SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant To Section 13 or 15(d) of
| x | Quarterly Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the quarterly period endedAUGUST 27, NOVEMBER 26, 2004
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) ofThe Securities Exchange Act of 1934OR
| ¨ | Transition Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the transition period from_________ to________fromto
Commission File Number 1-4365
OXFORD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or (I.R.S. Employer Identification number) 222 Piedmont Avenue, N.E., Atlanta, Georgia 30308 (Address of principal executive Georgia 58-0831862 Georgia
organization) 58-0831862offices)(Zip Code)
(404) 659-2424 (Registrant’s telephone number, including area code)
Not Applicable (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 ]x No [ ]¨
Indicate by check mark whether the registrant is an accelerated filer (asas defined in rule 12b-2 of the Exchange Act Rule 12b-2).
Act. Yes [ X ]x No [ ]¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of each class | Number of shares outstanding as of January 3, 2005 | |
Common Stock, $1 par value | 16,831,818 |
OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For quarter ended November 26, 2004
| Page | |||||
PART I.FINANCIAL INFORMATION | |||||
Table of contents
OXFORD INDUSTRIES, INC.INDEX TO FORM 10-QAugust 27, 2004
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 22 | ||||
| 33 | ||||
| 35 | ||||
PART II.OTHER INFORMATION | ||||
Item | 35 | |||
Item 2.Unregistered Sale of Equity Securities and Use of Proceeds | ||||
Item 3. | 35 | |||
Item 4. | 36 | |||
Item 5. | 36 | |||
| 36 | ||||
| 37 | ||||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.STATEMENTS
OXFORD INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Quarters Ended August 27, 2004 August 29, 2003 ($ in thousands except share and per share amounts) $ 264,790 $ 242,105 Cost of goods sold 179,868 171,214
84,922 70,891 Selling, general and administrative 67,554 53,612 Amortization of intangible assets 1,712 1,678
69,266 55,290 Royalties and other operating income 1,753 1,180
17,409 16,781 Interest expense, net 7,921 5,746
9,488 11,035 Income taxes 3,320 4,193
$ 6,168 $ 6,842
Basic earnings per common share $ 0.37 $ 0.44 Diluted earnings per common share $ 0.36 $ 0.42 Basic shares outstanding 16,712,800 15,819,780 Diluted shares outstanding 17,203,323 16,219,846 Dividends per share $ 0.12 $ 0.105
| Quarters Ended | Six Months Ended | |||||||||||
| November 26, 2004 | November 28, 2003 | November 26, 2004 | November 28, 2003 | |||||||||
| ($ in thousands except per share amounts) | ||||||||||||
Net Sales | $ | 312,869 | $ | 253,883 | $ | 577,659 | $ | 495,988 | ||||
Cost of goods sold | 212,766 | 177,051 | 392,634 | 348,265 | ||||||||
Gross Profit | 100,103 | 76,832 | 185,025 | 147,723 | ||||||||
Selling, general and administrative | 80,169 | 59,249 | 147,723 | 112,861 | ||||||||
Amortization of intangibles | 2,424 | 1,677 | 4,136 | 3,355 | ||||||||
| 82,593 | 60,926 | 151,859 | 116,216 | |||||||||
Royalties and other operating income | 3,301 | 1,140 | 5,054 | 2,320 | ||||||||
Operating Income | 20,811 | 17,046 | 38,220 | 33,827 | ||||||||
Interest expense, net | 6,855 | 6,098 | 14,776 | 11,844 | ||||||||
Earnings Before Income Taxes | 13,956 | 10,948 | 23,444 | 21,983 | ||||||||
Income taxes | 4,884 | 4,108 | 8,204 | 8,301 | ||||||||
Net Earnings | $ | 9,072 | $ | 6,840 | $ | 15,240 | $ | 13,682 | ||||
Basic Earnings Per Share | $ | 0.54 | $ | 0.43 | $ | 0.91 | $ | 0.86 | ||||
Diluted Earnings Per Share | $ | 0.53 | $ | 0.41 | $ | 0.89 | $ | 0.83 | ||||
Basic Weighted Average Shares Outstanding | 16,761,159 | 16,170,814 | 16,736,873 | 15,994,443 | ||||||||
Diluted Weighted Average Shares Outstanding | 17,215,771 | 16,605,400 | 17,216,546 | 16,452,738 | ||||||||
Dividends Declared Per Share | $ | 0.12 | $ | 0.105 | $ | 0.24 | $ | 0.21 | ||||
See notes to consolidated financial statements.
3
OXFORD INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED EXCEPT FOR MAY 28, 2004) August 27, 2004 May 28, 2004 August 29, 2003 ($ in thousands) Current Assets: Cash and cash equivalents $ 11,526 $ 47,569 $ 17,370 Receivables 160,485 176,367 134,445 Inventories 143,142 116,410 117,846 Prepaid expenses 19,093 16,475 19,346
Total Current Assets 334,246 356,821 289,007 Property, plant and equipment, net 54,745 51,826 50,677 Goodwill 158,304 115,426 88,095 Intangible assets, net 242,120 147,333 152,365 Other assets, net 24,845 23,411 21,940
$ 814,260 $ 694,817 $ 602,084
Current Liabilities: Notes payable $ 111,924 $ — $ 10,000 Trade accounts payable 84,811 100,813 66,265 Accrued compensation 18,787 33,113 15,182 Additional acquisition cost payable — 22,779 — Other accrued expenses 37,646 30,440 31,234 Dividends payable 1,950 1,946 1,694 Income taxes payable 5,318 4,294 5,181 Current maturities of long-term debt 126 98 214
Total Current Liabilities 260,562 193,483 129,770 Notes payable 198,804 198,760 198,626 Other long-term debt, less current maturities 91 54 117 Noncurrent liabilities 12,798 11,124 9,573 Deferred income taxes 80,663 52,419 53,680 Shareholders’ Equity: Common stock 16,756 16,215 16,152 Additional paid-in capital 42,266 23,673 22,360 Retained earnings 202,320 199,089 171,806
Total Shareholders’ Equity 261,342 238,977 210,318
$ 814,260 $ 694,817 $ 602,084
| November 26, 2004 | May 28, 2004 | November 28, 2003 | |||||||
| ($ in thousands) | |||||||||
Assets | |||||||||
Current Assets: | |||||||||
Cash and cash equivalents | $ | 19,414 | $ | 47,569 | $ | 5,499 | |||
Receivables | 175,053 | 176,367 | 135,794 | ||||||
Inventories | 161,832 | 116,410 | 127,437 | ||||||
Prepaid expenses | 17,817 | 16,475 | 19,978 | ||||||
Total current assets | 374,116 | 356,821 | 288,708 | ||||||
Property, plant and equipment, net | 55,431 | 51,826 | 51,421 | ||||||
Goodwill | 165,650 | 115,426 | 92,761 | ||||||
Intangibles, net | 239,698 | 147,333 | 150,687 | ||||||
Other noncurrent assets, net | 24,657 | 23,411 | 22,025 | ||||||
Total Assets | $ | 859,552 | $ | 694,817 | $ | 605,602 | |||
Liabilities and Shareholders’ Equity | |||||||||
Current Liabilities: | |||||||||
Trade accounts payable | $ | 96,595 | $ | 100,813 | $ | 72,184 | |||
Accrued compensation | 22,027 | 33,113 | 19,648 | ||||||
Additional acquisition cost payable | — | 22,779 | — | ||||||
Other accrued expenses | 45,495 | 30,440 | 34,007 | ||||||
Dividends payable | 2,013 | 1,946 | 1,700 | ||||||
Income taxes payable | 1,555 | 4,294 | 99 | ||||||
Short-term debt | 6,973 | 98 | 97 | ||||||
Total current liabilities | 174,658 | 193,483 | 127,735 | ||||||
Long-term debt, less current maturities | 315,608 | 198,814 | 198,764 | ||||||
Other noncurrent liabilities | 13,665 | 11,124 | 10,177 | ||||||
Deferred income taxes | 79,754 | 52,419 | 52,676 | ||||||
Shareholders’ Equity: | |||||||||
Common stock | 16,778 | 16,215 | 16,190 | ||||||
Additional paid-in capital | 42,709 | 23,673 | 23,115 | ||||||
Retained earnings | 216,380 | 199,089 | 176,945 | ||||||
Total Shareholders’ Equity | 275,867 | 238,977 | 216,250 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 859,552 | $ | 694,817 | $ | 605,602 | |||
See notes to consolidated financial statements.
4
OXFORD INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Quarters Ended August 27, 2004 August 29, 2003 ($ in thousands) Net earnings $ 6,168 $ 6,842 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation 3,037 2,357 Amortization of intangible assets 1,712 1,678 Amortization of deferred financing costs and bond discount 2,459 619 Loss (gain) on the sale of assets 348 (115 ) Equity income (323 ) (105 ) Deferred income taxes (2,175 ) (843 ) Changes in working capital: Receivables 40,659 5,453 Inventories (823 ) 14,857 Prepaid expenses 1,669 (777 ) Trade accounts payable (21,022 ) (16,320 ) Accrued expenses and other current liabilities (21,488 ) (12,726 ) Stock options income tax benefit 587 1,328 Income taxes payable 1,020 1,766 Other noncurrent assets (1,410 ) (2,351 ) Other noncurrent liabilities 1,674 3,949
12,092 5,612 Acquisition, net of cash acquired (139,626 ) (218,429 ) Decrease in restricted cash — 204,986 Investment in deferred compensation plan 391 (1,356 ) Purchases of property, plant and equipment (2,488 ) (3,171 ) Proceeds from sale of property, plant and equipment 10 105
(141,713 ) (17,865 ) Proceeds from short-term debt 97,592 10,000 Payments of long-term debt 65 (31 ) Payments of debt issuance costs (2,766 ) (7,335 ) Proceeds from issuance of common stock 666 4,477 Dividends on common stock (1,946 ) (1,579 )
93,611 5,532
Effect of foreign currency translation on cash and cash equivalents (33 ) — Net change in cash and cash equivalents (36,010 ) (6,721 ) Cash and cash equivalents at the beginning of year 47,569 24,091
Cash and cash equivalents at the end of period $ 11,526 $ 17,370
| Six Months Ended | ||||||||
| November 26, 2004 | November 28, 2003 | |||||||
| ($ in thousands) | ||||||||
Cash Flows from Operating Activities | ||||||||
Net earnings | $ | 15,240 | $ | 13,682 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 6,305 | 5,183 | ||||||
Amortization of intangible assets | 4,136 | 3,355 | ||||||
Amortization of deferred financing costs and bond discount | 3,118 | 1,289 | ||||||
Gain on the sale of assets | (106 | ) | (207 | ) | ||||
Equity income | (323 | ) | (105 | ) | ||||
Deferred income taxes | (3,333 | ) | (964 | ) | ||||
Changes in working capital: | ||||||||
Receivables | 25,241 | 4,105 | ||||||
Inventories | (18,703 | ) | 5,266 | |||||
Prepaid expenses | 1,900 | (2,091 | ) | |||||
Trade accounts payable | (9,352 | ) | (10,401 | ) | ||||
Accrued expenses and other current liabilities | (8,888 | ) | (5,487 | ) | ||||
Stock options income tax benefit | 965 | 1,641 | ||||||
Income taxes payable | (2,852 | ) | (3,316 | ) | ||||
Other noncurrent assets | (1,181 | ) | (3,215 | ) | ||||
Other noncurrent liabilities | 2,541 | 4,553 | ||||||
Net cash provided by operating activities | 14,708 | 13,288 | ||||||
Cash Flows from Investing Activities | ||||||||
Acquisition, net of cash acquired | (139,814 | ) | (222,370 | ) | ||||
Decrease in restricted cash | — | 204,986 | ||||||
Investment in deferred compensation plan | (593 | ) | (1,439 | ) | ||||
Purchases of property, plant and equipment | (6,508 | ) | (7,266 | ) | ||||
Proceeds from sale of property, plant and equipment | 413 | 72 | ||||||
Net cash used in investing activities | (146,502 | ) | (26,017 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Payments of short-term debt | (7,555 | ) | — | |||||
Proceeds from (payments of) long-term debt | 116,693 | (172 | ) | |||||
Payments of debt issuance costs | (2,766 | ) | (7,374 | ) | ||||
Proceeds from issuance of common shares | 752 | 4,956 | ||||||
Dividends paid on common shares | (3,896 | ) | (3,273 | ) | ||||
Net cash provided by (used in) financing activities | 103,228 | (5,863 | ) | |||||
Net change in cash and cash equivalents | (28,566 | ) | (18,592 | ) | ||||
Effect of foreign currency translation on cash and cash equivalents | 411 | — | ||||||
Cash and cash equivalents at the beginning of period | 47,569 | 24,091 | ||||||
Cash and cash equivalents at the end of period | $ | 19,414 | $ | 5,499 | ||||
Supplemental schedule of noncash investing and financing activities:
As of November 26, 2004, approximately $6.9 million of the Ben Sherman acquisition has been financed through the Seller Notes, as discussed in Note 5.
See notes to consolidated financial statements.
5
OXFORD INDUSTRIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED NOVEMBER 26, 2004AUGUST 27,
| 1. |
Our accounting policies applied during the interim periods presented are consistent with the accounting policies as described in our Fiscal 2004 Form 10-K.
Certain amounts in the prior periods’ financial statements have been reclassified to conform to the current year’s presentation.
| 2. | ||||
| Inventories:The components of inventories are summarized as follows: | ||||
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands) | ||||||||
| Finished goods | $ | 116,108 | $ | 89,335 | ||||
| Work in process | 7,690 | 8,905 | ||||||
| Fabric, trim and supplies | 19,344 | 19,606 | ||||||
| Total | $ | 143,142 | $ | 117,846 | ||||
| Nov. 26, 2004 | May 28, 2004 | Nov. 28, 2003 | |||||||
| ($ in thousands) | |||||||||
Finished goods | $ | 128,680 | $ | 85,492 | $ | 91,979 | |||
Work in process | 9,539 | 9,925 | 11,645 | ||||||
Fabric, trim and supplies | 23,613 | 20,993 | 23,813 | ||||||
| �� | |||||||||
Total | $ | 161,832 | $ | 116,410 | $ | 127,437 | |||
| Intangibles at cost | Accumulated amortization | Intangibles, net | |||||||
| ($ in thousands) | |||||||||
Trademarks | $ | 210,378 | $ | 349 | $ | 210,029 | |||
License agreements | 20,683 | 5,092 | 15,591 | ||||||
Customer relationships | 19,500 | 5,708 | 13,792 | ||||||
Covenant not to compete | 460 | 174 | 286 | ||||||
Total | $ | 251,021 | $ | 11,323 | $ | 239,698 | |||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ENDED NOVEMBER 26, 2004
| 4. | Acquisitions:On July 30, 2004, we acquired 100% of the capital stock of Ben Sherman Limited (“Ben Sherman”), which we operate as part of our Menswear Group. Ben Sherman is a London-based designer, distributor and marketer of branded sportswear, accessories, and footwear. The purchase price for Ben Sherman was £80 million, or approximately $145 million, plus associated expenses of approximately $3.0 million. The transaction was financed with cash on hand and borrowings under our senior revolving credit facility and unsecured notes payable to the management shareholders of Ben Sherman, both as described in Note 5. |
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition for Ben Sherman. The purchase price allocation will be finalized upon finalization of certain preliminary estimates.
| ($ in thousands) | ||||
Total purchase price | $ | 148,882 | ||
Cash | $ | 7,656 | ||
Accounts receivable | 25,637 | |||
Inventories | 26,053 | |||
Other current assets | 2,841 | |||
Goodwill | 44,982 | |||
Intangibles | 96,500 | |||
Property, plant and equipment | 3,765 | |||
Current liabilities | (29,602 | ) | ||
Deferred taxes | (28,950 | ) | ||
Fair value of net assets acquired | $ | 148,882 | ||
The components of the Intangibles listed in the above table are as follows:
| Amount | Life | ||||
| ($ in thousands) | |||||
Trademarks | $ | 82,000 | Indefinite | ||
License agreements | 11,700 | 4-8 years | |||
Customer relationships | 2,800 | 15 years | |||
Total | $ | 96,500 | |||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ENDED NOVEMBER 26, 2004
| 4. | Acquisitions (continued): |
On June 13, 2003, we acquired all of the capital stock of Viewpoint International, Inc., which we operate as the Tommy Bahama Group. The purchase price for the Tommy Bahama Group could be up to $325 million, consisting of $240 million in cash at closing, $10 million in our common stock (776,400 shares), approximately $3.4 million in transaction costs, and up to $75 million in contingent payments, subject to the Tommy Bahama Group achieving certain performance targets. Such performance targets are based on earnings before interest and taxes after deduction of a capital charge based on net tangible assets.
For each of the four years following the acquisition, the selling stockholders of the Tommy Bahama Group will receive an annual basic contingent payment if the Tommy Bahama Group’s earnings are greater than 90% of the applicable target and will receive the maximum annual basic contingent payment of $12.5 million if the Tommy Bahama Group’s earnings are 100% or greater than the applicable target. If the Tommy Bahama Group’s earnings are between 90% and 100% of the applicable target, the annual basic contingent payment will be calculated on a straight line basis from $0 to $12.5 million. Up to 50% of any annual basic contingent payment may be paid in shares of our common stock at our option, and in the case of payments in the first two years, at the option of the selling stockholders of the Tommy Bahama Group. Shares of our common stock issued at our option will be valued at the average price on the New York Stock Exchange (or other applicable exchange) for the ten full trading days prior to the applicable payment date. Shares of our common stock issued at the option of the selling stockholders will be valued at $12.88 per share.
All earnout payments to be paid to selling stockholders will be treated as additional purchase price and recorded as goodwill. Approximately 5% of the total value of all consideration that becomes due and payable under the earnout agreement has been designated to be paid toward an Employee Cash Bonus Plan to be distributed to employees of the Tommy Bahama Group under the terms of the plan. The earnout payments designated toward the Employee Cash Bonus Plan are charged to selling, general and administrative expense.
Additionally, if, at the end of the four year period, cumulative earnings exceed the cumulative targets, the selling stockholders will receive 33.33% of the cumulative excess up to a maximum cumulative additional contingent payment of $25.0 million. Any cumulative additional contingent payment will be paid in cash.
The Year 1 contingent payment was earned in full and was paid during the first quarter of fiscal 2005 in the form of approximately $6.2 million in cash and the remainder in our common stock valued at $12.88 per share for total consideration of approximately $24.6 million. Of this amount approximately $23.4 million was recognized as goodwill with the remainder recognized as selling, general and administrative expense.
OXFORD INDUSTRIES, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ENDED NOVEMBER 26, 2004
| 4. | Acquisitions (continued): |
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition for the Tommy Bahama Group.
| ($ in thousands) | ||||
Total purchase price | $ | 278,419 | ||
Cash | $ | 22,145 | ||
Accounts receivable | 29,521 | |||
Inventories | 27,697 | |||
Other current assets | 6,015 | |||
Goodwill | 110,164 | |||
Intangibles | 153,360 | |||
Property, plant and equipment | 28,087 | |||
Other assets | 2,470 | |||
Current liabilities | (45,626 | ) | ||
Noncurrent liabilities | (1,253 | ) | ||
Deferred taxes | (54,161 | ) | ||
Fair value of net assets acquired | $ | 278,419 | ||
These acquisitions helped us achieve one of our key strategic objectives of owning major lifestyle brands. The acquisitions provide strategic benefits through growth opportunities and further diversification of our business over distribution channels, price points, product categories and target customers. The results of operations of Ben Sherman and the Tommy Bahama Group are included in our consolidated statements of earnings from the respective dates of the acquisition.
Pro-Forma financial information:
The pro forma financial information presented below gives effect to the Ben Sherman acquisition as if it had occurred as of the beginning of fiscal 2005 and fiscal 2004 and the Tommy Bahama acquisition as if it had occurred as of the beginning of fiscal 2004. The information presented below is for illustrative purposes only and is not indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of fiscal 2005 and 2004 or results which may be achieved in the future.
| Quarters Ended | Six Months Ended | |||||||||||
| Nov. 26, 2004 | Nov. 28, 2003 | Nov. 26, 2004 | Nov. 28, 2003 | |||||||||
| ($ in thousands except per share amounts) | ||||||||||||
Net sales | $ | 312,869 | $ | 297,161 | $ | 608,139 | $ | 587,881 | ||||
Net earnings | $ | 9,072 | $ | 9,267 | $ | 18,024 | $ | 18,687 | ||||
Net earnings per share | ||||||||||||
Basic | $ | 0.54 | $ | 0.58 | $ | 1.08 | $ | 1.16 | ||||
Diluted | $ | 0.53 | $ | 0.56 | $ | 1.05 | $ | 1.13 | ||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ENDED NOVEMBER 26, 2004
| 5. | Debt:The following table details our debt as of the dates specified: |
| November 26, 2004 | May 28, 2004 | November 28, 2003 | |||||||
| ($ in thousands) | |||||||||
$280 million U.S. Secured Revolving Credit Facility (“U.S. Revolver”), which accrues interest and letter of credit fees based upon a pricing grid which is tied to certain debt ratios (4.27% at November 26, 2004), requires interest payments monthly with principal due at maturity (July 2009), and is collateralized by substantially all the assets of the Company and Guarantor Subsidiaries (1) | $ | 116,700 | $ | — | $ | — | |||
12 million Pounds Sterling Senior Secured Revolving Credit Facility (“U.K. Revolver”), which accrues interest at the lender’s prime rate plus 1.2%, requires interest payments monthly with principal payable on demand, and is collateralized by substantially all the United Kingdom assets of Ben Sherman (2) | — | — | — | ||||||
$200 million Senior Unsecured Notes (“Senior Unsecured Notes”), which accrue interest at 8.875% and require interest payments semiannually with principal due at maturity (June 2011) (3) | 198,849 | 198,760 | 198,671 | ||||||
Unsecured Seller Notes (“Seller Notes”), which accrue interest at LIBOR plus 1.2% (6.55% at November 26, 2004), and require interest payments quarterly with principal payable on demand after January 30, 2005 (2) | 6,887 | — | — | ||||||
Other debt, including capital lease obligations with varying terms and conditions, collateralized by the respective assets | 145 | 152 | 190 | ||||||
Total Debt | 322,581 | 198,912 | 198,861 | ||||||
Short-term Debt | 6,973 | 98 | 97 | ||||||
Total Long-term Debt | 315,608 | 198,814 | 198,764 | ||||||
| (1) | On July 28, 2004, the U.S. Revolver was amended to increase the amount of the line of credit from $275 million to $280 million and to adjust the amounts that certain lenders were committed to loan along with other changes. At the time of this amendment, approximately $1.8 million of unamortized deferred financing costs |
| (2) | The U.K. Revolver and Seller Notes, both denominated in pounds sterling, were entered into on July 30, 2004, in conjunction with the Ben Sherman acquisition. |
| (3) | The Senior Unsecured Notes were sold on May 16, 2003 at a discount of 0.713% ($1.4 million) in connection with |
6The U.S. Revolver, the U.K. Revolver and the Senior Unsecured Notes each include certain debt covenant restrictions that require us or our subsidiaries to maintain certain financial ratios that are customary for similar facilities. On and as of November 26, 2004 we were compliant with all debt covenant restrictions related to all debt agreements.
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
Intangible assets by category are summarized below:
| Accumulated | ||||||||||||
| Intangibles | Intangibles at cost | amortization | Intangibles, net | |||||||||
| ($ in thousands) | ||||||||||||
| Trademarks | $ | 210,233 | $ | 666 | $ | 209,567 | ||||||
| License agreements | 20,349 | 2,638 | 17,711 | |||||||||
| Customer relationships | 19,500 | 4,939 | 14,561 | |||||||||
| Covenant not to compete | 460 | 179 | 281 | |||||||||
| Total | $ | 250,542 | $ | 8,422 | $ | 242,120 | ||||||
| Quarters Ended | ||||||||
| August 27, 2004 | August. 29, 2003 | |||||||
| ($ in thousands except per share amounts) | ||||||||
| Net earnings as reported | $ | 6,168 | $ | 6,842 | ||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (209 | ) | (91 | ) | ||||
| Pro forma net earnings | $ | 5,959 | $ | 6,751 | ||||
| Basic earnings per common share as reported | $ | 0.37 | $ | 0.44 | ||||
| Pro forma basic earnings per common share | $ | 0.36 | $ | 0.43 | ||||
| Diluted earnings per common share as reported | $ | 0.36 | $ | 0.42 | ||||
| Pro forma diluted earnings per common share | $ | 0.35 | $ | 0.42 | ||||
| Quarters Ended | Six Months Ended | |||||||||||||||
| Nov. 26, 2004 | Nov. 28, 2003 | Nov. 26, 2004 | Nov 28. 2003 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
Net earnings as reported | $ | 9,072 | $ | 6,840 | $ | 15,240 | $ | 13,682 | ||||||||
Deduct: Employee compensation expense, net of related tax effects | (209 | ) | (137 | ) | (418 | ) | (228 | ) | ||||||||
Pro forma net earnings | $ | 8,863 | $ | 6,703 | $ | 14,822 | $ | 13,454 | ||||||||
Basic earnings per share as reported | $ | 0.54 | $ | 0.43 | $ | 0.91 | $ | 0.86 | ||||||||
Pro forma basic earnings per share | $ | 0.53 | $ | 0.41 | $ | 0.89 | $ | 0.84 | ||||||||
Diluted earnings per share as reported | $ | 0.53 | $ | 0.41 | $ | 0.89 | $ | 0.83 | ||||||||
Pro forma diluted earnings per share | $ | 0.51 | $ | 0.40 | $ | 0.86 | $ | 0.82 | ||||||||
| Quarters Ended | Six Months Ended | |||||||||||
Nov. 26, 2004 | Nov. 28, 2003 | Nov. 26, 2004 | Nov. 28, 2003 | |||||||||
| ($ in thousands) | ||||||||||||
Basic and diluted earnings available to shareholders (numerator): | $ | 9,072 | $ | 6,840 | $ | 15,240 | $ | 13,682 | ||||
Shares (denominator): | ||||||||||||
Weighted average shares outstanding | 16,761,159 | 16,170,814 | 16,736,873 | 15,994,443 | ||||||||
Dilutive securities: | ||||||||||||
Options | 454,612 | 434,586 | 479,673 | 458,295 | ||||||||
Total assuming conversion | 17,215,771 | 16,605,400 | 17,216,546 | 16,452,738 | ||||||||
Per share amounts: | ||||||||||||
Basic earnings per common share | $ | 0.54 | $ | 0.43 | $ | 0.91 | $ | 0.86 | ||||
Diluted earnings per common share | $ | 0.53 | $ | 0.41 | $ | 0.89 | $ | 0.83 | ||||
7
We effected a two-for-one share split in the form of a 100% stock dividend, payable December 1, 2003, to shareholders of record on November 17, 2003. All share and per share data appearing in the consolidated financial statements and related notes reflect this stock split.
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| Shareholders’ Equity (continued): |
Accumulated other comprehensive income of $7.0 million and $6.0 million for the quarter and six months ended November 26, 2004 is comprised of the effects of foreign currency translation gains (loss), net of income taxes of $2.1 million and $1.8 million respectively which is included as a component of retained earnings in the condensed consolidated balance sheet. Comprehensive income for the quarter and six months ended November 26, 2004 was $16.1 million and $21.3 million, respectively. Net earnings and comprehensive income were equivalent for all other periods.
| 7. | Segment Information:We organize the components of our business for purposes of allocating resources and assessing performance. Our reportable segments are the Menswear Group, the Womenswear Group and the Tommy Bahama Group. The Menswear Group produces |
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands) | ||||||||
Net Sales | ||||||||
| Menswear Group | $ | 118,705 | $ | 115,754 | ||||
| Womenswear Group | 52,458 | 62,953 | ||||||
| Tommy Bahama Group | 93,462 | 63,278 | ||||||
| Corporate and Other | 165 | 120 | ||||||
Total | $ | 264,790 | $ | 242,105 | ||||
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands) | ||||||||
Depreciation and intangible amortization | ||||||||
| Menswear Group | $ | 1,137 | $ | 912 | ||||
| Womenswear Group | 65 | 199 | ||||||
| Tommy Bahama Group | 3,444 | 2,778 | ||||||
| Corporate and Other | 102 | 146 | ||||||
Total | $ | 4,748 | $ | 4,035 | ||||
Operating Income | ||||||||
| Menswear Group | $ | 8,921 | $ | 9,475 | ||||
| Womenswear Group | (966 | ) | 3,224 | |||||
| Tommy Bahama Group | 11,916 | 6,959 | ||||||
| Corporate and Other | (2,462 | ) | (2,877 | ) | ||||
Total | $ | 17,409 | $ | 16,781 | ||||
| Interest expense, net | 7,921 | 5,746 | ||||||
| Earnings before taxes | $ | 9,488 | $ | 11,035 | ||||
| Quarters Ended | Six Months Ended | |||||||||||
| ($ in thousands) | ||||||||||||
| November 26, 2004 | November 28, 2003 | November 26, 2004 | November 28, 2003 | |||||||||
Net Sales | ||||||||||||
Menswear Group | $ | 181,088 | $ | 115,353 | $ | 299,793 | $ | 231,107 | ||||
Womenswear Group | 45,097 | 61,841 | 97,555 | 124,794 | ||||||||
Tommy Bahama Group | 86,490 | 76,389 | 179,952 | 139,667 | ||||||||
Corporate and Other | 194 | 300 | 359 | 420 | ||||||||
Total | $ | 312,869 | $ | 253,883 | $ | 577,659 | $ | 495,988 | ||||
8
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| 7. | Segment Information (continued): |
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands) | ||||||||
Assets | ||||||||
| Menswear Group | $ | 380,858 | $ | 191,203 | ||||
| Womenswear Group | 63,632 | 66,812 | ||||||
| Tommy Bahama Group | 376,254 | 330,044 | ||||||
| Corporate and Other | (6,484 | ) | 14,025 | |||||
Total | $ | 814,260 | $ | 602,084 | ||||
Purchase of property, plant and equipment | ||||||||
| Menswear Group | $ | 276 | $ | 739 | ||||
| Womenswear Group | 10 | 9 | ||||||
| Tommy Bahama Group | 2,147 | 2,413 | ||||||
| Corporate and Other | 55 | 10 | ||||||
Total | $ | 2,488 | $ | 3,171 | ||||
| Quarters Ended | Six Months Ended | |||||||||||||||
| ($ in thousands) | ||||||||||||||||
| November 26, 2004 | November 28, 2003 | November 26, 2004 | November 28, 2003 | |||||||||||||
Depreciation and amortization | ||||||||||||||||
Menswear Group | $ | 1,892 | $ | 899 | $ | 3,029 | $ | 1,811 | ||||||||
Womenswear Group | 65 | 83 | 130 | 282 | ||||||||||||
Tommy Bahama Group | 3,646 | 3,402 | 7,090 | 6,180 | ||||||||||||
Corporate and Other | 90 | 789 | 192 | 265 | ||||||||||||
Total | $ | 5,693 | $ | 5,173 | $ | 10,441 | $ | 8,538 | ||||||||
Operating Income | ||||||||||||||||
Menswear Group | $ | 18,048 | $ | 10,221 | $ | 26,969 | $ | 19,696 | ||||||||
Womenswear Group | 208 | 1,893 | (758 | ) | 5,117 | |||||||||||
Tommy Bahama Group | 5,895 | 7,550 | 17,811 | 14,509 | ||||||||||||
Corporate and Other | (3,340 | ) | (2,618 | ) | (5,802 | ) | (5,495 | ) | ||||||||
Total | $ | 20,811 | $ | 17,046 | $ | 38,220 | $ | 33,827 | ||||||||
Interest expense, net | 6,855 | 6,098 | 14,776 | 11,844 | ||||||||||||
Earnings before taxes | $ | 13,956 | $ | 10,948 | $ | 23,444 | $ | 21,983 | ||||||||
| November 26, 2004 |
May 28, 2004 | November 28, 2003 | ||||||||||||||
| ($ in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Menswear Group | $ | 405,010 | $ | 171,718 | $ | 177,109 | ||||||||||
Womenswear Group | 71,170 | 95,866 | 73,072 | |||||||||||||
Tommy Bahama Group | 386,396 | 390,961 | 349,293 | |||||||||||||
Corporate and Other | (3,024 | ) | 36,272 | 6,128 | ||||||||||||
Total | $ | 859,552 | $ | 694,817 | $ | 605,602 | ||||||||||
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands except share and per share amounts) | ||||||||
| Basic and diluted earnings available to stockholders (numerator): | $ | 6,168 | $ | 6,842 | ||||
| Shares (denominator): | ||||||||
| Weighted average shares outstanding | 16,712,800 | 15,819,780 | ||||||
| Dilutive securities: | ||||||||
| Options | 490,523 | 399,866 | ||||||
| Total assuming exercise | 17,203,323 | 16,219,646 | ||||||
| Per share amounts: | ||||||||
| Basic earnings per common share | $ | 0.37 | $ | 0.44 | ||||
| Diluted earnings per common share | $ | 0.36 | $ | 0.42 | ||||
9
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| New Accounting Standards:In November 2004, the Financial Accounting Standards Board, or FASB issued FASB Statement No. 151 “Inventory Costs, an Amendment of ARB No. 43 Chapter 4” (“FAS 151”). FAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. FAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. We do not believe the adoption of the standard will have a material impact on us upon adoption in fiscal 2006 as we have historically expensed such costs as incurred. |
In December 2004, the FASB issued FASB Statement No. 123 (Revised 2004) “Share-Based Payment: an Amendment of FASB Statements No. 123 and 95” (“FAS 123R”). FAS 123R is applicable for all interim and fiscal periods beginning after June 15, 2005. Therefore, we will adopt it during fiscal 2006. FAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. We are currently evaluating the impact that this statement will have on our results of operations.
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTER ENDED NOVEMBER 26, 2004
| 9. | ||||
10
November 26, 2004
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
Assets | ||||||||||||||||||
Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 7,918 | $ | 2,396 | $ | 9,099 | $ | 1 | $ | 19,414 | ||||||||
Receivables | 89,604 | 60,794 | 66,712 | (42,057 | ) | 175,053 | ||||||||||||
Inventories | 87,550 | 57,218 | 17,411 | (347 | ) | 161,832 | ||||||||||||
Prepaid expenses | 7,891 | 6,157 | 3,769 | — | 17,817 | |||||||||||||
Total current assets | 192,963 | 126,565 | 96,991 | (42,403 | ) | 374,116 | ||||||||||||
Property, plant and equipment, net | 12,822 | 34,895 | 7,714 | — | 55,431 | |||||||||||||
Goodwill | 1,847 | 114,156 | 49,647 | — | 165,650 | |||||||||||||
Intangibles, net | 230 | 144,176 | 95,292 | — | 239,698 | |||||||||||||
Other assets net | 557,418 | 149,833 | 1,369 | (683,963 | ) | 24,657 | ||||||||||||
Total Assets | $ | 765,280 | $ | 569,625 | $ | 251,013 | $ | (726,366 | ) | $ | 859,552 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||
Trade accounts payable | $ | 86,544 | $ | 34,636 | $ | 14,945 | $ | (39,530 | ) | $ | 96,595 | |||||||
Accrued compensation | 11,017 | 6,720 | 4,290 | — | 22,027 | |||||||||||||
Other accrued expenses | 19,793 | 12,494 | 15,907 | (2,699 | ) | 45,495 | ||||||||||||
Dividends payable | 2,013 | — | — | — | 2,013 | |||||||||||||
Income taxes payable | (14,813 | ) | 12,298 | 4,070 | — | 1,555 | ||||||||||||
Short-terrm debt | 28 | 58 | 6,887 | — | 6,973 | |||||||||||||
Total current liabilities | 104,582 | 66,206 | 46,099 | (42,229 | ) | 174,658 | ||||||||||||
Long term debt, less current maturities | 315,578 | 30 | — | — | 315,608 | |||||||||||||
Noncurrent liabilities | 87,380 | (70,305 | ) | 113,620 | (117,030 | ) | 13,665 | |||||||||||
Deferred income taxes | 3,879 | 46,899 | 28,985 | (9 | ) | 79,754 | ||||||||||||
Total Shareholders’/invested equity | 253,861 | 526,795 | 62,309 | (567,098 | ) | 275,867 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 765,280 | $ | 569,625 | $ | 251,013 | $ | (726,366 | ) | $ | 859,552 | |||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| 9. | ||||
| ($ in thousands) | ||||
| Cash consideration paid | $ | 139,017 | ||
| Seller notes payable | 6,312 | |||
| Direct acquisition costs | 2,790 | |||
| Total purchase price | $ | 148,119 | ||
| Cash | $ | 7,656 | ||
| Accounts receivable | 25,637 | |||
| Inventories | 26,053 | |||
| Other current assets | 2,841 | |||
| Goodwill | 42,899 | |||
| Intangibles | 96,500 | |||
| Property, plant and equipment | 3,765 | |||
| Current liabilities | (28,282 | ) | ||
| Deferred taxes | (28,950 | ) | ||
| Fair value of net assets acquired | $ | 148,119 | ||
| Amount | Life | |||||||
| ($ in thousands) | ||||||||
| Trademarks | $ | 82,000 | Indefinite | |||||
| License agreements | 11,700 | 4-8 years | ||||||
| Customer relationships | 2,800 | 15 years | ||||||
| Total | $ | 96,500 | ||||||
11
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
Assets | ||||||||||||||||||
Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 45,405 | $ | 1,438 | $ | 724 | $ | 2 | $ | 47,569 | ||||||||
Receivables | 110,092 | 69,989 | 36,192 | (39,906 | ) | 176,367 | ||||||||||||
Inventories | 75,699 | 38,412 | 2,299 | — | 116,410 | |||||||||||||
Prepaid expenses | 10,377 | 5,716 | 382 | — | 16,475 | |||||||||||||
Total current assets | 241,573 | 115,555 | 39,597 | (39,904 | ) | 356,821 | ||||||||||||
Property, plant and equipment, net | 13,839 | 33,186 | 4,801 | — | 51,826 | |||||||||||||
Goodwill | 1,847 | 113,579 | — | 115,426 | ||||||||||||||
Intangibles, net | 249 | 147,084 | — | 147,333 | ||||||||||||||
Other assets net | 382,738 | 7,053 | 1,604 | (367,984 | ) | 23,411 | ||||||||||||
Total Assets | $ | 640,246 | $ | 416,457 | $ | 46,002 | $ | (407,888 | ) | $ | 694,817 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||
Trade accounts payable | $ | 92,517 | $ | 34,647 | $ | 13,562 | $ | (39,913 | ) | $ | 100,813 | |||||||
Accrued compensation | 19,339 | 11,357 | 2,417 | — | 33,113 | |||||||||||||
Additional acquisition cost payable | 22,779 | — | — | — | 22,779 | |||||||||||||
Other accrued expenses | 20,056 | 10,028 | 356 | — | 30,440 | |||||||||||||
Dividends payable | 1,946 | — | — | — | 1,946 | |||||||||||||
Income taxes payable | (16,847 | ) | 19,533 | 1,607 | 1 | 4,294 | ||||||||||||
Short-term debt | — | 98 | — | — | 98 | |||||||||||||
Total current liabilities | 139,790 | 75,663 | 17,942 | (39,912 | ) | 193,483 | ||||||||||||
Long term debt, less current maturities | 198,760 | 54 | — | — | 198,814 | |||||||||||||
Noncurrent liabilities | 82,943 | (74,847 | ) | 3,031 | (3 | ) | 11,124 | |||||||||||
Deferred income taxes | 4,130 | 48,249 | 40 | — | 52,419 | |||||||||||||
Total Shareholders’/invested equity | 214,623 | 367,338 | 24,989 | (367,973 | ) | 238,977 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 640,246 | $ | 416,457 | $ | 46,002 | $ | (407,888 | ) | $ | 694,817 | |||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| 9. | ||||
12
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
Assets | ||||||||||||||||||
Current Assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 2,659 | $ | 883 | $ | 1,936 | $ | 21 | $ | 5,499 | ||||||||
Receivables | 88,043 | 43,804 | 32,827 | (28,880 | ) | 135,794 | ||||||||||||
Inventories | 84,296 | 40,555 | 2,586 | — | 127,437 | |||||||||||||
Prepaid expenses | 10,337 | 9,129 | 512 | — | 19,978 | |||||||||||||
Total current assets | 185,335 | 94,371 | 37,861 | (28,859 | ) | 288,708 | ||||||||||||
Property, plant and equipment, net | 15,049 | 31,058 | 5,314 | — | 51,421 | |||||||||||||
Goodwill | 1,847 | 90,914 | — | — | 92,761 | |||||||||||||
Intangibles, net | 268 | 150,419 | — | — | 150,687 | |||||||||||||
Other assets, net | 332,095 | 5,163 | 1,570 | (316,803 | ) | 22,025 | ||||||||||||
Total Assets | $ | 534,594 | $ | 371,925 | 44,745 | $ | (345,662 | ) | $ | 605,602 | ||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||
Trade accounts payable | $ | 57,214 | $ | 29,393 | $ | 14,343 | $ | (28,766 | ) | $ | 72,184 | |||||||
Accrued compensation | 11,743 | 4,676 | 3,229 | — | 19,648 | |||||||||||||
Other accrued expenses | 24,313 | 9,424 | 381 | (111 | ) | 34,007 | ||||||||||||
Dividends payable | 1,700 | — | — | — | 1,700 | |||||||||||||
Income taxes payable | (11,634 | ) | 10,601 | 1,132 | — | 99 | ||||||||||||
Short-term debt | — | 97 | — | — | 97 | |||||||||||||
Total current liabilities | 83,336 | 54,191 | 19,085 | (28,877 | ) | 127,735 | ||||||||||||
Long term debt, less current maturities | 198,676 | 88 | — | — | 198,764 | |||||||||||||
Noncurrent liabilities | 58,125 | (52,554 | ) | 4,589 | 17 | 10,177 | ||||||||||||
Deferred taxes | 2,403 | 50,232 | 41 | 52,676 | ||||||||||||||
Total Shareholders’/invested equity | 192,054 | 319,968 | 21,030 | (316,802 | ) | 216,250 | ||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 534,594 | $ | 371,925 | $ | 44,745 | $ | (345,662 | ) | $ | 605,602 | |||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| 9. | ||||
| ($ in thousands) | ||||
| Market value of stock issued | $ | 27,881 | ||
| Cash consideration paid | 247,172 | |||
| Direct acquisition costs | 3,366 | |||
| Total purchase price | $ | 278,419 | ||
| Cash | $ | 22,145 | ||
| Accounts receivable | 29,521 | |||
| Inventories | 27,697 | |||
| Other current assets | 6,015 | |||
| Goodwill | 110,164 | |||
| Intangibles | 153,360 | |||
| Property, plant and equipment | 28,087 | |||
| Other assets | 2,470 | |||
| Current liabilities | (45,626 | ) | ||
| Noncurrent liabilities | (1,253 | ) | ||
| Deferred taxes | (54,161 | ) | ||
| Fair value of net assets acquired | $ | 278,419 | ||
| Amount | Life | |||||||
| ($ in thousands) | ||||||||
| Trademarks | $ | 127,800 | Indefinite | |||||
| License agreements | 8,400 | 5 years | ||||||
| Customer relationships | 16,700 | 15 years | ||||||
| Covenant not to compete | 460 | 4 years | ||||||
| Total | $ | 153,360 | ||||||
13
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
Net Sales | $ | 163,529 | $ | 112,522 | $ | 55,897 | $ | (19,079 | ) | $ | 312,869 | |||||||
Cost of goods sold | 128,798 | 59,431 | 27,784 | (3,247 | ) | 212,766 | ||||||||||||
Gross Profit | 34,731 | 53,091 | 28,113 | (15,832 | ) | 100,103 | ||||||||||||
Selling, general and administrative | 33,035 | 46,461 | 21,042 | (17,945 | ) | 82,593 | ||||||||||||
Royalties and other income | — | 1,960 | 1,341 | — | 3,301 | |||||||||||||
Operating Income | 1,696 | 8,590 | 8,412 | 2,113 | 20,811 | |||||||||||||
Interest expense (income), net | 4,895 | (2,443 | ) | 2,087 | 2,316 | 6,855 | ||||||||||||
Income from equity investment | 10,787 | (1 | ) | — | (10,786 | ) | — | |||||||||||
Earnings Before Income Taxes | 7,588 | 11,032 | 6,325 | (10,989 | ) | 13,956 | ||||||||||||
Income taxes | (1,688 | ) | 4,590 | 1,982 | — | 4,884 | ||||||||||||
Net Earnings | $ | 9,276 | $ | 6,442 | $ | 4,343 | $ | (10,989 | ) | $ | 9,072 | |||||||
Oxford Industries, Inc.
Quarter Ended November 28, 2003
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
Net Sales | $ | 167,116 | $ | 90,314 | $ | 9,810 | $ | (13,357 | ) | $ | 253,883 | |||||||
Cost of goods sold | 129,962 | 46,422 | 264 | 403 | 177,051 | |||||||||||||
Gross Profit | 37,154 | 43,892 | 9,546 | (13,760 | ) | 76,832 | ||||||||||||
Selling, general and administrative | 32,418 | 36,362 | 8,035 | (15,889 | ) | 60,926 | ||||||||||||
Royalties and other income | — | 1,140 | — | — | 1,140 | |||||||||||||
Operating Income | 4,736 | 8,670 | 1,511 | 2,129 | 17,046 | |||||||||||||
Interest (income) expense, net | 4,351 | (360 | ) | (24 | ) | 2,131 | 6,098 | |||||||||||
Income from equity investment | 6,749 | 5 | — | (6,754 | ) | — | ||||||||||||
Earnings Before Income Taxes | 7,134 | 9,035 | 1,535 | (6,756 | ) | 10,948 | ||||||||||||
Income taxes | 293 | 3,360 | 455 | — | 4,108 | |||||||||||||
Net Earnings | $ | 6,841 | $ | 5,675 | $ | 1,080 | $ | (6,756 | ) | $ | 6,840 | |||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands except per share amounts) | ||||||||
| Net Sales | $ | 295,270 | $ | 290,720 | ||||
| Net Earnings | $ | 8,952 | $ | 9,420 | ||||
| Net Earnings Per Share | ||||||||
| Basic | $ | 0.54 | $ | 0.59 | ||||
| Diluted | $ | 0.52 | $ | 0.58 | ||||
14
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
| Net Sales | $ | 310,507 | $ | 221,225 | $ | 80,410 | $ | (34,483 | ) | $ | 577,659 | |||||||
Cost of goods sold | 246,593 | 113,747 | 37,913 | (5,619 | ) | 392,634 | ||||||||||||
| Gross Profit | 63,914 | 107,478 | 42,497 | (28,864 | ) | 185,025 | ||||||||||||
Selling, general and administrative | 61,420 | 88,909 | 32,111 | (30,581 | ) | 151,859 | ||||||||||||
Royalties and other income | — | 3,329 | 1,725 | — | 5,054 | |||||||||||||
| Operating Income | 2,494 | 21,898 | 12,111 | 1,717 | 38,220 | |||||||||||||
Interest expense (income), net | 13,417 | (3,530 | ) | 2,824 | 2,065 | 14,776 | ||||||||||||
Income from equity investment | 23,560 | 43 | — | (23,603 | ) | — | ||||||||||||
| Earnings Before Income Taxes | 12,637 | 25,471 | 9,287 | (23,951 | ) | 23,444 | ||||||||||||
Income taxes | (2,952 | ) | 8,400 | 2,756 | — | 8,204 | ||||||||||||
| Net Earnings | $ | 15,589 | $ | 17,071 | $ | 6,531 | $ | (23,951 | ) | $ | 15,240 | |||||||
Unaudited Condensed Consolidated Statement of Earnings
Six Months Ended November 28, 2003
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||
| ($ in thousands) | ||||||||||||||||||
| Net Sales | $ | 335,462 | $ | 168,262 | $ | 18,511 | $ | (26,247 | ) | $ | 495,988 | |||||||
Cost of goods sold | 261,763 | 85,681 | (132 | ) | 953 | 348,265 | ||||||||||||
| Gross Profit | 73,699 | 82,581 | 18,643 | (27,200 | ) | 147,723 | ||||||||||||
Selling, general and administrative | 61,582 | 67,201 | 16,342 | (28,909 | ) | 116,216 | ||||||||||||
Royalties and other income | — | 2,320 | — | — | 2,320 | |||||||||||||
| Operating Income | 12,117 | 17,700 | 2,301 | 1,709 | 33,827 | |||||||||||||
Interest (income) expense, net | 10,866 | (687 | ) | (47 | ) | 1,712 | 11,844 | |||||||||||
Income from equity investment | 14,520 | 19 | — | (14,539 | ) | — | ||||||||||||
| Earnings Before Income Taxes | 15,771 | 18,406 | 2,348 | (14,542 | ) | 21,983 | ||||||||||||
Income taxes | 2,088 | 5,513 | 700 | — | 8,301 | |||||||||||||
| Net Earnings | $ | 13,683 | $ | 12,893 | $ | 1,648 | $ | (14,542 | ) | $ | 13,682 | |||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
| August 27, 2004 | ||||
| ($ in thousands) | ||||
| U.S. Revolver | $ | 98,300 | ||
| U.K. Revolver | 7,312 | |||
| Seller Notes | 6,312 | |||
| Total notes payable | $ | 111,924 | ||
15
| Oxford Industries (Parent) | Subsidiary Guarantors | Subsidiary Non- Guarantors | Consolidating Adjustments | Consolidated Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Cash Flows From Operating Activities | ||||||||||||||||||||
Net earnings | $ | 15,589 | $ | 17,071 | $ | 6,531 | $ | (23,951 | ) | $ | 15,240 | |||||||||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | ||||||||||||||||||||
Depreciation and amortization | 4,677 | 7,193 | 1,689 | — | 13,559 | |||||||||||||||
Equity income | — | (323 | ) | — | — | (323 | ) | |||||||||||||
Loss (gain) on sale of assets | 84 | (594 | ) | 404 | (106 | ) | ||||||||||||||
Deferred income taxes | (252 | ) | (1,349 | ) | (1,532 | ) | (200 | ) | (3,333 | ) | ||||||||||
Changes in working capital | (442 | ) | (19,500 | ) | (67 | ) | 8,320 | (11,689 | ) | |||||||||||
Income for equity investment in subsidiaries | (23,560 | ) | (43 | ) | — | 23,603 | — | |||||||||||||
Other noncurrent assets | (1,001 | ) | 13 | (192 | ) | (1 | ) | (1,181 | ) | |||||||||||
Other noncurrent liabilities | 1,299 | 1,242 | — | — | 2,541 | |||||||||||||||
Net cash (used in) provided by operating activities | (3,606 | ) | 3,710 | 6,833 | 7,771 | 14,708 | ||||||||||||||
| Cash Flows from Investing Activities | ||||||||||||||||||||
Acquisitions net of cash acquired | (5,475 | ) | 4 | (134,343 | ) | �� | — | (139,814 | ) | |||||||||||
Investment in subsidiaries | (141,807 | ) | (32,616 | ) | — | 174,423 | — | |||||||||||||
Investment in deferred comp plan | — | (593 | ) | — | — | (593 | ) | |||||||||||||
Purchases of property, plant and equipment | (618 | ) | (5,804 | ) | (86 | ) | — | (6,508 | ) | |||||||||||
Proceeds from sale of property, plant and equipment | 7 | 406 | — | — | 413 | |||||||||||||||
Net cash (used in) provided by investing activities | (147,893 | ) | (38,603 | ) | (134,429 | ) | 174,423 | (146,502 | ) | |||||||||||
| Cash Flows from Financing Activities | ||||||||||||||||||||
Payments of short-term debt | — | — | (7,555 | ) | — | (7,555 | ) | |||||||||||||
Proceeds (payments) of long-term debt | 116,757 | (64 | ) | 116,693 | ||||||||||||||||
Equity contribution received | — | 141,807 | 32,616 | (174,423 | ) | — | ||||||||||||||
(Payments) proceeds of loan to subsidiaries | — | (109,191 | ) | 109,191 | — | — | ||||||||||||||
Proceeds from issuance of common stock | 752 | — | — | — | 752 | |||||||||||||||
Debt issue costs | (2,766 | ) | — | — | — | (2,766 | ) | |||||||||||||
Change in intercompany payable | (4,855 | ) | 3,299 | 9,301 | (7,745 | ) | — | |||||||||||||
Dividends on common stock | 4,124 | — | (7,993 | ) | (27 | ) | (3,896 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 114,012 | 35,851 | 135,560 | (182,195 | ) | 103,228 | ||||||||||||||
| Net change in Cash and Cash Equivalents | (37,487 | ) | 958 | 7,964 | (1 | ) | (28,566 | ) | ||||||||||||
Effect of foreign currency translation on cash and cash equivalents | — | — | 411 | — | 411 | |||||||||||||||
Cash and cash equivalents at the beginning of period | 45,405 | 1,438 | 724 | 2 | 47,569 | |||||||||||||||
Cash and cash equivalents at the end of period | $ | 7,918 | $ | 2,396 | $ | 9,099 | $ | 1 | $ | 19,414 | ||||||||||
OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27,
QUARTER ENDED NOVEMBER 26, 2004
13.Consolidating Financial Data of Subsidiary Guarantors:The notes issued for the Tommy Bahama acquisition were issued by
| 9. | Consolidating Financial Data of Subsidiary Guarantors (continued): |
Oxford Industries, Inc. Not all
Unaudited Condensed Consolidated Statement of our subsidiaries guarantee the notes. Each subsidiary guarantor is wholly owned by Oxford Industries, Inc. and is organized in the U.S. All guarantees are full and unconditional. Non-guarantors consist of subsidiaries of Oxford Industries, Inc which are organized outside the U.S. Set forth below is the consolidated financial statements for the three months ended August 27, 2004 and August 29, 2003. We have used the equity method with respect to investment in subsidiaries.
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Balance Sheet | ||||||||||||||||||||
| August 27, 2004 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 4,926 | $ | 1,976 | $ | 4,597 | $ | 27 | $ | 11,526 | ||||||||||
| Receivables | 92,992 | 47,290 | 61,524 | (41,321 | ) | 160,485 | ||||||||||||||
| Inventories | 72,682 | 48,933 | 21,669 | (142 | ) | 143,142 | ||||||||||||||
| Prepaid expenses | 8,176 | 7,360 | 3,557 | — | 19,093 | |||||||||||||||
| Total current assets | 178,776 | 105,559 | 91,347 | (41,436 | ) | 334,246 | ||||||||||||||
| Property, plant and equipment, net | 13,403 | 33,441 | 7,901 | — | 54,745 | |||||||||||||||
| Goodwill | 1,847 | 114,156 | 42,301 | — | 158,304 | |||||||||||||||
| Intangibles, net | 239 | 145,683 | 96,198 | — | 242,120 | |||||||||||||||
| Other assets net | 546,809 | 150,148 | 1,590 | (673,702 | ) | 24,845 | ||||||||||||||
Total Assets | $ | 741,074 | $ | 548,987 | $ | 239,337 | $ | (715,138 | ) | $ | 814,260 | |||||||||
Liabilities and Shareholders’Equity | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Notes payable | $ | 98,300 | $ | — | $ | 13,624 | $ | — | $ | 111,924 | ||||||||||
| Trade accounts payable | 77,876 | 32,760 | 15,508 | (41,333 | ) | 84,811 | ||||||||||||||
| Accrued compensation | 8,241 | 8,083 | 2,463 | — | 18,787 | |||||||||||||||
| Other accrued expenses | 15,935 | 11,729 | 10,690 | (708 | ) | 37,646 | ||||||||||||||
| Dividends payable | 1,950 | — | — | — | 1,950 | |||||||||||||||
| Income taxes payable | (11,789 | ) | 12,548 | 4,559 | — | 5,318 | ||||||||||||||
| Current maturities of long-term debt | 28 | 98 | — | — | 126 | |||||||||||||||
| Total current liabilities | 190,541 | 65,218 | 46,844 | (42,041 | ) | 260,562 | ||||||||||||||
| Long term debt, less current portion | 198,841 | 54 | — | — | 198,895 | |||||||||||||||
| Noncurrent liabilities | 101,640 | (84,403 | ) | 112,703 | (117,142 | ) | 12,798 | |||||||||||||
| Deferred income taxes | 3,916 | 47,766 | 28,991 | (10 | ) | 80,663 | ||||||||||||||
| Total Shareholders’/invested equity | 246,136 | 520,352 | 50,799 | (555,945 | ) | 261,342 | ||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 741,074 | $ | 548,987 | $ | 239,337 | $ | (715,138 | ) | $ | 814,260 | |||||||||
16
OXFORD INDUSTRIES, INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27, 2004
13.Consolidating Financial Data of Subsidiary Guarantors (continued):
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Balance Sheet | ||||||||||||||||||||
| August 29, 2003 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 9,759 | $ | 6,084 | $ | 819 | $ | 708 | $ | 17,370 | ||||||||||
| Receivables | 98,202 | 32,895 | 41,879 | (38,531 | ) | 134,445 | ||||||||||||||
| Inventories | 84,162 | 31,910 | 1,774 | — | 117,846 | |||||||||||||||
| Prepaid expenses | 11,010 | 7,790 | 546 | — | 19,346 | |||||||||||||||
| Total current assets | 203,133 | 78,679 | 45,018 | (37,823 | ) | 289,007 | ||||||||||||||
| Property, plant and equipment, net | 15,481 | 29,820 | 5,376 | — | 50,677 | |||||||||||||||
| Goodwill | 1,847 | 86,248 | — | — | 88,095 | |||||||||||||||
| Intangibles, net | 278 | 152,087 | — | — | 152,365 | |||||||||||||||
| Other assets, net | 317,919 | 4,665 | 1,714 | (302,358 | ) | 21,940 | ||||||||||||||
Total Assets | $ | 538,658 | $ | 351,499 | 52,108 | $ | (340,181 | ) | $ | 602,084 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Notes payable | $ | 10,000 | $ | — | $ | — | $ | — | $ | 10,000 | ||||||||||
| Trade accounts payable | 52,744 | 27,253 | 23,998 | (37,730 | ) | 66,265 | ||||||||||||||
| Accrued compensation | 8,738 | 3,857 | 2,587 | — | 15,182 | |||||||||||||||
| Other accrued expenses | 20,467 | 10,447 | 431 | (111 | ) | 31,234 | ||||||||||||||
| Dividends payable | 1,694 | — | — | — | 1,694 | |||||||||||||||
| Income taxes payable | (8,180 | ) | 12,243 | 1,118 | — | 5,181 | ||||||||||||||
| Current maturities of long-term debt | 116 | 98 | — | — | 214 | |||||||||||||||
| Total current liabilities | 85,579 | 53,898 | 28,134 | (37,841 | ) | 129,770 | ||||||||||||||
| Long term debt, less current portion | 198,631 | 112 | — | — | 198,743 | |||||||||||||||
| Noncurrent liabilities | 65,688 | (63,885 | ) | 4,019 | 3,751 | 9,573 | ||||||||||||||
| Deferred taxes | 2,639 | 51,026 | 15 | 53,680 | ||||||||||||||||
| Total Shareholders’/invested equity | 186,121 | 310,348 | 19,940 | (306,091 | ) | 210,318 | ||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 538,658 | $ | 351,499 | $ | 52,108 | $ | (340,181 | ) | $ | 602,084 | |||||||||
17
OXFORD INDUSTRIES, INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27, 2004
13.Consolidating Financial Data of Subsidiary Guarantors (continued):
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Statement of Earnings | ||||||||||||||||||||
| Three Months ended August 27, 2004 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Net Sales | $ | 146,978 | $ | 108,703 | $ | 24,513 | $ | (15,404 | ) | $ | 264,790 | |||||||||
| Cost of goods sold: | 117,795 | 54,316 | 10,129 | (2,372 | ) | 179,868 | ||||||||||||||
Gross Profit | 29,183 | 54,387 | 14,384 | (13,032 | ) | 84,922 | ||||||||||||||
| Selling, general and administrative | 28,385 | 42,448 | 11,069 | (12,636 | ) | 69,266 | ||||||||||||||
| Royalties and other income | — | 1,369 | 384 | — | 1,753 | |||||||||||||||
Operating Income | 798 | 13,308 | 3,699 | (396 | ) | 17,409 | ||||||||||||||
| Interest expense (income), net | 8,522 | (1,087 | ) | 737 | (251 | ) | 7,921 | |||||||||||||
| Income from equity investment | 12,773 | 44 | — | (12,817 | ) | — | ||||||||||||||
Earnings Before Income Taxes | 5,049 | 14,439 | 2,962 | (12,962 | ) | 9,488 | ||||||||||||||
| Income Taxes | (1,264 | ) | 3,810 | 774 | — | 3,320 | ||||||||||||||
Net Earnings | $ | 6,313 | $ | 10,629 | $ | 2,188 | $ | (12,962 | ) | $ | 6,168 | |||||||||
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Statement of Earnings | ||||||||||||||||||||
| Three Months ended August 29, 2003 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Net Sales | $ | 168,346 | $ | 77,948 | $ | 8,701 | $ | (12,890 | ) | $ | 242,105 | |||||||||
| Cost of goods sold: | 131,801 | 39,259 | (396 | ) | 550 | 171,214 | ||||||||||||||
Gross Profit | 36,545 | 38,689 | 9,097 | (13,440 | ) | 70,891 | ||||||||||||||
| Selling, general and administrative | 29,164 | 30,839 | 8,307 | (13,020 | ) | 55,290 | ||||||||||||||
| Royalties and other income | — | 1,180 | — | — | 1,180 | |||||||||||||||
Operating Income | 7,381 | 9,030 | 790 | (420 | ) | 16,781 | ||||||||||||||
| Interest (income) expense, net | 6,515 | (327 | ) | (23 | ) | (419 | ) | 5,746 | ||||||||||||
| Income from equity investment | 7,771 | 14 | — | (7,785 | ) | — | ||||||||||||||
Earnings Before Income Taxes | 8,637 | 9,371 | 813 | (7,786 | ) | 11,035 | ||||||||||||||
| Income Taxes | 1,795 | 2,153 | 245 | — | 4,193 | |||||||||||||||
Net Earnings | $ | 6,842 | $ | 7,218 | $ | 568 | $ | (7,786 | ) | $ | 6,842 | |||||||||
18
OXFORD INDUSTRIES, INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27, 2004Six Months Ended November 28, 2003
13. Consolidating Financial Data of Subsidiary Guarantors (continued):
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Statement of Cash Flow | ||||||||||||||||||||
| August 27, 2004 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||||||
| Net earnings | $ | 6,313 | $ | 10,629 | $ | 2,188 | $ | (12,962 | ) | $ | 6,168 | |||||||||
| Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 3,246 | 3,487 | 475 | — | 7,208 | |||||||||||||||
| Equity income | — | (323 | ) | — | — | (323 | ) | |||||||||||||
| (gain) loss on sale of assets | (43 | ) | 98 | 291 | 2 | 348 | ||||||||||||||
| Deferred income taxes | (214 | ) | (246 | ) | (343 | ) | (1,372 | ) | (2,175 | ) | ||||||||||
| Changes in working capital: | (1,900 | ) | 61 | (6,185 | ) | 8,626 | 602 | |||||||||||||
| Income for equity investment in subsidiaries | (12,773 | ) | (44 | ) | — | 12,817 | — | |||||||||||||
| Other noncurrent assets | (563 | ) | (1,570 | ) | 16 | 707 | (1,410 | ) | ||||||||||||
| Other noncurrent liabilities | 1,190 | 483 | — | 1 | 1,674 | |||||||||||||||
Net cash (used in) provided by operating activities | (4,744 | ) | 12,575 | (3,558 | ) | 7,819 | 12,092 | |||||||||||||
Cash Flows from Investing Activities | ||||||||||||||||||||
| Acquisitions net of cash acquired | (5,475 | ) | 4 | (134,155 | ) | — | (139,626 | ) | ||||||||||||
| Investment in subsidiaries | (141,807 | ) | (32,616 | ) | — | 174,423 | — | |||||||||||||
| Investment in deferred comp plan | — | 391 | — | — | 391 | |||||||||||||||
| Purchases of property, plant and equipment | (304 | ) | (2,158 | ) | (27 | ) | 1 | (2,488 | ) | |||||||||||
| Proceeds from sale of property, plant and equipment | 5 | 5 | — | — | 10 | |||||||||||||||
Net cash (used in) provided by investing activities | (147,581 | ) | (34,374 | ) | (134,182 | ) | 174,424 | (141,713 | ) | |||||||||||
Cash Flows from Financing Activities | ||||||||||||||||||||
| Proceeds (payments) of short-term debt | 98,300 | — | (708 | ) | — | 97,592 | ||||||||||||||
| Equity contribution received | — | 141,807 | 32,616 | (174,423 | ) | — | ||||||||||||||
| (Payments) proceeds of loan to subsidiaries | — | (109,191 | ) | 109,191 | — | — | ||||||||||||||
| Principal payments of long-term debt | 64 | (1 | ) | 2 | 65 | |||||||||||||||
| Proceeds from issuance of common stock | 666 | — | — | — | 666 | |||||||||||||||
| Debt issue costs | (2,766 | ) | — | — | — | (2,766 | ) | |||||||||||||
| Change in intercompany payable | 9,508 | (10,278 | ) | 8,540 | (7,770 | ) | — | |||||||||||||
| Dividends on common stock | 6,074 | — | (7,993 | ) | (27 | ) | (1,946 | ) | ||||||||||||
Net cash (used in) provided by financing activities | 111,846 | 22,337 | 141,646 | (182,218 | ) | 93,611 | ||||||||||||||
| Effect of foreign currency translation on cash and cash equivalents | — | — | (33 | ) | — | (33 | ) | |||||||||||||
Net change in Cash and Cash Equivalents | (40,479 | ) | 538 | 3,906 | 25 | (36,010 | ) | |||||||||||||
| Cash and Cash Equivalents at the Beginning of Period | 45,405 | 1,438 | 724 | 2 | 47,569 | |||||||||||||||
| Cash and Cash Equivalents at the End of Period | $ | 4,926 | $ | 1,976 | $ | 4,597 | $ | 27 | $ | 11,526 | ||||||||||
Net earnings Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization Equity income Loss (gain) on sale of assets Deferred income taxes Changes in working capital Income for equity investment in subsidiaries Other noncurrent assets Other noncurrent liabilities Net cash (used in) provided by operating activities Acquisitions Decrease in restricted cash Investment in deferred comp plan Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Net cash (used in) provided by investing activities Principal payments of long-term debt Proceeds from issuance of common stock Debt issue costs Change in intercompany payable Dividends on common stock Net cash provided by (used in) financing activities Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of period19 Oxford Industries
(Parent) Subsidiary
Guarantors Subsidiary Non-
Guarantors Consolidating
Adjustments Consolidated
Total ($ in thousands) Cash Flows From Operating Activities $ 13,683 $ 12,893 $ 1,648 $ (14,542 ) $ 13,682 3,204 6,376 247 — 9,827 — (105 ) — — (105 ) 12 (213 ) (6 ) — (207 ) (676 ) (1,266 ) 26 952 (964 ) (103,853 ) 95,813 (1,387 ) (856 ) (10,283 ) (14,520 ) (19 ) — 14,539 — (2,331 ) (984 ) 300 (200 ) (3,215 ) 2,505 2,048 — — 4,553 (101,976 ) 114,543 828 (107 ) 13,288 Cash Flows from Investing Activities (244,695 ) 22,325 — — (222,370 ) 204,986 — — — 204,986 — (1,439 ) — — (1,439 ) (1,212 ) (6,025 ) (29 ) — (7,266 ) 21 63 (12 ) — 72 (40,900 ) 14,924 (41 ) — (26,017 ) Cash Flows from Financing Activities (124 ) (48 ) — — (172 ) 4,956 — — — 4,956 (7,374 ) — — — (7,374 ) 128,328 (128,754 ) 429 (3 ) — (3,273 ) — — — (3,273 ) 122,513 (128,802 ) 429 (3 ) (5,863 ) Net change in Cash and Cash Equivalents (20,363 ) 665 1,216 (110 ) (18,592 ) 23,022 218 720 131 24,091 $ 2,659 $ 883 $ 1,936 $ 21 $ 5,499
OXFORD INDUSTRIES, INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27, 2004
13.Consolidating Financial Data of Subsidiary Guarantors (continued):
| Oxford Industries, Inc. | ||||||||||||||||||||
| Consolidated Statement of Cash Flow | ||||||||||||||||||||
| Three months ended August 29, 2003 | ||||||||||||||||||||
| Oxford Industries | Subsidiary | Subsidiary Non- | Consolidating | Consolidated | ||||||||||||||||
| (Parent) | Guarantors | Guarantors | Adjustments | Total | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||||||
| Net earnings | $ | 6,842 | $ | 7,218 | $ | 568 | $ | (7,786 | ) | $ | 6,842 | |||||||||
| Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 1,592 | 2,940 | 122 | — | 4,654 | |||||||||||||||
| Equity income | — | (105 | ) | — | — | (105 | ) | |||||||||||||
| Loss (gain) on sale of assets | (22 | ) | (86 | ) | (7 | ) | — | (115 | ) | |||||||||||
| Deferred income taxes | (438 | ) | (472 | ) | (611 | ) | 678 | (843 | ) | |||||||||||
| Changes in working capital: | (122,730 | ) | 116,410 | — | (99 | ) | (6,419 | ) | ||||||||||||
| Income for equity investment in subsidiaries | (7,771 | ) | (15 | ) | — | 7,786 | — | |||||||||||||
| Other noncurrent assets | 1,759 | (521 | ) | 157 | (3,746 | ) | (2,351 | ) | ||||||||||||
| Other noncurrent liabilities | 2,361 | 1,588 | — | — | 3,949 | |||||||||||||||
Net cash (used in) provided by operating activities | (118,407 | ) | 126,957 | 229 | (3,167 | ) | 5,612 | |||||||||||||
Cash Flows from Investing Activities | ||||||||||||||||||||
| Acquisitions | (240,754 | ) | 22,325 | — | — | (218,429 | ) | |||||||||||||
| Decrease in restricted cash | 204,986 | — | — | — | 204,986 | |||||||||||||||
| Investment in deferred comp plan | — | (1,356 | ) | — | — | (1,356 | ) | |||||||||||||
| Purchases of property, plant and equipment | (741 | ) | (2,423 | ) | (7 | ) | — | (3,171 | ) | |||||||||||
| Proceeds from sale of property, plant and equipment | 64 | 11 | 30 | — | 105 | |||||||||||||||
Net cash (used in) provided by investing activities | (36,445 | ) | 18,557 | 23 | — | (17,865 | ) | |||||||||||||
Cash Flows from Financing Activities | ||||||||||||||||||||
| Proceeds from short term borrowing | 10,000 | — | — | — | 10,000 | |||||||||||||||
| Principal payments of long-term debt | (8 | ) | (23 | ) | — | — | (31 | ) | ||||||||||||
| Proceeds from issuance of common stock | 4,476 | — | — | 1 | 4,477 | |||||||||||||||
| Debt issue costs | (7,335 | ) | — | — | — | (7,335 | ) | |||||||||||||
| Change in intercompany payable | 136,035 | (139,625 | ) | (153 | ) | 3,743 | — | |||||||||||||
| Dividends on common stock | (1,579 | ) | — | — | — | (1,579 | ) | |||||||||||||
Net cash (used in) provided by financing activities | 141,589 | (139,648 | ) | (153 | ) | 3,744 | 5,532 | |||||||||||||
Net change in Cash and Cash Equivalents | (13,263 | ) | 5,866 | 99 | 577 | (6,721 | ) | |||||||||||||
| Cash and Cash Equivalents at the Beginning of Period | 23,022 | 218 | 720 | 131 | 24,091 | |||||||||||||||
| Cash and Cash Equivalents at the End of Period | $ | 9,759 | $ | 6,084 | $ | 819 | $ | 708 | $ | 17,370 | ||||||||||
20
OXFORD INDUSTRIES, INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)AUGUST 27, 2004
| Quarters Ended | ||||||||
| August 27, 2004 | August 29, 2003 | |||||||
| ($ in thousands) | ||||||||
| Foreign currency translation loss, net of tax of $300 | $ | (988 | ) | $ | — | |||
| Accumulated other comprehensive loss | $ | (988 | ) | $ | — | |||
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our ““Unaudited Condensed Consolidated Financial Statements”Statements” and the “Unaudited Notes to Condensed Consolidated Financial Statements” contained in this report and the “Consolidated Financial Statements,” “Notes to Consolidated Financial Statements”Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report.our fiscal 2004 Form 10-K.
OVERVIEW
We are engaged in the design, production and sale of consumer apparel for men, women and children. Our principal markets and customers are located primarily in the United States. We source these products from third party producers, our owned manufacturing facilities and through our joint venture partners. We distribute our products primarily through our wholesale customers and through our own retail stores.
The most significant factor impacting our results of operations for the current year was the completion of the acquisition of Ben Sherman, which we operate as part of our Menswear Group. Ben Sherman is a London-based designer, distributor and marketer of branded sportswear, accessories, and footwear.
In conjunction with the acquisition of Ben Sherman, our U.S. Revolver was amended and restated on July 28, 2004 and increased to $280 million with a syndicate of eight financial institutionsinstitutions.
RESULTS OF OPERATIONS
The following table sets forthtables set forth: (1) the line items in the “Unaudited Condensed Consolidated Statements of Earnings, data both in dollars”the dollar amounts of each for the periods indicated and the percentage change relative to the comparable period of the prior year, and (2) as a percentage of net sales. The table also sets forth the percentage change of the data as compared to the prior year. We have calculated all percentages set forth below based on actual data, but percentage columns may not add due to rounding. Fiscal 2004Individual line items of our“Unaudited Condensed Consolidated Statements of Earnings” may not be directly comparable to those of our competitors, as income statement classification of certain expenses may vary by company. The results includeof operations of Ben Sherman and the Tommy Bahama Group are included in our consolidated statements of earnings from June 13, 2003 through August 29, 2003. Fiscal 2005 results include Ben Sherman from July 31, 2004 through August 27, 2004. Quarters Ended August 27, 2004 August 29, 2003 Change ‘04-‘05 ($ in thousands) Net sales $ 264,790 100.0 % $ 242,105 100.0 % $ 22,685 9.4 % Cost of goods sold 179,868 67.9 % 171,214 70.7 % 8,654 5.1 %
Gross profit 84,922 32.1 % 70,891 29.3 % 14,031 19.8 % Selling, general & administrative 67,554 25.5 % 53,612 22.1 % 13,942 26.0 % Amortization of intangibles 1,712 0.6 % 1,678 0.7 % 34 2.0 % Royalties & other operating income 1,753 0.7 % 1,180 0.5 % 573 48.6 %
Operating income 17,409 6.6 % 16,781 6.9 % 628 3.7 % Interest expense, net 7,921 3.0 % 5,746 2.4 % 2,175 37.9 %
Earnings before income taxes 9,488 3.6 % 11,035 4.6 % (1,547 ) (14.0 %) Income taxes 3,320 1.3 % 4,193 1.7 % (873 ) (20.8 %)
Net earnings $ 6,168 2.3 % $ 6,842 2.8 % $ (674 ) (9.9 %)
Net sales Cost of goods sold Gross profit Selling, general and administrative Amortization of intangibles Royalties and other operating income Operating income Interest expense, net Earnings before income taxes Income taxes Net earningsACQUISITION Quarters Ended Six Months Ended Nov. 26, 2004 Nov. 28, 2003 % Change Nov. 26, 2004 Nov. 28, 2003 % Change ($ in thousands) $ 312,869 $ 253,883 23.2 % $ 577,659 $ 495,988 16.5 % 212,766 177,051 20.2 % 392,634 348,265 12.7 % 100,103 76,832 30.3 % 185,025 147,723 25.3 % 80,169 59,249 35.3 % 147,723 112,861 30.9 % 2,424 1,677 44.5 % 4,136 3,355 23.3 % 3,301 1,140 189.6 % 5,054 2,320 117.8 % 20,811 17,046 22.1 % 38,220 33,827 13.0 % 6,855 6,098 12.4 % 14,776 11,844 24.8 % 13,956 10,948 27.5 % 23,444 21,983 6.6 % 4,884 4,108 18.9 % 8,204 8,301 (1.2 )% $ 9,072 $ 6,840 32.6 % $ 15,240 $ 13,682 11.4 %
| Quarters Ended | Six Months Ended | |||||||||||
| Nov. 26, 2004 | Nov. 28, 2003 | Nov. 26, 2004 | Nov. 28, 2003 | |||||||||
| (As a percentage of net sales) | ||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of goods sold | 68.0 | % | 69.7 | % | 68.0 | % | 70.2 | % | ||||
Gross profit | 32.0 | % | 30.3 | % | 32.0 | % | 29.8 | % | ||||
Selling, general and administrative | 25.6 | % | 23.3 | % | 25.6 | % | 22.8 | % | ||||
Amortization of intangibles | 0.8 | % | 0.7 | % | 0.7 | % | 0.7 | % | ||||
Royalties and other operating income | 1.1 | % | 0.4 | % | 0.9 | % | 0.5 | % | ||||
Operating income | 6.7 | % | 6.7 | % | 6.6 | % | 6.8 | % | ||||
Interest expense, net | 2.2 | % | 2.4 | % | 2.6 | % | 2.4 | % | ||||
Earnings before income taxes | 4.5 | % | 4.3 | % | 4.1 | % | 4.4 | % | ||||
Income taxes | 1.6 | % | 1.6 | % | 1.4 | % | 1.7 | % | ||||
Net earnings | 2.9 | % | 2.7 | % | 2.6 | % | 2.8 | % | ||||
22
On July 30, 2004, we acquired Ben Sherman. Ben Sherman is a London-based designer, distributor and marketer of branded sportswear, accessories, and footwear. The purchase price for Ben Sherman was £80 million, or approximately $145 million, plus associated expenses. The transaction was financed with cash on hand and borrowings under our U.S. Revolver and Seller Notes payable to the management shareholders of Ben Sherman.
In conjunction with the acquisition of Ben Sherman, our U.S. Revolver was amended and restated on July 28, 2004 and increased to $280 million with a syndicate of eight financial institutions. The maturity date was extended to July 28, 2009.
On July 30, 2004, our Ben Sherman subsidiary entered into a £12 million U.K. Revolver to provide for seasonal working capital requirements and general corporate purposes.
For further discussion of the acquisition, see Note 94 of “Unaudited Notes to Condensed Consolidated Financial StatementsStatements.””. For further discussion of financing arrangements, see the section below titled “Financing Arrangements” and Note 5 of “Unaudited Notes to Condensed Consolidated Financial Statements.”
TOTAL COMPANY
Second Quarter
Net salesincreased 9.4%23.2% from $242.1$253.9 million in the firstsecond quarter of Fiscalfiscal 2004 to $264.8$312.9 million in the firstsecond quarter of Fiscalfiscal 2005. We generatedThe increase was primarily due to:
Cost of goods soldfor the firstsecond quarter of Fiscalfiscal 2005 was $179.9$212.8 million or 67.9%68.0% of net sales, compared to $171.2$177.0 million or 70.7%69.7% of net sales in the firstsecond quarter of Fiscalfiscal 2004. ExpressedThe decline in cost of goods sold, as a percentage of net sales, the decline in cost of goods sold was primarily due to theto:
Selling, general and administrative expenses(“SG&A”) increased from $53.6$59.2 million or 22.1%23.3% of net sales in the firstsecond quarter of Fiscalfiscal 2004 to $67.6$80.2 million or 25.5%25.6% of net sales in the firstsecond quarter of Fiscalfiscal 2005. The increase in SG&A was primarily due toto:
Amortization of intangibleswas unchanged atincreased from $1.7 million in both the firstsecond quarter of Fiscalfiscal 2004 andto $2.4 million in the firstsecond quarter of Fiscalfiscal 2005. Fiscal 2005 includes $1.4The increase was primarily due to $0.9 million for Tommy Bahama and $0.3 million for Ben Sherman. While the purchase price valuation is preliminary, we anticipate theof amortization of intangible assets related tointangibles acquired as part of the Ben Sherman to be $0.9 million per quarter for the balance of Fiscal 2005. Total amortization of intangible assets is expected to be $2.3 million per quarter for the balance of Fiscal 2005.acquisition.
Royalties and other operating incomeincreased from $1.2$1.1 million in the firstsecond quarter of Fiscalfiscal 2004 to $1.8$3.3 million in the firstsecond quarter of Fiscalfiscal 2005 and is primarily licensingdue to:
23
Interest expense, netincreased from $5.7$6.1 million in the firstsecond quarter of Fiscalfiscal 2004 to $7.9$6.9 million in the firstsecond quarter of Fiscalfiscal 2005. The increase in interest expense was primarily due to the interest on debt incurred to finance the acquisition of Ben Sherman and the non-cash write-off of $1.8 million of deferred financing costs. The non-cash write-off of the deferred financing cost was due to the amendment of our U.S. Revolver.Sherman.
Income taxes.The effective tax rate was approximately 38.0%37.5% in the firstsecond quarter of Fiscalfiscal 2004 and 35.0% in the firstsecond quarter of Fiscalfiscal 2005. Variations in the effective tax rate arewere primarily attributable to theto:
SEGMENT DEFINITION
First Half
Net salesincreased 16.5% from $496.0 million in the first half of fiscal 2004 to $577.7 million in the first half of fiscal 2005. The increase was primarily due to:
Cost of goods soldfor the first half of fiscal 2005 was $392.6 million or 68.0% of net sales, compared to $348.3 million or 70.2% of net sales in the first half of fiscal 2004. The decline in cost of goods sold, as a percentage of net sales, was primarily due to the reasons stated above for the second quarter.
SG&A increased from $112.9 million or 22.8% of net sales in the first half of fiscal 2004 to $147.7 million or 25.6% of net sales in the first half of fiscal 2005. The increase in SG&A was primarily due to the reasons stated above for the second quarter.
Amortization of intangiblesincreased from $3.4 million in the first half of fiscal 2004 to $4.1 million in the first half of fiscal 2005 primarily as a result of the amortization of intangibles acquired as part of the Ben Sherman acquisition.
Royalties and other operating incomeincreased from $2.3 million in the first half of fiscal 2004 to $5.1 million in the first half of fiscal 2005 primarily due to the reasons stated above for the second quarter.
Interest expense, netincreased from $11.8 million in the first half of fiscal 2004 to $14.8 million in the first half of fiscal 2005. The increase in interest expense was due to:
Income taxes.The effective tax rate was approximately 37.8% in the first half of fiscal 2004 and 35.0% in the first half of fiscal 2005. Variations in the effective tax rate were primarily due to the reasons stated above for the second quarter.
OUR SEGMENTS
We organize the components of our business for purposes of allocating resources and assessing performance. Our reportable segments are the Menswear Group, the Womenswear Group and the Tommy Bahama Group. The Menswear Group produces a variety of branded and private label sportswear, tailored clothing, dress shirts and golf apparel. The Menswear Group also operates one Ben Sherman retail store and licenses the Ben Sherman brand for other product categories. The Womenswear Group produces private label women’s sportswear separates, coordinated sportswear, outerwear, dresses and swimwear. The Tommy Bahama Group produces lifestyle branded casual attire, operates retail stores and restaurants, and licenses the Tommy Bahama brand for other product categories. Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, LIFO inventory accounting adjustments and other costs that are
not allocated to the operating groups. LIFO inventory calculations are made on a legal entity basis, which do not correspond to our segment definitions. Therefore, LIFO inventory accounting adjustments are not allocated to the operating segments. Segment results are as follows:
| Quarters Ended | ||||||||||||||||||||||||
| August 27, 2004 | August 29, 2003 | Change ‘04-‘05 | ||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||
Net Sales | ||||||||||||||||||||||||
| Menswear Group | $ | 118,705 | 44.8 | % | $ | 115,754 | 47.8 | % | $ | 2,951 | 2.5 | % | ||||||||||||
| Womenswear Group | 52,458 | 19.8 | % | 62,953 | 26.0 | % | (10,495 | ) | (16.7 | %) | ||||||||||||||
| Tommy Bahama Group | 93,462 | 35.3 | % | 63,278 | 26.1 | % | 30,184 | 47.7 | % | |||||||||||||||
| Corporate and Other | 165 | 0.1 | % | 120 | 0.0 | % | 45 | 37.5 | % | |||||||||||||||
Total | $ | 264,790 | 100.0 | % | $ | 242,105 | 100.0 | % | $ | 22,685 | 9.4 | % | ||||||||||||
| Quarters Ended | ||||||||||||||||||||||||
| August 27, 2004 | August 29, 2003 | Change ‘04-‘05 | ||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||
Operating Income | ||||||||||||||||||||||||
| Menswear Group | $ | 8,921 | 7.5 | % | $ | 9,475 | 8.2 | % | $ | (554 | ) | (5.8 | %) | |||||||||||
| Womenswear Group | (966 | ) | (1.8 | %) | 3,224 | 5.1 | % | (4,190 | ) | (130.0 | %) | |||||||||||||
| Tommy Bahama Group | 11,916 | 12.7 | % | 6,959 | 11.0 | % | 4,957 | 71.2 | % | |||||||||||||||
| Corporate and Other | (2,462 | ) | N/A | (2,877 | ) | N/A | 415 | (14.4 | %) | |||||||||||||||
Total | $ | 17,409 | 6.6 | % | $ | 16,781 | 6.9 | % | $ | 628 | 3.7 | % | ||||||||||||
* For further information regarding our segments, see Note 7 of “Notes to Consolidated Financial Statements”.
| Quarters Ended | Six Months Ended | |||||||||||||||||
| Nov. 26, 2004 | Nov. 28, 2003 | % Change | Nov. 26, 2004 | Nov. 28, 2003 | % Change | |||||||||||||
| ($ in thousands) | ||||||||||||||||||
Net Sales | ||||||||||||||||||
Menswear Group | $ | 181,088 | $ | 115,353 | 57.0 | % | $ | 299,793 | $ | 231,107 | 29.7 | % | ||||||
Womenswear Group | 45,097 | 61,841 | (27.1 | )% | 97,555 | 124,794 | (21.8 | )% | ||||||||||
Tommy Bahama Group | 86,490 | 76,389 | 13.2 | % | 179,952 | 139,667 | 28.8 | % | ||||||||||
Corporate and Other | 194 | 300 | (35.3 | )% | 359 | 420 | (14.5 | )% | ||||||||||
Total Net Sales | $ | 312,869 | $ | 253,883 | 23.2 | % | $ | 577,659 | $ | 495,988 | 16.5 | % | ||||||
| Quarters Ended | Six Months Ended | |||||||||||||||||||||
| Nov. 26, 2004 | Nov. 28, 2003 | % Change | Nov. 26, 2004 | Nov. 28, 2003 | % Change | |||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||
Operating Income | ||||||||||||||||||||||
Menswear Group | $ | 18,048 | $ | 10,221 | 76.6 | % | $ | 26,969 | $ | 19,696 | 36.9 | % | ||||||||||
Womenswear Group | 208 | 1,893 | (89.0 | )% | (758 | ) | 5,117 | (114.8 | )% | |||||||||||||
Tommy Bahama Group | 5,895 | 7,550 | (21.9 | )% | 17,811 | 14,509 | 22.8 | % | ||||||||||||||
Corporate and Other | (3,340 | ) | (2,618 | ) | (27.6 | )% | (5,802 | ) | (5,495 | ) | (5.6 | )% | ||||||||||
Total Operating Income | $ | 20,811 | $ | 17,046 | 22.1 | % | $ | 38,220 | $ | 33,827 | 13.0 | % | ||||||||||
| * | For further information regarding our segments, see Note 7 of “Unaudited Notes to Condensed Consolidated Financial Statements.” |
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SEGMENT RESULTS
Menswear Group
Second Quarter
The Menswear Group reported a 2.5%57.0% increase in net sales from $115.8$115.3 million in the second quarter of fiscal 2004 to $181.1 million in the second quarter of fiscal 2005. The increase was primarily due to:
The Menswear Group reported a 76.6% increase in operating income from $10.2 million in the second quarter of fiscal 2004 to $18.0 million in the second quarter of fiscal 2005. The increase in operating income was primarily due to the higher gross margins in our Ben Sherman business.
First Half
The Menswear Group reported a 29.7% increase in net sales from $231.1 million in the first quarterhalf of Fiscalfiscal 2004 to $118.7$299.8 million in the first quarterhalf of Fiscalfiscal 2005. The change was primarily due to:
The Menswear Group reported a 36.9% increase in operating income from $19.7 million in the first half of fiscal 2004 to $27.0 million in the first half of fiscal 2005. The increase resultedin operating income was primarily due to the higher gross margins in our Ben Sherman business.
Womenswear Group
Second Quarter
The Womenswear Group reported a 27.1% decline in net sales from $61.8 million in the second quarter of fiscal 2004 to $45.1 million in the second quarter of fiscal 2005. The change was primarily due to the unit sales decline of 28.7%, primarily in the discount distribution channel, notably with Wal-Mart which has narrowed its womenswear assortment, reduced rack space devoted to women’s apparel and placed greater emphasis on direct sourcing. The decline in unit sales was partially offset by an increase of 1.3% in the average selling price per unit, primarily due to product mix within the discount distribution channel.
The Womenswear Group reported an 89.0% decline in operating profit from $1.9 million in the second quarter of fiscal 2004 to $0.2 million in the second quarter of fiscal 2005. The change was primarily due to the significant decrease in sales, which was slightly offset by operating expense reductions.
First Half
The Womenswear Group reported a 6.1%21.8% decline in net sales from $124.8 million in the first half of fiscal 2004 to $97.6 million in the first half of fiscal 2005. The change was primarily due to the unit sales decline of 25.0% due to the same reasons as described above for the second quarter. The decline in unit sales was partially offset by an increase of 2.6% in the average selling price per unit. The reasons for the increase in the average selling price per unit partially offset bywere the same as described above for the second quarter.
The Womenswear Group reported a 3.2%114.8% decline in unit sales. Ben Sherman contributed $16.6operating income from a profit of $5.1 million in sales. Our other Menswear businesses experienced declinesthe first half of $13.6fiscal 2004 to a loss of $0.8 million including declinesin the first half of $7.3 million with Sears/Lands’ End and $3.4 million of Izod Club Golf sales.fiscal 2005. The Sears/Lands’ End reductiondecrease was primarily due to the prior year benefit of initial fixture load of Lands’ End shopsto:
Tommy Bahama Group
Second Quarter
The Tommy Bahama Group reported a 13.2% increase in the current period. We discontinued our Izod Club Golf business in Fiscal 2004. Operating income declinednet sales from $9.5$76.4 million in the prior periodsecond quarter of fiscal 2004 to $8.9$86.5 million in the current period.second quarter of fiscal 2005. The increase was primarily due to:
The Tommy Bahama Group reported a 21.9% decline in operating income from $7.6 million in the second quarter of fiscal 2004 to $5.9 million in the second quarter of fiscal 2005. The decline in operating income was primarily due to:
| • | Increased marketing expenses including $2.2 million related to our title sponsorship of the PGA sanctioned “Tommy Bahama Challenge Golf Tournament.” |
Womenswear GroupFirst Half
The Womenswear Group reported a 16.7% decline in net sales from $63.0 million in the first quarter of Fiscal 2004 to $52.5 million in the first quarter of Fiscal 2005. The decline in net sales resulted from a 22.0% decline in unit sales partially offset by a 5.5% increase in the average selling price per unit. The decline in sales was primarily due to decreased sales to Wal-Mart. These sales declines were partially offset by increased sales to other customers in the department store and direct mail distribution channels. Operating income declined from $3.2 million in the first quarter of Fiscal 2004 to an operating loss of $1.0 million in the first quarter of Fiscal 2005. The decline in operating income was the result of the sales decline and margin pressures due to competitive market conditions and the continuing emphasis on direct sourcing by our key customers.
Tommy Bahama Group
Tommy Bahama was acquired on June 13, 2003. Tommy Bahama was included for 11 of 13 weeks in the first quarter of Fiscal 2004 and the entire first quarter of Fiscal 2005. Sales of Tommy Bahama for the two weeks immediately prior to the acquisition were $11.7 million and operating income for that period was $1.2 million.
The Tommy Bahama Group reported a 47.7%28.8% increase in net sales from $63.3 million for the first quarter of Fiscal 2004 to $93.5$139.7 million in the first quarterhalf of Fiscalfiscal 2004 to $180.0 million in the first half of fiscal 2005. The increase in sales was primarily due to increased wholesale sales with existing customers, increased retail sales from eleven more retail storesto:
The Tommy Bahama Group reported a 22.8% increase in operating income increased from $7.0$14.5 million in the first quarterhalf of Fiscalfiscal 2004 to $11.9$17.8 million in the first quartersecond half of Fiscalfiscal 2005. The increase in operating income was due tobenefit of the increase in sales increased leveraging ofresulting from owning Tommy Bahama for the entire period noted above was partially offset by the increase in operating expenses anddescribed above for the inclusion of two additional weeks in the first quarter of Fiscal 2005 as compared to the first quarter of Fiscal 2004.second quarter.
25
Corporate and Other
Second Quarter
The Corporate and Other operating loss declinedincreased from $2.9$2.6 million in the second quarter of fiscal 2004 to $3.3 million in the second quarter of fiscal 2005. The increase in the operating loss was primarily due to increased employment costs.
First Half
The Corporate and Other operating loss increased from $5.5 million in the first quarterhalf of Fiscalfiscal 2004 to $2.5$5.8 million in the first quarterhalf of Fiscal 2005fiscal 2005. The increase in the operating loss was primarily due to the favorable impact ofincreased employment costs partially offset by LIFO accounting in the first quarter of Fiscal 2005 as compared to the first quarter of Fiscal 2004.inventory accounting.
LIQUIDITY AND CAPITAL RESOURCES
Financing Arrangements
On May 16, 2003, we completed a $200 million private placement of senior unsecured notes to finance the acquisition of Tommy Bahama. The notes bear interest at 8.875%, have an 8-year life and were sold at a discount of 0.713%, or $1.4 million, to yield an effective interest rate of 9.0%. Interest is payable semi-annually with the principal amount due at maturity on June 1, 2011. The notes are guaranteed by all existing and future direct and indirect domestic wholly owned restricted subsidiaries of Oxford Industries, Inc. The senior notes indenture restricts our ability to incur additional indebtedness or liens, to enter into lease or hedging arrangements, to make investments and acquisitions, to sell assets, to pay dividends and to pay amounts due under the earnout agreement with the selling shareholders of the Tommy Bahama Group. The indenture also requires us to maintain a minimum consolidated fixed charge coverage ratio which is defined as the sum of consolidated net income, consolidated interest expense and non-cash charges to consolidated interest expense, calculated as applicable on a pro forma basis. We are in compliance with these covenants as of August 27, 2004.
U.S. Revolver
In associationconnection with the Ben Sherman acquisition on July 30, 2004, our U.S. Revolver was amended on July 28, 2004 and increased to $280 million with a syndicate of eight financial institutions. The maturity date was extended to July 28, 2009. Under the amended U.S. Revolver, borrowing spreads and letter of credit fees are based upon a pricing grid, which is tied to a ratio of total debt to EBITDA, calculated as applicable on a pro forma basis. The credit agreement also requires us to maintain certain financial ratios including the ratio of total debt to EBITDA, the ratio of senior debt to EBITDA, a fixed charge coverage ratio and an interest coverage ratio.ratios. Our borrowings under the amended U.S. Revolver are no longer subject to a borrowing base calculation based on our accounts receivable, inventories and real property. The amendment of our U.S. Revolver resulted in a write-off of deferred financing costs of $1.8 million in the first quarter of Fiscalfiscal 2005. We are in compliance with thesethe covenants as of August 27,November 26, 2004. At August 27,November 26, 2004, gross availability under the U.S. Revolver totaled $280.0 million, against which approximately $112.9$129.8 million in letters of credit and $98.3$116.7 million in direct borrowings were outstanding.
In conjunction with our acquisition of Ben Sherman on July 30,
On November 19, 2004, we entered into Seller Notesamended the agreements governing our lockbox activities associated with the management shareholdersU.S. Revolver. In accordance with accounting principles generally accepted in the United States, the terms of Ben Sherman. The Seller Notes total £3.5the new agreements resulted in the reclassification of all debt outstanding under our $280 million (or approximately $6.3 million)U.S. Revolver from a current liability to a non-current obligation on our balance sheet as of November 26, 2004. As a result of these agreements and are payable on demand beginning six months after July 30, 2004. The notes bear interest at the annual rateresulting reclassification, certain of LIBOR plus 1.2%our financial ratios, including but not limited to the current ratio, in current and is payable on the last day of September, December, March and June, until the principal has been paid.future periods may not necessarily be comparable to prior periods.
U.K. Revolver
On July 30, 2004, our Ben Sherman subsidiary entered into a £12 million U.K. Revolver to provide for seasonal working capital requirements and general corporate purposes. The facility is secured by substantially all of the United Kingdom assets of Ben Sherman and bears interest at the lender’s prime or base rate plus 1.2%. The facility is payable on demand and requires the borrower to maintain certain financial ratiosratios. Ben Sherman is in compliance with these covenants as of November 26, 2004.
26
includingOn May 16, 2003, we completed a minimum$200 million private placement of our Senior Unsecured Notes to finance the acquisition of the Tommy Bahama Group. The notes bear interest coverage ratio,at 8.875%, have an 8-year life and were sold at a minimum asset coverage ratiodiscount of 0.713%, or $1.4 million, to yield an effective interest rate of 9.0%. Interest is payable semi-annually with the principal amount due at maturity on June 1, 2011. The notes are guaranteed by all of our existing and a minimum levelfuture direct and indirect domestic wholly owned restricted subsidiaries. Among other restrictions, the indenture restricts our ability to incur additional indebtedness or liens, to enter into lease or hedging arrangements, to make investments and acquisitions, to sell assets, to pay dividends and to pay amounts due under the earnout agreement with the selling shareholders of earnings before interest, taxesthe Tommy Bahama Group. The indenture also requires us to maintain certain financial ratios and intangible asset amortization.covenants. We are in compliance with these covenants as of August 27,November 26, 2004.
Seller Notes
In conjunction with our acquisition of Ben Sherman on July 30, 2004, we entered into Seller Notes with the management shareholders of Ben Sherman. The Seller Notes total approximately $6.9 million and are payable on demand beginning six months after July 30, 2004. The Seller Notes bear interest at the annual rate of LIBOR plus 1.2% payable on the last day of September, December, March and June until the principal has been paid in full.
Operating Activities
The cash flow from operating activities is primarily due to net earnings and changes in working capital. Changes in working capital are primarily monitored by analysis of the investment in accounts receivable and inventories and by the amount of accounts payable.
During the first quarterhalf of Fiscalfiscal 2005, we generated cash from operating activities of $12.1$14.7 million primarily from net earnings and non-cash charges andoffset by a slightnet increase in working capital after giving effect to the acquisition of Ben Sherman. Working capital changes included increased inventories, decreased trade payables and decreased accrued expenses offset by decreased accounts receivable. The inventory increase occurred in our Tommy Bahama businesses to support increased sales. Trade payables decreased primarily due to the decline in inventory purchases during the first quarter of Fiscal 2005 compared to the fourth quarter of Fiscal 2004. The decline in accrued expenses was primarily due to incentive compensation and interest accrued at the end of Fiscal 2004 and paid in the first quarter of Fiscal 2005. The accounts receivable decline was due to the decline in sales in the last two months of the first quarter of Fiscal 2005 compared to the last two months of the fourth quarter of Fiscal 2004.
During the first quarterhalf of Fiscalfiscal 2004, we generated cash from operating activities of $5.6$13.3 million primarily from net earnings and non-cash charges andoffset by a slightnet increase in working capital after giving effect to the acquisition of Tommy Bahama. Working capital changes included decreased accounts payable and accrued expenses partially offset by decreased inventory and decreased receivables. The decreased trade payables was primarily due to the decline in inventory purchases. The decline in accrued expenses was primarily due to incentive compensation accrued at the end of Fiscal 2003 and paid in the first quarter of Fiscal 2004. The decline in inventory occurred primarily in our preacquisition business. The decline in accounts receivable was the same as described above for the current year.
Investing Activities
During the first quarterhalf of Fiscalfiscal 2005, investing activities used $141.7$146.5 million in cash, principally for the acquisition of Ben Sherman as well as payments related to the Tommy Bahama earn-out agreement. Capital expenditures of $6.5 million were primarily related to new Tommy Bahama retail stores as well as leasehold improvements and office equipment associated with the Tommy Bahama corporate offices.
During the first half of fiscal 2004, investing activities used $26.0 million in cash, principally for the acquisition of the Ben Sherman.Tommy Bahama Group net of the reduction in restricted proceeds from the sale of the Senior Unsecured Notes. Capital expenditures of $2.5$7.3 million were primarily related to new Tommy Bahama retail stores, computer equipment and software.
During the first quarter of Fiscal 2004, investing activities used $17.8 million in cash and principally for the acquisition of the Tommy Bahama net of the reduction in restricted proceeds from the sale of the senior unsecured notes. Capital expenditures of $3.2 million were primarily related to new Tommy Bahama retail stores, computer equipment and software.
Financing Activities
During the first quarterhalf of Fiscalfiscal 2005, financing activities generated $93.6$103.2 million in cash. This represents the amount ofproceeds from increased U.S. Revolver debt, issuance of Seller Notes to finance the acquisition of Ben Sherman and proceeds from the issuance of common stock upon the exercise of employee stock options, partially offset by payments of deferred financing cost to amend our U.S. Revolver and payment of dividends on our common stock.
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During the first quarter of Fiscal 2004, financing activities generated $5.5 million in cash. This represents an increase in revolver debt and proceeds from the issuance of common stock upon the exercise of employee stock options, partially offset by payments ofon the U.K. Revolver during the period, deferred financing costpaid to amend our U.S. Revolver and payment of dividends on our common stock.shares.
During the first half of fiscal 2004, financing activities used $5.9 million in cash. This represents payments on debt issuance costs related to the issuance of our Senior Unsecured Notes and dividends partially offset by proceeds from the issuance of common shares upon the exercise of employee stock options.
We have no off-balance sheet financing arrangements.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon ourUnaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgementsjudgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, contingencies and litigation and certain other
accrued expenses. We base our estimates on historical experience and on various other assumptions that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Securities and Exchange Commission’s Financial Reporting Release No. 60 requires all companies to include a discussion of the significant estimates, assumptions and judgments that underlie their critical accounting policies or methods used in the preparation of financial statements. The detailed See the “Summary of SignificantCritical Accounting Policies is included in theNotes to Consolidated Financial Statements” contained in this report. The following is a brief discussion of the moreour fiscal 2004 Form 10-K. There have been no significant changes in our critical accounting policies and methods we use.as disclosed in our fiscal 2004 Form 10-K.
Revenue Recognition and Accounts Receivable
We consider revenue realized or realizable and earned when the following criteria are met:SEASONALITY
Sales are recorded net of discounts, as well as provisions for estimated returns and allowances. We estimate returns and allowances on an ongoing basis considering historical and current trends and projected seasonal results. We record these costs as a reduction to net revenue. Our historical estimates of these sales reductions have not differed materially from actual results. For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends of trade discounts and co-op advertising deductions taken by our customers, allowances we provide to our retail customers for a variety of reasons, and the possibility of non-collection due to the financial position of our customers. Credit losses are charged to SG&A.
Inventories
For segment reporting, inventory is carried at the lower of first-in first-out (“FIFO”) cost or market. For wholesale inventory, we estimate the amount of goods that we will not be able to sell in the
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normal course of business and write down the value of these goods to the recovery value expected to be realized through off-price channels yielding a normal gross margin when shipped. For Tommy Bahama retail inventory, we provide an allowance for shrinkage and goods expected to be sold below cost. If we incorrectly anticipate these trends or unexpected events occur, the results of operations could be materially affected. For consolidated financial reporting, significant portions of our inventory are valued at the lower of LIFO cost or market. LIFO inventory calculations are made on a legal entity basis, which do not correspond to our segment definitions. Therefore, LIFO inventory accounting adjustments are not allocated to the operating segments. As part of our LIFO accounting, markdowns for inventory valued at LIFO cost are deferred until the period in which the goods are sold. However, in non-routine circumstances, such as discontinuance of a product line, markdowns below the allocated LIFO reserve are not deferred. Both the LIFO reserve and the markdown deferral are reflected in Corporate and Other.
Goodwill
The evaluation of the recoverability of goodwill under SFAS 142 requires valuations of each applicable underlying business using fair value techniques and market comparable. These valuations can be significantly affected by estimates of future performance and discount rates over a relatively long period of time, market price valuation multiples and transactions in related markets. These estimates will likely change over time. Goodwill is required to be evaluated annually, or more frequently if events or changes in circumstances indicate that the carrying amount may exceed fair value. If this review indicates an impairment of goodwill balances, the amount of impairment will be recorded immediately and reported as a component of current operations. The business valuation reviews required by SFAS 142 were performed as of the end of the first quarter of fiscal 2005 and indicated that no reduction of the carrying value of goodwill for our business units was required.
Intangible Assets Other than Goodwill
Intangible assets with finite lives are amortized while intangible assets with indefinite useful lives are not amortized, but tested at least annually for impairment. The valuation of the recoverability of indefinite lived intangibles can be significantly impacted by estimates of future cash flows and discount rates over a relatively long period of time, which will likely change over time. Intangible assets whose useful lives are finite are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized.
Legal and Tax Contingencies
We are involved in tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters, based upon the latest information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have recorded reserves in the consolidated financial statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, we are unable to make a reasonable estimate of a liability, if any. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.
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Cost of Goods Sold
We include in cost of goods sold all manufacturing and sourcing costs and expenses incurred prior to receipt of finished goods at our distribution facilities. These costs principally include product cost, inbound freight charges, purchasing costs, internal transfer costs, as well as insurance, duty, brokers’ fees and consolidators’ fees. Our gross margins may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.
Selling, General and Administrative Expenses
We include in SG&A, costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of warehousing, picking, packing, shipping and handling goods for delivery to customers. In addition, SG&A includes product design costs, selling costs, royalty costs, advertising, promoting and marketing expenses and general and administrative expenses.
Distribution Network Costs, Including Shipping and Handling
Distribution network costs, including shipping and handling, are included as a component of SG&A. Revenues received from customers for shipping and handling are included in net revenue.
Advertising
All costs associated with advertising, promoting and marketing of our products are expensed during the periods when the activities take place. Costs associated with cooperative advertising programs under which we agree to share costs of customers’ advertising and promotion expenditures are expensed when the related revenues are recognized. Advertising, promotion and marketing expenses are included in SG&A.
Seasonality
Although our various product lines are sold on a year-round basis, the demand for specific products or styles may be highly seasonal. For example, the demand for golf and Tommy Bahama products is higher in the spring and summer seasons. Products are sold prior to each of our retail selling seasons, including spring, summer, fall and holiday. AsBecause the timing of product shipments and other events affecting the retail business may vary, results for any particular quarter may not be indicative of results for the full year. The percentage of net sales distribution by quarter for Fiscalfiscal 2004 were 22%, 23%, 25% and 30%, respectively, and the percentage of net earnings by quarter for Fiscalfiscal 2004 were 17%, 17%, 24% and 42%, respectively.
FUTURE LIQUIDITY, AND CAPITAL RESOURCES AND RESULTS OF OPERATIONS
Cash flow from operations is our primary source of liquidity. Our projected capital expenditures for all of Fiscalfiscal 2005 are approximately $20$18 million. We anticipate that cash flows from operations supplemented with borrowings as necessary under our amended U.S. Revolver and U.K. Revolver will be sufficient to fund our future liquidity requirements for Fiscalthe remainder of fiscal 2005.
We have no off-balance sheet arrangements.
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FORWARD OUTLOOK
We anticipate Fiscal 2005 sales in the range of $1.285 billion to $1.325$1.310 billion and earnings per diluted share in the range of $2.70$2.60 to $2.85.$2.75. For the secondthird quarter of Fiscal 2005, we anticipate sales in the range of $305$350 million to $315$365 million and earnings per diluted share in the range of $0.48$0.65 to $0.52.$0.71. For the fourth quarter of Fiscal 2005, we anticipate sales in the range of $355 million to $370 million and earnings per diluted share in the range of $1.06 to $1.15.
UNITED STATES SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-lookingThe statements reflect our current expectationsin this section are forward-looking statements subject to the risks and are not guarantees of performance. Theseuncertainties described below in “Cautionary Statements Regarding Forward-Looking Statements.”
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS
Our Securities and Exchange Commission filings and public announcements often include forward-looking statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information.about future events. Important assumptions relating to these forward looking statements include, among others, assumptions regarding demand for our products, expected pricing levels, raw material costs, the timing and cost of planned capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies in connection with acquisitions and joint ventures, including the acquisition of Ben Sherman. Forward-looking statements reflect our current expectations and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. These beliefs and assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these risks are beyond our ability to control or predict. Such risks include, but are not limited to, all of the risks discussed under “Risk Factors” and the following:
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Other risks or uncertainties may be detailed from time to time in our future Securities and Exchange Commission filings.uncertainties. 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. Many of these risks and uncertainties are beyond our ability to control or predict. Such risks and uncertainties include, but are not limited to, all of the risks discussed under “Risk Factors” in our fiscal 2004 Form 10-K, including the following:
Other risks or uncertainties may be detailed from time to time in our future Securities and Exchange Commission filings.
We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as required by law.
ADDITIONAL INFORMATION
For additional information concerning our operations, cash flows, liquidity and capital resources, this analysis should be read in conjunction with theConsolidated Financial Statementsand theNotes to Consolidated Financial Statementscontained in our Fiscal 2004 Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK
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Interest rate risk is managed through the maintenance of a portfolio of variable and fixed rate debt composed of short and long-term instruments. The objective is to maintain a cost-effective mix that management deems appropriate. We generally do not engage in hedging activities with respect to such risk.risk and do not enter into such transactions on a speculative basis.
We finance our capital needs through available cash, operating cash flow, letters of credit and bank revolving credit facilities.
At August 27,November 26, 2004, we had variable rate debt of $111.9$123.6 million. Our average variable rate borrowings for the threesix months ended August 27,November 26, 2004 were $48.2$78.5 million, with an average interest rate of 4.7%4.4%. If the three-monthsix-month average interest rate increased by 10%, our interest expense would have changed by $41,000.$163,711.
FOREIGN CURRENCY RISK
We receive United States dollars for substantially all of our product sales except Ben Sherman. Sales generated by Ben Sherman’s U.K. operations are denominated in pounds sterling and euros. Substantially all inventory purchases from contract manufacturers throughout the world are also denominated in United States dollars. However, purchase prices for our products may be impacted by fluctuations in the exchange rate between the United States dollar and the local currencies of the contract manufacturers, which may have the effect of increasing our cost of goods sold in the future. Exchange rate fluctuations have not had a material impact on our inventory costs; however, due to the number of currencies involved and the fact that not all foreign currencies react in the same manner against the United States dollar, we cannot quantify in any meaningful way the potential effect of such fluctuations on future income.
In connection with the acquisition of Ben Sherman, we entered into foreign exchange forward contracts to fix the currency exchange rate between the United States dollar and the pound sterling from the agreement date until the closing and funding of the acquisition. The contracts totaled £76 million at an average exchange rate of $1.8118 per £1.00.
Ben Sherman engages in forward exchange contracts for the purchase of finished productproducts from production sources in Asia where the currency denomination of choice is the United States dollar. These contracts are marked to market and are not material.
TRADE POLICY RISK
Under the terms of bilateral agreements between most of the major apparel exporting countries and the United States, most categories of our products are subject to quotas limiting the quantity of such products that may be imported into the United States. Utilization of these quotas is typically controlled at origin by an export license or visa system administered by the exporting country and is monitored and enforced by United States Customs and Border Protection at the time of importation. Since we own or directly control only a small portion of the quota we need, we rely on our suppliers and vendors to secure the visas or licenses required to ship our products. If our suppliers and vendors fail to secure the necessary visas or licenses as agreed with us, our supply chain could be disrupted. The requirement for visas or licenses was eliminated effective for goods exported from their country of origin on or after January 1, 2005. Thus, the requirement only applies to goods exported on or before December 31, 2004, some of which might still be in transit.
If an exporting country fails to properly administer its quota and issues visas or export licenses in excess of the quantity permitted under the terms of its bilateral agreement with the United States, entry of the goods covered by such export license or visa could be denieddelayed. The United States has announced that any goods exported during 2004 in excess of the applicable quota limit will not be permitted entry into the United States.States until February 1, 2005 at which time a “staged entry” process will begin. The staged entry process could, depending on the extent of any overshipment, take several months to complete. Such a denialdelay could disrupt our supply chain.
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Since the quotas under the bilateral agreements described above are country-specific, the United States has established detailed country of origin criteria that a product must meet to be eligible to use a particular country’s quota. If we, or our vendors or suppliers, fail to comply with these country of origin requirements or fail to be able to document our compliance with such requirements, our products may be denied entry into the United States. Such a denial could disrupt our supply chain.
The 1994 Agreement on Textiles and Clothing among World Trade Organization (“WTO”) countries mandatesmandated the elimination of textile and apparel product quotas for WTO countries, including the United States, on January 1, 2005. As a result, there will be changes in the international textile and apparel trade is undergoing a significant realignment which may significantly impactis changing our sourcing patterns, could disrupt our supply chain and could put us at a disadvantage to our competitors.
Some of the impact
The elimination of quota elimination may begin incould impact some shipments during the latterfirst part of calendar 2004.2005. Historically, exporting countries have been permitted under the terms of their bilateral agreements with the United States to borrow a limited amount of quota from the following year. Since there will beis no quota in calendar 2005, none iswas available for this type of borrowing in calendar 2004. The unavailability of this type of quota borrowing could lead tomay have created quota shortages in the latter part of calendar 2004, which could have caused exporting countries to ship goods in excess of their 2004 limit. Any such overshipment would be subject to the staged entry process described above which could cause disruption in our supply chain.
In addition, notwithstanding quota elimination, under the terms of China’s WTO accession agreement, the United States and other WTO members may re-impose quotas on specific categories of products in the event it is determined that imports from China have surged or may surge and are threatening to create a market disruption for such categories of products (so called “safeguard quota”). China is a major source of production for us, and the re-imposition of safeguard quotas on China following the elimination of the existing quota regime on January 1, 2005 could cause disruption in our supply chain.
Furthermore, under long-standing statutory authority applicable to imported goods in general, the United States may unilaterally impose additional duties: (i) when imported merchandise is sold at less than fair value and causes material injury, or threatens to cause material injury, to the domestic industry producing a comparable product (generally known as “anti-dumping” duties); or (ii) when foreign producers receive certain types of governmental subsidies, and when the importation of their subsidized goods causes material injury, or threatens to cause material injury, to the domestic industry producing a comparable product (generally known as “countervailing” duties). The imposition of anti-dumping or countervailing duties on products we import would increase the cost of those products to us. We may not be able to pass on any such cost increase to our customers. There are numerous free trade agreements pending, including the United States-Central American Free Trade Agreement that, if adopted, could put us as a disadvantage to some of our competitors.
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information that we are required to disclose in our Securities Exchange Act of 1934 (the “Securities Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief
The Company’s Principal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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Our Chief Executive Officer and ChiefPrincipal Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chiefour Principal Executive Officer and the ChiefPrincipal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.effective in ensuring that information required to be disclosed by us in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any changes in the our internal controls over financial reporting (as such term is defined in Rule 13a-1513a-15(f) and 15d-1515d-15(f) under the Securities Exchange Act) during the fiscal quarter ended August 27,November 26, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGSIn the ordinary course of business, we may become subject to litigation or claims. There are no material pending legal proceedings, proceedings known to be contemplated by governmental authorities or changes in items previously disclosed involving us during the quarter ended November 26, 2004, requiring disclosure under Item 103 of Regulation S-K.
ITEM 6. EXHIBITS2. UNREGISTERED SALES OF EQUITY SECURITIES AND REPORTS ON FORM 8-KUSE OF PROCEEDS
(a) Exhibits.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company’s Annual Meeting of Shareholders held on October 4, 2004, the shareholders:
| Elected S. Anthony Margolis, James A. Rubright, Helen B. Weeks and E. Jenner Wood III as Class I nominees to the Board of Directors to serve three year terms as follows: |
For | ||||
Withheld: | 854,664 |
| b. | Approved the Oxford Industries, Inc. Employee Stock Purchase |
For: | 10,604,632 | |||
Against: | ||||
Abstention: | ||||
Broker Non-Vote: |
| c. | Approved the Oxford Industries, Inc. Long-Term Incentive Plan as follows: |
For: | 8,882,234 | |||
Against: | ||||
Abstention: | 16,924 | |||
Broker Non-Vote: | 3,121,558 |
| d. | Approved the ratification of Ernst & Young LLP as the Company’s independent auditors as follows: |
For: | 14,991,912 | |||
Against: | 31,464 | |||
Abstention: | 26,247 |
(b) Reports on Form 8-K.
We filed a current report on Form 8-K on July 28, 2004 furnishing our year end earnings release.
We filed a current report on Form 8-K on August 2, 2004 furnishing our press release regarding the completion of our Ben Sherman acquisition.
We filed a current report on Form 8-K on August 13, 2004 furnishing certain financial information relating to Ben Sherman prepared in accordance with United Kingdom GAAP.
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SIGNATURESITEM 5. OTHER INFORMATION
None
(a) Exhibits.
31.1 Section 302 Certification by Principal Executive Officer.
31.2 Section 302 Certification by Principal Financial Officer.
32.1 Section 906 Certification by Principal Executive Officer.
32.2 Section 906 Certification by Principal Financial Officer.
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.
Dated January 5, 2005 | ||
| (Registrant) |
/s/ | |||
| Thomas Caldecot Chubb III | |||
Executive Vice President | |||
Exhibit 10.1 Oxford Industries, Inc. Long Term Incentive Plan.Exhibit 10.2 Oxford Industries, Inc Employee Stock Purchase Plan.Exhibit 31.1 Section 302 Certification by Chief Executive Officer.Exhibit 31.2 Section 302 Certification by Chief Financial Officer.Exhibit 32.1 Section 906 Certification by the Chief Executive Officer.Exhibit 32.2 Section 906 Certification by the Chief Financial Officer.
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