UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 1, 2011
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-10689
LIZ CLAIBORNE, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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13-2842791
(I.R.S. Employer
Identification Number)
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1441 Broadway, New York, New York
(Address of principal
executive offices)
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10018
(Zip
Code)
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Registrants telephone number, including area code:
212-354-4900
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $1.00 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 (the
Act). Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Act 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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
Based upon the closing sale price on the New York Stock Exchange
on July 2, 2010, the last business day of the
registrants most recently completed second fiscal quarter,
which quarter ended July 3, 2010, the aggregate market
value of the registrants Common Stock, par value $1.00 per
share, held by non-affiliates of the registrant on such date was
approximately $395,751,000. For purposes of this calculation,
only executive officers and directors are deemed to be the
affiliates of the registrant.
Number of shares of the registrants Common Stock, par
value $1.00 per share, outstanding as of February 4, 2011:
94,550,352 shares.
Documents
Incorporated by Reference:
Registrants Proxy Statement relating to its Annual Meeting
of Stockholders to be held on May 19, 2011-Part III.
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in, or incorporated by reference into, this
Annual Report on
Form 10-K,
future filings by us with the Securities and Exchange Commission
(SEC), our press releases, and oral statements made
by, or with the approval of, our authorized personnel, that
relate to our future performance or future events are
forward-looking statements under the Private Securities
Litigation Reform Act of 1995. Such statements are indicated by
words or phrases such as intend,
anticipate, plan, estimate,
target, project, expect,
believe, we are optimistic that we can,
current visibility indicates that we forecast or
currently envisions and similar phrases.
Forward-looking statements include statements regarding, among
other items:
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our ability to continue to have the necessary liquidity, through
cash flows from operations and availability under our amended
and restated revolving credit facility, may be adversely
impacted by a number of factors, including the level of our
operating cash flows, our ability to maintain established levels
of availability under, and to comply with the financial and
other covenants included in, our amended and restated revolving
credit facility and the borrowing base requirement in our
amended and restated revolving credit facility that limits the
amount of borrowings we may make based on a formula of, among
other things, eligible accounts receivable and inventory; the
minimum availability covenant in our amended and restated
revolving credit facility that requires us to maintain
availability in excess of an agreed upon level and whether
holders of our Convertible Notes issued in June 2009 will, if
and when such notes are convertible, elect to convert a
substantial portion of such notes, the par value of which we
must currently settle in cash;
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general economic conditions in the United States, Europe and
other parts of the world;
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lower levels of consumer confidence, consumer spending and
purchases of discretionary items, including fashion apparel and
related products, such as ours;
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continued restrictions in the credit and capital markets, which
would impair our ability to access additional sources of
liquidity, if needed;
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changes in the cost of raw materials, labor, advertising and
transportation which could impact prices of our products;
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our dependence on a limited number of large US department store
customers, and the risk of consolidations, restructurings,
bankruptcies and other ownership changes in the retail industry
and financial difficulties at our larger department store
customers;
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our ability to successfully implement our long-term strategic
plans;
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our ability to effect a turnaround of our MEXX Europe business;
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our ability to successfully re-launch our LUCKY BRAND product
offering;
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our ability to anticipate and respond to constantly changing
consumer demands and tastes and fashion trends, across multiple
brands, product lines, shopping channels and geographies;
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our ability to attract and retain talented, highly qualified
executives, and maintain satisfactory relationships with our
employees, both union and non-union;
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exposure to multiemployer union pension plan liability as a
result of current market conditions and possible withdrawal
liabilities;
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our ability to adequately establish, defend and protect our
trademarks and other proprietary rights;
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our ability to successfully develop or acquire new product lines
or enter new markets or product categories, and risks related to
such new lines, markets or categories;
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risks associated with the licensing arrangements with J.C.
Penney Corporation, Inc. and J.C. Penney Company, Inc. and with
QVC, Inc., including, without limitation, our ability to
efficiently change our operational model and infrastructure as a
result of such licensing arrangements, our ability to continue a
good working relationship with these licensees and possible
changes or disputes in our other brand relationships or
relationships with other retailers and existing licensees as a
result;
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the impact of the highly competitive nature of the markets
within which we operate, both within the US and abroad;
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our reliance on independent foreign manufactures, including the
risk of their failure to comply with safety standards or our
policies regarding labor practices;
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risks associated with our agreement with Li & Fung
Limited, which results in a single foreign buying/sourcing agent
for a significant portion of our products;
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a variety of legal, regulatory, political and economic risks,
including risks related to the importation and exportation of
product, tariffs and other trade barriers, to which our
international operations are subject;
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our ability to adapt to and compete effectively in the current
quota environment in which general quota has expired on apparel
products but political activity seeking to re-impose quota has
been initiated or threatened;
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our exposure to domestic and foreign currency fluctuations;
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risks associated with material disruptions in our information
technology systems;
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risks associated with privacy breaches;
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limitation on our ability to utilize all or a portion of our US
deferred tax assets if we experience an ownership
change; and
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the outcome of current and future litigations and other
proceedings in which we are involved.
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Forward-looking statements are based on current expectations
only and are not guarantees of future performance, and are
subject to certain risks, uncertainties and assumptions,
including those described in this Annual Report on
Form 10-K
in Item 1A Risk Factors. We may
change our intentions, beliefs or expectations at any time and
without notice, based upon any change in our assumptions or
otherwise. 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. In addition, some factors are beyond our
control. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
WEBSITE
ACCESS TO COMPANY REPORTS
Our investor website can be accessed at
www.lizclaiborneinc.com under Investor
Relations. Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished to the SEC
pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, are available free
of charge on our investor website under the caption SEC
Filings promptly after we electronically file such
materials with, or furnish such materials to, the SEC. No
information contained on any of our websites is intended to be
included as part of, or incorporated by reference into, this
Annual Report on
Form 10-K.
Information relating to corporate governance at our Company,
including our Corporate Governance Guidelines, our Code of
Ethics and Business Practices for all directors, officers, and
employees, and information concerning our directors, Committees
of the Board, including Committee charters, and transactions in
Company securities by directors and executive officers, is
available at our investor website under the captions
Corporate Governance and SEC Filings.
Paper copies of these filings and corporate governance documents
are available to stockholders free of charge by written request
to Investor Relations, Liz Claiborne, Inc., 1441 Broadway, New
York, New York 10018. Documents filed with the SEC are also
available on the SECs website at www.sec.gov.
We were incorporated in January 1976 under the laws of the State
of Delaware. In this Annual Report on
Form 10-K,
unless the context requires otherwise, references to Liz
Claiborne, our, us, we
and the Company mean Liz Claiborne, Inc. and its
consolidated subsidiaries. Our fiscal year ends on the Saturday
closest to January 1. All references to 2010
represent the 52 week fiscal year ended January 1,
2011. All references to 2009 represent the
52 week fiscal year ended January 2, 2010. All
references to 2008 represent the 53 week fiscal
year ended January 3, 2009.
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PART I
OVERVIEW
AND NARRATIVE DESCRIPTION OF BUSINESS
General
Liz Claiborne, Inc. designs and markets a global portfolio of
retail-based premium brands including JUICY COUTURE, KATE SPADE,
LUCKY BRAND and MEXX. We also have a group of department
store-based brands with consumer franchises including the LIZ
CLAIBORNE and MONET families of brands, MAC & JAC,
KENSIE and DANA BUCHMAN and the licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands.
Our operations and management structure reflect a brand-centric
approach, designed to optimize the operational coordination and
resource allocation of our businesses across multiple functional
areas including specialty retail, outlet, concession, wholesale
apparel, wholesale non-apparel,
e-commerce
and licensing. For a discussion of our segment reporting
structure, see Business Segments below.
Recent
Initiatives and Business Strategy
We have recently experienced a significant decrease in
profitability due to declining wholesale orders in our Partnered
Brands segment driven by, among other things, competition among
department store retailers for exclusivity,
operational challenges in our MEXX Europe and LUCKY BRAND
businesses and the impact of the consumer environment on all our
brands. In response to these challenges, we reviewed our
operations to assess options to best evolve our strategy on a
sustainable, go-forward basis. Additionally, we have implemented
the following operational and strategic initiatives:
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rationalized our brand portfolio from 43 brands in 2007 to 15
brands currently;
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shifted our channel focus from primarily a department store
focus in 2007 to a
direct-to-consumer
focus currently;
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built management teams at each of our brands with track records
of success at leading retailers worldwide;
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developed retail capabilities throughout our organization to
support our focus on Company-operated retail stores;
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rationalized MEXX Europes distribution to eliminate
unprofitable wholesale accounts and retail locations and began
the repositioning of MEXXs product back to its historical
roots;
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transitioned certain of our Partnered Brands (including the LIZ
CLAIBORNE, CLAIBORNE and LIZ CLAIBORNE NEW YORK brands) to
licensing models with royalty payments and minimal capital
requirements;
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exited our LIZ CLAIBORNE branded outlet stores in the US and
Puerto Rico and began exploring additional opportunities for the
LIZ CLAIBORNE brand internationally;
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created a more competitive cost structure through reducing
staff, closing ten distribution facilities, controlling
discretionary expenses, re-engineering product while maintaining
high standards of design and quality and transitioning our
supply chain cost structure to a more variable cost model;
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rationalized our sourcing and supply chain structure by entering
into buying/sourcing agency arrangements with Li &
Fung Limited (Li & Fung); and
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enhanced our liquidity by issuing 6.0% Convertible Senior
Notes due 2014 (the Convertible Notes) and
implementing a $350.0 million amended and restated
revolving credit facility that matures in August 2014, subject
to certain early termination provisions which provide for
earlier maturity dates if our 5.0% euro Notes due 2013 and
Convertible Notes are not repaid or refinanced by certain agreed
upon dates.
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We have reorganized our business into a brand-centric,
streamlined operating model with a competitive cost structure.
Nevertheless, macroeconomic challenges and uncertainty continue
to dampen consumer spending and unemployment levels remain high.
Therefore, we continue to focus on the careful execution of our
strategic plans and seek opportunities to improve our
productivity and profitability. We also continue to carefully
manage liquidity with a focus on cash flow through pursuing
additional cost reduction initiatives and improving our working
capital efficiency.
We have established our operating and financial goals based on
the following strategies:
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Execute MEXX Europe Turnaround. Over the past five years,
MEXX Europes financial performance has been impacted by an
unprofitable distribution strategy, its shift away from its core
metropolitan casual product style and challenging
macroeconomic trends in its core European markets. Since MEXX
CEO Thomas Grote joined our Company in October 2009,
Mr. Grote has recruited a new leadership team, reorganized
the brands management around key functions, led a return
to the brands metropolitan casual roots with a
re-designed and re-merchandised product line focused on product
quality and value, reconfigured the brands retail
operations and in-store retail presentation, launched a
functional
e-commerce
site and developed a marketing campaign to support the
brands re-launch.
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Reposition LUCKY BRAND. In 2009, LUCKY BRANDs sales
and profitability were impacted by a brand shift away from the
brands core American classic denim heritage and by poor
merchandise execution, which led to inefficient inventory
positions in various items. Since LUCKY BRAND CEO David DeMattei
joined our Company in January 2010, he has focused on leveraging
LUCKY BRANDs strong brand heritage and ensuring consistent
availability of key products and sizes. Additionally, the team
is developing various non-denim categories, transforming the
brands in-store experience at its retail locations and
introduced a direct marketing and national advertising campaign.
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Grow KATE SPADE. We have developed KATE SPADE into a
brand that is positioned for profitable growth. Our strategic
initiatives for KATE SPADE include growing the apparel category
following its successful 2009 category launch, opening new
retail locations in our new 5th Avenue specialty store format
and refreshing our outlet stores, introducing new products and
categories such as the brands new licensed fragrance,
Twirl, growing the JACK SPADE brand, increasing international
sales in Japan and new markets and growing
e-commerce
sales.
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Re-energize
JUICY COUTURE. In September 2010, we announced the
appointment of JUICY COUTUREs new President and Creative
Director, LeAnn Nealz, to set the creative vision for the brand
and bring fresh, new execution. Throughout the year, JUICY
COUTURE will continue to broaden the distribution of the
BIRD BY JUICY COUTURE collection, introduce new
product lines and categories as appropriate, license additional
product categories, continue to grow internationally and
capitalize on the brands
e-commerce
site, Juicycouture.com.
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Focus on Cash Flow Generation. We are focused on driving
operating cash flow generation through consistent profitability
of our brands, cost reductions, efficient use of working capital
and the transition of various of our Partnered Brands to
long-term licensing arrangements with royalty payments.
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Business
Segments
Our segment reporting structure reflects a brand-focused
approach, designed to optimize the operational coordination and
resource allocation of our businesses across multiple functional
areas including specialty retail, retail outlets, concessions,
wholesale apparel, wholesale non-apparel,
e-commerce
and licensing. The three reportable segments described below
represent our brand-based activities for which separate
financial information is available and which is utilized on a
regular basis by our chief operating decision maker to evaluate
performance and allocate resources. In identifying our
reportable segments, we consider economic characteristics, as
well as products, customers, sales growth potential and
long-term profitability. We aggregate our six operating segments
to form reportable segments, where applicable. As such, we
report our operations in three reportable segments as follows:
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Domestic-Based Direct Brands segment
consists of the specialty retail, outlet, wholesale apparel,
wholesale non-apparel (including accessories, jewelry and
handbags),
e-commerce
and licensing operations
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of our three domestic, retail-based operating segments: JUICY
COUTURE, KATE SPADE and LUCKY BRAND.
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International-Based Direct Brands
segment consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel
(including accessories, jewelry and handbags),
e-commerce
and licensing operations of MEXX Europe and MEXX Canada, our two
international, retail-based operating segments.
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Partnered Brands segment consists of
one operating segment including the wholesale apparel, wholesale
non-apparel, licensing, outlet, concession and
e-commerce
operations of our AXCESS, CLAIBORNE, DANA BUCHMAN,
KENSIE, LIZ CLAIBORNE, LIZ CLAIBORNE NEW YORK, MAC &
JAC, MARVELLA, MONET, TRIFARI and our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands, among others.
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We, as licensor, also license to third parties the right to
produce and market products bearing certain Company-owned
trademarks; the resulting royalty income is included within the
results of the associated segment.
International sales represented 33.7% of our total sales in
2010. Our international operations are subject to the impact of
fluctuations in foreign currency exchange rates and consist
principally of our MEXX Europe and MEXX Canada operations, as
well as the introduction of certain of our US-based brands into
Europe, Canada and, to a lesser extent, Asia, the Middle East,
Central America and South America.
See Notes 1 and 17 of Notes to Consolidated Financial
Statements and Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Domestic-Based Direct Brands segment
includes the following brands:
JUICY
COUTURE
Our JUICY COUTURE brand offers luxurious, casual and fun
womens and childrens apparel, as well as accessories
and jewelry under various JUICY COUTURE trademarks. JUICY
COUTURE products are sold predominately through wholly-owned
specialty retail and outlet stores, select upscale specialty
retail stores and department stores throughout the US, through a
network of distributors and owned and licensed retail stores in
Asia, Canada, Europe, South America and the Middle East, as well
as through our JUICY COUTURE
e-commerce
website. In addition, JUICY COUTURE has existing licensing
agreements for fragrances, footwear, optics, watches, swimwear
and baby products.
KATE
SPADE
Our KATE SPADE brand offers fashion products (accessories,
apparel and jewelry) for women and men under the KATE SPADE and
JACK SPADE trademarks, respectively. These products are sold
primarily in the US through wholly-owned specialty retail and
outlet stores, select specialty retail and upscale department
stores, through a network of distributors in Asia, our recently
established operations in Brazil and through our KATE SPADE
e-commerce
website, as well as through a joint venture in Japan. KATE
SPADEs product line includes handbags, small leather
goods, fashion accessories, jewelry and apparel. In addition,
KATE SPADE has existing licensing agreements for footwear,
optics, fragrances, tabletop products, legwear, electronics
cases, bedding and stationery. JACK SPADE products include
briefcases, travel bags, small leather goods and apparel.
LUCKY
BRAND
Our LUCKY BRAND offers womens and mens denim and
casual sportswear, as well as accessories and jewelry, under
various LUCKY BRAND trademarks. LUCKY BRAND products are
available for sale at wholly-owned specialty retail and outlet
stores in the US and Canada, select department and better
specialty stores and our LUCKY BRAND
e-commerce
website. In addition, LUCKY BRAND has existing licensing
agreements for fragrances, neckwear, swimwear, hats and footwear.
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International-Based Direct Brands
segment includes our MEXX brand.
MEXX
Our MEXX brand, which is headquartered in the Netherlands,
offers a wide range of mens, womens and
childrens fashion apparel and accessories under the MEXX
trademark for sale outside of the US, principally in Europe and
Canada. MEXX has existing licensing agreements for fragrances,
eyewear, bed and bath products, carpets, socks and stationery.
Partnered Brands segment includes the
following brands:
AXCESS, fashion-forward mens and womens
apparel and accessories presently sold principally in
Kohls Corporation (Kohls) department
stores, but will not be distributed by Kohls after the
spring/summer 2011 season.
LIZ CLAIBORNE and CLAIBORNE, merchandise in the product
categories covered by the license agreement with J.C. Penney
Corporation, Inc. and J.C. Penney Company, Inc. (collectively,
JCPenney) is sold exclusively through JCPenney
(subject to pre-existing licenses and certain limited
exceptions) in the US and Puerto Rico.
LIZ CLAIBORNE NEW YORK, womens career and casual
sportswear and accessories are available for sale through a
license agreement on the QVC, Inc. (QVC) television
network.
MARVELLA, a jewelry line sold primarily in Target Corporation
stores.
MONET, a signature jewelry brand for women sold in department
stores as well as in our own outlet stores and online.
TRIFARI, a signature jewelry brand for women sold primarily in
mid-tier department stores.
DANA BUCHMAN, a classic lifestyle collection of womens
sportswear, accessories, intimate apparel and footwear. Pursuant
to an exclusive license agreement with Kohls, which names
Kohls as the exclusive retailer of the DANA BUCHMAN brand,
we design the products under the license and Kohls leads
the manufacturing, production, distribution and marketing of
product. However, we continue to source and distribute jewelry
under the DANA BUCHMAN brand.
KENSIE offers modern, fashionable, high-quality, contemporary
apparel for women primarily through select specialty and
department stores in the US and Canada.
MAC & JAC offers modern, fashionable, high-quality
apparel for women and men primarily through select specialty and
department stores in the US and Canada.
DKNY®
ACTIVE offers juniors, mens and womens
activewear for sale at department stores and specialty stores in
the Western Hemisphere, pursuant to the exclusive license we
hold to design, produce, market and sell these products.
DKNY®
JEANS offers juniors, mens and womens jeans
and juniors and womens sportswear for sale at
department stores and specialty stores in the Western
Hemisphere, pursuant to the exclusive license we hold to design,
produce, market and sell these products.
See Note 8 of Notes to Consolidated Financial Statements
for a description of our commitments under our
DKNY®
ACTIVE and
DKNY®
JEANS license agreement. This license agreement will expire by
its terms in 2012, unless renewed.
Specialty
Retail Stores:
As of January 1, 2011, we operated a total of 482 specialty
retail stores under various Company trademarks, consisting of
291 retail stores within the US and 191 retail stores outside of
the US (primarily in Western Europe and Canada).
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The following table sets forth select information, as of
January 1, 2011, with respect to our specialty retail
stores:
US
Specialty Retail Stores
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Approximate
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Number of
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Average Store
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Specialty Store Format
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Stores
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Size (Square Feet)
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LUCKY BRAND
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177
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2,500
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JUICY COUTURE
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71
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3,400
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KATE SPADE
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38
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2,400
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JACK SPADE
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5
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960
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Foreign
Specialty Retail Stores
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Approximate
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Number of
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Average Store
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Specialty Store Format
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Stores
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Size (Square Feet)
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MEXX Europe
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131
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4,500
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MEXX Canada
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41
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5,600
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LUCKY BRAND
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12
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2,400
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MONET
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3
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1,100
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JUICY COUTURE
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3
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870
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KATE SPADE
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1
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2,400
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Outlet
Stores:
As of January 1, 2011, we operated a total of 213 outlet
stores under various Company-owned and licensed trademarks,
consisting of 117 outlet stores within the US and 96 outlet
stores outside of the US (primarily in Western Europe and
Canada).
The following table sets forth select information, as of
January 1, 2011, with respect to our outlet stores:
US Outlet
Stores(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Number of
|
|
Average Store
|
Outlet Store Format
|
|
Stores
|
|
Size (Square Feet)
|
|
JUICY COUTURE
|
|
|
49
|
|
|
|
3,300
|
|
LUCKY BRAND
|
|
|
38
|
|
|
|
2,800
|
|
KATE SPADE
|
|
|
29
|
|
|
|
2,100
|
|
KENSIE
|
|
|
1
|
|
|
|
2,500
|
|
|
|
|
(a) |
|
Excludes 43 LIZ CLAIBORNE branded outlet stores in the United
States and Puerto Rico and 1
DKNY®
JEANS branded outlet store that were closed in January 2011. |
Foreign
Outlet Stores
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
Number of
|
|
Average Store
|
Outlet Store Format
|
|
Stores
|
|
Size (Square Feet)
|
|
MEXX Canada
|
|
|
56
|
|
|
|
5,800
|
|
MEXX Europe
|
|
|
37
|
|
|
|
4,000
|
|
JUICY COUTURE
|
|
|
3
|
|
|
|
1,500
|
|
9
Concession
Stores:
Outside of North America, we operate concession stores in select
retail stores, which are either owned or leased by a third-party
department store or specialty store retailer. As of
January 1, 2011, the Company operated a total of 420
concession stores in Europe.
The following table sets forth select information, as of
January 1, 2011, with respect to our concession stores:
Foreign
Concessions(a)
|
|
|
|
|
Concession Store Format
|
|
Number of Stores
|
|
MONET Jewelry
|
|
|
277
|
|
MEXX Europe
|
|
|
138
|
|
JUICY COUTURE
|
|
|
5
|
|
|
|
|
(a) |
|
Excludes 29 LIZ CLAIBORNE concession stores that we expect to
close in the first quarter of 2011. |
E-Commerce:
Our products are sold on a number of branded websites.
E-commerce
was an important business driver in 2010. In particular, the
juicycouture.com website, which was previously operated by a
third party agreement through a wholesale customer, is now
operating under a contract directly with the web platform
service provider. In addition, the MONET and KENSIE
e-commerce
sites were launched in 2010. The sites were fully integrated
into the business, enabling
e-commerce
information to be reported as a component of
direct-to-consumer
sales in concert with our retail stores and concessions going
forward. We also operate several websites that only provide
information about our merchandise but do not sell directly to
customers.
The following table sets forth select information concerning our
branded websites:
|
|
|
|
|
|
|
|
|
Information and
|
|
|
|
|
Direct to
|
Website
|
|
Information Only
|
|
Consumer Sales
|
|
www.dknyjeans.com
|
|
ü
|
|
|
www.jackspade.com
|
|
|
|
ü
|
www.juicycouture.com
|
|
|
|
ü
|
www.katespade.com
|
|
|
|
ü
|
www.kensie.com
|
|
|
|
ü
|
www.kensiegirl.com
|
|
ü
|
|
|
www.lizclaiborneinc.com(a)
|
|
ü
|
|
|
www.loveisnotabuse.com(b)
|
|
ü
|
|
|
www.luckybrand.com
|
|
|
|
ü
|
www.macandjac.com
|
|
ü
|
|
|
www.mexx.com
|
|
|
|
ü
|
www.mexx.ca
|
|
ü
|
|
|
www.monet.com
|
|
|
|
ü
|
|
|
|
(a) |
|
This website offers investors information concerning the Company. |
|
(b) |
|
This website provides information and resources to address
domestic violence matters. |
Licensing:
We license many of our brands to third parties with expertise in
certain specialized products
and/or
market segments, thereby extending each licensed brands
market presence. As of January 1, 2011, we had 59 license
arrangements, pursuant to which third-party licensees produce
merchandise under Company trademarks in accordance with designs
furnished or approved by us, the present terms of which (not
including renewal terms)
10
expire at various dates through 2020. Each of the licenses earns
revenue based on a percentage of the licensees sales of
the licensed products against a guaranteed minimum royalty,
which generally increases over the term of the agreement. Income
from our licensing operations is included in net sales for the
segment under which the license resides.
In October 2009, we entered into a multi-year license agreement
with JCPenney, which granted JCPenney an exclusive right and
license (subject to pre-existing licenses and certain limited
exceptions) to use the LIZ CLAIBORNE, LIZ & CO.,
CLAIBORNE and CONCEPTS BY CLAIBORNE trademarks with respect to
covered product categories and included the worldwide
manufacturing of the licensed products and the sale, marketing,
merchandising, advertising and promotion of the licensed
products in the US and Puerto Rico. Under the agreement,
JCPenney may only use designs provided or approved by us. The
agreement has a term that may remain in effect up to
July 31, 2020. Sales by JCPenney under the agreement
commenced in August 2010. At the end of year five, JCPenney will
have the option to acquire the trademarks and other LIZ
CLAIBORNE brands for use in the US and Puerto Rico. JCPenney
will also have the option to take ownership of the trademarks in
the same territory at the end of year 10. JCPenney also has an
option to take ownership of the same trademarks in the same
territory if we fail to maintain the brand positioning for the
LIZ CLAIBORNE NEW YORK trademark, pursuant to the terms of
the agreement. The license agreement provides for the payment to
us of royalties based on net sales of licensed products by
JCPenney and a portion of the related gross profit when the
gross profit percentage exceeds a specified rate, subject to a
minimum annual payment.
In October 2009, we also entered into a multi-year license
agreement with QVC, granting rights (subject to pre-existing
licenses) to certain of our trademarks and other intellectual
property rights. QVC has the rights to use the LIZ CLAIBORNE NEW
YORK brand with Isaac Mizrahi as creative director on any
apparel, accessories, or home categories in its US and
international markets. QVC merchandises and sources the product
and we provide brand management oversight. The agreement
provides for the payment to us of a royalty based on net sales
of licensed products by QVC.
11
The following table sets forth information with respect to other
select aspects of our licensed brands:
|
|
|
Products
|
|
Brands
|
|
Baby Buggies
|
|
JUICY COUTURE
|
Bed & Bath
|
|
KATE SPADE; KENSIE; LIZ CLAIBORNE; MEXX
|
Belts
|
|
AXCESS; CLAIBORNE; KENSIE; KENSIE GIRL; LIZ CLAIBORNE;
LIZ CLAIBORNE NEW YORK
|
Cold Weather Accessories
|
|
KENSIE; KENSIE GIRL; LIZ CLAIBORNE; LIZ CLAIBORNE NEW YORK;
LUCKY BRAND
|
Cosmetics & Fragrances
|
|
BORA BORA; CURVE; JUICY COUTURE; KATE SPADE; LUCKY BRAND; MAMBO;
MEXX; REALITIES
|
Costume Jewelry
|
|
KENSIE GIRL
|
Decorative Fabrics
|
|
LIZ CLAIBORNE
|
Denim
|
|
KENSIE
|
Dress Shirts
|
|
AXCESS
|
Electronics Cases
|
|
JUICY COUTURE; KATE SPADE; LUCKY BRAND
|
Flooring/Area Rugs
|
|
MEXX
|
Footwear
|
|
AXCESS; CLAIBORNE; JUICY COUTURE; KATE SPADE; KENSIE
GIRL; LIZ CLAIBORNE; LIZ CLAIBORNE FLEX; LUCKY BRAND
|
Handbags
|
|
KENSIE GIRL
|
Hard Tabletop
|
|
KATE SPADE
|
Intimate Apparel/Underwear
|
|
KENSIE; LIZ CLAIBORNE; LUCKY BRAND; MAC & JAC
|
Kids/Baby
|
|
JUICY COUTURE
|
Legwear and Socks
|
|
AXCESS; CLAIBORNE; KATE SPADE; MEXX
|
Luggage
|
|
CLAIBORNE; LIZ CLAIBORNE
|
Mens Accessories
|
|
AXCESS; CLAIBORNE
|
Neckwear/Scarves
|
|
AXCESS; CLAIBORNE; LUCKY BRAND
|
Optics
|
|
CLAIBORNE; COMPOSITES A CLAIBORNE COMPANY;
COMPOSITES A LIZ CLAIBORNE COMPANY; CRAZY HORSE;
DANA BUCHMAN; JUICY COUTURE; KATE SPADE; KENSIE;
LIZ CLAIBORNE; LIZWEAR; LIZ CLAIBORNE NEW YORK; LUCKY
BRAND; MEXX; SIGRID OLSEN
|
Outerwear
|
|
AXCESS; CLAIBORNE; CLASSICS A CLAIBORNE
COMPANY CLASSICS BY LIZ CLAIBORNE; COMPOSITES A CLAIBORNE
COMPANY; COMPOSITES BY LIZ CLAIBORNE; KENSIE;
LIZ CLAIBORNE; LIZ CLAIBORNE NEW YORK; LIZWEAR; MAC &
JAC; STUDIO BY LIZ CLAIBORNE; STUDIO A CLAIBORNE
COMPANY
|
Sleepwear/Loungewear
|
|
AXCESS; CLAIBORNE; KENSIE; LIZ CLAIBORNE; LIZWEAR;
LIZ CLAIBORNE NEW YORK; LUCKY BRAND; MAC & JAC
|
Stationery and Paper Goods
|
|
KATE SPADE; MEXX
|
Sunglasses
|
|
CLAIBORNE; DANA BUCHMAN; JUICY COUTURE; KATE SPADE; KENSIE; LIZ
CLAIBORNE; LIZ CLAIBORNE NEW YORK; LUCKY BRAND; MAC & JAC;
MEXX; SIGRID OLSEN
|
Swimwear
|
|
JUICY COUTURE; LUCKY BRAND
|
Tailored Clothing
|
|
AXCESS
|
Watches
|
|
JUICY COUTURE; LUCKY BRAND
|
Window Treatments
|
|
KATE SPADE
|
12
SALES AND
MARKETING
Domestic sales accounted for 66.3% of our 2010 and 67.7% of our
2009 net sales. Our domestic wholesale sales are made
primarily to department store chains and specialty retail store
customers.
Direct-to-consumer
sales are made through our own retail and outlet stores and
e-commerce
websites. Wholesale sales are also made to international
customers, military exchanges and to other channels of
distribution.
International sales accounted for 33.7% of 2010 net sales,
as compared to 32.3% in 2009. In Europe, wholesale sales are
made primarily to department store and specialty retail store
customers.
Direct-to-consumer
sales are made through concession stores within department store
locations, as well as our own retail and outlet stores and
e-commerce
websites. In Canada, wholesale sales are made primarily to
department store chains and specialty retail stores, and
direct-to-consumer
sales are made through our own retail and outlet stores. In
other international markets, including Asia, the Middle East and
Central and South America, we operate principally through third
party licensees, virtually all of which purchase products from
us for re-sale at freestanding retail stores and dedicated
department store shops they operate. We also have a
direct-to-consumer
and wholesale presence through distribution agreements, a joint
venture in Japan and our own retail stores.
During 2010, we continued our domestic in-store sales, marketing
and merchandising programs designed to encourage multiple item
regular price sales, build
one-on-one
relationships with consumers and maintain our merchandise
presentation standards. These programs train sales associates on
suggested selling techniques, product, merchandise presentation
and client development strategies and are offered for JUICY
COUTURE, KATE SPADE and LUCKY BRAND. Our retail stores reflect
the distinct personalities of each brand, offering a unique
shopping experience and exclusive merchandise.
Marketing for these brands is focused on reinforcing brand
relevance, increasing awareness, engaging consumers and guiding
them to our retail stores and
e-commerce
sites. We use a variety of marketing strategies to enhance our
brand equity and promote our brands. These initiatives include
direct mail, in-store events and internet marketing, including
the use of social media. We incurred expenses of
$93.3 million, $90.3 million and $132.8 million
for advertising, marketing and promotion for all brands in 2010,
2009 and 2008, respectively.
Wholesale sales (before allowances) to our 100 largest customers
accounted for 73.9% of 2010 wholesale sales (before allowances)
(or 47.0% of net sales), as compared to 75.4% of 2009 wholesale
sales (before allowances) (or 54.9% of net sales). No single
customer accounted for more than 7.3% of wholesale sales (before
allowances) (or 4.6% of net sales) for 2010 as compared to 7.3%
of wholesale sales (before allowances) (or 5.3% of net sales)
for 2009, except for Macys, Inc., which accounted for
10.0% and 13.2% of wholesale sales (before allowances) for 2010
and 2009, respectively, or 6.4% and 9.6% of net sales for 2010
and 2009, respectively (see Note 8 of Notes to Consolidated
Financial Statements). Many major department store groups make
centralized buying decisions; accordingly, any material change
in our relationship with any such group could have a material
adverse effect on our operations. We expect that our largest
customers will continue to account for a significant percentage
of our wholesale sales. Sales to our domestic department and
specialty retail store customers are made primarily through our
New York City and Los Angeles showrooms. Internationally, sales
to our department and specialty retail store customers are made
through several of our showrooms, including those in the
Netherlands, Germany, Canada and the United Kingdom.
Orders from our customers generally precede the related shipping
periods by several months. Our largest customers discuss with us
retail trends and their plans regarding their anticipated levels
of total purchases of our products for future seasons. These
discussions are intended to assist us in planning the production
and timely delivery of our products. We continually monitor
retail sales in order to directly assess consumer response to
our products.
We utilize in-stock reorder programs in several divisions to
enable customers to reorder certain items through electronic
means for quick delivery, as discussed below in the section
entitled Buying/Sourcing. Many of our customers
participate in our in-stock reorder programs through their own
internal replenishment systems.
In 2010, we continued our domestic in-store shop and fixture
programs, which are designed to enhance the presentation of our
products on department store selling floors generally through
the use of proprietary fixturing, merchandise presentations and
graphics. In-store shops operate under the following brand
names:
DKNY®
JEANS,
13
JACK SPADE, JUICY COUTURE, KATE SPADE, KENSIE, KENSIE GIRL,
LUCKY BRAND, MAC & JAC and MEXX. Our accessories
operations also offer an in-store shop and fixture program. In
2010, we installed an aggregate of 324 in-store shops. We plan
to install an aggregate of 300 additional in-store shops in 2011.
For further information concerning our domestic and
international sales, see Note 17 of Notes to Consolidated
Financial Statements and Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Overview.
BUYING/SOURCING
Pursuant to a buying/sourcing agency agreement, Li &
Fung acts as the primary global apparel and accessories
buying/sourcing agent for all brands in our portfolio, with the
exception of our jewelry product lines. Our agreement with
Li & Fung provides for a refund of a portion of the
2009 closing payment in certain limited circumstances, including
a change of control of the Company, the sale or discontinuation
of any current brand, or certain termination events. We are also
obligated to use Li & Fung as our buying/sourcing
agent for a minimum value of inventory purchases each year
through the termination of the agreement in 2019. The licensing
arrangements with JCPenney and QVC resulted in the removal of
buying/sourcing for a number of LIZ CLAIBORNE branded products
sold under these licenses from the Li & Fung
buying/sourcing arrangement. As a result, under our agreement
with Li & Fung, we refunded $24.3 million of the
closing payment received from Li & Fung in the second
quarter of 2010. We pay to Li & Fung an agency
commission based on the cost of product purchases using
Li & Fung as our buying/sourcing agent. Our agreement
with Li & Fung is not exclusive; however, we are
required to source a specified percentage of product purchases
from Li & Fung.
Products produced in Asia represent a substantial majority of
our purchases. We also source product in the US and other
regions. During 2010, approximately 500 suppliers located in 50
countries manufactured our products, with the largest finished
goods supplier accounting for less than 7.0% of the total of
finished goods we purchased. Purchases from our suppliers are
processed utilizing individual purchase orders specifying the
price and quantity of the items to be produced.
Most of our products are purchased as completed product
packages from our manufacturing contractors, where
the contractor purchases all necessary raw materials and other
product components, according to our specifications. When we do
not purchase packages, we obtain fabrics, trimmings
and other raw materials in bulk from various foreign and
domestic suppliers, which are delivered to our manufacturing
contractors for use in our products. We do not have any
long-term, formal arrangements with any supplier of raw
materials. To date, we have experienced little difficulty in
satisfying our raw material requirements and consider our
sources of supply adequate.
We operate under substantial time constraints in producing each
of our collections. In order to deliver, in a timely manner,
merchandise which reflects current tastes, we attempt to
schedule a substantial portion of our materials and
manufacturing commitments relatively late in the production
cycle, thereby favoring suppliers able to make quick adjustments
in response to changing production needs and in time to take
advantage of favorable (cost effective) shipping alternatives.
However, in order to secure necessary materials and to schedule
production time at manufacturing facilities, we must make
substantial advance commitments prior to the receipt of firm
orders from customers for the items to be produced. These
advance commitments may have lead times in excess of five
months. We continue to seek to reduce the time required to move
products from design to the customer.
If we misjudge our ability to sell our products, we could be
faced with substantial outstanding fabric
and/or
manufacturing commitments, resulting in excess inventories. See
Item 1A Risk Factors.
Our arrangements with Li & Fung and with our foreign
suppliers are subject to the risks of doing business abroad,
including currency fluctuations and revaluations, restrictions
on the transfer of funds, terrorist activities, pandemic disease
and, in certain parts of the world, political, economic and
currency instability. Our operations have not been materially
affected by any such factors to date. However, due to the very
substantial portion of our products that are produced abroad,
any substantial disruption of our relationships with our foreign
suppliers could adversely affect our operations. In addition, as
Li & Fung is the buying/sourcing agent for a
significant portion of our products, we are subject to the risk
of having to rebuild such buying/sourcing capacity or find
another agent or
14
agents to replace Li & Fung in the event the agreement
with Li & Fung terminates, or if Li & Fung
is unable to fulfill its obligations under the agreement.
In addition, as we rely on independent manufacturers, a
manufacturers failure to ship product to us in a timely
manner, or to meet quality or safety standards, could cause us
to miss delivery dates to our retail stores or our wholesale
customers. Failure to make deliveries on time could cause our
retail customers to expect more promotions and our wholesale
customers to seek reduced prices, cancel orders or refuse
deliveries, all of which could have a material adverse effect on
us. We maintain internal staff responsible for overseeing
product safety compliance, irrespective of our agency agreement
with Li & Fung.
Additionally, we are a certified and validated member of the
United States Customs and Border Protections Customs-Trade
Partnership Against Terrorism (C-TPAT) program and
expect all of our suppliers shipping to the United States to
adhere to our C-TPAT requirements, including standards relating
to facility security, procedural security, personnel security,
cargo security and the overall protection of the supply chain.
In the event a supplier does not comply with our C-TPAT
requirements, or if we determine that the supplier will be
unable to correct a deficiency, we may terminate our business
relationship with the supplier.
IMPORTS
AND IMPORT RESTRICTIONS
Virtually all of our merchandise imported into the United
States, Canada, Europe and South America is subject to duties.
The United States may unilaterally impose additional duties in
response to a particular product being imported (from China or
other countries) in such increased quantities as to cause (or
threaten) serious damage to the relevant domestic industry
(generally known as anti-dumping actions).
Furthermore, additional duties, generally known as
countervailing duties, can also be imposed by the US Government
to offset subsidies provided by a foreign government to foreign
manufacturers if the importation of such subsidized merchandise
injures or threatens to injure a US industry. Legislative
proposals have been put forward which, if adopted, would treat a
manipulation by China of the value of its currency as actionable
under the antidumping or countervailing duty laws. Effective
January 1, 2011, the European Commission enforces a new
customs import regulation which requires all traders to provide
European Union customs with security data through electronic
declarations before goods are brought into, or out of, the
European Union. This new rule simplifies and automates customs
procedures while increasing security for import of goods into
and out of the 27 member states of the European Union. The scope
of the mandate includes all import and export shipments via all
modes of transportation.
We are also subject to other international trade agreements and
regulations, such as the North American Free Trade Agreement,
the Central American Free Trade Agreement and the Caribbean
Basin Initiative and other special trade programs.
Each of the countries in which our products are sold has laws
and regulations covering imports. Because the US and the other
countries into which our products are imported and sold may,
from time to time, impose new duties, tariffs, surcharges or
other import controls or restrictions, including the imposition
of safeguard quota, safeguard duties, or
adjust presently prevailing duty or tariff rates or levels on
products being imported from other countries, we maintain a
program of intensive monitoring of import restrictions and
opportunities. We strive to reduce our potential exposure to
import related risks through, among other things, adjustments in
product design and fabrication and shifts of production among
countries and manufacturers.
In light of the very substantial portion of our products that is
manufactured by foreign suppliers, the enactment of new
legislation or the administration of current international trade
regulations, executive action affecting textile agreements, or
changes in sourcing patterns or quota provisions, could
adversely affect our operations. Although we generally expect
that the elimination of quota will result, over the long term,
in an overall reduction in the cost of apparel produced abroad,
the implementation of any safeguard quota
provisions, countervailing duties, any
anti-dumping actions or any other actions impacting
international trade may result, over the near term, in cost
increases for certain categories of products and in disruption
of the supply chain for certain product categories. See
Item 1A Risk Factors.
Apparel and other products sold by us are also subject to
regulation in the US and other countries by other governmental
agencies, including, in the US, the Federal Trade Commission, US
Fish and Wildlife Service and the Consumer Products Safety
Commission. These regulations relate principally to product
labeling, content and safety requirements, licensing
requirements and flammability testing. We believe that we are in
substantial compliance
15
with those regulations, as well as applicable federal, state,
local, and foreign regulations relating to the discharge of
materials hazardous to the environment. We do not estimate any
significant capital expenditures for environmental control
matters either in the current year or in the near future. Our
licensed products, licensing partners and buying/sourcing agents
are also subject to regulation. Our agreements require our
licensing partners and buying/sourcing agents to operate in
compliance with all laws and regulations and we are not aware of
any violations which could reasonably be expected to have a
material adverse effect on our business or financial position,
results of operations, liquidity or cash flows.
Although we have not suffered any material inhibition from doing
business in desirable markets in the past, we cannot assure that
significant impediments will not arise in the future as we
expand product offerings and introduce additional trademarks to
new markets.
DISTRIBUTION
We distribute a substantial portion of our products through
leased facilities. Our principal distribution facilities are
located in Ohio, the Netherlands and Canada, as discussed in
Item 2 Properties.
BACKLOG
On February 4, 2011, our order book reflected unfilled
customer orders for approximately $346.9 million of
merchandise, as compared to approximately $480.6 million at
February 12, 2010. These orders represent our order
backlog. The amounts indicated include both confirmed and
unconfirmed orders, which we believe, based on industry practice
and our past experience, will be confirmed. We expect that
substantially all such orders will be filled within the 2011
fiscal year. We note that the amount of order backlog at any
given date is materially affected by a number of factors,
including seasonality, the mix of product, the timing of the
receipt and processing of customer orders and scheduling of the
manufacture and shipping of the product, which in some instances
is dependent on the desires of the customer. Accordingly, order
book data should not be taken as providing meaningful
period-to-period
comparisons. However, the decline in the value of unfilled
customer orders reflects our continued evolution to a business
model primarily focused on retail and licensing, including the
transition of our LIZ CLAIBORNE family of brands from a
department store distribution model to a licensing model.
16
TRADEMARKS
We own most of the trademarks used in connection with our
businesses and products. We also act as licensee of certain
trademarks owned by third parties.
The following table summarizes the principal trademarks we own
and/or use
in connection with our businesses and products:
|
|
|
Owned Trademarks
|
|
|
AXCESS
|
|
LIZ
|
BIRD BY JUICY COUTURE
|
|
LIZ &
CO.(a)
|
BORA BORA
|
|
LIZ
CLAIBORNE(a)
|
CLAIBORNE(a)
|
|
LIZ CLAIBORNE NEW
YORK(c)
|
CONCEPTS BY
CLAIBORNE(a)
|
|
LUCKY BRAND
|
COUTURE COUTURE
|
|
LUCKY YOU LUCKY BRAND
|
CURVE
|
|
MAC & JAC
|
DANA
BUCHMAN(b)
|
|
MARVELLA
|
DIRTY ENGLISH
|
|
MEXX
|
JACK SPADE
|
|
MONET
|
JUICY COUTURE
|
|
REALITIES
|
KATE SPADE
|
|
SIGRID OLSEN
|
KENSIE
|
|
TRIFARI
|
|
|
|
Licensed Trademarks
|
|
|
DKNY®
ACTIVE
|
|
|
DKNY®
JEANS
|
|
|
|
|
|
(a) |
|
As discussed above, JCPenney is the exclusive department store
destination in the US and Puerto Rico for LIZ CLAIBORNE,
LIZ & CO., CLAIBORNE and CONCEPTS BY CLAIBORNE
merchandise in the product categories covered by the JCPenney
license agreement (which is subject to pre-existing license
agreements) for up to ten years, beginning in August 2010.
JCPenney has an option to purchase the rights to these
trademarks in the US and Puerto Rico under certain circumstances. |
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As discussed above, Kohls is the exclusive retailer for
our DANA BUCHMAN brand, pursuant to an exclusive license
agreement. |
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As discussed above, QVC is the exclusive specialty retailer for
LIZ CLAIBORNE NEW YORK merchandise in the product categories
covered by the QVC license agreement (which is subject to
pre-existing license agreements) in the US. |
In addition, we own
and/or use
many other logos and secondary trademarks, such as the JUICY
COUTURE crest and the LUCKY BRAND clover mark, associated with
the above mentioned trademarks.
We have registered, or applied for registration of, a multitude
of trademarks throughout the world, including those referenced
above, for use on a variety of apparel and apparel-related
products, including accessories, home furnishings, cosmetics and
jewelry, as well as for retail services. We regard our
trademarks and other proprietary rights as valuable assets and
believe that they have significant value in the marketing of our
products. We vigorously protect our trademarks and other
intellectual property rights against infringement.
In general, trademarks remain valid and enforceable as long as
the marks are used in connection with the related products and
services and the required registration renewals are filed. We
regard the license to use the trademarks and our other
proprietary rights in and to the trademarks as valuable assets
in marketing our products and, on a worldwide basis, vigorously
seek to protect them against infringement. As a result of the
appeal of our brands, our products have from time to time been
the object of counterfeiting. We have implemented an
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enforcement program, which we believe has been generally
effective in controlling the sale of counterfeit products in the
US and in major markets abroad.
In markets outside of the US, our rights to some or all of our
trademarks may not be clearly established. In the course of our
international expansion, we have experienced conflicts with
various third parties who have acquired ownership rights in
certain trademarks, which would impede our use and registration
of some of our principal trademarks. While such conflicts are
common and may arise again from time to time as we continue our
international expansion, we have generally successfully resolved
such conflicts in the past through both legal action and
negotiated settlements with third-party owners of the
conflicting marks. Although we have not in the past suffered any
material restraints or restrictions on doing business in
desirable markets or in new product categories, we cannot assure
that significant impediments will not arise in the future as we
expand product offerings and introduce additional brands to new
markets.
COMPETITION
Notwithstanding our position as a large fashion apparel and
related accessories company in the US, we are subject to intense
competition as the apparel and related product markets are
highly competitive, both within the US and abroad. We compete
with numerous retailers, designers and manufacturers of apparel
and accessories, both domestic and foreign. We compete primarily
on the basis of fashion, quality and price. Our ability to
compete successfully depends upon a variety of factors,
including, among other things, our ability to:
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anticipate and respond to changing consumer demands in a timely
manner;
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develop quality and differentiated products that appeal to
consumers;
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appropriately price products;
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establish and maintain favorable brand name and recognition;
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maintain and grow market share;
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establish and maintain acceptable relationships with our retail
customers;
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provide appropriate service and support to retailers;
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provide effective marketing support and brand promotion;
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appropriately determine the size and identify the location of
our retail stores and department store selling space;
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protect our intellectual property; and
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optimize our retail and supply chain capabilities.
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See Item 1A Risk Factors.
Within our retail-focused Domestic-Based Direct Brands segment,
our principal competitors vary by brand and include the
following:
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For JUICY COUTURE: Marc by Marc Jacobs, JCrew, Pink, Coach and
Diane von Furstenberg
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For LUCKY BRAND: Diesel, Guess, True Religion, 7 for all Mankind
and Abercrombie & Fitch
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For KATE SPADE: Coach, Diane von Furstenberg, Marc by Marc
Jacobs, Michael Kors and Tory Burch
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The principal competitors of our retail-focused
International-Based Direct Brands segment include Esprit, Zara,
Marc OPolo, S. Oliver, H&M, Tommy Hilfiger,
InWear/Matinique, Street One and other global European brands.
Our principal competitors in the United States for the majority
of our Partnered Brands segment (LIZ CLAIBORNE and MONET
families of brands and our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands) include The Jones Group, Inc., The Warnaco Group,
Inc. and Polo Ralph Lauren Corporation, as well as department
store private label brands.
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EMPLOYEES
At January 1, 2011, we had approximately
11,300 full-time employees worldwide, as compared to
approximately 11,500 full-time employees at January 2,
2010.
In the US and Canada, we are bound by the following collective
bargaining agreements:
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Number of
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Union
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Employees
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Expiration
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Location
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Chicago and Midwest Regional Joint Board, Workers United
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469
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June 2011
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West Chester, Ohio
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Affiliates of Workers United
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46
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May 2011
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Montreal, Quebec
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Local 10, New York Metropolitan Area Joint Board, Workers United
and Local 99, Metropolitan Distribution and Trucking Joint
Board, Workers United
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May 2012
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New York, New York and
North Bergen, New Jersey
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Affiliates of Workers United
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9
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May 2012
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Burnaby, British Columbia
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While relations between us and these unions have historically
been amicable, and we do not anticipate an economic dispute when
the contracts reopen or expire, we cannot rule out the
possibility of a labor dispute at one or more of these
facilities.
We contribute to a union-sponsored multiemployer defined benefit
pension plan, which is regulated by the Employee Retirement
Income Security Act of 1974 (ERISA), as amended,
pursuant to obligations arising under our collective bargaining
agreements. For a discussion of certain risks related to this
plan, see Item 1A Risk Factors.
CORPORATE
SOCIAL RESPONSIBILITY
We are committed to responsible corporate citizenship and giving
back to our communities through a variety of avenues and have
several programs in place that support this commitment.
Monitoring
Global Working Conditions
We are committed to taking the actions we believe are necessary
to ensure that our products are made in contracted factories
with fair and decent working conditions. We continue this
commitment as we operate under our buying/sourcing arrangement
with Li & Fung, collaborating with Li & Fung
to develop mutually acceptable audit documents and processes,
training the Li & Fung audit staff on our compliance
program and communicating our standards to Li & Fung
suppliers and their workers.
The major components of our compliance program are:
(i) communicating our Standards of Engagement to workers,
suppliers and associates; (ii) auditing and monitoring
against those standards; (iii) providing workers with a
confidential reporting channel; (iv) working with
non-governmental organizations; and, most recently,
(v) working closely with factory management to develop
sustainable compliance programs. Suppliers are required to post
our Standards of Engagement in the workers native language
at all factories where our merchandise is being made. We have
used various methods to educate workers regarding our standards
and their rights, including development of booklets to better
illustrate those standards and involving non-governmental
organizations to train workers. The Standards of Engagement,
along with detailed explanations of each standard, are included
on our suppliers websites. All new suppliers must
acknowledge our standards and agree to our monitoring
requirements.
We have been a participating company in the Fair Labor
Association (FLA) since its inception. The FLA is a
collaborative effort comprised of socially responsible
companies, colleges and universities and civil society
organizations whose collective purpose is to improve working
conditions at factories around the world. The FLA has developed
a Workplace Code of Conduct, based on International Labor
Organization standards and has created benchmarks to monitor
adherence to those standards, or to perform remediation. Its
monitoring program is a brand accountability system that places
responsibility on companies to voluntarily achieve desired
workplace standards in factories manufacturing their goods. In
May 2005, we were in the first group of six companies accredited
by the FLA, and we were reaccredited in June 2008. The
re-accreditation process takes place every three years and
19
signifies that we continue to focus our labor compliance program
around FLA standards, benchmarks and protocols and have met the
requirements of FLA participation.
As of January 1, 2011, we had approximately 500 active
factories on our roster. A total of approximately 330 were
audited by our internal compliance team, Li & Fung
auditors or third party auditors. In many cases, we rely on our
agents audit reports. As such, we conduct shadow audits to
confirm that audit protocols and findings are consistent between
the two companies. Additionally, as a participating company in
the FLA, our suppliers factories are also subject to
independent, unannounced audits by accredited FLA monitors.
We are aware that auditing only confirms compliance at the time
of the audit, and we continue to look for ways to improve our
monitoring program and work with suppliers to create sustainable
compliance at their factories. Creating workers awareness
and establishing a channel of communication for reporting issues
of non-compliance are two important strategies. We encourage all
factories to establish internal grievance procedures and give
workers the opportunity to report their concerns directly to the
Company. At our request, several major factories participated in
FLA programs which aid in human resource management and
developing internal grievance policies. More information about
our monitoring program is available on our website.
Philanthropic
Programs
We have a number of philanthropic programs that support the
nonprofit sector in our major operating communities, throughout
the US and in select international markets.
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The Liz Claiborne Foundation, established in 1981, is a separate
nonprofit legal entity supporting nonprofit organizations
working with women to achieve economic independence. The
Foundation supports programs in the US communities where our
primary offices are located that offer essential job readiness
training and increase access to tools that help women, including
those affected by domestic violence, transition from poverty
into successful independent living.
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Liz Claiborne Associates Committed to Service
(LizACTS) is our company-wide volunteer program that
allows our associates to work collectively to respond to
community needs. Our associates identify and design volunteer
projects through community organizations to address the pressing
needs of women and families. LizACTS teams typically coordinate
volunteer activities under the general program areas of
HIV/AIDS, health, the environment, homelessness, womens
issues and the needs of youth. Thousands of associates and
executives join together, along with their families and friends,
to contribute their time and talents.
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The Merchandise Donation Program provides direct charitable
support to meet community needs, primarily in the form of
merchandise donations. We donate product, samples, fixtures and
furniture to several types of organizations, including clothing
banks, programs for women and certain charitable interests of
our associates.
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The Matching Gift Program supports and encourages the charitable
interests of our associates. Our flexible program matches
associates gifts at a rate of one to one in the areas of
arts, health and safety, education, human services and the
environment. Contributions to organizations where associates
serve as voluntary board members are matched at a rate of two to
one.
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The Liz Claiborne, Inc. Scholarship Program provides one-time
scholarships to children of our associates who have demonstrated
outstanding academic achievement. Since the programs
inception in 2002, 73 scholarships have been awarded.
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Love Is Not Abuse is a long-term campaign that uses our
corporate profile and influence to advocate anti-violence
messages to the general public. One of the first major corporate
programs in the US to take a stand on the issue of domestic
violence, Love is Not Abuse has targeted everyday
Americans who, with the right tools and information, can help
prevent violent relationships. This program is focused on
providing educational resources to help young boys and girls,
teenagers, college students, educators, parents, corporate
executives and employees learn what they can do, individually
and collectively, to curtail abuse.
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KATE SPADE and Women for Women International have formed Hand
In Hand, an exclusive partnership born from both
organizations commitment to celebrating creativity,
independence and individuality among
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women. KATE SPADE supports Women for Women International by
employing women in war-torn countries, and utilizing their
traditional handcrafts in special collections, designed by the
team in New York. The idea is to provide training, fair wages
and dependable income in parts of the world where these
opportunities are not the norm. KATE SPADE also aids the
organization through retail co-marketing, promotion and events.
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Environmental
Initiatives
We are committed to a long-term sustainable approach to caring
for and safeguarding the environment. As such, we endeavor to
balance environmental considerations and social responsibility
with our business goals, consistently evolving and implementing
our Corporate Environmental Policy, in addition to complying
with environmental laws and regulations. Our current
sustainability policy focuses on three major
components reducing waste, reusing and
recycling to help minimize our impact on the
environment and achieve our environmental objectives (additional
details are available on our website).
In 2010, we conducted our first carbon footprint analysis
following the criteria issued by the World Resources Institute
and the World Business Council for Substantial Development. Our
analysis covered our operations in the US (including offices,
distribution centers and stores), and the transport of goods
from domestic and foreign manufacturers to our distribution
centers and stores in the US. We intend to use the findings to
continue to enhance our corporate environmental strategy, as
well as provide a benchmark as we continue our efforts in the
future. As our business, the economy, and the environment in
which we operate evolve, we remain aware of the impact our
actions have on the environment and revise and enhance our
environmental approach, as appropriate.
You should carefully consider the following risk factors, in
addition to other information included in this Annual Report on
Form 10-K
and in other documents we file with the SEC, in evaluating the
Company and its business. If any of the following risks occur,
our business, financial condition, liquidity and results of
operations could be materially adversely affected. We caution
the reader that these risk factors may not be exhaustive. We
operate in a continually changing business environment, and new
risks emerge from time to time. Management cannot predict such
new risk factors, nor can we assess the impact, if any, of such
new risk factors on our business or the extent to which any
factor or combination of factors may impact our business.
Our ability to continue to have the necessary liquidity,
through cash flows from operations and availability under our
amended and restated revolving credit facility, may be adversely
impacted by a number of factors, including the level of our
operating cash flows, our ability to maintain established levels
of availability under, and to comply with the financial and
other covenants included in, our amended and restated revolving
credit facility and the borrowing base requirement in our
amended and restated revolving credit facility that limits the
amount of borrowings we may make based on a formula of, among
other things, eligible accounts receivable and inventory; the
minimum availability covenant in our amended and restated
revolving credit facility that requires us to maintain
availability in excess of an agreed upon level and whether
holders of our Convertible Notes issued in June 2009 will, if
and when such notes are convertible, elect to convert a
substantial portion of such notes, the par value of which we
must currently settle in cash.
Our primary ongoing cash requirements are to: (i) fund
seasonal working capital needs (primarily accounts receivable
and inventory); (ii) fund capital expenditures related to
the opening and refurbishing of our specialty retail and outlet
stores and normal maintenance activities and the expected
purchase of our Ohio distribution facility in the second quarter
of 2011; (iii) fund remaining efforts associated with our
streamlining initiatives, which include consolidation of office
space, store closures and reductions in staff; (iv) invest
in our information systems; and (v) fund general
operational and contractual obligations. We also require cash to
fund payments related to outstanding earn-out provisions of
certain of our previous acquisitions.
In May 2010, we completed a second amendment to and restatement
of our revolving credit facility (as amended, the Amended
Agreement). Under the Amended Agreement, our aggregate
commitments under the facility were reduced to
$350.0 million from $600.0 million, and the maturity
date was extended from May 2011 to August 2014, provided that in
the event that our existing Notes due July 2013 are not
refinanced, purchased or
21
defeased prior to April 8, 2013, then the maturity date
shall be April 8, 2013, and in the event that our
Convertible Notes are not refinanced, purchased or defeased
prior to March 15, 2014, then the maturity date shall be
March 15, 2014. In both circumstances, if any such
refinancing or extension provides for a maturity date that is
earlier than 91 days following August 6, 2014, then
the maturity date shall be the date that is 91 days prior
to the maturity date of such notes. We are subject to various
covenants and other requirements, such as financial
requirements, reporting requirements and negative covenants.
Pursuant to the Amended Agreement, we are required to maintain
minimum aggregate borrowing availability of not less than
$45.0 million and must apply substantially all cash
collections to reduce outstanding borrowings under the amended
and restated revolving credit facility when availability under
the Amended Agreement falls below the greater of
$65.0 million and 17.5% of the then-applicable aggregate
commitments. Our borrowing availability under the Amended
Agreement is determined primarily by the level of our eligible
accounts receivable and inventory balances. In addition, the
Amended Agreement removed the springing fixed charge coverage
covenant that was a condition of the prior amended and restated
revolving credit agreement.
In 2010, we received $171.5 million of net income tax
refunds on previously paid taxes primarily due to a Federal law
change in 2009 allowing our 2008 or 2009 domestic losses to be
carried back for five years, with the fifth year limited to
50.0% of taxable income. We repaid amounts outstanding under our
Amended Agreement with the amount of such refunds. As a result
of the US Federal tax law change extending the carryback period
from two to five years and our carryback of our 2009 tax loss to
2004 and 2005, the IRS has the ability to re-open its past
examinations of 2004 and 2005.
As discussed above, under our Amended Agreement, we are subject
to minimum borrowing availability levels and various other
covenants and other requirements, such as financial
requirements, reporting requirements and various negative
covenants. There can be no certainty that availability under the
Amended Agreement will be sufficient to fund our liquidity
needs. Based upon our current projections, we currently
anticipate that our borrowing availability will be sufficient
for at least the next 12 months. The sufficiency and
availability of our sources of liquidity may be affected by a
variety of factors, including, without limitation: (i) the
level of our operating cash flows, which will be impacted by
retailer and consumer acceptance of our products, general
economic conditions and the level of consumer discretionary
spending; (ii) the status of, and any further adverse
changes in, our credit ratings; (iii) our ability to
maintain required levels of borrowing availability and other
covenants included in our debt and credit facilities;
(iv) the financial wherewithal of our larger department
store and specialty retail store customers; (v) our ability
to successfully execute on the licensing arrangements with
JCPenney and QVC with respect to the LIZ CLAIBORNE family of
brands; (vi) interest rate and exchange rate fluctuations;
and (vii) whether holders of the Convertible Notes, if and
when such notes are convertible, elect to convert a substantial
portion of such notes, the par value of which we must currently
settle in cash. Also, our agreement with Li & Fung
provides for a refund of a portion of the $75.0 million
closing payment in certain limited circumstances, including a
change in control of our Company, the sale or discontinuation of
any of our current brands, or certain termination events. The
licensing arrangements with JCPenney and QVC resulted in the
removal of buying/sourcing for a number of LIZ CLAIBORNE branded
products sold under these licenses from the Li & Fung
buying/sourcing arrangement. As a result, under our agreement
with Li & Fung, we refunded $24.3 million of the
closing payment during the second quarter of 2010. Our agreement
with Li & Fung is not exclusive; however, we are
required to source a specified percentage of product purchases
from Li & Fung.
In addition, our Amended Agreement contains a borrowing base
that is determined primarily by the level of our eligible
accounts receivable and inventory. If we do not have a
sufficient borrowing base at any given time, borrowing
availability under our Amended Agreement may trigger the
requirement to apply substantially all cash collections to
reduce outstanding borrowings or default and also may not be
sufficient to support our liquidity needs. Insufficient
borrowing availability under our Amended Agreement would likely
have a material adverse effect on our business, financial
condition, liquidity and results of operations. Furthermore, a
breach of the minimum aggregate availability covenant would
trigger an immediate event of default. An acceleration of
amounts outstanding under the Amended Agreement would likely
cause cross-defaults under our other outstanding indebtedness,
including the Convertible Notes and our Notes. We currently
believe that the financial institutions under the Amended
Agreement are able to fulfill their commitments, although such
ability to fulfill commitments will depend on the financial
condition of our lenders at the time of borrowing.
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The Convertible Notes are convertible during any fiscal quarter
if the last reported sale price of our common stock during 20
out of the last 30 trading days in the prior fiscal quarter
equals or exceeds $4.2912 (which is 120% of the conversion
price). As a result of stock price performance during the
quarter ended January 1, 2011, the Convertible Notes are
convertible during the first quarter of 2011. As previously
disclosed in connection with the issuance of the Convertible
Notes, we have not yet obtained stockholder approval under the
rules of the New York Stock Exchange for the issuance of the
full amount of common stock issuable upon conversion of the
Convertible Notes. Until such approval is obtained, if the
Convertible Notes are surrendered for conversion, we must pay
the $1,000 par value of each of the Convertible Notes in cash
and may settle the remaining conversion value in the form of
cash, stock or a combination of cash and stock. Although we
consider the conversion of a material amount of the Convertible
Notes in the near future to be unlikely, if all or a substantial
portion of the outstanding Convertible Notes were so converted
and we were required to settle all of the converted Convertible
Notes in cash, then we might not have sufficient liquidity to
meet our obligations to pay the amounts required upon conversion
of the Convertible Notes and maintain the requisite levels of
availability required under the Amended Agreement.
Compliance with the minimum aggregate borrowing availability
covenant is dependent on the results of our operations, which
are subject to a number of factors including current economic
conditions and levels of consumer spending. The recent economic
environment has resulted in significantly lower employment
levels, disposable income and actual
and/or
perceived wealth, significantly lower consumer confidence and
significantly reduced retail sales. Further reductions in
consumer spending, as well as a failure of consumer spending
levels to rise to previous levels, or a continuation or
worsening of current economic conditions would adversely impact
our net sales and cash flows. Should we be unable to comply with
the requirements in the Amended Agreement, we would be unable to
borrow under such agreement, and any amounts outstanding would
become immediately due and payable unless we were able to secure
a waiver or an amendment under the Amended Agreement. Should we
be unable to borrow under the Amended Agreement, or if
outstanding borrowings thereunder become immediately due and
payable, our liquidity would be significantly impaired, which
would have a material adverse effect on our business, financial
condition and results of operations. In addition, an
acceleration of amounts outstanding under the Amended Agreement
would likely cause cross-defaults under our other outstanding
indebtedness, including the Convertible Notes and the Notes.
Because of the continuing uncertainty and risks relating to
future economic conditions, including consumer spending in
particular, we may, from time to time, explore various
initiatives to improve our liquidity, including issuance of debt
securities, sales of various assets, additional cost reductions
and other measures. In addition, where conditions permit, we may
also, from time to time, seek to retire, exchange or purchase
our outstanding debt in privately negotiated transactions or
otherwise. We may not be able to successfully complete any of
such actions if necessary.
General economic conditions in the United States, Europe
and other parts of the world, including a continued weakening or
instability of such economies, restricted credit markets and
lower levels of consumer spending, can affect consumer
confidence and consumer purchases of discretionary items,
including fashion apparel and related products, such as
ours.
The economies of the United States, Europe and other parts of
the world in which we operate weakened significantly as a result
of the global economic crisis that began in the second half of
2008 and which persisted during 2009 and into 2010. Our results
are dependent on a number of factors impacting consumer
spending, including, but not limited to: (i) general
economic and business conditions both in the United States and
abroad; (ii) consumer confidence; (iii) wages and
current and expected employment levels; (iv) the housing
market; (v) consumer debt levels; (vi) availability of
consumer credit; (vii) credit and interest rates;
(viii) fluctuations in foreign currency exchange rates;
(ix) fuel and energy costs; (x) energy shortages;
(xi) the performance of the financial, equity and credit
markets; (xii) taxes; (xiii) general political
conditions, both domestic and abroad; and (xiv) the level
of customer traffic within department stores, malls and other
shopping and selling environments.
Recent global economic conditions have included significant
recessionary pressures and declines in employment levels,
disposable income and actual
and/or
perceived wealth and declines in consumer confidence and
economic growth. The current unstable economic environment has
been characterized by a dramatic decline in consumer
discretionary spending and has disproportionately affected
retailers and sellers of
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consumer goods, particularly those whose goods represent
discretionary purchases, including fashion apparel and related
products such as ours. While the decline in consumer spending
has recently moderated, these economic conditions could still
lead to continued declines in consumer spending over the
foreseeable future and may have resulted in a resetting of
consumer spending habits that makes it unlikely that such
spending will return to prior levels for the foreseeable future.
A number of our markets continue to suffer particularly severe
downturns, including our Eastern European markets, which have
been particularly adversely affected by conditions in the world
economy, and we have experienced, and expect to continue to
experience, significant declines in revenues. Profitability of
our MEXX business has been, and is expected to continue to be,
even more affected by such downturn as such regions account for
a significant amount of MEXXs profitability. While we have
seen intermittent signs of stabilization in both North America
and internationally, there are no assurances that the global
economy will continue to recover. If the global economy
continues to be weak or deteriorates further, there will likely
be a negative effect on our revenues, operating margins and
earnings across all of our segments.
Economic conditions have also led to a highly promotional
environment and strong discounting pressure from both our
wholesale and retail customers, which have had a negative effect
on our revenues and profitability. This promotional environment
may likely continue even after economic growth returns, as we
expect that consumer spending trends are likely to remain at
historically depressed levels for the foreseeable future. The
domestic and international political situation also affects
consumer confidence. The threat, outbreak or escalation of
terrorism, military conflicts or other hostilities could lead to
further decreases in consumer spending. The recent downturn and
uncertain outlook in the global economy will likely continue to
have a material adverse impact on our business, financial
condition, liquidity and results of operations.
Fluctuations in the price, availability and quality of the
fabrics or other raw materials used to manufacture our products,
as well as the price for labor, marketing and transportation,
could have a material adverse effect on our cost of sales or our
ability to meet our customers demands. The prices for such
fabrics depend largely on the market prices for the raw
materials used to produce them. Such factors may be exacerbated
by legislation and regulations associated with global climate
change. The price and availability of such raw materials may
fluctuate significantly, depending on many factors. In the
future, we may not be able to pass all or a portion of such
higher prices on to our customers.
The wholesale businesses in our Direct Brands and
Partnered Brands segments are dependent to a significant degree
on sales to a limited number of large US department store
customers, and our business could suffer as a result of
consolidations, restructurings, bankruptcies and other ownership
changes in the retail industry, financial difficulties at our
large department store customers and negative reaction to our
licensing arrangements with JCPenney and QVC.
Many major department store groups make centralized buying
decisions. Accordingly, any material change in our relationship
with any such group could have a material adverse effect on our
operations. We expect that our largest customers will continue
to account for a significant percentage of our wholesale sales.
The implementation of our licensing arrangements with JCPenney
and QVC changed the business model of our LIZ CLAIBORNE brands
from a wholesale model, in which we and a limited number of
licensees manufactured goods to be sold through various retail
channels, to a license model where we will not be sourcing or
selling products, but instead receiving a royalty based on net
sales by our license partner, and in the case of our JCPenney
license, a share in gross profits over agreed upon levels. The
goals of these arrangements are to revitalize the LIZ CLAIBORNE
franchise, reduce working capital needs and increase earnings.
These goals might not be met as we seek to implement this new
business model and face risks associated with the reception of
this new direction among other customers and licensees.
Customers and licensees may, among other things, seek to change
their relationships with our other brands or may de-emphasize
our other brands, in response to our LIZ CLAIBORNE brand
arrangements, which, in the case of JCPenney, include an
exclusive right and license (subject to pre-existing licenses
and certain limited exceptions) for the sale, marketing,
merchandising, advertising and promotion of the LIZ CLAIBORNE,
LIZ & CO., CLAIBORNE and CONCEPTS BY CLAIBORNE
merchandise in the covered product categories in the United
States and Puerto Rico. Additionally, one licensee is currently
alleging that the LIZ CLAIBORNE brand arrangements adversely
impacted their ongoing ability to sell LIZ CLAIBORNE
merchandise. See Item 3 Legal
Proceedings. Other licensees may make comparable
allegations. In addition, our arrangements with JCPenney and QVC
will make us more dependent on the financial and operational
health of those companies.
24
Our continued partial dependence on sales to a limited number of
large US department store customers is subject to our ability to
respond effectively to, among other things: (i) these
customers buying patterns, including their purchase and
retail floor space commitments for apparel in general (compared
with other product categories they sell) and our products
specifically (compared with products offered by our competitors,
including with respect to customer and consumer acceptance,
pricing and new product introductions); (ii) these
customers strategic and operational initiatives, including
their continued focus on further development of their
private label initiatives; (iii) these
customers desire to have us provide them with exclusive
and/or
differentiated designs and product mixes; (iv) these
customers requirements for vendor margin support;
(v) any credit risks presented by these customers,
especially given the significant proportion of our accounts
receivable they represent; and (vi) the effect of any
potential consolidation among these larger customers. In
addition, our sales to such customers will depend on the
reaction of those customers to our licensing arrangements for
the LIZ CLAIBORNE brands.
We do not enter into long-term agreements with any of our
wholesale customers. Instead, we enter into a number of purchase
order commitments with our customers for each of our lines every
season. A decision by the controlling owner of a group of stores
or any other significant customer, whether motivated by
competitive conditions, financial difficulties or otherwise, to
decrease or eliminate the amount of merchandise purchased from
us or to change their manner of doing business with us could
have a material adverse effect on our business, financial
condition, liquidity and results of operations. As a result of
the recent unfavorable economic environment, we have experienced
a softening of demand from a number of wholesale customers, such
as large department stores, who have been highly promotional and
have aggressively marked down all of their merchandise,
including our products. Any promotional pricing or discounting
in response to softening demand may also have a negative effect
on brand image and prestige, which may be difficult to
counteract once the economy improves. Furthermore, this
promotional activity may lead to requests from those customers
for increased markdown allowances at the end of the season.
Promotional activity at our wholesale customers will also often
result in promotional activity at our retail stores, further
eroding revenues and profitability.
We sell our wholesale merchandise primarily to major department
stores across the United States and Europe and extend credit
based on an evaluation of each customers financial
condition, usually without requiring collateral. However, the
financial difficulties of a customer could cause us to curtail
or eliminate business with that customer. We may also assume
more credit risk relating to our receivables from that customer.
Our inability to collect on our trade accounts receivable from
any of our largest customers could have a material adverse
effect on our business, financial condition, liquidity and
results of operations. Moreover, the difficult macroeconomic
conditions and uncertainties in the global credit markets could
negatively impact our customers and consumers which, in turn,
could have an adverse impact on our business, financial
condition, liquidity and results of operations.
We may
not be able to effect a turnaround of our MEXX Europe
business.
We continue the process of attempting to turnaround the MEXX
business in Europe. These initiatives focus on enhancing the
brand by improving product appeal, more closely linking the
wholesale and retail presentations, strengthening retail
operations and improving our supply chain model. Despite our
efforts to date, MEXX Europe continued to generate operating
losses in 2010. There can be no assurances that we will be able
to improve the operating results of our MEXX Europe operating
segment.
We may
not be able to successfully re-launch our LUCKY BRAND product
offering.
We continue our efforts, which we began in January 2010, to
reposition and drive profitability improvements for LUCKY BRAND.
These efforts focus on leveraging LUCKY BRANDs strong
brand heritage and ensuring consistent availability of key
products and sizes. As part of this effort, in January 2010, we
hired current LUCKY BRAND CEO David DeMattei and Creative
Director Patrick Wade. There can be no assurances that we will
be able to improve LUCKY BRANDs profitability.
25
We
cannot assure the successful implementation and results of our
long-term strategic plans.
Our ability to execute our long-term growth plan and achieve our
projected results is subject to a variety of risks, including
the following:
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Our strategic plan contemplated a significant expansion of our
specialty retail business in our Domestic-Based Direct Brands
and International-Based Direct Brands segments. The successful
operation and expansion of our specialty retail business in our
Direct Brands segments is subject to, among other things, our
ability to: (i) successfully expand the specialty retail
store base of our Direct Brands segments; (ii) successfully
find appropriate sites; (iii) negotiate favorable leases;
(iv) design and create appealing merchandise;
(v) manage inventory levels; (vi) install and operate
effective retail systems; (vii) apply appropriate pricing
strategies; and (viii) integrate such stores into our
overall business mix. We may not be successful in this regard,
and our inability to successfully expand our specialty retail
business would have a material adverse effect on our business,
financial condition, liquidity and results of operations. In
2010, we continued to closely manage spending and opened 25
retail stores. We continue to monitor our capital spending, and
plan to open
30-35
Company-owned retail stores globally in 2011.
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In 2007, we announced a number of initiatives designed to
achieve greater collaboration with our wholesale customers and
to improve results of our wholesale-based Partnered Brands.
These initiatives included design agreements with Isaac Mizrahi
with respect to our LIZ CLAIBORNE brand and with John Bartlett
with respect to our CLAIBORNE brand. Our wholesale customers had
been seeking differentiated products, and we believed that these
design agreements would enable us to distinguish our product
offering. Over time, we realized that these arrangements and the
traditional wholesale business model would not be the solution
to improving results for our LIZ CLAIBORNE brands. In October
2009, we changed the business model for our LIZ CLAIBORNE brands
from a wholesale model selling to department stores, to a
license model where we no longer buy/source or sell products,
but instead receive a royalty based on net sales by our license
partner and, in the case of our JCPenney license agreement, a
share in gross profits over
agreed-upon
levels. Our failure to successfully manage this new model,
including as a result of any terminations of these new licensing
arrangements, would have a material adverse effect on our
business and results.
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To help us improve our sourcing and supply chain capabilities at
our MEXX Europe business, in 2008, we entered into an agreement
with Hong Kong-based, global consumer goods exporter
Li & Fung, whereby Li & Fung acts as the
primary global apparel buying/sourcing agent for the MEXX brand
and MEXXs existing buying/sourcing agent offices were
integrated into the Li & Fung organization. On
February 23, 2009, we entered into a long-term,
buying/sourcing agency agreement with Li & Fung,
pursuant to which Li & Fung acts as the primary global
apparel and accessories buying/sourcing agent for all brands in
our portfolio, with the exception of our jewelry product lines.
Li & Fung continues as the primary buying/sourcing
agent for MEXX. Pursuant to the agreement, we received at
closing on March 31, 2009 a payment of $75.0 million
and an additional payment of $8.0 million to offset
specific, incremental, identifiable expenses associated with the
transaction. We now pay to Li & Fung an agency
commission based on the cost of our product purchases made
through Li & Fung. Our buying/sourcing agent offices
in Hong Kong, India, Indonesia, Shanghai and Shenzhen have been
substantially integrated into the Li & Fung
organization. We might not be successful in these efforts, and
our failure to evolve our supply chain capabilities and reduce
costs in this area will have a material adverse impact on our
business and results. In addition, our agreement with
Li & Fung provides for a refund of a portion of the
closing payment under certain limited circumstances, including a
change in our control, the sale or discontinuation of any of our
current brands, certain termination events and the failure to
maintain certain levels of business. We are also obligated to
use Li & Fung as our buying/sourcing agent for a
minimum value of inventory purchases each year through the
termination of the agreement in 2019. The licensing arrangements
with JCPenney and QVC resulted in the removal of sourcing for a
number of LIZ CLAIBORNE branded products sold under these
licenses from the Li & Fung buying/sourcing
arrangement. As a result, under our agreement with
Li & Fung, we refunded $24.3 million of the
closing payment during the second quarter of 2010. Our agreement
with Li & Fung is not exclusive; however, we are
required to source a specified percentage of product purchases
from Li & Fung. We continue to assess various
streamlining opportunities to reduce costs associated with our
distribution process, which could result in additional
outsourcing agreements in the future.
26
The successful execution of the licensing arrangements
with JCPenney and QVC presents risks, including, without
limitation, our ability to
efficiently change our operational
model and infrastructure as a result of such licensing
arrangements, our ability to continue a good working
relationship with those licensees and possible changes or
disputes in our other brand relationships or relationships with
other retailers and existing licensees as a result.
On October 7, 2009, we entered into a multi-year license
agreement with JCPenney, which granted JCPenney an exclusive
right and license (subject to pre-existing licenses and certain
limited exceptions) to use the LIZ CLAIBORNE,
LIZ & CO., CLAIBORNE and CONCEPTS BY CLAIBORNE
trademarks with respect to covered product categories. The scope
of the license is worldwide for the manufacture of the licensed
products and limited to JCPenneys operations in the United
States and Puerto Rico for the sale, marketing, merchandising,
advertising and promotion of the licensed products. Under the
agreement, JCPenney may only use designs provided or approved by
us. The license agreement provides for the payment to us of
royalties based on net sales of licensed products by JCPenney
and a portion of the related gross profit when the gross profit
percentage exceeds a specified rate, subject to a minimum annual
payment. We also entered into a multi-year license agreement
with QVC, granting rights (subject to pre-existing licenses) to
certain of our trademarks and other intellectual property
rights. QVC has the rights to use the LIZ CLAIBORNE NEW YORK
brand with Isaac Mizrahi as creative director on any apparel,
accessories, or home categories in its US and international
markets. QVC merchandises and sources the products and we
provide brand management oversight. The QVC agreement provides
for the payment to us of a royalty based on net sales. Products
under these agreements were introduced in the third quarter of
2010.
In connection with these license agreements, we initiated
actions to consolidate office space and reduce staff in certain
support functions. These actions were completed in the second
quarter of 2010. As a result, most of our pre-existing LIZ
CLAIBORNE product licensees now work with QVC and JCPenney
directly. Such existing licensees and JCPenney
and/or QVC
might not be able to successfully work together on the license
product categories. One existing product licensee is currently
alleging that the LIZ CLAIBORNE brand arrangements adversely
impacted their ongoing ability to sell LIZ CLAIBORNE
merchandise; another licensee was unsuccessful in making such
allegations. See Item 3 Legal
Proceedings. Other licensees could make comparable
allegations.
Although we had business dealings with each of JCPenney and QVC
prior to entering into these license agreements, these
agreements have created new business relationships, including
certain levels of exclusivity. Although each agreement provides
for the payment to us by the respective licensees of certain
annual minimum royalties and early results are encouraging, we
believe that, specifically with respect to the JCPenney
agreement, the successful implementation of this significant
change in the nature of our wholesale business and expanding our
relationship with JCPenney presents certain risks to us,
including our ability to obtain the maximum value from each of
these agreements and our ability for our design, merchandising
and other philosophies to mesh with those of our licensees.
Moreover, given the exclusive nature of a number of aspects of
these transactions and our reliance on the licensees
payments of the respective annual minimum royalties, we are
assuming more credit risk relating to our receivables from these
business partners. Our inability to collect the annual minimum
royalties from JCPenney could have a material adverse effect on
our business, financial condition, results of operations, cash
flows and liquidity.
Our licensing arrangements with JCPenney and QVC for the stated
brands may have an adverse impact on sales of our other brands
to our US department store customers. We operate in a highly
competitive retail environment. Although to date we do not
believe that any of our other brands have been adversely
impacted as a result of these license agreements, certain of our
other US department store customers could still choose to
decrease or eliminate the amount of other products purchased
from us or change the manner of doing business with us as result
of the licensing of our LIZ CLAIBORNE brands to their
competitors. Such a decision by a group of US department stores
or any other significant customers could have a material adverse
effect on our business, financial condition, results of
operations, cash flows and liquidity.
The JCPenney license and the QVC license provide the licensees
with the option, under certain circumstances, to terminate the
license. Any such termination could result in a material adverse
effect on our business and results. JCPenney also has an option
to take ownership of the same trademarks in the same territory
if we fail to maintain the brand positioning for the LIZ
CLAIBORNE NEW YORK trademark required pursuant to the terms of
the
27
agreement. The exercise of such option may require us to incur
material costs and expenses to comply with our obligations under
the JCPenney license agreement and certain other license
agreements.
The success of our business depends on our ability to
anticipate and respond to constantly changing consumer demands
and tastes and fashion trends, across multiple brands, product
lines, shopping channels and geographies.
The apparel and accessories industries have historically been
subject to rapidly changing consumer demands and tastes and
fashion trends and to levels of discretionary spending,
especially for fashion apparel and related products, which
levels are currently weak. We believe that our success is
largely dependent on our ability to effectively anticipate,
gauge and respond to changing consumer demands and tastes across
multiple product lines, shopping channels and geographies, in
the design, pricing, styling and production of our products
(including products we will design for JCPenney under our
licensing arrangement and products to be designed by Isaac
Mizrahi under the QVC arrangement) and in the merchandising and
pricing of products in our retail stores. Our brands and
products must appeal to a broad range of consumers whose
preferences cannot be predicted with certainty and are subject
to constant change. Also, we must maintain and enhance favorable
brand recognition, which may be affected by consumer attitudes
towards the desirability of fashion products bearing a
mega brand label and which are widely available at a
broad range of retail stores.
We attempt to schedule a substantial portion of our materials
and manufacturing commitments relatively late in the production
cycle. However, in order to secure necessary materials and
ensure availability of manufacturing facilities, we must make
substantial advance commitments, which may be up to five months
or longer, prior to the receipt of firm orders from customers
for the items to be produced. We need to translate market trends
into appropriate, saleable product offerings relatively far in
advance, while minimizing excess inventory positions, and
correctly balance the level of our fabric
and/or
merchandise commitments with actual customer orders. We cannot
assure that we will be able to continue to develop appealing
styles and brands or successfully meet changing customer and
consumer demands in the future. In addition, we cannot assure
that any new products or brands that we introduce will be
successfully received and supported by our wholesale customers
or consumers. Our failure to gauge consumer needs and fashion
trends by brand and respond appropriately, and to appropriately
forecast our ability to sell products, could adversely affect
retail and consumer acceptance of our products and leave us with
substantial outstanding fabric
and/or
manufacturing commitments, resulting in increases in unsold
inventory or missed opportunities. If that occurs, we may need
to employ markdowns or promotional sales to dispose of excess
inventory, which may harm our business and results. At the same
time, our focus on inventory management may result, from time to
time, in our not having a sufficient supply of products to meet
demand and cause us to lose potential sales.
We cannot assure that we can attract and retain talented
highly qualified executives, or maintain satisfactory
relationships with our employees, both union and
non-union.
Our success depends, to a significant extent, both upon the
continued services of our executive management team, including
brand-level executives, as well as our ability to attract, hire,
motivate and retain additional talented and highly qualified
management in the future, including the areas of design,
merchandising, sales, supply chain, marketing, production and
systems, as well as our ability to hire and train qualified
retail management and associates. In addition, we will need to
provide for the succession of senior management, including
brand-level executives. The loss of key members of management
and our failure to successfully plan for succession could
disrupt our operations and our ability to successfully operate
our business and execute our strategic plan.
We are bound by a variety of collective bargaining agreements in
the US and Canada, mostly in our warehouse and distribution
facilities. We consider our relations with our nonunion and
union employees to be satisfactory and to date we have not
experienced any interruption of our operations due to labor
disputes. While our relations with the unions have historically
been amicable, we cannot rule out the possibility of a labor
dispute at one or more of our facilities relating to any
facility closings, outsourcing or ongoing negotiations with
respect to contracts that expire. Any such dispute could have a
material adverse impact on our business.
28
Costs related to a multiemployer pension plan could
increase, which could negatively affect our results of
operations and cash flow.
We contribute to a union-sponsored multiemployer defined benefit
pension plan, which is regulated by ERISA, pursuant to
obligations arising under our collective bargaining agreements.
This multiemployer pension plan is not administered by or
controlled by us and has actuarial liabilities for accumulated
benefits that are in excess of plan assets. Our required
contributions to this plan could increase or decrease, depending
upon the outcome of collective bargaining, actions taken by
trustees who manage the plans, governmental regulations, market
conditions, the actual return on assets held in the plan and the
continued viability and contributions of other employers which
contribute to the plan. Due to the underfunding, we are already
subject to a rehabilitation plan and are making the necessary
contributions.
In addition, under ERISA, an employer that withdraws or
partially withdraws from a multiemployer pension plan may incur
a withdrawal liability to the plan, which represents
the portion of the plans underfunding that is allocable to
the withdrawing employer. A withdrawal liability may be incurred
under a variety of circumstances, including selling, closing or
substantially reducing employment at our unionized facilities or
if the plan is terminated. If incurred, a withdrawal liability
is generally payable in installments over a period of years, the
amount and duration of the installments being determined under
relevant statutory rules. Material increases in our
contributions to the plan
and/or the
occurrence of withdrawal liabilities could have an adverse
effect on our results of operations and cash flow.
Our business could suffer if we cannot adequately
establish, defend and protect our trademarks and other
proprietary rights.
We believe that our trademarks and other proprietary rights are
significantly important to our success and competitive position.
Accordingly, we devote substantial resources to the
establishment and protection of our trademarks and
anti-counterfeiting activities. Counterfeiting of our products,
particularly our JUICY COUTURE, LUCKY BRAND and KATE SPADE
brands, continues, however, and in the course of our
international expansion we have experienced conflicts with
various third parties that have acquired or claimed ownership
rights in some of our trademarks or otherwise have contested our
rights to our trademarks. We have, in the past, resolved certain
of these conflicts through both legal action and negotiated
settlements, none of which, we believe, has had a material
impact on our financial condition, liquidity or results of
operations. However, the actions taken to establish and protect
our trademarks and other proprietary rights might not be
adequate to prevent imitation of our products by others or to
prevent others from seeking to block sales of our products as a
violation of their trademarks and proprietary rights. Moreover,
in certain countries others may assert rights in, or ownership
of, our trademarks and other proprietary rights or we may not be
able to successfully resolve such conflicts, or resolving such
conflicts may require us to make significant monetary payments.
In addition, the laws of certain foreign countries may not
protect proprietary rights to the same extent as do the laws of
the United States. The loss of such trademarks and other
proprietary rights, or the loss of the exclusive use of such
trademarks and other proprietary rights, could have a material
adverse effect on us. Any litigation regarding our trademarks or
other proprietary rights could be time consuming and costly.
Our success will depend on our ability to successfully
develop or acquire new product lines or enter new markets or
product categories.
We have in the past, and may, from time to time, acquire or
develop new product lines, enter new markets or product
categories, including through licensing arrangements (such as
the license of our DANA BUCHMAN brand to Kohls),
and/or
implement new business models (such as the licensing
arrangements with JCPenney and QVC for the LIZ CLAIBORNE
brands). Such activities are accompanied by a variety of risks
inherent in any such new business venture, including the
following:
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Our ability to identify appropriate business development
opportunities, including new product lines and markets;
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New businesses, business models, product lines or market
activities may require methods of operations, investments and
marketing and financial strategies different from those employed
in our other businesses,
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and may also involve buyers, store customers
and/or
competitors different from our historical buyers, store
customers and competitors;
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Consumer acceptance of the new products or lines;
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We may not be able to generate projected or satisfactory levels
of sales, profits
and/or
return on investment for a new business or product line, and may
also encounter unanticipated events and unknown or uncertain
liabilities that could materially impact our business;
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We may experience possible difficulties, delays
and/or
unanticipated costs in integrating the business, operations,
personnel
and/or
systems of an acquired business and may also not be able to
retain and appropriately motivate key personnel of an acquired
business;
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We may not be able to maintain product licenses, which are
subject to agreement with a variety of terms and conditions, or
to enter into new licenses to enable us to launch new products
and lines; and
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With respect to a business where we act as licensee, such as our
licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands, there are a number of inherent risks, including,
without limitation, 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 licensors brands or other product lines,
which are not within our control.
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The
markets in which we operate are highly competitive, both within
the United States and abroad.
We face intense competitive challenges from other domestic and
foreign fashion apparel and accessories producers and retailers.
Competition is based on a number of factors, including the
following:
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Anticipating and responding to changing consumer demands in a
timely manner;
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Establishing and maintaining favorable brand name and
recognition;
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Product quality;
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Maintaining and growing market share;
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Developing quality and differentiated products that appeal to
consumers;
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Establishing and maintaining acceptable relationships with our
retail customers;
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Pricing products appropriately;
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Providing appropriate service and support to retailers;
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Optimizing our retail and supply chain capabilities;
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Size and location of our retail stores and department store
selling space; and
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Protecting intellectual property.
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Any increased competition, or our failure to adequately address
these competitive factors, could result in reduced sales or
prices, or both, which could have a material adverse effect on
us. We also believe there is an increasing focus by the
department stores to concentrate an increasing portion of their
product assortments within their own private label products.
These private label lines compete directly with our product
lines and may receive prominent positioning on the retail floor
by department stores. Finally, in the current economic
environment, which is characterized by softening demand for
discretionary items, such as apparel and related products, there
has been a consistently increased level of promotional activity,
both at our retail stores and at department stores, which has
had an adverse effect on our revenues and profitability.
30
Our reliance on independent foreign manufacturers could
cause delay and loss and damage our reputation and customer
relationships. Also, there are risks associated with our
agreement with Li & Fung, which results in a single foreign
buying/sourcing agent for a significant portion of our
products.
We do not own any product manufacturing facilities; all of our
products are manufactured in accordance with our specifications
through arrangements with independent suppliers. Products
produced in Asia represent a substantial majority of our sales.
We also source product in the United States and other regions,
including approximately 500 suppliers manufacturing our
products. At the end of 2010 such suppliers were located in 50
countries, with the largest finished goods supplier at such time
accounting for less than 7.0% of the total of finished goods we
purchased in 2010. A suppliers failure to manufacture and
deliver products to us in a timely manner or to meet our quality
standards could cause us to miss the delivery date requirements
of our customers for those items. The failure to make timely
deliveries may drive customers to cancel orders, refuse to
accept deliveries or demand reduced prices, any of which could
have a material adverse effect on us and our reputation in the
marketplace. Also, a manufacturers failure to comply with
safety and content regulations and standards, including with
respect to childrens product and fashion jewelry, could
result in substantial liability and damage to our reputation.
While we provide our manufacturers with standards, and we employ
independent testing for safety and content issues, we might not
be able to prevent or detect all failures of our manufacturers
to comply with such standards and regulations.
Additionally, we require our independent manufacturers (as well
as our licensees) to operate in compliance with applicable laws
and regulations. While our internal and vendor operating
guidelines promote ethical business practices and our staff
periodically visits and monitors the operations of our
independent manufacturers, we do not control these manufacturers
or their labor practices. The violation of labor or other laws
by an independent manufacturer used by us (or any of our
licensees), or the divergence of an independent
manufacturers (or licensees) labor practices from
those generally accepted as ethical in the United States, could
interrupt, or otherwise disrupt the shipment of finished
products to us or damage our reputation. Any of these, in turn,
could have a material adverse effect on our business, financial
condition, liquidity and results of operations.
In 2008, we entered into an agreement with Hong Kong-based,
global consumer goods exporter Li & Fung, whereby
Li & Fung acts as the primary global apparel
buying/sourcing agent for the MEXX brand and MEXXs
existing buying/sourcing agent offices were integrated into the
Li & Fung organization. On February 23, 2009, we
entered into a long-term, buying/sourcing agency agreement with
Li & Fung, pursuant to which Li & Fung acts
as the primary global apparel and accessories buying/sourcing
agent for all brands in our portfolio, with the exception of our
jewelry product lines. Li & Fung continues as the
primary buying/sourcing agent for MEXX. Pursuant to the
agreement, we received at closing on March 31, 2009 a
payment of $75.0 million and an additional payment of
$8.0 million to offset specific, identifiable, incremental
expenses associated with the transaction. We now pay to
Li & Fung an agency commission based on the cost of
our product purchases through Li & Fung. Our
buying/sourcing agent offices In Hong Kong, India, Indonesia,
Shanghai and Shenzhen have been substantially integrated into
the Li & Fung organization. The transition with
Li & Fung might not be successful, and problems
encountered in such transition could have a material adverse
effect on our business, financial condition, liquidity and
results of operations. The licensing arrangements with JCPenney
and QVC resulted in the removal of sourcing for a number of LIZ
CLAIBORNE branded products sold under these licenses from the
Li & Fung buying/sourcing arrangement. As a result,
under our agreement with Li & Fung, we refunded
$24.3 million of the closing payment during the second
quarter of 2010. Our agreement with Li & Fung is not
exclusive; however, we are required to source a specified
percentage of product purchases from Li & Fung.
Our arrangements with foreign suppliers and with our foreign
buying/sourcing agents are subject generally to the risks of
doing business abroad, including currency fluctuations and
revaluations, restrictions on the transfer of funds, terrorist
activities, pandemic disease and, in certain parts of the world,
political, economic and currency instability. Our operations
have not been materially affected by any such factors to date.
However, due to the very substantial portion of our products
that are produced abroad, any substantial disruption of our
relationships with our foreign suppliers could adversely effect
our operations. Moreover, difficult macroeconomic conditions and
uncertainties in the global credit markets could negatively
impact our suppliers, which in turn, could have an adverse
impact on our business, financial position, liquidity and
results of operations.
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Our international operations are subject to a variety of
legal, regulatory, political and economic risks, including risks
relating to the importation and exportation of product.
We source most of our products outside the United States through
arrangements with independent suppliers in approximately 50
countries as of January 1, 2011. There are a number of
risks associated with importing our products, including but not
limited to the following:
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The potential reimposition of quotas, which could limit the
amount and type of goods that may be imported annually from a
given country, in the context of a trade retaliatory case;
|
|
|
|
Changes in social, political, legal and economic conditions or
terrorist acts that could result in the disruption of trade from
the countries in which our manufacturers or suppliers are
located;
|
|
|
|
The imposition of additional regulations, or the administration
of existing regulations, relating to products which are
imported, exported or otherwise distributed;
|
|
|
|
The imposition of additional duties, tariffs, taxes and other
charges or other trade barriers on imports or exports;
|
|
|
|
Risks of increased sourcing costs, including costs for materials
and labor and such increases potentially resulting from the
elimination of quota on apparel products;
|
|
|
|
Our ability to adapt to and compete effectively in the current
quota environment, in which general quota has expired on apparel
products, resulting in changing in sourcing patterns and lowered
barriers to entry, but political activities which could result
in the reimposition of quotas or other restrictive measures have
been initiated or threatened;
|
|
|
|
Significant delays in the delivery of cargo due to security
considerations;
|
|
|
|
The imposition of antidumping or countervailing duty proceedings
resulting in the potential assessment of special antidumping or
countervailing duties; and
|
|
|
|
The enactment of new legislation or the administration of
current international trade regulations, or executive action
affecting international textile agreements, including the United
States 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.
|
Any one of these or similar factors could have a material
adverse effect on our business, financial condition, liquidity,
results of operations and current business practices.
Our ability to realize growth in new international markets and
to maintain the current level of sales in our existing
international markets is subject to risks associated with
international operations. These include complying with a variety
of foreign laws and regulations; unexpected changes in
regulatory requirements; new tariffs or other barriers in some
international markets; political instability and terrorist
attacks; changes in diplomatic and trade relationships; and
general economic fluctuations in specific countries, markets or
currencies.
Our business and balance sheets are exposed to domestic
and foreign currency fluctuations, including with respect to the
outstanding euro-denominated notes.
While we generally purchase our products in US dollars, we
source most of our products overseas. As a result, the cost of
these products may be affected by changes in the value of the
relevant currencies, including currency devaluations. Changes in
currency exchange rates may also affect the US dollar value of
the foreign currency denominated prices at which our
international businesses sell products. Furthermore, our
international sales represented approximately 33.7% of our total
sales in 2010 and 32.3% in 2009. Such sales were derived from
sales in foreign currencies, primarily the euro. Our
international sales, as well as our international
businesses inventory and accounts receivable levels, could
be materially affected by currency fluctuations. In addition, we
have outstanding 350.0 million euro of euro-denominated
Notes, which could further expose our business and balance
sheets to foreign currency fluctuations. Although we hedge some
exposures to changes in foreign currency exchange rates arising
in the ordinary course of business, we cannot assure that
foreign currency
32
fluctuations will not have a material adverse impact on our
business, financial condition, liquidity or results of
operations.
A material disruption in our information technology
systems could adversely affect our business or results of
operations.
We rely extensively on our information technology
(IT) systems to track inventory, manage our supply
chain, record and process transactions, summarize results and
manage our business. The failure of IT systems to operate
effectively, problems with transitioning to upgraded or
replacement systems or difficulty in integrating new systems
could adversely impact our business. In addition, our IT systems
are subject to damage or interruption from power outages,
computer, network and telecommunications failures, computer
viruses, security breaches and usage errors by our employees. If
our IT systems are damaged or cease to function properly, we may
have to make a significant investment to fix or replace them,
and we may suffer loss of critical data and interruptions or
delays in our operations in the interim. Any material disruption
in our IT systems could adversely affect our business or results
of operations.
Privacy breaches and liability for online content could
negatively affect our reputation, credibility and
business.
We rely on third-party computer hardware, software and
fulfillment operations for our
e-commerce
operations and for the various social media tools and websites
we use as part of our marketing strategy. There is a growing
concern over the security of personal information transmitted
over the internet, consumer identity theft and user privacy.
Despite the implementation of reasonable security measures by us
and our third-party providers, these sites and systems may be
susceptible to electronic or physical computer break-ins and
security breaches. Any perceived or actual unauthorized
disclosure of personally-identifiable information regarding our
customers or website visitors could harm our reputation and
credibility, decline our
e-commerce
net sales, impair our ability to attract website visitors and
reduce our ability to attract and retain customers.
Additionally, as the number of users of forums and social media
features on our websites increases, we could be exposed to
liability in connection with material posted on our websites by
users and other third parties. Finally, we could incur
significant costs in complying with the multitude of state,
federal and foreign laws regarding unauthorized disclosure of
personal information.
Our ability to utilize all or a portion of our US deferred
tax assets may be limited significantly if we experience an
ownership change.
As of January 1, 2011, we had US federal deferred tax
assets of $409.0 million, which include net operating loss
(NOL) carryforwards and other items which could be
considered net unrealized built in losses (NUBIL).
Among other factors, our ability to utilize our NOL
and/or our
NUBIL items to offset future taxable income may be limited
significantly if we experience an ownership change
as defined in section 382 of the Internal Revenue Code of
1986, as amended (the Code). In general, an
ownership change will occur if there is a cumulative increase in
ownership of our stock by 5-percent shareholders (as
defined in the Code) that exceeds 50 percentage points over
a rolling three-year period. The limitation arising from an
ownership change under section 382 of the Code
on our ability to utilize our US deferred tax assets depends on
the value of our stock at the time of the ownership change. We
continue to monitor changes in our ownership and do not believe
we have a change in control as of January 1, 2011. If all
or a portion of our deferred tax assets are subject to
limitation because we experience an ownership change, depending
on the value of our stock at the time of the ownership change,
our future cash flows could be adversely impacted due to
increased tax liability. As of January 1, 2011,
substantially all tax benefit of the US deferred tax assets has
been offset with a full valuation allowance that was recognized
in our financial statements.
The outcome of current and future litigations and other
proceedings in which we are involved may have a material adverse
effect on our results of operations and cash flows.
We are subject to various litigations and other proceedings in
our business which, if determined unfavorably to us, could have
a material adverse effect on our results of operations and cash
flows. For a more detailed discussion of these litigations and
other proceedings, see Item 3 Legal
Proceedings. We may in the future be subject to claims by
other licensees of our merchandise that may be similar to those
we have disclosed in this Annual Report on
Form 10-K,
and we may also become party to other claims and legal actions
in the future which, either individually or in the aggregate,
could have a material adverse effect on our results of
operations and cash flows. In
33
addition, any of the current or possible future legal
proceedings in which we may be involved could require
significant management and financial resources, which could
otherwise be devoted to the operation of our business.
|
|
Item 1B.
|
Unresolved
Staff
Comments.
|
None.
Our distribution and administrative functions are conducted in
both leased and owned facilities. We also lease space for our
specialty retail and outlet stores. We believe that our existing
facilities are well maintained, in good operating condition and
are adequate for our present level of operations, although from
time to time we use unaffiliated third parties to provide
distribution services to meet our distribution requirements.
Our principal executive offices and showrooms, as well as sales,
merchandising and design staffs, are located at 1441 Broadway,
New York, New York, where we lease 304,000 square feet and
occupy approximately 104,000 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. We own and operate a 285,000 square foot office
building in North Bergen, New Jersey, which houses operational
staff. The following table sets forth information with respect
to our key properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Square
|
|
|
|
|
|
|
Footage
|
|
Leased/
|
Location(a)
|
|
Primary Use
|
|
Occupied
|
|
Owned
|
|
West Chester,
Ohio(b)
|
|
Apparel Distribution Center
|
|
|
601,000
|
|
|
Leased
|
Voorschoten, Netherlands
|
|
Offices/Apparel Distribution Center
|
|
|
350,000
|
|
|
Leased
|
North Bergen, New Jersey
|
|
Offices
|
|
|
285,000
|
|
|
Owned
|
St. Laurent, Canada
|
|
Office/Apparel & Non-Apparel Distribution Center
|
|
|
160,000
|
|
|
Leased
|
Amsterdam, Netherlands
|
|
Offices
|
|
|
109,000
|
|
|
Leased
|
New York, New York
|
|
Offices
|
|
|
104,000
|
|
|
Leased
|
1440 Broadway, New York, NY
|
|
Offices
|
|
|
93,000
|
|
|
Leased
|
|
|
|
(a) |
|
We also lease showroom, warehouse and office space in various
other domestic and international locations. We closed our
Allentown, Pennsylvania and Dayton, New Jersey distribution
centers during 2008 and our Vernon, California distribution
center during 2010, for which we remain obligated under the
respective leases. |
|
(b) |
|
We operate the Ohio facility under a synthetic lease that
expires in May of 2011. During the third quarter of 2010, we
communicated our intent to purchase the underlying assets of the
Ohio facility and expect to close the purchase for
$28.0 million in the second quarter of 2011. See
Note 8 of Notes to Consolidated Financial Statements for a
discussion of this arrangement. |
In 2010, we sold our former Mt. Pocono, Pennsylvania
distribution center and 80 acres of land in Montgomery,
Alabama.
|
|
Item 3.
|
Legal
Proceedings
|
A purported class action complaint captioned Angela Tyler
(individually and on behalf of all others similarly
situated) v. Liz Claiborne, Inc, Trudy F. Sullivan and
William L. McComb, was filed in the United States District
Court in the Southern District of New York on April 28,
2009 against the Company, its Chief Executive Officer, William
L. McComb and Trudy Sullivan, a former President of the Company.
The complaint alleges certain violations of the federal
securities laws, claiming misstatements and omissions
surrounding the Companys wholesale business. The Company
believes that the allegations contained in the complaint are
without merit, and the Company intends to defend this lawsuit
vigorously. The Company moved to dismiss Plaintiffs Second
Amended Complaint on October 4, 2010.
A complaint captioned The Levy Group, Inc. v. L.C.
Licensing, Inc. and Liz Claiborne, Inc. was filed in the
Supreme Court of the State of New York, County of New York, on
January 21, 2010. The complaint alleged claims
34
for breach of contract, breach of the implied covenant of good
faith and fair dealing, promissory estoppel and tortious
interference against L.C. Licensing, Inc. and the Company in
connection with a trademark licensing agreement between L.C.
Licensing, Inc. and its licensee, The Levy Group, Inc. The Levy
Group, Inc.s alleged claims purportedly arose from the
Companys decision to sign a licensing agreement with
JCPenney. The complaint sought an award of $100.0 million
in compensatory damages plus punitive damages. On March 4,
2010, the Company moved to dismiss the complaint for failure to
state a cause of action. On October 12, 2010, the Court
issued an order granting the motion and dismissing all of The
Levy Group Inc.s claims with prejudice. The time to appeal
such order has expired and The Levy Group, Inc. did not appeal
this ruling.
A lawsuit captioned LC Footwear, L.L.C., et al. v. L.C.
Licensing, Inc., et al., was filed on November 2, 2010
in the Supreme Court of the State of New York, County of New
York. The complaint asserted that the Company had, among other
things, allegedly breached a license by and among the Company,
L.C. Licensing, Inc. and L.C. Footwear, L.L.C. (the
Footwear License Agreement). The Company sent the
plaintiffs a notice of default under the Footwear License
Agreement on October 11, 2010. On December 22, 2010,
the Company moved to dismiss the complaint in its entirety. In
response, plaintiffs filed an amended complaint on
January 14, 2011. The amended complaint asserts claims for
breach of the Footwear License Agreement and the implied
covenant of good faith and fair dealing therein, fraud, and
brand dilution. Plaintiffs seek both declaratory and injunctive
relief, as well as damages of not less than $125.0 million.
The Companys response to the amended complaint is due on
February 17, 2011. The Company believes the allegations in
the amended complaint are without merit and intends to file a
motion to dismiss the amended complaint in its entirety.
Additionally, on November 4, 2010, plaintiffs moved for a
preliminary injunction to enjoin the Company from:
(i) interfering with plaintiffs purported right to
sell merchandise bearing the LIZ CLAIBORNE family of trademarks;
(ii) selling (or permitting any third party from selling)
merchandise under the LIZ & CO. trademark; and
(iii) terminating the Footwear License Agreement.
Plaintiffs motion for a preliminary injunction is fully
briefed and oral argument was held before the court on
December 1, 2010. The Company awaits the courts
decision on plaintiffs motion for a preliminary
injunction, but believes that there are no grounds for a
preliminary injunction to be issued.
The Company is a party to several other pending legal
proceedings and claims. 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 Companys
financial position, results of operations, liquidity or cash
flows (see Notes 1, 8 and 20 of Notes to Consolidated
Financial Statements).
Executive
Officers of the
Registrant.
Information as to the executive officers of the Company, as of
February 4, 2011 is set forth below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
William L. McComb
|
|
|
48
|
|
|
Chief Executive Officer
|
Andrew Warren
|
|
|
44
|
|
|
Chief Financial Officer
|
Lisa Piovano Machacek
|
|
|
46
|
|
|
Senior Vice President Chief Human Resources Officer
|
Nicholas Rubino
|
|
|
49
|
|
|
Senior Vice President Chief Legal Officer, General
Counsel and Secretary
|
Peter Warner
|
|
|
49
|
|
|
Senior Vice President Global Sourcing and Operations
|
Executive officers serve at the discretion of the Board of
Directors.
Mr. McComb joined the Company as Chief Executive Officer
and a member of the Board of Directors on November 6, 2006.
Prior to joining the Company, Mr. McComb was a company
group chairman at Johnson & Johnson. During his
14-year
tenure with Johnson & Johnson, Mr. McComb oversaw
some of the companys largest consumer product businesses
and brands, including Tylenol, Motrin and Clean &
Clear. He also led the team that repositioned and restored
growth to the Tylenol brand and oversaw the growth of
J&Js McNeil Consumer business with key brand licenses
such as St. Joseph aspirin, where he implemented a strategy to
grow the brand beyond the
over-the-counter
market by adding pediatric prescription drugs. Mr. McComb
serves on the Boards of the American Apparel &
Footwear Association and the National Retail Federation, and is
a trustee of The Pennington School. He
35
is a member of Kilts Center for Marketings steering
committee at The University of Chicago Booth School of Business.
He is also a member of the Business Roundtable.
Mr. Warren joined the Company in July 2007 as Chief
Financial Officer. Prior to that, he had held numerous finance
positions at General Electric over the prior 18 years,
including Senior Vice President and CFO for NBC Cable from
January 2002 to May 2004 and Executive Vice President and Chief
Financial Officer for NBC Universal Television Group from May
2004 to May 2006. Most recently, he served as Senior Operations
Leader, GE Audit Staff, from May 2006 to July 2007 where he
helped lead the divestiture of GEs Plastics division.
Ms. Piovano Machacek was promoted to Senior Vice President
and Chief Human Resources Officer in February 2010. She joined
the Company in July 1988. Over the years, she has held various
positions related to product development and later transitioned
into the Human Resources department. Ms. Piovano Machacek
held the position of Vice President of Human Resources since
2006, specifically focused on Partnered Brands. Prior to that
she was Director of Human Resources, a role she took on in 2001.
Mr. Rubino joined the Company in May 1994 as an Associate
General Counsel. In May 1996, he was appointed Deputy General
Counsel and in March 1998 became Vice President, Deputy General
Counsel. He was appointed Corporate Secretary in July 2001.
Mr. Rubino was promoted to General Counsel in June 2007 and
assumed his current position in October 2008. Prior to joining
the Company, he was a Corporate Associate at Kramer Levin
Naftalis & Frankel, LLP.
Mr. Warner joined the Company in June 2008 as Senior Vice
President, Global Sourcing and Operations, after three years at
Gap Inc. in its Banana Republic division. Mr. Warner was
initially hired as the Vice President of Production at Gap Inc.
in 2005 and in 2007 was promoted to Senior Vice President of
Production for Banana Republic where he was responsible for the
apparel, footwear, and accessories product development and
sourcing organizations worldwide. Previously, Mr. Warner
held roles of similar levels at Nike, Foot Locker and Ann Taylor.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity
Securities.
|
MARKET
INFORMATION
Our 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 our common stock
for the periods indicated.
|
|
|
|
|
|
|
|
|
Fiscal Period
|
|
High
|
|
Low
|
|
2010:
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
7.56
|
|
|
$
|
4.87
|
|
2nd
Quarter
|
|
|
9.33
|
|
|
|
4.09
|
|
3rd
Quarter
|
|
|
6.25
|
|
|
|
4.02
|
|
4th
Quarter
|
|
|
7.75
|
|
|
|
6.03
|
|
2009:
|
|
|
|
|
|
|
|
|
1st
Quarter
|
|
$
|
3.84
|
|
|
$
|
1.65
|
|
2nd
Quarter
|
|
|
6.30
|
|
|
|
2.81
|
|
3rd
Quarter
|
|
|
6.27
|
|
|
|
2.56
|
|
4th
Quarter
|
|
|
7.49
|
|
|
|
4.10
|
|
HOLDERS
On February 4, 2011, the closing sale price of our common
stock was $5.24. As of February 4, 2011, the approximate
number of record holders of common stock was 4,682.
DIVIDENDS
We did not pay any dividends during 2010 or 2009.
36
PERFORMANCE
GRAPH
Comparison of Cumulative Five Year Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2010
|
|
Liz Claiborne, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
122.05
|
|
|
|
$
|
57.54
|
|
|
|
$
|
7.62
|
|
|
|
$
|
16.50
|
|
|
|
$
|
20.99
|
|
S&P 500 Index
|
|
|
|
100.00
|
|
|
|
|
115.80
|
|
|
|
|
122.16
|
|
|
|
|
76.96
|
|
|
|
|
97.33
|
|
|
|
|
111.99
|
|
S&P SmallCap 600
|
|
|
|
100.00
|
|
|
|
|
115.12
|
|
|
|
|
114.78
|
|
|
|
|
79.11
|
|
|
|
|
99.34
|
|
|
|
|
125.47
|
|
New Benchmarking
Group(a)
|
|
|
|
100.00
|
|
|
|
|
117.18
|
|
|
|
|
91.64
|
|
|
|
|
49.93
|
|
|
|
|
95.42
|
|
|
|
|
127.60
|
|
Prior Benchmarking
Group(b)
|
|
|
|
100.00
|
|
|
|
|
127.21
|
|
|
|
|
113.35
|
|
|
|
|
68.78
|
|
|
|
|
113.10
|
|
|
|
|
151.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The New Benchmarking Group consisted of Abercrombie &
Fitch; Aeropostale, Inc.; American Eagle Outfitters, Inc.; Ann
Taylor Stores Corporation; Charming Shoppes, Inc.; Chicos
FAS, Inc.; Coach, Inc.; Guess?, Inc.; The Jones Group, Inc.;
Limited Brands, Inc.; New York & Company, Inc.;
Pacific Sunwear of California, Inc.; Philips Van-Heusen
Corporation; Polo Ralph Lauren Corporation; Quiksilver, Inc.;
The Talbots, Inc.; Urban Outfitters, Inc.; VF Corporation and
The Warnaco Group, Inc. |
|
(b) |
|
The Prior Benchmarking Group consisted of
Abercrombie & Fitch; American Eagle Outfitters, Inc;
Ann Taylor Stores Corporation; Coach, Inc.; Dillards, Inc.; The
Gap, Inc.; The Jones Group, Inc.; Limited Brands, Inc.; NIKE,
Inc.; Nordstrom, Inc.; Philips Van-Heusen Corporation; Polo
Ralph Lauren Corporation; Quiksilver, Inc.; Saks Incorporated;
The Talbots, Inc.; and VF Corporation. |
The line graph above compares the cumulative total stockholder
return on the Companys Common Stock over a
5-year
period with the return on (i) the Standard &
Poors 500 Stock Index (S&P 500) (which
the Companys shares ceased to be a part of as of the close
of business on December 1, 2008); (ii) the
Standard & Poors SmallCap 600 Stock Index
(S&P SmallCap 600) (which the Companys
shares became a part of on December 2, 2008); and
(iii) two indices comprised of the Company and:
(a) the previously designated compensation peer group,
designated by the Boards Compensation Committee in
consultation with its compensation consultants, against which
executive compensation practices of the Company are compared
(the Prior Benchmarking Group) and (b) the new
compensation peer group designated by the Compensation Committee
in October 2010 in consultation with its compensation
consultants, which reflects a total of eight additions to and
five deletions from the Prior Benchmarking Group (the New
Benchmarking Group). We have historically constructed our
37
compensation benchmarking group based on companies with
comparable products, revenue composition and size. We believe
the New Peer Group provides a more meaningful comparison in
terms of comparable products, revenue composition and size in
light of changes in the Companys operations over the past
few years.
In accordance with SEC disclosure rules, the measurements are
indexed to a value of $100 at December 30, 2005 (the last
trading day before the beginning of the Companys 2006
fiscal year) and assume that all dividends were reinvested.
ISSUER
PURCHASES OF EQUITY SECURITIES
The following table summarizes information about our purchases
during the quarter ended January 1, 2011, of equity
securities that are registered by the Company pursuant to
Section 12 of the Securities Exchange Act of 1934:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
|
May Yet be
|
|
|
|
Total Number of
|
|
|
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
|
|
|
Plans or
|
|
|
Under the Plans
|
|
|
|
Purchased
|
|
|
Average Price
|
|
|
Programs
|
|
|
or Programs
|
|
Period
|
|
(In
thousands)(a)
|
|
|
Paid per Share
|
|
|
(In thousands)
|
|
|
(In
thousands)(b)
|
|
October 3, 2010 October 30, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
28,749
|
|
October 31, 2010 December 4, 2010
|
|
|
0.6
|
|
|
|
6.20
|
|
|
|
|
|
|
|
28,749
|
|
December 5, 2010 January 1, 2011
|
|
|
1.1
|
|
|
|
7.55
|
|
|
|
|
|
|
|
28,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 13 Weeks Ended January 1, 2011
|
|
|
1.7
|
|
|
$
|
7.06
|
|
|
|
|
|
|
$
|
28,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes shares withheld to cover tax-withholding requirements
relating to the vesting of restricted stock issued to employees
pursuant to the Companys shareholder-approved stock
incentive plans. |
|
(b) |
|
The Company initially announced the authorization of a share
buyback program in December 1989. Since its inception, the
Companys Board of Directors has authorized the purchase
under the program of an aggregate of $2.275 billion of the
Companys stock. The amended and restated revolving credit
agreement currently restricts the Companys ability to
repurchase stock. |
38
|
|
Item 6.
|
Selected
Financial
Data.
|
The following table sets forth certain information regarding our
results of operations and financial position and is qualified in
its entirety by the Consolidated Financial Statements and notes
thereto, which appear elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
(Amounts in thousands, except per common share data)
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,500,072
|
|
|
$
|
2,915,919
|
|
|
$
|
3,861,111
|
|
|
$
|
4,308,402
|
|
|
$
|
4,356,403
|
|
Gross profit
|
|
|
1,238,521
|
|
|
|
1,352,325
|
|
|
|
1,835,790
|
|
|
|
2,034,246
|
|
|
|
2,116,196
|
|
Operating (loss)
income(a)
|
|
|
(179,514
|
)
|
|
|
(318,058
|
)
|
|
|
(733,885
|
)
|
|
|
(433,028
|
)
|
|
|
334,302
|
|
(Loss) income from continuing operations
|
|
|
(220,983
|
)
|
|
|
(278,911
|
)
|
|
|
(811,057
|
)
|
|
|
(374,487
|
)
|
|
|
192,354
|
|
Net (loss) income
|
|
|
(252,309
|
)
|
|
|
(306,410
|
)
|
|
|
(951,559
|
)
|
|
|
(372,282
|
)
|
|
|
255,318
|
|
Net (loss) income attributable to Liz Claiborne, Inc.
|
|
|
(251,467
|
)
|
|
|
(305,729
|
)
|
|
|
(951,811
|
)
|
|
|
(372,798
|
)
|
|
|
254,685
|
|
Working capital
|
|
|
39,043
|
|
|
|
244,379
|
|
|
|
432,174
|
|
|
|
794,456
|
|
|
|
796,195
|
|
Total assets
|
|
|
1,257,659
|
|
|
|
1,605,903
|
|
|
|
1,905,452
|
|
|
|
3,268,467
|
|
|
|
3,495,768
|
|
Total debt
|
|
|
577,812
|
|
|
|
658,151
|
|
|
|
743,639
|
|
|
|
887,711
|
|
|
|
592,735
|
|
Total Liz Claiborne, Inc. stockholders (deficit) equity
|
|
|
(24,170
|
)
|
|
|
216,548
|
|
|
|
503,647
|
|
|
|
1,515,564
|
|
|
|
2,129,981
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Liz
Claiborne, Inc.
|
|
|
(2.34
|
)
|
|
|
(2.96
|
)
|
|
|
(8.67
|
)
|
|
|
(3.76
|
)
|
|
|
1.88
|
|
Net (loss) income attributable to Liz Claiborne, Inc.
|
|
|
(2.67
|
)
|
|
|
(3.26
|
)
|
|
|
(10.17
|
)
|
|
|
(3.74
|
)
|
|
|
2.50
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Liz
Claiborne, Inc.
|
|
|
(2.34
|
)
|
|
|
(2.96
|
)
|
|
|
(8.67
|
)
|
|
|
(3.76
|
)
|
|
|
1.85
|
|
Net (loss) income attributable to Liz Claiborne, Inc.
|
|
|
(2.67
|
)
|
|
|
(3.26
|
)
|
|
|
(10.17
|
)
|
|
|
(3.74
|
)
|
|
|
2.46
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
0.23
|
|
|
|
0.23
|
|
|
|
0.23
|
|
Weighted average shares outstanding, basic
|
|
|
94,243
|
|
|
|
93,880
|
|
|
|
93,606
|
|
|
|
99,800
|
|
|
|
101,989
|
|
Weighted average shares outstanding,
diluted(b)
|
|
|
94,243
|
|
|
|
93,880
|
|
|
|
93,606
|
|
|
|
99,800
|
|
|
|
103,483
|
|
|
|
|
(a) |
|
During 2010, 2009 and 2008, we recorded pretax charges of
$81.2 million, $163.5 million and $110.7 million,
respectively, related to our streamlining initiatives, which are
discussed in Note 12 of Notes to Consolidated Financial
Statements. The 2009 charges include a non-cash impairment
charge of $4.5 million related to LIZ CLAIBORNE
merchandising rights previously recorded in our Partnered Brands
segment, which is discussed in Note 1 of Notes to
Consolidated Financial Statements. |
|
|
|
During 2007 and 2006, we recorded pretax charges of
$109.2 million and $81.5 million related to our
streamlining initiatives. |
|
|
|
During 2010, we recorded non-cash pretax impairment charges of
$2.6 million primarily within our Partnered Brands segment
principally related to merchandising rights of our LIZ CLAIBORNE
and licensed
DKNY®
JEANS brands. |
|
|
|
During 2009, we recorded non-cash pretax impairment charges of
$2.8 million related to goodwill and $14.2 million
related to other intangible assets in our Partnered Brands
segment. |
|
|
|
During 2008, we sold a distribution center and recorded a gain
of $14.3 million. During 2008, we recorded non-cash pretax
impairment charges of (i) $683.1 million related to
goodwill previously recorded in our Domestic-Based and
International-Based Direct Brands segments and
(ii) $10.0 million in our Partnered Brands segment
related to our Villager, Crazy Horse and Russ trademark. |
39
|
|
|
|
|
These impairment charges are discussed in Note 1 of Notes
to Consolidated Financial Statements. |
|
|
|
During 2007, we recorded non-cash pretax impairment charges of
(i) $450.8 million related to goodwill previously
recorded in our Partnered Brands segment and
(ii) $36.3 million related to the Ellen Tracy
trademark. |
|
|
|
During 2009, we recorded pretax charges of $19.2 million
primarily related to retailer assistance associated with the
transition of our LIZ CLAIBORNE brands to license arrangements
and other accounts receivable allowances associated with exiting
activities. In addition, during 2008 and 2007, we recorded
additional pretax charges related to our strategic review
aggregating $58.6 million and $82.0 million,
respectively, primarily related to inventory and accounts
receivable allowances associated with the termination of certain
cosmetics product offerings, the closure of certain brands and
various professional and consulting costs. |
|
(b) |
|
Because we incurred losses from continuing operations in 2010,
2009, 2008 and 2007, outstanding stock options, nonvested shares
and potentially dilutive shares issuable upon conversion of the
Convertible Notes are antidilutive. Accordingly, basic and
diluted weighted average shares outstanding are equal for such
periods. |
40
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW
Business/Segments
Our segment reporting structure reflects a brand-focused
approach, designed to optimize the operational coordination and
resource allocation of our businesses across multiple functional
areas including specialty retail, retail outlets, concessions,
wholesale apparel, wholesale non-apparel,
e-commerce
and licensing. The three reportable segments described below
represent our brand-based activities for which separate
financial information is available and which is utilized on a
regular basis by our chief operating decision maker to evaluate
performance and allocate resources. In identifying our
reportable segments, we consider economic characteristics, as
well as products, customers, sales growth potential and
long-term profitability. We aggregate our six operating segments
to form reportable segments, where applicable. As such, we
report our operations in three reportable segments as follows:
|
|
|
|
|
Domestic-Based Direct Brands segment
consists of the specialty retail, outlet, wholesale apparel,
wholesale non-apparel (including accessories, jewelry, and
handbags),
e-commerce
and licensing operations of our three domestic, retail-based
operating segments: JUICY COUTURE, KATE SPADE and LUCKY BRAND.
|
|
|
|
International-Based Direct Brands segment
consists of the specialty retail, outlet, concession,
wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags),
e-commerce
and licensing operations of MEXX Europe and MEXX Canada, our two
international, retail-based operating segments.
|
|
|
|
Partnered Brands segment consists of
one operating segment including the wholesale apparel, wholesale
non-apparel, licensing, outlet, concession and
e-commerce
operations of our AXCESS, CLAIBORNE, DANA BUCHMAN,
KENSIE, LIZ CLAIBORNE, LIZ CLAIBORNE NEW YORK, MAC &
JAC, MARVELLA, MONET, TRIFARI and our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands, among others.
|
We also present our results on a geographic basis based on
selling location:
|
|
|
|
|
Domestic (wholesale customers, licensing,
Company-owned specialty retail and outlet stores located in the
US and
e-commerce
sites); and
|
|
|
|
International (wholesale customers, licensing,
Company-owned specialty retail, outlet and concession stores
located outside of the US and
e-commerce
sites).
|
We, as licensor, also license to third parties the right to
produce and market products bearing certain Company-owned
trademarks; the resulting royalty income is included within the
results of the associated segment.
Market
Environment
The industries in which we operate have historically been
subject to cyclical variations, including recessions in the
general economy. Our results are dependent on a number of
factors impacting consumer spending, including but not limited
to, general economic and business conditions; consumer
confidence; wages and employment levels; the housing market;
levels of perceived and actual consumer wealth; consumer debt
levels; availability of consumer credit; credit and interest
rates; fluctuations in foreign currency exchange rates; fuel and
energy costs; energy shortages; the performance of the financial
equity and credit markets; tariffs and other trade barriers;
taxes; general political conditions, both domestic and abroad;
and the level of customer traffic within department stores,
malls and other shopping and selling environments.
We have been greatly impacted by the economic downturn,
including a drastic decline in consumer spending that began in
the second half of 2008 and which persisted during 2009 and into
2010. Although the decline in consumer spending has moderated,
unemployment levels remain high, consumer retail traffic remains
depressed and the retail environment remains highly promotional.
We continue to focus on the execution of our strategic plans
41
and improvements in productivity, with a primary focus on
operating cash flow generation, retail execution and
international expansion. We will also continue to carefully
manage liquidity and spending.
Competitive
Profile
We operate in global fashion markets that are intensely
competitive and subject to, among other things, macroeconomic
conditions and consumer demands, tastes and discretionary
spending habits. As we anticipate that the global economic
uncertainty will continue into the foreseeable future, we are
focusing on carefully managing those factors within our control,
most importantly spending. We will continue our streamlining
efforts to drive cost out of our operations through initiatives
that are aimed at driving efficiencies as well as improvements
in working capital and operating cash flows. We remain cautious
about the near-term retail environment.
In summary, the measure of our success in the future will depend
on our ability to continue to navigate through an uncertain
macroeconomic environment with challenging market conditions,
execute on our strategic vision, including attracting and
retaining the management talent necessary for such execution,
designing and delivering products that are acceptable to the
marketplaces that we serve, sourcing the manufacture and
distribution of our products on a competitive and efficient
basis and executing the turnarounds at MEXX EUROPE and LUCKY
BRAND, reinvigorating the JUICY COUTURE domestic business while
expanding its international operations, and continuing to drive
profitable growth at KATE SPADE and with our licensed LIZ
CLAIBORNE brand at JCPenney.
Reference is also made to the other economic, competitive,
governmental and technological factors affecting our operations,
markets, products, services and prices as are set forth in this
Annual Report on
Form 10-K,
including, without limitation, under Statement Regarding
Forward Looking Statements and
Item 1A Risk Factors.
Recent
Initiatives
In October 2010, we initiated actions to exit our 82 LIZ
CLAIBORNE concessions in Europe. These actions include staff
reductions and consolidation of office space and are expected to
be completed in the first quarter of 2011. On January 10,
2011, we entered into an agreement which includes the exit of 53
such concessions and transfer of title to certain property and
equipment in exchange for a nominal fee.
Following a comprehensive review, on July 14, 2010, our
Board of Directors approved plans to exit our LIZ CLAIBORNE
branded outlet stores in the United States and Puerto Rico. We
completed the closure of these stores in January 2011. Our other
outlet stores in the US and Puerto Rico for our JUICY COUTURE,
LUCKY BRAND, KATE SPADE and KENSIE brands were not impacted by
this action.
In May 2010, we completed a second amendment to and restatement
of our revolving credit facility (as amended, the Amended
Agreement). Under the Amended Agreement, the aggregate
commitments were reduced to $350.0 million from
$600.0 million, and the maturity date was extended from May
2011 to August 2014, subject to certain early termination
provisions which provide for earlier maturity dates if our 5.0%
350.0 million euro Notes due July 2013 (the
Notes) and our $90.0 million
6.0% Convertible Senior Notes due June 2014 (the
Convertible Notes) are not repaid or refinanced by
certain agreed upon dates. For further information concerning
our debt and credit facilities, see Note 9 of Notes to
Consolidated Financial Statements and Financial Position,
Liquidity and Capital Resources, below.
In April 2010, we completed an agreement with an affiliate of
Donna Karan International, Inc. to terminate our licensed
DKNY®
MENS Sportswear operations and close, transfer or repurpose our
DKNY®
JEANS outlet stores (see Note 16 of Notes to Consolidated
Financial Statements). These actions included contract
terminations, staff reductions and consolidation of office space
and were substantially completed by the end of 2010.
In January 2010, we entered into an agreement with Lauras
Shoppe (Canada) Ltd. and Lauras Shoppe (P.V.) Inc.
(collectively, Laura Canada), which included the
assignment of 38 LIZ CLAIBORNE Canada store leases and transfer
of title to certain property and equipment to Laura Canada in
exchange for a net fee of approximately $7.9 million.
42
Our cost reduction efforts have included tighter controls
surrounding discretionary spending and streamlining initiatives
that have included rationalization of distribution centers and
office space, store closures and staff reductions, including
consolidation of certain support and production functions and
outsourcing certain corporate functions. These actions, in
conjunction with more extensive use of direct shipments and
third party arrangements have enabled us to significantly reduce
our reliance on owned or leased distribution centers. With the
closure of four distribution centers in 2010, we have closed ten
distribution centers since 2007. We will also continue to
closely manage spending, with projected 2011 capital
expenditures of approximately $75.0 million, compared to
$80.9 million in 2010.
For a discussion of certain risks relating to our recent
initiatives, see Item 1A Risk
Factors.
Discontinued
Operations
In connection with actions initiated in July 2007, we
(i) disposed of certain assets of our former Emma James,
Intuitions, J.H. Collectibles and Tapemeasure brands in 2007;
(ii) disposed of certain assets
and/or
liabilities of our former C&C California, Laundry by
Design, prAna and Ellen Tracy brands in 2008; (iii) closed
our SIGRID OLSEN brand, which included the closure of our
wholesale operations and the closure or conversion of our retail
locations in 2008 and (iv) entered into an exclusive
license agreement with Kohls Corporation
(Kohls), whereby Kohls sources and sells
products under the DANA BUCHMAN brand.
The activities of our former Emma James, Intuitions, J.H.
Collectibles, Tapemeasure, C&C California, Laundry by
Design, prAna, Narciso Rodriguez and Enyce brands, the retail
operations of our SIGRID OLSEN brand that were not converted to
other brands and the retail operations of our former Ellen Tracy
brand, our LIZ CLAIBORNE Canada stores, our closed LIZ
CLAIBORNE outlet stores in the US and Puerto Rico as of
January 1, 2011 and 53 of our LIZ CLAIBORNE concessions in
Europe have been segregated and reported as discontinued
operations for all periods presented. The SIGRID OLSEN and Ellen
Tracy wholesale activities and DANA BUCHMAN operations either
did not represent operations and cash flows that could be
clearly distinguished operationally and for financial reporting
purposes from the remainder of the Company or retain continuing
involvement with the Company and therefore have not been
presented as discontinued operations.
In connection with the 2008 dispositions discussed above, we
recognized total pretax charges of $83.5 million during the
year ended January 3, 2009, including $10.6 million
related to the Ellen Tracy transaction. We allocated
$2.5 million of the Ellen Tracy charge to the Ellen Tracy
retail operations, which is therefore recorded within
discontinued operations. The remaining charge of
$8.1 million was allocated to the Ellen Tracy wholesale
operations and was recorded within Selling, general &
administrative expenses (SG&A).
2010
Overall Results
Our 2010 results reflected:
|
|
|
|
|
A $415.8 million decrease in net sales, including a
$228.3 million decrease in sales in our LIZ CLAIBORNE
family of brands as we transitioned to the licensing model under
the arrangements with J.C. Penney Corporation, Inc. and J.C.
Penney, Inc. (collectively JCPenney) and with QVC,
Inc. (QVC);
|
|
|
|
Mixed comparable store performance in our Domestic-Based Direct
Brands and International-Based Direct Brands segments,
reflecting reduced consumer demand and inconsistent traffic
patterns and levels of consumer spending;
|
|
|
|
Increased retailer markdowns driven by continued promotional
activity; and
|
|
|
|
Aggressive liquidation of inventories at LUCKY BRAND and our
Partnered Brands segment.
|
During 2010, we recorded the following pretax items:
|
|
|
|
|
Expenses associated with our streamlining initiatives of
$81.2 million and charges primarily associated with other
exiting activities of $8.5 million;
|
|
|
|
A $21.6 million foreign currency translation gain related
to our Notes (see Financial Position, Liquidity and
Capital Resources Hedging Activities);
|
43
|
|
|
|
|
A $7.5 million write-off of debt issuance costs as a result
of a reduction in size of our amended and restated revolving
credit facility; and
|
|
|
|
A non-cash impairment charge of $2.6 million primarily
related to merchandising rights associated with our LIZ
CLAIBORNE and licensed
DKNY®
JEANS brands.
|
Our 2009 results reflected the following pretax items:
|
|
|
|
|
Expenses associated with our streamlining initiatives of
$163.5 million and charges associated with winding down
certain operations of our LIZ CLAIBORNE brand and other exiting
activities of $19.2 million (including a non-cash
impairment charge of $4.5 million associated with LIZ
CLAIBORNE merchandising rights);
|
|
|
|
A non-cash impairment charge of $9.5 million associated
with our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands; and
|
|
|
|
A non-cash impairment charge of $2.8 million associated
with additional purchase price and an increase to goodwill
related to our contingent earn-out payment to the former owners
of Mac & Jac.
|
During 2009, we recorded a tax benefit of $108.3 million
primarily attributable to a Federal law change in 2009 allowing
our 2008 or 2009 domestic losses to be carried back for five
years, with the fifth year limited to 50.0% of taxable income,
partially offset by valuation allowances.
Net
Sales
Net sales in 2010 were $2.500 billion, a decrease of
$415.8 million or 14.3%, compared to 2009 net sales of
$2.916 billion. A total of $228.3 million, or 7.8% of
the overall decline in net sales, was associated with our
LIZ CLAIBORNE family of brands as we transitioned from the
legacy department store model to the licensing model under the
JCPenney and QVC arrangements.
The remaining decrease in net sales of $187.5 million, or
6.5%, reflected (i) sales declines in the ongoing
operations of our Partnered Brands segment; (ii) sales
declines in our International-Based Direct Brands segment due to
decreased wholesale and retail volume and reduced average
selling prices; and (iii) an increase in sales of our
Domestic-Based Direct Brands segment. The effect of fluctuations
in foreign currency exchange rates decreased net sales by
$5.9 million.
Gross
Profit and Loss from Continuing Operations
Gross profit in 2010 was $1.239 million, a decrease of
$113.8 million compared to 2009, primarily due to reduced
sales in our Partnered Brands and International-Based Direct
Brands segments, partially offset by an increase in gross profit
in our Domestic-Based Direct Brands segment. Gross profit as a
percentage of net sales increased to 49.5% in 2010 from 46.4% in
2009, reflecting improved gross profit rates of our Partnered
Brands and International-Based Direct Brands segments and an
increased proportion of sales from the retail operations of our
Domestic-Based Direct Brands segment, which runs at a higher
gross profit rate than the Company average. We recorded a loss
from continuing operations of $221.0 million in 2010, as
compared to a loss from continuing operations of
$278.9 million in 2009. The reduced loss from continuing
operations primarily reflected the impact of a reduction in
Selling, general & administrative expenses
(SG&A) and an increase in Other income
(expense), primarily due to a
period-over-period
increase of $28.1 million in foreign currency translation
gains related to our Notes (see Financial Position,
Liquidity and Capital Resources Hedging
Activities), partially offset by the impact of decreased
gross profits.
Balance
Sheet
We ended 2010 with a net debt position of $554.5 million as
compared to $637.3 million at year-end 2009. Including the
receipt of $171.5 million of net income tax refunds, we
generated $167.4 million in cash from continuing operations
over the past twelve months, which enabled us to fund
$80.9 million of capital and in-store shop expenditures, a
$24.3 million refund paid to Li & Fung Limited
(Li & Fung) related to a buying/sourcing
arrangement, $5.0 million of acquisition related payments
and $4.0 million of investments in and advances to Kate
44
Spade Japan Co. Ltd. (KSJ), an equity method
investee, while decreasing our net debt by $82.8 million.
The effect of changes in foreign currency translation on our
Notes decreased our debt balance by $34.7 million compared
to January 2, 2010.
International
Operations
In 2010, international sales represented 33.7% of our overall
sales, as compared to 32.3% in 2009. Accordingly, our overall
results can be greatly impacted by changes in foreign currency
exchange rates, which decreased net sales in 2010 by
$5.9 million. The
period-over-period
fluctuations of the euro and Canadian dollar against the US
dollar have positively impacted sales in our Canadian businesses
and have negatively impacted sales in our European business.
Although we use foreign currency forward contracts and options
to hedge against our exposure to exchange rate fluctuations
affecting the actual cash flows of our international operations,
unanticipated shifts in exchange rates could have an impact on
our financial results.
RESULTS
OF OPERATIONS
As discussed above, we present our results based on three
reportable segments and on a geographic basis.
2010
vs. 2009
The following table sets forth our operating results for the
year ended January 1, 2011 (52 weeks), compared to the
year ended January 2, 2010 (52 weeks):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
Variance
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
$
|
|
|
%
|
|
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
2,500.1
|
|
|
$
|
2,915.9
|
|
|
$
|
(415.8
|
)
|
|
|
(14.3
|
)%
|
Gross Profit
|
|
|
1,238.5
|
|
|
|
1,352.3
|
|
|
|
(113.8
|
)
|
|
|
(8.4
|
)%
|
Selling, general & administrative expenses
|
|
|
1,415.4
|
|
|
|
1,653.4
|
|
|
|
238.0
|
|
|
|
14.4
|
%
|
Impairment of goodwill and other intangible assets
|
|
|
2.6
|
|
|
|
17.0
|
|
|
|
14.4
|
|
|
|
84.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(179.5
|
)
|
|
|
(318.1
|
)
|
|
|
138.6
|
|
|
|
43.6
|
%
|
Other income (expense), net
|
|
|
26.6
|
|
|
|
(4.0
|
)
|
|
|
30.6
|
|
|
|
*
|
|
Interest expense, net
|
|
|
(60.2
|
)
|
|
|
(65.1
|
)
|
|
|
4.9
|
|
|
|
7.5
|
%
|
Provision (benefit) for income taxes
|
|
|
7.9
|
|
|
|
(108.3
|
)
|
|
|
(116.2
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(221.0
|
)
|
|
|
(278.9
|
)
|
|
|
57.9
|
|
|
|
20.8
|
%
|
Discontinued operations, net of income taxes
|
|
|
(31.3
|
)
|
|
|
(27.5
|
)
|
|
|
(3.8
|
)
|
|
|
(13.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(252.3
|
)
|
|
|
(306.4
|
)
|
|
|
54.1
|
|
|
|
17.7
|
%
|
Net loss attributable to the noncontrolling interest
|
|
|
(0.8
|
)
|
|
|
(0.7
|
)
|
|
|
0.1
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Liz Claiborne, Inc.
|
|
$
|
(251.5
|
)
|
|
$
|
(305.7
|
)
|
|
$
|
54.2
|
|
|
|
17.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
Net sales for 2010 were $2.500 billion, a decrease of
14.3%, as compared to net sales for 2009 of $2.916 billion.
This reduction primarily reflected sales declines in our
Partnered Brands and International-Based Direct Brands segments,
partially offset by an increase in sales in our Domestic-Based
Direct Brands segment. The decrease in our Partnered Brands
segment included a $228.3 million, or 7.8%, decrease in
sales of our LIZ CLAIBORNE family of brands as we
transitioned to the licensing model under the JCPenney and QVC
arrangements. The impact of changes in foreign currency exchange
rates in our international businesses decreased net sales by
$5.9 million in 2010. The decrease in net sales also
reflected the continuing challenges of turning around certain
underperforming businesses and the economic conditions in the
markets in which we operate.
45
Net sales results for our segments are provided below:
|
|
|
|
n
|
Domestic-Based Direct Brands net sales were
$1.138 billion, an increase of $17.3 million, or 1.5%,
compared to 2009, reflecting the following:
|
|
|
|
|
|
Net sales for JUICY COUTURE were $566.8 million, a 5.0%
increase compared to 2009, which primarily reflected increases
in our outlet,
e-commerce
and wholesale non-apparel operations, partially offset by a
decrease in our wholesale apparel operations.
|
|
|
|
|
|
We ended 2010 with 74 specialty retail stores, 52 outlet stores
and 5 concessions, reflecting the net addition over the last
12 months of 8 specialty retail stores, 19 outlet stores
and 5 concessions. Key operating metrics for our JUICY COUTURE
retail operations included the following:
|
|
|
|
|
|
Average retail square footage in 2010 was approximately 369
thousand square feet, a 14.6% increase compared to 2009;
|
|
|
|
Sales productivity was $745 per average square foot as compared
to $804 for 2009;
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 2.3% in 2010; and
|
|
|
|
Comparable
e-commerce
net sales increased 27.9%; inclusive of
e-commerce
net sales, comparable
direct-to-consumer
net sales decreased by 0.5%. Until September 2010, the JUICY
COUTURE website was operated by a third party, and our sales to
that third party were reflected as wholesale sales. JUICY
COUTURE
e-commerce
comparable sales calculations for 2009 and the first nine months
of 2010 were based on the retail sales data provided by the
third party operator.
|
|
|
|
|
|
Net sales for LUCKY BRAND were $386.9 million, a 12.0%
decrease compared to 2009, reflecting decreases in specialty
retail operations, partially resulting from reduced average
selling prices due to the aggressive liquidation of inventory,
in addition to decreases in our wholesale apparel, wholesale
non-apparel and outlet operations.
|
|
|
|
|
|
We ended 2010 with 189 specialty retail stores and 38 outlet
stores, reflecting the net closure over the last 12 months
of 5 specialty retail stores and 8 outlet stores. Key operating
metrics for our LUCKY BRAND retail operations included the
following:
|
|
|
|
|
|
Average retail square footage in 2010 was approximately 586
thousand square feet, a 0.3% increase compared to 2009;
|
|
|
|
Sales productivity was $365 per average square foot as compared
to $421 for 2009;
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 13.5% in 2010; and
|
|
|
|
Comparable
e-commerce
net sales increased by 9.7%; inclusive of
e-commerce
net sales, comparable
direct-to-consumer
sales decreased 11.7%.
|
|
|
|
|
|
Net sales for KATE SPADE were $184.3 million, a 30.5%
increase compared to 2009, primarily driven by increases in
e-commerce,
specialty retail, wholesale non-apparel and outlet operations.
|
|
|
|
|
|
We ended 2010 with 44 specialty retail stores and 29 outlet
stores, reflecting the net addition over the last 12 months
of 6 specialty retail stores. Key operating metrics for our KATE
SPADE retail operations included the following:
|
|
|
|
|
|
Average retail square footage in 2010 was approximately 141
thousand square feet, a 3.3% decrease compared to 2009;
|
|
|
|
Sales productivity was $666 per average square foot as compared
to $538 for 2009;
|
|
|
|
Comparable store net sales in our Company-owned stores increased
by 23.6% in 2010; and
|
|
|
|
Comparable
e-commerce
net sales increased by 91.4%; inclusive of
e-commerce
net sales,
direct-to-consumer
net sales increased 36.0%.
|
46
|
|
|
|
n
|
International-Based Direct Brands, comprised of
our MEXX retail-based lifestyle brand, net sales were
$731.8 million, a decrease of $100.1 million, or 12.0%
compared to 2009, primarily due to decreases in our MEXX Europe
wholesale and retail operations, partially offset by an increase
in our MEXX Canada retail operations.
|
|
|
|
|
|
We ended 2010 with 172 specialty retail stores, 93 outlet stores
and 138 concessions, reflecting the net addition over the last
12 months of 12 specialty retail stores and the net closure
of 8 outlet stores and 68 concessions. Key operating metrics for
our MEXX retail operations included the following:
|
|
|
|
|
|
Average retail square footage in 2010 was approximately
1.552 million square feet, a 3.6% increase compared to 2009;
|
|
|
|
Sales productivity was $265 per average square foot as compared
to $325 for 2009;
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 5.6% in 2010; and
|
|
|
|
Comparable
e-commerce
and concession net sales increased by 4.4%; inclusive of
e-commerce
and concession net sales, comparable
direct-to-consumer
sales decreased 4.2%.
|
|
|
|
|
n
|
Partnered Brands net sales were
$630.3 million, a decrease of $333.1 million or 34.6%,
compared to 2009, reflecting the following:
|
|
|
|
|
|
A $239.6 million, or 24.9%, decrease related to brands that
have been licensed or exited, primarily due to a
$228.3 million decrease in sales of our LIZ CLAIBORNE
family of brands as we transitioned from the legacy department
store model to the licensing model under the JCPenney and QVC
arrangements;
|
|
|
|
A net $80.3 million, or 8.3%, decrease related to reduced
sales of our ongoing Partnered Brands business, primarily
related to our licensed
DKNY®
JEANS brand and our AXCESS and MONET brands; and
|
|
|
|
A $13.2 million, or 1.4%, decrease related to reduced sales
in our outlet operations, substantially all of which were closed
in January 2011.
|
Comparable
direct-to-consumer
net sales are calculated as follows:
|
|
|
|
|
New stores become comparable after 14 full fiscal months of
operations (on the first day of the 15th full fiscal month);
|
|
|
|
Except in unusual circumstances, closing stores become
non-comparable one full fiscal month prior to the scheduled
closing date;
|
|
|
|
A remodeled store will be changed to non-comparable when there
is a 20.0% or more increase/decrease in its selling square
footage (effective at the start of the fiscal month when
construction begins). The store becomes comparable again after
14 full fiscal months from the re-open date;
|
|
|
|
A store that relocates becomes non-comparable when the new
location is materially different from the original location (in
respect to selling square footage
and/or
traffic patterns);
|
|
|
|
Stores that are acquired are not comparable until they have been
reflected in our results for a period of 12 months; and
|
|
|
|
E-commerce
sales are comparable after 12 full fiscal months from the
website launch date (on the first day of the 13th full
month).
|
Net sales per average square foot is defined as net sales
divided by the average of beginning and end of period gross
square feet.
Viewed on a geographic basis, Domestic net sales
decreased by $317.3 million, or 16.1%, to
$1.657 billion, principally reflecting the declines within
our domestic Partnered Brands segment, LUCKY BRAND retail and
wholesale operations and JUICY COUTURE wholesale operations,
partially offset by an increase in our KATE SPADE retail and
wholesale operations. International net sales decreased
by $98.5 million, or 10.5%, to $843.5 million,
primarily due to declines in our MEXX Europe operations,
partially offset by an increase in
47
our MEXX Canada retail operations. The impact of fluctuations in
foreign currency exchange rates decreased international sales by
$5.9 million.
Gross
Profit
Gross profit in 2010 was $1.239 billion (49.5% of net
sales), compared to $1.352 billion (46.4% of net sales) in
2009. The decrease in gross profit is primarily due to reduced
sales in our Partnered Brands and International-Based Direct
Brands segments, partially offset by an increase in our
Domestic-Based Direct Brands segment. Fluctuations in foreign
currency exchange rates in our international businesses
decreased our overall gross profit by $2.4 million.
However, our gross profit rate increased due to an increased
proportion of sales from retail operations in our Domestic-Based
Direct Brands segment, which runs at a higher gross profit rate
than the Company average. In addition, the gross profit rate
improved in our Partnered Brands segment due to our transition
of the LIZ CLAIBORNE family of brands to a licensing model and
the gross profit rate improved slightly in our
International-Based Direct Brands segment.
Expenses related to warehousing activities, including receiving,
storing, picking, packing and general warehousing charges are
included in SG&A; accordingly, our gross profit may not be
directly comparable to others who may include these expenses as
a component of cost of goods sold.
Selling,
General & Administrative Expenses
SG&A decreased $238.0 million, or 14.4%, to
$1.415 billion in 2010 compared to 2009. The SG&A
decrease reflected the following:
|
|
|
|
|
A $136.0 million decrease in our Partnered Brands segment
and corporate SG&A, inclusive of a decrease associated with
our LIZ CLAIBORNE family of brands as we transitioned to the
licensing model under the JCPenney and QVC arrangements;
|
|
|
|
A $66.5 million decrease in expenses associated with our
streamlining initiatives and brand-exiting activities;
|
|
|
|
A $35.8 million decrease in our International-Based Direct
Brands segment, including a $13.7 million decrease in
concession fees, a $13.2 million decrease in shipping and
handling expenses, and a $4.7 million decrease in payroll
related expenses;
|
|
|
|
A $7.8 million decrease due to the impact of fluctuations
in foreign currency exchange rates in our international
operations; and
|
|
|
|
An $8.1 million increase in our Domestic-Based Direct
Brands segment, primarily due to increased advertising expenses.
|
SG&A as a percentage of net sales was 56.6%, compared to
56.7% in 2009, primarily reflecting an improved SG&A rate
in our Domestic-Based Direct Brands and International-Based
Direct Brands segments, partially offset by a decrease in sales
in our Partnered Brands segment, which exceeded the
proportionate reduction in SG&A.
Impairment
of Goodwill and Other Intangible Assets
In 2010, we recorded non-cash impairment charges of
$2.6 million primarily within our Partnered Brands segment,
principally related to merchandising rights of our LIZ CLAIBORNE
and licensed
DKNY®
JEANS brands.
We recorded $2.8 million of additional purchase price and
an increase to goodwill related to our contingent earn-out
payment to the former owners of Mac & Jac in the
second quarter of 2009. Based on economic circumstances and
other factors, we concluded that the goodwill recorded as a
result of the settlement of the contingency was impaired and
recorded an impairment charge of $2.8 million in our
Partnered Brands segment in 2009.
In 2009, we recorded non-cash impairment charges of
(i) $9.5 million related to the licensed trademark
intangible asset related to our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands due to a decline in actual and
48
projected performance of such brands; and
(ii) $4.7 million primarily related to the impairment
of LIZ CLAIBORNE merchandising rights due to decreased use of
such intangible assets.
Operating
Loss
Operating loss for 2010 was $179.5 million ((7.2)% of net
sales), compared to an operating loss of $318.1 million
((10.9)% of net sales) in 2009. The impact of fluctuations in
foreign currency exchange rates in our international operations
reduced the operating loss in 2010 by $5.4 million.
Operating income (loss) by segment is provided below:
|
|
|
|
|
Domestic-Based Direct Brands operating income was
$3.0 million (0.3% of net sales), compared to an operating
loss of $25.4 million ((2.3)% of net sales) in 2009. The
year-over-year
change reflected a $29.6 million decrease in expenses
associated with our streamlining initiatives and brand exiting
activities and increased gross profit, partially offset by an
increase in advertising expenses.
|
|
|
|
International-Based Direct Brands operating loss
was $100.6 million ((13.7)% of net sales), compared to an
operating loss of $137.6 million ((16.5)% of net sales) in
2009. The year-over-year change in operating loss reflected:
(i) decreased gross profit; (ii) a $36.4 million
decrease in expenses associated with our streamlining
initiatives and brand exiting activities; (iii) a
$13.7 million reduction in concession fees; (iv) a
$13.2 million reduction in shipping and handling expenses;
(v) a $4.7 million decrease in payroll related
expenses; and (vi) a $6.9 million decrease in the
operating loss resulting from fluctuations in foreign currency
exchange rates.
|
|
|
|
Partnered Brands operating loss in 2010 was
$81.9 million ((13.0)% of net sales), compared to an
operating loss of $155.1 million ((16.1)% of net sales) in
2009. The decreased operating loss reflected reduced SG&A,
including a reduction related to the LIZ CLAIBORNE family of
brands as we transitioned to the licensing model under the
JCPenney and QVC arrangements, partially offset by reduced gross
profit.
|
On a geographic basis, Domestic operating loss decreased
by $100.4 million to an operating loss of
$76.1 million, which reflected reduced losses in our
Partnered Brands segment, and operating income in our
Domestic-Based Direct Brands segment in 2010, compared to an
operating loss in 2009. The International operating loss
was $103.4 million in 2010 compared to an operating loss of
$141.6 million in 2009. This change reflected decreased
losses in our International-Based Direct Brands segment and, to
a lesser extent, our Partnered Brands operations in Canada and
Europe. The impact of fluctuations in foreign currency exchange
rates in our international operations decreased the operating
loss by $5.4 million.
Other
Income (Expense), Net
Other income (expense), net amounted to $26.6 million in
2010 and $(4.0) million in 2009. Other income (expense),
net consists primarily of (i) the impact of the partial
dedesignation of the hedge of our investment in certain euro
functional currency subsidiaries, which resulted in the
recognition of foreign currency translation gains (losses) of
$21.6 million and $(6.5) million on our
euro-denominated notes within earnings in 2010 and 2009,
respectively; (ii) foreign currency transaction gains and
losses in 2010 and 2009; and (iii) equity in the earnings
of our investment in KSJ in 2010 and 2009.
Interest
Expense, Net
Interest expense, net decreased to $60.2 million in 2010
from $65.1 million in 2009, primarily reflecting
(i) reduced interest expense due to decreased levels of
borrowing under our amended and restated revolving credit
facility; (ii) a $6.9 million write-off of debt
issuance costs in 2010 as a result of a reduction in the size of
our amended and restated revolving credit facility; and
(iii) increased interest expense related to the Convertible
Notes, which were issued in June of 2009.
Provision
(Benefit) for Income Taxes
In 2010, we recorded a provision for income taxes of
$7.9 million, compared to a benefit for income taxes of
$108.3 million in 2009. The income tax provision for 2010
primarily represented increases in deferred tax liabilities
49
for indefinite-lived intangible assets, current tax on
operations in certain jurisdictions and an increase in the
accrual for interest related to uncertain tax positions. The
income tax benefit in 2009 principally related to the carryback
of Federal losses, partially offset by increases in valuation
allowances. We did not record income tax benefits for
substantially all losses incurred during 2010 and 2009, as it is
not more likely than not that we will utilize such benefits due
to the combination of our history of pretax losses and our
ability to carry forward or carry back tax losses or credits.
Loss
from Continuing Operations
Loss from continuing operations in 2010 decreased to
$221.0 million, or (8.8)% of net sales, from
$278.9 million in 2009, or (9.6)% of net sales. Earnings
per share, Basic and Diluted (EPS) from continuing
operations attributable to Liz Claiborne, Inc. was $(2.34) in
2010 and $(2.96) in 2009.
Discontinued
Operations, Net of Income Taxes
Loss from discontinued operations in 2010 was
$31.3 million, compared to $27.5 million in 2009,
reflecting a loss on disposal of discontinued operations of
$17.6 million and a $13.7 million loss from
discontinued operations in 2010, as compared to a loss on
disposal of discontinued operations of $4.9 million and a
$22.6 million loss from discontinued operations in 2009.
EPS from discontinued operations attributable to Liz Claiborne,
Inc. was $(0.33) in 2010 and $(0.30) in 2009.
Net
Loss Attributable to Liz Claiborne, Inc.
Net loss attributable to Liz Claiborne, Inc. in 2010 decreased
to $251.5 million from $305.7 million in 2009. EPS was
$(2.67) in 2010 and $(3.26) in 2009.
2009
vs. 2008
The following table sets forth our operating results for the
year ended January 2, 2010 (52 weeks), compared to the
year ended January 3, 2009 (53 weeks):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
Variance
|
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
Dollars in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
2,915.9
|
|
|
$
|
3,861.1
|
|
|
$
|
(945.2
|
)
|
|
|
(24.5
|
)%
|
Gross Profit
|
|
|
1,352.3
|
|
|
|
1,835.8
|
|
|
|
(483.5
|
)
|
|
|
(26.3
|
)%
|
Selling, general & administrative expenses
|
|
|
1,653.4
|
|
|
|
1,876.6
|
|
|
|
223.2
|
|
|
|
11.9
|
%
|
Impairment of goodwill and other intangible assets
|
|
|
17.0
|
|
|
|
693.1
|
|
|
|
676.1
|
|
|
|
97.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(318.1
|
)
|
|
|
(733.9
|
)
|
|
|
415.8
|
|
|
|
56.7
|
%
|
Other expense, net
|
|
|
(4.0
|
)
|
|
|
(6.4
|
)
|
|
|
2.4
|
|
|
|
37.5
|
%
|
Interest expense, net
|
|
|
(65.1
|
)
|
|
|
(48.3
|
)
|
|
|
(16.8
|
)
|
|
|
(34.8
|
)%
|
(Benefit) provision for income taxes
|
|
|
(108.3
|
)
|
|
|
22.5
|
|
|
|
130.8
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(278.9
|
)
|
|
|
(811.1
|
)
|
|
|
532.2
|
|
|
|
65.6
|
%
|
Discontinued operations, net of income taxes
|
|
|
(27.5
|
)
|
|
|
(140.5
|
)
|
|
|
113.0
|
|
|
|
80.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(306.4
|
)
|
|
|
(951.6
|
)
|
|
|
645.2
|
|
|
|
67.8
|
%
|
Net (loss) income attributable to the noncontrolling interest
|
|
|
(0.7
|
)
|
|
|
0.2
|
|
|
|
0.9
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Liz Claiborne, Inc.
|
|
$
|
(305.7
|
)
|
|
$
|
(951.8
|
)
|
|
$
|
646.1
|
|
|
|
67.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Net
Sales
Net sales for 2009 were $2.916 billion, a decrease of
24.5%, as compared to net sales for 2008 of $3.861 billion.
This reduction reflected (i) sales declines in all of our
segments; (ii) a $132.0 million decrease associated
with brands or certain brand activities that have been licensed,
closed or exited and have not been presented as part of
discontinued operations; and (iii) the impact of changes in
foreign currency exchange rates in our international businesses,
which decreased net sales by $54.7 million.
As detailed below, sales and operating results for 2009 in our
specialty retail stores were adversely affected by reduced mall
traffic and generally lower spending levels per purchase as we
reduced unit prices to compensate for lower demand, which is
reflected in reduced sales productivity and decreased comparable
store sales.
Net sales results for our segments are provided below:
|
|
|
|
n
|
Domestic-Based Direct Brands net sales were
$1.121 billion, a decrease of $86.7 million, or 7.2%
(4.3% excluding the impact of licensing our fragrance operations
in the second quarter of 2008) compared to 2008. The
decrease in net sales reflected the following:
|
|
|
|
|
|
Net sales for JUICY COUTURE were $539.9 million, a 10.7%
decrease compared to 2008, or a decrease of 5.7% excluding the
impact of licensing our fragrance operations in the second
quarter of 2008, which primarily reflected decreases in our
wholesale apparel and non-apparel operations, partially offset
by increases in specialty retail and outlet operations.
|
|
|
|
|
|
We ended 2009 with 66 specialty retail stores and 33 outlet
stores, reflecting the net addition over the last 12 months
of 4 specialty retail stores. Key operating metrics for our
JUICY COUTURE retail operations included the following:
|
|
|
|
|
|
Average retail square footage in 2009 was approximately 325
thousand square feet, a 35.5% increase compared to 2008;
|
|
|
|
Sales productivity was $804 per average square foot as compared
to $986 for 2008; and
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 12.0% in 2009; inclusive of
e-commerce
net sales, comparable
direct-to-consumer
net sales decreased by 10.1%. Until September 2010, the JUICY
COUTURE website was operated by a third party, and our sales to
that third party were reflected as wholesale sales. JUICY
COUTURE
e-commerce
comparable sales calculations for 2009 and 2008 were based on
the retail sales data provided by the third party operator.
|
|
|
|
|
|
Net sales for LUCKY BRAND were $439.6 million, a 7.8%
decrease compared to 2008, reflecting decreases in wholesale
apparel and specialty retail operations, partially offset by an
increase in outlet operations.
|
|
|
|
|
|
We ended 2009 with 194 specialty retail stores and 46 outlet
stores, reflecting the net addition over the last 12 months
of 1 specialty retail store and 7 outlet stores. Key operating
metrics for our LUCKY BRAND retail operations included the
following:
|
|
|
|
|
|
Average retail square footage in 2009 was approximately 584
thousand square feet, a 14.4% increase compared to 2008;
|
|
|
|
Sales productivity was $421 per average square foot as compared
to $603 for 2008;
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 16.2% in 2009; and
|
|
|
|
Comparable
e-commerce
net sales decreased by 2.6%; inclusive of
e-commerce
net sales, comparable
direct-to-consumer
sales decreased 15.2%.
|
|
|
|
|
|
Net sales for KATE SPADE were $141.2 million, a 12.1%
increase compared to 2008, primarily driven by increases in our
outlet and wholesale operations, partially offset by decreases
in our specialty retail operations.
|
51
|
|
|
|
|
We ended 2009 with 38 specialty retail stores and 29 outlet
stores, reflecting the net closure over the last 12 months
of 10 specialty retail stores and the net addition of 1 outlet
store. Key operating metrics for our KATE SPADE retail
operations included the following:
|
|
|
|
|
|
Average retail square footage in 2009 was approximately 146
thousand square feet, a 24.9% increase compared to 2008;
|
|
|
|
Sales productivity was $538 per average square foot as compared
to $616 for 2008;
|
|
|
|
Comparable store net sales in our Company-owned stores decreased
by 6.8% in 2009; and
|
|
|
|
Comparable
e-commerce
net sales increased by 42.8%; inclusive of
e-commerce
net sales, comparable
direct-to-consumer
sales increased 1.0%.
|
|
|
|
|
n
|
International-Based Direct Brands net sales were
$831.9 million, a decrease of $371.0 million or 30.8%
compared to 2008. Excluding the impact of fluctuations in
foreign currency exchange rates, net sales were
$879.4 million, a 26.9% decrease as compared to 2008. The
decrease in net sales is primarily due to decreases in our MEXX
Europe and MEXX Canada wholesale and retail operations.
|
We ended 2009 with 157 specialty retail stores, 101 outlet
stores and 206 concessions, reflecting the net addition over the
last 12 months of 21 specialty retail stores and 1 outlet
store and the net closure of 35 concessions (inclusive of the
conversion of 29 concessions to specialty retail formats). Key
operating metrics for our MEXX retail operations included the
following:
|
|
|
|
|
Average retail square footage in 2009 was approximately
1.498 million square feet, a 4.6% increase compared to 2008;
|
|
|
|
Sales productivity was $325 per average square foot as compared
to $444 for 2008;
|
|
|
|
Comparable store net sales in our MEXX Company-owned stores
decreased by 10.3% in 2009;
|
|
|
|
Comparable
e-commerce
and concession net sales decreased by 16.5%; inclusive of
e-commerce
and concession net sales, comparable
direct-to-consumer
sales decreased 11.6%; and
|
|
|
|
Fluctuations in foreign currency exchange rates in our European
and Canadian businesses decreased net sales by
$47.5 million.
|
|
|
|
|
n
|
Partnered Brands net sales were
$963.4 million, a decrease of $487.4 million or 33.6%
reflecting the following:
|
|
|
|
|
|
A net $355.2 million, or 24.5%, decrease in sales of our
ongoing wholesale operations as the operating environment
continued to adversely affect our LIZ CLAIBORNE,
DKNY®
JEANS, AXCESS, CLAIBORNE and MONET brands;
|
|
|
|
A $97.2 million, or 6.7%, decrease due to the divestiture,
licensing or exiting of the following brands: SIGRID OLSEN
(closed as of the second quarter of 2008), Cosmetics group of
brands (due to the exiting of certain brands and the license of
the remaining brands to Elizabeth Arden effective June 10,
2008), Villager (closed in the third quarter of 2008), former
Ellen Tracy brand (sold on April 10, 2008) and DANA
BUCHMAN (licensed on an exclusive basis to Kohls in
January 2008, with operations closed in the second quarter of
2008);
|
|
|
|
The impact of fluctuations in foreign currency exchange rates,
primarily related to our LIZ CLAIBORNE operations in Europe and
Canada, which decreased net sales by $6.5 million, or
0.4%; and
|
|
|
|
A $28.5 million, or 2.0%, decrease in sales of our outlet
operations.
|
Viewed on a geographic basis, Domestic net sales
decreased by $546.6 million, or 21.7%, to
$1.974 billion, principally reflecting the declines within
JUICY COUTURE wholesale operations and LUCKY BRAND retail and
wholesale operations as well as in our domestic Partnered Brands
segment, partially offset by an increase in our KATE SPADE
wholesale and retail operations. International net sales
decreased by $398.5 million, or 29.7%, to
$942.0 million, primarily due to declines in our MEXX
Europe and MEXX Canada operations, and the $54.7 million
impact of fluctuations in foreign currency exchange rates on
international sales.
52
Gross
Profit
Gross profit in 2009 was $1.352 billion (46.4% of net
sales) compared to $1.836 billion (47.5% of net sales) in
2008. These decreases are primarily due to reduced sales and
decreased gross profit rates in our International-Based Direct
Brands and Partnered Brands segments. The decreases in the gross
margin rates in these segments reflected increased promotional
activity, which was partially driven by increased retailer
support in our Partnered Brands segment related to the
transition of our LIZ CLAIBORNE brands to license arrangements.
In addition, fluctuations in foreign currency exchange rates in
our international businesses decreased gross profit by
$29.7 million.
Gross profit also decreased due to reduced sales in our
Domestic-Based Direct Brands segment; however, decreases in our
gross profit rate were partially offset by an increased
proportion of sales from retail operations in such segment,
which runs at a higher gross profit rate than the Company
average.
Selling,
General & Administrative Expenses
SG&A decreased $223.2 million, or 11.9%, to
$1.653 billion in 2009 compared to 2008. The SG&A
decrease reflected the following:
|
|
|
|
|
A $137.1 million decrease in our Partnered Brands segment
and corporate SG&A, inclusive of a $17.8 million
decrease resulting from the licensing of our cosmetics brands;
|
|
|
|
A $95.4 million decrease in our International-Based Direct
Brands segment, including a reduction of approximately
$32.6 million of payroll related expenses,
$15.8 million marketing expenses, a reduction of
approximately $14.3 million in shipping and handling
expenses, as well as an $11.2 million reduction in
concession fees of our European operations;
|
|
|
|
A $36.9 million decrease due to the impact of fluctuations
in foreign currency exchange rates in our international
operations;
|
|
|
|
A $25.2 million increase in expenses associated with our
streamlining initiatives and brand-exiting activities; and
|
|
|
|
A $21.0 million increase in our Domestic-Based Direct
Brands segment primarily resulting from retail expansion and
increases in other operating expenses.
|
SG&A as a percentage of net sales was 56.7% in 2009,
compared to 48.6% in 2008, primarily reflecting (i) an
increased proportion of expenses from our Domestic-Based Direct
Brands segment, which runs at a higher SG&A rate than the
Company average; (ii) deleveraging of expenses in our
International-Based Direct Brands segment; (iii) a
$28.9 million increase in expenses associated with our
streamlining initiatives and brand-exiting activities; and
(iv) to a lesser extent, a reduction in our Partnered
Brands segment due to the decline in sales.
Impairment
of Goodwill and Other Intangible Assets
We recorded $2.8 million of additional purchase price and
an increase to goodwill related to our contingent earn-out
payment to the former owners of Mac & Jac in the
second quarter of 2009. Based on economic circumstances and
other factors, we concluded that the goodwill recorded as a
result of the settlement of the contingency was impaired and
recorded an impairment charge of $2.8 million in our
Partnered Brands segment in 2009.
In 2009, we recorded non-cash impairment charges of
(i) $9.5 million related to the licensed trademark
intangible asset related to our licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands due to a decline in actual and projected
performance of such brands; and (ii) $4.7 million
primarily related to the impairment of LIZ CLAIBORNE
merchandising rights due to decreased use of such intangible
assets.
In 2008, we recorded non-cash goodwill impairment charges of
(i) $382.4 million related to goodwill previously
recorded in our Domestic-Based Direct Brands segment as a result
of an impairment evaluation we performed as of January 3,
2009 because the Companys book value exceeded its market
capitalization, plus a reasonable control premium; and
(ii) $300.7 million related to goodwill previously
recorded in our International-
53
Based Direct Brands segment, reflecting a decrease in its fair
value below its carrying value due to declines in the actual and
projected performance and cash flows of such segment.
We also recorded a non-cash impairment charge of
$10.0 million related to the Villager, Crazy Horse and Russ
trademark due to our exit from these brands in the third quarter
of 2008.
Operating
Loss
Operating loss for 2009 was $318.1 million ((10.9)% of net
sales), compared to an operating loss of $733.9 million
((19.0)% of net sales) in 2008. The impact of fluctuations in
foreign currency exchange rates in our international operations
reduced the operating loss in 2009 by $7.2 million.
Operating loss by segment is provided below:
|
|
|
|
|
Domestic-Based Direct Brands operating loss was
$25.4 million ((2.3)% of net sales), compared to an
operating loss of $331.5 million ((27.5)% of net sales) in
2008. The decreased operating loss reflected the absence of the
non-cash goodwill impairment charge of $382.4 million
recorded in 2008 and a decrease in advertising expenses of
$8.9 million, partially offset by decreased gross profit,
as discussed above, a $31.9 million increase in
restructuring charges, principally associated with our LUCKY
KIDS stores and certain KATE SPADE stores, and an increase in
occupancy costs and other retail related expenses resulting from
additional stores, as noted above.
|
|
|
|
International-Based Direct Brands operating loss
was $137.6 million ((16.5)% of net sales), compared to an
operating loss of $283.6 million ((23.6)% of net sales) in
2008. The decreased operating loss reflected the absence of the
non-cash goodwill impairment charge of $300.7 million
recorded in 2008 and decreases in the SG&A of our European
operations, inclusive of a $32.6 million reduction in
employment related expenses, a $15.8 million reduction in
marketing expenses, a $14.3 million decrease in shipping
and handling expenses and an $11.2 million reduction in
concession fees. These decreases were partially offset by
reduced gross profit, discussed above. The impact of
fluctuations in foreign currency exchange rates reduced the
operating loss in 2009 by $1.5 million.
|
|
|
|
Partnered Brands operating loss in 2009 was
$155.1 million ((16.1)% of net sales), compared to an
operating loss of $118.8 million ((8.2)% of net sales) in
2008. The increased operating loss is primarily due to the
decline in gross profit discussed above and increased intangible
asset impairment charges of $7.0 million, partially offset
by reduced SG&A, including marketing expenditures.
|
On a geographic basis, Domestic operating loss decreased
by $258.4 million to a loss of $176.5 million, which
predominantly reflected the absence of the non-cash goodwill
impairment charge of $382.4 million recorded in 2008, in
addition to decreased losses in our Domestic-Based Direct Brands
segment, partially offset by increased losses in our domestic
Partnered Brands operations. The International operating
loss was $141.6 million in 2009, compared to an operating
loss of $298.9 million in 2008. This change reflected the
absence of the non-cash goodwill impairment charge of
$300.7 million recorded in 2008, partially offset by
increased losses in our international Partnered Brands
operations. The impact of fluctuations in foreign currency
exchange rates in our international operations decreased the
operating loss by $7.2 million.
Other
Expense, Net
Other expense, net amounted to $4.0 million in 2009 and
$6.4 million in 2008. Other expense, net consists primarily
of (i) the impact of the partial dedesignation of the hedge
of our investment in certain euro functional currency
subsidiaries, which resulted in the recognition of a foreign
currency translation loss of $6.5 million on our
euro-denominated notes within earnings in 2009; and
(ii) foreign currency transaction gains and losses in 2009
and 2008.
Interest
Expense, Net
Interest expense, net increased to $65.1 million in 2009
from $48.3 million in 2008, primarily due to increased
amortization of debt issuance costs, an increase in interest
rates associated with our amended and restated revolving credit
facility and additional interest expense related to the issuance
of the Convertible Notes in June of 2009.
54
(Benefit)
Provision for Income Taxes
We recorded a benefit for income taxes of $108.3 million in
2009, compared to a provision for income taxes of
$22.5 million in 2008. The income tax benefit in 2009
principally related to the carryback of Federal losses,
partially offset by increases in valuation allowances. We did
not record income tax benefits for other losses incurred during
2009 and losses incurred during 2008 in accordance with
accounting principles generally accepted in the United States of
America due to factors discussed above. The income tax expense
in 2008 reflected the establishment of valuation allowances for
substantially all deferred tax assets.
Loss
from Continuing Operations
Loss from continuing operations in 2009 decreased to
$278.9 million, or (9.6)% of net sales, from
$811.1 million in 2008, or (21.0)% of net sales. Earnings
per share, Basic and Diluted (EPS) from continuing
operations attributable to Liz Claiborne, Inc. was $(2.96) in
2009 and $(8.67) in 2008.
Discontinued
Operations, Net of Income Taxes
Loss from discontinued operations in 2009 was
$27.5 million, compared to $140.5 million in 2008,
reflecting a loss on disposal of discontinued operations of
$4.9 million and a $22.6 million loss from
discontinued operations in 2009, as compared to a loss on
disposal of discontinued operations of $91.6 million and a
$48.9 million loss from discontinued operations in 2008.
The loss on disposal of discontinued operations recorded in 2008
principally reflected losses we incurred on the disposition of
our former Enyce, prAna and Narciso Rodriguez brands and the
loss from discontinued operations in 2009 and 2008 principally
reflected losses we incurred in concluding the operations of our
discontinued brands. EPS from discontinued operations
attributable to Liz Claiborne, Inc. increased to $(0.30) in 2009
from $(1.50) in 2008.
Net
Loss Attributable to Liz Claiborne, Inc.
Net loss attributable to Liz Claiborne, Inc. in 2009 decreased
to $305.7 million from $951.8 million in 2008. EPS was
$(3.26) in 2009 and $(10.17) in 2008.
FINANCIAL
POSITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements. Our primary ongoing cash
requirements are to (i) fund seasonal working capital needs
(primarily accounts receivable and inventory); (ii) fund
capital expenditures related to the opening and refurbishing of
our specialty retail and outlet stores, normal maintenance
activities and the purchase of our Ohio distribution facility in
the second quarter of 2011 (see Off-Balance Sheet
Arrangements below); (iii) fund remaining efforts
associated with our streamlining initiatives, which may include
consolidation of office space, store closures and reductions in
staff; (iv) invest in our information systems; and
(v) fund operational and contractual obligations. We expect
that our streamlining initiatives will provide long-term cost
savings.
Sources of Cash. Our historical sources of
liquidity to fund ongoing cash requirements include cash flows
from operations, cash and cash equivalents and securities on
hand, as well as borrowings through our lines of credit.
In May 2010, we completed the Amended Agreement. Under the
Amended Agreement, the aggregate commitments were reduced to
$350.0 million from $600.0 million, and the maturity
date was extended from May 2011 to August 2014, provided that in
the event that our 350.0 million Notes due July 2013 are
not refinanced, purchased or defeased prior to April 8,
2013, then the maturity date shall be April 8, 2013, and in
the event that the Convertible Notes due 2014 are not
refinanced, purchased or defeased prior to March 15, 2014,
then the maturity date shall be March 15, 2014. In both
circumstances, if any such refinancing or extension provides for
a maturity date that is earlier than 91 days following
August 6, 2014, then the maturity date shall be the date
that is 91 days prior to the maturity date of such notes.
We are subject to various covenants and other requirements, such
as financial requirements, reporting requirements and negative
covenants. Pursuant to the May 2010 amendment, we are required
to maintain minimum aggregate borrowing availability of not less
than $45.0 million and must apply substantially all cash
collections to reduce outstanding borrowings under the Amended
Agreement when availability under the Amended Agreement falls
below the greater of $65.0 million and 17.5% of the then-
55
applicable commitments. Our borrowing availability under the
Amended Agreement is determined primarily by the level of our
eligible accounts receivable and inventory balances. In
addition, the Amended Agreement removed the springing fixed
charge coverage covenant that was a condition of the prior
amended and restated revolving credit agreement.
The Convertible Notes enhance flexibility by allowing us to
utilize shares to repay a portion of the notes. The Convertible
Notes are convertible during any fiscal quarter if the last
reported sale price of our common stock during 20 out of the
last 30 trading days in the prior fiscal quarter equals or
exceeds $4.2912 (which is 120% of the conversion price). As a
result of stock price performance, the Convertible Notes were
convertible during the fourth quarter of 2010 and are
convertible during the first quarter of 2011. As previously
disclosed in connection with the issuance of the Convertible
Notes, we have not yet obtained stockholder approval under the
rules of the NYSE for the issuance of the full amount of common
stock issuable upon conversion of the Convertible Notes. Until
such approval is obtained, if the Convertible Notes are
surrendered for conversion, we must pay the $1,000 par value of
each of the Convertible Notes in cash and may settle the
remaining conversion value in the form of cash, stock or a
combination of cash and stock, subject to an overall limit on
the number of shares of stock that may be issued.
During 2010, we received $171.5 million of net income tax
refunds on previously paid taxes primarily due to a Federal law
change in 2009 allowing our 2008 or 2009 domestic losses to be
carried back for five years, with the fifth year limited to
50.0% of taxable income. We repaid amounts outstanding under our
amended and restated revolving credit facility with the amount
of such refunds.
As discussed above, under our Amended Agreement, we are subject
to minimum borrowing availability levels. Based on our forecast
of borrowing availability under the Amended Agreement, we
anticipate that cash flows from operations and the projected
borrowing availability under our Amended Agreement will be
sufficient to fund our liquidity requirements for at least the
next 12 months.
There can be no certainty that availability under the Amended
Agreement will be sufficient to fund our liquidity needs. Should
we be unable to comply with the requirements in the Amended
Agreement, we would be unable to borrow under such agreement and
any amounts outstanding would become immediately due and
payable, unless we were able to secure a waiver or an amendment
under the Amended Agreement. Should we be unable to borrow under
the Amended Agreement, or if outstanding borrowings thereunder
become immediately due and payable, our liquidity would be
significantly impaired, which would have a material adverse
effect on our business, financial condition and results of
operations. In addition, an acceleration of amounts outstanding
under the Amended Agreement would likely cause cross-defaults
under our other outstanding indebtedness, including the
Convertible Notes and the 5.0% Notes.
The sufficiency and availability of our projected sources of
liquidity may be adversely affected by a variety of factors,
including, without limitation: (i) the level of our
operating cash flows, which will be impacted by retailer and
consumer acceptance of our products, general economic conditions
and the level of consumer discretionary spending; (ii) the
status of, and any further adverse changes in, our credit
ratings; (iii) our ability to maintain required levels of
borrowing availability and to comply with other covenants
included in our debt and credit facilities; (iv) the
financial wherewithal of our larger department store and
specialty retail store customers; (v) our ability to
successfully execute on the licensing arrangements with JCPenney
and QVC with respect to the LIZ CLAIBORNE family of brands;
(vi) interest rate and exchange rate fluctuations; and
(vii) whether holders of the Convertible Notes, if and when
such notes are convertible, elect to convert a substantial
portion of such notes, the par value of which we must currently
settle in cash.
Although we consider the conversion of a material amount of the
Convertible Notes in the near future to be unlikely, if all or a
substantial portion of the outstanding Convertible Notes were
converted and we were required to settle all of the principal of
the converted Convertible Notes in cash, then we might not have
sufficient liquidity to meet our obligations to pay the amounts
required upon conversion of the Convertible Notes and maintain
the requisite levels of availability required under the Amended
Agreement.
Because of the continuing uncertainty and risks relating to
future economic conditions, we may, from time to time, explore
various initiatives to improve our liquidity, including issuance
of debt securities, sales of various assets, additional cost
reductions and other measures. In addition, where conditions
permit, we may also, from time
56
to time, seek to retire, refinance, extend, exchange or purchase
our outstanding debt in privately negotiated transactions or
otherwise. We may not be able to successfully complete any such
actions, if necessary.
Cash and Debt Balances. We ended 2010 with
$23.3 million in cash and marketable securities, compared
to $20.9 million at the end of 2009 and with
$577.8 million of debt outstanding, compared to
$658.2 million at the end of 2009. This $82.8 million
decrease in our net debt position (total debt less cash and
marketable securities) on a
year-over-year
basis was primarily attributable to cash flows from continuing
operations of $167.4 million, which includes the receipt of
$171.5 million of net income tax refunds, partially offset
by $80.9 million in capital and in-store shop expenditures,
a $24.3 million payment to Li & Fung related to a
buying/sourcing arrangement, $5.0 million in acquisition
related payments and $4.0 million of investments in and
advances to KSJ. The effect of foreign currency translation on
our euro-denominated 5.0% Notes decreased our debt balance
by $34.7 million compared to January 2, 2010.
Accounts Receivable decreased $55.4 million,
or 21.0%, at year-end 2010 compared to year-end 2009, primarily
due to: (i) decreased wholesale sales in all of our
segments and (ii) the impact of fluctuations in foreign
currency exchange rates, which decreased accounts receivable by
$3.5 million, or 1.3% at year-end 2010 compared to year-end
2009.
Inventories decreased $30.3 million, or 9.5%
at year-end 2010 compared to year-end 2009, primarily due to:
(i) the
year-over-year
impact of decreased sales in our Partnered Brands and
International-Based Direct Brands segments and (ii) the
impact of brands that have been licensed or exited. The decrease
in inventories was partially offset by an increase in
Domestic-Based Direct Brands inventory to support growth
initiatives, including retail store expansion.
Borrowings under our amended and restated
revolving credit facility peaked at $230.5 million during
2010, compared to a peak of $361.3 million in 2009, and
were $22.7 million at January 1, 2011, compared to
$66.5 million at January 2, 2010.
Net cash provided by operating activities of our
continuing operations was $167.4 million in 2010, compared
to $230.5 million in 2009. This $63.1 million decrease
was primarily due to a
period-over-period
decrease related to working capital items of
$229.3 million, which included a $24.3 million refund
paid to Li & Fung in 2010 compared to a
$75.0 million payment received from Li & Fung in
2009, each related to a buying/sourcing agreement. The decrease
in net cash provided by operating activities also reflected
increased losses in 2010 compared to 2009 (excluding foreign
currency gains and losses, impairment charges and other non-cash
items), partially offset by a $71.7 million increase in net
income tax refunds in 2010 compared to 2009. The operating
activities of our discontinued operations used
$16.8 million and $23.2 million of cash in 2010 and
2009, respectively.
Net cash used in investing activities of our
continuing operations was $82.1 million in 2010 compared to
$86.9 million in 2009. Net cash used in investing
activities in 2010 primarily reflected: (i) the use of
$80.9 million for capital and in-store shop expenditures;
(ii) the use of $5.0 million for acquisition related
payments related to our previous acquisition of LUCKY BRAND;
(iii) the use of $4.0 million for investments in and
advances to KSJ; and (iv) the receipt of
$8.3 million of proceeds primarily from the sale of our
former Mt. Pocono distribution facility. Net cash used in
investing activities in 2009 primarily reflected the use of:
(i) $71.7 million for capital and in-store shop
expenditures; (ii) $8.8 million for acquisition
related payments for our previous acquisitions of LUCKY BRAND
and MAC & JAC; and (iii) $7.2 million for
investments in and advances to KSJ. In addition, the investing
activities of our discontinued operations used $5.2 million
and provided $1.1 million of cash in 2010 and 2009,
respectively.
Net cash used in financing activities was
$63.6 million in 2010, compared to $125.8 million in
2009. The $62.2 million
year-over-year
decrease primarily reflected a $37.3 million decrease in
net cash used in borrowing activities, primarily due to
increased cash requirements for current year operating
activities and a decrease of $26.1 million in cash paid for
deferred financing fees.
Commitments
and Capital Expenditures
During the first quarter of 2009, we entered into an agreement
with Hong Kong-based, global consumer goods exporter
Li & Fung, whereby Li & Fung was appointed
as our buying/sourcing agent for all of our brands and
57
products (other than jewelry) and we received a payment of
$75.0 million at closing and an additional payment of
$8.0 million in the second quarter of 2009 to offset
specific, incremental, identifiable expenses associated with the
transaction. Our agreement with Li & Fung provides for
a refund of a portion of the closing payment in certain limited
circumstances, including a change of control of the Company, the
sale or discontinuation of any current brand, or certain
termination events. We are also obligated to use Li &
Fung as our buying/sourcing agent for a minimum value of
inventory purchases each year through the termination of the
agreement in 2019. The licensing arrangements with JCPenney and
QVC resulted in the removal of buying/sourcing for a number of
LIZ CLAIBORNE branded products sold under these licenses from
the Li & Fung buying/sourcing arrangement. As a
result, under our agreement with Li & Fung, we
refunded $24.3 million of the closing payment received from
Li & Fung in the second quarter of 2010. In addition,
our agreement with Li & Fung is not exclusive;
however, we are required to source a specified percentage of
product purchases from Li & Fung.
On January 26, 2006, we acquired of 100% of the equity of
Westcoast Contempo Fashions Limited and Mac & Jac
Holdings Limited, which collectively design, market and sell the
Mac & Jac, Kensie and Kensiegirl apparel lines
(Mac & Jac). The purchase price totaled
26.2 million Canadian dollars (or $22.7 million),
which included the retirement of debt at closing and fees, but
excluded contingent payments to be determined based upon a
multiple of Mac & Jacs earnings in fiscal years
2006, 2008, 2009 and 2010. We are required to make the final
contingent payment of $1.4 million based on 2010 earnings,
which was accounted for as additional purchase price and
included in Accrued expenses at January 1, 2011.
On June 8, 1999, we acquired 85.0% of the equity of Lucky
Brand Dungarees, Inc. (Lucky Brand), whose core
business consists of the Lucky Brand Dungarees line of women and
mens denim-based sportswear. The total purchase price
consisted of aggregate cash payments of $126.2 million and
additional payments made from 2005 to 2010 totaling
$70.0 million for 12.7% of the remaining equity of Lucky
Brand. The aggregate purchase price for the remaining 2.3% of
the original shares consisted of the following two installments:
(i) a payment made in 2008 of $15.7 million that was
based on a multiple of Lucky Brands 2007 earnings and
(ii) a 2011 payment based on a multiple of Lucky
Brands 2010 earnings, net of the 2008 payment. Based on
Lucky Brands 2010 earnings, no final payment was required,
and LUCKY BRAND became a wholly-owned subsidiary in January 2011.
In connection with the disposition of the LIZ CLAIBORNE Canada
retail stores discussed above, 38 store leases were assigned to
Laura Canada, of which we remain secondarily liable for the
remaining obligations on 31 such leases. As of January 1,
2011, the future aggregate payments under these leases amounted
to $34.7 million and extended to various dates through 2020.
In the first quarter of 2011, we completed the closure of our
remaining LIZ CLAIBORNE branded outlet stores in the US and
Puerto Rico (see Note 2 of Notes to Consolidated Financial
Statements). A total of 22 store leases were assigned to third
parties, of which we remain secondarily liable for the remaining
obligations on 16 such leases. The future aggregate payments
under these leases amounted to $5.7 million and extended to
various dates through 2016.
We will continue to closely manage spending, with a slight
decrease in projected 2011 capital expenditures of approximately
$75.0 million, compared to $80.9 million in 2010.
These expenditures primarily relate to our plan to open
30-35
Company-owned
retail stores globally, the continued technological upgrading of
our management information systems and costs associated with the
refurbishment of selected specialty retail and outlet stores.
Capital expenditures and working capital cash needs will be
financed with cash provided by operating activities and our
amended and restated revolving credit facility.
58
The following table summarizes as of January 1, 2011 our
contractual cash obligations by future period (see Notes 8
and 9 of Notes to Consolidated Financial Statements):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual cash obligations *
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease commitments
|
|
$
|
202.6
|
|
|
$
|
336.3
|
|
|
$
|
256.3
|
|
|
$
|
304.1
|
|
|
$
|
1,099.3
|
|
Capital lease obligations
|
|
|
4.9
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
Inventory purchase commitments
|
|
|
263.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263.3
|
|
5.0% Notes
|
|
|
|
|
|
|
468.3
|
|
|
|
|
|
|
|
|
|
|
|
468.3
|
|
Interest on
5.0% Notes(a)
|
|
|
23.4
|
|
|
|
46.8
|
|
|
|
|
|
|
|
|
|
|
|
70.2
|
|
6.0% Convertible Senior Notes
|
|
|
90.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90.0
|
|
Interest on 6.0% Convertible Senior
Notes(b)
|
|
|
5.4
|
|
|
|
10.8
|
|
|
|
2.7
|
|
|
|
|
|
|
|
18.9
|
|
Guaranteed minimum licensing royalties
|
|
|
15.4
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
31.4
|
|
Revolving credit
facility(c)
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.7
|
|
Synthetic lease
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.0
|
|
Synthetic lease interest
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Additional acquisition purchase price payments
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
657.9
|
|
|
$
|
887.6
|
|
|
$
|
259.0
|
|
|
$
|
304.1
|
|
|
$
|
2,108.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The table above does not include amounts recorded for uncertain
tax positions. We cannot estimate the amounts or timing of
payments related to uncertain tax positions as we have not yet
entered into substantive settlement discussions with taxing
authorities. |
|
(a) |
|
Interest on the 5.0% Notes is fixed at 5.0% per annum and
assumes an exchange rate of 1.3380 US dollars per euro. |
|
(b) |
|
Interest on the 6.0% Convertible Senior Notes is fixed at
6.0% per annum. |
|
(c) |
|
Interest on outstanding borrowings is estimated at a rate of
4.65%, or approximately $3.9 million through the maturity
date. |
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
In thousands
|
|
2011
|
|
|
2010
|
|
|
5.0% Notes(a)
|
|
$
|
467,498
|
|
|
$
|
501,827
|
|
6.0% Convertible Senior
Notes(b)
|
|
|
74,542
|
|
|
|
71,137
|
|
Revolving credit facility
|
|
|
22,735
|
|
|
|
66,507
|
|
Capital lease obligations
|
|
|
13,037
|
|
|
|
18,680
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
577,812
|
|
|
$
|
658,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The change in the balance of these euro-denominated notes
reflected the impact of changes in foreign currency exchange
rates. |
|
(b) |
|
The balance at January 1, 2011 and January 2, 2010
represented principal of $90.0 million and an unamortized
debt discount of $15.5 million and $18.9 million,
respectively. |
For information regarding our debt and credit instruments, refer
to Note 9 of Notes to Consolidated Financial Statements.
As discussed in Note 9 of Notes to Consolidated Financial
Statements, in May 2010, we completed a second amendment to and
restatement of our revolving credit agreement. Availability
under the Amended Agreement shall
59
be the lesser of $350.0 million or a borrowing base that is
computed monthly and comprised primarily of our eligible
accounts receivable and inventory. A portion of the funds
available under the Amended Agreement not in excess of
$200.0 million is available for the issuance of letters of
credit, whereby standby letters of credit may not exceed
$65.0 million.
As of January 1, 2011, availability under our amended and
restated revolving credit facility was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of
|
|
|
|
|
|
|
Total
|
|
Borrowing
|
|
Outstanding
|
|
Credit
|
|
Available
|
|
Excess
|
In thousands
|
|
Facility(a)
|
|
Base(a)
|
|
Borrowings
|
|
Issued
|
|
Capacity
|
|
Capacity(b)
|
|
Revolving credit
facility(a)
|
|
$
|
350,000
|
|
|
$
|
291,156
|
|
|
$
|
22,735
|
|
|
$
|
28,870
|
|
|
$
|
239,551
|
|
|
$
|
194,551
|
|
|
|
|
(a) |
|
Availability under the Amended Agreement is the lesser of
$350.0 million or a borrowing base comprised primarily of
eligible accounts receivable and inventory. |
|
(b) |
|
Excess capacity represents available capacity reduced by the
minimum required aggregate borrowing availability under the
Amended Agreement of $45.0 million. |
Off-Balance
Sheet Arrangements
On November 21, 2006, we entered into an off-balance sheet
financing arrangement with a financial institution (commonly
referred to as a synthetic lease) to refinance the
purchase of various land and real property improvements
associated with warehouse and distribution facilities in Ohio
and Rhode Island totaling $32.8 million. This synthetic
lease arrangement expires on May 31, 2011 and replaced the
previous synthetic lease arrangement, which expired on
November 22, 2006. The lessor is a wholly-owned subsidiary
of a publicly traded corporation. The lessor is a sole member,
whose ownership interest is without limitation as to profits,
losses and distribution of the lessors assets. Our lease
represents less than 1.0% of the lessors assets. The lease
includes our guarantees for a substantial portion of the
financing and options to purchase the facilities at original
cost; the maximum initial guarantee was approximately
$27.0 million. The lessors risk included an initial
capital investment in excess of 10.0% of the total value of the
lease, which is at risk during the entire term of the lease. The
equipment portion of the original synthetic lease was sold to
another financial institution and leased back to us through a
seven-year capital lease totaling $30.6 million. The lessor
does not meet the definition of a variable interest entity and
therefore consolidation by the Company is not required.
We continued further consolidation of our warehouse operations
with the closure of our Rhode Island distribution facility in
May 2010. In June 2010, we paid $4.8 million and received
$2.8 million of proceeds, each in connection with our
former Rhode Island distribution center, which was financed
under the synthetic lease. We estimate our present obligation
under the terms of the synthetic lease will be $5.2 million
for the Ohio distribution facility. That amount is being
recognized in SG&A over the remaining lease term. However,
pursuant to the terms of the lease, in September 2010, we
communicated our intent to purchase the underlying assets of
such facility and expect to close the purchase for
$28.0 million in the second quarter of 2011.
In May 2010, the terms of the synthetic lease were amended to
make the applicable financial covenants under the synthetic
lease consistent with the terms of the Amended Agreement. We
have not entered into any other off-balance sheet arrangements.
Hedging
Activities
Our operations are exposed to risks associated with fluctuations
in foreign currency exchange rates. In order to reduce exposures
related to changes in foreign currency exchange rates, we use
foreign currency collars and forward contracts for the purpose
of hedging the specific exposure to variability in forecasted
cash flows associated primarily with inventory purchases mainly
by our European and Canadian entities. As of January 1,
2011, we had forward contracts maturing through December 2011 to
sell 35.4 million Canadian dollars for $34.5 million
and to sell 67.4 million euro for $87.5 million.
60
The following table summarizes the fair value and presentation
in the Consolidated Financial Statements for derivatives
designated as hedging instruments and derivatives not designated
as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts Designated as Hedging
Instruments
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
Period
|
|
Location
|
|
Amount
|
|
Fair Value
|
|
Location
|
|
Amount
|
|
Fair Value
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
Other current assets
|
|
$
|
1,500
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
120,504
|
|
|
$
|
3,463
|
|
January 2, 2010
|
|
Other current assets
|
|
|
26,408
|
|
|
|
586
|
|
|
Accrued expenses
|
|
|
74,634
|
|
|
|
3,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts Not Designated as Hedging
Instruments
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
Period
|
|
Location
|
|
Amount
|
|
Fair Value
|
|
Location
|
|
Amount
|
|
Fair Value
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
Other current assets
|
|
$
|
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
|
|
January 2, 2010
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
12,015
|
|
|
|
690
|
|
The following table summarizes the effect of foreign currency
exchange contracts on the Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or
|
|
|
|
|
|
|
Amount of Gain or
|
|
(Loss) Reclassified
|
|
Amount of Gain or
|
|
Amount of Gain or
|
|
|
(Loss) Recognized in
|
|
from Accumulated
|
|
(Loss) Reclassified
|
|
(Loss) Recognized in
|
|
|
Accumulated OCI
|
|
OCI into Operations
|
|
from Accumulated
|
|
Operations on
|
|
|
on Derivative
|
|
(Effective and
|
|
OCI into Operations
|
|
Derivative
|
|
|
(Effective Portion)
|
|
Ineffective Portion)
|
|
(Effective Portion)
|
|
(Ineffective Portion)
|
In thousands
|
|
Fiscal year ended
January 1, 2011
|
|
$
|
3,487
|
|
|
|
Cost of goods sold
|
|
|
$
|
(802
|
)
|
|
$
|
(282
|
)
|
Fiscal year ended
January 2, 2010
|
|
|
(7,113
|
)
|
|
|
Cost of goods sold
|
|
|
|
(4,181
|
)
|
|
|
(1,428
|
)
|
Fiscal year ended
January 3, 2009
|
|
|
(7,588
|
)
|
|
|
Cost of goods sold
|
|
|
|
(11,646
|
)
|
|
|
1,706
|
|
Approximately $2.9 million of unrealized losses in
Accumulated other comprehensive loss relating to cash flow
hedges will be reclassified into earnings in the next
12 months as the inventory is sold.
We hedge our net investment position in certain euro-denominated
functional currency subsidiaries by designating a portion of the
350.0 million euro-denominated bonds as the hedging
instrument in a net investment hedge. To the extent the hedge is
effective, related foreign currency translation gains and losses
are recorded within Other comprehensive loss. Translation gains
and losses related to the ineffective portion of the hedge are
recognized in current operations.
The related translation gains (losses) recorded within Other
comprehensive loss were $13.1 million, $(9.4) million
and $26.9 million for the years ended January 1, 2011,
January 2, 2010 and January 3, 2009, respectively.
During the first quarter of 2009, we dedesignated
143.0 million of the euro-denominated bonds as a hedge of
our net investment in certain euro-denominated functional
currency subsidiaries due to a decrease in the carrying value of
the hedged item below 350.0 million euro. During the first
and fourth quarters of 2010, we dedesignated an additional
66.0 million and 21.0 million, respectively, of the
euro-denominated bonds as a hedge of our net investment in
certain euro functional currency subsidiaries due to further
declines in the carrying value of the hedged item. The
associated foreign currency translation gains (losses) of
$21.6 million and $(6.5) million for the years ended
January 1, 2011 and January 2, 2010, respectively, are
reflected within Other income (expense), net on the accompanying
Consolidated Statements of Operations.
61
USE OF
ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the Consolidated Financial Statements. These estimates and
assumptions also affect the reported amounts of revenues and
expenses.
Critical accounting policies are those that are most important
to the portrayal of our financial condition and results of
operations and require managements most difficult,
subjective and complex judgments as a result of the need to make
estimates about the effect of matters that are inherently
uncertain. Our most critical accounting policies, discussed
below, pertain to revenue recognition, income taxes, accounts
receivable trade, inventories, goodwill and
intangible assets, accrued expenses, derivative instruments and
share-based compensation. In applying such policies, management
must use some amounts that are based upon its informed judgments
and best estimates. Due to the uncertainty inherent in these
estimates, actual results could differ from estimates used in
applying the critical accounting policies. Changes in such
estimates, based on more accurate future information, may affect
amounts reported in future periods.
Estimates by their nature are based on judgments and available
information. The estimates that we make are based upon
historical factors, current circumstances and the experience and
judgment of our management. We evaluate our assumptions and
estimates on an ongoing basis and may employ outside experts to
assist in our evaluations. Therefore, actual results could
materially differ from those estimates under different
assumptions and conditions.
For accounts receivable, we estimate the net collectibility,
considering both historical and anticipated trends as well as an
evaluation of economic conditions and the financial positions of
our customers. For inventory, we review the aging and salability
of our inventory and estimate the amount of inventory that we
will not be able to sell in the normal course of business. This
distressed inventory is written down to the expected recovery
value to be realized through off-price channels. If we
incorrectly anticipate these trends or unexpected events occur,
our results of operations could be materially affected. We
utilize various valuation methods to determine the fair value of
acquired tangible and intangible assets. For inventory, the
method uses the expected selling prices of finished goods.
Intangible assets acquired are valued using a discounted cash
flow model. Should any of the assumptions used in these
projections differ significantly from actual results, material
impairment losses could result where the estimated fair values
of these assets become less than their carrying amounts. For
accrued expenses related to items such as employee insurance,
workers compensation and similar items, accruals are
assessed based on outstanding obligations, claims experience and
statistical trends; should these trends change significantly,
actual results would likely be impacted. Derivative instruments
in the form of forward contracts and options are used to hedge
the exposure to variability in probable future cash flows
associated with inventory purchases primarily associated with
our European and Canadian entities. If fluctuations in the
relative value of the currencies involved in the hedging
activities were to move dramatically, such movement could have a
significant impact on our results. Changes in such estimates,
based on more accurate information, may affect amounts reported
in future periods. We are not aware of any reasonably likely
events or circumstances, which would result in different amounts
being reported that would materially affect our financial
condition or results of operations.
Revenue
Recognition
Revenue is recognized from our wholesale, retail and licensing
operations. Revenue within our wholesale operations is
recognized at the time title passes and risk of loss is
transferred to customers. Wholesale revenue is recorded net of
returns, discounts and allowances. Returns and allowances
require pre-approval from management. Discounts are based on
trade terms. Estimates for
end-of-season
allowances are based on historical trends, seasonal results, an
evaluation of current economic conditions and retailer
performance. We review and refine these estimates on a monthly
basis based on current experience, trends and retailer
performance. Our historical estimates of these costs have not
differed materially from actual results. Retail store revenues
are recognized net of estimated returns at the time of sale to
consumers. Sales tax collected from customers is excluded from
revenue. Proceeds received from the sale of gift cards are
recorded as a liability and recognized as sales when redeemed by
the holder.
62
Licensing revenues are recorded based upon contractually
guaranteed minimum levels and adjusted as actual sales data is
received from licensees.
Income
Taxes
Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, as measured by
enacted tax rates that are expected to be in effect in the
periods when the deferred tax assets and liabilities are
expected to be realized or settled. We also assess the
likelihood of the realization of deferred tax assets and adjust
the carrying amount of these deferred tax assets by a valuation
allowance to the extent we believe it more likely than not that
all or a portion of the deferred tax assets will not be
realized. We consider many factors when assessing the likelihood
of future realization of deferred tax assets, including recent
earnings results within taxing jurisdictions, expectations of
future taxable income, the carryforward periods available and
other relevant factors. Changes in the required valuation
allowance are recorded in income in the period such
determination is made. Significant judgment is required in
determining the worldwide provision for income taxes. Changes in
estimates may create volatility in our effective tax rate in
future periods for various reasons including changes in tax laws
or rates, changes in forecasted amounts and mix of pretax income
(loss), settlements with various tax authorities, either
favorable or unfavorable, the expiration of the statute of
limitations on some tax positions and obtaining new information
about particular tax positions that may cause management to
change its estimates. In the ordinary course of a global
business, the ultimate tax outcome is uncertain for many
transactions. It is our policy to recognize the impact of an
uncertain income tax position on our income tax return at the
largest amount that is more likely than not to be sustained upon
audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50.0%
likelihood of being sustained. The tax provisions are analyzed
periodically (at least quarterly) and adjustments are made as
events occur that warrant adjustments to those provisions. We
record interest expense and penalties payable to relevant tax
authorities as income tax expense.
Accounts
Receivable Trade, Net
In the normal course of business, we extend credit to customers
that satisfy pre-defined credit criteria. Accounts
receivable trade, net, as shown on the Consolidated
Balance Sheets, is net of allowances and anticipated discounts.
An allowance for doubtful accounts is determined through
analysis of the aging of accounts receivable at the date of the
financial statements, assessments of collectibility based on an
evaluation of historical and anticipated trends, the financial
condition of our customers and an evaluation of the impact of
economic conditions. An allowance for discounts is based on
those discounts relating to open invoices where trade discounts
have been extended to customers. Costs associated with potential
returns of products as well as allowable customer markdowns and
operational charge backs, net of expected recoveries, are
included as a reduction to sales and are part of the provision
for allowances included in Accounts receivable
trade, net. These provisions result from seasonal negotiations
with our customers as well as historical deduction trends, net
of expected recoveries, and the evaluation of current market
conditions. Should circumstances change or economic or
distribution channel conditions deteriorate significantly, we
may need to increase our provisions. Our historical estimates of
these costs have not differed materially from actual results.
Inventories,
Net
Inventories for seasonal, replenishment and on-going merchandise
are recorded at the lower of actual average cost or market
value. We continually evaluate the composition of our
inventories by assessing slow-turning, ongoing product as well
as prior seasons fashion product. Market value of
distressed inventory is estimated based on historical sales
trends for this category of inventory of our individual product
lines, the impact of market trends and economic conditions and
the value of current orders in-house relating to the future
sales of this type of inventory. Estimates may differ from
actual results due to quantity, quality and mix of products in
inventory, consumer and retailer preferences and market
conditions. We review our inventory position on a monthly basis
and adjust our estimates based on revised projections and
current market conditions. If economic conditions worsen, we
incorrectly anticipate trends or unexpected events occur, our
estimates could be proven overly optimistic and
63
required adjustments could materially adversely affect future
results of operations. Our historical estimates of these costs
and our provisions have not differed materially from actual
results.
Goodwill
and Intangibles, Net
Goodwill and intangible assets with indefinite lives are not
amortized, but rather tested for impairment at least annually.
Our annual impairment test is performed as of the first day of
the third fiscal quarter.
A two-step impairment test is performed on goodwill. In the
first step, we compare the fair value of each reporting unit to
its carrying value. We determine the fair value of our reporting
units using the market approach, as is typically used for
companies providing products where the value of such a company
is more dependent on the ability to generate earnings than the
value of the assets used in the production process. Under this
approach, we estimate fair value based on market multiples of
revenues and earnings for comparable companies. We also use
discounted future cash flow analyses to corroborate these fair
value estimates. If the fair value of the reporting unit exceeds
the carrying value of the net assets assigned to that reporting
unit, goodwill is not impaired and we are not required to
perform further testing. If the carrying value of the net assets
assigned to the reporting unit exceeds the fair value of the
reporting unit, then we must perform the second step in order to
determine the implied fair value of the reporting units
goodwill and compare it to the carrying value of the reporting
units goodwill. The activities in the second step include
valuing the tangible and intangible assets of the impaired
reporting unit based on their fair value and determining the
fair value of the impaired reporting units goodwill based
upon the residual of the summed identified tangible and
intangible assets.
The fair values of purchased intangible assets with indefinite
lives, primarily trademarks and tradenames, are estimated and
compared to their carrying values. We estimate the fair value of
these intangible assets based on an income approach using the
relief-from-royalty method. This methodology assumes that, in
lieu of ownership, a third party would be willing to pay a
royalty in order to exploit the related benefits of these types
of assets. This approach is dependent on a number of factors,
including estimates of future growth and trends, royalty rates
in the category of intellectual property, discount rates and
other variables. We base our fair value estimates on assumptions
we believe to be reasonable, but which are unpredictable and
inherently uncertain. Actual future results may differ from
those estimates. We recognize an impairment loss when the
estimated fair value of the intangible asset is less than the
carrying value.
The recoverability of the carrying values of all intangible
assets with finite lives is re-evaluated when events or changes
in circumstances indicate an assets value may be impaired.
Impairment testing is based on a review of forecasted operating
cash flows and the profitability of the related brand. If such
analysis indicates that the carrying value of these assets is
not recoverable, the carrying value of such assets is reduced to
fair value through a charge to our Consolidated Statement of
Operations.
Intangible assets with finite lives are amortized over their
respective lives to their estimated residual values. Trademarks
with finite lives are amortized over their estimated useful
lives. Intangible merchandising rights are amortized over a
period of 3 to 4 years. Customer relationships are
amortized assuming gradual attrition over periods ranging from
12 to 14 years.
In performing our goodwill impairment evaluation, we consider
many factors in evaluating whether the carrying value of
goodwill may not be recoverable, including declines in stock
price and market capitalization in relation to the book value of
the Company. We reconcile the sum of the estimated fair values
of our reporting units to the Companys market value (based
on our stock price), plus a reasonable control premium, which is
estimated as that amount that would be received to sell the
Company as a whole in an orderly transaction between market
participants.
During 2009, we recorded a pretax goodwill impairment charge of
$2.8 million associated with contingent consideration for
our acquisition of Mac & Jac in 2006.
During the annual goodwill impairment test performed in fiscal
2008, no impairment was recognized, however, as a result of
declines in the actual and projected performance and cash flows
of our International-Based Direct Brands segment, we determined
that an additional goodwill impairment test was required to be
performed as of January 3, 2009. This assessment compared
the carrying value of each of our reporting units with its
estimated
64
fair value using discounted cash flow models and market
approaches. As a result, we determined that the goodwill of our
International-Based Direct Brands segment was impaired and
recorded a non-cash impairment charge of $300.7 million
during the fourth quarter of 2008.
In the last two months of 2008 and into 2009, the capital
markets experienced substantial volatility and the
Companys stock price declined substantially, causing the
Companys book value to exceed its market capitalization,
plus a reasonable control premium. Accordingly we concluded that
our remaining goodwill was impaired and recorded a non-cash
pretax impairment charge of $382.4 million during the
fourth quarter of 2008 related to goodwill previously recorded
in our Domestic-Based Direct Brands segment.
As a result of the impairment analysis performed in connection
with our purchased trademarks with indefinite lives, no
impairment charges were recorded during 2010 or 2009.
As a result of the 2008 impairment analysis performed in
connection with our purchased trademarks with indefinite lives,
we determined that the carrying value of our intangible asset
related to our Villager, Crazy Horse and Russ trademark exceeded
its estimated fair value. Accordingly, we recorded a non-cash
pretax charge of $10.0 million to reduce the value of the
Villager, Crazy Horse and Russ trademark to its estimated fair
value. This impairment resulted from a decline in future
anticipated cash flows due to our exit of these brands.
During 2010, we recorded non-cash impairment charges of
$2.6 million primarily within our Partnered Brands segment
principally related to merchandising rights of our LIZ CLAIBORNE
and licensed
DKNY®
JEANS brands due to decreased use of such intangible assets.
As a result of the decline in actual and projected performance
and cash flows of the licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands during 2009, we determined the carrying value of
the related licensed trademark intangible asset exceeded its
estimated fair value and recorded a non-cash impairment charge
of $9.5 million. In addition, as a result of entering into
the JCPenney and QVC license agreements discussed above, we
performed an impairment analysis of our LIZ CLAIBORNE
merchandising rights. The decreased use of such intangible
assets resulted in the recognition of a non-cash impairment
charge of $4.5 million to reduce the carrying value of the
merchandising rights to their estimated fair value.
Accrued
Expenses
Accrued expenses for employee insurance, workers
compensation, contracted advertising and other outstanding
obligations are assessed based on claims experience and
statistical trends, open contractual obligations and estimates
based on projections and current requirements. If these trends
change significantly, then actual results would likely be
impacted.
Derivative
Instruments
Derivative instruments, including certain derivative instruments
embedded in other contracts, are recorded in the Consolidated
Balance Sheets as either an asset or liability and measured at
their fair value. The changes in a derivatives fair value
are recognized either currently in earnings or Accumulated other
comprehensive loss, depending on whether the derivative
qualifies for hedge accounting treatment. We test each
derivative for effectiveness at inception of each hedge and at
the end of each reporting period.
We use foreign currency forward contracts and options for the
purpose of hedging the specific exposure to variability in
forecasted cash flows associated primarily with inventory
purchases mainly by our European and Canadian entities. These
instruments are designated as cash flow hedges. To the extent
the hedges are highly effective, the effective portion of the
changes in fair value is included in Accumulated other
comprehensive loss, net of income taxes, with the corresponding
asset or liability recorded in the Consolidated Balance Sheet.
The ineffective portion of the cash flow hedge is recognized
primarily as a component of Cost of goods sold in current period
earnings or, in the case of swaps, if any, within SG&A.
Amounts recorded in Accumulated other comprehensive loss are
reflected in current period earnings when the hedged transaction
affects earnings. If fluctuations in the relative value of the
currencies involved in the hedging activities were to move
dramatically, such movement could have a significant impact on
our results of operations.
65
At the beginning of each hedge period, we assess whether the
hedge will be highly effective. This effectiveness assessment
also involves an estimation of the probability of the occurrence
of transactions for cash flow hedges. The use of different
assumptions and changing market conditions may impact the
results of the effectiveness assessment and ultimately the
timing of when changes in derivative fair values and underlying
hedged items are recorded in earnings.
We hedge our net investment position in certain euro-denominated
functional currency subsidiaries by borrowing directly in
foreign currency and designating a portion of foreign currency
debt as a hedge of net investments. The foreign currency
transaction gain or loss recognized for the effective portion of
a foreign currency denominated debt instrument that is
designated as the hedging instrument in a net investment hedge
is recorded as a translation adjustment. We have at times used
derivative instruments to hedge the changes in the fair value of
debt due to interest rates, with the change in fair value
recognized currently in Interest expense, net, together with the
change in fair value of the hedged item attributable to interest
rates.
Occasionally, we purchase short-term foreign currency contracts
outside of the cash flow hedging program to neutralize
quarter-end balance sheet and other expected exposures. These
derivative instruments do not qualify as cash flow hedges and
are recorded at fair value with all gains or losses, which have
not been significant, recognized as a component of SG&A in
current period earnings.
Share-Based
Compensation
We recognize compensation expense based on the fair value of
employee share-based awards, including stock options and
restricted stock, net of estimated forfeitures. Determining the
fair value of options at the grant date requires judgment,
including estimating the expected term that stock options will
be outstanding prior to exercise, the associated volatility and
the expected dividends. Judgment is required in estimating the
amount of share-based awards expected to be forfeited prior to
vesting. If actual forfeitures differ significantly from these
estimates, share-based compensation expense could be materially
impacted.
Inflation
The rate of inflation over the past few years has not had a
significant impact on our sales or profitability.
ACCOUNTING
PRONOUNCEMENTS
For a discussion of recently adopted accounting pronouncements,
see Note 1 of Notes to Consolidated Financial Statements.
|
|
Item 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We finance our capital needs through available cash and
marketable securities, operating cash flows, letters of credit,
our synthetic lease and our amended and restated revolving
credit facility. Our floating rate revolving credit facility
exposes us to market risk for changes in interest rates. Loans
thereunder bear interest at rates that vary with changes in
prevailing market rates.
We do not speculate on the future direction of interest rates.
As of January 1, 2011 and January 2, 2010, our
exposure to changing market rates was as follows:
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
January 1, 2011
|
|
January 2, 2010
|
|
Variable rate debt
|
|
$
|
22.7
|
|
|
$
|
66.5
|
|
Average interest rate
|
|
|
4.65
|
%
|
|
|
6.87
|
%
|
A ten percent change in the average rate would have resulted in
a $0.6 million change in interest expense during 2010.
As of January 1, 2011, we have not employed interest rate
hedging to mitigate such risks with respect to our floating rate
facility. We believe that our Notes and the Convertible Notes,
which are fixed rate obligations, partially mitigate the risks
with respect to our variable rate financing.
66
We transact business in multiple currencies, resulting in
exposure to exchange rate fluctuations. We mitigate the risks
associated with changes in foreign currency exchange rates
through the use of foreign exchange forward contracts and
collars to hedge transactions denominated in foreign currencies
for periods of generally less than one year. Gains and losses on
contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the underlying
hedged item affects earnings.
At January 1, 2011 and January 2, 2010, we had forward
contracts aggregating to $122.0 million and
$97.4 million, respectively. We had outstanding foreign
currency collars with net notional amounts aggregating to
$15.7 million at January 2, 2010. Unrealized losses
for outstanding foreign exchange forward contracts were
$3.5 million at January 1, 2011 and $2.5 million
at January 2, 2010. A sensitivity analysis to changes in
the foreign currencies when measured against the US dollar
indicated that if the US dollar uniformly weakened by 10.0%
against all of the hedged currency exposures, the fair value of
these instruments would decrease by $11.3 million at
January 1, 2011. Conversely, if the US dollar uniformly
strengthened by 10.0% against all of the hedged currency
exposures, the fair value of these instruments would increase by
$13.1 million at January 1, 2011. Any resulting
changes in the fair value of the hedged instruments would be
partially offset by changes in the underlying balance sheet
positions. The sensitivity analysis assumes a parallel shift in
foreign currency exchange rates. The assumption that exchange
rates change in a parallel fashion may overstate the impact of
changing exchange rates on assets and liabilities denominated in
foreign currency. We do not hedge all transactions denominated
in foreign currency.
We hedge our net investment position in euro functional
subsidiaries by designating a portion of the 350.0 million
euro-denominated bonds as the hedging instrument in a net
investment hedge. As discussed above (see Hedging
Activities), we dedesignated 230.0 million of the
euro-denominated bonds as a hedge of our net investment in
certain euro-denominated functional currency subsidiaries. A
sensitivity analysis to changes in the US dollar when measured
against the euro indicated if the US dollar weakened by 10.0%
against the euro, a translation loss of $30.8 million
associated with the ineffective portion of the hedge would be
recorded in Other income (expense), net. Conversely, if the US
dollar strengthened by 10.0% against the euro, a translation
gain of $30.8 million associated with the ineffective
portion of the hedge would be recorded in Other income
(expense), net.
We are exposed to credit related losses if the counterparties to
our derivative instruments fail to perform their obligations. We
systemically measure and assess such risk as it relates to the
credit ratings of these counterparties, all of which currently
have satisfactory credit ratings and therefore we do not expect
to realize losses associated with counterparty default.
|
|
Item 8.
|
Financial
Statements and Supplementary
Data.
|
See the Index to Consolidated Financial Statements and
Schedule appearing at the end of this Annual Report on
Form 10-K
for information required under this Item 8.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial
Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and
Procedures.
|
Our management, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer,
evaluated our disclosure controls and procedures at the end of
each of our fiscal quarters. Our Chief Executive Officer and
Chief Financial Officer concluded that, as of January 1,
2011, our disclosure controls and procedures were effective to
ensure that all information required to be disclosed is
recorded, processed, summarized and reported within the time
periods specified, and that information required to be filed in
the reports that we file or submit under the Securities Exchange
Act of 1934 (the Exchange Act) is accumulated and
communicated to our management, including our principal
executive and principal financial officers, to allow timely
decisions regarding required disclosure. There were no changes
in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
67
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
January 1, 2011 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
See Index to Consolidated Financial Statements and
Schedule appearing at the end of this Annual Report on
Form 10-K
for Managements Report on Internal Control Over Financial
Reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate
Governance.
|
With respect to our Executive Officers, see Executive
Officers of the Registrant in Part I of this Annual
Report on
Form 10-K.
Information regarding Section 16(a) compliance, the Audit
Committee (including membership and Audit Committee Financial
Experts but excluding the Audit Committee Report),
our code of ethics and background of our Directors appearing
under the captions Section 16(a) Beneficial Ownership
Reporting Compliance, Corporate Governance,
Additional Information-Company Code of Ethics and Business
Practices and Election of Directors in our
Proxy Statement for the 2011 Annual Meeting of Shareholders (the
2011 Proxy Statement) is hereby incorporated by
reference.
|
|
Item 11.
|
Executive
Compensation.
|
Information called for by this Item 11 is incorporated by
reference to the information set forth under the headings
Compensation Discussion and Analysis and
Executive Compensation (other than the Board
Compensation Committee Report) in the 2011 Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder
Matters.
|
EQUITY
COMPENSATION
The following table summarizes information about the stockholder
approved Liz Claiborne, Inc. Outside Directors 1991 Stock
Ownership Plan (the Outside Directors Plan);
Liz Claiborne, Inc. 1992 Stock Incentive Plan; Liz Claiborne,
Inc. 2000 Stock Incentive Plan (the 2000 Plan); Liz
Claiborne, Inc. 2002 Stock Incentive Plan (the 2002
Plan); and Liz Claiborne, Inc. 2005 Stock Incentive Plan
(the 2005 Plan), which together comprise all of our
existing equity compensation plans, as of January 1, 2011.
In January 2006, we adopted the Liz Claiborne, Inc. Outside
Directors Deferral Plan, which amended and restated the
Outside Directors Plan by eliminating equity grants under
the Outside Directors Plan, including the annual grant of
shares of Common Stock. The last grant under the Outside
Directors Plan was on January 10, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to be
|
|
|
Weighted Average Exercise
|
|
|
Future Issuance Under
|
|
|
|
Issued Upon Exercise of
|
|
|
Price of Outstanding
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants and
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Rights
|
|
|
Reflected in Column)
|
|
|
Equity Compensation Plans Approved by Stockholders
|
|
|
8,415,163
|
(1)
|
|
$
|
14.39
|
(2)
|
|
|
2,298,285
|
(3)
|
Equity Compensation Plans Not Approved by Stockholders
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,415,163
|
(1)
|
|
$
|
14.39
|
(2)
|
|
|
2,298,285
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
(1) |
|
Includes (i) 574,003 shares of Common Stock issuable
under the 2000, 2002 and 2005 Plans pursuant to
participants elections thereunder to defer certain
director compensation; (ii) 140,750 performance shares
granted to a group of key executives, of which the ultimate
number of shares earned will be determined by the extent of
achievement of the performance criteria set forth in the
performance share arrangements and range from 0-200% of target;
and (iii) 855,000 performance shares granted to a group of
key executives, of which the number of shares earned will be
determined by the achievement of the performance criteria set
forth in the performance share arrangement and range from
0 100% of target. |
|
(2) |
|
Performance Shares and shares of Common Stock issuable under the
2000, 2002 and 2005 Plans pursuant to participants
election thereunder to defer certain director compensation were
not included in calculating the Weighted Average Exercise Price. |
|
(3) |
|
In addition to options, warrants and rights, the 2000 Plan, the
2002 Plan and the 2005 Plan authorize the issuance of restricted
stock, unrestricted stock and performance stock. Each of the
2000 and the 2002 Plans contains a
sub-limit on
the aggregate number of shares of restricted Common Stock, which
may be issued; the
sub-limit
under the 2000 Plan is set at 1,000,000 shares and the
sub-limit
under the 2002 Plan is set at 1,800,000 shares. The 2005
Plan contains an aggregate 2,000,000 shares
sub-limit on
the number of shares of restricted stock, restricted stock
units, unrestricted stock and performance shares that may be
awarded. |
Security ownership information of certain beneficial owners and
management as called for by this Item 12 is incorporated by
reference to the information set forth under the heading
Security Ownership of Certain Beneficial Owners and
Management in the 2011 Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Information called for by this Item 13 is incorporated by
reference to the information set forth under the headings
Certain Relationships and Related Transactions in
the 2011 Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and
Services.
|
Information called for by this Item 14 is incorporated by
reference to the information set forth under the heading
Ratification of the Appointment of the Independent
Registered Public Accounting Firm in the 2011 Proxy
Statement.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement
Schedules.
|
|
|
|
|
|
|
(a) 1. Financial Statements
|
|
Refer to Index to Consolidated
Financial Statements on Page F-1
|
|
|
|
(a) 2. Schedule
|
|
|
|
|
|
SCHEDULE II Valuation and Qualifying Accounts
|
|
F-49
|
NOTE: Schedules other than those referred to above and parent
company 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.
(a) 3. Exhibits
69
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
2(a)
|
|
|
|
Share Purchase Agreement, dated as of May 15, 2001, among
Registrant, Liz Claiborne 2 B.V., LCI Acquisition US, and the
other parties signatory thereto (incorporated herein by
reference to Exhibit 2.1 to Registrants Current Report on
Form 8-K dated May 23, 2001 and amended on July 20, 2001).
|
3(a)
|
|
|
|
Restated Certificate of Incorporation of Registrant
(incorporated herein by reference to Exhibit 3(a) to
Registrants Current Report on Form 8-K dated May 28, 2009).
|
3(a)(i)
|
|
|
|
Amendment to the Restated Certificate of Incorporation of
Registrant (incorporated herein by reference to Exhibit 3(a) to
Registrants Current Report on Form 8-K dated June 3, 2010).
|
3(b)
|
|
|
|
By-Laws of Registrant, as amended through May 27, 2010
(incorporated herein by reference to Exhibit 3(b) to
Registrants Current Report on Form 8-K dated June 3, 2010).
|
4(a)
|
|
|
|
Specimen certificate for Registrants Common Stock, par
value $1.00 per share (incorporated herein by reference to
Exhibit 4(a) to the Registrants Annual Report on Form 10-K
for the fiscal year ended December 26, 1992).
|
4(b)
|
|
|
|
Rights Agreement, dated as of December 4, 1998, between
Registrant and First Chicago Trust Company of New York
(incorporated herein by reference to Exhibit 1 to
Registrants Form 8-A12B dated as of December 7, 1998).
|
4(b)(i)
|
|
|
|
Amendment to the Rights Agreement, dated November 11, 2001,
between Registrant and The Bank of New York, appointing The Bank
of New York as Rights Agent (incorporated herein by reference to
Exhibit 1 to Registrants Form 8-A12B/A dated as of January
30, 2002).
|
4(b)(ii)
|
|
|
|
Amendment to the Rights Agreement, dated as of December 19,
2008, between Registrant and The Bank of New York Mellon, as
Rights Agent (incorporated herein by reference to Exhibit 4.1 to
Registrants Current Report on Form 8-K dated December 19,
2008).
|
4(c)
|
|
|
|
Indenture, dated June 24, 2009, by and between Registrant and
The Bank of New York Mellon, as Trustee (incorporated herein by
reference to Exhibit 4.1 to Registrants Quarterly Report
on Form 10-Q for the period ended July 4, 2009).
|
10(a)
|
|
|
|
Reference is made to Exhibit 4(b) filed hereunder, which is
incorporated herein by this reference.
|
10(b)
|
|
|
|
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 to Exhibit 10(n) to Registrants Annual Report
on Form 10-K for the fiscal year ended December 29, 1990).
|
10(b)(i)
|
|
|
|
First Amendment: Lease Extension and Modification Agreement,
dated as of January 1, 1998, to the 1441 Lease (incorporated
herein by reference to Exhibit 10(k) (i) to the
Registrants Annual Report on Form 10-K for the fiscal year
ended January 1, 2000 [the 1999 Annual Report]).
|
10(b)(ii)
|
|
|
|
Second Amendment to Lease, dated as of September 19, 1998, to
the 1441 Lease (incorporated herein by reference to Exhibit
10(k) (ii) to the 1999 Annual Report).
|
10(b)(iii)
|
|
|
|
Third Amendment to Lease, dated as of September 24, 1999, to the
1441 Lease (incorporated herein by reference to Exhibit 10(k)
(iii) to the 1999 Annual Report).
|
10(b)(iv)
|
|
|
|
Fourth Amendment to Lease, effective as of July 1, 2000, to the
1441 Lease (incorporated herein by reference to Exhibit
10(j)(iv) to the Registrants Annual Report on Form 10-K
for the fiscal year ended December 28, 2002 [the 2002
Annual Report]).
|
10(b)(v)
|
|
|
|
Fifth Amendment to Lease (incorporated herein by reference to
Schedule 10(b)(v) to Registrants Annual Report on Form
10-K for the fiscal year ended January 3, 2004 [the 2003
Annual Report]).
|
10(c)*+
|
|
|
|
Description of Liz Claiborne, Inc. 2010 Employee Incentive Plan.
|
10(d)+
|
|
|
|
The Liz Claiborne 401(k) Savings and Profit Sharing Plan, as
amended and restated (incorporated herein by reference to
Exhibit 10(g) to Registrants 2002 Annual Report).
|
10(d)(i)+
|
|
|
|
First Amendment to the Liz Claiborne 401(k) Savings and Profit
Sharing Plan (incorporated herein by reference to Exhibit
10(e)(i) to the 2003 Annual Report).
|
10(d)(ii)+
|
|
|
|
Second Amendment to the Liz Claiborne 401(k) Savings and Profit
Sharing Plan (incorporated herein by reference to Exhibit
10(e)(ii) to the 2003 Annual Report).
|
10(d)(iii)+
|
|
|
|
Third Amendment to the Liz Claiborne 401(k) Savings and Profit
Sharing Plan (incorporated herein by reference to Exhibit
10(e)(iii) to the 2003 Annual Report).
|
70
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
10(d)(iv)+
|
|
|
|
Trust Agreement (the 401(k) Trust Agreement) dated
as of October 1, 2003 between Registrant and Fidelity Management
Trust Company (incorporated herein by reference to Exhibit
10(e)(iv) to the 2003 Annual Report).
|
10(d)(v)+
|
|
|
|
First Amendment to the 401(k) Trust Agreement (incorporated
herein by reference to Exhibit 10(e)(v) to
Registrants Annual Report on Form 10-K for the fiscal year
ended January 1, 2005 (the 2004 Annual Report).
|
10(d)(vi)+
|
|
|
|
Second Amendment to the 401(k) Trust Agreement (incorporated
herein by reference to Exhibit 10(e)(vi) to the 2004 Annual
Report).
|
10(e)+
|
|
|
|
Liz Claiborne, Inc. Amended and Restated Outside Directors
1991 Stock Ownership Plan (the Outside Directors
1991 Plan) (incorporated herein by reference to Exhibit
10(m) to Registrants Annual Report on Form 10-K for the
fiscal year ended December 30, 1995).
|
10(e)(i)+
|
|
|
|
Amendment to the Outside Directors 1991 Plan, effective as
of December 18, 2003 (incorporated herein by reference to
Exhibit 10(f)(i) to the 2003 Annual Report).
|
10(e)(ii)+
|
|
|
|
Form of Option Agreement under the Outside Directors 1991
Plan (incorporated herein by reference to Exhibit 10(m)(i) to
the Registrants Annual Report on Form 10-K for the fiscal
year ended December 28, 1996).
|
10(e)(iii)+
|
|
|
|
Liz Claiborne, Inc. Outside Directors Deferral Plan
(incorporated herein by reference to Exhibit 10(f)(iii) to
Registrants Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 [the 2005 Annual Report]).
|
10(f)+
|
|
|
|
Liz Claiborne, Inc. 1992 Stock Incentive Plan (the 1992
Plan) (incorporated herein by reference to Exhibit 10(p)
to Registrants Annual Report on Form 10-K for the fiscal
year ended December 28, 1991).
|
10(f)(i)+
|
|
|
|
Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference to Exhibit 10(a) to
Registrants Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
|
10(f)(ii)+
|
|
|
|
Form of Restricted Transformation Share Agreement under the 1992
Plan (incorporated herein by reference to Exhibit 10(s) to the
Registrants Annual Report on Form 10-K for the fiscal year
ended January 3, 1998).
|
10(g)+
|
|
|
|
Liz Claiborne, Inc. 2000 Stock Incentive Plan (the 2000
Plan) (incorporated herein by reference to Exhibit 4(e) to
Registrants Form S-8 dated as of January 25, 2001).
|
10(g)(i)+
|
|
|
|
Amendment No. 1 to the 2000 Plan (incorporated herein by
reference to Exhibit 10(h)(i) to the 2003 Annual Report).
|
10(g)(ii)+
|
|
|
|
Form of Option Grant Certificate under the 2000 Plan
(incorporated herein by reference to Exhibit 10(z)(i) to
the Registrants Annual Report on Form 10-K for the fiscal
year ended December 30, 2000 (the 2000 Annual
Report)).
|
10(g)(iii)+
|
|
|
|
Form of 2006 Special Performance-Based Restricted Stock
Confirmation under the 2000 Plan (incorporated herein by
reference to Exhibit 10(h)(v) to the 2005 Annual Report).
|
10(h)+
|
|
|
|
Liz Claiborne, Inc. 2002 Stock Incentive Plan (the 2002
Plan) (incorporated herein by reference to Exhibit
10(y)(i) to Registrants Quarterly Report on Form 10-Q for
the period ended June 29, 2002 [the 2nd Quarter 2002
10-Q]).
|
10(h)(i)+
|
|
|
|
Amendment No. 1 to the 2002 Plan (incorporated herein by
reference to Exhibit 10(y)(iii) to the 2nd Quarter 2002 10-Q).
|
10(h)(ii)+
|
|
|
|
Amendment No. 2 to the 2002 Plan (incorporated herein by
reference to Exhibit 10(i)(ii) to the 2003 Annual Report).
|
10(h)(iii)+
|
|
|
|
Amendment No. 3 to the 2002 Plan (incorporated herein by
reference to Exhibit 10(i)(iii) to the 2003 Annual Report).
|
10(h)(iv)+
|
|
|
|
Form of Option Grant Certificate under the 2002 Plan
(incorporated herein by reference to Exhibit 10(y)(ii) to
the 2nd Quarter 2002 10-Q).
|
10(h)(v)+
|
|
|
|
Form of Restricted Share Agreement for Registrants
Growth Shares program under the 2002 Plan
(incorporated herein by reference to Exhibit 10(i)(v) to the
2003 Annual Report).
|
71
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
10(i)+
|
|
|
|
Description of Supplemental Life Insurance Plans (incorporated
herein by reference to Exhibit 10(q) to the 2000 Annual Report).
|
10(j)+
|
|
|
|
Amended and Restated Liz Claiborne §162(m) Cash Bonus Plan
(incorporated herein by reference to Exhibit 10.1 to
Registrants Quarterly Report on Form 10-Q for the period
ended July 5, 2003).
|
10(k)+
|
|
|
|
Liz Claiborne, Inc. Supplemental Executive Retirement Plan
effective as of January 1, 2002, constituting an amendment,
restatement and consolidation of the Liz Claiborne, Inc.
Supplemental Executive Retirement Plan and the Liz Claiborne,
Inc. Bonus Deferral Plan (incorporated herein by reference to
Exhibit 10(t)(i) to Registrants Annual Report on Form 10-K
for the fiscal year ended December 29, 2001).
|
10(k)(i)+
|
|
|
|
Liz Claiborne, Inc. Supplemental Executive Retirement Plan
effective as of January 1, 2005, including amendments through
December 31, 2008 (incorporated herein by reference to
Exhibit 10.1 to Registrants Current Report on Form
8-K dated December 31, 2008).
|
10(k)(ii)+
|
|
|
|
Trust Agreement, dated as of January 1, 2002, between Registrant
and Wilmington Trust Company (incorporated herein by reference
to Exhibit 10(t)(i) to the 2002 Annual Report).
|
10(l)
|
|
|
|
Five-Year Credit Agreement, dated as of October 13, 2004, among
Registrant, the Lenders party thereto, Bank of America, N.A.,
Citibank, N.A., SunTrust Bank and Wachovia Bank, National
Association, as Syndication Agents, and JPMorgan Chase Bank, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.1 to Registrants Current Report on Form 8-K
dated October 13, 2004).
|
10(l)(i)
|
|
|
|
First Amendment and Waiver to the Five-Year Credit Agreement,
dated as of February 20, 2008 (incorporated herein by reference
to Exhibit 10.1 to Registrants Current Report on Form 8-K
dated March 6, 2008).
|
10(l)(ii)
|
|
|
|
Second Amendment to the Five-Year Credit Agreement, dated as of
August 12, 2008, (incorporated herein by reference to Exhibit
10.1 to Registrants Quarterly Report on Form 10-Q for the
period ended July 5, 2008).
|
10(m)+
|
|
|
|
Liz Claiborne Inc. 2005 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1(b) to Registrants
Current Report on Form 8-K dated May 26, 2005).
|
10(n)+
|
|
|
|
Amendment No. 1 to the Liz Claiborne Inc. 2005 Stock incentive
Plan (incorporated herein by reference to Exhibit 10.1 to
Registrants Current Report on Form 8-K dated July 12,
2005).
|
10(o)+
|
|
|
|
Form of Restricted Stock Grant Certificate (incorporated herein
by reference to Exhibit 10(a) to Registrants Quarterly
Report on Form 10-Q for the period ended April 2, 2005).
|
10(p)+
|
|
|
|
Form of Option Grant Confirmation (incorporated herein by
reference to Exhibit 99.2 to Registrants Current Report on
Form 8-K dated December 4, 2008).
|
10(q)+
|
|
|
|
Liz Claiborne, Inc. Section 162(m) Long Term Performance Plan
(incorporated herein by reference to Exhibit 10.1(a) to
Registrants Current Report on Form 8-K dated May 26, 2005).
|
10(r)+
|
|
|
|
Form of Section 162(m) Long Term Performance Plan (incorporated
herein by reference to Exhibit 10 to Registrants
Quarterly Report on Form 10-Q for the period ended October 1,
2005).
|
10(s)+
|
|
|
|
Form of Executive Severance Agreement (incorporated herein by
reference to Exhibit 99.1 to Registrants Current Report on
Form 8-K dated January 28, 2011).
|
10(t)+
|
|
|
|
Employment Agreement, by and between Registrant and William L.
McComb, dated October 13, 2006 (incorporated herein by reference
to Exhibit 99.2 to Registrants Current Report on Form 8-K
dated October 18, 2006).
|
10(t)(i)+
|
|
|
|
Amended and Restated Employment Agreement, by and between
Registrant and William L. McComb, dated December 24, 2008
(incorporated herein by reference to Exhibit 10.1 to
Registrants Current Report on Form 8-K dated December 24,
2008).
|
10(t)(ii)
|
|
|
|
Severance Benefit Agreement, by and between Registrant and
William L. McComb, dated July 14, 2009 (incorporated herein by
reference to Exhibit 10.4 to Registrants Quarterly Report
on Form 10-Q for the period ended July 4, 2009).
|
10(u)+
|
|
|
|
Executive Terminations Benefits Agreement, by and between
Registrant and William L. McComb, dated as of October 13, 2006
(incorporated herein by reference to Exhibit 10.3 to
Registrants Quarterly Report on Form 10-Q for the period
ended July 4, 2009).
|
72
|
|
|
|
|
Exhibit No.
|
|
|
|
Description
|
|
10(u)(i)+
|
|
|
|
Amended and Restated Executive Termination Benefits Agreement,
by and between Registrant and William L. McComb, dated as of
December 24, 2008 (incorporated herein by reference to
Exhibit 10.2 to Registrants Current Report on Form
8-K dated December 24, 2008).
|
10(u)(ii)
|
|
|
|
Executive Termination Benefits Agreement, by and between
Registrant and William L. McComb, dated as of July 14, 2009
(incorporated herein by reference to Exhibit 10.3 to
Registrants Quarterly Report on Form 10-Q for the period
ended July 4, 2009).
|
10(v)+
|
|
|
|
Retirement and Consulting Agreement, by and between Registrant
and Paul R. Charron, dated as of October 13, 2006 (incorporated
herein by reference to Exhibit 99.4 to Registrants Current
Report on Form 8-K dated October 18, 2006).
|
10(w)
|
|
|
|
Purchase Agreement, dated June 18, 2009, for Registrants
6.0% Convertible Senior Notes due June 2014, by and among
Registrant and J.P. Morgan Securities Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated as
Representatives of Several Initial Purchasers (incorporated
herein by reference to Exhibit 10.5 to Registrants
Quarterly Report on Form 10-Q for the period ended July 4, 2009).
|
10(x)Δ
|
|
|
|
License Agreement, dated as of October 7, 2009, between
Registrant, J.C. Penney Corporation, Inc. and J.C. Penney
Company, Inc. (incorporated herein by reference to Exhibit 10(y)
to Registrants Annual Report on Form 10-K/A for the fiscal
year ended January 2, 2010).
|
10(y)
|
|
|
|
Second Amended and Restated Credit Agreement, dated May 6, 2010,
among the Company, Mexx Europe B.V., Juicy Couture Europe
Limited, and Liz Claiborne Canada Inc., as Borrowers, the
several subsidiary guarantors party thereto, the several lenders
party thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent and U.S. Collateral Agent, JPMorgan Chase Bank, N.A.,
Toronto Branch, as Canadian Administrative Agent and Canadian
Collateral Agent, J.P. Morgan Europe Limited, as European
Administrative Agent and European Collateral Agent, Bank of
America, N.A., as Syndication Agent, General Electric Capital
Corporation, as Documentation Agent, and J.P. Morgan
Securities Inc., Banc of America Securities LLC, Wells Fargo
Capital Finance, LLC and SunTrust Robinson Humphrey, Inc., as
Joint Lead Arrangers and Joint Bookrunners (incorporated herein
by reference to Exhibit 10(z) to Registrants Annual Report
on Form 10-K/A for the fiscal year ended January 2, 2010).
|
21*
|
|
|
|
List of Registrants Subsidiaries.
|
23*
|
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
31(a)*
|
|
|
|
Rule 13a-14(a) Certification of Chief Executive Officer of the
Company in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31(b)*
|
|
|
|
Rule 13a-14(a) Certification of Chief Financial Officer of the
Company in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32(a)*#
|
|
|
|
Certification of Chief Executive Officer of the Company in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
|
32(b)*#
|
|
|
|
Certification of Chief Financial Officer of the Company in
accordance with Section 906 of the Sarbanes-Oxley Act of 2002.
|
99*
|
|
|
|
Undertakings.
|
|
|
|
+ |
|
Compensation plan or arrangement required to be noted as
provided in Item 14(a)(3). |
|
* |
|
Filed herewith. |
|
Δ |
|
Certain portions of this exhibit have been omitted in connection
with an application for confidential treatment therefor. |
|
# |
|
A signed original of this written statement required by
Section 906 has been provided by the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request. |
73
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 February 17, 2011.
|
|
|
LIZ CLAIBORNE, INC.
|
|
LIZ CLAIBORNE, INC.
|
|
|
|
By: /s/ Andrew
Warren
Andrew
Warren,
Chief Financial Officer
(principal financial officer)
|
|
By: /s/ Elaine
H. Goodell
Elaine
H. Goodell,
Vice President Corporate Controller
and Chief Accounting 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 February 17,
2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ William
L. McComb
William
L. McComb
|
|
Chief Executive Officer and Director
(principal executive officer)
|
|
|
|
/s/ Bernard
W. Aronson
Bernard
W. Aronson
|
|
Director
|
|
|
|
/s/ Lawrence
Benjamin
Lawrence
Benjamin
|
|
Director
|
|
|
|
/s/ Raul
J. Fernandez
Raul
J. Fernandez
|
|
Director
|
|
|
|
/s/ Kenneth
B. Gilman
Kenneth
B. Gilman
|
|
Director
|
|
|
|
/s/ Nancy
J. Karch
Nancy
J. Karch
|
|
Director
|
|
|
|
/s/ Kenneth
P. Kopelman
Kenneth
P. Kopelman
|
|
Director
|
|
|
|
/s/ Kay
Koplovitz
Kay
Koplovitz
|
|
Director and Chairman of the Board
|
|
|
|
/s/ Arthur
C. Martinez
Arthur
C. Martinez
|
|
Director
|
|
|
|
/s/ Doreen
A. Toben
Doreen
A. Toben
|
|
Director
|
74
LIZ
CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
F-2 to F-4
|
FINANCIAL STATEMENTS
|
|
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9 to F-48
|
|
|
F-49
|
F-1
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a 15(f) under the Securities and
Exchange Act of 1934. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Companys system of internal control over
financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a
material effect on the financial statements.
Management has evaluated the effectiveness of the Companys
internal control over financial reporting as of January 1,
2011 based upon criteria for effective internal control over
financial reporting described in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Based on our evaluation, management determined that the
Companys internal control over financial reporting was
effective as of January 1, 2011 based on the criteria in
Internal Control Integrated Framework issued
by COSO.
The Companys internal control over financial reporting as
of January 1, 2011 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their attestation report which appears herein.
MANAGEMENTS
RESPONSIBILITY FOR FINANCIAL STATEMENTS
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 of America and include some
amounts that are based on managements informed judgments
and best estimates.
Deloitte & Touche LLP, an independent registered
public accounting firm, has audited these consolidated financial
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and has
expressed herein their unqualified opinion on those financial
statements.
The Audit Committee of the Board of Directors, which oversees
all of the Companys financial reporting process on behalf
of the Board of Directors, consists solely of independent
directors, meets with the independent registered public
accounting firm, internal auditors and management periodically
to review their respective activities and the discharge of their
respective responsibilities. Both the independent registered
public accounting firm 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.
February 17, 2011
|
|
|
/s/ William
L. McComb
William
L. McComb
Chief Executive Officer
|
|
/s/ Andrew
Warren
Andrew
Warren
Chief Financial Officer
|
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Liz Claiborne, Inc.
We have audited the internal control over financial reporting of
Liz Claiborne, Inc. and subsidiaries (the Company)
as of January 1, 2011, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 1, 2011, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended January 1, 2011 of
the Company and our report dated February 17, 2011
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ DELOITTE &
TOUCHE LLP
New York, New York
February 17, 2011
F-3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Liz Claiborne, Inc.
We have audited the accompanying consolidated balance sheets of
Liz Claiborne, Inc. and subsidiaries (the Company)
as of January 1, 2011 and January 2, 2010, and the
related consolidated statements of operations, retained
earnings, comprehensive loss and changes in capital accounts,
and cash flows for each of the three years in the period ended
January 1, 2011. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of Liz Claiborne, Inc. and subsidiaries as of
January 1, 2011 and January 2, 2010, and the results
of their operations and their cash flows for each of the three
years in the period ended January 1, 2011, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 1, 2011, based on the criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 17, 2011 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ DELOITTE &
TOUCHE LLP
New York, New York
February 17, 2011
F-4
Liz
Claiborne, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
In thousands, except share data
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,714
|
|
|
$
|
20,372
|
|
Accounts receivable trade, net
|
|
|
208,081
|
|
|
|
263,508
|
|
Inventories, net
|
|
|
289,439
|
|
|
|
319,713
|
|
Deferred income taxes
|
|
|
3,916
|
|
|
|
769
|
|
Other current assets
|
|
|
87,773
|
|
|
|
267,499
|
|
Assets held for sale
|
|
|
|
|
|
|
15,070
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
611,923
|
|
|
|
886,931
|
|
Property and Equipment, Net
|
|
|
375,529
|
|
|
|
444,688
|
|
Goodwill and Intangibles, Net
|
|
|
228,110
|
|
|
|
231,229
|
|
Deferred Income Taxes
|
|
|
3,217
|
|
|
|
7,565
|
|
Other Assets
|
|
|
38,880
|
|
|
|
35,490
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,257,659
|
|
|
$
|
1,605,903
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
26,951
|
|
|
$
|
70,868
|
|
Convertible Senior Notes
|
|
|
74,542
|
|
|
|
71,137
|
|
Accounts payable
|
|
|
195,541
|
|
|
|
144,942
|
|
Accrued expenses
|
|
|
268,605
|
|
|
|
343,288
|
|
Income taxes payable
|
|
|
2,348
|
|
|
|
5,167
|
|
Deferred income taxes
|
|
|
4,893
|
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
572,880
|
|
|
|
642,552
|
|
Long-Term Debt
|
|
|
476,319
|
|
|
|
516,146
|
|
Other Non-Current Liabilities
|
|
|
197,357
|
|
|
|
201,027
|
|
Deferred Income Taxes
|
|
|
32,784
|
|
|
|
26,299
|
|
Commitments and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders (Deficit) Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, authorized
shares 50,000,000, issued shares none
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value, authorized
shares 250,000,000, issued shares
176,437,234
|
|
|
176,437
|
|
|
|
176,437
|
|
Capital in excess of par value
|
|
|
331,808
|
|
|
|
319,326
|
|
Retained earnings
|
|
|
1,417,785
|
|
|
|
1,669,316
|
|
Accumulated other comprehensive loss
|
|
|
(66,302
|
)
|
|
|
(69,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,859,728
|
|
|
|
2,095,708
|
|
Common stock in treasury, at cost 81,892,589 and
81,488,984 shares
|
|
|
(1,883,898
|
)
|
|
|
(1,879,160
|
)
|
|
|
|
|
|
|
|
|
|
Total Liz Claiborne, Inc. stockholders (deficit) equity
|
|
|
(24,170
|
)
|
|
|
216,548
|
|
Noncontrolling interest
|
|
|
2,489
|
|
|
|
3,331
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(21,681
|
)
|
|
|
219,879
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders (Deficit) Equity
|
|
$
|
1,257,659
|
|
|
$
|
1,605,903
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-5
Liz
Claiborne, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands, except per common share data
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
2,500,072
|
|
|
$
|
2,915,919
|
|
|
$
|
3,861,111
|
|
Cost of goods sold
|
|
|
1,261,551
|
|
|
|
1,563,594
|
|
|
|
2,025,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,238,521
|
|
|
|
1,352,325
|
|
|
|
1,835,790
|
|
Selling, general & administrative expenses
|
|
|
1,415,441
|
|
|
|
1,653,376
|
|
|
|
1,876,558
|
|
Goodwill impairment
|
|
|
|
|
|
|
2,785
|
|
|
|
683,071
|
|
Impairment of other intangible assets
|
|
|
2,594
|
|
|
|
14,222
|
|
|
|
10,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(179,514
|
)
|
|
|
(318,058
|
)
|
|
|
(733,885
|
)
|
Other income (expense), net
|
|
|
26,665
|
|
|
|
(4,007
|
)
|
|
|
(6,372
|
)
|
Interest expense, net
|
|
|
(60,193
|
)
|
|
|
(65,084
|
)
|
|
|
(48,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Provision (Benefit) for Income Taxes
|
|
|
(213,042
|
)
|
|
|
(387,149
|
)
|
|
|
(788,545
|
)
|
Provision (benefit) for income taxes
|
|
|
7,941
|
|
|
|
(108,238
|
)
|
|
|
22,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(220,983
|
)
|
|
|
(278,911
|
)
|
|
|
(811,057
|
)
|
Discontinued operations, net of income taxes
|
|
|
(31,326
|
)
|
|
|
(27,499
|
)
|
|
|
(140,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(252,309
|
)
|
|
|
(306,410
|
)
|
|
|
(951,559
|
)
|
Net (loss) income attributable to the noncontrolling interest
|
|
|
(842
|
)
|
|
|
(681
|
)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Liz Claiborne, Inc.
|
|
$
|
(251,467
|
)
|
|
$
|
(305,729
|
)
|
|
$
|
(951,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations Attributable to Liz Claiborne,
Inc.
|
|
$
|
(2.34
|
)
|
|
$
|
(2.96
|
)
|
|
$
|
(8.67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Liz Claiborne, Inc.
|
|
$
|
(2.67
|
)
|
|
$
|
(3.26
|
)
|
|
$
|
(10.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares, Basic and Diluted
|
|
|
94,243
|
|
|
|
93,880
|
|
|
|
93,606
|
|
Dividends Paid per Common Share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-6
Liz
Claiborne, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
|
|
|
Other
|
|
|
Treasury Shares
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Excess of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Number of
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Interest
|
|
|
Total
|
|
In thousands, except share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 30, 2007
|
|
|
176,437,234
|
|
|
$
|
176,437
|
|
|
$
|
296,158
|
|
|
$
|
2,948,085
|
|
|
$
|
(24,582
|
)
|
|
|
81,695,077
|
|
|
$
|
(1,880,534
|
)
|
|
$
|
3,760
|
|
|
$
|
1,519,324
|
|
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(951,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
(951,559
|
)
|
Other comprehensive loss, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of income taxes of $(1,295)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,750
|
)
|
Gain on cash flow hedging derivatives, net of income taxes of
$(1,003)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,055
|
|
Unrealized loss on
available-for-sale
securities, net of income taxes of $(46)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(993,693
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
(4,100
|
)
|
|
|
35
|
|
|
|
|
|
|
|
70
|
|
Excess tax benefits related to stock options
|
|
|
|
|
|
|
|
|
|
|
(4,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,760
|
)
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,938
|
)
|
Share-based award activity
|
|
|
|
|
|
|
|
|
|
|
(7,666
|
)
|
|
|
(254
|
)
|
|
|
|
|
|
|
(374,052
|
)
|
|
|
7,199
|
|
|
|
|
|
|
|
(721
|
)
|
Amortization share-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 3, 2009
|
|
|
176,437,234
|
|
|
|
176,437
|
|
|
|
292,144
|
|
|
|
1,975,082
|
|
|
|
(66,716
|
)
|
|
|
81,316,925
|
|
|
|
(1,873,300
|
)
|
|
|
4,012
|
|
|
|
507,659
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(681
|
)
|
|
|
(306,410
|
)
|
Other comprehensive loss, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,467
|
|
Translation adjustment on Eurobond and other instruments, net of
income taxes of $10,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,593
|
)
|
Loss on cash flow hedging derivatives, net of income taxes of
$(515)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,417
|
)
|
Unrealized gain on
available-for-sale
securities, net of income taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(309,065
|
)
|
Issuance of Convertible Senior Notes, net
|
|
|
|
|
|
|
|
|
|
|
11,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,992
|
|
Restricted shares issued, net of cancellations and shares
withheld for taxes
|
|
|
|
|
|
|
|
|
|
|
6,478
|
|
|
|
|
|
|
|
|
|
|
|
171,979
|
|
|
|
(5,916
|
)
|
|
|
|
|
|
|
562
|
|
Amortization share-based compensation
|
|
|
|
|
|
|
|
|
|
|
8,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,744
|
|
Dividend equivalent units vested
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
80
|
|
|
|
56
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 2, 2010
|
|
|
176,437,234
|
|
|
|
176,437
|
|
|
|
319,326
|
|
|
|
1,669,316
|
|
|
|
(69,371
|
)
|
|
|
81,488,984
|
|
|
|
(1,879,160
|
)
|
|
|
3,331
|
|
|
|
219,879
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(842
|
)
|
|
|
(252,309
|
)
|
Other comprehensive loss, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,894
|
|
Translation adjustment on Eurobond and other instruments, net of
income taxes of $8,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,717
|
)
|
Gain on cash flow hedging derivatives, net of income taxes of
$1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947
|
|
Unrealized loss on
available-for-sale
securities, net of income taxes of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249,240
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
42
|
|
|
|
|
|
|
|
24
|
|
Restricted shares issued, net of cancellations and shares
withheld for taxes
|
|
|
|
|
|
|
|
|
|
|
6,414
|
|
|
|
|
|
|
|
|
|
|
|
408,403
|
|
|
|
(5,434
|
)
|
|
|
|
|
|
|
980
|
|
Amortization share-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,939
|
|
Dividend equivalent units vested
|
|
|
|
|
|
|
|
|
|
|
(853
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
202
|
|
|
|
654
|
|
|
|
|
|
|
|
(263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, JANUARY 1, 2011
|
|
|
176,437,234
|
|
|
$
|
176,437
|
|
|
$
|
331,808
|
|
|
$
|
1,417,785
|
|
|
$
|
(66,302
|
)
|
|
|
81,892,589
|
|
|
$
|
(1,883,898
|
)
|
|
$
|
2,489
|
|
|
$
|
(21,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-7
Liz
Claiborne, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(252,309
|
)
|
|
$
|
(306,410
|
)
|
|
$
|
(951,559
|
)
|
Adjustments to arrive at loss from continuing operations
|
|
|
31,326
|
|
|
|
27,499
|
|
|
|
140,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(220,983
|
)
|
|
|
(278,911
|
)
|
|
|
(811,057
|
)
|
Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
142,820
|
|
|
|
159,197
|
|
|
|
153,845
|
|
Impairment of goodwill and other intangible assets
|
|
|
2,594
|
|
|
|
17,007
|
|
|
|
693,117
|
|
Loss on asset disposals and impairments, including streamlining
initiatives, net
|
|
|
31,983
|
|
|
|
49,609
|
|
|
|
21,628
|
|
Deferred income taxes
|
|
|
3,564
|
|
|
|
(10,124
|
)
|
|
|
174,596
|
|
Share-based compensation
|
|
|
6,939
|
|
|
|
8,744
|
|
|
|
8,309
|
|
Foreign currency gains, net
|
|
|
(24,636
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(957
|
)
|
|
|
(104
|
)
|
|
|
298
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable trade, net
|
|
|
47,615
|
|
|
|
82,190
|
|
|
|
87,583
|
|
Decrease in inventories, net
|
|
|
28,945
|
|
|
|
146,049
|
|
|
|
49,566
|
|
Decrease in other current and non-current assets
|
|
|
769
|
|
|
|
33,251
|
|
|
|
16,124
|
|
Increase (decrease) in accounts payable
|
|
|
50,903
|
|
|
|
(64,013
|
)
|
|
|
(2,771
|
)
|
(Decrease) increase in accrued expenses and other non-current
liabilities
|
|
|
(74,430
|
)
|
|
|
85,625
|
|
|
|
(61,186
|
)
|
Increase (decrease) in income taxes payable
|
|
|
172,271
|
|
|
|
2,016
|
|
|
|
(127,807
|
)
|
Net cash used in operating activities of discontinued operations
|
|
|
(16,756
|
)
|
|
|
(23,246
|
)
|
|
|
(43,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
150,641
|
|
|
|
207,290
|
|
|
|
158,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of property and equipment
|
|
|
8,257
|
|
|
|
|
|
|
|
19,831
|
|
Purchases of property and equipment
|
|
|
(77,369
|
)
|
|
|
(64,379
|
)
|
|
|
(179,383
|
)
|
Proceeds from disposition
|
|
|
|
|
|
|
|
|
|
|
21,252
|
|
Payments for purchases of businesses
|
|
|
(5,000
|
)
|
|
|
(8,755
|
)
|
|
|
(100,403
|
)
|
Payments for in-store merchandise shops
|
|
|
(3,540
|
)
|
|
|
(7,306
|
)
|
|
|
(9,983
|
)
|
Investments in and advances to equity investee
|
|
|
(4,033
|
)
|
|
|
(7,237
|
)
|
|
|
|
|
Other, net
|
|
|
(387
|
)
|
|
|
773
|
|
|
|
(348
|
)
|
Net cash (used in) provided by investing activities of
discontinued operations
|
|
|
(5,227
|
)
|
|
|
1,069
|
|
|
|
60,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(87,299
|
)
|
|
|
(85,835
|
)
|
|
|
(188,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings, net
|
|
|
(6,608
|
)
|
|
|
(169,231
|
)
|
|
|
(113,543
|
)
|
Proceeds from borrowings under revolving credit agreement
|
|
|
692,878
|
|
|
|
|
|
|
|
|
|
Repayment of borrowings under revolving credit agreement
|
|
|
(728,158
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Convertible Senior Notes
|
|
|
|
|
|
|
90,000
|
|
|
|
|
|
Principal payments under capital lease obligations
|
|
|
(5,642
|
)
|
|
|
(4,361
|
)
|
|
|
(4,178
|
)
|
Proceeds from exercise of stock options
|
|
|
24
|
|
|
|
|
|
|
|
70
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(20,938
|
)
|
Payment of deferred financing fees
|
|
|
(16,141
|
)
|
|
|
(42,209
|
)
|
|
|
(3,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(63,647
|
)
|
|
|
(125,801
|
)
|
|
|
(141,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
2,647
|
|
|
|
(713
|
)
|
|
|
(7,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
2,342
|
|
|
|
(5,059
|
)
|
|
|
(179,970
|
)
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
20,372
|
|
|
|
25,431
|
|
|
|
205,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
22,714
|
|
|
$
|
20,372
|
|
|
$
|
25,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
F-8
Liz
Claiborne, Inc. and Subsidiaries
|
|
NOTE 1:
|
BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
NATURE
OF OPERATIONS AND BASIS OF PRESENTATION
Liz Claiborne, Inc. and its wholly-owned and majority-owned
subsidiaries (the Company) are engaged primarily in
the design and marketing of a broad range of apparel and
accessories. The Companys segment reporting structure
reflects a brand-focused approach, designed to optimize the
operational coordination and resource allocation of the
Companys businesses across multiple functional areas
including specialty retail, retail outlets, concessions,
wholesale apparel, wholesale non-apparel,
e-commerce
and licensing. The three reportable segments described below
represent the Companys brand-based activities for which
separate financial information is available and which is
utilized on a regular basis by its chief operating decision
maker (CODM) to evaluate performance and allocate
resources. In identifying its reportable segments, the Company
considers economic characteristics, as well as products,
customers, sales growth potential and long-term profitability.
The Company aggregates its six operating segments to form
reportable segments, where applicable. As such, the Company
reports its operations in three reportable segments as follows:
|
|
|
|
|
Domestic-Based Direct Brands segment
consists of the specialty retail, outlet, wholesale apparel,
wholesale non-apparel (including accessories, jewelry, and
handbags),
e-commerce
and licensing operations of the Companys three domestic,
retail-based operating segments: JUICY COUTURE, KATE SPADE and
LUCKY BRAND.
|
|
|
|
International-Based Direct Brands segment
consists of the specialty retail, outlet, concession,
wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags),
e-commerce
and licensing operations of MEXX Europe and MEXX Canada, the
Companys two international, retail-based operating
segments.
|
|
|
|
Partnered Brands segment consists of
one operating segment including the wholesale apparel, wholesale
non-apparel, licensing, outlet, concession and
e-commerce
operations of the Companys AXCESS, CLAIBORNE, DANA
BUCHMAN, KENSIE, LIZ CLAIBORNE, LIZ CLAIBORNE NEW YORK,
MAC & JAC, MARVELLA, MONET, TRIFARI and the
Companys licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands, among others.
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In October 2010, the Company initiated actions to exit its 82
LIZ CLAIBORNE concessions in Europe. These actions include staff
reductions and consolidation of office space and are expected to
be completed by the first quarter of 2011. On January 10,
2011, the Company entered into an agreement which includes the
exit of 53 such concessions and transfer of title to certain
property and equipment in exchange for a nominal fee.
During the third quarter of 2010, the Company announced a plan
to exit the LIZ CLAIBORNE branded outlet stores in the US and
Puerto Rico. As of January 1, 2011, the Company completed
the closure of 44 of the 87 planned outlet store closures.
On January 8, 2010, the Company entered into an agreement
with Lauras Shoppe (Canada) Ltd. and Lauras Shoppe
(P.V.) Inc. (collectively, Laura Canada), which
included the assignment of 38 LIZ CLAIBORNE Canada store leases
and transfer of title to certain property and equipment to Laura
Canada in exchange for a net fee of approximately
$7.9 million.
On October 7, 2008, the Company completed the sale of
certain assets related to its interest in the Narciso Rodriguez
brand and terminated certain agreements in connection with the
acquisition of such brand in 2007. On October 20, 2008, the
Company completed the sale of certain assets of its former Enyce
brand.
In connection with actions initiated in July 2007, the Company
(i) disposed of certain assets of its former Emma James,
Intuitions, J.H. Collectibles and Tapemeasure brands in 2007;
(ii) disposed of certain assets
and/or
liabilities of its former C&C California, Laundry by
Design, prAna and Ellen Tracy brands in 2008; (iii) closed
its SIGRID OLSEN brand, which included the closure of its
wholesale operations and the closure or conversion of its
F-9
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
retail locations in 2008 and (iv) entered into an exclusive
license agreement with Kohls Corporation
(Kohls), whereby Kohls sources and sells
products under the DANA BUCHMAN brand.
During the fourth quarter of 2010, the Company sold its former
Mt. Pocono, Pennsylvania distribution center for
$7.1 million. Certain assets associated with such
distribution center were segregated and reported as held for
sale as of January 2, 2010.
The activities of the Companys former Emma James,
Intuitions, J.H. Collectibles, Tapemeasure, C&C California,
Laundry by Design, prAna, Narciso Rodriguez and Enyce brands,
the retail operations of the Companys SIGRID OLSEN brand
that were not converted to other brands and the retail
operations of the Companys former Ellen Tracy brand, its
LIZ CLAIBORNE Canada stores, closed LIZ CLAIBORNE outlet stores
in the US and Puerto Rico and 53 of its LIZ CLAIBORNE
concessions in Europe have been segregated and reported as
discontinued operations for all periods presented. The SIGRID
OLSEN and Ellen Tracy wholesale activities and DANA BUCHMAN
operations either do not represent operations and cash flows
that can be clearly distinguished operationally and for
financial reporting purposes from the remainder of the Company
or retain continuing involvement with the Company and therefore
have not been presented as discontinued operations.
In connection with the 2008 dispositions discussed above, the
Company recognized total pretax charges of $83.5 million
during the year ended January 3, 2009, including
$10.6 million related to the Ellen Tracy transaction. The
Company allocated $2.5 million of the Ellen Tracy charge to
the Ellen Tracy retail operations, which is therefore recorded
within discontinued operations. The remaining charge of
$8.1 million was allocated to the Ellen Tracy wholesale
operations and has been recorded within Selling,
general & administrative expenses
(SG&A) on the accompanying Consolidated
Statement of Operations.
Summarized financial data for the aforementioned brands that are
classified as discontinued operations are provided in
Note 2 Discontinued Operations.
PRINCIPLES
OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of
the Company. All inter-company balances and transactions have
been eliminated in consolidation.
USE OF
ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the Consolidated Financial Statements. These estimates and
assumptions also affect the reported amounts of revenues and
expenses. Estimates by their nature are based on judgments and
available information. Therefore, actual results could
materially differ from those estimates under different
assumptions and conditions.
Critical accounting policies are those that are most important
to the portrayal of the Companys financial condition and
results of operations and require managements most
difficult, subjective and complex judgments as a result of the
need to make estimates about the effect of matters that are
inherently uncertain. The Companys most critical
accounting policies, discussed below, pertain to revenue
recognition, income taxes, accounts receivable
trade, inventories, goodwill and intangible assets, accrued
expenses, derivative instruments and share-based compensation.
In applying such policies, management must use some amounts that
are based upon its informed judgments and best estimates. Due to
the uncertainty inherent in these estimates, actual results
could differ from estimates used in applying the critical
accounting policies. Changes in such estimates, based on more
accurate future information, may affect amounts reported in
future periods.
F-10
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
The Company recognizes revenue from its wholesale, retail and
licensing operations. Revenue within the Companys
wholesale operations is recognized at the time title passes and
risk of loss is transferred to customers. Wholesale revenue is
recorded net of returns, discounts and allowances. Returns and
allowances require pre-approval from management. Discounts are
based on trade terms. Estimates for
end-of-season
allowances are based on historical trends, seasonal results, an
evaluation of current economic conditions and retailer
performance. The Company reviews and refines these estimates on
a monthly basis based on current experience, trends and retailer
performance. The Companys historical estimates of these
costs have not differed materially from actual results. Retail
store revenues are recognized net of estimated returns at the
time of sale to consumers. Sales tax collected from customers is
excluded from revenue. Proceeds received from the sale of gift
cards are recorded as a liability and recognized as sales when
redeemed by the holder. Licensing revenues, which amounted to
$67.5 million, $57.6 million and $61.0 million
during 2010, 2009 and 2008, respectively, are recorded based
upon contractually guaranteed minimum levels and adjusted as
actual sales data is received from licensees.
Income
Taxes
Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, as measured by
enacted tax rates that are expected to be in effect in the
periods when the deferred tax assets and liabilities are
expected to be realized or settled. The Company also assesses
the likelihood of the realization of deferred tax assets and
adjusts the carrying amount of these deferred tax assets by a
valuation allowance to the extent the Company believes it more
likely than not that all or a portion of the deferred tax assets
will not be realized. Many factors are considered when assessing
the likelihood of future realization of deferred tax assets,
including recent earnings results within taxing jurisdictions,
expectations of future taxable income, the carryforward periods
available and other relevant factors. Changes in the required
valuation allowance are recorded in income in the period such
determination is made. Significant judgment is required in
determining the worldwide provision for income taxes. Changes in
estimates may create volatility in the Companys effective
tax rate in future periods for various reasons including changes
in tax laws or rates, changes in forecasted amounts and mix of
pretax income (loss), settlements with various tax authorities,
either favorable or unfavorable, the expiration of the statute
of limitations on some tax positions and obtaining new
information about particular tax positions that may cause
management to change its estimates. In the ordinary course of a
global business, the ultimate tax outcome is uncertain for many
transactions. It is the Companys policy to recognize the
impact of an uncertain income tax position on its income tax
return at the largest amount that is more likely than not to be
sustained upon audit by the relevant taxing authority. An
uncertain income tax position will not be recognized if it has
less than a 50.0% likelihood of being sustained. The tax
provisions are analyzed periodically (at least quarterly) and
adjustments are made as events occur that warrant adjustments to
those provisions. The Company records interest expense and
penalties payable to relevant tax authorities as income tax
expense.
Accounts
Receivable Trade, Net
In the normal course of business, the Company extends credit to
customers that satisfy pre-defined credit criteria. Accounts
receivable trade, net, as shown on the Consolidated
Balance Sheets, is net of allowances and anticipated discounts.
An allowance for doubtful accounts is determined through
analysis of the aging of accounts receivable at the date of the
financial statements, assessments of collectibility based on an
evaluation of historical and anticipated trends, the financial
condition of the Companys customers and an evaluation of
the impact of economic conditions. An allowance for discounts is
based on those discounts relating to open invoices where trade
discounts have been extended to customers. Costs associated with
potential returns of products as well as allowable customer
markdowns and operational charge backs, net of expected
recoveries, are included as a reduction to sales and are part of
the provision for allowances included in Accounts
receivable trade, net. These provisions result from
seasonal negotiations with the Companys customers as well
as historical deduction trends, net of expected
F-11
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recoveries, and the evaluation of current market conditions. The
Companys historical estimates of these costs have not
differed materially from actual results.
Inventories,
Net
Inventories for seasonal, replenishment and on-going merchandise
are recorded at the lower of actual average cost or market
value. The Company continually evaluates the composition of its
inventories by assessing slow-turning, ongoing product as well
as prior seasons fashion product. Market value of
distressed inventory is estimated based on historical sales
trends for this category of inventory of the Companys
individual product lines, the impact of market trends and
economic conditions and the value of current orders in-house
relating to the future sales of this type of inventory.
Estimates may differ from actual results due to quantity,
quality and mix of products in inventory, consumer and retailer
preferences and market conditions. The Companys historical
estimates of these costs and its provisions have not differed
materially from actual results.
In the first quarter of 2009, the Company entered into a
ten-year, buying/sourcing agency agreement with Li &
Fung Limited (Li & Fung) (see
Note 8 Commitments and Contingencies). Pursuant
to the agreement, the Company received a payment of
$75.0 million at closing, which was recorded within Accrued
expenses and Other non-current liabilities on the accompanying
Consolidated Balance Sheets. Under the terms of the
buying/sourcing agency agreement, the Company is subject to
minimum purchase requirements based on the value of inventory
purchased each year under the agreement. The licensing
agreements with J.C. Penney Corporation, Inc. and
J.C. Penney Company, Inc. (collectively,
JCPenney) and QVC, Inc. (QVC) (see
Note 16 Additional Financial Information)
resulted in the removal of buying/sourcing for a number of LIZ
CLAIBORNE branded products sold under these licenses from the
Li & Fung buying/sourcing agreement. As a result, the
Company refunded $24.3 million of the closing payment
received from Li & Fung during the second quarter of
2010. The Company will reclassify up to $5.0 million per
contract year of the $50.7 million net payment as a
reduction of inventory cost as inventory is purchased using the
buying/sourcing agent, up to the minimum requirement for the
initial term of the agreement and subsequently reflected as a
reduction of Cost of goods sold as the inventory is sold.
Goodwill
and Intangibles, Net
Goodwill and intangible assets with indefinite lives are not
amortized, but rather tested for impairment at least annually.
The Companys annual impairment test is performed as of the
first day of the third fiscal quarter.
A two-step impairment test is performed on goodwill. In the
first step, the Company compares the fair value of each
reporting unit to its carrying value. The Company determines the
fair value of its reporting units using the market approach, as
is typically used for companies providing products where the
value of such a company is more dependent on the ability to
generate earnings than the value of the assets used in the
production process. Under this approach, the Company estimates
fair value based on market multiples of revenues and earnings
for comparable companies. The Company also uses discounted
future cash flow analyses to corroborate these fair value
estimates. If the fair value of the reporting unit exceeds the
carrying value of the net assets assigned to that reporting
unit, goodwill is not impaired and the Company is not required
to perform further testing. If the carrying value of the net
assets assigned to the reporting unit exceeds the fair value of
the reporting unit, then the Company must perform the second
step in order to determine the implied fair value of the
reporting units goodwill and compare it to the carrying
value of the reporting units goodwill. The activities in
the second step include valuing the tangible and intangible
assets of the impaired reporting unit based on their fair value
and determining the fair value of the impaired reporting
units goodwill based upon the residual of the summed
identified tangible and intangible assets.
The fair values of purchased intangible assets with indefinite
lives, primarily trademarks and tradenames, are estimated and
compared to their carrying values. The Company estimates the
fair value of these intangible assets based on an income
approach using the relief-from-royalty method. This methodology
assumes that, in lieu of ownership, a third party would be
willing to pay a royalty in order to exploit the related
benefits of these types of assets. This approach is dependent on
a number of factors, including estimates of future growth and
trends, royalty
F-12
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
rates in the category of intellectual property, discount rates
and other variables. The Company bases its fair value estimates
on assumptions it believes to be reasonable, but which are
unpredictable and inherently uncertain. Actual future results
may differ from those estimates. The Company recognizes an
impairment loss when the estimated fair value of the intangible
asset is less than the carrying value.
The recoverability of the carrying values of all intangible
assets with finite lives is re-evaluated when events or changes
in circumstances indicate an assets value may be impaired.
Impairment testing is based on a review of forecasted operating
cash flows and the profitability of the related brand. If such
analysis indicates that the carrying value of these assets is
not recoverable, the carrying value of such assets is reduced to
fair value through a charge to the Consolidated Statement of
Operations.
Intangible assets with finite lives are amortized over their
respective lives to their estimated residual values. Trademarks
with finite lives are amortized over their estimated useful
lives. Intangible merchandising rights are amortized over a
period of 3 to 4 years. Customer relationships are
amortized assuming gradual attrition over periods ranging from
12 to 14 years.
In performing its goodwill impairment evaluation, the Company
considers many factors in evaluating whether the carrying value
of goodwill may not be recoverable, including declines in stock
price and market capitalization in relation to the book value of
the Company. The Company reconciles the sum of the estimated
fair values of its reporting units to the Companys market
value (based on its stock price), plus a reasonable control
premium, which is estimated as that amount that would be
received to sell the Company as a whole in an orderly
transaction between market participants.
During 2009, the Company recorded a pretax goodwill impairment
charge of $2.8 million associated with contingent
consideration for its acquisition of Mac & Jac in 2006
(see Note 5 Goodwill and Intangibles, Net).
During the annual goodwill impairment test performed in fiscal
2008, no impairment was recognized, however, as a result of
declines in the actual and projected performance and cash flows
of the Companys International-Based Direct Brands segment,
the Company determined that an additional goodwill impairment
test was required to be performed as of January 3, 2009.
This assessment compared the carrying value of each of the
Companys reporting units with its estimated fair value
using discounted cash flow models and market approaches. As a
result, the Company determined that the goodwill of its
International-Based Direct Brands segment was impaired and
recorded a non-cash pretax impairment charge of
$300.7 million during the fourth quarter of 2008.
In the last two months of 2008 and into 2009, the capital
markets experienced substantial volatility and the
Companys stock price declined substantially, causing the
Companys book value to exceed its market capitalization,
plus a reasonable control premium. Accordingly, the Company
concluded that its remaining goodwill was impaired and recorded
a non-cash pretax impairment charge of $382.4 million
during the fourth quarter of 2008, related to goodwill
previously recorded in its Domestic-Based Direct Brands segment.
As a result of the impairment analysis performed in connection
with the Companys purchased trademarks with indefinite
lives, no impairment charges were recorded during 2010 or 2009.
As a result of the 2008 impairment analysis performed in
connection with the Companys purchased trademarks with
indefinite lives, the Company determined that the carrying value
of its intangible asset related to its Villager, Crazy Horse and
Russ trademark exceeded its estimated fair value. Accordingly,
the Company recorded a non-cash pretax charge of
$10.0 million to reduce the value of the Villager, Crazy
Horse and Russ trademark to its estimated fair value. This
impairment resulted from a decline in future anticipated cash
flows due to the Companys exit of these brands.
During 2010, the Company recorded non-cash impairment charges of
$2.6 million primarily within its Partnered Brands segment
principally related to merchandising rights of its LIZ CLAIBORNE
and licensed
DKNY®
JEANS brands due to decreased use of such intangible assets.
F-13
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Also, as a result of the decline in actual and projected
performance of the licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands during 2009, the Company determined the carrying
value of the related licensed trademark intangible asset
exceeded its estimated fair value and recorded a non-cash
impairment charge of $9.5 million. In addition, as a result
of the Company entering into license agreements with JCPenney
and QVC (see Note 16 Additional Financial
Information), the Company performed an impairment analysis of
its LIZ CLAIBORNE merchandising rights. The decreased use of
such intangible assets resulted in the recognition of a non-cash
impairment charge of $4.5 million to reduce the carrying
value of the merchandising rights to their estimated fair value.
Accrued
Expenses
Accrued expenses for employee insurance, workers
compensation, contracted advertising and other outstanding
obligations are assessed based on claims experience and
statistical trends, open contractual obligations and estimates
based on projections and current requirements. If these trends
change significantly, then actual results would likely be
impacted.
Derivative
Instruments
The Companys derivative instruments, including certain
derivative instruments embedded in other contracts, are recorded
in the Consolidated Balance Sheets as either an asset or
liability and measured at their fair value. The changes in a
derivatives fair value are recognized either currently in
earnings or Accumulated other comprehensive loss, depending on
whether the derivative qualifies for hedge accounting treatment.
The Company tests each derivative for effectiveness at inception
of each hedge and at the end of each reporting period.
The Company uses foreign currency forward contracts and options
for the purpose of hedging the specific exposure to variability
in forecasted cash flows associated primarily with inventory
purchases mainly by the Companys European and Canadian
entities. These instruments are designated as cash flow hedges.
To the extent the hedges are highly effective, the effective
portion of the changes in fair value are included in Accumulated
other comprehensive loss, net of income taxes, with the
corresponding asset or liability recorded in the Consolidated
Balance Sheet. The ineffective portion of the cash flow hedge is
recognized primarily as a component of Cost of goods sold in
current period earnings or, in the case of swaps, if any, within
SG&A. Amounts recorded in Accumulated other comprehensive
loss are reflected in current period earnings when the hedged
transaction affects earnings. If fluctuations in the relative
value of the currencies involved in the hedging activities were
to move dramatically, such movement could have a significant
impact on the Companys results of operations.
The Company hedges its net investment position in certain
euro-denominated functional currency subsidiaries by borrowing
directly in foreign currency and designating a portion of
foreign currency debt as a hedge of net investments. The foreign
currency transaction gain or loss recognized for the effective
portion of a foreign currency denominated debt instrument that
is designated as the hedging instrument in a net investment
hedge is recorded as a translation adjustment. The Company has
at times used derivative instruments to hedge the changes in the
fair value of debt due to interest rates, with the change in
fair value recognized currently in Interest expense, net,
together with the change in fair value of the hedged item
attributable to interest rates.
Occasionally, the Company purchases short-term foreign currency
contracts outside of the cash flow hedging program to neutralize
quarter-end balance sheet and other expected exposures. These
derivative instruments do not qualify as cash flow hedges and
are recorded at fair value with all gains or losses, which have
not been significant, recognized as a component of SG&A in
current period earnings.
Share-Based
Compensation
The Company recognizes compensation expense based on the fair
value of employee share-based awards, including stock options
and restricted stock, net of estimated forfeitures. Determining
the fair value of options at the grant date requires judgment,
including estimating the expected term that stock options will
be outstanding prior to
F-14
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exercise, the associated volatility and the expected dividends.
Judgment is required in estimating the amount of share-based
awards expected to be forfeited prior to vesting. If actual
forfeitures differ significantly from these estimates,
share-based compensation expense could be materially impacted.
OTHER
SIGNIFICANT ACCOUNTING POLICIES
Fair
Value Measurements
The Company applies the relevant accounting guidance on fair
value measurements to (i) all financial instruments that
are being measured and reported on a fair value basis;
(ii) non-financial assets and liabilities measured and
reported at fair value on a non-recurring basis; and
(iii) disclosures of fair value of certain financial assets
and liabilities.
The following fair value hierarchy is used in selecting inputs
for those instruments measured at fair value that distinguishes
between assumptions based on market data (observable) and the
Companys assumptions (unobservable inputs). The hierarchy
consists of three levels.
Level 1 Quoted market prices in active markets
for identical assets or liabilities;
Level 2 Inputs other than Level 1 inputs
that are either directly or indirectly observable; and
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Level 3
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Unobservable inputs developed using estimates and assumptions
developed by the Company, which reflect those that a market
participant would use.
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Fair value measurement for the Companys assets assumes the
highest and best use (the use that generates the highest returns
individually or as a group) for the asset by market
participants, considering the use of the asset that is
physically possible, legally permissible, and financially
feasible at the measurement date. This applies even if the
intended use of the asset by the Company is different.
Fair value measurement for the Companys liabilities
assumes that the liability is transferred to a market
participant at the measurement date and that the nonperformance
risk relating to the liability is the same before and after the
transaction. Nonperformance risk refers to the risk that the
obligation will not be fulfilled and includes the Companys
own credit risk.
The Company has chosen not to elect the fair value measurement
option for any instruments not required to be measured at fair
value on a recurring basis.
The fair value of the Companys cash flow hedges is
primarily based on observable forward foreign exchange rates.
Cash
and Cash Equivalents
All highly liquid investments with an original maturity of three
months or less at the date of purchase are classified as cash
equivalents.
Property
and Equipment, Net
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
three to seven years. Leasehold improvements are depreciated
over the shorter of the remaining lease term or the estimated
useful lives of the assets. Improvements are capitalized and
depreciated in accordance with the Companys policies;
costs for maintenance and repairs are expensed as incurred.
Leased property meeting certain capital lease criteria is
capitalized and the present value of the related lease payments
is recorded as a liability. Amortization of capitalized leased
assets is recorded on the straight-line method over the
F-15
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shorter of the estimated useful life of the asset or the initial
lease term. The Company recognizes a liability for the fair
value of an asset retirement obligation (ARO) if the
fair value can be reasonably estimated. The Companys
AROs are primarily associated with the removal and
disposal of leasehold improvements at the end of a lease term
when the Company is contractually obligated to restore a
facility to a condition specified in the lease agreement.
Amortization of AROs is recorded on a straight-line basis
over the lease term.
The Company capitalizes the costs of software developed or
obtained for internal use. Capitalization of software developed
or obtained for internal use commences during the development
phase of the project. The Company amortizes software developed
or obtained for internal use on a straight-line basis over five
years, when such software is substantially ready for use.
The Company evaluates the recoverability of property and
equipment if circumstances indicate an impairment may have
occurred. This analysis is performed by comparing the respective
carrying values of the assets to the current and expected future
cash flows to be generated from such assets, on an undiscounted
basis. If such analysis indicates that the carrying value of
these assets is not recoverable, the carrying value of the
impaired assets is reduced to fair value through a charge to the
Companys Consolidated Statement of Operations.
The Company recorded pretax charges of $17.2 million in
2010, $32.8 million in 2009 (see Note 10
Fair Value Measurements) and $13.0 million in 2008 to
reduce the carrying values of certain property and equipment to
their estimated fair values. The 2008 charges primarily related
to an impairment analysis performed on property and equipment
associated with the Companys closed Mt. Pocono
distribution center. During the fourth quarter of 2008, the
Company determined that the carrying value of such assets
exceeded their estimated fair value and recorded a charge of
$10.4 million within SG&A on the accompanying
Consolidated Statement of Operations. The impairment resulted
from a decline in then-present and expected utilization of such
assets. The remaining 2008 charge of $2.6 million resulted
from the decision to close the retail operations of the
Companys MEXX brand in the United Kingdom (MEXX
UK). An impairment analysis was performed on the property
and equipment of MEXX UK, and the Company determined that the
carrying value of such assets exceeded their fair value.
Operating Leases
The Company leases office space, retail stores and distribution
facilities. Many of these operating leases provide for tenant
improvement allowances, rent increases
and/or
contingent rent provisions. Rental expense is recognized on a
straight-line basis commencing with the possession date of the
property, which is typically the earlier of the lease
commencement date or the date when the Company takes possession
of the property. Certain store leases include contingent rents
that are based on a percentage of retail sales over stated
thresholds. Tenant allowances are amortized on a straight-line
basis over the life of the lease as a reduction of rent expense
and are included in SG&A.
Foreign Currency Translation
Assets and liabilities of non-US subsidiaries are translated at
period-end exchange rates. Revenues and expenses for each month
are translated using that months average exchange rate and
then are combined for the period totals. Resulting translation
adjustments are 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 Currency Transactions
Outstanding balances in foreign currencies are translated at the
end of period exchange rates. The resulting exchange differences
are recorded in the Consolidated Statements of Operations or
Accumulated other comprehensive loss, as appropriate.
F-16
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cost of Goods Sold
Cost of goods sold for wholesale operations includes the
expenses incurred to acquire and produce inventory for sale,
including product costs, freight-in, import costs, third-party
inspection activities, buying/sourcing agent commissions and
provisions for shrinkage. For retail operations, in-bound
freight from the Companys warehouse to its own retail
stores is also included. Warehousing activities including
receiving, storing, picking, packing and general warehousing
charges are included in SG&A and, as such, the
Companys gross profit may not be comparable to others who
may include these expenses as a component of Cost of goods sold.
Advertising, Promotion and Marketing
All costs associated with advertising, promoting and marketing
of Company products are expensed during the periods when the
activities take place. Costs associated with cooperative
advertising programs involving agreements with customers,
whereby customers are required to provide documentary evidence
of specific performance and when the amount of consideration
paid by the Company for these services is at or below fair
value, are charged to SG&A. Costs associated with customer
cooperative advertising allowances without specific performance
guidelines are recorded as a reduction of sales. The Company
incurred expenses of $93.3 million, $90.3 million and
$132.8 million for advertising, marketing &
promotion for all brands in 2010, 2009 and 2008, respectively.
Shipping and Handling Costs
Shipping and handling costs, which are mostly comprised of
warehousing activities, are included as a component of SG&A
in the Consolidated Statements of Operations. In fiscal years
2010, 2009 and 2008, shipping and handling costs were
$73.8 million, $115.6 million and $147.0 million,
respectively.
Equity Method Investment
The Company uses the equity method of accounting for its
investments in and its proportionate share in earnings of an
affiliate that it does not control, but over which it exerts
significant influence (see Note 19 Related
Party Transactions). The Company considers whether the fair
value of its equity method investment has declined below
carrying value whenever adverse events or changes in
circumstances indicate the recorded value may not be recoverable.
Cash Dividends and Common Stock Repurchases
On December 16, 2008, the Board of Directors announced the
suspension of the Companys quarterly cash dividend
indefinitely. The Company paid the dividend scheduled for
December 15, 2008 in the amount of $0.05625 per share to
stockholders of record at the close of business on
November 21, 2008.
The Companys amended and restated revolving credit
agreement currently restricts its ability to pay dividends and
repurchase stock (see Note 9 Debt and Lines of
Credit).
Fiscal
Year
The Companys fiscal year ends on the Saturday closest to
December 31. The 2010 and 2009 fiscal years, which ended on
January 1, 2011 and January 2, 2010, respectively,
reflected a 52-week period. The 2008 fiscal year ended
January 3, 2009 reflected a 53-week period.
Subsequent
Events
The Companys policy is to evaluate all events or
transactions that occur from the balance sheet date through the
date of the issuance of its financial statements. The Company
has evaluated events or transactions that occurred
F-17
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
from the balance sheet date through the date the Company issued
these financial statements (see Note 22
Subsequent Event).
RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
On January 3, 2010, the first day of fiscal year 2010, the
Company adopted new accounting guidance on fair value
measurements. The new accounting guidance requires (i) an
entity to disclose separately the amounts of significant
transfers in and out of Level 1 and 2 fair value
measurements and describe the reasons for such transfers and
(ii) separate presentation of purchases, sales, issuances
and settlements for significant unobservable inputs
(Level 3). The new accounting guidance also clarifies the
disclosure requirements about the inputs and valuation
techniques for Level 2 or Level 3 fair value
measurements. The adoption of the new accounting guidance did
not affect the Companys consolidated financial statements,
but did require additional disclosures, which are provided in
Note 10 Fair Value Measurements.
OTHER
MATTERS
The Company has been greatly impacted by the recent economic
downturn, including a drastic decline in consumer spending that
began in the second half of 2008 and which persisted during 2009
and into 2010. Although the decline in consumer spending has
moderated, unemployment levels remain high, consumer retail
traffic remains depressed and the retail environment remains
highly promotional. The Company continues to focus on the
execution of its strategic plans and improvements in
productivity, with a primary focus on operating cash flow
generation, retail execution and international expansion. The
Company will also continue to carefully manage liquidity and
spending. Projected 2011 capital expenditures are approximately
$75.0 million (from $80.9 million in 2010).
The Companys $90.0 million 6.0% Convertible
Senior Notes due June 15, 2014 (the Convertible
Notes) are convertible during any fiscal quarter if the
last reported sale price of the Companys common stock
during 20 out of the last 30 trading days in the prior
fiscal quarter equals or exceeds $4.2912 (which is 120% of the
conversion price). As a result of stock price performance, the
Convertible Notes were convertible during the fourth quarter of
2010 and are convertible during the first quarter of 2011. As
previously disclosed in connection with the issuance of the
Convertible Notes, the Company has not yet obtained stockholder
approval under the rules of the NYSE for the issuance of the
full amount of common stock issuable upon conversion of the
Convertible Notes. Until such approval is obtained, if the
Convertible Notes are surrendered for conversion, the Company
must pay the $1,000 par value of each of the Convertible Notes
in cash and may settle the remaining conversion value in the
form of cash, stock or a combination of cash and stock, subject
to an overall limit on the number of shares of stock that may be
issued.
In May 2010, the Company completed a second amendment to and
restatement of its revolving credit facility (as amended, the
Amended Agreement), as discussed in
Note 9 Debt and Lines of Credit. Under the
Amended Agreement, the aggregate commitments were reduced to
$350.0 million from $600.0 million, and the maturity
date was extended from May 2011 to August 2014, subject to
certain early termination provisions which provide for earlier
maturity dates if the Companys 5.0% 350.0 million
euro Notes due July 2013 and the Convertible Notes are not
repaid or refinanced by certain agreed upon dates. The Company
is subject to various covenants and other requirements, such as
financial requirements, reporting requirements and negative
covenants. Pursuant to the May 2010 amendment, the Company is
required to maintain minimum aggregate borrowing availability of
not less than $45.0 million and must apply substantially
all cash collections to reduce outstanding borrowings under the
Amended Agreement when availability under the Amended Agreement
falls below the greater of $65.0 million and 17.5% of the
then-applicable aggregate commitments. The Companys
borrowing availability under the Amended Agreement is determined
primarily by the level of its eligible accounts receivable and
inventory balances. In addition, the Amended Agreement removed
the springing fixed charge coverage covenant that was a
condition of the prior amended and restated revolving credit
agreement.
F-18
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2010, the Company received $171.5 million of net
income tax refunds on previously paid taxes primarily due to a
Federal law change in 2009 allowing 2008 or 2009 domestic losses
to be carried back for five years, with the fifth year limited
to 50.0% of taxable income. The Company repaid amounts
outstanding under its amended and restated revolving credit
facility with the amount of such refunds.
Based on its forecast of borrowing availability under the
Amended Agreement, the Company currently anticipates that cash
flows from operations and the projected borrowing availability
under its Amended Agreement will be sufficient to fund its
liquidity requirements for at least the next 12 months.
There can be no certainty that availability under the Amended
Agreement will be sufficient to fund the Companys
liquidity needs. Should the Company be unable to comply with the
requirements in the Amended Agreement, the Company would be
unable to borrow under such agreement, and any amounts
outstanding would become immediately due and payable unless the
Company were able to secure a waiver or an amendment under the
Amended Agreement. The sufficiency and availability of the
Companys projected sources of liquidity may be adversely
affected by a variety of factors, including, without limitation:
(i) the level of the Companys operating cash flows,
which will be impacted by retailer and consumer acceptance of
the Companys products, general economic conditions and the
level of consumer discretionary spending; (ii) the status
of, and any further adverse changes in, the Companys
credit ratings; (iii) the Companys ability to
maintain required levels of borrowing availability and to comply
with applicable covenants (as amended) and other covenants
included in its debt and credit facilities; (iv) the
financial wherewithal of the Companys larger department
store and specialty store customers; (v) the Companys
ability to successfully execute on the licensing arrangements
with JCPenney and QVC with respect to the LIZ CLAIBORNE family
of brands (see Note 16 Additional Financial
Information); (vi) interest rate and exchange rate
fluctuations; and (vii) whether holders of the Convertible
Notes, if and when such notes are convertible, elect to convert
a substantial portion of such notes, the par value of which the
Company must currently settle in cash. An acceleration of
amounts outstanding under the Amended Agreement would likely
cause cross-defaults under the Companys other outstanding
indebtedness, including the Convertible Notes and the
Companys 350.0 million euro Notes due 2013.
|
|
NOTE 2:
|
DISCONTINUED
OPERATIONS
|
The Company has completed various disposal transactions
including: (i) its former Emma James, Intuitions, J.H.
Collectibles and Tapemeasure brands in 2007; (ii) certain
assets and/or liabilities of its former C&C California,
Laundry by Design, prAna and Ellen Tracy brands in 2008;
(iii) certain assets related to its interest in the Narciso
Rodriguez brand and the termination of certain agreements
entered in connection with the acquisition of such brand in
2008; and (iv) certain assets and liabilities of its former
Enyce brand in 2008.
On January 8, 2010, the Company entered into an agreement
with Laura Canada, which included the assignment of 38 LIZ
CLAIBORNE Canada store leases and transfer of title to certain
property and equipment to Laura Canada in exchange for a net fee
of approximately $7.9 million.
During the third quarter of 2010, the Company announced a plan
to exit the LIZ CLAIBORNE branded outlet stores in the US and
Puerto Rico. As of January 1, 2011, the Company completed
the closure of 44 of the 87 planned outlet store closures.
On January 10, 2011, the Company entered into an agreement
which includes the exit of 53 LIZ CLAIBORNE concessions in
Europe and transfer of title to certain property and equipment
in exchange for a nominal fee.
The Company recorded pretax charges of $21.0 million,
$5.4 million and $75.4 million ($17.6 million,
$4.9 million and $91.6 million, after tax) in 2010,
2009 and 2008, respectively, to reflect the estimated difference
between the carrying value of the net assets sold and their
estimated fair value, less costs to dispose, including
transaction costs. The net loss on disposal of discontinued
operations in 2008 included $16.2 million for unfavorable
discrete tax items consisting of the effect of previously
recorded tax credits, which will no longer
F-19
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
be obtained (see Note 7 Income Taxes). These
amounts were included in Discontinued operations, net of income
taxes on the accompanying Consolidated Statement of Operations.
Summarized statement of operations data for discontinued
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
75,578
|
|
|
$
|
96,532
|
|
|
$
|
200,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before (benefit) provision for income taxes
|
|
$
|
(14,422
|
)
|
|
$
|
(23,487
|
)
|
|
$
|
(46,534
|
)
|
(Benefit) provision for income taxes
|
|
|
(683
|
)
|
|
|
(887
|
)
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(13,739
|
)
|
|
$
|
(22,600
|
)
|
|
$
|
(48,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued operations, net of income taxes
|
|
$
|
(17,587
|
)
|
|
$
|
(4,899
|
)
|
|
$
|
(91,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
2,365
|
|
|
$
|
5,896
|
|
Work in process
|
|
|
69
|
|
|
|
773
|
|
Finished goods
|
|
|
287,005
|
|
|
|
313,044
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
289,439
|
|
|
$
|
319,713
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4:
|
PROPERTY
AND EQUIPMENT, NET
|
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
Land and buildings
|
|
$
|
67,207
|
|
|
$
|
69,235
|
|
Machinery and equipment
|
|
|
316,569
|
|
|
|
312,444
|
|
Furniture and fixtures
|
|
|
261,709
|
|
|
|
274,235
|
|
Leasehold improvements
|
|
|
488,663
|
|
|
|
529,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,134,148
|
|
|
|
1,185,195
|
|
Less: Accumulated depreciation and amortization
|
|
|
758,619
|
|
|
|
740,507
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
375,529
|
|
|
$
|
444,688
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property and equipment
for the years ended January 1, 2011, January 2, 2010
and January 3, 2009, was $109.7 million,
$123.9 million and $135.8 million, respectively, which
included depreciation for property and equipment under capital
leases of $4.8 million, $5.9 million and
$6.6 million, respectively. Machinery and equipment under
capital leases was $30.4 million and $36.1 million as
of January 1, 2011 and January 2, 2010, respectively.
F-20
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2008, the Company sold a closed distribution center
and realized a gain of $14.3 million, which was recorded
within SG&A in the Consolidated Statement of Operations.
|
|
NOTE 5:
|
GOODWILL
AND INTANGIBLES, NET
|
The following tables disclose the carrying value of all the
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
Period
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned trademarks
|
|
|
4 years
|
|
|
$
|
1,479
|
|
|
$
|
1,000
|
|
Customer relationships
|
|
|
13 years
|
|
|
|
12,319
|
|
|
|
12,220
|
|
Merchandising
rights(a)
|
|
|
4 years
|
|
|
|
29,048
|
|
|
|
35,025
|
|
Other
|
|
|
4 years
|
|
|
|
2,322
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
7 years
|
|
|
|
45,168
|
|
|
|
50,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned trademarks
|
|
|
|
|
|
|
(753
|
)
|
|
|
(517
|
)
|
Customer relationships
|
|
|
|
|
|
|
(4,453
|
)
|
|
|
(3,426
|
)
|
Merchandising rights
|
|
|
|
|
|
|
(21,744
|
)
|
|
|
(23,488
|
)
|
Other
|
|
|
|
|
|
|
(1,643
|
)
|
|
|
(1,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
(28,593
|
)
|
|
|
(28,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned trademarks
|
|
|
|
|
|
|
726
|
|
|
|
483
|
|
Customer relationships
|
|
|
|
|
|
|
7,866
|
|
|
|
8,794
|
|
Merchandising rights
|
|
|
|
|
|
|
7,304
|
|
|
|
11,537
|
|
Other
|
|
|
|
|
|
|
679
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets, net
|
|
|
|
|
|
|
16,575
|
|
|
|
21,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned trademarks
|
|
|
|
|
|
|
210,127
|
|
|
|
209,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
|
226,702
|
|
|
|
231,229
|
|
Goodwill
|
|
|
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangibles, net
|
|
|
|
|
|
$
|
228,110
|
|
|
$
|
231,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The decrease in the balance included a non-cash impairment
charge of $2.6 million recorded in the second quarter of
2010 primarily within the Companys Partnered Brands
segment principally related to merchandising rights of its LIZ
CLAIBORNE and licensed
DKNY®
JEANS brands. |
Amortization expense of intangible assets was $6.7 million,
$15.6 million and $15.2 million for the years ended
January 1, 2011, January 2, 2010 and January 3,
2009, respectively.
F-21
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated amortization expense of intangible assets for the
next five years is as follows:
|
|
|
|
|
|
|
Amortization
|
Fiscal Year
|
|
Expense
|
(In millions)
|
|
|
|
2011
|
|
$
|
4.9
|
|
2012
|
|
|
3.4
|
|
2013
|
|
|
2.2
|
|
2014
|
|
|
1.5
|
|
2015
|
|
|
1.0
|
|
The changes in carrying amount of goodwill for the year ended
January 1, 2011 were as follows:
|
|
|
|
|
|
|
Partnered
|
|
|
|
Brands
|
|
In thousands
|
|
|
|
|
Balance as of January 2, 2010
|
|
$
|
|
|
Additional purchase price Mac & Jac
|
|
|
1,408
|
|
|
|
|
|
|
Balance as of January 1, 2011
|
|
$
|
1,408
|
|
|
|
|
|
|
In the fourth quarter of 2010, the Company recorded
$1.4 million of additional purchase price and an increase
to goodwill related to its contingent payment to the former
owners of Mac & Jac.
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
Lease obligations
|
|
$
|
43,510
|
|
|
$
|
46,708
|
|
Streamlining initiatives
|
|
|
30,838
|
|
|
|
64,482
|
|
Payroll, bonuses and other employment related obligations
|
|
|
30,370
|
|
|
|
34,223
|
|
Employee benefits
|
|
|
25,243
|
|
|
|
20,546
|
|
Taxes, other than taxes on income
|
|
|
21,692
|
|
|
|
26,293
|
|
Deferred income
|
|
|
14,280
|
|
|
|
9,540
|
|
Interest
|
|
|
12,881
|
|
|
|
13,483
|
|
Advertising
|
|
|
12,605
|
|
|
|
11,205
|
|
Insurance related
|
|
|
9,290
|
|
|
|
9,585
|
|
Fair value of derivatives
|
|
|
3,463
|
|
|
|
3,781
|
|
Acquisition related obligations
|
|
|
1,408
|
|
|
|
4,989
|
|
Refund to Li & Fung
|
|
|
|
|
|
|
24,300
|
|
Other
|
|
|
63,025
|
|
|
|
74,153
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
268,605
|
|
|
$
|
343,288
|
|
|
|
|
|
|
|
|
|
|
F-22
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Loss) income before provision (benefit) for income taxes
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(78,808
|
)
|
|
$
|
(489,066
|
)
|
|
$
|
(470,277
|
)
|
International
|
|
|
(134,234
|
)
|
|
|
101,917
|
|
|
|
(318,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(213,042
|
)
|
|
$
|
(387,149
|
)
|
|
$
|
(788,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,687
|
|
|
$
|
(106,978
|
)
|
|
$
|
(157,761
|
)
|
Foreign
|
|
|
(1,841
|
)
|
|
|
3,850
|
|
|
|
3,600
|
|
State and local
|
|
|
(345
|
)
|
|
|
5,014
|
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
2,501
|
|
|
|
(98,114
|
)
|
|
|
(152,084
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,881
|
|
|
|
(6,442
|
)
|
|
|
119,743
|
|
Foreign
|
|
|
1,782
|
|
|
|
(1,413
|
)
|
|
|
19,083
|
|
State and local
|
|
|
777
|
|
|
|
(2,269
|
)
|
|
|
35,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
5,440
|
|
|
|
(10,124
|
)
|
|
|
174,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,941
|
|
|
$
|
(108,238
|
)
|
|
$
|
22,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liz Claiborne, Inc. and its US subsidiaries file a consolidated
federal income tax return. Deferred income tax assets and
liabilities 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.
As discussed in Note 2 Discontinued Operations,
in 2008 the Company recorded a $16.2 million charge within
loss on disposal of discontinued operations, net of income
taxes, related to unfavorable discrete tax items consisting of
previously recorded tax credits that will no longer be obtained.
F-23
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effective income tax rate differed from the statutory
federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Federal tax benefit at statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal benefit
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
(4.8
|
)
|
Goodwill and asset impairments
|
|
|
|
|
|
|
9.6
|
|
|
|
(17.3
|
)
|
Increase in valuation allowance
|
|
|
(16.3
|
)
|
|
|
(7.1
|
)
|
|
|
(19.3
|
)
|
Tax on unrecognized tax benefits
|
|
|
(0.9
|
)
|
|
|
(2.3
|
)
|
|
|
3.5
|
|
Rate differential on foreign income
|
|
|
(21.2
|
)
|
|
|
(6.4
|
)
|
|
|
1.1
|
|
Other, net
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.7
|
)%
|
|
|
28.0
|
%
|
|
|
(2.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred taxes arising from temporary
differences as of January 1, 2011 and January 2, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory valuation
|
|
$
|
7,177
|
|
|
$
|
1,640
|
|
Streamlining initiatives
|
|
|
7,968
|
|
|
|
17,559
|
|
Deferred compensation
|
|
|
2,463
|
|
|
|
2,060
|
|
Nondeductible accruals
|
|
|
69,476
|
|
|
|
63,215
|
|
Unrealized losses
|
|
|
|
|
|
|
6,824
|
|
Share-based compensation
|
|
|
16,654
|
|
|
|
18,585
|
|
Net operating loss carryforward
|
|
|
273,051
|
|
|
|
167,608
|
|
Tax credit carryforward
|
|
|
27,940
|
|
|
|
10,439
|
|
Goodwill
|
|
|
64,450
|
|
|
|
76,301
|
|
Consolidated partnerships
|
|
|
7,436
|
|
|
|
2,593
|
|
Other
|
|
|
19,428
|
|
|
|
22,475
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
496,043
|
|
|
|
389,299
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
(2,205
|
)
|
|
|
|
|
Trademarks and other intangibles
|
|
|
(39,884
|
)
|
|
|
(37,952
|
)
|
Property and equipment
|
|
|
(31,643
|
)
|
|
|
(24,732
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(73,732
|
)
|
|
|
(62,684
|
)
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance
|
|
|
(452,855
|
)
|
|
|
(351,730
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(30,544
|
)
|
|
$
|
(25,115
|
)
|
|
|
|
|
|
|
|
|
|
Certain amounts in the above table have been reclassified to
conform to the current year presentation.
As of January 1, 2011, the Company and its domestic
subsidiaries had net operating loss and foreign tax credit
carryforwards of $382.3 million and $27.9 million,
respectively, for federal income tax purposes that will reduce
F-24
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
future federal taxable income. The net operating loss and
foreign tax credit carryforwards for federal income tax purposes
will expire in 2030 and 2018, respectively.
As of January 1, 2011, the Company and certain of its
domestic subsidiaries recorded an $58.4 million deferred
tax asset related to net operating loss carryforwards for state
income tax purposes that will reduce future state taxable
income. The net operating loss carryforwards for state income
tax purposes begin to expire in 2012.
As of January 1, 2011, certain of the Companys
foreign subsidiaries recorded a $96.5 million deferred tax
asset related to net operating loss carryforwards for foreign
income tax purposes that will reduce future foreign taxable
income. The net operating loss carryforwards for foreign income
tax purposes begin to expire in 2013.
As of January 1, 2011, the Company and its subsidiaries
recorded valuation allowances in the amount of
$452.9 million due to the combination of its history of
pretax losses and the Companys ability to carry forward or
carry back tax losses or credits. This represents a total
increase in the valuation allowance of $101.1 million
compared to the balance at January 2, 2010.
Income taxes receivable of $5.5 million and
$179.2 million were included in Other current assets as of
January 1, 2011 and January 2, 2010, respectively.
The Company has not provided for deferred taxes on the outside
basis difference in its investments in foreign subsidiaries that
are essentially permanent in duration. As of January 1,
2011, there were no unremitted earnings. It is not practicable
to determine the amount of income taxes that would be payable in
the event such outside basis differences reverse or unremitted
earnings are repatriated.
Changes in the amounts of unrecognized tax benefits are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Balance as of beginning of period
|
|
$
|
83,574
|
|
|
$
|
20,149
|
|
|
$
|
75,206
|
|
Increases from prior period positions
|
|
|
22,835
|
|
|
|
10,865
|
|
|
|
5,369
|
|
Decreases from prior period positions
|
|
|
(979
|
)
|
|
|
(111
|
)
|
|
|
(811
|
)
|
Increases from current period positions
|
|
|
3,212
|
|
|
|
53,209
|
|
|
|
1,920
|
|
Decreases relating to settlements with taxing authorities
|
|
|
(30
|
)
|
|
|
(538
|
)
|
|
|
(43,972
|
)
|
Reduction as a result of a lapse of the applicable statute of
limitations
|
|
|
(680
|
)
|
|
|
|
|
|
|
(17,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of end of
period(a)
|
|
$
|
107,932
|
|
|
$
|
83,574
|
|
|
$
|
20,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As of January 1, 2011 and January 2, 2010, the amounts
are included within Income taxes payable and Other non-current
liabilities on the accompanying Consolidated Balance Sheets. |
The Company recognizes interest and penalties related to
unrecognized tax benefits as a component of the provision for
income taxes. For the year ended January 1, 2011, the
Company increased its accruals for interest and penalties by
$2.3 million and $1.5 million, respectively. For the
year ended January 2, 2010, the Company did not materially
change its accrual for interest and penalties. For the year
ended January 3, 2009, the Company decreased its accrual
for interest and penalties by $19.3 million and
$3.2 million, respectively. At January 1, 2011 and
January 2, 2010, the accrual for interest and penalties was
$5.4 million and $2.5 million and $3.1 million
and $1.0 million, respectively.
The total amount of unrecognized tax benefits that, if
recognized, would affect the effective tax rate is
$107.9 million. The Company expects to reduce the liability
for unrecognized tax benefits by an amount between
F-25
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3.1 million and $6.8 million within the next
12 months due to either settlement or the expiration of the
statute of limitations.
The Company files tax returns in the US Federal jurisdiction and
various state and foreign jurisdictions. A number of years may
elapse before an uncertain tax position, for which the Company
has unrecognized tax benefits, is audited and finally resolved.
While it is difficult to predict the final outcome or the timing
of resolution of any particular uncertain tax position, the
Company believes that the unrecognized tax benefits reflect the
most likely outcome. These unrecognized tax benefits, as well as
the related interest, are adjusted in light of changing facts
and circumstances. Favorable resolution would be recognized as a
reduction to the effective tax rate in the period of resolution.
The number of years with open tax audits varies depending upon
the tax jurisdiction. The major tax jurisdictions include the US
and the Netherlands. The Company is no longer subject to US
Federal examination by the Internal Revenue Service
(IRS) for the years before 2006 and, with a few
exceptions, this applies to tax examinations by state
authorities for the years before 2005. As a result of the US
Federal tax law change extending the carryback period from two
to five years and the Companys carryback of its 2009 tax
loss to 2004 and 2005, the IRS has the ability to re-open its
past examinations of 2004 and 2005. The Company is no longer
subject to income tax examination by the Dutch tax authorities
for years before 2005.
|
|
NOTE 8:
|
COMMITMENTS
AND CONTINGENCIES
|
Leases
The Company leases office, showroom, warehouse/distribution,
retail space and computers and other equipment under various
noncancelable operating lease agreements, which expire through
2023. Rental expense for 2010, 2009 and 2008 was
$195.4 million, $205.9 million and
$215.6 million, respectively, excluding certain costs such
as real estate taxes and common area maintenance.
The Company leases retail stores under leases with terms that
are typically five or ten years. The Company amortizes rental
abatements, construction allowances and other rental concessions
classified as deferred rent, on a straight-line basis over the
initial term of the lease. The initial lease term can include
one renewal under limited circumstances if the renewal is
reasonably assured, based on consideration of all of the
following factors (i) a written renewal at the
Companys option or an automatic renewal; (ii) there
is no minimum sales requirement that could impair the
Companys ability to renew; (iii) failure to renew
would subject the Company to a substantial penalty and
(iv) there is an established history of renewals in the
format or location.
At January 1, 2011, minimum aggregate rental commitments
under non-cancelable operating and capital leases were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
Fiscal Year
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
Thereafter
|
|
Total
|
|
Interest
|
|
Principal
|
In millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
$
|
202.6
|
|
|
$
|
181.8
|
|
|
$
|
154.5
|
|
|
$
|
135.4
|
|
|
$
|
120.9
|
|
|
$
|
304.1
|
|
|
$
|
1,099.3
|
|
|
$
|
|
|
|
$
|
|
|
Capital Leases
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.3
|
|
|
|
0.6
|
|
|
|
8.8
|
|
Certain rental commitments have renewal options extending
through the fiscal year 2037. 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. Future rental
commitments for leases have not been reduced by minimum
non-cancelable sublease rentals aggregating $36.8 million.
In connection with the disposition of the LIZ CLAIBORNE Canada
retail stores (see Note 2 Discontinued
Operations), 38 store leases were assigned to Laura Canada, of
which the Company remains secondarily liable for
F-26
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the remaining obligations of 31 such leases. As of
January 1, 2011, the future aggregate payments under these
leases amounted to $34.7 million and extended to various
dates through 2020.
Buying/Sourcing
During the first quarter of 2009, the Company entered into an
agreement with Hong Kong-based, global consumer goods exporter
Li & Fung, whereby Li & Fung was appointed
as the Companys buying/sourcing agent for all of the
Companys brands and products (other than jewelry) and the
Company received a payment of $75.0 million at closing and
an additional payment of $8.0 million in the second quarter
of 2009 to offset specific, incremental, identifiable expenses
associated with the transaction. The Companys agreement
with Li & Fung provides for a refund of a portion of
the closing payment in certain limited circumstances, including
a change of control of the Company, the sale or discontinuation
of any current brand, or certain termination events. The Company
is also obligated to use Li & Fung as its
buying/sourcing agent for a minimum value of inventory purchases
each year through the termination of the agreement in 2019. The
licensing arrangements with JCPenney and QVC resulted in the
removal of buying/sourcing for a number of LIZ CLAIBORNE branded
products sold under these licenses from the Li & Fung
buying/sourcing arrangement. As a result, under its agreement
with Li & Fung, the Company refunded
$24.3 million of the closing payment received from
Li & Fung in the second quarter of 2010. In addition,
the Companys agreement with Li & Fung is not
exclusive; however, the Company is required to source a
specified percentage of product purchases from Li &
Fung.
Acquisitions
On January 26, 2006, the Company acquired 100% of the
equity of Westcoast Contempo Fashions Limited and
Mac & Jac Holdings Limited, which collectively design,
market and sell the Mac & Jac, Kensie and Kensiegirl
apparel lines (Mac & Jac). The purchase
price totaled 26.2 million Canadian dollars (or
$22.7 million), which included the retirement of debt at
closing and fees, but excluded contingent payments to be
determined based upon a multiple of Mac & Jacs
earnings in fiscal years 2006, 2008, 2009 and 2010. The Company
is required to make the final contingent payment of
$1.4 million based on 2010 earnings, which was accounted
for as additional purchase price and included in Accrued
expenses at January 2011.
On June 8, 1999, the Company acquired 85.0% of the equity
of Lucky Brand Dungarees, Inc. (Lucky Brand), whose
core business consists of the Lucky Brand Dungarees line of
women and mens denim-based sportswear. The total purchase
price consisted of aggregate cash payments of
$126.2 million and additional payments made from 2005 to
2010 totaling $70.0 million for 12.7% of the remaining
equity of Lucky Brand. The aggregate purchase price for the
remaining 2.3% of the original shares consisted of the following
two installments: (i) a payment made in 2008 of
$15.7 million that was based on a multiple of Lucky
Brands 2007 earnings and (ii) a 2011 payment based on
a multiple of Lucky Brands 2010 earnings, net of the 2008
payment. Based on Lucky Brands 2010 earnings, no final
payment was required, and LUCKY BRAND became a wholly-owned
subsidiary in January 2011.
Licensing
The Company has an exclusive license agreement with an affiliate
of Donna Karan International, Inc. to design, produce, market
and sell mens and womens jeanswear and activewear
and womens sportswear products in the Western Hemisphere
under the
DKNY®
Jeans and
DKNY®
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®
Jeans and
DKNY®
Active products. The initial term of the license agreement
runs through December 31, 2012; the Company has an option
to renew for an additional
15-year
period if certain sales thresholds are met. The license is
subject to minimum guarantees totaling $31.4 million and
running through 2012; there is no maximum limit on the license
fees paid by the Company.
F-27
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
No single customer accounted for a significant portion of net
sales in 2010. The Company does not believe that any
concentration of credit risk represents a material risk of loss
with respect to its financial position as of January 1,
2011.
On November 21, 2006, the Company entered into an
off-balance sheet financing arrangement with a financial
institution (commonly referred to as a synthetic
lease) to refinance the purchase of various land and real
property improvements associated with warehouse and distribution
facilities in Ohio and Rhode Island totaling $32.8 million.
This synthetic lease arrangement expires on May 31, 2011
and replaced the previous synthetic lease arrangement, which
expired on November 22, 2006. The lessor is a wholly-owned
subsidiary of a publicly traded corporation. The lessor is a
sole member, whose ownership interest is without limitation as
to profits, losses and distribution of the lessors assets.
The Companys lease represents less than 1.0% of the
lessors assets. The lease includes guarantees by the
Company for a substantial portion of the financing and options
to purchase the facilities at original cost; the maximum
guarantee was approximately $27.0 million. The
lessors risk included an initial capital investment in
excess of 10.0% of the total value of the lease, which is at
risk during the entire term of the lease. The equipment portion
of the original synthetic lease was sold to another financial
institution and leased back to the Company through a seven-year
capital lease totaling $30.6 million. The lessor does not
meet the definition of a variable interest entity and therefore
consolidation by the Company is not required.
The Company continued further consolidation of its warehouse
operations, with the closure of its Rhode Island distribution
facility in May 2010. In June 2010, the Company paid
$4.8 million and received $2.8 million of proceeds,
each in connection with its former Rhode Island distribution
center, which was financed under the synthetic lease. The
Company estimates its present obligation under the terms of the
synthetic lease will be $5.2 million for the Ohio
distribution facility. That amount is being recognized in
SG&A over the remaining lease term. However, pursuant to
the terms of the lease, in September 2010, the Company
communicated its intent to purchase the underlying assets of
such facility and expects to close the purchase for
$28.0 million in the second quarter of 2011.
In May 2010, the terms of the synthetic lease were amended to
make the applicable financial covenants under the synthetic
lease consistent with the terms of the Amended Agreement. The
Company has not entered into any other off-balance sheet
arrangements.
At January 1, 2011, the Company had entered into short-term
commitments for the purchase of raw materials and for the
production of finished goods totaling $263.3 million.
The Company is a party to several pending legal proceedings and
claims. 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 Companys financial position, results
of operations, liquidity or cash flows (see
Note 20 Legal Proceedings).
F-28
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9:
|
DEBT AND
LINES OF CREDIT
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
5.0% Notes, due July
2013(a)
|
|
$
|
467,498
|
|
|
$
|
501,827
|
|
6.0% Convertible Senior Notes, due June
2014(b)
|
|
|
74,542
|
|
|
|
71,137
|
|
Revolving credit facility
|
|
|
22,735
|
|
|
|
66,507
|
|
Capital lease obligations
|
|
|
13,037
|
|
|
|
18,680
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
577,812
|
|
|
|
658,151
|
|
Less: Short-term
borrowings(c)
|
|
|
26,951
|
|
|
|
70,868
|
|
Convertible Senior
Notes(d)
|
|
|
74,542
|
|
|
|
71,137
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
476,319
|
|
|
$
|
516,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The change in the balance of these euro-denominated notes
reflected the impact of changes in foreign currency exchange
rates. |
|
(b) |
|
The balance at January 1, 2011 and January 2, 2010
represented principal of $90.0 million and an unamortized
debt discount of $15.5 million and $18.9 million,
respectively. |
|
(c) |
|
At January 1, 2011, the balance consisted primarily of
outstanding borrowings under the Companys amended and
restated revolving credit facility and obligations under capital
leases. |
|
(d) |
|
The Convertible Notes were reflected as a current liability
since they were convertible at January 1, 2011 and
January 2, 2010. |
5.0% Notes
On July 6, 2006, the Company completed the issuance of
350.0 million euro (or $446.9 million based on the
exchange rate in effect on such date) 5.0% Notes (the
Notes) due July 8, 2013. The net proceeds of
the offering were used to refinance the Companys then
outstanding 350.0 million euro 6.625% Notes due
August 7, 2006, which were originally issued on
August 7, 2001. The Notes are listed on the Luxembourg
Stock Exchange and bear interest from and including July 6,
2006, payable annually in arrears on July 8 of each year
beginning on July 8, 2007. A portion of the Notes is
designated as a hedge of the Companys net investment in
certain of the Companys euro-denominated functional
currency subsidiaries (see Note 11 Derivative
Instruments).
6.0% Convertible
Senior Notes
On June 24, 2009, the Company issued $90.0 million
Convertible Notes. The Convertible Notes bear interest at a rate
of 6.0% per year and mature on June 15, 2014. The Company
used the net proceeds from this offering to repay
$86.6 million of outstanding borrowings under its amended
and restated revolving credit facility.
The Convertible Notes are convertible at an initial conversion
rate of 279.6421 shares of the Companys common stock
per $1,000 principal amount of Convertible Notes (representing
an initial conversion price of $3.576 per share of common
stock), subject to adjustment in certain circumstances. Upon
conversion, a holder will receive cash up to the aggregate
principal amount of the Convertible Notes converted and cash,
shares of common stock or a combination thereof (at the
Companys election) in respect of the conversion value
above the Convertible Notes principal amount, if any. The
conversion rate is subject to a conversion rate cap of
211.2064 shares per $1,000 principal amount. Holders may
convert the Convertible Notes at their option prior to the close
of business on the business day immediately preceding
March 15, 2014 only under the following circumstances:
(i) during any fiscal quarter commencing after
October 3, 2009, if the last reported sale price of the
common stock for at least 20 trading
F-29
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
days (whether or not consecutive) during a period of 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter is greater than or equal to 120% of the
applicable conversion price on each applicable trading day;
(ii) during the five business day period after any 10
consecutive trading day period in which the trading price per
$1,000 principal amount of Convertible Notes for each day of
such measurement period was less than 98% of the product of the
last reported sale price of the Companys common stock and
the applicable conversion rate on each such day; or
(iii) upon the occurrence of specified corporate events. In
addition, on or after March 15, 2014 until the close of
business on the third scheduled trading day immediately
preceding the maturity date, holders may convert their
Convertible Notes at any time, regardless of the foregoing
circumstances. As of January 1, 2011, none of the
Convertible Notes were converted although they were convertible
at the option of the holder.
The Company separately accounts for the liability and equity
components of the Convertible Notes in a manner that reflects
the Companys nonconvertible debt borrowing rate when
interest is recognized in subsequent periods. The Company
allocated $20.6 million of the $90.0 million principal
amount of the Convertible Notes to the equity component and to
debt discount. The debt discount will be amortized into interest
expense through June 2014 using the effective interest method.
The Companys effective interest rate on the Convertible
Notes is 12.25%. The non-cash interest expense that will be
recorded will increase as the Convertible Notes approach
maturity and accrete to face value. Interest expense associated
with the semi-annual interest payment and non-cash amortization
of the debt discount was $8.8 million and $4.6 million
for the years ended January 1, 2011 and January 2,
2010, respectively.
Amended
and Restated Revolving Credit Facility
In May 2010, the Company completed a second amendment to and
restatement of its revolving credit facility. Availability under
the Amended Agreement shall be the lesser of $350.0 million
or a borrowing base that is computed monthly and comprised
primarily of its eligible accounts receivable and inventory. A
portion of the funds available under the Amended Agreement not
in excess of $200.0 million is available for the issuance
of letters of credit, whereby standby letters of credit may not
exceed $65.0 million. The amended and restated revolving
credit facility is secured by a first priority lien on
substantially all of the Companys assets and includes a
$200.0 million multi-currency revolving credit line and a
$150.0 million US Dollar credit line. The Amended
Agreement allows two borrowing options: one borrowing option
with interest rates based on euro currency rates and a second
borrowing option with interest rates based on the alternate base
rate, as defined in the Amended Agreement, with a spread based
on the aggregate availability under the Amended Agreement.
The Amended Agreement restricts the Companys ability to,
among other things, incur indebtedness, grant liens, repurchase
stock, issue cash dividends, make investments and acquisitions
and sell assets, in each case subject to certain designated
exceptions. In addition, the Amended Agreement (i) requires
the Company to maintain minimum aggregate borrowing availability
of not less than $45.0 million; (ii) requires the
Company to apply substantially all cash collections to reduce
outstanding borrowings under the Amended Agreement when
availability under the Amended Agreement falls below the greater
of $65.0 million and 17.5% of the then-applicable aggregate
commitments; (iii) adjusts certain interest rate spreads
based upon availability; (iv) provides for the inclusion of
an intangible asset value of $30.0 million in the borrowing
base which declines in value over two years; (v) permits
the incurrence of liens and sale of assets in connection with
the grant and exercise of the JCPenney purchase option under the
JCPenney license agreement; and (vi) permits the
acquisition of certain joint venture interests and the
indebtedness and guarantees by certain parties arising in
connection with such acquisition, subject to certain capped
amounts and meeting certain borrowing availability tests.
The funds available under the Amended Agreement may be used to
refinance or repurchase certain existing debt, provide for
working capital and for general corporate purposes, and back
both trade and standby letters of credit in addition to the
Companys synthetic lease. The Amended Agreement contains
customary events of default clauses and cross-default provisions
with respect to the Companys other outstanding
indebtedness, including the Notes and the Convertible Notes. The
Amended Agreement will expire in August 2014, provided that in
the event
F-30
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that the Companys 350.0 million euro Notes are not
refinanced, purchased or defeased prior to April 8, 2013,
then the maturity date shall be April 8, 2013, and in the
event that the Convertible Notes are not refinanced, purchased
or defeased prior to March 15, 2014, then the maturity date
shall be March 15, 2014. In both circumstances, if any such
refinancing or extension provides for a maturity date that is
earlier than 91 days following August 6, 2014, then
the maturity date shall be the date that is 91 days prior
to the maturity date of such notes.
The Company currently believes that the financial institutions
under the Amended Agreement are able to fulfill their
commitments, although such ability to fulfill commitments will
depend on the financial condition of the Companys lenders
at the time of borrowing.
Prior to the execution of the Amended Agreement, during the
first quarter of 2010, the Company was required to and did repay
amounts outstanding under the previous amended and restated
revolving credit facility with the receipt of tax refunds, which
aggregated $164.1 million. Such repayments did not reduce
future borrowing capacity or alter the maturity date of the
facility.
As of January 1, 2011, availability under the
Companys amended and restated revolving credit facility
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of
|
|
|
|
|
|
|
Total
|
|
Borrowing
|
|
Outstanding
|
|
Credit
|
|
Available
|
|
Excess
|
|
|
Facility(a)
|
|
Base(a)
|
|
Borrowings
|
|
Issued
|
|
Capacity
|
|
Capacity(b)
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
facility(a)
|
|
$
|
350,000
|
|
|
$
|
291,156
|
|
|
$
|
22,735
|
|
|
$
|
28,870
|
|
|
$
|
239,551
|
|
|
$
|
194,551
|
|
|
|
|
(a) |
|
Availability under the Amended Agreement is the lesser of
$350.0 million or a borrowing base comprised primarily of
eligible accounts receivable and inventory. |
|
(b) |
|
Excess capacity represents available capacity reduced by the
minimum required aggregate borrowing availability under the
Amended Agreement of $45.0 million. |
Capital
Lease
On November 21, 2006, the Company entered into a seven year
capital lease with a financial institution totaling
$30.6 million. The purpose of the lease was to finance the
equipment associated with its distribution facilities in Ohio
and Rhode Island, which had been previously financed through the
Companys 2001 synthetic lease, which matured in 2006 (see
Note 8 Commitments and Contingencies). On
June 15, 2010, the Company prepaid $1.5 million
principal of the capital lease due to the closure of its former
distribution center in Rhode Island.
|
|
NOTE 10:
|
FAIR
VALUE MEASUREMENTS
|
As discussed in Note 1 Basis of Presentation
and Significant Accounting Policies, the Company utilizes a
three level hierarchy that defines the assumptions used to
measure certain assets and liabilities at fair value.
The following table presents the financial assets and
liabilities the Company measures at fair value on a recurring
basis, based on such fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
|
January 1,
|
|
January 2,
|
|
|
2011
|
|
2010
|
In thousands
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
586
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
(3,463
|
)
|
|
$
|
(3,781
|
)
|
F-31
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of the Companys Level 2 derivative
instruments are primarily based on observable forward exchange
rates. Unobservable quantitative inputs used in the valuation of
the Companys derivative instruments include volatilities,
discount rates and estimated credit losses.
The following table presents the non-financial assets the
Company measured at fair value on a non-recurring basis in 2010,
based on such fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
Total Losses
|
|
|
Value as of
|
|
Fair Value Measured and Recorded at
|
|
Year Ended
|
|
|
January 1,
|
|
Reporting Date Using:
|
|
January 1,
|
|
|
2011
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
2011
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
4,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,600
|
|
|
$
|
17,203
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,594
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,018
|
|
As a result of the decision to exit the LIZ CLAIBORNE branded
outlet stores in the United States and Puerto Rico and certain
LUCKY BRAND and MEXX retail locations, cease of use of certain
corporate and European concession assets and close a
distribution center in 2010, impairment analyses were performed
on the associated property and equipment. The Company determined
that a portion of the assets exceeded their fair values,
resulting in impairment charges of $17.2 million, which
were recorded in SG&A on the accompanying Consolidated
Statement of Operations.
During 2010, the Company determined that the carrying value of
the assets held for sale related to its closed Mt. Pocono
distribution center exceeded the estimated fair value and
recorded an impairment charge of $8.0 million in SG&A
on the accompanying Consolidated Statement of Operations.
The following table presents the non-financial assets the
Company measured at fair value on a non-recurring basis in 2009,
based on such fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
|
|
|
|
|
|
|
|
Total Losses
|
|
|
Value as of
|
|
Fair Value Measured and Recorded at
|
|
Year Ended
|
|
|
January 2,
|
|
Reporting Date Using:
|
|
January 2,
|
|
|
2010
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
2010
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
3,690
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,690
|
|
|
$
|
32,782
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,222
|
|
Assets held for sale
|
|
|
15,070
|
|
|
|
|
|
|
|
|
|
|
|
15,070
|
|
|
|
2,472
|
|
As a result of the decision to exit certain operational retail
formats, an impairment analysis was performed on the associated
property and equipment. The Company determined that the carrying
value of a portion of such assets exceeded their fair value. The
impairments resulted from a decline in respective future
anticipated cash flows of certain retail locations of:
(i) KATE SPADE; (ii) LUCKY BRAND; (iii) Partnered
Brands; (v) MEXX Europe and Canada; and (vi) JUICY
COUTURE, as well as certain corporate and MEXX software and the
Companys Santa Fe Springs, California and Lincoln,
Rhode Island distribution centers.
The fair values of the Companys Level 3 Property and
equipment and Assets held for sale are based on either a market
approach or an income approach using the Companys
forecasted cash flows over the estimated useful lives of such
assets, as appropriate.
F-32
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values and carrying values of the Companys debt
instruments are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
January 2, 2010
|
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
In thousands
|
|
|
|
|
|
|
|
|
|
5.0% Notes, due July
2013(a)
|
|
$
|
397,177
|
|
|
$
|
467,498
|
|
|
$
|
392,615
|
|
|
$
|
501,827
|
|
6.0% Convertible Senior Notes, due June
2014(a)
|
|
|
197,306
|
|
|
|
74,542
|
|
|
|
160,738
|
|
|
|
71,137
|
|
Revolving credit
facility(b)
|
|
|
22,735
|
|
|
|
22,735
|
|
|
|
66,507
|
|
|
|
66,507
|
|
|
|
|
(a) |
|
Carrying values include unamortized debt discount. |
|
(b) |
|
Borrowings under the revolving credit facility bear interest
based on market rates; accordingly, its fair value approximates
its carrying value. |
The fair values of the Companys debt instruments were
estimated using market observable inputs, including quoted
prices in active markets, market indices and interest rate
measurements. Within the hierarchy of fair value measurements,
these are Level 2 fair values. The fair values of cash and
cash equivalents, receivables and accounts payable approximate
their carrying values due to the short-term nature of these
instruments.
|
|
NOTE 11:
|
DERIVATIVE
INSTRUMENTS
|
The Companys operations are exposed to risks associated
with fluctuations in foreign currency exchange rates. In order
to reduce exposures related to changes in foreign currency
exchange rates, the Company uses foreign currency collars and
forward contracts for the purpose of hedging the specific
exposure to variability in forecasted cash flows associated
primarily with inventory purchases mainly by the Companys
European and Canadian entities. As of January 1, 2011, the
Company had forward contracts maturing through December 2011 to
sell 35.4 million Canadian dollars for $34.5 million
and to sell 67.4 million euro for $87.5 million.
The following table summarizes the fair value and presentation
in the Consolidated Financial Statements for derivatives
designated as hedging instruments and derivatives not designated
as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts Designated as Hedging
Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
|
Period
|
|
Location
|
|
Amount
|
|
|
Fair Value
|
|
|
Location
|
|
Amount
|
|
|
Fair Value
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
Other current assets
|
|
$
|
1,500
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
120,504
|
|
|
$
|
3,463
|
|
January 2, 2010
|
|
Other current assets
|
|
|
26,408
|
|
|
|
586
|
|
|
Accrued expenses
|
|
|
74,634
|
|
|
|
3,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts Not Designated as Hedging
Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
|
|
Period
|
|
Location
|
|
Amount
|
|
|
Fair Value
|
|
|
Location
|
|
Amount
|
|
|
Fair Value
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
Other current assets
|
|
$
|
|
|
|
$
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
|
|
January 2, 2010
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
12,015
|
|
|
|
690
|
|
F-33
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the effect of foreign currency
exchange contracts on the Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or
|
|
|
|
|
|
|
Amount of Gain or
|
|
(Loss) Reclassified
|
|
Amount of Gain or
|
|
Amount of Gain or
|
|
|
(Loss) Recognized in
|
|
from Accumulated
|
|
(Loss) Reclassified
|
|
(Loss) Recognized in
|
|
|
Accumulated OCI
|
|
OCI into Operations
|
|
from Accumulated
|
|
Operations on
|
|
|
on Derivative
|
|
(Effective and
|
|
OCI into Operations
|
|
Derivative
|
|
|
(Effective Portion)
|
|
Ineffective Portion)
|
|
(Effective Portion)
|
|
(Ineffective Portion)
|
In thousands
|
|
|
|
|
|
|
|
|
|
Fiscal year ended January 1, 2011
|
|
$
|
3,487
|
|
|
|
Cost of goods sold
|
|
|
$
|
(802
|
)
|
|
$
|
(282
|
)
|
Fiscal year ended January 2, 2010
|
|
|
(7,113
|
)
|
|
|
Cost of goods sold
|
|
|
|
(4,181
|
)
|
|
|
(1,428
|
)
|
Fiscal year ended January 3, 2009
|
|
|
(7,588
|
)
|
|
|
Cost of goods sold
|
|
|
|
(11,646
|
)
|
|
|
1,706
|
|
Approximately $2.9 million of unrealized losses in
Accumulated other comprehensive loss relating to cash flow
hedges will be reclassified into earnings in the next
12 months as the inventory is sold.
The Company hedges its net investment position in certain
euro-denominated functional currency subsidiaries by designating
a portion of the 350.0 million euro-denominated bonds as
the hedging instrument in a net investment hedge. To the extent
the hedge is effective, related foreign currency translation
gains and losses are recorded within Other comprehensive loss.
Translation gains and losses related to the ineffective portion
of the hedge are recognized in current operations.
The related translation gains (losses) recorded within Other
comprehensive loss were $13.1 million, $(9.4) million
and $26.9 million for the years ended January 1, 2011,
January 2, 2010 and January 3, 2009, respectively.
During the first quarter of 2009, the Company dedesignated
143.0 million of the euro-denominated bonds as a hedge of
its net investment in certain euro-denominated functional
currency subsidiaries due to a decrease in the carrying value of
the hedged item below 350.0 million euro. During the first
and fourth quarters of 2010, the Company dedesignated an
additional 66.0 and 21.0 million, respectively, of the
euro-denominated bonds as a hedge of its net investment in
certain euro functional currency subsidiaries due to further
declines in the carrying value of the hedged item. The
associated foreign currency translation gains (losses) of
$21.6 million and $(6.5) million for the years ended
January 1, 2011 and January 2, 2010, respectively, are
reflected within Other income (expense), net on the accompanying
Consolidated Statements of Operations.
|
|
NOTE 12:
|
STREAMLINING
INITIATIVES
|
2010
Actions
The Company continued to consolidate its warehouse operations,
which included the closure of its Marcel Laurin, Canada and
Vernon, California distribution facilities in August and
September 2010, respectively.
In April 2010, the Company completed an agreement with an
affiliate of Donna Karan International, Inc. (DKI)
to terminate its licensed
DKNY®
MENS Sportswear operations and close, transfer or repurpose its
DKNY®
JEANS outlet stores (see Note 16 Additional
Financial Information). These actions included contract
terminations, staff reductions and consolidation of office space
and were substantially completed by the end of 2010.
In July 2010, the Company initiated actions to exit its LIZ
CLAIBORNE branded outlet stores in the US and Puerto Rico, which
included consolidation of space, contract terminations and staff
reductions and resulted in charges for lease terminations,
impairments of property and equipment and severance. These
actions were completed in early 2011 (see
Note 22 Subsequent Event).
F-34
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In October 2010, the Company initiated actions to exit its LIZ
CLAIBORNE concessions in Europe. These actions include staff
reductions and consolidation of office space and are expected to
be completed in the first quarter of 2011.
2009 Actions
In the first quarter of 2009, the Company entered into a
long-term, buying/sourcing agency agreement with Li &
Fung. As a result, the Companys international buying
offices were integrated into Li & Fung or reduced to
support functions. The Companys streamlining initiatives
related to this action included lease terminations, property and
equipment disposals and employee terminations and relocation and
were completed during 2009. Expenses associated with this action
were partially offset by a payment of $8.0 million received
from Li & Fung during the second quarter of 2009.
During the first quarter of 2009, the Company completed the
closure of its Mt. Pocono, Pennsylvania distribution center,
including staff eliminations and sold the facility in the fourth
quarter of 2010.
Also, during the first quarter of 2009, the Company committed to
a plan to close or repurpose its Lucky Brand Kids stores,
although the Company will continue to offer associated
merchandise through other channels. The action included lease
terminations and staff reductions and was completed in the
fourth quarter of 2009.
In August 2009, the Company initiated additional streamlining
initiatives that impacted all of its reportable segments and
included rationalization of distribution centers and office
space, store closures principally within its International-Based
Direct Brands segment, staff reductions, including consolidation
of certain support and production functions and outsourcing
certain corporate functions.
In connection with the license agreements with JCPenney and QVC
(see Note 16 Additional Financial Information),
the Company consolidated office space and reduced staff in
certain support functions. As a result, the Company incurred
charges related to the reduction of leased space, impairments of
property and equipment and other assets, severance and other
restructuring costs. These actions were completed in the second
quarter of 2010.
The Company also initiated actions to consolidate certain
warehouse operations, with the closure of its leased
Santa Fe Springs, California distribution facility in
January 2010 and the closure of its Rhode Island distribution
facility in May 2010.
2008 Actions
In the second quarter of 2008, the Company entered into an
exclusive long-term global licensing agreement for the
manufacture, distribution and marketing of the Liz Claiborne
fragrance brands. As a result, the Company closed a distribution
center dedicated to its fragrance brands and incurred related
expenses for staff reductions, office space consolidation
including asset write-offs and lease terminations. In the third
quarter of 2008, the Company initiated a restructuring action
related to its MEXX Europe operations, which included a change
in the senior management and design teams, as well as cost
reduction actions.
For the years ended January 1, 2011, January 2, 2010
and January 3, 2009, the Company recorded pretax charges
totaling $81.2 million, $163.5 million and
$110.7 million, respectively, related to its streamlining
initiatives.
F-35
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects to pay approximately $23.1 million of
accrued streamlining costs during 2011. A summary rollforward
and components of the Companys streamlining initiatives
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and
|
|
|
Termination
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Related Costs
|
|
|
Costs
|
|
|
Write-Downs
|
|
|
Other Costs
|
|
|
Total
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2007
|
|
$
|
18,567
|
|
|
$
|
11,233
|
|
|
$
|
|
|
|
$
|
226
|
|
|
$
|
30,026
|
|
2008 provision
|
|
|
45,570
|
|
|
|
32,451
|
|
|
|
21,419
|
|
|
|
11,296
|
|
|
|
110,736
|
|
2008 asset write-downs
|
|
|
|
|
|
|
|
|
|
|
(21,419
|
)
|
|
|
|
|
|
|
(21,419
|
)
|
Translation difference
|
|
|
634
|
|
|
|
(1,001
|
)
|
|
|
|
|
|
|
(225
|
)
|
|
|
(592
|
)
|
2008 spending
|
|
|
(53,319
|
)
|
|
|
(28,439
|
)
|
|
|
|
|
|
|
(10,681
|
)
|
|
|
(92,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009
|
|
|
11,452
|
|
|
|
14,244
|
|
|
|
|
|
|
|
616
|
|
|
|
26,312
|
|
2009 provision,
net(a)(b)
|
|
|
75,718
|
|
|
|
33,558
|
|
|
|
40,896
|
|
|
|
13,343
|
|
|
|
163,515
|
|
2009 asset
write-downs(b)
|
|
|
|
|
|
|
|
|
|
|
(40,896
|
)
|
|
|
|
|
|
|
(40,896
|
)
|
Translation difference
|
|
|
(518
|
)
|
|
|
52
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(467
|
)
|
2009 spending
|
|
|
(53,956
|
)
|
|
|
(25,032
|
)
|
|
|
|
|
|
|
(6,754
|
)
|
|
|
(85,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010
|
|
|
32,696
|
|
|
|
22,822
|
|
|
|
|
|
|
|
7,204
|
|
|
|
62,722
|
|
2010 provision
|
|
|
15,925
|
|
|
|
31,252
|
|
|
|
21,222
|
|
|
|
12,841
|
|
|
|
81,240
|
|
2010 asset write-downs
|
|
|
|
|
|
|
|
|
|
|
(21,222
|
)
|
|
|
|
|
|
|
(21,222
|
)
|
Translation difference
|
|
|
(923
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
(343
|
)
|
|
|
(1,387
|
)
|
2010 spending
|
|
|
(46,419
|
)
|
|
|
(24,375
|
)
|
|
|
|
|
|
|
(15,164
|
)
|
|
|
(85,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011
|
|
$
|
1,279
|
|
|
$
|
29,578
|
|
|
$
|
|
|
|
$
|
4,538
|
|
|
$
|
35,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net of the receipt of $8.0 million from Li & Fung. |
|
(b) |
|
Asset write-downs included a non-cash impairment charge of
$4.5 million related to LIZ CLAIBORNE merchandising rights
(see Note 1 Basis of Presentation and
Significant Accounting Policies). |
Expenses associated with the Companys streamlining actions
were primarily recorded in SG&A in the Consolidated
Statements of Operations and impacted reportable segments as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
Domestic-Based Direct Brands
|
|
$
|
23,464
|
|
|
$
|
50,167
|
|
|
$
|
42
|
|
International-Based Direct Brands
|
|
|
10,826
|
|
|
|
43,249
|
|
|
|
32,540
|
|
Partnered Brands
|
|
|
46,950
|
|
|
|
70,099
|
|
|
|
78,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,240
|
|
|
$
|
163,515
|
|
|
$
|
110,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13:
|
SHARE-BASED
COMPENSATION
|
The Company issues stock options, restricted shares, restricted
share units and shares with performance features to employees
under share-based compensation plans, which are described
herein. The Company recognized share-based compensation expense
of $6.9 million, $8.7 million and $8.3 million,
excluding amounts related to discontinued operations, for the
fiscal years ended January 1, 2011, January 2, 2010
and
F-36
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 3, 2009, respectively. Share-based compensation
expense related to discontinued operations was not significant
for the periods presented.
Compensation expense for stock options and restricted stock
awards is measured at fair value on the date of grant based on
the number of shares granted. The fair value of stock options is
estimated based on the binominal lattice pricing model; the fair
value of restricted shares is based on the quoted market price
on the date of the grant. Stock option expense is recognized
using the straight-line attribution basis over the entire
vesting period of the award. Restricted share, restricted share
unit and performance share expense is recognized on a
straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in
substance, multiple awards. Expense is recognized net of
estimated forfeitures.
Stock
Plans
In March 1992, March 2000, March 2002 and March 2005, the
Company adopted the 1992 Plan, the 2000
Plan, the 2002 Plan and the 2005
Plan respectively, under which options (both nonqualified
options and incentive stock options) to acquire shares of common
stock may be granted to officers, other key employees,
consultants and outside directors, in each case as selected by
the Companys Compensation 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 or any other method approved by the Committee. If
previously acquired shares are tendered as payment, the shares
are subject to a six-month holding period, as well as specific
authorization by the Committee. To date, this type of exercise
has not been approved or transacted. The Committee has the
authority under all of the plans to allow for a cashless
exercise option, commonly referred to as a broker-assisted
exercise. Under this method of exercise, participating
employees must make a valid exercise of their stock options
through a designated broker. Based on the exercise and
information provided by the Company, the broker sells the shares
on the open market. The employees receive cash upon settlement,
some of which is used to pay the purchase price. Neither the
stock-for-stock
nor broker-assisted cashless exercise option are generally
available to executive officers or directors of the Company.
Although there are none currently outstanding, 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. Vesting schedules
will be accelerated upon a change of control of the Company.
Options and stock appreciation rights generally may not be
transferred during the lifetime of a holder.
Awards under the 2002 and 2005 Plans may also be made in the
form of dividend equivalent rights, restricted stock,
unrestricted stock performance shares and restricted stock
units. Exercise prices for awards under the 2000, 2002 and 2005
Plans are determined by the Committee; to date, all stock
options have been granted at an exercise price not less than the
closing market value of the underlying shares on the date of
grant.
Awards granted under plans no longer in use by the Company,
including the 2000 and 1992 Plans, remain in effect in
accordance with their terms. The 2002 Plan provides for the
issuance of up to 9,000,000 shares of common stock with
respect to options, stock appreciation rights and other awards.
The 2002 plan expires in 2012. The 2005 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.
The 2005 plan expires in 2015. As of January 1, 2011,
2,298,285 shares were available for future grant under the
2002 and 2005 Plans.
The Company delivers treasury shares upon the exercise of stock
options. The difference between the cost of the treasury shares
and the exercise price of the options has been reflected on a
first-in,
first-out basis.
Stock
Options
Stock options are issued at the current market price and have a
three-year vesting period and a contractual term of
7-10 years. As of January 1, 2011, the Company has not
changed the terms of any outstanding awards.
F-37
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company utilizes the Binomial lattice pricing model to
estimate the fair value of options granted. The Company believes
this model provides the best estimate of fair value due to its
ability to incorporate inputs that change over time, such as
volatility and interest rates and to allow for actual exercise
behavior of option holders.
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
January 1,
|
|
January 2,
|
|
January 3,
|
Valuation Assumptions:
|
|
2011
|
|
2010
|
|
2009
|
|
Weighted-average fair value of options granted
|
|
$3.05
|
|
$2.07
|
|
$3.50
|
Expected volatility
|
|
56.9% to 58.8%
|
|
48.7% to 74.8%
|
|
28.1% to 60.7%
|
Weighted-average volatility
|
|
58.4%
|
|
66.1%
|
|
36.4%
|
Expected term (in years)
|
|
5.0
|
|
5.2
|
|
5.0
|
Dividend yield
|
|
|
|
|
|
0.77%
|
Risk-free rate
|
|
0.3% to 5.3%
|
|
0.5% to 5.0%
|
|
0.8% to 5.1%
|
Expected annual forfeiture
|
|
12.6%
|
|
11.7%
|
|
12.7%
|
Expected volatilities are based on a term structure of implied
volatility, which assumes changes in volatility over the life of
an option. The Company utilizes historical optionee behavioral
data to estimate the option exercise and termination rates that
are used in the valuation model. The expected term represents an
estimate of the period of time options are expected to remain
outstanding. The expected term provided in the above table
represents an option weighted-average expected term based on the
estimated behavior of distinct groups of employees who received
options in 2010, 2009 and 2008. The range of risk-free rates is
based on a forward curve of interest rates at the time of option
grant.
A summary of award activity under the Companys stock
option plans as of January 1, 2011 and changes therein
during the fiscal year then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted Average
|
|
|
Remaining
|
|
|
Intrinsic Value
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
(In thousands)
|
|
|
Outstanding at January 2, 2010
|
|
|
4,918,630
|
|
|
$
|
19.27
|
|
|
|
4.9
|
|
|
$
|
4,736
|
|
Granted
|
|
|
2,720,000
|
|
|
|
6.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,000
|
)
|
|
|
4.81
|
|
|
|
|
|
|
|
11
|
|
Cancelled/expired
|
|
|
(736,484
|
)
|
|
|
16.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
6,897,146
|
|
|
$
|
14.39
|
|
|
|
4.9
|
|
|
$
|
9,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at January 1, 2011
|
|
|
6,166,985
|
|
|
$
|
15.43
|
|
|
|
4.8
|
|
|
$
|
8,233
|
|
Exercisable at January 1, 2011
|
|
|
2,208,646
|
|
|
$
|
32.21
|
|
|
|
2.8
|
|
|
$
|
67
|
|
The total intrinsic value of options exercised was insignificant
for the fiscal years ended January 2, 2010 and
January 3, 2009.
As of January 1, 2011, there were approximately
4.7 million nonvested stock options with a weighted average
exercise price of $5.99 and there was $8.5 million of total
unrecognized compensation cost related to nonvested stock
options granted under the Companys stock option plans.
That expense is expected to be recognized over a weighted
average period of 2.0 years. The total fair value of shares
vested for the years ended January 1, 2011, January 2,
2010 and January 3, 2009 was $3.4 million,
$4.3 million and $3.9 million, respectively.
Restricted
Stock
The Company grants restricted shares and restricted share units
to certain domestic and international employees. These shares
are subject to transfer restrictions and risk of forfeiture
until earned by continued employment. As of January 1,
2011, the Company has not changed the terms of any outstanding
awards. These
F-38
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shares generally vest 50% on the second anniversary date from
the date of grant and 50% on the third anniversary date from the
date of grant.
The Company grants performance shares to certain of its
employees, including the Companys executive officers.
Performance shares are earned based on the achievement of
certain profit return on capital targets aligned with the
Companys strategy. In 2007, the Committee granted
performance shares which were evaluated based on 2009
performance with the number of shares to be earned ranging from
0 to 150% of the target amount, or 190,000 shares. Based on
2009 performance, these shares were deemed unearned and
cancelled. In 2008, the Committee granted performance shares
which were evaluated based on the 2008 and 2010 performance
period. Based on 2008 and 2010 performance, these shares were
deemed unearned and cancelled.
In 2010, the Committee granted 855,000 performance shares to a
group of key executives. The performance criteria are evaluated
based on achieving certain earnings metrics for a consecutive
period of time through July 2013 with the number of shares to be
earned ranging from 0 to 100% of the target amount.
Each of the Companys non-employee Directors receives an
annual grant of shares of common stock with a value of $100,000
as part of an annual retainer for serving on the Board of
Directors, with the exception of the Chairman of the Board who
receives an annual grant of shares of common stock with a value
of $175,000. Retainer shares are non-transferable until the
first anniversary of the grant, with 25% becoming transferable
on each of the first and second anniversary of the grant and 50%
becoming transferable on the third anniversary, subject to
certain exceptions.
A summary of award activity under the Companys restricted
stock plans as of January 1, 2011 and changes therein
during the fiscal year then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Nonvested stock at January 2,
2010(a)
|
|
|
1,132,856
|
|
|
$
|
16.58
|
|
Granted(b)
|
|
|
1,235,000
|
|
|
|
6.44
|
|
Vested
|
|
|
(376,567
|
)
|
|
|
22.52
|
|
Cancelled(a)
|
|
|
(299,698
|
)
|
|
|
8.76
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock at January 1,
2011(b)
|
|
|
1,691,591
|
|
|
$
|
9.24
|
|
|
|
|
|
|
|
|
|
|
Expected to vest as of January 1, 2011
|
|
|
864,808
|
|
|
$
|
9.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In the second and third quarters of 2008, performance shares
were granted to a group of key executives. These shares were
subject to certain service and performance conditions, a portion
of which were measured as of fiscal 2008 year-end and the
remainder were measured at fiscal 2010 year-end. The shares
which were contingently issuable based on 2008 and 2010
performance were deemed not earned and cancelled. |
|
(b) |
|
Includes performance shares granted to a group of key executives
with certain performance conditions measured through July 2013. |
The weighted average grant date fair value of restricted shares
granted in the years ended January 1, 2011, January 2,
2010 and January 3, 2009 was $6.44, $3.26 and $13.30,
respectively.
As of January 1, 2011, there was $2.0 million of total
unrecognized compensation cost related to nonvested stock awards
granted under the restricted stock plans. The expense is
expected to be recognized over a weighted average period of
1.7 years. The total fair value of shares vested during the
years ended January 1, 2011, January 2, 2010 and
January 3, 2009 was $8.5 million, $10.2 million
and $12.5 million, respectively.
F-39
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14:
|
PROFIT-SHARING
RETIREMENT, SAVINGS AND DEFERRED COMPENSATION PLANS
|
The Company maintains a qualified defined contribution plan for
its eligible employees. This plan allows deferred arrangements
under section 401(k) of the Internal Revenue Code and may
provide for employer-matching contributions. The plan contains
provisions for a discretionary profit sharing component,
although such a contribution was not made for 2010, 2009 or 2008.
The Companys aggregate 401(k)/Profit Sharing Plan
contribution expense, which is included in SG&A in the
accompanying Consolidated Statements of Operations, was not
significant in 2010 and 2009 and amounted to $5.0 million
in 2008. In July 2010, the Company reinstated its 401(k) match,
which was suspended in 2009.
The Company has a non-qualified supplemental retirement plan for
certain employees 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 employee under the
tax-qualified plan absent such limitations and the actual
contribution under that plan. The supplemental plan also allows
certain employees to defer up to 50% of their base salary and up
to 100% of their annual bonus. The Company established an
irrevocable rabbi trust to which the Company makes
periodic contributions to provide a source of funds to assist in
meeting its obligations under the supplemental plan. The
principal of the trust and earnings thereon, are to be used
exclusively for the participants under the plan, subject to the
claims of the Companys general creditors.
|
|
NOTE 15:
|
EARNINGS
PER COMMON SHARE
|
The following table sets forth the computation of basic and
diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
January 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
In thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(220,983
|
)
|
|
$
|
(278,911
|
)
|
|
$
|
(811,057
|
)
|
Net (loss) income attributable to the noncontrolling interest
|
|
|
(842
|
)
|
|
|
(681
|
)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to Liz Claiborne,
Inc.
|
|
|
(220,141
|
)
|
|
|
(278,230
|
)
|
|
|
(811,309
|
)
|
Loss from discontinued operations, net of income taxes
|
|
|
(31,326
|
)
|
|
|
(27,499
|
)
|
|
|
(140,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Liz Claiborne, Inc.
|
|
$
|
(251,467
|
)
|
|
$
|
(305,729
|
)
|
|
$
|
(951,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
94,243
|
|
|
|
93,880
|
|
|
|
93,606
|
|
Stock options and nonvested
shares(a)(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Notes(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding(a)
|
|
|
94,243
|
|
|
|
93,880
|
|
|
|
93,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to Liz Claiborne,
Inc.
|
|
$
|
(2.34
|
)
|
|
$
|
(2.96
|
)
|
|
$
|
(8.67
|
)
|
Loss from discontinued operations
|
|
|
(0.33
|
)
|
|
|
(0.30
|
)
|
|
|
(1.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Liz Claiborne, Inc.
|
|
$
|
(2.67
|
)
|
|
$
|
(3.26
|
)
|
|
$
|
(10.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Because the Company incurred a loss from continuing operations
for all years presented, outstanding stock options and nonvested
shares are antidilutive. Accordingly, for the years ended
January 1, 2011, January 2, 2010 and January 3,
2009, approximately 6.9 million, 4.9 million and
5.4 million outstanding stock options, |
F-40
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
respectively, and approximately 0.7 million,
1.0 million and 1.5 million outstanding nonvested
shares, respectively, were excluded from the computation of
diluted loss per share. |
|
(b) |
|
Excludes approximately 1.0 million, 0.2 million and
0.7 million nonvested shares for the years ended
January 1, 2011, January 2, 2010 and January 3,
2009, respectively, for which the performance criteria have not
yet been achieved. |
|
(c) |
|
Because the Company incurred a loss from continuing operations
for the years ended January 1, 2011 and January 2,
2010, approximately 10.4 million and 2.1 million
potentially dilutive shares issuable upon conversion of the
Convertible Notes were considered antidilutive for such periods,
and were excluded from the computation of diluted loss per share. |
|
|
NOTE 16:
|
ADDITIONAL
FINANCIAL INFORMATION
|
Licensing-Related
Transactions
In October 2009, the Company entered into a multi-year license
agreement with JCPenney, which granted JCPenney an exclusive
right and license (subject to pre-existing licenses and certain
limited exceptions) to use the LIZ CLAIBORNE, LIZ &
CO., CLAIBORNE and CONCEPTS BY CLAIBORNE trademarks with respect
to covered product categories and included the worldwide
manufacturing of the licensed products and the sale, marketing,
merchandising, advertising and promotion of the licensed
products in the US and Puerto Rico. Under the agreement,
JCPenney may only use designs provided or approved by the
Company. The agreement has a term that may remain in effect up
to July 31, 2020. Sales by JCPenney under the agreement
commenced in August 2010. At the end of year five, JCPenney will
have the option to acquire the trademarks and other LIZ
CLAIBORNE brands for use in the US and Puerto Rico. JCPenney
will also have the option to take ownership of the trademarks in
the same territory at the end of year 10. JCPenney also has an
option to take ownership of the same trademarks in the same
territory if the Company fails to maintain the brand positioning
for the LIZ CLAIBORNE NEW YORK trademark, pursuant to the terms
of the agreement. The license agreement provides for the payment
to the Company of royalties based on net sales of licensed
products by JCPenney and a portion of the related gross profit
when the gross profit percentage exceeds a specified rate,
subject to a minimum annual payment.
The Company also entered into a multi-year license agreement
with QVC, granting rights (subject to pre-existing licenses) to
certain of the Companys trademarks and other intellectual
property rights. QVC has the rights to use the LIZ CLAIBORNE NEW
YORK brand with Isaac Mizrahi as creative director on any
apparel, accessories, or home categories in its US and
international markets. QVC merchandises and sources the product
and the Company provides brand management oversight. The
agreement provides for the payment to the Company of a royalty
based on net sales.
In April 2010, the Company entered into an agreement with DKI,
which included the termination of the
DKNY®
MENS Sportswear license and the transfer of certain outlet
stores of its licensed
DKNY®
JEANS brand to DKI. In connection with the termination of the
DKNY®
MENS Sportswear license, the Company recorded a pretax charge of
$9.9 million in the year ended January 1, 2011.
On June 10, 2008, the Company entered into an exclusive
long-term global licensing agreement with Elizabeth Arden, Inc.
(Elizabeth Arden) for the manufacture, distribution
and marketing of the Liz Claiborne fragrance brands. The
Companys fragrance brands include JUICY COUTURE, CURVE BY
LIZ CLAIBORNE, LUCKY BRAND and the LIZ, REALITIES, BORA BORA and
MAMBO fragrances. The Company also assigned all of its rights
and obligations under its USHER fragrance license to Elizabeth
Arden as of the effective date.
Other
Income (Expense), Net
Other income (expense), net primarily consisted of (i) the
impact of the partial dedesignation of the hedge of the
Companys investment in certain euro-denominated functional
currency subsidiaries, which resulted in the recognition of a
foreign currency translation gain (loss) of $21.6 million
and $(6.5) million on the Companys euro-
F-41
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
denominated notes within earnings in 2010 and 2009,
respectively; and (ii) foreign currency transaction gains
(losses) of $2.0 million, $2.0 million and
$(5.4) million for the years ended January 1, 2011,
January 2, 2010 and January 3, 2009, respectively.
Consolidated
Statements of Cash Flows Supplementary
Disclosures
During the years ended January 1, 2011, January 2,
2010 and January 3, 2009, the Company received net income
tax refunds of $171.5 million, $99.8 million and
$19.2 million, respectively. During the years ended
January 1, 2011, January 2, 2010 and January 3,
2009, the Company made interest payments of $36.4 million,
$42.7 million and $56.8 million, respectively. As of
January 1, 2011, January 2, 2010 and January 3,
2009, the Company accrued capital expenditures totaling
$7.6 million, $3.3 million and $11.2 million,
respectively.
Depreciation and amortization expense in 2010, 2009 and 2008
includes $22.7 million, $17.3 million and
$2.6 million, respectively, related to amortization of
deferred financing costs.
During 2010 and 2009, the Company paid $24.3 million to
Li & Fung and received a payment of $75.0 million
from Li & Fung related to a buying/sourcing agreement,
respectively, which are included within Increase (decrease) in
accrued expenses and other non-current liabilities on the
accompanying Consolidated Statements of Cash Flows.
During 2010, the Company made business acquisition payments of
$5.0 million related to the LUCKY BRAND acquisition. During
2009, the Company made business acquisition payments of
$8.8 million, which included (i) $5.0 million
related to the LUCKY BRAND acquisition and
(ii) $3.8 million related to earn-out provisions of
the MAC & JAC acquisition. During 2008, the Company
made business acquisition payments of $100.4 million, which
included (i) $95.4 million related to earn-out
provisions of the JUICY COUTURE acquisition and
(ii) $5.0 million related to the LUCKY BRAND
acquisition.
|
|
NOTE 17:
|
SEGMENT
REPORTING
|
The Companys segment reporting structure reflects a
brand-focused approach, designed to optimize the operational
coordination and resource allocation of the Companys
businesses across multiple functional areas including specialty
retail, retail outlets, concessions, wholesale apparel,
wholesale non-apparel,
e-commerce
and licensing. The three reportable segments described below
represent the Companys brand-based activities for which
separate financial information is available and which is
utilized on a regular basis by its CODM to evaluate performance
and allocate resources. In identifying its reportable segments,
the Company considers economic characteristics, as well as
products, customers, sales growth potential and long-term
profitability. The Company aggregates its six operating segments
to form reportable segments, where applicable. As such, the
Company reports its operations in three reportable segments as
follows:
|
|
|
|
|
Domestic-Based Direct Brands segment
consists of the specialty retail, outlet, wholesale apparel,
wholesale non-apparel (including accessories, jewelry, and
handbags),
e-commerce
and licensing operations of the Companys three domestic,
retail-based operating segments: JUICY COUTURE, KATE SPADE and
LUCKY BRAND.
|
|
|
|
International-Based Direct Brands
segment consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel
(including accessories, jewelry and handbags),
e-commerce
and licensing operations of MEXX Europe and MEXX Canada, the
Companys two international, retail-based operating
segments.
|
|
|
|
Partnered Brands segment consists of
one operating segment including the wholesale apparel, wholesale
non-apparel, licensing, outlet, concession and
e-commerce
operations of the Companys AXCESS, CLAIBORNE, DANA
BUCHMAN, KENSIE, LIZ CLAIBORNE, LIZ CLAIBORNE NEW YORK,
MAC & JAC, MARVELLA, MONET, TRIFARI and the
Companys licensed
DKNY®
JEANS and
DKNY®
ACTIVE brands, among others.
|
F-42
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys Chief Executive Officer has been identified
as the CODM. The CODM evaluates performance and allocates
resources based primarily on the operating income of each
reportable segment. The accounting policies of the
Companys reportable segments are the same as those
described in Note 1 Basis of Presentation and
Significant Accounting Policies. There are no inter-segment
sales or transfers. The Company also presents its results on a
geographic basis based on selling location, between Domestic
(wholesale customers, Company-owned specialty retail and outlet
stores located in the United States and
e-commerce
sites) and International (wholesale customers and Company-owned
specialty retail, outlet and concession stores located outside
of the United States). The Company, as licensor, also licenses
to third parties the right to produce and market products
bearing certain Company-owned trademarks; the resulting royalty
income is included within the results of the associated segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Operating
|
|
|
|
|
|
Segment
|
|
|
for Long-
|
|
|
|
Net Sales
|
|
|
% to Total
|
|
|
Expense
|
|
|
(Loss) Income
|
|
|
% of Sales
|
|
|
Assets(j)
|
|
|
Lived Assets
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic-Based Direct
Brands(a)
|
|
$
|
1,137,960
|
|
|
|
45.5
|
%
|
|
$
|
64,229
|
|
|
$
|
2,992
|
|
|
|
0.3
|
%
|
|
$
|
698,970
|
|
|
$
|
48,309
|
|
International-Based Direct
Brands(b)
|
|
|
731,819
|
|
|
|
29.3
|
%
|
|
|
39,361
|
|
|
|
(100,573
|
)
|
|
|
(13.7
|
)%
|
|
|
320,477
|
|
|
|
20,694
|
|
Partnered
Brands(c)
|
|
|
630,293
|
|
|
|
25.2
|
%
|
|
|
39,230
|
|
|
|
(81,933
|
)
|
|
|
(13.0
|
)%
|
|
|
199,899
|
|
|
|
16,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,500,072
|
|
|
|
100.0
|
%
|
|
$
|
142,820
|
|
|
$
|
(179,514
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
$
|
85,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic-Based Direct
Brands(d)
|
|
$
|
1,120,664
|
|
|
|
38.4
|
%
|
|
$
|
48,075
|
|
|
$
|
(25,425
|
)
|
|
|
(2.3
|
)%
|
|
$
|
640,240
|
|
|
$
|
37,362
|
|
International-Based Direct
Brands(e)
|
|
|
831,889
|
|
|
|
28.5
|
%
|
|
|
36,234
|
|
|
|
(137,625
|
)
|
|
|
(16.5
|
)%
|
|
|
403,828
|
|
|
|
13,071
|
|
Partnered
Brands(f)
|
|
|
963,366
|
|
|
|
33.1
|
%
|
|
|
74,888
|
|
|
|
(155,008
|
)
|
|
|
(16.1
|
)%
|
|
|
533,661
|
|
|
|
30,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,915,919
|
|
|
|
100.0
|
%
|
|
$
|
159,197
|
|
|
$
|
(318,058
|
)
|
|
|
(10.9
|
)%
|
|
|
|
|
|
$
|
80,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic-Based Direct
Brands(g)
|
|
$
|
1,207,400
|
|
|
|
31.3
|
%
|
|
$
|
40,147
|
|
|
$
|
(331,456
|
)
|
|
|
(27.5
|
)%
|
|
|
|
|
|
$
|
205,820
|
|
International-Based Direct
Brands(h)
|
|
|
1,202,900
|
|
|
|
31.2
|
%
|
|
|
45,839
|
|
|
|
(283,600
|
)
|
|
|
(23.6
|
)%
|
|
|
|
|
|
|
34,215
|
|
Partnered
Brands(i)
|
|
|
1,450,811
|
|
|
|
37.5
|
%
|
|
|
67,859
|
|
|
|
(118,829
|
)
|
|
|
(8.2
|
)%
|
|
|
|
|
|
|
49,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,861,111
|
|
|
|
100.0
|
%
|
|
$
|
153,845
|
|
|
$
|
(733,885
|
)
|
|
|
(19.0
|
)%
|
|
|
|
|
|
$
|
289,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Domestic-Based Direct Brands segment operating loss included
charges totaling $23.5 million related to streamlining
initiatives. |
|
(b) |
|
The International-Based Direct Brands segment operating loss
included charges totaling $10.8 million related to
streamlining initiatives. |
|
(c) |
|
The Partnered Brands segment operating loss included non-cash
impairment charges of $2.6 million related to other
intangible assets (see Note 1 Basis of
Presentation and Significant Accounting Policies) and charges |
F-43
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
totaling $46.5 million related to streamlining initiatives
(excluding a non-cash impairment charge of $0.4 million
related to LIZ CLAIBORNE merchandising rights). |
|
(d) |
|
The Domestic-Based Direct Brands segment operating loss included
charges totaling $50.2 million related to streamlining
initiatives. |
|
(e) |
|
The International-Based Direct Brands segment operating loss
included charges totaling $43.2 million related to
streamlining initiatives. |
|
(f) |
|
The Partnered Brands segment operating loss included non-cash
impairment charges of $2.8 million related to goodwill and
$14.2 million related other intangible assets (see
Note 1 Basis of Presentation and Significant
Accounting Policies) and charges totaling $70.1 million
related to streamlining initiatives (excluding a non-cash
impairment charge of $4.5 million related to LIZ CLAIBORNE
merchandising rights). |
|
(g) |
|
The Domestic-Based Direct Brands segment operating loss included
a non-cash impairment charge of $382.4 million related to
the impairment of goodwill (see Note 1 Basis of
Presentation and Significant Accounting Policies). |
|
(h) |
|
The International-Based Direct Brands segment operating loss
included a non-cash impairment charge of $300.7 million
related to the impairment of goodwill (see
Note 1 Basis of Presentation and Significant
Accounting Policies) and charges totaling $32.5 million
related to streamlining initiatives. |
|
(i) |
|
The Partnered Brands segment operating loss included a non-cash
impairment charge of $10.0 million to reduce the value of
the Villager, Crazy Horse and Russ trademark to its estimated
fair value (see Note 1 Basis of Presentation
and Significant Accounting Policies) and charges totaling
$78.2 million related to streamlining initiatives. The
Partnered Brands segment operating loss also included a
$14.3 million gain associated with the sale of a
distribution center. |
|
(j) |
|
Amounts exclude unallocated Corporate assets of
$38.3 million and $13.1 million at January 1,
2011 and January 2, 2010, respectively, and assets held for
sale of $15.1 million January 2, 2010. |
GEOGRAPHIC
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Operating
|
|
|
|
|
|
Segment
|
|
|
for Long-
|
|
|
|
Net Sales
|
|
|
% to Total
|
|
|
Expense
|
|
|
Loss
|
|
|
% of Sales
|
|
|
Assets(g)
|
|
|
Lived Assets
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic(a)
|
|
$
|
1,656,595
|
|
|
|
66.3
|
%
|
|
$
|
96,507
|
|
|
$
|
(76,068
|
)
|
|
|
(4.6
|
)%
|
|
$
|
803,109
|
|
|
$
|
57,600
|
|
International(b)
|
|
|
843,477
|
|
|
|
33.7
|
%
|
|
|
46,313
|
|
|
|
(103,446
|
)
|
|
|
(12.3
|
)%
|
|
|
416,237
|
|
|
|
28,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,500,072
|
|
|
|
100.0
|
%
|
|
$
|
142,820
|
|
|
$
|
(179,514
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
$
|
85,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic(c)
|
|
$
|
1,973,944
|
|
|
|
67.7
|
%
|
|
$
|
107,019
|
|
|
$
|
(176,501
|
)
|
|
|
(8.9
|
)%
|
|
$
|
877,429
|
|
|
$
|
55,493
|
|
International(d)
|
|
|
941,975
|
|
|
|
32.3
|
%
|
|
|
52,178
|
|
|
|
(141,557
|
)
|
|
|
(15.0
|
)%
|
|
|
700,300
|
|
|
|
24,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,915,919
|
|
|
|
100.0
|
%
|
|
$
|
159,197
|
|
|
$
|
(318,058
|
)
|
|
|
(10.9
|
)%
|
|
|
|
|
|
$
|
80,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic(e)
|
|
$
|
2,520,587
|
|
|
|
65.3
|
%
|
|
$
|
98,431
|
|
|
$
|
(434,942
|
)
|
|
|
(17.3
|
)%
|
|
|
|
|
|
$
|
251,914
|
|
International(f)
|
|
|
1,340,524
|
|
|
|
34.7
|
%
|
|
|
55,414
|
|
|
|
(298,943
|
)
|
|
|
(22.3
|
)%
|
|
|
|
|
|
|
37,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,861,111
|
|
|
|
100.0
|
%
|
|
$
|
153,845
|
|
|
$
|
(733,885
|
)
|
|
|
(19.0
|
)%
|
|
|
|
|
|
$
|
289,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a) |
|
The Domestic operating loss included: (i) charges totaling
$69.6 million related to streamlining initiatives
(excluding a non-cash impairment charge of $0.4 million
related to LIZ CLAIBORNE merchandising rights) and
(ii) non-cash impairment charges of $2.6 million
related to other intangible assets (see Note 1
Basis of Presentation and Significant Accounting Policies). |
|
(b) |
|
The International operating loss included charges totaling
$11.2 million related to streamlining initiatives. |
|
(c) |
|
The Domestic operating loss included: (i) charges totaling
$114.3 million related to streamlining initiatives
(excluding a non-cash impairment charge of $4.5 million
related to LIZ CLAIBORNE merchandising rights) and
(ii) non-cash impairment charges of $2.8 million
related to goodwill and $14.2 million related to other
intangible assets (see Note 1 Basis of
Presentation and Significant Accounting Policies). |
|
(d) |
|
The International operating loss included charges totaling
$44.7 million related to streamlining initiatives. |
|
(e) |
|
The Domestic operating loss included: (i) non-cash
impairment charges of $382.4 million related to the
impairment of goodwill and $10.0 million to reduce the
value of the Villager, Crazy Horse and Russ trademark to its
estimated fair value (see Note 1 Basis of
Presentation and Significant Accounting Policies) and
(ii) charges totaling $76.7 million related to
streamlining initiatives. The Domestic operating loss also
included a $14.3 million gain associated with the sale of a
distribution center. |
|
(f) |
|
The International operating loss included a non-cash impairment
charge of $300.7 million related to the impairment of
goodwill (see Note 1 Basis of Presentation and
Significant Accounting Policies) and charges totaling
$34.0 million related to streamlining initiatives. |
|
(g) |
|
Amounts exclude unallocated Corporate assets of
$38.3 million and $13.1 million January 1, 2011
and January 2, 2010, respectively, and assets held for sale
of $15.1 million at January 2, 2010. |
|
|
NOTE 18:
|
ACCUMULATED
OTHER COMPREHENSIVE LOSS
|
Accumulated other comprehensive loss is comprised of the effects
of foreign currency translation, losses on cash flow hedging
derivatives and changes in unrealized gains on securities, as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
January 2,
|
|
|
|
2011
|
|
|
2010
|
|
In thousands
|
|
|
|
|
|
|
|
Cumulative translation adjustment, net of income taxes of $(905)
and $7,129, respectively
|
|
$
|
(63,971
|
)
|
|
$
|
(64,148
|
)
|
Losses on cash flow hedging derivatives, net of income taxes of
$491 and $1,833, respectively
|
|
|
(2,617
|
)
|
|
|
(5,564
|
)
|
Unrealized gains on securities, net of income taxes of $0 and
$0, respectively
|
|
|
286
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of income taxes
|
|
$
|
(66,302
|
)
|
|
$
|
(69,371
|
)
|
|
|
|
|
|
|
|
|
|
As discussed in Note 11 Derivative Instruments,
the Company hedges its net investment position in certain
euro-denominated functional currency subsidiaries by designating
a portion of the 350.0 million euro-denominated bonds as
the hedging instrument in a net investment hedge. The foreign
currency translation gains and losses that are recognized on the
euro-denominated bonds and certain other instruments are
accounted for as a component of Accumulated other comprehensive
loss. As of January 1, 2011 and January 2, 2010, the
Company recorded a deferred tax (provision) benefit of
$(0.9) million and $7.1 million, respectively, related
to such foreign currency transaction gains and losses in the
Cumulative translation adjustment account in Accumulated other
comprehensive loss.
F-45
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 19:
|
RELATED
PARTY TRANSACTIONS
|
On November 20, 2009, the Company and Sanei International
Co., LTD established a joint venture under the name of Kate
Spade Japan Co., Ltd. (KSJ). The joint venture is a
Japanese corporation and its purpose is to market and distribute
small leather goods and other fashion products and accessories
in Japan under the KATE SPADE brand. The Company accounts for
its 49.0% interest in KSJ under the equity method of accounting.
As of January 1, 2011 and January 2, 2010, the Company
recorded $13.6 million and $7.4 million, respectively,
related to its investment in the equity investee, which is
included in Other assets in the accompanying Consolidated
Balance Sheets. In the first quarter of 2010, the Company
advanced $4.0 million to KSJ. The impact of the
Companys equity in earnings of KSJ was $1.0 million
in 2010 and was insignificant in 2009.
During 2010, 2009 and 2008, the Company paid the law firm
Kramer, Levin, Naftalis & Frankel LLP, of which
Kenneth P. Kopelman (a Director of the Company) is a partner,
fees of $1.2 million, $1.2 million and
$1.3 million, respectively, in connection with legal
services provided to the Company. The 2010 amount represents
less than one percent of such firms 2010 fee revenue. The
foregoing transactions between the Company and this entity were
effected on an arms-length basis, with services provided
at fair market value.
The Company believes that each of the transactions described
above was effected on terms no less favorable to the Company
than those that would have been realized in transactions with
unaffiliated entities or individuals.
|
|
NOTE 20:
|
LEGAL
PROCEEDINGS
|
A complaint captioned The Levy Group, Inc. v. L.C. Licensing,
Inc. and Liz Claiborne, Inc. was filed in the Supreme Court
of the State of New York, County of New York on January 21,
2010. The complaint alleged claims for breach of contract,
breach of the implied covenant of good faith and fair dealing,
promissory estoppel and tortious interference against L.C.
Licensing, Inc. and the Company in connection with a trademark
licensing agreement between L.C. Licensing, Inc. and its
licensee, The Levy Group, Inc. The Levy Group, Inc.s
alleged claims purportedly arose from the Companys
decision to sign a long-term licensing agreement with JCPenney.
The complaint sought an award of $100.0 million in
compensatory damages plus punitive damages. On March 4,
2010, the Company moved to dismiss the complaint for failure to
state a cause of action. On October 12, 2010, the Court
issued an order granting the motion and dismissing all of The
Levy Group, Inc.s claims with prejudice. The time to
appeal such order has expired and The Levy Group, Inc. did not
appeal this ruling.
A lawsuit captioned LC Footwear, L.L.C., et al. v. L.C.
Licensing, Inc., et al., was filed on November 2, 2010
in the Supreme Court of the State of New York, County of New
York. The complaint asserted that the Company had, among other
things, allegedly breached a license by and among the Company,
L.C. Licensing, Inc. and L.C. Footwear, L.L.C. (the
Footwear License Agreement). The Company sent the
plaintiffs a notice of default under the Footwear License
Agreement on October 11, 2010. On December 22, 2010,
the Company moved to dismiss the complaint in its entirety. In
response, plaintiffs filed an amended complaint on
January 14, 2011.
The amended complaint asserts claims for breach of the Footwear
License Agreement and the implied covenant of good faith and
fair dealing therein, fraud, and brand dilution. Plaintiffs seek
both declaratory and injunctive relief, as well as damages of
not less than $125.0 million. The Companys response
to the amended complaint is due on February 17, 2011. The
Company believes the allegations in the amended complaint are
without merit and intends to file a motion to dismiss the
amended complaint in its entirety.
Additionally, on November 4, 2010, plaintiffs moved for a
preliminary injunction to enjoin the Company from:
(i) interfering with plaintiffs purported right to
sell merchandise bearing the LIZ CLAIBORNE family of trademarks;
(ii) selling (or permitting any third party from selling)
merchandise under the LIZ & CO. trademark; and
(iii) terminating the Footwear License Agreement.
Plaintiffs motion for a preliminary injunction is fully
briefed and oral argument was held before the court on
December 1, 2010. The Company awaits the courts
decision on plaintiffs motion for a preliminary
injunction, but believes that there are no grounds for a
preliminary injunction to be issued.
F-46
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is a party to several other pending legal
proceedings and claims. 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 Companys
financial position, results of operations, liquidity or cash
flows.
|
|
NOTE 21:
|
UNAUDITED
QUARTERLY RESULTS
|
Unaudited quarterly financial information for 2010 and 2009 is
set forth in the table below. Certain amounts related to the
first three quarters of 2010 and 2009 have been revised from
those previously reported in the Companys quarterly
reports on
Form 10-Q
in order to present 44 of the LIZ CLAIBORNE outlet stores in the
US and Puerto Rico and 53 LIZ CLAIBORNE concessions in Europe as
discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
In thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
597,347
|
|
|
$
|
758,790
|
|
|
$
|
554,652
|
|
|
$
|
654,323
|
|
|
$
|
644,327
|
|
|
$
|
746,332
|
|
|
$
|
703,746
|
|
|
$
|
756,474
|
|
Gross profit
|
|
|
277,005
|
|
|
|
340,286
|
|
|
|
274,379
|
|
|
|
310,748
|
|
|
|
331,247
|
|
|
|
338,202
|
|
|
|
355,890
|
|
|
|
363,089
|
|
Loss from continuing operations
|
|
|
(58,830
|
)(b)
|
|
|
(81,123
|
)(c)
|
|
|
(82,325
|
)(d)
|
|
|
(76,387
|
)(e)
|
|
|
(57,257
|
)(f)
|
|
|
(84,293
|
)(g)
|
|
|
(22,571
|
)(h)
|
|
|
(37,108
|
)(i)
|
Loss from discontinued operations, net of income taxes
|
|
|
(13,208
|
)
|
|
|
(10,625
|
)
|
|
|
(4,874
|
)
|
|
|
(5,733
|
)
|
|
|
(5,547
|
)
|
|
|
(6,419
|
)
|
|
|
(7,697
|
)
|
|
|
(4,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(72,038
|
)
|
|
|
(91,748
|
)
|
|
|
(87,199
|
)
|
|
|
(82,120
|
)
|
|
|
(62,804
|
)
|
|
|
(90,712
|
)
|
|
|
(30,268
|
)
|
|
|
(41,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Liz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claiborne, Inc.
|
|
$
|
(71,780
|
)
|
|
$
|
(91,379
|
)
|
|
$
|
(86,844
|
)
|
|
$
|
(82,106
|
)
|
|
$
|
(62,694
|
)
|
|
$
|
(90,541
|
)
|
|
$
|
(30,149
|
)
|
|
$
|
(41,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per
share:(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations attributable to Liz Claiborne, Inc.
|
|
$
|
(0.62
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
(0.81
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.39
|
)
|
Loss from discontinued operations
|
|
|
(0.14
|
)
|
|
|
(0.11
|
)
|
|
|
(0.05
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
(0.08
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Liz Claiborne, Inc.
|
|
$
|
(0.76
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(0.92
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Because the Company incurred a loss from continuing operations
in all periods presented, outstanding stock options, nonvested
shares and potentially dilutive shares issuable upon conversion
of the Convertible Notes are antidilutive for such periods.
Accordingly, basic and diluted weighted average shares
outstanding are equal for such periods. |
|
(b) |
|
Included pretax expenses related to streamlining initiatives of
$13.6 million. |
|
(c) |
|
Included pretax expenses related to streamlining initiatives of
$33.3 million and a non-cash impairment charge of
$1.9 million related to goodwill. |
|
(d) |
|
Included pretax expenses related to streamlining initiatives of
$31.5 million (excluding a non-cash impairment charge of
$0.4 million related to LIZ CLAIBORNE merchandising rights)
and non-cash impairment charges of $2.6 million related to
other intangible assets. |
|
(e) |
|
Included pretax expenses related to streamlining initiatives of
$13.8 million and a non-cash impairment charge of
$0.9 million related to goodwill. |
|
(f) |
|
Included pretax expenses related to streamlining initiatives of
$20.4 million. |
F-47
Liz
Claiborne, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(g) |
|
Included pretax expenses related to streamlining initiatives of
$26.5 million. |
|
(h) |
|
Included pretax expenses related to streamlining initiatives of
$15.3 million. |
|
(i) |
|
Included: (i) pretax expenses related to streamlining
initiatives of $85.4 million (excluding a non-cash
impairment charge of $4.5 million related to LIZ CLAIBORNE
merchandising rights); (ii) non-cash pretax impairment
charges of $14.2 million related to other intangible
assets; and (iii) a tax benefit of $103.2 million
primarily attributable to a Federal law change allowing for the
Companys 2008 or 2009 domestic losses to be carried back
for five years. |
|
|
NOTE 22:
|
SUBSEQUENT
EVENT
|
In the first quarter of 2011, the Company completed the closure
of the remaining LIZ CLAIBORNE branded outlet stores in the US
and Puerto Rico (see Note 2 Discontinued
Operations). A total of 22 store leases were assigned to third
parties, of which the Company remains secondarily liable for the
remaining obligations on 16 such leases. The future aggregate
payments under these leases amounted to $5.7 million and
extended to various dates through 2016.
F-48
Liz
Claiborne, Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged
|
|
|
|
|
|
|
|
|
Beginning
|
|
to Costs and
|
|
Charged to
|
|
|
|
Balance at
|
In thousands
|
|
of Period
|
|
Expenses
|
|
Other Accounts
|
|
Deductions
|
|
End of Period
|
|
YEAR ENDED JANUARY 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowance for doubtful accounts
|
|
$
|
25,575
|
|
|
$
|
8,046
|
|
|
$
|
|
|
|
$
|
17,054
|
(a)
|
|
$
|
16,567
|
|
Allowance for returns
|
|
|
23,773
|
|
|
|
123,914
|
|
|
|
|
|
|
|
130,469
|
|
|
|
17,218
|
|
Allowance for discounts
|
|
|
2,668
|
|
|
|
12,746
|
|
|
|
|
|
|
|
14,495
|
|
|
|
919
|
|
Deferred tax valuation allowance
|
|
|
351,730
|
|
|
|
101,125
|
|
|
|
|
|
|
|
|
|
|
|
452,855
|
|
YEAR ENDED JANUARY 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowance for doubtful accounts
|
|
$
|
16,925
|
|
|
$
|
20,299
|
|
|
$
|
|
|
|
$
|
11,649
|
(a)
|
|
$
|
25,575
|
|
Allowance for returns
|
|
|
32,951
|
|
|
|
154,452
|
|
|
|
|
|
|
|
163,630
|
|
|
|
23,773
|
|
Allowance for discounts
|
|
|
4,699
|
|
|
|
30,450
|
|
|
|
|
|
|
|
32,481
|
|
|
|
2,668
|
|
Deferred tax valuation allowance
|
|
|
253,102
|
|
|
|
98,628
|
|
|
|
|
|
|
|
|
|
|
|
351,730
|
|
YEAR ENDED JANUARY 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowance for doubtful accounts
|
|
$
|
6,074
|
|
|
$
|
14,340
|
|
|
$
|
|
|
|
$
|
3,489
|
(a)
|
|
$
|
16,925
|
|
Allowance for returns
|
|
|
50,288
|
|
|
|
205,187
|
|
|
|
|
|
|
|
222,524
|
|
|
|
32,951
|
|
Allowance for discounts
|
|
|
7,018
|
|
|
|
49,534
|
|
|
|
|
|
|
|
51,853
|
|
|
|
4,699
|
|
Deferred tax valuation allowance
|
|
|
8,322
|
|
|
|
244,780
|
|
|
|
|
|
|
|
|
|
|
|
253,102
|
|
|
|
|
(a) |
|
Uncollectible accounts written off, less recoveries. |
F-49