Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

State the aggregate market value of the voting stock held by nonaffiliates of the Registrant: As of August 15, 2002, the aggregate market value of the voting stock held by nonaffiliates of the Registrant (based upon the closing price for the common stock on the New York Stock Exchange on that date) was approximately $145,243,259.

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

(1) Sections of 2002 Annual Report to Stockholders (Incorporated in Parts II and IV of this Report).

(2) Sections of Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after May 31, 2002. (Incorporated in Part III of this Report).

Oxford Industries, Inc. (the "Company") was incorporated under the laws of the State of Georgia as Oxford Manufacturing Company, Inc. on April 27, 1960. In 1967, its name was changed to Oxford Industries, Inc. Its principal office is in Atlanta, Georgia.

The Company's primary business is the design, manufacture, marketing and sale of consumer apparel products in the popular to better price ranges. Substantially all of the Company's distribution facilities, offices and customers are located in the United States. Company-owned manufacturing facilities are located in Mexico, the Caribbean, Central America and Asia.

The Company's business segments are the Oxford Shirt Group, Lanier Clothes, Oxford Slacks, and the Oxford Womenswear Group. The Shirt Group operations encompass branded and private label dress and sport shirts and branded golf apparel. Lanier Clothes produces branded and private label suits, sports coats, suit separates and dress slacks. Oxford Slacks is a producer of private label dress and casual slacks and walk shorts. The Womenswear Group is a producer of private label women's sportswear. Corporate and Other is a reconciling category for reporting purposes and includes the Company's corporate offices, transportation and logistics and other costs that are not allocated to the other operating groups.

The Company's customers include national and regional chain stores, mail order and catalog firms, discount stores, department stores and chain and independent specialty stores.

Several product lines are designed and manufactured in anticipation of orders for sale to department and specialty stores and certain specialty chain and mail order customers. The Company must make commitments for fabric and production in connection with these lines. In the case of imports, these commitments can be up to several months prior to the receipt of firm orders from customers. These lines include both popular and better price merchandise sold under brand and designer names or customers' private labels.

The Company works closely with many customers to develop large volume product programs prior to commencement of production, enabling the Company to take advantage of relative efficiencies in planning, raw materials purchasing and utilization of production facilities. Products sold under these programs are in the popular price range and usually carry the customers' trademarks, although the Company offers some branded and designer programs for this customer market.

The Company employs a sales force consisting of salaried and commissioned sales employees and independent commissioned sales representatives. Apparel sales offices and showrooms are maintained by the Company in Atlanta, New York, Hong Kong, Chicago and Dallas. Other showrooms are maintained by independent commissioned sales representatives. A majority of the Company's business is conducted by direct contacts between the Company's salaried executives and buyers and other executives of the Company's customers.

Apparel products are manufactured from cotton, linen, wool, silk, other natural fibers, synthetics and blends of these materials. Materials used by the Company in its manufacturing operations are purchased from numerous domestic and foreign textile mills and converters in the form of woven or knitted finished fabrics. Buttons, zippers, thread and other trim items are purchased from both domestic and foreign suppliers. The Company's manufacturing facilities or contractors perform cutting, sewing and related operations to produce finished apparel products to the Company's specifications and quality standards. In fiscal year 2002, approximately 95% of the Company's products were produced offshore and 5% by domestic contractors.

The Company's owned manufacturing facilities are in Mexico, the Dominican Republic, Costa Rica, Honduras, and the Philippines.

The Company imports finished apparel products meeting its quality standards from suppliers in the Caribbean, Central America, the Far East and other areas. Imported goods are generally manufactured according to designs and specifications furnished or approved in advance of production by the Company. In order to place orders and monitor production, the Company maintains buying offices in Hong Kong and Singapore. The Company also retains unaffiliated buying agents in several other countries.

The Company regards its domestic and foreign sources of raw materials, finished goods and outside production as adequate and is not dependent on any single source or contractor. No single supplier or contractor accounts for a material portion of the Company's purchases or business. Alternative competitive sources are available, and the Company does not anticipate significant difficulty in meeting its supply and outside production requirements. There are occasions, however, where the Company is unable to take customer orders on short notice because of the minimum lead time required to produce a garment that is acceptable to the customer in regards to cost, quantity, quality and service.

The Company's business could be adversely affected by currency exchange fluctuations, changes in United States import duties and trade restraints, political unrest in exporting countries, weather and natural disasters and other factors normally associated with international business. The Company believes it has diminished potential risks in its business by producing in many different countries.

Principal menswear trademarks owned by the Company and Subsidiaries are "Lanier Clothes" and "Holbrook" for men's suits and sportcoats, "Oxford Shirtings" and "Holbrook" for men's shirts, "Travelers Worsted" for mens suits, "Everpress" for men's slacks; "928" for young men's suited separates, and "Ely Cattleman", "Cumberland Outfitters", "Ely Plains", "Ely Casuals", and "Plains" for men's western wear.

Although the Company is not dependent on any single trademark, it believes its trademarks in the aggregate are of significant value to its business.

The Company actively pursues the acquisition of significant brands and related businesses.

The Company also has the right to use trademarks under license and design agreements with the trademarks' owners. Principal menswear trademarks the Company has the right to use are "Oscar de la Renta" for men's suits, sportcoats, vests, and dress and casual slacks; "Tommy Hilfiger" for men's dress shirts and men's and women's golf apparel; "Nautica" for men's tailored suits, sportcoats and dress slacks; "Geoffrey Beene" for men's tailored suits, sport coats, vests and dress slacks; "Slates" and "Dockers" for men's sportcoats and soft suitings; and "Izod Club" for men's, women's and junior's golf apparel.

The above mentioned license and design agreements will expire at various dates through the Company's fiscal 2007 year. Many of the Company's licensing agreements are eligible for renewal to extend the licenses through various dates from the Company's fiscal 2003 through 2014 years.

Although the Company is not dependent on any single license and design agreement, it believes its license and design agreements in the aggregate are of significant value to its business.

The Company owns several patents covering apparel manufacturing processes and devices, but competitive processes and devices are available to others, and these are not material to the Company's business.

The Company's business is generally divided among four retail selling seasons: Spring, Summer, Fall and Holiday. Seasonal factors can cause some variance in production and sales levels among fiscal quarters in any fiscal year, but the Company does not regard its overall business as highly seasonal.

As of May 31, 2002 and June 1, 2001, the Company had booked orders amounting to approximately $118,195,000 and $142,694,000, respectively, all of which will be or were shipped within six months after each such date. These numbers represent only store orders on hand and do not include private-label contract balances. A growing percentage of the Company's business consists of at-once EDI "Quick response" programs with large retailers. Replenishment shipments under these programs generally possess such an abbreviated order life as to exclude them from the order backlog completely. The Company therefore does not believe that this backlog information is indicative of sales to be expected for the following year.

The Company supplements operating cash with a $65,000,000 trade receivables securitization program and uncommitted bank lines of credit. On May 31, 2002, there were no borrowings under the securitization program. In addition, the Company has $219,500,000 in uncommitted lines of credit, of which $118,500,000 is reserved exclusively for letters of credit. The Company pays no commitment fees for these available lines of credit. At May 31, 2002 there were no borrowings under these lines. The Company anticipates use and availability of uncommitted resources as working capital needs may require

On June 1, 2001, the Company supplemented operating cash with a $90,000,000 trade receivables securitization program and committed and uncommitted bank lines of credit. On June 1, 2001, $56,000,000 of accounts receivable had been sold and were outstanding under the securitization program. On June 1, 2001, the Company had available for its use a committed line of credit aggregating $5,000,000. The Company paid commitment fees for this available line of credit. At June 1, 2001, there were no borrowings under this line. In addition, the Company had $184,500,000 in uncommitted lines of credit, of which $123,500,000 was reserved exclusively for letters of credit. The Company pays no commitment fees for these available lines of credit. At June 1, 2001 there were no borrowings under these lines

Inventory levels are affected by order backlog and anticipated sales. It is the general practice of the Company to offer payment terms of net 30 to the majority of its customers, from date of shipment.

The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound apparel manufacturers.

The Company's ten largest customers accounted for approximately 72% of the Company's net sales in fiscal 2002 and approximately 73% in fiscal 2001. Target accounted for 19% and 14% in the 2002 and 2001 fiscal years respectively. Wal-Mart accounted for 13% and 15% in the 2002 and 2001 fiscal years, respectively. Lands' End, Inc. accounted for 10% and 11% of net sales in the 2002 and 2001 fiscal years, respectively. The Company believes that its relationships with all of its major customers, including Wal-Mart, Target and Lands' End, Inc. are excellent.

The Company's products are sold in a highly competitive domestic market in which numerous U. S. based and foreign manufacturers compete. No single manufacturer or small group of manufacturers dominates the apparel industry. The Company believes it is a major apparel manufacturing and marketing company, but there are other apparel firms with greater sales and financial resources.

Competition within the apparel industry is based upon styling, marketing, price, quality, customer service and, with respect to branded and designer product lines, consumer recognition and preference. The Company believes it competes effectively with other members of the industry with regard to all of these factors. Successful competition in styling and marketing is related to the Company's ability to foresee changes and trends in fashion and consumer preference and to present appealing product programs to its customers. Successful competition in price, quality and customer service is related to its ability to maintain efficiency in production, sourcing and distribution.

Substantially all of the apparel sold by the Company and its principal competitors is produced outside the United States. Most of the apparel sold by the Company and some of its competitors is sold to its customers on a landed, duty-paid basis after it is imported into the U.S. Other of the Company's competitors sell apparel to their customers, many of whom are also customers of the Company, on a direct basis in which the customer takes ownership in the country of production. In this direct sourcing scenario the customer handles the inbound logistics and customs clearance. Direct sourcing presents a competitive challenge to the Company. The Company is unable to quantify the effect of this trend on its sales and profits but believes that direct sourcing adversely affects both. The Company believes that the relative price advantage to retailers of direct sourcing is offset to an extent by the Company's ownership of, joint venture participation in or long term relationships with foreign facilities and by services provided to its customers such as delivery flexibility, manufacturing expertise, product development and design and supply chain management including the new supply chain management technology and information systems that the Company is implementing. In addition, in recent years the Company has successfully transitioned some of its business to a direct sale basis under which the Company's customers purchase directly from certain of the Company's foreign subsidiaries.

Critical to the Company's competitiveness is choosing the most competitive countries for the production of its products. The most competitive to location for a particular product depends on a variety of factors. These factors include availability of globally competitive fabric and other raw materials, labor and manufacturing costs, ability to meet quality standards, required lead times, logistics and the impact of international trade rules and trade preference agreements and legislation on apparel exports from that country to the United States.

Trade preference agreements and legislation are important because most apparel imports into the United States are highly restricted. There are two key types of restrictions. First, the duty rates on the product categories that cover the majority of the Company's products range from 15-20%. Second, the United States has implemented restrictive quotas on the importation of many classifications of textiles and textile products from most of the major apparel producing countries including most of the countries where the Company produces apparel. Through December of 1994, these restraints were controlled pursuant to the Multi-Fiber arrangement (MFA), an international textile trade agreement to which the United States was a party. During the Uruguay Round of the General Agreement of Tariffs and Trade, the United States and other countries negotiated a successor agreement to the MFA known as the Agreement on Textiles and Clothing (ATC), which became effective on January 1, 1995.

The ATC requires that importing countries gradually phase out approximately half of the restrictive quotas on the importation of textiles and apparel products that were in place on December 31, 1994 over a ten year period. The remaining quotas are to be eliminated on January 1, 2005. However, the ATC allows importing countries such as the United States significant discretion in determining when during the ten year period quotas on particular products from particular countries will be eliminated. The United States has announced a plan that will keep quotas on most of the products produced by the Company for the entire ten-year period. In addition, the ATC permits importing countries, under certain conditions, to impose new quotas on the importation of textile and apparel products during the ten-year phase out period. Thus, the Company believes the extent to which the ATC will liberalize trade in textile and apparel products over the next two to three years is not material. Reduced restrictions on th e importation of textiles and textile products could negatively affect the competitiveness of the Company's manufacturing and sourcing activities in some countries, but could also positively affect its manufacturing and sourcing activities in other countries. The Company believes that when the ATC is fully implemented on January 1, 2005, the competitiveness of many countries as apparel sourcing locations will change significantly.

Currently, there are various trade preference agreements and trade preference legislation that provide apparel importers including the Company with relief from duty and quota. These include, but are not limited to, the United States-Caribbean Basin Trade Partnership Act, the African Growth and Opportunity Act, the North American Free Trade Agreement, the Israel Free Trade Agreement and the recently renewed and enhanced Andean Trade Preference Act. Future trade agreements and legislation that may affect the Company's manufacturing and sourcing agreements include but are not limited to, the proposed Free Trade of the Americas Agreement. The Company believes that it is effective in using various trade preference agreements and legislation to its competitive advantage.

As of May 31, 2002, the Company employed 7,427 persons, of which 1,613 were employed in the Untied States. Approximately 80% of the Company's employees were hourly and incentive paid production workers. The Company believes its employee relations are excellent.

At May 31, 2002 the Company operated a total of 11 production plants all of which are located in foreign countries. Four buildings are owned and seven are leased. The plants are located in Mexico, the Dominican Republic, Costa Rica, Honduras, and the Philippines.

The Company also maintains separate warehousing and distribution facilities in Georgia, Tennessee and South Carolina.

Certain of the manufacturing, warehousing and distribution facilities deemed owned by the Company are held pursuant to long-term capital leases or lease purchase agreements, some of which have been entered into by the Company in connection with industrial revenue bond financing arrangements. Under this type of financing, the facilities are subject to trust indentures or security agreements securing the interests of the bondholders. See Notes E and F in the Notes to Consolidated Financial Statements forming a part of the financial statements included under Item 8 of this Report.

General corporate offices are located in a facility owned by the Company in Atlanta, Georgia. The Company leases sales, purchasing and administrative offices in Chicago, Wahalla South Carolina, New York, Dallas, London England, Hong Kong, and Singapore.

The Company owns substantially all of its machinery and equipment. Current facilities are adequately covered by insurance, generally well maintained and provide adequate production capacity for current and anticipated future operations.

Not applicable.

Not applicable.

Mr. J. Hicks Lanier has served as President of the Company since 1977. In 1981 he was elected as Chairman of the Board.

Mr. Ben B. Blount, Jr. was Executive Vice President -- Planning and Development from 1986 - 1995. Mr. Blount was President of Kayser Roth Apparel, an apparel manufacturer and marketer, from 1982 to 1986. Prior to 1982 he was Group Vice President of the Company. In 1995 he was elected to serve in his present position as Executive Vice President of Finance, Planning and Administration and Chief Financial Officer.

Mr. Knowlton J. O'Reilly has served as Group Vice President of the Company since 1978

Messrs. L. Wayne Brantley and R. Larry Johnson have served as Group Vice Presidents of the Company since 1997.

Incorporated by reference to the table presented in Note N under the heading "Common Stock Information" on page 34 of the Company's 2002 Annual Report to Stockholders (Exhibit 13 hereto). On August 15, 2002, there were 557 holders of record of the Company's common stock.

Incorporated by reference to page 18 of the Company's 2002 Annual Report to Stockholders (Exhibit 13 hereto).

Incorporated by reference to page 19 through 24 of the Company's 2002 Annual Report to Stockholders (Exhibit 13 hereto).

Information appearing under the caption "Market Risk Sensitivity" and "Future Liquidity and Capital Resources" on pages 22 through 23 of the Company's 2002 Annual Report to Stockholders is incorporated herein by reference (See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations").

The report of independent auditors and consolidated financial statements, included on pages 25 through 36 of the Annual Report to Stockholders for the year ended May 31, 2002 are incorporated herein by reference. Quarterly Results of Operations on page 34 of the Annual Report to Stockholders for the year ended May 31, 2002 is incorporated herein by reference.

Effective May 22, 2002, the Company appointed Ernst & Young LLP ("Ernst & Young") as its independent public accountants for the fiscal years ending May 31, 2002 and May 30, 2003. The decision to replace Arthur Andersen LLP ("Andersen") as Oxford's independent public accountants was approved by Oxford's Board of Directors upon the recommendation of its Audit Committee.

During Oxford's two most recent fiscal years and through the date of the Form 8-K filed on May 22, 2002, there were no disagreements between Oxford and Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Andersen's satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their reports.

None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within Oxford's two most recent fiscal years or through the date of the Form 8-K filed on May 22, 2002.

The audit reports of Andersen on the consolidated financial statements of Oxford and subsidiaries as of and for the two most recent fiscal years did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. A letter from Andersen is attached as Exhibit 16.1.

During Oxford's two most recent fiscal years and through the date of the Form 8-K filed on May 22, 2002, Oxford did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on Oxford's consolidated financial statements, or any other matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

Information required by this item covering directors of the Company is incorporated by reference to the information presented under the heading "Election of Directors - Directors and Nominees" in the Company's Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after May 31, 2002. Information required by this item covering executive officers of the Company is set forth under Item 4A of this Report.

Incorporated by reference to the information presented under the heading "Executive Compensation and Other Information" in the Company's Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after May 31, 2002.

Incorporated by reference to the information presented under the heading "Beneficial Ownership of Common Stock" in the Company's Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after May 31, 2002.

Incorporated by reference to the information presented under the heading "Executive Compensation and Other Information - Compensation Committee Interlocks and Insider Participation" in the Company's Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after May 31, 2002.

The following consolidated financial statement schedule of Oxford Industries, Inc. and subsidiaries is included in Item 14(d):

Schedule II Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

The Company agrees to file upon request of the Securities and Exchange Commission a copy of all agreements evidencing long-term debt of the Company and its subsidiaries omitted from this report pursuant to Item 601(b)(4)(iii) of Regulation S-K.

Shareholders may obtain copies of Exhibits without charge upon written request to the Corporate Secretary, Oxford Industries, Inc., 222 Piedmont Avenue, N.E., Atlanta, Georgia 30308.

(b) The registrant filed a Form 8-K on May 22, 2002, for Item 4. Changes to Registrant's Certifying Accountants

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Oxford Industries, Inc.

/s/J. Hicks Lanier

J. Hicks Lanier

Chairman and President

Date: August 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

*by power of attorney

REPORT OF INDEPENDENT PUBLIC AUDITORS

ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders of Oxford Industries, Inc.

We have audited the consolidated balance sheet of Oxford Industries, Inc. as of May 31, 2002, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended, listed in the Index at Item 14(a)(1). Our audit also included the financial statement schedule for the year ended May 31 2002, listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oxford Industries, Inc. at May 31, 2002, and the consolidated results of its operations and its cash flows the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended May 31, 2002, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note A, the Company changed its method of calculating LIFO inventories in the year ended May 31, 2002.

/s/ Ernst & Young LLP 

Atlanta, Georgia

July 12, 2002

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE

To Oxford Industries, Inc.:

We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Oxford Industries, Inc.'s 2001 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon, dated July 13, 2001. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia

July 13, 2001

The following tables set forth the Consolidated Statements of Earnings in thousands of dollars, as a percent of net sales and the percentage change compared to the prior year. FY 2002 and 2001 included a 13-week fourth quarter and a 52 week year. FY 2000 included a 14-week fourth quarter and a 53 week year. (Percentages are calculated based on actual data, but percentage columns may not add due to rounding.)

SEGMENT DEFINITION

The Company's business segments are the Oxford Shirt Group, Lanier Clothes, Oxford Slacks, and the Oxford Womenswear Group. The Shirt Group operations encompass branded and private label dress and sport shirts and branded golf apparel. Lanier Clothes produces branded and private label suits, sportscoats, suit separates and dress slacks. Oxford Slacks is a producer of private label dress and casual slacks and walk shorts. The Womenswear Group is a producer of private label women's sportswear. Corporate and Other is a reconciling category for reporting purposes and includes the Company's corporate offices, transportation and logistics and other costs that are not allocated to the other operating groups. All data with respect to the Company's specific segments included within "Management's Discussion and Analysis" is presented before applicable intercompany eliminations. Certain prior year information has been reclassified be consistent with the current presentation. See Note L of Notes to Consolidated Financial Statements.

Net sales declined 16.6% in FY 2002 from the prior year. The decline was due to a 14.4% decline in the number of units shipped compounded by a 2.7% decline in the average selling price per unit. The Company attributes the sales decline to deteriorating economic conditions and continued weakness in apparel sales at retail, particularly in the aftermath of September 11. The decline was broad based and affected all operating segments and all major channels of distribution. Branded apparel made up a larger percentage of total sales than in the prior year, effectively shifting the sales mix to a higher average selling price. However, continued deflation in apparel prices caused the overall average selling price per unit to decline.

Cost of goods sold declined to 80.3% of net sales in 2002 from 81.7% of net sales in 2001. The improvement was primarily the result of more cost effective sourcing offset partially by the cost of closing two manufacturing facilities in Mexico and reducing the capacity of facilities in Honduras and the Dominican Republic. The Company established new manufacturing joint ventures in India and China and continued the transition of manufacturing support functions from the U.S. to offshore locations. In 2002, the Company changed its method of calculating LIFO inventories to provide for a better matching of costs and revenues, provide for a LIFO adjustment more representative of the Company's actual inflation on its inventories and reduce the likelihood of LIFO layer liquidations during periods of overall growth in inventories. The cumulative effect of the change in method and the pro forma effects of the change on prior year's results of operations were not determinable. The effect of the change on the results of operations for 2002 was to reduce net income by $3,032 or $0.40 per share diluted.

Selling, General and Administrative expenses (S,G&A) declined 3.1% from $119,390 in the prior year to $115,729 in 2002. Expense reduction initiatives and the discontinuation of the unprofitable DKNY Kids business was partially offset by losses of $2,400 from the sale of pre-petition Kmart receivables and approximately $1,030 of financing cost for the trade receivables securitization program reflected as S,G&A.

Interest expense decreased from $4,870 in the prior year to $243 in 2002. Approximately $1,030 of financing cost for the trade receivables securitization program were reflected as S,G&A expense rather than interest expense. The majority of the reduction in interest expense was due to lower average borrowing requirements and lower average interest rates.

The Oxford Shirt Group reported a net sales decline of 14.3% from $220,949 in the prior year to $189,380 in 2002. The sales decline was primarily due to a 9.3% decline in unit sales compounded by a 5.4% decline in the average selling price per unit. The unit sales decline primarily came in the private label sector in the specialty and department store channels of distribution. The discontinuation of the DKNY Kids business also contributed to the sales decline. Despite the loss in sales, more cost effective product sourcing and reductions in S,G&A improved EBIT from a loss of $1,385 in the prior year to a profit of $742 in 2002. Subsequent to FYE 2001, the Company and Donna Karan International mutually agreed to terminate the DKNY Kids license on December 31, 2001. The Company continued to service the business until the termination date. Sales for DKNY Kids in FYE 2002 and 2001 were $7,255 and $10,389 respectively.

Lanier Clothes reported a sales decline of 12.6% from $175,062 in the prior year to $153,060 in 2002. An 8.8% decline in unit sales was compounded by a 4.1% decline in the average selling price per unit. Continued weak demand from the group's department store customers was primarily responsible for the decline. Improved gross margins and reduced S,G&A partially offset the sales decline, resulting in an EBIT decline from $12,557 in 2001 to $11,477 in 2002.

Oxford Slacks reported a sales decline of 21.7% from $103,096 in the prior year to $80,693 in 2002. The sales decline was due to a 12.7% unit sales decline compounded by a 10.4% decline in the average unit sales price. Shipments to the group's specialty catalog customers declined significantly from the prior year. This decline unfavorably impacted selling prices and gross margins. Reductions in S,G&A partially offset the gross profit decline. EBIT declined from $6,054 in 2001 to $3,823 in 2002.

The Womenswear Group reported a sales decline of 18.9% from $312,973 in the prior year to $253,723 in 2002. The decline was due to a 16.8% decline in units shipped compounded by a 2.5% decline in the average selling price per unit. This group experienced below plan performance on replenishment programs and lower shipments to a major mass merchant retailer. The Kmart bankruptcy also had a significant impact on this groups sales and earnings, resulting in a bad debt charge of approximately $2,400 and interrupted sales during the bankruptcy process. EBIT declined from $15,455 in the prior year to $9,538 in 2002.

The Corporate and Other reduction in EBIT was primarily due to the treatment of approximately $1,030 of financing cost for trade receivables securitization program as S,G&A expense rather than interest expense, a reclassification of bad debt expense resulting in Corporate and Other increasing bad debt expense by approximately $1,363, and underabsorption of Corporate and Other cost by the operating groups due to reduced sales volume.

Net sales decreased 3.2% in 2001 from 2000. The decline was due to a 2.2% decline in the average selling price per unit and a 1.1% decline in the number of units shipped. Despite heavy price promotions at retail, sales have been lackluster across most product lines. The take-out rate on most of the Company's core in-stock replenishment items was below plan.

Cost of goods sold remained constant at 81.7% of net sales in 2001 and 2000. Increased manufacturing efficiency was offset by increased markdowns required to keep inventories in line. The Company completed the transition to offshore manufacturing with the disposition of its three remaining domestic sewing facilities. Support functions such as fabric inspection, cutting, marking and raw materials warehousing began migrating offshore as well. This transition added to the cost of goods sold during the year but should result in shorter cycle times and lower costs when completed.

Selling, general and administrative expenses (SG&A) expressed as a percent of sales increased to 14.7% of net sales in 2001 from 13.3% in 2000. This increase was due to continued spending to support new marketing initiatives. DKNY Kids, Tommy Hilfiger Women's Golf, Izod Club Golf and Slates Tailored Clothing accounted for approximately $13,000 in additional operating expenses during the year. The Oxford Shirt Group, which houses three of these four divisions, was heavily impacted by these expenditures.

Interest expense expressed as a percent of net sales increased to 0.6% in 2001 from 0.5% in 2000. Higher weighted average borrowings and higher weighted average interest rates were the cause.

The Company's effective tax rate was 38.0% in 2001 and 2000 and did not differ significantly from the Company's statutory rates.

The Oxford Shirt Group, which includes dress and sport shirts, western shirts, golf apparel and childrenswear, reported an 8.0% sales decline to $220,949. Sales increases in the western, golf and children's sectors did not offset decreases in the larger dress and sport shirt sectors. Profitability was severely impacted by the sales decline, higher markdowns and continued spending on new marketing initiatives. The group reported an EBIT loss of $1,385 for the year.

The Company's tailored clothing group reported essentially flat sales of $175,062. EBIT increased 8.2% to $12,557. Significant improvements in manufacturing efficiency were partially offset by start-up expenses of the new Slates Tailored Clothing division.

Oxford Slacks reported a sales increase of 3.2% to $103,096. Sales growth was driven by further penetration of the specialty catalog channel. Higher sales and a more favorable product mix pushed EBIT up 54.0% over last year to $6,054.

The Womenswear Group reported sales of $312,973, down 3.5% from last year. Lackluster performance of in-stock replenishment programs was responsible for the sales decline. The sales decline, higher markdowns and higher operating expenses resulted in a decrease in EBIT to $15,455 from $20,830 last year.

The improvement in EBIT was primarily due to LIFO inventory adjustments and lower incentive employment costs, partially offset by a charge taken in the fourth quarter of $3,750 for inventory returns and other inventory impairments.

Investing activities used $431 in 2002 and $3,498 in 2001. The primary difference was the reduction in capital expenditures.

Financing activities used $4,550 in 2002 and $69,335 in 2001. The Primary difference was the reduction of bank debt during 2001.

The Company established a $90,000 accounts receivable securitization program on May 3, 2001, under which the Company sells a defined pool of its accounts receivable to a securitization conduit. At June 1, 2001, $56,000 was outstanding under the securitization agreement. The Company used the proceeds from the receivables securitization to eliminate bank borrowings. The Company amended its trade receivables securitization agreement on January 31, 2002 and as a result discontinued the off balance sheet treatment of the program. The facility amount was also reduced to $65,000. The Company had approximately $44,000 available under the securitization program on May 31, 2002. There was no debt outstanding under the securitization agreement at May 31, 2002.

The off-balance sheet treatment of the securitization agreement at June 1, 2001 had the effect of reducing accounts receivable by $56,000 and reducing bank debt by $56,000. If the securitization agreement had not been treated as off-balance sheet at June 1, 2001, the accounts receivable balance at June 1, 2001 would have increased $56,000 to $106,699 and the balance of short-term debt would have been $56,000. Net cash provided by operations for the fiscal year ending June 1, 2001 would have decreased by $56,000 to $18,393 and net cash used in financing activities would have declined by $56,000 to $13,325. For the fiscal year ending May 31, 2002, the net cash provided by operations would have increased by $56,000 to $68,387 and the net cash provided by financing activities would have increased by $56,000 to $51,450.

On July 15, 2002, the Company's Board of Director's declared a cash dividend of $0.21 per share payable on August 31, 2002 to shareholders of record on August 15, 2002.

Operating activities generated $74,393 in 2001 and $34,618 in 2000. The primary factors contributing to this change were decreased accounts receivables and inventory offset by reduced net earnings and reduced trade payables. The accounts receivable reduction was primarily due to the receivables securitization program initiated in the fourth quarter.

Investing activities used $3,498 in 2001 and $8,681 last year. The primary difference was the final payment involved in the Next Day Apparel acquisition in the prior year.

Financing activities used $69,335 in 2001 and $28,389 in 2000. The primary difference was the reduction of both long-term and short-term notes to banks using the proceeds of the receivables securitization program.

On July 16, 2001, the Company's Board of Directors declared a cash dividend of $0.21 per share payable on September 1, 2001 to shareholders of record on August 15, 2001.

During 2001, the Company purchased and retired 289,604 shares of the Company's common stock acquired on the open market and in negotiated transactions.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant accounting policies employed by the Company are presented in Note A to the Consolidated Financial Statements.

The Company recognizes sales when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred, the Company's price to the buyer is fixed and determinable, and collectibility is reasonably assured

In the normal course of business, the Company grants credit directly to certain retail store customers. Accounts receivable are recorded net of an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based upon an analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historic trends and an evaluation of economic conditions. The ratio of the allowance for doubtful accounts to gross receivables at May 31, 2002 and June 1, 2001 (including off-balance receivables of $56,000 at June 1, 2001) was 3.2% and 3.1% respectively.

The Company amortizes cost in excess of fair value of net assets of businesses acquired using the straight-line method over a period not to exceed 15 years. The Company reviews the recorded value of its goodwill annually, or sooner if events or changes in circumstances indicate that the carrying amount may exceed fair value. Recoverability is then determined by comparing the undiscounted net cash flows of the assets to which the goodwill applies to the net book value, including goodwill, of these assets. At May 31, 2002 and June 1, 2001, the Company had goodwill of approximately $5,839 and $7,860, respectively, which was included in "Other Assets" in the accompanying consolidated balance sheet.

The Company's business is impacted by the general seasonal trends characteristic of the apparel and retail industries. The Company's revenue is generally highest in the first and fourth fiscal quarters. As the timing of product shipments and other events effecting the retail business may vary, results for any particular quarter may not be indicative of results for the full year.

Substantially all of the Company's products are manufactured outside the United States. Most apparel imported into the United States is subject to duty and restrictive quotas on the number of garments that can be imported from certain countries into the United States each year. Because of the duty rates and quotas, changes in U.S. trade policy as reflected in various legislation, trade preference programs and trade agreements have the potential to materially impact the Company's sourcing strategy and the competitiveness of its owned manufacturing facilities and existing contract manufacturers. The Company manages this risk by continually monitoring U.S. trade policy, analyzing the impact of changes in such policy and adjusting its manufacturing and sourcing strategy accordingly.

The Company receives United States dollars for substantially all of its product sales. Substantially all inventory purchases from contract manufacturers throughout the world are also denominated in United States dollars; however, purchase prices for the Company's products may be impacted by fluctuations in the exchange rate between the United States dollar and the local currencies of the contract manufacturers, which may have the effect of increasing the Company's cost of goods in the future. During the last three fiscal years, exchange rate fluctuations have not had a material impact on the Company's inventory costs; however, due to the number of currencies involved and the fact that not all foreign currencies react in the same manner against the United States dollar, the Company cannot quantify in any meaningful way the potential effect of such fluctuations on future income. The Company does not engage in hedging activities with respect to such exchange rate risk.

The Company is subject to commodity price risk arising from price fluctuations in the market prices of sourced garments or the various raw materials components of its manufactured products. The Company is subject to commodity price risk to the extent that any fluctuations in the market prices of its purchased garments and raw materials are not reflected by adjustments in selling prices of its products or if such adjustments significantly trail changes in these costs. The Company neither enters into significant long-term sales contracts nor enters into significant long-term purchase contracts. The Company does not engage in hedging activities with respect to such risk.

The consumer price index indicates deflation in apparel prices for at least the last three years. This deflation has resulted in the decline in the average selling price per unit for the Company as a whole and for each operating segment. In order to maintain gross margins and operating profit, the Company constantly seeks more cost effective product sourcing, productivity improvements and cost containment initiatives, in addition to efforts to increase unit sales.

In July 2001 the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations ("SFAS.141"), and SFAS 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 changes the accounting for purchased goodwill from an amortization method to an impairment-only approach. Therefore amortization of all purchased goodwill, including amortization of goodwill recorded in past business combinations, will cease upon adoption of SFAS 142. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption of the SFAS 142 is not permitted nor is retroactive application to prior period (interim or annual) financial statements. Recoverability will be determined by comparing the discounted net cash flows o f the assets to which the goodwill applies to the net book value, including goodwill, of these assets. Management is currently evaluating the effect of this statement on the Company's results of operations and financial position. The amortization expense for Goodwill was $2,021 in fiscal 2002.

In July 2001, the FASB also issued SFAS No. 143, Accounting for Asset Retirement Obligations SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management believes that the adoption of this statement will not have a material effect on the Company's future results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30) for the disposal of a segment of a business (as previously defined in Opinion 30). The FASB issued SFAS No. 144 to establish a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises oper ations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. SFAS No. 144 also requires that discontinued operations be measured at the lower of the carrying amount or fair value less cost to sell. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and should be applied prospectively. Management is evaluating the effect of this statement on the Company's results of operations and financial position.

Cash flow from operations is the Company's primary source of liquidity. The Company supplements operating cash with its $65,000 trade receivables securitization program and uncommitted bank lines of credit. On May 31, 2002, $44,000 was available under the securitization program and there was no debt outstanding. The Company has $219,500 in uncommitted lines of credit, of which $118,500 is reserved exclusively for letters of credit. The Company pays no commitment fees for these available lines of credit. At May 31, 2002 there were no direct borrowings and approximately $78,686 in trade letters of credit outstanding under these lines. The Company anticipates use and availability of uncommitted resources as working capital needs may require.

The uses of funds primarily include working capital requirements, capital expenditures, acquisitions, stock repurchases, dividends and repayment of short-term debt. The Company considers possible acquisitions of apparel-related businesses that are compatible with its long-term strategies. The Company's Board of Directors has authorized the Company to purchase shares of the Company's common stock on the open market and in negotiated trades as conditions and opportunities warrant.

The apparel market remains highly competitive and continues to benefit the consumer, who enjoys a wide choice of apparel at deflating prices. This high level of competition is the result of continued excess worldwide manufacturing capacity and the search by manufacturers and retailers for low-cost production sources around the globe.

Uncertainties regarding the future retail environment that may affect the Company include continued excessive retail floor space per customer, constant heavy discounting at the retail level, deflation in wholesale and retail apparel prices and continued growth in direct importing by retailers. Economic uncertainties, global terrorism, stock market losses, layoffs, rising consumer debt and falling consumer savings rates have taken their toll on consumer spending. It is unclear whether consumer spending can maintain its current pace.

In August 2002, President Bush signed into law the Trade Act of 2002. The Trade Act contains numerous provisions two of which are especially relevant for the Company. First, the so called "trade promotion authority" provisions which permit the President to negotiate trade agreements that are then subject to a simple yes or no approval vote by Congress without amendment. This authority is crucial to the negotiation of any future trade agreements similar to NAFTA. The extension of this authority to the President may result in future trade agreements, such as the proposed Free Trade of the Americas Agreement, that may impact the Company's future sourcing strategy. Second, the Trade Act includes the Andean Trade Promotion and Drug Eradication Act (ATPDEA) that provides for duty free treatment of qualifying apparel products produced in Bolivia, Colombia, Ecuador and Peru. Importantly, ATPDEA provides benefits to products made from U.S. fabrics as well as Andean fabrics. The ATPDEA is lik ely to enhance the competitiveness of the Company's well established manufacturing and sourcing operations in the Andean region.

Fiscal year 2002 was perhaps the most challenging in the Company's sixty year history. The Company responded with aggressive asset management, manufacturing capacity reductions and cost containment initiatives. The Company ended the year with lean inventories and a reduced cost structure. As a result, the Company looks forward to improved financial performance in the coming year. For the first quarter of FY03, sales are expected to be down slightly and net earnings are expected to improve significantly compared to the prior period. For the full year, the Company anticipates a modest sales increase and a significant improvement in net earnings compared to the prior year.

This Annual Report contains forward-looking statements of the Company's beliefs or expectations regarding anticipated future results of the Company. These statements are based on numerous assumptions and are subject to risks and uncertainties. Although the Company feels that the beliefs and expectations in the forward-looking statements are reasonable, it does not and cannot give any assurance that the beliefs and expectations will prove to be correct. Many factors could significantly affect the Company's operations and cause the Company's actual results to be substantially different from the Company's expectations. Those factors include, but are not limited to: (i) general economic and apparel business conditions; (ii) continued retailer and consumer acceptance of the Company's products; (iii) global manufacturing costs; (iv) the financial condition of customers or suppliers; (v) changes in capital market conditions; (vi) governmental and business conditions in countries where the Company's products are manufactured; (vii) changes in trade regulations; (viii) the impact of acquisition activity; (ix) changes in the Company's plans, strategies, objectives, expectations or intentions, which may happen at any time in the discretion of the Company; and (x) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of the future events or otherwise.

For additional information concerning the Company's operations, cash flows, liquidity and capital resources, this analysis should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements of this Annual Report.

During fiscal year 2001, the Company entered into a $90 million asset backed securitization facility (the "Facility") under which the Company continues to sell a defined pool of its accounts receivable to a wholly-owned special purpose subsidiary (the "SPE"). The agreement is renewable annually and bears interest at a margin over asset backed commercial paper rates. The Company initially accounted for the Facility as off-balance sheet treatment under the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." In January 2002, the Company amended the Facility and as a result, is accounted for as a secured borrowing whereby all receivables outstanding under the program and the corresponding debt will be recognized in the Company's consolidated balance sheet. The program is now a $65 million asset backed securitization facility and The Company had approximately $44 million available under the Facil ity at May 31, 2002, none of which was outstanding at year-end.

Under the Facility, the Company services the receivables sold to the SPE and maintains a retained interest in the receivables. The Company has not recorded a servicing asset or liability since the cost to service the receivables approximates the servicing income received from the Facility. Due to the short-term nature of the receivables, the fair value of the Company's retained interest in the receivables is equal to the carrying amount.

During fiscal year 2001, the Company received approximately $80.5 million from the SPE. The amount consisted of $56 million from the initial sale, $24.7 million from collections of receivables related to the Company's retained interest (net of proceeds from subsequent sales of receivables), $139,000 in servicing fees, $101,000 in interest on the retained interest in the receivables sold, offset by a loss of $442,000 related to the difference between the current and future value of the receivables sold. The loss was determined by calculating the estimated present value of the receivables sold compared to their carrying amount. The present value is based on historical collection experience and a discount rate as prescribed under the terms of the Facility. For 2001, the loss was based on a discount rate, net of estimated interest income of 4.9%. The Company had a retained interest in receivables sold under the Facility of approximately $50.7 million at June 1, 2001, which was included in the caption &qu ot;receivables" in the accompanying consolidated balance sheet. Credit losses on the receivables sold in 2001 were not material.

During 2002, prior to the amendment of the facility, the Company received approximately $463.4 million from the SPE. The amount consisted of $464.4 million from collections of receivables related to the Company's retained interest (net of proceeds from subsequent sales of receivables), $641,089 in servicing fees, $964,444 in interest on the retained interest in the receivables sold, offset by a loss of $2,636,000 related to the difference between the current and future value of the receivables sold. The discount rate used in calculating the loss recognized in 2002 was approximately 0.6%.

The off-balance sheet treatment of the securitization agreement at June 1, 2001 had the effect of reducing accounts receivable by $56,000 and reducing current debt by $56,000. If the securitization agreement had not been treated as off-balance sheet at June 1, 2001, the accounts receivable balance at June 1, 2001 would have increased $56,000 to $106,699 and the balance of short-term debt would have been $56,000. Net cash provided by operations for the fiscal year ending June 1, 2001 would have decreased by $56,000 to $18,393 and net cash used in financing activities would have declined by $56,000 to $13,325. For the fiscal year ending May 31, 2002, the net cash provided by operations would have increased by $56,000 to $68,387 and the net cash provided by financing activities would have increased by $56,000 to $51,450

The components of inventories are summarized as follows:

The excess of replacement cost over the value of inventories based upon the LIFO method was $35,212,000 at May 31, 2002 and $36,881,000 at June 1, 2002.

During fiscal 2002, inventory quantities were reduced, which resulted in a liquidation of LIFO inventory layers carried at lower costs which prevailed in prior years. The effect of the liquidation was to decrease cost of goods sold by approximately $750,272 and to increase net earnings by $459,000 or $0.06 per share basic. During fiscal 2001, the effect of the liquidation was to decrease cost of goods sold by approximately $22,000 and to increase net earnings by $14,000 or $0.00 per share basic. During fiscal 2000, the effect of the liquidation was to decrease cost of goods sold by approximately $147,000 and to increase net earnings by $91,000 or $0.01 per share basic.

Property, plant and equipment, carried at cost, are summarized as follows:

Depreciation expense was $7,508,857 in 2002 ,$7,145,122 in 2001 and $7,301,995 in 2000.

The Company has $219,500,000 in uncommitted lines of credit, of which $118,500,000 is reserved exclusively for letters of credit. The Company pays no commitment fees for these available lines of credit. At May 31, 2002, there were no direct borrowings and approximately $78,686,000 in trade letters of credit outstanding under these lines. The weighted average interest rate on short-term borrowings during fiscal 2002 was 3.03%.

A summary of long-term debt is as follows:

Property, plant and equipment with an aggregate carrying amount at May 31, 2002 of approximately $161,000 are pledged as collateral on the industrial revenue bonds.

The aggregate maturities of long-term debt are as follows:

The Company has operating lease agreements for buildings, sales offices and equipment with varying terms to 2011. The total rent expense under all leases was approximately $5,619,000 in 2002, $6,349,000 in 2001 and $6,002,000 in 2000.

The aggregate minimum rental commitments for all noncancelable operating leases with terms of more than one year are as follows:

The Company is also obligated under certain apparel license and design agreements to make future minimum payments as follows:

The Company is involved in certain legal matters primarily arising in the normal course of business. In the opinion of management, the Company's liability under any of these matters would not materially affect its financial condition or results of operations.

The Company discovered a past unauthorized disposal of a substance believed to be dry cleaning fluid on one of its properties. The Company believes that remedial action will be required, including continued investigation, monitoring and treatment of groundwater and soil. Based on advice from its environmental experts, the Company provided $4,500,000 for this remediation in the fiscal year ended May 31, 1996.

At May 31, 2002, 299,320 shares of common stock were authorized and reserved for issuance under stock option plans. The options granted under the stock option plans expire either five years or ten years from the date of grant. Options granted vest in five annual installments. The Company has elected as permitted under SFAS No. 123, Accounting for Stock-Based Compensation, to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25) and related interpretations in accounting for its employee stock options. Under Opinion 25, because the exercise price of the Company's employee stock option equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

Pro forma information, regarding net earnings and net earnings per share, is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock option plans under the fair value method of that statement. The fair value of these options was estimated at the date of the grant using the Black-Scholes option pricing model with the following assumption ranges: Risk-free interest rates between 5.090% and 6.510%, dividend yields between 2.4% and 4.87%, volatility factors between .2818 and .3220, and the expected life of the options was between five and ten years. Using this valuation model, the weighted average grant date value of options granted during the year ended May 31, 2002, was $6.35 per option.

The effect of applying the fair value method of SFAS No. 123 to the Company's stock option plan does not result in net earnings and net earnings per share that are materially different from the amounts reported in the Company's consolidated financial statements as demonstrated below (amounts in thousands except per share data):

A summary of the status of the Company's stock option plan and changes during the years ended are presented below:

The following table summarizes information about stock options outstanding as of May 31, 2002.

The Company has a Restricted Stock Plan for issuance of up to 100,000 shares of common stock. At May 31, 2002, 2,942 shares were outstanding under this plan. The plan allows the Company to compensate its key employees with shares of common stock containing restrictions on sale and other restrictions in lieu of cash compensation.

Three customers each represented between 10% and 19% of the Company's net sales in fiscal 2002. Three customers each represented between 10% and 15% in fiscal 2001. Four customers each represented between 10% and 15% of the Company's total sales in fiscal 2000. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses

The Company has a tax-qualified voluntary retirement savings plan covering substantially all full-time U.S. employees. If a participant decides to contribute, a portion of the contribution is matched by the Company. Total expense under this plan was $1,089,000 in 2002, $1,318,000 in 2001 and $1,386,000 in 2000.

The company has a non-qualified deferred compensation plan offered to a select group of management and highly compensated employees. The plan provides the participants with the opportunity to defer a specified percentage of their cash compensation. The Company matches a portion of the contribution. This plan became effective as of January 1, 2001. Participants may elect to defer up to 10% of their annual base salary and up to 25% of their bonus. The Company funds these deferred compensation liabilities by making contributions to a rabbi trust. Total expense under this plan was $170,000 in 2002 and $68,000 in 2001.

The provision (benefit) for income taxes includes the following:

Reconciliations of the U.S. federal statutory income tax rates and the Company's effective tax rates are summarized as follows:

Deferred tax assets and liabilities are comprised of the following:

• Options to purchase 190,700 shares of the Company's stock at prices ranging from $27.88 to $35.66 per share were outstanding during fiscal 2002. However, these were not included in the computation of diluted earnings per share because the inclusion of such shares would have had an antidilutive effect.
• Options to purchase 198,950 shares of the Company's stock at prices ranging from $27.88 to $35.66 per share were outstanding during fiscal 2001. However, these were not included in the computation of diluted earnings per share because the inclusion of such shares would have had an antidilutive effect.
• Options to purchase 229,200 shares of the Company's stock at prices ranging from $27.88 to $35.66 per share were outstanding during fiscal 2000. However, these were not included in the computation of diluted earnings per share because the inclusion of such shares would have had an antidilutive effect.