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OXFORD INDUSTRIES INC - Quarter Report: 2010 October (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended OCTOBER 30, 2010

 

 

or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from           to          

 

Commission File Number: 1-4365

 

OXFORD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Georgia

 

58-0831862

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

222 Piedmont Avenue, N.E., Atlanta, Georgia  30308

(Address of principal executive offices)           (Zip Code)

 

                              (404) 659-2424                              

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer £

Accelerated filer þ

Non-accelerated filer £

Smaller reporting company £

 

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Number of shares outstanding

Title of each class

 

as of December 3, 2010

Common Stock, $1 par value

 

15,569,208

 

 


Table of Contents

OXFORD INDUSTRIES, INC.

INDEX TO FORM 10-Q

For the third quarter of fiscal 2010

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

Condensed Consolidated Statements of Operations (Unaudited)

4

Condensed Consolidated Balance Sheets (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. Controls and Procedures

34

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

34

Item 1A. Risk Factors

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3. Defaults Upon Senior Securities

35

Item 4. Reserved

35

Item 5. Other Information

35

Item 6. Exhibits

36

Signatures

36

 

2



Table of Contents

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

 

Our SEC filings and public announcements may include forward-looking statements about future events. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. We intend for all forward-looking statements contained herein, in our press releases or on our website, and all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf, to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (which Sections were adopted as part of the Private Securities Litigation Reform Act of 1995). Important assumptions relating to these forward-looking statements include, among others, assumptions regarding the consummation and impact of potential acquisition or disposition activities, including the announced sale of substantially all of Oxford Apparel, the impact of economic conditions on consumer demand and spending, demand for our products, timing and cost of shipments requested by our wholesale customers, expected pricing levels, competitive conditions, the timing and cost of planned capital expenditures, costs of products and raw materials we purchase, access to capital and/or credit markets, costs of labor, expected outcomes of pending or potential litigation and regulatory actions and disciplined execution by key management. Forward-looking statements reflect our current expectations, based on currently available information, and are not guarantees of performance. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these expectations could prove inaccurate as such statements involve risks and uncertainties, many of which are beyond our ability to control or predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Important factors relating to these risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors contained in our Annual Report on Form 10-K for fiscal 2009, as updated by Part II, Item 1A. Risk Factors in this report and those described from time to time in our future reports filed with the SEC.

 

We caution that one should not place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

DEFINITIONS

 

Unless the context requires otherwise, the following terms, or words of similar import, have the following meanings:

 

Our, us or we: Oxford Industries, Inc. and its consolidated subsidiaries

 

SG&A: Selling, general and administrative expenses

 

11 3/8% Senior Secured Notes: Our 11.375% senior secured notes due 2015

 

8 7/8% Senior Unsecured Notes: Our 8.875% senior unsecured notes due 2011, which were satisfied and discharged in June 2009

 

SEC: U.S. Securities and Exchange Commission

 

Securities Exchange Act: the Securities Exchange Act of 1934, as amended

 

FASB: Financial Accounting Standards Board

 

U.S. GAAP: Generally accepted accounting principles in the United States

 

ASC: FASB Accounting Standards Codification

 

Fiscal 2010

 

52 weeks ending January 29, 2011

Fiscal 2009

 

52 weeks ended January 30, 2010

First nine months fiscal 2010

 

39 weeks ended July 31, 2010

First nine months fiscal 2009

 

39 weeks ended August 1, 2009

Fourth quarter fiscal 2010

 

13 weeks ending January 29, 2011

Third quarter fiscal 2010

 

13 weeks ended October 30, 2010

Second quarter fiscal 2010

 

13 weeks ended July 31, 2010

First quarter fiscal 2010

 

13 weeks ended May 1, 2010

Fourth quarter fiscal 2009

 

13 weeks ended January 30, 2010

Third quarter fiscal 2009

 

13 weeks ended October 31, 2009

Second quarter fiscal 2009

 

13 weeks ended August 1, 2009

First quarter fiscal 2009

 

13 weeks ended May 2, 2009

 

3


 


Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)

 

 

 

Third
Quarter
Fiscal 2010

 

Third
Quarter
Fiscal 2009

 

First
Nine Months
Fiscal 2010

 

First
Nine Months
Fiscal 2009

 

Net sales

 

$139,627

 

 

$142,274

 

 

$446,233

 

 

$ 441,907

 

 

Cost of goods sold

 

65,942

 

 

74,163

 

 

203,823

 

 

227,876

 

 

Gross profit

 

73,685

 

 

68,111

 

 

242,410

 

 

214,031

 

 

SG&A

 

70,995

 

 

66,896

 

 

220,328

 

 

207,827

 

 

Amortization of intangible assets

 

241

 

 

307

 

 

719

 

 

911

 

 

 

 

71,236

 

 

67,203

 

 

221,047

 

 

208,738

 

 

Royalties and other operating income

 

3,982

 

 

3,266

 

 

11,218

 

 

8,038

 

 

Operating income

 

6,431

 

 

4,174

 

 

32,581

 

 

13,331

 

 

Interest expense, net

 

5,095

 

 

5,079

 

 

15,115

 

 

15,346

 

 

Earnings (loss) from continuing operations before income taxes

 

1,336

 

 

(905

)

 

17,466

 

 

(2,015

)

 

Income taxes (benefit)

 

17

 

 

(982

)

 

2,944

 

 

(2,293

)

 

Earnings from continuing operations

 

1,319

 

 

77

 

 

14,522

 

 

278

 

 

Earnings from discontinued operations, net of taxes

 

4,231

 

 

4,228

 

 

10,744

 

 

10,458

 

 

Net earnings

 

$    5,550

 

 

$    4,305

 

 

$   25,266

 

 

$   10,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$      0.08

 

 

$      0.00

 

 

$       0.88

 

 

$       0.02

 

 

Diluted

 

$      0.08

 

 

$      0.00

 

 

$       0.88

 

 

$       0.02

 

 

Earnings from discontinued operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$      0.26

 

 

$      0.26

 

 

$       0.65

 

 

$       0.64

 

 

Diluted

 

$      0.26

 

 

$      0.26

 

 

$       0.65

 

 

$       0.64

 

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$      0.34

 

 

$      0.26

 

 

$       1.53

 

 

$       0.66

 

 

Diluted

 

$      0.33

 

 

$      0.26

 

 

$       1.53

 

 

$       0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

16,564

 

 

16,522

 

 

16,532

 

 

16,229

 

 

Dilution

 

12

 

 

11

 

 

13

 

 

4

 

 

Diluted

 

16,576

 

 

16,533

 

 

16,545

 

 

16,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$      0.11

 

 

$      0.09

 

 

$       0.33

 

 

$       0.27

 

 

 

See accompanying notes.

 

4



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par amounts)

 

 

 

October 30,
2010

 

January 30,
2010

 

October 31,
2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$    4,376

 

 

$    8,288

 

 

$    5,995

 

 

Receivables, net

 

58,900

 

 

44,690

 

 

57,440

 

 

Inventories, net

 

63,484

 

 

58,180

 

 

54,483

 

 

Prepaid expenses, net

 

14,663

 

 

10,508

 

 

13,818

 

 

Deferred tax assets

 

15,624

 

 

13,875

 

 

9,885

 

 

Assets related to discontinued operations, net

 

84,936

 

 

56,365

 

 

63,579

 

 

Total current assets

 

241,983

 

 

191,906

 

 

205,200

 

 

Property, plant and equipment, net

 

74,721

 

 

78,425

 

 

82,843

 

 

Intangible assets, net

 

136,584

 

 

137,462

 

 

138,372

 

 

Other non-current assets, net

 

21,181

 

 

17,381

 

 

17,216

 

 

Total Assets

 

$474,469

 

 

$425,174

 

 

$443,631

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Trade accounts payable and other accrued expenses

 

$  63,308

 

 

$  68,249

 

 

$  64,564

 

 

Accrued compensation

 

19,000

 

 

9,259

 

 

9,337

 

 

Short-term debt and current maturities of long-term debt

 

20,924

 

 

 

 

17,479

 

 

Liabilities related to discontinued operations

 

21,542

 

 

18,942

 

 

12,969

 

 

Total current liabilities

 

124,774

 

 

96,450

 

 

104,349

 

 

Long-term debt, less current maturities

 

146,900

 

 

146,408

 

 

161,244

 

 

Other non-current liabilities

 

47,351

 

 

49,478

 

 

46,832

 

 

Non-current deferred income taxes

 

27,753

 

 

28,421

 

 

29,444

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $1.00 par value per common share

 

16,570

 

 

16,461

 

 

16,528

 

 

Additional paid-in capital

 

95,660

 

 

91,840

 

 

90,511

 

 

Retained earnings

 

39,165

 

 

19,356

 

 

16,955

 

 

Accumulated other comprehensive loss

 

(23,704

)

 

(23,240

)

 

(22,232

)

 

Total shareholders’ equity

 

127,691

 

 

104,417

 

 

101,762

 

 

Total Liabilities and Shareholders’ Equity

 

$474,469

 

 

$425,174

 

 

$443,631

 

 

 

See accompanying notes.

 

5



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

First Nine
Months

Fiscal 2010

 

First Nine
Months
Fiscal 2009

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$ 14,522

 

 

$       278

 

 

Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

13,005

 

 

13,856

 

 

Amortization of intangible assets

 

719

 

 

911

 

 

Amortization/write-off of deferred financing costs and bond discount

 

1,464

 

 

2,881

 

 

Stock compensation expense

 

3,563

 

 

2,731

 

 

Loss on sale of property, plant and equipment

 

10

 

 

339

 

 

Deferred income taxes

 

(2,337

)

 

(3,271

)

 

Changes in working capital:

 

 

 

 

 

 

 

Receivables

 

(14,258

)

 

(11,160

)

 

Inventories

 

(5,549

)

 

39,613

 

 

Prepaid expenses

 

(4,154

)

 

(2,769

)

 

Current liabilities

 

4,535

 

 

(5,548

)

 

Other non-current assets

 

(644

)

 

(904

)

 

Other non-current liabilities

 

(2,119

)

 

712

 

 

Net cash provided by operating activities

 

8,757

 

 

37,669

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(9,435

)

 

(8,406

)

 

Proceeds from sale of property, plant and equipment

 

78

 

 

 

 

Net cash used in investing activities

 

(9,357

)

 

(8,406

)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Repayment of revolving credit arrangements

 

(64,514

)

 

(188,575

)

 

Proceeds from revolving credit arrangements

 

85,415

 

 

187,477

 

 

Repayment of company-owned life insurance policy loans

 

(4,125

)

 

 

 

Repurchase of 8 7/8% Senior Unsecured Notes

 

 

 

(166,805

)

 

Proceeds from the issuance of 11 3/8% Senior Secured Notes

 

 

 

146,029

 

 

Deferred financing costs paid

 

 

 

(5,043

)

 

Proceeds from issuance of common stock

 

362

 

 

316

 

 

Dividends on common stock

 

(5,460

)

 

(4,406

)

 

Net cash provided by (used in) financing activities

 

11,678

 

 

(31,007

)

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

Net operating cash flows provided by (used in) discontinued operations

 

(14,939

)

 

4,319

 

 

Net investing cash flows used in discontinued operations

 

(33

)

 

(13

)

 

Net cash provided by (used in) discontinued operations

 

(14,972

)

 

4,306

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(3,894

)

 

2,562

 

 

Effect of foreign currency translation on cash and cash equivalents

 

(18

)

 

143

 

 

Cash and cash equivalents at the beginning of year

 

8,288

 

 

3,290

 

 

Cash and cash equivalents at the end of period

 

$    4,376

 

 

$     5,995

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest, net

 

$    9,658

 

 

$   10,220

 

 

Cash paid for income taxes

 

$  19,071

 

 

$     9,493

 

 

 

See accompanying notes.

 

6



Table of Contents

 

OXFORD INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THIRD QUARTER OF FISCAL 2010

 

1.                                      Basis of Presentation:  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial reporting and the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP.  We believe the accompanying unaudited condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.  Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our full fiscal year.  The accounting policies applied during the interim periods presented are consistent with the significant accounting policies described in our Annual Report on Form 10-K for fiscal 2009.

 

2.                                      Discontinued Operations:  On November 22, 2010, we entered into a purchase agreement with LF USA Inc. (“LF”), a subsidiary of Li & Fung Limited, pursuant to which we will sell to LF substantially all of the assets of Oxford Apparel (other than accounts receivable associated with the businesses which are being sold and all assets and operations relating to our Oxford Golf business and our distribution center in Lyons, Georgia).  The purchase price to be paid by LF is equal to approximately $121.7 million, subject to adjustment based on net working capital on the closing date of the transaction.  LF also agreed to purchase our goods in transit relating to Oxford Apparel following the closing of the transaction.

 

In connection with the consummation of the transaction described above, we will, among other things, enter into (1) license agreements with LF to grant licenses (subject to the limitations set forth in the applicable license agreements) to LF to use the trade name “Oxford Apparel” perpetually in connection with its business, as well as to use certain other trademarks in connection with the manufacture, sale and distribution of men’s dress shirts for certain periods of time in the applicable territory; (2) a services agreement with LF pursuant to which, in exchange for various fees, we will following the closing of the transaction, provide certain transitional support services to LF in its operation of the transferred assets; and (3) a limited non-competition agreement with LF pursuant to which we will agree (subject to the exceptions set forth in the non-competition agreement) not to engage in certain activities for a period of three years following the completion of the transaction. The closing of the transaction is subject to customary closing conditions and is expected to occur by the end of calendar year 2010.

 

As a result of the planned disposal of substantially all of the assets and operations of Oxford Apparel, the results of operations for Oxford Apparel, other than the operations relating to our Oxford Golf business and our Lyons, Georgia distribution center, have been classified as discontinued operations in our consolidated statements of operations and our consolidated statements of cash flows for all periods presented. The assets and liabilities related to the discontinued operations have been reclassified to assets and liabilities related to discontinued operations, as applicable.

 

The results of operations classified as discontinued operations are consistent with the net sales, operating expenses and operating income for Oxford Apparel, except that (1) the operations of our Oxford Golf business and the operations of our Lyons, Georgia distribution center are reported within Oxford Apparel continuing operations as those operations are not being sold and (2) certain corporate service costs which were previously allocated to Oxford Apparel are reported as corporate service costs included in Corporate and Other as we are not certain that such corporate service costs will not continue.

 

With respect to interest expense, we have allocated all interest expense related to our U.S. Revolving Credit Agreement to earnings from discontinued operations as the estimated net proceeds from the transaction and the proceeds from the settlement of the retained assets and liabilities related to the discontinued operations, substantially all of which are expected to be converted into cash before the end of the first quarter of fiscal 2011, exceed the amounts outstanding under our U.S. Revolving Credit Agreement during the periods presented. Proceeds from the transaction and the retained assets are expected to be used to repay any debt outstanding under our U.S. Revolving Credit Agreement; fund general corporate operating activities, including further development of our existing operations; fund future acquisitions, if any; and opportunistically enhance our capital structure. We did not allocate any interest related to our 11 3/8% Senior Secured Notes to discontinued operations. The income tax rate used for the tax effect of the discontinued operations is based on the domestic effective tax rate of Oxford Industries, Inc. as the assets and operations that were disposed of were primarily domestic operations of that entity and should not be impacted by rates in foreign jurisdictions or other subsidiaries.

 

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Table of Contents

 

The following represents the major classes of assets and liabilities related to the discontinued operations included in our consolidated balance sheets as of the following dates (in thousands):

 

 

 

October 30,
2010

 

January 30,
2010

 

October 31,
2009

 

Receivables, net

 

$50,816

 

 

$29,708

 

 

$37,063

 

 

Inventories, net

 

26,723

 

 

18,849

 

 

18,750

 

 

Other current assets, net

 

225

 

 

205

 

 

278

 

 

Property, plant and equipment, net

 

939

 

 

1,115

 

 

926

 

 

Other assets, net

 

6,233

 

 

6,488

 

 

6,562

 

 

Total assets

 

84,936

 

 

56,365

 

 

63,579

 

 

Trade accounts payable, other accrued expenses and accrued compensation

 

20,974

 

 

18,354

 

 

12,369

 

 

Other liabilities

 

568

 

 

588

 

 

600

 

 

Total liabilities

 

21,542

 

 

18,942

 

 

12,969

 

 

Net assets

 

$63,394

 

 

$37,423

 

 

$50,610

 

 

 

Operating results of the discontinued operations are shown below (in thousands):

 

 

 

Third
 Quarter
Fiscal 2010

 

Third
 Quarter
 Fiscal 2009

 

First
Nine Months
Fiscal 2010

 

First
Nine Months
Fiscal 2009

 

Net sales

 

$64,889

 

 

$58,264

 

 

$162,564

 

 

$168,249

 

 

Cost of goods sold

 

52,330

 

 

46,012

 

 

129,318

 

 

134,610

 

 

Gross profit

 

12,559

 

 

12,252

 

 

33,246

 

 

33,639

 

 

SG&A, including amortization of intangible assets

 

5,884

 

 

5,540

 

 

16,570

 

 

16,948

 

 

Royalties and other operating income

 

262

 

 

330

 

 

898

 

 

943

 

 

Operating income

 

6,937

 

 

7,042

 

 

17,574

 

 

17,634

 

 

Interest expense, net

 

112

 

 

223

 

 

244

 

 

766

 

 

Earnings from discontinued operations before income taxes

 

6,825

 

 

6,819

 

 

17,330

 

 

16,868

 

 

Income taxes

 

2,594

 

 

2,591

 

 

6,586

 

 

6,410

 

 

Earnings from discontinued operations, net of taxes

 

$  4,231

 

 

$  4,228

 

 

$  10,744

 

 

$  10,458

 

 

 

3.                                      Inventories:  The components of inventories related to continuing operations as of the dates specified are summarized as follows (in thousands):

 

 

 

October 30,
2010

 

January 30,
2010

 

October 31,
2009

 

Finished goods

 

$100,901

 

 

$ 89,980

 

 

$ 90,683

 

 

Work in process

 

4,010

 

 

6,971

 

 

5,269

 

 

Fabric, trim and supplies

 

3,011

 

 

5,667

 

 

5,255

 

 

LIFO reserve

 

(44,438

)

 

(44,438

)

 

(46,724

)

 

Total

 

$  63,484

 

 

$ 58,180

 

 

$ 54,483

 

 

 

8



Table of Contents

 

4.                                      Comprehensive Income:  Comprehensive income is calculated as follows for the periods presented (in thousands):

 

 

 

Third Quarter
Fiscal 2010

 

Third Quarter
Fiscal 2009

 

First Nine 
Months
Fiscal 2010

 

First Nine 
Months
Fiscal 2009

 

Net earnings

 

$5,550

 

 

$4,305

 

 

$25,266

 

 

$10,736

 

 

Gain (loss) on foreign currency translation, net of tax

 

994

 

 

(226

)

 

(247

)

 

5,373

 

 

Net unrealized loss on forward foreign exchange contracts, net of tax

 

(25

)

 

 

 

(217

)

 

 

 

Comprehensive income

 

$6,519

 

 

$4,079

 

 

$24,802

 

 

$16,109

 

 

 

5.                                      Operating Group Information:  Our business is operated through our four operating groups: Tommy Bahama, Ben Sherman, Lanier Clothes and Oxford Apparel. Oxford Apparel operating results included in continuing operations only reflect the operations for our Oxford Golf business and the Lyons, Georgia distribution center. All other operations of Oxford Apparel are included in discontinued operations as we have entered into a definitive agreement to sell these assets and operations, as discussed in Note 2. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, elimination of inter-group sales,  LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups.

 

The table below presents certain information about the continuing operations of our operating groups (in thousands).

 

 

 

Third
Quarter
Fiscal 2010

 

Third 
Quarter
Fiscal 2009

 

First
Nine 
Months
Fiscal 2010

 

First
Nine
Months
Fiscal 2009

 

Net Sales

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$  81,131

 

$  75,403

 

$289,585

 

$268,262

 

Ben Sherman

 

25,528

 

29,844

 

66,028

 

77,690

 

Lanier Clothes

 

30,820

 

35,555

 

83,984

 

92,266

 

Oxford Apparel

 

2,097

 

1,891

 

6,315

 

4,574

 

Corporate and Other

 

51

 

(419)

 

321

 

(885)

 

Total

 

$139,627

 

$142,274

 

$446,233

 

$441,907

 

Depreciation

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$    3,285

 

$    3,663

 

$    9,848

 

$  10,968

 

Ben Sherman

 

566

 

640

 

1,626

 

1,801

 

Lanier Clothes

 

113

 

125

 

350

 

405

 

Oxford Apparel

 

94

 

102

 

339

 

343

 

Corporate and Other

 

314

 

225

 

842

 

339

 

Total

 

$    4,372

 

$    4,755

 

$  13,005

 

$  13,856

 

Amortization of Intangible Assets

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$       174

 

$       222

 

$       520

 

$       666

 

Ben Sherman

 

67

 

85

 

199

 

245

 

Lanier Clothes

 

 

 

 

 

Oxford Apparel

 

 

 

 

 

Corporate and Other

 

 

 

 

 

Total

 

$       241

 

$       307

 

$       719

 

$       911

 

 

9



Table of Contents

 

 

 

Third
Quarter
Fiscal 2010

 

Third 
Quarter
Fiscal 2009

 

First
Nine 
Months
Fiscal 2010

 

First
Nine 
Months
Fiscal 2009

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$ 3,440

 

$ 2,143

 

$ 35,473

 

$ 27,772

 

Ben Sherman

 

1,684

 

2,323

 

1,608

 

(5,961

)

Lanier Clothes

 

5,345

 

5,243

 

12,513

 

10,681

 

Oxford Apparel

 

(316

)

(308

)

(983

)

(819

)

Corporate and Other

 

(3,722

)

(5,227

)

(16,030

)

(18,342

)

Total Operating Income

 

$ 6,431

 

$ 4,174

 

$ 32,581

 

$ 13,331

 

Interest Expense, net

 

5,095

 

5,079

 

15,115

 

15,346

 

Earnings (Loss) Before Income Taxes

 

$ 1,336

 

$   (905

)

$ 17,466

 

$  (2,015

)

 

6.                                      Consolidating Financial Data of Subsidiary Guarantors:  Our 11 3/8% Senior Secured Notes due 2015 are guaranteed by substantially all of our wholly owned domestic subsidiaries (“Subsidiary Guarantors”). All guarantees are full and unconditional. For consolidated financial reporting purposes, non-guarantors consist of our subsidiaries which are organized outside the United States and certain domestic subsidiaries. We use the equity method with respect to our investment in subsidiaries included in other non-current assets in our condensed consolidating financial statements. Set forth below are our condensed consolidating balance sheets as of October 30, 2010, January 30, 2010 and October 31, 2009 (in thousands) as well as our condensed consolidating statements of operations for the third quarter and first nine months of each of fiscal 2010 and fiscal 2009 (in thousands) and our condensed consolidating statements of cash flows for the first nine months of fiscal 2010 and fiscal 2009 (in thousands).

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

October 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

Cash and cash equivalents

 

$    1,273

 

$       563

 

$  2,540

 

$          —

 

 

$    4,376

 

Receivables, net

 

18,396

 

9,399

 

39,823

 

(8,718

)

 

58,900

 

Inventories, net

 

(15,529

)

71,186

 

8,463

 

(636

)

 

63,484

 

Prepaid expenses and deferred tax assets, net

 

17,589

 

10,291

 

3,559

 

(1,152

)

 

30,287

 

Assets related to discontinued operations, net

 

69,200

 

6,859

 

8,877

 

 

 

84,936

 

Total current assets

 

90,929

 

98,298

 

63,262

 

(10,506

)

 

241,983

 

Property, plant and equipment, net

 

7,531

 

62,147

 

5,043

 

 

 

74,721

 

Intangible assets, net

 

 

112,653

 

23,931

 

 

 

136,584

 

Other non-current assets, net

 

517,873

 

142,457

 

3,882

 

(643,031

)

 

21,181

 

Total Assets

 

$616,333

 

$415,555

 

$96,118

 

$(653,537

)

 

$474,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  32,905

 

$  50,229

 

$25,815

 

$    (5,717

)

 

$103,232

 

Current liabilities related to discontinued operations

 

11,570

 

 

9,972

 

 

 

21,542

 

Long-term debt, less current maturities

 

146,900

 

 

 

 

 

146,900

 

Other non-current liabilities

 

301,217

 

(289,059

)

143,790

 

(108,597

)

 

47,351

 

Non-current deferred income taxes

 

(3,950

)

25,233

 

6,455

 

15

 

 

27,753

 

Total shareholders’/invested equity

 

127,691

 

629,152

 

(89,914

)

(539,238

)

 

127,691

 

Total Liabilities and Shareholders’ Equity

 

$616,333

 

$415,555

 

$96,118

 

$(653,537

)

 

$474,469

 

 

10



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

January 30, 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

Cash and cash equivalents

 

$    5,933

 

$       803

 

$  1,552

 

$           —

 

 

$    8,288

 

Receivables, net

 

11,251

 

2,868

 

40,486

 

(9,915

)

 

44,690

 

Inventories, net

 

(9,896

)

57,217

 

11,856

 

(997

)

 

58,180

 

Prepaid expenses and deferred tax assets, net

 

16,347

 

8,851

 

3,103

 

(3,918

)

 

24,383

 

Assets related to discontinued operations, net

 

43,805

 

6,631

 

5,929

 

 

 

56,365

 

Total current assets

 

67,440

 

76,370

 

62,926

 

(14,830

)

 

191,906

 

Property, plant and equipment, net

 

8,398

 

64,442

 

5,585

 

 

 

78,425

 

Intangible assets, net

 

 

113,173

 

24,289

 

 

 

137,462

 

Other non-current assets, net

 

490,554

 

142,827

 

3,819

 

(619,819

)

 

17,381

 

Total Assets

 

$566,392

 

$396,812

 

$96,619

 

$(634,649

)

 

$425,174

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  27,108

 

$  27,974

 

$32,076

 

$    (9,650

)

 

$  77,508

 

Current liabilities related to discontinued operations

 

12,332

 

 

6,610

 

 

 

18,942

 

Long-term debt, less current maturities

 

146,408

 

 

 

 

 

146,408

 

Other non-current liabilities

 

280,138

 

(268,060

)

145,195

 

(107,795

)

 

49,478

 

Non-current deferred income taxes

 

(4,011

)

26,605

 

6,794

 

(967

)

 

28,421

 

Total shareholders’/invested equity

 

104,417

 

610,293

 

(94,056

)

(516,237

)

 

104,417

 

Total Liabilities and Shareholders’ Equity

 

$566,392

 

$396,812

 

$96,619

 

$(634,649

)

 

$425,174

 

 

11



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

October 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

ASSETS

Cash and cash equivalents

 

$    1,466

 

$        493

 

$    4,036

 

$          —

 

 

$    5,995

 

Receivables, net

 

15,435

 

13,504

 

37,353

 

(8,852

)

 

57,440

 

Inventories, net

 

(18,127

)

61,916

 

11,934

 

(1,240

)

 

54,483

 

Prepaid expenses and deferred tax assets, net

 

9,213

 

9,716

 

4,138

 

636

 

 

23,703

 

Assets related to discontinued operations, net

 

54,230

 

6,483

 

2,866

 

 

 

63,579

 

Total current assets

 

62,217

 

92,112

 

60,327

 

(9,456

)

 

205,200

 

Property, plant and equipment, net

 

8,743

 

68,063

 

6,037

 

 

 

82,843

 

Intangible assets, net

 

 

113,394

 

24,978

 

 

 

138,372

 

Other non-current assets, net

 

478,741

 

142,881

 

35,038

 

(639,444

)

 

17,216

 

Total Assets

 

$549,701

 

$ 416,450

 

$126,380

 

$(648,900

)

 

$443,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities related to continuing operations

 

$  39,269

 

$   30,792

 

$  28,908

 

$    (7,589

)

 

$  91,380

 

Current liabilities related to discontinued operations

 

8,156

 

 

4,813

 

 

 

12,969

 

Long-term debt, less current maturities

 

161,244

 

 

 

 

 

161,244

 

Other non-current liabilities

 

243,461

 

(199,005

)

111,526

 

(109,150

)

 

46,832

 

Non-current deferred income taxes

 

(4,191

)

26,812

 

6,823

 

 

 

29,444

 

Total shareholders’/invested equity

 

101,762

 

557,851

 

(25,690

)

(532,161

)

 

101,762

 

Total Liabilities and Shareholders’ Equity

 

$549,701

 

$ 416,450

 

$126,380

 

$(648,900

)

 

$443,631

 

 

12



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Third Quarter Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

32,966

 

$

90,608

 

$

24,155

 

$

(8,102

)

$

139,627

 

Cost of goods sold

 

21,980

 

38,236

 

10,156

 

(4,430

)

65,942

 

Gross profit

 

10,986

 

52,372

 

13,999

 

(3,672

)

73,685

 

SG&A including amortization of intangible assets

 

7,633

 

54,030

 

12,483

 

(2,910

)

71,236

 

Royalties and other operating income (loss)

 

(7

)

1,886

 

2,244

 

(141

)

3,982

 

Operating income (loss)

 

3,346

 

228

 

3,760

 

(903

)

6,431

 

Interest (income) expense, net

 

6,390

 

(1,115

)

774

 

(954

)

5,095

 

Income (loss) from equity investment

 

5,149

 

 

 

(5,149

)

 

Earnings (loss) from continuing operations before income taxes

 

2,105

 

1,343

 

2,986

 

(5,098

)

1,336

 

Income taxes (benefit)

 

(1,287

)

517

 

770

 

17

 

17

 

Earnings from continuing operations

 

3,392

 

826

 

2,216

 

(5,115

)

1,319

 

Earnings from discontinued operations, net of taxes

 

3,034

 

333

 

864

 

 

4,231

 

Net earnings (loss)

 

$

6,426

 

$

1,159

 

$

3,080

 

$

(5,115

)

$

5,550

 

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

First Nine Months Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

90,765

 

$

313,831

 

$

63,512

 

$

(21,875

)

$

446,233

 

Cost of goods sold

 

61,945

 

126,688

 

27,063

 

(11,873

)

203,823

 

Gross profit

 

28,820

 

187,143

 

36,449

 

(10,002

)

242,410

 

SG&A including amortization of intangible assets

 

28,340

 

168,336

 

35,019

 

(10,648

)

221,047

 

Royalties and other operating income (loss)

 

21

 

6,048

 

5,612

 

(463

)

11,218

 

Operating income (loss)

 

501

 

24,855

 

7,042

 

183

 

32,581

 

Interest (income) expense, net

 

16,319

 

(3,233

)

2,173

 

(144

)

15,115

 

Income (loss) from equity investment

 

23,407

 

 

 

(23,407

)

 

Earnings (loss) from continuing operations before income taxes

 

7,589

 

28,088

 

4,869

 

(23,080

)

17,466

 

Income taxes (benefit)

 

(8,828

)

10,399

 

1,259

 

114

 

2,944

 

Earnings from continuing operations

 

16,417

 

17,689

 

3,610

 

(23,194

)

14,522

 

Earnings from discontinued operations, net of taxes

 

8,638

 

1,113

 

993

 

 

10,744

 

Net earnings (loss)

 

$

25,055

 

$

18,802

 

$

4,603

 

$

(23,194

)

$

25,266

 

 

13



Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Third Quarter Fiscal 2009

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

36,093

 

$

86,334

 

$

27,826

 

$

(7,979

)

$

142,274

 

Cost of goods sold

 

28,448

 

37,205

 

13,393

 

(4,883

)

74,163

 

Gross profit

 

7,645

 

49,129

 

14,433

 

(3,096

)

68,111

 

SG&A including amortization of intangible assets

 

6,644

 

51,876

 

12,437

 

(3,754

)

67,203

 

Royalties and other operating income (loss)

 

3

 

1,241

 

2,179

 

(157

)

3,266

 

Operating income (loss)

 

1,004

 

(1,506

)

4,175

 

501

 

4,174

 

Interest (income) expense, net

 

5,475

 

(1,218

)

822

 

 

5,079

 

Income (loss) from equity investment

 

4,074

 

 

 

(4,074

)

 

Earnings (loss) from continuing operations before income taxes

 

(397

)

(288

)

3,353

 

(3,573

)

(905

)

Income taxes (benefit)

 

(632

)

(1,385

)

860

 

175

 

(982

)

Earnings from continuing operations

 

235

 

1,097

 

2,493

 

(3,748

)

77

 

Earnings from discontinued operations, net of taxes

 

3,742

 

(192

)

678

 

 

4,228

 

Net earnings (loss)

 

$

3,977

 

$

905

 

$

3,171

 

$

(3,748

)

$

4,305

 

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

First Nine Months Fiscal 2009

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

92,982

 

$

296,638

 

$

74,855

 

$

(22,568

)

$

441,907

 

Cost of goods sold

 

75,857

 

126,134

 

38,777

 

(12,892

)

227,876

 

Gross profit

 

17,125

 

170,504

 

36,078

 

(9,676

)

214,031

 

SG&A including amortization of intangible assets

 

19,476

 

161,084

 

38,903

 

(10,725

)

208,738

 

Royalties and other operating income (loss)

 

14

 

3,993

 

4,363

 

(332

)

8,038

 

Operating income (loss)

 

(2,337

)

13,413

 

1,538

 

717

 

13,331

 

Interest (income) expense, net

 

16,571

 

(3,935

)

2,710

 

 

15,346

 

Income (loss) from equity investment

 

15,624

 

 

 

(15,624

)

 

Earnings (loss) from continuing operations before income taxes

 

(3,284

)

17,348

 

(1,172

)

(14,907

)

(2,015

)

Income taxes (benefit)

 

(5,724

)

3,699

 

(519

)

251

 

(2,293

)

Earnings from continuing operations

 

2,440

 

13,649

 

(653

)

(15,158

)

278

 

Earnings from discontinued operations, net of taxes

 

7,830

 

1,319

 

1,309

 

 

10,458

 

Net earnings (loss)

 

$

10,270

 

$

14,968

 

$

656

 

$

(15,158

)

$

10,736

 

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Nine Months Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(20,907)

 

$

27,753

 

$

1,781

 

$

130

 

$

8,757

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(607)

 

 

(8,224)

 

 

(526)

 

 

 

 

(9,357)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

 

20,273

 

 

 

 

628

 

 

 

 

20,901

 

Repayments of company-owned life insurance policy loans

 

 

(4,125)

 

 

 

 

 

 

 

 

(4,125)

 

Proceeds from issuance of common stock

 

 

362

 

 

 

 

 

 

 

 

362

 

Change in intercompany payable

 

 

21,933

 

 

(20,502)

 

 

(1,301)

 

 

(130)

 

 

 

Dividends on common stock

 

 

(5,460)

 

 

 

 

 

 

 

 

(5,460)

 

Net cash provided by (used in) financing activities

 

 

32,983

 

 

(20,502)

 

 

(673)

 

 

(130)

 

 

11,678

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

 

 

(16,129)

 

 

733

 

 

424

 

 

 

 

(14,972)

 

Net change in Cash and Cash Equivalents

 

 

(4,660)

 

 

(240)

 

 

1,006

 

 

 

 

(3,894)

 

Effect of foreign currency translation

 

 

 

 

 

 

(18)

 

 

 

 

(18)

 

Cash and Cash Equivalents at the Beginning of Period

 

 

5,933

 

 

803

 

 

1,552

 

 

 

 

8,288

 

Cash and Cash Equivalents at the End of Period

 

$

1,273

 

$

563

 

$

2,540

 

$

 

$

4,376

 

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Nine Months Fiscal 2009

 

 

 

Oxford
Industries
(Parent)

 

 

Subsidiary
Guarantors

 

 

Subsidiary
Non-Guarantors

 

 

Consolidating
Adjustments

 

Consolidated
Total

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

6,819

 

 

$

30,972

 

 

$

(122

)

 

$ —

 

 

$

37,669

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(1,841

)

 

 

(5,111

)

 

 

(1,454

)

 

 

 

 

(8,406

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

 

(901

)

 

 

 

 

 

(197

)

 

 

 

 

(1,098

)

Repurchase of 8 7/8% Senior Unsecured Notes

 

 

(166,805

)

 

 

 

 

 

 

 

 

 

 

(166,805

)

Proceeds from the issuance of 11 3/8% Senior Secured notes

 

 

146,029

 

 

 

 

 

 

 

 

 

 

 

146,029

 

Deferred financing costs paid

 

 

(5,043

)

 

 

 

 

 

 

 

 

 

 

(5,043

)

Proceeds from issuance of common stock

 

 

316

 

 

 

 

 

 

 

 

 

 

 

316

 

Change in intercompany payable

 

 

25,149

 

 

 

(26,205

)

 

 

1,056

 

 

 

 

 

 

Dividends on common stock

 

 

(4,406

)

 

 

 

 

 

 

 

 

 

 

(4,406

)

Net cash provided by (used in) financing activities

 

 

(5,661

)

 

 

(26,205

)

 

 

859

 

 

 

 

 

(31,007

)

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) discontinued operations

 

 

622

 

 

 

300

 

 

 

3,384

 

 

 

 

 

4,306

 

Net change in Cash and Cash Equivalents

 

 

(61

)

 

 

(44

)

 

 

2,667

 

 

 

 

 

2,562

 

Effect of foreign currency translation

 

 

 

 

 

 

 

 

143

 

 

 

 

 

143

 

Cash and Cash Equivalents at the Beginning of Period

 

 

1,527

 

 

 

537

 

 

 

1,226

 

 

 

 

 

3,290

 

Cash and Cash Equivalents at the End of Period

 

$

1,466

 

 

$

493

 

 

$

4,036

 

 

$ —

 

 

$

5,995

 

 

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Table of Contents

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to the unaudited condensed consolidated financial statements contained in this report and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for fiscal 2009.

 

OVERVIEW

 

We generate revenues and cash flow primarily through the design, production, sale and distribution of branded and private label consumer apparel for men and women and the licensing of company-owned trademarks. Our principal markets and customers are located in the United States and, to a lesser extent, the United Kingdom. We source substantially all of our products through third party manufacturers located outside of the United States and United Kingdom. We distribute the majority of our products through our wholesale customers, which include chain stores, department stores, specialty stores, specialty catalog retailers, mass merchants and Internet retailers. Our products for certain owned brands are also sold through our owned and licensed retail stores and e-commerce websites.

 

As a result of the weak global economic conditions which began in fiscal 2008, fiscal 2009 was a particularly challenging year for each of our operating groups. While we did observe signs of recovery, the challenging economic conditions continued to persist and impacted each of our operating groups in fiscal 2010. In fiscal 2009 and the first nine months of fiscal 2010, we purchased inventory at levels which mitigated inventory markdown risk and promotional pressure; however, these precautions also limited our growth opportunities in some cases. Although the challenging economic conditions continue to have an impact on our business and the apparel industry as a whole, and we continue to focus on minimizing inventory markdown risk and promotional pressure, we were slightly more aggressive in our inventory purchases for the holiday 2010 season and anticipate purchasing inventory more aggressively in 2011 if the economic conditions continue to show improvement. We believe that fiscal 2011 will be impacted by pricing pressures on raw materials, fuel, transportation and other costs necessary for the production and sourcing of apparel products, which could negatively impact our gross margins.

 

The apparel and retail industry is cyclical and dependent upon the overall level of discretionary consumer spending, which changes as regional, domestic and international economic conditions change. The impact of negative economic conditions may have a longer and more severe impact on the apparel and retail industry than the same conditions have on other industries. Therefore, even if conditions improve in the general economy, the negative impact on the apparel and retail industry may continue.

 

We continue to believe it is important to focus on maintaining a strong balance sheet and ample liquidity. We believe that the measures we have taken to reduce working capital requirements, moderate capital expenditures for retail stores, reduce our overhead and refinance our significant debt agreements have significantly enhanced our balance sheet and liquidity, which will be enhanced further upon the completion of our anticipated disposal of substantially all of the operations of Oxford Apparel. We expect the closing of the Oxford Apparel disposition to occur by the end of calendar year 2010. We believe our strong balance sheet and liquidity will allow us to aggressively develop Tommy Bahama and Ben Sherman, our key lifestyle brands, while maintaining Lanier Clothes’ high level of performance, and at the same time maintain the financial flexibility to pursue acquisitions and opportunistically enhance our capital structure.

 

The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009:

 

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Table of Contents

 

 

 

First Nine Months

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

Net sales

 

$

446,233

 

$

441,907

 

$

4,326

 

Earnings from continuing operations

 

$

14,522

 

$

278

 

$

14,244

 

Earnings from continuing operations per diluted common share

 

$

0.88

 

$

0.02

 

$

0.86

 

Earnings from discontinued operations, net of taxes

 

$

10,744

 

$

10,458

 

$

286

 

Earnings from discontinued operations per diluted common share

 

$

0.65

 

$

0.64

 

$

0.01

 

Net earnings

 

$

25,266

 

$

10,736

 

$

14,530

 

Net earnings per diluted common share

 

$

1.53

 

$

0.66

 

$

0.87

 

Weighted average common shares outstanding—diluted

 

 

16,545

 

 

16,233

 

 

312

 

 

The primary reasons for the improvement in earnings from continuing operations were:

 

·                  An increase in net sales and a change in our net sales mix in our continuing operations, with Tommy Bahama direct to consumer and wholesale sales, which generally have higher gross margins than our other sales, representing a higher proportion of consolidated net sales and sales related to certain exited businesses in Ben Sherman and Lanier Clothes representing a lower proportion of consolidated net sales related to continuing operations during the first nine months of fiscal 2010. The first nine months of fiscal 2009 included $18.1 million of net sales associated with businesses in Ben Sherman and Lanier Clothes that we have exited compared to $2.4 million of such sales in the first nine months of fiscal 2010.

 

·                  Improved gross margins, which benefitted from the change in sales mix, and the first nine months of fiscal 2010 including a LIFO accounting charge of $1.4 million compared to the first nine months fiscal 2009 including a LIFO accounting charge of $6.7 million.

 

·                  Increased royalty income in both Tommy Bahama and Ben Sherman resulting from increased sales during the first nine months of fiscal 2010 by existing licensees, as well as the addition of new licensees.

 

·                  The first nine months of fiscal 2009 including $1.4 million of restructuring charges related to Ben Sherman’s exit from and subsequent licensing of its footwear and kids operations and other streamlining initiatives.

 

·                  The first nine months of fiscal 2009 including a $1.8 million write-off of unamortized deferred financing costs related to the satisfaction and discharge of the remaining 8 7/8% Senior Unsecured Notes, which was included in interest expense.

 

These items were partially offset by increased SG&A primarily due to (1) increased incentive compensation amounts resulting from the resumption of our incentive compensation program, which was suspended in fiscal 2009 and is tied to our financial performance, and (2) increased retail store operating costs as a result of the opening of additional retail stores during fiscal 2009 and fiscal 2010.

 

Earnings from discontinued operations reflect operations related to Oxford Apparel, of which we have entered into a definitive agreement to sell substantially all of the assets and operations, as discussed below. Earnings from discontinued operations were relatively consistent for the first nine months of fiscal 2010 as compared to the first nine months of fiscal 2009.

 

DISCONTINUED OPERATIONS

 

On November 22, 2010, we entered into a purchase agreement with LF USA Inc., which we refer to as LF, a subsidiary of Li & Fung Limited, pursuant to which we will sell to LF substantially all of the assets of Oxford Apparel (other than accounts receivable associated with the businesses which are being sold and all assets and operations relating to our Oxford Golf business and our distribution center in Lyons, Georgia).  The purchase price to be paid by LF is equal to approximately $121.7 million, subject to adjustment based on net working capital on the closing date of the transaction.  LF also agreed to purchase our goods in transit relating to Oxford Apparel following the closing of the transaction.

 

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Table of Contents

 

In connection with the consummation of the transaction described above, we will, among other things, enter into (1) license agreements with LF to grant licenses (subject to the limitations set forth in the applicable license agreements) to LF to use the trade name “Oxford Apparel” perpetually in connection with its business, as well as to use certain other trademarks in connection with the manufacture, sale and distribution of men’s dress shirts for certain periods of time in the applicable territory; (2) a services agreement with LF pursuant to which, in exchange for various fees, we will, following the closing of the transaction, provide certain transitional support services to LF in its operation of the transferred assets; and (3) a limited non-competition agreement with LF pursuant to which we will agree (subject to the exceptions set forth in the non-competition agreement) not to engage in certain activities for a period of three years following the completion of the transaction. The closing of the transaction is subject to customary closing conditions and is expected to occur by the end of calendar year 2010.

 

As a result of the planned disposal of substantially all of the assets and operations of Oxford Apparel, the results of operations for Oxford Apparel, other than the operations relating to our Oxford Golf business and our Lyons, Georgia distribution center, have been classified as discontinued operations in our consolidated statements of operations and our consolidated statements of cash flows for all periods presented. The assets and liabilities related to the discontinued operations have been reclassified to assets and liabilities related to discontinued operations, as applicable.

 

The results of operations classified as discontinued operations are consistent with the net sales, operating expenses and operating income for Oxford Apparel, except that (1) the operations of our Oxford Golf business and the operations of our Lyons, Georgia distribution center are reported within Oxford Apparel continuing operations as those operations are not being sold and (2) certain corporate service costs which were previously allocated to Oxford Apparel are reported as corporate service costs included in Corporate and Other as we are not certain that such corporate service costs will not continue.

 

With respect to interest expense, we have allocated all interest expense related to our U.S. Revolving Credit Agreement to earnings from discontinued operations as the estimated net proceeds from the transaction and the proceeds from the settlement of the retained assets and liabilities related to the discontinued operations, substantially all of which are expected to be converted into cash before the end of the first quarter of fiscal 2011, exceed the amounts outstanding under our U.S. Revolving Credit Agreement during the periods presented. Proceeds from the transaction and the retained assets are expected to be used to repay any debt outstanding under our U.S. Revolving Credit Agreement; fund general corporate operating activities, including further development of our existing operations; fund future acquisitions, if any; and opportunistically enhance our capital structure. We did not allocate any interest related to our 11 3/8% Senior Secured Notes to discontinued operations. The income tax rate used for the tax effect of the discontinued operations is based on the domestic effective tax rate of Oxford Industries, Inc. as the assets and operations that were disposed of were primarily domestic operations of that entity and should not be impacted by rates in foreign jurisdictions or other subsidiaries.

 

OPERATING GROUPS

 

Our business is operated through our four operating groups: Tommy Bahama, Ben Sherman, Lanier Clothes and Oxford Apparel. We identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance.

 

Tommy Bahama designs, sources and markets collections of men’s and women’s sportswear and related products. The target consumers of Tommy Bahama are affluent men and women age 35 and older who embrace a relaxed and casual approach to daily living. Tommy Bahama® products can be found in our owned and licensed Tommy Bahama retail stores and on our e-commerce website, as well as in certain department stores and independent specialty stores throughout the United States. We also license the Tommy Bahama name for various product categories and operate Tommy Bahama restaurants.

 

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Table of Contents

 

Ben Sherman is a London-based designer, marketer and distributor of branded sportswear and related products. Ben Sherman® was established in 1963 as an edgy, young men’s, “Mod”-inspired shirt brand and has evolved into a British lifestyle brand of apparel targeted at youthful-thinking men age 19 to 35 throughout the world. We offer a Ben Sherman men’s sportswear collection, while our licensees offer tailored clothing, accessories and other product categories. Our Ben Sherman products can be found in certain department stores, a variety of independent specialty stores and our owned and licensed Ben Sherman retail stores, as well as on our e-commerce websites.

 

Lanier Clothes designs and markets branded and private label men’s suits, sportcoats, suit separates and dress slacks across a wide range of price points. Certain Lanier Clothes products are sold using trademarks licensed to us by third parties, including Kenneth Cole®, Dockers®, and Geoffrey Beene®. We also offer branded tailored clothing products under our Billy London® and Arnold Brant® trademarks. In addition to our branded businesses, we design and source certain private label tailored clothing products. Significant private label brands include Stafford®, Lands’ End® and Alfani®. Our Lanier Clothes products are sold to national chains, department stores, mass merchants, specialty stores, specialty catalog retailers and discount retailers throughout the United States.

 

Oxford Apparel produces branded and private label dress shirts, suit separates, sport shirts, casual slacks, outerwear, sweaters, jeans, swimwear, westernwear and golf apparel. Oxford Apparel designs and sources certain private label programs for several customers, including programs for Costco, Sears, Target and Macy’s. Significant owned brands of Oxford Apparel include Oxford Golf®, Ely®, Cattleman® and Cumberland Outfitters®. Oxford Apparel also owns a two-thirds interest in the entity that owns the Hathaway® trademark in the United States and several other countries. Additionally, Oxford Apparel licenses from third parties the right to use certain trademarks, including Dockers and United States Polo Association®, for certain apparel products. Oxford Apparel products are sold to a variety of department stores, mass merchants, specialty catalog retailers, discount retailers, specialty stores, “green grass” golf merchants and Internet retailers throughout the United States. Oxford Apparel operating results included in continuing operations reflect the operations for our Oxford Golf business and the Lyons, Georgia distribution center. All other operations of Oxford Apparel are included in discontinued operations as we have entered into a definitive agreement to sell these assets and operations, as described above.

 

Corporate and Other is a reconciling category for reporting purposes and includes our corporate office, substantially all financing activities, elimination of inter-segment sales, LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups. LIFO inventory calculations are made on a legal entity basis which does not correspond to our operating group definitions; therefore, LIFO inventory accounting adjustments are not allocated to operating groups.

 

For further information regarding our operating groups, see Note 5 to our unaudited condensed consolidated financial statements included in this report and Part I, Item 1. Business in our Annual Report on Form 10-K for fiscal 2009.

 

RESULTS OF OPERATIONS

 

THIRD QUARTER OF FISCAL 2010 COMPARED TO THIRD QUARTER OF FISCAL 2009

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. In accordance with U.S. GAAP, net sales, cost of goods sold, gross profit, SG&A, amortization of intangible assets, royalties and other operating income, operating income, interest expense, net, earnings from continuing operations before income taxes, income taxes and earnings from continuing operations reflect continuing operations only, and all discontinued operations are reflected in earnings from discontinued operations, net.

 

20



Table of Contents

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$139,627

 

100.0%

 

$142,274

 

100.0%

 

$(2,647

)

(1.9%

)

Cost of goods sold

 

65,942

 

47.2%

 

74,163

 

52.1%

 

(8,221

)

(11.1%

)

Gross profit

 

73,685

 

52.8%

 

68,111

 

47.9%

 

5,574

 

8.2%

 

SG&A

 

70,995

 

50.8%

 

66,896

 

47.0%

 

4,099

 

6.1%

 

Amortization of intangible assets

 

241

 

0.2%

 

307

 

0.2%

 

(66

)

(21.5%

)

Royalties and other operating income

 

3,982

 

2.9%

 

3,266

 

2.3%

 

716

 

21.9%

 

Operating income

 

6,431

 

4.6%

 

4,174

 

2.9%

 

2,257

 

54.1%

 

Interest expense, net

 

5,095

 

3.6%

 

5,079

 

3.6%

 

16

 

0.3%

 

Earnings from continuing operations before income taxes

 

1,336

 

1.0%

 

(905

)

(0.6%

)

2,241

 

NM

 

Income taxes

 

17

 

0.0%

 

(982

)

(0.7%

)

999

 

NM

 

Earnings from continuing operations

 

1,319

 

0.9%

 

77

 

0.1%

 

1,242

 

NM

 

Earnings from discontinued operations, net of taxes

 

4,231

 

NM

 

4,228

 

NM

 

3

 

0.1%

 

Net earnings

 

$    5,550

 

NM

 

$    4,305

 

NM

 

$ 1,245

 

28.9%

 

 

The discussion and tables below compare certain line items included in our statements of operations for the third quarter of fiscal 2010 to the third quarter of fiscal 2009. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts.

 

Net Sales

 

 

 

 

 

 

 

Third Quarter

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Tommy Bahama

 

 

 

 

 

$  81,131

 

 

$  75,403

 

 

$ 5,728

 

 

7.6%

 

Ben Sherman

 

 

 

 

 

25,528

 

 

29,844

 

 

(4,316

)

 

(14.5%

)

Lanier Clothes

 

 

 

 

 

30,820

 

 

35,555

 

 

(4,735

)

 

(13.3%

)

Oxford Apparel

 

 

 

 

 

2,097

 

 

1,891

 

 

206

 

 

10.9%

 

Corporate and Other

 

 

 

 

 

51

 

 

(419

)

 

470

 

 

NM

 

Total net sales

 

 

 

 

 

$139,627

 

 

$142,274

 

 

$(2,647

)

 

(1.9%

)

 

Consolidated net sales decreased $2.6 million, or 1.9%, in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009 primarily due to the decreased sales in Ben Sherman and Lanier Clothes, which were partially offset by increased sales in Tommy Bahama, each as discussed below.

 

Tommy Bahama:

 

The increase in net sales for Tommy Bahama was primarily due to improved comparable retail store sales and higher e-commerce sales. Tommy Bahama unit sales increased 9.8%, which was primarily a result of the improvement in the direct to consumer channels, while the average selling price per unit decreased by 2.0%. The decrease in the average selling price per unit for apparel was primarily due to a change in sales mix. As of October 30, 2010 and October 31, 2009, we operated 86 and 85 Tommy Bahama retail stores, respectively.

 

Ben Sherman:

 

The decrease in net sales for Ben Sherman was primarily due to a 21.9% reduction in unit sales primarily resulting from our exit from and subsequent licensing of our footwear and kids’ businesses and our exit from the women’s operations during fiscal 2009. Net sales in the third quarter of fiscal 2009 related to these exited businesses totaled approximately $4.3 million. Net sales were also impacted by a 3.4% decrease in the average exchange rate of the British pound sterling versus the United States dollar during the third quarter of fiscal 2010 compared to the average exchange rate during the third quarter of fiscal 2009. The average selling price per unit for Ben Sherman increased 9.5% compared to the third quarter of fiscal 2009 due to the increased proportion of retail store sales, which have a higher average selling price, as a percentage of total Ben Sherman sales, as well as the wholesale sales in the third quarter of fiscal 2009 including a larger proportion of close-out sales as a result of the businesses exited in fiscal 2009.

 

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Table of Contents

 

Lanier Clothes:

 

The decrease in net sales for Lanier Clothes was primarily due to a reduction in unit sales of 17.9%, which was driven by lower sales in our private label businesses. The average selling price per unit increased 5.5% as a result of the change in sales mix as private label products typically have a lower selling price than branded products.

 

Oxford Apparel:

 

Oxford Apparel net sales included in continuing operations reflect our Oxford Golf business and the operations of our Lyons, Georgia distribution center. Net sales from continuing operations in Oxford Apparel increased to $2.1 million in the third quarter of fiscal 2010 from $1.9 million in the third quarter of fiscal 2009.

 

Gross Profit

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Gross profit

 

$ 73,685

 

$ 68,111

 

$ 5,574

 

8.2%

 

Gross margin (gross profit as a % of net sales)

 

52.8

%

47.9

%

 

 

 

 

LIFO (credits) charges included in cost of goods sold

 

$     (265

)

$   1,180

 

 

 

 

 

 

The increase in gross profit is primarily due to increased gross margins as discussed below, but partially offset by lower net sales. The increase in gross margins was primarily due to changes in the sales mix for the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. The changes in sales mix included (1) higher direct to consumer sales in Tommy Bahama, both in total and as a proportion of total Tommy Bahama sales, (2) Tommy Bahama sales representing a larger proportion of our total net sales, (3) fewer close-out sales in Ben Sherman and (4) a sales mix change in Lanier Clothes towards branded products. Additionally, gross profit reflects a LIFO accounting adjustment credit of $0.3 million in the third quarter of fiscal 2010 and a LIFO accounting charge of $1.2 million in the third quarter of fiscal 2009. We anticipate that consolidated gross margins in fiscal 2010 will continue to increase compared to the prior year as our sales mix is more heavily weighted towards Tommy Bahama. Our gross profit may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.

 

SG&A

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

SG&A

 

$ 70,995

 

$ 66,896

 

$ 4,099

 

6.1%

 

SG&A (as % of net sales)

 

50.8

%

47.0

%

 

 

 

 

 

The increase in SG&A was primarily due to costs associated with the resumption of our incentive compensation program, which was suspended in fiscal 2009 and is tied to our financial performance. The resumption of our incentive compensation program impacted SG&A for each operating group. SG&A was also impacted by the SG&A costs associated with operating retail stores opened during or subsequent to the third quarter of fiscal 2009.

 

Royalties and other operating income

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Royalties and other operating income

 

$ 3,982

 

$ 3,266

 

$ 716

 

21.9%

 

 

The increase in royalties and other operating income was primarily due to increased royalty income in Tommy Bahama as sales reported by certain licensees increased and new licensees were added.

 

Operating income (loss)

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change   

Tommy Bahama

 

$  3,440

 

$ 2,143

 

$1,297

 

60.5

%

Ben Sherman

 

1,684

 

2,323

 

(639

)

(27.5

%)

Lanier Clothes

 

5,345

 

5,243

 

102

 

1.9

%

Oxford Apparel

 

(316

)

(308

)

(8

)

(2.6

%)

Corporate and Other

 

(3,722

)

(5,227

)

1,505

 

28.8

%

Total operating income

 

$  6,431

 

$ 4,174

 

$2,257

 

54.1

%

LIFO (credits) charges included in operating income

 

$    (265

)

$ 1,180

 

 

 

 

 

 

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Table of Contents

 

Operating income, on a consolidated basis, increased to $6.4 million in the third quarter of fiscal 2010 from $4.2 million in the third quarter of fiscal 2009. The $2.3 million increase in operating income was primarily due to higher gross profit and higher royalty income, which were both partially offset by decreased net sales and increased SG&A, each as described above. Operating income included a credit for LIFO accounting of $0.3 million in the third quarter of fiscal 2010 and a charge of $1.2 million in the third quarter of fiscal 2009. Changes in operating income by operating group are discussed below.

 

Tommy Bahama:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$81,131

 

$75,403

 

$5,728

 

7.6%

 

Operating income

 

$  3,440

 

$  2,143

 

$1,297

 

60.5%

 

Operating income as % of net sales

 

4.2

%

2.8

%

 

 

 

 

 

The increase in operating income for Tommy Bahama was primarily due to the increased net sales, improved gross margins due to a greater proportion of direct to consumer sales as a percentage of total Tommy Bahama sales and higher royalty income. These items were partially offset by increased SG&A. The third quarter is Tommy Bahama’s lowest quarter of the fiscal year for net sales and operating income.

 

Ben Sherman:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$25,528

 

$29,844

 

$(4,316

)

(14.5%

)

Operating income

 

$  1,684

 

$  2,323

 

$   (639

)

(27.5%

)

Operating income as % of net sales

 

6.6%

 

7.8%

 

 

 

 

 

 

The decrease in operating income for Ben Sherman was primarily due to decreased net sales partially offset by improved gross margins, both of which were primarily a result of our exit from and subsequent licensing of the footwear and kids’ businesses and our exit from the women’s operations.

 

Lanier Clothes:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$30,820

 

$35,555

 

$(4,735

)

(13.3%

)

Operating income

 

$  5,345

 

$  5,243

 

$    102

 

1.9%

 

Operating income as % of net sales

 

17.3%

 

14.7%

 

 

 

 

 

 

The increase in operating income for Lanier Clothes, despite a decrease in net sales, was primarily due to improved gross margins resulting from sales mix, with branded sales representing a greater proportion of Lanier Clothes’ sales in the third quarter of fiscal 2010. The improved gross margins were partially offset by higher SG&A primarily resulting from the increased branded sales.

 

Oxford Apparel:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$  2,097

 

$   1,891

 

$206

 

10.9%

 

Operating loss

 

$    (316

)

$     (308

)

$   (8

)

(2.6%

)

Operating loss as % of net sales

 

(15.1%

)

(16.3%

)

 

 

 

 

 

The operating results of the continuing operations of Oxford Apparel, which include our Oxford Golf business and Lyons, Georgia distribution center operations, were consistent with the third quarter of fiscal 2009 as the Oxford Golf business had lower operating losses and the distribution center results declined as a result of lower volume of shipments in our Lyons, Georgia distribution center.

 

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Table of Contents

 

Corporate and Other:

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Operating loss

 

$(3,722

)

$(5,227

)

$1,505

 

28.8%

 

LIFO (credits) charges included in operating income (loss)

 

$   (265

)

$ 1,180

 

 

 

 

 

 

The Corporate and Other operating results improved by $1.5 million from a loss of $5.2 million in the third quarter of fiscal 2009 to a loss of $3.7 million in the third quarter of fiscal 2010. The decrease in the operating loss was primarily due to a LIFO accounting credit of $0.3 million in the third quarter of fiscal 2010 and a LIFO accounting charge of $1.2 million in the third quarter of fiscal 2009.

 

Interest expense, net

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Interest expense, net

 

$5,095

 

$5,079

 

$16 

 

0.3%

 

 

Interest expense for the third quarter of fiscal 2010 and the third quarter of fiscal 2009 was relatively unchanged after reclassifying all interest expense associated with the U.S. Revolving Credit Agreement to discontinued operations.

 

Income taxes

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Income taxes

 

$ 17

 

$(982

)

$999

 

NM

 

Effective tax rate

 

1.3

%

NM

 

 

 

 

 

 

The effective tax rate for both periods was impacted by certain favorable permanent differences which do not necessarily fluctuate with earnings.  The effective tax rate in the third quarter of fiscal 2010 is not necessarily indicative of the effective tax rates in future periods as the effective tax rate in the future will be higher if our earnings levels increase as the incremental earnings will likely be taxed at rates more closely aligned with statutory tax rates.

 

Net earnings

 

 

 

Third Quarter

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

Change

 

% Change

 

Earnings from continuing operations

 

$  1,319

 

$       77

 

$1,242

 

NM

 

Earnings from continuing operations per diluted common share

 

$    0.08

 

$    0.00

 

$  0.08

 

NM

 

Earnings from discontinued operations, net of taxes

 

$  4,231

 

$  4,228

 

$       3

 

0.1%

 

Earnings from discontinued operations per diluted common share

 

$    0.26

 

$    0.26

 

$  0.00

 

0.0%

 

Net earnings

 

$  5,550

 

$  4,305

 

$1,245

 

28.9%

 

Net earnings per diluted common share

 

$    0.33

 

$    0.26

 

$  0.07

 

26.9%

 

Weighted average common shares outstanding-diluted

 

16,576

 

16,533

 

43

 

0.3%

 

 

The increase in earnings from continuing operations was primarily due to the higher gross margins resulting from a change in sales mix and higher royalty income partially offset by lower sales and higher SG&A, each as discussed above.  The improved results of the discontinued operations reflect higher sales, which were partially offset by higher SG&A.

 

FIRST NINE MONTHS OF FISCAL 2010 COMPARED TO FIRST NINE MONTHS OF FISCAL 2009

 

The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company. In accordance with U.S. GAAP, net sales, cost of goods sold, gross profit, SG&A, amortization of intangible assets, royalties and other operating income, operating income, interest expense, net, earnings from continuing operations before income taxes, income taxes and earnings from continuing operations reflect continuing operations only, and all discontinued operations are reflected in earnings from discontinued operations, net.

 

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Table of Contents

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$ 446,233

 

100.0%

 

$ 441,907

 

100.0%

 

$    4,326

 

1.0%

 

Cost of goods sold

 

203,823

 

45.7%

 

227,876

 

51.6%

 

(24,053

)

(10.6%

)

Gross profit

 

242,410

 

54.3%

 

214,031

 

48.4%

 

28,379

 

13.3%

 

SG&A

 

220,328

 

49.4%

 

207,827

 

47.0%

 

12,501

 

6.0%

 

Amortization of intangible assets

 

719

 

0.2%

 

911

 

0.2%

 

(192

)

(21.1%

)

Royalties and other operating income

 

11,218

 

2.5%

 

8,038

 

1.8%

 

3,180

 

39.6%

 

Operating income

 

32,581

 

7.3%

 

13,331

 

3.0%

 

19,250

 

144.4%

 

Interest expense, net

 

15,115

 

3.4%

 

15,346

 

3.5%

 

(231

)

(1.5%

)

Earnings from continuing operations before income taxes

 

17,466

 

3.9%

 

(2,015

)

(0.5%

)

19,481

 

NM

 

Income taxes

 

2,944

 

0.7%

 

(2,293

)

(0.5%

)

5,237

 

NM

 

Earnings from continuing operations

 

$  14,522

 

3.3%

 

278

 

0.1%

 

$  14,244

 

NM

 

Earnings from discontinued operations

 

10,744

 

NM

 

10,458

 

NM

 

286

 

2.7%

 

Net earnings

 

$  25,266

 

NM

 

$  10,736

 

NM

 

$  14,530

 

135.3%

 

 

The discussion and tables below compare certain line items included in our statements of operations for the first nine months of fiscal 2010 to the first nine months of fiscal 2009. Each dollar and percentage change provided reflects the change between these periods unless indicated otherwise. Each dollar and share amount included in the tables is in thousands except for per share amounts.

 

Net Sales

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Tommy Bahama

 

$ 289,585

 

$ 268,262

 

$  21,323

 

7.9%

 

Ben Sherman

 

66,028

 

77,690

 

(11,662

)

(15.0%

)

Lanier Clothes

 

83,984

 

92,266

 

(8,282

)

(9.0%

)

Oxford Apparel

 

6,315

 

4,574

 

1,741

 

38.1%

 

Corporate and Other

 

321

 

(885

)

1,206

 

NM

 

Total net sales

 

$ 446,233

 

$ 441,907

 

$    4,326

 

1.0%

 

 

Consolidated net sales increased $4.3 million, or 1.0%, in the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009. The increase in net sales is primarily a result of the changes in each operating group discussed below. The first nine months of fiscal 2009 included $18.1 million of net sales related to businesses that we have exited in Ben Sherman and Lanier Clothes compared to $2.4 million of such sales in the first nine months of fiscal 2010.

 

Tommy Bahama:

 

The increase in net sales for Tommy Bahama was primarily due to improved comparable retail store sales, sales at retail stores opened during fiscal 2009 and fiscal 2010 and higher e-commerce sales. Tommy Bahama unit sales increased 12.9%, which was primarily a result of the improvement in the direct to consumer channels, while the average selling price per unit decreased by 3.9% due to a change in sales mix.

 

Ben Sherman:

 

The decrease in net sales for Ben Sherman was primarily due to a 17.7% reduction in unit sales primarily resulting from our exit from and subsequent licensing of our footwear and kids’ businesses and our exit from our women’s operations during fiscal 2009. Net sales related to the footwear, kids’ and women’s businesses totaled approximately $14.5 million in the first nine months of fiscal 2009 compared to $2.1 million in the first nine months of fiscal 2010. The decrease related to these exited businesses was partially offset by an increase in comparable retail store sales. The average selling price per unit for Ben Sherman increased 3.2% as retail sales represented a greater proportion of total Ben Sherman sales during the first nine months of fiscal 2010 and there were fewer off-price sales in the first nine months of fiscal 2010.

 

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Table of Contents

 

Lanier Clothes:

 

The decrease in net sales for Lanier Clothes was primarily due to a reduction in unit sales of 11.6%, which was driven by lower sales in our private label businesses and the inclusion of approximately $3.6 million of net sales in the first nine months of fiscal 2009 related to businesses that we have exited. The average selling price per unit increased 3.0% as a result of the change in sales mix as private label products typically have a lower selling price than branded products and many of the sales of the products for businesses that we exited were close-out sales.

 

Oxford Apparel:

 

Oxford Apparel net sales included in continuing operations reflect our Oxford Golf business and the operations of our Lyons, Georgia distribution center. Net sales from continuing operations in Oxford Apparel increased to $6.3 million in the first nine months of fiscal 2010 from $4.6 million in the first nine months of fiscal 2009.

 

Gross Profit

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Gross profit

 

$ 242,410

 

$ 214,031

 

$ 28,379

 

13.3%

 

Gross margin (gross profit as a % of net sales)

 

54.3

%

48.4

%

 

 

 

 

LIFO charges included in cost of goods sold

 

$     1,362

 

$     6,671

 

 

 

 

 

 

The increase in gross profit is primarily due to increased gross margins as discussed below and higher net sales in Tommy Bahama, which increased more than the sales decreases in Ben Sherman and Lanier Clothes. The increase in gross margins was primarily due to changes in the sales mix for the first nine months of fiscal 2010 compared to the first nine months of fiscal 2009. The changes in sales mix included (1) higher direct to consumer sales in Tommy Bahama, both in total and as a proportion of total Tommy Bahama sales, (2) Tommy Bahama sales representing a larger proportion of our total net sales, (3) fewer close-out sales in Ben Sherman and (4) a sales mix change in Lanier Clothes towards branded products. Additionally, gross profit reflects LIFO accounting charges of $1.4 million and $6.7 million in the first nine months of fiscal 2010 and the first nine months of fiscal 2009, respectively. We anticipate that consolidated gross margins in fiscal 2010 will continue to increase compared to the prior year as our sales mix is more heavily weighted towards Tommy Bahama. Our gross profit may not be directly comparable to those of our competitors, as statement of operations classification of certain expenses may vary by company.

 

SG&A

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

SG&A

 

$ 220,328

 

$ 207,827

 

$ 12,501

 

6.0%

 

SG&A (as % of net sales)

 

49.4

%

47.0

%

 

 

 

 

Restructuring charges included in SG&A

 

$          —

 

$     1,362

 

 

 

 

 

 

The increase in SG&A was primarily due to costs associated with the resumption of our incentive compensation program, which was suspended in fiscal 2009 and is tied to our financial performance. The resumption of our incentive compensation program impacted SG&A for each of our operating groups.  SG&A was also impacted by the SG&A costs associated with retail stores opened during fiscal 2009 and fiscal 2010.  The first nine months of fiscal 2009 also included $1.4 million of restructuring charges related to Ben Sherman’s exit from and subsequent licensing of its footwear and kids’ businesses and other streamlining initiatives.

 

Royalties and other operating income

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Royalties and other operating income

 

$ 11,218

 

$ 8,038

 

$ 3,180

 

39.6%

 

 

The increase in royalties and other operating income was primarily due to increased royalty income in both Tommy Bahama and Ben Sherman, as sales reported by certain licensees increased and new licensees were added.

 

26



Table of Contents

 

Operating income (loss)

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Tommy Bahama

 

$ 35,473

 

$ 27,772

 

$  7,701

 

27.7%

 

Ben Sherman

 

1,608

 

(5,961

)

7,569

 

NM

 

Lanier Clothes

 

12,513

 

10,681

 

1,832

 

17.2%

 

Oxford Apparel

 

(983

)

(819

)

(164

)

(20.0%

)

Corporate and Other

 

(16,030

)

(18,342

)

2,312

 

12.6%

 

Total operating income

 

$ 32,581

 

$ 13,331

 

$19,250

 

144.4%

 

LIFO charges included in operating income

 

$   1,362

 

  6,671

 

 

 

 

 

Restructuring charges included in operating income

 

       —

 

$   1,362

 

 

 

 

 

 

Operating income, on a consolidated basis, increased to $32.6 million in the first nine months of fiscal 2010 from $13.3 million in the first nine months of fiscal 2009. The $19.3 million increase in operating income was primarily due to increased net sales, improved gross margins and higher royalty income, which was partially offset by increased SG&A, each as described above. Operating income included charges for LIFO accounting of $1.4 million in the first nine months of fiscal 2010 and $6.7 million in the first nine months of fiscal 2009. The first nine months of fiscal 2009 also included restructuring charges of $1.4 million in Ben Sherman. Changes in operating income by operating group are discussed below.

 

Tommy Bahama:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$289,585

 

$268,262

 

$21,323

 

7.9

%

 

Operating income

 

$  35,473

 

$  27,772

 

$  7,701

 

27.7

%

 

Operating income as % of net sales

 

12.3

%

10.4

%

 

 

 

 

 

 

The increase in operating income for Tommy Bahama was primarily due to the increased net sales, improved gross margins due to a greater proportion of direct to consumer sales as a percentage of total Tommy Bahama sales and higher royalty income, which were partially offset by increased SG&A.

 

Ben Sherman:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$66,028

 

$77,690

 

$(11,662

)

(15.0%

)

Operating income (loss)

 

$  1,608

 

$ (5,961

)

$   7,569

 

NM

 

Operating income (loss) as % of net sales

 

2.4

%

(7.7

%)

 

 

 

 

Restructuring charges included in operating income (loss)

 

$       —

 

$  1,362

 

 

 

 

 

 

The improved operating results for Ben Sherman were primarily due to increased gross margins and reduced SG&A, both of which were impacted by our exit from and subsequent licensing of the footwear and kids’ businesses, our exit from the women’s operations and increased royalty income. The first nine months of fiscal 2009 SG&A also included $1.4 million of restructuring charges primarily related to our exit from and subsequent licensing of the footwear and kids’ businesses and other streamlining initiatives.

 

Lanier Clothes:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$83,984

 

$92,266

 

$(8,282

)

(9.0%

)

Operating income

 

$12,513

 

$10,681

 

$ 1,832

 

17.2%

 

Operating income as % of net sales

 

14.9

%

11.6

%

 

 

 

 

 

The increase in operating income for Lanier Clothes was primarily a result of improved gross margins due to sales mix, with branded sales representing a greater proportion of Lanier Clothes’ sales in the first nine months of fiscal 2010, and close-out sales associated with exited businesses included in the first nine months of fiscal 2009. The improved gross margins were partially offset by increased SG&A.

 

27



Table of Contents

 

Oxford Apparel:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Net sales

 

$6,315

 

$4,574

 

$1,741

 

38.1%

 

Operating loss

 

$  (983

)

$  (819

)

$  (164

)

(20.0%

)

Operating loss as % of net sales

 

(15.6

%)

(17.9

%)

 

 

 

 

 

The operating results of the continuing operations of Oxford Apparel, which include our Oxford Golf business and Lyons, Georgia distribution center operations, were consistent with the first nine months of fiscal 2009 as the Oxford Golf business had lower operating losses and the distribution center results declined as a result of lower volume of shipments in our Lyons, Georgia distribution center.

 

Corporate and Other:

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Operating loss

 

$(16,030

)

$(18,342

)

$2,312

 

12.6

%

LIFO charges included in operating loss

 

$     1,362

 

$     6,671

 

 

 

 

 

 

The Corporate and Other operating results improved by $2.3 million from a loss of $18.3 million in the first nine months of fiscal 2009 to a loss of $16.0 million in the first nine months of fiscal 2010. The first nine months of fiscal 2010 and the first nine months of fiscal 2009 included LIFO accounting charges of $1.4 million and $6.7 million, respectively. After removing the impact of LIFO accounting charges, the reduced operating results are primarily due to higher incentive compensation costs resulting from the resumption of our incentive compensation program, which was suspended in fiscal 2009 and is tied to our financial performance.

 

Interest expense, net

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Interest expense, net

 

$15,115

 

$15,346

 

$(231

)

(1.5%

)

Write-off of deferred financing costs included in interest expense

 

$       —

 

$  1,759

 

 

 

 

 

 

Interest expense for the first nine months of fiscal 2010 and the first nine months of fiscal 2009 was relatively unchanged, after reclassifying all interest related to our U.S. Revolving Credit Agreement to discontinued operations. However, the first nine months of fiscal 2009 included a $1.8 million write-off of unamortized deferred financing costs and discount related to the 8 7/8% Senior Unsecured Notes, which were satisfied and discharged in June 2009. After removing the impact of this $1.8 million write-off, the increase in interest expense was primarily due to higher interest rates in the first nine months of fiscal 2010, which partially resulted from the June 2009 replacement of our 8 7/8% Senior Unsecured Notes with our 11 3/8% Senior Secured Notes in June 2009. This higher interest rate was partially offset by lower debt levels in the first nine months of fiscal 2010.

 

Income taxes

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

$ Change

 

% Change

 

Income taxes

 

$2,944

 

$(2,293

)

$5,237

 

NM

 

Effective tax rate

 

16.9

%

NM

 

 

 

 

 

 

The effective tax rate for both periods was impacted by certain favorable permanent differences which do not necessarily fluctuate with earnings and certain discrete items, including the decrease in income tax contingency reserves upon the expiration of the corresponding statute of limitations. The effective tax rate in the first nine months of fiscal 2010 is not necessarily indicative of the effective tax rates in future periods as the effective tax rate in the future will be higher if our earnings levels increase as the incremental earnings will likely be taxed at rates more closely aligned with statutory tax rates.

 

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Net earnings

 

 

 

First Nine Months

 

 

 

 

 

 

 

Fiscal 2010

 

Fiscal 2009

 

Change

 

% Change

 

Earnings from continuing operations

 

$14,522

 

$    278

 

$14,244

 

NM

 

Earnings from continuing operations per diluted common share

 

$   0.88

 

$    0.02

 

$    0.86

 

NM

 

Earnings from discontinued operations

 

$10,744

 

$10,458

 

$     286

 

2.7

%

Earnings from discontinued operations per diluted common share

 

$   0.65

 

$    0.64

 

$   0.01

 

1.6

%

Net earnings

 

$25,266

 

$10,736

 

$14,530

 

135.3

%

Net earnings per diluted common share

 

$   1.53

 

$    0.66

 

$   0.87

 

131.8

%

Weighted average common shares outstanding-diluted

 

16,545

 

16,233

 

312

 

1.9

%

 

The increase in earnings from continuing operations was primarily due to higher net sales with a higher gross margin resulting from a change in sales mix and higher royalty income, but partially offset by higher SG&A, each as discussed above. The results of the discontinued operations reflect lower sales, higher gross margins and lower interest expense as the interest incurred for the U.S. Revolving Credit Agreement was lower in the first nine months of fiscal 2010 as lower amounts were outstanding during the period.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Our primary source of revenue and cash flow is our operating activities in the United States and, to a lesser extent, the United Kingdom. When cash inflows are less than cash outflows, we also have access to amounts under our U.S. Revolving Credit Agreement and U.K. Revolving Credit Agreement, subject to their terms, each of which is described below. We may seek to finance future capital investment programs through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities and sales of debt or equity securities.

 

Our liquidity requirements arise from the funding of our working capital needs, which include inventory and accounts receivable, other operating expenses, funding of capital expenditures, payment of quarterly dividends, periodic interest payments related to our financing arrangements and repayment of our indebtedness. Some of our product purchases are facilitated by trade letters of credit which are drawn against our lines of credit at the time of shipment of the products and reduce the amounts available under our lines of credit and borrowing capacity under our credit facilities when issued.

 

Key Liquidity Measures

 

($ in thousands)

 

October 30, 2010

January 30, 2010

October 31, 2009

January 31, 2009

Current assets

 

$241,983

 

$191,906

 

$205,200

 

$230,287

 

Current liabilities

 

124,774

 

96,450

 

104,349

 

108,011

 

Working capital

 

$117,209

 

$  95,456

 

$100,851

 

$122,276

 

Working capital ratio

 

1.94

 

1.99

 

1.97

 

2.13

 

Debt to total capital ratio

 

57

%

58

%

64

%

70

%

 

Our working capital ratio is calculated by dividing total current assets by total current liabilities, including assets and liabilities related to discontinued operations. Current assets and current liabilities increased from October 31, 2009 to October 30, 2010, as described below, resulting in a comparable working capital ratio between the two periods. For the ratio of debt to total capital, debt is defined as short-term and long-term debt, and total capital is defined as debt plus shareholders’ equity. The change in the debt to total capital ratio from October 31, 2009 to October 30, 2010 was primarily a result of the $10.9 million reduction in debt since October 31, 2009 due to cash flows from operations, as well as increased shareholders’ equity due to our net earnings subsequent to October 31, 2009. Our debt levels and ratio of debt to total capital in future periods may not be comparable to historical amounts due to the impact of the sale of substantially all of the operations of Oxford Apparel and as we continue to assess our capital structure. Changes in our capital structure in the future, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

 

Balance Sheet

 

The following tables set forth certain information included in our consolidated balance sheets (in thousands). Below each table are explanations for any significant changes in the balances from October 31, 2009 to October 30, 2010.

 

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Current Assets:

 

 

 

October 30, 2010

January 30, 2010

October 31, 2009

January 31, 2009

Cash and cash equivalents

 

$    4,376

 

$    8,288

 

$    5,995

 

$    3,290

 

Receivables, net

 

58,900

 

44,690

 

57,440

 

44,161

 

Inventories, net

 

63,484

 

58,180

 

54,483

 

91,997

 

Prepaid expenses, net

 

14,663

 

10,508

 

13,818

 

10,274

 

Deferred tax assets

 

15,624

 

13,875

 

9,885

 

10,159

 

Total current assets related to continuing operations

 

157,047

 

135,541

 

141,621

 

159,881

 

Assets related to discontinued operations

 

84,936

 

56,365

 

63,579

 

70,406

 

Total current assets

 

$241,983

 

$191,906

 

$205,200

 

$230,287

 

 

Cash and cash equivalents as of October 30, 2010 were comparable to the cash and cash equivalents as of October 31, 2009, with the balance at each period representing typical cash on hand operating requirements. Receivables, net increased 2.5% primarily due to the higher wholesale sales in the last two months of the third quarter of fiscal 2010 compared to the last two months of the third quarter of fiscal 2009.  Inventories, net as of October 30, 2010 increased by 16.5% from October 31, 2009 primarily due to an increase in inventories in both Tommy Bahama and Lanier Clothes to support anticipated sales, which was partially offset by the decline at Ben Sherman resulting from our exit from and subsequent licensing of our footwear and kids’ businesses and our exit from the Ben Sherman women’s operations. Deferred tax assets have increased from October 31, 2009 primarily as a result of the change in book to tax differences associated with inventory balances at October 30, 2010 and October 31, 2009. The increase in assets related to discontinued operations was a result of higher accounts receivable and higher inventory balances reflecting the business activity of the discontinued operations.

 

Non-current Assets:

 

 

 

October 30, 2010

January 30, 2010

October 31, 2009

January 31, 2009

Property, plant and equipment, net

 

$  74,721

 

$  78,425

 

$  82,843

 

$  87,873

 

Intangible assets, net

 

136,584

 

137,462

 

138,372

 

135,932

 

Other non-current assets, net

 

21,181

 

17,381

 

17,216

 

13,590

 

Total non-current assets, net

 

232,486

 

233,268

 

238,431

 

237,395

 

 

The decrease in property, plant and equipment, net was primarily due to depreciation expense exceeding capital expenditures during the twelve months subsequent to October 31, 2009, as we reduced our investments in new retail stores during the challenging economic environment. The decrease in intangible assets, net is primarily due to the amortization of intangible assets subsequent to October 31, 2009 and the decrease in the period-end exchange rate for the British pound sterling versus the U.S. dollar from October 31, 2009 to October 30, 2010. The increase in other non-current assets is primarily due to the payment of loans associated with company owned life insurance policies, which had previously been recorded as a reduction to other non-current assets in accordance with U.S. GAAP.

 

Liabilities:

 

 

 

October 30, 2010

January 30, 2010

October 31, 2009

January 31, 2009

Current liabilities related to continuing operations

 

$103,232

 

$  77,508

 

$  91,380

 

$  82,065

 

Long-term debt, less current maturities

 

146,900

 

146,408

 

161,244

 

194,187

 

Other non-current liabilities

 

47,351

 

49,478

 

46,832

 

46,066

 

Non-current deferred income taxes

 

27,753

 

28,421

 

29,444

 

32,111

 

Total liabilities related to continuing operations

 

$325,236

 

$301,815

 

$328,900

 

$354,429

 

Liabilities related to discontinued operations

 

$  21,542

 

$  18,942

 

$  12,969

 

$  25,946

 

Total liabilities

 

$346,778

 

$320,757

 

$341,869

 

$380,375

 

 

The increase in current liabilities was primarily due to the increase in accrued compensation, which resulted from the resumption of our incentive compensation program. Our incentive compensation program was suspended in fiscal 2009 and is tied to our financial performance.  The decrease in total debt, including long-term debt less current maturities

 

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and current maturities of long-term debt, was primarily due to cash flow from operating activities for the twelve months preceding October 30, 2010, which were primarily used for repayment of debt. The cash flow from operating activities was primarily a result of net earnings during the twelve month period ended October 30, 2010 partially offset by increases in working capital levels. The change in non-current deferred income taxes primarily resulted from (1) changes in book/tax differences for depreciation and deferred compensation, (2) changes in tax accrued on undistributed foreign earnings, (3) the indirect federal benefit of certain reserves for uncertain tax positions and (4) adjustments to reflect changes in the effective tax rate at which certain deferred items are expected to be realized, which are partially offset by changes in foreign currency exchange rates.  The increase in liabilities related to discontinued operations was primarily a result of the higher working capital assets at October 30, 2010 and reflects the business activity of the discontinued operations.

 

Statement of Cash Flows

 

The following table sets forth the net cash flows resulting in the change in our cash and cash equivalents (in thousands):

 

 

 

First Nine Months

 

 

 

Fiscal 2010

 

Fiscal 2009

 

Net cash provided by operating activities

 

$  8,757 

 

$ 37,669 

 

Net cash used in investing activities

 

(9,357)

 

(8,406)

 

Net cash provided by (used in) financing activities

 

11,678 

 

(31,007)

 

Net cash (used in) provided by discontinued operations

 

(14,972)

 

4,306 

 

Net change in cash and cash equivalents

 

$(3,894)

 

$   2,562 

 

 

Operating Activities:

 

The operating cash flows for the first nine months of fiscal 2010 and the first nine months of fiscal 2009 were primarily the result of net earnings for the relevant period, adjusted for non-cash activities such as depreciation, amortization and stock compensation expense as well as changes in our working capital accounts. In the first nine months of fiscal 2010, the larger changes in working capital were increases in accounts receivable, inventories and prepaid expenses, partially offset by an increase in accounts payable, whereas the first nine months of fiscal 2009 reflected a significant reduction in inventories, partially offset by an increase in accounts receivable and a reduction in current liabilities.

 

Investing Activities:

 

During the first nine months of fiscal 2010 and the first nine months of fiscal 2009, investing activities used $9.4 million and $8.4 million, respectively, of cash. In each of the applicable periods, these investing activities primarily consisted of capital expenditures related to new retail stores and costs associated with investment in certain technology initiatives.

 

Financing Activities:

 

During the first nine months of fiscal 2010 and fiscal 2009, financing activities provided $11.7 million and used $31.0 million, respectively, of cash. In the first nine months of fiscal 2010, the primary use of cash for financing purposes was the payment of dividends and the repayment of loans related to certain company-owned life insurance policies, both of which were funded by additional borrowings under our U.S. Revolving Credit Agreement. In the first nine months of fiscal 2009, cash flow from operations, borrowings under our U.S. Revolving Credit Agreement and the proceeds from the issuance of $150.0 million aggregate principal amount of our 11 3/8% Senior Secured Notes were used to repurchase $166.8 million aggregate principal amount of our 8 7/8% Senior Unsecured Notes, to pay $4.4 million of dividends and to pay $5.0 million of financing costs associated with the issuance of our 11 3/8% Senior Secured Notes in June 2009.

 

Discontinued Operations:

 

The cash flows from discontinued operations reflect cash flow provided by or used in the activities of Oxford Apparel, which we have classified as discontinued operations as a result of our plan to dispose of substantially all of its operations. The change in cash flow from discontinued operations primarily reflect relatively consistent earnings for the first nine months of fiscal 2010 and the first nine months of fiscal 2009 as well as increased working capital in fiscal 2010 due to the increased sales in the third quarter and to support anticipated sales increases in the fourth quarter of fiscal 2010.

 

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Liquidity and Capital Resources

 

The table below provides a description of our significant financing arrangements and the amounts outstanding under these financing arrangements (in thousands) as of October 30, 2010:

 

$175 million U.S. Secured Revolving Credit Facility (“U.S. Revolving Credit Agreement”), which is limited to a borrowing base consisting of specified percentages of eligible categories of assets, accrues interest (3.25% as of October 30, 2010), unused line fees and letter of credit fees based upon a pricing grid which is tied to average unused availability, requires interest payments monthly with principal due at maturity (August 2013) and is secured by a first priority security interest in the accounts receivable (other than royalty payments in respect of trademark licenses), inventory, investment property (including the equity interests of certain subsidiaries), general intangibles (other than trademarks, trade names and related rights), deposit accounts, intercompany obligations, equipment, goods, documents, contracts, books and records and other personal property of Oxford Industries, Inc. and substantially all of its domestic subsidiaries and a second priority security interest in those assets in which the holders of the 113/8% Senior Secured Notes have a first priority security interest

 

$

20,273

 

£10 million Senior Secured Revolving Credit Facility (“U.K. Revolving Credit Agreement”), which accrues interest at the bank’s base rate plus 3.5% (4.0% as of October 30, 2010), requires interest payments monthly with principal payable on demand and is collateralized by substantially all of the United Kingdom assets of Ben Sherman

 

651

 

11.375% Senior Secured Notes (“113/8% Senior Secured Notes”), which accrue interest at an annual rate of 11.375% (effective interest rate of 12%) and require interest payments semi-annually in January and July of each year, require payment of principal at maturity (July 2015), are subject to certain prepayment penalties, are secured by a first priority interest in all U.S. registered trademarks and certain related rights and certain future acquired real property owned in fee simple of Oxford Industries, Inc. and substantially all of its consolidated domestic subsidiaries and a second priority security interest in those assets in which the lenders under the U.S. Revolving Credit Agreement have a first priority security interest, and are guaranteed by certain of our domestic subsidiaries

 

150,000

 

Unamortized discount

 

(3,100

)

Total debt

 

$

167,824

 

Short-term debt and current maturities of long-term debt

 

(20,924

)

Long-term debt, less current maturities

 

$

146,900

 

 

Our credit facilities are used to finance trade letters of credit, as well to provide funding for other operating activities, capital expenditures and acquisitions. As of October 30, 2010, approximately $33.3 million of trade letters of credit and other limitations on availability in the aggregate were outstanding against the U.S. Revolving Credit Agreement and the U.K. Revolving Credit Agreement. On October 30, 2010, we had approximately $124.7 million and $13.4 million in unused availability under the U.S. Revolving Credit Agreement and the U.K. Revolving Credit Agreement, respectively, subject to the respective limitations on borrowings set forth in the U.S. Revolving Credit Agreement, U.K. Revolving Credit Agreement and the indenture for the 113/8% Senior Secured Notes.

 

Covenants, Other Restrictions and Prepayment Penalties:

 

Our credit facilities and 113/8% Senior Secured Notes are subject to a number of affirmative covenants, negative covenants, financial covenants and other restrictions as discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 in our consolidated financial statements, both included in our Annual Report on Form 10-K for fiscal 2009. We believe the affirmative covenants, negative covenants, financial covenants and other restrictions are customary for those included in similar facilities and notes entered into at the time we entered into our agreements. As of October 30, 2010, we were compliant with all covenants related to our credit facilities and 113/8% Senior Secured Notes. If we were to redeem any of our 113/8% Senior Secured Notes prior to July 15, 2014 pursuant to the indenture governing the notes, we would be required to pay certain premiums above the principal amount, which are also discussed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 in our consolidated financial statements, both included in our Annual Report on Form 10-K for fiscal 2009.

 

Other Liquidity Items:

 

We anticipate that we will be able to satisfy our ongoing cash requirements, which generally consist of working capital needs, capital expenditures and interest payments on our debt, primarily from cash on hand, positive cash flow from

 

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operations and borrowings under our lines of credit, if necessary, as well as the proceeds from our sale of substantially all of the assets of Oxford Apparel. Our need for working capital is typically seasonal with the greatest requirements generally existing in the fall and spring of each year. Our capital needs will depend on many factors, including our growth rate, the need to finance inventory levels and the success of our various products. At maturity of the U.S. Revolving Credit Agreement and the 113/8% Senior Secured Notes or if the U.K. Revolving Credit Agreement was required to be paid, we anticipate that we will be able to refinance the facilities and debt with terms available in the market at that time, which may or may not be as favorable as the terms of the current agreements.

 

Our contractual obligations as of October 30, 2010 have not changed significantly from the contractual obligations outstanding at January 30, 2010 other than changes in the amounts outstanding under our U.K. Revolving Credit Agreement and pursuant to letters of credit (each as discussed above).

 

Our anticipated capital expenditures for fiscal 2010 for continuing operations, including $9.4 million incurred during the first nine months of fiscal 2010, are expected to be approximately $12 million. The fiscal 2010 capital expenditures primarily consist of costs associated with new retail stores and investment in certain technology initiatives.

 

As discussed above, on November 22, 2010, we entered into a purchase agreement with LF pursuant to which we will sell to LF substantially all of the assets of Oxford Apparel (other than accounts receivable associated with the businesses which are being sold and all assets and operations relating to our Oxford Golf business and our distribution center in Lyons, Georgia).  The purchase price to be paid by LF is equal to approximately $121.7 million, subject to adjustment based on net working capital on the closing date of the transaction.  LF also agreed to purchase our goods in transit relating to Oxford Apparel following the closing of the transaction, which is subject to customary closing conditions and is expected to occur by the end of calendar year 2010. We anticipate net cash proceeds of approximately $90 million after the collection of retained accounts receivable, the sale of the in-transit inventory to LF and the payment of retained liabilities, transaction expenses and income taxes. Proceeds from the transaction and the retained assets are expected to be used to repay any debt outstanding under our U.S. Revolving Credit Agreement; fund general corporate operating activities, including further development of our existing operations; fund future acquisitions, if any; and opportunistically enhance our capital structure.

 

Off Balance Sheet Arrangements

 

We have not entered into agreements which meet the SEC’s definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments to or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, stock compensation expense, contingencies and litigation and certain other accrued expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates are discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2009. There have not been any significant changes to the application of our critical accounting policies and estimates during the first nine months of fiscal 2010.

 

A detailed summary of significant accounting policies is included in Note 1 to our consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2009.

 

SEASONALITY

 

Although our various product lines are sold on a year-round basis, the demand for specific products or styles may be seasonal. For example, the demand for Tommy Bahama in our principal markets is higher in the spring season. Generally, our wholesale products are sold prior to each of the retail selling seasons, including spring, summer, fall and

 

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Table of Contents

 

holiday. As the timing of product shipments and other events affecting the retail business may vary, we do not believe that results for any particular quarter are necessarily indicative of results for the full fiscal year. Also, we do not believe that fiscal 2009 distribution of earnings and operating income is necessarily indicative of the expected distribution in future years as certain quarters may be impacted by certain unusual or non-recurring items, impacted more severely by economic conditions than other quarters within the same fiscal year, or impacted by other factors. The following table presents the percentage of net sales and operating income from continuing operations by quarter (unaudited) for fiscal 2009:

 

 

 

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Net sales

 

27%

 

25%

 

24%

 

24%

 

Operating income from continuing operations

 

41%

 

8%

 

22%

 

29%

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to certain interest rate, foreign currency, commodity and inflation risks as discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for fiscal 2009. There have not been any significant changes in our exposure to these risks during the first nine months of fiscal 2010.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Our Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the third quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

In the ordinary course of business, we may become subject to litigation or claims. We are not currently a party to any litigation or regulatory action that we believe could reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

ITEM 1A.  RISK FACTORS

 

In addition to the other information set forth in this report, investors should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for fiscal 2009, which could materially affect our business, financial condition or operating results. The risks described in our Annual Report on Form 10-K for fiscal 2009 are not the only risks facing our company.

 

Our business may be adversely affected if we are unable to identify or complete strategic acquisitions and dispositions.

 

One component of our business strategy is the acquisition of new businesses or product lines as and when appropriate investment opportunities are available.  In addition, we may determine that it is appropriate to divest certain businesses that do not align with our strategy or discontinue certain product lines which may not provide the returns that we expect or desire.  There can be no assurance that we will be able to identify suitable acquisition or disposition opportunities on terms acceptable to us.  In addition, even upon reaching an agreement with a buyer or seller for the acquisition or disposition of a business or product line, the closing of the transaction may be subject to the satisfaction

 

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of applicable closing conditions, which may prevent us from completing the transaction or impose conditions on our business that may have an adverse effect on our operating results.

 

We recently announced that we entered into an agreement to sell substantially all of the assets of Oxford Apparel for approximately $121.7 million in cash, subject to adjustment based on net working capital on the closing date of the transaction.  Although we believe that the completion of this transaction is subject to customary closing conditions, including the absence of a material adverse change in the business being sold prior to the closing date, it is possible that we may be unable to complete this transaction if applicable closing conditions are not satisfied.  If we do not complete the Oxford Apparel transaction, we will not receive the expected proceeds from the sale.  Further, Oxford Apparel’s operating results and customer relationships may be adversely impacted by our public announcement of our intent to sell this business.  Even if we are unable to close the transaction, we will be required to pay our expenses relating to the transaction.

 

If any of the risks described in this report or in our Annual Report on Form 10-K for fiscal 2009 or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, actually occur, our business, financial condition or operating results could suffer.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a)          During the third quarter of fiscal 2010, we did not make any unregistered sales of our equity securities.

 

(c)          We have certain stock incentive plans as described in Note 7 to our consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2009, all of which are publicly announced plans. Under the plans, we can repurchase shares from employees to cover employee tax liabilities related to the exercise of stock options or the vesting of previously restricted shares.  No shares were purchased during the third quarter of fiscal 2010.

 

In the second quarter of fiscal 2010, our Board of Directors authorized us to spend up to $50 million to repurchase shares of our common stock and/or 11 3/8% Senior Secured Notes. This authorization superseded and replaced all previously existing authorizations to repurchase shares of our common stock and/or our 11 3/8% Senior Secured Notes. As of October 30, 2010, no shares of our common stock nor any of our 11 3/8% Senior Secured Notes had been repurchased pursuant to this authorization, which has no automatic expiration.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. RESERVED

 

None

 

ITEM 5.  OTHER INFORMATION

 

Our Group Vice President, Mr. Knowlton J. O’Reilly, has notified us that he intends to retire effective on December 31, 2010. We previously disclosed Mr. O’Reilly’s expected retirement this year.  In recognition of Mr. O’Reilly’s service to our company, including his significant contributions in negotiating and finalizing the terms of our sale of substantially all of the operations of Oxford Apparel to LF, on December 8, 2010, our Nominating, Compensation & Governance Committee approved a special award of $412,500 payable to Mr. O’Reilly in cash in January 2011 following the effectiveness of his retirement.

 

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ITEM 6.  EXHIBITS

 

3.1                                 Restated Articles of Incorporation of Oxford Industries, Inc. Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the fiscal quarter ended August 29, 2003.

3.2                                 Bylaws of Oxford Industries, Inc., as amended. Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on June 17, 2009.

10.1                           Oxford Industries, Inc. Deferred Compensation Plan, as amended and restated effective September 1, 2010. *

31.1                           Section 302 Certification by Principal Executive Officer.*

31.2                           Section 302 Certification by Principal Financial Officer.*

32                                    Section 906 Certification by Principal Executive Officer and Principal Financial Officer.*

 


* Filed herewith.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

December 9, 2010

OXFORD INDUSTRIES, INC.

 

 

(Registrant)

 

 

 

 

 

/s/ K. Scott Grassmyer

 

 

K. Scott Grassmyer

 

 

Senior Vice President, Chief Financial Officer and Controller

 

 

(Authorized Signatory)

 

 

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