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 September 28, 1996 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 November 8, 1996 was 71,431,661.
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NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 28, 1996 and
December 30, 1995 ........................................... 3
Consolidated Statements of Income for the Nine and Three Month Periods
Ended September 28, 1996 and September 30, 1995 ............. 4
Consolidated Statements of Cash Flows for the Nine Month Periods
Ended September 28, 1996 and September 30, 1995 ............. 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 ................................................ 13-14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
SIGNATURE ..................................................................... 15
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(3)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
(Unaudited)
September 28, December 30,
ASSETS 1996 1995
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CURRENT ASSETS:
Cash and cash equivalents $ 93,438 $ 54,722
Marketable securities 219,072 383,128
Accounts receivable - trade 312,059 126,053
Inventories 337,844 393,363
Deferred income tax benefits 32,368 30,235
Other current assets 74,785 77,710
Total current assets 1,069,566 1,065,211
PROPERTY AND EQUIPMENT - NET 226,852 239,467
OTHER ASSETS 19,635 24,565
$ 1,316,053 $ 1,329,243
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 104,564 $ 138,800
Accrued expenses 155,333 155,449
Income taxes payable 20,221 12,648
Total current liabilities 280,118 306,897
LONG-TERM DEBT 1,030 1,115
DEFERRED INCOME TAXES 6,922 7,722
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 41,431 25,283
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 22,332 35,075
Retained earnings 1,344,936 1,255,325
Cumulative translation adjustment (1,406) (1,256)
1,454,081 1,377,363
Common stock in treasury, at cost, 16,897,283 shares in 1996 and
14,526,922 shares in 1995 (467,529) (389,137)
Total stockholders' equity 986,552 988,226
$ 1,316,053 $ 1,329,243
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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(4)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per common share data)
(Unaudited)
Nine Months Ended Three Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
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NET SALES $ 1,679,255 $ 1,584,497 $ 622,102 $ 582,572
Cost of goods sold 1,021,289 987,417 367,982 354,257
GROSS PROFIT 657,966 597,080 254,120 228,315
Selling, general & administrative expenses 484,953 457,818 167,665 154,529
OPERATING INCOME 173,013 139,262 86,455 73,786
Investment and other income-net 10,666 10,010 3,468 3,879
INCOME BEFORE PROVISION
FOR INCOME TAXES 183,679 149,272 89,923 77,665
Provision for income taxes 68,900 56,000 33,700 29,500
NET INCOME $ 114,779 $ 93,272 $ 56,223 $ 48,165
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 72,743 75,301 71,710 74,923
EARNINGS PER COMMON SHARE $1.58 $1.24 $0.78 $0.64
DIVIDENDS PAID PER COMMON SHARE $0.34 $0.34 $0.11 $0.11
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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(5)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
Nine Months Ended
September 28, September 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 114,779 $ 93,272
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 26,645 29,846
Other - net 3,096 366
Change in current assets and liabilities:
(Increase) in accounts receivable (186,006) (86,448)
Decrease in inventories 55,519 41,172
(Increase) decrease in deferred
income tax benefits (1,291) 3,573
Decrease in other current assets 2,925 3,224
(Decrease) in accounts payable (34,237) (34,804)
(Decrease) increase in accrued expenses (116) 4,315
Increase in income taxes payable 7,573 2,467
Net cash (used in) provided by operating activities (11,113) 56,983
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (260,885) (211,645)
Sales of investment instruments 422,971 211,377
Purchases of property and equipment (15,410) (28,393)
Cash proceeds from sale of certain Shoe Division assets 17,872
Other - net 6,282 (2,680)
Net cash provided by (used in) investing activities 152,958 (13,469)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (85) (79)
Proceeds from exercise of common stock options 7,452 35
Proceeds from sale of put warrants 2,231 3,618
Dividends paid (24,339) (25,352)
Repurchase of common stock (88,238) (47,785)
Net cash used in financing activities (102,979) (69,563)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (150) 137
NET CHANGE IN CASH AND CASH EQUIVALENTS 38,716 (25,912)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54,722 71,419
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,438 $ 45,507
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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(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
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. Results of operations for interim periods are not necessarily
indicative of results for the full year.
3. On September 4, 1996, the Company announced that it had reached an
agreement in principle to acquire for an undisclosed cash purchase
price the Dooney & Bourke Companies, a leading manufacturer and
marketer of handbags, soft luggage, belts and a wide variety of related
leather goods. The transaction is subject to formal Board approval, the
execution of a definitive acquisition agreement and receipt of any
required consents and approvals. There can be no assurances as to
whether or when a transaction with the Dooney & Bourke Companies will
be consummated.
4. Effective June 30, 1995, the Company entered into an agreement with a
third party to operate under license the shoe business formerly
operated by the Company's Shoe Division. As part of the transaction,
the Company received $18.0 million in cash, plus other consideration
valued at $4.9 million, in exchange for inventory and other assets. The
Shoe Division had net sales of $39 million during the first half of
1995. The operating results of the shoe business for that period were
not material to the Company's overall operating results.
5. In December 1994, the Company recorded a $30.0 million restructuring
charge. The amount included $16.8 million related to the phase out of its First
Issue business, $10.2 million for the streamlining of operating and
administrative functions and $3.0 million for the restructuring of its Moderate
Division. Principal items included in the charge are estimated contract
termination costs, severance and related benefits for staff reductions, losses
on contracts and write-offs of certain assets. This charge reduced net income by
$18.9 million, or $.24 per common share, in the fourth quarter of 1994. The
remaining balance of the restructuring charge as of September 28, 1996 was $3.0
million. Of the $27.0 million expended for restructuring costs, $12.3 million
was related to severance costs, $8.5 million to losses on contracts and
write-offs of certain assets, and $6.2 million to other miscellaneous costs.
Virtually all of the remaining liabilities should be paid or settled during
1996. First Issue accounted for $43.6 million of net sales in the first three
quarters of 1995 and incurred an operating loss of $9.8 million. The 26 First
Issue locations remaining at December 30, 1995 were converted to other
Company-operated retail formats or closed during the first quarter of 1996.
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(7)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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6. The following are summaries of available-for-sale securities:
(Dollars in thousands)
September 28, 1996
Gross Estimated
Unrealized Fair
Cost Gains (Losses) Value
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Tax exempt notes and bonds $ 260,965 $ 285 $ (290) $ 260,960
U.S. & foreign government securities 37,600 36 (373) 37,263
Collateralized mortgage obligations 7,114 (604) 6,510
Total debt securities 305,679 321 (1,267) 304,733
Equity securities 1,721 -- (188) 1,533
$ 307,400 $ 321 $ (1,455) $ 306,266
(Dollars in thousands)
December 30,1995
Gross Estimated
Unrealized Fair
Cost Gains (Losses) Value
Tax exempt notes and bonds $ 409,763 $ 1,285 $ (86) $ 410,962
U.S. & foreign government securities 12,124 187 (129) 12,182
Collateralized mortgage obligations 7,118 -- (231) 6,887
Total debt securities 429,005 1,472 (446) 430,031
Equity securities 1,721 -- -- 1,721
$ 430,726 $ 1,472 $ (446) $ 431,752
(Dollars in thousands)
September 28, 1996
Estimated
Fair
Cost Value
Due in one year or less $ 137,874 $ 137,313
Due after one year through three years 162,451 162,478
Due after three years 5,354 4,942
305,679 304,733
Equity securities 1,721 1,533
$ 307,400 $ 306,266
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At September 28, 1996, and December 30, 1995, the above investments
included $85,661,000 and $46,903,000, respectively, 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 nine month period ended September 28, 1996, gross realized
gains and (losses) on sales of available-for-sale securities totaled
$1,795,000 and ($255,000), respectively. For the nine month period
ended September 30, 1995, gross realized gains and (losses) on sales of
available-for-sale securities totaled $536,000 and ($116,000),
respectively. The net adjustment to unrealized holding gains and losses
on available-for-sale securities for the nine month periods ended
September 28, 1996 and September 30, 1995, was a charge of $1,319,000
(net of $841,000 in deferred income taxes) and a credit of $3,211,000
(net of $2,058,000 in deferred income taxes), respectively, which were
included in retained earnings. As of September 28, 1996 and December
30, 1995, the fair value adjustment for available-for-sale securities
was a charge of $709,000 (net of $425,000 in deferred income taxes) and
a credit of $610,000 (net of $416,000 in deferred income taxes),
respectively, which were included in retained earnings.
7. Inventories are stated at the lower of cost (first-in, first-out for
wholesale operations and retail method for retail and outlet
operations) or market and consist of the following:
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(Dollars in thousands)
September 28, December 30,
1996 1995
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Raw materials $ 37,756 $ 41,972
Work-in-process 27,423 17,018
Finished goods 272,665 334,373
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$337,844 $393,363
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8. Property and equipment - net
(Dollars in thousands)
September 28, December 30,
1996 1995
----- ----
Land and buildings $124,067 $124,195
Machinery and equipment 144,732 137,847
Furniture and fixtures 54,847 52,848
Leasehold improvements 126,116 127,422
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449,762 442,312
Less: Accumulated depreciation
and amortization 222,910 202,845
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$226,852 $239,467
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(9)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. In 1996, in connection with its previously announced stock repurchase
program, the Company sold new and terminated previously outstanding put warrants
in privately negotiated transactions based on the then-current market price of
the Common Stock. The new warrants, if exercised, will require the Company to
purchase up to a total of 1,000,000 shares of its Common Stock in September and
December 1996 and March and April 1997 on the respective expiration dates of the
warrants. The proceeds of $2.2 million from the sale of put warrants have been
credited to capital in excess of par value. In 1996, warrants on 500,000 shares
of common stock expired unexercised and contracts on 250,000 shares expiring in
September and October 1996 were terminated. The Company's potential $41.4
million obligation to buy back 1,250,000 shares of Common Stock has been charged
to capital in excess of par value and recorded as Put Warrants. Subsequent to
September 28, 1996, warrants on 250,000 shares of common stock expired
unexercised, decreasing the Company's potential obligation to buy back Common
Stock to $32.6 million.
10. On October 30, 1996, the Company's Board of Directors declared a
quarterly cash dividend on the Company's Common Stock at the rate of
$0.1125 per share, to be paid on December 2, 1996 to stockholders of
record at the close of business on November 11, 1996.
11. For the nine months ended September 28, 1996 and September 30, 1995,
the Company made income tax payments of $63,211,000 and $49,809,000,
respectively. For the nine months ended September 28, 1996 and
September 30, 1995, the Company made interest payments of $157,000 and
$459,000, respectively.
12. The Company enters into foreign exchange contracts to hedge
transactions denominated in foreign currencies for periods of up to 12 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 September 28, 1996, the Company had contracts
maturing in 1996 to sell 14,000,000 Canadian dollars and 1,000,000 British
pounds sterling. The aggregate U.S. dollar value of all foreign exchange
contracts is approximately $11,898,000. Unrealized gains and losses for
outstanding foreign exchange contracts were not material at September 28, 1996.
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On a period to prior year comparable period ("period-to-period") basis, net
sales for the third quarter of 1996 increased $40 million, or 7%, and net sales
for the nine months of 1996 increased $95 million, or 6%. These results
reflected increased net sales of women's sportswear and Dana Buchman product, as
well as increased net sales of the outlet operations, partially offset by lower
net sales of dresses. New apparel product lines introduced during 1996 (Liz &
Co. petites, and dana b. & karen, the casual career offering of the Dana Buchman
Division) accounted for $13 million of third quarter, and $32 million of the
nine month, net sales; the third quarter also included $19 million of net sales
from the introduction of CURVE for women and CURVE for men, the Company's latest
fragrances (initially shipped in July, 1996), offsetting the continuing decline
in net sales of the Company's ongoing fragrance products. The Liz Claiborne shoe
business was licensed to a third party as of June 30, 1995; this business
accounted for $39 million of 1995 net sales prior to the license. On a
period-to-period basis, approximately 18% of the third quarter net sales
increase, and 21% of the nine month net sales increase, was attributable to the
previously announced change in trade terms (from 10% to 8%, the prevailing
standard in the industry), effective as of January 1, 1996. As a result of this
change, the net sales of the Company's misses and petite sportswear (including
Liz & Co.), Dress, and Elisabeth Divisions increased by approximately 2% over
the results they would have reported without the change, with corresponding
dollar increases in gross margin and selling, general and administrative
("SG&A") expenses. The third quarter typically represents the Company's highest
sales quarter in each year, reflecting normal seasonal fluctuations.
The Company has realigned its better women's sportswear product lines into the
Casual Unit (consisting of misses Lizsport, Lizwear and Liz & Co. product); the
Collection Division (consisting of misses Collection and Studio (casual
careerwear) product); and the Special Sizes Unit (consisting of Elisabeth
sportswear and dresses, and petite Lizsport, Collection, Lizwear, Liz & Co. and
Studio product). As previously announced, the Company's new Special Markets Unit
includes the operations of its former Moderate Division, with responsibility for
sales of women's sportswear products under the repositioned Russ, Villager and
First Issue brands, as well as under the new "upper-moderate" Emma James brand.
The 1996 third quarter increase in women's sportswear net sales reflected a 15%
increase in the sales of the Special Sizes Unit, to $120 million, due to a
significant increase in unit volume, with 45% of the increase due to the Liz &
Co. petite line, notwithstanding lower net sales of petite Collection product.
These increases were partially offset by a 5% decrease in the sales of the
Collection Division, to $60 million, reflecting a decrease in average unit
selling prices and lower unit volume, notwithstanding the inclusion of the
expanded Studio line. The decline in sales of misses and petite Collection
product reflected lower average unit prices and lower unit volume, due to
weakness in demand. Sales of the Dana Buchman Division increased 44%, to $62
million, due to higher unit volume, with approximately 35% of the increase due
to the dana b. & karen line. Net sales of the outlet operations increased 23%,
to $56 million, reflecting new store openings (82 at 1996 third quarter end as
compared with 75 at 1995 third quarter end) and improved store productivity. The
net sales increase in the third quarter was moderated by a 21% decrease in dress
sales, to $30 million, due in equal parts to lower unit volume and lower average
unit selling prices, reflecting weakness in demand.
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The 1996 nine month increase in women's sportswear net sales reflected a 9%
increase in the sales of the Casual Unit, to $464 million, primarily reflecting
higher average unit selling prices; a 20% increase in the sales of the Special
Sizes Unit, to $326 million, due to the same factors (described above) that
influenced the third quarter period-to-period increase, as well as the
additional product required by the Company's new Elisabeth stores (61 at 1996
third quarter end compared with 40 at 1995 third quarter end); and a 5% increase
in the sales of the Collection Division, to $172 million, reflecting higher unit
volume due to the inclusion of the expanded Studio line, partially offset by
lower unit volume of misses Collection product due to weakness in demand. Sales
of the Dana Buchman Division increased 46%, to $150 million, due to higher unit
volume, with approximately 35% of the net sales increase due to the dana b. &
karen line. Net sales of the outlet operations increased 24%, to $137 million,
reflecting new store openings and improved store productivity. The net sales
increase for the nine months was moderated by a 7% decrease in dress sales, to
$94 million, reflecting lower average unit selling prices due to a lower
proportion of regular price sales.
Gross profit margins increased on a period-to-period basis to 40.8% from 39.2%
in the third quarter, and to 39.2% from 37.7% for the nine months, of 1996.
Gross profit dollars increased on a period-to-period basis by 11.3% in the third
quarter, and 10.2% for the nine months, of 1996. Approximately one-third of the
third quarter improvement and half of the nine month improvement in gross margin
percentage was due to the change in trade terms referred to above. The gross
profit results also reflected higher initial gross margins due in part to an
improved air/vessel ratio. Overall margins were favorably impacted by the larger
percentage of sales represented by the Dana Buchman Division in the quarter and
nine month period, and by the Cosmetics Division in the third quarter (both of
which are generally higher margin businesses). The improvements in gross margin
percentage were moderated by lower margins within the Company's domestic retail
store operations, as well as lower margins realized on dress sales; the third
quarter gross margin improvement was also moderated by lower margins within the
Special Markets Unit, principally reflecting the repositioning of existing
brands.
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") and/or retaliatory duties,
quotas or other trade sanctions, which, if enacted, would increase the cost of
products purchased from suppliers in such countries. The PRC's MFN treatment was
renewed in July 1996 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.
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(12)
The period-to-period dollar increases in SG&A expenses were $13 million, or
8.5%, and $27 million, or 5.9%, for the third quarter and nine months of 1996,
respectively. SG&A expenses expressed as a percentage of net sales were 27.0%
and 26.5% for the third quarter of 1996 and 1995, respectively, and 28.9% for
the nine months of 1996 and 1995. The dollar increases principally reflect the
introduction of the new CURVE fragrance and continued expansion of the Company's
brand enhancing activities (including a national advertising campaign and
in-store service and presentation program, the costs of which are being funded
primarily through the redeployment of funds generated as a result of the change
in trade terms). Additional expenses associated with the expansion of the
Company's Dana Buchman Division and outlet operations also contributed to the
SG&A increases. The Company's former shoe business accounted for approximately
$7 million of 1995 direct expenses prior to the license of such business to a
third party.
The period-to-period changes in investment and other income-net for the third
quarter and nine months reflected period-to-period increases in earnings on the
Company's investment portfolio, offset by changes in various other income and
expense items.
As a result of the factors described above, the Company's income before
provision for income taxes increased on a period-to-period basis to 16% for the
third quarter and 23% for the nine months of 1996. These results included
continuing operating losses within the Special Markets Unit and (viewed on a
stand-alone basis) the Company's retail operations. The provisions for income
taxes reflected the changes in pre-tax income and an increase in the effective
tax rate in the third quarter of 1995; as a result, net income increased 17% for
the third quarter and 23% for the nine months of 1996.
The earnings per common share computation reflected a lower number of
outstanding shares on a period-to-period basis as a result of the Company's
stock repurchase program.
The retail environment remains intensely competitive and highly promotional, and
the tone of business continues to be challenging. Prospects for the upcoming
retail holiday selling season remain uncertain. The Company is continuing the
process of implementing a comprehensive business transformation effort which
includes process reengineering and profit improvement programs, and is
progressing towards a number of previously announced three-year goals for this
initiative. Management believes that ongoing product improvements as well as the
Company's stepped up marketing activities will continue to enhance customer and
consumer response to its product offerings, resulting in period-to-period growth
in sales and earnings in the fourth quarter of 1996, although any such growth
will be moderated by continuing losses within certain divisions. As part of its
ongoing strategic review process, the Company continues to evaluate certain
business operations .
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Net cash used in operating activities was $11 million through September 28,
1996, compared to net cash provided by operating activities of $57 million
through September 30, 1995, primarily reflecting an increase in accounts
receivable of $186 million in 1996, compared to an increase of $86 million in
1995, partially offset by a decrease in inventories of $56 million in 1996,
compared to a decrease of $41 million in 1995, and a $22 million
period-to-period increase in net income. Net cash provided by investing
activities was $153 million in 1996, compared to net cash used in investing
activities of $13 million in 1995. The fluctuations in net cash provided by and
used in investing activities are related to the increased sales of investments,
the lower level of capital expenditures in 1996, as well as cash proceeds from
the sale of certain assets from the Company's former shoe division in 1995. Net
cash used in financing activities was $103 million in 1996 and $70 million in
1995. The change in net cash used in financing activities primarily reflects a
$40 million increase in the amount expended in the Company's stock repurchase
program, partially offset by the proceeds from exercise of stock options. As of
November 8, 1996, the Company had expended or committed to expend, through the
sale of put warrants (see Note 9 of Notes to Consolidated Financial Statements),
approximately $575 million of the $600 million authorized under its stock
repurchase program, covering an aggregate of 21 million shares.
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(13)
Inventories at September 28, 1996 were $338 million, down from $393 million at
year-end and $365 million at September 30, 1995. The change in inventory levels
principally reflected reductions of ongoing inventory levels within the outlet
operations and to support in-stock reorder programs in several divisions.
The Company's anticipated capital expenditures for 1996 currently approximate
$30 million, of which $15 million has been expended through September 28, 1996.
Approximately half of these expenditures will consist of the upgrading of
management information systems. Capital expenditures will be financed through
available capital and future earnings. Any 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 $270 million as of September 28,
1996.
The Company expects to be able to adjust these lines as required.
Statements contained herein that relate to the Company's future performance,
including, without limitation, statements with respect to the Company's
anticipated results for fiscal 1996, shall be deemed forward-looking statements
within the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, as a number of factors affecting the Company's business and
operations could cause actual results to differ materially from those
contemplated by the forward-looking statements. Those factors include the
overall level of consumer spending and the performance of the Company's products
within the prevailing retail environment, as well as such other factors as are
set forth in the Company's 1995 Annual Report on Form 10-K, including, without
limitation, those set forth under the heading "Business - Competition; Certain
Risks". As previously announced, the Company has introduced a new upper-moderate
label and is repositioning its moderate brands under its recently designated
Special Markets Unit. The Company's efforts to date within the moderate market
(which is generally a lower margin business) have not been profitable. This
business is accompanied by certain risks, including risks associated with
generating acceptance by new customers (including mass merchants) of new product
lines and the general risks inherent with any such expansion.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and certain of its present and former 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 21, 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 plaintiff. In June 1994, the court granted the defendants' 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 August 1995,
the Court granted that motion, again with leave to amend, on the grounds that
the Ressler complaint failed to comply with pleading requirements of the Federal
Rules of Civil Procedure. However, the Court rejected the contention that
scienter had not been adequately pled. In response to the defendants' motion for
reconsideration of that latter point, the Court indicated that the Company could
present the scienter issue again in moving to dismiss a new amended complaint.
In October 1995, a second amended complaint was filed in the Ressler action. In
December 1995, the defendants moved to dismiss that complaint.
<PAGE>
(14)
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 certain of the Company's directors and two of its
former Vice Chairmen. The complaints contain allegations that the individual
defendants breached their fiduciary obligations to the Company and its
stockholders, committed corporate mismanagement and wasted corporate assets in
connection with the Company's stock repurchase program and the defense of
pending legal proceedings, and were unjustly enriched 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 motion is
pending.
The Company believes that the litigations described above 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule as of September 28, 1996.
(b) The Company did not file any reports on Form 8-K in the quarter.
<PAGE>
(15)
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: November 11, 1996 BY /s/ Samuel M. Miller
--------------------
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting Officer
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