EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" to encourage
companies to provide prospective information, so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the forward-looking statement(s).
Oxford Industries, Inc. ("Oxford") desires to take advantage of the safe harbor
provisions of the Act.
Our annual reports on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, periodic press releases, as well as other
public documents and statements, may contain forward-looking statements within
the meaning of the Act.
In addition, our representatives participate from time to time in:
- speeches and calls with market analysts,
- conferences, meetings and calls with investors and
potential investors in our securities and
- other meetings and conferences.
Some of the information presented in these calls, meetings and conferences may
be forward-looking within the meaning of the Act.
Forward-looking statements include, but are not limited to, statements
regarding our expected business outlook, anticipated financial and operating
results, the anticipated benefits of the Viewpoint acquisition, growth of
particular product lines, strategies, contingencies, financing plans, working
capital needs, sources of liquidity, estimated amounts and timing of capital
expenditures and other expenditures. Forward-looking statements also include
any statement that may predict, forecast, indicate or imply future results,
performance, or achievements. Forward-looking statements include statements
generally preceded by, followed by or that include the words "believe,"
"anticipate," "expect," "estimate," "may," "will," "should," "project,"
"continue," "plan," "aim," "intend," "target," "project," "likely" or similar
expressions.
Forward-looking statements reflect our current expectations and are
not guarantees of performance. These statements are based on our management's
beliefs and assumptions, which in turn are based on currently available
information. Important assumptions relating to these forward-looking statements
include, among others, assumptions regarding demand for our products, expected
pricing levels, raw material costs, the timing and cost of planned capital
expenditures, expected outcomes of pending litigation, competitive conditions,
general economic conditions and expected synergies in connection with
acquisitions and joint ventures, including
the acquisition of Viewpoint. These assumptions could prove inaccurate.
Forward-looking statements also involve risks and uncertainties, which could
cause actual results to differ materially from those contained in any
forward-looking statement. Many of these risks are beyond our ability to
control or predict.
The following risk factors (in addition to other possible risk factors
not listed) could affect our actual results and cause these results to differ
materially from those expressed in forward-looking statements made by us or on
our behalf:
RISK FACTORS
THE APPAREL INDUSTRY IS HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.
The apparel industry is cyclical and is dependent upon the overall
level of consumer spending. Purchases of apparel and related goods (in
particular, higher priced goods) tend to be highly correlated with cycles in the
disposable income of consumers. Our customers anticipate and respond to adverse
changes in economic conditions and uncertainty by reducing inventories and
canceling orders. As a result, any deterioration in general economic or
political conditions, or acts of war or terrorism that diminish consumer
spending in the United States could reduce our sales and materially adversely
affect our results of operations and financial condition. In particular, we were
significantly negatively impacted by the events of September 11, 2001.
WE OPERATE IN A HIGHLY COMPETITIVE AND FRAGMENTED INDUSTRY.
The apparel industry, at wholesale and retail, is highly competitive
and fragmented. Our competitors include numerous apparel designers,
manufacturers, importers, licensors and retailers, some of which have greater
financial and marketing resources than we have. We believe that the principal
competitive factors in the apparel industry are:
- price;
- quality;
- styling;
- marketing;
- customer service; and
- with respect to branded and designer product lines, consumer
recognition and preference.
The level of competition and the nature of competitors varies by product
segment, with low-margin, mass-market manufacturers being our main competitors
in the less expensive segment of the market, American and foreign designers and
licensors competing with us in the more upscale segment of the market and
high-end specialty retailers, department stores and chain stores competing with
Tommy Bahama. There can be no assurance that we will continue to be able to
compete successfully.
In addition, many other companies manufacture products that resemble
and/or compete with Tommy Bahama branded products. They may offer these products
at significantly lower price points in order to directly compete with Tommy
Bahama branded merchandise sold at higher prices. To the extent such competitors
are successful, we may not be able to maintain the premium price points that
Tommy Bahama products have traditionally commanded, which could have a material
adverse effect on us.
THE WORLDWIDE APPAREL INDUSTRY CONTINUES TO EXPERIENCE PRICE DEFLATION, WHICH
HAS AFFECTED, AND MAY CONTINUE TO AFFECT, OUR RESULTS OF OPERATIONS.
The worldwide apparel industry has experienced significant price
deflation in recent years. The deflation is attributable to increased
competition, excess worldwide manufacturing capacity, increased product sourcing
in lower cost countries, growth of the mass merchant channel of distribution and
reduced relative spending on apparel and increased value consciousness on the
part of consumers reflecting, in part, general economic conditions. Downward
pressure on prices has affected the apparel industry by:
- negatively impacting gross margins;
- requiring the introduction of lower-priced products;
- requiring the reduction of wholesale prices on existing
products;
- increasing customer demands for allowances, incentives and
other forms of economic support that could adversely affect
our profitability; and
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- increasing pressure to further reduce production costs and
operating expenses and to increase unit sales.
All of these impacts may continue in the future. If we are unable to
successfully respond to these developments in our industry, our profitability
and results of operations may suffer significantly.
THE APPAREL INDUSTRY IS SUBJECT TO RAPIDLY EVOLVING FASHION TRENDS AND WE AND
OTHER PARTICIPANTS IN THE INDUSTRY MUST CONTINUOUSLY OFFER INNOVATIVE AND
UPGRADED PRODUCTS.
Although many of our products carry over from season to season, the
apparel industry in general is subject to rapidly changing fashion trends and
shifting consumer demands. Accordingly, success depends on the priority that
target customers place on fashion and ability to anticipate, identify and
capitalize upon emerging as well as proven fashion trends. The failure to
anticipate, identify or react appropriately to changes in styles or trends could
lead to, among other things, excess inventories and higher markdowns, as well as
the decreased appeal of our brands.
The worldwide apparel industry is also characterized by constant
product innovation due to changing consumer preferences and by the rapid
replication of new products by competitors. As a result, success depends in
large part on the ability to continuously develop, market and deliver innovative
products at a pace and intensity competitive with other brands in our segments.
In addition, we must create products that appeal to multiple consumer segments
at a range of price points. Any failure on our part to develop innovative
products and update core products could:
- limit our ability to differentiate, segment and price our
products;
- adversely affect retail and consumer acceptance of our
products;
- limit sales growth; and
- leave us with a substantial amount of unsold inventory, which
we may be forced to sell through markdowns.
The increasing importance of product innovation in apparel requires us
to strengthen our internal research and commercialization capabilities, to rely
more on successful commercial relationships with third parties such as fiber,
fabric and finishing providers and to compete and negotiate effectively for new
technologies and product components. In addition, in fiscal 2002, almost all of
our products were produced outside of the United States. The exposure of our
business to changes in consumer preferences is heightened by this reliance on
offshore manufacturers, as offshore outsourcing may increase lead times between
production decisions and customer delivery. Our focus on tight management of
inventory may also result, from time to time, in our not having an adequate
supply of products to meet consumer demand and cause us to lose sales. Moreover,
if we misjudge consumer preferences, our brand image may be significantly
impaired.
INCREASES IN THE PRICE OF RAW MATERIALS OR THEIR REDUCED AVAILABILITY COULD
INCREASE OUR COST OF GOODS SOLD AND DECREASE OUR PROFITABILITY.
The principal fabrics used in our business are cotton, linens, wools,
silk, other natural fibers, synthetics and blends of these materials. The prices
paid for these fabrics depend on the market price for raw materials used to
produce them, primarily cotton and silk. The price and availability of cotton
has in the past fluctuated, and may in the future fluctuate, significantly,
depending on a variety of factors, including crop yields, weather, supply
conditions, government regulation, economic climate and other unpredictable
factors. Any raw material price increases could increase our cost of goods sold
and decrease profitability unless we are able to pass higher prices on to our
customers, which will be difficult to do as a result of price deflation in the
apparel industry. Moreover, any decrease in the availability of cotton or silk
could impair our ability to meet production requirements in a timely manner. We
have not historically hedged for these risks.
WE DEPEND ON A GROUP OF KEY CUSTOMERS FOR A SIGNIFICANT PORTION OF SALES. A
SIGNIFICANT ADVERSE CHANGE IN A CUSTOMER RELATIONSHIP OR IN A CUSTOMER'S
FINANCIAL POSITION COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
We derive a significant amount of our respective net sales from a few
major customers. Net sales to our ten largest customers totaled approximately
74%, 73% and 72% of our net sales in fiscal 2000, fiscal 2001 and fiscal 2002,
respectively. Sales to Target,
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Wal-Mart and Lands' End (including product to be sold in the Lands' End
department at Sears stores, but not including product sold to Sears directly)
accounted for 19%, 13% and 10%, respectively, of our net sales in fiscal 2002.
Sales to Nordstrom and Midwest Apparel, a wholesale distributor to warehouse
clubs, mass marketers and retail stores, Viewpoint's largest customers,
accounted for 13% and 10%, respectively, of Viewpoint's net sales in fiscal
2002. We believe that consolidation in the retail industry has centralized
purchasing decisions and given customers greater leverage over suppliers, often
resulting in lower prices, and we expect this trend to continue. If this
consolidation continues, our results of operations may be increasingly sensitive
to a deterioration in the financial condition of, or other adverse developments
with, one or more of our customers.
We do not have long-term contracts with any of our customers. As a
result, purchases generally occur on an order-by-order basis, and the
relationship, as well as particular orders, can generally be terminated by
either party at any time. A decision by a major customer, whether motivated by
competitive considerations, quality and style issues, financial difficulties,
economic conditions or otherwise, to decrease its purchases or to change its
manner of doing business with us, could materially adversely affect our business
and financial condition. In addition, during recent years, numerous retailers,
including some of our customers, have experienced significant changes and
difficulties, including consolidation of ownership, restructurings, bankruptcies
and liquidations. There is excess retail floorspace in the industry, which could
lead to further consolidations, restructurings, bankruptcies and liquidations.
For example, Kmart Corporation, which accounted for 2.2% of our net sales in
fiscal 2002, filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code in January 2002 and subsequently announced the closing of in
excess of 28% of its stores. As of the date of Kmart's bankruptcy filing, we had
outstanding $3.5 million of receivables from Kmart. In fiscal 2002, we incurred
a loss of approximately $2.4 million on the sale of pre-petition Kmart
receivables. If we are not able to replace these sales with sales to other
customers, our net sales may be materially adversely affected. In addition,
Spiegel, Inc., which owns Eddie Bauer and accounted for 2.6% of our net sales in
fiscal 2002, filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code in March 2003. Although we do not expect any write-off in
connection with the Spiegel bankruptcy, the bankruptcy could have a negative
impact on our sales to Eddie Bauer going forward.
These and other financial problems of some customers, as well as
general weakness in the retail environment, increase the risk of extending
credit to these retailers. A significant adverse change in a customer
relationship or in a customer's financial position could cause us to limit or
discontinue business with that customer, require us to assume more credit risk
relating to that customer's receivables or limit our ability to collect amounts
related to previous purchases by that customer, all of which could have a
material adverse effect on our business, financial condition and results of
operations. Many customers (in particular, purchasers of Tommy Bahama) are small
upscale independent specialty stores that may be more susceptible to general
economic conditions. In addition, in order to reduce our future exposure to
risks associated with its bankruptcy, we have decided not to sell products to
Kmart in the near future and may make similar decisions with respect to other
customers in the future.
OUR THIRD PARTY PRODUCERS AND SOURCING AGENTS MAY BE UNABLE TO MANUFACTURE AND
DELIVER PRODUCTS IN A TIMELY MANNER OR MEET OUR QUALITY STANDARDS.
In fiscal 2002, we purchased 73.6% of our products from third party
producers located in foreign countries. Viewpoint's largest third party producer
accounted for approximately 24% and 26% of its purchases for fiscal 2002 and the
twelve months ended December 31, 2002, respectively. Viewpoint's two largest
suppliers accounted for 42% of Viewpoint's purchases in fiscal 2002. We depend
upon the ability of third party producers to secure a sufficient supply of raw
materials, adequately finance the production of goods ordered and maintain
sufficient manufacturing and shipping capacity. The use of third party producers
and the resulting lack of direct control could subject us to difficulty in
obtaining timely delivery of products of acceptable quality. In addition, a
third party producer's failure to ship products to us in a timely manner or to
meet the required quality standards could cause us to miss the delivery date
requirements of our customers. The failure to make timely deliveries may cause
customers to cancel orders, refuse to accept deliveries, impose non-compliance
charges through invoice deductions or other charge-backs, demand reduced prices
or reduce future orders any of which could harm our sales, reputation and
overall profitability. In addition, the recent trend in the apparel industry
towards outsourcing has intensified competition for quality contractors, some of
which have long-standing relationships with our competitors. To the extent we
are not able to secure or maintain relationships with third party producers that
are able to fulfill our requirements, our business would be harmed.
WE COULD BE MATERIALLY AND ADVERSELY AFFECTED IF OUR DISTRIBUTION OPERATIONS
WERE DISRUPTED.
We operate warehousing and distribution facilities in Georgia,
Tennessee, South Carolina and Washington. Finished garments from our
manufacturing facilities and from our contractors are inspected and stored for
distribution at these distribution facilities. We do not have other distribution
facilities to support our distribution needs. As a result, if any of these
distribution facilities were to shut down or otherwise become inoperable or
inaccessible for any reason, we could incur significantly higher costs and
longer lead times
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associated with the distribution of our products during the time it takes to
reopen or replace the facility. In light of our strategic emphasis on rapid
replenishment as a key competitive advantage, a distribution disruption might
have a disproportionately adverse effect on our operations and profitability
relative to our competitors.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR MANUFACTURING AND SOURCING
OPERATIONS IN FOREIGN COUNTRIES.
Because approximately 98% of our products are manufactured abroad, we
must begin production of our products further in advance than would be the case
if the products were manufactured domestically. Typically, we do not begin
production of products until after receipt of an order from a customer. In those
cases in which we begin production in one of our owned manufacturing facilities
or place an order with an independent manufacturer before receiving an order
from a customer, if we overestimate retailers' demand, we may be required to
hold goods in inventory which we may be unable to sell at historical margins. If
we underestimate retailers' demand, we may not be able to fill reorders on a
timely basis. However, foreign manufacturing is subject to a number of other
risks, including:
- work stoppages;
- transportation delays and interruptions;
- political instability;
- economic disruptions;
- foreign currency;
- the imposition of new or adversely adjusted tariffs, duties,
quotas, import and export controls, and other regulations;
- changes in governmental policies and other events; and
- intellectual property infringement, including knock-offs and
counterfeiting.
If any of these events occur, contract manufacturers' ability to produce and
ship products during a given retailing season will be impaired, which could
result in loss of revenues, customer orders and customer goodwill and could have
a material adverse effect on our business, financial condition, results of
operations and prospects.
We require third party producers to meet our standards in terms of
working conditions, environmental protection and other matters before placing
business with them. As such, we may not be able to obtain the most
cost-effective production. In addition, the labor and business practices of
independent apparel manufacturers have received increased attention from the
media, non-governmental organizations, consumers and governmental agencies in
recent years. Any failure by our independent manufacturers to adhere to labor or
other laws or appropriate labor or business practices, and the potential
litigation, negative publicity and political pressure relating to any of these
events, could harm our business and reputation.
We are also exposed to foreign currency risk as a result of our foreign
manufacturing and sourcing operations. Most of our contracts to have goods
assembled or produced in foreign countries are negotiated in U.S. dollars. If
the value of the U.S. dollar decreases relative to certain foreign currencies in
the future, then the prices that we negotiate for products could increase, and
it is possible that we would not be able to pass this increase on to customers.
If the value of the U.S. dollar increases between the time a price is set and
payment for a product, the price we pay may be higher than that paid for
comparable goods by any competitors that pay for goods in local currencies, and
they may be able to sell their products at more competitive prices. We do not
engage in hedging activities with respect to foreign currency risk.
OUR BUSINESS IS SUBJECT TO REGULATORY RISKS ASSOCIATED WITH IMPORTING PRODUCTS.
We import approximately 98% of our products from owned foreign
manufacturing facilities or foreign third party producers. Substantially all of
our import operations are subject to tariffs imposed on imported products and
quotas imposed by trade agreements. In addition, the countries in which our
products are manufactured or imported from may from time to time impose
additional new quotas, duties, tariffs or other restrictions on imports or
adversely modify existing restrictions. Adverse changes in these import costs
and restrictions, or any supplier's failure to comply with customs or similar
laws, could harm our business. We cannot assure you that
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future trade agreements will not provide our competitors with an advantage over
us or increase our costs, either of which could have a material adverse effect
on our business and profitability.
Our operations are also subject to international trade agreements and
regulations such as the North American Free Trade Agreement and the Caribbean
Basin Initiative, and the activities and regulations of the World Trade
Organization. Generally, these trade agreements benefit our business by reducing
or eliminating the duties and/or quotas assessed on products manufactured in a
particular country. However, trade agreements can also impose requirements that
adversely affect our business, such as limiting the countries from which we can
purchase raw materials and setting quotas on products that may be imported into
the United States from a particular country. In addition, the World Trade
Organization may commence a new round of trade negotiations that liberalize
textile trade by further eliminating quotas or reducing tariffs. The elimination
of quotas on World Trade Organization member countries by 2005 and other effects
of these trade agreements could result in increased competition from developing
countries which historically have lower labor costs, including China and Taiwan,
both of which recently became members of the World Trade Organization. This
increased competition could have an adverse effect on our business and financial
condition. We also believe that the elimination of quotas in 2005 will
significantly change the competitiveness of many countries as locations for
apparel manufacturing and sourcing.
EVENTS SUCH AS WAR, ACTS OF TERRORISM AND LABOR DISPUTES MAY MAKE IT MORE
DIFFICULT FOR US TO IMPORT PRODUCTS, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS.
As a result of our reliance on offshore manufacturing of our products,
if goods become difficult or impossible to import into the United States due to
war or acts of terrorism, or if either is threatened, our sales and net margins
may be materially adversely affected. In the event that commercial
transportation is curtailed or substantially delayed, our business may be
materially adversely impacted, as we may have difficulty shipping merchandise
from foreign facilities, which provide approximately 98% of our manufacturing
requirements. In addition, any of these events may adversely affect general
economic conditions in the United States. Further deterioration in prevailing
economic conditions in the United States could reduce demand for our products.
Our ability to import products in a timely and cost-effective manner
may be affected by problems at ports or issues that otherwise affect
transportation and warehousing providers, such as labor disputes. These problems
could require us to locate alternative ports or warehousing providers to avoid
disruption to our customers. These alternatives may not be available on short
notice or could result in higher transit costs, which could have an adverse
impact on our business and financial condition. As an example, in September
2002, the Pacific Maritime Association, which represents terminal operators and
ocean ship companies, locked out the union workers at a number of ports on the
western coast of the United States. Although a federal court ordered the ports
reopened and the parties ultimately entered into a new union agreement, the lock
out caused a significant disruption in the shipment of goods, including our
products, into the United States.
WE ARE SUBJECT TO INCREASED COMPETITION FROM DIRECT SOURCING BY OUR CUSTOMERS.
We sell most of our products on a landed, duty-paid basis after they
are imported into the United States. However, some of our customers, by working
directly with manufacturers, purchase goods on a direct basis in which the
customer takes ownership of the product in the country of production. As a
result of this direct sourcing, customers can reduce their cost of goods by
handling the logistics of importation of goods themselves. If customers continue
or increase the amount of goods they purchase through direct sourcing, as many
have, our net sales and net margins may be materially adversely affected.
WE HOLD IMPORTANT LICENSES, THE LOSS OF THE VALUE OF WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR BUSINESS.
We have entered into license and design agreements to use well-known
trademarks and trade names to market our products. These license and design
agreements will expire at various dates through fiscal 2007. We cannot assure
you that we will be able to renew these licenses on acceptable terms upon their
expiration or that we will be able to acquire new licenses to use other popular
trademarks. Moreover, many of these licenses provide minimum thresholds for
sales, royalty payments and advertising expenditures for each calendar year and
if these thresholds are not met due to a general economic downturn or otherwise,
our licensors may contractually be permitted to terminate these agreements or
seek payment of minimum royalties even if the minimum sales are not achieved.
The loss of significant third party licenses or penalty payments could reduce
our net sales and have a material adverse effect on our results of operations
and financial condition. Certain agreements provide for indemnification from our
licensors, which may or may not be enforceable. In addition, other agreements
require us to indemnify our licensees. We cannot currently assess the scope or
effect that these obligations may have on our financial condition. In addition,
our licensors license trademarks we use to other third parties and we are unable
to control the quality or fashion sense of goods that such third parties
produce. If such third party licensees do not maintain the quality of these
trademarks or tradenames, our sales and financial condition could materially
suffer.
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WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS AND OTHER INTELLECTUAL PROPERTY AND
MAY OTHERWISE HAVE OUR BRAND NAMES AND GOODWILL HARMED BY COMPETITORS' PRODUCTS
OR THE QUALITY OF OUR LICENSEES' PRODUCTS.
We currently rely on a combination of trademark, copyright and patent
rights, as well as other contractual arrangements, including licenses, to
establish and protect our intellectual property, brand names and similar
proprietary rights. We believe that our trademarks and other proprietary
intellectual property rights are important to our continued success and our
competitive position due to their recognition by our customers. For example, the
value of the Tommy Bahama brand and other related brands is critical to our
success and our ability to maintain certain price points. We devote substantial
resources to the establishment and protection of our trademarks and other
proprietary intellectual property rights.
There can be no assurance that the actions that we have taken to
establish and protect our trademarks and other intellectual property will be
adequate to prevent the creation of knock-offs, imitations or infringement of
our marks, products, services or trademarks by third parties. For example, from
time to time, we discover products in the marketplace that are reproductions of
Tommy Bahama products or that otherwise infringe upon our trademark and
copyright rights. If we are unsuccessful in challenging or decide not to
challenge a particular third party's products on the basis of trademark
infringement or otherwise or are unaware of any such infringement, continued
sales of such product by that or any other third party could materially
adversely impact the Tommy Bahama brand or other brands and negatively impact
our sales. In addition, if any third party imitates Tommy Bahama products in a
manner that projects a lesser quality or carries a negative connotation, this
could have a material adverse effect on Tommy Bahama's goodwill in the
marketplace, whether or not it violates our intellectual property rights.
A portion of our business uses endorsements of amateur and professional
athletes and coaches to promote some of our product lines. Unfavorable news
reports about an endorser could create unfavorable publicity for us and could
result in harm to the goodwill associated with some of our trademarks. We
typically have the option to immediately terminate a particular endorsement
agreement upon the occurrence of any of these or other undesirable events.
In the future, we may have to rely on litigation and other legal action
to enforce our intellectual property rights or contractual rights. If litigation
that we initiate is unsuccessful, we may not be able to protect the value of
some of our intellectual property. In addition, we may face claims of
infringement by third parties that could interfere with our ability to sell some
of our products. In the event a claim of infringement against us is successful,
we may be required to pay royalties or license fees to continue to use
intellectual property rights that we had been using or we may be unable to
obtain necessary licenses from third parties at a reasonable cost or within a
reasonable time. Any litigation and other legal action of this type, whether
successful or unsuccessful, could result in substantial costs to us and
diversion of our resources. In addition, the laws of certain foreign countries
do not protect our trademarks and proprietary rights to the same extent as do
the laws of the United States.
WE RELY ON KEY MANAGEMENT.
Our success depends upon the talents and efforts of a small number of
key management personnel, many of whom have been with our company and our
industry for a long time, including J. Hicks Lanier, our chairman of the board,
president and chief executive officer and Ben B. Blount, Jr., our executive vice
president of finance, planning and administration and chief financial officer,
as well as the principal officers of our Viewpoint International subsidiary
S. Anthony Margolis and Lucio Dalla Gasperina. The loss of any such management
personnel, due to retirement or otherwise, could have a material adverse effect
on our business.
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THE SUCCESS OF OUR RETAIL STORES DEPENDS TO A LARGE EXTENT UPON THE SHOPPING
ENVIRONMENT IN WHICH THE STORES ARE LOCATED.
Many of our Tommy Bahama retail stores are located in indoor and
outdoor shopping malls and plazas, and sales are derived, in part, from the
volume of traffic in such shopping areas. An important part our business is
finding and keeping profitable store locations within successful shopping areas
in order to generate consumer traffic. Tommy Bahama's stores face competition
from other nearby retailers, and a store's sales can be affected not only by its
location in relation to its competitors but also by its proximity to other
points of attraction, the location of a store within the mall and the amount of
advertising and promotional dollars spent on attracting consumers to the malls.
Fuel shortages and high fuel prices may also deter shoppers. Hence, our business
may suffer based on declines in the desirability of the shopping environment in
a particular mall, shopping center or plaza, which could result from factors
outside of our control. The failure to locate new stores in advantageous
locations or failure to obtain renewal of our current attractive locations may
have a material adverse effect our retail business.
OUR SALES COULD BE ADVERSELY AFFECTED BY REDUCED TRAVEL TO RESORT LOCATIONS.
We have retail stores under the Tommy Bahama name located in resort
areas and sell apparel that is often worn in resort locations. Recently, resort
travel has declined and could remain at depressed levels for a substantial
period of time as a result of geopolitical and economic conditions. Any
continued or further decline in resort travel would adversely affect sales in
those locations, as well as from customers serving consumers traveling to those
locations, and our operating results could materially suffer.
WE FACE CERTAIN RISKS RELATED TO OUR OPERATION OF RESTAURANTS UNDER THE TOMMY
BAHAMA NAME.
We own and operate six compound locations under the Tommy Bahama name
that contain a full-service, white linen Tommy Bahama Tropical Cafe, in addition
to a standard Tommy Bahama retail store selling Tommy Bahama products. As a
participant in the restaurant industry, we face risks relating to food quality,
food-borne illness, injury, restaurant facilities, health inspection scores,
employees relationships, operational concerns and other matters at one or more
of its restaurants. Regardless of whether allegations related to these matters
are valid or whether we become liable, we may be materially and adversely
affected by negative publicity related thereto. The negative impact of adverse
publicity relating to one restaurant may extend far beyond the restaurant
involved to affect some or all of the other restaurants, as well the Tommy
Bahama brand name and image as a whole, including our retail and wholesale
businesses.
The profitability and continued success of our restaurant operations
depend on, among other things, the following additional factors:
- the ability to compete in the highly competitive restaurant
business;
- the ability to maintain the necessary federal, state and local
governmental licenses, permits and approvals, including those
relating to the preparation and sale of food and alcoholic
beverages, building and zoning requirements, and
employer-employee relationships, such as minimum wage
requirements, overtime, working and safety requirements, and
citizenship requirements;
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- the availability and timely delivery of high quality, fresh
ingredients, including fresh produce, dairy products and meat;
- the availability of qualified, high energy restaurant
personnel; and
- factors affecting discretionary consumer spending, including
national, regional and local economic conditions, disposable
consumer income, inflation and consumer confidence.
Adverse changes in any of these factors could reduce guest traffic and
adversely affect the profitability of our restaurant operations and thus
adversely affect our results of operations.
INTEGRATING VIEWPOINT INTO OUR COMPANY STRUCTURE MAY STRAIN OUR RESOURCES AND
PROVE TO BE DIFFICULT.
The acquisition of Viewpoint in June 2003 was significantly larger than
any of our previous acquisitions. The significant expansion of our business and
operations resulting from the acquisition of Viewpoint may strain our
administrative, operational and financial resources. The integration of
Viewpoint into our company will require substantial time, effort, attention and
dedication of management resources and may distract our management in
unpredictable ways from our existing business. The integration process could
create a number of potential challenges and adverse consequences for us,
including the possible unexpected loss of key employees, customers or suppliers,
a possible loss of sales or an increase in operating or other costs. These types
of challenges and uncertainties could have a material adverse effect on our
business, financial condition and results of operations. We may not be able to
manage the combined operations and assets effectively or realize all or any of
the anticipated benefits of the acquisition of Viewpoint.
As part of our business strategy, we intend to pursue other strategic
acquisitions of brands and related businesses and we may face similar challenges
regarding such acquisitions.
THE EXPANSION OF OUR BUSINESS TO INCLUDE RETAIL STORES AND RESTAURANTS AS A
RESULT OF THE VIEWPOINT ACQUISITION MAY PRESENT US WITH NEW CHALLENGES.
Prior to the acquisition of Viewpoint, we did not operate any retail
stores or restaurants. We may not be successful in managing retail and/or
restaurant operations and these operations may divert our management's attention
away from our existing business. These challenges may impair our integration of
Viewpoint and may materially adversely affect the rest of our business and our
results of operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR PLANS TO EXPAND OUR TOMMY
BAHAMA BUSINESS.
We plan to expand our Tommy Bahama business, including our Tommy Bahama
retail stores and restaurants. Our ability to open and operate new retail stores
and restaurants depends on many factors, including, among others, our ability
to:
- identify and obtain suitable retail and restaurant locations,
the availability of which is outside of our control;
- negotiate favorable lease terms;
- successfully address competition, merchandising and
distribution challenges; and
- hire, train and retain a sufficient number of qualified
personnel.
We seek to foster an element of scarcity at the consumer level when
selling Tommy Bahama products in a given geographical market, and believe that
the careful and deliberate selection of our retail stores within particular
geographical areas has been a key element of our successful retail business.
Therefore, we may not achieve our retail and restaurant expansion goals for
Tommy Bahama. Even if we succeed in expanding the number of Tommy Bahama retail
stores and restaurants, we cannot assure you that the newly opened stores and
restaurants will achieve sales or profitability levels comparable to those of
our existing Tommy Bahama stores and restaurants in the time periods estimated
by us, or at all. If these retail stores and restaurants fail to achieve or are
unable to sustain acceptable sales and profitability levels, we may incur
significant costs associated with operating or closing those stores and
restaurants.
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OUR SUCCESS WILL DEPEND ON THE VALUE OF THE TOMMY BAHAMA BRAND, AND IF THE VALUE
OF THE TOMMY BAHAMA BRAND WERE TO DIMINISH, OUR REVENUES AND RESULTS OF
OPERATIONS WOULD BE ADVERSELY AFFECTED.
Maintaining and developing the Tommy Bahama brand will be critical to
our success. Pro forma for the Viewpoint acquisition, sales attributable to the
Tommy Bahama brand would have accounted for approximately 23.0% of our net sales
for the twelve months ended February 28, 2003. If for any reason Tommy Bahama's
image or reputation were to be tarnished, or if consumers no longer perceived
Tommy Bahama products to be of high quality and value, worthy of a premium price
as compared to the competition, our results of operations would materially
suffer.
In addition, we license our Tommy Bahama brand and other related brands
to a number of strategic partners to produce a variety of other products,
including certain types of shoes, neckwear, handbags, furniture and women's
swimwear. While we require that these licensees maintain the quality of the
Tommy Bahama brand through specific contractual provisions, we cannot be certain
that such licensees, or their manufacturers and distributors, will honor their
contractual obligations or that they will not take other actions that will
significantly diminish the value of the Tommy Bahama brand name.
WE MAY NOT HAVE UNCOVERED ALL RISKS ASSOCIATED WITH THE VIEWPOINT ACQUISITION OR
ANY FUTURE ACQUISITIONS; A SIGNIFICANT LIABILITY MAY ARISE AFTER CLOSING; AND WE
MAY BE REQUIRED TO MAKE CONTINGENT PAYMENTS IN THE FUTURE.
We may become responsible for unexpected liabilities that we failed or
were unable to discover in the course of performing due diligence in connection
with the Viewpoint acquisition and any future acquisitions. We have required the
selling stockholders of Viewpoint to indemnify us against undisclosed
liabilities. However, we cannot assure you that the indemnification, even if
obtained, will be enforceable, collectible or sufficient in amount, scope or
duration to fully offset the possible liabilities associated with the business
or property acquired. Any of these liabilities, individually or in the
aggregate, could have a material adverse effect on our business, financial
condition and results of operations.
In addition, under the terms of our acquisition of Viewpoint, we will
be required to make up to $75 million in performance-based contingent payments
to the selling stockholders of Viewpoint over the next four years. The
contingent payments will be comprised of an annual basic contingent payment and
a cumulative additional contingent payment. Although we will only be required to
make these payments if the acquired Viewpoint business is successful, the
contingent payments are payable based on that business achieving earnings
targets. These earnings may not be cash-based and we therefore may have
difficulty making cash payments. In addition, if the acquired Viewpoint business
is successful but the rest of our business is not successful, we may have
difficulty making the contingent payments. Certain of the selling stockholders
are key members of management of the Viewpoint business. It is possible that
their interests with respect to the contingent payments will differ from the
acquired interests of Oxford.
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