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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

For the quarterly period ended July 31, 2002

or

For the transition period from                              to                             

Commission File No. 0-26608

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

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

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

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

        The number of shares of Common Stock of the registrant outstanding as of October 8, 2002 was 10,603,276.

CUTTER & BUCK INC.

Quarterly Report on Form 10-Q

For the Quarter Ended July 31, 2002

Index

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PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CUTTER & BUCK INC.

Condensed Consolidated Balance Sheets

See accompanying notes.

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CUTTER & BUCK INC.

Condensed Consolidated Statements of Operations (Unaudited)

See accompanying notes.

4

CUTTER & BUCK INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

See accompanying notes.

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Cutter & Buck Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1.    Basis of Presentation and Restatement of Financial Statements

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

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

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

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

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

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

        In addition, on certain occasions we shipped product to third parties 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 products to the customer.

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

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

        The effect of the restatement on the consolidated financial statements for the quarter ended July 31, 2001 is summarized as follows:

        Results identified in the above table as previously reported include reclassifications to conform to EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" and SAB 101 "Revenue Recognition in Financial Statements" that increased net sales and cost of sales for the quarter ended July 31, 2001 by $1,666,000 and to reclassify licensing and royalty income of $85,000 to net sales.

Note 2.    Recently Issued Pronouncements

        In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting For The Impairment or Disposal of Long-Lived Assets." The FASB's new rules on asset impairment supercede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and portions of APB No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." This standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which losses are incurred, rather than

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as of the measurement date as presently required. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, or the first quarter of our fiscal 2003. The adoption of this pronouncement did not have a material impact on our consolidated financial position or consolidated results of operations. The charges relating to restructuring and asset impairment charges were accounted for in accordance with the standards applicable at the time management decisions were made.

Note 3.    Loss Per Share

        Basic loss per share is based on the weighted average number of common shares outstanding. Diluted loss per share is based on the weighted average number of common shares and equivalents outstanding. Common share equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options except when the effect of their inclusion would be antidilutive. For both periods no effect of common share equivalents is reflected, as the impact would be anti-dilutive to the loss per share.

Note 4.    Income Taxes

        We recorded approximately $0.8 million of income tax benefits in both the first quarter of fiscal 2003 and the first quarter of fiscal 2002. The effective rate for income taxes in the first quarter of fiscal 2003 and 2002 was 34% and 41%, respectively. This decrease in the effective rate relates mainly to state tax liabilities in certain jurisdictions and uncertainty as to the utilization of losses in certain other jurisdictions.

Note 5.    Comprehensive Loss

        The components of the Company's total comprehensive loss were:

Note 6.    Debt

        In July 2000, the Company entered into a loan agreement with Washington Mutual Bank d/b/a/ Western Bank (Western Bank) for a $55 million line of credit, replacing the Company's previous line of credit. Western Bank has included Bank of America, N.A. in the arrangement as co-lender. The line of credit was originally scheduled to expire on August 1, 2002. In March 2002, we renewed and modified our loan agreement to provide a $35 million line of credit. The new agreement was effective January 31, 2002 and availability of funds under the line is determined by a borrowing formula. The revolving line of credit is to be used for general corporate purposes. Interest on borrowings is charged and payable monthly at either the Prime rate or the LIBOR rate plus 2.75%, each as defined in the loan agreement, at the borrower's election. The line of credit expires on August 1, 2003 and is collateralized by a security interest in the Company's inventory, accounts receivable, furniture and

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equipment, contract rights and general intangibles. The loan agreement contains certain restrictive covenants covering minimum working capital, tangible net worth and interest service coverage, as well as a maximum debt-to-equity ratio and maximum capital expenditures. At July 31, 2002, the Company was out of compliance with the financial statement reporting requirement to provide audited financial statements within 90 days of the Company's fiscal year end. At July 31, 2002, letters of credit outstanding against this line of credit totaled approximately $15.0 million and there were no working capital advances outstanding.

        Under the renegotiated line of credit, the $5 million sub-limit in support of Cutter & Buck, B.V. was eliminated in April 2002 upon pay-off of Bank of America's line of credit to Cutter & Buck B.V. The subsidiary's line of credit was used for the same purposes and was subject to the same terms and performance criteria described above.

        Since the Company announced its intention to restate its financial statements, it has been assessing its credit needs and been in discussions with its lenders. After its restructuring, the Company has determined that a credit facility of $25 million would meet its operating needs as compared to the current facility of $35 million. It is not clear whether the existing lenders will elect to continue the credit line with us at either its existing amount or a lower amount. However, based on the 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.

Note 7.    Shareholders' Equity

        During the three months ended July 31, 2002, the Company sold 13,466 shares under its employee stock purchase plan and pursuant to the exercise of stock options.

Note 8.    Litigation

        The Company is party to various legal proceedings, including the shareholder lawsuits that arose from the Company's recently announced restatement of its financial statements.

        These proceedings, which are described in Part II, Item 1—Legal Proceedings, were brought purportedly on behalf of a class of persons who purchased our common stock. The Company is not in a position at this time to quantify the amount or range of any possible losses related to those claims.

        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.

Note 9.    Restructuring and Asset Impairment

        In the first quarter of fiscal 2003, we recorded a restructuring charge of $3.8 million relating to the restructuring plan initiated in fiscal 2002. Of the $3.8 million, $3.3 million related to losses on subleases of our excess warehouse capacity at our distribution center, $0.3 million related to additional reserves against receivable balances for both our former Chief Executive Officer and our former President and $0.2 million related to additional expenses relating to the restructuring plan. The liability resulting from recognizing the losses on subleases has been recorded in other current liabilities and other long term liabilities on the Condensed Consolidated Balance Sheet.

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

        For the quarter ended July 31, 2002, the total restructuring and asset impairment charges were as follows:

        Activity in the accrued liability associated with the cash portion of the restructuring charges consisted of the following:

        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.

Note 10.    Segment and Geographic Information

        The Company has two operating segments, the wholesale and retail sales of sportswear, fashion and outerwear apparel. The wholesale segment is primarily comprised of sales to golf and fashion apparel resellers. The retail segment is comprised of our Company-owned retail stores and our e-commerce site. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The information presented below for these segments is

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information used by the Company's chief operating decision maker in evaluating operating performance.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        Statements made in this filing that are not historical facts are forward looking information 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 any forward-looking statements due to a number of factors, which include, but are not limited to the following: the special risk factors 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 opening and 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 our Form 10K for the year ended April 30, 2002. Finally, there may be other factors not mentioned above or included in the Company's SEC filings 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 federal securities laws.

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

Special Risk Factors and Uncertainties

        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 II, Item 1—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

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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 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. In addition, the willingness of suppliers to do business with us and required changes in trade terms could negatively impact future margins and costs.

        We had a substantial loss in fiscal year 2002 and the first quarter of fiscal 2003 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. Our loss during the first quarter of fiscal 2003 was approximately $1.6 million including a restructuring and asset impairment charge of approximately $3.8 million before income tax effects. As described in the notes 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.

        Retention and recruitment of employees.    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.

        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.

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        Legal and other professional service costs.    We have and will continue to incur substantial legal and other professional service costs in connection with the shareholder 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.

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

        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 forseeable 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. No assurance can be given that we will be able to obtain other credit on commercially reasonable terms. Any changes that may be necessary in our credit arrangements may impact our borrowing costs.

Restatement

        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. 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. Accordingly, the results of operations for the quarter ended July 31, 2001 included herein and referred to below are after restatement, which is more fully discussed in Note 1 to the financial statements.

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Results of Operations

        Three Months Ended July 31, 2002 Compared With Three Months Ended July 31, 2001    

        Net Sales    During the first quarter of fiscal 2003 net sales decreased approximately $3.7 million or 9.1% to $36.6 million from $40.2 million in the same period of the prior year. The detail of net sales by strategic business unit (SBU) is as follows:

        In the first quarter of fiscal 2003, net sales from our golf SBU decreased by $1.7 million or 12.6% to $11.8 million from $13.5 million in the same period of the prior year. Sales from our golf SBU continue to be negatively impacted by the economy, flat demand and an oversupply of product in the golf marketplace. Net sales from our corporate SBU decreased by $1.9 million or 12.5% to $13.3 million from $15.2 million in the same period of the prior year. The decrease in this SBU is also attributable to the current economic conditions since corporate customers are spending less on marketing programs. Net sales from our fashion SBU increased $0.2 million or 5.2% to $4.9 million from $4.6 million in the same period of the prior year. Fashion sales were essentially flat due to our product being very well accepted which offset the impact of the weak retail environment. Net sales from our consumer direct SBU also had a small increase of approximately $0.5 million or 16.1% to $3.5 million from $3.0 million in the same period of the prior year. The increase in sales from our consumer direct SBU is due to one additional full price store being open in the first quarter of fiscal 2003 compared to fiscal 2002, one outlet store being open for the entire first quarter of fiscal 2003 versus part of the first quarter of fiscal 2002 and the re-merchandising of inventory at all of our stores. Net sales from our international SBU decreased by approximately $0.4 million or 18.5% to $1.8 million from $2.2 million in the same period of the prior year. Net sales from our international SBU include sales from our European subsidiary in the first quarter of fiscal 2002. This subsidiary was closed and substantially liquidated at the end of fiscal 2002, resulting in lower net sales in this SBU in the first quarter of fiscal 2003. This decrease was partially offset by a $0.8 million sale of inventory sold to Eurostyle in our asset purchase agreement. We also entered into a licensing agreement with Eurostyle at the same time as the asset purchase agreement. This licensing relationship replaces our European operations effective May 1, 2002. We anticipate it will take some time before this relationship gains momentum and our European sales will be replaced by licensing revenues. Licensing and royalty income are now recorded in net sales instead of other income on the Statements of Operations. All amounts in prior years have been reclassified to conform to the current year presentation. Net sales from our other SBU includes liquidation sales and shipping income and decreased 21.7% or $0.4 million to $1.4 million from $1.8 million in the same period of the prior year. This decrease is due to fewer liquidation sales in the first quarter of fiscal 2003 compared to fiscal 2002.

        Gross Margin    In the first quarter of fiscal 2003, gross margin increased to 42.9% of net sales, compared to 42.1% in the same period of the prior year. This was due to the gain on sale of inventory

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to Eurostyle which was partially offset by slightly higher off-price discounts driven by the competitive retail environment.

        Design and Production Expense    Design and production expenses decreased by $0.3 million, or 26.8% compared to the same period of the prior year and decreased as a percentage of net sales to 2.5% from 3.2%. Design expenses decreased approximately $250 thousand as a result of the discontinuation of our women's fashion line. This decrease was due to lower salaries and benefits as a result of the involuntary termination of four employees. Production expenses decreased approximately $50 thousand due to the closure of our European operations.

        Selling and Shipping Expense    Selling and shipping expenses decreased by $3.1 million, or 24.8%, to $9.4 million from $12.5 million in the same period of the prior year, and decreased as a percentage of net sales to 25.6% from 31.0%. Approximately $2.8 million of this decrease related to selling expenses and $0.4 million related to shipping expenses. These decreases were offset by increased store level expenses of approximately $0.1 million. Of the $2.8 million decrease in selling expenses, $1.9 million related to decreased commission and salary costs as well as travel and sales meeting costs, $0.5 million related to lower marketing expenses and $0.4 million related to the closure of our European operations. Of the $0.4 million decrease in shipping expenses, $0.3 million related to reduced salaries and benefits and $0.1 million related to the closure of our European operations. The increase in store level operating expenses was due to fourteen retail locations being open during the first quarter of fiscal 2003 compared to thirteen in the first quarter of fiscal 2002. The increase in store level expenses from the additional store being open was partially offset by a decrease in salary and depreciation expenses at some of the other retail stores.

        General and Administrative Expense    General and administrative expenses decreased by $0.8 million or 17.3%, to $3.9 million from $4.7 million in the same period of the prior year, and also decreased as a percentage of net sales from 11.6% to 10.6%. Approximately $280 thousand of the decrease resulted from the closure of our European operations, $400 thousand related to a decrease in provisions for bad debts and $108 thousand related to reduced salary and benefits in our consumer direct division.

Restructuring and Asset Impairment

        In the first quarter of fiscal 2003, we recorded a restructuring charge of $3.8 million relating to the restructuring plan initiated in fiscal 2002. Of the $3.8 million, $3.3 million related to losses on subleases of our excess warehouse capacity at our distribution center, $0.3 million related to additional reserves against receivable balances for both our former Chief Executive Officer and our former President and $0.2 million related to additional expenses relating to the restructuring plan. The liability resulting from recognizing the losses on subleases has been recorded in other current liabilities and other long term liabilities on the Condensed Consolidated Balance Sheet.

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

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        For the quarter ended July 31, 2002, the total restructuring and asset impairment charges were as follows:

        Activity in the accrued liability associated with the cash portion of the restructuring charges consisted of the following:

        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.

        Operating Loss    As a result of the above items, operating loss increased $0.8 million to $2.3 million in the first quarter of fiscal 2003 compared to $1.5 million in the first quarter of fiscal 2002.

        Income Taxes    We recorded approximately $0.8 million of income tax benefits in both the first quarter of fiscal 2003 and the first quarter of fiscal 2002. The effective rate for income taxes in the first quarter of fiscal 2003 and 2002 was 34% and 41%, respectively. This decrease in the effective rate relates mainly to state tax liabilities in certain jurisdictions and uncertainty as to the utilization of losses in certain other jurisdictions.

Liquidity and Capital Resources

        Net cash provided by operating activities for the three months ended July 31, 2002 was approximately $13.5 million compared to approximately $7.4 million for the three months ended July 31, 2001. Net cash provided by operating activities for the three months ended July 31, 2002 resulted primarily from the net reduction of accounts receivable of $17.8 million, depreciation and amortization of $1.7 million and noncash restructuring and asset impairment charges of $3.6 million. The restructuring and asset impairment charges were recorded as part of our restructuring plan. These amounts were partially offset by a net loss of $1.6 million, an increase in inventory of $2.4 million, increases in prepaid expenses and other net assets of $2.1 million and the timing of payments for certain payables. For the three months ended July 31, 2001, net cash provided by operating activities resulted from a reduction in accounts receivable of $16.2 million and depreciation and amortization. These amounts were partially offset by a net loss of $1.2 million, an increase in inventory of $5.0 million, an increase in prepaid and other current assets and a decrease in accounts payable and accrued liabilities.

        Net cash used in investing activities was approximately $0.5 million for the three months ended July 31, 2002 and was primarily due to the purchases of capital equipment. Net cash used in investing

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activities for the three months ended July 31, 2001 was $0.6 million and was primarily due to purchases of capital equipment.

        Net cash used in financing activities for the three months ended July 31, 2002 was approximately $0.7 million. This resulted primarily from payments of approximately $0.8 million under capital lease obligations. These amounts were partially offset by $0.1 million of cash generated from the sale of common stock under the employee stock purchase plan and pursuant to the exercise of stock options. Net cash used in financing activities for the three months ended July 31, 2001 was approximately $10.5 million. This was primarily due to repayments of short term borrowings of $10.3 million and capital lease payments of approximately $0.3 million. This was partially offset by approximately $0.1 million from the sale of common stock under the employee stock purchase plan.

        In March 2002, we renewed and modified our loan agreement with Washington Mutual Bank to provide a $35 million line of credit. The loan agreement contains certain restrictive covenants covering minimum working capital, tangible net worth and interest service coverage, as well as a maximum debt-to-equity ratio and maximum capital expenditures. At July 31, 2002, the Company was out of compliance with the financial statement reporting requirement to provide audited financial statements within 90 days of the Company's fiscal year end.

        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 and may be dilutive.

        Since we are currently out of compliance with certain financial convenants on our $35 million line of credit our lending banks are not obligated to make credit available to us under the line of credit. As a result, 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 us and we are unable to find alternative sources of financing, our business could be materially harmed.

Critical Accounting Policies

        Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company's filing on Form 10-K for the year ended April 30, 2002. 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

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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. A valuation allowance is established to reduce the carrying amount of out-of-season merchandise to its estimated net realizable value. If actual market conditions are less favorable than those projected by management, additional allowances 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 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

        We are subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of our short-term borrowings. Our short-term debt bears interest at variable rates. The variable rates may fluctuate over time based on economic changes in the environment, and we could be subject to increased interest payments if market interest rates fluctuate. We do not expect interest rate fluctuations to have a material adverse effect on our results of operations. We do not use derivative financial instruments to manage interest rate risk.

Foreign Currency Risk

        From time to time, we use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates in connection with the operations of our European subsidiaries. We do not use derivatives for speculative trading purposes. To date, the foreign currency exchange rates have not significantly impacted our profitability.

PART II—OTHER INFORMATION

Item 1. 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 theSecurities 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

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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 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 2. Changes in Securities and Use of Proceeds

        None

Item 3. Defaults Upon Senior Securities

        None

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

        None

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K

a)

Exhibits

The Company filed a Form 8-K on May 3, 2002 to announce the resignation of Marty Marks as President and Chief Operating Officer.

The Company filed a Form 8-K on August 13, 2002 to announce a restatement of the Company's financial results, the resignation of Stephen S. Lowber as Chief Financial Officer and preliminary first quarter fiscal year 2003 operating results.

The Company filed a Form 8-K on August 16, 2002 to announce the receipt of a letter from the Nasdaq National Market concerning the possible delisting of the Company's common stock.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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CERTIFICATIONS

        I, Frances M. Conley, Chairman and Chief Executive Officer of Cutter & Buck Inc., certify that:

1.

I have reviewed this annual report on Form 10-K of Cutter & Buck Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report.



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Dated: October 9, 2002

/s/  FRANCES M. CONLEY     


---


Frances M. Conley
Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)

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QuickLinks

PART I—FINANCIAL INFORMATION
Item 1.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K