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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

Commission File No. 0-26608

CUTTER & BUCK INC.
(Exact Name of Registrant as Specified in Its Charter)

701 N. 34^th Street, Suite 400
Seattle, WA 98103
(Address of Principal Executive Offices, Including Zip Code)

(206) 622-4191
(Registrant's Telephone Number, Including Area Code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        The number of shares of Common Stock of the registrant outstanding as of March 14, 2003 was 10,634,132.

CUTTER & BUCK INC.

Quarterly Report on Form 10-Q

For the Quarter Ended January 31, 2003

Index

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CUTTER & BUCK INC.

Condensed Consolidated Balance Sheets

See accompanying notes

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CUTTER & BUCK INC.

Condensed Consolidated Statements of Operations (Unaudited)

See accompanying notes

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CUTTER & BUCK INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

See accompanying notes

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Cutter & Buck Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation and Restatement of Financial Statements

        The accompanying unaudited condensed consolidated financial statements have been prepared by Cutter & Buck Inc. (the Company) in accordance with accounting principles generally accepted in the United States for interim financial statements and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In our opinion all adjustments (consisting of normal recurring accruals, restructuring and asset impairment charges, retail store closure expenses and restatement expenses) necessary for a fair presentation have been included. Our revenues are seasonal, and therefore the results of operations for the three months and nine months ended January 31, 2003 may not be indicative of the results for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended April 30, 2002, included in our filing on Form 10-K.

        In consultation with our independent auditors, we restated our audited financial statements for the years ended April 30, 2000 and 2001, and our unaudited financial statements for each of the quarters in those years and for the quarters ended July 31, 2001, October 31, 2001 and January 31, 2002. We initially announced our intention to restate certain financial statements on August 12, 2002. That announcement was made after our new Chairman and Chief Executive Officer, appointed April 2002, discovered certain accounting irregularities. In early August, shortly after her discovery, the Board of Directors appointed a Special Committee to investigate these irregularities. The preliminary conclusion of the Special Committee was that approximately $5.8 million of shipments to three distributors made on a consignment basis during fiscal year 2000 had been recorded as sales of inventory for that year. Subsequent to that announcement, the Special Committee continued its investigation in order to confirm whether any additional accounting irregularities had occurred. The Special Committee was assisted in its investigation by our regular outside legal counsel, special independent legal counsel, a forensic accounting firm and our independent auditors.

        Upon completion of the Special Committee's restatement investigation, our restatement was expanded to include adjustment of certain other transactions related to the timing of revenue recognition and accounting errors discovered at our European subsidiary within the fiscal years 2000 and 2001 and each of the periods noted above. We also recorded a cumulative-effect adjustment to retained earnings for amounts related to fiscal 1998 and 1999 of $250,541. Since the restatement adjustments related primarily to the timing of the recognition of revenue, the restatement had an insignificant impact on our shareholders' equity as of April 30, 2002. Refer to the Form 10-K for the year ended April 30, 2002 for details of the restatement impact on the years and quarters previously reported. All adjustments fell into the following categories:

        Restatement of distributor transactions:    In the fourth quarter of fiscal 2000 we made shipments of product to three distributors on a consignment basis and improperly recorded these shipments as sales. Some of this product was sold by the distributors during fiscal 2001 and cash was remitted to us. At the end of fiscal 2001 the unsold product was returned to us and recorded as sales returns. The fiscal 2000 financial statements were restated to reverse these sales and the fiscal 2001 financial statements were restated to record sales by the distributors on a cash basis and to reverse the sales returns.

        Restatement of premature shipments:    We generally ship our product to arrive on customer-specified delivery dates. In certain instances, we shipped product to customers well in advance of the date originally specified by the customer. We restated our financial statements for fiscal years 2000 and 2001 and the first three quarters of fiscal 2002 to record sales in the period that the customer requested the

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goods be received, taking into account a normal time to assure receipt in accordance with customer specified terms.

        In addition, on certain occasions we shipped product to third parties, who held the product until the customer specified dates, or shipped product in ways that assured slow delivery. We have restated for all such sales to record the sales upon substantive transfer of the products to the customer.

        Restatement of European operations:    Certain accounting errors were discovered during the process of closing our European operations. We restated our financial statements for fiscal years 2000 and 2001 and the first three quarters of fiscal 2002 related to an understatement of accrued expatriate compensation and overstatement of recoverable value added taxes.

        Income Taxes:    We recorded the income tax effects of the restatements in each period using the marginal federal and state income tax rates.

        The effect of the restatement on the consolidated financial statements for the quarter and nine months ended January 31, 2002 is summarized as follows (in thousands, except per share data):

Results identified in the above table as previously reported include reclassifications to conform to EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" and SAB 101 "Revenue Recognition in Financial Statements" that increased net sales and cost of sales for the quarter ended January 31, 2002 by $965,000 ($3,795,000 for the nine months then ended) and to reclassify licensing and royalty income of $93,000 to net sales ($269,000 for the nine months then ended).

Note 2. Recently Issued Pronouncements

        In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We adopted SFAS No. 146 prospectively on January 1, 2003 and it did not have a material impact on our consolidated results of operations or financial position.

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        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based Compensation—Transition and Disclosure". The standard provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements for SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for fiscal years ending after December 31, 2002. We do not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position.

Note 3. Reclassifications

        Certain prior year balances have been reclassified to conform to current year presentation.

Note 4. Earnings (Loss) Per Share

        Basic earnings (loss) per share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the weighted average number of common shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options except when the effect of their inclusion would be antidilutive.

Note 5. Comprehensive Income (Loss)

        The components of our total comprehensive loss were:

Note 6. Debt

        In March 2002, we entered into a loan agreement with Washington Mutual Bank (Washington Mutual) to replace our $55 million line of credit with a $35 million line of credit which expires on August 1, 2003. Washington Mutual included Bank of America, N.A. (Bank of America) in the arrangement as co-lender. Effective January 23, 2003, we renewed and modified our loan agreement to reduce the line of credit to $20 million and allow our co-lender, Bank of America to exit the agreement. The new agreement expires on March 31, 2003 and is collateralized by cash collateral and a security interest in our accounts receivable, inventory, furniture and equipment, contract rights and general intangibles. Availability of funds under the line is determined by a borrowing formula and those funds are to be used for general corporate purposes. Interest on borrowings is charged and payable monthly at either the Prime rate or the LIBOR rate plus 2.75%, each as defined in the loan agreement, at the borrower's election. At January 31, 2003, letters of credit outstanding against this line

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of credit totaled approximately $13.1 million and there were no working capital advances outstanding. The loan agreement contains certain restrictive covenants covering minimum working capital and tangible net worth. At January 31, 2003, we were in compliance with these covenants. Under the terms of our renewed and modified loan agreement with Washington Mutual we established a money market account for cash collateral to be used as additional security. The $7.0 million balance of restricted cash is pledged through March 31, 2003, the termination date of the renewed and modified loan agreement with Washington Mutual. Our loan agreement with Wells Fargo (described below) contains no requirement for a cash collateral account.

        On March 13, 2003, we entered into a loan agreement with Wells Fargo Bank, N.A (Wells Fargo) as agent and Century Business Credit Corp, an affiliate of Wells Fargo, as collateral agent and lender for a $35 million line of credit, replacing our previous line of credit with Washington Mutual. The availability of funds under the revolving line of credit is determined by a borrowing formula, and advances on the line are to be used for general corporate purposes. Interest on advances is charged at either the LIBOR rate plus 2.75% or the Wells Fargo Bank reference rate, each as defined in the loan agreement, at the borrower's election. The line of credit expires on March 12, 2005, and may be renewed annually thereafter or terminated under the terms of the agreement. The line is collateralized by a security interest in our accounts receivable, inventory, furniture and equipment, contract rights and general intangibles. The loan agreement contains certain restrictive covenants covering minimum net worth, minimum working capital and maximum capital expenditures. We are currently in compliance with these covenants.

Note 7. Shareholders' Equity

        During the nine months ended January 31, 2003, we sold 29,057 shares of common stock under our employee stock purchase plan and pursuant to the exercise of stock options.

        On November 14, 2002, we issued 17,500 shares of restricted stock and recorded deferred compensation relating to this grant of $63,000. The deferred compensation is being amortized over 12 months, the vesting period of the restricted stock.

Note 8. Commitments

        We lease our office facilities, retail stores, a distribution center and certain office equipment under operating leases. On December 3, 2002 our board of directors decided to close our fourteen retail stores. We expect to be out of all of these stores and to settle all future rent obligations relating to these stores by April 30, 2003.

        On January 24, 2001, we entered into a sale and leaseback agreement for approximately $6.7 million of capital assets. The resulting commitment is accounted for as a capital lease, with terms between three and five years. We deferred a gain of approximately $0.4 million, which is being amortized in proportion to the amortization of the leased assets. In conjunction with closing our retail stores, we executed an early buyout agreement on December 27, 2002 for those assets located at our retail stores. These assets will be liquidated as our stores are closed.

        Partially as a result of our restructuring (described in Note 9), we have excess warehouse capacity at our distribution center. We have subleased this unused capacity to third parties, with lease terms between four and eight years.

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        Future minimum payments, by year and in the aggregate, under capital leases and noncancelable operating leases consisted of the following at January 31, 2003:

As of March 31, 2003, six retail store leases were still being negotiated. The future remaining payments under these leases not included above total approximately $4.2 million. We expect to negotiate terminating these leases for substantially less than this amount.

Note 9. Restructuring, Asset Impairment and Retail Store Closure Expenses

Restructuring and Asset Impairment

        For the three months ended January 31, 2003 we recorded a reversal of $45 thousand relating to the overaccrual of restructuring expenses arising under our fiscal 2002 restructuring plan. For the nine months ended January 31, 2003 restructuring and asset impairment charges were $3.8 million. Of the $3.8 million, $3.3 million related to losses on subleases of our excess warehouse capacity at our distribution center, $0.3 million related to additional reserves against receivable balances with both our former Chief Executive Officer and our former President and $0.2 million related to additional expenses arising under our fiscal 2002 restructuring. The liability resulting from recognizing the losses on subleases has been recorded in other current liabilities and other long-term liabilities on our Condensed Consolidated Balance Sheets.

        In the third quarter of fiscal 2002, we implemented a restructuring plan to reduce our operating costs, streamline our organizational structure and focus on those areas of our business that we believe provide the greatest growth and profit opportunities. For the three and nine month periods ended January 31, 2002 restructuring and asset impairment charges relating to this plan were $4.9 million. Of the $4.9 million, $3.3 million related to the closure of our European operations and $1.6 million related to the consolidation and restructuring of our women's line sales force. The charge related to our European operations included termination and severance benefits, reserves necessary to write-down the operations' receivables due to lower than anticipated recoveries, the write-down of other current assets,

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furniture and equipment and leasehold improvements to net realizable value and other costs resulting from closure of the operations. The consolidation and restructuring of our women's line sales force resulted in the write-off of commission draws and sample receivable balances.

        Effective May 1, 2002, we entered into a license agreement with Eurostyle Ltd. (Eurostyle) to distribute our men's and women's Golf and Classic apparel collections and golf accessories throughout Europe. The license agreement requires Eurostyle to make certain minimum royalty payments and expires on June 30, 2005. Effective May 1, 2002 we also entered into an asset purchase agreement with Eurostyle to sell inventory, certain accounts receivable balances and fixtures.

Retail Store Closure Expenses

        Retail store closure expenses were $9.6 million for the three and nine months ended January 31, 2003 and $2.5 million for the three and nine months ended January 31, 2002. The fiscal 2002 restructuring plan mentioned above included refining our retail strategy and evaluating the recoverability of the assets relating to our retail stores. We concluded from the results of the evaluation that a significant impairment of long-lived assets had occurred and decided to close three under-performing full-price stores and adjusted the net book value of another two full-price stores to their estimated fair value. The three under-performing full-price stores were to be closed during fiscal 2003. As a result, in fiscal 2002 we recorded a charge of $2.5 million related to store fixed asset write-downs (primarily leasehold improvements) and lease termination costs.

        In the third quarter of fiscal 2003 we announced plans to close all of our retail stores by April 30, 2003 and recorded another charge of $9.6 million relating to store closure expenses. This charge included lease termination costs, termination and severance benefits to be paid as a result of the involuntary termination of approximately 127 employees located at our retail stores, the write-down of other current assets, furniture and equipment and deferred rent to net realizable value and other costs resulting from the closure of our retail stores. We expect to substantially complete the closure of our retail stores and to settle the related liabilities by April 30, 2003.

        In connection with the decision to close the retail stores we entered into an agreement with Hilco Merchant Resources, LLC (Hilco) to act as our agent for conducting the liquidation of store inventories and to assist with negotiations for termination of the store leases. As a guaranty of Hilco's performance we receive a guaranteed payment of 31.2% of the aggregate retail price of the inventory being liquidated. As compensation for its services, Hilco receives a base fee up to 2.5% of the retail price of the liquidation inventory plus all expenses incurred in connection with the liquidation event (this includes store level operating expenses). To the extent the proceeds from the liquidation sales exceed the sum of the guaranteed payment plus all expenses (store operating and Hilco's internal expenses) plus Hilco's base fee such excess proceeds are to be split 80% to us and 20% to Hilco. As of January 31, 2003, the guaranteed payment totaled approximately $4.7 million and Hilco's fees totaled approximately $3.1 million. The $3.1 million has been recorded in selling, general and administrative expenses and includes Hilco's base fees, reimbursable expenses incurred by Hilco and certain store level operating expenses paid for by Hilco under the terms of the agreement.

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        For the nine months ended January 31, 2003 and 2002 the total restructuring, asset impairment and store closure charges were as follows:

        The amounts recorded represent management's best estimate of the costs to be incurred. The actual amounts incurred will vary from these estimates to the extent future developments differ from the underlying assumptions used in development of the accrual. We currently expect the store closure charges to be at the low end of our previous estimates, which were $12 to $15 million pre-tax. The full tax effect of the charge has not yet been determined and to the extent losses cannot be carried back they will be available to offset future profits. We estimate the after-tax charge to be in the range of $10 to $13 million and the after-tax cash impact of the charge is expected to be $5 to $7 million.

        Activity in the accrued liability for restructuring and retail store closure expenses consisted of the following for the first nine months of fiscal 2003: