OXFORD INDUSTRIES, INC.
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 DECEMBER 1, 2006
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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 January 5, 2007
     
Common Stock, $1 par value   17,779,481
 
 

 


 

OXFORD INDUSTRIES, INC.
INDEX TO FORM 10-Q
For quarter ended December 1, 2006
         
    Page  
       
 
       
       
    4  
    5  
    6  
    7  
    17  
    26  
    26  
 
       
       
 
       
    27  
    27  
    27  
    27  
    27  
    28  
    28  
    28  
 EX-31.1 SECTION 302 CERTIFICATION OF PEO
 EX-31.2 SECTION 302 CERTIFICATION OF PFO
 EX-32 SECTION 906 CERTIFICATIONS OF THE PEO/PFO

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Our U.S. Securities and Exchange Commission filings and public announcements often 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 such forward-looking statements contained herein, the entire contents of 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 demand for our products, expected pricing levels, raw material costs, the timing and cost of planned capital expenditures, expected outcomes of pending litigation and regulatory actions, competitive conditions, general economic conditions and expected synergies in connection with acquisitions and joint ventures. 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 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 fiscal 2006 Form 10-K, 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 U.S. Securities and Exchange Commission.
We caution that one should not place undue reliance on forward-looking statements, which are current only as of the date this report is filed with the U.S. Securities and Exchange Commission. We disclaim any intention, obligation or duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
DEFINITIONS
As used in this report, unless the context requires otherwise, “our,” “us” and “we” mean Oxford Industries, Inc. and its consolidated subsidiaries. Also, the terms “FASB,” “SFAS” and “SEC” mean the Financial Accounting Standards Board, Statement of Financial Accounting Standards and the U.S. Securities and Exchange Commission, respectively. Additionally, the terms listed below (or words of similar import) reflect the respective period noted:
     
Fiscal 2007
  52 weeks ending June 1, 2007
Fiscal 2006
  52 weeks ended June 2, 2006
 
   
First half fiscal 2007
  26 weeks ended December 1, 2006
First half fiscal 2006
  26 weeks ended December 2, 2005
 
   
Second half of fiscal 2006
  26 weeks ended June 2, 2006
 
   
Fourth quarter fiscal 2007
  13 weeks ending June 1, 2007
Third quarter fiscal 2007
  13 weeks ending March 2, 2007
Second quarter fiscal 2007
  13 weeks ended December 1, 2006
First quarter fiscal 2007
  13 weeks ended September 1, 2006
 
   
Fourth quarter fiscal 2006
  13 weeks ended June 2, 2006
Third quarter fiscal 2006
  13 weeks ended March 3, 2006
Second quarter fiscal 2006
  13 weeks ended December 2, 2005
First quarter fiscal 2006
  13 weeks ended September 2, 2005

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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(in thousands, except per share amounts)
                                 
    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Net sales
  $ 290,987     $ 277,903     $ 575,065     $ 546,378  
Cost of goods sold
    179,187       175,097       355,154       337,857  
     
Gross profit
    111,800       102,806       219,911       208,521  
Selling, general and administrative expenses
    89,124       82,416       175,570       165,204  
Amortization of intangible assets
    1,550       1,851       3,097       3,704  
     
 
    90,674       84,267       178,667       168,908  
Royalties and other operating income
    3,894       3,653       6,786       6,914  
     
Operating income
    25,020       22,192       48,030       46,527  
Interest expense, net
    5,951       6,272       11,443       12,105  
     
Earnings before income taxes
    19,069       15,920       36,587       34,422  
Income taxes
    6,924       5,743       13,287       12,425  
     
Earnings from continuing operations
    12,145       10,177       23,300       21,997  
Earnings (loss) from discontinued operations, net of taxes
    8       831       (197 )     2,895  
     
Net earnings
  $ 12,153     $ 11,008     $ 23,103     $ 24,892  
     
 
                               
Earnings from continuing operations per common share:
                               
Basic
  $ 0.69     $ 0.58     $ 1.32     $ 1.26  
Diluted
  $ 0.68     $ 0.57     $ 1.31     $ 1.24  
Earnings (loss) from discontinued operations per common share:
                               
Basic
  $ 0.00     $ 0.05     $ (0.01 )   $ 0.17  
Diluted
  $ 0.00     $ 0.05     $ (0.01 )   $ 0.16  
Net earnings per common share:
                               
Basic
  $ 0.69     $ 0.63     $ 1.31     $ 1.43  
Diluted
  $ 0.68     $ 0.62     $ 1.30     $ 1.40  
 
Weighted average common shares outstanding:
                               
Basic
    17,654       17,490       17,624       17,440  
Dilutive impact of options and restricted shares
    209       257       204       295  
     
Diluted
    17,863       17,747       17,828       17,735  
     
 
                               
Dividends per common share
  $ 0.15     $ 0.135     $ 0.30     $ 0.270  
See accompanying notes.

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except per share amounts)
                         
    December 1,   June 2,   December 2,
    2006   2006   2005
     
ASSETS
Current Assets:
                       
Cash and cash equivalents
  $ 8,794     $ 10,479     $ 6,848  
Receivables, net
    166,680       144,079       149,194  
Inventories
    138,990       123,594       136,102  
Prepaid expenses
    19,618       20,214       24,739  
Current assets related to discontinued operations, net
          59,215       69,779  
     
Total current assets
    334,082       357,581       386,662  
Property, plant and equipment, net
    81,021       73,663       65,236  
Goodwill, net
    202,054       199,232       180,152  
Intangible assets, net
    236,261       234,453       234,812  
Other non-current assets, net
    29,990       20,666       22,945  
Non-current assets related to discontinued operations, net
                4,810  
     
Total Assets
  $ 883,408     $ 885,595     $ 894,617  
     
 
                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
                       
Trade accounts payable and other accrued expenses
  $ 98,538     $ 105,038     $ 97,901  
Accrued compensation
    19,788       26,754       24,155  
Additional acquisition cost payable
          11,897        
Dividends payable
          2,646       2,310  
Income taxes payable
    1,200       3,138       3,334  
Short-term debt and current maturities of long-term debt
    90       130       4,879  
Current liabilities related to discontinued operations
    5,452       30,716       17,646  
     
Total current liabilities
    125,068       180,319       150,225  
Long-term debt, less current maturities
    217,005       200,023       298,942  
Other non-current liabilities
    35,082       29,979       27,503  
Deferred income taxes
    81,075       76,573       75,254  
Non-current liabilities related to discontinued operations
                47  
Commitments and contingencies
                       
Shareholders’ Equity:
                       
Preferred stock, $1.00 par value; 30,000 authorized and none issued and outstanding at December 1, 2006; June 2, 2006; and December 2, 2005
                 
Common stock, $1.00 par value; 60,000 authorized and 17,775 issued and outstanding at December 1, 2006; 17,646 issued and outstanding at June 2, 2006; and 17,602 issued and outstanding at December 2, 2005
    17,775       17,646       17,602  
Additional paid-in capital
    78,625       74,812       71,164  
Retained earnings
    318,749       300,973       260,979  
Accumulated other comprehensive income (loss)
    10,029       5,270       (7,099 )
     
Total shareholders’ equity
    425,178       398,701       342,646  
     
Total Liabilities and Shareholders’ Equity
  $ 883,408     $ 885,595     $ 894,617  
     
See accompanying notes.

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
                 
    First Half
    Fiscal 2007   Fiscal 2006
     
Cash Flows From Operating Activities:
               
Earnings from continuing operations
  $ 23,300     $ 21,997  
Adjustments to reconcile earnings from continuing operations to net cash provided by (used in) operating activities:
               
Depreciation
    7,642       7,183  
Amortization of intangible assets
    3,097       3,704  
Amortization of deferred financing costs and bond discount
    1,232       1,232  
Stock compensation expense
    1,702       1,149  
Loss (gain) on sale of property, plant and equipment
    476       (83 )
Equity loss (income) from unconsolidated entities
    (604 )     (39 )
Deferred income taxes
    785       (1,353 )
Changes in working capital:
               
Receivables
    (21,273 )     (1,651 )
Inventories
    (14,676 )     10,190  
Prepaid expenses
    (170 )     (5,493 )
Current liabilities
    (16,371 )     (35,798 )
Other non-current assets
    (905 )     (3,966 )
Other non-current liabilities
    5,067       4,446  
     
Net cash provided by (used in) operating activities
    (10,698 )     1,518  
Cash Flows From Investing Activities:
               
Acquisitions, net of cash acquired
    (12,111 )     (11,501 )
Investment in unconsolidated entity
    (9,090 )      
Distribution from unconsolidated entity
          1,856  
Purchases of property, plant and equipment
    (15,268 )     (8,471 )
Proceeds from sale of property, plant and equipment
    32       6  
     
Net cash provided by (used in) investing activities
    (36,437 )     (18,110 )
Cash Flows From Financing Activities:
               
Repayment of financing arrangements
    (123,676 )     (179,591 )
Proceeds from financing arrangements
    140,526       191,059  
Proceeds from issuance of common stock
    2,240       4,556  
Dividends on common stock
    (7,970 )     (4,579 )
     
Net cash provided by (used in) financing activities
    11,120       11,445  
Cash Flows From Discontinued Operations:
               
Net operating cash flows provided by (used in) discontinued operations
    33,746       6,137  
Net investing cash flows provided by (used in) discontinued operations
          (25 )
     
Net cash provided by (used in) discontinued operations
    33,746       6,112  
     
Net change in cash and cash equivalents
    (2,269 )     965  
Effect of foreign currency translation on cash and cash equivalents
    584       (616 )
Cash and cash equivalents at the beginning of period
    10,479       6,499  
     
Cash and cash equivalents at the end of period
  $ 8,794     $ 6,848  
     
Supplemental disclosure of cash flow information:
               
Cash paid for interest, net
  $ 10,682     $ 13,659  
Cash paid for income taxes
  $ 19,538     $ 24,499  
See accompanying notes.

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OXFORD INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER FISCAL 2007
1.   Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States. We believe our condensed consolidated financial statements reflect all normal, recurring adjustments that are necessary for a fair presentation of our financial position and results of operations for the periods presented. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for our fiscal year primarily due to the impact of seasonality on our business. The accounting policies applied during the interim periods presented are consistent with the significant and critical accounting policies as described in our fiscal 2006 Form 10-K. The information included in this Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in our fiscal 2006 Form 10-K.
 
    As disclosed in our fiscal 2006 Form 10-K, we sold substantially all of the assets of our Womenswear Group on June 2, 2006. Therefore, the results of operations of the Womenswear Group have been reported as discontinued operations in our consolidated statements of earnings. The assets and liabilities related to the Womenswear Group for all periods presented have been reclassified to current assets, non-current assets, current liabilities and non-current liabilities related to discontinued operations, as applicable.
 
    Certain amounts in our prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.
 
2.   Inventories: The components of inventories as of the dates specified are summarized as follows (in thousands):
                         
    December 1, 2006     June 2, 2006     December 2, 2005  
     
Finished goods
  $ 112,637     $ 99,576     $ 107,238  
Work in process
    7,676       6,388       10,116  
Fabric, trim and supplies
    18,677       17,630       18,748  
     
Total
  $ 138,990     $ 123,594     $ 136,102  
     
3.   Debt: The following table details our debt as of the dates specified (in thousands):
                         
    December 1, 2006     June 2, 2006     December 2, 2005  
 
$280 million U.S. Secured Revolving Credit Facility (“U.S. Revolver”), which accrues interest (8.25% at December 1, 2006), unused line fees and letter of credit fees based upon a pricing grid which is tied to certain debt ratios, requires interest payments monthly with principal due at maturity (July 2009), and is collateralized by substantially all the assets of Oxford Industries, Inc. and our consolidated domestic subsidiaries
  $ 17,800     $ 900     $ 99,900  
 
£12 million Senior Secured Revolving Credit Facility (“U.K. Revolver”), which accrues interest at the bank’s base rate plus 1.0% (6.0% at December 1, 2006), requires interest payments monthly with principal payable on demand or at maturity (July 2007), and is collateralized by substantially all the United Kingdom assets of Ben Sherman
    75       102       4,835  
 
$200 million Senior Unsecured Notes (“Senior Unsecured Notes”), which accrue interest at 8.875% (effective interest rate of 9.0%) and require interest payments semi-annually on June 1 and December 1 of each year, require payment of principal at maturity (June 2011), are subject to certain prepayment penalties and are guaranteed by our consolidated domestic subsidiaries
    200,000       200,000       200,000  
 
Other debt, including capital lease obligations with varying terms and conditions, collateralized by the respective assets
    15       35       59  
 
Total debt
    217,890       201,037       304,794  
 
Unamortized discount on Senior Unsecured Notes
    (795 )     (884 )     (973 )
 
Short-term debt and current maturities of long-term debt
    (90 )     (130 )     (4,879 )
 
Long-term debt, less current maturities
  $ 217,005     $ 200,023     $ 298,942  
 

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    The U.S. Revolver, the U.K. Revolver and the Senior Unsecured Notes each include certain debt covenant restrictions that require us or our subsidiaries to maintain certain financial ratios that we believe are customary for similar facilities. The U.S. Revolver also includes limitations on certain restricted payments such as earn-outs, payment of dividends and prepayment of debt. As of December 1, 2006, we were compliant with all financial covenants and restricted payment clauses related to our debt agreements.
 
    Our U.S. Revolver and U.K. Revolver are used to finance trade letters of credit and standby letters of credit, as well as provide funding for other operating activities and acquisitions, if any. As of December 1, 2006, approximately $53.6 million of trade letters of credit and other limitations on availability were outstanding against our U.S. Revolver and our U.K. Revolver. The combined net availability under our U.S. Revolver and U.K. Revolver agreements was approximately $232.3 million as of December 1, 2006.
 
4.   Comprehensive Income: Comprehensive income, which reflects the effects of foreign currency translation adjustments, is calculated as follows for the periods presented (in thousands):
                                 
    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Net earnings
  $ 12,153     $ 11,008     $ 23,103     $ 24,892  
Gain (loss) on foreign currency translation, net of tax
    4,240       (8,709 )     4,759       (7,397 )
     
Comprehensive income
  $ 16,393     $ 2,299     $ 27,862     $ 17,495  
     
5.   Stock Compensation: In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (FAS 123). FAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in FAS 123R is similar to the approach described in FAS 123. However, FAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated statements of earnings based on their fair values. Pro forma disclosure is no longer an alternative.
 
    We adopted FAS 123R on June 3, 2006 and applied the modified prospective transition method. Under this transition method, we (1) did not restate any prior periods and (2) are recognizing compensation expense for all share-based payment awards that were outstanding, but not yet vested, as of June 3, 2006, based upon the same estimated grant-date fair values and service periods used to prepare our FAS 123 pro forma disclosures.
 
    At December 1, 2006, we have options or awards outstanding under certain plans as further described in our fiscal 2006 Form 10-K. As permitted by FAS 123, we had previously accounted for share-based payments to employees using APB 25’s intrinsic value method. Accordingly, no stock-based employee compensation costs for any options were reflected in net earnings unless the options were modified, as all options granted under our plans had an exercise price equal to the market value of the underlying common stock on the date of grant. In fiscal 2005, we transitioned from the use of options to performance and service based restricted stock awards as the primary vehicle in our stock-based compensation strategy.
 
    During the second quarter and first half of fiscal 2007, we recognized stock compensation expense of approximately $0.9 million and $1.7 million, respectively, in earnings from continuing operations. During the second quarter of fiscal 2007, this expense consists of approximately $0.6 million related to restricted stock awards, which would have been recognized under FAS 123R or APB 25, and approximately $0.3 million (or $0.2 million after tax and $0.01 per common share after tax) related to stock options and our employee stock purchase plan which would not have been expensed under APB 25. During the first half of fiscal 2007, this expense consists of approximately $1.1 million related to restricted stock awards, which would have been recognized under FAS 123R or APB 25, and approximately $0.6 million (or $0.4 million after tax and $0.02 per common share after tax) related to stock options and our employee stock purchase plan which would not have been expensed under APB 25. The income tax benefit related to the compensation cost was approximately $0.3 million and $0.2 million during the second quarter of fiscal 2007 and fiscal 2006, respectively, and $0.6 million and $0.4 million during the first half of fiscal 2007 and fiscal 2006, respectively. The adoption of FAS 123R resulted in an increase in cash flow from operations and a decrease in cash flow from financing activities of approximately $0.5 million during the first half of fiscal 2007.

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The following table illustrates the effect on earnings from continuing operations and net earnings in the second quarter and first half of fiscal 2006, if we had applied the fair value recognition provisions of FAS 123R to stock-based employee compensation (in thousands, except per share amounts). For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized over the option vesting period.
                 
    Second   First
    Quarter   Half
    Fiscal 2006   Fiscal 2006
     
Earnings from continuing operations, as reported
  $ 10,177     $ 21,997  
Add: Total stock-based employee compensation expense recognized in continuing operations as determined under intrinsic value method for all awards, net of related tax effects
    315       643  
Deduct: Total stock-based employee compensation expense to be recognized in continuing operations determined under fair value based method for all awards, net of related tax effects
    (482 )     (977 )
     
Pro forma earnings from continuing operations
  $ 10,010     $ 21,663  
     
Basic earnings from continuing operations per common share as reported
  $ 0.58     $ 1.26  
Pro forma basic earnings from continuing operations per common share
  $ 0.57     $ 1.24  
Diluted earnings from continuing operations per common share as reported
  $ 0.57     $ 1.24  
Pro forma diluted earnings from continuing operations per common share
  $ 0.57     $ 1.22  
 
Net earnings as reported
  $ 11,008     $ 24,892  
Add: Total stock-based employee compensation expense recognized in net earnings as determined under intrinsic value method for all awards, net of related tax effects
    357       733  
Deduct: Total stock-based employee compensation expense to be recognized in net earnings determined under fair value based method for all awards, net of related tax effects
    (549 )     (1,117 )
     
Pro forma net earnings
  $ 10,816     $ 24,508  
     
Basic net earnings per common share as reported
  $ 0.63     $ 1.43  
Pro forma basic net earnings per common share
  $ 0.62     $ 1.41  
Diluted net earnings per common share as reported
  $ 0.62     $ 1.40  
Pro forma diluted net earnings per common share
  $ 0.61     $ 1.39  
The following table summarizes information about the outstanding stock options as of December 1, 2006.
                                         
    Number of   Exercise   Grant Date   Number    
Date of Option Grant   Shares   Price   Fair Value   Exercisable   Expiration Date
 
July 1998
    24,000     $ 17.83     $ 5.16       24,000     July 2008
July 1999
    27,100       13.94       4.70       27,100     July 2009
July 2000
    26,920       8.63       2.03       26,920     July 2010
July 2001
    35,170       10.73       3.18       35,170     July 2011
July 2002
    76,920       11.73       3.25       42,640     August 2012
August 2003
    125,680       26.44       11.57       48,760     August 2013
November 2003
    40,000       32.15       14.81       24,000     November 2013
December 2003
    96,700       32.75       14.17       28,900     December 2013
 
                                       
 
    452,490                       257,490          
 
                                       
The table below summarizes options activity during the first half of fiscal 2007.
                 
            Weighted
            Average
            Exercise
    Shares   Price
     
Outstanding at June 2, 2006
    533,180     $ 22  
Granted
           
Exercised
    (73,850 )     17  
Forfeited
    (6,840 )     26  
 
               
Outstanding at December 1, 2006
    452,490     $ 22  
 
               
Exercisable at December 1, 2006
    257,490     $ 19  
 
               

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    The total intrinsic value for options exercised during the first half of fiscal 2007 and the first half of fiscal 2006 was approximately $1.9 million and $4.5 million, respectively. The total fair value for options that vested during the first half of fiscal 2007 and the first half of fiscal 2006 was approximately $1.2 million and $1.3 million, respectively. The aggregate intrinsic value for all options outstanding and exercisable at December 1, 2006 was approximately $12.8 million and $8.1 million, respectively.
 
    As of December 1, 2006, there was approximately $2.0 million of unrecognized compensation cost related to unvested share-based compensation awards which have been made. That cost is expected to be recognized over the next three years. Additionally, approximately $1.7 million of compensation cost related to unvested stock options will be recognized during the next two years.
 
    Grants of restricted stock and restricted share units are made to certain officers, key employees and members of our Board of Directors under our Long-Term Stock Incentive Plan. The following table summarizes information about the unvested stock as of December 1, 2006.
                         
            Market Price on Date of    
Restricted Stock Grant   Number of Shares   Grant   Vesting Date
 
Grants Based on Fiscal 2005 Performance Awards
    59,700     $ 42     June 2008
Grants Based on Fiscal 2006 Performance Awards
    39,105     $ 42     June 2009
 
                       
 
    98,805                  
 
                       
    The table below summarizes the restricted stock award activity during the first half of fiscal 2007:
         
    Shares
Outstanding at June 2, 2006
    67,125  
Issued
    40,440  
Vested
    (4,976 )
Forfeited
    (3,784 )
 
       
Outstanding at December 1, 2006
    98,805  
 
       
    Additionally, during the first quarter of fiscal 2007, we awarded performance share awards and restricted share unit awards to certain officers, key employees and members of our Board of Directors, pursuant to which a maximum total of approximately 0.1 million shares of our common stock may be granted (initially in the form of restricted shares and restricted share units) subject to specified operating performance measures being met for fiscal 2007 and the vesting conditions with respect to the restricted shares and restricted share units being satisfied, which generally will not occur prior to June 1, 2010.
 
6.   Segment Information: In our continuing operations, we have two operating segments for purposes of allocating resources and assessing performance. The Menswear Group produces branded and private label dress shirts, sport shirts, dress slacks, casual slacks, suits, sportcoats, suit separates, walkshorts, golf apparel, outerwear, sweaters, jeans, swimwear, footwear and headwear, licenses its brands for accessories and other products and operates retail stores. The Tommy Bahama Group produces lifestyle branded casual attire, operates retail stores and restaurants, and licenses its brands for accessories, footwear, furniture and other products.
 
    Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups. Total assets for Corporate and Other includes the LIFO inventory reserve of $38.3 million, $38.0 million and $37.7 million at December 1, 2006, June 2, 2006 and December 2, 2005, respectively.
 
    As discussed in note 3 in our consolidated financial statements included in our fiscal 2006 Form 10-K, we sold substantially all of the assets of our Womenswear Group operations at the end of fiscal 2006. The Womenswear Group produced private label women’s sportswear separates, coordinated sportswear, outerwear, dresses and swimwear. The operating results of the Womenswear Group have not been included in segment information as all amounts were reclassified to discontinued operations. The information below presents certain information about our segments for the periods or as of the dates specified (in thousands).

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    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Net Sales
                               
Menswear Group
  $ 183,067     $ 187,332     $ 361,878     $ 364,408  
Tommy Bahama Group
    107,807       90,388       211,955       181,932  
Corporate and Other
    113       183       1,232       38  
     
Total
  $ 290,987     $ 277,903     $ 575,065     $ 546,378  
     
 
    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Depreciation
                               
Menswear Group
  $ 1,026     $ 982     $ 1,999     $ 1,927  
Tommy Bahama Group
    2,762       2,604       5,434       5,060  
Corporate and Other
    107       95       209       196  
     
Total
  $ 3,895     $ 3,681     $ 7,642     $ 7,183  
     
 
    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Amortization of Intangible Assets
                               
Menswear Group
  $ 807     $ 809     $ 1,610     $ 1,620  
Tommy Bahama Group
    743       1,042       1,487       2,084  
     
Total
  $ 1,550     $ 1,851     $ 3,097     $ 3,704  
     
 
    Second Quarter   First Half
    Fiscal 2007   Fiscal 2006   Fiscal 2007   Fiscal 2006
     
Operating Income
                               
Menswear Group
  $ 13,690     $ 15,968     $ 24,301     $ 30,972  
Tommy Bahama Group
    13,927       10,109       30,762       24,466  
Corporate and Other
    (2,597 )     (3,885 )     (7,033 )     (8,911 )
     
Total Operating Income
    25,020       22,192       48,030       46,527  
Interest Expense, net
    5,951       6,272       11,443       12,105  
     
Earnings before income taxes
  $ 19,069     $ 15,920     $ 36,587     $ 34,422  
     
                         
    December 1,   June 2,   December 2,
    2006   2006   2005
     
Assets
                       
Menswear Group
  $ 434,142     $ 398,930     $ 419,188  
Tommy Bahama Group
    448,087       423,376       401,890  
Womenswear Group (discontinued)
          59,215       74,589  
Corporate and Other
    1,179       4,074       (1,050 )
     
Total
  $ 883,408     $ 885,595     $ 894,617  
     
7.   Consolidating Financial Data of Subsidiary Guarantors: Our Senior Unsecured Notes are guaranteed by our wholly owned domestic subsidiaries (“Subsidiary Guarantors”). All guarantees are full and unconditional. Non-guarantors consist of our subsidiaries which are organized outside of the United States and any subsidiaries which are not wholly-owned. We use the equity method with respect to investment in subsidiaries included in other non-current assets in our condensed consolidating financial statements. Set forth below are our unaudited condensed consolidating balance sheets as of December 1, 2006, June 2, 2006 and December 2, 2005, our unaudited condensed consolidating statements of earnings for the second quarter and first half of fiscal 2007 and fiscal 2006 and our unaudited condensed consolidating statements of cash flows for the first half of fiscal 2007 and fiscal 2006 (in thousands).

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
December 1, 2006
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
ASSETS
Current Assets:
                                       
Cash and cash equivalents
  $ 1,548     $ 1,016     $ 6,230     $     $ 8,794  
Receivables, net
    75,096       62,401       36,801       (7,618 )     166,680  
Inventories
    61,908       61,877       15,809       (604 )     138,990  
Prepaid expenses
    8,219       7,880       3,519             19,618  
             
Total current assets
    146,771       133,174       62,359       (8,222 )     334,082  
Property, plant and equipment, net
    10,256       61,811       8,954             81,021  
Goodwill, net
    1,847       148,556       51,651             202,054  
Intangible assets, net
    1,432       137,918       96,911             236,261  
Other non-current assets, net
    709,426       150,214       1,391       (831,041 )     29,990  
     
Total Assets
  $ 869,732     $ 631,673     $ 221,266     $ (839,263 )   $ 883,408  
     
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities related to continuing operations
  $ 48,479     $ 45,900     $ 32,224     $ (6,987 )   $ 119,616  
Current liabilities related to discontinued operations
    5,192       276       (16 )           5,452  
Long-term debt, less current portion
    217,005                         217,005  
Non-current liabilities
    174,733       (137,718 )     107,217       (109,150 )     35,082  
Deferred income taxes
    (855 )     47,245       34,685             81,075  
Total shareholders’/invested equity
    425,178       675,970       47,156       (723,126 )     425,178  
     
Total Liabilities and Shareholders’/Invested Equity
  $ 869,732     $ 631,673     $ 221,266     $ (839,263 )   $ 883,408  
     
June 2, 2006
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
ASSETS
Current Assets:
                                       
Cash and cash equivalents
  $ 5,175     $ 1,134     $ 4,181     $ (11 )   $ 10,479  
Receivables, net
    61,428       57,785       39,009       (14,143 )     144,079  
Inventories
    58,924       50,880       14,546       (756 )     123,594  
Prepaid expenses
    8,959       7,321       3,934             20,214  
Current assets related to discontinued operations, net
    52,065       7,150                   59,215  
     
Total current assets
    186,551       124,270       61,670       (14,910 )     357,581  
Property, plant and equipment, net
    11,122       53,648       8,893             73,663  
Goodwill, net
    1,847       148,342       49,043             199,232  
Intangible assets, net
    1,451       139,406       93,596             234,453  
Other non-current assets, net
    677,414       143,790       1,436       (801,974 )     20,666  
     
Total Assets
  $ 878,385     $ 609,456     $ 214,638     $ (816,884 )   $ 885,595  
     
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities related to continuing operations
  $ 70,262     $ 57,872     $ 35,026     $ (13,557 )   $ 149,603  
Current liabilities related to discontinued operations
    27,813       2,903                   30,716  
Long-term debt, less current portion
    200,016       7                   200,023  
Non-current liabilities
    181,845       (154,586 )     111,878       (109,158 )     29,979  
Deferred income taxes
    (252 )     46,795       30,030             76,573  
Total shareholders’/invested equity
    398,701       656,465       37,704       (694,169 )     398,701  
     
Total Liabilities and Shareholders’/Invested Equity
  $ 878,385     $ 609,456     $ 214,638     $ (816,884 )   $ 885,595  
     

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OXFORD INDUSTRIES, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
December 2, 2005
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
ASSETS
Current Assets:
                                       
Cash and cash equivalents
  $ 3,304     $ 1,411     $ 2,115     $ 18     $ 6,848  
Receivables, net
    68,760       54,250       63,987       (37,803 )     149,194  
Inventories
    79,903       40,852       16,165       (818 )     136,102  
Prepaid expenses
    11,382       8,293       5,064             24,739  
Current assets related to discontinued operations, net
    62,450       7,697       (368 )           69,779  
     
Total current assets
    225,799       112,503       86,963       (38,603 )     386,662  
Property, plant and equipment, net
    11,390       45,258       8,588             65,236  
Goodwill, net
    1,847       136,278       42,027             180,152  
Intangible assets, net
    1,470       141,462       91,880             234,812  
Other non-current assets, net
    650,998       148,565       1,927       (778,545 )     22,945  
Other assets related to discontinued operations, net
    818       3,992                   4,810  
     
Total Assets
  $ 892,322     $ 588,058     $ 231,385     $ (817,148 )   $ 894,617  
     
 
                                       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities related to continuing operations
  $ 71,593     $ 59,097     $ 39,563     $ (37,674 )   $ 132,579  
Current liabilities related to discontinued operations
    16,752       882       12             17,646  
Long-term debt, less current portion
    298,927       15                   298,942  
Non-current liabilities
    158,840       (131,188 )     109,131       (109,280 )     27,503  
Deferred income taxes
    3,517       42,773       28,964             75,254  
Non-current liabilities related to discontinued operations
    47                         47  
Total shareholders’/invested equity
    342,646       616,479       53,715       (670,194 )     342,646  
     
Total Liabilities and Shareholders’/Invested Equity
  $ 892,322     $ 588,058     $ 231,385     $ (817,148 )   $ 894,617  
     
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
Second Quarter of Fiscal 2007
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
Net sales
  $ 131,654     $ 124,995     $ 44,248     $ (9,910 )   $ 290,987  
Cost of goods sold
    101,326       60,456       19,102       (1,697 )     179,187  
     
Gross profit
    30,328       64,539       25,146       (8,213 )     111,800  
Selling, general and administrative
    27,049       55,899       19,903       (12,177 )     90,674  
Royalties and other income
    44       2,580       1,835       (565 )     3,894  
     
Operating income
    3,323       11,220       7,078       3,399       25,020  
Interest (income) expense, net
    3,556       (2,912 )     2,027       3,280       5,951  
Income from equity investment
    12,125                   (12,125 )      
     
Earnings before income taxes
    11,892       14,132       5,051       (12,006 )     19,069  
Income taxes
    (178 )     5,608       1,451       43       6,924  
     
Earnings from continuing operations
    12,070       8,524       3,600       (12,049 )     12,145  
Earnings from discontinued operations, net of tax
    8       (28 )           28       8  
     
Net earnings
  $ 12,078     $ 8,496     $ 3,600     $ (12,021 )   $ 12,153  
     

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OXFORD INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF EARNINGS
First Half of Fiscal 2007
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
Net sales
  $ 267,524     $ 245,617     $ 82,901     $ (20,977 )   $ 575,065  
Cost of goods sold
    207,311       115,042       37,706       (4,905 )     355,154  
     
Gross profit
    60,213       130,575       45,195       (16,072 )     219,911  
Selling, general and administrative
    53,914       109,379       38,101       (22,727 )     178,667  
Royalties and other income
    44       4,075       3,309       (642 )     6,786  
     
Operating income
    6,343       25,271       10,403       6,013       48,030  
Interest (income) expense, net
    7,396       (5,755 )     3,939       5,863       11,443  
Income from equity investment
    24,049       3             (24,052 )      
     
Earnings before income taxes
    22,996       31,029       6,464       (23,902 )     36,587  
Income taxes
    (206 )     11,674       1,766       53       13,287  
     
Earnings from continuing operations
    23,202       19,355       4,698       (23,955 )     23,300  
Earnings from discontinued operations, net of tax
    (197 )     (64 )           64       (197 )
     
Net earnings
  $ 23,005     $ 19,291     $ 4,698     $ (23,891 )   $ 23,103  
     
Second Quarter of Fiscal 2006
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
Net sales
  $ 135,525     $ 112,526     $ 46,630     $ (16,778 )   $ 277,903  
Cost of goods sold
    104,997       53,405       20,216       (3,521 )     175,097  
     
Gross profit
    30,528       59,121       26,414       (13,257 )     102,806  
Selling, general and administrative
    26,960       50,171       20,270       (13,134 )     84,267  
Royalties and other income
    (126 )     1,865       2,053       (139 )     3,653  
     
Operating income
    3,442       10,815       8,197       (262 )     22,192  
Interest (income) expense, net
    7,604       (3,143 )     1,896       (85 )     6,272  
Income from equity investment
    11,961       29             (11,990 )      
     
Earnings before income taxes
    7,799       13,987       6,301       (12,167 )     15,920  
Income taxes
    (1,640 )     4,785       2,709       (111 )     5,743  
     
Earnings from continuing operations
    9,439       9,202       3,592       (12,056 )     10,177  
Earnings from discontinued operations, net of tax
    1,634       776       (1,579 )           831  
     
Net earnings
  $ 11,073     $ 9,978     $ 2,013     $ (12,056 )   $ 11,008  
     
First Half of Fiscal 2006
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
Net sales
  $ 267,954     $ 220,527     $ 93,226     $ (35,329 )   $ 546,378  
Cost of goods sold
    205,981       100,656       41,407       (10,187 )     337,857  
     
Gross profit
    61,973       119,871       51,819       (25,142 )     208,521  
Selling, general and administrative
    54,358       97,862       40,730       (24,042 )     168,908  
Royalties and other income
    (276 )     3,795       3,534       (139 )     6,914  
     
Operating income
    7,339       25,804       14,623       (1,239 )     46,527  
Interest (income) expense, net
    14,774       (5,676 )     3,886       (879 )     12,105  
Income from equity investment
    27,429       108             (27,537 )      
     
Earnings before income taxes
    19,994       31,588       10,737       (27,897 )     34,422  
Income taxes
    (2,203 )     10,939       3,814       (125 )     12,425  
     
Earnings from continuing operations
    22,197       20,649       6,923       (27,772 )     21,997  
Earnings from discontinued operations, net of tax
    2,930       1,654       (1,689 )           2,895  
     
Net earnings
  $ 25,127     $ 22,303     $ 5,234     $ (27,772 )   $ 24,892  
     

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OXFORD INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
First Half of Fiscal 2007
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
     
Cash Flows From Operating Activities
                                       
Net cash (used in) provided by operating activities
  $ (16,665 )   $ (813 )   $ 6,769     $ 11     $ (10,698 )
Cash Flows from Investing Activities
                                       
Acquisitions
    (12,111 )                       (12,111 )
Investment in unconsolidated entity
          (9,090 )                 (9,090 )
Purchases of property, plant and equipment
    (193 )     (14,460 )     (615 )           (15,268 )
Proceeds from sale of property, plant and equipment
    16       16                   32  
             
Net cash (used in) provided by investing activities
    (12,288 )     (23,534 )     (615 )           (36,437 )
Cash Flows from Financing Activities
                                       
Change in debt
    16,888       (8 )     (30 )           16,850  
Proceeds from issuance of common stock
    2,240                         2,240  
Change in inter-company payable
    (8,615 )     13,274       (4,659 )            
Dividends on common stock
    (7,970 )                       (7,970 )
             
Net cash (used in) provided by financing activities
    2,543       13,266       (4,689 )           11,120  
Cash Flows from Discontinued Operations
                                       
Net cash flows provided by discontinued operations
    22,783       10,963                   33,746  
             
Net change in Cash and Cash Equivalents
    (3,627 )     (118 )     1,465       11       (2,269 )
Effect of foreign currency translation
                584             584  
Cash and Cash Equivalents at the Beginning of Period
    5,175       1,134       4,181       (11 )     10,479  
             
Cash and Cash Equivalents at the End of Period
  $ 1,548     $ 1,016     $ 6,230     $     $ 8,794  
           

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OXFORD INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
First Half of Fiscal 2006
                                         
    Oxford           Subsidiary        
    Industries   Subsidiary   Non-   Consolidating   Consolidated
    (Parent)   Guarantors   Guarantors   Adjustments   Total
             
Cash Flows From Operating Activities
                                       
Net cash (used in) provided by operating activities
  $ (12,086 )   $ 14,554     $ (1,073 )   $ 123     $ 1,518  
Cash Flows from Investing Activities
                                       
Acquisitions
    (11,501 )                       (11,501 )
Distribution from joint venture
          1,856                   1,856  
Purchases of property, plant and equipment
    (1,767 )     (5,589 )     (1,115 )           (8,471 )
Proceeds from sale of property, plant and equipment
    6                         6  
     
Net cash (used in) provided by investing activities
    (13,262 )     (3,733 )     (1,115 )           (18,110 )
Cash Flows from Financing Activities
                                       
Change in debt
    9,778       (14 )     1,704             11,468  
Proceeds from issuance of common stock
    4,556                         4,556  
Change in inter-company payable
    9,998       (14,761 )     4,894       (131 )      
Dividends on common stock
    (4,579 )                       (4,579 )
             
Net cash (used in) provided by financing activities
    19,753       (14,775 )     6,598       (131 )     11,445  
Cash Flows from Discontinued Operations
                                       
Net cash flows provided by discontinued operations
    6,186       3,506       (3,580 )           6,112  
             
Net change in Cash and Cash Equivalents
    591       (448 )     830       (8 )     965  
Effect of foreign currency translation
                (616 )           (616 )
Cash and Cash Equivalents at the Beginning of Period
    2,713       1,859       1,901       26       6,499  
             
Cash and Cash Equivalents at the End of Period
  $ 3,304     $ 1,411     $ 2,115     $ 18     $ 6,848  
             

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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 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 fiscal 2006 Form 10-K.
OVERVIEW
We generate revenues and cash flow through the design, sale, production, sourcing and distribution of branded and private label consumer apparel and footwear for men, women and children and the licensing of company-owned trademarks. Our markets and customers are located primarily in the United States. We source more than 95% of our products through third-party producers. We primarily distribute our products through our wholesale customers, which include chain stores, department stores, specialty stores, specialty catalogs and mass merchants. We also sell our products for some brands in our own retail stores.
We operate in an industry that is highly competitive. Our ability to continuously evaluate and respond to changing consumer demands and tastes across multiple market segments, distribution channels and geographic regions is critical to our success. Although our approach is aimed at diversifying our risks, misjudging shifts in consumer preferences could have a negative effect on future operating results. Other key aspects of competition include quality, brand image, distribution methods, price, customer service and intellectual property protection. Our size and global operating strategies help us to successfully compete by providing opportunities for operating synergies. Our success in the future will depend on our ability to continue to design products that are acceptable to the markets we serve and to source our products on a competitive basis while still earning appropriate margins.
The most significant factors impacting our results and contributing to the increase in diluted earnings from continuing operations per common share to $0.68 in the second quarter of fiscal 2007 from $0.57 in the second quarter of fiscal 2006 and the increase in diluted net earnings per common share to $0.68 in the second quarter of fiscal 2007 from $0.62 in the second quarter of fiscal 2006 were:
    the Tommy Bahama Group’s 19% increase in net sales and 38% increase in operating income, primarily due to product line expansion including Tommy Bahama Relaxtm, Tommy Bahama Golf 18tm and Tommy Bahama Swim tm, continuing strength in existing product lines and retail store expansion;
 
    a 2.3% decrease in sales and a 14.3% decrease in operating income in the Menswear Group, primarily due to the decreased sales and operating margins for Ben Sherman and margin pressures in our tailored clothing business; and
 
    the disposition of substantially all of the assets of our Womenswear Group on June 2, 2006, resulting in all Womenswear Group operations for all periods presented being reclassified to discontinued operations.
The most significant factors impacting our results and contributing to the increase in diluted earnings from continuing operations per common share to $1.31 in the first half of fiscal 2007 from $1.24 in the first half of fiscal 2006 and the decrease in diluted net earnings per common share to $1.30 in the first half of fiscal 2007 from $1.40 in the first half of fiscal 2006 were:
    the Tommy Bahama Group’s 17% increase in net sales and 26% increase in operating income, primarily due to product line expansion including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim, continuing strength in existing product lines and retail store expansion;
 
    relatively flat sales and a 22% decrease in operating income in the Menswear Group, primarily due to the decreased sales and operating margins for Ben Sherman and margin pressures in our tailored clothing business; and
 
    the disposition of substantially all of the assets of our Womenswear Group on June 2, 2006, resulting in all Womenswear Group operations for all periods presented being reclassified to discontinued operations.

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RESULTS OF OPERATIONS
The following table sets forth the line items in our consolidated statements of earnings both in dollars (in thousands) and the percentage change as compared to the comparable period in the prior year. Individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors, as statement of earnings classification of certain expenses may vary by company.
                                                 
    Second Quarter   Percent   First Half   Percent
    Fiscal 2007   Fiscal 2006   Change   Fiscal 2007   Fiscal 2006   Change
               
Net sales
  $ 290,987     $ 277,903       4.7 %   $ 575,065     $ 546,378       5.3 %
Cost of goods sold
    179,187       175,097       2.3 %     355,154       337,857       5.1 %
               
Gross profit
    111,800       102,806       8.7 %     219,911       208,521       5.5 %
Selling, general and administrative expenses
    89,124       82,416       8.1 %     175,570       165,204       6.3 %
Amortization of intangible assets
    1,550       1,851       (16.3 %)     3,097       3,704       (16.4 %)
Royalties and other operating income
    3,894       3,653       6.6 %     6,786       6,914       (1.9 %)
               
Operating income
    25,020       22,192       12.7 %     48,030       46,527       3.2 %
Interest expense, net
    5,951       6,272       (5.1 %)     11,443       12,105       (5.5 %)
               
Earnings before income taxes
    19,069       15,920       19.8 %     36,587       34,422       6.3 %
Income taxes
    6,924       5,743       20.6 %     13,287       12,425       6.9 %
               
Earnings from continuing operations
    12,145       10,177       19.3 %     23,300       21,997       5.9 %
Earnings (loss) from discontinued operations
    8       831       (99.0 %)     (197 )     2,895       (106.8 %)
               
Net earnings
  $ 12,153     $ 11,008       10.4 %   $ 23,103     $ 24,892       (7.2 %)
               
 
The following table sets forth the line items in our consolidated statements of earnings as a percentage of net sales. We have calculated all percentages based on actual data, but columns may not add due to rounding.
 
    Percent of Net Sales        
    Second Quarter           First Half        
    Fiscal 2007   Fiscal 2006           Fiscal 2007   Fiscal 2006        
                             
Net sales
    100.0 %     100.0 %             100.0 %     100.0 %        
Cost of goods sold
    61.6 %     63.0 %             61.8 %     61.8 %        
                             
Gross profit
    38.4 %     37.0 %             38.2 %     38.2 %        
Selling, general and administrative expenses
    30.6 %     29.7 %             30.5 %     30.2 %        
Amortization of intangible assets, net
    0.5 %     0.7 %             0.5 %     0.7 %        
Royalties and other operating income
    1.3 %     1.3 %             1.2 %     1.3 %        
                             
Operating income
    8.6 %     8.0 %             8.4 %     8.5 %        
Interest expense, net
    2.0 %     2.3 %             2.0 %     2.2 %        
                             
Earnings before income taxes
    6.6 %     5.7 %             6.4 %     6.3 %        
Income taxes
    2.4 %     2.1 %             2.3 %     2.3 %        
                             
Earnings from continuing operations
    4.2 %     3.7 %             4.1 %     4.0 %        
                             
Earnings (loss) from discontinued operations
    0.0 %     0.3 %             0.0 %     0.5 %        
                             
Net earnings
    4.2 %     4.0 %             4.0 %     4.6 %        
                             

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SEGMENT DEFINITION
In our continuing operations, we have two operating segments for purposes of allocating resources and assessing performance. The Menswear Group produces branded and private label dress shirts, sport shirts, dress slacks, casual slacks, suits, sportcoats, suit separates, walkshorts, golf apparel, outerwear, sweaters, jeans, swimwear, footwear and headwear, licenses its brands for accessories and other products and operates retail stores. The Tommy Bahama Group produces lifestyle branded casual attire, operates retail stores and restaurants, and licenses its brands for accessories, footwear, furniture and other products.
Corporate and Other is a reconciling category for reporting purposes and includes our corporate offices, substantially all financing activities, LIFO inventory accounting adjustments and other costs that are not allocated to the operating groups.
As discussed in note 3 in our consolidated financial statements included in our fiscal 2006 Form 10-K, we sold substantially all of the assets of our Womenswear Group at the end of fiscal 2006. The Womenswear Group produced private label women’s sportswear separates, coordinated sportswear, outerwear, dresses and swimwear. The operating results of the Womenswear Group have not been included in segment information as all amounts were reclassified to discontinued operations. The information below presents certain information about our segments (in thousands).
                                                 
    Second Quarter   Percent   First Half   Percent
    Fiscal 2007   Fiscal 2006   Change   Fiscal 2007   Fiscal 2006   Change
               
Net Sales
                                               
Menswear Group
  $ 183,067     $ 187,332       (2.3 %)   $ 361,878     $ 364,408       (0.7 %)
Tommy Bahama Group
    107,807       90,388       19.3 %     211,955       181,932       16.5 %
Corporate and Other
    113       183       (38.3 %)     1,232       38       N/M  
               
Total Net Sales
  $ 290,987     $ 277,903       4.7 %   $ 575,065     $ 546,378       5.3 %
               
 
                                               
Operating Income
                                               
Menswear Group
  $ 13,690     $ 15,968       (14.3 %)   $ 24,301     $ 30,972       (21.5 %)
Tommy Bahama Group
    13,927       10,109       37.8 %     30,762       24,466       25.7 %
Corporate and Other
    (2,597 )     (3,885 )     (33.2 %)     (7,033 )     (8,911 )     (21.1 %)
               
Total Operating Income
  $ 25,020     $ 22,192       12.7 %   $ 48,030     $ 46,527       3.2 %
               
For further information regarding our segments, see Note 6 to our unaudited condensed consolidated financial statements included in this report.
SECOND QUARTER OF FISCAL 2007 COMPARED TO SECOND QUARTER OF FISCAL 2006
The discussion below compares our operating results for the second quarter of fiscal 2007 to the second quarter of fiscal 2006. Each percentage change provided below reflects the change between these periods unless indicated otherwise.
Net sales increased by $13.1 million, or 4.7%. The increase was primarily due to an increase in the average selling price per unit of 3.5% and an increase in unit sales of 0.8%. The increase in average selling price per unit was primarily due to a change in sales mix from the lower priced Menswear Group products to the higher priced Tommy Bahama Group products.
The Menswear Group reported a 2.3% decline in net sales. The decline was due to a unit sales decrease of 4.2% partially offset by an increase in the average selling price per unit of 2.1%. The decrease in unit sales was a result of a decrease in unit sales in both our historical menswear business and the Ben Sherman business. The increase in the average selling price per unit was primarily due to an increase in the selling prices in the Ben Sherman business due to a greater proportion of sales in our retail stores and the impact of foreign currency exchange rates.
The Tommy Bahama Group reported a 19.3% increase in net sales as a result of growth in wholesale and retail sales. The increase was due to an increase in unit sales of 29.2% partially offset by a decline in the average selling price per unit of 7.7%. The decline in the average selling price per unit was primarily due to a higher growth rate in wholesale sales than retail sales. The higher growth rate in wholesale sales was primarily due to new product offerings including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim and the continuing strength of our

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existing product lines. The increase in retail sales was primarily due to an increase in the number of retail stores to 63 at the end of the second quarter of fiscal 2007 compared to 57 at the end of second quarter of fiscal 2006.
Gross profit increased 8.7%. The increase was due to higher net sales and higher gross margins. Gross margins increased from 37.0% of net sales in the second quarter of fiscal 2006 to 38.4% of net sales in the second quarter of fiscal 2007. The increase in gross margin was primarily due to the increased proportion of Tommy Bahama sales to total sales. Tommy Bahama sales generally carry a higher gross margin than sales in our historical menswear business.
Our gross profit may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.
Selling, general and administrative expenses, or SG&A, increased 8.1%. The increase in SG&A was primarily due to expenses associated with additional retail stores, new product offerings (including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim) in the Tommy Bahama Group and impact of foreign currency exchange rates. SG&A was 29.7% of net sales in the second quarter of fiscal 2006 compared to 30.6% of net sales in the second quarter of fiscal 2007. This increase in SG&A as a percentage of net sales is primarily due to a higher proportion of sales of Tommy Bahama products, which generally carry a higher SG&A structure than our historical menswear business.
Amortization of intangible assets decreased 16.3%. The decrease was due to certain intangible assets acquired as part of our acquisitions, which generally have a greater amount of amortization in the earlier periods following the acquisition than later periods. We expect that amortization expense will decrease in future years unless we acquire additional intangible assets.
Royalties and other operating income increased 6.6%. The increase was primarily due to an increase in our share of equity income received from an unconsolidated entity that owns the Hathaway® trademark which was partially offset by slight declines in our Tommy Bahama and Ben Sherman royalty income.
Operating income increased 12.7% due to the changes discussed below.
The Menswear Group reported a 14.3% decrease in operating income. The decrease in operating income was primarily due to the lower sales in our Ben Sherman U.S. business and margin pressures in our tailored clothing business. This was partially offset by increased equity income in our historical menswear business from an unconsolidated entity that owns the Hathaway trademark.
The Tommy Bahama Group reported a 37.8% increase in operating income. The increase in operating income was primarily due to increased sales volume in existing and new product lines partially offset by increased operating expenses. The increased operating expenses were primarily due to the opening of additional retail stores and additional infrastructure to support our new product lines, including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim.
The Corporate and Other operating loss decreased $1.3 million, or 33.2%. The decrease in the operating loss was primarily due to LIFO inventory accounting, the reduction of certain corporate overhead costs and the reimbursement to us of certain corporate administrative expenses by the purchaser of the assets of the Womenswear Group pursuant to a transition services agreement.
Interest expense, net decreased 5.1%. The decrease in interest expense was primarily due to the lower debt levels in the second quarter of fiscal 2007, partially offset by higher interest rates during the second quarter of fiscal 2007.
Income taxes were at an effective tax rate of 36.3% for the second quarter of fiscal 2007 compared to 36.1% for the second quarter of fiscal 2006. The effective tax rate for the second quarter of fiscal 2007 may not be indicative of the rate in future periods.
Discontinued operations resulted from the disposition of our Womenswear Group on June 2, 2006, leading to all Womenswear Group operations being reclassified to discontinued operations for all periods presented. The decrease in earnings from discontinued operations was primarily due to the second quarter of fiscal 2006 including the full operations of the Womenswear Group, while the second quarter of fiscal 2007 only included incidental items related to the Womenswear Group.

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FIRST HALF OF FISCAL 2007 COMPARED TO FIRST HALF OF FISCAL 2006
The discussion below compares our operating results for the first half of fiscal 2007 to the first half of fiscal 2006. Each percentage change provided below reflects the change between these periods unless indicated otherwise.
Net sales increased by $28.7 million, or 5.3%. The increase was primarily due to an increase in unit sales of 4.4% and an increase in the average selling price per unit of 0.5%.
The Menswear Group reported a 0.7% decrease in net sales. The decrease was due to a decline in the average selling price per unit of 1.7% partially offset by an increase in the number of units sold of 1.3%. The decline in the average selling price per unit was primarily due to a decrease in the average selling price per unit in our historical menswear business and the decreased ratio of Ben Sherman sales to total menswear sales. Ben Sherman sales generally carry a higher average selling price per unit than our historical menswear business. The increase in unit sales was a result of an increase in unit sales in the historical menswear business partially offset by a decrease in the Ben Sherman unit sales.
The Tommy Bahama Group reported a 16.5% increase in net sales as a result of growth in wholesale and retail sales. The increase was due to an increase in unit sales of 21.7% partially offset by a decline in the average selling price per unit of 4.3%. The decline in the average selling price per unit was primarily due to the higher growth rate in wholesale sales than retail sales. The higher growth rate in wholesale sales was primarily due to new product offerings including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim and continued strength in our existing product lines. The increase in retail sales was due to an increase in the number of retail stores to 63 at the end of the first half of fiscal 2007 compared to 57 at the end of the first half of fiscal 2006.
Gross profit increased 5.5%. The increase was due to higher net sales. Gross margins remained constant at 38.2% of net sales in the first half of fiscal 2006 and the first half of fiscal 2007. This constant gross margin was a result of an increase in Tommy Bahama sales as a percentage of total sales offset by lower gross margins in our historical menswear business in the first quarter.
Our gross profit may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.
Selling, general and administrative expenses, or SG&A, increased 6.3%. The increase in SG&A was primarily due to expenses associated with additional retail stores, new product offerings including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim in the Tommy Bahama Group and the impact of foreign currency exchange rates. SG&A was 30.2% of net sales in the first half of fiscal 2006 compared to 30.5% of net sales in the first half of fiscal 2007. This increase in SG&A as a percentage of net sales is primarily due to a higher proportion of sales of Tommy Bahama products, which generally carry a higher SG&A structure than our historical menswear business.
Amortization of intangible assets decreased 16.4%. The decrease was due to certain intangible assets acquired as part of our acquisitions, which generally have a greater amount of amortization in the earlier periods following the acquisition than later periods.
Royalties and other operating income decreased 1.9%. The decrease was primarily due to a non-recurring $0.3 million gain recognized in the first quarter of fiscal 2006 related to the sale of the assets of our Paradise Shoe joint venture.
Operating income increased 3.2% due to the changes discussed below.
The Menswear Group reported a 21.5% decrease in operating income. The decrease in operating income was primarily due to the lower sales in our Ben Sherman U.S. business and margin pressures in our tailored clothing business. These items were partially offset by increased equity income from an unconsolidated entity that owns the Hathaway trademark.
The Tommy Bahama Group reported a 25.7% increase in operating income. The increase in operating income was primarily due to increased sales volume in existing and new product lines partially offset by increased operating expenses. The increased operating expenses were primarily due to the opening of additional retail stores and additional infrastructure to support our new product lines, including Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim.

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The Corporate and Other operating loss decreased $1.9 million, or 21.1%. The decrease in the operating loss was primarily due to decreased operating expenses and the reimbursement to us of certain corporate administrative expenses by the purchaser of the assets of the Womenswear Group pursuant to a transition services agreement.
Interest expense, net decreased 5.5%. The decrease in interest expense was primarily due to the lower debt levels in the first half of fiscal 2007, partially offset by higher interest rates during the first half of fiscal 2007.
Income taxes were at an effective tax rate of 36.3% for the first half of fiscal 2007 compared to 36.1% for the first half of fiscal 2006. The effective tax rate for the first half of fiscal 2007 may not be indicative of the rate in future periods.
Discontinued operations resulted from the disposition of our Womenswear Group operations on June 2, 2006, leading to all Womenswear Group operations being reclassified to discontinued operations for all periods presented. The decrease in earnings from discontinued operations was primarily due to the first half of fiscal 2006 including the full operations of the Womenswear Group, while the first half of fiscal 2007 only included incidental items related to the Womenswear Group.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary source of revenue and cash flow is our operating activities in the United States and to some extent the United Kingdom. When cash inflows are less than cash outflows, we also have access to amounts under our U.S. Revolver and U.K. Revolver, each of which are described below, subject to their terms. We may seek to finance future capital investment programs through various methods, including, but not limited to, cash flow from operations, borrowings under our current or additional credit facilities and sales of equity securities.
Our liquidity requirements arise from the funding of our working capital needs, which include inventory, other operating expenses and accounts receivable, funding of capital expenditures, payment of quarterly dividends, repayment of our indebtedness, payment of interest on outstanding indebtedness and acquisitions, if any. Generally, our product purchases are acquired through trade letters of credit which are drawn against our lines of credit at the time of shipment of the products and reduce the amounts available under our lines of credit when issued.
Cash and cash equivalents on hand was $8.8 million at December 1, 2006 and $6.8 million at December 2, 2005, respectively.
Operating Activities
During the first half of fiscal 2007, our continuing operations used $10.7 million of cash compared to providing $1.5 million of cash during the first half of fiscal 2006. Operating cash flows from continuing operations was primarily a result of the earnings from continuing operations for the period adjusted for non-cash activities such as depreciation, amortization and stock compensation for restricted stock awards and changes in working capital accounts. The use of cash by continuing operations in the first half of fiscal 2007 compared to cash provided by continuing operations during the first half of fiscal 2006 was primarily due to a larger investment in working capital in fiscal 2007. During the first half of fiscal 2007, the changes in the working capital resulted in a net cash outflow primarily due to the increases in accounts receivable and inventories and the decrease in current liabilities. During the first half of fiscal 2006, the changes in working capital resulted in net cash proceeds primarily due to earnings for the period and a reduction in inventory partially offset by a significant reduction in current liabilities and increases in prepaid expenses and other assets.
Our working capital ratio, which is calculated by dividing total current assets by total current liabilities, was 2.67:1 and 2.57:1 at December 1, 2006 and December 2, 2005, respectively. The change was due to the 17% reduction of current liabilities partially offset by the 14% decrease in current assets primarily related to discontinued operations, as discussed below.
Receivables, net were $166.7 million and $149.2 million at December 1, 2006 and December 2, 2005, respectively, an increase of 12%. The increase was primarily due to the higher sales in the last two months of the second quarter of fiscal 2007. Days’ sales outstanding for our accounts receivable, excluding retail sales, was 58 days and 54 days at December 1, 2006 and December 2, 2005, respectively.
Inventories were $139.0 million and $136.1 million at December 1, 2006 and December 2, 2005, respectively, an increase of 2%. This increase was due to additional inventories in the Tommy Bahama Group primarily due to inventory related to our Tommy Bahama Relax, Tommy Bahama Golf 18 and Tommy Bahama Swim product lines which we began in late fiscal 2006 as well as an increase in anticipated sales in the third quarter of fiscal 2007. This

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increase was partially offset by a reduction of inventory in our Menswear Group largely due to a more optimal level of inventory for certain replenishment programs and the anticipation of lower levels of sales in third quarter of fiscal 2007. Our days’ supply of inventory on hand related to continuing operations, calculated on a trailing twelve month average using a FIFO basis, was 95 days and 101 days at December 1, 2006 and December 2, 2005, respectively.
Prepaid expenses were $19.6 million and $24.7 million at December 1, 2006 and December 2, 2005, respectively. The decrease in prepaid expenses was primarily due to a decrease in prepaid advertising resulting from our decision to not sponsor the Tommy Bahama Challenge golf tournament in fiscal 2007, a decrease in prepaid royalties due to the timing of certain royalty payments and the impact of foreign currency exchange rates on our foreign currency contracts outstanding at the end of the second quarter of fiscal 2007 and fiscal 2006.
Current assets related to discontinued operations were $0.0 million and $69.8 million at December 1, 2006 and December 2, 2005, respectively. The decrease in current assets related to discontinued operations resulted from the disposition of the Womenswear Group on June 2, 2006.
Current liabilities, which primarily consist of payables arising out of our operating activities, were $125.1 million and $150.2 million at December 1, 2006 and December 2, 2005, respectively. The decrease in current liabilities related to continuing operations was primarily due to a lower accrual for accrued compensation including bonuses for fiscal 2007 compared to fiscal 2006, the reduction in our short term debt levels under our U.K. Revolver, and the payment of our quarterly dividend prior to the end of the second quarter in fiscal 2007 but subsequent to the end of the second quarter in fiscal 2006. Additionally, current liabilities include current liabilities related to discontinued operations of $5.5 million and $17.7 million at December 1, 2006 and December 2, 2005, respectively. The current liabilities related to discontinued operations at December 1, 2006 primarily consisted of cash payments received from customers of our Womenswear Group at the end of the second quarter of fiscal 2007 which were remitted to the purchaser of the Womenswear Group during the third quarter of fiscal 2007. The current liabilities related to discontinued operations at December 2, 2005 reflected all operations of the Womenswear Group.
Deferred income taxes were $81.1 million and $75.3 million at December 1, 2006 and December 2, 2005, respectively. The change resulted primarily from the change in foreign currency exchange rates.
Other non-current liabilities, which primarily consist of deferred rent and deferred compensation amounts, were $35.1 million and $27.5 million at December 1, 2006 and December 2, 2005, respectively. The increase was primarily due to the recognition of deferred rent and deferred compensation during the second half of fiscal 2006 and first half of fiscal 2007.
Investing Activities
During the first half of fiscal 2007, investing activities used $36.4 million in cash. We paid approximately $21.2 million related to acquisitions, consisting of the fiscal 2006 Tommy Bahama earn-out payment and the acquisition of an ownership interest in an unconsolidated entity that owns the Hathaway trademark and other related trademarks in the United States and certain other countries. Additionally, we incurred $15.3 million of capital expenditures, primarily related to new Tommy Bahama and Ben Sherman retail stores.
During the first half of fiscal 2006, investing activities used $18.1 million in cash. We paid approximately $11.5 million related to acquisitions, consisting of the fiscal 2005 Tommy Bahama earn-out payment and the acquisition of Solitude®, a California lifestyle trademark, and Arnold Brant ®. Additionally, we incurred capital expenditures of $8.5 million, primarily related to new Tommy Bahama and Ben Sherman retail stores. These investments were partially offset by $1.9 million of proceeds received from our Paradise Shoe equity investment as a result of Paradise Shoe selling substantially all of its assets.
Non-current assets, including property, plant and equipment, goodwill, intangible assets and other non-current assets, increased primarily as a result of the fiscal 2006 earn-out related to the Tommy Bahama acquisition, the acquisition of the ownership interest in an unconsolidated entity that owns the Hathaway trademark and other related trademarks in the United States and certain other countries, capital expenditures for our retail stores and the impact of changes in foreign currency exchange rates. These increases were partially offset by depreciation related to our property, plant and equipment and amortization of our intangible assets.
Financing Activities
During the first half of fiscal 2007, financing activities provided $11.1 million in cash. The cash flow used in our operating activities and our investing activities, partially offset by the cash flow provided by our discontinued operations, resulted in the need to borrow additional amounts under our U.S. Revolver during the first half of fiscal

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2007. We also received $2.2 million of cash from the exercise of employee stock options. These amounts were partially offset by the payment of an aggregate of $8.0 million during the first half of fiscal 2007 for dividends on our common shares declared for the fourth quarter of fiscal 2006, first quarter of fiscal 2007 and second quarter of fiscal 2007.
During the first half of fiscal 2006, financing activities provided $11.4 million in cash, primarily from additional borrowings, net of repayments, under our U.S. revolving credit facility to fund our investments and working capital needs during the period. We also received $4.6 million of cash from the exercise of employee stock options. These cash proceeds were partially offset by the use of cash to pay $4.6 million of dividends on our common shares declared in the fourth quarter of fiscal 2005 and first quarter of fiscal 2006. The dividend declared in the second quarter of fiscal 2006 was paid in the third quarter of fiscal 2006.
On December 1, 2006, we initiated payment of a cash dividend of $0.15 per share to shareholders of record as of November 15, 2006. That dividend is the 186th consecutive quarterly dividend we have paid since we became a public company in July 1960. Additionally, on January 8, 2007, our board of directors declared a cash dividend of $0.18 per share to shareholders of record as of February 15, 2007, payable on March 2, 2007. We expect to pay dividends in future quarters. However, we may decide to discontinue or modify the dividend payment at any time if we determine that other uses of our capital, including, but not limited to, payment of debt outstanding or funding of future acquisitions, may be in our best interest; if our expectations of future cash flows and future cash needs outweigh the ability to pay a dividend; or if the terms of our credit facilities limit our ability to pay dividends. We may borrow to fund dividends in the short term based on our expectations of operating cash flows in future periods. All cash flow from operations will not necessarily be paid out as dividends in all periods.
Debt, including short term debt, was $217.9 million and $304.8 million as of December 1, 2006 and December 2, 2005, respectively. The decrease resulted primarily from the proceeds from our disposition of substantially all of the assets of our Womenswear Group on June 2, 2006, which were used to reduce outstanding debt.
Cash Flows from Discontinued Operations
Our Womenswear Group generated cash flow of $33.7 million and $6.1 million during the first half of fiscal 2007 and the first half of fiscal 2006, respectively. The cash flows from discontinued operations for the first half of fiscal 2006 reflect the operating results of the Womenswear Group, whereas the first half of fiscal 2007 reflects the realization and disposition of retained assets and liabilities after the date of the transaction. Cash flows from discontinued operations during fiscal 2006 and the first half of fiscal 2007 are not indicative of cash flows from discontinued operations anticipated in future periods. We do not anticipate significant cash flows from discontinued operations in future periods other than the payment of the current liabilities related to discontinued operations described above during the third quarter of fiscal 2007.
Liquidity and Capital Resources
The table below provides a description of our significant financing arrangements (in thousands) at December 1, 2006:
         
    Balance
 
$280 million U.S. Secured Revolving Credit Facility (“U.S. Revolver”), which accrues interest (8.25% at December 1, 2006), unused line fees and letter of credit fees based upon a pricing grid tied to certain debt ratios, requires interest payments monthly with principal due at maturity (July 2009), and is collateralized by substantially all the assets of Oxford Industries, Inc. and our consolidated domestic subsidiaries
  $ 17,800  
 
£12 million Senior Secured Revolving Credit Facility (“U.K. Revolver”), which accrues interest at the bank’s base rate plus 1.0% (6.00% at December 1, 2006), requires interest payments monthly with principal payable on demand or at maturity (July 2007), and is collateralized by substantially all the United Kingdom assets of Ben Sherman
    75  
 
$200 million Senior Unsecured Notes (“Senior Unsecured Notes”), which accrue interest at 8.875% (effective rate of 9.0%), require interest payments semi-annually on June 1 and December 1 of each year, require payment of principal at maturity (June 2011), are subject to certain prepayment penalties and are guaranteed by our consolidated domestic subsidiaries
    200,000  
 
Other debt, including capital lease obligations with varying terms and conditions, collateralized by the respective assets
    15  
 
Total debt
    217,890  
 
Unamortized discount on Senior Unsecured Notes
    (795 )
 
Short-term debt and current maturities of long-term debt
    (90 )
 
Total long-term debt, less current maturities
  $ 217,005  
 

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Our U.S. Revolver, U.K. Revolver and Senior Unsecured Notes each include certain debt covenant restrictions that require us or our subsidiaries to maintain certain financial ratios that we believe are customary for similar facilities. Our U.S. Revolver also includes limitations on certain restricted payments such as earn-outs, payment of dividends and prepayment of debt. As of December 1, 2006, we were compliant with all financial covenants and restricted payment provisions related to our debt agreements.
Our U.S. Revolver and U.K. Revolver are used to finance trade letters of credit and standby letters of credit, as well as provide funding for other operating activities and acquisitions. As of December 1, 2006, approximately $53.6 million of trade letters of credit and other limitations on availability were outstanding against our U.S. Revolver and the U.K. Revolver. The aggregate net availability under our U.S. Revolver and U.K. Revolver agreements was approximately $232.3 million as of December 1, 2006.
Our debt to total capitalization ratio was 34%, 33% and 47% at December 1, 2006, June 2, 2006 and December 2, 2005, respectively. The change in this ratio from December 2, 2005 was primarily a result of the disposition of substantially all of the assets of our Womenswear Group on June 2, 2006.
We anticipate that we will be able to satisfy our ongoing cash requirements, which generally consist of working capital needs, capital expenditures (primarily for the opening of retail stores) and interest payments on our debt during fiscal 2007, primarily from cash on hand and cash flow from operations supplemented by borrowings under our lines of credit, as necessary. Our capital needs will depend on many factors, including our growth rate, the need to finance increased inventory levels and the success of our various products.
If appropriate investment opportunities arise that exceed the availability under our existing credit facilities, we believe that we will be able to fund such acquisitions through additional or refinanced debt facilities or the issuance of additional equity. However, our ability to obtain additional borrowings or refinance our credit facilities will depend on many factors, including the prevailing market conditions, our financial condition and our ability to negotiate favorable terms and conditions. There is no assurance that financing would be available on terms that are acceptable or favorable to us, if at all. At maturity of our U.K. Revolver, U.S. Revolver and Senior Unsecured Notes, we anticipate that we will be able to refinance the facilities and debt with terms available in the market at that time.
Our contractual obligations as of December 1, 2006 have not changed significantly from the contractual obligations outstanding at June 2, 2006 other than changes in the amounts outstanding under the U.S. Revolver and U.K. Revolver, amounts outstanding pursuant to letters of credit (both as discussed above) and new leases for our recently opened retail stores, none of which occurred outside the ordinary course of business.
Our anticipated capital expenditures for fiscal 2007 are expected to approximate $30 million, including $15.3 million incurred during the first half of fiscal 2007. These expenditures will consist primarily of the continued expansion of our retail operations.
Off Balance Sheet Arrangements
We have not entered into agreements which meet the definition of an off balance sheet financing arrangement, other than operating leases, and have made no financial commitments to or guarantees with respect to any unconsolidated subsidiaries or special purpose entities.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, stock compensation expense, contingencies and litigation and certain other accrued expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2006 Form 10-K for a summary of our critical accounting policies.

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SEASONALITY
Although our various product lines are sold on a year-round basis, the demand for specific products or styles may be highly seasonal. For example, the demand for golf and Tommy Bahama products is higher in the spring and summer seasons. Products are sold prior to each of the retail selling seasons, including spring, summer, fall and holiday. As the timing of product shipments and other events affecting the retail business may vary, results for any particular quarter may not be indicative of results for the full year. The percentage of our net sales by quarter for fiscal 2006 was 24%, 25%, 25% and 26%, respectively, and the percentage of our operating income by quarter for fiscal 2006 was 25%, 22%, 23% and 30%, respectively, which may not be indicative of the distribution in fiscal 2007 or future years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain interest rate, trade policy, commodity and inflation risks as discussed in Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our fiscal 2006 Form 10-K. There have not been any significant changes in our exposure to these risks during the first half of fiscal 2007.
FOREIGN CURRENCY RISK
To the extent that we have assets and liabilities, as well as operations, denominated in foreign currencies that are not hedged, we are subject to foreign currency transaction gains and losses. We view our foreign investments as long-term and as a result we generally do not hedge such foreign investments. We do not hold or issue any derivative financial instruments related to foreign currency exposure for speculative purposes.
We receive United States dollars for most of our product sales. We anticipate that less than 15% of our net sales during fiscal 2007 will be denominated in currencies other than the United States dollar. These sales primarily relate to Ben Sherman sales in the United Kingdom and Europe and sales of certain products in Canada. With the United States dollar trading at a weaker position than it has historically traded versus the pound sterling and the Canadian dollar, a strengthening United States dollar could result in lower levels of sales and earnings in our consolidated statements of earnings in future periods, although the sales in foreign currencies could be equal to or greater than amounts as previously reported. Based on our fiscal 2006 sales denominated in foreign currencies, if the dollar had strengthened by 5% in fiscal 2006, we would have experienced a decrease in net sales of approximately $6.5 million.
Substantially all of our inventory purchases from contract manufacturers throughout the world are denominated in United States dollars. Purchase prices for our products may be impacted by fluctuations in the exchange rate between the United States dollar and the local currencies, such as the Chinese Yuan, of the contract manufacturers, which may have the effect of increasing our cost of goods sold in the future. 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, we cannot quantify in any meaningful way the potential effect of such fluctuations on future costs. However, we do not believe that exchange rate fluctuations will have a material impact on our inventory costs in future periods.
We may from time to time purchase short-term foreign currency forward exchange contracts to hedge against changes in foreign currency exchange rates. As of December 1, 2006, we had entered into such contracts which have not been settled, in notional amounts totaling approximately $15.0 million, all with settlement dates before the end of our fiscal year. When such contracts are outstanding, the contracts are marked to market with the offset being recognized in our consolidated statement of earnings or other comprehensive income if the transaction does not or does, respectively, qualify as a hedge in accordance with accounting principles generally accepted in the United States. During fiscal 2006 and the first half of fiscal 2007 none of the contracts that we entered into qualified for hedge accounting. As of December 1, 2006, June 2, 2006 and December 2, 2005, we had recognized a liability of $1.1 million, no asset or liability, and an asset of $0.6 million, respectively, related to these contracts.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports under the Securities Exchange Act of 1934, such as this quarterly report on Form 10-Q, is reported in accordance with the rules of the SEC. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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Our Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any significant changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the second quarter of fiscal 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may become subject to litigation or claims. We are not currently a party to any litigation or regulatory actions that we believe could reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 1A. RISK FACTORS
We believe that an investor should carefully consider the factors discussed in Part I. Item 1A. Risk Factors in our fiscal 2006 Form 10-K. There have been no material changes to the risk factors described in our fiscal 2006 Form 10-K. The risks described in our Form 10-K are not the only risks facing our company. If any of the risks described in our Form 10-K, or other risks or uncertainties not currently known to us or that we currently deem to be immaterial, actually occur, our business, financial condition or operating results could suffer.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of shareholders was held on October 10, 2006. A total of 16,456,779 of the company’s shares were represented in person or by proxy at the meeting. This represented 92.87% of the company’s 17,719,914 shares issued, outstanding and entitled to vote at such meeting. At the annual meeting of shareholders:
  a.   The shareholders elected J. Hicks Lanier, Thomas C. Gallagher and Clarence H. Smith as Class II Directors for three-year terms, to hold office until our annual meeting of shareholders in 2009 or until their respective successors are elected and qualified. The vote tabulation for individual directors was as follows:
                 
Director   For   Withheld
J. Hicks Lanier
    16,072,825       385,954  
Thomas C. Gallagher
    15,074,130       1,382,649  
Clarence H. Smith
    16,267,753       189,026  
      In addition to the Class II Directors noted above, S. Anthony Margolis, James A. Rubright, Helen B. Weeks and E. Jenner Wood III will continue as Class III Directors who will hold office until our annual meeting of shareholders in 2007 or until their respective successors are elected and qualified and J. Reese Lanier, Sr., Cecil D. Conlee and Robert E. Shaw will continue as Class I Directors who will hold office until our annual meeting of shareholders in 2008 or until their respective successors are elected and qualified.

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  b.   The shareholders approved an amendment to the Oxford Industries, Inc. Long-Term Stock Incentive Plan and approved the ratification of Ernst & Young LLP as our independent auditors. The vote tabulation for each of these proposals was as follows:
                                     
                                Broker
Proposal   For   Against   Abstain   Non-Vote
2
  Amendment to Oxford Industries, Inc. Long-Term Stock Incentive Plan     13,859,436       550,524       17,168       2,029,651  
 
                                   
3
  Ratification of Independent Auditors     16,412,145       38,454       6,180       N/A  
      The text of the above proposals are incorporated by reference to Proposals 2 and 3, respectively, of our definitive proxy statement, dated September 1, 2006, filed with the SEC on September 8, 2006.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
     
3(a)
  Articles of Incorporation of Oxford Industries, Inc. Incorporated by reference to Exhibit 3.1 from the Oxford Industries, Inc. Form 10-Q for the fiscal quarter ended August 29, 2003.
 
   
3(b)
  Bylaws of Oxford Industries, Inc., as amended. Incorporated by reference to Exhibit 3.1 from the Oxford Industries, Inc. Form 8-K filed on January 9, 2007.
 
   
10.1
  Amendment to the Oxford Industries, Inc. Long-Term Stock Incentive Plan, dated as of September 26, 2006. Incorporated by reference to Exhibit 99.1 from the Oxford Industries, Inc. Form 8-K filed on September 28, 2006.+
 
   
31.1
  Section 302 Certification by Principal Executive Officer.*
 
   
31.2
  Section 302 Certification by Principal Financial Officer.*
 
   
32
  Section 906 Certification by Principal Executive Officer and Principal Financial Officer.*
 
*   Filed herewith.
 
+   Exhibit is a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
January 10, 2007
  OXFORD INDUSTRIES, INC.    
 
  (Registrant)    
 
       
 
    /s/ Thomas Caldecot Chubb III    
 
       
 
  Thomas Caldecot Chubb III    
 
  Executive Vice President    
 
  (Authorized Signatory and Principal Financial Officer)    

28

EX-31.1 SECTION 302 CERTIFICATION OF PEO
 

Exhibit 31.1
CERTIFICATION
I, J. Hicks Lanier, certify that:
1.   I have reviewed this report on Form 10-Q of Oxford Industries, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: January 10, 2007    /s/ J. Hicks Lanier    
  J. Hicks Lanier   
  Chairman and Chief Executive Officer
(Principal Executive Officer) 
 

29

EX-31.2 SECTION 302 CERTIFICATION OF PFO
 

         
Exhibit 31.2
CERTIFICATION
I, Thomas Caldecot Chubb III, certify that:
1.   I have reviewed this report on Form 10-Q of Oxford Industries, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: January 10, 2007    /s/ Thomas Caldecot Chubb III    
  Thomas Caldecot Chubb III   
  Executive Vice President
(Principal Financial Officer) 
 

30

EX-32 SECTION 906 CERTIFICATIONS OF THE PEO/PFO
 

         
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Oxford Industries, Inc. (the “Company”) on Form 10-Q (“Form 10-Q”) for the quarter ended December 1, 2006 as filed with the Securities and Exchange Commission on the date hereof, I, J. Hicks Lanier, Chairman and Chief Executive Officer of the Company, and I, Thomas Caldecot Chubb III, Executive Vice President of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)   The Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)   The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
     
          /s/ J. Hicks Lanier
   
   
 
J. Hicks Lanier
   
Chairman and Chief Executive Officer
   
(Principal Executive Officer)
   
January 10, 2007
   
 
   
          /s/ Thomas Caldecot Chubb III
   
 
 
 
Thomas Caldecot Chubb III
   
Executive Vice President
   
(Principal Financial Officer)
   
January 10, 2007
   

31