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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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, Washington 98105
(Address of principal executive offices, including zip code)

(206) 622-4191
(Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, No Par Value

        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 o    No ý

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

        The aggregate market value as of September 25, 2002 of the voting stock held by non-affiliates of the Registrant was approximately $31,184,247 based upon the closing price as reported by NASDAQ. As of such date, there were 10,603,276 shares outstanding of the Registrant's Common Stock, no par value per share.

CUTTER & BUCK INC.

Form 10-K

For the fiscal year ended April 30, 2002

PART I

Item 1. Business

Restatement Information

        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 have also restated the selected financial data for 1998 and 1999. 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 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 encompassing the fiscal years 2000 and 2001 and each of the periods noted above. We have also recorded a cumulative effect adjustment to retained earnings for amounts related to 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. 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 are being restated to reverse these sales and the fiscal 2001 financial statements are being 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 have restated our financial statements for the fiscal years 1998 through 2001 to record sales in the period that the customer requested the goods to 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 where it was held 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 product to the customer.

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

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

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        The effect of the restatement on the consolidated financial statements is summarized as follows:

        Additional information related to the restatement of our financial statements for the periods mentioned above is set forth in Note 1 to Notes to Consolidated Financial Statements in Part IV Item 14(a)(1).

        Since the discovery of the matters discussed above, we have taken remedial steps to improve our accounting procedures and internal controls to mitigate the risk of recurrence of such matters as follows:

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Termination of employment of those individuals who appear to have been responsible for these activities;



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Clarification and strengthening of our revenue recognition policy and communication of that policy throughout the Company; and



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Completion of a comprehensive review of our European subsidiaries as part of their closure.

In addition, our new CEO is actively professing ethics, business integrity and individual responsibility to all our employees.

Recent Development

        Internal investigation.    As previously announced, we conducted an internal investigation into accounting irregularities occurring in the fiscal years ended April 30, 2000 and April 30, 2001. The investigation was expanded to cover the fiscal years 1998 through the third quarter of 2002. As a result of our internal investigation, we are restating our financial results for those periods in order to correct inaccurate reporting of certain transactions and to properly reflect the treatment of sales entries that should have been recorded in different periods.

        SEC and NASDAQ.    As previously announced, we have received letters of inquiry from the Securities and Exchange Commission and the NASDAQ Stock Market regarding the circumstances leading up to the restatement of our financial results. We are cooperating with those agencies concerning their inquiries.

        NASDAQ delisting.    We filed a Form 8-K on August 16, 2002 announcing we had received a letter from the NASDAQ informing us that we were in violation of NASDAQ Rule 4310(c)(14), which requires us to maintain at least three years of audited financial statements, and NASDAQ Rules 4330 and 4330(c), which relates to public interest concerns. NASDAQ has determined that we are in violation of these rules, at least partially as a result of our restatement and as a result of our delay in filing our Annual Report on Form 10-K for the fiscal year ended April 30, 2002 and our Quarterly Report on Form 10-Q for the quarter ended July 31, 2002. We also indicated we would request a

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hearing on this matter. The hearing was held on September 20, 2002, and there has been no decision on delisting to date.

        Recent litigation.    As more fully described in Part I, Item 3—Legal Proceedings, on September 13, 2002, a complaint was filed in the United States District Court for the Western District of Washington. The complaint is brought purportedly on behalf of all persons who purchased our common stock during the period from June 23, 2000 to August 12, 2002. The complaint alleges liability under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on the grounds that we and other defendants falsely reported our results for the fiscal years 2000-2002 through improper revenue recognition.

        Also as more fully described in Part I, Item 3—Legal Proceedings, on September 18, 2002, another complaint was filed in the United States District Court for the Western District of Washington. It is brought purportedly on behalf of all persons who purchased our common stock on the open market during the period from July 30, 2000 to August 12, 2002 excluding certain of our affiliates. The complaint alleges liability under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, on the grounds that we and other defendants falsely reported our financial results during the period through improper revenue recognition.

        Also as more fully described in Part I, Item 3—Legal Proceedings, on October 7, 2002, another complaint was filed in the United States District Court for the Western District of Washington. It is brought purportedly on behalf of all persons who purchased our common stock on the open market during the period from June 23, 2000 to August 12, 2002, excluding certain of our affiliates. The complaint alleges liability under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, on the grounds that we and the other defendants falsely reported our financial results during the period through improper revenue recognition.

        Indemnification claims.    Our former CEO, Harvey N. Jones, COO, Martin J. Marks and CFO, Stephen S. Lowber, have each notified us that they are claiming the right to be indemnified under our Articles of Incorporation for expenses related to the SEC and NASDAQ investigations and, if applicable, to the recent litigation described above.

Overview

        We design and market distinctive men's and women's sportswear and outerwear under the Cutter & Buck brand. We sell our products through golf pro shops and resorts, corporate accounts, specialty retail stores, international distributors and licensees and other distribution channels. Our goal is to become one of the most recognized and respected brands of sportswear and outerwear in the world. Our products feature distinctive designs and rich detailing using predominantly natural fiber textiles. We market our products as lifestyle collections targeted to men and women who seek classic American styles updated with the latest textile and fashion innovations. We have established a strong brand following with upscale golfers, and are using that awareness and loyalty to expand into a well-known fashion brand.

        During the first quarter fiscal year 2003, we realigned our management structure into Strategic Business Units (SBUs): Golf, Corporate, Fashion (formerly specialty retail stores), Consumer Direct (includes Company-owned retail stores and e-commerce, formerly included in "Other"), International and Other. We believe the SBU structure will allow us to more intensively manage our business and serve our customers.

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Company Strengths

        We believe that the following strengths have contributed to our past success and may provide us with a competitive advantage:

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Distinctive quality products. Our garments feature original Cutter & Buck designs manufactured to a high standard for our industry. We use fine-gauge combed cotton, virgin wools and performance microfibers, with unique trims, distinctive colors and special fabric finishes. Each season, we obtain new fabrications from our worldwide suppliers and introduce new collections unique to our industry.



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Upscale brand identity. Cutter & Buck is a nationally-recognized premium lifestyle brand, built on quality products and strong imagery. In our sporting collections, our marketing themes revolve around golf, tennis, fishing, water sports and other leisure pursuits designed to appeal to many of our target customers. We reinforce our upscale brand image at the store level with specialized fixturing that presents our lines as distinctive collections. Our fashion collections target our upscale consumers in casual business settings or relaxed weekend environments. We believe that our consumers are seeking a refined level of sophistication with all their casual purchases, and our designs, manufacturing standards and marketing for both sport and fashion collections are structured accordingly.



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Multi-channel distribution strategy. To protect the integrity of the Cutter & Buck brand and to support long-term sales growth and brand awareness, we predominantly distribute our products through golf pro shops and resorts, corporate accounts, specialty retail stores, and our fourteen Company-owned retail stores. We believe that these channels complement one another, since they target similar consumers and use similar merchandising and pricing practices that feature Cutter & Buck as a leading premium apparel brand.



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Dedicated sales force. As of April 30, 2002, we employed 107 salespeople who present seasonal collections to buyers and service accounts throughout the year. We believe that our business is relationship-driven and having our own sales force enables us to build a long-term growing business with our accounts.

Products

        We custom design our products in-house featuring high-quality materials, such as fine-gauge combed cotton, virgin wools and performance microfibers. Our products are finished with unique trims, special fabric finishes and washes and extra needlework. They are manufactured in factories selected for their ability to ensure high quality in their production process.

        Our designs incorporate distinctive colors and are merchandised as color- and design-coordinated collections rather than isolated categories. We offer two lines a year, spring and fall, composed of a Fashion line and a complementary Classics line. Classics are predominantly solid-color garments with multi-season appeal. We rely on the styling, detailing, color and quality of our fabrics to distinguish our Classics products from competitive products. We generally price our Classics at levels lower than our Fashion line, which permits our customers to offer Cutter & Buck products at a range of price points. Higher per-item volumes for Classics products allow us to achieve production efficiencies and lower costs. Classics products are sold throughout the year through all of our distribution channels and represent a predominant amount of sales through the corporate channel.

        Our Fashion products are designed to incorporate innovations in color, fabric and styling and tend to remain available for only one season. We develop proprietary fabrications and artwork for our complex prints and distinctive trim components in cooperation with experienced suppliers worldwide. Fashion products currently represent a majority of sales in both the golf and specialty retail store channels.

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        We present each season's collections to our customers in several groups of distinct, coordinated merchandise. These groups are available for delivery to customers during sequential time periods for the fall and spring collections. Customer-initiated product reorders can often extend the delivery period for a season by up to three months. The product mix changes seasonally, including, for example, more sweater styles in fall collections and more short-sleeve shirts in spring collections. We consider our ability to offer merchandise collections a strategic advantage since our customers generally prefer to purchase compatible assortments rather than assembling coordinated merchandise from various brands that do not share common colors and themes.

        A substantial percentage of our products that are shipped to the golf distribution channel are embroidered with golf club names or logos. Sales to the corporate channel also involve embroidery of corporate logos. We have established an in-house embroidery operation to reduce costs, shorten delivery time and enhance quality control of our embroidered products.

Product Design, Development and Sourcing

        We believe that updated, traditional sportswear and outerwear for men and women is an established and growing category within the apparel industry. Changes of color, fabric and body shapes in this category tend to be gradual, thereby allowing our product lines to evolve season to season. This provides stability in the design environment and consistency in our product offerings.

        Our design staff, determines product strategy, color and fabric selection and assortment of styles for each season's collections, which is accomplished over a three- to four-month period. Due to the length of our production and sales cycles, we generally strive to complete the design process and place orders for product samples at least 10 to 14 months prior to the first delivery of products to our customers.

        The design staff is responsible for creating innovative products for our two seasonal collections. During the design process, our manufacturing sources develop new seasonal textiles as directed by the merchandising and design teams. This enables us to source a wide variety of textile and printed artwork designs, many of which we acquire for our exclusive use. Our partnerships with key suppliers enhances our ability to develop distinctive and innovative apparel. Currently, we source our production from factories in Asia, North and South America and Turkey. We do not have formal long-term contracts with any of our suppliers or agents.

        Our in-house embroidery operation substantially reduces our reliance on independent embroiderers. This operation is intended to reduce costs, shorten delivery time and enhance quality control of our embroidered products. In addition to our in-house embroidery operations, we occasionally contract with a number of independent domestic embroiderers during peak embroidery production and shipping periods. Our in-house embroidery manufacturing operation handled substantially all of the embroidered logo requirements of our golf pro shops in fiscal 2002.

        We could experience difficulty satisfying our production requirements if any of our significant suppliers or manufacturers were to have an interruption of business or were unable or unwilling to meet our production needs or if we modified the terms of payment to suppliers such that some suppliers chose to discontinue doing business with us. We could also experience delays in shifting production to other manufacturers or agents because of the complex fabrication, unique trims and extensive detailing of our products.

        We have experienced production delays in the past, and production delays may occur in the future. We may also experience delays in shipping from time to time, whether due to third-party strikes, or otherwise. Delays in shipments, inconsistent garment quality and other factors beyond our control could materially harm our relationships with our customers, our reputation in the industry and our business, financial condition and operating results.

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        Our operations are also affected by economic, political, governmental and labor conditions in the countries where our products are manufactured. Changes in economic policies or political conditions in those countries could result in disruption of trade, new or additional currency or exchange controls or the imposition of other restrictions and could increase the prices we pay for our products. Foreign and domestic suppliers of our garments are subject to increasing scrutiny and public sensitivity to ensure their compliance with applicable laws, including laws affecting working conditions and pay. Lawsuits have targeted both suppliers and companies that purchase goods from foreign and domestic suppliers for manufacturers' failure to comply with those laws. We have adopted SA8000, an international, independently-monitored code of conduct to help to ensure proper compliance with laws, regulations and the principles of human dignity.

        Fashion trends can change rapidly, and our business is particularly sensitive to such changes because we typically design and arrange for the manufacture of our apparel substantially in advance of sales of our products to consumers. With the introduction of our women's line, we have added a consumer base that is typically more sensitive to changes in fashion and as our women's line becomes a greater part of our business as a whole, fashion obsolescence becomes an even greater risk for us. We cannot assure you that we will accurately anticipate shifts in fashion trends, or in the popularity of golf, and adjust our merchandise mix to appeal to changing consumer tastes in apparel in a timely manner. If we misjudge the demand for our products or are unsuccessful in responding to changes in fashion trends or in market demand, we could experience insufficient or excess inventory levels, missed market opportunities or higher markdowns, any of which could substantially harm our business or our brand image.

Distribution and Sales

        Our products are distributed through golf pro shops and resorts, corporate accounts, specialty retail stores, international distributors and licensees and other distribution channels. Each of these channels sells Classics and Fashion products from our seasonal collections. We believe that these channels are complementary, since they have compatible merchandising and pricing practices and broaden the visibility and reach of the Cutter & Buck brand among our target consumers.

        Domestic.    We primarily sell to our distribution channels through an exclusive sales force. We also use multi-line sales representatives for certain geographic areas and markets. At the end of fiscal 2002, our exclusive golf sales force consisted of 28 field sales representatives and 12 independent sales representatives. We also employed 37 sales representatives who sell to major corporations, either directly or through promotional products companies, and 30 additional company and independent sales representatives who sell to specialty retail stores and the big and tall market. Each sales representative is responsible for serving targeted accounts in a specific geographical territory through merchandise consultation and training, and is responsible for meeting specific account growth and average-order-size goals. Sales representatives present our collections each season at national and regional trade shows and at customers' stores through pictorial workbooks, looseleaf promotional materials and full sample lines.

        International.    Until April 30, 2002, our subsidiaries in the Netherlands and Germany were marketing and selling our products in Europe. On April 26, 2002, we entered into a licensing arrangement with Eurostyle Ltd. to serve this market and closed these subsidiaries effective April 30, 2002. In addition, we have six renewable contracts with international distributors to sell our products in Australia, New Zealand, the Philippines, the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Kuwait, Oman, South Africa, Singapore, Malaysia, Japan and Korea. These distribution agreements range in terms from three to five years and allow distributors to purchase our products at reduced cost for resale to their respective retail customers. The products offered for distribution in these territories are identical to the products offered in the United States and these distributors often use our marketing technique of offering the products in collections.

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        We also have licensees that have contracted for the right to manufacture and market Cutter & Buck designs in specified international markets, including Hong Kong, China and Canada. Cutter & Buck license agreements generally have three-year terms and require these licensees to pay us royalties as a percentage of net sales. Most of these agreements also contain annual royalty minimums, and all agreements give us final control over product design and quality. These licensing arrangements enable us to broaden the geographic distribution and type of products bearing the Cutter & Buck name in a cost-effective manner.

Retail Operations

        We opened our first Company-owned retail store in October 1998 in Seattle, Washington. Since then we have opened thirteen additional stores. These stores showcase the men's and women's fashion collections as well as tournament-licensed Cutter & Buck merchandise from the U.S. Open, PGA Championship and Ryder Cup. We believe each store's environment evokes the casual sporting atmosphere of an upscale golf clubhouse, complete with historic photos and antique sporting equipment. Collections of business casual dress for men, upscale weekend wear as well as golf wear for men and women are displayed on tables and in wall units. We believe that the stores offer a compelling assortment of our products to the upscale casual wear consumer in a relaxed, friendly environment.

        Our stores provide opportunities for introducing the Cutter & Buck brand to a wider audience not previously familiar with our full range of products due to the relatively small size of most golf pro shops and specialty retail stores. Our existing stores range in size from approximately 3,500 square feet to 5,000 square feet.

        During the third quarter of fiscal year 2002, we began implementing a restructuring plan which included refining our retail strategy. We engaged a consultant to assist us in this process and performed an evaluation of the recoverability of the assets relating to our Company-owned retail stores. We concluded from the results of this evaluation that a significant impairment of retail store long-lived assets had occurred. As a result, we decided to close three under-performing stores during the first quarter of fiscal 2003 and adjust the net book value of another two stores to their estimated fair value. We will continue to evaluate the performance of our stores, and adjust these estimates as necessary.

        There are many risks associated with retailing, including risks related to managing retail operations, negotiating reasonable rental terms for our store locations, managing our relationships with specialty retailers who currently sell our products and competing with other retailers. We have limited experience in managing retail operations. If we are unable to successfully implement our retail strategy our business, financial condition and operating results may be materially harmed.

Marketing and Merchandising

        We portray our brand image of an American casual lifestyle by creating seasonal merchandise collections that are theme- and color-related for both our Classics and Fashion offerings. In our Classics collections, themes we commonly use in marketing are golf, tennis, fishing, water sports and other sporting activities which reinforce our image. We believe that, by featuring these sports and leisure activities, our products will appeal not only to participants, but also to those who identify with these types of lifestyles. Our name and logo are generally featured prominently on our products and displays to reinforce the Cutter & Buck brand in the mind of the consumer. The marketing of our fashion collections portrays our target consumers in appealing casual settings involving family and enjoyable leisure activities.

        We currently advertise in targeted consumer publications and produce photographic renditions of our new product lines for national distribution to existing wholesale customers. We also produce a catalog of our Classics products to be viewed by wholesale customers for in-stock reordering purposes. In addition, we have an Internet home page on the World Wide Web at http://www.cutterbuck.com,

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where we sell our products, provide information and pictures of our products and respond to inquiries from retail consumers.

        Our merchandise is sold and shipped to customers in collection groups in order to reinforce the overall conceptual strength of our product offerings. Our distinctive in-store fixturing program showcases these collections and enhances our brand image at the point of sale. The fixtures are designed to display assorted elements of our collections and allow the consumer to easily assemble and purchase coordinated outfits of shirts, pants, shorts, sweaters, sweatshirts and outerwear. We also offer customers logos and signage in order to complement the fixturing and create an environment that enhances the Cutter & Buck brand image. We have concept shop partnerships with a number of our customers, which are extensions of our fixturing program, offered to our higher-end, potentially best-performing golf pro shops and resort customers on a very selective basis. In a concept shop partnership, we team with customers that meet a higher minimum order requirement.

        To address the special needs of pro shops, tournament organizers and corporate customers, our in-house embroidery service work with these customers to embroider the customer's name or logo on our garments. The customary placement of the Cutter & Buck logo on the sleeve, cuff, or on the back of the garment allows us to accommodate more easily the typical desire of pro shops, tournaments and corporations to have their name or logo embroidered on the garment's left chest.

Information Systems

        We employ a fully integrated, real-time management information system that is specifically designed for the wholesale apparel industry. The system includes important features such as manufacturing resource requirements planning, production scheduling, detailed product tracking, standard costs system planning and control, and detailed perpetual inventory systems. As original purchases are tracked through various factory production phases by our production personnel, sales are tracked by our merchandisers in order to compare purchases against availability, thereby allowing us to react quickly to changes and trends. Our product development team utilizes sophisticated computer-aided design software to meet their design, collaboration and specification package requirements. We also have a remote-order entry system for our sales force, allowing them to monitor and use to reserve inventory for all styles, as well as establish sales plans and communicate order specifics. Customer service personnel receive this uploaded information daily and have access to real-time inventory availability.

        This comprehensive information system serves users in each of our operating areas, and is also used to create costing models, specification sheets and embroidery layout sheets. The manufacturing module integrates with the general ledger accounting and financial module. Our information system also provides detailed product gross margin information that assists us in managing product profitability. The system runs on IBM's RS6000 hardware and the AIX operating system, which allows for the fast processing of critical information and has the capability of serving a much greater number of users as we grow. During fiscal 2002, we continued to expand the relational database capabilities of our management information system to allow us to create specialized management reports and access critical decision support data.

        We have implemented a warehouse management system that was specifically designed for the apparel industry. This system provides a wide variety of modular applications that can be added as our needs evolve. As of April 30, 2002, we have installed the following system components: a radio frequency network and hand-held devices to support bar coding and tracking the real-time movement of inventory from receiving, order picking, embroidery production, order packing and order shipment; a cycle counting inventory management module; an automated customer return authorization and receiving control system; and automated tools to support our distribution center employee productivity and accuracy. This system was designed for and runs on an IBM AS/400 platform.

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        To support our Company-owned retail stores and e-commerce business, we installed an integrated retail management and point of sale system. The purpose of this investment was to provide daily information to meet retail management's needs for a system that addresses sales tracking and management, profitability, inventory management, merchandising, and financial controls and reporting. Using the same retail system for our e-commerce business allows our web sales operation to mirror that of our brick-and-mortar stores and gain efficiencies through shared and integrated processes. We have also expanded our electronic data interchange capabilities to meet the needs of our department store customers.

        During fiscal 2002, we focused on improving internal customer support through the following resources: business process analysis and management of concurrent application development projects; enhancing decision support with additional data warehouse development; providing direction and strategy for new enterprise-level systems; enabling external customer care through extranet enhancements and supply-chain collaboration; and continuing necessary infrastructure upgrades and system integration extensions.

Order Booking Cycle and Backlog

        We typically receive our orders for a season over the period beginning when samples are first shown to customers. We begin to take orders for our fall collections in January, generally for delivery between May and October and for our spring collection in July, generally for delivery between November and April. Our domestic backlog, which consists of open, unfilled customer orders from the golf, corporate and specialty retail distribution channels, was approximately $24.3 million as of April 30, 2002. We expect to fill between 90% and 95% of those orders. For various reasons endemic to the apparel industry, including occasional sold out inventory positions, credit issues and other customer-related issues, we typically do not ship all of our backlog. Backlog is generally shipped within nine months.

Competition

        The sportswear segment of the apparel industry is highly competitive. Our two primary distribution channels, golf pro shops and corporate accounts, are highly fragmented, with no single brand representing more than 10% of the market. We encounter substantial competition in all of our distribution channels from other apparel companies and distributors of promotional products and apparel. We believe that our ability to compete effectively is based primarily on product differentiation, product quality, production flexibility and distribution capabilities, all of which enhance our brand. Many of our competitors are significantly larger and more diversified than we are and have substantially greater resources available for developing and marketing their products. We cannot assure you that we will be able to maintain or increase our market share in our distribution channels at the expense of existing competitors and other apparel manufacturers choosing to enter those markets.

Trademarks

        CUTTER & BUCK, the Cutter & Buck pennant logo and the Cutter & Buck tour logo are our trademarks registered in the United States. CUTTER & BUCK is registered for use on apparel and other products in over 40 countries, and the other two marks are similarly registered in over a dozen countries. We also have applied for registration in a number of other countries. We regard our name and logo as valuable assets and critical to marketing our products. Leading brands in the apparel industry have historically been subject to competition from imitators that infringe the trademarks and trade dress of the brand. Although we do not believe we have been materially harmed from infringement of our trademarks or trade dress to date, we have experienced some instances of such infringement and have taken actions to protect our rights.

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Employees

        As of April 30, 2002, we had 632 full time and 67 part time employees in the United States, of whom 107 were engaged in sales, 14 in production, 23 in merchandising and design, 74 in customer service, 11 in credit, nine in marketing, 210 in embroidery development and operations, 106 in consumer direct, 81 in distribution, 16 in information technology, seven in international and 41 in administration and finance. None of our employees is a member of a union. We consider our relations with our employees to be satisfactory.

        As of April 30, 2002, an additional nine individuals were employed by our wholly-owned subsidiaries. Of these employees, two were in customer service, one was in production, two were in credit, one was in information technology and three were in finance and administration. As of May 1, 2002, these employees were finalizing the liquidation of the subsdiaries and transitioning operations to our licensee, Eurostyle Ltd.

RISK FACTORS

        In addition to the other information in this report, including risks and uncertainties described elsewhere, the following risk factors should be considered in evaluating us and our business. The risks and uncertainties described below or elsewhere in this report are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the risks described below or elsewhere in this report occur, our business, financial condition, operating results and cash flows could be materially harmed.

        Our stock may be delisted from The NASDAQ National Market.    As a result of our decision to restate our financial results, and as a result of the discoveries of accounting irregularities underlying that decision, NASDAQ notified us that our common stock no longer met the requirements for listing on its National Market and was to be delisted on August 23, 2002. We appealed that decision in a hearing on September 20, 2002. To date, the NASDAQ Hearings Department has not issued a decision as to whether to delist our common stock. While we believe that, upon completing the restatement of our financial results, we will be in compliance with all requirements for continued listing, there can be no assurance that our common stock will remain listed on NASDAQ. If our common stock is delisted, the value of our common stock will likely decline, shareholders may experience a significant decrease in the liquidity of our common stock, and we may experience increased difficulty in obtaining the capital necessary to operate our business.

        Shareholder lawsuits    Following the announcement of our decision to restate our financial results, we have received notice of three lawsuits filed against us by certain of our current and former shareholders. As described in Part I, Item 3—Legal Proceedings, these suits generally allege that the Company and certain of its former executive officers issued false and misleading statements during fiscal years 2000 to 2002, and that these statements constitute violations of federal securities laws. In addition, the indemnification provisions contained in the Company's Articles of Incorporation may require the Company to indemnify its former executive officers against the allegations contained in these suits. If we choose to settle these suits without going to trial, we may be required to pay the plaintiffs a substantial sum in the form of damages. Alternatively, if these cases go to trial and the Company is ultimately adjudged to have violated federal securities laws, we may incur substantial losses as a result of an award of damages to the plaintiffs. Regardless of the ultimate outcome of these suits, however, litigation of this type is expensive and will require that we devote substantial Company resources and executive time to defend these proceedings. Moreover, the mere presence of these lawsuits may materially harm our business for the same reasons set forth in the following risks.

        Our business has been adversely affected by our decision to restate our financial results.    Following the announcement of our decision to restate our financial statements, we have experienced a decrease in

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bookings. Our management believes that this decrease may represent fears by customers that we will become unreliable in supplying our products or that our brand image will be harmed. If our customers lose confidence in our ability to supply quality products reliably, our business may be materially harmed.

        We had a substantial loss in fiscal year 2002 and may continue to incur losses in future periods.    We incurred a net loss of approximately $10.4 million during the fiscal year ended April 30, 2002, including a restructuring and asset impairment charge of approximately $8.5 million before income tax effects. As described in Note 8 to the financial statements, as part of our restructuring we have substantially streamlined our domestic and international sales infrastructure and eliminated certain product lines. We believe these restructuring and cost-cutting initiatives will reduce overall spending. If our restructuring efforts fail to adequately reduce costs, or if our sales are less than we project, we may continue to incur losses in future periods.

        Our auditors have indicated that they believe there is a material weakness in our internal controls and procedures.    Following the Company's decision to restate its financial results, our independent auditors issued a letter to us indicating that they believe there is a material weakness, as defined in authoritative auditing literature, in our internal accounting controls. The material weakness related to lack of compliance with or circumvention of the Company's procedures and controls by employees and management at various levels. In an effort to address these concerns, the Company has begun educating both employees and management about complying with procedures and controls and setting the "tone at the top" to mitigate the risk that the events underlying the financial restatement will recur. There can be no assurance, however, that these efforts will be adequate to prevent future occurrences of the type giving rise to the restatement.

        We have recently lost several key executives who had important relationships with our suppliers, customers and employees.    During the last six months we have accepted the resignations of several of our key executives, including our former Chairman and Chief Executive Officer. Many of these executives had important relationships with our key suppliers, customers and employees. For us to execute our business plan, we must preserve and build upon the relationships with these suppliers, customers and employees in the absence of these executives. While the terms of a Transition and Release Agreement prevent our former Chairman and Chief Executive Officer from competing with or soliciting business or employees away from the Company, a court may refuse to enforce the provisions of this agreement. In addition, we do not have similar agreements with other former executives. If we are unable to preserve the relationships with our customers, suppliers and employees, or if any of our former executives choose to influence these individuals to the Company's detriment, our business may be materially harmed.

        We recently liquidated our European subsidiaries and now rely exclusively on relationships with a single distributor for our European sales.    As part of our restructuring initiatives, we recently completed the sale of substantially all our European assets to Eurostyle Ltd., a corporation formed under the laws of Ireland, and entered into a license agreement with Eurostyle. Following these transactions, we eliminated substantially all of our European sales force and commenced the liquidation of our European subsidiaries, Cutter & Buck (Europe) B.V. and Cutter & Buck GmbH. For the foreseeable future, we intend to rely exclusively on our relationship with Eurostyle for the distribution and sale of our products in Europe. We have less control over the marketing of our products by Eurostyle and there can be no assurance that we will continue to achieve historical levels of sales in Europe pursuant to this new arrangement. If we are unable to effectively sell our products through this distributorship, our business may be materially harmed.

        We are out of compliance with the terms of our credit facility.    The Company has a $35 million line of credit that is used to provide working capital financing and supports supplier financing with letters of credit. This line of credit contains certain covenants, including financial covenants. The Company is currently out of compliance with certain of these covenants, including the covenant to provide annual audited financial statements within 90 days of year end. As a result of this noncompliance, our lending banks are not obligated to make credit available to the Company under its line of credit. We are in discussions with our lenders, and are also investigating sources of alternative financing. If our lenders choose not to continue to lend to us and we are unable to find alternative sources of financing, our business could be materially harmed.

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Item 2. Properties

        We lease our principal executive offices, which are located in Seattle, Washington, under leases that cover 31,858 square feet and expire in October and November 2002. We lease an additional 17,565 square feet of office space in Renton, Washington under a lease that expires in November 2002. We lease 405,000 square feet of space for a distribution center and embroidery production facility in Renton, Washington under a lease that expires in November 2011. We lease office space for our wholly-owned European subsidiary under a lease that expires in December 2002. We lease approximately 923 square feet of space for a showroom in Dallas, Texas, and approximately 4,313 square feet of space for a showroom in New York, New York. We also lease a small apartment in New York, New York under a lease that expires October 31, 2002. We leased approximately 1,824 square feet of space for a showroom in Atlanta, Georgia until April 30, 2002.

        We currently lease all fourteen of our retail store locations. These stores range in size from approximately 3,500 square feet to 5,000 square feet. Terms generally range from five to ten years. Most of these leases contain renewal options and certain leases contain provisions for payment of additional rent based on a percentage of sales. Some leases also include early termination options which can be exercised under specific conditions. We expect to close three under-performing stores in fiscal 2003.

        In April 2002 we executed a lease for office space in Seattle, Washington that covers 44,670 square feet and expires in July 2010. We moved our principal executive offices and our offices in Renton, Washington to this space in September 2002.

        During the fourth quarter of fiscal 2002 and the first quarter of fiscal 2003, we decided to abandon 234,500 square feet of warehouse space at our distribution center. Between January 23, 2002 and September 10, 2002, we entered into three subleases which, in total, cover the entire abandoned warehouse space.

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Item 3. Legal Proceedings

        On September 13, 2002, a lawsuit entitled Steven Bourret v. Cutter & Buck Inc., Harvey N. Jones and Stephen S. Lowber, No. CV02-1948 was filed by Steven Bourret in the United States District Court for the Western District of Washington. The complaint is brought purportedly on behalf of all persons who purchased the Company's common stock during the period from June 23, 2000 to August 12, 2002. It names as defendants the Company, the Company's former CEO and the Company's former CFO (collectively, "Defendants"). The complaint alleges liability under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on the grounds that the Defendants caused the Company to falsely report its results for fiscal years 2000-2002 through improper revenue recognition. It includes a claim that the suit should be certified as a class action and seeks unspecified damages, including interest.

        On September 18, 2002, a lawsuit entitled Stanley Sved v. Cutter & Buck Inc. and Harvey N. Jones, No. C02-1972 was filed by Stanley Sved in the United States District Court for the Western District of Washington. The complaint names as defendants the Company and the Company's former CEO. It is brought purportedly on behalf of all persons who purchased the Company's common stock on the open market during the period from July 30, 2000 to August 12, 2002 (the "Class Period"), excluding the Company, members of the immediate families of the Company's former CEO, any parent, subsidiary affiliate, officer or director of the Company during the Class Period and any entity in which any excluded person has a controlling interest. The complaint alleges liability under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in connection with the events giving rise to the Company's need to restate its financial statements. It includes a claim that the suit should be certified as a class action and seeks unspecified compensatory damages, interest, costs and expenses incurred in the suit, including attorney and expert fees.

        On October 7, 2002, a lawsuit entitled Jason P. Hebert v. Cutter & Buck Inc., Harvey N. Jones and Stephen S. Lowber, No. CV02-2087 was filed by Jason P. Hebert in the United States District Court for the Western District of Washington. The complaint names as defendants Cutter & Buck Inc., the Company's former CEO and the Company's former CFO. It is brought purportedly on behalf of all persons who purchased the Company's common stock on the open market during the period from June 23, 2000 to August 12, 2002 (the "Class Period"), excluding the defendants, the directors and officers of the Company and their families and affiliates. The complaint alleges liability under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder in connection with the events giving rise to Cutter & Buck's need to restate its financial statements. It includes a claim that the suit should be certified as a class action and seeks unspecified compensatory damages, interest, costs and expenses incurred in the suit, including attorney and expert fees.

        The Company remains a party to a lawsuit related to labor issues in Saipan, Does vs. The Gap, Inc. The Company has entered into a settlement of the claims against it. This settlement is subject to court approval. The hearing for preliminary approval of the settlement occurred in February 2002. The court granted preliminary approval of the settlement in May 2002, and a hearing as to whether to grant final approval of the settlement is currently scheduled to occur on January 23, 2003.

        The Company is also party to other routine litigation incidental to its business. Management believes the ultimate resolution of these other routine matters will not have a material adverse effect on its financial position and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

        Not Applicable.

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PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.

        Our common stock is currently listed on the NASDAQ National Market under the symbol "CBUKE". We plan to apply to NASDAQ to allow us to resume trading under "CBUK". The following table sets forth, for the periods indicated, the high and low sales prices of the common stock as reported on the NASDAQ National Market.

        As of September 25, 2002, there were approximately 4,169 holders of our common stock.

        We have never declared or paid any cash dividend on our common stock and do not expect to pay any cash dividends in the foreseeable future.

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Item 6. Selected Financial Data

        As a result of the restatement of our consolidated financial statements for the fiscal years 2000 and 2001 and each of the quarters therein and the first three quarters of fiscal 2002, the appropriate information contained in this item has been restated from that which was reported previously in the Company's reports in Form 10-K and 10-Q for those periods. See Note 1 to the financial statements in Part IV, Item 14(a)(1).

(1)

The 1998 and 1999 selected financial data has been restated to record premature shipments in later periods thereby reducing 1998 net sales, cost of sales, and net income by $543, $309 and $150, respectively and reducing 1999 net sales, cost of sales and net income by $388, $230 and $101, respectively.

(2)

Reclassifications have been made to conform to EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" and SAB 101 "Revenue Recognition in Financial Statements" and impacted net sales and cost of sales by the same amount to reflect the effects of freight billed to customers and changes in allowances for returned goods in accordance with these accounting pronouncements. These reclassifications resulted in increases in net sales and cost of sales of $4,761 and $2,748 in 2001 and 2000, respectively and had no effect on net income or net worth in any period. It was not practicable to determine the amount of such reclassifications applicable to 1999 and 1998.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

        You should read this section together with "Selected Financial Data" and our consolidated financial statements and related notes thereto included elsewhere in this report. In addition to the historical information contained herein, this report contains forward-looking statements that involve risks and uncertainties. Forward-looking statements typically are identified by the use of such terms as "may," "will," "expect," "believe," "anticipate," "estimate," "plan" and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual growth and results could differ materially from those contained in the forward-looking statements due to a number of factors, which include, but are not limited to the following: the special risk factors set forth in Part I, Item 1 above, the risks and uncertainties set forth below; style changes and product acceptance; relations with and performance of suppliers; our ability to control costs and expenses; carry out successful designs and effectively advertise and communicate with the marketplace and to penetrate its chosen distribution channels, competition; access to capital; foreign currency risks; risks associated with operating retail locations; risks associated with our entry into new markets or distribution channels; risks related to the timely performance of third parties, such as shipping companies, including risks of strikes or labor disputes involving these third parties; maintaining satisfactory relationships with our banking partners; technological change; political and trade relations; the overall level of consumer spending on apparel; global economic conditions and additional threatened terrorist attacks and responses thereto, including war. Additional information on these and other factors that could affect our financial results is set forth below and in Part I, Item 1—Business and Risk Factors. Finally, there may be other factors not mentioned above or included elsewhere in this report that may cause actual results to differ materially from any forward-looking information. You should not place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements as a result of new information, future events or developments, except as required by the Securities laws.

        All references to fiscal years are references to our fiscal year ended April 30.

Overview

        Cutter & Buck is a lifestyle brand with broad demographic appeal, targeted at men and women who seek updated classic American styles with the latest textile and fashion innovations. We sell our distinctive sportswear, fashion and outerwear products through golf pro shops and resorts, corporate accounts, specialty retail stores, international distributors and licensees and other distribution channels.

        Our flagship Company-owned retail store is located in Seattle. As of April 30, 2002 we had thirteen additional stores in selected metropolitan markets.

Restatement and Recent Events

        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 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 2000 had been recorded as sales of inventory for that year.

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Subsequent to that announcement, the Special Committee continued its investigation in order to confirm whether any additional accounting irregularities 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. See Part I, Item 1—Business—Restatement Information.

        The restatement and the recent events that resulted from the restatement create additional risks and uncertainties as to our future operations. Some of those risks and uncertainties include:

•

Management believes that recent booking levels have been negatively impacted by recent disclosures by the Company and it is uncertain how future sales will be affected.



•

To date, we have not lost any significant suppliers; however, the willingness of suppliers to do business with us and any required changes in trade terms could negatively impact future margins and costs.



•

Management believes that employee loyalty and perception of job security have been impaired. As a result, we have provided contingent financial incentives designed to retain certain key employees. This program will increase future employment-related costs significantly. In addition, there will be recruitment costs to the extent departed officers are replaced and, under present circumstances, that recruitment could be difficult and the associated costs significant.



•

Three lawsuits have been filed against the Company and certain former officers. Plaintiffs in these cases have stated their intention to establish a class. The Company has notified its insurance carriers of these lawsuits, but there is a substantial deductible and no assurance can be given that insurance will cover the full costs of the litigation. The amount of a judgment or settlement, if any, of these cases will impact future operating results and cash flow depending on the amounts, if any, that may be ultimately recovered from insurance.



•

We have and will continue to incur substantial legal and other professional service costs in connection with recent lawsuits, restating our financial statements along with its related internal investigation, public disclosures, and responding to the NASDAQ delisting proceeding and the inquiries of the SEC and NASDAQ. While the actual costs cannot be determined, management estimates that the costs associated with the restatement will be at least $4.5 million.



•

Former officers have made indemnification claims against us related to the SEC and NASDAQ investigations and the recent lawsuits. The ultimate cost of such indemnifications cannot currently be estimated nor can the extent to which any costs will be covered by insurance.



•

As more fully discussed in Liquidity and Capital Resources below, we are out of compliance with certain covenants contained in our current line of credit agreement. We are in discussions with our lenders and are determining the availability of any alternative forms of credit. No assurance can be given that we will be able to obtain other credit on terms commercially reasonable. Any changes that may be necessary in our credit arrangements may impact our borrowing costs.

        During the third quarter of fiscal 2002, we began implementing 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. The major initiatives of this plan included closing our wholly-owned European subsidiary Cutter & Buck (Europe) B.V. We plan to serve this market through a licensing agreement with a European distributor. In addition, we are exiting the golf shoe business and the dressier side of our women's line, writing down assets of under-performing Company-owned stores and excess warehouse space and restructuring our women's line sales forces. We substantially completed these restructuring initiatives at the end of the first quarter of fiscal 2003.

        As a result of the continued slowed economy as well as the discontinued sales lines, we do not expect sales to grow in fiscal 2003. We expect to reduce our operating expenses except for those

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associated with the restatement and increase gross margins as a result of our restructuring activities, however, it is not clear this will allow us to be profitable in fiscal 2003 or thereafter.

Results of Operations

        The results of operations for the fiscal years 2000 and 2001 and each of the quarters therein and the first three quarters of fiscal 2002 are presented after restatement.

        The following table sets forth, for the fiscal years indicated, certain consolidated statements of operations data expressed as a percentage of net sales:

Year Ended April 30, 2002 Compared to the Year Ended April 30, 2001

Net Sales

        During fiscal 2002, total net sales decreased approximately $8.3 million, or 4.6%, to $173.9 million. This decrease was primarily attributable to lower consumer and corporate spending on our products due to economic conditions. The detail of net sales by distribution channel is as follows:

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        During fiscal 2002 net sales to the golf distribution channel decreased $10.3 million, or 17.5%, to $48.6 million from $58.9 million in the prior year. The decrease in net sales in this distribution channel was primarily due to inventory saturation in the marketplace and lower consumer demand, due in part to a decline in tourist travel to resorts and destination golf courses. Net sales to the corporate channel decreased $3.3 million, or 5.2%, to $59.8 million from $63.1 million in the prior year. The decrease in net sales to this distribution channel was primarily due to a decline in corporate spending on marketing programs as a result of current economic conditions. Net sales to the specialty retail distribution channel decreased $4.9 million, or 20.0%, to $19.6 million from $24.5 million in the prior year. This decrease was attributable to lower consumer spending on our products due in part to soft consumer demand for apparel. Net sales to our consumer direct distribution channel, including Company-owned retail stores, increased $3.7 million or 35.9%, to $14.0 million from $10.3 million in the prior year. This increase was primarily due to additional stores being open during fiscal 2002. Net sales to our international distribution channel, which include sales of our wholly-owned European subsidiary and to distributors and licensees, decreased $1.8 million, or 16.4%, to $9.2 million from $11.0 million in the prior year. This decrease was due to the slowing global economy, the decline in tourist travel to resorts and destination golf courses, and our decision to close our European operations. Net sales to our "other" distribution channel, including shipping revenue and liquidation sales, increased $8.3 million, or 57.6%, to $22.7 million from $14.4 million in the prior year. The increase in net sales in this distribution channel was primarily due to an increase in liquidation sales. Liquidation sales increased due to the lack of acceptance of the dressier component of our women's fashion collection, an increase in the number of liquidation sales as a result of our implementation of our restructuring plan and lower consumer demand for apparel.

        Beginning in fiscal year 2003, we realigned our management structure into Strategic Business Units (SBUs); Golf, Corporate, Fashion (formerly specialty retail stores), Consumer Direct (includes Company-owned retail stores and e-commerce, formerly included in "Other"), and International.

        The detail of net sales by SBU is as follows:

Gross Margin

        In fiscal 2002, our gross margin was 35.7% of net sales, compared to 41.0% in fiscal 2001. The decrease during fiscal 2002 was due to inventory write-downs related to our restructuring plan, higher liquidation losses and higher off-price discounts driven by the competitive retail environment and our efforts to reduce our inventory levels.

Design and Production Expenses

        Design and production expenses increased by $0.9 million, or 21.3%, to $5.0 million in fiscal 2002 from $4.1 million in fiscal 2001 and increased as a percentage of net sales to 2.8% in fiscal 2002 from 2.2% in fiscal 2001. The dollar amount of production expenses remained level. The increase in design

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expenses was primarily attributable to additional personnel and sample development costs to support our women's line.

Selling and Shipping Expenses

        Selling and shipping expenses decreased by $0.2 million, or 0.4%, to $46.5 million in fiscal 2002 from $46.7 million in fiscal 2001, and increased as a percentage of net sales to 26.8% in fiscal 2002 from 25.6% in fiscal 2001. The decrease in selling expenses was primarily due to decreased commissions and salary costs, travel and sales meeting costs and marketing and fixturing costs. This decrease in selling expenses was partially offset by increased shipping expenses and store-level operating expenses. The increase in shipping expenses was primarily due to increased facilities costs and depreciation expenses associated with the distribution center which were partially offset by lower salary and contract labor costs. The increase in store-level operating expenses associated with Company-owned retail stores included in selling and shipping expenses reflects increased expenses associated with the operation of fourteen retail locations during fiscal 2002 compared to twelve in fiscal 2001.

General and Administrative Expenses

        General and administrative expenses increased by $1.9 million, or 12.6%, to $16.2 million in fiscal 2002 from $14.3 million in fiscal 2001, and increased as a percentage of net sales to 9.3% in fiscal 2002 from 7.9% in fiscal 2001. This increase was primarily attributable to increased depreciation and rent expense associated with corporate facilities, depreciation associated with information technology initiatives, increased amortization of deferred compensation, increased bad debt expense related to credit exposures, and increased insurance, legal and accounting expenses.

Restructuring and Asset Impairment

        In the third quarter of fiscal 2002, we began implementing 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. The major initiatives of this restructuring plan include closing our wholly-owned European subsidiary, Cutter & Buck (Europe) B.V., establishing a licensing relationship to serve key European markets, refining our Company-owned retail store strategy, consolidating and restructuring our women's line sales forces, discontinuing our golf shoe business, discontinuing the dressier side of our women's line, closing three under-performing Company-owned retail stores in fiscal 2003, recording a loss on the sublease of a portion of our excess warehouse space and certain management changes. As a result of implementing our restructuring plan, we recorded a "Restructuring and asset impairment" charge of approximately $8.5 million in fiscal 2002.

        Included in the $8.5 million restructuring and asset impairment charge is a charge related to our European operations of approximately $2.9 million. This component of the charge includes termination and severance benefits to be paid as a result of the involuntary termination of approximately 20 employees located in the Netherlands, reserves necessary to write down that operation's receivables due to lower than anticipated recoveries, the write down of other current assets, furniture, equipment and leasehold improvements to net realizable value, the recognition of accumulated translation losses and other costs resulting from closing our European subsidiary. In addition, we recorded approximately $1.7 million of write-downs for our European inventory expected to be sold below cost. This has been recorded in "Cost of sales" on the Statements of Operations. Effective May 1, 2002 we entered into a license agreement with Eurostyle Ltd. to distribute Cutter & Buck men's and women's Golf and Classic apparel collections and golf accessories throughout Europe. The license agreement requires certain minimum royalty payments and expires on June 30, 2005. Effective May 1, 2002 we also entered into an asset purchase agreement with Eurostyle Ltd. to sell inventory, certain accounts receivable balances

21

and fixturing. We had substantially completed the closure of our European operations as of April 30, 2002 and expect to settle the remaining liabilities in accordance with contract terms which extend into fiscal 2003. Certain activities will continue in fiscal 2003 to collect accounts receivable and to finalize liquidation of the subsidiary.

        Our restructuring plan included refining our retail strategy. We engaged a consultant to assist us in this process and performed an evaluation of the recoverability of the assets relating to our retail stores. We concluded from the results of this evaluation that a significant impairment of long-lived assets had occurred and decided to close three under-performing stores and adjust the net book value of another two full-price stores to their estimated fair value. In accordance with SFAS No. 121, our estimates of future cash flows are based on reasonable and supportable assumptions and represent our best estimates of the cash flows expected to result from the use of the assets and their eventual disposition. Assets to be disposed of are measured at the lower of our carrying amount or fair value less cost to sell. We engaged a second consultant to assist us in renegotiating our retail store leases and decided to close three previously identified under-performing stores during fiscal 2003. As a result, we recorded a charge of approximately $3.1 million relating to store fixed asset write-downs (primarily leasehold improvements), lease termination costs and store closure costs. As we continue to evaluate and refine our retail strategy we may incur additional write-downs of the related assets to their estimated fair values or other charges relating to possible store closures.

        During fiscal 2002 we completed the consolidation and restructuring of our women's line sales forces. Under this initiative, substantially all of the golf and specialty store territories that were previously served by sales representatives dedicated exclusively to our women's products were either combined with existing territories served by sales representatives selling our men's products, converted to territories served by multi-line sales representatives or converted to commission-only territories effective May 1, 2002. Five sales representatives were involuntarily terminated and we recorded a write-off of approximately $1.4 million relating to commission draws and sample receivable balances.

        During fiscal 2002 we also decided to discontinue our golf shoe business as well as the dressier side of our women's line. As a result we recorded a charge of $1.2 million relating to the loss on liquidation of our remaining shoe inventory and $0.4 million relating to Fall 2002 fashion inventory expected to be sold below cost. These amounts are recorded in "Cost of sales" on the Statements of Operations. We also recorded a charge of approximately $0.4 million relating to the write-off of prepaid sample expenses for our Fall 2002 fashion line and severance benefits for five employees who were involuntarily terminated as of April 30, 2002. This amount has been recorded in "Restructuring and asset impairment" on the Statements of Operations. Also included in "Restructuring and asset impairment" on the Statement of Operations is a charge of $0.4 million relating to the transitions of both our former Chief Executive Officer and our former President.

        Partially as a result of our restructuring, we have excess warehouse capacity at our distribution center. We have subleased this unused capacity to third parties. Included in restructuring and asset impairment is a charge of $0.3 million relating to a loss on these subleases. During the first quarter of fiscal 2003, we decided to abandon additional warehouse space and expect to record an additional charge of $3.3 million. At April 30, 2002, we had gross lease obligations of $11.0 million relating to the total excess warehouse space. We anticipate receiving sublease income to partially offset this obligation. Due to the uncertainty of estimating future sublease income, actual results may differ significantly from this estimate.

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        For the year ended April 30, 2002, the total restructuring and asset impairment charges were as follows:

        Total cash outlays relating to the restructuring and asset impairment charges are expected to be approximately $3.0 million, of which $0.3 million has been paid to date. Activity in the accrued liability associated with the restructuring charges consisted of the following:

        We expect to record an additional $3.3 million in charges during the first quarter of fiscal 2003 related to the abandonment of warehouse space. The amounts recorded represent management's best estimate of the costs to be incurred. The actual amounts incurred could vary from these estimates if future developments differ from the underlying assumptions used in developing the accrual.

        Costs that relate to ongoing operations are not a part of restructuring charges and are not included in "Restructuring and asset impairment" charges. In accordance with EITF Issue No. 96-9, "Classification of Inventory Markdowns and Other Costs Associated with a Restructuring," all inventory adjustments resulting from the discontinuation of our golf shoe business and the dressier side of our women's line and closure of our European subsidiary are recorded in "Cost of sales" on the Statements of Operations. As of April 30, 2002, inventory write-downs relating to these activities were approximately $3.3 million.

Operating Income

        As a result of the above items, operating income decreased by $23.6 million, to an operating loss of $14.0 million in fiscal 2002 from operating income of $9.6 million in fiscal 2001.

Factor Commission and Interest Expense, Net of Interest Income

        Factor commission and interest expense, net of interest income, increased by approximately $0.3 million to $1.6 million in fiscal 2002 from $1.3 million in fiscal 2001 and increased as a percentage of net sales to 0.9% in fiscal 2002 from 0.7% in fiscal 2001. The increase was primarily due to increased interest expense associated with capital leases. Factoring during fiscal 2002 was limited to our European operations.

License and Royalty Income, Net of Other Expense

        License and royalty income, net of other expense, decreased by $0.2 million, or 29.9%, to $0.3 million, representing 0.2% of net sales in fiscal 2002, from $0.5 million and 0.3% of net sales in fiscal 2001. We expect license income to increase in fiscal 2003 as a result of entering into a license

23

agreement with Eurostyle Ltd. This category includes gains and losses from foreign currency transactions which resulted in a net transaction loss of $4,000 in fiscal 2002 compared to a gain of $134,000 in fiscal 2001 and accounted for the decrease in this category.

Income Taxes

        We recorded $4.9 million of income tax benefit in fiscal 2002. The effective rate for income taxes in fiscal 2002 and 2001 was 32% and 38%, respectively. This decrease in the effective rate resulted primarily from non-deductible restructuring and asset impairment charges and may be offset by state tax liabilities in certain jurisdictions.

Year Ended April 30, 2001 Compared to the Year Ended April 30, 2000

Net Sales

        During fiscal 2001, total net sales increased $34.2 million, or 23.1%, to $182.2 million. The detail of net sales by distribution channel is as follows:

        During fiscal 2001 net sales to the golf distribution channel increased $0.8 million or 1.4% from the prior year. Although sales to our golf distribution channel remained constant, the number of golf pro shops purchasing Cutter & Buck products increased in fiscal 2001. This was primarily due to the growth in the size of our golf sales force including the number of sales representatives that showcase our women's line.

        Net sales through the corporate distribution channel increased $12.4 million, or approximately 24.5%, to $63.1 million in fiscal 2001 from $50.7 million in fiscal 2000. The increase in fiscal 2001 represented approximately 36.3% of the total increase in net sales for the year. This increase was primarily attributable to the increased size and effectiveness of our exclusive corporate sales force, increases in product styles and inventory levels of our Classics products, relationships with a greater number of promotional products companies that resell Cutter & Buck apparel to corporate accounts and our growing brand strength.

        Specialty retail store sales increased $8.8 million or approximately 56.1% to $24.5 million in fiscal 2001 representing approximately 13.4% of our net sales in fiscal 2001. This increase was primarily attributable to the increase in the number of specialty retail stores purchasing Cutter & Buck products. Net sales to our consumer direct channel, including Company-owned retail stores, increased $7.5 million or 267.9% to $10.3 million from $2.8 million in the prior year. This increase was primarily due to additional stores being open during fiscal 2001. International sales, which include sales of our wholly-owned European subsidiary, distributors and licensees were relatively flat compared to fiscal 2000. Sales through other distribution channels, including shipping revenue and liquidation sales, increased from $10.0 million, or 6.8% of net sales, in fiscal 2000 to $14.4 million, or 7.9% of net sales, in fiscal 2001. This increase was primarily attributable to higher liquidation sales to move out-of-season Fashion inventory.

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Gross Margin

        In fiscal 2001, our gross margin was 41.0% of net sales, compared to 43.4% in fiscal 2000. The decrease during fiscal 2001 was due to higher off-channel liquidation sales primarily in the fourth quarter of fiscal 2001 and higher levels of sales allowances than in fiscal 2000. This decrease was partially offset by an increase in gross margin due to lower unit costs and increased sales through our retail stores and higher margin women's line.

Design and Production Expenses

        Design and production expenses increased by $0.6 million, or 18.2%, to $4.1 million in fiscal 2001 from $3.5 million in fiscal 2000 and decreased slightly as a percentage of net sales to 2.2% in fiscal 2001 from 2.3% in fiscal 2000. Design expenses reflect the additional personnel, sample development and travel costs to support our expanding sportswear collection, including our women's line and accessories products.

        The increase in production expenses was primarily attributable to increased personnel, quality control and travel costs, and costs associated with the strengthening of our embroidery development organization to support our growing embroidery business.

Selling and Shipping Expenses

        Selling and shipping expenses increased by $10.7 million, or 29.8%, to $46.7 million in fiscal 2001 from $36.0 million in fiscal 2000, and increased as a percentage of net sales to 25.6% in fiscal 2001 from 24.3% in fiscal 2000. The increase in selling expenses was attributable to increased salaries and commissions, travel and training costs associated with the increase in our sales force and increased trade advertising, showroom costs, and customer service staffing associated with a higher sales volume. In addition, fixturing expenses increased due to the continued investment in our in-store and concept shop fixture program. During fiscal 2001, we purchased and installed approximately $1 million of in-store and concept shop fixturing. The investment in these fixtures is amortized as a marketing expense over a three-year period.

        The increase in shipping expenses was primarily due to increased warehouse staffing expense, rent and depreciation expense and packaging supplies costs. Warehouse staffing costs increased as a result of having a more highly skilled workforce and stronger distribution center management. Rent and depreciation expense increased due to the new distribution center and the warehouse management system. Packaging supplies costs increased with the higher levels of inventory. The store level operating expenses associated with Company-owned retail stores are also included in selling and shipping expenses and reflect expenses associated with twelve retail locations during fiscal 2001 compared to six in fiscal 2000.

General and Administrative Expenses

        General and administrative expenses increased by $2.7 million, or 23.8%, to $14.3 million in fiscal 2001 from $11.6 million in fiscal 2000, but remained 7.9% of net sales in both fiscal 2001 and fiscal 2000. The dollar increase was primarily attributable to increased management and staffing costs, including costs associated with our retail operations and e-commerce initiative, increased depreciation and rent expense associated with information technology initiatives and corporate facilities, increased insurance costs, legal and communications expenses, and our corporate social responsibility initiative.

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Operating Income

        As a result of the above items, operating income decreased by $3.6 million, or 27.1%, to $9.6 million in fiscal 2001 from $13.1 million in fiscal 2000, and decreased as a percentage of net sales to 5.3% in fiscal 2001 from 8.9% in fiscal 2000.

Factor Commission and Interest Expense, Net of Interest Income

        Factor commission and interest expense, net of interest income, increased by approximately $0.8 million to $1.3 million in fiscal 2001 from $0.5 million in fiscal 2000 and increased as a percentage of net sales to 0.7% in fiscal 2001 from 0.3% in fiscal 2000. The increase was primarily due to interest expense associated with capital leases entered into during fiscal 2001 and increases in our line of credit. Factoring during fiscal 2001 was limited to our European operations.

License and Royalty Income, Net of Other Expense

        License and royalty income, net of other expense, increased by $0.2 million, or 71.4%, to $0.5 million, representing 0.3% of net sales in fiscal 2001, from $0.3 million and 0.2% of net sales in fiscal 2000. This category includes gains and losses from foreign currency transactions which resulted in a net transaction gain of $134,000 in fiscal 2001 compared to $43,000 in fiscal 2000 and accounted for a significant portion of the increase in this category.

Income Taxes

        We recorded $3.4 million of income tax expense in fiscal 2001. The effective rates for income taxes in fiscal 2001 and 2000 were 38% and 36.9%, respectively. The effective rate increased as we opened retail stores in additional states, thereby incurring increased state income taxes.

Quarterly Results and Seasonality

        Historically, we have generally experienced our lowest levels of net sales in the first and third quarters ending July 31 and January 31, respectively. Correspondingly, our highest level of net sales are achieved in the second and fourth quarters, ending October 31 and April 30, respectively. This seasonality is primarily attributable to the timing of shipments to golf pro shops and specialty retail stores in the second and fourth quarters. Other factors contributing to the variability of our quarterly results include seasonal fluctuations in consumer demand, the timing and amount of orders from key customers, the timing and magnitude of sales of seasonal remainder merchandise and availability of product. This pattern of sales creates seasonal profitability and working capital financing and liquidity issues, as we generally must finance higher levels of inventory during the first and third quarters when our net sales are lowest. As a result, our operating results may fall below market analysts' expectations in some future quarters, which could materially harm the market price of our common stock.

        The following tables set forth certain unaudited financial data, including percentages of net sales, for the eight quarters ended April 30, 2002. The amounts are after the restatement discussed above, and differ from the results disclosed for the quarter ended April 30, 2002 by us in a press release dated June 20, 2002.

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Quarterly Results in Thousands

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Quarterly Results as a Percentage of Net Sales

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Liquidity and Capital Resources

        Net cash provided by operating activities in fiscal 2002 was $26.2 million. This resulted primarily from a decrease in inventory of $26.2 million, including inventory write-downs related to our restructuring plan, depreciation and amortization of $6.6 million, deferred income taxes of $1.9 million, noncash restructuring and asset impairment charges of $5.5 million and a decrease in accounts receivable of $1.9 million. The restructuring and asset impairment charges and inventory write-downs were recorded as part of our restructuring plan. These decreases were partially offset by a net loss of $10.4 million, increases in prepaid expenses and other current assets of $6.9 million and the timing of payments for certain payables. Approximately $15.0 million of the decrease in inventory relates to Classics merchandise, $5.8 million relates to Fashion merchandise, $2.8 million relates to footwear and accessories, $0.6 million relates to retail stores and e-commerce, $0.5 million in embroidery work in process and other and $1.5 million in our European operations. The decrease in inventory in fiscal 2002 resulted from the implementation of our restructuring plan as well as our planned reduction in inventory levels to align inventories with our sales expectations.

        Net cash used in operating activities in fiscal 2001 was $9.6 million. This resulted primarily from increases in inventory of $13.6 million, prepaid expenses and other current assets of $1.7 million, deferred income taxes of $1.3 million and income tax payable of $1.9 million. These increases were partially offset by cash generated from operations, collections of account receivables and the timing of payments for certain payables. Approximately $11.6 million of the increase in inventory relates to Classics merchandise, $1.7 million relates to footwear and accessories and $2.6 million relates to retail stores and e-commerce. These increases were partially offset by decreases of $1.3 million in Fashion inventory, $0.3 million in embroidery work in process and other and $0.7 million in our European operations.

        Net cash used in investing activities was $2.4 million in fiscal 2002 and was primarily due to purchases of capital equipment of approximately $2.3 million. Capital expenditures, including equipment acquired under capital leases, included $0.2 million for in-store fixturing and concept shops, $1.0 million for computer hardware and software, $0.7 million for equipment and leasehold improvements associated with company-owned retail stores and $0.4 million for the distribution center and warehouse management system. Capital expenditures during fiscal 2001, including equipment acquired under capital leases, included $1.0 million for in-store fixturing and concept shops, $4.7 million for equipment and leasehold improvements associated with Company-owned retail stores, $1.9 million for the distribution center and warehouse management system, $0.5 million for the development of our e- commerce website and $2.4 million for computer hardware and software, leasehold improvements and other furniture and equipment.

        Net cash used in financing activities was $25.0 million in fiscal 2002. This resulted from net repayments of debt of $22.4 million and principal payments under capital leases of $2.8 million. These decreases were partially offset by the sale of $0.2 million of common stock under the employee stock purchase plan. Net cash provided by financing activities was $13.2 million in fiscal 2001. This resulted from net borrowings of $15.0 million and the exercise of stock options as well as the sale of $0.4 million of common stock under the employee stock purchase plan. These increases were partially offset by $2.2 million of principal payments under capital leases.

        Capital expenditures of approximately $4 million are planned for fiscal 2003, including amounts for information technology initiatives, in-store fixtures and concept shops, equipment and leasehold improvements associated with Company-owned retail stores, computer hardware, software, and furniture and office equipment.

        In March 2002, we renewed and modified our loan agreement with Washington Mutual Bank covering our $35 million line of credit. The loan agreement contains certain restrictive covenants

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covering minimum working capital, tangible net worth and interest service coverage, as well as a maximum debt-to-equity ratio and maximum capital expenditures.

        Our primary need for funds is to finance increased working capital and to fund capital expenditures. We believe that cash on hand and cash generated from operations, as well as the ability to borrow under bank lines of credit or alternative sources of financing will be sufficient to meet our cash requirements in the short-term and during the next fiscal year. However, our capital needs will depend on many factors, including our growth rate, the need to finance increased production and inventory levels, the success of our various sales and marketing programs, expenses associated with the risks and uncertainties related to our restatement, including those risks and uncertainties set forth above and various other factors. Depending upon our growth and working capital needs, we may require additional financing in the future through debt or equity offerings, which may or may not be available or may be dilutive.

        We are currently out of compliance with certain financial covenants on our $35 million line of credit. As a result, our lending banks are not obligated to make credit available to us under the line of credit. Since we announced our intention to restate our financial statements, we have been assessing our credit needs and have been in discussions with our lenders. After our restructuring we have determined that a credit facility of $25 million would meet our operating needs as compared to the current facility of $35 million. It is not clear the existing bank will elect to continue the credit line with us at either the existing amount or a lower amount. However, based on ongoing discussions with alternative sources of financing, we believe that sufficient financing in the form of asset-based or vendor financing will be available if the existing lenders or other lenders elect not to extend a sufficient credit line to the company. If our lenders choose not to continue to lend to the company and we are unable to find alternative sources of financing, our business could be materially harmed.

        The following is a summary of our contractual obligations as of April 30, 2002:

Foreign Currency Exchange Risk

        From time to time, we use derivative financial instruments to reduce our exposure to changes in foreign exchange rates in connection with the operations of our European subsidiaries. While these instruments are subject to risk of loss from changes in exchange rates, those losses would generally be offset by gains on the related exposure. We do not use derivative financial instruments for speculative or trading purposes. We do not hedge against the Euro. We reduce the risks associated with changes in foreign currency rates by entering into forward, cylinder and option contracts to hedge accounts receivable denominated in currencies other than the Euro. Gains and losses on contracts which hedge specific foreign currency denominated commitments are recognized in the period in which the transaction is completed. In fiscal 2002 we incurred a net foreign exchange transaction loss of $4,000 compared to a transaction gain of $134,000 during fiscal 2001.

        The fair value of foreign currency exchange contracts is based on quoted market prices. At April 30, 2002 we had no open foreign currency exchange contracts. To the extent we have assets and

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liabilities denominated in foreign currencies that are not hedged, we are subject to foreign currency transaction gains and losses.

        In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. We limit our use of derivative financial instruments to the management of foreign currency risks. We adopted SFAS No. 133 on May 1, 2001, as required. The adoption of SFAS No. 133 did not have a material impact on our consolidated financial statements.

Critical Accounting Policies

        Our significant accounting policies are described in Note 1 (Description of the Business and Summary of Significant Accounting Policies) of the Notes to our financial statements. Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate the estimates that we have made. These estimates have been based upon historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

        Allowance for doubtful accounts and returns.    We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which is included in bad debt expense. We determine the adequacy of this allowance by regularly reviewing our accounts receivable aging and evaluating individual customer receivables, considering customer's financial condition, credit history and current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We also maintain an estimate of potential future product returns related to current period product receivables. We analyze the rate of historical returns when evaluating the adequacy of the allowance for sales returns, which is included with the allowance for doubtful accounts on our balance sheets.

        Inventories.    Inventories, which are predominantly finished goods, are valued at the lower of cost or market, with cost determined using the first-in, first-out method. A detailed analysis of inventory is performed on a quarterly basis to identify unsold out-of-season fashion merchandise. The net realizable value of the out-of-season merchandise is estimated based upon disposition plans and historical experience. The carrying amount of out-of-season merchandise is reduced to its estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional write downs may be required.

        Impairment of long-lived assets.    The Company reviews the carrying values of its long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Unforeseen events and changes in circumstances and market conditions and changes in estimates of future cash flows could negatively affect the fair value of the Company's assets and result in an

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impairment charge. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenues performance measures. The fair value of the asset could be different using different estimates and assumptions in these valuation techniques.

        Restructuring liabilities.    Restructuring related liabilities include estimates for termination benefits, anticipated disposition of lease obligations and other costs. Key variables in determining such estimates include the anticipated timing of sublease rentals, estimates of sublease rental payment amounts and estimates for brokerage and other related costs. We periodically evaluate and, if necessary, adjust our estimates based on currently available information.