Oxford Industries - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number 1-4365

OXFORD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer as defined in rule 12b-2 of the Exchange Act. Yes ý    No o

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

OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For quarter ended February 25, 2005

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CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS

        Our Securities and Exchange Commission filings and public announcements often include forward-looking statements about future events. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Important assumptions relating to these forward looking statements include, among others, assumptions regarding demand for our products, expected pricing levels, raw material costs, the timing and cost of planned capital expenditures, expected outcomes of pending litigation, competitive conditions, general economic conditions and expected synergies in connection with acquisitions and joint ventures, including the acquisition of Ben Sherman. Forward-looking statements reflect our current expectations and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information. These beliefs and assumptions could prove inaccurate. Forward-looking statements involve risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Many of these risks and uncertainties are beyond our ability to control or predict. Such risks and uncertainties include, but are not limited to, all of the risks discussed under "Risk Factors" in our fiscal 2004 Form 10-K, including the following:

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general economic cycles;



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competitive conditions in our industry;



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price deflation in the worldwide apparel industry;



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our ability to identify and respond to rapidly changing fashion trends and to offer innovative and upgraded products;



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changes in trade quotas or other trade regulations, including "safeguard" quotas;



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our ability to continue to finance our working capital and growth on acceptable terms;



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significant changes in weather patterns (e.g., an unseasonably warm autumn) or natural disasters such as hurricanes, fires or flooding;



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the price and availability of raw materials;



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our dependence on and relationships with key customers;



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the ability of our third party producers to deliver quality products in a timely manner;



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potential disruptions in the operation of our distribution facilities;



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any disruption or failure of our computer systems or data network;



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the integration of Ben Sherman into our company;



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our ability to successfully implement our growth plans for the acquired businesses;



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unforeseen liabilities associated with our acquisitions of the Tommy Bahama Group and Ben Sherman;



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economic and political conditions in the foreign countries in which we operate or source our products;



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increased competition from direct sourcing;



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our ability to maintain our licenses;



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our ability to protect our intellectual property and prevent our trademarks, service marks and goodwill from being harmed by competitors' products;

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our reliance on key management;



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risks associated with changes in global currency exchange rates;



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changes in interest rates on our variable rate debt;



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the impact of labor disputes, wars or acts of terrorism on our business;



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the effectiveness of our disclosure controls and procedures related to financial reporting;



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our inability to retain current pricing on our products due to competitive or other factors;



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the expansion of our business through the acquisition of new businesses; and



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our ability to open new retail stores.

        Other risks or uncertainties may be detailed from time to time in our future Securities and Exchange Commission filings.

        Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission. 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

See accompanying notes.

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED EXCEPT FOR MAY 28, 2004)

See accompanying notes.

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Supplemental schedule of non-cash investing and financing activities:
As of February 25, 2005, approximately $4.2 million of the Ben Sherman acquisition has been financed through the Seller Notes, as discussed in Note 5.

See accompanying notes.

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OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED FEBRUARY 25, 2005

1.

Basis of Presentation: We prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Such rules and regulations allow us to condense and omit certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States. We believe these consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations for the periods presented. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for the year primarily due to the impact of seasonality on our business. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis and financial statements and notes thereto included in our fiscal 2004 Form 10-K. As used in this report, "our," "us," "we" and similar phrases refer to Oxford Industries, Inc. and its consolidated subsidiaries; and "fiscal 2004," "fiscal 2005" and "fiscal 2006" refer to our fiscal years ended or ending on May 28, 2004, June 3, 2005 and June 2, 2006, respectively.

The accounting policies applied during the interim periods presented are consistent with the accounting policies as described in our fiscal 2004 Form 10-K.

Certain amounts in the prior periods' financial statements have been reclassified to conform to the current year's presentation. These reclassifications have no impact on net earnings as previously reported.

2.

Inventories: The components of inventories are summarized as follows:

3.

Intangible Assets: Intangible assets by category at February 25, 2005 are summarized below:

4.

Acquisitions: On July 30, 2004, we acquired 100% of the capital stock of Ben Sherman Limited ("Ben Sherman"), which we operate as part of our Menswear Group. Ben Sherman is a London-based designer, distributor and marketer of branded sportswear, accessories, and footwear. The purchase price for Ben Sherman was £80 million, or approximately $145 million, plus associated expenses of approximately $3.1 million. The transaction was financed with cash on hand,

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borrowings from our senior revolving credit facility and unsecured notes payable to the management shareholders of Ben Sherman, both as described in Note 5.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition for Ben Sherman. The purchase price allocation is subject to finalization of certain preliminary estimates.

The components of the Intangibles listed in the above table are as follows:

On June 13, 2003, we acquired all of the capital stock of Viewpoint International, Inc., which we operate as the Tommy Bahama Group. The purchase price for the Tommy Bahama Group could be up to $325 million, consisting of $240 million in cash at closing, $10 million in our common stock (776,400 shares), approximately $3.4 million in transaction costs, and up to $75 million in contingent payments, subject to the Tommy Bahama Group achieving certain performance targets. Such performance targets are based on earnings before interest and taxes after deduction of a capital charge based on net tangible assets.

For each of the four years following the acquisition, the selling stockholders of the Tommy Bahama Group will receive an annual basic contingent payment if the Tommy Bahama Group's earnings are greater than 90% of the applicable target and will receive the maximum annual basic contingent payment of $12.5 million if the Tommy Bahama Group's earnings are 100% or greater than the applicable target. If the Tommy Bahama Group's earnings are between 90% and 100% of the applicable target, the annual basic contingent payment will be calculated on a straight line basis from $0 to $12.5 million. Up to 50% of any annual basic contingent payment may be paid in shares of our common stock at our option, and in the case of payments in the first two years, at the option of the selling stockholders of the Tommy Bahama Group. Shares of our common stock issued at our option will be valued at the average price on the New York Stock Exchange (or other applicable exchange) for the ten full trading days prior to the applicable payment date. Shares of our common stock issued at the option of the selling stockholders will be valued at $12.88 per share.

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All contingent payments to be paid to selling stockholders will be treated as additional purchase price and recorded as goodwill. Approximately 5% of the total value of all consideration that becomes due and payable under the agreement has been designated to be paid toward an Employee Cash Bonus Plan to be distributed to employees of the Tommy Bahama Group under the terms of the plan. The contingent payments designated toward the Employee Cash Bonus Plan are charged to selling, general and administrative expense.

Additionally, if, at the end of the four year period, cumulative earnings exceed the cumulative targets, the selling stockholders will receive 33.33% of the cumulative excess up to a maximum cumulative additional contingent payment of $25.0 million. Any cumulative additional payment will be paid in cash.

The Year 1 contingent payment was earned in full and was paid during the first quarter of fiscal 2005 in the form of approximately $6.2 million in cash and the remainder in our common stock valued at $12.88 per share for total consideration of approximately $24.6 million. Of this amount approximately $23.4 million was recognized as goodwill with the remainder recognized as selling, general and administrative expense.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition for the Tommy Bahama Group including any contingent payments made to date.

These acquisitions helped us achieve one of our key strategic objectives of owning major lifestyle brands. The acquisitions provide strategic benefits through growth opportunities and further diversification of our business over distribution channels, price points, product categories and target customers. The results of operations of Ben Sherman and the Tommy Bahama Group are included in our consolidated statements of earnings from the respective dates of the acquisition.

The pro forma financial information presented below gives effect to the Ben Sherman acquisition (July 30, 2004) and the Tommy Bahama Group acquisition (June 13, 2003) as if the acquisitions had occurred as of the beginning of the respective periods. The information presented below is for illustrative purposes only and is not indicative of results that would have been achieved if the

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acquisitions had occurred as of the beginning of fiscal 2005 and 2004 or results which may be achieved in the future.

5.

Debt: The following table details our debt as of the dates specified:

(1)

On July 28, 2004, the U.S. Revolver was amended to increase the line of credit from $275 million to $280 million, to eliminate the asset borrowing base calculation to determine availability and to adjust the amount that certain lenders were committed to loan among other changes. Approximately $1.8 million of unamortized deferred financing costs were expensed as a result of the amendment, which were included in interest expense in the consolidated statement of earnings. Additionally, the terms and conditions of certain related agreements were modified in November 2004, including a change to a springing lock-box agreement, which results in amounts

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outstanding under the facility requiring classification as long-term debt subsequent to the modification.

(2)

The U.K. Revolver and Seller Notes, both denominated in pounds sterling, were entered into in connection with the Ben Sherman acquisition.

(3)

The Senior Unsecured Notes were sold on May 16, 2003 at a discount of 0.713% ($1.4 million) in connection with the acquisition of the Tommy Bahama Group to yield an effective interest rate of 9.0%.

The U.S. Revolver, the U.K. Revolver and the Senior Unsecured Notes each include certain debt covenant restrictions that require us or our subsidiaries to maintain certain financial ratios that are customary for similar facilities. The facilities also include limitations on certain restricted payments such as dividends, earn-out payments, and prepayment of debt. To ensure compliance with the minimum availability requirement of our U.S. Revolver, we sought and obtained the consent of our U.S. Revolver bank group to pay our third and fourth quarter fiscal 2005 dividends without regard to the availability requirement. We currently do not anticipate the need for a consent to pay dividends in subsequent quarters. As of February 25, 2005, we were compliant with all restrictive financial covenants related to our debt agreements.

As of February 25, 2005, approximately $100.5 million and $2.2 million of trade letters of credit were outstanding against the U.S. Revolver and the U.K. Revolver, respectively. The net availability under our U.S. Revolver and U.K. Revolver was approximately $42.2 million and $20.2 million, respectively as of February 25, 2005.

6.

Shareholders' Equity: We have chosen to account for stock-based compensation to employees using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock-Based Compensation." Certain pro forma and other disclosures related to stock-based compensation plans are presented below as if compensation cost of options granted had been determined in accordance with the fair value provisions of the Statement of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation."

(1)

Stock-based compensation recognized in reported net income relates to acceleration of vesting for certain options granted to employees who retired in the current period.

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We effected a two-for-one share split in the form of a 100% stock dividend, payable December 1, 2003, to shareholders of record on November 17, 2003. All share and per share data appearing in the consolidated financial statements and related notes reflect this stock split.

During the nine months ended February 25, 2005, we issued 0.6 million shares with respect to the acquisition of the Tommy Bahama Group and the exercise of stock options by employees. We have not repurchased any shares during the current year.

Other comprehensive income which is comprised of the effects of foreign currency translation adjustments for the quarter and nine months ended February 25, 2005 was $1.9 million and $7.9 million, respectively, net of income taxes of $1.0 million and $4.3 million, respectively. For the quarter and nine months ended February 25, 2005, total comprehensive income consisting of net earnings as reported in our statement of earnings and the effect of foreign currency translation adjustments was $15.9 million and $37.2 million, respectively, net of income taxes. Net earnings and comprehensive income were equivalent for all prior periods. Accumulated other comprehensive income was $7.9 million as of February 25, 2005, which is included in retained earnings in the condensed consolidated balance sheet.

7.

Segment Information: We organize the components of our business into operating segments for purposes of allocating resources and assessing performance. Our reportable segments are the Menswear Group, the Womenswear Group and the Tommy Bahama Group. The Menswear Group produces a variety of branded and private label sportswear, tailored clothing, dress shirts and golf apparel. The Womenswear Group produces private label women's sportswear separates, coordinated sportswear, outerwear, dresses and swimwear. The Tommy Bahama Group produces lifestyle branded casual attire, operates retail stores and restaurants, and licenses the Tommy Bahama brand for other product categories.

The business segments results exclude corporate overhead costs, LIFO inventory accounting adjustments and other costs which are not allocated to the operating groups. LIFO inventory calculations are made on a legal entity basis, which do not necessarily correspond to our segment definitions. Therefore, LIFO inventory accounting adjustments are not allocated to the operating segments. Total assets for Corporate and Other include the LIFO inventory reserve of $37.1 million, $35.5 million and $35.5 million at February 25, 2005, May 28, 2004 and February 27, 2004, respectively. Segment results are as follows:

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8.

New Accounting Standards: In November 2004, the Financial Accounting Standards Board, or FASB issued FASB Statement No. 151 "Inventory Costs, an Amendment of ARB No. 43 Chapter 4" ("FAS 151"). FAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. FAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. We do not believe the adoption of FAS 151 will have a material impact on us upon adoption in fiscal 2006 as we have historically expensed such costs as incurred.

In December 2004, the FASB issued FASB Statement No. 123 (Revised 2004) "Share-Based Payment: an Amendment of FASB Statements No. 123 and 95" ("FAS 123R"). FAS 123R is applicable for all interim and fiscal periods beginning after June 15, 2005. FAS 123R sets accounting requirements for "share-based" compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. We are currently evaluating the impact that this statement will have on our results of operations upon adoption in fiscal 2006.

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In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed into law by the President. Among other provisions, the Act provides for a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated in either an enterprise's last tax year that began before the enactment date or the first tax year that begins during the one-year period beginning on the date of enactment. As a result of execution of the Act, the accounting treatment of such unremitted earnings that are expected to be repatriated must be considered in evaluating an entity's tax provision. We are currently evaluating the appropriate action with respect to the repatriation provision, including, but not limited to, an assessment of the amount of foreign earnings eligible for repatriation. No impact has been recognized in the current period's tax provision or financial statements as we have not completed our assessment of unremitted earnings available for repatriation or the income tax effect, if any, of repatriation of such earnings at this time. We expect to have this evaluation completed prior to the end of the second quarter of fiscal 2006.

9.

Consolidating Financial Data of Subsidiary Guarantors: Our U.S. Revolver and our $200 million Senior Unsecured Notes are guaranteed by our wholly owned domestic subsidiaries ("Subsidiary Guarantors"). All guarantees are full and unconditional. Non-guarantors consist of our subsidiaries which are organized outside the United States. Set forth below are the condensed consolidating financial statements for the nine months and quarters ended February 25, 2005 and February 27, 2004. We have used the equity method with respect to investment in subsidiaries.

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Oxford Industries, Inc.
Condensed Consolidated Balance Sheet
February 25, 2005

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Oxford Industries, Inc.
Condensed Consolidated Balance Sheet
May 28, 2004

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Oxford Industries, Inc.
Condensed Consolidated Balance Sheet
February 27, 2004

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Oxford Industries, Inc.
Condensed Consolidated Statement of Earnings
Quarter Ended February 25, 2005

Oxford Industries, Inc.
Condensed Consolidated Statement of Earnings
Quarter Ended February 27, 2004

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Oxford Industries, Inc.
Condensed Consolidated Statement of Earnings
Nine Months Ended February 25, 2005

Oxford Industries, Inc.
Condensed Consolidated Statement of Earnings
Nine Months Ended February 27, 2004

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Oxford Industries, Inc.
Condensed Consolidated Statement of Cash Flow
Nine Months Ended February 25, 2005

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Oxford Industries, Inc.
Condensed Consolidated Statement of Cash Flow
Nine Months Ended February 27, 2004