SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1994
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to .................
Commission file number: 0-9831
LIZ CLAIBORNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2842791
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1441 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
(212) 354-4900
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
The number of shares of Registrant's Common Stock, par value
$1.00 per share, outstanding at 8/11/94 was 78,311,834.
(2)
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of July 2, 1994
and December 25, 1993 ............................. 3
Consolidated Statements of Income for the Six
and Three Month Periods Ended July 2, 1994
and June 26, 1993 ................................. 4
Consolidated Statements of Cash Flows
for the Six Month Periods
Ended July 2, 1994 and June 26, 1993 .............. 5
Notes to Consolidated Financial Statements .......... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 10-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................... 14
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 6. Exhibits and Reports on Form 8-K.................... 15
SIGNATURE .................................................... 16
<PAGE>
<TABLE> (3)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
<CAPTION> (Unaudited)
July 2, December 25,
<S> ASSETS 1994 1993
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 79,621 $ 104,720
Marketable securities 234,838 204,571
Accounts receivable - trade 159,679 174,435
Inventories 383,469 436,593
Deferred income tax benefits 17,613 15,065
Other current assets 67,935 69,055
Total current assets 943,155 1,004,439
PROPERTY AND EQUIPMENT - NET 218,129 202,068
OTHER ASSETS 32,201 29,831
$1,193,485 $1,236,338
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 91,275 $ 141,126
Accrued expenses 94,797 97,765
Income taxes payable 10,454 15,547
Total current liabilities 196,526 254,438
LONG-TERM DEBT 1,283 1,334
DEFERRED INCOME TAXES 1,105 2,275
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 18,475 --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized shares - 50,000,000,
issued shares - none -- --
Common stock, $1 par value,
authorized shares - 250,000,000,
issued shares - 88,218,617 88,219 88,219
Capital in excess of par value 39,894 56,699
Retained earnings 1,145,754 1,123,413
Cumulative translation adjustment (1,660) (1,279)
1,272,207 1,267,052
Common stock in treasury, at cost
9,641,783 shares in 1994 and
9,371,217 shares in 1993 (296,111) (288,761)
Total stockholders' equity 976,096 978,291
$1,193,485 $1,236,338
The accompanying notes to consolidated financial statements are an integral
part of these statements.
/TABLE
<PAGE>
<TABLE> (4)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(All dollar amounts in thousands, except per common share data)
(Unaudited)
<CAPTION>
Six Months Ended Three Months Ended
(27 Weeks) (26 Weeks)
July 2, June 26, July 2, June 26,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $1,031,411$1,038,262 $490,043 $506,915
Cost of goods sold 674,881 666,350 321,133 326,784
GROSS PROFIT 356,530 371,912 168,910 180,131
Selling, general &
administrative expenses 293,537 267,974 146,594 135,522
OPERATING INCOME 62,993 103,938 22,316 44,609
Investment and other
income-net 5,739 8,794 2,879 4,085
INCOME BEFORE PROVISION FOR
INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 68,732 112,732 25,195 48,694
Provision for income taxes 25,400 40,600 9,300 17,600
INCOME BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 43,332 72,132 15,895 31,094
Cumulative effect of a
change in the method of
accounting for income
taxes -- 1,643 -- --
NET INCOME $ 43,332$ 73,775 $ 15,895 $ 31,094
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 78,834,31282,265,71678,816,99881,859,809
EARNINGS PER COMMON SHARE:
INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING
PRINCIPLE $0.55 $0.88 $0.20 $0.38
Cumulative effect of a change
in the method of accounting
for income taxes -- .02 -- --
NET INCOME $0.55 $0.90 $0.20 $0.38
DIVIDENDS PAID PER COMMON SHARE $0.23 $0.21 $0.11 $0.11
The accompanying notes to consolidated financial statements are an integral part of these
statements.
/TABLE
<PAGE>
<TABLE> (5)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
(27 Weeks) (26 Weeks)
July 2, June 26,
<S> 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net income $ 43,332 $ 73,775
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 17,053 16,412
Non-current deferred income taxes (1,170) (729)
Cumulative effect of a change in
accounting for income taxes -- (1,643)
Tax benefit on exercise of stock options 97 953
Change in current assets and liabilities:
Decrease in accounts receivable 14,756 8,852
Decrease in inventories 53,124 2,117
(Increase) in deferred
income tax benefits (846) (1,612)
Decrease (increase) in other current assets 1,120 (6,340)
(Decrease) in accounts payable (49,851) (58,550)
(Decrease) increase in accrued expenses (2,968) (10,693)
(Decrease) in income taxes payable (5,093) (13,163)
Net cash provided by
operating activities 69,554 9,379
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (97,402) (231,779)
Sales of investment instruments 63,021 257,011
Purchases of property and equipment (33,122) (32,132)
Purchase of trademarks (1,541) (641)
Other-net (1,238) 404
Net cash used in
investing activities (70,282) (7,137)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (51) (49)
Proceeds from exercise of common stock options 471 3,141
Dividends paid (17,740) (17,468)
Proceeds from sale of put warrants 1,572 1,188
Repurchase of common stock (8,231) (46,130)
Net cash used in
financing activities (23,979) (59,318)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (392) 269
NET CHANGE IN CASH AND CASH EQUIVALENTS (25,099) (56,807)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 104,720 130,721
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,621 $ 73,914
The accompanying notes to consolidated financial statements are an integral part of these
statements.
/TABLE
<PAGE>
(6)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included
herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted from this report,
as is permitted by such rules and regulations; however, the
Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested
that these condensed financial statements be read in
conjunction with the financial statements and the notes
thereto included in the Company's latest annual report.
2. In the opinion of management, the information furnished
reflects all adjustments, all of which are of a normal
recurring nature, necessary for a fair presentation of the
results for the reported interim periods. Certain items
previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with
the current year's classifications. Results of operations
for interim periods are not necessarily indicative of results
for the full year.
3. The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" as of the
beginning of fiscal 1994. In accordance with SFAS No.115,
prior period financial statements have not been restated to
reflect the change in accounting principle. The effect as of
December 26, 1993 of adopting SFAS No.115 was an increase in
the opening balance of stockholders' equity of $2,848,000
(net of $1,673,000 in deferred income taxes) to reflect the
net unrealized holding gains on securities classified as
available-for-sale previously carried at amortized cost.
This increase in stockholders' equity was included in
retained earnings.
<PAGE>
(7)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION> (Dollars in thousands)
Dec. 25,
July 2, 1994 1993
Gross Estimated
Unrealized Fair
<S> Cost Gains Losses Value Cost
Tax exempt notes <C> <C><C> <C> C>
and bonds $286,059 $171 $(2,025) $284,205 $278,033
U.S. & foreign
government securities 10,828 -- (868) 9,960 10,619
Collateralized mortgage
obligations 7,272 -- (1,392) 5,880 8,201
Total debt securities 304,159 171 (4,285) 300,045 296,853
Equity securities 2,528 -- (485) 2,043 5,000
$306,687 $171 $(4,770) $302,088 $301,853
</TABLE>
<TABLE>
<CAPTION> (Dollars in thousands)
July 2, 1994
Estimated
Fair
Cost Value
<S> <C> <C>
Due in one year or less $107,072 $105,853
Due after one year through
three years 155,264 153,977
Due after three years 41,823 40,215
304,159 300,046
Equity securities 2,528 2,043
$306,687 $302,088
</TABLE>
At July 2, 1994, the above investments include $65,208,000 of tax
exempt notes and bonds which are classified as cash and cash
equivalents and equity securities which are included in other long-
term assets in the consolidated balance sheets.
For the six month period ended July 2, 1994, gross realized gains
and (losses) on sales of available-for-sale securities totaled
$686,000 and ($9,000), respectively. The net adjustment to
unrealized holding gains and losses on available-for-sale
securities for the six month period was a charge of $5,745,000
which was included in retained earnings.
<PAGE>
(8)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Inventories are stated primarily at the lower of cost (first-
in, first-out) or market and consist of the following:
<TABLE>
<CAPTION> (Dollars in thousands)
July 2, December 25,
1994 1993
<S> <C> <C>
Raw materials $ 46,860 $ 56,560
Work-in-process 20,050 24,006
Finished goods 316,559 356,027
$383,469 $436,593
5. Property and equipment - net
(Dollars in thousands)
July 2, December 25,
1994 1993
Land and buildings $120,191 $ 67,049
Machinery and equipment 107,296 99,644
Furniture and fixtures 41,278 39,489
Leasehold improvements 107,171 99,802
Construction in progress -- 38,491
375,936 344,475
Less: Accumulated depreciation
and amortization 157,807 142,407
$218,129 $202,068
</TABLE>
6. In April and June 1994, in connection with its previously
announced stock repurchase program, the Company sold put
warrants in privately negotiated transactions based on the
then-current market price of the Common Stock. The warrants
obligate the Company to purchase a total of 800,000 shares of
its Common Stock in July, October and December 1994 on the
respective expiration dates. The proceeds of $1.6 million
from the sale of the put warrants have been recorded in
capital in excess of par value. The Company's potential $18.5
million obligation to buy back 800,000 shares of Common Stock
has been charged to capital in excess of par value and
recorded as Put Warrants. Subsequent to July 2, 1994 the
Company's potential obligation under these put warrants was
reduced to $13.5 million as a result of the Company's purchase
of 200,000 shares for approximately $5.0 million from a holder
of such warrants.
7. On July 14, 1994, the Company's Board of Directors declared a
quarterly cash dividend on the Company's Common Stock at the
rate of $.1125 per share, to be paid on September 6, 1994, to
stockholders of record at the close of business on August 12,
1994.
<PAGE>
(9)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. For the six months ended July 2, 1994 and June 26, 1993, the
Company made income tax payments of $32,196,000 and
$54,381,000, respectively. For the six months ended July 2,
1994 and June 26, 1993, the Company made interest payments of
$165,000 and $67,000, respectively. As of July 2, 1994, the
fair value adjustment for available-for-sale securities was a
charge of $2,897,000 (which reflects an unrealized loss net of
$1,702,000 in deferred income taxes) included in retained
earnings.
9. The Company adopted the provisions of SFAS No. 109 "Accounting
for Income Taxes" as of the beginning of fiscal 1993. SFAS
No. 109 requires a change from the deferred method to the
asset and liability method of accounting for income taxes.
The cumulative effect on prior years of this accounting change
is reflected in the consolidated statement of income for the
six months ended June 26, 1993 as a one-time increase in net
income of $1,643,000, or $.02 per share.
10. The Company enters into foreign exchange contracts to hedge
transactions denominated in foreign currencies for periods of
up to 18 months and to hedge expected payment of intercompany
transactions with its non-U.S. subsidiaries. Gains and losses
on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the
transaction is completed. As of July 2, 1994, the Company had
contracts maturing in 1994 and 1995 to purchase at contracted
forward rates 365,575,000 Spanish pesetas and 2,336,000 Dutch
guilders and to sell 16,000,000 Canadian dollars and
11,500,000 British sterling. The aggregate U.S. dollar value
of all foreign exchange contracts is approximately
$33,000,000, approximately $4,500,000 of which are for a
period in excess of one year. Unrealized gains/losses for
outstanding foreign exchange contracts were not material as of
July 2, 1994.<PAGE>
(10)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The period to prior year comparable period ("period-to-period")
decrease in net sales for the 1994 second quarter was 3.3%. This
included an approximate 15% decline in net sales of Misses and
Petite sportswear, to approximately $228 million, reflecting
significantly lower average unit selling prices required primarily
to liquidate excess prior season inventory. The net sales result
also reflected an approximate 15% decline in LIZ & CO. sales, to
approximately $18 million, due primarily to lower unit volume, with
lower average unit prices accounting for approximately one-third of
the decrease. The net sales declines were offset in part by the
continued roll-out of the products of the RUSS, THE VILLAGER and
CRAZY HORSE Divisions (collectively, the "Russ Divisions"), with
sales approximately doubling to approximately $24 million, as well
as increases in Menswear sales (an approximate 61% increase, to
approximately $21 million)and DANA BUCHMAN sales (an approximate
32% increase, to approximately $26 million). These increases
primarily reflected higher unit volume, although nearly half of the
Menswear increase was due to higher average unit selling prices due
to a higher proportion of regular price sales. In addition, sales
of the Company's FIRST ISSUE, LIZ CLAIBORNE and ELISABETH stores,
and international retail operations (collectively, the "retail
operations") increased approximately 30%, to approximately $35
million, due to the opening of new domestic retail stores (84 at
1994 second quarter end as compared with 61 at 1993 second quarter
end) and European retail leased departments. Net sales for the
second quarter have historically been lower than those of the first
quarter, reflecting seasonal fluctuations.
Net sales for the 1994 first half (27 weeks) were 0.7% lower than
those for the 1993 first half (26 weeks). The 1994 first quarter
included the shipment of certain Spring merchandise delayed from
fiscal 1993. The 1994 first half results included an approximate
9% decline in net sales of Misses and Petite sportswear, to
approximately $505 million, reflecting significantly lower average
unit selling prices required primarily to liquidate excess prior
season inventory. Contributing to the decrease were declines in
LIZ & CO. sales (down approximately 22%, to approximately $35
million) and Dresses/Suits sales (down approximately 7%, to
approximately $65 million), in each case due to lower unit volume.
The net sales declines were offset in part by the continued roll-
out of the products of the Russ Divisions, with sales approximately
doubling to approximately $52 million due to volume increases, as
well as increases in DANA BUCHMAN sales (an approximate 29%
increase, to approximately $52 million) due in substantially equal
parts to volume and price effects, and Menswear sales (an
approximate 23% increase, to approximately $42 million), with
approximately three-quarters of such increase due to a higher
proportion of regular price sales. In addition, sales of the
retail operations increased approximately 37%, to approximately $65
million, due to the same factors present in the quarter, and sales
of shoes increased approximately 20%, to approximately $35 million,
<PAGE>
(11)
RESULTS OF OPERATIONS (continued)
due to higher average unit selling prices resulting from a higher
proportion of regular price sales.
Gross profit dollars decreased on a period-to-period basis 4.1% for
the first half and 6.2% for the second quarter of 1994. The
quarterly decrease was due in substantially equal parts to the drop
in net sales levels and to margin erosion; the decrease for the
first half was due substantially to margin erosion. Gross profit
expressed as a percentage of net sales decreased to 34.6% for the
first half and 34.5% for the second quarter of 1994 from 35.8% and
35.5% for the comparable 1993 periods. These lower gross margin
percentages reflected margin erosion at several of the wholesale
apparel divisions, primarily the Misses and Petite sportswear group
and the ELISABETH and LIZ & CO. Divisions, principally due to a
lower proportion of regular price sales, primarily reflecting the
liquidation of excess prior year inventory. Also contributing to
the margin decreases were severely depressed margins within the
Russ Divisions (which are lower margin businesses) due to a very
low proportion of regular price sales; the higher proportion of the
Company's net sales represented by these Divisions also contributed
to the overall margin decreases. The margin decline for the first
half also reflected higher markdowns within the outlet operations.
The gross profit percentage declines were offset by improved
margins within the Menswear and Shoe Divisions, due in each case to
a higher proportion of regular price sales, as well as the ongoing
conversion of much of the Company's European business from a
wholesale to a leased department (retail) operation (which
generally experiences higher gross margins than a wholesale
operation). In addition, the gross profit percentages were
favorably impacted by the higher proportion of the Company's net
sales represented by the Accessories and Jewelry Divisions (each of
which generally experience higher gross margins than the wholesale
apparel divisions).
Legislation which would further restrict the importation and/or
increase the cost of textiles and apparel produced abroad has
periodically been introduced in Congress. Although it is unclear
whether any new legislation will be enacted into law, it appears
likely that various new legislative or executive initiatives will
be proposed. These initiatives may include a reevaluation of the
trading status of certain countries, including Most Favored Nation
("MFN"") treatment for the People's Republic of China ("PRC"),
which, if enacted, would increase the cost of products purchased
from suppliers in such countries. The PRC's MFN treatment was
renewed in July 1994 for an additional year. In light of the very
substantial portion of the Company's products which are
manufactured by foreign suppliers, the enactment of new legislation
or the administration of current international trade regulations,
or executive action affecting international textile agreements,
could adversely affect the Company's operations.
The period-to-period dollar increases in selling, general and
administrative ("SG&A") expenses were 9.5% and 8.2% for the first
half and second quarter of 1994, respectively. Approximately half
of these increases reflect the continued expansion of the Company's<PAGE>
(12)
RESULTS OF OPERATIONS (continued)
retail operations, including the opening of new domestic stores and
the conversion to retail of much of the Company's European
business. Also contributing to these increases were costs
associated with the VIVID fragrance (introduced in July 1993), as
well as expansion of the Russ and DANA BUCHMAN Divisions and outlet
operations. SG&A expenses expressed as a percentage of net sales
were 28.5% and 25.8% for the first six months and 29.9% and 26.7%
for the second quarter, respectively, of 1994 and 1993. These
percentage increases reflect the above factors, as well as the fact
that dollar expenses increased on an overall basis, notwithstanding
the decline in sales levels. Although certain wholesale apparel
divisions reduced their period-to-period SG&A levels, their
percentage decrease in sales outpaced their percentage decrease in
expense levels.
The period-to-period decreases in investment and other income-net
were due to lower rates of return realized on the Company's
portfolio, as well as decreases in the Company's average portfolio
of cash equivalents and marketable securities, reflecting in part
the Company's stock repurchase program.
As a result of the factors described above, on a period-to-period
basis, the Company's income before provision for income taxes and
cumulative effect of a change in accounting principle declined
39.0% for the first half and 48.3% for the second quarter of 1994.
The provisions for income taxes decreased on a period-to-period
basis, reflecting the changes in pre-tax income, offset in part by
an increase in tax rates. Net income decreased 41.3% for the first
half and 48.9% for the second quarter of 1994.
The Company adopted the Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes" and changed its
method of accounting for income taxes as of the beginning of fiscal
1993. The cumulative effect on prior years of this accounting
change is reflected in the consolidated statement of income for the
six months ended June 26, 1993 as a one-time increase in net income
of $1.6 million, or $.02 per share. Management believes that the
$17.6 million deferred tax benefit will be fully realized through
future taxable income and reversals of existing deferred tax
liabilities of $1.1 million.
The earnings per common share computations reflect a lower number
of outstanding shares on a period-to-period basis, as a result of
the Company's stock repurchase program.
The Company's results of operations reflect the difficult tone of
business, as well as the Company's having cut back on forward
merchandise commitments in an effort to limit exposure to
significant end-of-season excess inventory positions. The Company
continues to view 1994 as a year in which it has begun a far-
reaching process of rebuilding and restructuring, and has initiated
a number of programs and is exploring a variety of initiatives and
projects which it believes hold it in good stead in the future.
While the Company believes that apparel gross margins should see
improvement from current levels, weakness in demand for the
Company's offerings within the continuing difficult retail
environment could impair any such improvement.<PAGE>
(13)
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operations increased to $69.6 million through
July 2, 1994, from $9.4 million through June 26, 1993, primarily
because of a larger reduction in the level of inventory from year
end ($51.0 million) and smaller reductions in eurrent liabilities
($24.5 million), offset in part by lower net income ($30.4
million). Net cash used by investing activities increased to $70.3
million in 1994 from $7.1 million in 1993, due primarily to a $34.4
million increase in the Company's portfolio of marketable
securities in 1994 as compared to a $25.2 million decrease in 1993.
Net cash used in financing activities decreased to $24.0 million in
1994 from $59.3 million in 1993, reflecting a $37.9 million
reduction in the amount expended in the Company's stock repurchase
program. On April 21, 1994, the Company's Board of Directors
authorized an additional $50 million under the previously announced
stock repurchase program. As of August 11, 1994, the Company had
expended or committed to expend approximately $375 million of the
$400 million authorized under the program, covering an aggregate of
12,882,000 shares.
Inventories at July 2, 1994 were $383.5 million, down from $436.6
million at year end 1993, and approximately equal to the $383.8
million at June 26, 1993. On a period-to-period basis, the
inventory levels reflected decreases within the wholesale apparel
and shoe operations, offset in part by incremental inventories
resulting from the expansion of the outlet operations and the Russ
Divisions. Virtually all of the Company's excess inventory
manufactured in 1993 was disposed of as of the end of the second
quarter. The existence of such excess inventory, which takes
additional time to liquidate, has a negative impact on the
Company's inventory turnover rate.
The Company's anticipated capital expenditures for 1994 currently
approximate $75 million. These expenditures consist primarily of
certain building and equipment expenditures, including expansions
of and improvements to the Company's North Bergen, New Jersey
office facility, as well as a distribution facility in Montgomery,
Alabama, leasehold improvements of new stores and leased
departments for the Company's retail operations, and the upgrading
of data processing systems. These expenditures will be financed
through available capital and future earnings. Increased working
capital needs will be met by current funds. Bank lines of credit,
which are available to finance import transactions and direct
borrowings, were decreased by the Company from $295 million to $280
million subsequent to July 2, 1994 to reduce excess lines. The
Company expects to be able to adjust these lines as required.
<PAGE>
(14)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain of its officers and directors are parties
to several pending legal proceedings and claims, including an
action styled Ressler et al. vs. Liz Claiborne, Inc., et al.
pending in the United States District Court for the Eastern
District of New York. The plaintiffs seek compensatory damages on
behalf of a class of purchasers of the Company's Common Stock
during the period commencing September 1992 through and including
July 16, 1993, and allege that the defendants violated the federal
securities laws by, among other things, making misrepresentations
or omissions of material facts that artificially inflated the
market price of the Common Stock during the class period. An
earlier-filed lawsuit before the same court as Ressler, styled
Fishbaum vs. Chazen, et. al., made allegations similar to the
Ressler complaint and sought damages on behalf of a class of
purchasers of the Company's Common Stock for the period commencing
March 30, 1993, through and including July 16, 1993. An amended
complaint was filed in the Ressler action in May 1994 to add
Fishbaum as a plantiff. In June 1994, the Court granted the
Company's motion to dismiss the Fishbaum complaint, with leave to
amend, on the grounds that the complaint did not adequately set
forth the requisite element of scienter. In July 1994, the Company
moved to dismiss the Ressler complaint.
In April 1994, two stockholder derivative actions, which contain
substantially similar allegations, styled Goldberg Family Trust vs.
Chazen, et al. and Liz Claiborne, Inc., nominal defendant and Laz
Schneider vs. Chazen, et al. and Liz Claiborne, Inc., nominal
defendant, were brought in the Court of Chancery of the State of
Delaware against the Company's directors and its former Vice
Chairman. The complaints contain allegations of breach by the
directors of their fiduciary obligations to the Company and its
shareholders and corporate mismanagement, waste of corporate assets
in connection with the Company's stock repurchase program and the
defense of pending legal proceedings, and unjust enrichment in
connection with the sale of shares of the Company's Common Stock
between September 1992 and July 1993 by certain of its present and
former officers and directors. In July 1994, the Laz Schneider
action was consolidated into the Goldberg action. In August 1994,
the defendants moved to dismiss the consolidated complaint.
The Company believes that the litigations described in this
Item are without merit and intends to vigorously defend these
actions. Although the outcome of any such litigation or claim
cannot be determined with certainty, management is of the opinion
that the final outcome of these litigations should not have a
material adverse effect on the Company's results of operations or
financial position.
(15)
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1994 Annual Meeting of Stockholders held on
May 12, 1994 (the "1994 Annual Meeting"), the stockholders of the
Company (i) approved the Company's Section 162(m) Cash Bonus Plan
(the number of affirmative votes cast was 67,470,336, the number of
negative votes cast was 2,863,504, and the number of abstentions
was 1,082,378) and (ii) ratified the appointment of Arthur Andersen
& Co. as independent public accountants of the Company for the
fiscal year ending December 31, 1994 (the number of affirmative
votes cast was 70,453,515, the number of negative votes cast was
767,325 and the number of abstentions was 195,378). In addition,
at the 1994 Annual Meeting, the Company's stockholders elected the
following nominees to the Company's Board of Directors:
Votes
Nominee For Withheld
Harvey L. Falk 69,207,434 2,208,784
Ann M. Fudge 69,230,939 2,185,279
J. James Gordon 69,242,783 2,173,435
Louis Lowenstein 69,394,611 2,021,607
There were no broker nonvotes with respect to any matter acted upon
at the 1994 Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Amendment No. 5 to the Liz Claiborne Savings Plan.
10(b) Trust Agreement, dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company.
(b) The Company did not file any reports on Form 8-K in the
quarter.
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
LIZ CLAIBORNE, INC.
DATE: August 15, 1994 BY /s/Samuel M. Miller
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting
Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10(a) Amendment No. 5 to the Liz Claiborne Savings Plan.
10(b) Trust Agreement, dated as of July 1, 1994 between Liz
Claiborne, Inc. and IDS Trust Company.
AMENDMENT NO. 5 Exhibit No. 10(a)
TO THE
LIZ CLAIBORNE SAVINGS PLAN
(As Amended and Restated Effective January 1, 1987)
The Liz Claiborne Savings Plan as amended (the "Plan") is
hereby further amended in the following respects, pursuant to the
provisions of Section 13.2 thereof, effective as of July 1, 1994,
except as otherwise specified:
I. Section 1.4 is amended in its entirety to read as follows:
1.4 Appropriate Form. The form prescribed by the Com-
mittee or the Recordkeeper for a particular purpose
specified in the Plan. Except with respect to a Member's
initial authorization to reduce his Compensation pursuant
to Section 3.1.1, his designation of Beneficiary, or
spousal consent pursuant to Section 16.2.5, such form may
consist of electronic or voice communication as specified
by the Recordkeeper, in which case the Recordkeeper shall
provide the Member a written confirmation of the election
made. The Committee and Recordkeeper shall prescribe the
conditions for use of the Appropriate Form.
II. Section 1.12 is amended effective January 1, 1994, by
restating the second sentence thereof to read as follows:
For years beginning on or after January 1, 1989, the
total amount of a Member's Compensation taken into
account under the Plan for any Plan Year shall not exceed
two hundred thousand dollars ($200,000) (one hundred
fifty thousand dollars ($150,000) on or after January 1,
1994), as adjusted from time to time in accordance with
section 401(a)(17) of the Code.
III.Sections 1.29 through 1.39 are renumbered 1.30 through 1.40 and
all references are changed accordingly, and a new Section 1.29 is
added to read as follows:
1.29 Recordkeeper. Effective July 1, 1994, IDS Trust
Company, or any other entity appointed by the Committee
to perform certain aspects of the administration of the
Plan in accordance with the terms of the Plan and
pursuant to a written agreement entered into by the
Company and such entity.
IV. Section 1.36 is amended, effective January 1, 1994, by
restating the third sentence thereof to read as follows:
Effective January 1, 1989, Total Earnings taken into
account under the Plan for any Plan Year shall not exceed
two hundred thousand dollars ($200,000) (one hundred
fifty thousand dollars ($150,000) on or after January 1,
1994), as adjusted from time to time in accordance with
section 401(a)(17) of the Code.
V. Section 1.40 is amended by adding three sentences to the end
thereof to read as follows:
Effective July 1, 1994 (or such later date determined by
the Committee), each business day. For this purpose, a
business day is any day on which the New York Stock Ex-
change is open.
VI. Section 2.2.1 is amended by adding the following sentence to
the end thereof to read as follows:
Notwithstanding the foregoing, during the period July 1,
1994 through September 15, 1994, or such other period of
time as shall be determined by the Recordkeeper and ap-
proved by the Committee, an Eligible Employee may not be-
come a Member except as provided under Sections 2.3 or
2.4.
VII.Section 2.4 is amended in its entirety, effective as of January
1, 1987, to read as follows:
2.4 Reemployment. If a Member or other employee who has
terminated employment shall be rehired as an Eligible
Employee, he shall be eligible to commence or resume his
participation under the Plan on the later of (a) the date
of such rehire or (b) the first Entry Date on which he
could have become a Member if his prior employment by the
Employer or Affiliate had been in a position eligible for
participation in the Plan.
VIII.Section 3.1.2 is amended by adding a sentence to the end
thereof to read as follows: "Effective July 1, 1994, such amounts
shall be credited as soon as administratively practicable after
such Valuation Date."
IX. Section 3.1.3 is amended in its entirety to read as follows:
3.1.3 Change in Tax-Saver Contribution Rate. A Member who has a
Participation Agreement in effect may increase or decrease the
amount of Tax-Saver Contributions thereunder, within the
limits specified in Section 3.1.1, effective as of any Entry
Date (the first day of any payroll period on and after July 1,
1994), by giving notice on the Appropriate Form at least thir-
ty (30) days before such date or within such other period of
time as the Committee may prescribe. Notwithstanding the
foregoing sentence, during the period July 1, 1994 through
September 15, 1994, or such other period of time as shall be
determined by the Recordkeeper and approved by the Committee,
a Member may not increase or decrease the amount of his Tax-
Saver Contributions.
X. Section 3.1.4 is amended by restating the first sentence
thereof to read as follows:
A Member may voluntarily suspend his Participation
Agreement effective as of the first day of any month (as
of the first day of any payroll period on or after
September 15, 1994), or such other date determined by the
Committee, by giving notice on the Appropriate Form at
least thirty (30) days before such date or within such
other period as the Committee may prescribe.
and by restating the third sentence to read as follows:
An Eligible Employee may reinstate his Participation
Agreement as of any Entry Date at least three (3) months
after the date on which his Participation Agreement was
suspended and, effective July 1, 1994, as of the first
day of any payroll period, by giving notice on the
Appropriate Form at least thirty (30) days before such
Entry Date (or within such other period as the Committee
may prescribe).
and by adding one sentence to the end thereof to read as follows:
Notwithstanding the foregoing provisions of this Section
3.1.4, during the period July 1, 1994 through September
15, 1994, or such other period of time as shall be deter-
mined by the Recordkeeper and approved by the Committee,
a Member may not voluntarily suspend his Participation
Agreement or reinstate such Participation Agreement.
XI. Section 3.2.2 is amended in its entirety to read as follows:
3.2.2 Payment. Matching Contributions with respect to a
calendar quarter (payroll period beginning on or after
July 1, 1994) shall be paid to the Trustee during or as
soon as reasonably practicable after the end of such
period. Such Matching Contributions (and forfeitures
allocable in lieu thereof) shall be credited as of the
last day of the calendar quarter or such other Valuation
Date as the Committee shall direct, for which made to
each Member's Matching Contributions Account.
XII.Section 3.10 is amended by adding the phrase, "(10% on or after
July 1, 1994)" immediately after "(in increments of 25%, 50%, 75%
and 100% thereof)" in the fourth sentence thereof.
XIII.Section 4.2 is amended by adding a sentence after the first
sentence thereof to read: "On and after July 1, 1994, such
Investment Funds shall include a fund invested in the common stock
of the Company."
XIV.Section 4.3 is amended by adding the phrase, "(Valuation Date
on or after July 1, 1994)" immediately after "Entry Date" each time
it appears thereof; and by adding "prior to July 1, 1994"
immediately after "provided, that" in the first sentence thereof;
and by adding a new Subsection 4.3.1 thereof to read as follows:
4.3.1 Automatic Transfer of June 30, 1994 Account Bal-
ance. Effective July 1, 1994, all funds invested in the
Money Market Fund and the Equity Fund as of June 30,
1994, shall be transferred to such Investment Fund or
Funds as the Committee may direct.
XV.Section 4.4 is amended by adding "(in 10% increments on or after
July 1, 1994)" immediately after "100% thereof" in the first
sentence thereof; and by adding, "(Valuation Date on or after July
1, 1994)" immediately after "Entry Date" in the third sentence
thereof; and by replacing "Money Market Fund" in the fourth
sentence thereof with, "such Investment Fund as the Committee may
direct".
XVI.Section 4.5 is amended by replacing the phrase, "For purposes
of the preceding sentence" in the second sentence thereof with
"Prior to July 1, 1994"; and by adding the sentence, "On or after
July 1, 1994, the "Investment Adjustment" for each such Investment
Fund shall be determined using the unit accounting method described
under Section 4.8 or such other generally accepted method of
accounting as may be approved by the Committee" to the end thereof.
XVII.Section 4.7.2 is amended in its entirety to read as follows:
4.7.2 Allocation of Matching Contributions and
Forfeitures. A Member's Matching Contributions (and for-
feitures in lieu thereof) for any calendar quarter (pay-
roll period on or after July 1, 1994) shall be credited
to his Matching Contributions Account as of the last day
of that calendar quarter or as of such other Valuation
Date as the Committee may specify.
XVIII.Section 4.12.3 is amended by restating it in its entirety to
read as follows:
4.12.3 Voting and Tendering of Company Stock. A Member
shall be allowed to direct the vote of shares of Company
stock credited to his Account balances invested in the
Company Stock Fund and to direct the disposition of such
shares in a tender or exchange offer by filing with the
Trustee confidential instructions on a form which will be
provided by the Trustee (effective July 1, 1994, by
filing with the Company's transfer agent or such
individual or entity selected by the Committee (the
"Transfer Agent") confidential instructions on a form
which will be provided by the Transfer Agent). The
Transfer Agent shall tabulate such instructions from the
Members and advise the Trustee as to how such shares for
which the Transfer Agent has received instructions should
be voted, tendered or exchanged. The directing Member,
and not the Trustee, or, effective July 1, 1994, the
Transfer Agent, shall be the named fiduciary under ERISA
in connection with any such direction provided by the
Member. Prior to July 1, 1994, shares of Company stock
as to which no instructions from the Member are received
by the Trustee shall be voted, tendered or exchanged, as
the case may be, by the Trustee in its sole discretion
taking into account the purposes of the Plan. Effective
July 1, 1994, shares of Company stock as to which no in-
structions from the Member are received by the Transfer
Agent shall be voted by the Trustee in proportion to the
instructions received from Members (as tabulated by the
Transfer Agent) for shares credited to their Accounts.
Effective July 1, 1994, the Trustee shall not tender or
exchange shares in a tender or exchange offer for which
no instructions are received by the Transfer Agent. The
Trustee shall hold the instructions so received in
strictest confidence and shall not divulge or release
such instructions to any person, including officers or
employees of the Company or any affiliates of the Compa-
ny. The Committee shall establish such procedures as it
deems appropriate to safeguard the confidentiality of any
transaction or instruction regarding Company stock held
by the Plan and shall monitor compliance with such proce-
dures. The Committee may appoint an independent fidu-
ciary to carry out activities relating to the exercise by
Members of their voting and tender rights hereunder.
XIX.Section 5.4.1 is amended by adding the phrase, "(effective July
1, 1994, as of the earlier of (a) the Entry Date coincident with or
next following his Termination of Employment and (b) as soon as
administratively practicable after the distribution to the Member
pursuant to Section 8.1 is processed by the Recordkeeper)" to the
end of the first sentence thereof; and by adding the phrase, "(ef-
fective July 1, 1994, or as soon as administratively practicable
thereafter)" immediately following "the date of his reemployment"
in the third sentence thereof.
XX. Section 7.3.1 is amended by restating the first two sentences
thereof to read as follows:
A withdrawal request under Section 7.2 shall be made by
filing the Appropriate Form within such time as the
Committee may prescribe. The withdrawal shall be effec-
tive as of the first day of the calendar quarter which
begins after the Appropriate Form is filed (on or after
July 1, 1994, as of the Valuation Date on which the
Recordkeeper processes the withdrawal).
XXI.Section 7.3.3 is amended by adding a sentence to the end
thereof to read as follows:
Notwithstanding the preceding provisions of this Section
7.3, during the period July 1, 1994 through September 15,
1994, or such other period of time as shall be determined
by the Recordkeeper and approved by the Committee, no
withdrawals shall be made from a Member's Accounts.
XXII.Section 8.2 is amended by adding the phrase, "(effective July
1, 1994, as of the Valuation Date immediately prior to the date the
Recordkeeper processes the distribution)" to the end thereof.
XXIII.Section 9.1 is amended by adding "(effective July 1, 1994, as
of any Valuation Date") after" the end of any calendar quarter" in
part (b) of Option II; and by adding the following sentence to the
end thereof to read as follows:
Notwithstanding the foregoing provisions of this Section
9.1, no distributions shall be made during the period
July 1, 1994 through September 15, 1994, or such other
period of time as shall be determined by the Record-
keeper and approved by the Committee.
and by adding "annual" immediately before "installments" in Option
III thereof.
XXIV.Section 9.11.2 is amended by adding the following sentence to
the end thereof to read as follows:
Notwithstanding the foregoing provisions of this Section
9.11.2, during the period July 1, 1994 through September
15, 1994, or such other period of time as shall be deter-
mined by the Recordkeeper and approved by the Committee,
the Plan shall not make any distributions pursuant to a
qualified domestic relations order.
XXV.Section 12.8.1 is amended by restating it in its entirety to
read as follows:
12.8.1 Named Fiduciaries. The named fiduciaries under
the Plan shall be (a) the Administrative Committee, which
shall have authority to control and manage the operation
and administration of the Plan, except with respect to
those matters under which the Plan or the Trust Agreement
are the responsibility, or subject to the authority, of
the Investment Committee, and (b) the Investment
Committee, which shall be the named fiduciary with re-
spect to control or management of the assets of the Plan
to the extent such control is not exercised by a Member
and (c) a Member to the extent such Member has directed
the investment of his Accounts pursuant to Sections 4.3,
4.4 and 4.12.3.
XXVI.Article 12 is amended by adding a new Section 12.14 thereof to
read as follows:
12.14 Recordkeeper. The Committee may appoint a
recordkeeper to perform such administrative functions as
the Committee may determine from time to time, including
the processing of loans, withdrawals and distributions,
Member changes in the amount of Tax-Saver Contributions,
and Member changes of investment funds, under the terms
of the Plan.
XXVII.Section 16.1 is amended by restating the first five sentences
in their entirety thereof to read as follows:
Upon the application of a Member who is a "party in
interest" with respect to the Plan (within the meaning of
Section 3(14) of ERISA), the Committee or its delegate
(the "Loan Administrator", or, effective July 1, 1994,
the Recordkeeper), shall instruct the Trustee to make a
loan to such Member from his Accounts provided that such
loan meets the requirements of Section 16.2. Prior to
July 1, 1994, a Member shall not be permitted to obtain
a loan more than once within a twelve month period. A
Member shall not have more than one loan outstanding at
any time (three loans on or after July 1, 1994). The
loan request, which shall specify the use to be made of
the loan proceeds, shall be made on the Appropriate Form
to the Loan Administrator (the Recordkeeper on or after
July 1, 1994). The Loan Administrator (Recordkeeper on
or after July 1, 1994) shall notify such Member in
writing within a reasonable period of time of the
approval or denial under the terms of the Plan of such
loan request, and such notification shall be final.
XXVIII.Section 16.2.1 is amended by adding the phrase, "prior to
July 1, 1994", immediately prior to "increments" in the first sen-
tence thereof.
XXIX.Section 16.2.4 is amended by adding the phrase, "or, effective
July 1, 1994, such other Valuation Date as the Committee may
direct" to the end of the last sentence thereof.
XXX.Section 16.2.5 is amended by adding the phrase, "(or the Re-
cordkeeper on or after July 1, 1994)" after "Loan Administrator" in
the first sentence thereof.
XXXI.Section 16.3 is amended by restating it in its entirety to
read as follows:
16.3 Valuation. The value of that portion of a Member's
Accounts to be borrowed pursuant to Section 16.2 shall be
determined as of the Valuation Date immediately prior to
the date on which the loan request is received by the
Loan Administrator (or, if the Loan Administrator shall
so direct, any other Valuation Date prior to the
distribution of funds) (effective July 1, 1994, as of the
Valuation Date immediately prior to the date the loan
distribution is processed by the Recordkeeper).
XXXII.Section 16.5 is amended by adding the phrase, "(Recordkeeper
on or after July 1, 1994)" to the end thereof.
XXXIII.Section 16.6 is amended by restating the last sentence
thereof to read as follows:
If a Member shall fail to give timely and complete
instructions as to the allocation among Investment Funds,
the payment of principal and interest shall be invested
in the Money Market Fund (effective July 1, 1994, in such
Investment Fund or Funds as the Committee may direct).
XXXIV.Section 16.7 is amended by adding the phrase, "(or the
Recordkeeper on or after July 1, 1994)" immediately after "Loan
Administrator" in the first sentence thereof.
XXXV.Section 16.10 is amended by adding the phrase, "(Recordkeeper
on or after July 1, 1994)" immediately after "Loan Administrator"
in the first sentence thereof.
XXXVI.Section 16.11 is amended by adding the phrase, "Prior to July
1, 1994," to the beginning thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer, the 30th day of June,
1994.
LIZ CLAIBORNE INC.
By: /s/ Jerome A. Chazen
Title: Chairman
ATTEST:
/s/ Roberta S. Karp
Exhibit No. 10(b)
TRUST AGREEMENT, hereinafter referred to as the "Agreement",
made as of July 1, 1994, by and between Liz Claiborne, Inc.,
hereinafter referred to as the "Company", a corporation, having its
principal place of business in New York, New York, and IDS Trust
Company, hereinafter referred to as the "Trustee", a Minnesota
corporation, having its principal place of business in Minneapolis,
Minnesota.
W I T N E S S E T H:
WHEREAS, the Company has heretofore adopted the Liz Claiborne
Savings Plan, as from time to time in effect (hereinafter referred
to as the "Plan"), which provides for the establishment of a trust
intended to be part of the Plan and to be exempt from tax pursuant
to Section 501(a) of the Code, and into which the Company shall pay
the contributions as provided in the Plan; and
WHEREAS, the Trustee has consented to act as Trustee of such
trust (the "Trust"), effective July 1, 1994.
WHEREAS, the Company has appointed a Committee to direct,
manage and administer the Plan and the Committee has appointed a
Recordkeeper to perform such administrative functions as the
Committee may determine from time to time, including the processing
of contribution elections, distributions, loans, investment elec-
tions and Beneficiary designations under the terms of the Plan; and
NOW, THEREFORE, the Company and the Trustee agree as follows:
Section 1. Establishment of Trust Fund. The Company hereby
establishes with the Trustee, pursuant to the Plan and as a part
thereof, a Trust consisting of such sums of money and such property
acceptable to the Trustee as shall from time to time be paid or
delivered to the Trustee, and the earnings and profits thereon,
less the payments which shall have been made by the Trustee, to the
extent authorized herein. Such assets shall be referred to herein
as the Fund. The Fund shall be held by the Trustee in trust and
dealt with in accordance with the provisions of this Agreement and,
to the extent that the Fund is invested in collective funds
maintained pursuant to the "1993 Amended and Restated Declaration
of Trust - IDS Trust Collective Funds for Employee Benefit Trusts",
as amended from time to time (hereinafter referred to as the
"Declaration of Trust"), the terms of such Declaration of Trust to
the extent not inconsistent herewith. Said Declaration of Trust is
hereby made a part of this Agreement. At no time shall any part of
the corpus or income of the Fund be used for or diverted to
purposes other than for the exclusive benefit of Members of the
Plan and their beneficiaries. Capitalized terms shall have the
meaning prescribed in the Plan unless otherwise defined herein.
Section 2. Duties of Trustee. It shall be the duty of the
Trustee (a) to hold, to invest and to reinvest the Fund as the
Committee may direct (including pursuant to the directions of each
Member, or Beneficiary, provided to the Recordkeeper directly by
such Member, in which case the Member shall be a named fiduciary of
the Plan with respect to the control and management of the portion
of the Fund over which he may exercise such investment discretion),
and (b) to make payments and distributions in cash or in shares of
common stock of the Company from the Fund as the Committee may
direct, including when the Committee, or the Recordkeeper to the
extent authorized by the Committee, shall so direct, payments to
the Members or their beneficiaries under the Plan. Such directions
need not specify the purpose of the payments so directed and the
Trustee shall not be responsible in any way respecting the purpose
of such payments or for the administration of the Plan. The
Trustee shall be under no duty to enforce payment of any contri-
bution and shall not be responsible for the adequacy of the Fund to
meet and discharge any liabilities under the Plan.
Voting of Company Stock. Before each annual or special
meeting of the stockholders of the Company, or in connection with
a tender or exchange offer for common stock of the Company, the
Trustee shall inform the transfer agent of the Company or such
individual or entity as may be selected by the Committee
(hereinafter referred to as the "Transfer Agent") as to which
Members for whose account the Trustee holds shares of stock of Liz
Claiborne, Inc. or any successor thereof by merger, consolidation
or otherwise. The Transfer Agent shall then furnish to each such
Member a copy of the solicitation material in connection with such
meeting or tender or exchange offer, as the case may be, which
material shall include a document which the Member can use to
indicate confidential instructions as to how the stock allocated to
the Member's account is to be voted, in the case of a meeting, or
disposed of, in the case of a transfer or exchange offer. The
Transfer Agent shall tabulate such instructions from the Members of
the Plan and advise the Trustee as to how such shares for which the
Transfer Agent has received instructions should be voted, tendered
or exchanged. The directing Member, and not the Trustee or the
Transfer Agent, shall be the named fiduciary under ERISA in connec-
tion with any such direction provided by the Member. Upon receipt
of such instruction from the Transfer Agent, the Trustee shall vote
or tender or exchange the stock, as the case may be, as instructed.
Shares of common stock of the Company as to which no instructions
from the Member are received by the Transfer Agent shall be voted
by the Trustee in proportion to the instructions received from
Members (as tabulated by the Transfer Agent) for shares credited
to their accounts under the Plan. The Trustee shall not tender or
exchange shares of the Company's common stock in a tender or ex-
change offer for which no instructions are received from the
Transfer Agent. The Trustee shall hold the instructions so
received in strictest confidence and shall not divulge or release
such instructions to any person, including officers or employees of
the Company or any affiliates of the Company.
Section 3. Standards; Prudent Person Rule. The Trustee
shall, in discharging its duties, act solely in the interests of
the Members and Beneficiaries of the Plan. It will act exclusively
for the purpose of providing benefits to Members and Beneficiaries
and for defraying the reasonable expenses of the Plan. The Trustee
shall carry out its duties with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and
with like aims; and by acting in accordance with the provisions of
this Agreement to the extent that the provisions hereof are
consistent with the provisions of ERISA.
Section 4. Investment of Trust Fund. The Committee shall
direct the investment of the Fund assets or shall appoint an
Investment Manager(s) (as defined in Section 3(38) of ERISA) to
direct the investment of all or a portion of the Fund assets.
(a) The Trustee shall, having regard for the cash require-
ments of the Plan as stated to it by the Committee (or the
Recordkeeper to the extent authorized by the Committee) from time
to time, invest and reinvest the principal and income of the Fund
and keep the Fund invested, without distinction between principal
and income, as directed by the Committee or the Investment Manager,
in any and all common shares, preferred shares, common trust funds
of the Trustee, variable notes, bonds, savings accounts, certifi-
cates of deposit, notes, debentures, options, mortgages, equipment
trust certificates, and in such other property, real or personal,
investments and securities of any kind, class or character as the
Committee may deem suitable for the Fund; provided, however, that
unless otherwise directed by the Committee, the Trustee, in
accordance with the Pooled Company Stock Services Agreement for the
Liz Claiborne Company Stock Fund, shall determine the times and
prices at which and the quantities in which all acquisitions and
dispositions of Company stock shall be made and shall select the
brokers and dealers through and from which all such transactions
shall be executed. The Trustee may keep such portion of the Fund
in cash or cash balances as the Committee shall from time to time
specify is necessary to meet the Committee's directions or, to the
extent authorized by the Committee, the Recordkeeper's directions,
of the payments of moneys from the Fund;
(b) The Trustee is specifically authorized and empowered to invest
and reinvest, as directed by the Committee or the Members, all or
any part of the cash and other property held hereunder in such
common or collective or pooled or commingled investment fund
selected by the Committee (or the Member) established by IDS Trust
Company under the Declaration of Trust or in mutual funds
established by IDS Trust Company or its affiliates (provided such
transaction does not constitute a prohibited transaction under
ERISA for which no exemption exists).
Section 5. Powers of the Trustee. (a) In addition to all
other powers and authorities elsewhere in this Agreement
specifically granted to the Trustee, the Trustee shall have the
following powers and authority, to be exercised in its sole
discretion:
(i)To keep any or all securities or other property in the name
of a nominee with or without power of attorney for a transfer
or in its own name without disclosing its fiduciary capacity,
or in bearer or book entry form; provided, however, that the
books and records of the Trustee shall at all times show that
all such investments are part of the Fund;
(ii) To make, execute, acknowledge and deliver any and all
instruments deemed necessary or appropriate to carry out the
powers herein granted;
(iii) To employ suitable agents, including, but not limited
to, auditors, actuaries, accountants, and legal and other
counsel, and to pay, with the consent of the Committee, their
reasonable expenses and reasonable compensation for services
to the Trust from the Fund; and
(iv) To settle securities trades through a securities
depository that utilizes an institutional delivery system, in
which event the Trustee may deliver or receive securities in
accordance with appropriate trade reports or statements given
to the Trustee by such depository.
(b) The Trustee shall exercise the following powers upon the
direction of the Committee or an Investment Manager designated by
the Committee:
(i) To invest and reinvest Fund assets in common stocks, preferred
stocks, bonds, notes, debentures, mortgages, insurance policies,
commercial paper, individual or group annuity contracts, fixed
income contracts, fixed time deposits, money market instruments,
mutual funds, collective investment funds, pooled investment funds,
common investment funds, commingled investment funds or other in-
vestments including investments offered by the Trustee or its
affiliates;
(ii) To invest and reinvest in stocks and other securities
issued by the Company or any subsidiary or affiliate thereof;
provided that any such investment shall conform with the
requirements of ERISA;
(iii) To exercise any or all conversion and subscription
rights with respect to properties held in the Fund;
(iv) To hold cash uninvested and unproductive of income or
deposit same with any banking or savings institution, including its
own banking department or the banking department of an affiliate;
(v)To invest Fund assets in loans to Members of the Plan, as
directed by the Committee or the Recordkeeper to the extent
authorized by the Committee;
(vi) To compromise, accept or otherwise settle any claim by
or against the Fund or disputed liabilities due to or from the
Trustee with respect to the Fund, including any claim that may be
asserted for taxes under present or future laws, or to enforce or
contest the same by appropriate legal proceedings; and
(vii) To deliver or cause to be executed and delivered, to the
Committee or the designated Investment Manager, all notices,
prospectuses, finance statements, proxies and proxy soliciting
materials relating to investments held hereunder. Except for those
Fund assets for which IDS Trust Company is the Investment Manager
and for common stock of the Company pursuant to Section 2, the
Trustee shall vote any proxy or tender offer election, participate
in any voting trust, exercise any options or subscription right or
join in, dissent from or oppose any merger, reorganization,
consolidation, liquidation or sale with respect to any asset held
hereunder only in accordance with the timely written instructions
of the Committee. If no such written instructions are received,
such proxies, elections and voting trust votes shall not be voted;
such options or subscription rights shall not be exercised; and
such mergers, reorganizations, consolidations, liquidations or
sales shall not be joined, dissented from or opposed.
The Company may assign to the Members the right to vote proxies or
exercise other rights of ownership with respect to any asset held
hereunder. To the extent the right to vote or other incidents of
ownership are vested in whole or in part in the Members, the
Trustee shall act in this regard only in accordance with the timely
written instructions received from the Members. For this purpose,
each Member shall act as the Named Fiduciary, as defined in ERISA,
in providing direction to the Trustee.
(c)Upon the direction of the Committee, the Trustee shall
exercise the power to borrow money for purposes of this Trust upon
such terms and conditions as appropriate, and to obligate the Fund
for repayment.
Section 6. Prohibited Transactions. Except as provided in
Section 408 of ERISA, the Trustee shall not cause the Plan and the
Trust to engage in a transaction if it knows that such a
transaction is a "prohibited transaction" under Section 406 of
ERISA for which there is no exemption.
Section 7. Trustee Compensation, Taxes and Expenses. All
brokerage costs and transfer taxes incurred in connection with the
investment and reinvestment of the Fund, all reasonable expenses
(other than fees for legal services rendered to the Trustee)
incurred in connection with the acquisition or holding of real or
personal property, any interest therein or mortgage thereon, and
all income taxes or other taxes of any kind whatsoever which may be
levied or assessed under existing or future laws upon or in respect
of the Fund, shall be paid from the Fund, and, until paid, shall
constitute a charge upon the Fund. All other reasonable admin-
istration expenses incurred by the Trustee in the performance of
its duties including reasonable fees for legal services rendered to
the Trustee, such compensation to the Trustee as may be agreed upon
from time to time between the Company and the Trustee and evidenced
by a writing signed by an officer of the Company, and all other
proper charges and disbursements of the Trustee shall be paid by
the Fund unless paid by the Company.
Section 8. Accounting. (a) The Trustee shall keep accu-
rate and detailed accounts of all investments, receipts and
disbursements, and all such accounts and books and records relating
thereto shall be open to inspection and audit at all reasonable
times by any person designated by the Committee. Within a
reasonable time following the close of a Plan Year, and within a
reasonable time following the resignation or removal of the Trustee
as provided for in Section 11, and within a reasonable time
following the completion of the application or distribution of the
Fund upon termination of the Plan as provided in Section 12 of this
Agreement, the Trustee shall file with the Committee a written
account setting forth all investments, receipts and disbursements
effected by it during such year or during the period from the
closing date of such resignation or removal to the date of such
completion of application or distribution of funds and certified as
to the accuracy of the information set forth therein. Each such
account shall set forth in summary form the receipts and dis-
bursements of the Trustee for the period accounted for and shall
include a description of all securities and property purchased and
sold during the period accounted for and the cost or proceeds of
sale thereof, and shall show all cash, securities and other
property held at the end of such period, and the cost and then
market value of each item thereof. Each account shall be open to
inspection during business hours by the Company or the Committee,
or any person designated by the Company or Committee, for a
reasonable period of time following the date on which the account
is filed with the Company or the Committee. The written approval
by the Company or the Committee of any account filed by the Trustee
with the Company or the Committee shall forever release and
discharge the Trustee from any liability or accountability to
anyone as respects the propriety of its acts or transactions shown
in such account, with the exception of acts or transactions as to
which the Company or Committee shall have filed written objections
with the Trustee or of liabilities provided by ERISA or by provi-
sion of other applicable law.
(b)The Trustee shall submit to the Committee monthly a
statement of cash receipts and disbursements and a list of the
assets held in the Fund. The Committee and the Company shall
fulfill any reporting and disclosure obligations related to the
Fund which are imposed on the Committee and the Company by ERISA or
by any other similar state or federal law.
(c)Nothing herein contained shall be construed as depriving
the Trustee of the right to have a judicial settlement of its
accounts. Upon any proceedings by the Trustee for a judicial
settlement of its accounts or for instructions, the only necessary
parties hereto in addition to the Trustee shall be the Company and
the Committee. None of the Members and other beneficiaries
referred to in the Plan, or the Recordkeeper shall have any right
to compel accounting, judicial or otherwise, by the Trustee.
Section 9. Bonding. The Trustee and each member of the
Committee and every person who handles funds or other property of
the Plan shall be bonded in the manner and to the extent required
by the provisions of Section 412 of ERISA.
Section 10. Reliance by Trustee. (a) All requests,
directions, requisitions for moneys, certifications and
instructions by the Committee, or the Recordkeeper to the extent
authorized by the Committee, to the Trustee, subject to the
provisions of the Plan and this Agreement, shall be in writing and
shall be signed by a member of such Committee, or by such person
appointed by the Committee, as may be designated from time to time
by such Committee, or by the Recordkeeper, and the Trustee shall
act and shall be fully protected in acting in accordance with such
requests, directions, requisitions, certifications and instruc-
tions. The Company shall promptly furnish to the Trustee from time
to time certificates of an officer of the Company evidencing the
appointment and termination of office of the members of the
Committee and the Committee shall likewise furnish certificates
evidencing designation of any other person or persons authorized to
act on behalf of the Committee, together with specimens of their
signatures, and for all purposes hereunder the Trustee shall be
conclusively entitled to rely upon the identity and authority of
the Chairman and Secretary and members constituting the Committee
and of such other person or persons as disclosed by the most
current of such certificates received by the Trustee.
(b)It shall be the duty of the Trustee to act strictly in
accordance with the directions of the Committee and the directions
of the Recordkeeper to the extent authorized by the Committee, as
provided in the Plan and in this Agreement. The Trustee shall be
under no duty to question any direction of the Committee to the
extent permitted by law. The Trustee shall not be liable for any
loss of any kind which may result by reason of any action taken by
the Trustee in accordance with any direction of the Committee or
any direction of the Recordkeeper authorized by the Committee or by
reason of the Trustee's failure to exercise any of such powers
because of the failure of the Committee to give the required direc-
tion. The responsibility and liability of the Trustee for all
actions taken in good faith and in accordance with the provisions
hereunder shall be governed solely by the terms of this Agreement,
and no implied covenant or obligation shall be read into this
Agreement against the Trustee.
(c)If a dispute arises as to who is entitled to or should
receive any distribution from the Fund, the Trustee may withhold,
or cause the withholding of, such distribution until the dispute
has been resolved. In the event that any distribution ordered by
the Committee or the Recordkeeper shall be mailed by the Trustee by
registered mail, directed to the person specified in such order at
the latest address of such person filed with the Committee or the
Recordkeeper, and shall be returned to the Trustee because such
person cannot be located at such address, the Trustee shall
promptly notify the Committee of such return. Upon the expiration
of sixty (60) days after such notification such order shall become
void, and unless and until a further order of the Committee is
received by the Trustee with respect to such distribution, the
Trust shall thereafter continue to administer the Fund as if such
order had not been made by the Committee.
Section 11. Resignation or Removal. The Trustee may be
removed by the Board of Directors of the Company at any time upon
60 days' notice in writing to the Trustee (or such shorter period
of notice as the Trustee and the Company shall agree to in
writing). The Trustee may resign at any time upon 60 days' notice
in writing to the Company (or such shorter period of notice as the
Trustee and the Company shall agree to in writing). In the event
of such removal or resignation of the Trustee, the Committee shall
designate one or more successor trustees to act hereunder on and
after the effective date of such removal or resignation. Such
successor trustee or trustees, as the case may be, shall have the
same powers and duties as those herein conferred upon the Trustee.
Upon acceptance of such appointment by the successor trustee, the
Trustee shall assign, transfer and pay over to such successor
trustee the fund and properties then constituting the Fund.
Section 12. Amendment and Termination. The Company reserves
the right, at any time and from time to time, by instrument in
writing executed pursuant to authorization by its Board of
Directors, or by the Committee pursuant to section 13.3 of the
Plan, (a) to modify or amend in whole or in part any or all of the
provisions of the Plan or the Trust herein created or (b) to
terminate the Plan or the Trust herein created; provided, however,
that (1) no modification or amendment which affects the rights,
duties or responsibilities of the Trustee may be made without the
Trustee's consent; (2) that no termination, modification, or
amendment may permit, at any time, any part of the Fund to be used
for or diverted to purposes other than for the benefit of the
Members and other Beneficiaries referred to in the Plan; and (3)
that no reduction in credits to a Member may occur as a result of
such termination, modification or amendment. In the event of
termination of the Plan, the Trustee shall, subject to the
foregoing, apply or distribute the Fund in accordance with the
instructions of the Company, provided such instructions are in
accordance with the provisions of ERISA. If within a reasonable
time after receipt of notice of such termination the Trustee shall
not have received written instructions from the Company with
respect to such application or distribution of the Fund, the
Trustee may, in its discretion, (A) proceed to apply or distribute
such Fund in accordance with the Plan; or (B) seek instructions
from a court of competent jurisdiction.
Section 13. Segregation of Fund at Company's Discretion.
The Committee may at any time direct the Trustee to segregate and
set apart a portion of the Fund as a separate trust fund for the
exclusive benefit of any Member or group of Members and their
Beneficiaries to be held under a separate agreement of trust
substantially identical with this Agreement. In such event the
selection of the particular assets so to be segregated shall be
made by the Committee and the Trustee shall segregate such assets
in accordance with the written order of the Committee.
Section 14. Alienation of Benefits. Except as may be other-
wise required by law, no benefit, distribution or payment under the
Plan may be anticipated, assigned (either at law or in equity) or
subject to attachment, garnishment, levy, execution or other legal
or equitable process.
Section 15. Succession. Subject to Section 22, the Plan and
the Trust herein created shall be binding upon, and the powers
herein granted to the Company and the Trustee, respectively, shall
be exercisable by the respective successors and assigns of the
Company and the Trustee.
Section 16. Acceptance of Trust. The Trustee hereby accepts
this Trust and agrees to hold all the cash, securities and other
properties now or hereafter constituting the Fund hereunder subject
to all the terms and conditions of this Agreement.
Section 17. Indemnification for Following Direction. The
Company will indemnify and hold harmless the Trustee from all loss
or liability (including reasonable expenses and reasonable
attorneys' fees) to which the Trustee is subject by reason of any
acts taken in good faith in accordance with proper directions or
instructions from the Company or Committee, or acts omitted in good
faith due to absence of directions from the Company or Committee,
unless such loss or liability is due to the Trustee's negligence or
willful misconduct. The Trustee is entitled to collect on the
indemnity provided by this Section 17 only from the Company, and is
not entitled to any direct or indirect indemnity payment from
assets of the Fund. This Section 17 shall survive the termination
of this Trust until such time as the final account of the Trustee
shall have been approved in accordance with Section 8(a).
Section 18. Limitation of Liability of Trustee.
(a)The Company hereby agrees to hold the Trustee harmless from
and against all taxes, reasonable expenses (including reasonable
counsel fees), liabilities, claims, damages, actions, suits or
other charges incurred by the Trustee as a result of any act or
omission of a predecessor trustee.
(b)The Trustee is not responsible for determining the adequacy
of the Fund to meet liabilities under the Plan, and is not liable
for any obligations of the Plan or the Fund in excess of the assets
of the Fund.
Section 19. Undertaking for Costs. The Trustee shall not be
required to expend or risk its own funds or otherwise incur
financial liability in the performance of its duties hereunder, or
in the exercises of any of its rights or powers as Trustee. In the
event that the Trustee must commence or defend any action,
administrative, judicial or otherwise on behalf of the Plan or
Trust, the Trustee may retain professionals including legal or
financial advisors to represent the Trustee in its capacity as
professionals including legal or financial advisors to represent
the Trustee in its capacity as Trustee hereunder. In the event the
Company does not pay for the reasonable costs to retain such
professionals within ninety (90) days after becoming due, such
reasonable costs may be withdrawn from the Fund.
Section 20. Necessary Parties to Legal Actions. Except as
required by Section 502(h) of ERISA, only the Company, the
Committee and the Trustee will be considered necessary parties in
a legal action or proceeding with respect to the Fund, and no
Member, Beneficiary or other person having an interest in the Fund
will be entitled to notice. Any judgment entered on any such
action or proceeding will be binding on all persons claiming under
the Fund. Nothing in this Section is intended to preclude a Member
or Beneficiary from enforcing his legal rights.
Section 21. Receipt of Contributions. The Trustee shall
receive and hold as part of the Fund such assets of the Plan as may
be transferred to it from time to time and any contributions to the
Plan made to the Fund from time to time. The Trustee shall not be
required to determine that any contributions are in compliance with
the Plan and shall be accountable only for the funds actually
received by it. In the case of assets transferred from another
trustee, the Trustee shall not be responsible for any actions or
inaction of such trustee.
Section 22. Assignment by Trustee. No assignment (as
defined in the Investment Advisors Act of 1940) of this Trust shall
be made by the Trustee without the written consent of the Board of
Directors of the Company; provided, however, that the Trustee may
assign this Trust to the parent company of the Trustee or to a
wholly-owned subsidiary of such parent company if such company is
organized and chartered as a trust company and if the Trustee first
gives the Company forty-five (45) days advance notice of such
assignment and the Company does not object in writing within such
forty-five day period.
Section 23. Governing Law. This Agreement will be construed
and governed in all respects in accordance with applicable federal
law, and, to the extent not preempted by such federal law, in
accordance with the laws of the State of Minnesota.
Section 24. Headings. The headings of Sections in this
Agreement are included solely for convenience of reference, and if
there be any conflict between such headings and the text hereof,
the text shall control.
Section 25. Counterparts. This Agreement may be executed in
one or more counterparts, all of which taken together shall be
deemed one original.<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized and their corporate seals to be hereunto affixed
and attested as of the day and year first above-written.
Liz Claiborne, Inc.
ATTEST:
BY: Jerome A. Chazen
Roberta S. Karp
IDS Trust Company
ATTEST:
BY:Darryl G. Horsman
Cheri J. Capistrant
