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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/405
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 2000 OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-26608
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CUTTER & BUCK INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1474587
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
2701 FIRST AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
(Address of principal executive offices, including zip code)
(206) 622-4191
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class
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Common Stock, No Par Value
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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. / /
The aggregate market value as of July 21, 2000 of the voting stock held by
non-affiliates of the Registrant was approximately $103,638,000 based upon the
closing price as reported by NASDAQ. As of such date, there were 10,363,800
shares outstanding of the Registrant's Common Stock, no par value per share.
Documents incorporated by reference:
(1) Portions of the Registrant's 2000 Annual Report to Shareholders are
incorporated by reference into Parts II and IV hereof; and
(2) Portions of the Registrant's definitive 2000 Proxy Statement to be filed
with the Securities and Exchange Commission within 120 days after the close
of our fiscal year end are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We design and market distinctive upscale sportswear and outerwear under the
Cutter & Buck brand. We sell our products primarily through golf pro shops and
resorts, corporate accounts, better specialty stores and selected department
stores, and company-owned retail stores. Our goal is to become one of the most
recognized and respected brands of sportswear and outerwear in the world. Our
products feature distinctive designs and rich detailing using predominantly
natural fiber textiles. We merchandise our products as lifestyle collections
targeted to men and women who seek classic American styles updated with the
latest textile and fashion innovations. We have established a strong brand
following with upscale golfers, and are using that awareness and loyalty to
broaden into a well-known fashion brand. We have grown net sales from $13.4
million in fiscal 1995 to $152.5 million in fiscal 2000 and net income from
$239,000 in fiscal 1995 to $10.6 million in fiscal 2000.
COMPANY STRENGTHS
We believe that the following strengths have contributed to our success and
may provide us with a competitive advantage:
- DISTINCTIVE, QUALITY PRODUCTS Our garments feature original Cutter & Buck
designs manufactured with high standards in our industry. We use
fine-gauge combed cotton, virgin wools and performance microfibers, with
unique trims, distinctive colors and special fabric finishes. Each season,
we source new fabrications from our worldwide suppliers and introduce new
collections unique to our industry.
- UPSCALE BRAND IDENTITY Cutter & Buck is a nationally recognized premium
lifestyle brand, built on quality products and strong imagery. In our
sporting collections, our marketing themes revolve around golf, tennis,
fly fishing and other leisure pursuits appealing to many of our target
customers. We reinforce our upscale brand image at the store level with
specialized fixturing that presents our lines as distinctive collections.
Our fashion collections target our idealized upscale consumers in casual
business settings or relaxed weekend environments. We believe that our
consumers are seeking a refined level of sophistication in all their
casual purchases, and our designs, manufacturing standards and marketing
for both sport and fashion collections are structured accordingly.
- MULTI-CHANNEL DISTRIBUTION STRATEGY To protect the integrity of the
Cutter & Buck brand and to support long term sales growth and brand
awareness, we predominantly distribute our products through golf pro shops
and resorts, corporate accounts, better specialty and selected department
stores, and our six company-owned retail stores. We believe that these
channels complement one another, since they target a similar consumer base
and use similar merchandising and pricing practices that generally feature
Cutter & Buck as a leading premium apparel brand.
- DEDICATED SALES FORCE As our account base and sales have grown, so has the
size and exclusivity of our sales force. As of April 30, 2000, we employed
120 sales representatives and 10 independent sales representatives who
present seasonal collections to buyers, design in-store fixturing and
merchandising with store owners and service accounts year round. We
believe that our business is relationship-driven and having our own sales
force enables us to build a long term growing business with our accounts.
- STRONG OPERATIONAL SKILLS One of our competitive strengths is our ability
to manage a highly complex business. We create new collections twice a
year, source hundreds of individual products annually from a total of 35
factories in 11 different countries and sell to approximately 7,500
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accounts worldwide. Our management team consists of talented apparel
industry veterans in design, merchandising, manufacturing, marketing,
sales and distribution. Our infrastructure has been carefully developed to
meet the needs of customers in every market we serve.
PRODUCTS
We design our products in-house featuring high-quality materials, such as
fine-gauge combed cotton, virgin wools and performance microfibers, which are
finished with unique trims, special fabric finishes and washes and extra
needlework. Products are manufactured in factories selected for their ability to
ensure quality in the production process.
Our designs incorporate distinctive colors and are merchandised as color-
and design-coordinated collections rather than isolated categories. We offer two
collections a year, spring and fall, each composed of a FASHION line and a
complementary CLASSICS line. CLASSICS are predominantly solid-color garments
with multi-season appeal. We rely on the styling, detailing, color and quality
of our fabrics to distinguish our CLASSICS products from competitor's products.
We generally price our CLASSICS at levels lower than our FASHION line, which
permits our customers to offer Cutter & Buck products at a range of price
points. Higher per-item volumes for CLASSICS products allow us to achieve
production efficiencies and lower costs. CLASSICS products are sold throughout
the year through all of our distribution channels. CLASSICS products represent a
majority of sales through the corporate channel.
Our FASHION products incorporate the latest innovations in color, fabric and
styling and tend to remain in the line for only one season. We develop
proprietary fabrications, artwork for our complex prints and distinctive trim
components in cooperation with experienced sources worldwide. FASHION products
currently represent a majority of sales in both the golf and specialty channels.
We present each season's collections to our customers in several groups of
distinct, coordinated merchandise. These groups are available for delivery to
customers during sequential time periods, typically from May to October for fall
collections and from November to April for spring collections.
Customer-initiated product reorders can often extend the delivery period for a
season by up to three months. The product mix changes seasonally, including, for
example, more sweater styles in fall collections and more short-sleeve shirts in
spring collections. We consider our ability to offer merchandise collections a
strategic advantage since our customers generally prefer to purchase compatible
assortments rather than assembling coordinated merchandise from various brands
that do not share common colors and themes.
A substantial percentage of our products that are shipped to the golf
distribution channel are embroidered with golf club names or logos. Sales to the
corporate channel also involve embroidery of corporate logos. In all cases, the
Cutter & Buck logo is also featured on the garment. We have established an
in-house embroidery operation to reduce costs, shorten delivery time and enhance
quality control of our embroidered products.
PRODUCT DEVELOPMENT AND SOURCING
Updated, traditional sportswear and outerwear for men and women is an
established and growing category within the apparel industry. Changes of color,
fabric and body shapes in this category tend to be gradual, thereby allowing our
product development team to evolve, rather than re-invent the product lines each
season. This provides stability in the design environment and consistency in our
product offerings.
Our experienced product development team, comprising various executive
officers and our design staff, determines product strategy, color and fabric
selection and assortment of styles for each season's collections. Due to the
length of our production and sales cycles, we generally strive to complete the
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design process and place orders for product samples at least 10 to 14 months
prior to the first delivery of products to our customers.
The design staff is responsible for creating innovative products for our two
seasonal collections. During the design process, our manufacturing sources
develop new seasonal textiles in association with the design team. This enables
us to source a wide variety of textile and printed artwork designs, many of
which we acquire for our exclusive use. Our partnerships with key suppliers have
enhanced our ability to develop distinctive and innovative apparel. Currently,
we source our production through factories in Asia, North and South America and
Turkey. We do not have formal long-term contracts with any of our suppliers or
agents.
Our in-house embroidery operation substantially reduces our reliance on
independent embroiderers. This operation reduces costs, shortens delivery time
and enhances quality control of our embroidered products. We currently contract
with eleven independent domestic embroiderers during peak embroidery production
and shipping periods. Our in-house embroidery manufacturing operation handled
approximately 89% of the embroidered logo requirements of our golf pro shop and
corporate customers in fiscal 2000.
We could experience difficulty satisfying our production requirements if any
of our significant suppliers or manufacturers were to have an interruption of
business or were unable or unwilling to meet our production needs. We could also
experience delays in shifting production to other manufacturers or agents
because of the complex fabrication, unique trims and extensive detailing of our
products.
We have experienced production delays in the past and production delays may
occur in the future. Delays in shipments, inconsistent garment quality and other
factors beyond our control could materially harm our relationships with our
customers, our reputation in the industry and our business, financial condition
or operating results.
Fashion trends can change rapidly, and our business is particularly
sensitive to such changes because we typically design and arrange for the
manufacture of our apparel substantially in advance of sales of our products to
consumers. With the introduction of our women's line, we have added a consumer
base that is typically more sensitive to changes in fashion and as our women's
line becomes a greater part of our business as a whole, fashion obsolescence
becomes an even greater risk for us. We cannot assure that we will accurately
anticipate shifts in fashion trends, or in the popularity of golf, and adjust
our merchandise mix to appeal to changing consumer tastes in apparel in a timely
manner. If we misjudge the market for our products or are unsuccessful in
responding to changes in fashion trends or in market demand, we could experience
insufficient or excess inventory levels, missed market opportunities or higher
markdowns, any of which could substantially harm our business or brand image.
Our operations are also affected by economic, political, governmental and
labor conditions in the countries where our products are manufactured. Changes
in economic policies or political conditions in those countries could result in
disruption of trade, new or additional currency or exchange controls or the
imposition of other restrictions and could increase the prices we pay for our
products. Foreign and domestic suppliers of our garments are subject to
increased scrutiny and public sensitivity to ensure their compliance with
applicable laws, including laws affecting working conditions and pay. Recent
lawsuits have targeted both suppliers and companies that purchase goods from
foreign and domestic suppliers for the manufacturers' failure to comply with
those laws. The Company has adopted SA8000, an international,
independently-monitored code of conduct in order to ensure proper compliance
with laws, regulations and the principles of human dignity.
DISTRIBUTION AND SALES
Our products are distributed in the United States primarily through four
channels: golf pro shops and resorts, corporate accounts, better specialty
stores and selected department stores, and company-
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owned retail stores. Each of these channels sells CLASSICS and FASHION products
from our seasonal collections. We believe that these channels are complementary,
since they have compatible merchandising and pricing practices and broaden the
awareness and reach of the Cutter & Buck brand among our target consumers, many
of whom tend to shop in more than one channel. For example, many of our
corporate sales leads come through corporate executives who have purchased our
products at golf pro shops and resorts.
DOMESTIC We sell to golf pro shops and resorts primarily through an
exclusive sales force. At the end of fiscal 2000, our exclusive golf sales force
was composed of 53 Cutter & Buck field sales representatives. We also employed
51 sales representatives who sell to major corporations, either directly or
through promotional products companies, and 26 additional sales representatives
who sell to better specialty and selected department stores, college bookstores
and the big and tall market. Each sales representative is responsible for
serving targeted accounts in a specific geographical territory through
merchandise consultation and training, and for meeting specific account growth
and average-order-size goals. Sales representatives present our collections each
season at national and regional trade shows and at customers' stores through
pictorial workbooks, looseleaf promotional materials and full sample lines. In
addition to their other responsibilities, these sales representatives implement
our merchandise fixturing program with suitable golf pro shops, resorts and
specialty stores.
INTERNATIONAL We have subsidiaries in the Netherlands, United Kingdom and
Germany for the purpose of marketing and selling our products in Europe. In
addition, we have two to five year renewable contracts with international
distributors to sell our products in Australia, New Zealand, the Philippines,
the United Arab Emirates, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman, South
Africa, Singapore and Malaysia. These distributors purchase our products at
reduced cost for resale to their respective retail customers. The products
offered for distribution in these territories are identical to the products
offered in the United States.
We also have licensees who have contracted for the right to manufacture and
market Cutter & Buck designs in specified international markets, including Hong
Kong, China and Canada. Cutter & Buck license agreements generally provide for
three-year terms and provide for royalties as a percentage of net sales. Most
agreements contain annual royalty minimums, and all agreements give us final
control over product design and quality. These licensing arrangements enable us
to broaden the geographic distribution and type of products bearing the
Cutter & Buck name in a cost-effective manner.
DISTRIBUTION CENTER
In December 1999, we completed the relocation of our warehouse and
embroidery operations to our new distribution center. This investment in a state
of the art distribution center provides us with a solid foundation to
significantly improve operational effectiveness and efficiency, support planned
sales growth and provide greater flexibility as well as superior customer
service. In conjunction with this move, we successfully implemented Phase I of
our warehouse management system. This phase improved our inventory management
capabilities, our order fulfillment cycle and our year-end physical inventory.
As of June 19, 2000 we implemented Phase II of the warehouse management system
which establishes all inbound receiving and put-away functionality.
Implementation of Phase III of the warehouse management system is planned for
the second quarter of fiscal 2001 and will address outbound functionality and
integration to host systems.
Delays or problems with the continuing implementation of our warehouse
management system could increase expenses and harm our business, financial
condition or operating results.
RETAIL OPERATIONS
We opened our first store in October 1998 in Seattle, Washington. Since then
we have opened five additional stores. These stores showcase the men's, women's
and accessory collections as well as tournament-licensed Cutter & Buck
merchandise from the U.S. Open, PGA Championship and Ryder
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Cup. We believe the store's environment evokes the casual sporting atmosphere of
an upscale golf clubhouse, complete with historic photos and antique sporting
equipment. Collections of business casual dress for men, upscale weekend wear
for women and golf wear for both are displayed on tables and in wall units. We
believe that the stores offer a compelling assortment of our products to the
upscale casual wear consumer in a relaxed, friendly environment.
Our stores provide opportunities for introducing the Cutter & Buck brand to
a wider audience not previously familiar with our full range of products due to
the relatively small size of most golf pro shops and specialty stores. We
believe that there are opportunities for Cutter & Buck stores in most major
metropolitan markets across the United States and we expect to open three to
five additional stores in some of these markets during fiscal 2001. We are
currently examining locations for some of these additional stores and are
seeking locations within premier malls and shopping centers that are in close
proximity to other upscale retailers who serve our target customers. Our
existing stores range in size from approximately 3,500 square feet to 4,500
square feet and we expect our new locations to continue to be within this range.
There are many risks associated with our entry into direct retailing,
including our ability to find suitable locations for our stores with reasonable
rental terms, our ability to manage relationships with specialty retailers who
currently sell our products, competition from other retailers, potential
premises liability and risks associated with entry into long-term leases. We
have limited experience in managing retail operations and have augmented our
management team to support this effort. We need to increase our number of
employees with each additional store opening, which results in an increased
burden on our human resources function and increased exposure to
employment-related legal liabilities. Our inability to successfully implement
our retail strategy could harm our business, financial condition or operating
results.
MARKETING AND MERCHANDISING
We portray our brand image of an American casual lifestyle by creating
seasonal merchandise collections that are theme- and color-related for both our
sport and fashion offerings. In our sport collections, themes we commonly use in
marketing are golf, tennis, fly fishing and other sporting activities which
reinforce our image. We believe that, by featuring these sports and leisure
activities, our products will appeal not only to participants, but also to those
who identify with this type of lifestyle. Our name or logo is generally featured
prominently on our products and displays to reinforce the Cutter & Buck brand in
the mind of the consumer. The marketing of our fashion collections portrays our
target consumers in appealing casual settings involving family and enjoyable
leisure activities.
We currently advertise in targeted consumer publications and produce
photographic renditions of our new product lines for national distribution to
existing wholesale customers. We also produce a catalog of our CLASSICS products
to be viewed by wholesale customers for in-stock reordering purposes. In
addition, we have an Internet home page on the World Wide Web at
http://www.cutterbuck.com, where we provide information and pictures of our
products and respond to inquiries from customers and consumers.
Our merchandise is sold and shipped to customers in collection groups in
order to reinforce the overall conceptual strength of our product offerings. Our
distinctive in-store fixturing program showcases these collections and enhances
our brand image at the point of sale. The fixtures are designed to display
assorted elements of our collections and allow the consumer to easily assemble
and purchase coordinated outfits of shirts, pants, shorts, sweaters, sweatshirts
and outerwear. We also offer our customers display mannequins, logo signage and
antique sporting props in order to complement the fixturing and create an
environment that enhances the Cutter & Buck brand image. In fiscal 1998, we
initiated our first concept shop partnership, an extension of our fixturing
program, which we offer to our higher-end, potentially best-performing golf pro
shops and resort customers on a very selective basis. In a concept shop
partnership, we team with customers that meet a higher minimum order requirement
who provide the square footage and certain construction costs while we provide
shop
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design, custom made display cabinets and high quality fixtures to create a shop
within a shop environment dedicated exclusively to Cutter & Buck merchandise.
To address the special needs of pro shops, tournament organizers and
corporate customers we have developed an in-house embroidery service and also
work with independent embroiderers to embroider the customer's name or logo on
our garments. The customary placement of the Cutter & Buck logo on the sleeve,
cuff, or on the back of the garment allows us to accommodate more easily the
desire of pro shops, tournaments and corporations to have their name or logo
embroidered on the garment's left chest.
INFORMATION SYSTEMS
In addition to the computer-aided design system used by the product
development team, we have a fully integrated, real-time management information
system that is specifically designed for the wholesale apparel industry. The
system includes important features such as manufacturing resource requirements
planning, production scheduling, detailed product tracking, standard costs
system planning and control, and detailed perpetual inventory systems. As
original purchases are tracked through various factory production phases by our
production personnel, sales are tracked by the Vice President of Merchandise and
Design in order to compare purchases against availability, thereby allowing us
to react quickly to changes and trends. We also have a remote-order entry system
for our sales force which allows them to continuously monitor and reserve
inventory of every style. Customer service personnel receive this information
daily and have access to real-time inventory availability.
This comprehensive information system serves users in each of our operating
areas, and is also accessed by personal computers to create costing models,
specification sheets and embroidery layout sheets. The manufacturing module
integrates with the general ledger accounting and financial module. Our
information system also provides detailed product gross margin information that
assists us in managing product profitability. The system runs on IBM's RISC 6000
hardware with an AIX operating system, which allows for fast processing of
critical information and has the capability of serving a much greater number of
users as we grow. We installed a multi-currency version of the same real-time
management systems at our wholly-owned subsidiary located in the Netherlands.
During fiscal 2000, we implemented a relational database component to our
management information system to allow us to create specialized management
reports.
During fiscal 2000, we also implemented Phase I of a warehouse management
system specifically designed for the apparel industry. This system provides a
wide variety of modular applications that can be added as the needs of our
distribution center operations evolve. As of April 30, 2000, the following
system components were installed:
- A radio frequency hardware server to support bar coding to track the
real-time movement of inventory from receiving, order picking embroidery
production, order packing and order shipment,
- A cycle counting inventory management module,
- An automated customer return authorization and receiving control system,
and
- Automated tools to support our distribution center employee productivity
and accuracy. This system was designed for and runs on an IBM AS/400
platform.
In addition, in fiscal 2000, we also installed an integrated retail
management and point of sale system. The purpose of this investment was to
provide daily information to control our planned investment in the testing of
additional Cutter & Buck owned retail stores and to meet retail management's
needs for a system that addresses sales tracking and management, profitability,
inventory management, merchandising and financial controls and reporting. Also
developed in fiscal 2000 were Electronic Data Interchange (EDI) capabilities to
meet the needs of our selected department store customers.
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As of June 19, 2000 we implemented Phase II of the warehouse management
system which establishes all inbound receiving and put-away functionality.
Implementation of Phase III of the warehouse management system is planned for
the second quarter of fiscal 2001 and will address outbound functionality and
integration to host systems. During fiscal 2001 we also plan on upgrading our
network infrastructure, including a corporate intranet, wholesale business
extranets, an e-commerce initiative, a wide area network, and improved email and
telephone capabilities.
ORDER BOOKING CYCLE AND BACKLOG
We receive our orders for a season over a 10-month period beginning when
samples are first shown to customers and continuing into the season. We begin to
take orders for our fall collections in January, generally for delivery between
May and October, and for our spring collection in July, generally for delivery
between November and April. Our domestic backlog, which consists of open,
unfilled customer orders from the golf and specialty store distribution
channels, was approximately $27.5 million as of April 30, 2000. We expect to
fill between 90% and 95% of those orders. For various reasons endemic to the
apparel industry, including occasional sold out inventory positions, credit
issues and other customer-related issues, we typically do not expect to ship all
of our backlog. Backlog is generally shipped within nine months.
COMPETITION
The sportswear segment of the apparel industry is highly competitive. Our
two primary distribution channels, golf pro shops and corporate accounts, are
highly fragmented with no single brand representing more than 10% of the market.
We encounter substantial competition in all of our distribution channels from
other apparel companies and distributors of promotional products and apparel. We
believe that our ability to compete effectively is based primarily on product
differentiation, product quality, production flexibility and distribution
capabilities, all of which enhance our brand. Many of our competitors are
significantly larger and more diversified than we are and have substantially
greater resources available for developing and marketing their products. In
addition, our competitors may be able to enter the emerging e-commerce
marketplace more quickly or more efficiently than us. We cannot assure you that
we will be able to maintain our growth rate or increase our market share in our
distribution channels at the expense of existing competitors and other apparel
manufacturers choosing to enter those markets.
TRADEMARKS
Cutter & Buck and the Cutter & Buck pennant logo are our trademarks and are
registered for use on apparel and other products in over 30 countries, including
the United States. We also have applied for registration in a number of other
countries. Our name and logo are regarded as valuable assets and critical to
marketing our products. Leading brands in the apparel industry have historically
been subject to competition from imitators that infringe the trademarks and
trade dress of the brand. Although we do not believe we have been materially
harmed from infringement of our trademarks or trade dress to date, we have
experienced some instances of such infringement and have taken actions to
protect our rights.
EMPLOYEES
As of April 30, 2000 we had 595 full time and 31 part time employees, of
whom 30 were primarily engaged in administration and finance, 120 in sales, 13
in production, 24 in design, 30 in customer service, 13 in order administration,
11 in credit, 5 in marketing, 23 in embroidery development, 38 in retail, 187 in
embroidery operations, 121 in distribution and 11 in information technology.
None of our employees is a member of a union. We consider our relations with our
employees to be excellent.
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As of April 30, 2000 we had 30 full time employees and 6 part time employees
in our wholly-owned subsidiaries. Of these employees, 9 were in finance and
administration, 12 in sales, 2 in production, 8 in customer service and 5 in
embroidery development.
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ITEM 2. PROPERTIES
We lease our principal executive offices, which are located in Seattle,
Washington, under leases that cover 31,858 square feet and expire in
October and November 2001. We lease 170,500 square feet of space for a
distribution center and embroidery production facility in Renton, Washington
under a lease that expires in November 2006. We lease office space for our
wholly-owned European subsidiaries and use contract warehouse facilities for our
European distribution. We lease approximately 923 square feet of space for a
showroom in Dallas, Texas, approximately 1,824 square feet of space for a
showroom in Atlanta, Georgia under a lease that expires April 2002, and
approximately 2,963 square feet of space for a showroom in New York, New York
under a lease that expires April 2003. We also lease a small apartment in New
York, New York.
We currently lease all six of our retail store locations. These stores range
in size from approximately 3,500 square feet to 4,500 square feet, and terms
generally range from 5 to 7 years. Most leases provide for additional rent based
on a percentage of store sales above a certain level in addition to minimum
rentals. Some leases contain cancellation clauses in favor of the Company if
specified sales levels are not achieved.
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ITEM 3. LEGAL PROCEEDINGS
In August 1999, the Company reached a settlement of two lawsuits related to
labor issues in Saipan. That settlement has been fully described previously. The
first, UNITE v. The Gap, Inc. et al., has since been dismissed. The second, Does
v. The Gap, Inc., has been moved to Federal District Court in Honolulu, and the
settlement as related to that lawsuit remains subject to court approval
applicable to class actions of this nature. No hearing on the settlement has
been set to date.
The Company is also party to routine litigation incidental to its business.
Management believes the ultimate resolution of these matters will not have a
material adverse effect on its financial position and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is incorporated by reference to the
information contained in the "Common Stock" section of the Company's 2000 Annual
Report to Shareholders included as Exhibit 13.1 to this Annual Report on
Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to
the information contained in the "Selected Financial Data" section of the
Company's 2000 Annual Report to Shareholders included as Exhibit 13.1 to this
Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated herein by reference to
the information contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Company's 2000
Annual Report to Shareholders included as Exhibit 13.1 to this Annual Report on
Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its short-term borrowings.
The Company's short-term debt bears interest at variable rates. The variable
rates may fluctuate over time based on economic changes in the environment, and
the Company could be subject to increased interest payments if market interest
rates fluctuate. The Company does not expect interest rate fluctuations to have
a material adverse effect on the Company's results of operations. The Company
does not use derivative financial instruments to manage interest rate risk.
FOREIGN CURRENCY RISK
The Company operates subsidiaries in the Netherlands, United Kingdom and
Germany. The Company's business and financial condition is, therefore, sensitive
to currency exchange rates or any other restrictions imposed on their
currencies. The Company employs foreign exchange hedging strategies for certain
currencies to help mitigate the effect of currency fluctuations. The Company
does not enter into derivatives for trading purposes. To date, the foreign
currency exchange rates have not significantly impacted the Company's
profitability.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to
the information contained in the "Financial Statements" section of the Company's
2000 Annual Report to Shareholders included as Exhibit 13.1 to this Annual
Report on Form 10-K.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to
the information contained in the "Executive Officers of the Company" and
"Election of Directors" sections of the Company's Proxy Statement to be filed
with the Securities and Exchange Commission within 120 days after the close of
our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to
the information contained in the "Executive Compensation" section of our Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after the close of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to
the information contained in the "Security Ownership of Certain Beneficial
Owners and Management" section of our Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after the close of our fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to
the information contained in the "Certain Relationships and Related
Transactions" section of our Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after the close of our fiscal year.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Portions of the Company's Annual Report to Shareholders for the year ended
April 30, 2000 are being filed as Exhibit 13.1 to this Annual Report on Form
10-K and the 2000 definitive proxy materials are not being filed as part of this
report.
A. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES:
1. Consolidated Financial Statements (the financial statements listed below
are incorporated herein by reference to the Company's 2000 Annual Report
to Shareholders):
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of April 30, 1999 and 2000
Consolidated Statements of Income for the years ended April 30, 1999 and
2000
Consolidated Statements of Shareholders' Equity for the years ended
April 30, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended April 30, 1998,
1999 and 2000
Notes to Consolidated Financial Statements
2. Financial Statement Schedule -- see page 18 of this Report.
Schedule II - Valuation and Qualifying Accounts
The independent auditors' report with respect to the financial statement
schedule appears in Exhibit 23.1 of this Report. All other financial
statement schedules not listed are omitted because either they are not
applicable or not required, or the required information is included in
the consolidated financial statements.
3. Exhibits
Exhibits required by Item 601 of Regulation S-K:
EXHIBIT
NO.
- ---------------------
3.1 Restated Articles of Incorporation (3.1) (1)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the
Registrant's Form 10-K for the year ended April 30, 1999)
4.1 Specimen Common Stock Certificate (4.1) (1)
10.1 Lease dated May 22, 1994 between First and Cedar Associates
and Jones/Rodolfo Corporation d/b/a Cutter & Buck (10.3)
(1)
10.2 Lease dated August 11, 1998 between Pine Street Development
LLC and Cutter and Buck Inc. (10.17) (2)
10.3 Lease dated April 15, 1998 between Whitmac Company and
Cutter and Buck Inc. (10.18) (2)
10.4 Industrial Lease dated May 27, 1999 between Cutter & Buck
Inc. and Zelman Renton, LLC (10.19) (3)
10.5 First Amendment dated October 6, 1999 to Industrial Lease
dated May 27, 1999 between Cutter & Buck Inc. and Zelman
Renton, LLC (incorporated by reference to Exhibit 10.1 of
the Registrant's Form 10-Q for the quarter ended
January 31, 2000)
10.6 1991 Stock Option Plan (10.9) (1)
10.7 1995 Nonemployee Director Stock Incentive Plan (10.10) (1)
15
EXHIBIT
NO.
- ---------------------
10.8 1995 Employee Stock Option Plan (10.11) (1)
10.9 1995 Employee Stock Purchase Plan (incorporated by reference
to the Registrant's Registration Statement on Form S-8
(File No. 33-80783))
10.10 1997 Stock Incentive Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 (File No.
333-43145))
10.11 Stock Bonus Plan (10.16) (2)
10.12 1999 Nonemployee Director Stock Incentive Plan (incorporated
by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-88627))
10.13 Amended and Restated Loan Agreement April 28, 1999 between
Cutter & Buck Inc. and Washington Mutual Bank d/b/a
Western Bank, and supporting documents (10.14) (3)
10.14 Change in Control Agreement dated March 15, 1999 between
Cutter & Buck Inc. and Harvey N. Jones (10.20) (3)
10.15 Change in Control Agreement dated March 15, 1999 between
Cutter & Buck Inc. and Martin J. Marks (10.21) (3)
13.1 Annual Report to Shareholders (filed herewith)
23.1 Consent of Ernst & Young LLP, Independent Auditors (filed
herewith)
27.1 Financial Data Schedule (filed herewith)
- ------------------------
(1) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Registration Statement on Form SB-2 (File
No. 33-94540-LA)
(2) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Form 10-Q for the quarter ended October 31,
1998.
(3) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Registrant's Annual Report on Form 10-K for the year
ended April 30, 1999.
B. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the fourth quarter ended
April 30, 2000.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CUTTER & BUCK INC.
(Registrant)
By: /s/ HARVEY N. JONES
-----------------------------------------
Harvey N. Jones
July 31, 2000 Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ HARVEY N. JONES Chairman, Chief Executive
------------------------------------------- Officer and Director July 31, 2000
Harvey N. Jones (Principal Executive Officer)
/s/ MARTIN J. MARKS President, Chief Operating
------------------------------------------- Officer, Treasurer, Secretary July 31, 2000
Martin J. Marks and Director
Vice President and Chief
/s/ STEPHEN S. LOWBER Financial Officer (Principal
------------------------------------------- Financial and Accounting July 31, 2000
Stephen S. Lowber Officer)
/s/ MICHAEL S. BROWNFIELD
------------------------------------------- Director July 31, 2000
Michael S. Brownfield
/s/ FRANCES M. CONLEY
------------------------------------------- Director July 31, 2000
Frances M. Conley
/s/ LARRY C. MOUNGER
------------------------------------------- Director July 31, 2000
Larry C. Mounger
/s/ JAMES C. TOWNE
------------------------------------------- Director July 31, 2000
James C. Towne
17
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
CUTTER & BUCK INC.
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
----------------------------------
CHARGED
CHARGED TO TO
BALANCE AT REVENUE, OTHER BALANCE AT
BEGINNING COSTS ACCOUNTS DEDUCTIONS END
DESCRIPTION OF PERIOD OR EXPENSES --DESCRIBE --DESCRIBE OF PERIOD
- ----------- ------------ ------------- ------------------ ------------ ------------
Year Ended April 30, 2000
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts................. $ 817,474 $ 963,226 -- $ 718,688(A) $1,062,012
Reserve for sales returns
and allowances........... $ 908,717 $5,559,328 -- $5,179,033(B) $1,289,012
Reserve for inventory
obsolescence............. $1,077,753 $1,087,032 -- $ 946,545(C) $1,218,240
Year Ended April 30, 1999
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts................. $ 654,731 $ 447,460 -- $ 284,717(A) $ 817,474
Reserve for sales returns
and allowances........... $ 533,082 $3,782,784 -- $3,407,149(B) $ 908,717
Reserve for inventory
obsolescence............. $ 499,453 $ 873,736 -- $ 295,436(C) $1,077,753
Year Ended April 30, 1998
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts................. $ 142,669 $ 518,277 -- $ 6,215(A) $ 654,731
Reserve for sales returns
and allowances........... $ 285,892 $2,106,839 -- $1,859,649(B) $ 533,082
Reserve for inventory
obsolescence............. $ 97,785 $ 556,588 -- $ 154,920(C) $ 499,453
- --------------------------
(A) Deductions consist of write-offs of uncollectable accounts, net of
recoveries.
(B) Deductions consist of losses on sales returns and other credits allowed.
(C) Deductions consist of inventory sold at a loss.
18