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 enJune 29, 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 numbe0-9831
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 d Yes X No .
The number of shares of Registrant's Common Stock, par value $1.00
per share, outstanding at August 9, 1996 was 71,504,519.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 29, 1996 and
December 30, 1995 ........................................... 3
Consolidated Statements of Income for the Six and Three Month Periods
Ended June 29, 1996 and July 1, 1995 ........................ 4
Consolidated Statements of Cash Flows for the Six Month Periods
Ended June 29, 1996 and July 1, 1995 ........................ 5
Notes to Consolidated Financial Statements ....................... 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 10-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 12-13
Item 4. Submission of Matters to a Vote of Security Holders............... 13-14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
SIGNATURE ..................................................................... 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
(Unaudited)
June 29, December 30,
ASSETS 1996 1995
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CURRENT ASSETS:
Cash and cash equivalents $ 19,296 $ 54,722
Marketable securities 376,376 383,128
Accounts receivable - trade 181,126 126,053
Inventories 361,690 393,363
Deferred income tax benefits 32,474 30,235
Other current assets 80,142 77,710
Total current assets 1,051,104 1,065,211
PROPERTY AND EQUIPMENT - NET 232,434 239,467
OTHER ASSETS 19,945 24,565
$ 1,303,483 $ 1,329,243
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 117,632 $ 138,800
Accrued expenses 151,192 155,449
Income taxes payable 6,621 12,648
Total current liabilities 275,445 306,897
LONG-TERM DEBT 1,058 1,115
DEFERRED INCOME TAXES 6,940 7,722
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 30,362 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 32,614 35,075
Retained earnings 1,287,903 1,255,325
Cumulative translation adjustment (1,246) (1,256)
1,407,490 1,377,363
Common stock in treasury, at cost, 15,350,849 shares in 1996 and
14,526,922 shares in 1995 (417,812) (389,137)
Total stockholders' equity 989,678 988,226
$ 1,303,483 $ 1,329,243
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per common share data)
(Unaudited)
Six Months Ended Three Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
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NET SALES $ 1,057,153 $1,001,925 $ 500,595 $ 474,849
Cost of goods sold 653,307 633,160 307,991 298,151
GROSS PROFIT 403,846 368,765 192,604 176,698
Selling, general & administrative expenses 317,288 303,289 159,632 152,883
OPERATING INCOME 86,558 65,476 32,972 23,815
Investment and other income-net 7,198 6,131 3,398 3,207
INCOME BEFORE PROVISION
FOR INCOME TAXES 93,756 71,607 36,370 27,022
Provision for income taxes 35,200 26,500 13,700 10,000
NET INCOME $ 58,556 $ 45,107 $ 22,670 $ 17,022
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 73,246 75,466 73,085 74,857
EARNINGS PER COMMON SHARE $0.80 $0.60 $0.31 $0.23
DIVIDENDS PAID PER COMMON SHARE $0.23 $0.23 $0.11 $0.11
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
Six Months Ended
June 29, July 1,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,556 $ 45,107
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 17,936 19,600
Other - net 2,049 (539)
Change in current assets and liabilities:
(Increase) in accounts receivable (55,073) (8,816)
Decrease in inventories 31,673 29,233
(Increase) decrease in deferred
income tax benefits (1,454) 1,836
(Increase) decrease in other current assets (2,432) 485
(Decrease) in accounts payable (21,168) (39,890)
(Decrease) in accrued expenses (12,256) (8,955)
(Decrease) in income taxes payable (6,027) (3,434)
Net cash provided by operating activities 11,804 34,627
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (218,342) (152,765)
Sales of investment instruments 223,226 170,855
Purchases of property and equipment (11,618) (20,464)
Purchases of trademarks (1,547)
Other - net 5,262 2,513
Net cash used in investing activities (1,472) (1,408)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (57) (52)
Proceeds from exercise of common stock options 6,724 --
Proceeds from sale of put warrants 1,601 1,550
Dividends paid (16,352) (16,995)
Repurchase of common stock (37,684) (37,029)
Net cash used in financing activities (45,768) (52,526)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 10 (216)
NET CHANGE IN CASH AND CASH EQUIVALENTS (35,426) (19,523)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54,722 71,419
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,296 $ 51,896
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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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. 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 $38 million in the first half of fiscal
1995. The operating results of the shoe business for that period were
not material to the Company's overall operating results.
4. 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 June 29, 1996 was $5.0
million. Of the $25.0 million expended for restructuring costs, $11.7 million
was related to severance costs, $7.1 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 $33.3 million of net sales in the first half of
1995 and incurred an operating loss of $7.1 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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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. The following are summaries of available-for-sale securities:
(Dollars in thousands)
June 29, 1996
Gross Estimated
Unrealized Fair
Cost Gains Losses Value
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Tax exempt notes and bonds $ 369,015 $ 642 $ (352) $ 369,305
U.S.& foreign government securities 12,593 -- (515) 12,078
Collateralized mortgage obligations 7,116 (618) 6,498
Total debt securities 388,724 642 (1,485) 387,881
Equity securities 1,721 -- (178) 1,543
$ 390,445 $ 642 $ (1,663) $ 389,424
(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)
June 29, 1996
Estimated
Fair
Cost Value
Due in one year or less $ 60,083 $ 59,363
Due after one year through three years 319,969 320,400
Due after three years 8,672 8,118
388,724 387,881
Equity securities 1,721 1,543
$ 390,445 $ 389,424
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At June 29, 1996, and December 30, 1995, the above investments included
$11,505,000 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 six month period ended June 29, 1996, gross realized gains and
(losses) on sales of available-for-sale securities totaled $1,503,000
and ($117,000), respectively. For the six month period ended July 1,
1995, gross realized gains and (losses) on sales of available-for-sale
securities totaled $381,000 and ($93,000), respectively. The net
adjustment to unrealized holding gains and losses on available-for-sale
securities for the six month periods ended June 29, 1996 and July 1,
1995, was a charge of $1,261,000 (net of $786,000 in deferred income
taxes) and a credit of $2,932,000 (net of $1,722,000 in deferred income
taxes), respectively, which were included in retained earnings. As of
June 29, 1996 and December 30, 1995, the fair value adjustment for
available-for-sale securities was a charge of $651,000 (net of $370,000
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.
6. 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)
June 29, December 30,
1996 1995
Raw materials $ 41,378 $ 41,972
Work-in-process 15,663 17,018
Finished goods 304,649 334,373
$361,690 $393,363
7. Property and equipment - net
(Dollars in thousands)
June 29, December 30,
1996 1995
Land and buildings $124,197 $124,195
Machinery and equipment 142,431 137,847
Furniture and fixtures 54,165 52,848
Leasehold improvements 126,954 127,422
447,747 442,312
Less: Accumulated depreciation
and amortization 215,313 202,845
$232,434 $239,467
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. 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 500,000 shares of its Common Stock in September and
December 1996 on the respective expiration dates of the warrants. The proceeds
of $1.6 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. The Company's potential $30.4 million obligation to buy back
1,000,000 shares of Common Stock has been charged to capital in excess of par
value and recorded as Put Warrants. Subsequent to June 29, 1996, the Company
terminated put warrant contracts on 250,000 shares expiring in September and
October 1996, and sold new put warrants on 250,000 shares expiring in March
1997. These transactions will increase the Company's potential obligation to buy
back Common Stock to $32.3 million.
9. On June 26, 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 September 3, 1996 to stockholders of record at the
close of business on August 9, 1996. The liability for the declared
dividend of approximately $8 million is included in accrued expenses as
of June 29, 1996.
10. For the six months ended June 29, 1996 and July 1, 1995, the Company
made income tax payments of $43,407,000 and $27,916,000, respectively.
For the six months ended June 29, 1996 and July 1, 1995, the Company
made interest payments of $107,000 and $132,000, respectively.
11. 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 June 29, 1996, the Company had contracts
maturing in 1996 to sell 18,000,000 Canadian dollars and 3,200,000 British
pounds sterling. The aggregate U.S. dollar value of all foreign exchange
contracts is approximately $18,279,000. Unrealized gains and losses for
outstanding foreign exchange contracts were not material at June 29, 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 second quarter of 1996 increased $26 million, and net sales for
the first half of 1996 increased $55 million, or approximately 5% in each case.
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 significantly lower net sales of the Cosmetics Division. New
product lines introduced during 1996 (Liz & Co. petites, and dana b. & karen,
the casual career offering of the Dana Buchman Division) accounted for $10
million of second quarter, and $18 million of first half, net sales. The Liz
Claiborne shoe business was licensed to a third party as of June 30, 1995; this
business accounted for $17 million of 1995 second quarter, and $38 million of
1995 first half, net sales. On a period-to-period basis, approximately 21% of
the second quarter net sales increase, and 23% of the first half 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 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 (consisiting 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).
The 1996 second quarter increase in women's sportswear net sales reflected
a 16% increase in the sales of the Casual Unit, to $140 million, due in equal
parts to higher unit volume and higher average unit selling prices; and a 16%
increase in the sales of the Special Sizes Unit, to $89 million, due to a
significant increase in unit volume reflecting additional product required by
the Company's new Elisabeth stores (64 at 1996 second quarter end compared with
26 at 1995 second quarter end) and the introduction of Liz & Co. petites, as
well as slightly higher average unit selling prices. These increases were
partially offset by a 9% decrease in the sales of the Collection Division, to
$39 million, reflecting a decrease in unit volume of misses Collection product
due to weakness in demand, notwithstanding the inclusion of the expanded Studio
line. Sales of the Dana Buchman Division increased 42%, to $40 million, due to
higher unit volume, with approximately 40% of the increase due to the dana b. &
karen line. Net sales of the outlet operations increased 28%, to $50 million,
reflecting new store openings (79 at 1996 second quarter end as compared with 70
at 1995 second quarter end) and improved store productivity.
The 1996 first half increase in women's sportswear net sales reflected a 13%
increase in the sales of the Casual Unit, to $301 million, primarily reflecting
higher average unit selling prices due to a higher proportion of regular price
sales; a 24% increase in the sales of the Special Sizes Unit, to $206 million,
due to the same factors (described above) that influenced the second quarter
period-to-period increase; and an 11% increase in the sales of the Collection
Division, to $112 million, reflecting slightly 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 48%, to $88 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 $81 million, reflecting new
store openings and improved store productivity.
Gross profit margins increased on a period-to-period basis to 38.5% from
37.2% in the second quarter, and to 38.2% from 36.8% in the first half, of 1996.
Gross profit dollars increased on a period-to-period basis by 9.0% in the second
quarter, and 9.5% in the first half, of 1996. Approximately half of these
improvements in gross margin percentage were 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 (which is generally a higher margin business). The improvements
in gross margin percentage were moderated by a significant margin decline within
the Cosmetics Division, as well as lower margins within the Company's domestic
retail store operations.
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.
The period-to-period dollar increases in SG&A expenses were $7 million, or
4.4%, and $14 million, or 4.6%, for the second quarter and first half of 1996,
respectively. SG&A expenses expressed as a percentage of net sales were 31.9%
and 32.2% for the second quarter and 30.0% and 30.3% for the first six months,
respectively, of 1996 and 1995. The dollar increase principally reflects the
Company's expanded brand enhancing activities (including a national advertising
campaign and an in-store 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 related to the expansion of the
Company's domestic retail store and outlet operations and the Dana Buchman
Division also contributed to the increase in SG&A. The Company's former shoe
business accounted for approximately $4 million and $7 million of direct
expenses for the second quarter and the first half of 1995, respectively.
The period-to-period increase in investment and other income-net reflected an
increase in the Company's investment portfolio, notwithstanding the ongoing
stock repurchase program.
As a result of the factors described above, the Company's income before
provision for income taxes increased on a period-to-period basis 35% for the
second quarter and 31% for the first half of 1996. These results included
continuing operating losses within the Moderate Division and (viewed on a stand
alone basis) the Company's retail operations. The provision for income taxes
reflected the change in pre-tax income and an increase in the effective tax
rate; as a result, net income increased 33% for the second quarter and 30% for
the first half 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 difficult. 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. Although the Company remains cautious,
management is optimistic that 1996 operating results will continue to
show improvement, although any such improvement 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 provided by operating activities was $12 million through June 29, 1996,
compared to $35 million through July 1, 1995, primarily reflecting an
increase in accounts receivable of $55 million in 1996, compared to an increase
of $9 million in 1995, partially offset by a decrease in accounts payable of $21
million in 1996, compared to a decrease of $40 million in 1995, and a $13
million period-to-period increase in net income. Net cash used in investing
activities was $1 million in 1996 and 1995. The fluctuations in net cash used in
investing activities are related to the increase or decrease in marketable
securities and capital expenditures on a period-to-period basis. Net cash used
in financing activities was $46 million in 1996 and $53 million in 1995. The
change in net cash used in financing activities primarily reflects the proceeds
from exercise of stock options. As of August 9, 1996, the Company had expended
or committed to expend, through the sale of put warrants (see Note 8 of Notes to
Consolidated Financial Statements), approximately $567 million of the $600
million authorized under its stock repurchase program, covering an aggregate of
20.8 million shares.
Inventories at June 29, 1996 were $362 million, down from $393 million at
year-end and $394 million at July 1, 1995. On a period-to-period basis,
inventory levels principally reflected a reduction of ongoing inventory levels
within the outlet operations and the sale of inventory related to the Company's
former shoe business, offset in part by planned earlier receipt of fall
merchandise across substantially all of the Company's wholesale apparel
divisions and the expansion of the retail store operations.
The Company's anticipated capital expenditures for 1996 currently
approximate $30 million, of which $12 million has been expended through June 29,
1996. Approximately half of these expenditures 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 June 29,
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 is establishing a new upper-moderate
label and is repositioning its moderate brands under its recently designed
Special Markets Division. 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.
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 4. Submission of Matters to a Vote of Security Holders
At the Company's 1996 Annual Meeting of Stockholders held on May 16, 1996,
the stockholders of the Company (i) approved a stockholder proposal relating to
the declassification of the Company's Board of Directors (the "Stockholder
Proposal") (the number of affirmative votes cast was 37,701,191, the number of
negative votes cast was 17,636,507, the number of abstentions was 549,035, and
the number of broker non-votes was 7,828,346), (ii) approved amendments to be
Company's Outside Directors' 1991 Stock Ownership Plan set forth in the
Company's 1996 Proxy Statement (the number of affirmative votes cast was
47,735,425, the number of negative votes cast was 15,711,373, and the number of
abstentions was 268,281), (iii) ratified the appointment of Arthur Andersen LLP
as independent public accountants of the Company for the fiscal year ending
December 28, 1996 (the number of affirmative votes cast was 63,454,836, the
number of negative votes cast was 173,535, and the number of abstentions was
86,708), and(iv) elected the following nominees to the Company's Board of
Directors for the terms specified in the Company's 1996 Proxy Statement:
<TABLE>
<CAPTION>
Votes
<S> <C> <C>
Nominees For Withheld
- -------- ---
Paul R. Charron 63,261,735 453,344
Jerome A. Chazen 63,245,663 469,416
J. James Gordon 63,311,334 403,745
Kay Koplovitz 63,340,139 374,940
</TABLE>
Except with respect to the Stockholder Proposal, there were no broker non-votes
with respect to any matter acted upon at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule as of June 29, 1996.
(b) The Company did not file any reports on Form 8-K in the quarter.
<PAGE>
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 12, 1996 BY /s/ Samuel M. Miller
--------------------
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 19,296
<SECURITIES> 376,376
<RECEIVABLES> 181,126
<ALLOWANCES> 0
<INVENTORY> 361,690
<CURRENT-ASSETS> 1,051,104
<PP&E> 447,747
<DEPRECIATION> 215,313
<TOTAL-ASSETS> 1,303,483
<CURRENT-LIABILITIES> 275,445
<BONDS> 0
0
0
<COMMON> 88,219
<OTHER-SE> 901,459
<TOTAL-LIABILITY-AND-EQUITY> 1,303,483
<SALES> 1,057,153
<TOTAL-REVENUES> 1,057,153
<CGS> 653,307
<TOTAL-COSTS> 970,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 93,756
<INCOME-TAX> 35,200
<INCOME-CONTINUING> 58,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,556
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
