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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
Commission File Number 0-9831
LIZ CLAIBORNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2842791
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1441 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-354-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X___ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]
Based upon the closing sale price on the New York Stock Exchange composite
tape on March 21, 2001, the aggregate market value of the registrant's Common
Stock, par value $1 per share, held by non-affiliates of the registrant on such
date was approximately $2,421,475,036.
Number of shares of the registrant's Common Stock, par value $1 per share,
outstanding as of March 21, 2001: 52,468,933 shares.
Documents Incorporated by Reference:
Registrant's Proxy Statement relating to its Annual Meeting of Stockholders
to be held on May 17, 2001 - Part III.
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PART I
Item 1. Business.
OVERVIEW
Liz Claiborne, Inc. designs and markets an extensive range of branded
women's and men's fashion apparel and accessories, appropriate for occasions
ranging from casual to dressy. The Company also markets fragrances for women and
men. The Company's brands include CLAIBORNE, CRAZY HORSE, CURVE, DANA BUCHMAN,
ELISABETH, EMMA JAMES, FIRST ISSUE, LAUNDRY BY SHELLI SEGAL, LIZ CLAIBORNE,
LUCKY BRAND, MEG ALLEN, MONET, RUSS, SIGRID OLSEN and VILLAGER. In addition, the
Company holds exclusive licenses to design, produce, market and sell DKNY(R)
JEANS and DKNY(R) ACTIVE men's, junior's and women's sportswear, jeanswear and
activewear in the Western Hemisphere, women's sportswear under the CITY DKNY(R)
trademark, women's apparel products under the KENNETH COLE NEW YORK,
UNLISTED.COM and REACTION KENNETH COLE trademarks in North America and CANDIE'S
fragrance, cosmetic and beauty products worldwide.
Products are manufactured to the Company's specifications in the United
States and abroad and are marketed through leading department and specialty
stores, mass merchandisers, national chains and other channels in the United
States, Canada, Europe, Asia, and Central and South America. The Company
believes that it is the largest "better" women's branded apparel company in the
United States. Generally, the Company's sportswear products are conceived and
marketed as "designer" items, but are priced in the "better" apparel range. The
Company also offers products at "bridge" and "moderate" price points.
At March 20, 2001, the Company's order book reflected unfilled customer
orders for approximately $610 million of merchandise, as compared to
approximately $785 million at March 17, 2000. Substantially all such orders will
be filled within the 2001 fiscal year. Order book data at any given date is
materially affected by the timing of recording orders and of shipments and
seasonal factors. Accordingly, order book data should not be taken as indicative
of eventual actual shipments or net sales, or as providing meaningful
period-to-period comparisons.
As used herein, the term "Company" refers to Liz Claiborne, Inc., a
Delaware corporation, together with its consolidated subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
In order to reach a broad spectrum of consumers, the Company offers an
array of products under its portfolio of brands through a variety of
distribution channels at a broad range of price points. In its product
offerings, the Company seeks to provide versatility to consumers in terms of
individual items, price points and key item classifications.
The Company operates the following business segments: Wholesale Apparel,
Wholesale Non-Apparel and Retail. In addition, the Company licenses to third
parties the right to manufacture, market and sell at wholesale selected products
bearing the Company's trademarks. Wholesale Apparel consists of businesses that
design, manufacture and market to the Company's wholesale customers women's and
men's apparel under various trademarks owned or licensed by the Company.
Wholesale Non-Apparel consists of businesses that design, manufacture and market
to the Company's wholesale customers accessories, cosmetics and jewelry products
under various trademarks owned or licensed by the Company. Retail consists of
businesses that sell merchandise designed and manufactured by the Wholesale
Apparel and Wholesale Non-Apparel segments to the public through
Company-operated specialty retail and outlet stores, as well as leased
departments.
Wholesale Apparel. The Company offers a variety of women's and men's
apparel products. Substantially all products in each sportswear collection are
sold at retail as separate items.
The Casual business offers casual sportswear in misses and petite sizes
under three of the Company's trademarks: LIZSPORT, which offers all-American
sportswear, including twill products, for less formal work settings and casual
occasions; LIZWEAR, which offers denim and denim-related sportswear, including
twills and fashion coordinates; and LIZ & CO., which offers versatile casual
knitwear.
The ELISABETH business offers classic careerwear, weekend casual and
wardrobe basics in large sizes (including petite proportions) under the
Company's ELISABETH and ELISABETH-LIZ & CO. trademarks and large-sized denim and
denim-related sportswear under the ELISABETH-INDIGO trademark.
The CLAIBORNE business offers men's business-casual wear, sportswear and
dress shirts under the CLAIBORNE trademark.
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The Career (COLLECTION) business offers professional careerwear with
desk-to-dinner versatility in misses and petite sizes under the LIZ CLAIBORNE
trademark.
The DANA BUCHMAN business offers collections of products for the women's
"bridge" market (the market between the "better" and "designer" markets) with
elegant styling in distinctive fabrics, in misses, large and petite sizes under
the Company's DANA BUCHMAN trademark and a line of "upscale" specialty store
products under the DANA BUCHMAN LUXE trademark. In September 1999, the Company
introduced a line of fashion forward specialty store casual products under the
DANA BUCHMAN INTUITION trademark, with shipping commencing in the first quarter
of 2000.
The Special Markets business offers women's updated career and casual
clothing at more moderate prices under five Company trademarks: EMMA JAMES
(related separates for the casual workplace, sold in department stores
nationally and in Japan), VILLAGER (relaxed separates for soft career and
weekend dressing, sold in regional department stores), FIRST ISSUE (relaxed
career and everyday wear, sold in Sears department stores), RUSS (casual
separates, sold in Wal-Mart stores), and CRAZY HORSE (casual separates, sold in
J.C. Penney stores). Commencing in the third quarter of 2001, a line of casual,
related outfits in easy-care fabrics under the MEG ALLEN trademark will be
offered through Target Stores. See "Competition; Certain Risks" below.
In 2000, the Company introduced a line of moderate priced men's wear under
the CRAZY HORSE trademark; shipping commenced in February of 2000.
The Company holds the exclusive license to design, produce, market and sell
men's, junior's and women's sportswear, jeanswear and activewear under the
DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for sale in the Western
Hemisphere. The Company also holds the exclusive license to design, produce,
market and sell a line of women's career and casual sportswear for the "better"
market, under the CITY DKNY (R) trademark; shipping of this line commenced in
January 2001.
In February 1999, the Company acquired 84.5% of the equity of Segrets, Inc.
("Segrets"); during 2000, the Company increased its equity interest in Segrets
to 97.5%. Segrets offers a range of women's sportswear in misses, large and
petite sizes under several trademarks, including SIGRID OLSEN SPORT, SIGRID
OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID OLSEN WOMAN and SIGRID OLSEN
PETITES.
Each of the above businesses presented four seasonal collections during
2000, except DANA BUCHMAN which presented three seasonal collections.
The LUCKY BRAND business, which the Company owns by virtue of its
acquisition, in June 1999, of 85% of the equity interest of Lucky Brand
Dungarees, Inc. ("Lucky"), offers women's and men's denim-based sportswear under
various Lucky trademarks.
The Company holds the exclusive license to manufacture, design, market and
distribute, in North America, "better" women's contemporary sportswear under the
KENNETH COLE NEW YORK label (which commenced shipping in the third quarter of
2000), a women's status denim and sportswear line under the REACTION KENNETH
COLE label (which commenced shipping in January 2001), and a junior-sized
apparel line under the UNLISTED.COM label. The Company also holds the exclusive
license to manufacture, design, market and distribute socks and belts bearing
the KENNETH COLE NEW YORK label (with socks first shipping in the third quarter
of 2000 and belts first shipping in the fourth quarter of 2000), the REACTION
KENNETH COLE label (which launched in March 2001) and the UNLISTED.COM label.
The Laundry business, which the Company acquired in November 1999, offers
contemporary womens' sportswear and dresses under the LAUNDRY BY SHELLI SEGAL
and SHELLI SEGAL labels, primarily to select department and specialty stores.
For further information regarding the Segrets, Lucky, and Laundry
businesses, see Note 2 of Notes to Consolidated Financial Statements. For
further information regarding the DKNY and Kenneth Cole licensing arrangements,
see Note 3 of Notes to Consolidated Financial Statements.
In February 2000, the Company licensed the right to design, manufacture,
market, distribute and sell dresses under the LIZ CLAIBORNE DRESSES and
ELISABETH DRESSES trademarks to Leslie Fay Marketing, Inc., a subsidiary of
Leslie Fay Company, Inc. The Company continues to produce dresses as part of the
COLLECTION, LIZSPORT, LIZWEAR, LIZ & CO. and ELISABETH sportswear lines. See
Note 3 of Notes to Consolidated Financial Statements.
Wholesale Non-Apparel. The Company offers a wide variety of women's
accessory products and men's and women's cosmetic products through its
non-apparel business.
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The Accessories business offers an array of handbag/small leather goods and
fashion accessories under the LIZ CLAIBORNE trademark.
The Special Markets Accessories business offers jewelry, handbags and
fashion accessories under the Company's CRAZY HORSE, VILLAGER and FIRST ISSUE
trademarks.
The Jewelry business offers a selection of jewelry under the LIZ CLAIBORNE
trademark. In July 2000, the Company acquired substantially all of the assets
comprising The Monet Group ("Monet"). Monet offers fashion jewelry under the
MONET, TRIFARI and MARVELLA trademarks. For further information regarding the
Monet business, see Note 2 of Notes to Consolidated Financial Statements.
The offerings of our Accessories, Special Markets Accessories and Jewelry
businesses mirror major fashion trends and are intended to complement many of
the Company's other product lines.
The Company's cosmetics business offers fragrance and bath and body-care
products under the Company's LIZ CLAIBORNE, REALITIES, VIVID, CLAIBORNE FOR MEN,
CLAIBORNE SPORT, CURVE (for women and men) and LIZSPORT trademarks. The Company
commenced shipping a line of cosmetics under the LUCKY YOU LUCKY BRAND trademark
in the third quarter of 2000. In addition, the Company holds the exclusive
license to manufacture, market, distribute and sell worldwide a collection of
CANDIE'S fragrances, cosmetics and beauty products.
Retail. The Company operates specialty retail stores located throughout the
United States, which carry solely Company products. At March 19, 2001, the
Company operated a total of 111 retail stores consisting of the following: 30
LIZ CLAIBORNE stores, 44 ELISABETH large-size apparel stores, 2 CLAIBORNE men's
stores, 4 Dana Buchman stores, 29 LUCKY BRAND DUNGAREES stores, and 2 LAUNDRY BY
SHELLI SEGAL stores. The LIZ CLAIBORNE flagship store, an approximately 17,000
square foot facility, is located on Fifth Avenue in New York City. The other
stores range in size from 900 to 12,000 square feet. During 2000, the Company
closed several underperforming specialty retail stores. See Note 9 of Notes to
Consolidated Financial Statements.
At March 19, 2001, the Company operated 164 outlet stores in the United
States, the majority of which are located in "outlet centers" comprised
primarily of manufacturer-operated stores. In Western Europe, the Company's
sales are made primarily through leased departments, or concessions.
Licensing. The Company has twenty license arrangements pursuant to which
third party licensees produce merchandise under Company trademarks in accordance
with designs furnished or approved by the Company, the present terms of which
(not including renewal terms) expire at various dates through 2010. Current
licenses cover women's career, casual and sport shoes; dresses; home furnishing
products; women's and men's outerwear; women's and men's slippers; women's
swimwear and related merchandise; women's intimate apparel; women's and men's
ophthalmic frames for prescription eyewear; women's and men's sunglasses and
readers; men's accessories; men's dress pants, casual pants and shorts; men's
formalwear and accessories; men's tailored clothing; men's and boys' neckwear;
tabletop products; boys' apparel; children's apparel; and women's sleepwear
apparel. Each of the licenses provides for the payment to the Company of a
percentage of the licensee's sales of the licensed products against a guaranteed
minimum royalty which generally increases over the term of the agreement.
SALES AND MARKETING
The Company's wholesale sales are made primarily to department store chains
and specialty store customers throughout the United States. Retail sales are
made through the Company's own retail stores and outlet stores, as well as to
international customers, military exchanges and other outlets.
At 2000 year-end, Company products were being sold in over 100 markets
outside the United States. In Canada, the Company operates a wholesale business
which sells the Company's LIZ CLAIBORNE, DANA BUCHMAN, EMMA JAMES, LUCKY BRAND,
VILLAGER, DKNY(R) JEANS and KENNETH COLE NEW YORK products primarily to
department store chains and specialty stores. The Company's sales in Western
Europe are conducted primarily through leased departments, or concessions, and
are concentrated in the United Kingdom and Spain, with additional concessions in
Denmark, Belgium, Ireland and France. At 2000 year-end, the Company operated
over 150 such leased departments/concessions in Western Europe. In addition, in
June 2000 the Company opened its European-flagship store on Regent Street,
London, England.
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In other international markets, the Company operates principally through
licenses with third parties which operate free-standing retail stores and
dedicated department store shops. At 2000 year-end, international retail
operations were comprised of 215 licensed stores and dedicated department store
shop-in-shops in 31 countries. The Company distributes LIZ CLAIBORNE and DANA
BUCHMAN products in Japan through a joint venture with Jusco Co. Ltd. Under a
separate arrangement, Jusco Co. Ltd. manufactures customized EMMA JAMES branded
apparel for sale in Japan, and operates dedicated department store shop-in-shops
under the EMMA JAMES trademark. The Company's international accounts also
purchase fragrances and related products through third-party distributors and
apparel products direct from the Company.
Approximately 87% of 2000 sales were made to the Company's 100 largest
customers. Except for Dillard's Department Stores, Inc., which accounted for
approximately 16% of 2000 and 15% of 1999 sales, no single customer accounted
for more than 6% of 2000 or 1999 sales. However, certain of the Company's
customers are under common ownership; when considered together as a group under
common ownership, sales to the eight department store customers which were owned
at year-end 2000 by The May Department Stores Company accounted for
approximately 14% of 2000 and 16% of 1999 sales, and sales to the eight
department store customers which were owned at year-end 2000 by Federated
Department Stores, Inc. accounted for approximately 18% of 2000 and 17% of 1999
sales. See Note 7 of Notes to Consolidated Financial Statements. Many major
department store groups make centralized buying decisions; accordingly, any
material change in the Company's relationship with any such group could have a
material adverse effect on the Company's operations. The Company expects that
its largest customers will continue to account for a significant percentage of
its sales. Sales to the Company's department and specialty store customers are
made primarily through the Company's New York City showrooms.
Orders from the Company's customers generally precede the related shipping
periods by several months. The Company's largest customers discuss with the
Company retail trends and their plans regarding their anticipated levels of
total purchases of Company products for future seasons. These discussions are
intended to assist the Company in planning the production and timely delivery of
its products. The Company continually monitors retail sales in order to directly
assess consumer response to its products.
The Company has implemented in-stock reorder programs in several divisions
to enable customers to reorder certain items through electronic means for quick
delivery. See "Manufacturing" below. Many of the Company's retail customers
participate in the Company's in-stock reorder programs through their own
internal replenishment systems.
During 2000, the Company continued to expand its in-store sales, marketing
and merchandising programs designed to encourage multiple item, regular price
sales, build one-on-one relationships with consumers and maintain the Company's
merchandise presentation standards. The LIZEDGE program services the Company's
LIZ CLAIBORNE and ELISABETH apparel brands by training sales associates on
suggested selling, product, merchandise presentation and client development
strategies. The Company's men's, accessories, jewelry, DANA BUCHMAN, Segrets,
Laundry, LUCKY and licensed DKNY(R) and KENNETH COLE businesses have service and
merchandising programs similar to LIZEDGE.
In 2000, the Company further expanded its LIZVIEW program, designed to
enhance the presentation of the Company's products on retail selling floors
generally through the use of proprietary fixturing, merchandise presentations
and in-store graphics. At year-end 2000, over 1,800 LIZVIEW shops were installed
in more than 1,100 stores, representing over 2,000,000 square feet of upgraded
selling space for LIZ CLAIBORNE brands. In addition, at year-end 2000,
approximately 480 accessories, 520 CLAIBORNE, 17 DANA BUCHMAN, 150 EMMA JAMES, 8
LUCKY BRAND, 1,460 DKNY(R) JEANS and 68 KENNETH COLE NEW YORK shops were
installed in domestic department stores. Furthermore, at year-end 2000,
approximately 1,900 CRAZY HORSE shops were installed in JC Penney stores and
approximately 175 FIRST ISSUE shops were installed in Sears stores. In 2001, the
Company plans to install, in the aggregate, approximately 1,200 additional
in-store shops. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Position, Capital Resources and
Liquidity."
The Company spent approximately $43 million on national advertising in
2000; current plans call for 2001 national advertising expenditures of a
comparable amount. This compares with approximately $40 million spent in 1999.
In addition, the Company maintains cooperative advertising programs under which
it generally shares the costs of each customer's advertising and promotional
expenditures, up to a stated percentage of the customer's purchases. The Company
incurred costs under these cooperative advertising programs of approximately $75
million in 2000, compared with $64 million in 1999.
The Company maintains three consumer websites: www.lizclaiborne.com, which
provides information on LIZ CLAIBORNE branded apparel and accessories products;
www.elisabeth.com, launched in November of 2000, which offers ELISABETH branded
apparel for sale directly to consumers; and www.luckybrandjeans.com, which
provides information on LUCKY BRAND branded apparel and offers a selection of
LUCKY BRAND apparel for sale directly to consumers.
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MANUFACTURING
The Company does not own any product manufacturing facilities; all of its
products are manufactured in accordance with its specifications through
arrangements with independent suppliers.
A very substantial portion of the Company's sales is represented by
products produced abroad, mainly in the Far East, the Caribbean and Central
America. The Company also sources in the United States and other regions. The
Company does not itself own quota and, therefore, must obtain quota from its
suppliers and vendors. During 2000, the Company's products were manufactured by
several hundred suppliers. The Company's products are currently manufactured in
approximately 32 different countries, including Saipan, China, Taiwan, the
Dominican Republic, Hong Kong, Sri Lanka, Indonesia and the Philippines. The
Company continually seeks additional suppliers throughout the world for its
sourcing needs. The Company's largest supplier of finished products manufactured
less than 6% of the Company's purchases of finished products during 2000.
Approximately 35% of the Company's 2000 and 1999 purchases of finished products,
as compared to 30% of the Company's 1998 purchases, were manufactured by its ten
largest suppliers. The Company expects that the percentage of production
represented by its largest suppliers will remain at its current level in light
of the Company's ongoing worldwide factory certification initiative, under which
the Company allocates large portions of its production requirements to suppliers
which appear to have superior capacity, quality (of product and operations) and
financial resources. The Company's purchases from its suppliers are affected
through individual purchase orders specifying the price and quantity of the
items to be produced. The Company does not have any long-term, formal
arrangements with any of the suppliers which manufacture its products.
The Company believes that it is the largest customer of many of its
manufacturing suppliers and considers its relations with such suppliers to be
satisfactory. Most of the Company's fabrics, trimmings and other materials are
obtained in bulk from various foreign and domestic suppliers. Where the Company
purchases completed product "packages" from its contractors, the contractor is
responsible to purchase all necessary raw materials and other product
components. Inasmuch as the Company intends to continue to move towards
purchasing an increasing portion of its products as "packages," the Company
continues its development of a group of "approved suppliers" to supply raw
materials and other product components to its contractors for use in "packages";
the Company anticipates continuing the practice of purchasing a substantial
portion of its products as "packages" in 2001. During 2000, the raw materials
used in Company products were obtained from approximately two hundred suppliers,
located primarily in the Korea, Taiwan, the United States, Japan, Turkey and
Ireland. Approximately 32% of the Company's raw materials during 2000 and 29%
during 1999 were obtained from its five largest raw material suppliers, with no
single raw material supplier accounting for more than 9% of 2000 raw material
purchases. The Company does not have any long-term, formal arrangements with any
supplier of raw materials. To date, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its sources
of supply adequate.
The Company operates under substantial time constraints in producing each
of its collections. See "Sales and Marketing." In order to deliver, in a timely
manner, merchandise which reflects current tastes, the Company attempts to
schedule a substantial portion of its materials and manufacturing commitments
relatively late in the production cycle, thereby favoring suppliers able to make
quick adjustments in response to changing production needs. However, in order to
secure necessary materials and manufacturing facilities, the Company must make
substantial advance commitments, often as much as seven months prior to the
receipt of firm orders from customers for the items to be produced. The Company
continues to seek to reduce the time required to move products from design to
the customer.
If the Company should misjudge its ability to sell its products, it could
be faced with substantial outstanding fabric and/or manufacturing commitments,
resulting in excess inventories. See "Competition; Certain Risks" below.
The Company's arrangements with foreign suppliers are subject to the risks
of doing business abroad, including currency fluctuations and revaluations,
restrictions on the transfer of funds and, in certain parts of the world,
political, economic and currency instability. The Company's operations have not
been materially affected by any such factors to date. However, due to the large
portion of the Company's products which are produced abroad, any substantial
disruption of its relationships with its foreign suppliers could adversely
affect the Company's operations.
IMPORT AND IMPORT RESTRICTIONS
Virtually all of the Company's merchandise imported into the United States
is subject to United States duties. In addition, bilateral agreements between
the major exporting countries and the United States impose quotas that limit the
amount of certain categories of merchandise that may be imported into the United
States. The majority of such agreements contain "consultation" clauses which
allow the United States, under certain circumstances, to impose unilateral
restrictions on the importation of certain categories of merchandise that are
not subject to specified limits under the terms of an agreement. These bilateral
agreements have been negotiated under the framework of the MultiFiber
Arrangement ("MFA"), which has
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been in effect since 1974. The United States, a participant in international
negotiations known as the "Uruguay Round", ratified legislation enacting and
implementing the various agreements of the Uruguay Round, effective January 1,
1995, including the Uruguay Round Agreement on Textiles and Clothing which
requires World Trade Organization member countries to phase out textile and
apparel quotas in three stages over a ten year period. In addition, it regulates
trade in non-integrated textile and apparel quotas during the ten year
transition period. However, even with respect to integrated textile and apparel
quota categories, the United States remains free to establish numerical
restraints in response to a particular product being imported in such increased
quantities as to cause (or threaten) serious damage to the relevant domestic
industry. United States legislation implementing the Uruguay Round also changed
the rule of origin for many textiles and apparel products effective July 1,
1996, with certain minor exceptions. This change now determines country of
origin based on "assembly" for most textile and apparel products. The Uruguay
Round also incorporates modest duty reductions for textile and apparel products
over a ten year staging schedule. This will likely result in a modification of
current patterns of international trade with respect to apparel and textiles.
See "Competition; Certain Risks" below.
In addition, each of the countries in which the Company's products are sold
have laws and regulations regarding import restrictions and quotas. Because the
United States and other countries in which the Company's products are
manufactured and sold may, from time to time, impose new quotas, duties,
tariffs, surcharges or other import controls or restrictions, or adjust
presently prevailing quota allocations or duty or tariff rates or levels, the
Company maintains a program of intensive monitoring of import and quota-related
developments. The Company seeks continually to minimize its potential exposure
to import and quota-related risks through, among other measures, allocation of
production to merchandise categories that are not subject to quota pressures,
adjustments in product design and fabrication, shifts of production among
countries and manufacturers, as well as through geographical diversification of
its sources of supply.
In light of the very substantial portion of the Company's products which
are manufactured by foreign suppliers, the enactment of new legislation or the
administration of current international trade regulations, or executive action
affecting textile agreements, could adversely affect the Company's operations.
DISTRIBUTION
The Company distributes virtually all of its products through facilities
that are owned or leased by the Company, Principal distribution facilities are
located in Alabama, California, New Jersey and Pennsylvania. See "Properties"
below.
TRADEMARKS
The Company owns and/or uses a variety of trademarks in connection with its
businesses and products, including CLAIBORNE, CLAIBORNE SPORT, CRAZY HORSE,
CURVE, DANA BUCHMAN, DANA BUCHMAN INTUITION, DANA BUCHMAN LUXE, ELISABETH, EMMA
JAMES, FIRST ISSUE, J.H. COLLECTIBLES, LEATHER CO., LAUNDRY BY SHELLI SEGAL,
LIZ, LIZ & CO., LIZ CLAIBORNE, LIZ CLAIBORNE COLLECTION, LIZ CLAIBORNE STUDIO,
LIZSPORT, LIZWEAR, MEG ALLEN, MARVELLA, MONET, REALITIES, RUSS, SHELLI SEGAL,
TRIFARI, VILLAGER, VIVID, its LC logomark, its triangular logomark and its leaf
design. The Company has exclusive rights, under license, to the DKNY(R) JEANS
and DKNY(R) ACTIVE trademarks and logos for men's and women's sportswear,
jeanswear and activewear in the Western Hemisphere and to the CITY DKNY(R)
trademark and logo for women's sportswear. The Company is also the exclusive
licensee of the KENNETH COLE NEW YORK, UNLISTED.COM and REACTION KENNETH COLE
trademarks for women's wear in North America, as well as the CANDIE'S trademark
for fragrance, cosmetic and beauty products worldwide. See Note 3 of Notes to
Consolidated Financial Statements. By virtue of its ownership interests, the
Company controls the Segrets' trademarks, which include SIGRID OLSEN SPORT,
SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID WOMAN and SIGRID OLSEN
PETITES, and the Lucky trademarks, which include LUCKY BRAND, LUCKYVILLE, LUCKY
YOU LUCKY BRAND and Lucky's four leaf clover design and pocket design.
The Company has registered or applied for registration of a multitude of
trademarks, including those referenced above, for use on apparel and
apparel-related products, including accessories, cosmetics and jewelry in the
United States as well as numerous foreign territories. The Company also has a
number of design patents. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. The Company vigorously protects its
trademarks and other intellectual property rights against infringement.
COMPETITION; CERTAIN RISKS
The apparel and related product markets are highly competitive, both within
the United States and abroad.
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The Company's ability to successfully compete depends on a number of
factors, including the Company's ability to effectively anticipate, gauge and
respond to changing consumer demands and tastes, to translate market trends into
appropriate, saleable product offerings relatively far in advance, and to
operate within substantial production and delivery constraints. In addition,
consumer and customer acceptance and support (especially by the Company's
largest customers) depend upon, among other things, product, value and service.
The Company believes that, based on sales, it is among the largest apparel
companies operating in the United States. Although the Company is unaware of any
comprehensive trade statistics, it believes, based on its knowledge of the
market and available trade information, that measured by sales, it is the
largest "better" women's branded apparel company in the United States. Principal
competitors within the "better" women's sportswear market include Jones Apparel
Group, Inc., Polo Ralph Lauren Corporation and Tommy Hilfiger Corporation.
In addition to the competitive factors described above, the Company's
business, including its revenues and profitability, is influenced by and subject
to a number of factors which are inherently uncertain and therefore difficult to
predict, including, among others: changes in regional, national and global
microeconomic and macroeconomic conditions, including the levels of consumer
confidence and spending, consumer income growth, higher personal debt levels,
rising energy costs, increasing interest rates and increased stock market
volatility; risks related to retailer and consumer acceptance of the Company's
products; risks associated with competition and the marketplace, including the
financial condition of, and consolidations, restructurings and other ownership
changes in, the apparel (and related products) industry and the retail industry,
the introduction of new products or pricing changes by the Company's
competitors, and the Company's ability to effectively remain competitive with
respect to product, value and service; risks relating to retailers' buying
patterns and purchase commitments for apparel products in general and the
Company's products specifically; risks associated with the Company's dependence
on sales to a limited number of large department store customers, including
risks related to customer requirements for vendor margin support and those
related to extending credit to customers; uncertainties relating to the
Company's ability to successfully implement its growth strategies, integrate
recent or future acquisitions, maintain product licenses, or successfully launch
new products and lines; the Company's ability to correctly balance the level of
its fabric and/or merchandise commitments with actual orders; the Company's
ability to effectively warehouse and distribute its products, including its
ability to distribute its products within its targeted markets (including
distribution to and through wholesale accounts and Company operated retail
stores and concession locations); risks related to the Company's ability to
establish, defend and protect its trademarks and other proprietary rights and
other risks relating to managing intellectual property issues; risks associated
with the possible inability of the Company's unaffiliated manufacturers to
manufacture and deliver products in a timely manner, to meet quality standards
or to comply with the Company's policies regarding labor practices; the chance
of substantial disruption of the Company's relationships with its suppliers,
manufacturers and employees; and risks associated with changes in social,
political, economic and other conditions affecting foreign operations and
sourcing. See also Note 7 of Notes to Consolidated Financial Statements. With
respect to foreign sourcing, the Company notes that legislation which would
further restrict the importation and/or increase the cost of textiles and
apparel produced abroad has periodically been introduced in Congress. Although
it is unclear whether any new legislation will be enacted into law, it appears
likely that various new legislative or executive initiatives will be proposed.
These initiatives may include a reevaluation of the trading status of certain
countries, including Permanent Normal Trade Relations treatment for the People's
Republic of China (which was renewed in July 2000 for an additional year),
and/or retaliatory duties, quotas or other trade sanctions, which, if enacted,
would increase the cost of products purchased from suppliers in such countries.
In light of the very substantial portion of the Company's products which are
manufactured by foreign suppliers, the enactment of new legislation or the
administration of current international trade regulations, or executive action
affecting international textile agreements, could adversely affect the Company's
operations. See "Import and Import Restrictions" and "Sales and Marketing"
above.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities, acquisitions or licensing. The
entry into new markets (including the development and launch of new product
categories and product lines), such as the Company's entry into the moderate
market, and the acquisition of businesses, such as the Company's acquisitions of
LAUNDRY, LUCKY, MONET and SEGRETS, and the licensing of brands such as DKNY(R)
JEANS and DKNY(R) ACTIVE, CITY DKNY(R), KENNETH COLE NEW YORK, REACTION KENNETH
COLE and UNLISTED.COM, are accompanied by risks inherent in any new business
venture and may require methods of operations and marketing strategies different
from those employed in the Company's other businesses. Moreover, certain new
businesses may be lower margin businesses and may require the Company to achieve
significant cost efficiencies. In addition, new markets product categories,
product lines and businesses may involve buyers, store customers and/or
competitors different from the Company's historical buyers, customers and
competitors. Furthermore, the Company's acquisition of other businesses entails
the normal risks inherent in such transactions, including, without limitation,
possible difficulties, delays and/or unanticipated costs in integrating the
businesses, operations, personnel, and/or systems of the acquired entity; risks
that projected or satisfactory level of sales, profits and/or return on
investment will not be generated; risks that expenditures required for capital
items or working capital will be higher than anticipated; risks involving the
Company's ability to retain and appropriately motivate key personnel of the
acquired business; and risks associated with unanticipated events and unknown or
uncertain liabilities. In addition, businesses licensed by the Company are
subject to
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risks inherent in such transactions, including compliance with terms set forth
in the applicable license agreements, including among other things the
maintenance of certain levels of sales, and the public perception and/or
acceptance of the licensor's brands or other product lines, which are not within
the Company's control.
EMPLOYEES
At December 30, 2000, the Company had approximately 8,300 full-time
employees worldwide, as compared with approximately 7,700 full-time employees at
January 1, 2000.
The Company is bound by a national collective bargaining agreement with the
Union of Needletrades, Industrial and Textile Employees (UNITE), agreements with
various locals and a Jobbers Agreement with UNITE. These agreements cover
approximately 1,700 of the Company's full-time employees and expire on May 31,
2003. Most of the UNITE-represented employees are employed in warehouse and
distribution facilities the Company operates in New Jersey, Pennsylvania and
Alabama. In addition, the Company is bound by an agreement with the Industrial
Professional & Technical Workers International Union, covering approximately 150
of the Company's full-time employees at its Santa Fe Springs, California
facility and expiring on May 14, 2005.
The Company considers its relations with its employees to be satisfactory
and to date, has not experienced any interruption of operations due to labor
disputes.
Item 2. Properties.
The Company's showrooms and executive offices, as well as its sales,
merchandising and design staffs, are located at 1441 Broadway, New York, New
York, where the Company leases approximately 287,000 square feet under a master
lease which expires at the end of 2012 and contains certain renewal options and
rights of first refusal for additional space. The Company currently leases
office space at two other buildings in New York City covering approximately
29,000 and 93,000 square feet (with terms expiring in 2003 and 2013,
respectively) and licenses space in another building covering approximately
39,000 square feet. All of the Company's business segments use the properties
described above.
The Company owns an approximately 450,000 square foot New Jersey warehouse
and distribution facility (plus mezzanine space of approximately 170,000 square
feet) located at One Claiborne Avenue, North Bergen, New Jersey. This facility
also houses the Company's production and certain administrative personnel. The
Company also owns an approximately 300,000 square foot office facility at this
location. The Company presently leases approximately 955,000 square feet in
other New Jersey warehouse and distribution facilities, the current terms of
which expire through 2008. The Company also owns a warehouse and distribution
facility located on 80 acres in Mt. Pocono, Pennsylvania. This facility consists
of approximately 630,000 square feet (plus mezzanine space of approximately
600,000 square feet) of warehouse and distribution space. In addition, the
Company occupies an approximately 150,000 square foot warehouse and distribution
facility in Mt. Pocono, Pennsylvania under a sublease which expires in 2002. In
California, the Company leases an approximately 600,000 square foot warehouse
and distribution facility and an approximately 125,000 square foot warehouse and
distribution facility, located in Santa Fe Springs and Vernon, respectively. The
Company leases, pursuant to industrial development financing, an approximately
290,000 square foot (plus mezzanine space of approximately 380,000 square feet)
warehouse and distribution facility located on a 124 acre site in Montgomery,
Alabama. The Company also occupies an approximately 120,000 square foot
warehouse facility in Montgomery, Alabama under a lease which, pursuant to a
renewal option exercised by the Company in 1999, expires at the end of 2001. The
Company also leases showroom, warehouse and office space in various other
domestic and international locations. These properties are used in each of the
Company's business segments. The Company also uses unaffiliated third parties to
provide distribution services at several additional facilities. The Company is
seeking to sell its approximately 270,000 square foot facility in Augusta,
Georgia (located on a 98-acre site and previously used in connection with a
dyeing and finishing joint venture), which is currently sublet to a third-party.
In addition, the Company has commenced construction of an approximately
600,000 square foot (plus mezzanine space of approximately 250,000 square feet)
warehouse and distribution center in Westchester, Ohio. This project will be
financed by the Company through a synthetic lease arrangement. See Note 7 of
Notes to Consolidated Financial Statements.
The Company leases space for its 111 retail specialty stores (aggregating
approximately 415,000 square feet) and its 164 outlet stores (aggregating
approximately 1,200,000 square feet).
The Company believes that its existing facilities are well maintained, in
good operating condition and, upon occupancy of additional space, will be
adequate for its present level of operations. See Note 7 of Notes to
Consolidated Financial Statements.
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Item 3. Legal Proceedings.
Various legal actions are pending against the Company. Although the outcome
of any such actions cannot be determined with certainty, management is of the
opinion that the final outcome of any of these actions should not have a
material adverse effect on the Company's results of operations or financial
position. See Note 7 and Note 19 of Notes to Consolidated Financial Statements.
In January 1999, two actions were filed in California naming as defendants
more than a dozen United States-based apparel companies that source garments
from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based garment factories. The actions assert that the Saipan factories
engage in unlawful practices relating to the recruitment and employment of
foreign workers and that the apparel companies, by virtue of their alleged
relationship with the factories, have violated various federal and state laws.
One action, filed in California Superior Court in San Francisco by a union and
three public interest groups, alleges unfair competition and false advertising
(the "State Court Action"). The State Court Action seeks equitable relief,
unspecified amounts for restitution and disgorgement of profits, interest and an
award of attorney's fees. The second, filed in the United States District Court
for the Central District of California, and later transferred to the District of
Hawaii is brought on behalf of a purported class consisting of the Saipan
factory workers (the "Federal Action"). The Federal Action alleges claims under
the civil RICO statute and the Alien Tort Claims Act, premised on supposed
violations of the federal anti-peonage and indentured servitude statutes, as
well as other violations of Saipan and international law, and seeks equitable
relief and unspecified damages, including treble and punitive damages, interest
and an award of attorney's fees. A third action, brought in Federal Court in
Saipan solely against the garment factory defendants on behalf of a putative
class of their workers, alleges violations of federal and Saipanese wage and
employment laws.
The Company sources products in Saipan but was not named as a defendant in
the actions. The Company, and certain other apparel companies not named as
defendants, were advised in writing, however, that they would be added as
parties if a consensual resolution of the claims could not be reached. In the
wake of that notice, which was accompanied by a draft complaint, the Company
entered into settlement negotiations and subsequently entered into an agreement
to settle all claims that were or could have been asserted in the Federal or
State Court Actions. To date, more than a dozen other apparel companies have
also settled these claims. As part of the settlement, the Company has since been
named as a defendant, along with certain other settling apparel companies, in a
Federal Court action styled Doe I, et al. v. Brylane, L.P. et al., currently
pending in the United States District Court for the District of Hawaii, that
mirror portions of the larger State and Federal Actions but does not include
RICO and certain of the other claims alleged in those Actions . The newly filed
action against the Company will remain inactive unless the settlement is not
finally approved by the Federal Court. The agreements concluded by the Company
and other retailers are subject to federal court approval, which has been
delayed by virtue of the Hawaii District Court's June 23, 2000 decision to
transfer the Federal Action to Saipan. Plaintiffs have petitioned the Ninth
Circuit Court of Appeals for the Writ of Mandamus reversing that ruling and the
Federal Action has effectively been stayed pending the Court of Appeals'
decision. Under the terms of the settlement agreement, if the settlement does
not receive final federal court approval, the Company will be entitled to a
refund of the entire settlement amount except for funds of up to $10,000 spent
on costs of notice to the settlement class. Because the litigation is at a
preliminary stage, with no merits discovery having taken place, if the
settlement is not finally approved by the federal court, we cannot at this
juncture determine the likelihood of a favorable or unfavorable outcome or the
magnitude of the latter if it were to occur.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
Executive Officers of the Registrant.
Information as to the executive officers of the Company, as of March 21, 2001,
is set forth below:
Name Age Position(s)
---- --- -----------
Paul R. Charron 58 Chairman of the Board and Chief Executive Officer
Michael Scarpa 45 Vice President and Chief Financial Officer
Lawrence D. McClure 52 Senior Vice President - Human Resources
John R. Thompson 49 Senior Vice President - Supply Chain Integration
Robert J. Zane 61 Senior Vice President - Sourcing and Logistics
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Executive officers serve at the discretion of the Board of Directors.
Mr. Charron joined the Company as Vice Chairman and Chief Operating
Officer, and became a Director, in 1994. In 1995, Mr. Charron became President
(a position he held until October 1996) and Chief Executive Officer of the
Company. In 1996, Mr. Charron became Chairman of the Board of the Company. Prior
to joining the Company, Mr. Charron served in various executive capacities with
VF Corporation, an apparel manufacturer, from 1988. Mr. Charron is also a
director of C-Bridge Internet Solutions, Inc., a provider of Internet-based
solutions.
Mr. Scarpa joined the Company in 1983 as budget manager and served in
various management positions thereafter. In 1991, Mr. Scarpa was promoted to
Vice President - Divisional Controller and in 1995 he was promoted to Vice
President - Financial Planning and Operations. Effective July 2000, he became
Vice President - Chief Financial Officer.
Mr. McClure joined the Company in 2000 as Senior Vice President - Human
Resources. Prior to joining the Company, Mr. McClure served as Vice President,
Human Resources of Dexter Corporation, a specialty materials company, from 1995.
Mr. Thompson joined the Company in 1995 and served from 1995 to 2000 as
Senior Vice President of Service, Systems and Reengineering, Chief Information
Officer. In 2000, Mr. Thompson became Senior Vice President - Supply Chain
Integration. Prior to joining the Company, Mr. Thompson served as Executive Vice
President for Business Systems/Logistics and Chief Information Officer of
Goody's Family Clothing, Inc., an apparel retailer, from 1993 to 1995.
Mr. Zane joined the Company in 1995 and served from 1995 to 2000 as Senior
Vice President - Manufacturing and Sourcing. In 2000, Mr. Zane became Senior
Vice President - Sourcing and Logistics. Prior to joining the Company, Mr. Zane
owned and operated Medallion Tekstil, a private label manufacturing company he
founded in 1989.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol LIZ. The table below sets forth the high and low closing sale
prices of the Common Stock (based on the NYSE composite tape) for the periods
indicated.
Calendar Period High Low
--------------- ---- ---
2000:
1st Quarter 47 3/16 31 1/4
2nd Quarter 46 7/8 34 15/16
3rd Quarter 45 1/8 35 7/16
4th Quarter 45 1/16 35 1/16
1999:
1st Quarter 38 3/16 31 7/16
2nd Quarter 39 1/16 31 7/16
3rd Quarter 39 5/8 31
4th Quarter 40 32 1/4
On March 21, 2001, the closing sale price of the Company's Common Stock was
$46.40. As of March 21, 2001, the approximate number of record holders of Common
Stock was 7,500.
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The Company has paid regular quarterly cash dividends since May 1984.
Quarterly dividends for the last two fiscal years were paid as follows:
Calendar Period Dividends Paid per Common Share
--------------- -------------------------------
2000:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
Calendar Period Dividends Paid per Common Share
--------------- -------------------------------
1999:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
The Company currently plans to continue paying quarterly cash dividends on
its Common Stock. The amount of any such dividend will depend on the Company's
earnings, financial position, capital requirements and other relevant factors.
In December 1989, the Board of Directors first authorized the repurchase,
as market and business conditions warranted, of the Company's Common Stock for
cash in open market purchases and privately negotiated transactions. From time
to time thereafter, the Board has authorized additional repurchases. As of March
16, 2001, the Company had expended an aggregate of $1.454 billion of the $1.675
billion authorized under its stock repurchase program, covering approximately 42
million shares. See Note 7 to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain information regarding the Company's
operating results and financial position and is qualified in its entirety by the
consolidated financial statements and notes thereto which appear elsewhere
herein:
(All dollar amounts in thousands except per common share data)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 3,104,141 $ 2,806,548 $ 2,535,268 $ 2,412,601 $ 2,217,518
Gross profit 1,233,872 1,097,582 997,102 969,658 876,435
Net income 184,595* 192,442 169,377* 184,644 155,665
Working capital 552,672 506,298 711,942 729,763 815,429
Total assets 1,512,159 1,411,801 1,392,791 1,305,285 1,382,750
Stockholders' equity 834,285 902,169 981,110 921,627 1,020,492
Per common share data:
Basic earnings 3.46* 3.13 2.59* 2.65 2.15
Diluted earnings 3.43* 3.12 2.57* 2.63 2.14
Book value at year end 16.29 15.91 15.34 13.94 14.37
Dividends paid .45 .45 .45 .45 .45
Weighted average
common shares
outstanding 53,406,599 61,523,465 65,502,852 69,619,167 72,396,130
Weighted average
common shares
and share equivalents
outstanding 53,747,443 61,719,591 65,846,776 70,191,115 72,845,100
* Includes the after tax effects of a restructuring charge of $13,466
($21,041 pretax) or $.25 per common share and a special investment gain of
$5,606 ($8,760 pretax) or $.10 per common share in 2000 and a restructuring
charge of $17,100 ($27,000 pretax) or $.26 per common share in 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statements of Income of
the Company as a percent of net sales and the percentage change of those items
as compared to the prior year.
FISCAL YEARS YEAR TO YEAR
PERCENT OF SALES % CHANGE
-----------------------------------------------------------
2000 1999
vs. vs.
2000 1999 1998 1999 1998
---- ---- ---- ---- ----
NET SALES 100.0% 100.0% 100.0% 10.6% 10.7%
Cost of goods sold 60.3 60.9 60.7 9.4 11.1
GROSS PROFIT 39.7 39.1 39.3 12.4 10.1
Selling, general and administrative
expenses 29.3 28.4 28.1 14.0 12.0
OPERATING INCOME (before
restructuring charge) 10.5 10.7 11.2 8.3 5.3
Restructuring charge 0.7 -- 1.1 N/A (100.0)
OPERATING INCOME 9.8 10.7 10.2 1.3 16.3
Other income (expense)-net 0.2 -- -- N/A 56.2
Interest (expense) income-net (0.7) 0.1 0.4 N/A (71.0)
INCOME BEFORE PROVISION FOR INCOME
TAXES 9.3 10.7 10.5 (4.4) 13.1
Provision for income taxes 3.3 3.9 3.8 (4.9) 12.2
NET INCOME 5.9 6.9 6.7 (4.1) 13.6
NET INCOME (before restructuring
charge and special investment gain) 6.4% 6.9% 7.4% 2.9% 3.2%
We have the following business segments: Wholesale Apparel, Wholesale
Non-Apparel and Retail. Our Wholesale Apparel segment consists of businesses
that design, manufacture and market to our wholesale customers women's and men's
apparel under various trademarks (capitalized herein) owned or licensed by the
Company; this segment includes our career (COLLECTION), casual (LIZSPORT,
LIZWEAR and LIZ & CO.), bridge (DANA BUCHMAN), large size (ELISABETH), men's
(CLAIBORNE), moderate priced special markets (CRAZY HORSE, EMMA JAMES, FIRST
ISSUE, RUSS,
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VILLAGER and MEG ALLEN), specialty apparel (SIGRID OLSEN), premium denim (LUCKY
BRAND DUNGAREES) and contemporary sportswear and dress (LAUNDRY) businesses, as
well as our licensed DKNY(R) JEANS, DKNY(R) ACTIVE, and CITY DKNY(R) businesses
and our licensed KENNETH COLE NEW YORK, REACTION KENNETH COLE and UNLISTED.COM
businesses. Our Wholesale Non-Apparel segment consists of businesses that
design, manufacture and market to our wholesale customers women's handbags,
small leather goods, fashion accessories, jewelry, and women's and men's
cosmetics under various of the above and other trademarks owned or licensed by
us, including our newly acquired MONET, TRIFARI and MARVELLA labels. Our Retail
segment consists of businesses that sell merchandise designed and manufactured
by our Wholesale Apparel and Wholesale Non-Apparel segments to the public
through our 113 specialty retail and 164 outlet stores as well as leased
departments. All data with respect to our individual segments included within
"Management's Discussion and Analysis" are presented before applicable
intercompany eliminations (see Note 16 of Notes to Consolidated Financial
Statements).
2000 VS. 1999
Our net sales for 2000 were $3.10 billion, an increase of 10.6%, compared
to $2.81 billion in 1999 (both periods include 52 weeks). This increase
reflected an 8.0% increase in our Wholesale Apparel segment to $2.37 billion, an
increase of 23.8% in Wholesale Non-Apparel to $423 million, and an increase in
Retail of 10.1% to $490 million.
The increase in net sales of our Wholesale Apparel segment primarily
reflected continued strength in our Special Markets business due to higher unit
volume and higher net average unit selling prices, and the inclusion of a full
year's sales of our SIGRID OLSEN, LUCKY BRAND DUNGAREES and LAUNDRY businesses,
all acquired in 1999 (hereinafter referred to as our "recently acquired
businesses"), our CRAZY HORSE Men's apparel line (launched in March 2000), and
our licensed KENNETH COLE NEW YORK women's apparel line (launched in August
2000), which together accounted for $162 million, or 54%, of our 2000 total net
sales increase. The increase also reflected sales increases in our CLAIBORNE
men's business due to higher unit volume partially offset by lower net average
unit selling prices. These gains were partially offset by sales decreases
resulting from the licensing of our Dress business in February 2000; sales
declines in our DANA BUCHMAN business due to lower net average unit selling
prices reflecting increased retailer support, partially offset by slightly
higher unit volume; and slight sales declines in our Casual business due to
lower unit volume, as well as sales declines in our Career business due to lower
unit volume and lower net average unit selling prices.
The increase in our Wholesale Non-Apparel segment was due to significant
net sales increases in our Cosmetics business, due primarily to the inclusion of
sales for a full year of our licensed CANDIE'S(R) fragrance, as well as the
launch of our LUCKY YOU fragrance in August 2000. The increase also reflected
gains in our Jewelry business, due primarily to the inclusion of the sales of
our MONET business which we acquired in July 2000. We also experienced modest
gains in our Handbags business due to higher unit volume partially offset by
lower net average unit selling prices. These gains were partially offset by a
decline in our Fashion Accessories business due primarily to lower net average
unit selling prices partially offset by higher unit volume.
The increase in net sales of our Retail segment reflected increased Outlet
store sales, primarily due to an increase (net after store closings) of 20
stores in the year partially offset by a low single-digit comparable store sales
decrease. Our Specialty Retail store sales increased slightly, due to an
increase (net after store closings) of 14 stores, with a significant increase
due to the inclusion of the sales of 17 additional LUCKY BRAND DUNGAREES stores,
offset by a low single-digit decline in comparable store sales in the balance of
our Specialty Retail stores. The decline in comparable store sales in our Outlet
and Specialty Retail stores reflects the challenging retail apparel environment
and the specialty stores' heavy reliance on better-priced women's apparel.
Gross profit dollars increased $136 million, or 12.4%, in 2000 over 1999.
Gross profit margins increased to 39.7% in 2000, from 39.1% in 1999. This
increase in gross profit rate reflected lower initial unit costs as a result of
lower cost global sourcing, reflecting continued consolidation, configuration
and certification of our supplier base, combined with our improved matching of
production orders with customer orders at the SKU level through the use of new
systems and revamped business processes implemented in late 1999. These
processes also enabled us to better manage our inventories and continue to
improve margins on the sale of excess inventories. Our gross profit rate also
benefited from the licensing of our lower margin Dress business and the purchase
of the higher margin MONET business, as well as increased penetration of our
recently acquired businesses, which generally run at relatively higher gross
margin rates than the Company average. These increases were partially offset by
increased financial support paid to our retail customers across our
better-priced apparel businesses, significantly lower margins in our DKNY(R)
JEANS Women's business, and lower margins within, and increased penetration of,
our Special Markets business, which runs at a lower gross profit rate than the
Company average.
Selling, general and administrative expenses ("SG&A"), before our 2000
restructuring charge (see Note 9 of the Notes to Consolidated Financial
Statements), increased $111 million, or 14.0%, in 2000 over 1999. These
expenses, before the 2000 restructuring charge, increased to 29.3% of net sales
in 2000 from 28.4% in 1999. These results principally reflect
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relatively higher SG&A rates in our recently acquired businesses and our MONET
business, the planned dilution from the start-up costs of the new KENNETH COLE
and CITY DKNY(R) licenses, and the planned increase in distribution costs
resulting from the start-up of our new automated facility constructed in Mt.
Pocono, PA, as well as the increase in depreciation and amortization of
leasehold improvements at our New York offices and the significant investment
over the past several years in the technological upgrading of our distribution
facilities and information systems. The reduced sales penetration of our
relatively lower cost Casual apparel business also contributed to the rate
increase. These factors were partially offset by increased penetration of our
Special Markets business, which is supported by relatively lower SG&A levels.
The increase in the dollar level of our SG&A was mitigated by the acceleration
of our expense management and cost reduction initiatives during the second half
of the year.
In September 2000, we recorded a net restructuring charge of $5.4 million
(pretax), representing a charge of $6.5 million, principally to cover the
closure of eight under-performing Specialty Retail stores, the closure of one of
our divisional offices, and severance related costs, offset by the $1.1 million
deemed no longer necessary of the Company's restructuring liability originally
recorded in December 1998.
In December 2000, we recorded a restructuring charge of $15.6 million
(pretax) to further maximize business segment synergies. This charge consisted
of $10.6 million for operating and administrative costs associated with the
elimination of 270 jobs and $5.0 million for real estate consolidations.
Significant items included in the charge are estimated contract termination
costs, severance and related benefits for staff reductions, estimated occupancy
costs and asset writedowns. The 2000 restructuring charges reduced net income by
$13.5 million, or $.25 per common share. The Company anticipates savings
associated with this restructuring to be between $13-$16 million.
As a result of the factors described above, operating income, before the
impact of the 2000 restructuring charge of $21 million, increased $25 million,
or 8.3%, to $324.7 million, and operating income as a percent of sales decreased
to 10.5%, compared to 10.7% in 1999. Segment operating income in our Wholesale
Apparel segment increased to $280 million (11.8% of sales) in 2000 compared to
$267 million (12.2% of sales) in 1999, primarily due to the inclusion of a full
year's profits from our recently acquired businesses and increased sales in our
Special Markets business. Segment operating income in our Wholesale Non-Apparel
segment increased to $45 million (10.6% of sales) in 2000 compared to $33
million (9.6% of sales) in 1999, primarily due to the inclusion of the profits
from our MONET business and increased sales and gross profit rates in our
Cosmetics business. Segment operating income in our Retail segment increased to
$59 million (12.0% of sales) in 2000 compared to $58 million (13.1% of sales) in
1999, primarily due to the opening of new stores and the inclusion of a full
year's profits from the stores of our recently acquired businesses. Including
the impact of the 2000 restructuring charge, operating income increased $4
million, or 1.3%, in 2000 compared to 1999, and decreased to 9.8% of sales in
2000 from 10.7% in 1999.
Other income, net in 2000 was $6.7 million compared to other expense of
$1.0 million in 1999. This year's other income includes a special investment
gain of $8.8 million related to our sale of marketable equity securities, net of
associated expenses, partially offset by minority interest and other
non-operating expenses.
Net interest expense for 2000 was $21.9 million compared to interest income
of $2.8 million in 1999. This $24.7 million change reflects higher net interest
costs incurred to finance our strategic initiatives including the repurchase of
common stock, capital expenditures primarily related to the technological
upgrading of our distribution facilities and information systems and in-store
merchandise shops and costs associated with our recently acquired businesses.
The provision for income taxes decreased $5.3 million in 2000 and decreased
as a percent to sales to 3.3% in 2000 from 3.9% in 1999, primarily reflecting a
lower pretax income and a lower effective tax rate of 36.0% for 2000 as compared
to 36.2% in 1999.
Due to the factors described above, 2000 net income before the impact of
the 2000 restructuring charge and special investment gain was virtually flat
against 1999 and decreased as a percentage of sales to 6.2% from 6.9% in 1999.
Including the impact of the 2000 restructuring charge and special investment
gain, 2000 net income was $8 million lower than in 1999, and decreased as a
percentage of sales to 5.9% in 2000. Diluted earnings per common share,
excluding the restructuring charge and special investment gain, increased 14.7%
to $3.58 in 2000. Diluted earnings per common share, including the restructuring
charges and special investment gain, increased 9.9% to $3.43 in 2000 from $3.12
in 1999. Diluted earnings per common share reflected a lower number of average
outstanding common shares and share equivalents in 2000 as a result of our
repurchase of approximately 6.2 million shares in 2000 for $248 million.
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1999 VS. 1998
Our net sales for 1999 were $2.81 billion, an increase of 10.7%, compared
to $2.54 billion in 1998 (both periods include 52 weeks). This increase
reflected a 10.6% increase in Wholesale Apparel to $2.20 billion, a 6.6%
increase in Wholesale Non-Apparel to $341 million and a 3.2% increase in Retail
to $445 million.
The increase in net sales of our Wholesale Apparel segment was broad-based,
reflecting our acquisition and brand development activities as well as growth in
our overall core apparel businesses. This increase primarily reflected the
inclusion of the partial year sales of our recently acquired businesses, which
accounted for $113 million, or 42%, of our 1999 total net sales increase, as
well as sales increases in our Special Markets business due to higher unit
volume and higher average unit selling prices, and in our DKNY(R) JEANS and
DKNY(R) ACTIVE businesses due to higher unit volume. This increase also
reflected higher sales in our core Casual, Men's and ELISABETH businesses, due
in each case principally to higher unit volume. These increases were partially
offset by decreases in our Career, DANA BUCHMAN and Dress businesses, due to
lower unit volume, and lower average unit selling prices reflecting weakness in
demand.
The increase in our Wholesale Non-Apparel net sales reflected increased
sales in our Cosmetics business, which launched the licensed CANDIE'S(R)
fragrance during August 1999, and in our Jewelry business, due principally to
higher unit volume. These sales increases were partially offset by decreased
sales in our Handbags business due primarily to lower average unit selling
prices.
The increase in net sales of our Retail segment reflected increased Outlet
store sales primarily due to 28 new stores, and the inclusion of the partial
year sales of one LUCKY BRAND DUNGAREES store and four LAUNDRY stores. This
increase was partially offset by a decline in sales of our Specialty Retail
stores resulting primarily from the closure of 30 underperforming stores during
1999, partially offset by the inclusion of the partial year sales of 11 LUCKY
BRAND DUNGAREES stores and one LAUNDRY store.
Gross profit dollars increased $100 million, or 10.1%, in 1999 over 1998,
while gross profit as a percent of sales declined to 39.1% in 1999, from 39.3%
in 1998. These results principally reflect a decline in the gross profit rate in
our Wholesale Non-Apparel segment resulting primarily from higher markdown
allowances in our Handbags and Fashion Accessories businesses. In our Wholesale
Apparel segment, we experienced a higher gross profit rate, as lower margins
within our DANA BUCHMAN business, continued depressed margins within our Career
and Dress businesses and the larger proportion of sales represented by our
Special Markets business (which operates at a lower gross profit rate than the
Company average) were offset by the inclusion of our recently acquired
businesses (which operate at a higher gross profit rate than the Company
average) and lower cost global sourcing of our merchandise. We also experienced
a higher gross profit rate in our Retail segment, due principally to the closure
of 30 underperforming stores mentioned above.
SG&A, before our 1998 restructuring charge (see Note 9 of Notes to
Consolidated Financial Statements), increased $85 million, or 12.0%, in 1999
over 1998. These expenses, before the 1998 restructuring charge, increased to
28.4% of net sales in 1999 from 28.1% in 1998, principally reflecting our
recently acquired businesses (which operate at higher SG&A rates than the
Company average), marketing costs associated with the launch of the CANDIE'S(R)
fragrance, higher incentive compensation expense relative to 1998's depressed
level, and an increase in depreciation and amortization expense related to our
significant investments over the past three years in the technological upgrading
of our distribution centers and information systems and the expansion of our
in-store merchandise shop programs. These increases were partially offset by
lower salary and related expenses reflecting headcount reductions, as well as
increased penetration of our Special Markets business, which is supported by
lower SG&A levels.
As a result of the factors described above, operating income, before the
impact of the 1998 restructuring charge, increased $15 million, or 5.3%, in 1999
compared to 1998, and decreased to 10.7% of net sales in 1999 from 11.2% in
1998. Segment operating profit in our Wholesale Apparel segment increased to
$267 million (12.2% of net sales) in 1999 from $244 million (12.3% of net sales)
in 1998, primarily due to increased sales and gross profit rates in our core
Casual, Men's, and ELISABETH businesses and the inclusion of the profits from
our recently acquired businesses. Segment operating profit in Wholesale
Non-Apparel decreased to $33 million (9.6% of net sales) in 1999 from $47
million (14.5% of net sales) in 1998, primarily due to decreased sales and
higher markdown allowances in our Handbags business. Segment operating profit in
Retail increased to $58 million (13.1% of net sales) in 1999 from $45 million
(10.5% of net sales) in 1998, primarily due to the opening of new stores, the
closure of 30 underperforming stores and the inclusion of the stores of our
recently acquired businesses. Including the impact of the 1998 restructuring
charge, operating income increased $42 million, or 16.3%, in 1999 compared to
1998, and increased to 10.7% of sales in 1999 from 10.2% in 1998.
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Net interest income-net decreased by $7 million in 1999 compared to 1998
due to a decrease in our cash and marketable securities portfolio and the
incurrence of debt primarily to fund our ongoing stock repurchase program and
growth initiatives.
The provision for income taxes increased $11.8 million in 1999 and
increased as a percent of sales to 3.9% in 1999 from 3.8% in 1998, primarily
reflecting higher pretax income as a percent of sales in 1999, partially offset
by a reduction in our effective tax rate to 36.0% during the third and fourth
quarters of 1999 from 36.5% in the comparable 1998 periods.
Due to the factors described above, 1999 net income, before the impact of
the 1998 restructuring charge, increased $6 million over 1998 and decreased as a
percentage of sales to 6.9% from 7.4% in 1998. Including the impact of the 1998
restructuring charge, 1999 net income was $23 million higher than in 1998, and
increased as a percentage of net sales from 6.7% in 1998.
Before the impact of the 1998 restructuring charge, 1999 diluted earnings
per common share increased 10.2% to $3.12 compared to $2.83 in 1998. Including
the impact of the 1998 restructuring charge, diluted earnings per common share
increased 21.4% to $3.12 in 1999 from $2.57 in 1998. Diluted earnings per common
share reflected a lower number of average outstanding common shares and share
equivalents in 1999 as a result of our repurchase of 7.4 million shares in 1999.
FORWARD OUTLOOK
While the macroeconomic and retail environments are challenging, the
Company remains optimistic that for 2001, with our diversified portfolio, we can
generate a sales increase of 5% to 7% and an EPS increase of 11% to 13% (before
this year's restructuring charge and special investment gain, and before any
incremental acquisitions or share repurchases). For the first and second
quarters of 2001, we remain optimistic that we can achieve sales increases in
the low to mid single digits and EPS increases in the upper single digits,
excluding the impact of this year's restructuring charges and special investment
gain or any future stock repurchases. In the second half of 2001, we remain
optimistic that we can achieve sales increases in the mid to upper single digits
and EPS increases in the low to mid teens, excluding the impact of this year's
restructuring charges and special investment gain or any future stock
repurchases.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Our primary ongoing cash requirements are to fund growth in working capital
(primarily accounts receivable and inventory) to support increased sales,
investment in the technological upgrading of our distribution centers and
information systems and other expenditures related to retail store expansion,
in-store merchandise shops and normal maintenance activities. In 2000, we
required cash to fund our ongoing stock repurchase program and our acquisition
program. Sources of liquidity to fund these cash requirements include cash flows
from operations, cash and cash equivalents, securities on hand and bank lines of
credit.
2000 VS. 1999
We ended 2000 with cash and cash equivalents of $55 million compared to $38
million of cash and cash equivalents at year end 1999, and $269 million of debt
at year end 2000 compared to $116 million of debt outstanding at year end 1999.
This $136 million change in our cash and debt position was due primarily to $248
million for the repurchase of common stock, $88 million for capital expenditures
primarily related to the technological upgrading of our distribution facilities
and information systems and in-store merchandise shops and $55 million for
purchase price payments in connection with acquisitions, offset by cash provided
from operating activities.
Net cash provided by operating activities was $268 million in 2000,
compared to $301 million in 1999. This $33 million decrease was due primarily to
a $28 million use of cash for working capital in 2000, compared to cash
generated from a $23 million decrease in net working capital investment in 1999
and the $21 million restructuring charge recorded in 2000.
Accounts receivable decreased $31 million, or 10%, at year end 2000
compared to year end 1999. This decrease in accounts receivable primarily
reflected our continued focus on working capital management along with the
acceleration of Holiday shipments within the fourth quarter.
Inventory increased $61.5 million, or 14.7%, at year end 2000 compared to
year end 1999. This increase was primarily due to inventories of our recently
acquired and launched businesses, incremental in-transit wholesale inventories
for Spring 2001, and an increase in Outlet inventories to support our additional
store base. Our average inventory turnover rate improved slightly to 4.3 times
in 2000, compared to 4.2 times in 1999.
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Net cash used in investing activities was $148 million in 2000, compared to
$240 million in 1999. The 2000 net cash used primarily reflected capital and
in-store merchandise shop expenditures of $88 million, $40 million for the
purchase of MONET and $15 million in additional payments related to the purchase
of our interests in LUCKY BRAND DUNGAREES and SIGRID OLSEN, compared to the 1999
acquisition costs of $178 million for our interests in our recently acquired
businesses and capital and in-store merchandise shop expenditures of $98
million, as well as $29 million for an equity investment in Kenneth Cole
Productions, Inc. partially offset by disposals of investments of $65 million.
Net cash used in financing activities was $99 million in 2000, compared to
net cash used of $188 million in 1999. This $89 million decrease primarily
reflected a decrease of $33 million in stock repurchase expenditures in 2000
over 1999, partially offset by net borrowings of $153 million compared to $116
million in 1999 and an increase in net proceeds from the exercise of stock
options of $14 million. As of March 7, 2001, we have expended approximately
$1.454 billion of the $1.675 billion authorized to date under our stock
repurchase program. Our borrowings peaked at $482 million during the year.
Our anticipated capital expenditures for 2001 approximate $75 million.
These expenditures consist primarily of the continued technological upgrading
and expansion of our management information systems and distribution facilities
(including certain building and equipment expenditures), leasehold improvements
at our New York offices, the planned opening of an additional 23 Specialty
Retail stores and 16 Outlet stores and in-store merchandise shops. Capital
expenditures and working capital cash needs will be financed with net cash
provided by operating activities and our revolving credit and trade letter of
credit facilities.
In November 2000, the Company received a $750 million financing commitment
under a bank revolving credit facility to finance our liquidity needs, replacing
our existing $600 million facility. This bank facility, which has received
credit ratings of BBB from Standard & Poors and Baa2 from Moody's Investor
Services, may be either drawn upon or used as a liquidity facility to support
the issuance of A2/P2 rated commercial paper. At year end 2000, we had $269
million outstanding under our commercial paper program. In addition, we have in
place $385 million of letter of credit facilities primarily to support our
merchandise purchasing requirements. At year end 2000, we had $271 million
outstanding under these letter of credit facilities. We anticipate that our cash
flows from operations, commercial paper program and bank and letter of credit
facilities will be sufficient to fund our future liquidity requirements and that
we will be able to adjust the amounts available under these facilities if
necessary.
1999 VS. 1998
In 1999, we ended the year with cash and cash equivalents of $38 million
compared to $230 million of cash, cash equivalents and marketable securities at
year end 1998, and $116 million of debt at year end 1999 compared to no debt
outstanding at year end 1998. This $308 million change in our cash and debt
position was due primarily to the significant investments we made in 1999,
including our expenditure of $281 million to repurchase common stock, an
aggregate of $178 million for purchase price payments in connection with our
recently acquired businesses, net of cash acquired, $98 million for capital
expenditures primarily related to our warehouse automation and information
system initiatives and in-store merchandise shops, as well as $29 million for an
equity investment in Kenneth Cole Productions, Inc., partially offset by cash
provided from operating activities.
Net cash provided by operating activities was $301 million in 1999,
compared to $137 million in 1998. This $164 million increase was due primarily
to cash generated from a $23 million decrease in net working capital investment
in 1999, compared to a $126 million use of cash for working capital in 1998, $12
million higher depreciation and amortization expense in 1999 and the $27 million
restructuring charge in 1998.
Accounts receivable increased $47 million, or 19%, at year end 1999 over
year end 1998. Approximately 50% of this increase reflected the assumption of
accounts receivable of our recently acquired businesses. The balance of the
increase reflected higher net sales in 1999.
Inventory decreased $57 million, or 12%, in 1999 compared to 1998
notwithstanding the increase in net sales. Excluding the inventories of the
recently acquired businesses, inventory declined by $80 million, or 17%,
compared to year end 1998. This decrease reflected the inventory management
initiatives implemented at the end of 1998, which focused on improving inventory
productivity in our replenishment and essential programs and increasing the
ratio of our sales to our inventory ownership levels. As a result of these
efforts, we reduced our inventory levels and improved our average inventory
turnover rate by 10% in 1999, to 4.2 times from 3.8 times in 1998.
Net cash used in investing activities was $240 million in 1999, compared to
net cash provided by investing activities of $22 million in 1998. This $262
million decrease reflected net disposals of investments of $65 million in 1999,
compared to a net disposal of investments of $155 million in 1998. The decrease
from 1998 also reflected the 1999
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acquisition costs of our recently acquired businesses, our investment in Kenneth
Cole Productions, Inc., and our acquisition of an additional license from Donna
Karan International, Inc.
Net cash used in financing activities was $188 million in 1999, compared to
$131 million in 1998. This $57 million increase primarily reflected an increase
of $165 million in stock repurchase expenditures in 1999 over 1998, partially
offset by net borrowings during 1999 of $116 million compared to none in 1998.
Our borrowings peaked at $141 million during 1999.
At year end 1999, we had $116 million outstanding under our commercial
paper program and we had $265 million outstanding under these letter of credit
facilities.
CERTAIN INTEREST RATE AND FOREIGN CURRENCY RISKS
We finance our capital needs through available cash, operating cash flow,
letter of credit and bank revolving credit facilities and commercial paper
issuances. Our floating rate bank revolving credit facility and commercial paper
program expose us to market risk for changes in interest rates.
We mitigate the risks associated with changes in foreign currency rates
through foreign exchange forward contracts to hedge transactions denominated in
foreign currencies for periods of less than one year and to hedge expected
payment of intercompany transactions with our non-U.S. subsidiaries primarily
relating to inventory purchases. Gains and losses on contracts which hedge
specific foreign currency denominated commitments are recognized in the period
in which the transaction is completed.
The table below presents the amount of contracts outstanding, the contract
rate and unrealized gain or (loss), as of December 30, 2000:
U.S. DOLLAR CONTRACT UNREALIZED
$ IN THOUSANDS AMOUNT RATE GAIN (LOSS)
- -------------- ------- ---- -----------
Canadian dollars $ 9,420 0.6729 $65
British pound sterling $ 1,832 1.4659 ($36)
Euro $ 1,352 0.9016 ($67)
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment of
FASB Statement No. 133," which amended certain provisions of SFAS No. 133. The
Company adopted SFAS No. 133 and the corresponding amendments under SFAS No. 138
effective prospectively for the Company's financial statements beginning in
2001. The Company believes that the impact of adopting SFAS No. 133, as amended
by SFAS No. 138, is not significant.
INFLATION
The rate of inflation over the past few years has not had a significant
impact on our sales or profitability.
FORWARD-LOOKING STATEMENTS
Statements contained herein and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases, and in oral
statements made by, or with the approval of, authorized personnel that relate to
the Company's future performance, including, without limitation, statements with
respect to the Company's anticipated results of operations or level of business
for 2001, or any other future period, are forward-looking statements within the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements, which are indicated by words or phrases such as "plan",
"anticipate", "estimate", "project", "management expects", "the Company
believes", "remains optimistic" or "currently envisions" and similar phrases are
based on current expectations only, and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
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Among the factors that could cause actual results to materially differ
include changes in regional, national, and global microeconomic and
macroeconomic conditions, including the levels of consumer confidence and
spending, consumer income growth, higher personal debt levels, rising energy
costs, increasing interest rates and increased stock market volatility; risks
related to retailer and consumer acceptance of the Company's products; risks
associated with competition and the marketplace, including the financial
condition of, and consolidations, restructurings and other ownership changes in,
the apparel (and related products) industry and the retail industry, the
introduction of new products or pricing changes by the Company's competitors,
and the Company's ability to effectively remain competitive with respect to
product, value and service; risks associated with the Company's dependence on
sales to a limited number of large department store customers, including risks
related to customer requirements for vendor margin support, and those related to
extending credit to customers; risks relating to retailers' buying patterns and
purchase commitments for apparel products in general and the Company's products
specifically; the Company's ability to correctly balance the level of its
commitments with actual orders; the Company's ability to effectively distribute
its product within its targeted markets; risks related to the Company's ability
to establish, defend and protect its trademarks and other proprietary rights and
other risks relating to managing intellectual property issues; uncertainties
relating to the Company's ability to successfully implement its growth
strategies, integrate recent or future acquisitions, maintain product licenses,
or successfully launch new products and lines; risks associated with the entry
into new markets, either through internal development activities or
acquisitions; risks associated with the possible inability of the Company's
unaffiliated manufacturers to manufacture and deliver products in a timely
manner, to meet quality standards or to comply with the Company's policies
regarding labor practices; and risks associated with changes in social,
political, economic and other conditions affecting foreign operations and
sourcing.
With respect to foreign sourcing, the Company notes that legislation which
would further restrict the importation and/or increase the cost of textiles and
apparel produced abroad has been periodically introduced in Congress. Although
it is unclear whether any new legislation will be enacted into law, it appears
likely that various new legislative or executive initiatives will be proposed.
These initiatives may include a reevaluation of the trading status of certain
countries, and/or retaliatory duties, quotas or other trade sanctions, which, if
enacted, would increase the cost of products purchased from suppliers in such
countries. In light of the very substantial portion of the Company's products,
which are manufactured by foreign suppliers, the enactment of new legislation or
the administration of current international trade regulations, or executive
action affecting international textile agreements could adversely affect the
Company's operations.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities, acquisitions or licensing. The
entry into new markets (including the development and launch of new product
categories and product lines), such as the Company's entry into the moderate
market, the acquisition of businesses, such as the Company's acquisitions of
SEGRETS, LUCKY BRAND DUNGAREES, LAUNDRY and MONET, and the licensing of brands
such as DKNY(R) JEANS and DKNY(R) ACTIVE, CITY DKNY(R), KENNETH COLE NEW YORK,
REACTION KENNETH COLE and UNLISTED.COM, are accompanied by risks inherent in any
such new business venture and may require methods of operations and marketing
and financial strategies different from those employed in the Company's other
businesses. Moreover, certain new businesses may be lower margin businesses and
may require the Company to achieve significant cost efficiencies. In addition,
new markets, product categories, product lines and businesses may involve
buyers, store customers and/or competitors different from the Company's
historical buyers, customers and competitors. Furthermore, the Company's
acquisition of other businesses entails the normal risks inherent in such
transactions, including, without limitation, possible difficulties, delays
and/or unanticipated costs in integrating the business, operations, personnel,
and/or systems of the acquired entity; risks that projected or satisfactory
level of sales, profits and/or return on investment will not be generated; risks
that expenditures required for capital items or working capital will be higher
than anticipated; risks involving the Company's ability to retain and
appropriately motivate key personnel of the acquired business; and risks
associated with unanticipated events and unknown or uncertain liabilities. In
addition, businesses licensed by the Company are subject to risks inherent in
such transactions, including compliance with terms set forth in the applicable
license agreements, including among other things the maintenance of certain
levels of sales, and the public perception and/or acceptance of the licensor's
brands or other product lines, which are not within the Company's control.
Reference is also made to the other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices as are set forth in this Annual Report on Form 10-K,
including, without limitation, those set forth under the heading
"Business-Competition; Certain Risks".
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the "Index to Consolidated Financial Statements and Schedules"
appearing at the end of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
With respect to Executive Officers of the Company, see Part I of this
Annual Report on Form 10-K.
Information with respect to Directors of the Company which is called for
by this Item 10 is incorporated by reference to the information set forth under
the heading "Election of Directors" in the Company's Proxy Statement relating to
its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
(the "Company's 2001 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by this Item 11 is incorporated by reference to the
information set forth under the heading "Executive Compensation" in the
Company's 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by this Item 12 is incorporated by reference to the
information set forth under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's 2001
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this Item 13 is incorporated by reference to the
information set forth under the headings "Proposal 1-Election of Directors" and
"Executive Compensation-Employment Arrangements" in the Company's 2001 Proxy
Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. PAGE REFERENCE
--------------
2000 FORM 10-K
--------------
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 30, 2000
and January 1, 2000 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended December 30, 2000 F-5
Consolidated Statements of Retained Earnings,
Comprehensive Income and Changes in Capital
Accounts for the Three Fiscal Years
Ended December 30, 2000 F-6 to F-7
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended December 30, 2000 F-8
Notes to Consolidated Financial Statements F-9 to F-25
2. Schedule.
SCHEDULE II - Valuation and Qualifying Accounts F-26
NOTE: Schedules other than those referred to above and parent company
condensed financial statements have been omitted as inapplicable
or not required under the instructions contained in Regulation S-X
or the information is included elsewhere in the financial
statements or the notes thereto.
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3. Exhibits.
Exhibit
No. Description
- ------- ------------
3(a) - Restated Certificate of Incorporation of Registrant (incorporated herein by
reference from Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the
period ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by reference from Exhibit
3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 26, 1992 [the "1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value $1.00 per share
(incorporated herein by reference from Exhibit 4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 4, 1998, between Registrant and First
Chicago Trust Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 1 to Registrant's Form 8-A dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is incorporated herein
by this reference.
10(b)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended and restated
(incorporated herein by reference from Exhibit 10(f) to Registrant's Annual
report on Form 10-K for the fiscal year ended December 30, 1989 [the "1989 Annual
Report"]).
10(b)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz Claiborne, Inc. and IDS
Trust Company (incorporated herein by reference from Exhibit 10(b) to
Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994).
10(c)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated herein by reference
from Exhibit 10(g) to the 1992 Annual Report).
10(c)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated herein by reference
from Exhibit 10(g)(i) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 26, 1993 [the "1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
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Exhibit
No. Description
- ------- ------------
10(c)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended
July 2, 1994).
10(c)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e) (iii) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996 [the "1996 Annual Report"]).
10(c)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(iv) to the 1996 Annual Report).
10(c)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(v) to Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998 [the "1997 Annual Report"].
10(c)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(vi) to Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 [the "1998 Annual Report"]).
10(d)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement Plan (the
"Profit-Sharing Plan") (incorporated herein by reference from Exhibit 10(h) to
the 1992 Annual Report).
10(e)+ - Trust Agreement related to the Profit-Sharing Plan (incorporated herein by
reference from Exhibit 10(jj) to the 1983 Annual Report).
10(e)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan (incorporated herein by
reference from Exhibit 10(i)(i) to the 1993 Annual Report).
10(e)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period
ended October 1, 1994).
10(e)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period
ended July 1, 1995).
10(e)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(g)(iv) to the 1996 Annual Report).
10(e)(v)+ - Amendment No. 6 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(g)(v) to the 1998 Annual Report).
10(f)+ - Merger Amendment to the Profit-Sharing Plan, the Lucky Brand Employee Retirement
Plan andTrust, the Segrets, Inc. 401(k) Profit Sharing Plan, and the Savings Plan
(incorporated herein by reference from Exhibit 10(h) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 1, 2000 [the "1999 Annual
Report"]).
10(g)+* - The Liz Claiborne 401(K) Savings and Profit Sharing Plan, as amended and
restated.
10(h)+* - National Collective Bargaining Agreement, made and entered into as of June 1,
2000, by and between Liz Claiborne, Inc. and the Union of Needletrades,
Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May
31, 2003.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
24
25
Exhibit
No. Description
- ------- ------------
10(h)(i)+* - Jobbers Agreement, made and entered into as of June 1, 2000, by and between
Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 2000 through May 31, 2003.
10(i)+* - Description of Liz Claiborne, Inc. 2000 Salaried Employee Incentive Bonus Plan.
10(j) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for premises located at
1441 Broadway, New York, New York between Registrant and Lechar Realty Corp.
(incorporated herein by reference from Exhibit 10(n) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29, 1990).
10(j)(i) - First Amendment: Lease Extension and Modification Agreement, dated as of January
1, 1998, to the 1441 Lease.(incorporated herein by reference from Exhibit 10(k)
(i) to the 1999 Annual Report).
10(j)(ii) - Second Amendment to Lease, dated as of September 19, 1998, to the 1441 Lease
(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual
Report).
10(j)(iii) - Third Amendment to Lease, dated as of September 24, 1999, to the 1441 Lease
(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual
Report).
10(k)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors' 1991 Stock Ownership
Plan (the "Outside Directors' 1991 Plan") (incorporated herein by reference from
Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(k)(i)+ - Form of Option Agreement under the Outside Directors' 1991 Plan (incorporated
herein by reference from Exhibit 10(m)(i) to the 1996 Annual Report).
10(l)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992 Plan") (incorporated
herein by reference from Exhibit 10(p) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10(l)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by reference from Exhibit
10(p)(i) to the 1993 Annual Report).
10(l)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by reference from
Exhibit 10(n)(ii) to the 1997 Annual Report).
10(l)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein by reference from
Exhibit 10(n)(iii) to the 1998 Annual Report).
10(m)+ - Form of Option Agreement under the 1992 Plan (incorporated herein by reference
from Exhibit 10(r) to the 1992 Annual Report).
10(n)+ - Form of Option Grant Certificate under the 1992 Plan (incorporated herein by
reference from Exhibit 10(q) to the 1996 Annual Report).
10(o)+ - Form of Restricted Career Share Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1995).
10(p)+ - Form of Restricted Transformation Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
25
26
Exhibit
No. Description
- ------- ------------
10(q)+* - Description of Supplemental Life Insurance Plans.
10(r)+ - Description of unfunded death/disability benefits for certain executives
(incorporated herein by reference from Exhibit 10(u) to the 1992 Annual Report).
10(s)+ - Amended and Restated Liz Claiborne Section 162(m) Cash Bonus Plan (incorporated herein
by reference from Exhibit 10(t) to the 1999 Annual Report).
10(t)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as amended and
restated effective as of January 1, 1997) (incorporated herein by reference from
Exhibit 10(w) to the 1996 Annual Report).
10(u)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated herein by reference
from Exhibit 10(x) to the 1996 Annual Report).
10(v)+ - Employment Agreement dated as of May 9, 1994, between Registrant and Paul R.
Charron (the "Charron Agreement") (incorporated herein by reference from Exhibit
10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended April 2,
1994).
10(v)(i)+ - Amendment to the Charron Agreement, dated as of November 20, 1995 (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual Report).
10(v)(ii)+ - Amendment to the Charron Agreement, dated as of September 19, 1996, (including
the Liz Claiborne Retirement Income Accumulation Plan for the benefit of Mr.
Charron) (incorporated herein by reference from Exhibit 10(y)(ii) to the 1996
Annual Report).
10(v)(iii)+* -Executive Termination Benefits Agreement, between Registrant and Paul R. Charron.
10(w)+ - Employment Agreement dated as of September 26, 1996 between Registrant and
Denise V. Seegal (the "Seegal Agreement") (incorporated herein by reference from
Exhibit 10(z) to the 1996 Annual Report).
10(w)(i)+ - Amendment to the Seegal Agreement, dated as of February 18, 2000 (incorporated
herein by reference from Exhibit 10(x)(i) to the 1999 Annual Report).
10(w)(ii)+* - Separation Agreement entered into as of February 7, 2001 by and between
Registrant and Denise V. Seegal.
10(x)* - Three Year Credit Agreement, dated as of November 16, 2000, among Registrant,
various lending parties and The Chase Manhattan Bank (as administrative agent).
10(y)* - 364 Day Credit Agreement, dated as of November 16, 2000, among Registrant,
various lending parties and The Chase Manhattan Bank (as administrative agent).
10(z)+ - Liz Claiborne, Inc. 2000 Stock Incentive Plan (the "2000 Plan") (incorporated
herein by reference from Exhibit 4(e) to Registrant's Form S-8 dated as of
January 25, 2001.)
10(z)(i)+* - Form of Option Grant Certificate under the 2000 Plan.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
26
27
Exhibit
No. Description
- ------- ------------
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) - Reports on Form 8-K.
Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
27
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 29, 2001.
LIZ CLAIBORNE, INC.
By: /s/ Michael Scarpa By: /s/ Elaine H. Goodell
------------------------------ ----------------------
Michael Scarpa, Elaine H. Goodell,
Vice President and Vice President-Corporate Controller
Chief Financial Officer and Chief Accounting Officer
(principal financial officer) (principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities indicated, on March
29, 2001.
SIGNATURE TITLE
- --------- -----
/s/ Paul R. Charron Chairman of the Board, Chief Executive Officer and Director
- ------------------------ (principal executive officer)
Paul R. Charron
/s/ Bernard W. Aronson Director
- ------------------------
Bernard W. Aronson
/s/ Raul J. Fernandez Director
- ------------------------
Raul J. Fernandez
/s/ J. James Gordon Director
- ------------------------
J. James Gordon
/s/ Nancy J. Karch Director
- ------------------------
Nancy J. Karch
/s/ Kenneth P. Kopelman Director
- ------------------------
Kenneth P. Kopelman
/s/ Kay Koplovitz Director
- ------------------------
Kay Koplovitz
/s/ Arthur C. Martinez Director
- ------------------------
Arthur C. Martinez
/s/ Christine A. Poon Director
- ------------------------
Christine A. Poon
/s/ Paul E. Tierney, Jr. Director
- ------------------------
Paul E. Tierney, Jr.
28
29
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Number
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 30, 2000
and January 1, 2000 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended December 30, 2000 F-5
Consolidated Statements of Retained Earnings,
Comprehensive Income and Changes in Capital
Accounts for the Three Fiscal Years
Ended December 30, 2000 F-6 to F-7
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended December 30, 2000 F-8
Notes to Consolidated Financial Statements F-9 to F-25
SCHEDULE II - Valuation and Qualifying Accounts F-26
NOTE: Schedules other than those referred to above and parent company
condensed financial statements have been omitted as inapplicable
or not required under the instructions contained in Regulation S-X
or the information is included elsewhere in the financial
statements or the notes thereto.
F-1
30
MANAGEMENT'S REPORT
The management of Liz Claiborne Inc. is responsible for the preparation,
objectivity and integrity of the consolidated financial statements and other
information contained in this Annual Report. The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States and include some amounts that are based on
management's informed judgments and best estimates.
To help assure that financial information is reliable and assets are
safeguarded, management maintains a system of internal controls and procedures
which we believe is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The independent public accountants have audited our consolidated financial
statements as described in their report. In the course of their audits, the
independent public accountants have developed an overall understanding of the
Company's accounting and financial controls and have conducted other tests as
they considered necessary to support their opinion on the financial statements.
The independent public accountants report their findings and recommendations to
management and the Audit Committee of the Board of Directors. Control procedures
are implemented or revised as appropriate to respond to these recommendations.
There have not been any material control weaknesses brought to the attention of
management or the Audit Committee during the periods covered by the report of
the independent public accountants. However, in as much as the independent
public accountants' audits consisted of selected tests of control policies and
procedures and did not cover the entire system of internal control, they would
not necessarily disclose all weaknesses which might exist.
The Audit Committee, which consists solely of non-management directors,
meets with the independent public accountants, internal auditors and management
periodically to review their respective activities and the discharge of their
respective responsibilities. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee, with or
without management, to discuss the scope and results of their audits and any
recommendations regarding the system of internal controls.
/s/Paul R. Charron /s/Michael Scarpa
- ---------------------------- ----------------------------
Paul R. Charron Michael Scarpa
Chairman of the Board Vice President and
and Chief Executive Officer Chief Financial Officer
F-2
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Liz Claiborne, Inc.:
We have audited the accompanying consolidated balance sheets of Liz Claiborne,
Inc. (a Delaware corporation) and subsidiaries as of December 30, 2000 and
January 1, 2000, and the related consolidated statements of income, retained
earnings, comprehensive income and changes in capital accounts and cash flows
for each of the three fiscal years in the period ended December 30, 2000. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Liz Claiborne, Inc. and
subsidiaries as of December 30, 2000 and January 1, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 30, 2000 in conformity with accounting principles
generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to consolidated
financial statements and schedule is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
New York, New York
February 19, 2001
F-3
32
CONSOLIDATED BALANCE SHEETS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
All amounts in thousands except share data DECEMBER 30, 2000 JANUARY 1, 2000
----------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $ 54,630 $ 37,940
Accounts receivable - trade 267,772 298,924
Inventories 479,845 418,348
Deferred income taxes 27,698 27,764
Other current assets 80,631 75,633
----------- -----------
Total current assets 910,576 858,609
Property and Equipment - Net 297,424 284,171
Goodwill and Intangibles - Net 276,213 227,663
Other Assets 27,946 41,358
----------- -----------
$ 1,512,159 $ 1,411,801
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 199,254 $ 184,556
Accrued expenses 151,280 160,220
Income taxes payable 7,370 7,535
----------- -----------
Total current liabilities 357,904 352,311
Long-Term Debt 269,219 116,085
Other Non-Current Liabilities 15,000 15,000
Deferred Income Taxes 31,019 23,111
Commitments and Contingencies (Note 7)
Minority Interest 4,732 3,125
Stockholders' Equity:
Preferred stock, $.01 par value, authorized shares -
50,000,000, issued shares - none -- --
Common stock, $1 par value, authorized shares -
250,000,000, issued shares - 88,218,617 88,219 88,219
Capital in excess of par value 83,808 80,257
Retained earnings 1,985,091 1,827,720
Accumulated other comprehensive loss (7,656) (3,263)
----------- -----------
2,149,462 1,992,933
Common stock in treasury, at cost - 37,009,400 shares
in 2000 and 31,498,577 shares in 1999 (1,315,177) (1,090,764)
----------- -----------
Total stockholders' equity 834,285 902,169
----------- -----------
$ 1,512,159 $ 1,411,801
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
33
CONSOLIDATED STATEMENTS OF INCOME
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED
------------------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
All dollar amounts in thousands except per common share data DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
Net Sales $3,104,141 $2,806,548 $2,535,268
Cost of goods sold 1,870,269 1,708,966 1,538,166
---------- ---------- ----------
Gross Profit 1,233,872 1,097,582 997,102
Selling, general and administrative expenses 909,142 797,829 712,424
Restructuring charge 21,041 -- 27,000
---------- ---------- ----------
Operating Income 303,689 299,753 257,678
Other income (expense)- net 6,658 (956) (612)
Interest (expense) income - net (21,917) 2,789 9,611
---------- ---------- ----------
Income Before Provision for Income Taxes 288,430 301,586 266,677
Provision for income taxes 103,835 109,144 97,300
---------- ---------- ----------
Net Income $ 184,595 $ 192,442 $ 169,377
========== ========== ==========
Net Income per Common Share:
Basic $ 3.46 $ 3.13 $ 2.59
======= ======= =======
Diluted $ 3.43 $ 3.12 $ 2.57
======= ======= =======
Dividends Paid per Common Share $ .45 $ .45 $ .45
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
34
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES
IN CAPITAL ACCOUNTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated
------------------------ Capital in Other
Number of Excess of Retained Comprehensive
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss)
- --------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 3, 1998 88,218,617 88,219 30,731 1,540,928 (1,707)
Net income -- -- -- 169,377 --
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- -- -- (348)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- -- -- (666)
Total comprehensive income -- -- -- -- --
Exercise of stock options and
related tax benefits -- -- 4,801 (8,006) --
Cash dividends declared -- -- -- (29,327) --
Proceeds from sale of put warrants -- -- 231 -- --
Reclassification of put warrant
obligations, net -- -- 14,665 -- --
Purchase of common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- (10,737) --
BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721)
TREASURY SHARES
---------------------------
Number of
All dollar amounts in thousands Shares Amount Total
- ---------------------------------------------------------------------------------
BALANCE, JANUARY 3, 1998 22,120,305 (736,544) 921,627
Net income -- -- 169,377
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- (348)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- (666)
-------
Total comprehensive income -- -- 168,363
Exercise of stock options and
related tax benefits (562,929) 22,330 19,125
Cash dividends declared -- -- (29,327)
Proceeds from sale of put warrants -- -- 231
Reclassification of put warrant
obligations, net -- -- 14,665
Purchase of common stock 3,092,513 (116,618) (116,618)
Issuance of common stock under
restricted stock and employment
agreements, net (381,932) 13,781 3,044
BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110
35
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES
IN CAPITAL ACCOUNTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated
------------------------ Capital in Other
Number of Excess of Retained Comprehensive
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss)
- --------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721)
Net income -- -- -- 192,442 --
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- -- -- (431)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- -- -- (111)
Total comprehensive income -- -- -- -- --
Exercise of stock options and
related tax benefits -- -- 1,031 (2,799) --
Cash dividends declared -- -- -- (27,821) --
Exercise of put warrants -- -- (1,996) -- --
Reclassification of put warrant
obligations, net -- -- 30,794 -- --
Purchase of common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 3,663 --
BALANCE, JANUARY 1, 2000 88,218,617 $88,219 $80,257 $1,827,720 ($3,263)
TREASURY SHARES
---------------------------
Number of
All dollar amounts in thousands Shares Amount Total
- -----------------------------------------------------------------------------------
BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110
Net income -- -- 192,442
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- (431)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- (111)
-------
Total comprehensive income -- -- 191,900
Exercise of stock options and
related tax benefits (219,306) 7,976 6,208
Cash dividends declared -- -- (27,821)
Exercise of put warrants -- 1,996 0
Reclassification of put warrant
obligations, net -- -- 30,794
Purchase of common stock 7,388,300 (281,167) (281,167)
Issuance of common stock under
restricted stock and employment
agreements, net 61,626 (2,518) 1,145
BALANCE, JANUARY 1, 2000 31,498,577 ($1,090,764) $902,169
F-6
36
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES
IN CAPITAL ACCOUNTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated
------------------------ Capital in Other
Number of Excess of Retained Comprehensive
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss)
- --------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2000 88,218,617 88,219 80,257 1,827,720 (3,263)
Net income -- -- -- 184,595 --
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- -- -- (3,625)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- -- -- (768)
Total comprehensive income -- -- -- -- --
Exercise of stock options and
related tax benefits -- -- 3,551 (4,517) --
Cash dividends declared -- -- -- (24,027) --
Purchase of common stock -- -- -- -- --
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 1,320 --
BALANCE, DECEMBER 30, 2000 88,218,617 88,219 83,808 1,985,091 (7,656)
TREASURY SHARES
---------------------------
Number of
All dollar amounts in thousands Shares Amount Total
- ---------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2000 31,498,577 (1,090,764) 902,169
Net income -- -- 184,595
Other comprehensive income
(loss), net of tax:
Translation adjustment -- -- (3,625)
Adjustment to unrealized gains
(losses) on available for sale
securities -- -- (768)
-------
Total comprehensive income -- -- 180,202
Exercise of stock options and
related tax benefits (659,094) 23,718 22,752
Cash dividends declared -- -- (24,027)
Purchase of common stock 6,155,305 (247,670) (247,670)
Issuance of common stock under
restricted stock and employment
agreements, net 14,612 (461) 859
BALANCE, DECEMBER 30, 2000 37,009,400 (1,315,177) 834,285
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED
(52 WEEKS) (52 WEEKS) (52 WEEKS)
All dollar amounts in thousands DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 184,595 $ 192,442 $ 169,377
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 77,033 67,836 55,785
Deferred income taxes, net 510 9,839 (3,654)
Restructuring charge 21,041 -- 27,000
Other-net 12,318 7,797 14,285
Change in current assets and liabilities:
Decrease (increase) in accounts receivable - trade 29,245 (39,996) (70,742)
(Increase) decrease in inventories (46,408) 80,438 (78,828)
Decrease in other current assets 16,811 17,771 11,102
Increase (decrease) in accounts payable 9,834 (43,489) 49,588
(Decrease) increase in accrued expenses (36,849) 11,822 (33,356)
(Decrease) in income taxes payable (165) (3,499) (3,995)
--------- --------- ---------
Net cash provided by operating activities 267,965 300,961 136,562
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (14,573) -- (217,083)
Disposals of investment instruments 14,573 65,459 371,741
Purchases of property and equipment (66,711) (75,130) (88,496)
Purchases of trademarks and licenses (3,683) (6,400) (30,000)
Purchase of restricted equity investment -- (29,000) --
Payments for acquisitions, net of cash acquired (55,178) (177,825) --
Payments for in-store merchandise shops (21,381) (22,879) (13,032)
Other-net (1,335) 6,252 (1,480)
--------- --------- ---------
Net cash (used in) provided by investing activities (148,288) (239,523) 21,650
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net 153,134 116,085 --
Proceeds from exercise of common stock options 19,201 5,177 14,324
Dividends paid (24,027) (27,821) (29,327)
Purchase of common stock, net of put warrant premiums (247,670) (281,167) (116,387)
--------- --------- ---------
Net cash used in financing activities (99,362) (187,726) (131,390)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,625) (431) (348)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 16,690 (126,719) 26,474
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,940 164,659 138,185
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 54,630 $ 37,940 $ 164,659
========= ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 1: SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS
Liz Claiborne, Inc. is engaged primarily in the design and marketing of a broad
range of apparel, accessories and fragrances. Products are sold principally in
the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Liz Claiborne,
Inc. and its wholly-owned and majority-owned subsidiaries (the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents and receivables approximate their
carrying value due to their short-term maturities. The fair value of long-term
debt instruments approximates the carrying value and is estimated based on the
current rates offered to the Company for debt of similar maturities.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the date of purchase are classified as cash equivalents.
MARKETABLE SECURITIES
Investments are stated at market. The estimated fair value of the marketable
securities is based on quoted prices in an active market. Gains and losses on
investment transactions are determined using the specific identification method
and are recognized in income based on settlement dates. Unrealized gains and
losses are included in accumulated other comprehensive income (loss) until
realized. Dividends on equity securities are recorded in income based on payment
dates. Interest is recognized when earned. There were no available-for-sale
marketable securities at December 30, 2000 and January 1, 2000. For 2000, 1999
and 1998, gross realized gains on sales of available-for-sale securities totaled
$10,044,000, $1,793,000 and $2,871,000, respectively.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the
straight-line method over their estimated useful lives of 20 to 39 years.
Machinery and equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful lives of the assets.
GOODWILL AND INTANGIBLES
Goodwill and intangibles consist principally of goodwill, which is amortized
using the straight-line method over a period of 20 to 25 years. Goodwill was
$220.7 million, net of accumulated amortization of $12.7 million as of December
30, 2000. As of January 1, 2000, goodwill was $174.3 million, net of accumulated
amortization of $3.6 million. Also included are trademarks owned or licensed,
which are amortized on a basis consistent with the projected revenue stream of
15 to 25
F-9
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
years and amounted to $55.5 million in 2000 and $53.4 million in 1999,
net of accumulated amortization of $6.5 million as of December 30, 2000 and $5.1
million as of January 1, 2000.
The recoverability of the carrying values of intangible assets is evaluated
periodically based on a review of forecasted operating cash flows and the
profitability of the related business. For the three-year period ended December
30, 2000, there were no material adjustments to the carrying values of
intangible assets resulting from these evaluations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries have been translated at year end
exchange rates. Revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting translation adjustments have been
included in accumulated other comprehensive loss. Gains and losses on
translation of intercompany loans with foreign subsidiaries of a long-term
investment nature are also included in this component of stockholders' equity.
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company enters into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with its non-U.S. subsidiaries.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the transaction is completed
and are accounted for as part of the underlying transaction. Transaction gains
and losses included in income were not significant in fiscal 2000, 1999, and
1998. As of December 30, 2000, the Company had forward contracts maturing
through June 2001 to sell 14.0 million Canadian dollars, 1.3 million British
pounds sterling, and 1.5 million European Euros. The aggregate U.S. dollar value
of the foreign exchange contracts was approximately $12.6 million at year end
2000, as compared with approximately $22.1 million at year end 1999. Unrealized
gains and losses for outstanding foreign exchange forward contracts were not
material at December 30, 2000 and January 1, 2000.
REVENUE RECOGNITION
Revenue within wholesale operations is recognized at the time merchandise is
shipped from the Company's distribution centers. Retail store revenues are
recognized at the time of sale. All revenue is net of returns.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed when
the advertising takes place. Costs associated with cooperative advertising
programs, under which the Company, at it's discretion, shares the costs of each
customer's advertising and promotional expenditures, are expensed when the
related revenues are recognized. Advertising and promotion expenses were $118
million in 2000, $104 million in 1999 and $89 million in 1998.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. The 2000,
1999 and 1998 fiscal years each reflected a 52-week period.
PRIOR YEARS' RECLASSIFICATION
Certain items previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with the current year's
classifications.
NOTE 2: ACQUISITIONS
On July 26, 2000, the Company completed the purchase of the majority of the
assets of the Monet Group ("Monet") for a total purchase price of $40.2 million.
Monet is a leading designer and marketer of branded fashion jewelry sold through
department stores, popular priced merchandisers and internationally under the
Monet, Monet Pearl, Monet Signature, Monet2, Trifari and Marvella brands. Excess
purchase price over fair market value of the underlying net assets was allocated
to
F-10
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
goodwill and property based on preliminary estimates of fair values, and is
subject to adjustment. Goodwill is being amortized on a straight-line basis over
20 years. The fair value of assets acquired was $46.4 million and liabilities
assumed were $16.0 million. Annual net sales of Monet in 1999 were approximately
$96 million. Unaudited pro forma information related to this acquisition is not
included, as the impact of this transaction is not material to the consolidated
results of the Company.
On November 2, 1999, the Company completed the purchase of the entire equity
interest of Podell Industries, Inc., whose core business consists of the Laundry
by Shelli Segal apparel line ("Laundry"). Laundry is marketed primarily to
select department and specialty stores. The acquisition was accounted for using
the purchase method of accounting. The total purchase price of Laundry,
including the repayment of indebtedness, was approximately $44.7 million. The
excess purchase price over the fair market value of the underlying net assets
was allocated to goodwill and property based on estimates of fair values. The
estimated fair value of assets acquired was $6.5 million, and estimated
liabilities assumed was $5.3 million. Goodwill is being amortized on a
straight-line basis over 20 years. Annual net sales of Laundry in 1998 were
approximately $76 million. Unaudited pro forma information related to this
acquisition is not included, as the impact of this transaction is not material
to the consolidated results of the Company.
On June 8, 1999, the Company completed the purchase of 85.0 percent of the
equity interest of Lucky Brand Dungarees, Inc., whose core business consists of
the Lucky Brand line of women's and men's denim-based sportswear. The
acquisition was accounted for using the purchase method of accounting. The total
purchase price consists of a cash payment made at the closing date of
approximately $85 million, and a payment to be made on March 31, 2003 of at
least $15 million, which may be increased to a maximum of $45 million based on
the achievement of certain earnings targets. An additional payment of $13
million was made in 2000 for tax-related purchase price adjustments. The excess
purchase price over the fair market value of the underlying net assets of $8.1
million was allocated to goodwill and property based on estimates of fair
values. The estimated fair value of assets acquired was $16.1 million and
estimated liabilities assumed was $8.0 million. Goodwill is being amortized on a
straight-line basis over 25 years. After a 5-year period, the Company may be
required to purchase the remaining equity interest at an amount equal to its
then fair market value, or elect to purchase the remaining equity interest at
its then fair market value, or under certain circumstances at a 20% premium on
such value. Annual net sales of Lucky Brand Dungarees, Inc. in 1998 were
approximately $60 million. Unaudited pro forma information related to this
acquisition is not included, as the impact of this transaction is not material
to the consolidated results of the Company.
On February 12, 1999, the Company completed the purchase of 84.5 percent of the
equity interest of Segrets, Inc., whose core business consists of the Sigrid
Olsen women's apparel lines. In the fourth quarter of 1999, the Company
purchased an approximately 3.0 percent additional equity interest. In November
2000, the Company increased its equity interest to 97.5 percent. The acquisition
was accounted for using the purchase method of accounting. The excess purchase
price over the fair market value of the underlying net assets of $13.1 million
was allocated to goodwill and property based on estimates of fair values.
Goodwill is being amortized on a straight-line basis over 25 years. The total
amount of funds required to acquire the interest and refinance certain
indebtedness was approximately $56 million. The fair value of assets acquired
was $23.3 million and liabilities assumed was $10.2 million. After a 5-year
period, the Company may elect to, or be required to, purchase the remaining
equity interest at an amount equal to its then fair market value. Annual net
sales of Segrets, Inc. in 1998 were approximately $60 million. Unaudited pro
forma information related to this acquisition is not included, as the impact of
this transaction is not material to the consolidated results of the Company.
NOTE 3: LICENSING COMMITMENTS
In August 1999, the Company consummated an exclusive license agreement with
Kenneth Cole Productions, Inc. to manufacture, design, market and distribute
women's apparel products under the trademarks "Kenneth Cole New York,""Reaction
Kenneth Cole" and "Unlisted.com" (the "Kenneth Cole Marks"). Under the
agreement, the Company is obligated to pay a royalty equal to a percentage of
net sales of products bearing the Kenneth Cole Marks. The initial term of the
license agreement runs through December 31, 2004 with an option to renew for
three additional 5-year periods if certain sales thresholds are met. In
addition, the Company consummated the purchase of one million shares of Kenneth
Cole Productions, Inc. Class A stock at a price of $29 per share. This amount,
$29 million, is recorded at cost as a component of other assets as of January 1,
2000 and other current assets as of December 30, 2000. In March 2000, a
three-for-two stock split increased the amount of shares owned by the Company to
1,500,000 shares. Certain restrictions apply to the Company's stock ownership,
including the Company's agreement not
F-11
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
to dispose of its position until August 24, 2001. Upon expiration of these
restrictions, the Company will reflect the investment in such stock in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Market value
of the stock at December 30, 2000 is higher than cost. In March 2000 and April
2000, the Company consummated two additional exclusive license agreements with
Kenneth Cole Productions, Inc. to manufacture, design, market and distribute
certain women's accessories products under the Kenneth Cole Marks. Under the
agreement, the Company is obligated to pay a royalty equal to a percentage of
net sales of the products bearing the Kenneth Cole Marks. The initial term of
the license agreement runs through December 31, 2004 with an option to renew for
three additional 5-year periods if certain sales thresholds are met.
In February 2000, the Company consummated a license agreement with Leslie Fay
Marketing, Inc., a subsidiary of Leslie Fay Company, Inc. to design,
manufacture, market, distribute and sell dresses under the Liz Claiborne Dresses
and Elisabeth Dresses labels. Not included in the agreement are dresses sold as
part of the Liz Claiborne Collection, Lizsport, Lizwear, Liz & Co. and Elisabeth
sportswear lines. The initial term of the license agreement runs through
February 28, 2005, with an option to renew for two additional 5-year terms if
certain sales thresholds are met.
In January 1998, the Company consummated a license agreement with an affiliate
of Donna Karan International, Inc. to design, produce, market and sell men's and
women's sportswear, jeanswear and activewear products under the "DKNY(R) Jeans"
and "DKNY(R) Active" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the "DKNY(R)
Jeans" and "DKNY(R) Active" products. The initial term of the license agreement
runs through December 31, 2012, with an option to renew for an additional
15-year period, if certain sales thresholds are met. Subject to the terms of the
license agreement, aggregate minimum royalties for the initial 15 year term
total $152 million. In December 1999, the Company consummated an additional
exclusive license agreement with an affiliate of Donna Karan International, Inc.
to design, produce, market and sell a new line of career and casual sportswear
for the "better" market under the trademark CITY DKNY(R). Under the agreement,
the Company is obligated to pay a royalty equal to a percentage of net sales of
the licensed products. The initial term of the license agreement runs through
December 31, 2005, with an option to renew for two additional 5-year periods if
certain sales thresholds are met.
In July 1998, the Company consummated a license agreement with Candie's, Inc. to
manufacture, market, distribute and sell a line of fragrances for men and women
using the "Candie's" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the
"CANDIE'S(R)" products. The initial term of the license agreement runs through
December 31, 2013, with an option to renew for an additional 10-year period if
certain sales thresholds are met.
NOTE 4: INVENTORIES, NET
Inventories are summarized as follows:
In Thousands December 30, 2000 January 1, 2000
- - ------------ --------------- ---------------
Raw materials $ 21,181 $ 24,028
Work in process 6,233 7,516
Finished goods 452,431 386,804
-------- --------
$479,845 $418,348
======== ========
F-12
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
In thousands December 30, 2000 January 1, 2000
- - ------------ --------------- ---------------
Land and buildings $133,342 $131,681
Machinery and equipment 267,004 243,262
Furniture and fixtures 74,794 67,928
Leasehold improvements 165,827 145,100
-------- --------
640,967 587,971
Less: Accumulated depreciation
and amortization 343,543 303,800
-------- --------
$297,424 $284,171
======== ========
NOTE 6: INCOME TAXES
The provisions for income taxes are as follows:
FISCAL YEAR ENDED
(52 WEEKS) (52 WEEKS) (52 WEEKS)
In thousands DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
--------------- --------------- ---------------
Current:
Federal $ 79,403 $ 83,023 $ 77,265
Foreign 5,708 2,717 2,914
State & local 10,750 10,400 9,700
-------- -------- --------
95,861 96,140 89,879
Deferred - net 7,974 13,004 7,421
-------- -------- --------
$103,835 $109,144 $ 97,300
======== ======== ========
Liz Claiborne, Inc. and its U.S. subsidiaries file a consolidated federal income
tax return. Deferred income tax benefits and deferred income taxes represent the
tax effects of revenues, costs and expenses which are recognized for tax
purposes in different periods from those used for financial statement purposes.
The current income tax provisions exclude $3,551,000 in 2000, $1,031,000 in
1999, and $4,801,000 in 1998 arising from the exercise of nonqualified stock
options. These amounts have been credited to capital in excess of par value.
The effective income tax rate differs from the statutory federal income tax rate
as follows:
FISCAL YEAR ENDED
(52 WEEKS) (52 WEEKS) (52 WEEKS)
DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
--------------- --------------- ---------------
Federal tax provision
at statutory rate 35.0% 35.0% 35.0%
State and local
Income taxes, net
of federal benefit 2.4 2.2 2.4
Tax-exempt interest
income -- -- (0.7)
Other-net (1.4) (1.0) (0.2)
----- ----- -----
36.0% 36.2% 36.5%
===== ===== =====
F-13
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The components of net deferred taxes arising from temporary differences as of
December 30, 2000 and January 1, 2000 are as follows:
DECEMBER 30, 2000 JANUARY 1, 2000
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
IN THOUSANDS ASSET LIABILITY ASSET LIABILITY
------------ -------- --------- -------- ---------
Inventory valuation 12,524 -- $16,133 $ --
Unremitted earnings from
foreign subsidiaries -- 16,419 -- 16,419
Restructuring charge 9,958 -- 1,770 -
Deferred compensation -- 9,405 -- 7,486
Nondeductible accruals 7,734 -- 10,550 --
Accounts receivable valuation -- -- 1,711 --
Unrealized investment
(gains)/losses (326) -- (118) --
Depreciation (432) -- (462)
Other-net (2,192) 5,627 (2,282) (332)
------- ------- ------- -------
$27,698 $31,019 $27,764 $23,111
======= ======= ======= =======
Management believes that the deferred tax benefits will be fully realized
through future taxable income and reversals of deferred tax liabilities.
NOTE 7: COMMITMENTS, CONTINGENCIES
AND OTHER MATTERS
The Company leases office, showroom, warehouse/distribution and retail space and
computers and other equipment under various noncancelable operating lease
agreements which expire through May 2016. Rental expense for 2000, 1999, and
1998 was approximately $71,523,000, $67,113,000, and $62,966,000, respectively.
The above rental expense amounts exclude associated costs such as real estate
taxes and common area maintenance.
At December 30, 2000, the minimum aggregate rental commitments are as follows:
(IN THOUSANDS) (IN THOUSANDS)
FISCAL YEAR OPERATING LEASES FISCAL YEAR OPERATING LEASES
- - ---------------------------------------------------------------------------------------------
2001 $62,991 2004 $ 45,171
2002 56,374 2005 39,269
2003 50,929 Thereafter 168,085
Certain rental commitments have renewal options extending through the year 2031.
Some of these renewals are subject to adjustments in future periods. Many of the
leases call for additional charges, some of which are based upon various
escalations, and, in the case of retail leases, the gross sales of the
individual stores above base levels.
At December 30, 2000 and January 1, 2000, the Company had entered into
commitments for the purchase of raw materials and for the production of finished
goods totaling approximately $526,151,000 and $539,065,000, respectively.
There were no put warrants outstanding at December 30, 2000 and January 1, 2000.
In 1999, in connection with the Company's ongoing stock repurchase program, put
warrants on 500,000 shares of common stock were exercised and put warrants on
400,000 shares of common stock expired unexercised.
F-14
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
In the normal course of business, the Company extends credit, on open account,
to its retail customers, after a credit analysis is performed based on a number
of financial and other criteria. In the past, a number of corporate groups which
include certain of the Company's largest department store customers were
involved in highly leveraged financial transactions and certain of these
customers filed for protection under Chapter 11 of the Federal Bankruptcy Code.
Subsequently, certain customers have emerged from protection under Chapter 11.
In 2000, three corporate groups of department store customers accounted for 18%,
16% and 14%, respectively, of wholesale net sales. In 1999, three corporate
groups of department store customers accounted for 17%, 16%, and 15%,
respectively, of wholesale net sales. In 1998, three corporate groups of
department store customers accounted for 18%, 17% and 15%, respectively, of
wholesale net sales. The Company does not believe that this concentration of
sales and credit risk represents a material risk of loss with respect to its
financial position as of December 30, 2000.
At December 30, 2000, approximately 18% of the Company's work force was covered
by collective bargaining agreements. The agreements currently in effect will
expire in May 2003. The Company considers its relations with its employees to be
satisfactory and to date has not experienced any interruption of operations due
to labor disputes.
On January 11, 2001, the Company entered into a $7 million bridge lease
arrangement in anticipation of entering into a proposed synthetic lease
agreement to acquire and construct various land, building, equipment and real
property improvements associated with a warehouse/distribution facility in Ohio.
Estimated costs to complete this facility are expected to be between $55-$60
million.
The Company is a party to several pending legal proceedings and claims. Although
the outcome of such actions cannot be determined with certainty, management is
of the opinion that the final outcome should not have a material adverse effect
on the Company's results of operations or financial position.
NOTE 8: DEBT AND LINES OF CREDIT
On November 16, 2000, the Company received a $750,000,000 credit facility (the
"Agreement"), replacing the expiring $600,000,000, 364-day unsecured credit
facility. The Agreement consists of a $500,000,000, 364-day unsecured credit
facility and a $250,000,000, 3-year unsecured credit facility due November 16,
2003. Repayment of the 364-day facility can be extended for one year after the
maturity date. The Agreement has two borrowing options, an "Alternative Base
Rate" option, as defined in the Agreement, or a Eurodollar rate option with a
spread based on the Company's long-term credit rating.
The Agreement contains certain financial covenants relating to the Company's
debt leverage and fixed charge coverage. The Company believes it is in
compliance with such covenants.
The Agreement may be directly drawn upon, or used, to support the Company's
$750,000,000 commercial paper program, which is used from time to time to fund
working capital and other general corporate requirements. At December 30, 2000,
approximately $269 million was outstanding under the commercial paper program,
with a weighted average interest rate of 7.5%. The carrying amount of the
Company's borrowings under the commercial paper program approximate fair value
because the interest rates are based on floating rates, which are determined by
prevailing market rates. The commercial paper is classified as long-term debt as
of December 30, 2000 as it is the Company's intent and ability to refinance such
obligations on a long-term basis.
As of December 30, 2000, the Company had lines of credit aggregating
$385,000,000, which were primarily available to cover trade letters of credit.
At December 30, 2000 and January 1, 2000, the Company had letters of credit of
$271,470,000 and $265,352,000, respectively. These letters of credit, which have
terms ranging from one to ten months, primarily collateralize the Company's
obligations to third parties for the purchase of inventory. The fair value of
these letters of credit approximates contract values.
F-15
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 9: RESTRUCTURING CHARGE
In September 2000, the Company recorded a net restructuring charge of $5.4
million (pretax), representing a charge of $6.5 million, principally to cover
the closure of eight under-performing Specialty Retail stores, the closure of
one of our divisional offices, and severance related costs, offset by the $1.1
million deemed no longer necessary of the Company's previous restructuring
liability originally recorded in December 1998.
In December 2000, the Company recorded a restructuring charge of $15.6 million
(pretax) to further maximize business segment synergies. This charge consisted
of $10.6 million for operating and administrative costs associated with the
elimination of nearly 270 jobs and $5.0 million for real estate consolidations.
Significant items included in the charge are estimated contract termination
costs, severance and related benefits for staff reductions, estimated occupancy
costs and asset writedowns. Asset writedowns of $2.4 million consist principally
of showrooms and administrative offices deemed no longer necessary in our
Wholesale Apparel segment. These asset writedowns are expected to be completed
in early 2002. The fiscal 2000 restructuring charges reduced net income by $13.5
million, or $.25 per common share. The remaining balance of the restructuring
liability as of December 30, 2000 was $19.5 million.
In December 1998, the Company recorded a $27.0 million (pretax) restructuring
charge. The amount included $14.4 million related to the closure of 30
underperforming Specialty Retail stores and $12.6 million for the streamlining
of operating and administrative functions. Principal items included in the
charge are estimated contract termination costs, severance and related benefits
for staff reductions and the write-off of certain assets. This charge reduced
net income by $17.1 million, or $.26 per common share. During the 1999 fiscal
year, $2.7 million of the liability was deemed to be no longer necessary. This
amount was taken as a reduction to the restructuring charge through earnings and
was offset with a restructuring reserve of an equal amount to recognize the
anticipated exit cost associated with the closure of seven additional
under-performing retail stores.
A summary of the charges in the restructuring reserves is as follows:
ESTIMATED
STORE OPERATING AND OCCUPANCY COSTS
CLOSURE ADMINISTRATIVE AND ASSET WRITE
IN MILLIONS COSTS EXIT COSTS DOWNS TOTAL
- -----------------------------------------------------------------------------------------
Original Reserve $ 14.4 $ 12.6 $ -- $ 27.0
1999 spending (11.2) (10.7) -- (21.9)
1999 reserve reduction (0.8) (1.9) -- (2.7)
1999 exit costs charge 2.7 -- -- 2.7
------- ------- -------- -------
Balance at January 1, 2000 $ 5.1 $ -- -- $ 5.1
======= ======= ======== =======
2000 reserve 5.4 11.8 5.0 22.2
2000 spending (3.9) (0.4) (2.4) (6.7)
2000 reserve reduction (1.1) -- -- (1.1)
------- ------ ------- -------
Balance at December 30, 2000 $ 5.5 $ 11.4 $ 2.6 $ 19.5
======= ====== ======= =======
F-16
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 10: OTHER INCOME (EXPENSE) - NET
Other income (expense) - net consists of the following:
FISCAL YEAR ENDED
(52 WEEKS) (52 WEEKS) (52 WEEKS)
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
INVESTMENT GAIN $8,760 $ -- $ 75
MINORITY INTEREST (2,218) (1,402) --
OTHER 116 446 (687)
------- ------- -------
$6,658 $ (956) $(612)
======= ======= =======
NOTE 11: STOCK PLANS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans, which are described below. Accordingly, no compensation cost
has been recognized for its fixed stock option grants. Had compensation costs
for the Company's stock option grants been determined based on the fair value at
the grant dates for awards under these plans in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts as follows:
FISCAL YEAR ENDED
IN THOUSANDS EXCEPT FOR (52 WEEKS) (52 WEEKS) (52 WEEKS)
PER COMMON SHARE DATA DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2,1999
- -------------------------------------------------------------------------------------------------------------------------
Net income:
As reported $184,595 $192,422 $169,377
Pro forma $175,281 $185,814 $164,738
Basic earnings per share:
As reported $3.46 $3.13 $2.59
Pro forma $3.28 $3.02 $2.51
Diluted earnings per share:
As reported $3.43 $3.12 $2.57
Pro forma $3.26 $3.01 $2.50
For this purpose, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 2000, 1999, and 1998,
respectively: dividend yield of 1.1%, 1.3%, and 1.0%, expected volatility of
40%, 37%, and 31%, risk free interest rates of 5.0%, 5.3%, and 5.4%, and
expected lives of five years, five years, and four years.
In March 1992 and March 2000, the Company adopted the "1992 Plan" and "2000
Plan," respectively, under which nonqualified options to acquire shares of
common stock may be granted to officers, other key employees and directors
selected by the plans' administrative committee ("the committee"). Payment by
option holders upon exercise of an option may be made in cash or, with the
consent of the committee, by delivering previously acquired shares of Company
common stock. Stock appreciation rights may be granted in connection with all or
any part of any option granted under the plans, and may also be granted without
a grant of a stock option. The grantee of a stock appreciation right has the
right, with the consent of the committee, to receive either in cash or in shares
of common stock, an amount equal to the appreciation in the fair market value of
the covered shares from the date of grant to the date of exercise. Options and
rights are exercisable over a period
F-17
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
of time designated by the committee and are subject to such other terms and
conditions as the committee determines. Vesting schedules will be accelerated
upon merger of the Company or the happening of certain other change of control
events. Options and rights may not be transferred during the lifetime of a
holder.
Awards under the 2000 Plan may also be made in the form of incentive stock
options, dividend equivalent rights, restricted stock, unrestricted stock and
performance shares. To date, no stock appreciation rights, incentive stock
options, dividend equivalent rights or performance shares have been granted
under the 2000 Plan. Exercise prices for awards under the 2000 Plan are
determined by the committee; to date, all stock options have been granted at an
exercise price not less than the quoted market value of the underlying shares on
the date of grant.
The 2000 Plan provides for the issuance of up to 5,000,000 shares of common
stock with respect to options, stock appreciation rights and other awards
granted under the 2000 Plan. At December 30, 2000, there were available for
future grant 4,924,800 shares under the 2000 Plan. The 2000 Plan expires in
2010. Upon shareholder approval of the 2000 Plan in May 2000, the Company ceased
issuing grants under the 1992 Plan; awards made thereunder prior to its
termination remain in effect in accordance with their terms.
Since January 1990, the Company has delivered treasury shares upon the exercise
of stock options. The difference between the cost of the treasury shares, on a
first-in, first-out basis, and the exercise price of the options has been
reflected in retained earnings.
Changes in common shares under option for the three fiscal years in the period
ended December 30, 2000 are summarized as follows:
2000 1999 1998
---- ---- ----
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- -------------- --------- ----------------
Beginning of year 2,834,471 $ 34.76 2,340,594 $ 35.45 2,208,310 $ 30.73
Granted 1,881,200 36.94 1,292,200 32.82 979,738 40.58
Exercised (659,094) 29.13 (219,306) 23.61 (562,929) 25.43
Cancelled (442,302) 38.56 (579,017) 37.58 (284,525) 36.29
--------- --------- --------- --------- --------- ---------
End of year 3,614,275 $ 36.46 2,834,471 $ 34.76 2,340,594 $ 35.45
========= ========= ========= ========= ========= =========
Exercisable at end of year 855,837 $ 36.92 921,345 $ 32.63 652,258 $ 30.24
========= ========= ========= ========= ========= =========
Weighted average fair value
of options granted during
the year $ 14.42 $ 12.22 $ 11.98
The following table summarizes information about options outstanding at December
30, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average
Range of Outstanding at Remaining Weighted Average Exercisable at Weighted Average
Exercise Prices Dec. 30, 2000 Contractual Life Exercise Price Dec. 30, 2000 Exercise Price
- --------------- ------------- ---------------- -------------- ------------- --------------
$15.00 - $25.00 17,428 0.8 years $18.95 17,428 $18.95
25.01 - 35.00 969,901 7.8 years 31.94 250,071 30.44
35.01 - 65.00 2,626,946 8.3 years 38.25 588,338 40.20
$15.00 - $65.00 3,614,275 8.1 years $36.46 855,837 $36.92
F-18
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
In January 2001, the committee authorized the grant of 517,000 shares of common
stock to a group of key executives. These shares are subject to restrictions on
transfer and subject to risk of forfeiture until earned by continued employment.
The restrictions expire in January 2007. The expiration of restrictions may be
accelerated if the total return on the Company's common stock exceeds that of a
predetermined group of competitors or upon the occurrence of certain other
events. The unearned compensation is being amortized over a period equal to the
anticipated vesting period.
On January 16, 2001, nonqualified options to acquire approximately 1,800,000
shares of common stock were granted to officers and other key employees with an
exercise price of $44.8125.
In 1998, the committee granted 366,650 shares of common stock to a group of key
executives. As of December 30, 2000, 260,480 of these shares remained
outstanding. These shares are subject to restrictions on transfer and subject to
risk of forfeiture until earned by continued employment. The restrictions expire
on July 6, 2007. Given that the total return on the Company's common stock
exceeded that of a predetermined group of competitors for the period of January
1, 1998 through March 1, 2001, the expiration of the restrictions on 80% of such
shares was accelerated as of March 1, 2001. During the first quarter of 2001,
the Company will record a charge to operating income of approximately $5 million
as compensation expense to reflect such accelerations. The shares that did not
vest on an accelerated basis remain restricted; the expiration of restrictions
may be accelerated if the total return of the Company's common stock exceeds
that of a predetermined group of competitors or upon the occurrence of certain
other events. The unearned compensation on such unvested shares is being
amortized over a period equal to the anticipated vesting period.
In May 1994, the committee granted 85,000 shares of common stock in connection
with the hiring of a key executive. These shares are subject to restrictions on
transfer and subject to risk of forfeiture until earned by continued employment.
The restrictions expire on the last day of each of the Company's fiscal years
1994 through 2001. The expiration of the restrictions may be accelerated if the
market value of the common stock attains certain predetermined levels or upon
the occurrence of certain other events. In 1996, one-third of the then 65,000
unvested restricted shares (or 21,665 shares) vested in accordance with the
accelerated vesting provisions of the employment agreement. The remaining shares
were scheduled to vest at the rate of 6,667 shares of common stock per year
through the year 2000 and 10,000 shares in the year 2001. During 1997, the
common stock attained the predetermined level which allowed the remaining shares
to vest on January 2, 1999. The unearned compensation related to all restricted
stock grants as of December 30, 2000, January 1, 2000, and January 2, 1999 is
$7,551,000, $9,097,000, and $12,781,000, respectively, and is included in
retained earnings.
In 1992, options were granted to certain of the Company's senior officers at a
price of $58.50 per share, representing 150% of the market price at the date of
grant. At December 30, 2000, none of these options remained outstanding; 50,000
of these options became exercisable on October 21, 1998 and expired on October
21, 2000.
The Company's outside directors' stock ownership plan provides non-employee
directors, as part of their annual retainer, shares of common stock with a value
of $15,000 on the first business day of each fiscal year. The shares so issued
are nontransferable for a period of three years following the grant date,
subject to certain exceptions. In 2000, 1,613 shares of common stock were issued
under this plan. This plan also provides each non-employee director a grant of
options to purchase 1,000 shares of common stock on the first business day of
each fiscal year. Not more than one half of one percent (0.50%) of the shares of
common stock outstanding from time to time may be issued under the plan, which
will expire in 2006. Additionally, effective July 2000, each non-employee
director is entitled to receive on the first business day of each fiscal year a
grant of options to purchase 2,000 shares under the 2000 Plan.
NOTE 12: PROFIT-SHARING RETIREMENT,
SAVINGS AND DEFERRED
COMPENSATION PLANS
The Company maintains a qualified defined contribution plan (the "401(k)/Profit
Sharing Plan") for eligible U.S. employees of the Company and adopting
affiliates, which has two component parts: a cash or deferred arrangement under
section 401(k) of the Internal Revenue Code and a profit sharing portion. To be
eligible to participate in either portion of the 401(k)/Profit Sharing Plan,
employees must be at least age 21 and not covered by a collective bargaining
agreement; there are additional eligibility and vesting rules for each of the
401(k)/Profit Sharing Plan components. Full-time employees may begin to make
pre-tax contributions to the
F-19
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
401(k) portion of the 401(k)/Profit Sharing Plan after six months of employment
with the Company, while part-time employees must complete a 12-month period in
which they are credited with 1000 hours of service; to be eligible for matching
contributions in the 401(k) portion of the 401(k)/Profit Sharing Plan, all
eligible employees must have at least a year of service, measured as 12 months
of elapsed service for full-time employees and a 12-month period with at least
1000 hours of credited service for part-time employees. The 1000-hour rule
applies to all eligible employees for purposes of entering the profit sharing
portion of the 401(k)/Profit Sharing Plan; in addition, a participant generally
must be credited with 1000 hours of service during, and be employed by the
Company or one of its affiliates on the last day of, the calendar year to share
in the profit sharing contribution for that year.
Company matching contributions vest (i.e., become nonforfeitable) on a schedule
of 20% for the first two years of elapsed service with the Company and its
affiliates and 20% for each year of service thereafter. Profit sharing
contributions, if any, are made annually at the discretion of the Board of
Directors, and vest 100% after five years of elapsed service (except for
pre-1997 participants who were grandfathered under the previous 2-6 year graded
schedule).
Under the 401(k) portion of the 401(k)/Profit Sharing Plan, participants may,
subject to applicable IRS limitations, contribute from 1% to 15% of their
salaries on a pretax basis; the 401(k)/Profit Sharing Plan provides for
automatic enrollment (at a contribution rate of 3%) when an eligible employee
first becomes entitled to participate in the 401(k) portion of the 401(k)/Profit
Sharing Plan, unless the employee elects otherwise. Participants' pretax
contributions are matched at the rate of $.50 for each dollar contributed by the
participant that does not exceed 6% of eligible compensation.
The Company's aggregate 401(k)/Profit Sharing Plan contribution expense for
2000, 1999 and 1998, which is included in selling, general and administrative
expenses, was $6,888,000, $6,515,000 and $6,424,000, respectively.
The Company has a supplemental retirement plan for executives whose benefits
under the 401(k)/Profit Sharing Plan are expected to be constrained by the
operation of certain Internal Revenue Code limitations. The supplemental plan
provides a benefit equal to the difference between the contribution that would
be made for an executive under the tax-qualified plan absent such limitations
and the actual contribution under that plan. The supplemental plan also allows
participants to defer up to 15% of their salary. Supplemental benefits
attributable to participant deferrals are fully vested at all times and the
balance of a participant's benefits vests on the same basis as the matching
contribution under the 401(k)/Profit Sharing Plan. Under a separate bonus
deferral plan, participants may defer up to 100% of their annual bonus. These
supplemental plans are not funded. The Company's (recoveries) expenses related
to these plans, which are included in selling, general and administrative
expenses, were ($224,000), $2,223,000 and $1,909,000 in 2000, 1999 and 1998,
respectively.
In 1996, the Company established an unfunded deferred compensation arrangement
for a senior executive which accrues over a six year period as of the first day
of each fiscal year beginning in 1996, based on an amount equal to 15% of the
sum of the senior executive's base salary and bonus. The accrued amount plus
earnings will become fully vested on December 28, 2002, provided the senior
executive is the Chairman of the Board and Chief Executive Officer of the
Company on such date. This arrangement also provides for the deferral of an
amount equal to the portion of the executive's base salary that exceeds $1
million. The deferred amount plus earnings will be fully vested at all times.
NOTE 13: STOCKHOLDER RIGHTS PLAN
In December 1998, the Company adopted a new Stockholder Rights Plan to replace
the then expiring plan originally adopted in December 1988. Under the new Plan,
one preferred stock purchase right is attached to each share of common stock
outstanding. The rights are nominally exercisable under certain circumstances,
to buy 1/100 share of a newly created Series A Junior Participating Preferred
Stock for $150. If any person or group (referred to as an "Acquiring Person")
becomes the beneficial owner of 15% or more of the Company's common stock (20%
or more in the case of certain acquisitions by institutional investors), each
right, other than rights held by the Acquiring Person which become void, will
become exercisable for common stock having a market value of twice the exercise
price of the right. If anyone becomes an Acquiring Person and afterwards the
Company or 50% or more of its assets is acquired in a merger, sale or other
business combination, each right (other than voided rights) will become
exercisable for common stock of the acquirer having a market value of twice the
exercise price of the right. The rights, which
F-20
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
expire on December 21, 2008 and do not have voting rights, may be amended by the
Company's Board of Directors and redeemed by the Company at $.01 per right at
any time before any person or group becomes an Acquiring Person.
NOTE 14: EARNINGS PER COMMON SHARE
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No.128 "Earnings per Share."
FISCAL YEAR ENDED
(52 WEEKS) (52 WEEKS) (52 WEEKS)
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
- --------------------------------------------------------------------------------------------------------------------
Net income: $184,595 $192,442 $169,377
Weighted average common shares outstanding 53,407 61,523 65,503
Effect of dilutive securities:
Stock options and restricted stock grants 340 190 272
Put warrants -- 7 72
Weighted average common shares and common
share equivalents 53,747 61,720 65,847
NOTE 15: CONSOLIDATED STATEMENTS
OF CASH FLOWS SUPPLEMENTARY
DISCLOSURES
During fiscal 2000, 1999, and 1998, the Company made income tax payments of
$94,742,000, $89,374,000, and $91,342,000, respectively. The Company made
interest payments of $20,438,000, $2,186,000, and $0 in 2000, 1999, and 1998,
respectively. Other non-cash investing activities in 1999 included a future
payment of $15.0 million associated with the Lucky Brand Dungarees, Inc.
acquisition and $3.5 million contingent payment for the Laundry acquisition (see
Note 2 of Notes to Consolidated Financial Statements).
NOTE 16: SEGMENT REPORTING
The Company has three segments: Wholesale Apparel, Wholesale Non-Apparel and
Retail. The Wholesale Apparel segment consists of women's and men's apparel
designed and marketed under various trademarks owned or licensed by the Company.
The Wholesale Non-Apparel segment consists of accessories, jewelry and cosmetics
designed and marketed under certain of those and other trademarks. The Retail
segment operates specialty retail and outlet stores that sell these apparel and
non-apparel products to the public.
The Company evaluates performance and allocates resources based on operating
profits or losses. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Intersegment sales are recorded at cost. There is no intercompany profit or loss
on intersegment sales, however, the wholesale segments are credited with their
proportionate share of the operating profit generated by the Retail segment. The
profit credited to the wholesale segments from the Retail segment is eliminated
in consolidation.
F-21
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The Company's segments are business units that offer either different products
or distribute similar products through different distribution channels. The
segments are each managed separately because they either manufacture and
distribute distinct products with different production processes or distribute
similar products through different distribution channels.
DECEMBER 30, 2000
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $2,196,125 $403,924 $489,566 $ 14,526 $3,104,141
Intercompany sales 175,349 18,680 -- (194,029) --
Depreciation and amortization expense 57,448 5,497 11,339 2,749 77,033
Segment operating profit (loss) 279,648 44,669 58,667 (79,295) 303,689
Segment assets 1,295,046 161,768 151,575 193,928 1,802,317
Expenditures for long-lived assets 70,762 42,288 16,010 -- 129,060
JANUARY 1, 2000
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $2,032,542 $320,491 $444,722 $ 8,793 $2,806,548
Intercompany sales 163,973 20,911 -- (184,884) --
Depreciation and amortization expense 47,024 4,130 10,608 6,074 67,836
Segment operating profit (loss) 267,146 32,645 58,105 (58,143) 299,753
Segment assets 1,311,090 86,549 121,613 200,121 1,719,373
Expenditures for long-lived assets 243,786 1,615 31,851 -- 277,252
JANUARY 2, 1999
WHOLESALE WHOLESALE CORPORATE/
IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS
- ---------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $1,802,832 $296,713 $430,839 $ 4,884 $2,535,268
Intercompany sales 183,218 23,602 -- (206,820) --
Depreciation and amortization expense 34,985 4,143 12,527 4,130 55,785
Segment operating profit (loss) 243,708 46,590 45,341 (77,961) 257,678
Segment assets 1,119,680 98,701 142,156 367,344 1,727,881
Expenditures for long-lived assets 102,870 12,282 14,420 -- 129,572
In the 2000 and 1999 "Corporate/Eliminations" column, the segment assets
consists primarily of corporate buildings, machinery and equipment and licenses
and trademarks purchased by the Company. In the 1998 "Corporate/Eliminations"
column, the segment assets consists primarily of the Company's investment
portfolio. The segment operating loss consists primarily of the elimination of
the profit transfer from the Retail segment to the wholesale segments, and
$21,041,000 and $27,000,000 of restructuring charges in 2000 and 1998,
respectively.
F-22
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
A reconciliation to adjust segment assets to consolidated assets follows:
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
----------------- --------------- ---------------
Total segment assets $ 1,802,317 $ 1,719,373 $ 1,727,881
Intercompany receivables (12,859) (24,640) (22,415)
Investments in wholly-owned subsidiaries (290,869) (292,249) (338,267)
Other 13,570 9,317 25,592
----------- ----------- -----------
Total consolidated assets $ 1,512,159 $ 1,411,801 $ 1,392,791
=========== =========== ===========
NOTE 17: OTHER COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income"
which requires reporting of comprehensive income and its components in a
financial statement. The following table contains the components of the
adjustment to unrealized gains (losses) on available for sale securities
included in the Consolidated Statements of Retained Earnings, Comprehensive
Income and Changes in Capital Accounts.
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on available for sale
securities, net of tax:
Unrealized holding gain (loss) $(1,212) $ (166) $(1,627)
Reclassification adjustment 444 55 961
----- ------ --------
Net unrealized gain (loss) $(768) $(111) $ (666)
====== ====== ========
NOTE 18: NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No.133," which amended certain provisions of SFAS No. 133. The Company
adopted SFAS No. 133 and the corresponding amendments under SFAS No. 138
effective prospectively for the Company's financial statements beginning in
2001. The Company believes that the impact of adopting SFAS No. 133, as amended
by SFAS No. 138, is not significant.
NOTE 19: LEGAL PROCEEDINGS
In January 1999, two actions were filed in California naming as defendants more
than a dozen United States-based apparel companies that source garments from
Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based garment factories. The actions assert that the Saipan factories
engage in unlawful practices relating to the recruitment and employment of
foreign workers and that the apparel companies, by virtue of their alleged
relationships with the factories, have violated various federal and state laws.
One action, filed in California Superior Court in San Francisco by a union and
three public interest groups, alleges unfair competition and false advertising
(the "State Court Action"). The State Court Action seeks equitable relief,
unspecified amounts for restitution and disgorgement of profits, interest and an
award of attorney's fees. The second, filed in Federal Court for the Central
District of California and later transferred to the
F-23
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
District of Hawaii, is brought on behalf of a purported class consisting of the
Saipan factory workers (the "Federal Action"). The Federal Action alleges claims
under the civil RICO statute and the Alien Tort Claims Act, premised on supposed
violations of the federal anti-peonage and indentured servitude statutes, as
well as other violations of Saipan and international law, and seeks equitable
relief and unspecified damages, including treble and punitive damages, interest
and an award of attorney's fees. A third action, brought in Federal Court in
Saipan solely against the garment factory defendants on behalf of a putative
class of their workers, alleges violations of federal and Saipanese wage and
employment laws. The Company sources products in Saipan but was not named as a
defendant in the actions. The Company and certain other apparel companies not
named as defendants were advised in writing, however, that they would be added
as parties if a consensual resolution of the complaint claims could not be
reached. In the wake of that notice, which was accompanied by a draft complaint,
the Company entered into settlement negotiations and subsequently entered into
an agreement to settle all claims that were or could have been asserted in the
Federal or State Court Action. To date, more than a dozen other apparel
companies have also settled these claims. As part of the settlement, the Company
has since been named as a defendant, along with certain other settling apparel
companies, in a Federal Court action styled Doe I, et al. v. Brylane, L.P. et
al., currently pending in the United States District Court for the District of
Hawaii, that mirror portions of the larger State and Federal Actions but does
not include RICO and certain of the other claims alleged in those Actions. The
newly filed action against the Company will remain inactive unless the
settlement is not finally approved by the Federal Court. The agreements
concluded by the Company and other retailers are subject to federal court
approval, which has been delayed by virtue of the Hawaii District Court's June
23, 2000 decision to transfer the Federal Action to Saipan. Plaintiffs have
petitioned the Ninth Circuit Court of Appeals for a Writ of Mandamus reversing
that ruling and the Federal Action has effectively been stayed pending the Court
Appeals' decision. Under the terms of the settlement agreement, if the
settlement does not receive final federal court approval, the Company will be
entitled to a refund of the entire settlement amount except for funds of up to
$10,000 spent on costs of notice. Because the litigation is at a preliminary
stage, with virtually no merits discovery having taken place, if the settlement
is not executed or is not finally approved by the federal court, we cannot at
this junction determine the likelihood of a favorable or unfavorable outcome or
the magnitude of the latter if it were to occur. Although the outcome of any
such litigation cannot be determined with certainty, management is of the
opinion that the final outcome should not have a material adverse effect on the
Company's financial position or results of operations.
NOTE 20: ACCRUED EXPENSES
Accrued expenses at Decenber 30, 2000 and January 1, 2000 consisted of the
following:
In thousands December 30, 2000 January 1, 2000
- ------------------------------------------------------------------------
Payroll and bonuses $ 29,539 $ 31,452
Taxes, other than taxes on income 16,162 20,864
Employee benefits 23,053 20,309
Advertising 15,505 19,776
Restructuring reserve 19,438 5,056
Other 47,583 62,763
-------- --------
$151,280 $160,220
======== ========
F-24
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTE 21: UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 2000 and 1999 is set forth in the
table below:
MARCH JUNE SEPTEMBER DECEMBER
----- ---- --------- --------
ALL AMOUNTS IN THOUSANDS
EXCEPT PER COMMON SHARE DATA 2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
Net sales $809,459 $700,789 $661,667 $607,675 $879,025 $821,024 $753,990 $677,060
Gross profit 302,874 262,632 267,754 237,011 350,655 321,081 312,589 276,858
Net income 46,492(1) 44,713 31,452 31,561 67,072(2) 66,370 39,579(3) 49,798
Basic earnings per share $ .85(1) $ .70 $ .58 $ .50 $ 1.27(2) $ 1.08 $ .77(3) $ .85
Diluted earnings per share $ .84(1) $ .70 $ .58 $ .50 $ 1.26(2) $ 1.08 $ .76(3) $ .85
Dividends paid
per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
(1) Includes the after tax effect of a special investment gain of 2,122
($3,316 pretax) or $.04 per share.
(2) Includes the after tax effect of a special investment gain of $3,484
($5,444 pretax) or $.06 per share and the after tax effect of a
restructuring charge of $3,457 ($5,402 pretax) or $.06 per common share.
(3) Includes the after tax effect of a restructuring charge of $10,009
($15,639 pretax) or $.19 per share.
F-25
55
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Column A Column B Column C Column D Column E
ADDITIONS
----------------------------------
(In thousands) Balance at (1) Charged (2) Charged to
Beginning to Costs and Other Accounts - Deductions - Balance at
Description of period Expenses Describe Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 30, 2000
Accounts Receivable - allowance for
doubtful accounts $2,255 $1,438 $-- $998 (A) $2,695
Restructuring Reserve $5,056 $22,115 $(1,074)(C) $6,659 (B) $19,438
YEAR ENDED JANUARY 1, 2000
Accounts Receivable - allowance for
doubtful accounts $2,165 $1,025 $-- $935 (A) $2,255
Restructuring Reserve $26,300 $2,700 $(2,700)(C) $21,244 (B) $5,056
YEAR ENDED JANUARY 2, 1999
Accounts Receivable - allowance for
doubtful accounts $2,591 $231 $-- $657 (A) $2,165
Restructuring Reserve $-- $27,000 $-- $700 (B) $26,300
Notes:
(A) Uncollectible accounts written off, less recoveries.
(B) Charges to the restructuring reserve are for the purposes for which the
reserve was created.
(C) This amount of the restructuring reserve was deemed to no longer be
necessary. As a result, this amount was taken as a reduction to the
restructuring charge through earnings for the applicable fiscal year.
F-26
56
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- ------------
3(a) - Restated Certificate of Incorporation of Registrant (incorporated herein by
reference from Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the
period ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by reference from Exhibit
3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 26, 1992 [the "1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value $1.00 per share
(incorporated herein by reference from Exhibit 4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 4, 1998, between Registrant and First
Chicago Trust Company of New York, as Rights Agent (incorporated herein by
reference from Exhibit 1 to Registrant's Form 8-A dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is incorporated herein
by this reference.
10(b)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended and restated
(incorporated herein by reference from Exhibit 10(f) to Registrant's Annual
report on Form 10-K for the fiscal year ended December 30, 1989 [the "1989 Annual
Report"]).
10(b)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz Claiborne, Inc. and IDS
Trust Company (incorporated herein by reference from Exhibit 10(b) to
Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994).
10(c)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated herein by reference
from Exhibit 10(g) to the 1992 Annual Report).
10(c)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated herein by reference
from Exhibit 10(g)(i) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 26, 1993 [the "1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
57
Exhibit
No. Description
- ------- ------------
10(c)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended
July 2, 1994).
10(c)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e) (iii) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996 [the "1996 Annual Report"]).
10(c)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(iv) to the 1996 Annual Report).
10(c)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(v) to Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998 [the "1997 Annual Report"].
10(c)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated herein by reference from
Exhibit 10(e)(vi) to Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 [the "1998 Annual Report"]).
10(d)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement Plan (the
"Profit-Sharing Plan") (incorporated herein by reference from Exhibit 10(h) to
the 1992 Annual Report).
10(e)+ - Trust Agreement related to the Profit-Sharing Plan (incorporated herein by
reference from Exhibit 10(jj) to the 1983 Annual Report).
10(e)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan (incorporated herein by
reference from Exhibit 10(i)(i) to the 1993 Annual Report).
10(e)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period
ended October 1, 1994).
10(e)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period
ended July 1, 1995).
10(e)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(g)(iv) to the 1996 Annual Report).
10(e)(v)+ - Amendment No. 6 to the Profit-Sharing Plan (incorporated herein by reference
from Exhibit 10(g)(v) to the 1998 Annual Report).
10(f)+ - Merger Amendment to the Profit-Sharing Plan, the Lucky Brand Employee Retirement
Plan andTrust, the Segrets, Inc. 401(k) Profit Sharing Plan, and the Savings Plan
(incorporated herein by reference from Exhibit 10(h) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 1, 2000 [the "1999 Annual
Report"]).
10(g)+* - The Liz Claiborne 401(K) Savings and Profit Sharing Plan, as amended and
restated.
10(h)+* - National Collective Bargaining Agreement, made and entered into as of June 1,
2000, by and between Liz Claiborne, Inc. and the Union of Needletrades,
Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May
31, 2003.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
58
Exhibit
No. Description
- ------- ------------
10(h)(i)+* - Jobbers Agreement, made and entered into as of June 1, 2000, by and between
Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 2000 through May 31, 2003.
10(i)+* - Description of Liz Claiborne, Inc. 2000 Salaried Employee Incentive Bonus Plan.
10(j) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for premises located at
1441 Broadway, New York, New York between Registrant and Lechar Realty Corp.
(incorporated herein by reference from Exhibit 10(n) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29, 1990).
10(j)(i) - First Amendment: Lease Extension and Modification Agreement, dated as of January
1, 1998, to the 1441 Lease.(incorporated herein by reference from Exhibit 10(k)
(i) to the 1999 Annual Report).
10(j)(ii) - Second Amendment to Lease, dated as of September 19, 1998, to the 1441 Lease
(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual
Report).
10(j)(iii) - Third Amendment to Lease, dated as of September 24, 1999, to the 1441 Lease
(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual
Report).
10(k)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors' 1991 Stock Ownership
Plan (the "Outside Directors' 1991 Plan") (incorporated herein by reference from
Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(k)(i)+ - Form of Option Agreement under the Outside Directors' 1991 Plan (incorporated
herein by reference from Exhibit 10(m)(i) to the 1996 Annual Report).
10(l)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992 Plan") (incorporated
herein by reference from Exhibit 10(p) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10(l)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by reference from Exhibit
10(p)(i) to the 1993 Annual Report).
10(l)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by reference from
Exhibit 10(n)(ii) to the 1997 Annual Report).
10(l)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein by reference from
Exhibit 10(n)(iii) to the 1998 Annual Report).
10(m)+ - Form of Option Agreement under the 1992 Plan (incorporated herein by reference
from Exhibit 10(r) to the 1992 Annual Report).
10(n)+ - Form of Option Grant Certificate under the 1992 Plan (incorporated herein by
reference from Exhibit 10(q) to the 1996 Annual Report).
10(o)+ - Form of Restricted Career Share Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1995).
10(p)+ - Form of Restricted Transformation Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
59
Exhibit
No. Description
- ------- ------------
10(q)+* - Description of Supplemental Life Insurance Plans.
10(r)+ - Description of unfunded death/disability benefits for certain executives
(incorporated herein by reference from Exhibit 10(u) to the 1992 Annual Report).
10(s)+ - Amended and Restated Liz Claiborne Section 162(m) Cash Bonus Plan (incorporated herein
by reference from Exhibit 10(t) to the 1999 Annual Report).
10(t)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as amended and
restated effective as of January 1, 1997) (incorporated herein by reference from
Exhibit 10(w) to the 1996 Annual Report).
10(u)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated herein by reference
from Exhibit 10(x) to the 1996 Annual Report).
10(v)+ - Employment Agreement dated as of May 9, 1994, between Registrant and Paul R.
Charron (the "Charron Agreement") (incorporated herein by reference from Exhibit
10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended April 2,
1994).
10(v)(i)+ - Amendment to the Charron Agreement, dated as of November 20, 1995 (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual Report).
10(v)(ii)+ - Amendment to the Charron Agreement, dated as of September 19, 1996, (including
the Liz Claiborne Retirement Income Accumulation Plan for the benefit of Mr.
Charron) (incorporated herein by reference from Exhibit 10(y)(ii) to the 1996
Annual Report).
10(v)(iii)+* -Executive Termination Benefits Agreement, between Registrant and Paul R. Charron.
10(w)+ - Employment Agreement dated as of September 26, 1996 between Registrant and
Denise V. Seegal (the "Seegal Agreement") (incorporated herein by reference from
Exhibit 10(z) to the 1996 Annual Report).
10(w)(i)+ - Amendment to the Seegal Agreement, dated as of February 18, 2000 (incorporated
herein by reference from Exhibit 10(x)(i) to the 1999 Annual Report).
10(w)(ii)+* - Separation Agreement entered into as of February 7, 2001 by and between
Registrant and Denise V. Seegal.
10(x)* - Three Year Credit Agreement, dated as of November 16, 2000, among Registrant,
various lending parties and The Chase Manhattan Bank (as administrative agent).
10(y)* - 364 Day Credit Agreement, dated as of November 16, 2000, among Registrant,
various lending parties and The Chase Manhattan Bank (as administrative agent).
10(z)+ - Liz Claiborne, Inc. 2000 Stock Incentive Plan (the "2000 Plan") (incorporated
herein by reference from Exhibit 4(e) to Registrant's Form S-8 dated as of
January 25, 2001.)
10(z)(i)+* - Form of Option Grant Certificate under the 2000 Plan.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
60
Exhibit
No. Description
- ------- ------------
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) - Reports on Form 8-K.
Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.