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 JULY 30, 2011

 

 

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 þ 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 August 26, 2011

Common Stock, $1 par value

 

16,488,888

 

 

 


Table of Contents

 

OXFORD INDUSTRIES, INC.

INDEX TO FORM 10-Q

For the second quarter of fiscal 2011

 

 

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

37

Item 4. Controls and Procedures

38

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

38

Item 1A. Risk Factors

38

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

38

Item 3. Defaults Upon Senior Securities

39

Item 4. Reserved

39

Item 5. Other Information

39

Item 6. Exhibits

39

Signatures

40

 

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 impact of economic conditions on consumer demand and spending, particularly in light of general economic uncertainty that continues to prevail, demand for our products, timing 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, costs of labor, access to capital and/or credit markets, acquisition and disposition activities, 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 2010, 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

 

Discontinued operations: The assets and operations of our former Oxford Apparel operating group which we sold in the fourth quarter of fiscal 2010, as discussed in our Annual Report on Form 10-K for fiscal 2010

 

113/8% Senior Secured Notes: Our 11.375% senior secured notes due 2015, as described in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report

 

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

 

Fiscal 2012

 

53 weeks ending February 2, 2013

Fiscal 2011

 

52 weeks ending January 28, 2012

First half fiscal 2011

 

26 weeks ended July 30, 2011

Fourth quarter fiscal 2011

 

13 weeks ending January 28, 2012

Third quarter fiscal 2011

 

13 weeks ending October 29, 2011

Second quarter fiscal 2011

 

13 weeks ended July 30, 2011

First quarter fiscal 2011

 

13 weeks ended April 30, 2011

Fiscal 2010

 

52 weeks ended January 29, 2011

First half fiscal 2010

 

26 weeks ended July 31, 2010

Fourth quarter fiscal 2010

 

13 weeks ended 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

 

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)

 

 

 

Second
Quarter
Fiscal 2011

 

 

Second
Quarter
Fiscal 2010

 

 

First
Half
Fiscal 2011

 

 

First
Half
Fiscal 2010

 

 

Net sales

 

$180,646

 

 

$142,981

 

 

$388,954

 

 

$306,606

 

 

Cost of goods sold

 

77,709

 

 

63,963

 

 

168,357

 

 

137,881

 

 

Gross profit

 

102,937

 

 

79,018

 

 

220,597

 

 

168,725

 

 

SG&A

 

88,348

 

 

71,324

 

 

179,188

 

 

149,333

 

 

Amortization of intangible assets

 

300

 

 

238

 

 

598

 

 

478

 

 

Change in fair value of contingent consideration

 

600

 

 

 

 

1,200

 

 

 

 

 

 

89,248

 

 

71,562

 

 

180,986

 

 

149,811

 

 

Royalties and other operating income

 

4,022

 

 

3,723

 

 

8,813

 

 

7,236

 

 

Operating income

 

17,711

 

 

11,179

 

 

48,424

 

 

26,150

 

 

Interest expense, net

 

4,268

 

 

5,053

 

 

9,072

 

 

10,020

 

 

Loss on repurchase of 113/8% Senior Secured Notes

 

8,248

 

 

 

 

8,248

 

 

 

 

Earnings from continuing operations before income taxes

 

5,195

 

 

6,126

 

 

31,104

 

 

16,130

 

 

Income taxes

 

1,675

 

 

1,447

 

 

10,524

 

 

2,927

 

 

Earnings from continuing operations

 

3,520

 

 

4,679

 

 

20,580

 

 

13,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings from discontinued operations, net of taxes

 

(916

)

 

2,540

 

 

124

 

 

6,513

 

 

Net earnings

 

$    2,604

 

 

$    7,219

 

 

$  20,704

 

 

$  19,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operations, net of taxes per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$      0.21

 

 

$      0.28

 

 

$      1.25

 

 

$      0.80

 

 

Diluted

 

$      0.21

 

 

$      0.28

 

 

$      1.25

 

 

$      0.80

 

 

(Loss) earnings from discontinued operations, net of taxes per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$     (0.06

)

 

$      0.15

 

 

$      0.01

 

 

$      0.39

 

 

Diluted

 

$     (0.06

)

 

$      0.15

 

 

$      0.01

 

 

$      0.39

 

 

Net earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$      0.16

 

 

$      0.44

 

 

$      1.25

 

 

$      1.19

 

 

Diluted

 

$      0.16

 

 

$      0.44

 

 

$      1.25

 

 

$      1.19

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

16,514

 

 

16,540

 

 

16,514

 

 

16,515

 

 

Dilution

 

17

 

 

12

 

 

15

 

 

12

 

 

Diluted

 

16,531

 

 

16,552

 

 

16,529

 

 

16,527

 

 

Dividends declared per common share

 

$      0.13

 

 

$      0.11

 

 

$      0.26

 

 

$      0.22

 

 

 

See accompanying notes.

 

4



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except par amounts)

 

 

 

July 30,
2011

 

 

January 29,
2011

 

 

July 31,
2010

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$  37,775

 

 

$  44,094

 

 

$  28,171

 

 

Receivables, net

 

53,902

 

 

50,177

 

 

45,545

 

 

Inventories, net

 

77,731

 

 

85,338

 

 

57,227

 

 

Prepaid expenses, net

 

16,337

 

 

12,554

 

 

15,213

 

 

Deferred tax assets

 

17,258

 

 

19,005

 

 

15,384

 

 

Assets related to discontinued operations, net

 

508

 

 

57,745

 

 

55,853

 

 

Total current assets

 

203,511

 

 

268,913

 

 

217,393

 

 

Property and equipment, net

 

86,889

 

 

83,895

 

 

72,923

 

 

Intangible assets, net

 

166,826

 

 

166,680

 

 

136,226

 

 

Goodwill

 

16,555

 

 

16,866

 

 

 

 

Other non-current assets, net

 

19,790

 

 

22,117

 

 

16,213

 

 

Total Assets

 

$493,571

 

 

$558,471

 

 

$442,755

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Trade accounts payable and other accrued expenses

 

$  76,877

 

 

$  83,211

 

 

$  63,467

 

 

Accrued compensation

 

19,740

 

 

23,095

 

 

15,775

 

 

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

 

4,406

 

 

 

 

1,195

 

 

Liabilities related to discontinued operations

 

1,362

 

 

40,785

 

 

19,272

 

 

Total current liabilities

 

102,385

 

 

147,091

 

 

99,709

 

 

Long-term debt, less current maturities

 

108,088

 

 

147,065

 

 

146,736

 

 

Other non-current liabilities

 

54,169

 

 

55,441

 

 

46,400

 

 

Non-current deferred income taxes

 

30,322

 

 

28,846

 

 

28,143

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $1.00 par value per common share

 

16,529

 

 

16,511

 

 

16,561

 

 

Additional paid-in capital

 

97,641

 

 

96,597

 

 

94,442

 

 

Retained earnings

 

107,160

 

 

90,739

 

 

35,437

 

 

Accumulated other comprehensive loss

 

(22,723

)

 

(23,819

)

 

(24,673

)

 

Total shareholders’ equity

 

198,607

 

 

180,028

 

 

121,767

 

 

Total Liabilities and Shareholders’ Equity

 

$493,571

 

 

$558,471

 

 

$442,755

 

 

 

See accompanying notes.

 

5



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

First Half
Fiscal 2011

 

 

First Half
Fiscal 2010

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Earnings from continuing operations

 

$  20,580

 

 

$  13,203

 

 

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

 

 

 

 

 

 

 

Depreciation

 

9,838

 

 

8,624

 

 

Amortization of intangible assets

 

598

 

 

478

 

 

Change in fair value of contingent consideration

 

1,200

 

 

 

 

Amortization of deferred financing costs and bond discount

 

906

 

 

977

 

 

Loss on repurchase of 113/8% Senior Secured Notes

 

8,248

 

 

 

 

Stock compensation expense

 

1,476

 

 

2,584

 

 

Loss on sale of property and equipment

 

22

 

 

(13

)

 

Deferred income taxes

 

3,040

 

 

(1,587

)

 

Changes in working capital:

 

 

 

 

 

 

 

Receivables

 

(3,394

)

 

(1,272

)

 

Inventories

 

8,042

 

 

611

 

 

Prepaid expenses

 

(3,696

)

 

(4,758

)

 

Current liabilities

 

(12,215

)

 

1,665

 

 

Other non-current assets

 

1,502

 

 

519

 

 

Other non-current liabilities

 

(2,487

)

 

(3,054

)

 

Net cash provided by operating activities

 

33,660

 

 

17,977

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(12,726

)

 

(3,370

)

 

Other

 

(398

)

 

99

 

 

Net cash used in investing activities

 

(13,124

)

 

(3,271

)

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Repayment of revolving credit arrangements

 

(18,309

)

 

(33,925

)

 

Proceeds from revolving credit arrangements

 

22,670

 

 

35,097

 

 

Repurchase of 113/8% Senior Secured Notes

 

(46,600

)

 

 

 

Proceeds from issuance of common stock

 

1,413

 

 

230

 

 

Dividends on common stock

 

(4,285

)

 

(3,638

)

 

Net cash used in financing activities

 

(45,111

)

 

(2,236

)

 

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

Net operating cash flows used in discontinued operations

 

14,313

 

 

7,559

 

 

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

 

3,744

 

 

(21

)

 

Net cash provided by discontinued operations

 

18,057

 

 

7,538

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(6,518

)

 

20,008

 

 

Effect of foreign currency translation on cash and cash equivalents

 

199

 

 

(125

)

 

Cash and cash equivalents at the beginning of year

 

44,094

 

 

8,288

 

 

Cash and cash equivalents at the end of period

 

$  37,775

 

 

$  28,171

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest, net, including interest paid for discontinued operations

 

$    8,534

 

 

$    9,114

 

 

Cash paid for income taxes, including income taxes paid for discontinued operations

 

$  38,103

 

 

$  14,762

 

 

 

See accompanying notes.

 

6



Table of Contents

 

OXFORD INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SECOND QUARTER OF FISCAL 2011

 

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 2010.

 

Unless indicated otherwise, all references to assets, liabilities, revenues and expenses in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former Oxford Apparel operating group, as discussed in Note 7 to our unaudited condensed consolidated financial statements included in this report and Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010.

 

In May 2011, the FASB issued an update to their authoritative guidance regarding fair value measurements and related disclosures. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for the use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. This guidance will be effective in our first quarter of fiscal 2012 and will be applied on a prospective basis with any changes in measurements recognized in earnings in the period of adoption. We are currently assessing the impact of adopting the amendments to authoritative guidance regarding fair value measurements and related disclosures, but we do not anticipate a material impact on our financial statements upon adoption.

 

In June 2011, the FASB issued an update to their accounting guidance regarding other comprehensive income which requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements of income and comprehensive income. The guidance provided by this update becomes effective in our first quarter of fiscal 2012, with early adoption permitted. We are currently assessing the impact of adopting the amendments to other comprehensive income, but we do not anticipate a material impact on our financial statements upon adoption.

 

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

 

 

 

July 30,
2011

 

January 29,
2011

 

July 31,
2010

 

Finished goods

 

$113,468

 

$122,159

 

$92,168

 

Work in process

 

4,903

 

5,744

 

6,466

 

Fabric, trim and supplies

 

5,314

 

3,389

 

3,031

 

LIFO reserve

 

(45,954

)

(45,954

)

(44,438

)

Total

 

$  77,731

 

$  85,338

 

$ 57,227

 

 

3.                                      Comprehensive Income:  Other comprehensive income includes all changes in equity from non-owner sources, such as foreign currency translation adjustments and the net unrealized gain (loss) associated with forward foreign currency exchange contracts which qualify for hedge accounting. Comprehensive income, net of income taxes, is calculated as follows for the periods presented (in thousands):

 

7



Table of Contents

 

 

 

Second Quarter
Fiscal 2011

 

Second Quarter
Fiscal 2010

 

First Half
Fiscal 2011

 

First Half
Fiscal 2010

 

Net earnings

 

$2,604

 

$7,219

 

$20,704

 

$19,716

 

Gain (loss) on foreign currency translation

 

(642

)

686

 

1,126

 

(1,241

)

Net unrealized loss on forward foreign exchange contracts

 

475

 

(192

)

(30

)

(192

)

Comprehensive income

 

$2,437

 

$7,713

 

$21,800

 

$18,283

 

 

4.                                      Operating Group Information:  Our business is primarily operated through our four operating groups: Tommy Bahama, Lilly Pulitzer, Ben Sherman and Lanier Clothes. 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. All amounts included in this report reflect our changes in operating groups during fiscal 2010, as disclosed in our Annual Report on Form 10-K for fiscal 2010. The table below presents certain information about the continuing operations of our operating groups (in thousands).

 

 

 

Second
Quarter
Fiscal 2011

 

Second
Quarter
Fiscal 2010

 

First
Half
Fiscal 2011

 

First
Half
Fiscal 2010

 

Net Sales

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$

109,143

 

$

99,349

 

$

232,046

 

$

208,454

 

Lilly Pulitzer

 

24,823

 

 

54,696

 

 

Ben Sherman

 

20,893

 

18,346

 

40,314

 

40,500

 

Lanier Clothes

 

22,942

 

22,736

 

55,915

 

53,164

 

Corporate and Other

 

2,845

 

2,550

 

5,983

 

4,488

 

Total Net Sales

 

$

180,646

 

$

142,981

 

$

388,954

 

$

306,606

 

Depreciation

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$

3,604

 

$

3,289

 

$

6,985

 

$

6,563

 

Lilly Pulitzer

 

345

 

 

699

 

 

Ben Sherman

 

518

 

524

 

1,043

 

1,060

 

Lanier Clothes

 

107

 

118

 

216

 

237

 

Corporate and Other

 

455

 

383

 

895

 

764

 

Total Depreciation

 

$

5,029

 

$

4,314

 

$

9,838

 

$

8,624

 

Amortization of Intangible Assets

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$

129

 

$

173

 

$

258

 

$

346

 

Lilly Pulitzer

 

116

 

 

230

 

 

Ben Sherman

 

55

 

65

 

110

 

132

 

Lanier Clothes

 

 

 

 

 

Corporate and Other

 

 

 

 

 

Total Amortization of Intangible Assets

 

$

300

 

$

238

 

$

598

 

$

478

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

Tommy Bahama

 

$

16,987

 

$

14,172

 

$

40,757

 

$

32,033

 

Lilly Pulitzer

 

5,612

 

 

12,627

 

 

Ben Sherman

 

(1,756

)

(598

)

(2,582

)

(76

)

Lanier Clothes

 

2,263

 

2,809

 

6,988

 

7,168

 

Corporate and Other

 

(5,395

)

(5,204

)

(9,366

)

(12,975

)

Total Operating Income

 

17,711

 

11,179

 

48,424

 

26,150

 

Interest expense, net

 

4,268

 

5,053

 

9,072

 

10,020

 

Loss on repurchase of 113/8% Senior Secured Notes

 

8,248

 

 

8,248

 

 

Earnings from Continuing Operations Before Income Taxes

 

$

5,195

 

$

6,126

 

$

31,104

 

$

16,130

 

 

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Table of Contents

 

5.             Debt: The following table details our debt (in thousands) as of the dates specified:

 

 

 

July 30,
2011

 

January 29,
2011

 

July 31,
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, 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 interest in those assets in which the holders of the 113/8% Senior Secured Notes have a first priority interest

 

$

 

$

 

$

 

£7 million Senior Secured Revolving Credit Facility (“U.K. Revolving Credit Agreement”), which accrues interest at the bank’s base rate plus as much as 3.5%, requires interest payments monthly with principal payable on demand and is collateralized by substantially all of the United Kingdom assets of Ben Sherman

 

4,406

 

 

1,195

 

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 interest in those assets in which the lenders under the U.S. Revolving Credit Agreement have a first priority interest (1)

 

110,000

 

150,000

 

150,000

 

Unamortized discount

 

(1,912

)

(2,935

)

(3,264

)

Total debt

 

112,494

 

147,065

 

147,931

 

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

 

(4,406

)

 

(1,195

)

Long-term debt, less current maturities

 

$

108,088

 

$

147,065

 

$

146,736

 

 


(1)          In May 2011, we repurchased, in a privately negotiated transaction, $40.0 million in aggregate principal amount of our 113/8% Senior Secured Notes for $46.6 million, plus accrued interest, using cash on hand. The repurchase of the 113/8% Senior Secured Notes and related write-off of approximately $1.6 million of unamortized deferred financing costs and discount resulted in a loss of approximately $8.2 million, which was reflected in our consolidated financial statements for the second quarter of fiscal 2011. After completion of the transaction, $110.0 million aggregate principal amount of our 113/8% Senior Secured Notes remained outstanding.

 

6.                                      Business Combinations:  On December 21, 2010, we acquired the Lilly Pulitzer brand and operations, as described in Note 14 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010. As of July 30, 2011, we have not finalized our allocation of purchase price to the fair values of the acquired assets and liabilities, and we will revise our allocation through the one year period following the closing of the transaction, as appropriate, as we obtain new information about the fair values of these assets and liabilities as of the acquisition date, including the contingent consideration. During the first half of fiscal 2011, we did not record any significant adjustments to the initial purchase price allocation included in Note 14 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010.  As of July 30, 2011, the estimated fair value of the contingent consideration was approximately $11.9 million compared to $10.5 million as of the date of acquisition, with the change in fair value representing the passage of time from the date of acquisition as we approach the dates of the anticipated payments in the future.

 

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Table of Contents

 

7.                                      Discontinued Operations:  On January 3, 2011, we sold substantially all of the assets and operations of our former Oxford Apparel operating group, as discussed in Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for fiscal 2010. The results of operations and assets which were sold are reflected in discontinued operations in our consolidated financial statements. The total assets related to discontinued operations included in our consolidated balance sheets as of each balance sheet date presented primarily consisted of receivables, inventories and other assets, and the total liabilities related to discontinued operations included in our consolidated balance sheets as of each balance sheet date consisted of the related accounts payable, accrued expenses, accrued compensation and income taxes payable.

 

Net sales, earnings from discontinued operations before income taxes and earnings from discontinued operations, net of income taxes are shown in the table below (in thousands):

 

 

 

Second
Quarter
Fiscal 2011

 

Second
Quarter
Fiscal 2010

 

First
Half
Fiscal 2011

 

First
Half
Fiscal 2010

 

Net sales

 

$    208

 

$43,550

 

$2,397

 

$97,675

 

Earnings from discontinued operations before income taxes (1)

 

$(1,500

)

$  4,097

 

$     77

 

$10,505

 

Earnings from discontinued operations, net of income taxes (1)

 

$   (916

)

$  2,540

 

$   124

 

$  6,513

 

 


(1)          During the second quarter of fiscal 2011, we finalized the working capital adjustment associated with the sold operations, which resulted in a change in estimate to the gain on sale recognized. The impact of this change in estimate, which was recorded in the second quarter of fiscal 2011, was a reduction to the gain on sale of approximately $1.0 million, after income taxes. This change in estimate resulted in a revised after-tax gain on the sale of the Oxford Apparel operations of approximately $48.5 million compared to $49.5 million as recorded in the fourth quarter of fiscal 2010.

 

8.                          Consolidating Financial Data of Subsidiary Guarantors:  Our 113/8% Senior Secured Notes 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 of accounting 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 July 30, 2011, January 29, 2011 and July 31, 2010 (in thousands) as well as our condensed consolidating statements of operations for the second quarter and first half of each of fiscal 2011 and fiscal 2010 (in thousands) and our condensed consolidating statements of cash flows for the first half of fiscal 2011 and fiscal 2010 (in thousands).

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

July 30, 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

 

Cash and cash equivalents

 

$  31,545

 

$    1,648

 

$    4,582

 

$         —

 

$   37,775

 

Receivables, net

 

19,606

 

9,253

 

48,613

 

(23,570

)

53,902

 

Inventories, net

 

(15,864

)

78,058

 

16,698

 

(1,161

)

77,731

 

Prepaid expenses and deferred tax assets

 

18,177

 

13,099

 

3,526

 

(1,207

)

33,595

 

Assets related to discontinued operations, net

 

508

 

 

 

 

508

 

Total current assets

 

53,972

 

102,058

 

73,419

 

(25,938

)

203,511

 

Property and equipment, net

 

6,712

 

75,685

 

4,492

 

 

86,889

 

Goodwill and intangible assets, net

 

 

158,744

 

24,637

 

 

183,381

 

Other non-current assets, net

 

613,037

 

142,834

 

4,553

 

(740,634

)

19,790

 

Total Assets

 

$673,721

 

$479,321

 

$107,101

 

$(766,572

)

$493,571

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities related to continuing operations

 

$    1,081

 

$  69,475

 

$  47,695

 

$  (17,228

)

$ 101,023

 

Current liabilities related to discontinued operations

 

1,362

 

 

 

 

1,362

 

Long-term debt, less current maturities

 

108,088

 

 

 

 

108,088

 

Other non-current liabilities

 

368,821

 

(346,937

)

144,517

 

(112,232

)

54,169

 

Non-current deferred income taxes

 

(4,238

)

28,582

 

5,978

 

 

30,322

 

Total shareholders’/invested equity

 

198,607

 

728,201

 

(91,089

)

(637,112

)

198,607

 

Total Liabilities and Shareholders’ Equity

 

$673,721

 

$479,321

 

$107,101

 

$(766,572

)

$493,571

 

 

January 29, 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

 

Cash and cash equivalents

 

$  41,130

 

$       809

 

$    2,155

 

$          —

 

$  44,094

 

Receivables, net

 

10,969

 

3,431

 

44,897

 

(9,120

)

50,177

 

Inventories, net

 

(13,234

)

86,747

 

11,889

 

(64

)

85,338

 

Prepaid expenses and deferred tax assets

 

19,756

 

12,671

 

3,018

 

(3,886

)

31,559

 

Assets related to discontinued operations, net

 

46,418

 

324

 

11,003

 

 

57,745

 

Total current assets

 

105,039

 

103,982

 

72,962

 

(13,070

)

268,913

 

Property and equipment, net

 

7,182

 

72,323

 

4,390

 

 

83,895

 

Goodwill and intangible assets, net

 

 

159,543

 

24,003

 

 

183,546

 

Other non-current assets, net

 

579,130

 

143,459

 

4,101

 

(704,573

)

22,117

 

Total Assets

 

$691,351

 

$479,307

 

$105,456

 

$(717,643

)

$558,471

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities related to continuing operations

 

$  13,978

 

$  59,255

 

$  41,170

 

$  (8,097

)

$106,306

 

Current liabilities related to discontinued operations

 

32,379

 

 

8,406

 

 

40,785

 

Long-term debt, less current maturities

 

147,065

 

 

 

 

147,065

 

Other non-current liabilities

 

322,237

 

(301,271

)

143,113

 

(108,638

)

55,441

 

Non-current deferred income taxes

 

(4,336

)

26,944

 

6,332

 

(94

)

28,846

 

Total shareholders’/invested equity

 

180,028

 

694,379

 

(93,565

)

(600,814

)

180,028

 

Total Liabilities and Shareholders’ Equity

 

$691,351

 

$479,307

 

$105,456

 

$(717,643

)

$558,471

 

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS

July 31, 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

ASSETS

 

Cash and cash equivalents

 

$  25,218

 

$       583

 

$     2,370

 

$         —

 

$  28,171

 

Receivables, net

 

10,233

 

7,641

 

37,336

 

(9,665

)

45,545

 

Inventories, net

 

(13,721

)

58,090

 

13,581

 

(723

)

57,227

 

Prepaid expenses and deferred tax assets, net

 

18,067

 

9,828

 

4,415

 

(1,713

)

30,597

 

Assets related to discontinued operations, net

 

41,752

 

6,293

 

7,808

 

 

55,853

 

Total current assets

 

81,549

 

82,435

 

65,510

 

(12,101

)

217,393

 

Property and equipment, net

 

7,876

 

59,941

 

5,106

 

 

72,923

 

Goodwill and intangible assets, net

 

 

112,535

 

23,691

 

 

136,226

 

Other non-current assets, net

 

507,055

 

142,844

 

6,835

 

(640,521

)

16,213

 

Total Assets

 

$596,480

 

$397,755

 

$101,142

 

$(652,622

)

$442,755

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities related to continuing operations

 

$    9,408

 

$  47,747

 

$  30,589

 

$   (7,307

)

$  80,437

 

Current liabilities related to discontinued operations

 

8,490

 

 

10,782

 

 

19,272

 

Long-term debt, less current maturities

 

146,736

 

 

 

 

146,736

 

Other non-current liabilities

 

313,999

 

(303,270

)

144,225

 

(108,554

)

46,400

 

Non-current deferred income taxes

 

(3,920

)

25,609

 

6,454

 

 

28,143

 

Total shareholders’/invested equity

 

121,767

 

627,669

 

(90,908

)

(536,761

)

121,767

 

Total Liabilities and Shareholders’ Equity

 

$596,480

 

$397,755

 

$101,142

 

$(652,622

)

$442,755

 

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Second Quarter Fiscal 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

25,421

 

$

139,883

 

$

22,326

 

$

(6,984

)

$

180,646

 

Cost of goods sold

 

17,197

 

53,425

 

11,305

 

(4,218

)

77,709

 

Gross profit

 

8,224

 

86,458

 

11,021

 

(2,766

)

102,937

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

5,928

 

71,983

 

13,001

 

(1,664

)

89,248

 

Royalties and other operating income

 

44

 

2,231

 

1,787

 

(40

)

4,022

 

Operating income

 

2,340

 

16,706

 

(193

)

(1,142

)

17,711

 

Interest expense (income), net

 

5,477

 

(1,166

)

771

 

(814

)

4,268

 

Loss on repurchase of 113/8% Senior Secured Notes

 

8,248

 

 

 

 

8,248

 

Income from equity investment

 

12,870

 

 

 

(12,870

)

 

Earnings (loss) from continuing operations before income taxes

 

1,485

 

17,872

 

(964

)

(13,198

)

5,195

 

Income taxes (benefit)

 

(2,247

)

4,506

 

(469

)

(115

)

1,675

 

Earnings (loss) from continuing operations

 

3,732

 

13,366

 

(495

)

(13,083

)

3,520

 

Earnings (loss) from discontinued operations, net of taxes

 

(916

)

 

 

 

(916

)

Net earnings (loss)

 

$

2,816

 

$

13,366

 

$

(495

)

$

(13,083

)

$

2,604

 

 

Second Quarter Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

25,220

 

$

106,294

 

$

18,536

 

$

(7,069

)

$

142,981

 

Cost of goods sold

 

17,666

 

41,568

 

8,424

 

(3,695

)

63,963

 

Gross profit

 

7,554

 

64,726

 

10,112

 

(3,374

)

79,018

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

7,651

 

56,253

 

11,264

 

(3,606

)

71,562

 

Royalties and other operating income

 

6

 

2,054

 

1,802

 

(139

)

3,723

 

Operating income (loss)

 

(91

)

10,527

 

650

 

93

 

11,179

 

Interest expense (income), net

 

5,006

 

(1,077

)

717

 

407

 

5,053

 

Income from equity investment

 

7,907

 

 

 

(7,907

)

 

Earnings (loss) from continuing operations before income taxes

 

2,810

 

11,604

 

(67

)

(8,221

)

6,126

 

Income taxes (benefit)

 

(2,231

)

3,816

 

(29

)

(109

)

1,447

 

Earnings (loss) from continuing operations

 

5,041

 

7,788

 

(38

)

(8,112

)

4,679

 

Earnings (loss) from discontinued operations, net of taxes

 

2,382

 

(37

)

195

 

 

2,540

 

Net earnings

 

$

7,423

 

$

7,751

 

$

157

 

$

(8,112

)

$

7,219

 

 

13



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

First Half Fiscal 2011

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

61,142

 

$

298,884

 

$

44,018

 

$

(15,090

)

$

388,954

 

Cost of goods sold

 

41,632

 

116,066

 

19,574

 

(8,915

)

168,357

 

Gross profit

 

19,510

 

182,818

 

24,444

 

(6,175

)

220,597

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

16,242

 

145,172

 

25,479

 

(5,907

)

180,986

 

Royalties and other operating income

 

98

 

5,144

 

3,668

 

(97

)

8,813

 

Operating income

 

3,366

 

42,790

 

2,633

 

(365

)

48,424

 

Interest expense (income), net

 

9,904

 

(2,363

)

1,530

 

1

 

9,072

 

Loss on repurchase of 113/8% Senior Secured Notes

 

8,248

 

 

 

 

8,248

 

Income from equity investment

 

34,771

 

 

 

(34,771

)

 

Earnings from continuing operations before income taxes

 

19,985

 

45,153

 

1,103

 

(35,137

)

31,104

 

Income taxes (benefit)

 

(974

)

11,842

 

(215

)

(129

)

10,524

 

Earnings from continuing operations

 

20,959

 

33,311

 

1,318

 

(35,008

)

20,580

 

Earnings (loss) from discontinued operations, net of taxes

 

(19

)

143

 

 

 

124

 

Net earnings

 

$

20,940

 

$

33,454

 

$

1,318

 

$

(35,008

)

$

20,704

 

 

First Half Fiscal 2010

 

 

 

Oxford
Industries
(Parent)

 

Subsidiary
Guarantors

 

Subsidiary
Non-
Guarantors

 

Consolidating
Adjustments

 

Consolidated
Total

 

Net sales

 

$

57,799

 

$

223,223

 

$

39,357

 

$

(13,773

)

$

306,606

 

Cost of goods sold

 

39,965

 

88,452

 

16,907

 

(7,443

)

137,881

 

Gross profit

 

17,834

 

134,771

 

22,450

 

(6,330

)

168,725

 

SG&A including amortization of intangible assets and change in fair value of contingent consideration

 

20,707

 

114,266

 

22,576

 

(7,738

)

149,811

 

Royalties and other operating income

 

28

 

4,154

 

3,376

 

(322

)

7,236

 

Operating income (loss)

 

(2,845

)

24,659

 

3,250

 

1,086

 

26,150

 

Interest expense (income), net

 

9,929

 

(2,118

)

1,399

 

810

 

10,020

 

Income from equity investment

 

19,167

 

 

 

(19,167

)

 

Earnings from continuing operations before income taxes

 

6,393

 

26,777

 

1,851

 

(18,891

)

16,130

 

Income taxes (benefit)

 

(7,541

)

9,882

 

489

 

97

 

2,927

 

Earnings from continuing operations

 

13,934

 

16,895

 

1,362

 

(18,988

)

13,203

 

Earnings from discontinued operations, net of taxes

 

5,604

 

780

 

129

 

 

6,513

 

Net earnings

 

$

19,538

 

$

17,675

 

$

1,491

 

$

(18,988

)

$

19,716

 

 

14



Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Half Fiscal 2011

 

 

 

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

 

$

(18,587

)

$

57,385

 

$

(5,536

)

$

398

 

$

33,660

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(652

)

(11,499

)

(575

)

 

(12,726

)

Other

 

(398

)

 

 

 

(398

)

Net cash used in investing activities

 

(1,050

)

(11,499

)

(575

)

 

(13,124

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

(46,600

)

 

4,361

 

 

(42,239

)

Proceeds from issuance of common stock

 

1,413

 

 

 

 

1,413

 

Change in intercompany payable

 

44,388

 

(45,371

)

1,381

 

(398

)

 

Dividends on common stock

 

(4,285

)

 

 

 

(4,285

)

Net cash provided by (used in) financing activities

 

(5,084

)

(45,371

)

5,742

 

(398

)

(45,111

)

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by discontinued operations

 

15,136

 

324

 

2,597

 

 

18,057

 

Net change in Cash and Cash Equivalents

 

(9,585

)

839

 

2,228

 

 

(6,518

)

Effect of foreign currency translation

 

 

 

199

 

 

199

 

Cash and Cash Equivalents at the Beginning of Period

 

41,130

 

809

 

2,155

 

 

44,094

 

Cash and Cash Equivalents at the End of Period

 

$

31,545

 

$

1,648

 

$

4,582

 

$

 

$

37,775

 

 

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Table of Contents

 

OXFORD INDUSTRIES, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

First Half 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

 

$

(12,960

)

$

37,151

 

$

(6,237

)

23

 

$

17,977

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(531

)

(2,483

)

(356

)

 

(3,370

)

Other

 

99

 

 

 

 

99

 

Net cash used in investing activities

 

(432

)

(2,483

)

(356

)

 

(3,271

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Change in debt

 

 

 

1,172

 

 

1,172

 

Proceeds from issuance of common stock

 

230

 

 

 

 

230

 

Change in intercompany payable

 

35,821

 

(34,624

)

(1,174

)

(23

)

 

Dividends on common stock

 

(3,638

)

 

 

 

(3,638

)

Net cash provided by (used in) financing activities

 

32,413

 

(34,624

)

(2

)

(23

)

(2,236

)

Cash Flows from Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by discontinued operations

 

264

 

36

 

7,238

 

 

7,538

 

Net change in Cash and Cash Equivalents

 

19,285

 

80

 

643

 

 

20,008

 

Effect of foreign currency translation

 

 

 

(125

)

 

(125

)

Cash and Cash Equivalents at the Beginning of Period

 

5,933

 

503

 

1,852

 

 

8,288

 

Cash and Cash Equivalents at the End of Period

 

$

25,218

 

$

583

 

$

2,370

 

$

 

$

28,171

 

 

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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 2010.

 

OVERVIEW

 

We generate revenues and cash flow primarily through the design, production, sale and distribution of branded consumer apparel for men, women and children 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 our products through our direct to consumer channels, including our retail stores, e-commerce websites and restaurants, and through our wholesale distribution channels, which include department stores, specialty stores, national chains, specialty catalogs, mass merchants and Internet retailers.

 

We believe the weak global economic conditions, which began in fiscal 2008, continue to impact our business and the apparel industry as a whole, although not as severely as in fiscal 2010. Although declines in consumer spending have moderated, unemployment levels remain high, consumer retail traffic generally remains depressed and the retail environment remains highly promotional.  While we continue to focus on minimizing inventory markdown risk and promotional pressure, we have been more aggressive in our inventory purchases for fiscal 2011 than we were in the prior year. We continue to monitor the economic and market conditions closely and will moderate our inventory purchases if conditions deteriorate. We believe that the remainder of 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, particularly in our Lanier Clothes and Ben Sherman businesses.

 

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 in recent years have significantly enhanced our balance sheet and liquidity, while allowing us to acquire the Lilly Pulitzer brand and operations, reduce our debt levels and continue to operate our businesses appropriately. We believe our strong balance sheet and liquidity will allow us to aggressively develop our lifestyle brands and maintain the financial flexibility to opportunistically enhance our capital structure and pursue desirable acquisitions, if any meet our investment criteria.

 

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.

 

The following table sets forth our consolidated operating results (in thousands, except per share amounts) for the first half of fiscal 2011 compared to the first half of fiscal 2010:

 

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Table of Contents

 

 

 

First Half Fiscal
2011