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 October 4, 1997 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 14, 1997 was 66,840,380.
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NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of October 4, 1997 and
December 28, 1996 ........................................... 3
Consolidated Statements of Income for the Nine and Three Month Periods
Ended October 4, 1997 and September 28, 1996 ................ 4
Consolidated Statements of Cash Flows for the Nine Month Periods
Ended October 4, 1997 and September 28, 1996 ................ 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
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)
October 4, December 28,
ASSETS 1997 1996
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CURRENT ASSETS:
Cash and cash equivalents $ 72,809 $ 322,881
Marketable securities 249,099 205,855
Accounts receivable - trade 363,907 158,168
Inventories 343,394 349,427
Deferred income tax benefits 36,474 31,555
Other current assets 78,371 74,212
Total current assets 1,144,054 1,142,098
PROPERTY AND EQUIPMENT - NET 213,001 223,284
OTHER ASSETS 31,524 17,368
$1,388,579 $ 1,382,750
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 132,718 $ 163,666
Accrued expenses 171,625 152,241
Income taxes payable 33,287 10,762
Total current liabilities 337,630 326,669
DEFERRED INCOME TAXES 8,221 8,253
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 34,239 27,336
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 38,714 38,577
Retained earnings 1,502,558 1,382,247
Cumulative translation adjustment (2,094) (4,311)
1,627,397 1,504,732
Common stock in treasury, at cost, 20,113,174 shares in 1997
and 17,212,585 shares in 1996 (618,908) (484,240)
Total stockholders' equity 1,008,489 1,020,492
$1,388,579 $ 1,382,750
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
(40 Weeks) (39 Weeks)
October 4, September 28, October 4, September 28,
1997 1996 1997 1996
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NET SALES $ 1,820,376 $ 1,679,255 $ 685,920 $ 622,102
Cost of goods sold 1,093,487 1,021,289 402,191 367,982
GROSS PROFIT 726,889 657,966 283,729 254,120
Selling, general & administrative expenses 520,400 484,953 182,306 167,665
OPERATING INCOME 206,489 173,013 101,423 86,455
Investment and other income-net 11,968 10,666 4,181 3,468
INCOME BEFORE PROVISION
FOR INCOME TAXES 218,457 183,679 105,604 89,923
Provision for income taxes 80,800 68,900 39,000 33,700
NET INCOME $ 137,657 $ 114,779 $ 66,604 $ 56,223
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 70,476 72,743 69,847 71,710
NET INCOME PER COMMON SHARE $1.95 $1.58 $0.95 $0.78
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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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
Nine Months Ended
(40 Weeks) (39 Weeks)
October 4, September 28,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 137,657 $ 114,779
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 35,120 26,645
Other - net 5,253 3,096
Change in current assets and liabilities:
(Increase) in accounts receivable (205,739) (186,006)
Decrease in inventories 6,033 55,519
(Increase) in deferred income tax benefits (5,620) (1,291)
(Increase) decrease in other current assets (4,160) 2,925
(Decrease) in accounts payable (30,948) (34,237)
Increase (decrease) in accrued expenses 5,123 (201)
Increase in income taxes payable 22,525 7,573
Net cash used in operating activities (34,756) (11,198)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (317,808) (260,885)
Sales of investment instruments 276,411 422,971
Purchases of property and equipment (17,872) (15,410)
Purchase of trademark (3,750) --
Other - net (3,105) 6,282
Net cash (used in) provided by investing activities (66,124) 152,958
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 10,840 7,452
Proceeds from sale of put warrants 3,878 2,231
Dividends paid (23,676) (24,339)
Repurchase of common stock (142,451) (88,238)
Net cash used in financing activities (151,409) (102,894)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,217 (150)
NET CHANGE IN CASH AND CASH EQUIVALENTS (250,072) 38,716
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 322,881 54,722
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,809 $ 93,438
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.
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.
2. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Under SFAS No. 128, the presentation of both
Basic and Diluted Earnings per Share is required on the Income
Statement for periods ending after December 15, 1997, at which time
restatement for prior periods will be required. Had the provisions of
SFAS No. 128 been in effect at the beginning of 1997, the Company
would have reported Basic and Diluted Earnings per Share for the
quarter ended October 4, 1997 of $.95, Basic and Diluted Earnings per
Share for the nine month period ended October 4, 1997 of $1.95 and
$1.94, respectively, Basic and Diluted Earnings per Share for the
quarter ended September 28, 1996 of $.78, and Basic and Diluted
Earnings per Share for the nine month period ended September 28, 1996
of $1.58 and $1.56, respectively.
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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3. The following are summaries of available-for-sale marketable securities and maturities:
(Dollars in thousands)
October 4, 1997
Gross Estimated
Unrealized Fair
Cost Gains Losses Value
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Tax exempt notes and bonds $ 307,084 $ 1,572 $ (296) $ 308,360
(Dollars in thousands)
December 28,1996
Gross Estimated
Unrealized Fair
Cost Gains Losses Value
Tax exempt notes and bonds $ 354,392 $ 357 $ (288) $ 354,461
Commercial paper 148,651 -- -- 148,651
U.S. & foreign government securities 12,877 74 (272) 12,679
Collateralized mortgage obligations 7,112 -- (442) 6,670
523,032 431 (1,002) 522,461
Equity securities 236 -- (39) 197
$ 523,268 $ 431 $ (1,041) $ 522,658
(Dollars in thousands)
October 4, 1997
Estimated
Fair
Cost Value
Due in one year or less $ 111,404 $ 111,947
Due after one year through three years 195,680 196,413
$ 307,084 $ 308,360
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(8)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At October 4, 1997, the above investments included $59,261,000 of tax
exempt notes and bonds which are classified as cash and cash
equivalents. At December 28, 1996, the above investments included
$316,606,000 of tax exempt notes and bonds and commercial paper 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 October 4, 1997, gross realized gains
and (losses) on sales of available-for-sale securities totaled $543,000
and ($1,108,000), respectively. 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. The net adjustment to unrealized holding gains and losses
on available-for-sale securities for the nine month periods ended
October 4, 1997 and September 28, 1996, was a credit of $1,185,000 (net
of $701,000 in deferred income taxes) and a charge of $1,319,000 (net
of $841,000 in deferred income taxes), respectively, which were
included in retained earnings.
4. 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)
October 4, December 28,
1997 1996
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Raw materials $ 20,477 $ 28,198
Work in process 17,943 17,209
Finished goods 304,974 304,020
$343,394 $349,427
5. Property and equipment - net
(Dollars in thousands)
October 4, December 28,
1997 1996
Land and buildings $124,753 $124,125
Machinery and equipment 148,654 138,620
Furniture and fixtures 58,087 55,022
Leasehold improvements 129,634 126,956
461,128 444,723
Less: Accumulated depreciation
and amortization 248,127 221,439
$213,001 $223,284
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(9)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. During the first nine months of 1997, in connection with its stock
repurchase program, the Company sold new put warrants in privately
negotiated transactions based on the then-current market prices of the
common stock. In addition, warrants on 1,000,000 shares of common
stock expired unexercised. The unexpired warrants, if exercised, will
require the Company to purchase up to a total of 750,000 shares of its
common stock in November and December of 1997 and January 1998, on the
respective expiration dates of the warrants. The proceeds of $3.9
million from the sale of the new put warrants have been credited to
capital in excess of par value. The Company's potential $34.2 million
obligation to buy back 750,000 shares of common stock has been charged
to capital in excess of par value and recorded as Put Warrants.
Subsequent to October 4, 1997, warrants on 500,000 shares of common
stock, expiring in May and June 1998, were sold with proceeds of $2.3
million. The net effect of the subsequent items is an increase in the
Company's potential obligation to buy back common stock to $60.8
million.
7. On October 9, 1997, 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 December 3, 1997 to stockholders of
record at the close of business on November 11, 1997.
8. For the nine months ended October 4, 1997 and September 28, 1996, the
Company made income tax payments of $60,539,000 and $63,211,000,
respectively.
9. The Company enters into foreign exchange contracts to hedge
transactions denominated in foreign currencies for periods of less
than one year 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 and are accounted for as part of the underlying transaction.
As of October 4, 1997, the Company had contracts maturing through
January 1998 to sell 12,000,000 Canadian dollars and contracts
maturing through December 1997 to sell 1,200,000 British pounds
sterling. The aggregate U.S. dollar value of the foreign exchange
contracts is approximately $10,717,000. Unrealized gains and losses
for outstanding foreign exchange contracts were not material at
October 4, 1997.
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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 1997 increased $64 million, or 10.3%, and net
sales for the nine months of 1997 (40 weeks) increased $141 million, or 8.4%,
over the nine months of 1996 (39 weeks). These results principally reflected
increased net sales of women's sportswear, men's sportswear and the Company's
outlet operations as well as the introduction of a new fragrance line, partially
offset by lower net sales of dresses and the Company's domestic retail stores.
The third quarter typically represents the Company's highest sales quarter in
each year, reflecting normal seasonal fluctuations.
The 1997 third quarter increase in women's sportswear reflected a 24% increase
in the net sales of the Casual Unit, to $202 million, and a 9% increase in the
net sales of the Special Sizes Unit, to $130 million, due in each case to higher
unit volume. New product offerings accounted for $25 million of the net sales
increase: $18 million of net sales of Lizsport and Claiborne Sport, the
Company's latest fragrances (initially shipped in July, 1997), offsetting the
continued decline in net sales of the Company's ongoing fragrance products; and
$7 million of net sales of Elisabeth/Liz & Co., the large-size casual knitwear
line first shipped in September 1996. As previously reported, the Company is
exploring entry into a licensing arrangement covering its fragrance business.
Net sales of the outlet operations increased 15%, to $64 million, principally
reflecting additional stores (93 at 1997 third quarter end as compared with 82 a
year earlier) and improved store productivity. Net sales of men's sportswear and
furnishings increased 23%, to $40 million, due principally to higher unit volume
and, to a lesser degree, higher average unit selling prices. Net sales of
Special Markets products increased 25%, to $31 million, due to higher unit
volume. These net sales increases were moderated by a 26% decrease in dress
sales, to $22 million, due to planned lower unit volume, reflecting weakness in
demand. Net sales of the Company's domestic retail stores decreased 17%, to $31
million, principally reflecting weakness in demand for Collection and Elisabeth
product and dresses within a generally soft environment for women's apparel
specialty stores. Effective with the 1997 fiscal year, the Company lowered its
internal transfer pricing for goods sold by its wholesale divisions to its
domestic retail stores to a cost basis. The change reduced the net sales figures
reported by the wholesale divisions and increased the gross margin dollars and
percentage of the domestic retail operations. This change had no effect on the
Company's consolidated results and did not have any material effect on the
divisional disclosures contained herein.
The 1997 nine months increase in women's sportswear principally reflected a 19%
increase in the net sales of the Casual Unit, to $550 million, and a 6% increase
in the net sales of the Special Sizes Unit, to $345 million, due in each case to
higher unit volume, partially offset by a 14% decrease in the net sales of the
Collection Division, to $148 million, due to planned lower unit volume,
reflecting weakness in demand during the first six months of the year. New
product offerings accounted for $51 million of the net sales increase: $18
million of net sales of Lizsport and Claiborne Sport, $17 million of net sales
of Elisabeth/Liz & Co., and $16 million of net sales of Curve for women and
Curve for men, initially shipped in July 1996. Sales of the Sport and Curve
fragrances more than offset the continuing decline in net sales of the Company's
ongoing fragrance products. Net sales of the outlet operations increased 22%, to
$167 million, principally reflecting additional stores and improved store
productivity. Net sales of men's sportswear and furnishings increased 23%, to
$104 million, due in equal parts to higher unit volume and higher average unit
selling prices. Net sales of Special Markets products increased 9%, to $75
million, due to higher unit volume. These net sales increases were moderated by
a 22% decrease in dress sales, to $73 million, due to planned lower unit volume
reflecting weakness in demand. Net sales of the Company's domestic retail stores
decreased 8%, to $102 million, reflecting weakness in demand due to the same
factors described above for the third quarter.
Gross profit margins increased on a period-to-period basis to 41.4% from 40.8%
in the third quarter, and to 39.9% from 39.2% in the nine months, of 1997. Gross
profit dollars increased on a period-to-period basis by 11.7% in the third
quarter, and 10.5% in the nine months, of 1997. These results principally
reflected a larger percentage of sales represented by the Cosmetics and outlet
Divisions (generally higher margin businesses), higher margins within those
businesses and better margins on close-out sales. Higher cosmetics margins for
the third quarter principally reflected initial shipments of the Company's Sport
frangrances.Gross margins for Special Markets products also improved, reflecting
a higher proportion of regular price sales. The overall gross margin improvement
was moderated by lower margins within the Elisabeth line and Collection and
Studio lines due to a lower proportion of regular price sales. The third quarter
gross margin percentage of the Casual unit decreased on a period-to-period basis
due to a lower proportion of regular price sales and, to a lesser degree, an
increase in average unit costs related to the air/vessel ratio.
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 1997 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 increases in selling, general and administrative ("SG&A")
expenses were $15 million, or 8.7%, and $35 million, or 7.3%, for the third
quarter and nine months of 1997, respectively. SG&A expenses expressed as a
percentage of net sales were 26.6% and 27.0% for the third quarter, and 28.6%
and 28.9% for the nine months of 1997 and 1996, respectively. The dollar
increases principally reflected marketing expenses related to the new Sport
fragrances and continued expansion of the Company's brand enhancing activities
(including a national advertising campaign and in-store service and presentation
program). Additional expenses associated with the expansion of the Dana Buchman
Division and outlet operations also contributed to the SG&A dollar increases.
The nine month period-to-period increase reflected the additional week in the
1997 first quarter as well as marketing expenses related to the Curve
fragrances. These increases were moderated by continuing expense reduction
initiatives.
The period-to-period increases in investment and other income-net principally
reflected increases 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 17.4% for the
third quarter, and 18.9% for the nine months, of 1997. The provisions for income
taxes reflected the changes in pre-tax income and a decrease in the effective
tax rate in 1997; as a result, net income increased 18.5% and 19.9% for the
third quarter and nine months of 1997, respectively.
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. The Company is continuing the
process of implementing a comprehensive business transformation effort which
includes process reengineering and profit improvement programs. As previously
announced, based on trends in holiday and early spring bookings, the Company
expects to continue to report improved period-to-period sales and earnings in
the fourth quarter of 1997.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Net cash used in operating activities was $35 million through October 4, 1997,
compared to $11 million through September 28, 1996, primarily due to a smaller
decrease in inventories and a larger increase in accounts receivable, partially
offset by higher net income and a smaller net decrease in current liabilities.
Net cash used in investing activities was $66 million in 1997, compared to net
cash provided by investing activities of $153 million in 1996. The fluctuation
in net cash used in investing activities was primarily related to the net
increase/decrease in marketable securities on a period-to-period basis. Net
cash used in financing activities was $151 million in 1997, compared to $103
million in 1996. The change in net cash used in financing activities primarily
reflected a $54 million increase in the amount expended in the Company's stock
repurchase program, partially offset by the increased proceeds from exercise of
stock options and the sales of put warrants. As of November 14, 1997, the
Company had expended, or committed to expend through the sale of put warrants
(see Note 6 of Notes to Consolidated Financial Statements), approximately $849
million of the $875 million authorized under its stock repurchase program,
covering an aggregate of 26 million shares.
Inventories at October 4, 1997 were $343 million, compared with $349 million at
1996 year end and $338 million at September 28, 1996. The period-to-period
increase in inventory principally reflected higher inventory levels associated
with the higher sales level, partially offset by a reduction of ongoing
inventory within the outlet operations and certain wholesale apparel and
non-apparel divisions.
The Company's anticipated capital expenditures for 1997 currently approximate
$35 million, of which $18 million has been expended through October 4, 1997.
These expenditures consist primarily of the expansion of the Company's
distribution facilities, including certain building and equipment expenses and
renovation of New York showrooms and offices. The Company has recently commenced
implementation of a significant information systems upgrade project, which will
involve substantial changes to the Company's present hardware and software
systems that the Company expects to provide certain competitive benefits and
render its information systems "Year 2000" compliant. Management currently
expects that full implementation of this project will involve a commitment of
approximately $45-$60 million over the next three years; approximately $7
million of such amount is included in the Company's $35 million anticipated
capital expenditures for 1997 referred to above. 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 through the issuance of letters of
credit, were $450 million as of October 4, 1997. 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 the remainder of fiscal 1997, 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, such other
factors as are set forth in the Company's 1996 Annual Report on Form 10-K,
including, without limitation, those set forth under the heading "Business -
Competition; Certain Risks", as well as risks that may be encountered in
connection with the systems upgrade project referred to above. As previously
announced, the Company has introduced a new upper-moderate label and has
repositioned 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 generally 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 third 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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule as of October 4, 1997.
(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: November 17, 1997 BY /s/ Samuel M. Miller
--------------------
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting Officer
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