- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 28, 2003
-----------------------------------------
OXFORD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 001-04365 58-0831862
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NO.) (IRS EMPLOYER
INCORPORATION) IDENTIFICATION NUMBER)
222 PIEDMONT AVENUE NE, ATLANTA GEORGIA 30308
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(404) 659-2424
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
- --------------------------------------------------------------------------------
ITEM 5. OTHER
Oxford Industries, Inc. ("Oxford") previously announced its proposed
acquisition of Viewpoint International, Inc. (which acquisition is subject to a
number of conditions), and is filing the following information:
In this current report, the term "last twelve months" refers to:
- in the case of Oxford, the twelve months ended February 28, 2003;
- in the case of Viewpoint, the twelve months ended December 31, 2002;
and
- in the case of our pro forma results, a combination of data derived in
accordance with the preceding two bullet points.
In this current report, "comparable store sales" presented for any period
includes sales by any store that has been open for at least 14 months at any
time during the period presented (comparing sales for the period after such 14
months to sales during the comparable portion of the prior period).
FUTURE OPERATING RESULTS
The apparel market remains highly competitive and continues to benefit
the consumer, who enjoys a wide choice of apparel at deflating prices. This high
level of competition is the result of continued excess worldwide manufacturing
capacity and the search by manufacturers and retailers for low-cost production
sources around the globe.
Uncertainties regarding the future retail environment that may affect us
include continued excessive retail floor space per customer, constant heavy
discounting at the retail level, deflation in wholesale and retail apparel
prices and continued growth in direct importing by retailers. Economic
uncertainties, global terrorism, stock market losses, layoffs, rising consumer
debt and falling consumer savings rates have taken their toll on consumer
spending. It is unclear whether consumer spending can maintain its current pace.
In August 2002, President Bush signed into law the Trade Act of 2002. The
Trade Act contains numerous provisions, two of which are especially relevant for
the Company. First, the so called "trade promotion authority" provisions which
permit the President to negotiate trade agreements that are then subject to a
simple yes or no approval vote by Congress without amendment. This authority is
crucial to the negotiation of any future trade agreements similar to NAFTA. The
extension of this authority to the President may result in future trade
agreements, such as the proposed Free Trade of the Americas Agreement, that may
impact our future sourcing strategy. Second, the Trade Act includes the Andean
Trade Promotion and Drug Eradication Act (ATPDEA) that provides for duty free
treatment of qualifying apparel products produced in Bolivia, Colombia, Ecuador
and Peru. Importantly, ATPDEA provides benefits to products made from U.S.
fabrics as well as Andean fabrics. The ATPDEA is likely to enhance the
competitiveness of our well-established manufacturing and sourcing operations in
the Andean region.
In light of the current economic and political uncertainties as well as
the sluggish and deflationary retail environment, we have approached the fourth
quarter of fiscal 2003 with a measure of caution and conservatism. Compared to
our strong fourth quarter in fiscal 2002, we expect sales to be moderately lower
in the fourth quarter of fiscal 2003 reflecting the early shipment of Spring
merchandise in the third quarter and the deferral of some transition season
merchandise into the first quarter of next year. The fourth quarter of fiscal
2002 included a LIFO credit of $0.10 per share due to the liquidation of LIFO
inventory layers. This credit is not expected to recur in the fourth quarter of
fiscal 2003. Consequently, we expect diluted earnings per share to be modestly
lower in the fourth quarter of fiscal 2003 compared to the fourth quarter of
fiscal 2002.
2
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA -- OXFORD
<Table>
<Caption>
TWELVE
MONTHS ENDED
FEBRUARY 28, 2003
-----------------------------
(IN THOUSANDS, EXCEPT RATIOS)
PRO FORMA FINANCIAL DATA(1):
Pro forma net sales......................................... $1,076,544
Pro forma EBITDA............................................ $ 97,050
Pro forma net cash provided by operating activities......... $ 48.3
Ratio of pro forma net debt to pro forma EBITDA(2).......... 2.5x
Ratio of pro forma EBITDA to pro forma interest expense..... 4.0x
</Table>
(1) The pro forma financial data give effect to the offering of $175 million of
notes, borrowings under our new senior secured revolving credit facility and
our acquisition of Viewpoint as if they occurred on March 2, 2002. The pro
forma financial data presented have been prepared by Oxford on the same
basis as the pro forma financial statements included in this current report
under "Unaudited Pro Forma Consolidated Financial Information."
(2) Net debt reflects total debt at period end less cash and cash equivalents at
period end.
3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
GENERAL
The unaudited pro forma combined statement of earnings for the year ended
May 31, 2002 gives effect to the following events as if each had occurred on
June 2, 2001 (with respect to Oxford) and April 1, 2001 (with respect to
Viewpoint). The unaudited pro forma combined statement of earnings for the nine
months ended February 28, 2003 gives effect to the following events as if each
had occurred on June 1, 2002 (with respect to Oxford) and April 1, 2002 (with
respect to Viewpoint). The unaudited pro forma balance sheet gives effect to the
following events as if each had occurred on February 28, 2003:
- the issuance of $175 million of notes;
- the acquisition of Viewpoint;
- borrowings under our new senior secured revolving credit facility, as
necessary to consummate the acquisition of Viewpoint and repay all
amounts due under notes payable related to our accounts receivable
securitization facility; and
- the issuance to Viewpoint stockholders of 388,200 shares of our common
stock (with a market value of $10.0 million).
The acquisition of Viewpoint will be accounted for using the purchase
method of accounting. The fair value of Viewpoint's assets and related
liabilities are based on preliminary estimates. Additional analysis will be
required to determine the fair value of Viewpoint's assets and liabilities,
primarily with respect to inventory, property, plant and equipment, intangible
assets and certain assumed liabilities. Viewpoint's accounts will change from
the amounts shown based on the valuations. The final allocation of the
acquisition consideration may result in significant differences from the pro
forma amounts reflected in the unaudited pro forma combined financial
statements.
The unaudited pro forma combined financial statements are based on
assumptions that we believe are reasonable under the circumstances and are
intended for informational purposes only. They are not necessarily indicative of
our future financial position or results of operations or of the financial
positions or results of operations that would have actually occurred had the
acquisition of Viewpoint taken place as of the dates or for the periods
presented.
4
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
<Table>
<Caption>
PRO FORMA
OXFORD VIEWPOINT COMBINED
YEAR ENDED YEAR ENDED PRO FORMA YEAR ENDED
MAY 31, 2002 MARCH 31, 2002 ADJUSTMENTS MAY 31, 2002
---------------- ------------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................. $ 677,264 $284,953 $ -- $ 962,217
Cost of goods sold.................... 544,016 138,503 -- 682,519
---------- -------- -------- ----------
Gross profit.......................... 133,248 146,450 -- 279,698
Licensing revenue..................... -- 2,434 -- 2,434
Selling, general and administrative... 115,729 103,909 (3,051)(1) 216,587
---------- -------- -------- ----------
Earnings before interest and taxes.... 17,519 44,975 3,051 65,545
Other expense......................... -- 277 -- 277
Interest expense, net................. 243 7,517 19,725(2) 27,485
Minority interest in net loss of
subsidiaries........................ -- 87 -- 87
---------- -------- -------- ----------
Earnings before income taxes.......... 17,276 37,268 (16,674) 37,870
Income taxes.......................... 6,704 13,350 (6,470)(3) 13,584
---------- -------- -------- ----------
Net earnings.......................... $ 10,572 $ 23,918 $(10,204) $ 24,286
========== ======== ======== ==========
PRO FORMA EARNINGS PER SHARE
Basic................................. $ 1.41 $ 3.05
Diluted............................... $ 1.40 $ 3.03
PRO FORMA SHARES OUTSTANDING
Basic................................. 7,493,678 459,982(4) 7,953,660
Diluted............................... 7,549,277 459,982(4) 8,009,259
</Table>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
5
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
<Table>
<Caption>
PRO FORMA
COMBINED
OXFORD VIEWPOINT NINE
NINE MONTHS NINE MONTHS MONTHS
ENDED ENDED ENDED
FEBRUARY 28, DECEMBER 31, PRO FORMA FEBRUARY 28,
2003 2002 ADJUSTMENTS 2003
---------------- ------------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales.............................. $ 566,529 $225,454 $ -- $ 791,983
Cost of goods sold..................... 447,968 110,893 -- 558,861
---------- -------- -------- ----------
Gross profit........................... 118,561 114,561 -- 233,122
Licensing revenue...................... -- 2,732 -- 2,732
Selling, general and administrative.... 92,462 85,564 -- 178,026
---------- -------- -------- ----------
Earnings before interest and taxes..... 26,099 31,729 -- 57,828
Other (income)......................... -- (385) -- (385)
Interest expense, net.................. 149 4,613 13,925(5) 18,687
Minority interest in net loss of
subsidiaries......................... -- 52 -- 52
---------- -------- -------- ----------
Earnings before income taxes........... 25,950 27,553 (13,925) 39,578
Income taxes........................... 10,250 9,187 (5,500)(6) 13,937
---------- -------- -------- ----------
Net earnings........................... $ 15,700 $ 18,366 $ (8,425) $ 25,641
========== ======== ======== ==========
PRO FORMA EARNINGS PER SHARE
Basic.................................. $ 2.09 $ 3.26
Diluted................................ $ 2.08 $ 3.24
PRO FORMA SHARES OUTSTANDING
Basic.................................. 7,516,526 350,140(7) 7,866,666
Diluted................................ 7,557,633 350,140(7) 7,907,773
</Table>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
6
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<Table>
<Caption>
PRO FORMA
OXFORD VIEWPOINT PRO FORMA COMBINED
FEBRUARY 28, 2003 DECEMBER 31, 2002 ADJUSTMENTS FEBRUARY 28, 2003
----------------- ----------------- ----------- -----------------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents..... $ 6,526 $ 7,247 $ -- $ 13,773
Receivables................... 149,880 27,632 -- 177,512
Inventories................... 98,885 40,230 -- 139,115
Other Current Assets.......... 9,515 7,222 -- 16,737
-------- -------- -------- --------
Total current assets....... $264,806 $ 82,331 $ -- $347,137
Property, plant and equipment... 23,573 25,327 -- 48,900
Other assets.................... 3,897 4,622 (552)(8) 7,967
Intangible assets, net.......... 5,839 5,537 174,890(9) 186,266
Deferred financing costs, net... -- 696 12,325(10) 13,021
-------- -------- -------- --------
Total Assets............... $298,115 $118,513 $186,663 $603,291
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Notes payable................. $ 10,000 $ 5,803 $(15,803)(11) $ --
Senior credit facility........ 84,856(12) 84,856
Trade accounts payable........ 58,758 31,905 -- 90,663
Current maturities of
long-term debt............. 128 7,589 (7,589)(13) 128
Accrued compensation.......... 19,208 -- -- 19,208
Other accrued expenses........ 19,231 13,460 (861)(14) 31,830
-------- -------- -------- --------
Total current
liabilities.............. $107,325 $ 58,757 $ 60,603 $226,685
Long-term debt, less current
maturities.................... 29 16,427 (16,427)(15) 29
Notes payable to shareholders... -- 26,114 (26,114)(16) --
Notes offered hereby............ -- -- 175,000(17) 175,000
Other noncurrent liabilities.... 4,500 2,251 (1,452)(18) 5,299
Minority interest............... -- 17 -- 17
Stockholders' equity
Common stock.................. 7,520 4 428(19) 7,952
Additional paid in capital.... 14,705 29,714 (20,146)(20) 24,273
Retained earnings............. 164,036 85,430 (85,430)(21) 164,036
Treasury stock................ -- (100,201) 100,201(22) --
-------- -------- -------- --------
Total stockholders' equity...... 186,261 14,947 (4,947) 196,261
-------- -------- -------- --------
Total Liabilities and
Stockholders' Equity.......... $298,115 $118,513 $186,721 $603,291
======== ======== ======== ========
</Table>
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
YEAR ENDED MAY 31, 2002 UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
(1) Reflects the elimination of $1.0 million of financing costs under our
accounts receivable securitization facility, which will be repaid in
connection with entering into our new senior secured revolving credit
facility, and the elimination of $2.0 million of our goodwill to reflect
the pro forma adoption on June 2, 2001 of SFAS 142. SFAS 142 requires that
goodwill, including previously existing goodwill and intangible assets with
indefinite useful lives not be amortized, but instead tested for impairment
at the adoption and at least annually thereafter.
(2) Reflects the adjustment of interest expense to give effect to (i)
borrowings under our new senior secured revolving credit facility, (ii)the
issuance of $175 million of notes, (iii) amortization of debt issuance
costs and (iv) the elimination of Viewpoint's interest expense. Debt
issuance costs are amortized on a straight line method which approximates
an effective interest method over the terms of the related debt facilities.
(3) Tax effects of the pro forma adjustments have been calculated based on our
statutory rate of 38.8% during the period presented.
(4) Reflects the issuance of 459,982 shares of our common stock with a total
market value of $10.0 million, based on a market price of $21.74. The price
per share reflects the average high and low trading prices of our stock for
the ten trading days prior to the beginning of our fiscal year ended May
31, 2002.
NINE MONTHS ENDED FEBRUARY 28, 2003 UNAUDITED PRO FORMA COMBINED STATEMENT OF
EARNINGS
(5) Reflects the adjustment of interest expense to give effect to (i)
borrowings under our new senior secured revolving credit facility, (ii) the
issuance of $175 million of notes, (iii) amortization of debt issuance
costs of $1.7 million and (iv) the elimination of Viewpoint's interest
expense. Debt issuance costs are amortized on a straight line method which
approximates an effective interest method over the terms of the related
debt facilities.
(6) Tax effects of the pro forma adjustments have been calculated based on our
statutory rate of 39.5% during the period presented.
(7) Reflects the issuance of 350,140 shares of our common stock with a total
market value of $10.0 million, based on a market price of $28.56. The price
per share reflects the average high and low trading prices of our stock for
the ten trading days prior to the beginning of the nine months ended
February 28, 2003.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF FEBRUARY 28, 2003
(8) Reflects the deferred tax effect of the pro forma adjustments.
(9) Our acquisition of Viewpoint will be accounted for by the purchase method
of accounting, pursuant to which the acquisition consideration is allocated
among the acquired tangible and intangible assets and assumed liabilities
in accordance with their estimated fair values on the date of acquisition.
The
8
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition consideration and estimated allocation of the acquisition
consideration, which does not reflect up to $75.0 million of potential
contingent consideration, are as follows (dollars in thousands):
<Table>
Acquisition consideration:
Cash consideration..................................... $240,000
Estimated working capital adjustment to cash
consideration......................................... (5,700)
Fair value of shares of common stock issued............ 10,000
Transaction related fees............................... 2,535
--------
Total acquisition consideration........................ $246,835
========
Allocation of acquisition consideration:
Net assets of Viewpoint based on historical carrying
amounts as of December 31, 2002....................... $ 14,947
Existing Viewpoint indebtedness to be repaid by
Viewpoint stockholders at closing..................... 55,933
Accrued interest expense on Viewpoint's debt included
in accrued liabilities to be funded by Viewpoint
stockholders at closing (Note 14)..................... 861
Increase (decrease) in net assets to reflect estimated
fair value adjustments under the purchase method of
accounting:
Elimination of Viewpoint deferred financing costs (Note
10)................................................... (696)
Deferred rent (Note 18)................................ 1,452
Deferred tax effect of the pro forma adjustments (Note
8).................................................... (552)
Elimination of Viewpoint's existing goodwill of $5.5
million and the estimated increase in intangible
assets of $180.0 million related to the acquisition... 174,890
--------
$246,835
========
</Table>
(10) Reflects estimated financing fees and expenses related to the notes and our
new senior secured revolving credit facility, which will be capitalized and
amortized over their respective terms, and the elimination of $696,000 of
unamortized deferred financing costs related to Viewpoint debt that will be
repaid at closing from the cash consideration.
(11) To eliminate our short term debt and Viewpoint's short term debt.
(12) To reflect borrowings under our new senior secured revolving credit
facility simultaneous with our acquisition of Viewpoint.
(13) To eliminate Viewpoint's current maturities of long-term debt.
(14) To eliminate the accrued interest on Viewpoint's debt.
(15) To eliminate Viewpoint's long term debt.
(16) To eliminate Viewpoint's notes payable to shareholders.
(17) To reflect the notes to be issued in this offering.
(18) To eliminate Viewpoint's deferred rent.
(19) To eliminate Viewpoint's common stock and to record the issuance of 431,648
shares of Oxford's common stock based on a market price of $23.167 per
share at $1 par value and the associated paid in capital. The price per
share reflects the average high and low trading prices of our stock for the
ten days prior to the beginning of the nine months ended February 28, 2003.
(20) To eliminate Viewpoint's additional paid in capital of $29.7 million and to
record $9.6 million in paid in capital for the issuance of 431,648 shares
of our common stock.
(21) To eliminate the retained earnings of Viewpoint.
(22) To eliminate Viewpoint's treasury stock.
9
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OXFORD
The following selected consolidated financial data as of and for the
fiscal years ended May 29, 1998, May 28, 1999, June 2, 2000, June 1, 2001 and
May 31, 2002 have been derived from our audited consolidated financial
statements, which have been audited by Arthur Andersen LLP as of and for the
fiscal years ended May 29, 1998, May 28, 1999, June 2, 2000 and June 1, 2001 and
by Ernst & Young LLP as of and for the fiscal year ended May 31, 2002. The
selected consolidated financial data for the nine months ended March 1, 2002 and
February 28, 2003 and the twelve months ended February 28, 2003 have been
derived from our unaudited consolidated financial statements and, in our
opinion, reflect all adjustments, consisting of normal accruals, necessary for a
fair presentation of the data for those periods. Our results of operations for
the nine months ended February 28, 2003 may not be indicative of results that
may be expected for the full year. In addition, our results of operations for
the twelve months ended February 28, 2003 are not indicative of our results for
fiscal 2003 (in particular, we expect our fiscal 2003 results to be moderately
lower than our last twelve months results). You should read the information set
forth below in conjunction with "Future Operating Results" above and "Unaudited
Pro Forma Consolidated Financial Information" included elsewhere in this current
report, as well as our consolidated financial statements and related notes.
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR ------------------------ MONTHS ENDED
----------------------------------------------------- MARCH 1, FEBRUARY 28, FEBRUARY 28,
1998 1999 2000 2001 2002 2002 2003 2003
-------- -------- -------- -------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF INCOME
DATA:
Net sales.............. $774,518 $862,435 $839,533 $812,495 $677,264 $485,553 $566,529 $758,240
Cost of goods sold..... 619,690 698,170 685,841 663,484 544,016 392,776 447,968 599,208
Selling, general and
administrative
expenses............. 111,041 116,284 112,056 119,390 115,729 84,724 92,462 123,467
Interest expense,
net.................. 3,421 4,713 3,827 4,870 243 77 149 315
Earnings before income
taxes................ 40,366 43,268 37,809 24,751 17,276 7,976 25,950 35,250
Income taxes........... 15,743 16,875 14,368 9,405 6,704 3,031 10,250 13,923
Net earnings........... 24,623 26,393 23,441 15,346 10,572 4,945 15,700 21,327
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents.......... $ 10,069 $ 11,077 $ 8,625 $ 10,185 $ 17,591 $ 4,610 $ 6,526 $ 6,526
Total assets........... 311,490 335,322 336,566 263,240(1) 250,513 268,880 298,115 298,115
Total debt, including
current maturities... 53,377 74,040 59,218 662(1) 394 26,993 10,157 10,157
Stockholders' equity... 159,769 154,351 164,314 168,940 175,201 171,103 186,261 186,261
OTHER FINANCIAL DATA:
Capital expenditures... $ 8,801 $ 7,063 $ 5,927 $ 4,332 $ 1,528 $ 981 $ 1,410 $ 1,957
Depreciation and
amortization......... 8,107 8,933 9,393 9,249 8,888 6,445 4,484 6,927
Net cash provided by
(used in) operating
activities........... 16,157 39,493 34,618 74,393(1) 12,387(1) (28,395)(1) (15,377) 25,405
EBITDA(2).............. 51,894 56,914 51,029 38,870 26,407 14,498 30,583 42,492
Ratio of earnings to
fixed charges(3)..... 8.2x 6.8x 6.8x 4.3x 6.4x 4.0x 21.0x 20.1x
</Table>
10
- ---------------
(1) Net cash provided by (used in) operating activities was impacted by the
previous off-balance sheet treatment of our accounts receivable
securitization facility. Upon creation of the $90 million accounts
receivable securitization facility in May 2001, approximately $131.4 million
of receivables were sold or contributed to a non-consolidated subsidiary. In
January 2002, we amended the facility in order to consolidate the subsidiary
on-balance sheet. If the accounts receivable securitization facility had not
been treated as off-balance sheet, each of total assets and total debt would
have increased by $56.0 million at June 1, 2001 to $319.2 million and $56.7
million, respectively, and net cash provided by operating activities would
have decreased by $56.0 million to $18.4 million for fiscal 2001. Net cash
provided by operating activities would have increased by $56.0 million to
$68.4 million for fiscal 2002 and $27.6 million for the nine months ended
March 1, 2002.
(2) EBITDA represents net earnings plus net interest expense, income taxes,
depreciation and amortization. We have presented EBITDA, a non-GAAP measure,
because we believe that it is a widely accepted financial indicator of a
company's ability to service indebtedness and is used by investors and
analysts to evaluate companies in our industry. EBITDA will also be used as
a measure for certain covenants under our new senior secured revolving
credit facility and the indenture governing the notes. However, EBITDA:
- is not a measure of operating performance computed in accordance with
GAAP;
- does not represent net income or cash flow from operations as defined
by GAAP;
- should not be considered as an alternative to operating income, net
income, cash flows from operating activities prepared in conformity
with GAAP;
- is not necessarily indicative of cash available to fund our cash flow
needs; and
- should not be construed as a measure of our operating performance,
profitability or liquidity.
EBITDA as calculated by us may not be necessarily comparable to similarly
titled measures reported by other companies.
The following table reconciles EBITDA to our statement of earnings for the
periods presented:
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR ----------------------- MONTHS ENDED
--------------------------------------------------- MARCH 1, FEBRUARY 28, FEBRUARY 28,
1998 1999 2000 2001 2002 2002 2003 2003
------- ------- ----------- ------- ------- -------- ------------ ------------
(IN THOUSANDS)
Net earnings............ $24,623 $26,393 $23,441 $15,346 $10,572 $ 4,945 $15,700 $21,327
Interest expense, net... 3,421 4,713 3,827 4,870 243 77 149 315
Income taxes............ 15,743 16,875 14,368 9,405 6,704 3,031 10,250 13,923
Depreciation and
amortization.......... 8,107 8,933 9,393 9,249 8,888 6,445 4,484 6,927
------- ------- ------- ------- ------- ------- ------- -------
EBITDA.................. $51,894 $56,914 $51,029 $38,870 $26,407 $14,498 $30,583 $42,492
======= ======= ======= ======= ======= ======= ======= =======
</Table>
11
The following table sets forth certain charges and costs incurred by us
during the periods presented:
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR ----------------------- MONTHS ENDED
------------------------------------------ MARCH 1, FEBRUARY 28, FEBRUARY 28,
1998 1999 2000 2001 2002 2002 2003 2003
------- ------- ---- ------ ------ -------- ------------ ------------
(IN THOUSANDS)
Plant closures(a).............. $ -- $ -- $401 $ 237 $2,609 $2,230 $ -- $ 379
Write-off of Kmart
receivables.................. -- -- -- -- 2,401 1,701 -- 700
Charitable donation of
product...................... -- -- -- 1,556 -- -- -- --
Interest on accounts receivable
securitization facility(b)... -- -- -- -- 1,030 1,030 -- --
Viewpoint acquisition
expenses..................... -- -- -- -- -- -- 1,061 1,061
------- ------- ---- ------ ------ ------ ------ ------
Total.......................... $ -- $ -- $401 $1,793 $6,040 $4,961 $1,061 $2,140
======= ======= ==== ====== ====== ====== ====== ======
</Table>
----------------------
(a) Oxford has additional plants which it may choose to close in the
future.
(b) Under the accounting treatment for our accounts receivable
securitization facility, a portion of the interest expense was
included in selling, general and administrative expenses.
(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
include:
- interest expense, whether expensed or capitalized;
- amortization of debt issuance cost; and
- the portion of rental expense representative of the interest factor.
12
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
VIEWPOINT
The following selected consolidated financial data of Viewpoint as of and
for the fiscal years ended March 31, 1998, 1999, 2000, 2001 and 2002 have been
derived from its audited consolidated financial statements, which have been
audited by Mahoney Cohen & Company, CPA, P.C. The selected consolidated
financial data for the nine months ended December 31, 2001 and December 31, 2002
and for the twelve months ended December 31, 2002 have been derived from
Viewpoint's unaudited consolidated financial statements and, in Viewpoint's
opinion, reflect all adjustments, consisting of normal accruals, necessary for a
fair presentation of the data for those periods. Viewpoint's results of
operations for the nine months ended December 31, 2002 and for the twelve months
ended December 31, 2002 may not be indicative of results that may be expected
for the fiscal year ended March 31, 2003. You should read the information set
forth below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Viewpoint," Viewpoint's
consolidated financial statements and related notes and "Unaudited Pro Forma
Consolidated Financial Information" included elsewhere in this current report.
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR --------------------------- MONTHS ENDED
--------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 2000 2001 2002 2001 2002 2002
-------- ------- -------- -------- -------- ------------ ------------ ------------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales..................... $ 53,792 $82,371 $147,599 $254,466 $284,953 $192,103 $225,454 $318,304
Cost of goods sold............ 34,551 47,076 79,354 134,789 138,503 92,524 110,893 156,872
Licensing income.............. 0 0 536 1,234 2,434 1,682 2,732 3,484
Operating expenses............ 16,150 26,312 47,442 79,097 103,909 74,615 85,564 114,858
Interest expense, net......... 785 962 1,535 2,725 7,517 5,816 4,613 6,314
Other expenses (income)....... (23) 16 (116) (112) 277 192 (385) (300)
Income before income taxes and
minority interests.......... 2,329 8,005 19,920 39,201 37,181 20,638 27,501 44,044
Income taxes.................. 1,050 3,437 6,553 14,665 13,350 7,242 9,187 15,295
Minority interests in net loss
(income) of subsidiaries.... (79) (552) (893) (512) 87 55 52 84
Net income.................... 1,200 4,016 12,474 24,024 23,918 13,451 18,366 28,833
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents..... $ 1,504 $ 162 $ 7,186 $ 6,093 $ 2,620 $ 3,331 $ 7,247 $ 7,247
Total assets.................. 24,763 43,747 77,953 122,454 116,100 97,613 118,513 118,513
Total debt, including current
maturities.................. 12,357 19,562 27,146 108,032 88,188 80,033 55,933 55,933
Stockholders' equity
(deficiency)................ 4,520 8,536 21,010 (24,723) (3,419) (13,886) 14,947 14,947
OTHER FINANCIAL DATA:
Capital expenditures.......... $ 715 $ 7,053 $ 2,714 $ 9,517 $ 6,118 $ 5,342 $ 9,734 $ 10,510
Depreciation and
amortization................ 584 1,103 1,716 2,739 3,841 2,830 3,105 4,116
Net cash provided by (used in)
operating activities........ (10,018) (2,449) 719 23,142 20,475 27,429 39,765 32,811
EBITDA(1)..................... 3,619 9,518 22,278 44,153 48,626 29,339 35,271 54,558
</Table>
- ---------------
(1) EBITDA represents net income plus net interest expense, income taxes,
depreciation and amortization. We have presented EBITDA, a non-GAAP measure,
because we believe that it is a widely accepted financial indicator of a
company's ability to service indebtedness, and is used by investors and
analysts to evaluate companies in Viewpoint's industry. EBITDA will also be
used as a measure for certain covenants under our new senior secured
revolving credit facility and the indenture governing the notes. However,
EBITDA:
- is not a measure of operating performance computed in accordance with
GAAP;
13
- does not represent net income or cash flow from operations as defined
by GAAP;
- should not be considered as an alternative to operating income, net
income, cash flows from operating activities prepared in conformity
with GAAP;
- is not necessarily indicative of cash available to fund Viewpoint's
cash flow needs; and
- should not be construed as a measure of Viewpoint's operating
performance, profitability or liquidity.
EBITDA as calculated by Viewpoint may not be necessarily comparable to
similarly titled measures reported by other companies.
The following table reconciles EBITDA on a consolidated basis to
Viewpoint's statement of income data for the periods presented in the table
above:
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR --------------------------- MONTHS ENDED
--------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER,
1998 1999 2000 2001 2002 2001 2002 2002
------ ------ ------- ------- ------- ------------ ------------ ------------
(IN THOUSANDS)
Net income............. $1,200 $4,016 $12,474 $24,024 $23,918 $13,451 $18,366 $28,833
Interest expense,
net.................. 785 962 1,535 2,725 7,517 5,816 4,613 6,314
Income taxes........... 1,050 3,437 6,553 14,665 13,350 7,242 9,187 15,295
Depreciation and
amortization......... 584 1,103 1,716 2,739 3,841 2,830 3,105 4,116
------ ------ ------- ------- ------- ------- ------- -------
EBITDA................. $3,619 $9,518 $22,278 $44,153 $48,626 $29,339 $35,271 $54,558
====== ====== ======= ======= ======= ======= ======= =======
</Table>
The following table sets forth certain charges and costs incurred by
Viewpoint during the periods presented:
<Table>
<Caption>
NINE MONTHS ENDED TWELVE
FISCAL YEAR --------------------------- MONTHS ENDED
--------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 2000 2001 2002 2001 2002 2002
------ ------ ------- ------- ------- ------------ ------------ ------------
(IN THOUSANDS)
Recapitalization
expenses............. $ -- $ -- $ -- $ 3,320 $ 156 $ 135 $ 1,018 $ 1,039
SKM monitoring fee..... -- -- -- 50 396 225 304 475
------ ------ ------- ------- ------- ------- ------- -------
Total.................. $ -- $ -- $ -- $ 3,370 $ 552 $ 360 $ 1,322 $ 1,514
====== ====== ======= ======= ======= ======= ======= =======
</Table>
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- VIEWPOINT
You should read the following discussion and analysis of Viewpoint's
results of operations and financial condition in conjunction with the
consolidated financial statements and related notes of Viewpoint, as well as the
information contained in "Unaudited Pro Forma Consolidated Financial
Information."
OVERVIEW
On April 26, 2003, Oxford signed a definitive agreement to purchase
Viewpoint for $240 million in cash and $10 million (388,200 shares) of our
common stock. In addition, Oxford has agreed to make up to $75 million in
contingent payments to the selling stockholders of Viewpoint over the next four
years, subject to the achievement by Viewpoint of certain performance targets.
As a result, following the acquisition, Viewpoint will be operated as a
subsidiary of Oxford.
Viewpoint is a leading wholesaler and retailer of premium men's and
women's sportswear and related accessories and products primarily under the
Tommy Bahama brand. Viewpoint began its operations in 1992 primarily focused on
building its Tommy Bahama brand as a lifestyle men's brand distributed through
leading department stores and upscale independent specialty retailers. Since
that time, Viewpoint has experienced rapid growth as it has expanded the Tommy
Bahama lifestyle brand to reach both men and women through approximately 1,450
customers through approximately 2,100 doors, added additional Tommy Bahama
lifestyle accessories and other products through selective licensing
relationships, and rolled out Tommy Bahama retail locations. After opening its
first Tommy Bahama retail and restaurant compound in 1996 in Naples, Florida,
Viewpoint's retail operations have grown to include 24 retail stores (including
three outlets) and six compounds in ten states.
Viewpoint's wholesale operation designs and imports men's and women's
sportswear that is sold to third party retail stores primarily in the United
States and Tommy Bahama stores. Viewpoint's wholesale operation markets product
under the Tommy Bahama brand, and a number of secondary brands and administers
the licensing of the Tommy Bahama brand for several product categories.
Viewpoint's retail operation manages three types of stores -- stand alone
retail stores, stand alone outlet stores and compounds (retail stores with an
attached restaurant). The Tommy Bahama stores and compounds sell products by and
promote the Tommy Bahama brand. The retail stores are located in resort
destination shopping areas and higher-end malls. The compounds are located in
resort destination shopping areas and the outlet stores are located in outlet
malls. All of these stores are in the United States. See Note 14 to Viewpoint's
audited consolidated financial statements and Note 5 to Viewpoint's unaudited
consolidated financial statements for a discussion of Viewpoint's historical
segments.
Viewpoint's retail operation purchases the majority of its products from
its wholesale operation at prices equivalent to those its wholesale operation
charges its third party customers. The outlets purchase from the wholesale
operation at approximately wholesale cost. Within Viewpoint's wholesale group is
a corporate retail department that oversees the operations of the individual
retail stores. All intercompany sales and purchases between the wholesale and
retail segments are eliminated in consolidation. In addition, any intercompany
profit in the beginning and ending inventories are eliminated from the wholesale
operation's gross profit. See the notes to Viewpoint's consolidated financial
statements included elsewhere in this offering memorandum.
15
The following tables set forth net sales and operating income, as well as
percentage changes in those items, for the periods presented:
<Table>
<Caption>
NET SALES
----------------------------------------------------------------------
NINE MONTHS ENDED
FISCAL FISCAL FISCAL -------------------------------------
2000 2001 2002 DECEMBER 31, 2001 DECEMBER 31, 2002
-------- -------- -------- ----------------- -----------------
(IN THOUSANDS)
Wholesale Operation.......... $106,755 $189,657 $189,879 $123,399 $140,900
Retail Operation............. 40,844 64,809 95,074 68,704 84,554
-------- -------- -------- -------- --------
Total........................ $147,599 $254,466 $284,953 $192,103 $225,454
======== ======== ======== ======== ========
</Table>
<Table>
<Caption>
OPERATING INCOME
-------------------------------------------------------------------
NINE MONTHS ENDED(1)
FISCAL FISCAL FISCAL -------------------------------------
2000 2001 2002 DECEMBER 31, 2001 DECEMBER 31, 2002
------- ------- ------- ----------------- -----------------
(IN THOUSANDS)
Wholesale Operation............. $16,548 $39,117 $40,138 $23,629 $28,009
Retail Operation................ 4,791 2,697 4,837 3,017 3,720
------- ------- ------- ------- -------
Total........................... $21,339 $41,814 $44,975 $26,646 $31,729
======= ======= ======= ======= =======
</Table>
<Table>
<Caption>
NET SALES OPERATING INCOME
------------------------------------ ------------------------------------
PERCENT CHANGE
---------------------------------------------------------------------------
FISCAL NINE MONTHS FISCAL NINE MONTHS
2001 VS. FISCAL 2002 2002 VS. FISCAL 2001 2002 VS. 2002 VS.
FISCAL VS. FISCAL NINE MONTHS VS. FISCAL FISCAL NINE MONTHS
2000 2001 2001 2000 2001 2001(1)
-------- ----------- ----------- ----------- -------- -----------
Wholesale Operation............. 77.7% 0.1% 14.2% 136.4% 2.6% 18.5%
Retail Operation................ 58.7% 46.7% 23.1% (43.7)% 79.3% 23.3%
Total........................... 72.4% 12.0% 17.4% 96.0% 7.6% 19.1%
</Table>
- ---------------
(1) Prior to the beginning of fiscal 2003, costs incurred in Viewpoint's
corporate retail department were included in wholesale operations and none
of these expenses were allocated to retail operations. Beginning in fiscal
2003, the corporate retail department and a portion of finance, human
resources and information systems have been allocated to Viewpoint's retail
operations. The costs allocated to Viewpoint's retail operations during the
nine months ended December 31, 2002 were approximately $4.9 million.
Viewpoint's results of operations were negatively impacted by the events
of September 11, 2001 and the general economic downturn. Viewpoint's retail
stores experienced an immediate decline in sales in the months following
September 11, 2001, while Viewpoint's wholesale operations experienced a longer
delay in terms of the drop in orders (as there is a several month lag time
between orders and delivery/recognition of sales -- leading to a drop in
wholesale orders in the Spring of 2002). However, in many cases, Viewpoint's
products sold out during the Fall season of fiscal 2003 (May-August 2002). In
addition, many of Viewpoint's smaller upscale independent specialty retailers
were severely impacted by the events of September 11, 2001 and the general
economic downturn, with about 100 of Viewpoint's accounts going out of business.
Although Viewpoint has now replaced many of these accounts, newer accounts
generally purchase lower volumes of Viewpoint products.
In light of economic conditions, Viewpoint made a number of changes to
the operation and financial management of its retail stores in the latter part
of fiscal 2002. In particular, store managers' compensation was changed to be
more closely tied to management of costs, rather than solely to net sales.
Partly as a result, labor costs dropped from 18% of total retail sales in fiscal
2002 to 15% of total retail sales in the nine months ended December 31, 2002.
Viewpoint's results of operations and financial condition in any period
are impacted by its new store opening schedule and the maturation of existing
stores. At December 31, 2002, March 31, 2002, March 31, 2001 and March 31, 2000,
Viewpoint had 30, 20, 15 and six stores, respectively.
16
In fiscal 2001, Viewpoint began to increase its focus on licensing its
brand names as a way to increase revenue with limited costs and enhance the
brand image. Viewpoint entered into four licensing arrangements in each of
fiscal 2001 and fiscal 2002 and terminated one and two in fiscal 2001 and fiscal
2002, respectively and has increased licensing revenue to $2.7 million for the
nine months ended December 31, 2002. Viewpoint intends to seek to continue to
grow this line of revenue in the future.
Viewpoint's margins are impacted by the mix of products sold. Viewpoint's
private label merchandise generally generates lower gross margins than its
branded business. In addition, Viewpoint's womenswear products generally
generate higher gross margins than Viewpoint's menswear products. Viewpoint's
retail operation generally has higher gross margins than its wholesale
operation.
To date, Viewpoint has not been subject to the price deflation that has
impacted most of the apparel industry.
RECENT DEVELOPMENTS
Viewpoint's fiscal 2003 ended on March 31, 2003. Although final results
for the year are not yet available, Viewpoint believes that its net sales for
fiscal 2003 will be approximately $330 million. In addition, Viewpoint currently
expects its cash flow provided by operating activities and EBITDA for fiscal
2003 to be at least $22 million and $53 million, respectively.
RESULTS OF OPERATIONS
The following tables set forth the line items in the consolidated
statements of earnings data both in dollars and as a percent of net sales. The
table also sets forth the percentage change of the data as compared to the prior
year.
<Table>
<Caption>
NINE MONTHS ENDED
---------------------------
FISCAL FISCAL FISCAL DECEMBER 31, DECEMBER 31,
2000 2001 2002 2001 2002
-------- -------- -------- ------------ ------------
(IN THOUSANDS)
Net sales............................ $147,599 $254,466 $284,953 $192,103 $225,454
Cost of goods sold................... 79,354 134,789 138,503 92,524 110,893
-------- -------- -------- -------- --------
Gross profit......................... 68,245 119,677 146,450 99,579 114,561
Licensing income..................... (536) (1,234) (2,434) (1,682) (2,732)
-------- -------- -------- -------- --------
Total gross profit and other
revenues........................... 68,781 120,911 148,884 101,261 117,293
Operating expenses................... 47,442 79,097 103,909 74,615 85,564
-------- -------- -------- -------- --------
Operating income..................... 21,339 41,814 44,975 26,646 31,729
Interest, net........................ 1,535 2,725 7,517 5,816 4,613
Other expenses (income).............. (116) (112) 277 192 (385)
-------- -------- -------- -------- --------
Income before income taxes and
minority interests in net loss
(income) of subsidiaries........... 19,920 39,201 37,181 20,638 27,501
-------- -------- -------- -------- --------
Provision for income taxes........... 6,553 14,665 13,350 7,242 9,187
Minority interests in net loss
(income) of subsidiaries........... (893) (512) 87 55 52
-------- -------- -------- -------- --------
Net income........................... $ 12,474 $ 24,024 $ 23,918 $ 13,451 $ 18,366
======== ======== ======== ======== ========
</Table>
17
<Table>
<Caption>
PERCENT OF NET SALES PERCENT CHANGE
------------------------------------------------------ ----------------------------------
NINE
MONTHS
NINE MONTHS ENDED FISCAL FISCAL 2002 VS.
--------------------------- 2001 VS. 2002 VS. NINE
FISCAL FISCAL FISCAL DECEMBER 31, DECEMBER 31, FISCAL FISCAL MONTHS
2000 2001 2002 2001 2002 2000 2001 2001
------ ------ ------ ------------ ------------ ---------- ---------- --------
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 72.4% 12.0% 17.4%
Cost of goods sold........... 53.8% 53.0% 48.6% 48.2% 49.2% 69.9% 2.8% 19.9%
----- ----- ----- ----- ----- ----- ------ ------
Gross profit................. 46.2% 47.0% 51.4% 51.8% 50.8% 75.4% 22.4% 15.0%
Licensing income............. 0.4% 0.5% 0.9% 0.9% 1.2% 130.2% 97.2% 62.4%
Total gross profit and other
revenues................... 46.6% 47.5% 52.2% 52.7% 52.0% 75.8% 23.1% 15.8%
Operating expenses........... 32.1% 31.1% 36.5% 38.8% 38.0% 66.7% 31.4% 14.7%
----- ----- ----- ----- ----- ----- ------ ------
Operating income............. 14.5% 16.4% 15.8% 13.9% 14.1% 96.0% 7.6% 19.1%
Interest, net................ 1.0% 1.1% 2.6% 3.0% 2.0% 77.5% 175.9% (20.7)%
Other expenses (income)...... (0.1)% 0.0% 0.1% 0.1% (0.2)% (3.5)% (347.3)% 300.5%
----- ----- ----- ----- ----- ----- ------ ------
Income before income taxes
and minority interests in
net loss (income) of
subsidiaries............... 13.5% 15.4% 13.1% 10.7% 12.2% 96.8% 5.2% 33.3%
----- ----- ----- ----- ----- ----- ------ ------
Provision for income taxes... 4.4% 5.8% 4.7% 3.8% 4.1% 123.8% (9.0)% 26.9%
Minority interests in net
loss (income) of
subsidiaries............... (0.6)% (0.2)% 0.0% 0.0% 0.0% (42.7)% 117.0% (5.5)%
----- ----- ----- ----- ----- ----- ------ ------
Net income................... 8.5% 9.4% 8.4% 7.0% 8.1% 92.6% (0.4)% 36.5%
===== ===== ===== ===== ===== ===== ====== ======
</Table>
NINE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2001
Net sales for the nine months ended December 31, 2002 were $225.5
million, an increase of $33.4 million, or 17.4%, from net sales of $192.1
million for the nine months ended December 31, 2001. Viewpoint's wholesale
operation had a net sales increase of 14.2% from $123.4 million for the nine
months ended December 31, 2001 to $140.9 million for the nine months ended
December 31, 2002. The net sales increase for the wholesale operation was
primarily attributable to an increased number of units sold to existing doors
within existing upscale department stores and the opening of new doors within
existing upscale department stores and the addition of new upscale independent
specialty store customers. Within the wholesale operation, sales in men's
products and private label products increased and sales in women's products
decreased during the nine months ended December 31, 2002. Viewpoint's retail
operation had a net sales increase of 23.1% from $68.7 million for the nine
months ended December 31, 2001 to $84.6 million for the nine months ended
December 31, 2002. The net sales increase for the retail operation was primarily
attributable to the opening of ten new Tommy Bahama stores during the nine
months ended December 31, 2002, and a full nine months' sales from stores that
were open for only a portion of the nine months ended December 31, 2001. This
growth partially resulted from a 1.1% increase in comparable store sales during
the nine months ended December 31, 2002 as compared to the nine months ended
December 31, 2001. The ten stores that were opened during the nine months ended
December 31, 2002 included nine retail stores and one outlet store. At December
31, 2002, Viewpoint operated 24 retail stores (including three outlets) and six
compounds.
Licensing income for the nine months ended December 31, 2002 was $2.7
million, an increase of $1.0 million, or 62.4%, from licensing income of $1.7
million for the nine months ended December 31, 2001. The increase in licensing
income was primarily attributable to increased sales by existing licensees. At
December 31, 2002, Viewpoint had 11 licensing agreements in effect.
Cost of goods sold for the nine months ended December 31, 2002 was $110.9
million, or 49.2% of net sales, compared to $92.5 million, or 48.2% of net
sales, for the nine months ended December 31, 2001. The increase in cost of
goods sold percentage was primarily due to differences in product mix. Viewpoint
sold a
18
higher percentage of private label products during the nine months ended
December 31, 2002. This was offset by higher sales of women's products and by
the fact that a higher percentage of Viewpoint's sales consisted of retail sales
during nine months ended December 31, 2002.
Operating expenses for the nine months ended December 31, 2002 were $85.6
million, an increase of $11.0 million, or 14.7%, from $74.6 million for the nine
months ended December 31, 2001. The increase was primarily due to expenses
related to strengthening the infrastructure of Viewpoint to manage the growth of
its operations and the additional expenses related to new store openings.
Interest expense for the nine months ended December 31, 2002 was $4.6
million, a decrease of $1.2 million from $5.8 million for the nine months ended
December 31, 2001. This decrease was due to lower weighted average borrowings
and interest rates during the nine months ended December 31, 2002 as compared to
the nine months ended December 31, 2001.
Wholesale operating income increased by $4.4 million, or 18.5%, from
$23.6 million to $28.0 million. The primary driver of the increased wholesale
operating income was the net sales increase and a leveraging of expenses over a
larger sales base.
Retail operating income increase by 23.3% from $3.0 million to $3.7
million. The increase in sales was the primary driver behind the increase in
retail operating income.
The effective tax rate was 33.3% for the nine months ended December 31,
2002 compared to 35.0% for the nine months ended December 31, 2001. The decrease
was primarily attributable to timing differences between book and tax accounting
methods and to the fluctuation of income in various taxing jurisdictions to
which Viewpoint's income is subject.
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales for fiscal 2002 were $285.0 million, an increase of $30.5
million, or 12.0%, from net sales of $254.5 million in fiscal 2001. Viewpoint's
wholesale operation had a net sales increase of 0.1% from $189.7 million in
fiscal 2001 to $189.9 million in fiscal 2002. Growth of upscale department store
sales were offset by the loss of small upscale independent specialty stores that
went out of business as a result of September 11, 2001. Prior to September 11,
2001, sales to upscale department stores were up. Overall for fiscal 2002, sales
to upscale department stores were flat. Within the wholesale operation, sales of
menswear increased by approximately $2.8 million and sales of womenswear
increased by approximately $1.0 million, while private label sales decreased by
approximately $4.4 million. Viewpoint's retail operation reported a net sales
increase of 46.7% from $64.8 million in fiscal 2001 to $95.1 million in fiscal
2002. The retail operation sales increase was primarily attributable to the
opening of five new retail stores (including one outlet) during fiscal 2002 and
a full year's sales from stores that were open for only a portion of fiscal
2001. Although prior to September 11, 2001, comparable store sales were up
approximately 8%, for the full year of fiscal 2002, comparable store sales were
up approximately 1%. The five stores that were opened during fiscal 2002
included four retail stores and one outlet. At the end of fiscal 2002, Viewpoint
operated 14 retail stores (including two outlets) and six compounds. Growing
brand recognition of Tommy Bahama and a broader product line contributed to the
overall increased sales volume.
Licensing income for fiscal 2002 was $2.4 million, an increase of $1.2
million, or 97.2%, from licensing income of $1.2 million in fiscal 2001. The
increase is attributable to increases in net sales by licensees of Tommy Bahama
licensed products. Viewpoint also added four new licensees and terminated two
licensees during fiscal 2002. At the end of fiscal 2002, Viewpoint had 11
licensing agreements in effect.
Cost of goods sold for fiscal 2002 was $138.5 million, or 48.6% of net
sales, compared to $134.8 million, or 53.0% of net sales, in fiscal 2001. The
decrease in cost of goods sold percentage was primarily due to increases in
sales at Viewpoint's retail stores and compounds, which generally have higher
margins, decreases in private label sales, which generally have lower margins
and a reversal of inventory reserves that led to a $2.0 million reduction in
cost of goods sold.
19
Operating expenses in fiscal 2002 were $103.9 million, an increase of
$24.8 million, or 31.4%, from $79.1 million in fiscal 2001. The increase was
primarily due to expenses related to strengthening Viewpoint's infrastructure,
as discussed above. The increase was also due to the opening of five new retail
stores (including one outlet) during fiscal 2002 in addition to the increase in
expenses for stores opened a full year in fiscal 2002 that were open for only a
portion of fiscal 2001.
Interest expense in fiscal 2002 was $7.5 million, an increase of $4.8
million from $2.7 million in fiscal 2001. This increase was due to the
recapitalization of Viewpoint described below, which resulted in higher debt
levels for Viewpoint.
Wholesale operating income increased 2.6%, from $39.1 million to $40.1
million. The primary driver of the increased wholesale operating income was the
net sales increase and a leveraging of expenses over a larger sales base.
Retail operating income increased by 79.3% from $2.7 million to $4.8
million. The increase in sales was the primary driver behind the increase in
operating income.
The effective tax rate was 35.8% in fiscal 2002 compared to 37.9% in
fiscal 2001. The decrease was primarily attributable to timing differences
between book and tax accounting methods and to the fluctuation of income in
various taxing jurisdictions to which Viewpoint's income is subject.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales for fiscal 2001 were $254.5 million, an increase of $106.9
million, or 72.4%, from net sales of $147.6 million in fiscal 2000. Viewpoint's
wholesale operation reported a net sales increase of 77.7% from $106.8 million
in fiscal 2000 to $189.7 million in fiscal 2001. The sales increase for the
wholesale operation was primarily attributable to an increased number of units
sold to existing doors and the opening of new doors both within existing upscale
specialty department store accounts and new upscale independent specialty store
customers. Within the wholesale operation, sales in men's products, private
label products and women's products increased by $38 million, $24 million and
$20 million, respectively. Viewpoint's retail operation reported a net sales
increase of 58.7% from $40.8 million in fiscal 2000 to $64.8 million in fiscal
2001. The retail operation sales increase was primarily attributable to the
opening of seven new Tommy Bahama stores, and two compounds during fiscal 2001
and a full year's sales from stores that were open for only a portion of fiscal
2000. This growth was partially a result of a 21.0% increase in comparable store
sales. The seven stores that were opened during fiscal 2001 included six retail
stores and one outlet. At the end of fiscal 2001, Viewpoint operated eight
retail stores, six compounds and one outlet. Growing brand recognition of Tommy
Bahama and the introduction of a broader women's line to wholesale customers and
in the retail stores contributed to the overall increased sales volume.
Licensing income for fiscal 2001 was $1.2 million, an increase of $0.7
million, or 130.2%, from licensing revenue of $0.5 million in fiscal 2000. The
increase is attributable to increases in net sales by licensees of Tommy Bahama
licensed products. Viewpoint also added four new licensees and terminated one
licensee during fiscal 2001. At the end of fiscal 2001, Viewpoint had nine
licensing agreements in effect.
Cost of goods sold for fiscal 2001 was $134.8 million, or 53.0% of net
sales, compared to $79.4 million, or 53.8% of net sales, in fiscal 2000. The
decrease in cost of sales percentage was primarily due to differences in product
mix within each segment and the respective percentages that wholesale operations
and retail operations net sales comprised of Viewpoint's net sales.
Operating expenses in fiscal 2001 were $79.1 million, an increase of
$31.7 million, or 66.7% from $47.4 million in fiscal 2000. The increase was
primarily due to expenses related to strengthening Viewpoint's infrastructure,
as discussed above. The increase was also due to the opening of seven Tommy
Bahama stores and two compounds in addition to the increase in expenses for
stores opened a full year in fiscal 2002 that were open for only a portion of
fiscal 2001.
Interest expense in fiscal 2001 was $2.7 million, an increase of $1.2
million from $1.5 million in fiscal 2000. This increase was due to additional
borrowing required to fund the growth of Viewpoint.
20
Wholesale operating income increased by $22.6 million or 136.4% from
$16.5 million to $39.1 million. The primary driver of the increased wholesale
operating income was the net sales increase and a leveraging of expenses over a
larger sales base.
Retail operating income decreased by 43.7% from $4.8 million to $2.7
million. Increased expenses as a result of the opening of seven new Tommy Bahama
stores and two compounds, without the benefit of a full year of sales, was the
primary driver behind the decrease in retail operating income.
The effective tax rate was 37.9% in fiscal 2001 compared to 34.4% in
fiscal 2000. The increase was primarily attributable to timing differences
between book and tax accounting methods and to the fluctuation of income in
various taxing jurisdictions to which Viewpoint's income is subject.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated $0.7 million, $23.1 million, $20.5
million, $27.4 million and $39.8 million in cash in fiscal 2000, fiscal 2001,
fiscal 2002, the nine months ended December 31, 2001 and the nine months ended
December 31, 2002, respectively. The increase in cash flow from fiscal 2000 to
fiscal 2001 was primarily attributable to the increase in earnings of $11.6
million and the receipt of amounts due from vendor of $8.3 million. Other
fluctuations in cash flow from operating activities were generally attributable
to changes in accounts receivable, accounts payable, inventory and payments of
income taxes.
Investing activities used $3.0 million, $17.0 million, $7.0 million, $5.9
million and $10.1 million in cash in fiscal 2000, fiscal 2001, fiscal 2002, the
nine months ended December 31, 2001 and the nine months ended December 31, 2002,
respectively. Investing activities in all periods primarily consist of purchases
and sales of property and equipment, and in fiscal 2001 also consisted of a
purchase of a minority interest of $7.4 million.
Financing activities generated (used) $9.3 million, $(7.3) million,
$(17.0) million, $(24.3) million and $(25.0) million in cash in fiscal 2000,
fiscal 2001, fiscal 2002, the nine months ended December 31, 2001 and the nine
months ended December 31, 2002, respectively. The cash used in financing
activities in fiscal 2001 included a $82.6 million purchase of common stock in
connection with the recapitalization described below. Cash used in financing
activities in fiscal 2002 and the nine months ended December 31, 2001 and
December 31, 2002 related primarily to repayment of debt.
Capital expenditures were $2.7 million, $9.5 million, $6.1 million, $5.3
million and $9.7 million in fiscal 2000, fiscal 2001, fiscal 2002, the nine
months ended December 31, 2001 and the nine months ended December 31, 2002,
respectively. Expenditures for fiscal 2000 were primarily for the build out of
one retail store that opened during fiscal 2000 and various other projects.
Expenditures for fiscal 2001 were primarily for the build out of seven retail
stores and two compounds that opened during fiscal 2001 and various other
projects. Expenditures for fiscal 2002 were primarily for the build out of five
retail stores that opened during fiscal 2002, the remodeling of one existing
compound and various other projects. We expect our fiscal 2003 capital
expenditures to be $13.4 million and our fiscal 2004 capital expenditures to be
$13.8 million.
Viewpoint entered into a credit facility on January 26, 2001, which
provided for a $90 million term loan and a revolving line of credit. The credit
facility contains restrictive covenants that, limit among other things, mergers
and acquisitions. In addition, Viewpoint must maintain a minimum leverage ratio
and minimum consolidated tangible net worth. Viewpoint is also subject to a
liquidity test and an annual capital expenditure limitation. The term loan
matures on February 28, 2006 and is payable in equal monthly installments plus
interest. The interest rate is based on the 3-month LIBOR rate plus 3%. The
revolving line of credit is subject to various sub-limits and a borrowing base
calculation (as defined) and is renewable on an annual basis through March 31,
2006 provided that on each renewal date Viewpoint is not in default of any of
the terms of the agreement. The interest rate is based on the 4-month LIBOR rate
plus 2.75%.
On February 9, 2001, Viewpoint repurchased 18,278,591 shares of its Class
A common stock from various shareholders for an aggregate purchase price of
$94.1 million, which was adjusted in November 2001 for an additional $2.6
million. In connection with this purchase, Viewpoint issued subordinated notes
payable on March 31, 2006 in the amount of $15 million with related parties on
February 9, 2001. These notes
21
bear annual interest at 16%. The notes are subordinated to the credit facility.
Cash interest is payable quarterly at a 13% annual rate and the remaining 3%
accrues and is due upon maturity. The notes include various covenants and
restrictions. Additionally, on September 9, 2001, Viewpoint repurchased 675,000
shares of its Class B Common Stock from a shareholder for $3.5 million.
In conjunction with the recapitalization in fiscal 2001, Viewpoint issued
102,222 warrants at $.01 per share to one of its shareholders. The warrants are
exercisable anytime after August 9, 2002 and expire on February 9, 2008.
The credit facility and the subordinated notes will be paid off and/or
terminated at the time of the Viewpoint acquisition. In the Viewpoint
acquisition, Oxford will be purchasing all outstanding shares of Viewpoint's
capital stock and any outstanding warrants. Following the Viewpoint acquisition,
Viewpoint's liquidity needs will be serviced as part of Oxford's overall
liquidity.
Viewpoint leases office, showroom, store space and equipment under
operating leases expiring in various years through 2019. The rental payments
under store facility leases are based upon a minimum rental plus a percentage of
the stores' sales in excess of stipulated amounts. Only the minimum rental
portions are included in future commitments. As of March 31, 2003, Viewpoint had
minimum annual rental commitments under non-cancelable leases of $11.0 million,
$11.2 million, $9.6 million, $9.0 million and $9.0 million in fiscal 2004,
fiscal 2005, fiscal 2006, fiscal 2007 and fiscal 2008, respectively. As of that
date, Viewpoint had minimum annual rental commitments under non-cancelable
leases of $45.0 million in years after fiscal 2008.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements as well as reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Financial Reporting Release No. 60, which was released by the SEC,
requires all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements. A detailed summary
of significant accounting policies is included in Viewpoint's audited
consolidated financial statements included elsewhere in this offering
memorandum. The following is a brief discussion of the more significant
accounting policies and methods Viewpoint uses.
INVENTORIES
Substantially all inventories are finished goods and are stated at the
lower of cost (first-in, first-out method) or market. Inventory reserves are
calculated based on the age of the inventory and based on other factors that, in
the judgment of management, could potentially impair the market value of the
inventory.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
both the straight-line and accelerated methods over the assets' estimated lives
ranging from three to seven years. Leasehold improvements are amortized over the
lesser of the lease terms or the assets' useful lives. Upon sale or retirement
of equipment, the related costs and accumulated depreciation are removed from
the accounts and any gain or loss is reflected in operations.
GOODWILL
Goodwill represents the aggregate excess of the acquired cost of the
minority interest in two retail stores over the fair value of their net assets
on the date of acquisition. Commencing April 1, 2001, with Viewpoint's adoption
of SFAS 142, goodwill is no longer amortized and Viewpoint is required to
complete a test for impairment of goodwill annually, as well as a transitional
goodwill impairment test within six months
22
from the date of adoption. Viewpoint has concluded its testing, on an individual
store basis, as required by SFAS 142. The results of these tests did not
indicate any impairment of Viewpoint's recorded goodwill. SFAS 142 also requires
disclosure of what net income would have been in all periods presented had SFAS
142 been in effect.
REVENUE RECOGNITION
Net sales from wholesale products are recognized upon transfer of title
and risk of ownership to customers. Net sales from retail and restaurant sales
are recognized when payment is tendered at the point of sale. Revenue is
recorded net of discounts, as well as provisions for estimated returns,
allowances and doubtful accounts. Licensing revenue is recognized as earned.
SHIPPING AND HANDLING COSTS
Viewpoint includes shipping and handling costs in selling and shipping
expense.
ADVERTISING EXPENSES
Advertising expenses are charged to operations in the period in which
they are incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Viewpoint estimates the carrying value of its financial instruments
approximates the fair value at the balance sheet date except for its $25 million
of subordinated notes payable to shareholders. The estimated fair value of these
notes was approximately $28 million at March 31, 2002 based upon Viewpoint's
best estimate of interest rates that would be available to Viewpoint for similar
debt obligations.
SEASONALITY
Viewpoint's business segments are cyclical and subject to certain
seasonal demand cycles. A significant portion of the Wholesale operation's net
sales and income is realized in the fourth fiscal quarter, corresponding to the
Spring selling season. See Note 15 to Viewpoint's audited consolidated financial
statements.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS 143, which requires entities to record
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
the amount recorded or incurs a gain or loss. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. Viewpoint believes that the adoption of
this statement will not have a material effect on Viewpoint's future results of
operations.
In August 2001, the FASB issued SFAS 144, which supersedes SFAS 121 and
Opinion 30. The FASB issued SFAS 144 to establish a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. SFAS 144 broadens the presentation of discontinued
operations in the income statement to include a component of an entity (rather
than a segment of a business). A component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. SFAS 144 also requires that
discontinued operations be measured at the lower of the carrying amount or fair
value less cost to sell. Viewpoint adopted SFAS 144 on April 1, 2002. The
provisions of this statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities and, therefore, will depend on future
actions initiated by management. As a result, Viewpoint cannot
23
determine the potential effects that adoption of SFAS 144 will have on its
consolidated financial statements with respect to future disposal decisions, if
any.
In April 2002, the FASB issued SFAS 145, which clarifies the criteria
under which extinguishment of debt can be considered as extraordinary and
rescinds the related Statement Nos. 4 and 64 in addition to Statement No. 44 and
also makes technical corrections to other Statements of Financial Standards.
Viewpoint adopted SFAS 145 in January 2003. The adoption of this statement had
no immediate impact on Viewpoint.
In June 2002, the FASB issued SFAS 146, which is effective for exit or
disposal activities that are initiated after December 31, 2002, with earlier
application encouraged. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF 94-3. The provisions of SFAS 146 are to be applied prospectively from the
date of adoption. Viewpoint has not yet assessed any potential impact the
issuance of this standard may have on its financial position or future results
of operations.
24
BUSINESS -- VIEWPOINT
Viewpoint owns the Tommy Bahama brand, a complete lifestyle brand that
includes men's and women's sportswear, all with a laid-back but sophisticated
island attitude. Viewpoint also licenses the Tommy Bahama brand to third parties
for the sale of certain types of footwear, bags, indoor and outdoor furniture
and women's swimwear, among others. Viewpoint also markets its products under
the names Indigo Palms, Island Soft, Original Island Sport and Bungalow Brand.
Viewpoint's target customers are upscale men and women ages 35 to 65 who embrace
a relaxed and casual approach to daily living. Viewpoint sells its products
through upscale independent specialty retail stores, upscale department stores,
resorts and hotels, spas and golf pro shops and through its own retail stores
and retail/restaurant compounds. The Tommy Bahama compounds combine a
full-service, white linen Tommy Bahama Tropical Cafe with a retail store selling
Tommy Bahama apparel and accessories. Located in resort destination locations,
compounds market and enhance the overall brand image and serve as a showcase for
the Tommy Bahama lifestyle. Viewpoint's first compound opened in Naples, Florida
in 1996 and has been followed by five additional compounds. In 1999, Viewpoint
opened its first retail-only store in Fort Lauderdale, Florida and, following
its success, began a more aggressive new unit roll-out of additional units.
Viewpoint currently operates 24 retail stores (including three outlets) and six
compounds. In its wholesale channel, Viewpoint has sought to protect the
integrity of the Tommy Bahama brand by being selective in choosing upscale
customers which sell its products.
25
VIEWPOINT'S PRODUCTS
TOMMY BAHAMA
Viewpoint markets the Tommy Bahama brand as the "purveyor of island
lifestyles." We believe Viewpoint has created an aspirational lifestyle brand by
developing successful men's and women's sportswear and accessories lines.
Viewpoint designs products suitable for both casual and professional
environments and for all types of climates.
Viewpoint introduced its original product line in 1992 with island-themed
sportswear for men and then added a women's line several years later. While
Tommy Bahama may be best known for its tropical themed shirts, it has built a
brand based on attention to comfort, fit and detail. Tommy Bahama apparel is
made of fine fabrics including silk, linen, tencel, cotton twill and canvas and
silk/linen, silk/cotton and silk/tencel blends. The fabrics are treated with
various washes to create clothing with a vintage look and a comfortable and
luxurious feel, Tommy Bahama products include signature details such as coconut
buttons, embroidery, taped seams and textured knit collars.
TOMMY BAHAMA MEN'S SPORTSWEAR
In men's tops, Viewpoint currently sells:
- woven shirts in a variety of fabrics in prints and solids;
- knit shirts in textured silk and cotton;
- sweaters; and
- outerwear.
Men's bottoms, which make up approximately 30% of Tommy Bahama men's overall
sales, consist of shorts and pants in linen, heavyweight silk, tencel and cotton
twill and canvas. Viewpoint also makes men's swim trunks in prints and solids.
TOMMY BAHAMA WOMEN'S SPORTSWEAR
As part of the Tommy Bahama women's line, Viewpoint makes dresses in
tropical prints and muted solids as well as sarong and wrap skirts. The Tommy
Bahama women's line also includes:
- silk pants and shorts;
- drawstring pants;
- canvas jeans and cotton trousers;
- dresses;
- blouses and camp shirts;
- tank tops
- knits and sweaters; and
- casual bags and totes.
INDIGO PALMS
Viewpoint introduced its Indigo Palms sub-brand in the Fall of 2001.
Indigo Palms builds on the success of the Tommy Bahama brand by delivering a
relaxed, yet elegant collection of denim and sportswear for men and women.
Appealing to a modern, sophisticated, quality conscious customer, Indigo Palms
offers the finest fabrics, treatments and styling. The Indigo Palms men's and
women's collections are targeted toward upscale department and upscale
independent specialty stores.
26
ISLAND SOFT
Viewpoint introduced the Island Soft line in the Fall of 2001. Island
Soft targets the luxury market with higher price points and margins and is
positioned to fill the dressier needs of the Tommy Bahama consumer. The Island
Soft sub-brand is comprised of more structured clothing including soft suitings,
sport coats, knits, fine shirtwraps, sweaters and outerwear. The Island Soft
men's collection is targeted toward upscale department and upscale independent
specialty stores.
BUNGALOW BRAND AND ORIGINAL ISLAND SPORT
Viewpoint markets the Bungalow Brand and Original Island Sport line as
distinct brands, not associated with the Tommy Bahama brand. These brands
provide consumers with a casual line of men's clothing with lower price points
than Tommy Bahama branded apparel, targeted at the moderate price category.
LICENSED PRODUCTS
Viewpoint licenses the Tommy Bahama brand under approximately 12
licensing agreements for products including certain types of shoes, handbags,
indoor and outdoor furniture and women's swimwear. The licensing agreements
generally have terms of three to five years and expire between fiscal 2004 and
fiscal 2007. Viewpoint is selective in its consideration of licensing agreements
and pursues partnerships with parties that can contribute to building the Tommy
Bahama brand, such as Lexington Furniture Industries, Inc. for fine furniture,
Brown Jordan International, Inc. for outdoor furniture and Sferra Bros. Ltd for
bedding. Viewpoint monitors the various steps of the production process, from
design to distribution, to ensure that licensed products remain aligned with the
Tommy Bahama image. Under the licensing agreements, Viewpoint retains full veto
rights over the design and distribution of licensed products. In the twelve
months ended December 31, 2002, Viewpoint's licensed products generated more
than $150 million of retail sales for Viewpoint's licensees' customers.
VIEWPOINT'S WHOLESALE CHANNEL
Viewpoint's wholesale group sells branded products to approximately 1,450
customers through approximately 2,100 doors. Sales in the wholesale group were
$189.9 million and $207.4 million, or 66.6% and 65.2% of Viewpoint's net sales,
in fiscal 2002 and the twelve months ended December 31, 2002, respectively.
Customers. After achieving initial success selling to upscale
independent specialty retailers, Viewpoint selectively added upscale department
stores to its wholesale customer list. We believe that upscale independent
specialty retailers, which include specialty shops, resorts and hotels, spas and
golf pro shops, will continue to be an important wholesale distribution channel
for Viewpoint's products. We plan to grow Viewpoint's upscale independent
specialty retail business in the future by further penetrating our existing
customer base, by introducing additional Tommy Bahama products and by developing
additional sub-brands. In fiscal 2002 and the twelve months ended December 31,
2002, sales to upscale independent specialty stores accounted for approximately
53.5% and 46.7%, respectively, of Viewpoint's total wholesale branded sales,
with upscale department stores such as Bloomingdale's, Neiman Marcus, Nordstrom,
Macy's West and Saks Fifth Avenue accounting for the balance.
Viewpoint's largest upscale independent specialty store customer
accounted for approximately 0.6% and 0.4% of Viewpoint's net sales in fiscal
2002 and the twelve months ended December 31, 2002, respectively. Viewpoint has
strategically limited its penetration of the department store channel to upscale
department stores and has added upscale department store doors selectively in
order to maintain the integrity of its brands. In fiscal 2002 and the twelve
months ended December 31, 2002, Nordstrom, Viewpoint's largest wholesale
customer, accounted for approximately 12.6% and 13% of its net sales, 18.9% and
20.4% of its wholesale sales and 23.3% and 26.3% of its branded wholesale sales,
respectively. In fiscal 2002 and the twelve months ended December 31, 2002,
Viewpoint's ten largest branded wholesale customers accounted for approximately
21.9% and 24.3% of its net sales, and 32.9% and 37.3% of its wholesale sales,
respectively.
27
Selling Policies. In its wholesale business, Viewpoint seeks to sell its
Tommy Bahama, Indigo Palms and Island Soft products to high-end stores in a
controlled manner that enhances the image of these brands. Viewpoint seeks to
ensure that its products are handled properly in both presentation and pricing.
To enhance the brands' prestige, Viewpoint does not offer volume discounts to
any customers and purposefully focuses on maintaining an element of scarcity to
its wholesale customers and in its ordering and replenishment policies.
Viewpoint does accommodate certain customers through staged deliveries of
inventory and some marketing activities. Viewpoint does not regularly accept
order cancellations or returns of merchandise nor does it maintain significant
inventory stocks to support in-season reordering or replenishment. Viewpoint
does not accept unauthorized product returns and does not, as a matter of
policy, provide margin allowance agreements. Additionally, Tommy Bahama products
are not discounted or marked down at Tommy Bahama retail stores and wholesale
customers are discouraged from selling Tommy Bahama items at a discount in
season. Tommy Bahama stores do not have "sales." End of season excess inventory
is sent to Tommy Bahama outlet stores to be liquidated. These practices are key
to maintaining the integrity of the Tommy Bahama brand.
Marketing. On a national basis, Viewpoint has engaged in sponsorships
and, beginning two years ago, began to run national print advertisements two to
three times per year. Viewpoint will also participate in periodic targeted
mailers to upscale department store consumers. Viewpoint provides limited
display materials for its customers and works with them to enhance Tommy Bahama,
Indigo Palms and Island Soft displays.
Sales Force. Viewpoint's sales force consists of six independent
exclusive regional sales managers, each of which has a sales team of between
three and nine independent exclusive sales representatives working for him or
her. Including these employees, Viewpoint's total independent exclusive sales
force consists of approximately 40 persons. The regional sales managers are the
wholesale customers' main points of contact. The independent regional sales
managers are overseen by a national sales manager. Other than the national sales
manager, all sales personnel are compensated solely on a commission basis.
Customer Service. Viewpoint maintains a customer service organization in
Seattle, Washington. The goal of the customer service program is to provide
wholesale customers with the same high level of service that guests receive when
shopping in Tommy Bahama retail stores. These customer service representatives
are familiar with each of the accounts and when handling reorders are often able
to redirect customers to available products if the ones they are asking for are
out of stock. It is through this relationship that Viewpoint is able to
effectively distribute excess inventory on hand at full price during each
season.
Private Label Business. Viewpoint operates a limited private label
business to address a customer base that is distinct from that served by the
Tommy Bahama brand. Viewpoint's private label business, which manages the
Bungalow Brand and Original Island Sport names, is operated within the wholesale
group and seeks to capitalize on Viewpoint's design and sourcing capabilities to
produce men's and women's apparel for customers such as discount stores and
warehouse clubs. Viewpoint sources these products from different manufacturing
facilities than those that manufacture Tommy Bahama and Viewpoint's other
branded products. Viewpoint's private label products are not branded with the
Tommy Bahama name or any other label that would indicate a connection to any of
our branded products. We believe it provides Viewpoint with incremental sales
and profitability at minimal risk and capital commitment. In fiscal 2002 and the
twelve months ended December 31, 2002, Viewpoint had private label sales of
$35.6 million and $46.3 million, respectively.
VIEWPOINT'S RETAIL STORES AND COMPOUNDS
GENERAL
Viewpoint's retail group sells exclusively Tommy Bahama products and
Viewpoint's other branded products through owned retail stores and compounds.
Viewpoint operates 24 retail stores (including three outlets) and six compounds.
These stores operate under the Tommy Bahama name in ten states. Sales in the
retail group were $95.1 million and $110.9 million, or 33.4% and 34.8% of
Viewpoint's net sales, in fiscal 2002 and the twelve months ended December 31,
2002, respectively.
28
Viewpoint also views its retail stores as advertising vehicles. Through
meticulous attention to decor, service and presentation, Viewpoint aims to
create a high-quality atmosphere that communicates the Tommy Bahama message to
consumers, making them feel like guests rather than simply customers.
Viewpoint's retail employees wear Tommy Bahama branded attire.
Viewpoint opened its first compound in 1996 as a marketing tool to convey
the Tommy Bahama lifestyle message and to drive retail sales. While restaurant
operations are not core to Viewpoint's strategy, the compounds serve as
marketing tools and drivers of retail sales by showcasing Tommy Bahama products
in the retail portion of the compound and in the Tommy Bahama apparel worn by
all employees. The Tommy Bahama compounds combine a full-service, white linen
Tommy Bahama Tropical Cafe with a retail store selling Tommy Bahama apparel,
accessories and home furnishings.
We operate the following retail stores and compounds:
COMPOUNDS:
<Table>
<Caption>
LOCATION DATE OPENED (OR PLANNED)
- -------- ------------------------
Naples, FL February 1996
Sarasota, FL February 1997
Palm Desert, CA October 1998
Newport Beach, CA November 1998
Wailea, HI December 2000
West Palm Beach, FL March 2001
Scottsdale, AZ(1) Planned Fourth Quarter 2003
</Table>
RETAIL-ONLY:
<Table>
<Caption>
LOCATION DATE OPENED
- -------- -----------
Fort Lauderdale, FL (Las Olas) February 1999
La Jolla, CA November 1999
Tampa, FL June 2000
Kansas City, MO July 2000
Las Vegas, NV August 2000
Austin, TX October 2000
Chicago, IL November 2000
Scottsdale, AZ(1) December 2000
St. Augustine, FL(2) February 2001
Dallas, TX May 2001
Boca Raton, FL August 2001
Pasadena, CA September 2001
Birmingham, AL November 2001
Primm, NV(2) December 2001
Maui, HI (Whaler's Village) May 2002
Los Angeles, CA (Farmer's Market) June 2002
Myrtle Beach, SC(2) August 2002
Palo Alto, CA August 2002
Honolulu, HI (Ala Moana) September 2002
Coral Gables, FL September 2002
</Table>
29
<Table>
<Caption>
LOCATION DATE OPENED
- -------- -----------
Orlando, FL October 2002
Las Vegas, NV (Las Vegas Fashion Show) November 2002
San Jose, CA November 2002
Phoenix, AZ (Biltmore) November 2002
Manhattan Beach, CA Planned Second Quarter 2003
Denver, CO (Cherry Creek) Planned Third Quarter 2003
Walnut Creek, CA Planned Fourth Quarter 2003
San Diego, CA (Fashion Valley) Planned Fourth Quarter 2003
Atlanta, GA (Phipps Plaza) Planned Fourth Quarter 2003
Tysons Corner, VA (Tyson's Galleria) Planned First Quarter 2004
Tucson, AZ (la Encantada) Planned First Quarter 2004
Houston, TX (Highland Village) Planned First Quarter 2004
Woodbury Commons, NY(2) Planned First Quarter 2004
</Table>
- ---------------
(1) Viewpoint's Scottsdale, AZ retail store is scheduled to be closed
concurrently with the opening of a compound in close proximity in the fourth
quarter of 2003.
(2) Outlet store.
Retail-only locations average approximately 4,200 square feet and tend to
be located in upscale shopping areas. Compounds average approximately 9,300
square feet and are located primarily in resort destination locations. The
retail stores sell a broad assortment of branded Tommy Bahama products including
the Tommy Bahama, Indigo Palms and Island Soft labels.
We believe that Viewpoint's retail-only and compound locations present an
effective method of merchandising Viewpoint's product line in a way that brings
depth to the Tommy Bahama brand's image and builds consumer loyalty. The average
sales ticket in March 2003 in a retail only store was approximately $130. The
average sales ticket in March 2003 in the retail store component of a compound
was approximately $124. In addition, Viewpoint believes that average cost per
lunch and dinner in the restaurant component of a compound is $15-$20 and
$30-$45, respectively. Overall, Viewpoint's retail-only and the retail portion
of compound locations open at least fourteen months had average annual sales
during the twelve months ended December 31, 2002 of $1,037 per square foot
($1,672 per square foot for the retail portion of compounds; $745 per square
foot for retail-only stores). We believe that consumers who purchase Tommy
Bahama products at Tommy Bahama stores also purchase Tommy Bahama products at
Viewpoint's wholesale customer locations.
SELECTION OF STORE LOCATIONS
Viewpoint selects its store sites on the basis of demographic
information, quality and nature of co-tenants, store visibility, and
accessibility. Key demographics include population density, household income,
tourism counts, and the amount of business that our wholesale company does in
that market. Viewpoint also assesses the dollars spent on men's and women's
apparel. Viewpoint locates its stores in resort areas, high end shopping centers
and selected free-standing locations. Typically, Viewpoint seeks sites with
co-tenant retail stores of moderate apparel brands like AnnTaylor, Banana
Republic, and Talbots, or high end apparel brands like Armani, Burberry or
Chanel. This strategy helps Viewpoint reach both the moderate customer, who sees
Tommy Bahama as an aspirational brand, and the high end customer, who wears
Tommy Bahama as weekend and casual attire. By selecting sites with high tourist
counts, Viewpoint also attracts a consumer who sees Tommy Bahama as the perfect
memory of a great getaway. We believe that there is a potential for 75-100 Tommy
Bahama retail stores and compounds without significant conflict with
participants in our distribution channels or our retailer customers.
30
STORE OPENING COSTS
Viewpoint's average net investment to open new retail stores has been
approximately $900,000, which includes capital expenditures adjusted for
landlord contributions and initial inventory at cost, net of payables.
Viewpoint's retail stores, during their first twelve months of operations, have
achieved average net sales of approximately $2.9 million, store level operating
cash flow of approximately $700,000 and an average pretax cash return on
investment of approximately 84%.
Viewpoint's average net investment to open new compounds has been
approximately $2.6 million, which includes capital expenditures adjusted for
landlord contributions and initial inventory at cost, net of payables.
Viewpoint's compounds, during their first twelve months of operations, have
achieved average net sales of approximately $6.7 million, store level operating
cash flow of approximately $1.2 million and an average pretax cash return on
investment of approximately 48%.
DESIGN PROCESS AND SOURCING
Design Process. In the design of its products, Viewpoint seeks to convey
its brand image with high-quality fabrics and attention to detail. The styles
and colors of Tommy Bahama clothing have remained largely consistent since
Viewpoint's founding. Approximately 70% of the men's line carries over from
season to season with minor variations. For example, the top selling item in
each of the categories of products we produce has maintained the same basic
model over the last nine years.
The design process starts with an evaluation of the success of
Viewpoint's current product lines. Every season, the design team decides to roll
over certain items and to eliminate others. The design team then modifies colors
and patterns from fabric swatches sent by Maxsend. The design team creates color
palettes for 30 to 45 day delivery cycles with Holiday cycles more condensed
than those for Spring and Fall. The design team then creates each season's line
on paper and orders samples for each style from Maxsend. Once samples are
delivered, Viewpoint makes any necessary alterations and, before finalizing the
line, reviews these samples with its sales force. The sales force takes orders
for the products for three to four months, capturing as many sales as possible
before actual buys are placed.
Sourcing. Viewpoint has a close ten-year relationship with Maxsend.
While Viewpoint is free to source from multiple agents, Maxsend is engaged to
work exclusively for Viewpoint. Almost all of Viewpoint's branded products are
produced by third party suppliers in the Far East with Maxsend acting as
Viewpoint's sourcing agent. Maxsend has consistently provided Viewpoint with
high quality products and timely deliveries. With its strong working
relationships with factories, Maxsend identifies unique patterns, fabrics and
weaves that Viewpoint integrates into the design of its products. Maxsend
maintains quality control personnel at each third party supplier's facility to
ensure that Viewpoint's quality standards are met. Private label products are
sourced from other producers in various parts of Asia. In most cases, Maxsend
identifies what it believes is the best overall source for a particular product,
but in all cases, Viewpoint has the right of final approval with respect to all
final sourcing decisions. Viewpoint believes that choosing the most competitive
countries for the sourcing of its products is critical to its competitiveness.
The most competitive location to source a particular product depends on a
variety of factors. These factors include availability of globally competitive
fabric and other raw materials, labor and manufacturing costs, ability to meet
quality standards, required lead times, logistics and the impact of
international trade rules and trade preference agreements and legislation on
apparel exports from that country to the United States.
Viewpoint's largest manufacturer accounted for approximately 24.1% and
26.3% of purchases for fiscal 2002 and the twelve months ended December 31,
2002, respectively. Viewpoint's five largest suppliers accounted for
approximately 57.7% and 59.7% of purchases for fiscal 2002 and the twelve months
ended December 31, 2002, respectively.
Viewpoint requires all third party producers who manufacture for it to
abide by a stringent code of conduct that sets guidelines for employment
practices such as wages and benefits, working hours, health and safety, working
age and disciplinary practices, and for environmental, ethical and legal mattes.
Viewpoint regularly assesses manufacturing and finishing facilities to see if
they are complying with its code of conduct.
31
Viewpoint's program includes periodic on-site facility inspections and
continuous improvement activities. Viewpoint also hires independent monitors to
supplement its efforts.
DISTRIBUTION
Viewpoint imports its products from third party producers to its
distribution center in Auburn, Washington. At its distribution center, the
products are inspected, sorted, packed and shipped to Viewpoint's retail
locations and wholesale customers. The distribution facility is designed to
allow for high-density cube storage and utilizes software to provide inventory
management and controls. Product transport management is coordinated from this
facility and the warehouse performs pick and pack service as well. Because
Viewpoint does not utilize pre-packs, it can ship according to item size and
color. Viewpoint's wholesale customers pay for freight and orders are delivered
to accounts by a customer's selected shipper in the case of larger orders and by
Federal Express in the case of smaller orders. Viewpoint divides its delivery
schedule into three seasons, Spring, Fall and Holiday.
COMPETITION
The sale of branded apparel products through retail stores and through
the wholesale channel is a highly competitive business with numerous
competitors. Viewpoint focuses on the bridge price category, which we believe is
an underserved market. Viewpoint's direct competition in the bridge market
generally consists of a number of smaller competitors. However, Viewpoint's
products compete for consumer dollars with products in the luxury and better
categories. Luxury lifestyle brands, such as Giorgio Armani, Hugo Boss and
Ermenegildo Zegna, that compete with Viewpoint's Tommy Bahama menswear products
are generally sold in upscale independent or manufacturer-owned specialty retail
stores and upscale department stores. Better brands, such as Ralph Lauren,
Banana Republic, Tommy Hilfiger and Nautica, that compete with Viewpoint's Tommy
Bahama menswear products are generally sold in upscale independent or
manufacturer-owned specialty retail stores and upscale department stores.
Viewpoint's women's line competes against brands such as Dana Buchman, Eileen
Fisher, Lily Pulitzer, Polo Ralph Lauren and St. John Knits. Viewpoint's retail
stores compete with individual and chain fashion specialty stores, department
stores, discount retailers and direct marketers.
Competition within the apparel and retail industry is based upon styling,
marketing, price, quality, customer service, consumer recognition and preference
and store design and location. We believe that Viewpoint competes effectively
with regard to all of these factors. Successful competition in styling and
marketing is related to Viewpoint's ability to foresee changes and trends in
fashion and consumer preference and to present appealing product programs to its
customers. Successful competition in price, quality and customer service is
related to Viewpoint's ability to maintain efficiency in sourcing and
distribution.
TRADE REGULATION
International trade agreements, trade preference arrangements and trade
legislation are less important to Viewpoint than to many apparel companies. Most
cotton, wool and man-made fiber apparel imports into the United States are
highly restricted. The silk products that comprise the majority of Viewpoint's
imports are not as highly restricted.
There are two key types of restrictions for apparel imports. First, the
duty rates on most cotton and wool apparel products are in the 15% to 20% range.
Duty rates for man-made fiber products can be as high as 25% to 30%. In
contrast, the duty rates on silk apparel are generally less than 5%. Second, the
United States has implemented restrictive quotas on the importation of most
cotton, wool and man-made fiber textile and apparel product categories from most
of the major apparel-producing countries. Quota restraints place numerical
limits on the quantity of garments that may be imported into the U.S. in a given
year on a by country and by product category basis. The affect of these quotas
is to limit the amount of apparel in categories subject to quota that can be
sourced in the countries that offer the most competitive fabrics and most
competitive apparel manufacturing. As a result, a substantial portion of cotton,
wool and man-made fiber apparel imported into the U.S. is sourced from countries
that would not be the most competitive
32
producers in the absence of quotas. Silk apparel is free from quota restraints
and may be sourced in the countries that offer the most competitive silk fabrics
and the most competitive apparel manufacturing. Thus, the impact of quota
restrictions on Viewpoint is much less than it is on many other apparel
companies.
Through December of 1994, these restraints were controlled pursuant to
the Multi-Fiber Arrangement, or MFA, an international textile trade agreement to
which the United States was a party. During the Uruguay Round of the General
Agreement of Tariffs and Trade, the United States and other countries negotiated
a successor agreement to the MFA known as the Agreement on Textiles and Clothing
ATC, which became effective on January 1, 1995.
The ATC requires that importing countries gradually phase out over a
ten-year period approximately half of the restrictive quotas on the importation
of textiles and apparel products that were in place on December 31, 1994. The
remaining quotas are to be eliminated on January 1, 2005. However, the ATC gives
importing countries such as the United States significant discretion in
determining when during the ten-year period quotas on particular products from
particular countries will be eliminated. The United States has announced a plan
that will keep quotas on most cotton, wool and man-made fiber apparel categories
for the entire ten-year period. In addition, the ATC permits importing
countries, under certain conditions, to impose new quotas on the importation of
textile and apparel products during the ten-year phase out period. As a result,
we believe the extent to which the ATC will liberalize trade in cotton, wool and
man-made fiber products from now until January 1, 2005 is not material. Since
silk is already quota-free, the ATC is unlikely to have any impact on sourcing
of silk apparel.
When the ATC is fully implemented on January 1, 2005, the competitiveness
of many countries as apparel sourcing locations will change significantly.
Currently, we believe that the presence of quotas imposes a non-market
restriction on where apparel is sourced and prevents a substantial portion of
cotton, wool and man-made fiber apparel destined for the U.S. market from being
sourced in the countries that offer most competitive cotton, wool and man-made
fiber fabric and the most competitive apparel garment manufacturing. We believe
that generally the most competitive fabrics and apparel manufacturing, absent
the non-market restrictions created by quotas, are in Asia and the Indian
sub-continent. Consequently, we believe that the elimination of quotas will
result in reduced apparel sourcing in the western hemisphere and increased
apparel sourcing in Asia and the Indian sub-continent. The market forces that
are likely to shift cotton, wool and man-made fiber apparel sourcing out of the
western hemisphere upon the elimination of quotas may be partially offset by the
reduced or zero duty rates offered by free trade agreements and trade preference
programs applicable to western hemisphere countries particularly those in Latin
America and the Caribbean Basin. We believe that the silk fabrics and apparel
manufacturing available in China are globally competitive. Since silk is already
quota free, Viewpoint already sources substantially all its silk apparel in
China.
Currently, there are various free trade agreements and trade preference
legislation that provide apparel importers including us with relief from duties
and quotas. These include, but are not limited to, the United States-Caribbean
Basin Trade Partnership Act, the African Growth and Opportunity Act, the North
American Free Trade Agreement, the Israel Free Trade Agreement and the Andean
Trade Promotion and Drug Eradication. In addition, the United States is engaged
in discussions regarding various proposals including the Central America Free
Trade Agreement, Chile Free Trade Agreement and Free Trade of the Americas
Agreement. Because silk products are quota free and subject to duty rates less
than 5%, we do not expect any of these agreements to have a material impact on
where Viewpoint sources its core silk products.
INTELLECTUAL PROPERTY
Viewpoint sells most of its products under a number of trademarks which
it owns, including:
- Tommy Bahama;
- Indigo Palms;
- Island Soft;
- Original Island Sport; and
- Bungalow Brand.
33
Viewpoint also licenses its brands under a number of licensing agreements
for products including shoes, handbags, indoor and outdoor furniture and women's
swimwear. Paradise Shoe Company, LLC, which is 50% owned by Viewpoint, holds the
license for Tommy Bahama branded shoes, belts and socks. Viewpoint sells
products in Canada under a licensing arrangement with Jaytex Group. For
additional information about licensed products, see "-- Viewpoint's
Products -- Licensed Products."
BACKLOG
As of December 31, 2002, Viewpoint had Spring season booked orders
amounting to approximately $88.7 million, as compared to $81.5 million as of
December 31, 2001. A majority of these orders will be or were shipped within
four months after each such date.
PROPERTIES
Viewpoint leases an approximately 55,000 square foot operations facility
in Seattle, Washington. The lease of this facility expires in August 2004.
Viewpoint is negotiating a new lease and, alternatively, is searching for
another property for this facility. Viewpoint has a 240,000 square foot
distribution center in Auburn, Washington. The lease on the Auburn center has a
five-year term and a five-year renewal option. Viewpoint also leases a 21,000
square foot facility in New York, New York, where its licensing, accounting and
finance offices are held.
Viewpoint operates 24 retail stores (including three outlets) and six
compounds. Viewpoint leases the space for these retail operations from third
parties. The leases expire at various dates between 2004 and 2019. Minimum rent
commitments under non-cancelable leases as of December 31, 2002 totaled $2.5
million, $10.6 million, $10.6 million, $9.2 million and $8.7 million in the
fourth quarter of fiscal 2003, fiscal 2004, fiscal 2005, fiscal 2006 and fiscal
2007, respectively. As of that date, Viewpoint had minimum annual rental
commitments under non-cancelable leases of $42.3 million in years after fiscal
2007.
Typically, when space is leased for a retail store, all improvements,
including interior walls, floors, ceilings, fixtures and decorations are
supplied by Viewpoint. In certain cases, the landlord of the property may
provide a construction allowance to fund all or a portion of the cost of
improvements. Lease terms are typically ten years and usually include a fixed
minimum rent plus a contingent rent based on the store's annual sales in excess
of a specified amount. Viewpoint typically pays certain operating costs such as
common area maintenance, utilities, insurance and taxes.
LEGAL PROCEEDINGS
From time to time, Viewpoint is a party to litigation arising in the
ordinary course of business. Viewpoint is not currently a party to any
litigation that we believe could reasonably be expected to have a material
adverse effect on its results of operations or financial condition.
EMPLOYEES
As of December 31, 2002, Viewpoint employed 1,345 persons, of which 345
worked in Viewpoint's wholesale business and 1,000 worked in Tommy Bahama retail
locations. During seasonal peaks, Viewpoint employs temporary employees to
supplement its retail and warehouse operations. All of Viewpoint's employees
work in the United States. Viewpoint believes its employee relations are good.
34
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
OXFORD INDUSTRIES, INC. AND SUBSIDIARIES
Supplemental Consolidating Financial Data of Subsidiary
Guarantors (Unaudited)................................ F-2
VIEWPOINT INTERNATIONAL, INC.
Independent Auditor's Report........................... F-8
Consolidated Balance Sheets at March 31, 2002 and
2001.................................................. F-9
Consolidated Statements of Income for the years ended
March 31, 2002, 2001 and 2000......................... F-10
Consolidated Statements of Shareholders' Equity
(Deficiency) for the years ended March 31, 2002, 2001
and 2000.............................................. F-11
Consolidated Statements of Cash Flows for the years
ended March 31, 2002, 2001 and 2000................... F-12
Notes to Consolidated Financial Statements............. F-14
Unaudited Consolidated Balance Sheets at December 31,
2002 and 2001......................................... F-28
Unaudited Consolidated Statements of Income for the
nine months ended December 31, 2002 and 2001.......... F-29
Unaudited Consolidated Statements of Shareholders'
Equity (Deficiency) for the nine months ended December
31, 2002 and 2001..................................... F-30
Unaudited Consolidated Statements of Cash Flows for the
nine months ended December 31, 2002 and 2001.......... F-31
Notes to Unaudited Consolidated Financial Statements... F-33
</Table>
F-1
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS (UNAUDITED)
Not all of our subsidiaries will guarantee the notes we expect to issue in
connection with the Viewpoint acquisition. Each subsidiary guarantor is directly
or indirectly 100% owned by Oxford and all guarantees are full, unconditional,
joint and several. Set forth below are the consolidated financial statements as
of May 31, 2002 and February 28, 2003 and for the year ended May 31, 2002 and
the nine months ended February 28, 2003. We have used the equity method with
respect to investment in subsidiaries.
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED BALANCE SHEET
MAY 31, 2002
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
----------------- ---------- -------------- ------------- ------------
($ IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............. $ 16,214 $ 194 $ 648 $ 535 $ 17,591
Receivables........................... (10,427) 111,977(1) 30,769 (29,121) 103,198
Inventories........................... 72,111 10,595 1,835 -- 84,541
Prepaid expenses...................... 8,743 346 665 -- 9,754
-------- -------- ------- -------- --------
Total Current Assets............... 86,641 123,112 33,917 (28,586) 215,084
Property, Plant and Equipment, net...... 19,223 1,392 6,572 1 27,188
Other Assets, Net....................... 38,844 5,110 1,224 (36,937) 8,241
-------- -------- ------- -------- --------
Total Assets.................. $144,708 $129,614 $41,713 $(65,522) $250,513
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable................ $ 50,363 $ 6,604 $14,986 $(28,633) $ 43,320
Accrued compensation.................. 9,117 1,365 2,270 -- 12,752
Other accrued expenses................ 9,598 3,400 832 (2) 13,828
Current maturities of long-term
debt............................... 216 39 -- -- 255
-------- -------- ------- -------- --------
Total Current Liabilities..... 69,294 11,408 18,088 (28,635) 70,155
Long-Term Debt, less current
maturities............................ 129 10 -- -- 139
Noncurrent Liabilities.................. (78,148) 79,358 3,267 23 4,500
Deferred Income Taxes................... 2,432 (1,929) 15 -- 518
Total
Stockholders'/invested
equity...................... 151,001 40,767 20,343 (36,910) 175,201
-------- -------- ------- -------- --------
Total Liabilities and
Stockholders' Equity........ $144,708 $129,614 $41,713 $(65,522) $250,513
======== ======== ======= ======== ========
</Table>
- ---------------
(1) $106,623 of these receivables are related to our securitization facility
which will be terminated upon completion of the Viewpoint acquisition.
F-2
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
(UNAUDITED) -- (CONTINUED)
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED BALANCE SHEET
FEBRUARY 28, 2003
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
---------- ---------- -------------- ------------- ------------
($ IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents...... $ 5,100 $ 189 $ 1,171 $ 66 $ 6,526
Receivables.................... (22,997) 162,087(1) 45,941 (35,151) 149,880
Inventories.................... 88,388 8,456 2,040 1 98,885
Prepaid expenses............... 8,828 271 415 1 9,515
-------- -------- ------- -------- --------
Total Current Assets........ 79,319 171,003 49,567 (35,083) 264,806
Property, Plant and Equipment,
Net............................ 16,978 890 5,705 -- 23,573
Deferred Income Taxes............ 720 -- -- (1) 719
Other Assets, Net................ 43,916 5,101 1,784 (41,784) 9,017
-------- -------- ------- -------- --------
Total Assets........... $140,933 $176,994 $57,056 $(76,868) $298,115
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Notes payable.................. $ -- $ 10,000 $ -- $ -- $ 10,000
Trade accounts payable......... 57,074 6,972 29,850 (35,138) 58,758
Accrued compensation........... 15,661 1,181 2,367 (1) 19,208
Other accrued expenses......... 14,231 3,639 1,361 -- 19,231
Current maturities of long-term
debt........................ 117 10 -- 1 128
-------- -------- ------- -------- --------
Total Current
Liabilities.......... 87,083 21,802 33,578 (35,138) 107,325
Long-Term Debt, less current
maturities..................... 19 10 -- -- 29
Noncurrent Liabilities........... (110,038) 109,848 4,610 80 4,500
Deferred Income Taxes............ 1,795 (1,810) 15 -- --
Total
Stockholders'/invested
equity............... 162,074 47,144 18,853 (41,810) 186,261
-------- -------- ------- -------- --------
Total Liabilities and
Stockholders'
Equity............... $140,933 $176,994 $57,056 $(76,868) $298,115
======== ======== ======= ======== ========
</Table>
- ---------------
(1) $151,406 of these receivables are related to our securitization facility
which will be terminated upon completion of the Viewpoint acquisition.
F-3
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
(UNAUDITED) -- (CONTINUED)
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED STATEMENT OF EARNINGS
TWELVE MONTHS ENDED MAY 31, 2002
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
---------- ---------- -------------- ------------- ------------
Net Sales........................ $616,686 $76,160 $39,555 $(55,137) $677,264
Cost of goods sold............... 494,058 50,657 925 (1,624) 544,016
-------- ------- ------- -------- --------
Gross Profit..................... 122,628 25,503 38,630 (53,513) 133,248
Selling, general and
administrative................. 114,427 17,673 36,587 (52,958) 115,729
-------- ------- ------- -------- --------
Earnings Before Interest and
Taxes.......................... 8,201 7,830 2,043 (555) 17,519
Interest expense (income), net... 2,094 (1,169) (126) (556) 243
Income from equity investment in
subsidiaries................... 7,223 38 -- (7,261) --
-------- ------- ------- -------- --------
Earnings Before Income Taxes..... 13,330 9,037 2,169 (7,260) 17,276
Income taxes..................... 2,758 3,150 796 -- 6,704
-------- ------- ------- -------- --------
Net Earnings..................... $ 10,572 $ 5,887 $ 1,373 $ (7,260) $ 10,572
======== ======= ======= ======== ========
</Table>
F-4
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
(UNAUDITED) -- (CONTINUED)
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED STATEMENT OF EARNINGS
NINE MONTHS ENDED FEBRUARY 28, 2003
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
---------- ---------- -------------- ------------- ------------
Net Sales........................ $519,302 $60,126 $29,042 $(41,941) $566,529
Cost of goods sold............... 405,351 40,638 1,821 158 447,968
-------- ------- ------- -------- --------
Gross Profit..................... 113,951 19,488 27,221 (42,099) 118,561
Selling, general and
administrative................. 96,143 10,433 27,936 (42,050) 92,462
-------- ------- ------- -------- --------
Earnings Before Interest and
Taxes.......................... 17,808 9,055 (715) (49) 26,099
Interest expense (income), net... 972 (704) (70) (49) 149
Income from equity investment in
subsidiaries................... 4,827 30 -- (4,857) --
-------- ------- ------- -------- --------
Earnings Before Income Taxes..... 21,663 9,789 (645) (4,857) 25,950
Income taxes..................... 5,965 3,415 870 -- 10,250
-------- ------- ------- -------- --------
NET EARNINGS..................... $ 15,698 $ 6,374 $(1,515) $ (4,857) $ 15,700
======== ======= ======= ======== ========
</Table>
F-5
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
(UNAUDITED) -- (CONTINUED)
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED STATEMENT OF CASH FLOW
TWELVE MONTHS ENDED MAY 31, 2002
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
---------- ---------- -------------- ------------- ------------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings..................... $ 10,572 $ 5,887 $1,372 $ (7,259) $10,572
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Depreciation and
amortization................ 5,609 3,352 648 (721) 8,888
(Gain) loss on sale of
property, plant and
equipment................... (37) 4 3 (1) (31)
Changes in working capital....... 92,160 8,782 (1,031) (109,512) (9,601)
Deferred income taxes............ 1,318 (951) -- 2,477 2,844
Income from equity investment in
subsidiaries................... (7,223) (37) -- 7,260 --
Other assets, net................ (21) 7,002 (267) (6,999) (285)
-------- -------- ------ --------- -------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES................ 102,378 24,039 725 (114,755) 12,387
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property, plant
and equipment............... (1,235) (71) (223) 1 (1,528)
Proceeds from sale of property,
plant and equipment......... 347 10 19 721 1,097
-------- -------- ------ --------- -------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES... (888) (61) (204) 722 (431)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short-term debt repayments....... -- (56,000) -- 56,000 --
Long-term debt repayments........ (7,232) (36) (684) 7,684 (268)
Change in intercompany
payable..................... (88,697) 38,644 -- 50,053 --
Proceeds from exercise of stock
options..................... 1,993 -- -- -- 1,993
Dividends on common stock...... 1,011 (7,287) -- 1 (6,275)
-------- -------- ------ --------- -------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES... (92,925) (24,679) (684) 113,738 (4,550)
Net change in cash and cash
equivalents.................... 8,565 (701) (163) (295) 7,406
Cash and cash equivalents at the
beginning of year.............. 7,649 895 811 830 10,185
-------- -------- ------ --------- -------
Cash and cash equivalents at the
end of year.................... $ 16,214 $ 194 $ 648 $ 535 $17,591
======== ======== ====== ========= =======
</Table>
F-6
SUPPLEMENTAL CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
(UNAUDITED) -- (CONTINUED)
OXFORD INDUSTRIES, INC.
UNAUDITED CONSOLIDATED COMBINED STATEMENT OF CASH FLOW
NINE MONTHS ENDED FEBRUARY 28, 2003
<Table>
<Caption>
OXFORD
INDUSTRIES SUBSIDIARY SUBSIDIARY CONSOLIDATING CONSOLIDATED
(PARENT) GUARANTORS NON-GUARANTORS ADJUSTMENTS TOTAL
---------- ---------- -------------- ------------- ------------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings........................ $ 15,698 $ 6,374 $(1,514) $(4,858) $ 15,700
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Depreciation and amortization..... 3,414 556 514 -- 4,484
(Gain) loss on sale of property,
plant and equipment............. (63) (2) 65 -- --
Changes in working capital.......... 14,095 (47,544) 362 (1,061) (34,148)
Deferred income taxes............... (1,357) 191 -- 586 (580)
Income from equity investment in
subsidiaries...................... (4,827) (30) 4,857 --
Other assets, net................... (273) 11 (560) (11) (833)
-------- -------- ------- ------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES......... 26,687 (40,444) (1,133) (487) (15,377)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment....................... (1,217) (125) (68) -- (1,410)
Proceeds from sale of property,
plant and equipment............. 140 103 356 (1) 598
-------- -------- ------- ------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES......... (1,077) (22) 288 (1) (812)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Short-term debt repayments........ -- 10,000 -- -- 10,000
Long-term debt repayments......... (208) (29) -- -- (237)
Change in intercompany payable...... (31,878) 30,490 1,368 20
Proceeds from exercise of stock
options......................... 95 -- -- -- 95
Dividends on common stock......... (4,733) -- -- (1) (4,734)
-------- -------- ------- ------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES.............. (36,724) 40,461 1,368 19 5,124
Net change in cash and cash
equivalents....................... (11,114) (5) 523 (469) (11,065)
Cash and cash equivalents at the
beginning of period............... 16,214 194 648 535 17,591
-------- -------- ------- ------- --------
Cash and cash equivalents at the end
of period......................... $ 5,100 $ 189 $ 1,171 $ 66 $ 6,526
======== ======== ======= ======= ========
</Table>
F-7
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Viewpoint International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Viewpoint
International, Inc. and Subsidiaries as of March 31, 2002 and 2001, and the
related consolidated statements of income, shareholders' equity (deficiency) and
cash flows for each of the three years in the period ended March 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Viewpoint
International, Inc. and Subsidiaries as of March 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Mahoney Cohen & Company, CPA,
P.C.
New York, New York
June 6, 2002
F-8
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
---------- ----------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
ASSETS (NOTES 7 AND 9)
Current assets:
Cash and cash equivalents................................. $ 2,620 $ 6,093
Cash equivalent -- restricted (Note 9).................... 8,197 15,114
Due from factor (Note 4).................................. 40,605 38,527
Accounts receivable, net of allowance for doubtful
accounts of approximately $45 in 2002 and $59 in 2001... 3,053 6,973
Royalties receivable -- Paradise Shoe Company LLC (Note
6)...................................................... 722 373
Inventories............................................... 24,671 22,378
Prepaid income taxes...................................... 1,835 --
Deferred income taxes (Note 12)........................... 353 1,986
Prepaid expenses and other current assets................. 5,512 6,235
-------- --------
Total current assets............................... 87,568 97,679
Property and equipment, net (Note 5)........................ 18,388 16,095
Other assets:
Goodwill, net............................................. 5,537 5,537
Deferred financing costs, net............................. 857 1,071
Royalties receivable -- Paradise Shoe Company LLC (Note
6)...................................................... 187 211
Investment in Paradise Shoe Company LLC (Note 6).......... 496 536
Deferred income taxes (Note 12)........................... 1,855 986
Marketable securities (Note 11)........................... 617 --
Security deposits and other assets........................ 595 339
-------- --------
Total other assets................................. 10,144 8,680
-------- --------
$116,100 $122,454
======== ========
LIABILITIES AND DEFICIENCY
Current liabilities:
Accounts payable (Notes 3 and 13)......................... $ 19,355 $ 16,742
Notes and bankers acceptances payable (Note 7)............ 23,262 29,926
Long-term debt -- current portion (Note 8)................ 7,500 7,580
Income taxes payable...................................... 38 11,193
Loans payable -- shareholders (Notes 9 and 10)............ 10,103 16,579
Accrued expenses and other current liabilities (Note 9)... 10,098 10,357
-------- --------
Total current liabilities.......................... 70,356 92,377
Long-term debt (Note 8)..................................... 21,875 29,375
Deferred rent (Note 13)..................................... 1,086 629
Deferred compensation (Note 11)............................. 617 --
Subordinated notes payable -- shareholders (Note 9)......... 25,448 24,572
Minority interests in subsidiaries.......................... 137 224
Commitments and contingencies (Notes 9, 11 and 13)
Deficiency:
Class A Voting Common Stock -- $.0001 par value:
Authorized -- 40,000,000 shares
Issued -- 29,325,000 shares............................. 3 3
Class B Non-Voting Common Stock -- $.0001 par value:
Authorized -- 675,000 shares
Issued -- 675,000 shares................................ -- --
Class C Voting Common Stock -- $.0001 par value:
Authorized -- 6,200,000 shares
Issued and outstanding -- 5,948,067 shares.............. 1 1
Additional paid-in capital................................ 29,714 29,714
Retained earnings and members' interests.................. 67,064 43,146
-------- --------
96,782 72,864
Less: Treasury stock, at cost (Note 10)................... 100,201 97,587
-------- --------
Total deficiency................................... (3,419) (24,723)
-------- --------
$116,100 $122,454
======== ========
</Table>
See accompanying notes.
F-9
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
<Table>
<Caption>
2002 2001 2000
------------ ------------ ------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales:
Wholesale (Note 3)................................... $ 189,879 $ 189,657 $ 106,755
Retail and restaurant................................ 95,074 64,809 40,844
----------- ----------- -----------
Total net sales.............................. 284,953 254,466 147,599
Cost of goods sold (Note 3)............................ 138,503 134,789 79,354
----------- ----------- -----------
Gross profit........................................... 146,450 119,677 68,245
Licensing income (Note 6).............................. 2,434 1,234 536
----------- ----------- -----------
148,884 120,911 68,781
Operating expenses:
Retail and restaurant................................ 43,037 30,536 17,620
Selling and shipping................................. 25,989 22,121 16,979
General and administrative........................... 34,883 26,440 12,843
----------- ----------- -----------
Total operating expenses..................... 103,909 79,097 47,442
----------- ----------- -----------
Operating income....................................... 44,975 41,814 21,339
Other expense (income):
Interest expense, net of interest income of
approximately $563 in 2002, $524 in 2001 and $123
in 2000 (Note 9).................................. 7,517 2,725 1,535
Equity in loss (income) of Paradise Shoe Company LLC
(Note 6).......................................... 291 (80) (111)
Other income (Note 11)............................... (14) (32) (5)
----------- ----------- -----------
Net other expense............................ 7,794 2,613 1,419
----------- ----------- -----------
Income before provision for income taxes and minority
interests in net loss (income) of subsidiaries....... 37,181 39,201 19,920
Provision for income taxes (Note 12)................... 13,350 14,665 6,553
----------- ----------- -----------
Income before minority interests in net loss (income)
of subsidiaries...................................... 23,831 24,536 13,367
Minority interests in net loss (income) of
subsidiaries......................................... 87 (512) (893)
----------- ----------- -----------
Net income............................................. $ 23,918 $ 24,024 $ 12,474
=========== =========== ===========
Net income per common share -- basic................... $ 1.41 $ .85 $ .42
=========== =========== ===========
Net income per common share -- diluted................. $ 1.40 $ .85 $ .42
=========== =========== ===========
Weighted-average common shares outstanding -- basic.... 16,994,476 28,218,421 30,000,000
=========== =========== ===========
Weighted-average common shares outstanding --diluted... 17,096,505 28,232,398 30,000,000
=========== =========== ===========
</Table>
See accompanying notes.
F-10
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
<Table>
<Caption>
COMMON STOCK
-----------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL
------------------- ---------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ------- ------ --------- ------ ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, April 1, 1999................ 29,325,000 $ 3 675,000 $ -- -- $ -- $ 1,885
Net income............................ -- -- -- -- -- -- --
---------- ---- ------- ---- --------- ---- -------
Balance, March 31, 2000............... 29,325,000 3 675,000 -- -- -- 1,885
Issuance of 5,948,067 shares of Class
C Common Stock on February 9, 2001
for cash (at $5.15 per share), net
of related fees and expenses of
approximately $3,320................ -- -- -- -- 5,948,067 1 27,304
Repurchase of 18,278,591 shares of
Class A Common Stock on February 9,
2001 for cash of $79,112 and
issuance of subordinated notes of
$15,000 (total at $5.15 per
share).............................. -- -- -- -- -- -- --
Repurchase of 675,000 shares of Class
B Common Stock on February 9, 2001
for cash (at $5.15 per share)....... -- -- -- -- -- -- --
To allocate proceeds of subordinated
notes payable to detachable warrants
to purchase 102,222 shares of Class
C Common Stock...................... -- -- -- -- -- -- 525
Net income............................ -- -- -- -- -- -- --
---------- ---- ------- ---- --------- ---- -------
Balance, March 31, 2001............... 29,325,000 3 675,000 -- 5,948,067 1 29,714
Adjustment to treasury stock purchase
price (Note 10)..................... -- -- -- -- -- -- --
Net income............................ -- -- -- -- -- -- --
---------- ---- ------- ---- --------- ---- -------
Balance, March 31, 2002............... 29,325,000 $ 3 675,000 $ -- 5,948,067 $ 1 $29,714
========== ==== ======= ==== ========= ==== =======
<Caption>
RETAINED
EARNINGS
AND TREASURY STOCK
MEMBERS' ---------------------------------
INTERESTS SHARES AMOUNT TOTAL
--------- ---------- --------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, April 1, 1999................ $ 6,648 -- $ -- $ 8,536
Net income............................ 12,474 -- -- 12,474
------- ---------- --------- --------
Balance, March 31, 2000............... 19,122 -- -- 21,010
Issuance of 5,948,067 shares of Class
C Common Stock on February 9, 2001
for cash (at $5.15 per share), net
of related fees and expenses of
approximately $3,320................ -- -- -- 27,305
Repurchase of 18,278,591 shares of
Class A Common Stock on February 9,
2001 for cash of $79,112 and
issuance of subordinated notes of
$15,000 (total at $5.15 per
share).............................. -- 18,278,591 (94,112) (94,112)
Repurchase of 675,000 shares of Class
B Common Stock on February 9, 2001
for cash (at $5.15 per share)....... -- 675,000 (3,475) (3,475)
To allocate proceeds of subordinated
notes payable to detachable warrants
to purchase 102,222 shares of Class
C Common Stock...................... -- -- 525
Net income............................ 24,024 -- -- 24,024
------- ---------- --------- --------
Balance, March 31, 2001............... 43,146 18,953,591 (97,587) (24,723)
Adjustment to treasury stock purchase
price (Note 10)..................... -- -- (2,614) (2,614)
Net income............................ 23,918 -- -- 23,918
------- ---------- --------- --------
Balance, March 31, 2002............... $67,064 18,953,591 $(100,201) $ (3,419)
======= ========== ========= ========
</Table>
See accompanying notes.
F-11
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
<Table>
<Caption>
2002 2001 2000
-------- -------- --------
($ IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 23,918 $ 24,024 $ 12,474
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ (14) 59 --
Depreciation and amortization.......................... 3,841 2,739 1,716
Interest amortization of discount on notes payable and
deferred financing costs............................. 329 36 --
Accrued interest on subordinated notes
payable -- shareholders.............................. 761 97 --
Deferred income taxes.................................. 764 (2,557) (415)
Deferred rent.......................................... 456 378 251
Equity in loss (income) of Paradise Shoe Company LLC... 291 (80) (111)
Gains on marketable securities......................... (14) -- --
Minority interests in net income (loss) of
subsidiaries......................................... (87) 512 893
Change in assets and liabilities:
Due from factor...................................... (2,078) (5,089) (17,490)
Accounts receivable.................................. 3,934 (6,963) (18)
Royalties receivable -- Paradise Shoe Company LLC.... (325) (210) (373)
Inventories.......................................... (2,293) (5,157) (8,293)
Due from vendor...................................... -- 8,338 --
Prepaid income taxes................................. (1,835) -- --
Prepaid expenses and other current assets............ 722 (5,186) 729
Security deposits and other assets................... (272) (45) 49
Accounts payable..................................... 3,175 4,277 4,731
Income taxes payable................................. (11,154) 3,459 2,707
Accrued expenses and other current liabilities....... (261) 4,510 3,869
Deferred compensation................................ 617 -- --
-------- -------- --------
Net cash provided by operating activities......... 20,475 23,142 719
-------- -------- --------
Cash flows from investing activities:
Purchase of minority interest............................. -- (7,449) --
Purchases of property and equipment....................... (6,118) (9,517) (2,714)
Investment in Paradise Shoe Company LLC................... (250) -- (250)
Purchase of marketable securities......................... (608) -- --
Sales of marketable securities............................ 5 -- --
-------- -------- --------
Net cash used in investing activities............. (6,971) (16,966) (2,964)
-------- -------- --------
Totals carried forward...................................... $ 13,504 $ 6,176 $ (2,245)
-------- -------- --------
</Table>
See accompanying notes.
F-12
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
<Table>
<Caption>
2002 2001 2000
-------- -------- -------
($ IN THOUSANDS)
Totals brought forward...................................... $ 13,504 $ 6,176 $(2,245)
Cash flows from financing activities:
Purchase of restricted cash equivalent.................... -- (15,000) --
Proceeds from restricted cash equivalent.................. 6,917 -- --
Payment of deferred financing costs....................... -- (1,107) --
Increase (decrease) in cash overdraft..................... (560) (2,079) 1,710
Proceeds from (repayments of) notes and acceptances
payable, net........................................... (6,664) 8,120 7,834
Proceeds from long-term debt.............................. -- 37,500 273
Repayments of long-term debt.............................. (7,580) (1,894) (733)
Repayment of loan payable -- member....................... -- (175) --
Proceeds from (repayments of) loans
payable -- shareholders, net........................... (9,090) 12,648 185
Proceeds from subordinated notes
payable -- shareholders................................ -- 10,000 --
Issuance of common stock.................................. -- 27,305 --
Purchase of treasury stock................................ -- (82,587) --
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... (16,977) (7,269) 9,269
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........ (3,473) (1,093) 7,024
Cash and cash equivalents, beginning of year................ 6,093 7,186 162
-------- -------- -------
Cash and cash equivalents, end of year...................... $ 2,620 $ 6,093 $ 7,186
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 6,282 $ 2,434 $ 1,393
Income taxes.............................................. $ 25,557 $ 13,983 $ 4,308
</Table>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with an adjustment to the purchase price of treasury stock
during the year ended March 31, 2002, the Company issued loans payable to
shareholders totalling $2,615.
In connection with the purchase of treasury stock during the year ended
March 31, 2001, the Company issued subordinated notes payable to several
shareholders totalling $15,000.
See accompanying notes.
F-13
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- NATURE OF BUSINESS
Viewpoint International, Inc. (the "Company") is an importer of men's and
women's sportswear sold primarily to retail stores in the United States. Its
wholly-owned subsidiaries, Tommy Bahama R&R Holdings, Inc. and Tommy Bahama R&R
Holdings II, Inc. (collectively "Tommy Bahama Retail"), operate, through their
wholly-owned subsidiaries, retail restaurants and clothing stores that sell
products by and promote the "Tommy Bahama" brand name in the United States. The
Company's majority-owned subsidiary, Paradise Neckwear Co. LLC is a manufacturer
of men's neckwear sold primarily to retail stores in the United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company, Tommy Bahama R&R Holdings, Inc. and its twenty-three
wholly-owned subsidiaries, Tommy Bahama R&R Holdings II, Inc. and its four
wholly-owned subsidiaries and Paradise Neckwear Co. LLC (hereinafter referred to
collectively as the "Companies"). All significant intercompany transactions and
balances have been eliminated in consolidation. Effective March 31, 2002, Tommy
Bahama R&R Holdings II, Inc. was merged with and into Tommy Bahama R&R Holdings,
Inc.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Companies consider cash on hand, deposits in banks and short-term
investments, with maturities of three months or less when purchased, as cash and
cash equivalents.
INVENTORIES
Substantially all inventories are finished goods and are stated at the
lower of cost (first-in, first-out method) or market. At March 31, 2002 and
2001, inventory in-transit was approximately $3,207 and $3,805, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Expenditures for major
additions and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is computed by
both the straight-line and accelerated methods over the assets' estimated lives
ranging from three to seven years. Leasehold improvements are amortized over the
lesser of the lease terms or the assets' useful lives. Upon sale or retirement
of equipment, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in operations.
GOODWILL
Goodwill represents the aggregate excess of the acquired cost of the
minority interest in two retail stores over the fair value of their net assets
on the date of acquisition. Commencing April 1, 2001, with the Company's
adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
goodwill is no longer amortized and the Company is required to complete a test
for impairment of goodwill annually, as well as a transitional goodwill
impairment test within six months from the date of adoption. The Company has
concluded its testing, on an individual store basis, as required by SFAS 142.
The results of these tests did not indicate any impairment of the Company's
recorded goodwill. SFAS 142 also requires disclosure of what
F-14
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
net income would have been in all periods presented had SFAS 142 been in effect.
The following table is provided to disclose what net income would have been had
SFAS 142 been adopted in prior periods.
<Table>
<Caption>
FOR THE YEAR ENDED MARCH 31,
------------------------------
2002 2001 2000
-------- -------- --------
Reported net income............................... $23,918 $24,024 $12,474
Add back: Goodwill amortization................... -- 205 --
------- ------- -------
Adjusted net income............................... $23,918 $24,229 $12,474
======= ======= =======
Net income per common share -- basic, as
reported........................................ $ 1.41 $ .85 $ .42
======= ======= =======
Net income per common share -- diluted, as
reported........................................ $ 1.40 $ .85 $ .42
======= ======= =======
Adjusted net income per common share -- basic..... $ 1.41 $ .86 $ .42
======= ======= =======
Adjusted net income per common share -- diluted... $ 1.40 $ .86 $ .42
======= ======= =======
</Table>
DEFERRED FINANCING COSTS
Costs incurred in the issuance of the subordinated notes
payable -- shareholders, principally professional fees, are amortized by the
straight-line method over the term of the notes (see Note 9).
SFAS No. 141, "Business Combinations" ("SFAS 141"), specifies certain
criteria for identifying, valuing and recording intangible assets separate from
goodwill. SFAS 142 also prescribes the disclosure requirements for intangible
assets that meet these criteria. The following schedule details the Company's
deferred financing costs, which are included in the accompanying balance sheets
at March 31:
<Table>
<Caption>
2002 2001
------ ------
Deferred financing costs.................................... $1,107 $1,107
Less: Accumulated amortization.............................. 250 36
------ ------
Net carrying amount......................................... $ 857 $1,071
====== ======
</Table>
Amortization expense for the years ended March 31, 2002 and 2001 was
approximately $214 and $36, respectively.
The future amortization expense for each of the four succeeding years
relating to the deferred financing costs currently recorded on the balance sheet
is estimated to be the following:
<Table>
<Caption>
YEAR ENDING
MARCH 31,
- -----------
2003...................................................... $214
2004...................................................... $214
2005...................................................... $214
2006...................................................... $214
</Table>
REVENUE RECOGNITION
Net sales from wholesale products are recognized upon transfer of title
and risk of ownership to customers. Net sales from retail and restaurant sales
are recognized when payment is tendered at the point of
F-15
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
sale. Revenue is recorded net of discounts, as well as provisions for estimated
returns, allowances and doubtful accounts. Licensing revenue is recognized as
earned.
INCOME TAXES
The Company and Tommy Bahama Retail file consolidated income tax returns.
The wholly-owned subsidiaries of Tommy Bahama Retail are all either
limited liability companies or limited partnerships (collectively referred to as
the "LLCs"). Limited liability companies and limited partnerships are not tax
paying entities at the corporate level. Each member/partner is individually
responsible for their share of the Companies' income or loss for income tax
reporting purposes. Tommy Bahama Retail includes its respective share of the
income and losses of the LLCs in its income tax returns.
SHIPPING AND HANDLING COSTS
The Company includes shipping and handling costs in selling and shipping
expense. Shipping and handling costs for the years ended March 31, 2002, 2001
and 2000 amounted to approximately $3,619, $3,237 and $2,326, respectively.
ADVERTISING EXPENSES
Advertising expenses are charged to operations in the period in which
they are incurred. Advertising expenses for the years ended March 31, 2002, 2001
and 2000 were approximately $2,084, $2,023 and $731, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the carrying value of its financial instruments
approximates the fair value at the balance sheet date except for its $25,000 of
subordinated notes payable -- shareholders (see Note 9). The estimated fair
value of these notes are approximately $28,000 at March 31, 2002 based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," basic and diluted
income per common share has been computed using the weighted-average number of
shares of common stock outstanding during the period. Potentially dilutive
securities outstanding at March 31, 2002 and 2001 which convert to common share
equivalents consist of common stock warrants to purchase 102,222 shares of the
Company's Class C Common Stock.
F-16
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
the amount recorded or incurs a gain or loss. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. Management believes that the adoption of
this statement will not have a material effect on the Company's future results
of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," ("SFAS 121") and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business." The FASB issued SFAS 144 to establish a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. SFAS 144 broadens the presentation of discontinued
operations in the income statement to include a component of an entity (rather
than a segment of a business). A component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. SFAS 144 also requires that
discontinued operations be measured at the lower of the carrying amount or fair
value less cost to sell. SFAS 144 is effective for fiscal years beginning after
December 15, 2001 and should be applied prospectively. Management is evaluating
the effect of this statement on the Company's results of operations and
financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections" ("SFAS 145"), which clarifies the criteria under which
extinguishment of debt can be considered as extraordinary and rescinds the
related SFAS Nos. 4 and 64 in addition to SFAS 44 and also makes technical
corrections to other Statements of Financial Accounting Standards. The Company
adopted SFAS 145 effective with the year ending March 31, 2002. The adoption of
this statement had no immediate impact on the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which is effective
for exit or disposal activities that are initiated after December 31, 2002, with
earlier application encouraged. This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of SFAS 146 are to be applied prospectively from the date of adoption. The
Company has not yet assessed any potential impact the issuance of this standard
may have on its financial position or future results of operations.
NOTE 3 -- CONCENTRATIONS OF RISK
CASH AND CASH EQUIVALENTS
The Companies are subject to a concentration of credit risk with respect
to their cash and cash equivalents in excess of federally insured amounts.
F-17
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACCOUNTS RECEIVABLE
The concentration of credit risk in the Company's accounts receivable is
mitigated by the sale of a substantial portion of its accounts receivable to a
commercial factor. The remaining accounts receivable are subject to the
Company's credit evaluation process, reasonably short collection terms and the
geographical dispersion of revenue. Credit losses have been within management's
expectations.
MAJOR CUSTOMERS
During the year ended March 31, 2002, two customers accounted for
approximately 13% and 10%, respectively, of the Company's sales. During the year
ended March 31, 2001, one customer accounted for approximately 13% of the
Company's sales.
MAJOR SUPPLIERS
During the years ended March 31, 2002, 2001 and 2000, 42%, 48% and 53%,
respectively, of purchases were from two suppliers. At March 31, 2002 and 2001,
the amounts due to these suppliers were approximately $4,932 and $6,152,
respectively, and are included in accounts payable. Management believes that
other suppliers could provide the materials on comparable terms.
NOTE 4 -- DUE FROM FACTOR
The Company sells a substantial portion of its trade receivables to a
commercial factor, without recourse, up to maximum credit limits established by
the factor for each individual account. Receivables sold in excess of these
limitations are subject to recourse in the event of non-payment by the customer.
At March 31, 2002 and 2001, receivables subject to recourse were approximately
$8,081 and $5,277, respectively. Under a tri-party agreement with the bank (see
Note 7) all factor proceeds are assigned to the bank.
NOTE 5 -- PROPERTY AND EQUIPMENT
At March 31, property and equipment consists of:
<Table>
<Caption>
2002 2001
------- -------
Office machinery and equipment............................. $ 771 $ 643
Furniture and fixtures..................................... 6,743 5,401
Computer equipment......................................... 2,767 1,782
Leasehold improvements..................................... 16,470 12,537
Kitchen equipment.......................................... 1,547 1,489
Construction in progress................................... 67 395
------- -------
28,365 22,247
Less: Accumulated depreciation and amortization............ 9,977 6,152
------- -------
$18,388 $16,095
======= =======
</Table>
NOTE 6 -- INVESTMENT IN PARADISE SHOE COMPANY LLC
The Company has a 50% interest in Paradise Shoe Company LLC ("Paradise")
which is accounted for under the equity method. Under this method, the Company's
investment is adjusted for its proportionate share of Paradise's undistributed
earnings or losses. The Company also has a royalty agreement with
F-18
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Paradise based on a percentage of net sales. Royalties are payable 50% at the
end of each quarter with the balance due eighteen months later. During the years
ended March 31, 2002, 2001 and 2000, the Company charged Paradise royalties of
approximately $519, $549 and $373, respectively.
NOTE 7 -- NOTES AND BANKERS ACCEPTANCES PAYABLE
The Company has a financing agreement providing for a term loan (see Note
8) and a revolving line of credit. The agreement is renewable on an annual basis
through March 31, 2006 provided that on each renewal date the Company is in
compliance with the terms of the agreement. The revolving line of credit is
subject to the following sublimits:
<Table>
<Caption>
JUNE- NOVEMBER-
OCTOBER MAY
------- ----------
Maximum amount available under the revolving line of
credit.................................................. $40,000 $52,500
Maximum amount of bankers acceptances..................... $35,000 $45,000
Maximum amount of cash advances........................... $15,000 $20,000
</Table>
Borrowings are based on eligible factored accounts receivable and
inventory, as defined, and bear interest at the 4-month LIBOR rate plus 2.75%,
which on a weighted-average annual basis, amounted to 4.88% and 6.4% as of and
for the year ended March 31, 2002, respectively. The agreement includes various
covenants, as defined. The Company was in compliance with these covenants as of
March 31, 2002. The Company has pledged substantially all of its assets as
collateral and the debt is guaranteed by Tommy Bahama Retail and its
wholly-owned subsidiaries.
NOTE 8 -- LONG-TERM DEBT
At March 31, long-term debt consists of:
<Table>
<Caption>
2002 2001
------- -------
Term loan payable (see Note 7) in monthly installments of
$625 through February 2006; plus interest at the 3-month
LIBOR rate plus 3% (4.89% at March 31, 2002)............. $29,375 $36,875
Loans payable in monthly installments of $8, including
interest at 5.6%......................................... -- 80
------- -------
29,375 36,955
Less: Current portion...................................... 7,500 7,580
------- -------
$21,875 $29,375
======= =======
</Table>
At March 31, 2002, maturities of long-term debt are as follows:
<Table>
<Caption>
YEAR ENDING MARCH 31,
- ---------------------
2003........................................................ $ 7,500
2004........................................................ 7,500
2005........................................................ 7,500
2006........................................................ 6,875
-------
$29,375
=======
</Table>
F-19
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9 -- RELATED PARTY TRANSACTIONS
LOANS PAYABLE -- SHAREHOLDERS
During the year ended March 31, 2001, the Company borrowed $15,000 from
four shareholders to purchase a certificate of deposit, which is pledged as
collateral on the Company's credit facility. The deposit, which is in an
automatically renewed 7-day certificate of deposit, earns interest at 2.39% at
March 31, 2002. The shareholders are entitled to interest earned and,
accordingly, interest expense charged to operations for the years ended March
31, 2002 and 2001 was approximately $378 and $114, respectively. In June 2001,
the Company repaid three of the shareholders $7,170 plus accrued interest of
approximately $126. At March 31, 2002 and 2001, loans payable -- shareholders
includes approximately $367 and $114, respectively, of accrued interest.
Additionally, included in loans payable -- shareholders at March 31, 2002
and 2001 is approximately $515 and $1,465, respectively, of a loan payable to a
shareholder, which bears interest at the rate of 6% per annum and is due on
demand. Included in the total is approximately $515 and $465 of accrued interest
at March 31, 2002 and 2001, respectively. Interest expense charged to operations
for the years ended March 31, 2002, 2001 and 2000 was approximately $50, $148
and $210, respectively.
SUBORDINATED NOTES PAYABLE -- SHAREHOLDERS
At March 31, 2002 and 2001, the Company has notes payable to several
shareholders, which bear interest at 16% (effective rate of 17.05%), are due on
March 31, 2006 and are subordinated to the Company's credit facility. Interest
is payable quarterly at the rate of 13% and the remaining 3% accrues and is paid
upon maturity. Interest expense charged to operations for the years ended March
31, 2002 and 2001 in connection with these notes was approximately $4,176 and
$515, respectively. Included in accrued expenses and other current liabilities
at March 31, 2002 and 2001 is approximately $824 and $418, respectively, of
accrued interest. The notes include various covenants and restrictions, as
defined. The Company has pledged substantially all of its assets as collateral
and the debt is guaranteed by Tommy Bahama Retail and its wholly-owned
subsidiaries.
At March 31, subordinated notes payable -- shareholders is comprised of
the following:
<Table>
<Caption>
2002 2001
------- -------
Face value................................................. $25,000 $25,000
Unamortized discount....................................... (410) (525)
Accrued interest........................................... 858 97
------- -------
$25,448 $24,572
======= =======
</Table>
F-20
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with three shareholders
and a key employee expiring in 2006 that provide for minimum annual salaries and
incentives based on the Company's attainment of specified levels of sales and
earnings. The future minimum salaries are as follows:
<Table>
<Caption>
YEAR ENDING MARCH 31,
- ---------------------
2003........................................................ $2,400
2004........................................................ 2,400
2005........................................................ 2,400
2006........................................................ 2,000
------
$9,200
======
</Table>
Salaries and incentives to shareholders charged to operations for the
years ended March 31, 2002 and 2001 amounted to approximately $3,178 and $3,811,
respectively.
CONSULTING CONTRACT
The Company has entered into a consulting contract with a director
expiring in 2006. Future minimum payments are as follows:
<Table>
<Caption>
YEAR ENDING MARCH 31,
- ---------------------
2003........................................................ $ 850
2004........................................................ 850
2005........................................................ 850
2006........................................................ 708
------
$3,258
======
</Table>
Consulting fees to the related party charged to operations for the year
ended March 31, 2002 were approximately $1,349.
MANAGEMENT CONTRACT
The Company has entered into a management contract with a shareholder
calling for an advisory fee in annual payments of $300. The fee will be reduced
to $200 per annum at such time as the shareholder and all of its affiliates
collectively own less than 50% of the shares of the Company's Class C Common
Stock.
Advisory fees to the shareholder charged to operations for the years
ended March 31, 2002 and 2001 amounted to approximately $300 and $50,
respectively.
NOTE 10 -- SHAREHOLDERS' EQUITY
COMMON STOCK
On February 7, 2001, the Company amended and restated its Articles of
Incorporation creating an additional class of Common Stock (Class C) and
authorizing additional shares of Class A and B. Each existing share was
converted into 20,000 shares of the same class. Accordingly, the accompanying
consolidated financial statements give effect to the conversion for all periods
presented.
F-21
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONVERSION RIGHTS
Each Class B share is convertible into one share of Class A at the option
of the holder immediately prior to a public offering. If the offering does not
occur, the conversion option is voided.
Each Class C share is convertible into one share of Class A at the option
of the holder at anytime. The convertible number of shares will be adjusted for
any stock dividends, distributions, splits or mergers, as defined.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, holders of Class C Common Stock are entitled to the greater of
(a) the amount they would receive after conversion of all shares to Class A
Common Stock or (b) an amount equal to a compounded annual rate of return of
14.5% of the original purchase price of each share from the date of issuance
($5.15 per share) as adjusted for stock splits, dividends, combinations and the
like, reduced by the aggregate amounts of dividends or other distributions paid
to them from the original issue date through liquidation date.
TREASURY STOCK
At March 31, treasury stock consisted of the following:
<Table>
<Caption>
SHARES 2002 2001
---------- -------- -------
Class A voting common stock................... 18,278,591 $ 96,726 $94,112
Class B non-voting common stock............... 675,000 3,475 3,475
---------- -------- -------
18,953,591 $100,201 $97,587
========== ======== =======
</Table>
In November 2001, the Company adjusted the purchase price of various
shares purchased on February 9, 2001 by approximately $2,614. At March 31, 2002,
approximately $1,392 of this amount was unpaid and is included in loans
payable -- shareholders on the accompanying consolidated balance sheet.
WARRANTS
At March 31, 2002, there are outstanding warrants to purchase 102,222
shares of Class C Common Stock at $.01 per share. The warrants are exercisable
anytime after August 9, 2002 and expire on February 9, 2008.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company has a 401(k) plan for all eligible employees. Matching
contributions to the plan are at the discretion of the Company. For the years
ended March 31, 2002, 2001 and 2000, employer contributions to the plan were
approximately $321, $258 and $208, respectively.
DEFERRED COMPENSATION PLAN
During the year ended March 31, 2002, the Company began a non-qualified,
deferred compensation plan (the "Plan") for all eligible highly compensated
employees, as defined. Participants may contribute up to 100% of their annual
compensation, as defined. Participants are immediately vested in their
contributions plus actual earnings thereon. Employer contributions are based on
a discretionary matching contribution.
F-22
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Participants become 100% vested in employer contributions after five years of
service. There were no employer contributions during the year ended March 31,
2002.
The assets of the Plan have been invested, as directed by employees, in
marketable securities consisting primarily of mutual funds, and have been
classified as trading securities, which are recorded at fair value on the
consolidated balance sheet with the change in fair value during the period
included in earnings. Included in other income on the accompanying consolidated
statement of income for the year ended March 31, 2002 is approximately $13 of
unrealized gains on these securities.
NOTE 12 -- INCOME TAXES
The provision for income taxes for the years ended March 31, 2002, 2001
and 2000 consists of:
<Table>
<Caption>
2002 2001 2000
------- ------- ------
Federal:
Current.......................................... $11,743 $16,355 $6,292
Deferred......................................... 704 (1,872) (382)
------- ------- ------
12,447 14,483 5,910
------- ------- ------
State and local:
Current.......................................... 843 867 676
Deferred......................................... 60 (685) (33)
------- ------- ------
903 182 643
------- ------- ------
$13,350 $14,665 $6,553
======= ======= ======
</Table>
Reconciliations of the United States federal statutory income tax rates
and the Company's effective tax rates are summarized as follows:
<Table>
<Caption>
FOR THE YEAR ENDED
MARCH 31,
------------------
2002 2001 2000
---- ---- ----
Statutory rate............................................. 35.0% 35.0% 35.0%
State and local income taxes -- net of federal income tax
benefit.................................................. 1.6 .3 2.1
Other, net................................................. (.7) 2.1 (4.2)
---- ---- ----
Effective rate............................................. 35.9% 37.4% 32.9%
==== ==== ====
</Table>
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
F-23
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Significant components of the deferred income tax assets as of March 31,
2002 and 2001 are as follows:
<Table>
<Caption>
2002 2001
------ ------
Current portion:
Inventory uniform capitalization.......................... $ 164 $ 153
Inventory reserves........................................ -- 760
Accrued compensation...................................... 194 1,051
Other..................................................... (5) 22
------ ------
353 1,986
------ ------
Long-term portion:
Depreciation and amortization............................. 1,197 747
Deferred rent obligation.................................. 413 239
Deferred compensation..................................... 245 --
------ ------
1,855 986
------ ------
$2,208 $2,972
====== ======
</Table>
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Companies lease office, showroom, store space and equipment under
operating leases expiring in various years through 2019. The rental payments
under store facility leases are based upon a minimum rental plus a percentage of
the stores' sales in excess of stipulated amounts. Only the minimum rental
portions are included in future commitments.
At March 31, 2002, the aggregate approximate minimum annual rental
commitments under non-cancelable leases are as follows:
<Table>
<Caption>
YEAR ENDING MARCH 31,
- ---------------------
2003........................................................ $ 7,949
2004........................................................ 8,482
2005........................................................ 7,865
2006........................................................ 7,463
2007........................................................ 6,957
Thereafter.................................................. 30,745
-------
$69,461
=======
</Table>
Rent expense for the years ended March 31, 2002, 2001 and 2000 amounted
to approximately $9,720, $6,262 and $3,222, respectively. Rent expense for the
years ended March 31, 2002, 2001 and 2000 also includes straight-line
adjustments in accordance with Statement of Financial Accounting Standards No.
13 of approximately $456, $378 and $251, respectively. As of March 31, 2002 and
2001, obligations of approximately $1,086 and $629, respectively, representing
future payments are reflected in the accompanying consolidated balance sheets.
F-24
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LETTERS OF CREDIT
At March 31, 2002, the Company had approximately $7,641 of outstanding
letters of credit under its credit facility. In addition, the Company has
recorded approximately $2,516 of outstanding letters of credit as in-transit
inventory, which is included in accounts payable on the accompanying
consolidated balance sheet.
In addition, the Company has issued three standby letters of credit
totalling approximately $824 as security deposits for two of its leased premises
and as collateral on a surety bond used for its insurance plan.
SELF-INSURANCE PROGRAM
The Company provides its employees basic and major medical insurance
coverage through a limited self-insurance program. Claims processed and paid are
reimbursed to a maximum per participant per contract year. Benefits in excess of
this limit are covered by stop-loss insurance coverage.
LITIGATION
The Company is a defendant in various lawsuits which arose in the
ordinary course of business. Management is vigorously defending the lawsuits and
believes the outcomes will not have a material effect on the Company's financial
condition.
NOTE 14 -- SEGMENTS
The Company's business segments are wholesale and retail and restaurant
operations. The wholesale operations consist of the importing of men's and
women's sportswear sold primarily to retail stores throughout the United States.
The retail and restaurant operations consist of retail clothing and restaurants
that sell products by and promote the "Tommy Bahama" brand name in the United
States.
The accounting policies of the segments are consistent with those
described in Note 2. All intercompany revenue and profits or losses are
eliminated in consolidation. We evaluate each segment based upon earnings before
interest and income taxes.
<Table>
<Caption>
RETAIL AND
WHOLESALE RESTAURANT ELIMINATIONS TOTAL
--------- ---------- ------------ --------
March 31, 2002:
Net sales........................ $221,760 $95,074 $(31,881) $284,953
Depreciation and amortization.... $ 1,084 $ 2,757 $ -- $ 3,841
Earnings before interest and
income taxes.................. $ 40,422 $ 4,837 $ (688) $ 44,571
Total assets..................... $106,183 $38,739 $(28,822) $116,100
Purchases of property and
equipment..................... $ 1,793 $ 4,325 $ -- $ 6,118
March 31, 2001:
Net sales........................ $212,808 $64,809 $(23,151) $254,466
Depreciation and amortization.... $ 637 $ 2,102 $ -- $ 2,739
Earnings before interest and
income taxes.................. $ 41,104 $ 2,697 $ (2,423) $ 41,378
Total assets..................... $113,858 $38,836 $(30,240) $122,454
Purchases of property and
equipment..................... $ 1,215 $ 8,302 $ -- $ 9,517
</Table>
F-25
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
RETAIL AND
WHOLESALE RESTAURANT ELIMINATIONS TOTAL
--------- ---------- ------------ --------
March 31, 2000:
Net sales........................ $121,240 $40,844 $(14,485) $147,599
Depreciation and amortization.... $ 251 $ 1,465 $ -- $ 1,716
Earnings before interest and
income taxes.................. $ 16,627 $ 4,791 $ (856) $ 20,562
Total assets..................... $ 70,985 $18,928 $(11,960) $ 77,953
Purchases of property and
equipment..................... $ 593 $ 2,121 $ -- $ 2,714
</Table>
NOTE 15 -- SUMMARIZED QUARTERLY DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
periods ended March 31, 2002 and 2001:
<Table>
<Caption>
MARCH 31, DEC. 31, SEPT. 30, JUNE 30,
2002 2001 2001 2001 TOTAL
--------- -------- --------- -------- --------
Net sales.................... $92,850 $62,253 $52,364 $77,486 $284,953
Gross profit................. $46,871 $34,135 $25,463 $39,981 $146,450
Net earnings (loss).......... $10,467 $ 5,945 $ (240) $ 7,746 $ 23,918
Basic earnings (loss) per
common share............... $ .62 $ .35 $ (.01) $ .45 $ 1.41
Diluted earnings (loss) per
common share............... $ .61 $ .35 $ (.01) $ .45 $ 1.40
</Table>
<Table>
<Caption>
MARCH 31, DEC. 31, SEPT. 30, JUNE 30,
2001 2000 2000 2000 TOTAL
--------- -------- --------- -------- --------
Net sales.................... $98,446 $65,448 $32,726 $57,846 $254,466
Gross profit................. $44,482 $33,366 $15,904 $25,925 $119,677
Net earnings................. $ 9,060 $ 8,141 $ 445 $ 6,378 $ 24,024
Basic earnings per common
share...................... $ .40 $ .27 $ .01 $ .21 $ .85
Diluted earnings per common
share...................... $ .40 $ .27 $ .01 $ .21 $ .85
</Table>
F-26
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
VIEWPOINT INTERNATIONAL, INC.
F-27
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
--------- ---------
($ IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,247 $ 3,331
Cash equivalent -- restricted............................. -- 8,147
Due from factor........................................... 23,463 19,730
Accounts receivable, net of allowance for doubtful
accounts of approximately $59 in 2002 and $98 in 2001... 3,654 688
Royalties receivable -- Paradise Shoe Company LLC......... 515 856
Inventories............................................... 40,230 24,603
Prepaid income taxes...................................... -- 5,619
Deferred income taxes..................................... 582 1,474
Prepaid expenses and other current assets................. 6,640 5,046
-------- --------
Total current assets............................... 82,331 69,494
Property and equipment, net................................. 25,327 18,608
Other assets:
Goodwill, net............................................. 5,537 5,537
Deferred financing costs, net............................. 696 910
Royalties receivable -- Paradise Shoe Company LLC......... 251 174
Investment in Paradise Shoe Company LLC................... 654 506
Deferred income taxes..................................... 2,343 1,545
Marketable securities..................................... 799 307
Security deposits and other assets........................ 575 532
-------- --------
Total other assets................................. 10,855 9,511
-------- --------
$118,513 $ 97,613
======== ========
LIABILITIES AND EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 31,905 $ 20,699
Notes and bankers acceptances payable..................... 5,744 11,271
Long-term debt -- current portion......................... 7,589 7,508
Income taxes payable...................................... 3,244 --
Loans payable -- shareholders............................. 59 12,271
Accrued expenses and other current liabilities............ 10,216 9,363
-------- --------
Total current liabilities.......................... 58,757 61,112
Long-term debt.............................................. 16,427 23,750
Deferred rent............................................... 1,452 928
Deferred compensation....................................... 799 307
Subordinated notes payable -- shareholders.................. 26,114 25,233
Minority interests in subsidiaries.......................... 17 169
Commitments and contingencies
Equity (deficiency):
Class A Voting Common Stock -- $.0001 par value:
Authorized -- 40,000,000 shares
Issued -- 29,325,000 shares............................. 3 3
Class B Non-Voting Common Stock -- $.0001 par value:
Authorized -- 675,000 shares
Issued -- 675,000 shares................................ -- --
Class C Voting Common Stock -- $.0001 par value:
Authorized -- 6,200,000 shares
Issued and outstanding -- 5,948,067 shares.............. 1 1
Additional paid-in capital................................ 29,714 29,714
Retained earnings and members' interests.................. 85,430 56,597
-------- --------
115,148 86,315
Less: Treasury stock, at cost............................. 100,201 100,201
-------- --------
Total equity (deficiency).......................... 14,947 (13,886)
-------- --------
$118,513 $ 97,613
======== ========
</Table>
See accompanying notes.
F-28
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
($ IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales:
Wholesale................................................. $ 140,900 $ 123,399
Retail.................................................... 84,554 68,704
----------- -----------
Total net sales................................... 225,454 192,103
Cost of goods sold.......................................... 110,893 92,524
----------- -----------
Gross profit................................................ 114,561 99,579
Licensing income............................................ 2,732 1,682
----------- -----------
117,293 101,261
Operating expenses:
Retail and restaurant..................................... 31,930 32,140
Selling and shipping...................................... 20,027 17,192
General and administrative................................ 33,607 25,283
----------- -----------
Total operating expenses.......................... 85,564 74,615
----------- -----------
Operating income............................................ 31,729 26,646
Other expense (income):
Interest expense, net of interest income of approximately
$46 in 2002 and $504 in 2001........................... 4,613 5,816
Equity in loss (income) of Paradise Shoe Company LLC...... (158) 280
Other income.............................................. (227) (88)
----------- -----------
Net other expense................................. 4,228 6,008
----------- -----------
Income before provision for income taxes and minority
interests in net loss of subsidiaries..................... 27,501 20,638
Provision for income taxes.................................. 9,187 7,242
----------- -----------
Income before minority interests in net loss of
subsidiaries.............................................. 18,314 13,396
Minority interests in net loss of subsidiaries.............. 52 55
----------- -----------
Net income.................................................. $ 18,366 $ 13,451
=========== ===========
Net income per common share -- basic........................ $ 1.08 $ .79
=========== ===========
Net income per common share -- diluted...................... $ 1.07 $ .79
=========== ===========
Weighted-average common shares outstanding -- basic......... 16,994,476 16,994,476
=========== ===========
Weighted-average common shares outstanding -- diluted....... 17,096,505 17,096,505
=========== ===========
</Table>
See accompanying notes.
F-29
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
COMMON STOCK
-----------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL
------------------- ---------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ------- ------ --------- ------ ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, April 1, 2002...... 29,325,000 $3 675,000 $-- 5,948,067 $1 $29,714
Net income.................. -- -- -- -- -- -- --
---------- -- ------- -- --------- -- -------
Balance, December 31,
2002...................... 29,325,000 $3 675,000 $-- 5,948,067 $1 $29,714
========== == ======= == ========= == =======
Balance, April 1, 2001...... 29,325,000 $3 675,000 $-- 5,948,067 $1 $29,714
Adjustment to treasury stock
purchase price............ -- -- -- -- -- -- --
Net income.................. -- -- -- -- -- -- --
---------- -- ------- -- --------- -- -------
Balance, December 31,
2001...................... 29,325,000 $3 675,000 $-- 5,948,067 $1 $29,714
========== == ======= == ========= == =======
<Caption>
RETAINED
EARNINGS
AND TREASURY STOCK
MEMBERS' ---------------------------------
INTERESTS SHARES AMOUNT TOTAL
--------- ---------- --------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance, April 1, 2002...... $67,064 18,953,591 $(100,201) $ (3,419)
Net income.................. 18,366 -- -- 18,366
------- ---------- --------- --------
Balance, December 31,
2002...................... $85,430 18,953,591 $(100,201) $ 14,947
======= ========== ========= ========
Balance, April 1, 2001...... $43,146 18,953,591 $ (97,587) $(24,723)
Adjustment to treasury stock
purchase price............ -- -- (2,614) (2,614)
Net income.................. 13,451 -- -- 13,451
------- ---------- --------- --------
Balance, December 31,
2001...................... $56,597 18,953,591 $(100,201) $(13,886)
======= ========== ========= ========
</Table>
See accompanying notes.
F-30
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
-------- --------
($ IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 18,366 $ 13,451
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ 14 39
Depreciation and amortization.......................... 3,105 2,830
Interest amortization of discount on notes payable and
deferred financing costs.............................. 238 238
Accrued interest on subordinated notes
payable -- shareholders............................... 589 584
Deferred income taxes.................................. (717) (47)
Deferred rent.......................................... 366 299
Equity in loss (income) of Paradise Shoe Company LLC... (158) 280
Losses (gains) on marketable securities................ 156 (14)
Minority interests in net loss of subsidiaries......... (52) (55)
Gain on purchase of minority interest.................. (37) --
Change in assets and liabilities:
Due from factor...................................... 17,142 18,797
Accounts receivable.................................. (615) 6,246
Royalties receivable -- Paradise Shoe Company LLC.... 143 (446)
Inventories.......................................... (15,559) (2,225)
Prepaid income taxes................................. 1,835 (5,619)
Prepaid expenses and other current assets............ (1,128) 1,188
Security deposits and other assets................... 19 (193)
Accounts payable..................................... 12,550 3,957
Income taxes payable................................. 3,206 (11,193)
Accrued expenses and other current liabilities....... 121 (995)
Deferred compensation................................ 181 307
-------- --------
Net cash provided by operating activities......... 39,765 27,429
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (9,734) (5,342)
Purchase of marketable securities......................... (337) (298)
Purchase of minority interest............................. (31) --
Sales of marketable securities............................ -- 5
Investment in Paradise Shoe Company LLC................... -- (250)
-------- --------
Net cash used in investing activities............. (10,102) (5,885)
-------- --------
Totals carried forward...................................... $ 29,663 $ 21,544
-------- --------
</Table>
See accompanying notes.
F-31
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
-------- --------
($ IN THOUSANDS)
Totals brought forward...................................... $ 29,663 $ 21,544
Cash flows from financing activities:
Proceeds from restricted cash equivalent.................. 8,197 6,967
Repayments of notes and acceptances payable, net.......... (17,518) (18,655)
Repayments of long-term debt.............................. (5,670) (5,696)
Repayments of loans payable -- shareholders, net.......... (10,045) (6,922)
-------- --------
Net cash used in financing activities............. (25,036) (24,306)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 4,627 (2,762)
Cash and cash equivalents, beginning of year................ 2,620 6,093
-------- --------
Cash and cash equivalents, end of period.................... $ 7,247 $ 3,331
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 3,207 $ 3,949
Income taxes.............................................. $ 4,931 $ 24,443
</Table>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 2002, the Company incurred long-term debt of $310 in connection with
the acquisition of capitalized equipment.
In 2001, in connection with an adjustment to the purchase price of
treasury stock, the Company issued loans payable to several shareholders
totalling $2,615.
See accompanying notes.
F-32
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements were
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and note disclosures
normally included in audited financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted. In the opinion of management, all adjustments consisting of
normal, recurring adjustments necessary for a fair presentation of (a) the
results of operations for the nine months ended December 31, 2002 and 2001, (b)
the financial position at December 31, 2002 and 2001 and (c) cash flows for the
nine months ended December 31, 2002 and 2001, have been made. The results of
operations for the nine months ended December 31, 2002 and 2001 are not
necessarily indicative of those to be expected for the entire year.
The accompanying consolidated financial statements and notes should be
read in conjunction with the audited consolidated financial statements and notes
of the Company for the fiscal year ended March 31, 2002. Any material facts that
have changed from those footnotes are discussed herein, or are a normal result
of transactions during the interim period.
NOTE 2 -- ACCOUNTING POLICIES
The summary of the Company's significant accounting polices in its
audited consolidated financial statements for the fiscal year ended March 31,
2002 describes its accounting policies. Except as noted below, accounting
policies are the same as the fiscal year ended March 31, 2002.
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period and
the capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, the entity either settles the obligation for
the amount recorded or incurs a gain or loss. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. Management believes that the adoption of
this statement will not have a material effect on the Company's future results
of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business." The FASB issued SFAS 144 to establish a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. SFAS 144 broadens the presentation of discontinued
operations in the income statement to include a component of an entity (rather
than a segment of a business). A component of an entity comprises operations and
cash flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. SFAS 144 also requires that
discontinued operations be measured at the lower of the carrying amount or fair
value less cost to sell. The Company adopted SFAS 144 on April 1, 2002. The
provisions of this statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities and, therefore, will depend on future
actions initiated by management. As a result, the Company cannot determine the
F-33
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
potential effects that adoption of SFAS 144 will have on its consolidated
financial statements with respect to future disposal decisions, if any.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which is effective
for exit or disposal activities that are initiated after December 31, 2002, with
earlier application encouraged. This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of SFAS 146 are to be applied prospectively from the date of adoption. The
Company has not yet assessed any potential impact the issuance of this standard
may have on its financial position or future results of operations.
NOTE 4 -- NET INCOME PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," basic and diluted
income per common share has been computed using the weighted-average number of
shares of common stock outstanding during the period. Potentially dilutive
securities outstanding at December 31, 2002 and 2001 which convert to common
share equivalents consist of common stock warrants to purchase 102,222 shares of
the Company's Class C Common Stock.
NOTE 5 -- SEGMENTS
The Company's business segments are wholesale and retail and restaurant
operations. The wholesale operations consist of the importing of men's and
women's sportswear sold primarily to retail stores throughout the United States.
The retail and restaurant operations consist of retail clothing and restaurants
that sell products by and promote the "Tommy Bahama" brand name in the United
States.
The accounting policies of the segments are consistent with those
described in our audited consolidated financial statements for the fiscal year
ended March 31, 2002. All intercompany revenue and profits or losses are
eliminated in consolidation. We evaluate each segment based upon earnings before
interest and income taxes. Effective April 1, 2002, the Company began allocating
corporate overhead expenses to
F-34
VIEWPOINT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
each segment based upon each segment's usage of corporate resources. The amount
allocated to the retail and restaurant segment for the nine months ended
December 31, 2002 was $3,536.
<Table>
<Caption>
RETAIL AND
WHOLESALE RESTAURANT ELIMINATIONS TOTAL
--------- ---------- ------------ --------
December 31, 2002:
Net sales........................ $169,616 $84,554 $(28,716) $225,454
Depreciation and amortization.... $ 1,029 $ 2,076 $ -- $ 3,105
Earnings before interest and
income taxes.................. $ 28,060 $ 3,720 $ 225 $ 32,005
Total assets..................... $100,177 $66,449 $(48,113) $118,513
Purchases of property and
equipment..................... $ 4,122 $ 5,612 $ -- $ 9,734
December 31, 2001:
Net sales........................ $144,815 $68,704 $(21,416) $192,103
Depreciation and amortization.... $ 788 $ 2,042 $ -- $ 2,830
Earnings before interest and
income taxes.................. $ 23,591 $ 3,017 $ (260) $ 26,348
Total assets..................... $ 84,372 $55,475 $(42,234) $ 97,613
Purchases of property and
equipment..................... $ 1,531 $ 3,811 $ -- $ 5,342
</Table>
F-35
SIGNATURE
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 hereunto duly authorized.
OXFORD INDUSTRIES, INC.
By: /s/ Ben B. Blount, Jr.
----------------------------------
Ben B. Blount, Jr.
Executive Vice President and
Chief Financial Officer
Date: April 28, 2003