Oxford Industries - 10-Q quarterly report FY

 

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OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For the third quarter of fiscal 2009

     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 (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 on consumer demand and spending of recent economic conditions, 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, access to capital and/or credit markets, particularly in light of recent conditions in those markets, 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 II, Item 1A. Risk Factors in this report, those described in Part II, Item 1A. Risk Factors in our Form 10-Q for the second quarter of fiscal 2009 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.

     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

SEC: U.S. Securities and Exchange Commission

FASB: Financial Accounting Standards Board

GAAP: Generally accepted accounting principles in the United States

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

See accompanying notes.

See accompanying notes.

See accompanying notes.

In June 2009, the FASB issued the FASB Accounting Standards Codification (the “ASC”) as the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities. The ASC also recognizes rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The ASC, which became effective in the third quarter of 2009, supersedes all existing non-SEC accounting and reporting standards but does not change GAAP. Accordingly, references to standards issued prior to the codification have been replaced with a description of the applicable accounting guidance.

In December 2007, the FASB issued new guidance which established principles and requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in an acquisition, at their fair values as of the acquisition date. We adopted this new guidance at the beginning of the first quarter of fiscal 2009. As we did not complete any business combinations in the first nine months of fiscal 2009, the adoption of this guidance had no impact on our condensed consolidated financial statements for that period. We expect that this guidance would have an impact on our accounting for future business combinations.

In September 2006, the FASB issued new guidance which defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. The new guidance does not require any new fair value measurements, but provided that companies could elect to change historical practices in measuring fair value upon adoption. The new guidance was effective in February 2008 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis and in February 2009 for all other nonfinancial assets and liabilities. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued new guidance which requires disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies, as well as in annual financial statements. This guidance was effective at the beginning of the second quarter of fiscal 2009. Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. Given their short-term nature, the carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values. Additionally, the carrying amounts of our variable-rate borrowings approximate fair value. Given the limited trading activity of our fixed rate debt, it is impracticable to estimate the fair value of our fixed rate debt as of October 31, 2009. The significant terms of our variable rate and fixed rate debt which would be used in estimating the fair value of those instruments are disclosed in Note 5. Accordingly, the adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

In June 2008, the FASB issued new guidance relative to determining whether instruments granted in share-based payment transactions are participating securities. It clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method. The new guidance was effective at the beginning of the first quarter of fiscal 2009 and requires all prior-period earnings per share data that is presented to be adjusted retrospectively. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements in the first nine months of fiscal 2009.

In May 2009, the FASB issued new guidance relative to subsequent events. The new guidance does not result in significant changes in the subsequent events that an entity reports in its financial statements. The new guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The new guidance was effective at the beginning of the second quarter of fiscal 2009. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

During the second quarter of fiscal 2009, we incurred approximately $1.4 million of charges related to certain restructuring initiatives in our Ben Sherman operating group, substantially all of which were included in SG&A in our condensed consolidated statements of operations. The restructuring charges primarily relate to our exit from, and subsequent licensing of, the Ben Sherman footwear and kids’ operations as well as other streamlining initiatives. These charges primarily consist of employee termination costs and certain contract termination costs. All such costs are expected to be paid during fiscal 2009.

During the second quarter of fiscal 2008, we incurred approximately $8.9 million of charges related to restructuring in our Lanier Clothes and Oxford Apparel operating groups. In addition to these restructuring charges, we recognized other unusual items totaling a charge of $0.3 million and a net benefit of $1.2 million in Lanier Clothes and Oxford Apparel, respectively, substantially all of which was reflected in SG&A in our condensed consolidated statements of operations.

During the second quarter of fiscal 2008, Lanier Clothes incurred restructuring charges totaling approximately $9.2 million primarily associated with our exit from certain license agreements relating to the Nautica^® and Oscar de la Renta^® brands and the restructuring of our Arnold Brant^® business. These charges include costs associated with the disposal of inventory, payments related to license termination, the impairment of intangible assets associated with the Arnold Brant business, severance costs and the impairment of certain property, plant and equipment. Approximately $2.5 million and $2.2 million of these charges were recorded in SG&A and amortization and impairment of intangible assets, respectively, with the remaining charges being recognized in net sales and cost of goods sold in our condensed consolidated statements of operations. Approximately $1.9 million of the $9.2 million of charges for Lanier Clothes was reversed in cost of goods sold in Corporate and Other as part of LIFO accounting.

Additionally, Oxford Apparel incurred certain restructuring charges totaling approximately $1.6 million during the second quarter of fiscal 2008 associated with the decision to exit the Solitude business. These charges include costs associated with the disposal of inventory which are classified as a reduction to net sales and the impairment of intangible assets of $1.1 million associated with the Solitude business which is included in amortization and impairment of intangible assets in our condensed consolidated statements of operations. The net benefit related to the other unusual items of $1.2 million in Oxford Apparel was primarily related to the resolution of a contingent liability and the sale of a trademark partially offset by an increase in our bad debt reserve due to certain customers’ bankruptcy filings in the second quarter of fiscal 2008.

During the third quarter of fiscal 2008, we incurred (1) an additional $0.6 million of restructuring charges, primarily consisting of severance costs as we continued to focus on reducing overhead within all operating groups and (2) a write-off of approximately $0.9 million of unamortized financing costs due to the amendment and restatement of our revolving credit agreement.

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 2008.

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

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

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

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

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

Oxford Apparel produces branded and private label dress shirts, suit separates, sport shirts, casual slacks, outerwear, sweaters, jeans, swimwear, westernwear and golf apparel. We design and source certain private label programs for several customers, including programs for Men’s Wearhouse, Lands’ End, Target, Macy’s and Sears. Significant owned brands of Oxford Apparel include Oxford Golf^®, Ely^®, Cattleman^® and Cumberland Outfitters^®. Oxford Apparel also owns a two-thirds interest in the entity that owns the Hathaway^® trademark in the United States and several other countries. Additionally, Oxford Apparel licenses from third parties the right to use certain trademarks including Dockers^® and United States Polo Association^® for certain apparel products. Our Oxford Apparel products are sold to a variety of department stores, mass merchants, specialty catalog retailers, discount retailers, specialty stores, “green grass” golf merchants and Internet retailers throughout the United States.

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

correspond to our operating group definitions, as portions of Lanier Clothes and Oxford Apparel are on the LIFO basis of accounting. Therefore, LIFO inventory accounting adjustments are not allocated to operating groups.

For further information regarding our operating groups, see Note 4 to our unaudited condensed consolidated financial statements included in this report and Part I, Item 1, Business in our Annual Report on Form 10-K for fiscal 2008.

As a result of the weak global economic conditions, fiscal 2008 was a particularly challenging year for our company. These challenging economic conditions continued to impact each of our operating groups in the first nine months of fiscal 2009. We expect that these challenging economic conditions will continue to impact each of our operating groups beyond fiscal 2009. In the current economic environment, we believe it is important to continue to focus on maintaining a healthy balance sheet and sufficient liquidity. Significant initiatives we have taken in the last two years to achieve these objectives have included reducing working capital requirements, moderating capital expenditures for retail stores, reducing overhead and issuing the $150 million aggregate principal amount of 11 3/8% Senior Secured Notes in June 2009 and the related satisfaction and discharge of our remaining 8 7/8% Senior Unsecured Notes.

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 would 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 nine months of fiscal 2009 compared to the first nine months of fiscal 2008:

The primary reasons for the decrease in diluted net earnings per common share were:

These items were partially offset by:

The following table sets forth the specified line items in our unaudited condensed consolidated statements of operations both in dollars (in thousands) and as a percentage of net sales. The table also sets forth the dollar change and the percentage change of the data as compared to the same period of the prior year. We have calculated all percentages based on actual data, but percentage columns may not add due to rounding. Individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors, as classification of certain expenses may vary by company.