3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] Quarterly Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended November 27, 1998 ---------------- OR [ ] Transition Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934 For the transition period from to ---------------- ---------------- Commission File Number 1-4365 ------ OXFORD INDUSTRIES, INC. - ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Georgia 58-0831862 - ------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 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) Not Applicable - ------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 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 January 4, 1999 - --------------------------- ---------------------------- Common Stock, $1 par value 8,290,008 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. - ----------------------------- OXFORD INDUSTRIES, INC CONSOLIDATED STATEMENT OF EARNINGS SIX MONTHS AND QUARTERS ENDED NOVEMBER 27, 1998 AND NOVEMBER 28, 1997 (UNAUDITED) Six Months Ended Quarter Ended ------------------------- ------------------------ $ in thousands except November 27, November 28, November 27, November 28, per share amounts 1998 1997 1998 1997 ------------ ----------- ------------ ----------- Net Sales $431,127 $401,304 $232,521 $208,062 Costs and Expenses: Cost of goods sold 347,420 322,980 188,846 166,383 Selling, general and administrative 58,514 54,701 29,011 27,906 Interest 2,231 1,999 1,482 1,018 ------- ------- ------- ------- Total Costs and Expenses 408,165 379,680 219,339 195,307 ------- ------- ------- ------- Earnings Before Income Taxes 22,962 21,624 13,182 12,755 Income Taxes 8,955 8,433 5,141 4,974 ------- ------- ------- ------- Net Earnings $ 14,007 $13,191 $ 8,041 $ 7,781 ======== ======= ======= ======= Basic Earnings Per Common Share $1.63 $1.49 $0.95 $0.88 ======= ======= ======= ======= Diluted Earnings Per Common Share $1.61 $1.47 $0.94 $0.87 ======= ======= ======= ======= Basic Number of Shares Outstanding 8,590,730 8,826,844 8,406,712 8,845,774 ========= ========= ========= ========= Diluted Number of Shares Outstanding 8,719,552 8,953,429 8,512,134 8,964,559 ========= ========= ========= ========= Dividends Per Share $0.40 $0.40 $0.20 $0.20 ========= ========= ========= ========= See notes to consolidated financial statements. OXFORD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS NOVEMBER 27, 1998, MAY 29, 1998 AND NOVEMBER 28, 1997 (UNAUDITED EXCEPT FOR MAY 29, 1998) $ in thousands November 27, May 29, November 28, - -------------- 1998 1998 1997 ----------- ------- ----------- Assets - ------ Current Assets: Cash $ 4,042 $ 10,069 $ 3,274 Receivables 119,974 100,789 112,458 Inventories: Finished goods 92,368 89,906 78,520 Work in process 26,873 24,330 24,102 Fabric, trim & supplies 31,985 32,472 30,801 -------- -------- -------- 151,226 146,708 133,423 Prepaid expenses 15,442 13,621 12,829 -------- -------- -------- Total Current Assets 290,684 271,187 261,984 Property Plant and Equipment 38,333 35,682 34,429 Other Assets 12,048 4,621 5,164 -------- -------- -------- Total Assets $341,065 $311,490 $301,577 ======== ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Current Liabilities Notes payable $45,500 $11,500 $10,500 Trade accounts payable 56,437 57,105 52,539 Accrued compensation 10,492 12,020 10,891 Other accrued expenses 21,214 18,883 21,401 Dividends payable 1,658 1,765 1,771 Income taxes 1,231 - 296 Current maturities of long- term debt 445 449 1,946 -------- -------- -------- Total Current Liabilities 136,977 101,722 99,344 Long-Term Debt, less current maturities 41,253 41,428 41,680 Noncurrent Liabilities 4,500 4,500 4,500 Deferred Income Taxes 3,849 4,071 3,252 Stockholders' Equity: Common stock 8,289 8,824 8,854 Additional paid in capital 11,271 11,554 11,341 Retained earnings 134,926 139,391 132,606 -------- -------- -------- Total Stockholders' Equity 154,486 159,769 152,801 -------- -------- -------- Total Liabilities and Stockholders' Equity $341,065 $311,490 $301,577 ======== ======== ======== See notes to consolidated financial statements. OXFORD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED NOVEMBER 27, 1998 AND NOVEMBER 28, 1997 (UNAUDITED) November 27, November 28, 1998 1997 Cash Flows From Operating Activities --------------------------------- - ------------------------------------ Net earnings $ 14,007 $ 13,191 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 4,280 3,895 Gain on sale of property, plant and equipment (47) (48) Changes in working capital: Receivables (19,133) (34,687) Inventories 9,603 16,358 Prepaid expenses (1,724) 3,251 Trade accounts payable (888) (6,985) Accrued expenses and other current liabilities (2,709) 4,050 Income taxes payable 1,231 296 Deferred income taxes (222) 247 Other noncurrent assets (51) (33) Net cash provided by (used in) ----------- --------- operating activities 4,347 (465) Cash Flows From Investing Activities - ------------------------------------ Acquisitions (21,403) - Purchase of property, plant and equipment (3,584) (3,320) Proceeds from sale of property, plant and and equipment 187 87 -------- ---------- Net cash used in investing activities (24,800) (3,233) Cash Flows From Financing Activities - ------------------------------------ Short-term borrowings 34,000 6,500 Payments on long-term debt (179) (948) Proceeds from exercise of stock options 361 1,627 Purchase and retirement of common stock (16,267) - Dividends on common stock (3,489) (3,520) Net cash provided by -------- ------- financing activities 14,426 3,659 Net change in Cash and Cash Equivalents (6,027) (39) Cash and Cash Equivalents at Beginning of Period 10,069 3,313 -------- ------- Cash and Cash Equivalents at End of Period $ 4,042 $ 3,274 ======== ======= Supplemental Disclosure of Cash Flow Information - ------------------------------------------------ Cash paid for: Interest $ 2,305 $ 2,064 Income taxes 8,595 6,427 See notes to consolidated financial statements. OXFORD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS QUARTERS ENDED NOVEMBER 27, 1998 AND NOVEMBER 28, 1997 1. The foregoing unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of results to be expected for the year. 2. The financial information presented herein should be read in conjunction with the consolidated financial statements included in the Registrant's Annual Report on Form 10-K for the fiscal year ended May 29, 1998. 3. The Company is involved in certain legal matters primarily arising in the normal course of business. In the opinion of management, the Company's liability under any of these matters would not materially affect its financial condition or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. NET SALES Net sales for the second quarter of the 1999 fiscal year, which ended November 27, 1998, increased 11.8% from net sales for the same period of the prior year. Net sales for the first six months of the current year increased 7.4% from net sales for the same period of the prior year. Most of the increase in net sales for the second quarter came from Next Day Apparel, Inc. (Next Day), whose assets were acquired at the beginning of the quarter. The net sales increase by the Company's ongoing operations in the second quarter was led by Lanier Clothes, the Company's Tailored Clothing Group, where sales increases in Nautica, Oscar de la Renta, Geoffrey Beene and Women's Tailored Clothing were partially offset by a sales decline in private label. The Oxford Shirt Group had higher sales with increased sales in OxSport, the private label sport shirt division, Tommy Hilfiger Dress Shirts, Polo/Ralph Lauren for Boys and Ely & Walker and sales declines in Oxford Shirtings, the private label dress shirt division, and Tommy Hilfiger Golf. The Tommy Hilfiger Golf decline was due to the Company's decision to further restrict distribution. The Womenswear Group generated increased sales in its Collections and Separates divisions, offset by a sales decline in its Catalog & Special Markets division. Oxford Slacks experienced a sales decline primarily attributable to weak sales in the specialty catalog sector. In the second quarter of the current year, the Company experienced an 18.0% increase in unit volume and a decline of 5.2% in the weighted average sales price per unit. For the first half of the current year, the Company experienced a 9.9% increase in unit volume and a decline of 2.0% in the weighted average sales price per unit. The single greatest contributor to this change was the Next Day acquisition, which is a lower cost - lower margin private label business. COST OF GOODS SOLD Cost of goods sold as a percentage of net sales was 81.2% in the second quarter of the current year and 80.0% in the second quarter of the previous year. For the first half of the current year, cost of goods sold as a percentage of net sales was 80.6% compared to 80.5% for the first half of the prior year. The increase in cost of goods sold as a percentage of net sales was due to a number of factors. The Company began sewing operations in its new facilities in Honduras and Mexico during the quarter. The acquisition of Next Day, while accretive to earnings, lowered the overall gross margin of the Company. The Company experienced some damage and disruption of six of it facilities in the Dominican Republic and Honduras due to Hurricanes Georges and Mitch. All six plants impacted by the hurricanes are now back to normal operations. During the second quarter, the Company announced the closure of its domestic sewing facility in Luverne, Alabama. Subsequent to the end of the second quarter, the Company announced the closure of its domestic sewing facility in Fayette, Alabama. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (S G & A) expenses increased by 4.0% from $27,906,000 or 13.4% of net sales in the second quarter of the prior year to $29,011,000 or 12.5% of net sales in the second quarter of the current year. S G & A increased by 7.0% from $54,701,000 or 13.6% of net sales in the first half of the prior year to $58,514,000 or 13.6% of net sales in the first half of the current year. The largest contributor to the decreased ratio of S G & A to net sales in the second quarter was the acquisition of Next Day with its lower S G & A structure. Offsetting the Next Day impact somewhat was the continued increase in licensed designer business which has an S G & A structure more than twice the expense levels of the Company's private label business. INTEREST EXPENSE Net interest expense increased by 45.6% from $1,018,000 or 0.5% of sales in the second quarter of the prior year to $1,482,000 or 0.6% of net sales in the second quarter of the current year. For the first half of the current year, net interest expense increased by 11.6% from $1,999,000 or 0.5% of sales in the first half of the prior year to $2,231,000 or 0.5% of net sales in the first half of the current year. The increase in interest expense was primarily due to higher borrowings for the acquisition of Next Day and repurchase of the Company's common stock. INCOME TAXES The Company's effective tax rate was 39.0% in the second quarter and first half of both the current year and the previous year and does not differ significantly from the Company's statutory rate. FUTURE OPERATING RESULTS The Company anticipates continued challenging conditions in the apparel sector where a highly promotional environment will keep pressure on operating margins. The Company will continue to invest in its strategic initiatives in marketing and manufacturing. Barring any worsening of business conditions, the Company expects a moderate increase in sales and earnings compared to last year's second half. YEAR 2000 The Company is working to resolve the effects of the Year 2000 issue on its information systems. The Year 2000 issue, which is common to most businesses, concerns the inability of information systems to properly recognize and process dates and date sensitive information on and beyond January 1, 2000. In 1996, the Company began a Company-wide assessment of the vulnerability of its systems to the Year 2000 issue. Based on such assessment, the Company has developed a Year 2000 compliance plan, under which all key information systems are being tested, and non-compliant software or technology is being modified or replaced. The Company is also surveying the Year 2000 compliance status and compatibility of customers and suppliers systems which interface with the Company's systems or could otherwise impact the Company's operations. While the Company currently believes it will be able to modify or replace its affected systems in ample time to minimize any detrimental effects on its operations, failure to do so, or the failure of the Company's major customers and suppliers to modify or replace their affected systems, could have a material adverse impact on the Company's results of operations, liquidity or consolidated financial positions in the future. The most reasonably likely worst case scenario of failure by the Company or its customers or suppliers to resolve the Year 2000 issue would be a temporary slow down or cessation of manufacturing operations at one or more of the Company's facilities and a temporary inability on the part of the Company to timely process orders and billings and to deliver finished product to customers. The Company is considering various contingency options, including identification of alternate suppliers, vendors and service providers, and manual alternatives to systems operation, which will allow the Company to minimize the risks of any unresolved Year 2000 problems on its operations, and to minimize the effect of any unforeseen Year 2000 failures. The Company currently estimates the incremental cost of the work needed to resolve the Year 2000 issue will not materially impact the Company's financial condition or results of operations. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Operating activities generated $4,347,000 in the first half of the current year and used $465,000 in the first half of the prior year. The primary factors contributing to the change in the amount of funds generated was a smaller increase in receivables than in the prior year slightly offset by a smaller decrease in inventory than in the prior year. INVESTING ACTIVITIES Investing activities used $24,800,000 in the first half of the current year and used $3,233,000 in the first half of the prior year. The primary factors contributing to the change in the use of funds was the acquisition of the assets of Next Day Apparel, Inc. FINANCING ACTIVITIES Financing activities generated $14,426,000 in the first half of the current year and $3,659,000 in the first half of the previous year. The primary factors contributing to this change was increased short-term borrowings somewhat offset by the purchase and retirement of the Company's common stock. The increase in short-term borrowing was primarily due to the acquisition of Next Day and the purchase of Company stock. On January 4, 1999, the Company's Board of Directors declared a cash dividend of $.21 per share payable on February 27, 1999 to shareholders of record on February 12, 1999. This is a 5% increase from the previous quarterly dividend of $.20 per share. During the first half, the Company purchased on the open market and retired 550,000 shares of the Company's common stock. Subsequent to the end of the second quarter up to January 4, 1999, the Company purchased on the open market and retired 80,000 shares of the Company's common stock. During the first half, the Company issued 18,920 shares of the Company's common stock in conjunction with the Company's employee stock option plans. WORKING CAPITAL Working capital increased from $162,640,000 at the end of the second quarter of the prior year to $169,465,000 at the end of the 1998 fiscal year and decreased to $153,707,000 at the end of the second quarter of the current year. The ratio of current assets to current liabilities was 2.6 at the end of the second quarter of the prior year, 2.7 at the end of the prior fiscal year, and 2.1 at the end of the second quarter of the current year. FUTURE LIQUIDITY AND CAPITAL RESOURCES The Company believes it has the ability to generate cash and/or has available borrowing capacity to meet its foreseeable needs. The sources of funds primarily include funds provided by operations and both short-term and long-term borrowings. The uses of funds primarily include working capital requirements, capital expenditures, acquisitions, dividends and repayment of short-term and long-term debt. The Company regularly utilizes committed bank lines of credit and other uncommitted bank resources to meet working capital requirements. On November 27, 1998, the Company had available for its use lines of credit with several lenders aggregating $52,000,000. The Company has agreed to pay commitment fees for these available lines of credit. On November 27, 1998, $52,000,000 was in use under these lines, of which $40,000,000 was long-term. In addition, the Company has $220,500,000 in uncommitted lines of credit, of which $137,500,000 is reserved exclusively for letters of credit. The Company pays no commitment fees for these available lines of credit. On November 27, 1998, $33,500,000 was in use under these lines of credit. Maximum borrowings from all these sources during the current year were $108,500,000 of which $40,000,000 was long-term. The Company anticipates continued use and availability of both committed and uncommitted resources as working capital needs may require. The Company considers possible acquisitions of apparel- related businesses that are compatible with its long-term strategies. The Company's Board of Directors has authorized the Company to purchase shares of the Company's common stock on the open market and in negotiated trades as conditions and opportunities warrant. There are no present plans to sell securities (other than through employee stock option plans and other employee benefits)or enter into off- balance sheet financing arrangements. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements included herein are "forward-looking statements" within the meaning of the federal securities laws. This includes any statements concerning plans and objectives of management relating to the Company's operations or economic performance, and assumptions related thereto. In addition, the Company and its representatives may from time to time make other oral or written statements that are also forward-looking statements. These forward-looking statements are made based on management's expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those express or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, general economic and apparel business conditions, continued retailer and consumer acceptance of company products, and global manufacturing costs. ADDITIONAL INFORMATION For additional information concerning the Company's operations, cash flows, liquidity and capital resources, this analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements contained in the Company's Annual Report for the fiscal year ended May 29, 1998. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. - ------------------------------------------ (a) Exhibits. --------- 27 Financial Data Schedule. (b) Reports on Form 8-K. -------------------- On September 2, 1998, The Registrant filed a report on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OXFORD INDUSTRIES, INC. ----------------------- (Registrant) /s/Ben B. Blount, Jr. -------------------------- Date: January 7, 1999 Ben B. Blount, Jr. --------------- Chief Financial Officer