an 11.3% increase in the Wholesale segment
to $105.0 million from $94.3 million and a 12.0% increase in the Retail segment
to $30.2 million from $26.9 million. The growth in the Wholesale segment was
driven by sales in certain new product lines, including Earl Jean, Nautica
Childrenswear, John Varvatos and Nautica Women's Jeans and was offset in part by
the discontinuation of the Nautica Sport Tech ("NST") brand. Excluding NST brand
products for the three months of both the current and prior year periods,
Wholesale segment sales would have increased 15.1%. The overall Retail segment
sales increase is primarily a result of sales from twelve new outlet stores and
two full-price stores opened since the first quarter of last year. Same store
sales for the quarter were down slightly from the comparable prior year period,
reflecting the difficult retail environment and reduced customer traffic this
Spring season.
Gross profit for the period was 42.7% compared to 41.3% in the
comparable prior year period. The increase is due primarily to a concerted
effort from the Company's operating teams to better source the products, and the
impact of higher margins on certain new product lines, such as Earl Jean.
Selling, general and administrative expenses ("SG&A") increased by $7.9
million to $55.3 million in Fiscal 2002 from $47.4 million in Fiscal 2001. SG&A
expenses as a percentage of net sales increased to 40.9% in Fiscal 2002 from
39.1% in Fiscal 2001. The increase in the percentage of net sales is principally
due to increased costs associated with the continued construction of the
Company's new distribution facility which, once functional, will reduce the cost
to store, process and ship inventory. Additionally, costs associated with the
introduction of the Company's new icon and integration of new businesses
contributed to the increase.
Net royalty income increased by $.5 million to $2.3 million from $1.8
million in the comparable prior year period. The increase is primarily due to
the recognition of a settlement from the termination of the men's footwear
license. In addition, part of the increase was a result of the strength in men's
fragrance, eyewear and home products. The increase was offset, in part, by the
termination of the childrenswear license, as the Company assumed operations of
the Nautica childrenswear business internally during the current year period.
Investment income decreased to $.3 million from $.6 million in the
comparable prior year period. The decrease is due to lower average cash balances
as a result of the cash paid for the acquisition of Earl Jean. Increased
inventory levels and working capital needs, particularly to support the
Company's new businesses, also contributed to the lower average cash balances.
The provision for income taxes decreased to 37.8% from 38.8% of
earnings before income taxes in the comparable prior year period. The decrease
is due primarily to a reduction in the effective state income tax rates.
Net earnings of $3.2 million were comparable to $3.1 million in the
prior year period as a result of the factors discussed above. Looking ahead, the
Company is refining its expansion strategy in Europe to focus its efforts on
core markets and scale back operations in less profitable countries, the result
of which may be a charge to earnings of approximately $.04 - $.05 per share in
the second quarter of fiscal 2002.
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the three months ended June 2, 2001, the Company generated cash
from operating activities of $8.0 million principally from net earnings. The
increase in inventory of $16.7 million, to support increased sales levels, was
financed principally by cash generated from net earnings and a decrease of $21.4
million in accounts receivable. Accounts receivable was 30.8% higher than the
same period in the prior year due to increased sales from our new businesses and
stores, and the timing of shipments, with a higher percentage occurring in the
last part of the quarter. Inventory was 43.4% higher than the same period in the
prior year due primarily to increased sales and the timing of merchandise
received to support the new businesses and stores. During the three months ended
June 3, 2000, the Company generated cash from operating activities of $25.1
million, principally from net earnings and higher cash receipts from increased
sales in the fourth quarter of the prior year. The increase in inventory of
$13.3 million, to support increased sales levels, was financed principally by
cash generated from net earnings, increases in accounts payable-trade and a
decrease in accounts receivable. Accounts receivable and inventory were higher
than the same period in the prior year by 16.7% and 4.5%, respectively. These
increases were related to sales increases.
During the three months ended June 2, 2001, the Company's principal
investing activities related primarily to the acquisitions of Earl Jean, Inc.
and the Nautica childrenswear business, the purchase of property, plant and
equipment for the Nautica in-store shop program, the continued construction of a
new distribution facility and the completion of a new full-price retail store in
New York's Rockefeller Plaza. The Company expects to continue to incur capital
expenditures to expand the in-store shop program, and to open additional retail
stores. The Company is currently evaluating various financing vehicles for the
new distribution facility. At June 2, 2001, there were no other material
commitments for capital expenditures.
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
June 2, 2001 and March 3, 2001, letters of credit outstanding under the lines
were $95.4 million and $58.6 million, respectively. At June 2, 2001, there was
$35.0 million of short-term borrowings outstanding.
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.
INFLATION AND CURRENCY FLUCTUATIONS
-----------------------------------
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.
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NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In April 2001, the Financial Accounting Standards Board's Emerging
Issues Task Force reached a consensus on Issue No. 00-25, "Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the Vendor's
Products." This issue addresses the recognition, measurement and income
statement classification of consideration from a vendor to a customer in
connection with the customer's purchase or promotion of the vendor's products.
While the impact of this consensus on the Company's consolidated financial
statements is still being evaluated, it is expected to only impact revenue and
expense classifications and not change reported net income. In accordance with
the consensus reached, the Company will adopt the required accounting beginning
in the first quarter of the year ending March 3, 2003.
In May 2001, the Financial Accounting Standards Board established a
transition provision in association with their review of accounting standards
relating to business combinations previously issued within the Exposure Drafts,
"Business Combinations and Intangible Assets" in 1999 and subsequently reissued
in February 2001 as "Business Combinations and Intangible Assets - Accounting
for Goodwill." Among other rules stated within the transition provision,
non-calendar year end companies with a year end after December 15, 2001 will be
required to continue to amortize goodwill and other related intangible assets
until the beginning of their fiscal year that begins in 2002. At the transition
date, goodwill will no longer be amortized, but will be tested for impairment
annually, and any impairment charge resulting from the initial application of
the new rules will be classified as a cumulative change in accounting principle.
The Company is currently reviewing the proposed literature and will assess any
potential impact of the final statement when it is issued in late July 2001.
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 the businesses of the Company and Earl Jean will not
be integrated successfully; the overall level of consumer spending on apparel;
dependence on sales to a limited number of large department store customers;
risks related to extending credit to customers; actions of existing or new
competitors and changes in economic or political conditions in the markets where
the Company sells or sources its products; risks associated with consolidations,
restructuring and other ownership changes in the retail industry; changes in
trends in the market segments in which the Company competes; risks associated
with uncertainty relating to the Company's ability to launch, support and
implement new product lines in the United States and Europe; effects of
competition; changes in the costs of raw materials, labor and advertising; and,
the ability to secure and protect trademarks and other intellectual property
rights. These and other risks and uncertainties are disclosed from time to time
in the Company's filings with the Securities and Exchange Commission. The
Company assumes no obligation to update any forward-looking statements as a
result of new information or future events or developments.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure about interest rate risk
The Company has no long-term debt, and finances capital needs through
available capital, future earnings and bank lines of credit. The Company's
exposure to market risk for changes in interest rates are primarily in its
investment portfolio and short-term borrowings. The Company, pursuant to
investing guidelines, mitigates exposure by limiting maturity, placing
investments with high credit quality issuers and limiting the amount of credit
exposure to any one issuer. During the three months ended June 2, 2001, the
Company earned investment income of $.3 million. If interest rates had been 1%
lower than they were during the period, investment income would have been $.1
million lower. The market risks associated with the investment portfolio
exposure have not changed materially since March 3, 2001.
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PART II
OTHER INFORMATION
Items 1 through 9. - All items are inapplicable except:
Item 2. Changes in Securities and Use of Proceeds
On April 30, 2001, the Company, through a wholly-owned
subsidiary, acquired substantially all of the assets and assumed
certain of the liabilities of Earl Jean, Inc. for a combination of cash
consideration of $45,000,000, 1,122,271 shares of restricted common
stock of the Company, a working capital adjustment of approximately
$1,800,000 and up to $21,000,000 in contingent payments if certain
performance targets are met between fiscal 2003 and 2012. The issuance
of such shares was exempt from registration pursuant to the Company's
reliance upon Rule 506 of Regulation D and/or Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit No. Distribution
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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 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 by
reference from the Registrant's Quarterly Report on Form 10-Q
for the quarter ended May 31, 1996.
10(iii)(a) Registrant's Executive Incentive Stock Option Plan is
incorporated by reference herein from the Registrant's
Registration Statements on Form S-8 (Registration Number
33-1488), as amended by the Company's Registration Statement
on Form S-8 (Registration Number 33-45823).
10(iii)(b) Registrant's 1989 Employee Incentive Stock Plan is
incorporated by reference herein from the Registrant's
Registration Statement on Form S-8 (Registration Number
33-36040).
10(iii)(c) Registrant's 1996 Stock Incentive Plan is incorporated by
reference herein from Registrant's Registration Statement
on Form S-8 (Registration Number 333-55711).
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10(iii)(d) Registrant's 1994 Incentive Compensation Plan is incorporated
herein 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.
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.
(b) Reports on Form 8-K.
During the quarter ended June 2, 2001, the Company filed a
Current Report on Form 8-K dated April 30, 2001, in which the
Company announced the acquisition, through a wholly-owned
subsidiary, of substantially all of the assets of Earl Jean,
Inc.
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\ 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 20, 2001
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By: s/ Wayne A. Marino
-----------------------------
Wayne A. Marino
Chief Financial Officer
Date: July 20, 2001
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