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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
COMMISSION FILE NUMBER 0-9831
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LIZ CLAIBORNE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
1441 BROADWAY, NEW YORK, NEW YORK
(Address of principal executive offices)
13-2842791
(I.R.S. Employer
Identification Number)
10018
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-354-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF CLASS
Common Stock, par value $1 per share
NAME OF EACH EXCHANGE ON WHICH REGISTERED
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark 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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based upon the closing sale price on the New York Stock Exchange composite
tape on March 17, 1999, the aggregate market value of the registrant's Common
Stock, par value $1 per share, held by non-affiliates of the registrant on such
date was approximately $2,178,152,222.
Number of shares of the registrant's Common Stock, par value $1 per share,
outstanding as of
March 17, 1999: 64,012,815 shares.
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DOCUMENTS INCORPORATED BY REFERENCE:
Registrant's Proxy Statement relating to its Annual Meeting of Stockholders
to be held on May 20, 1999 -- Part III.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Liz Claiborne, Inc. designs and markets an extensive range of women's and
men's fashion apparel and accessories appropriate to wearing occasions ranging
from casual to dressy. The Company also markets fragrances for women and men.
The Company's brands include CLAIBORNE, CRAZY HORSE, DANA BUCHMAN, ELISABETH,
EMMA JAMES, FIRST ISSUE, LIZ CLAIBORNE, RUSS, SIGRID OLSEN and VILLAGER. In
addition, the Company holds the exclusive, long-term license to source, market
and sell men's and women's DKNY(R) JEANS and DKNY(R) ACTIVE collections in the
Western Hemisphere, as well as the license to develop, manufacture, market and
distribute a collection of CANDIE'S fragrance, cosmetic and beauty products
worldwide.
Products are manufactured to the Company's specifications in the United
States and abroad and are marketed through leading department and specialty
stores and other channels in the United States, Canada, Europe, Asia, and
Central and South America. Although they offer a wide array of styles, all of
the Company's lines share the common characteristics of innovative fashion and
exceptionally high quality and value. The Company believes that it is the
largest "better" women's sportswear and dress company in the United States.
Generally, the Company's sportswear products are conceived and marketed as
"designer" items, but are priced in the "better" apparel range.
At February 26, 1999, the Company's order book reflected unfilled customer
orders for approximately $862 million of merchandise as compared to
approximately $747 million at February 27, 1998. Substantially all such orders
will be filled within the 1999 fiscal year. Order book data at any given date is
materially affected by the timing of recording orders and of shipments and
seasonal factors. Accordingly, order book data should not be taken as indicative
of eventual actual shipments or net sales, or as providing meaningful
period-to-period comparisons.
As used herein, the term "Company" refers to Liz Claiborne, Inc., a
Delaware corporation, together with its consolidated subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
In order to reach a broad spectrum of consumers, the Company offers an array
of products under its portfolio of brands through a variety of distribution
channels at a broad range of price points. The Company seeks in its product
offerings to provide versatility to its consumers in terms of individual items,
price points and key item classifications.
The Company has the following business segments: Wholesale Apparel, Wholesale
Non-Apparel and Retail. In addition, the Company licenses to third parties the
right to manufacture, market and sell at wholesale selected products bearing the
Company's trademarks. Wholesale Apparel consists of businesses that design,
manufacture and market to the Company's wholesale customers women's and men's
apparel under various trademarks owned or licensed by the Company. Wholesale
Non-Apparel consists of businesses that design, manufacture and market to the
Company's wholesale customers accessories, cosmetics and jewelry products under
various trademarks owned or licensed by the Company. Retail consists of
businesses that sell merchandise designed and manufactured by the Wholesale
Apparel and Wholesale Non-Apparel segments to the public through
Company-operated specialty retail and outlet stores, as well as leased
departments.
Wholesale Apparel. Substantially all products in each sportswear collection
are sold at retail as separate items. Collections are structured, however,
through the use of related styles, color schemes and fabrics, to enable the
consumer to assemble outfits consisting of separate items which are designed to
be worn together. By offering similar or related styles, color schemes and
fabrics over an extended period, the Company intends to provide the consumer
with a wardrobe which can be coordinated with other Company items from season to
season.
The Casual business offers casual sportswear in misses and petite sizes
under three of the Company's trademarks: LIZSPORT, which offers all-American
sportswear, including twill products, for less formal work settings and casual
occasions; LIZWEAR, which offers denim and denim-related sportswear, including
twills and fashion coordinates; and LIZ & CO., which offers versatile casual
knitwear.
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The ELISABETH business offers classic careerwear, weekend casual and wardrobe
basics in large sizes (including petite proportions) under the Company's
ELISABETH and ELISABETH-LIZ & CO. trademarks. In March 1999, the Company
introduced a line of large-sized denim and denim-related sportswear under the
ELISABETH-INDIGO trademark, with shipping anticipated to commence in the second
quarter of 1999.
The CLAIBORNE business offers men's business-casual wear, sportswear and
dress shirts under the CLAIBORNE trademark.
The Career (COLLECTION) business offers professional careerwear with
desk-to-dinner versatility in misses and petite sizes under the LIZ CLAIBORNE
trademark.
The dress business offers dresses and suits providing day-into-evening
versatility under several Company trademarks in both the misses and petite size
ranges, large-sized dresses under the ELISABETH trademark and special occasion
dresses under the LIZ NIGHT trademark.
The DANA BUCHMAN business offers collections of products for the women's
"bridge" market (the market between the "better" and "designer" markets) with
elegant styling in distinctive fabrics, in misses, large and petite sizes
under the Company's DANA BUCHMAN trademark. In February 1998, the Company
commenced shipping a line of "upscale" specialty store products under the DANA
BUCHMAN LUXE trademark.
Each of the above businesses presented four seasonal collections during 1998,
except DANA BUCHMAN which presented three seasonal collections.
The Special Markets business offers updated career and casual clothing at
more moderate prices under five Company trademarks: EMMA JAMES (related
separates for the casual workplace, sold in department stores nationally),
VILLAGER (relaxed separates for soft career and weekend dressing, sold in
regional department stores), FIRST ISSUE (relaxed career and everyday wear, sold
exclusively in Sears department stores), RUSS (casual separates, sold in
Wal-Mart stores and other mass merchandisers), and CRAZY HORSE (casual separates
sold exclusively at J.C. Penney stores; shipping commenced in June of 1998). See
"Competition; Certain Risks" below.
In January 1998, the Company consummated a license agreement with an
affiliate of Donna Karan International, Inc. to source, market and sell men's
and women's sportswear, jeanswear and activewear products under the DKNY(R)
JEANS and DKNY(R) ACTIVE trademarks and logos. DKNY(R) JEANS products commenced
shipping in the first quarter of 1998; DKNY(R) ACTIVE products commenced
shipping in the first quarter of 1999.
In February 1999, the Company acquired 84.5% of the equity of Segrets, Inc.
("Segrets"). Segrets offers a range of women's sportswear in misses, large and
petite sizes under several trademarks, including SIGRID OLSEN SPORT, SIGRID
OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID OLSEN WOMAN and SIGRID OLSEN
PETITES.
Wholesale Non-Apparel. The Company offers a wide variety of accessory
products through its handbag/small leather goods, fashion accessories and
jewelry businesses, primarily under the LIZ CLAIBORNE trademark. These offerings
mirror major fashion trends and complement many of the Company's other product
lines. The DANA BUCHMAN accessories line commenced shipping in June 1998.
The Company's cosmetics business offers fragrance and bath and body-care
products under the Company's LIZ CLAIBORNE, REALITIES, VIVID, CLAIBORNE FOR MEN,
CURVE (for women and men), LIZSPORT and CLAIBORNE SPORT trademarks. In July
1998, the Company entered into a license agreement with Candie's, Inc. to
develop, manufacture, market and distribute a collection of CANDIE'S fragrances,
cosmetics and beauty products worldwide, with products expected to ship
commencing in the third quarter of 1999.
Retail. The Company operates prototype and presentational specialty retail
stores, located throughout the United States, which carry solely Company
products. At March 17, 1999, the Company operated a total of 95 retail stores:
41 LIZ CLAIBORNE stores, 45 ELISABETH large-size apparel stores, 4 CLAIBORNE
mens' stores and 5 DANA BUCHMAN stores. The LIZ CLAIBORNE flagship store, an
approximately 17,000 square foot facility, is located on Fifth Avenue in New
York City. Other stores range in size from 1,300 to 12,000 square feet. The
Company's retail stores enable
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it to more closely track sales and other product data, obtain market information
and experiment with new products, visual presentation and ideas for enhancing
customer service. This information is used to help the Company's wholesale
customers respond more quickly to consumer preferences. The Company has
previously announced plans to close up to 30 specialty retail stores; through
March 17, 1999, the Company had closed 16 of such stores. See Note 2 of Notes to
Consolidated Financial Statements.
At March 17, 1999, the Company operated 119 outlet stores, virtually all of
which are located in "outlet centers" comprised primarily of
manufacturer-operated stores. In Western Europe, the Company's sales are made
primarily through leased departments, or concessions.
Licensing. The Company has thirteen license arrangements pursuant to which
third party licensees produce merchandise under the Company's trademarks in
accordance with designs furnished or approved by the Company, the present terms
of which (not including renewal terms) expire at various dates through 2010.
Current licenses cover women's career, casual and sport shoes; home furnishing
products; women's and men's outerwear; women's swimwear and related merchandise;
women's intimate apparel; women's and men's ophthalmic frames for prescription
eyewear; women's and men's sunglasses and readers; women's watches; men's
tailored clothing; men's accessories; men's and boys' neckwear; tabletop
products; and boys' apparel. Each of the licenses provides for the payment to
the Company of a percentage of the licensee's sales of the licensed products
against a guaranteed minimum royalty which generally increases over the term of
the agreement.
SALES AND MARKETING
The Company's wholesale sales are made primarily to department store chains
and specialty store customers throughout the United States. Retail sales are
also made through the Company's own retail stores and outlet stores, as well as
to international customers, military exchanges and other outlets.
At 1998 year-end, Company products were being sold in over 70 markets
outside the United States. In Canada, the Company operates a wholesale business
which sells primarily to department store chains and specialty stores. During
1998, the Company continued its LIZ CLAIBORNE and DANA BUCHMAN product
distribution, expanded the distribution of VILLAGER and EMMA JAMES product and
launched the DKNY(R) JEANS business in Canada. The Company's sales in Western
Europe are conducted primarily through leased departments, or concessions, and
are concentrated in the United Kingdom and Spain, with additional concessions in
Denmark, Belgium, Ireland and France.
In other international markets, the Company operates principally through
retail store licenses with third parties and dedicated department store shops.
In July 1998, the Company entered into a joint venture agreement with Jusco Co.
Ltd. to open and operate free-standing stores and department store shop-in-shops
in Japan under the LIZ CLAIBORNE and DANA BUCHMAN marks. Stores are expected to
open in Japan commencing in the third quarter of 1999. At year-end 1998,
international retail operations were comprised of 100 licensed stores and
dedicated department store shop-in-shops in 31 countries.
Approximately 86% of 1998 sales were made to the Company's 100 largest
customers. Except for Dillard's Department Stores, Inc., which accounted for
approximately 14% of 1998 and 12% of 1997 sales, no single customer accounted
for more than 6% of 1998 or 1997 sales. However, certain of the Company's
customers are under common ownership; when considered together as a group under
common ownership, sales to the eight department store customers which were owned
at year-end 1998 by The May Department Stores Company accounted for
approximately 18% of 1998 and 19% of 1997 sales, and sales to the seven
department store customers which were owned at year-end 1998 by Federated
Department Stores, Inc. accounted for approximately 17% of 1998 and 1997 sales.
See Note 8 of Notes to Consolidated Financial Statements. Many major department
store groups make centralized buying decisions; accordingly, any material change
in the Company's relationship with any such group could have a material adverse
effect on the Company's operations. The Company expects that its largest
customers will continue to account for a significant percentage of its sales.
Sales to the Company's department and specialty store customers are made
primarily through the Company's New York City showrooms.
Orders from the Company's customers generally precede the related shipping
periods by several months. The Company's largest customers discuss with the
Company retail trends and their plans regarding their anticipated levels of
total purchases of Company products for future seasons. These discussions are
intended to assist the Company in planning the production and timely delivery of
its products. The Company continually monitors retail sales in order to directly
assess consumer response to its products.
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The Company continues to implement in-stock reorder programs in several
divisions to enable customers to reorder certain items through electronic means
for quick delivery. See "Manufacturing" below. In January 1999, the Company
discontinued LIZRIM, an internal inventory replenishment system used by a number
of retail customers; former LIZRIM customers currently participate in the
Company's in-stock reorder programs through their own internal replenishment
systems.
In February 1999, the Company introduced the @MARKET application, a
business-to-business, Internet-based assortment planning and order application
that enables retail accounts to view product lines and place orders on line. The
@MARKET application is currently used by several LIZGOLF specialty store
customers. During 1999, the Company plans to expand use of the @MARKET
application into other product categories.
In 1998, the Company continued to expand its LIZEDGE program, an in-store
sales, marketing and merchandising program designed to encourage multiple item,
regular price sales, build one-on-one relationships with consumers and maintain
the Company's merchandise presentation standards. The LIZEDGE program services
the Company's LIZ CLAIBORNE and ELISABETH apparel brands by training sales
associates on suggested selling, product, merchandise presentation and client
development. The Company's accessories business has service and merchandising
programs similar to LIZEDGE.
In 1998, the Company expanded LIZVIEW, a program in-store to enhance the
presentation of the Company's product on retail selling floors generally through
the use of proprietary fixturing, merchandise presentations and in-store
graphics. At year-end 1998, over 900 LIZVIEW shops were installed in more than
500 stores, representing over 1,300,000 square feet of upgraded selling space
for LIZ CLAIBORNE brands. In addition, at year-end 1998, nine DANA BUCHMAN, over
400 CLAIBORNE, over 400 accessories and over 400 DKNY(R) JEANS shops were
installed in department stores and over 350 CRAZY HORSE shops were installed in
JC PENNEY stores. In 1999, the Company plans to install, in the aggregate,
approximately 1,900 additional in-store shops. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Position, Capital Resources and Liquidity."
The Company spent approximately $32 million on national advertising in 1998,
compared with approximately $31 million in 1997. Current plans call for 1999
national advertising expenditures of approximately $37 million. In addition, the
Company maintains cooperative advertising programs under which it generally
shares the costs of each customer's advertising and promotional expenditures, up
to a stated percentage of the customer's purchases. The Company incurred costs
under these cooperative advertising programs of approximately $57 million in
1998.
During 1998, the Company expanded its consumer website (www.lizclaiborne.com)
to include information specific to the ELISABETH product line. The website
provides information on LIZ CLAIBORNE and ELISABETH branded apparel and
accessories products.
MANUFACTURING
The Company does not own any product manufacturing facilities; all of its
products are manufactured in accordance with its specifications through
arrangements with independent suppliers.
A very substantial portion of the Company's sales is represented by products
produced abroad, mainly in the Far East, the Caribbean and Central America. The
Company also sources in the United States and other regions. The Company does
not itself own quota and therefore must obtain quota from its suppliers and
vendors. During 1998, the Company's products were manufactured by several
hundred suppliers. The Company's products are currently manufactured in
approximately 30 different countries, including China, Saipan, the Dominican
Republic, Hong Kong, the United States, South Korea, Sri Lanka and Taiwan. The
Company continually seeks additional suppliers throughout the world for its
sourcing needs. The Company's largest supplier of finished products manufactured
less than 6% of the Company's purchases of finished products during 1998.
Approximately 30% of the Company's 1998 and 1997 purchases of finished products
were manufactured by its ten largest suppliers, as compared to 28% of 1996
purchases. The Company expects that the percentage of production represented by
its largest suppliers will increase in light of the Company's ongoing worldwide
factory certification initiative, under which the Company is planning to
allocate even larger portions of its production requirements to suppliers which
appear to have superior capacity, quality (of product and operations) and
financial resources. The Company's purchases from its suppliers are affected
through individual purchase orders specifying the price and quantity of the
items to be produced. Generally, the Company does not have any long-term, formal
arrangements with any of the suppliers which manufacture its products.
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The Company believes that it is the largest customer of many of its
manufacturing suppliers and considers its relations with such suppliers to be
satisfactory. Most of the Company's fabrics, trimmings and other materials are
obtained in bulk from various foreign and domestic suppliers. Where the Company
purchases completed product "packages" from its contractors, the contractor is
responsible to purchase all necessary raw materials and other product
components. Inasmuch as the Company intends to continue to move towards
purchasing an increasing portion of its products as "packages," the Company
continues its development of a group of "approved suppliers" to supply raw
materials and other product components to its contractors for use in "packages";
the Company anticipates continuing the practice of purchasing a substantial
portion of its products as "packages" in 1999. During 1998, the raw materials
used in Company products were purchased from several hundred suppliers, located
in Taiwan, the United States, South Korea, Japan, Ireland and Italy.
Approximately 33% of the Company's expenditures for raw materials during 1998
and 30% during 1997 were accounted for by its five largest raw material
suppliers, with no single raw material supplier accounting for more than 8% of
1998 raw material purchases. The Company does not have any long-term, formal
arrangements with any supplier of raw materials. To date, the Company has
experienced little difficulty in satisfying its raw material requirements and
considers its sources of supply adequate.
The Company operates under substantial time constraints in producing each of
its collections. See "Sales and Marketing." In order to deliver, in a timely
manner, merchandise which reflects current tastes, the Company attempts to
schedule a substantial portion of its materials and manufacturing commitments
relatively late in the production cycle, thereby favoring suppliers able to make
quick adjustments in response to changing production needs. However, in order to
secure necessary materials and manufacturing facilities, the Company must make
substantial advance commitments, often as much as seven months prior to the
receipt of firm orders from customers for the items to be produced. The Company
continues to seek to reduce the time required to move products from design to
the customer.
If the Company should misjudge its ability to sell its products, it could be
faced with substantial outstanding fabric and/or manufacturing commitments,
resulting in excess merchandise inventories. See "Competition; Certain Risks"
below. For example, the Company was left with significant excess merchandise
inventory positions during 1993 and into the first half of 1994 due to the
Company's increased 1993 commitments compared to 1992 and the decreased demand
for certain of the Company's apparel at retail.
The Company's arrangements with foreign suppliers are subject to the risks of
doing business abroad, including currency fluctuations and revaluations,
restrictions on the transfer of funds and, in certain parts of the world,
political, economic and currency instability. The Company's operations have not
been materially affected by any such factors to date. However, due to the large
portion of the Company's products which are produced abroad, any substantial
disruption of its relationships with its foreign suppliers could adversely
affect the Company's operations.
IMPORT AND IMPORT RESTRICTIONS
Virtually all of the Company's merchandise imported into the United States is
subject to United States duties. In addition, bilateral agreements between the
major exporting countries and the United States impose quotas that limit the
amount of certain categories of merchandise that may be imported into the United
States. The majority of such agreements contain "consultation" clauses which
allow the United States, under certain circumstances, to impose unilateral
restrictions on the importation of certain categories of merchandise that are
not subject to specified limits under the terms of an agreement. These bilateral
agreements have been negotiated under the framework of the MultiFiber
Arrangement ("MFA"), which has been in effect since 1974. The United States, a
participant in international negotiations known as the "Uruguay Round," ratified
legislation enacting and implementing the various agreements of the Uruguay
Round, effective January 1, 1995, including the Uruguay Round Agreement on
Textiles and Clothing which requires World Trade Organization member countries
to phase out textile and apparel quotas in three stages over a ten year period.
In addition, it regulates trade in non-integrated textile and apparel quotas
during the ten year transition period. However, even with respect to integrated
textile and apparel quota categories, the United States remains free to
establish numerical restraints in response to a particular product being
imported in such increased quantities as to cause (or threaten) serious damage
to the relevant domestic industry. United States legislation implementing the
Uruguay Round also changes the rule of origin for many textiles and apparel
products effective July 1, 1996, with certain minor exceptions. This change
would determine country of origin based on "assembly" for most textile and
apparel products. The Uruguay Round also incorporates modest duty reductions for
textile and apparel products over a ten year staging schedule. This will likely
result in a modification of current patterns of international trade with respect
to apparel and textiles. See "Competition; Certain Risks" below.
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In addition, each of the countries in which the Company's products are sold
have laws and regulations regarding import restrictions and quotas. Because
the United States and other countries in which the Company's products are
manufactured and sold may, from time to time, impose new quotas, duties,
tariffs, surcharges or other import controls or restrictions, or adjust
presently prevailing quota allocations or duty or tariff rates or levels, the
Company maintains a program of intensive monitoring of import and quota-related
developments. The Company seeks continually to minimize its potential exposure
to import and quota-related risks through, among other measures, allocation of
production to merchandise categories that are not subject to quota pressures,
adjustments in product design and fabrication, shifts of production among
countries and manufacturers, as well as through geographical diversification of
its sources of supply.
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 textile agreements, could adversely affect the Company's operations.
TRADEMARKS
The Company owns and/or uses a variety of trademarks in connection with its
businesses and products, including CLAIBORNE, CLAIBORNE SPORT, CRAZY HORSE,
CURVE, DANA B. & KAREN, DANA BUCHMAN, DANA BUCHMAN LUXE, ELISABETH, EMMA JAMES,
FIRST ISSUE, J.H. COLLECTIBLES, LEATHER CO., LIZ, LIZ & CO., LIZ CLAIBORNE, LIZ
CLAIBORNE COLLECTION, LIZ CLAIBORNE STUDIO, LIZ NIGHT, LIZSPORT, LIZWEAR,
REALITIES, RUSS, VILLAGER, VIVID, its LC logomark and its triangular logomark.
In January 1998, the Company licensed exclusive rights in the Western Hemisphere
to the DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for men's and
women's sportswear, jeanswear and activewear. In July 1998, the Company licensed
the exclusive rights to develop, manufacture, market and distribute a collection
of cosmetic products under the CANDIE'S trademark. See Note 3 of Notes to
Consolidated Financial Statements. By virtue of its acquisition of Segrets, the
Company also controls the Segrets' trademarks, which include SIGRID OLSEN SPORT,
SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID WOMAN and SIGRID OLSEN
PETITES.
The Company has registered or applied for registration of a multitude of
trademarks, including those referenced above, for use on apparel and
apparel-related products, including accessories, cosmetics and jewelry in the
United States as well as numerous foreign territories. The Company also has a
number of design patents. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. The Company vigorously protects its
trademarks and other intellectual property rights against infringement.
COMPETITION; CERTAIN RISKS
The apparel and related product markets are highly competitive, both within
the United States and abroad.
The Company's ability to successfully compete depends on a number of factors,
including the Company's ability to effectively anticipate, gauge and respond to
changing consumer demands and tastes, to translate market trends into
appropriate, saleable product offerings relatively far in advance, and to
operate within substantial production and delivery constraints. In addition,
consumer and customer acceptance and support (especially by the Company's
largest customers) depend upon, among other things, product, value and service.
The Company believes that, based on sales, it is among the largest apparel
companies operating in the United States. Although the Company is unaware of any
comprehensive trade statistics, it believes, based on its knowledge of the
market and available trade information, that measured by sales, it is the
largest "better" women's sportswear and dress company in the United States.
Principal competitors within the "better" women's sportswear market include
Jones Apparel Group, Inc., Polo Ralph Lauren Corporation and Tommy Hilfiger
Corporation.
In addition to the competitive factors described above, the Company's
business, including its revenues and profitability, is influenced by and subject
to a number of factors which are inherently uncertain and therefore difficult to
predict, including, among others: changes in regional, national and global
economic conditions; risks associated with changes in the competitive
marketplace, including the levels of consumer confidence and spending, and the
financial condition of the apparel industry and the retail industry, as well as
adverse changes in retailer or consumer acceptance of the Company's products as
a result of fashion trends or otherwise and the introduction of new products or
pricing changes by the Company's competitors; risks associated with the
Company's dependence on sales to a limited number of large department store
customers, including risks related to customer requirements for vendor margin
support and those related to extending credit
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to customers; risks associated with consolidations, restructurings and other
ownership changes in the retail industry; uncertainties relating to the
Company's ability to implement its growth strategies; risks associated with the
ability of the Company's third party customers and suppliers and government
agencies to timely and adequately remediate any Year 2000 issues (for a
discussion of the Company's information system upgrade project, including
efforts to assure Year 2000 compliance, and the risks associated with such
efforts, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000/Information Systems Upgrade.");
the Company's ability to correctly balance the level of its fabric and/or
merchandise commitments with actual orders; the Company's ability to effectively
distribute its products within its targeted markets (including distribution to
and through wholesale accounts and Company operated retail stores and concession
locations); risks associated with the possible inability of the Company's
unaffiliated manufacturers to manufacture and deliver products in a timely
manner, to meet quality standards or to comply with the Company's policies
regarding labor practices; the chance of substantial disruption of the Company's
relationships with its suppliers, manufacturers and employees; and risks
associated with changes in social, political, economic and other conditions
affecting foreign operations and sourcing. See also Note 8 of Notes to
Consolidated Financial Statements. With respect to foreign sourcing, the Company
notes that 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 Normal Trade Relations
("NTR") 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 NTR
treatment was renewed in July 1998 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. See "Import
and Import Restrictions" and "Sales and Marketing" above.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities or through acquisitions. The
entry into new markets (including the development and launch of new product
categories), such as the Company's entry into the moderate market, and the
acquisition of businesses, such as the Company's acquisition of Segrets, is
accompanied by risks inherent in any new business venture and may require
methods of operations and marketing strategies different from those employed in
the Company's other businesses. Certain new businesses may be lower margin
businesses and may require the Company to achieve significant cost efficiencies.
In addition, new markets may involve buyers, store customers and/or competitors
different from the Company's historical buyers, customers and competitors.
Furthermore, the Company's acquisition of other businesses entails the normal
risks inherent in such transactions, including without limitation, possible
difficulties, delays and/or unanticipated costs in integrating the business,
operations, personnel, and/or systems of the acquired entity; risks that
projected or satisfactory level of sales, profits and/or return on investment
will not be generated; risks that expenditures required for capital items or
working capital will be higher than anticipated; risks involving the Company's
ability to retain and appropriately motivate key personnel of the acquired
business; and risks associated with unanticipated events and unknown or
uncertain liabilities.
EMPLOYEES
At January 2, 1999, the Company had approximately 7,000 full-time employees,
as compared with approximately 7,300 full-time employees at January 3, 1998. The
Company considers its relations with its employees to be satisfactory and to
date has not experienced any interruption of operations due to labor disputes.
The Company is bound by a national collective bargaining agreement with the
Union of Needletrades, Industrial and Textile Employees (UNITE), agreements with
various locals and a Jobbers Agreement with UNITE. These agreements cover
approximately 1,700 of the Company's full-time employees and expire on May 31,
2000. Most of the union-represented employees are employed in warehouse and
distribution facilities the Company operates in New Jersey, Pennsylvania and
Alabama.
- 8 -
<PAGE> 9
ITEM 2. PROPERTIES.
The Company's showrooms and executive offices, as well as its sales,
merchandising and design staffs, are located at 1441 Broadway, New York, New
York, where the Company leases approximately 287,000 square feet under a master
lease which expires at the end of 2001 and contains certain renewal options and
rights of first refusal for additional space. An amendment to the 1441 Broadway
lease, extending the expiration date to 2012, has been signed and will become
effective subject to the occurrence of certain closing conditions. The Company
currently leases office space at two other buildings in New York City covering
approximately 29,000 and 93,000 square feet (with terms expiring in 2003 and
2013, respectively) and licenses space in another building covering
approximately 39,000 square feet. These properties are used in all of the
Company's business segments.
The other Company owns an approximately 450,000 square foot New Jersey
warehouse and distribution facility located at One Claiborne Avenue, North
Bergen, New Jersey. This facility also houses the Company's production and
certain administrative personnel. The Company also owns an approximately 300,000
square foot office facility at this location. The Company presently leases
approximately 912,000 square feet in other New Jersey warehouse and distribution
facilities, the current terms of which expire through 2008. The Company also
owns an approximately 313,000 square foot warehouse and distribution facility
located on 80 acres in Mt. Pocono, Pennsylvania, and is in the process of
expanding this facility to include an additional 316,000 square foot of
warehouse and distribution space. In addition, the Company occupies an
approximately 150,000 square foot warehouse and distribution facility in Mt.
Pocono, Pennsylvania under a sublease which expires in 2002. The Company leases
pursuant to industrial development financing an approximately 290,000 square
foot warehouse and distribution facility located on a 124 acre site in
Montgomery, Alabama. Additionally, the Company occupies an approximately 120,000
square foot warehouse facility in Montgomery, Alabama under a lease which
expires at the end of 1999. The Company also leases showroom, warehouse and
office space in various other domestic and international locations. These
properties are used in the Company's wholesale apparel and wholesale non-apparel
business segments. The Company also uses unaffiliated third parties to provide
distribution services at several additional facilities. The Company is seeking
to sell its approximately 270,000 square foot facility in Augusta, Georgia
(located on a 98-acre site and previously used in connection with a dyeing and
finishing joint venture).
The Company leases space for its 95 retail specialty stores (aggregating
approximately 420,000 square feet in various malls) and for its 119 outlet
stores (aggregating approximately 1,000,000 square feet).
The Company believes that its existing facilities are well maintained, in
good operating condition and, upon occupancy of additional space, will be
adequate for its present level of operations. See Note 8 of Notes to
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions are pending against the Company, including the
following:
On May 6, 1998, Mademoiselle Knitwear, Inc. ("Mademoiselle"), a former
knitgoods supplier for the Company, now operating as a debtor-in-possession
pursuant to Chapter 11 of the United States Bankruptcy Code, filed suit against
the Company and three labor unions -- the Union of Needletrades, Industrial and
Textile Employees ("UNITE"), UNITE Local 23-25, which represents a substantial
number of the Company's employees, and UNITE Local 155, which represents
Mademoiselle's employees. The suit, Mademoiselle Knitwear, Inc. v. Liz
Claiborne, Inc, et al., 98 Civ. 3252, pending in the United States District
Court for the Southern District of New York, asserts a variety of claims against
the Company, all stemming from an alleged commitment by the Company to supply
orders to Mademoiselle for a certain number of knitwear goods for the period
June 1992 through June 1998. The complaint includes claims against the Company
for breach of contract, fraud, civil RICO, and prima facie tort, and asserts
claims against the Company and the union defendants for conversion of property
of the estate of a debtor-in-bankruptcy. The Mademoiselle action seeks $30
million in compensatory damages from the Company, trebling of those damages
under the provisions of the civil RICO statute, and $50 million in punitive
damages. On June 26, 1998 the Company and the union defendants moved to dismiss
the complaint for failure to state a claim for relief. The court heard oral
argument on the motion on October 1, 1998. At the conclusion of the argument,
the court indicated that it would dismiss the RICO and prima facie tort claims
against the Company and would issue a later decision on the remainder of the
claims. Discovery remains stayed.
On September 30, 1997, a related putative class action, Chun Hua Mui v. Union
of Needletrades Industrial and Textile Employees, 97 Civ. 7270, was filed by
three current and former employees of Mademoiselle in the United States District
Court for the Southern District of New York against the Company and the same
three unions. An amended complaint (the "employee complaint") was filed on
October 15, 1997. The employee complaint, brought on behalf of a purported class
of
-9 -
<PAGE> 10
600 current and former Mademoiselle employees, seeks $30 million in damages
supposedly owed to the employees as alleged third-party beneficiaries of either
the 1992-1998 alleged production agreement on which Mademoiselle has also sued,
or of a supposed parallel agreement with Local 23-25; an injunction requiring
the Company to provide orders for knitgoods to Mademoiselle through June 1998;
and the imposition of "a constructive trust" on certain liquidated damage
payments made by the Company to UNITE in May 1997 -- payments the employee
complaint, like the Mademoiselle action, contends violated Section 302 of the
National Labor Relations Act. The Company and the union defendants moved to
dismiss the employee complaint for failure to state a claim for relief. On
August 18, 1998, the court issued an opinion dismissing all of the claims
against the Company, including the claim under Section 302 of the NLRA brought
jointly against the Company and the unions. On September 2, 1998, plaintiffs
moved for reargument of the dismissal of the contract claims against the Company
or, alternatively, for leave to amend the Complaint. The Company responded and
the matter was fully briefed and submitted to the court on October 30, 1998. On
December 31, 1998, the court issued an opinion granting reargument but adhering
to its original determination dismissing the contract claims against the Company
and denying plaintiffs' motion for leave to amend. In that same opinion, the
court granted class certification with respect to the claims remaining in the
case, which are pending only against various of the union defendants.
The Company and certain of its present and former officers and directors were
named as defendants in an action styled Ressler et al. vs. Liz Claiborne, Inc.,
et al., filed in the United States District Court for the Eastern District of
New York. The plaintiffs sought 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 alleged 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 Company's motion to dismiss the Fishbaum complaint,
with leave to amend, on the grounds that the complaint did not adequately set
forth the requisite element of scienter. In July 1994, the Company moved to
dismiss the Ressler complaint. In 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 Company's 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. The Company then moved to dismiss that complaint.
By memorandum and order dated August 14, 1998, the Court granted defendants'
motion to dismiss the second amended complaint. That order has been appealed to
the United States Court of Appeals for the Second Circuit. Briefing of the
appeal has been completed, but no date has yet been set for argument.
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 former and
present 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 with 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 in this Item are without
merit and intends to vigorously defend these actions. Although the outcome of
any such litigation or claim cannot be determined with certainty, management is
of the opinion that the final outcome of these litigations should not have a
material adverse effect on the Company's results of operations or financial
position. See Note 8 and Note 17 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
- 10 -
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT.
Information as to the executive officers of the Company is set forth below:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Paul R. Charron 56 Chairman of the Board and Chief Executive Officer
Denise V. Seegal 45 President
Jorge L. Figueredo 38 Senior Vice President - Human Resources
John R. Thompson 47 Senior Vice President - Service, Systems and
Distribution, Chief Information Officer
Robert J. Zane 59 Senior Vice President - Manufacturing and
Sourcing
Richard F. Zannino 40 Senior Vice President - Finance and
Administration, Chief Financial
Officer
</TABLE>
Executive officers serve at the discretion of the Board of Directors.
Mr. Charron joined the Company as Vice Chairman and Chief Operating
Officer, and became a Director, in 1994. In 1995, Mr. Charron became
President (a position he held until October 1996) and Chief Executive Officer
of the Company. In 1996, Mr. Charron became Chairman of the Board of the
Company. Prior to joining the Company, Mr. Charron served in various
executive capacities with VF Corporation, an apparel manufacturer, from 1988.
Ms. Seegal joined the Company in 1996 as President. Prior to joining the
Company, Ms. Seegal served as President of the CK Men's and Women's divisions
of Calvin Klein, Inc. from 1994 to 1996 and as President of the DKNY
divisions of the Donna Karan Company from 1989 to 1994.
Mr. Figueredo joined the Company in 1984 as Administrator, Warehouse
Employee Relations and served in various management positions thereafter. In
1992, Mr. Figueredo was promoted to Vice President, Human Resources
Operations. In 1994, Mr. Figeuredo was promoted to Senior Vice President -
Human Resources.
Mr. Thompson joined the Company in 1995 as Senior Vice President of Service,
Systems and Reengineering, Chief Information Officer. Prior to joining the
Company, Mr. Thompson served as Executive Vice President for Business
Systems/Logistics and Chief Information Officer of Goody's Family Clothing,
Inc., an apparel retailer, from 1993 to 1995.
Mr. Zane joined the Company in 1995 as Senior Vice President Manufacturing
and Sourcing. Prior to joining the Company, Mr. Zane owned and operated
Medallion Tekstil, a private label manufacturing company he founded in 1989.
Mr. Zannino joined the Company in October 1998 as Senior Vice President
Finance and Administration, Chief Financial Officer. Prior to joining the
Company, Mr. Zannino was Executive Vice President, Chief Financial Officer at
General Signal Corporation from April 1998 to October 1998. He served as
Executive Vice President and Chief Financial Officer of Saks Holdings, Inc. and
its wholly owned subsidiary Saks & Company ("Saks"), retail merchants, and
treasurer of Saks Holdings, Inc. from July 1996 to April 1998, as Senior Vice
President, Strategic Planning and Business Development of Saks from May 1994 to
July 1996 and as Vice President and Treasurer of Saks from January 1993 to May
1994.
- 11 -
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol LIZ. The table below sets forth the high and low closing sale
prices of the Common Stock (based on the NYSE composite tape) for the periods
indicated.
<TABLE>
<CAPTION>
Calendar Period High Low
--------------- ---- ---
<S> <C> <C>
1998:
1st Quarter 53 3/8 38
2nd Quarter 54 3/4 45 3/4
3rd Quarter 53 9/16 25 1/2
4th Quarter 34 1/2 25 9/16
1997:
1st Quarter 45 3/4 38 1/4
2nd Quarter 48 13/16 43 5/8
3rd Quarter 57 43 3/4
4th Quarter 57 3/16 39 3/4
</TABLE>
On March 2, 1999, the closing sale price of the Company's Common Stock was
$32 1/2. As of March 2, 1999, the approximate number of record holders of Common
Stock was 8,764.
The Company has paid regular quarterly cash dividends since May 1984.
Quarterly dividends for the last two fiscal years were paid as follows:
<TABLE>
<CAPTION>
Calendar Period Dividends Paid per Common Share
--------------- -------------------------------
<S> <C>
1998:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
1997:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
</TABLE>
The Company currently plans to continue paying quarterly cash dividends on
its Common Stock. The amount of any such dividend will depend on the Company's
earnings, financial position, capital requirements and other relevant factors.
In December 1989, the Board of Directors first authorized the repurchase, as
market and business conditions warranted, of the Company's Common Stock for cash
in open market purchases and privately negotiated transactions. From time to
time thereafter, the Board has authorized additional repurchases. As of March 3,
1999, the Company had expended, or had commitments to expend through the sale of
put warrants (see Note 8 of Notes to Consolidated Financial Statements), an
aggregate of $956 million of the $1.075 billion authorized under its stock
repurchase program, covering approximately 30 million shares.
- 12 -
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain information regarding the Company's
operating results and financial position and is qualified in its entirety by the
consolidated financial statements and notes thereto which appear elsewhere
herein:
<TABLE>
<CAPTION>
All dollar amounts in thousands
except per common share class 1998 1997 1996 1995 1994
- ----------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 2,535,268 $ 2,412,601 $ 2,217,518 $ 2,081,630 $ 2,162,901
GROSS PROFIT 992,102 969,658 876,435 790,701 755,207
- ----------------------------------------------- -----------------------------------------------------
NET INCOME 169,377* 184,644 155,665 126,914 82,849**
WORKING CAPITAL 711,942 729,763 815,429 757,199 717,905
- ----------------------------------------------- -----------------------------------------------------
TOTAL ASSETS 1,392,791 1,305,285 13,382,750 1,329,243 1,289,662
STOCKHOLDERS' EQUITY 981,110 921,627 1,020,492 988,226 982,984
- ----------------------------------------------- -----------------------------------------------------
PER COMMON SHARE DATA:
Basic Earnings 2.59* 2.65 2.15 1.69 1.06**
- ----------------------------------------------- -----------------------------------------------------
Diluted Earnings 2.57* 2.63 2.14 1.69 1.05**
Book Value at Year End 15.34 13.94 14.37 13.41 12.77
- ----------------------------------------------- -----------------------------------------------------
Dividends Paid .45 .45 .45 .45 .45
WEIGHTED AVERAGE COMMON
- ----------------------------------------------- -----------------------------------------------------
SHARES OUTSTANDING 65,502,852 69,619,167 72,396,130 75,002,861 78,526,724
WEIGHTED AVERAGE COMMON
- ----------------------------------------------- -----------------------------------------------------
SHARES AND SHARE
EQUIVALENTS OUTSTANDING 65,846,776 70,191,115 72,845,100 75,299,746 78,550,547
- ----------------------------------------------- -----------------------------------------------------
</TABLE>
- -------------
* Includes the after tax effect of a restructuring charge of $17,100
($27,000 pretax) or $.26 per common share in 1998.
** Includes the after tax effect of a restructuring charge of $18,900
($30,000 pretax) or $.24 per common share in 1994.
All earnings per share have been restated to reflect the adoption of Statement
of Financial Accounting Standards No. 128 "Earnings per Share".
- 13 -
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth items in the Consolidated Statements of Income as
a percent of net sales and the percentage change of those items as compared to
the prior year.
<TABLE>
<CAPTION>
FISCAL YEARS YEAR TO YEAR
PERCENT OF SALES % CHANGE
----------------------- ------------
1998 1997
vs. vs.
1998 1997 1996 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 5.1% 8.8%
Cost of goods sold 60.7 59.8 60.5 6.6 7.6
GROSS PROFIT 39.3 40.2 39.5 2.8 10.6
Selling, general and administrative
expenses 28.1 28.7 28.9 2.9 7.9
Restructuring charge 1.1 -- -- -- --
OPERATING INCOME 10.2 11.5 10.6 (7.1) 18.1
Investment and other income-net 0.4 0.7 0.6 (43.2) 10.4
INCOME BEFORE PROVISION
FOR INCOME TAXES 10.5 12.2 11.2 (9.0) 17.7
Provision for income taxes 3.8 4.5 4.2 (10.3) 16.2
NET INCOME 6.7% 7.7% 7.0% (8.3)% 18.6%
</TABLE>
================================================================================
Effective with our 1998 fiscal year, we have adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which requires certain financial statement footnote
disclosure as to our business segments, which are Wholesale Apparel, Wholesale
Non-Apparel and Retail. Our Wholesale Apparel segment consists of businesses
that design, manufacture and market to our wholesale customers women's and men's
apparel under various trademarks owned or licensed by the Company; this includes
our career (Collection), casual (Lizsport, Lizwear and Liz & Co.), Dana Buchman,
dress, Elisabeth, men's (Claiborne) and special markets (moderate priced
apparel) businesses, as well as our licensed DKNY(R) Jeans and DKNY(R) Active
businesses. Our Wholesale Non-Apparel segment consists of businesses that
design, manufacture and market to our wholesale customers accessories, cosmetics
and jewelry products under various trademarks owned or licensed by us. Our
Retail segment consists of businesses that sell merchandise designed and
manufactured by our Wholesale Apparel and Wholesale Non-Apparel segments to the
public through our 117 specialty retail and 113 outlet stores as well as leased
departments. All data with respect to our specific segments included within this
"Management Discussion and Analysis" is presented before applicable intercompany
eliminations. See Note 15 of Notes to Consolidated Financial Statements.
-14-
<PAGE> 15
1998 VS. 1997
Our net sales for 1998 (which included 52 weeks) were $2.54 billion, an increase
of 5.1% compared to $2.41 billion in 1997 (which included 53 weeks). This
increase reflected a 6.8% increase in Wholesale Apparel to $1.99 billion, a 3.9%
increase in Wholesale Non-Apparel to $320 million and a 4.7% increase in Retail
to $431 million.
The increase in net sales of Wholesale Apparel reflected new product
offerings in our DKNY(R) Jeans and special markets businesses, which accounted
for $112 million, or 91%, of our 1998 total net sales increase. The increase
also reflected higher sales in our casual and existing special markets
businesses, as well as increases in our men's and Elisabeth businesses, due in
each case principally to higher unit volume. These increases were partially
offset by decreases in our Dana Buchman, dress and career businesses due
primarily to lower unit volume and, in the case of dresses, slightly lower unit
prices. The increase in Wholesale Non-Apparel net sales reflected increased
sales of jewelry and cosmetics due principally to higher unit volume, partially
offset by decreased sales of accessories due primarily to lower average unit
selling prices. The increase in net sales of Retail reflected increased outlet
store sales due to the opening of 23 new stores, partially offset by a decline
in sales of our specialty retail stores.
Gross profit dollars increased $27 million, or 2.8% in 1998 over 1997.
Gross profit margins declined to 39.3%, in 1998, compared to 40.2% in 1997,
reflecting lower gross profit margins across all segments. This result reflected
a higher level of close-out sales and lower prices realized on those close-out
sales, as well as higher markdown allowances, partially offset by higher initial
margins due in part to a larger proportion of product shipped by ocean vessel
transport as compared to more costly air transport.
Selling, general and administrative expenses ("SG & A") increased $20
million, or 2.9%, in 1998 over 1997. These expenses declined to 28.1% of net
sales in 1998 from 28.7% in 1997 reflecting lower SG&A as a percent of net sales
across all segments. The 1998 dollar increase was due primarily to additional
operating expenses related to the launches of DKNY(R) Jeans and DKNY(R) Active
and the technological upgrading of our distribution centers and information
systems associated with our transformation initiatives. These dollar increases
were moderated by lower salary and related expenses and lower occupancy and
cosmetics marketing costs, which also contributed to the decline in SG&A as a
percentage of sales.
We recorded a $27 million pretax restructuring charge ($17 million after
tax) to cover the estimated costs of closing approximately 30 under-performing
retail stores, as well as streamlining operating and administrative functions.
This charge included the write-off of certain assets, severance and contract
termination costs (see Note 2 of Notes to Consolidated Financial Statements).
As a result of the restructuring charge as well as other factors described
above, operating income decreased $20 million, or 7.1%, in 1998 compared to
1997, and operating income decreased to 10.2% of net sales in 1998 compared to
11.5% in 1997. Segment operating profit in Wholesale Apparel declined to $244
million (12.3% of net sales) in 1998 from $250 million (13.5% of net sales) in
1997 primarily due to lower gross profit margins reflecting higher close-out
sales and lower margins on those sales, as well as higher intercompany sales to
Retail which are lower margin sales. Segment operating profit in Wholesale
Non-Apparel increased to $47 million (14.5% of net sales) in 1998 from $38
million (12.4% of net sales) in 1997, reflecting increased earnings from
cosmetics and jewelry due primarily to sales increases and lower SG&A as a
percent of net sales, partially offset by lower gross profit margins. Segment
operating profit in Retail increased to $45 million (10.5% of net sales) in 1998
from $40 million (9.8% of net sales) in 1997, due primarily to sales increases
from new stores (see Note 15 of Notes to Consolidated Financial Statements).
Investment and other income-net decreased by $6.9 million in 1998 compared
to 1997 due to a decrease in our average cash and marketable securities
portfolio due primarily to our ongoing stock repurchase program and investments
in working capital and fixed assets.
Income taxes were $11 million lower and decreased as a percentage of net
sales to 3.8% in 1998 from 4.5% in 1997, primarily reflecting lower pre-tax
income and a lower effective tax rate of 36.5% in 1998 compared to 37.0% in 1997
as a result of lower effective state tax rates.
-15-
<PAGE> 16
Net income in 1998 was $15 million lower than in 1997 and declined as a
percentage of net sales to 6.7% in 1998 from 7.7% in 1997, due primarily to the
restructuring charge as well as other factors described above.
Diluted earnings per common share decreased 2.3% to $2.57 in 1998 from
$2.63 in 1997. Before the $0.26 per share impact of the restructuring charge,
diluted earnings per common share increased 7.6% to $2.83 in 1998. Diluted
earnings per common share reflected a lower number of average outstanding common
shares and share equivalents in 1998 as a result of our ongoing stock repurchase
program.
1997 VS. 1996
Our net sales for 1997 (which included 53 weeks) were $2.41 billion, an increase
of 8.8% compared to $2.22 billion in 1996 (which included 52 weeks). This
increase reflected a 8.1% increase in Wholesale Apparel to $1.86 billion, a 6.2%
increase in Wholesale Non-Apparel to $308 million and a 4.6% increase in Retail
to $411 million.
The increase in net sales of Wholesale Apparel reflected increased sales
in our casual, special markets and men's businesses, due in each case to higher
unit volume, and the introduction of a new product offering, Elisabeth/Liz &
Co., partially offset by decreases in our career and dress businesses, due
primarily to lower unit volume. The increase in net sales of Wholesale
Non-Apparel reflected increases in sales of jewelry and cosmetics due
principally to higher unit volume, partially offset by a decrease in sales of
accessories due primarily to lower average unit selling prices. The unit volume
increase in cosmetics was due primarily to new product offerings, Liz Sport and
Claiborne Sport. The Retail net sales increase reflected the opening of 15 new
outlet stores, partially offset by a decrease in sales of our specialty retail
stores principally reflecting weakness in demand for Elisabeth product and
dresses.
Gross profit increased $93 million, or 10.6%, in 1997 over 1996. Gross
profit margins increased to 40.2% in 1997, compared to 39.5% in 1996. This
increase reflected a larger proportion of cosmetics and outlet store sales
(generally higher margin businesses), higher margins within those businesses and
better margins on close-out sales. The improvement in cosmetics margins
reflected initial shipments of our Sport fragrances in the second half of the
year. Our overall gross margin improvement was moderated by lower margins within
the Elisabeth and career businesses due to a lower proportion of regular price
sales.
SG&A increased $51 million, or 7.9%, in 1997 over 1996. These expenses
declined to 28.7% of net sales in 1997 from 28.9% in 1996. The 1997 dollar
increase reflected continued spending on brand enhancing activities (including a
national advertising campaign and in-store service and presentation program) and
marketing expenses related to the introduction of our Sport fragrances.
Additional expenses associated with the expansion of our outlet operations and
the additional week included in the 1997 fiscal year also contributed to the
SG&A increase. The 1997 increase was moderated by continuing expense reduction
initiatives, which contributed to the decline in SG&A as a percentage of sales.
As a result of the factors described above, operating income increased $43
million, or 18.1%, in 1997 compared to 1996, and operating income increased to
11.5% of net sales in 1997 compared to 10.6% in 1996. Segment operating profit
in Wholesale Apparel increased to $250 million (13.5% of net sales) in 1997 from
$216 million (12.6% of net sales) in 1996 due primarily to increased sales and
gross profit margins. Segment operating profit in Wholesale Non-Apparel
increased to $38 million (12.4% of net sales) in 1997 from $28 million (9.8% of
net sales) in 1996 reflecting increased sales in jewelry and cosmetics and
increased gross profit margins in accessories. Segment operating profit in
Retail decreased to $40 million (9.8% of net sales) in 1997 from $49 million
(12.5% of net sales) in 1996 due primarily to lower gross profit margins as a
result of increased markdowns (see Note 15 of Notes to Consolidated Financial
Statements).
Investment and other income-net increased $1.5 million to $15.8 million in
1997 compared to 1996 reflecting an increase in our average cash and marketable
securities portfolio, notwithstanding the Company's ongoing stock repurchase
program.
Income taxes were $15 million higher and increased as a percentage of net
sales to 4.5% in 1997 from 4.2% in 1996 primarily reflecting higher pre-tax
income, partially offset by a lower effective tax rate of 37.0% in 1997 compared
to 37.5% in 1996 as a result of lower effective state tax rates.
-16-
<PAGE> 17
Net income in 1997 was $29 million higher than in 1996 and increased as a
percentage of net sales to 7.7% in 1997, compared with 7.0% in 1996 as a result
of the factors described above.
Diluted earnings per common share increased 22.9% to $2.63 in 1997 from
$2.14 in 1996. Diluted earnings per common share reflected a lower number of
average outstanding common shares and share equivalents as a result of our
ongoing stock repurchase program.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Our primary ongoing cash requirements are to fund growth in working capital
(primarily accounts receivable and inventory) to support increased sales,
investment in our transformation initiatives and other expenditures related to
retail store expansion, in-store concept shops and normal maintenance
activities. Sources of liquidity to fund these cash requirements are cash flow
from operations, cash and marketable securities on hand and bank lines of
credit.
1998 VS. 1997
In 1998, we used our net cash provided by operating activities and a portion of
our cash and marketable securities balances to fund our cash needs and ended the
year with no debt outstanding. Our cash and marketable securities balances
declined to $230 million at year-end 1998 from $360 million at year-end 1997.
This decrease of $130 million was due primarily to cash used to fund our
investing and financing activities, including the repurchase of $116 million of
common stock.
Net cash provided by operating activities was $132 million in 1998,
compared to $145 million in 1997. This $13 million decrease in cash flow
reflected increased cash used to fund accounts receivable and inventory growth,
partially offset by increased cash generated from current liabilities and higher
non-cash depreciation and amortization expense.
Accounts receivable increased 39% in 1998 over 1997 reflecting higher net
sales and the timing of customer deductions for allowances in the fourth quarter
1998 compared to 1997.
Inventory increased 19.9% in 1998 over 1997 reflecting higher than
required essential and replenishment inventory levels in Wholesale Apparel. We
are implementing inventory management initiatives designed to improve our
inventory turnover rate for essential and replenishment inventory. The increase
also reflected the start-up of the DKNY(R) Jeans business, increased outlet
inventory levels and higher levels of prior season merchandise. The increase in
our average inventory levels in 1998 relative to our sales increase had a
negative impact on our 1998 inventory turnover rate compared to 1997.
Net cash provided by investing activities was $26 million in 1998,
compared to net cash used in investing activities of $57 million in 1997. This
$83 million increase in cash flow reflected net disposals of investments of $155
million in 1998, compared to net purchases of investments of $13 million in
1997, partially offset by an additional $81 million of cash used to fund
increased capital expenditures due primarily to our transformation initiatives
and the purchases of trademarks and licenses, which included the payment for our
DKNY(R) Jeans license, in 1998 over 1997.
Net cash used in financing activities was $131 million in 1998, compared
to $274 million in 1997. This $143 million increase in cash flow reflected a
decrease of $142 million in the amount of stock repurchased in 1998 compared to
1997. In 1998, we expended or committed to expend, through the sale of put
warrants, $136 million under our stock repurchase program (see Note 8 of Notes
to Consolidated Financial Statements). As of March 3, 1999, we have expended or
committed to expend through the sale of put warrants, approximately $956 million
covering an aggregate of 29.7 million shares of the $1.075 billion authorized
under our stock repurchase program.
Our anticipated capital expenditures for 1999 approximate $100 million.
These expenditures consist primarily of the continued technological upgrading
and expansion of our management information systems and distribution facilities
(including certain building and equipment expenditures), leasehold improvements
at the New York offices and the opening of an additional 41 retail stores. In
addition, we anticipate spending approximately $25 million on in-store concept
shops in 1999. Capital expenditures, in-store shops and working capital cash
needs will be financed through available capital, net cash provided by operating
activities and bank lines of credit. Bank lines of credit were $425 million at
year end 1998 and $470 million at year end 1997 and are available to finance
cash needs and letters of credit. At year end 1998, we had $220
-17-
<PAGE> 18
million outstanding under these facilities. We expect to be able to adjust these
lines as required.
1997 VS. 1996
In 1997, we used our net cash provided by operating activities and a portion of
our cash and marketable securities balances to fund our cash needs and ended the
year with no debt outstanding. Our cash and marketable securities balances
declined to $360 million at year end 1997 from $529 million at year end 1996.
This decrease of $169 million was due primarily to cash used to fund investing
and financing activities, including the repurchase of $258 million of common
stock.
Net cash provided by operating activities was $145 million in 1997,
compared to $238 million in 1996. This $93 million decrease in cash flow
primarily reflected increased cash used to fund inventory growth. Inventory
increased 13% in 1997 over 1996 and reflected earlier receipt of spring
merchandise within Wholesale Apparel and an increase in essential and
replenishment inventory levels. The rate of increase in our average inventory
levels in 1997 was slower than the rate of increase in our sales which had a
favorable impact on our 1997 inventory turnover rate compared to 1996.
Net cash used in investing activities was $57 million in 1997, compared to
net cash provided by investing activities of $156 million in 1996. This $213
million decrease in cash flow reflected net purchases of investments of $13
million in 1997, compared to net disposals of $176 million in 1996, as well as
an additional $15 million to fund increased capital expenditures and purchases
of trademarks in 1997 compared to 1996.
Net cash used in financing activities was $274 million in 1997 compared to
$123 million in 1996. This $151 million increase principally reflected a $155
million increase in the amount expended in our stock repurchase program.
YEAR 2000 ISSUE/INFORMATION SYSTEMS UPGRADE
Many existing computer systems, software products, and other systems using
embedded chips, including many used by us, accept only two digit entries in the
date code field. Beginning in the year 2000, and in certain instances prior to
the year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, our date
critical functions may be materially adversely affected unless these computer
systems, software products and other systems are or become able to accept four
digit entries ("year 2000 compliant").
In 1996, we commenced a comprehensive upgrade of our management
information systems, which involves substantial changes to our present computer
systems and software, and is expected to provide certain competitive benefits
and result in our information systems being year 2000 compliant upon completion.
Currently, all such changes are in various stages of implementation. Management
currently expects that full implementation of the changes will involve a
commitment of approximately $75-$80 million over the four year period ending
with year end 1999. Approximately $60-$65 million of such amount is in the form
of capital expenditures, while the remaining $15 million will be expensed as
incurred. As of January 2, 1999, related capital expenditures totaled $43
million and an additional $8 million was expensed as incurred. Approximately $22
million is included in anticipated 1999 capital expenditures and approximately
$6 million in expenses are expected to be incurred in 1999 for this project.
Testing and initial implementation phases of a significant portion of the
systems upgrade are completed and the remaining components are expected to be
completed by the end of 1999. We expect that with the successful implementation
of this project, the year 2000 issue will not pose significant operational
problems. There can be no assurance, however, that our systems and software will
be rendered year 2000 compliant in a timely manner, or that we will not incur
significant unforeseen additional expenses to assure such compliance. Failure to
successfully complete and implement this project on a timely basis could have a
material adverse effect on our operations.
We have also begun formal communications with all of our major suppliers
of goods and services and customers to determine the extent to which we are
vulnerable to the failure of their products or their failure to remediate their
own year 2000 issues. To date, approximately one-half of those contacted have
responded, none of which have raised any year 2000 issues which we believe would
have a material adverse effect on us. We are in the process of sending detailed
follow-up inquiries to our critical suppliers and customers and expect to
complete the survey in the Spring of 1999. We are also in the process of
evaluating our vulnerability to governmental authorities' failure to remediate
their year 2000 issues. Our estimated project costs and timetables are based on
presently available information, and include our assessment of the abilities of
these third parties to address the issue effectively. We are currently not aware
of any year 2000 issues related to third parties which we believe would have a
material adverse effect on us. There can be no assurance, however, that the
-18-
<PAGE> 19
systems and/or products of other companies or governmental authorities on which
we rely will be converted in a timely manner, or that a failure to successfully
convert by a third party, or a conversion that is incompatible with our systems
or software, would not have a material impact on our operations.
We currently believe that it is difficult to identify our most reasonably
likely worst case year 2000 scenario. However, a reasonable worst case scenario
would be a failure by a significant third party in our supply and distribution
chain (including, without limitation, any governmental authority, utility or
other general service provider) to remediate its year 2000 deficiencies that
continue for several days or more. Any such failure could impair the manufacture
and/or delivery of products, and/or the processing of orders, and shipments. In
addition, a failure to remediate any of our internal inventory management
systems would adversely affect our stock allocation program, resulting in
mistimed shipments and potential order cancellations. These scenarios would
likely have a material adverse effect on the Company's results of operations,
although the extent of such effect cannot be reasonably estimated at this time.
We continue to develop contingency plans to limit the effect of any year
2000 issues on our operations and results, and intend to complete all such plans
by the end of 1999. For instance, we are in the process of exploring, where
possible, alternate service providers and are analyzing the possibility of
remediating and using alternate but comparable systems currently in use within
the Company. Our year 2000 efforts are ongoing and our overall plan, as well as
our development of contingency plans, will continue to evolve as new information
becomes available. While we anticipate continuity of our business activities,
that continuity will be dependent upon our ability, and the ability of
significant third parties with whom we rely on directly or indirectly, to be
year 2000 compliant in a timely fashion.
CERTAIN INTEREST RATE AND FOREIGN CURRENCY RISKS
We have no long-term debt, and we finance our capital needs through available
capital, future earnings and bank lines of credit. Our exposure to market risk
for changes in interest rates is primarily in our investment portfolio. We, by
policy, mitigate our exposure by limiting maturity and placing our investments
with high credit quality issuers and limiting the amount of credit exposure to
any one issuer. To ensure liquidity, our investment portfolio includes only
actively traded marketable securities. The table below presents, as of January
2, 1999, amortized cost amounts and related weighted average interest yield by
year of maturity for our investment portfolio.
<TABLE>
<CAPTION>
1999 2000 2001 Total
--------------- --------------- --------------- ---------------
$ in thousands Amount % Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax exempt securities $ 93,863 3.91% $ 21,376 3.47% $ 36,865 3.67% $152,104 3.79%
Money market preferreds 40,000 3.69% -- -- -- -- 40,000 3.69%
Taxable securities 4,001 5.82% -- -- -- -- 4,001 5.82%
Total $137,864 3.90% $ 21,376 3.47% $ 36,865 3.67% $196,105 3.81%
</TABLE>
================================================================================
We reduce the risks associated with changes in foreign currency rates by
entering into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with our 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.
The table below presents the amount of contracts outstanding, the contract rate
and unrealized gain or (loss), as of January 2, 1999:
U.S. Dollar Contract Unrealized
$ in thousands Amount Rate Gain (Loss)
- --------------------------------------------------------------------------------
Canadian dollars $2,610 .6526 $ (6)
British pound sterling $6,218 1.68 $ 68
================================================================================
-19-
<PAGE> 20
INFLATION
The rate of inflation over the past few years has not had a significant impact
on our sales or profitability.
================================================================================
Statements contained in this Annual Report and in our future filings with the
Securities and Exchange Commission, in our press releases, and in oral
statements made by or with the approval of authorized personnel that relate to
our future performance, including, without limitation, statements with respect
to our anticipated results of operations or level of business for 1999 or any
other future period, are forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, as a number
of factors affecting our business and operations could cause actual results to
differ materially from those contemplated by the forward-looking statements.
Such statements are based on current expectations and involve known and unknown
risks and uncertainties and certain assumptions, referred to below, and are
indicated by words or phrases such as "anticipate," "estimate," "project,"
"management expects," "we believe," "is or remains optimistic" or "currently
envisions" and similar words or phrases. Those factors include among other
things, changes in regional and global social, economic and political
conditions, including conditions affecting foreign operations and sourcing;
risks associated with changes in the competitive marketplace, including the
level of consumer confidence and spending and the financial condition of the
apparel and retail industry, as well as adverse changes in retailer or consumer
acceptance of our products and the introduction of new products or pricing
changes by our competitors; our dependence on sales to a limited number of
larger department stores, including risks relating to vendor margin support;
uncertainties relating to our ability to implement our growth strategies,
including risks inherent in entering new markets and acquiring businesses; and
risks associated with the ability of our manufacturers to deliver product in a
timely manner, to meet quality standards or to comply with our labor practices
and policies, as well as such other factors as are set forth in this 1998 Annual
Report on Form 10-K, including, without limitation, those set forth in "Item 1 -
Business-Competition; Certain Risks." We undertake no obligation to publicly
update or revise any forward looking statements whether as a result of new
information, future events or otherwise.
Item 8. Financial Statements and Supplementary Data.
Information called for by this Item 8 is included following the "Index to
Consolidated Financial Statements and Schedules" appearing at the end of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-20-
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to Executive Officers of the Company is set forth in
Part I of this Annual Report on Form 10-K.
Information with respect to Directors of the Company which is called for by
this Item 10 is incorporated by reference to the information set forth under the
heading "Election of Directors" in the Company's Proxy Statement relating to its
1999 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the
"Company's 1999 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by this Item 11 is incorporated by reference to the
information set forth under the heading "Executive Compensation" in the
Company's 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by this Item 12 is incorporated by reference to the
information set forth under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's 1999
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by this Item 13 is incorporated by reference to the
information set forth under the headings "Election of Directors" and "Executive
Compensation-Employment Arrangements" in the Company's 1999 Proxy
Statement.
- 21 -
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
<TABLE>
<CAPTION>
PAGE REFERENCE
--------------
1998 FORM 10-K
--------------
<S> <C>
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 2, 1999
and January 3, 1998 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 2, 1999 F-5
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended January 2, 1999 F-6 to F-7
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended January 2, 1999 F-8
Notes to Consolidated Financial Statements F-9 to F-26
UNAUDITED QUARTERLY RESULTS F-27
2. Schedules.
SCHEDULE II - Valuation and Qualifying Accounts F-28
</TABLE>
NOTE: Schedules other than those referred to above and parent company condensed
financial statements have been omitted as inapplicable or not required
under the instructions contained in Regulation S-X or the information is
included elsewhere in the financial statements or the notes thereto.
- 22 -
<PAGE> 23
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C> <C>
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by
reference from Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992 [the
"1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value
$1.00 per share (incorporated herein by reference from Exhibit
4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 4, 1998, between
Registrant and First Chicago Trust Company of New York, as
Rights Agent (incorporated herein by reference from Exhibit 1
to Registrant's Form 8-A dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is
incorporated herein by this reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan (incorporated
herein by reference from Exhibit 10(hh) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1983 [the "1983 Annual Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan (incorporated herein
by reference from Exhibit 10(d)(i) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988).
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc. 1984 Stock
Option Plan (the "1984 Option Plan") (incorporated herein by
reference from Exhibit 10(nn) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984 Option Plan
(incorporated herein by reference from Exhibit 10(e)(i) to the
1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended
and restated (incorporated herein by reference from Exhibit
10(f) to Registrant's Annual report on Form 10-K for the
fiscal year ended December 30, 1989 [the "1989 Annual
Report"]).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company (incorporated herein by
reference from Exhibit 10(b) to Registrant's Quarterly Report
on Form 10-Q for the period ended July 2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g) to the 1992 Annual
Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g)(i) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
26, 1993 [the "1993 Annual Report"]).
</TABLE>
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in
Item 14(a)(3).
- 23 -
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C> <C>
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by
reference from Exhibit 10(a) to Registrant's Quarterly Report
on Form 10-Q for the period ended July 2, 1994).
10(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e) (iii) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [the "1996 Annual Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iv) to the 1996 Annual Report).
10(e)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(v) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998 [the
"1997 Annual Report"].
10(e)(vi)+* - Amendment No. 9 to the Savings Plan.
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement
Plan (the "Profit-Sharing Plan") (incorporated herein by
reference from Exhibit 10(h) to the 1992 Annual Report).
10(g)+ - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj) to the
1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i) to the
1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended October 1,
1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July 1,
1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(iv) to the 1996 Annual
Report).
10(g)(v)+* - Amendment No. 6 to the Profit-Sharing Plan.
10(h) - National Collective Bargaining Agreement, made and entered
into as of June 1, 1997, by and between Liz Claiborne, Inc.
and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through May 31,
2000 (incorporated herein by reference from Exhibit 10(h) to
the 1997 Annual Report).
10(h)(i) - Jobbers Agreement, made and entered into as of June 1, 1997,
by and between Liz Claiborne, Inc. and the Union of
Needletrades, Industrial and Textile Employees (UNITE) for the
period June 1, 1997 through May 31, 2000 (incorporated herein
by reference from Exhibit 10(h)(i) to the 1997 Annual Report).
10(i) - Executive Liability and Indemnification Policy No.
8103-53-79G, with Chubb Group of Insurance Companies (the
"Insurance Policy") (incorporated herein by reference from
Exhibit 10(l) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 [the "1994 Annual
Report"]).
</TABLE>
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
- 24 -
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C> <C>
10(i)(i)* - Summary of Extension of the Insurance Policy.
10(j)+ - Excess Coverage Directors and Officers Liability Insurance
Policy No. 483-73-56, with National Union Fire Insurance
Company of Pittsburgh, PA (the "Excess Policy") (incorporated
herein by reference from Exhibit 10(j) to the 1996 Annual
Report).
10(j)(i)+* - Summary of Extension of the Excess Policy.
10(k)+* - Description of Liz Claiborne, Inc. 1998 Salaried Employee
Incentive Bonus Plan.
10(l) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for
premises located at 1441 Broadway, New York, New York between
Registrant and Lechar Realty Corp. (incorporated herein by
reference from Exhibit 10(n) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1990).
10(m)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors'
1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan")
(incorporated herein by reference from Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(m)(i)+ - Form of Option Agreement under the Outside Directors' 1991
Plan (incorporated herein by reference from Exhibit 10(m)(i)
to the 1996 Annual Report).
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992
Plan") (incorporated herein by reference from Exhibit 10(p) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991.
10(n)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(p)(i) to the 1993 Annual Report).
10(n)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(n)(ii) to the 1997 Annual Report).
10(n)(iii)+*- Amendment No. 3 to the 1992 Plan.
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by reference from
Exhibit 10(q) to the 1992 Annual Report).
10(p)+ - Form of Option Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(r) to the 1992 Annual
Report).
10(q)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q) to the
1996 Annual Report).
10(r)+ - Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
10(s)+ - Form of Restricted Transformation Share Agreement under the
1992 Plan (incorporated herein by reference from Exhibit 10(s)
to the 1997 Annual Report).
</TABLE>
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
- 25 -
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C> <C>
10(t)+* - Description of Supplemental Life Insurance Plans.
10(u)+ - Description of unfunded death/disability benefits for certain
executives (incorporated herein by reference from Exhibit
10(u) to the 1992 Annual Report).
10(v)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus Plan
(incorporated herein by reference from Exhibit 10(v) to the
1994 Annual Report).
10(w)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as
amended and restated effective as of January 1, 1997)
(incorporated herein by reference from Exhibit 10(w) to the
1996 Annual Report).
10(x)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated
herein by reference from Exhibit 10(x) to the 1996 Annual
Report).
10(y)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment Agreement")
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended April 2, 1994).
10(y)(i)+ - Amendment to the Employment Agreement, dated as of November
20, 1995, between Registrant and Paul R. Charron (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual
Report).
10(y)(ii)+ - Amendment to the Employment Agreement, dated as of September
19, 1996, between Registrant and Paul R. Charron (including
the Liz Claiborne Retirement Income Accumulation Plan for the
benefit of Mr. Charron) (incorporated herein by reference from
Exhibit 10(y)(ii) to the 1996 Annual Report).
10(z)+ - Employment Agreement dated as of September 26, 1996 between
Registrant and Denise V. Seegal (incorporated herein by
reference from Exhibit 10(z) to the 1996 Annual Report).
10(aa)+ - Agreements, dated as of May 15, 1996, and May 17, 1996,
between Registrant and Jerome A. Chazen (incorporated herein
by reference from Exhibit 10(aa) to the 1996 Annual Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) Reports on Form 8-K.
Registrant filed a Report on Form 8-K during the last quarter
of its fiscal year ended January 2, 1999. Such report, which
was filed on December 7, 1998, included information under Item
5, "Other Events", with respect to Registrant's adoption of a
Stockholder Rights Agreement to replace the Stockholder Rights
Agreement which expired on December 21, 1998.
</TABLE>
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
- 26 -
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
on April 1, 1999.
LIZ CLAIBORNE, INC.
<TABLE>
<S> <C>
By: /s/ Richard F. Zannino By: /s/ Elaine Goodell
------------------------------------- ------------------------------------
Richard F. Zannino, Elaine Goodell,
Senior Vice President - Finance & Vice President-Corporate Controller
Administration, Chief Financial and Chief Accounting Officer
Officer (principal financial officer) (principal accounting officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on April 1, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Paul R. Charron Chairman of the Board, Chief Executive Officer and Director
- ------------------------------ (principal executive officer)
Paul R. Charron
/s/ Bernard W. Aronson
- ------------------------------
Bernard W. Aronson Director
/s/ Roger N. Farah
- ------------------------------
Roger N. Farah Director
/s/ Ann M. Fudge
- ------------------------------
Ann M. Fudge Director
/s/ J. James Gordon
- ------------------------------
J. James Gordon Director
/s/ George L. Jones
- ------------------------------
George L. Jones Director
/s/ Kenneth P. Kopelman
- ------------------------------
Kenneth P. Kopelman Director
/s/ Kay Koplovitz
- ------------------------------
Kay Koplovitz Director
/s/ Paul E. Tierney, Jr.
- ------------------------------
Paul E. Tierney, Jr. Director
</TABLE>
- 27 -
<PAGE> 28
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
January 2, 1999 and January 3, 1998 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 2, 1999 F-5
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended January 2, 1999 F-6 to F-7
Consolidated Statements of Cash Flows
for the Three Fiscal Years Ended January 2, 1999 F-8
Notes to Consolidated Financial Statements F-9 to F-26
UNAUDITED QUARTERLY RESULTS F-27
SCHEDULE II - Valuation and Qualifying Accounts F-28
</TABLE>
NOTE: Schedules other than those referred to above and parent company
condensed financial statements have been omitted as inapplicable or
not required under the instructions contained in Regulation S-X or
the information is included elsewhere in the financial statements or
the notes thereto.
F-1
<PAGE> 29
MANAGEMENT'S REPORT
The management of Liz Claiborne Inc, is responsible for the preparation,
objectivity and integrity of the consolidated financial statements and other
information contained in this Annual Report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and include some amounts that are based on management's informed
judgements and best estimates.
To help assure that financial information is reliable and assets are
safe guarded, management maintains a system of internal controls and procedures
which we believe is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The independent public accountants have audited our consolidated financial
statements as described in their report. In the course of their audits, the
independent public accountants have developed an overall understanding of the
Company's accounting and financial controls and have conducted other tests as
they considered necessary to support their opinion on the financial statements.
The independent public accountants report their findings and recommendations to
management and the Audit Committee of the Board of Directors. Control procedures
are implemented or revised as appropriate to respond to these recommendations.
There have not been any material control weaknesses brought to the attention of
management or the Audit Committee during the periods covered by the report of
the independent public accountants. However, in as much as the independent
public accountants' audits consisted of selected tests of control policies and
procedures and did not cover the entire system of internal control, they would
not necessarily disclose all weaknesses which might exist.
The Audit Committee, which consists solely of non-management directors,
meets with the independent public accountants, internal auditors and management
periodically to review their respective activities and the discharge of their
respective activities and the discharge of their respective responsibilities.
Both the independent public accountants and the internal auditors have
unrestricted access to the Audit Committee, with or without management, to
discuss the scope and results of their audits and any recommendations regarding
the system of internal controls.
/s/ Paul R. Charron /s/ Richard F. Zannino
Paul R. Charron Richard F. Zannino
Chairman of the Board Senior Vice President -
and Chief Executive Officer Finance and Administration
Chief Financial Officer
<PAGE> 30
REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF LIZ CLAIBORNE, INC.
We have audited the accompanying consolidated balance sheets of Liz Claiborne,
Inc. (a Delaware corporation) and subsidiaries as of January 2, 1999 and January
3, 1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended January 2,
1999. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Liz Claiborne, Inc. and
subsidiaries as of January 2, 1999 and January 3, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 2, 1999 in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements and schedules is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
New York, New York
February 21, 1999
<PAGE> 31
CONSOLIDATED BALANCE SHEETS
LIZ CLAIBORNE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
All amounts in thousands except share data January 2, 1999 January 3, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 164,659 $ 138,185
Marketable securities 65,625 221,343
Accounts receivable-trade 252,045 181,303
Inventories 475,077 396,249
Deferred income tax benefits 35,695 31,647
Other current assets 82,192 88,693
Total current assets 1,075,293 1,057,420
PROPERTY AND EQUIPMENT-NET 257,362 214,624
OTHER ASSETS 60,136 33,241
$ 1,392,791 $ 1,305,285
========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 223,400 $ 173,812
Accrued expenses 128,917 138,816
Income taxes payable 11,034 15,029
Total current liabilities 363,351 327,657
DEFERRED INCOME TAXES 17,536 10,542
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 30,794 45,459
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 50,428 30,731
Retained earnings 1,662,235 1,540,928
Accumulated other comprehensive income (loss) (2,721) (1,707)
1,798,161 1,658,171
Common stock in treasury, at cost-24,267,957 shares
in 1998 and 22,120,305 shares in 1997 (817,051) (736,544)
Total stockholders' equity 981,110 921,627
$ 1,392,791 $ 1,305,285
=========== ===========
========================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 32
CONSOLIDATED STATEMENTS OF INCOME
LIZ CLAIBORNE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------
All dollar amounts in thousands except (52 weeks) (53 weeks) (52 weeks)
per common share data January 2, 1999 January 3, 1998 December 28, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $2,535,268 $2,412,601 $2,217,518
Cost of goods sold 1,538,166 1,442,943 1,341,083
GROSS PROFIT 997,102 969,658 876,435
Selling, general and administrative expenses 712,424 692,363 641,720
Restructuring charge 27,000 -- --
OPERATING INCOME 257,678 277,295 234,715
Investment and other income-net 8,999 15,849 14,350
INCOME BEFORE PROVISION FOR INCOME TAXES 266,677 293,144 249,065
Provision for income taxes 97,300 108,500 93,400
NET INCOME $ 169,377 $ 184,644 $ 155,665
NET INCOME PER COMMON SHARE:
Basic $ 2.59 $ 2.65 $ 2.15
Diluted $ 2.57 $ 2.63 $ 2.14
DIVIDENDS PAID PER COMMON SHARE $ .45 $ .45 $ .45
====================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 33
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
LIZ CLAIBORNE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMMON STOCK Accumulated
-------------------- Capital in Other Common
Number of Excess of Retained Comprehensive Comprehensive Stock in
All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss) Income (Loss) Treasury
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 30, 1995 88,218,617 $88,219 $ 35,075 $1,254,715 $ -- $ (646) $(389,137)
Net income -- -- -- 155,665 155,665 -- --
Other comprehensive
income (loss), net of tax:
Translation adjustment -- -- -- -- (3,055) -- --
Adjustment to unrealized
gains (losses) on available
for sale securities -- -- -- -- (991) (4,046) --
Comprehensive income -- -- -- -- 151,619 -- --
Exercise of stock options and
related tax benefits -- -- 1,719 1,778 -- -- 11,070
Cash dividends paid -- -- -- (32,318) -- -- --
Proceeds from sale of
put warrants -- -- 3,836 -- -- -- --
Reclassification of put
warrant obligations, net -- -- (2,053) -- -- -- --
Purchase of 3,211,462 shares
of common stock -- -- -- -- -- -- (107,617)
Issuance of common stock
under restricted stock
and employment
agreements, net -- -- -- 2,788 -- -- 1,444
BALANCE, DECEMBER 28, 1996 88,218,617 88,219 38,577 1,382,628 -- (4,692) (484,240)
Net income -- -- -- 184,644 184,644 -- --
Other comprehensive
income (loss), net of tax:
Translation adjustment -- -- -- -- 1,638 -- --
Adjustment to unrealized
gains (losses) on available
for sale securities -- -- -- -- 1,347 2,985 --
Comprehensive income -- -- -- -- 187,629 -- --
Exercise of stock options and
related tax benefits -- -- 3,670 638 -- -- 14,564
Cash dividends paid -- -- -- (31,162) -- -- --
Proceeds from sale of
put warrants -- -- 6,607 -- -- -- --
Reclassification of put
warrant obligations, net -- -- (18,123) -- -- -- --
Purchase of 5,382,600 shares
of common stock -- -- -- -- -- -- (264,852)
Issuance of common stock
under restricted stock
and employment
agreements, net -- -- -- 4,180 -- -- (2,016)
BALANCE, JANUARY 3, 1998 88,218,617 88,219 30,731 1,540,928 -- (1,707) (736,544)
Net income -- -- -- 169,377 169,377 -- --
Other comprehensive
income (loss), net of tax:
Translation adjustment -- -- -- -- (348) -- --
Adjustment to unrealized
gains (losses) on available
for sale securities -- -- -- -- (666) (1,014) --
Comprehensive income -- -- -- -- 168,363 -- --
Exercise of stock options and
related tax benefits -- -- 4,801 (8,006) -- -- 22,330
Cash dividends paid -- -- -- (29,327) -- -- --
Proceeds from sale of
put warrants -- -- 231 -- -- -- --
Reclassification of put
warrant obligations, net -- -- 14,665 -- -- -- --
Purchase of 3,092,513 shares
of common stock -- -- -- -- -- -- (116,618)
Issuance of common stock
under restricted stock
and employment
agreements, net -- -- -- (10,737) -- -- 13,781
============================================================================================
BALANCE, JANUARY 2, 1999 88,218,617 $88,219 $ 50,428 $1,662,235 $ -- $(2,721) $(817,051)
============================================================================================
<CAPTION>
All dollar amounts in thousands Total
- ---------------------------------------------------
<S> <C>
BALANCE, DECEMBER 30, 1995 $ 988,226
Net income 155,665
Other comprehensive
income (loss), net of tax:
Translation adjustment --
Adjustment to unrealized
gains (losses) on available
for sale securities (4,046)
Comprehensive income --
Exercise of stock options and
related tax benefits 14,567
Cash dividends paid (32,318)
Proceeds from sale of
put warrants 3,836
Reclassification of put
warrant obligations, net (2,053)
Purchase of 3,211,462 shares
of common stock (107,617)
Issuance of common stock
under restricted stock
and employment
agreements, net 4,232
BALANCE, DECEMBER 28, 1996 1,020,492
Net income 184,644
Other comprehensive
income (loss), net of tax:
Translation adjustment --
Adjustment to unrealized
gains (losses) on available
for sale securities 2,985
Comprehensive income --
Exercise of stock options and
related tax benefits 18,872
Cash dividends paid (31,162)
Proceeds from sale of
put warrants 6,607
Reclassification of put
warrant obligations, net (18,123)
Purchase of 5,382,600 shares
of common stock (264,852)
Issuance of common stock
under restricted stock
and employment
agreements, net 2,164
BALANCE, JANUARY 3, 1998 921,627
Net income 169,377
Other comprehensive
income (loss), net of tax:
Translation adjustment --
Adjustment to unrealized
gains (losses) on available
for sale securities (1,014)
Comprehensive income --
Exercise of stock options and
related tax benefits 19,125
Cash dividends paid (29,327)
Proceeds from sale of
put warrants 231
Reclassification of put
warrant obligations, net 14,665
Purchase of 3,092,513 shares
of common stock (116,618)
Issuance of common stock
under restricted stock
and employment
agreements, net 3,044
============
BALANCE, JANUARY 2, 1999 $ 981,110
============
</TABLE>
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIZ CLAIBORNE INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------
(52 weeks) (53 weeks) (52 weeks)
All dollar amounts in thousands January 2, 1999 January 3, 1998 December 28, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 169,377 $ 184,644 $ 155,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,785 46,024 42,850
Other-net 14,285 8,103 6,452
Change in current assets and liabilities:
(Increase) in accounts receivable-trade (70,742) (23,135) (32,115)
(Increase) decrease in inventories (78,828) (46,822) 43,936
(Increase) in deferred income tax benefits (3,654) (888) (676)
Decrease (increase) in other current assets 6,501 (14,481) 3,498
Increase in accounts payable 49,588 10,146 24,866
(Decrease) in accrued expenses (6,356) (22,809) (4,323)
(Decrease) increase in income taxes payable (3,995) 4,267 (1,886)
Net cash provided by operating activities 131,961 145,049 238,267
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (217,083) (370,546) (348,646)
Disposals of investment instruments 371,741 357,162 524,323
Purchases of property and equipment (88,496) (34,037) (23,337)
Purchases of trademarks and licenses (30,000) (3,750) --
Other-net (9,911) (6,027) 3,828
Net cash provided by (used in) investing activities 26,251 (57,198) 156,168
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 14,324 15,222 12,878
Dividends paid (29,327) (31,162) (32,318)
Purchase of common stock, net of put warrant premiums (116,387) (258,245) (103,781)
Net cash used in financing activities (131,390) (274,185) (123,221)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (348) 1,638 (3,055)
NET CHANGE IN CASH AND CASH EQUIVALENTS 26,474 (184,696) 268,159
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 138,185 322,881 54,722
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 164,659 $ 138,185 $ 322,881
=============== =============== ===============
</TABLE>
================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE INC. AND SUBSIDIARIES
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Liz Claiborne Inc. is engaged primarily in the design and marketing of a broad
range of apparel, accessories and fragrances. The Company's products are sold
principally in the United States. The consolidated financial statements include
the accounts of Liz Claiborne Inc. and its wholly-owned subsidiaries (the
"Company"). All intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts in the financial
statements and related notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the date of acquisition are classified as cash equivalents.
MARKETABLE SECURITIES
Investments are stated at market. The estimated fair value of the marketable
securities is based on quoted prices in an active market. Gains and losses on
investment transactions are determined using the specific identification method
and are recognized in income based on settlement dates. Unrealized gains and
losses are included in accumulated other comprehensive income (loss) until
realized. Dividends on equity securities are recorded in income based on payment
dates. Interest is recognized when earned.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT-NET
Property and equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the
straight-line method over their estimated useful lives of 20 to 39 years.
Machinery and equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets. The Company adopted Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", effective January 4, 1998. This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This SOP requires that entities capitalize certain
internal-use software costs once certain criteria are met. Historically, the
Company expensed the costs of developing or obtaining internal-use software as
incurred. The effect of adopting the SOP in 1998 was a reduction of
approximately $6 million in selling, general and administrative expenses.
TRADEMARKS
Trademarks owned or licensed are amortized on a straight-line basis over their
estimated useful lives of 15 to 25 years and amounted to $45.1 million in 1998
and $16.1 million in 1997, net of accumulated amortization. These amounts are
included in other assets on the consolidated balance sheets.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries have been translated at year-end
exchange rates. Revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting translation adjustments have been
included in Accumulated other comprehensive income (loss) on the consolidated
balance sheets. Gains and losses on translation of intercompany loans with
foreign subsidiaries of a long-term investment nature are also included in this
component of stockholders' equity.
FOREIGN EXCHANGE FORWARD CONTRACTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and it establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
Management has determined based on current levels of foreign exchange forward
contracts that the effect of adopting SFAS No. 133 will not be material.
The Company enters into foreign exchange forward 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. Transaction gains and losses included in income were not
significant in fiscal 1998, 1997 and 1996. As of January 2, 1999, the Company
had forward contracts maturing through August 1999 to sell 4.0 million Canadian
dollars and 3.7 million British pounds sterling. The aggregate U.S. dollar value
of the foreign exchange contracts was approximately $8.8 million at year end
1998, as compared with approximately $1.9 million at year end 1997. Unrealized
gains and losses for outstanding foreign exchange forward contracts were not
material at January 2, 1999 and January 3, 1998.
REVENUE RECOGNITION
Revenue within wholesale operations is recognized at the time merchandise is
shipped from the Company's distribution centers. Retail store revenues are
recognized at the time of sale. All revenue is net of returns.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed when
the advertising takes place. Costs associated with cooperative advertising
programs, under which the Company generally shares the cost of each customer's
advertising and promotional expenditures up to a stated percentage of the
customer's purchases, are expensed when the related revenues are recognized.
Advertising and promotion expenses were $89 million in 1998 and 1997 and $73
million in 1996.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which was
adopted by the Company at the end of the 1997 fiscal year, using the weighted
average number of shares outstanding during each period. Shares subject to
unexercised stock options and put warrants were included in the diluted earnings
per share calculation using the treasury stock method (see Note 13 of Notes to
Consolidated Financial Statements). The earnings per common share for each
period presented have been restated to reflect the adoption of SFAS No. 128.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. The 1998
and 1996 fiscal years reflected a 52-week period, while the 1997 fiscal year
reflected a 53-week period.
PRIOR YEARS' RECLASSIFICATION
Certain items previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with the current year's
classifications.
NOTE 2: RESTRUCTURING CHARGE
In December 1998, the Company recorded a $27.0 million restructuring charge. The
amount included $14.4 million related to the closure of 30 underperforming
specialty retail stores and $12.6 million for the streamlining of operating and
administrative functions. Principal items included in the charge are estimated
contract termination costs, severance and related benefits for staff reductions
and the write-off of certain assets. This charge reduced net income by $17.1
million, or $.26 per common share. The remaining balance of the restructuring
liability as of January 2, 1999 was $26.3 million. The majority of these
liabilities should be paid or settled during the 1999 fiscal year.
NOTE 3: LICENSING COMMITMENTS
In January 1998, the Company consummated a license agreement with an affiliate
of Donna Karan International, Inc. to design, produce, market and sell men's and
women's sportswear, jeanswear and activewear products under the "DKNY(R) Jeans"
and "DKNY(R) Active" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the "DKNY(R)
Jeans" and "DKNY(R) Active" products. The initial term of the license agreement
is for 15 years through December 31, 2012, with an option to renew for an
additional 15 year period, if certain sales thresholds
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
are met which would continue the license through December 31, 2027. Subject to
the terms of the license agreement, aggregate minimum royalties for the initial
15 year term total $152 million. On July 15, 1998, the Company consummated a
license agreement with Candie's, Inc. to manufacture, market, distribute and
sell a line of fragrances for men and women using the "Candie's" marks and
logos. Under the agreement, the Company is obligated to pay a royalty equal to a
percentage of net sales of the "Candie's" products. The initial term of the
license agreement is for 15 years and six months through December 31, 2013, with
an option to renew for an additional 10 year period, if certain sales thresholds
are met which would continue the license through December 31, 2023.
NOTE 4: MARKETABLE SECURITIES
The following are summaries of available-for-sale marketable securities and
maturities:
<TABLE>
<CAPTION>
==================================================
JANUARY 2, 1999
--------------------------------------------------
GROSS
UNREALIZED
-------------------- Estimated
in thousands Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax exempt notes
and bonds $152,104 $ 238 $ -- $152,342
Commercial paper 4,001 1 -- 4,002
Money market
preferreds 40,000 -- -- 40,000
Equity securities 6,567 234 -- 6,801
$202,672 $ 473 $ -- $203,145
==================================================
================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================
JANUARY 3, 1998
--------------------------------------------------
GROSS
UNREALIZED
-------------------- Estimated
in thousands Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax exempt notes
and bonds $291,659 $ 863 $ -- $292,522
Commercial paper 52,676 -- -- 52,676
Equity securities 3,567 670 -- 4,237
$347,902 $ 1,533 $ -- $349,435
==================================================
================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================
JANUARY 2, 1999
-------------------------
Estimated
in thousands Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in 1 year or less $131,832 $131,834
Due after 1 yr. through 3 yrs 64,273 64,510
Equity securities 6,567 6,801
$202,672 $203,145
=========================
================================================================================
</TABLE>
These investments include $137,520,000 in 1998 and $128,092,000 in 1997 of tax
exempt notes and bonds, money market preferreds and commercial paper which are
classified as cash and cash equivalents.
For the fiscal years 1998, 1997 and 1996, gross realized gains on
available-for-sale securities totaled $2,871,000, $891,000 and $1,881,000,
respectively. In 1998, there were no gross realized losses. Gross realized
losses totaled $1,185,000 in 1997 and $491,000 in 1996. The adjustment to
unrealized gains and losses on available-for-sale securities which was included
in accumulated other comprehensive income (loss) was a credit of $666,000 (net
of $394,000 in deferred income taxes) and a credit of $1,347,000 (net of
$796,000 in deferred income taxes) in fiscal 1998 and 1997, respectively.
NOTE 5: INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
in thousands Jan. 2, 1999 Jan. 3, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 18,909 $ 27,924
Work in process 8,841 16,020
Finished goods 447,327 352,305
$475,077 $396,249
============ ===============
================================================================================
</TABLE>
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
in thousands Jan. 2, 1999 Jan. 3, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $131,297 $125,538
Machinery and equipment 199,769 153,040
Furniture and fixtures 67,862 59,869
Leasehold improvements 141,491 131,730
540,419 470,177
Less-accumulated depreciation
and amortization 283,057 255,553
$257,362 $214,624
============ ===============
================================================================================
</TABLE>
NOTE 7: INCOME TAXES
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
(52 weeks) (53 weeks) (52 weeks)
in thousands Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 77,265 $ 86,210 $ 76,898
Foreign 2,914 2,450 2,055
State & local 9,700 14,400 14,300
89,879 103,060 93,253
Deferred-net 7,421 5,440 147
$ 97,300 $108,500 $ 93,400
============ =========== ==========
================================================================================
</TABLE>
Liz Claiborne Inc. and its U.S. subsidiaries file a consolidated federal income
tax return. Deferred income tax benefits and deferred income taxes represent the
tax effects of revenues, costs and expenses which are recognized for tax
purposes in different periods from those used for
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
financial statement purposes. The current income tax provisions exclude
$4,801,000 in 1998, $3,670,000 in 1997 and $1,719,000 in 1996, arising from the
exercise of nonqualified stock options. These amounts have been credited to
capital in excess of par value.
The effective income tax rate differs from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------
(52 weeks) (53 weeks) (52 weeks)
in thousands Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax provision
at statutory rate 35.0% 35.0% 35.0%
State and local
income taxes, net
of federal benefit 2.4 3.2 3.7
Tax-exempt interest
income (.7) (2.2) (2.7)
Other-net (.2) 1.0 1.5
36.5% 37.0% 37.5%
============ ============ ============
================================================================================
</TABLE>
The components of net deferred taxes arising from temporary differences as of
January 2, 1999 and January 3, 1998 are as follows:
<TABLE>
<CAPTION>
January 2, 1999 January 3, 1998
---------------------- -----------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
in thousands Asset Liability Asset Liability
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory valuation $ 18,432 $ -- $ 18,257 $ --
Unremitted earnings from
foreign subsidiaries -- 17,052 -- 15,733
Restructuring charge 9,205 -- -- --
Accounts receivable
valuation 2,019 -- 4,156 --
Unrealized investment
(gains)/losses (173) -- (567) --
Depreciation -- (2,056) -- (6,852)
Other-net 6,212 2,540 9,801 1,661
$ 35,695 $ 17,536 $ 31,647 $ 10,542
====================== ======================
================================================================================
</TABLE>
Management believes that the deferred tax benefits will be fully realized
through future taxable income and reversals of deferred tax liabilities.
NOTE 8: COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases office, showroom, warehouse/ distribution and retail space
and computers and other equipment under various noncancellable operating lease
agreements which expire through December 2013. Rental expense for 1998, 1997 and
1996 was approximately $82,613,000, $77,278,000 and $74,685,000, respectively.
At January 2, 1999, the minimum aggregate rental commitments are as follows:
<TABLE>
<CAPTION>
(in thousands) (in thousands)
Fiscal Year Operating Leases Fiscal Year Operating Leases
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 54,868 2002 $ 42,142
2000 48,225 2003 37,366
2001 45,487 Thereafter 189,833
================================================================================
</TABLE>
Certain rental commitments have renewal options extending through the year 2030.
Some of these renewals are subject to adjustments in future periods. Many of the
leases call for additional charges, some of which are based upon various
escalations, and, in the case of retail leases, the gross sales of the
individual stores above base levels.
At January 2, 1999, the Company had entered into commitments for the
purchase of raw materials and for the production of finished goods totaling
approximately $604,715,000.
In 1998, in connection with its ongoing stock repurchase program, the
Company sold put warrants on 1.25 million shares of common stock in privately
negotiated transactions based on the then-current market price of the common
stock. The warrants give the holders the right at maturity to require the
Company to repurchase shares of its common stock at specified prices. The
Company has the option to settle in cash or shares of common stock. In 1998,
warrants on 420,000 shares of common stock expired unexercised, and warrants on
830,000 shares of common stock were exercised. Warrants on an additional 900,000
shares remained outstanding at January 2, 1999; if exercised, these warrants
will require the Company to purchase up to 900,000 shares of its common stock at
various dates ranging from March 24 through July 7, 1999, with strike prices
ranging from $26.49 to $39.97. In 1997, the Company sold put warrants on 1.65
million shares of common stock. As of January 3, 1998, warrants on 1.5 million
shares of common stock had expired unexercised and warrants on an additional
900,000 shares remained outstanding, and expired at various dates ranging from
January 15 through August 17, 1998, with strike prices ranging from $42.61 to
$53.25. The proceeds from the sale of put warrants of $4.7 million in 1998 and
$6.6 million in 1997 have been recorded in capital in excess of par value. The
Company's potential obligations of $30.8 million in 1998 and $45.5 million in
1997 to buy back 900,000 shares, as of each
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
year end, of common stock have been charged to capital in excess of par value
and reflected as put warrants on the consolidated balance sheets.
In the normal course of business, the Company extends credit, on open
account, to its department store customers, after a credit analysis based on a
number of financial and other criteria. In the past, a number of corporate
groups which include certain of the Company's largest department store customers
have been involved in highly leveraged financial transactions and certain of
these customers have filed for protection under Chapter 11 of the Federal
Bankruptcy Code. Subsequently, certain customers have emerged from protection
under Chapter 11. In 1998, three corporate groups of department store customers
accounted for 18%, 17% and 15%, respectively, of net sales. In 1997, three
corporate groups of department store customers accounted for 19%, 17% and 12%,
respectively, of net sales. In 1996 three corporate groups of department store
customers accounted for 18%, 17% and 11%, respectively, of net sales. The
Company does not believe that this concentration of sales and credit risk
represents a material risk of loss with respect to its financial position as of
January 2, 1999.
At January 2, 1999, approximately 23% of the Company's work force was
covered by collective bargaining agreements. The agreements currently in effect
will expire in 2000.
The Company is a party to several pending legal proceedings and claims.
Although the outcome of such actions cannot be determined with certainty,
management is of the opinion that the final outcome should not have a material
adverse effect on the Company's results of operations or financial position.
NOTE 9: LINES OF CREDIT
As of January 2, 1999, the Company had bank lines of credit aggregating
$425,000,000 which were available to cover letters of credit issued by the
banks. The lines of credit expire at various dates in 1999.
At January 2, 1999 and January 3, 1998, the Company had no cash borrowings
under these lines and had outstanding letters of credit of $220,482,000 and
$243,200,000, respectively. These letters of credit, which have terms ranging
from one to ten months, collateralize the Company's obligations to third parties
for the purchase of inventory. The fair value of these letters of credit
approximates contract values.
NOTE 10: STOCK PLANS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans, which are described below. Accordingly, no compensation cost
has been recognized for its fixed stock option grants. Had compensation costs
for the Company's stock option grants been determined based on the fair value at
the grant dates for awards under these plans in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
in thousands except (52 weeks) (53 weeks) (52 weeks)
per common share data Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 169,377 $ 184,644 $ 155,665
Pro forma $ 164,738 $ 180,698 $ 153,918
Basic earnings
per share:
As reported $ 2.59 $ 2.65 $ 2.15
Pro forma $ 2.51 $ 2.60 $ 2.13
Diluted earnings
per share:
As reported $ 2.57 $ 2.63 $ 2.14
Pro forma $ 2.50 $ 2.57 $ 2.11
============ ============ ============
================================================================================
</TABLE>
For this purpose, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1998, 1997 and 1996,
respectively: dividend yield of 1% for all years, expected volatility of 31%,
34% and 34%, risk free interest rates of 5.4%, 6.2% and 5.4% and expected lives
of four years.
In February 1984 and March 1992, the Company adopted plans under which
nonqualified options to acquire shares of common stock may be granted to
officers, other key employees and directors selected by the plans'
administrative committee ("the committee"). Payment by option holders upon
exercise of an option may be made in cash or, with the consent of the committee,
by delivering previously acquired shares of Company common stock. Stock
appreciation rights may be granted in connection with all or any part of any
option granted under the plans, and may also be granted without a grant
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
of a stock option. The grantee of a stock appreciation right has the right, with
the consent of the committee, to receive either in cash or in shares of common
stock, an amount equal to the appreciation in the fair market value of the
covered shares from the date of grant to the date of exercise. Options and
rights are exercisable over a period of time designated by the committee (but
not prior to one year from the date of grant) and are subject to such other
terms and conditions as the committee determines. Vesting schedules will be
accelerated upon merger of the Company or the happening of certain other events.
Options and rights may not be transferred during the lifetime of a holder.
Awards under the 1992 plan may also be made in the form of incentive stock
options, dividend equivalent rights, restricted stock, unrestricted stock and
performance shares. To date, no stock appreciation rights, incentive stock
options, dividend equivalent rights or performance shares have been granted
under the plan. Exercise prices for awards under the plan are determined by the
committee; to date, all stock options have been granted at an exercise price not
less than the quoted market value of the underlying shares on the date of grant.
The 1992 plan provides initially for the issuance of up to 2,500,000
shares of common stock with respect to options, stock appreciation rights and
other awards granted under the plan, and provides that the Board of Directors
may increase such number by an amount equal to 1% of the common stock
outstanding as of January 1, 1994 and each January 1st thereafter. At January 2,
1999, there were available for future grant 2,391,692 shares under the 1992
plan. The 1992 plan expires in 2002. The 1984 plan has expired; awards made
thereunder prior to its termination remain in effect in accordance with their
terms.
Since January 1990, the Company has delivered treasury shares upon the
exercise of stock options. The difference between the cost of the treasury
shares, on a first-in, first-out basis, and the exercise price of the options
has been reflected in retained earnings.
Changes in common shares under option for the three fiscal years in the period
ended January 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 2,208,310 $30.73 2,175,923 $26.34 2,581,870 $26.83
Granted 979,738 40.66 840,960 39.38 726,900 27.73
Exercised (562,929) 25.43 (557,842) 27.12 (486,484) 26.74
Cancelled (284,525) 36.29 (250,731) 29.66 (646,363) 29.56
End of year 2,340,594 $35.48 2,208,310 $30.73 2,175,923 $26.34
Exercisable at end of year 652,258 $30.24 723,927 $23.28 493,098 $30.87
Weighted average fair value of options
granted during the year $11.98 $13.08 $ 8.93
==================== ==================================== ========
=================================================================================================================
</TABLE>
The following table summarizes information about options outstanding at January
2, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- --------------------------------
Weighted Average
Range of Outstanding Remaining Weighted Average Exercisable at Weighted Average
Exercise Prices at Jan. 2, 1999 Contractual Life Exercise Price Jan. 2, 1999 Exercise Price
- ------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$15.00 - $25.00 381,032 2.4 years $19.80 293,744 $19.27
25.01 - 35.00 946,663 7.7 years 34.21 209,575 32.90
35.01 - 60.00 1,012,899 8.0 years 42.58 148,939 48.15
$15.00 - $60.00 2,340,594 7.0 years $35.48 652,258 $30.24
=============================================================================================================
</TABLE>
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
On January 4, 1999, nonqualified options to acquire 1,229,500 shares of common
stock were granted to officers and other key employees with an exercise price of
$32.56.
In 1998, the committee granted 366,650 shares of common stock to a group
of key executives. As of January 2, 1999, 342,550 of these shares remained
outstanding. These shares are subject to restrictions on transfer and subject to
risk of forfeiture until earned by continued employment. The restrictions expire
on July 6, 2007. The expiration of restrictions may be accelerated if the total
return on the Company's common stock exceeds that of a predetermined group of
competitors or upon the happening of certain other events. The unearned
compensation is being amortized over a period equal to the anticipated vesting
period.
In May 1994, the committee granted 85,000 shares of common stock in
connection with the hiring of a key executive. These shares are subject to
restrictions on transfer and subject to risk of forfeiture until earned by
continued employment. The restrictions expire on the last day of each of the
Company's fiscal years 1994 through 2001. The expiration of the restrictions may
be accelerated if the market value of the common stock attains certain
predetermined levels or upon the happening of certain other events. In 1996,
one-third of the then 65,000 unvested restricted shares (or 21,665 shares)
vested in accordance with the accelerated vesting provisions of the employment
agreement. The remaining shares were scheduled to vest at the rate of 6,667
shares of common stock per year through the year 2000 and 10,000 shares in the
year 2001. During 1997, the common stock attained the predetermined level which
allowed the remaining shares to vest on January 2, 1999. The unearned
compensation related to all restricted stock grants as of January 2, 1999,
January 3, 1998 and December 28, 1996 was $12,781,000, $939,000 and $4,622,000,
respectively, and is included in retained earnings on the consolidated balance
sheets.
In 1992, options were granted to certain of the Company's senior officers
at a price of $58.50 per share, representing 150% of the market price at the
date of grant. At January 2, 1999, 50,000 of these options remained outstanding;
they became exercisable on October 21, 1998 and expire on October 21, 2000,
subject to certain exceptions.
The Company's outside directors' stock ownership plan provides
non-employee directors, as part of their annual retainer, shares of common stock
with a value of $15,000 on the first business day of each fiscal year. The
shares so issued are nontransferable for a period of three years following the
grant date, subject to certain exceptions. In 1998, 1,392 shares of common stock
were issued under this plan. This plan also provides each non-employee director
a grant of options to purchase 1,000 shares of common stock on the first
business day of each fiscal year. Not more than one half of one percent (0.50%)
of the shares of common stock outstanding from time to time may be issued under
the plan, which will expire in 2006.
NOTE 11: PROFIT-SHARING RETIREMENT, SAVINGS AND DEFERRED COMPENSATION PLANS
The Company's noncontributory, defined contribution profit-sharing retirement
plan covers all eligible U.S. employees who are 21 years of age with one or more
years of service and who are not covered by collective bargaining agreements.
The plan pays benefits based on an employee's vested account balance in
accordance with qualification rules set out in the plan. Vesting begins at 20%
after two years of service, and from the 3rd through 6th years, vesting
increases by 20% each year until full vesting occurs, except that for employees
commencing employment after December 31, 1996, vesting will be on a "cliff"
(100%) basis after a period of five years of service. Each year, profit-sharing
contributions, if any, are determined by the Board of Directors. The Company's
1998, 1997 and 1996 plan contribution expense, which is included in selling,
general and administrative expenses, was $4,372,000, $5,888,000 and $5,590,000,
respectively.
The Company's 401(k) savings plan covers all eligible U.S. employees who
are 21 years of age with one or more years of service and who are not covered by
collective bargaining agreements. The plan pays benefits based on an employee's
vested account balance. Subject to Internal Revenue Code limitations,
participants may contribute from 1% to 15% of their salary on a before-tax
basis. Such contributions are fully and immediately vested. Vesting of the
Company's matching contribution (equal to 50% of the first 5% contributed by the
participant) begins at 20% after two years of service, and from the 3rd through
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
6th years, vesting increases by 20% each year until full vesting occurs. The
Company's 1998, 1997 and 1996 plan contribution expense, which is included in
selling, general and administrative expenses, was $2,052,000, $2,181,000 and
$2,016,000, respectively.
The Company has a supplemental retirement plan for executives whose
benefits under the profit-sharing retirement plan and the savings plan are
expected to be constrained by the operation of certain Internal Revenue Code
limitations. The supplemental plan provides a benefit equal to the difference
between the contribution that would be made for an executive under the two
tax-qualified plans absent such limitations and the actual contribution under
those plans. The plan also allows participants to defer up to 15% of their
salary. Supplemental benefits attributable to participant deferrals are fully
vested at all times and the balance of a participant's benefits vests on the
same basis as the matching contribution under the Company's 401(k) plan and
profit-sharing retirement plan. Under a separate bonus deferral plan
participants may defer up to 100% of their annual bonus. These supplemental
plans are not funded. The Company's expenses related to these plans, which are
included in selling, general and administrative expenses, were $1,909,000,
$1,462,000 and $889,000 in 1998, 1997 and 1996, respectively.
In 1996, the Company established an unfunded deferred compensation
arrangement for a senior executive which accrues over a six year period as of
the first day of each fiscal year beginning in 1996, based on an amount equal to
15% of the sum of the senior executive's base salary and bonus. The accrued
amount plus earnings will become fully vested on December 28, 2002, provided the
senior executive is the Chairman of the Board and Chief Executive Officer of the
Company on such date. This arrangement also provides for the deferral of an
amount equal to the portion of the executive's base salary that exceeds $1
million. The deferred amount plus earnings will be fully vested at all times.
NOTE 12: STOCKHOLDER RIGHTS PLAN
In December 1998, the Company adopted a new Stockholder Rights Plan to replace
the then expiring plan originally adopted in December 1988. Under the new Plan,
one preferred stock purchase right is attached to each share of common stock
outstanding. The rights are nominally exercisable under certain circumstances,
to buy 1/100 share of a newly created Series A Junior Participating Preferred
Stock for $150. If any person or group (referred to as an "Acquiring Person")
becomes the beneficial owner of 15% or more of the Company's common stock (20%
or more in the case of certain acquisitions by institutional investors), each
right, other than rights held by the Acquiring Person which become void, will
become exercisable for common stock having a market value of twice the exercise
price of the right. If anyone becomes an Acquiring Person and afterwards the
Company or 50% or more of its assets is acquired in a merger, sale or other
business combination, each right (other than voided rights) will become
exercisable for common stock of the acquiror having a market value of twice the
exercise price of the right. The rights, which expire on December 21, 2008 and
do not have voting rights, may be amended by the Company's Board of Directors
and redeemed by the Company at $.01 per right at any time before anyone becomes
an Acquiring Person.
NOTE 13: EARNINGS PER COMMON SHARE
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No. 128 "Earnings per Share."
<TABLE>
<CAPTION>
(52 weeks) (53 weeks) (52 weeks)
In thousands Jan. 2, 1999 Jan. 3, 1998 Dec. 28, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $169,377 $184,644 $155,665
Weighted average
common shares
outstanding 65,503 69,619 72,396
Effect of dilutive securities:
Stock options 272 483 411
Put warrants 72 89 38
Weighted average
common shares
and common
share equivalents 65,847 70,191 72,845
============ ============ ============
================================================================================
</TABLE>
NOTE 14: CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
During fiscal 1998, 1997 and 1996, the Company made income tax payments of
$91,342,000, $98,425,000, and $94,632,000, respectively.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
NOTE 15: SEGMENT REPORTING
The Company has three segments: Wholesale Apparel, Wholesale Non-Apparel and
Retail. The Wholesale Apparel segment consists of women's and men's apparel
designed and marketed under various trademarks owned or licensed by the Company.
The Wholesale Non-Apparel segment consists of accessories, jewelry and cosmetics
designed and marketed under certain of those trademarks. The Retail segment
operates specialty retail and outlet stores that sell these apparel and
non-apparel products to the public.
The Company evaluates performance and allocates resources based on
operating profits or losses. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies. Intersegment sales are recorded at cost. There is no intercompany
profit or loss on intersegment sales, however, the wholesale segments are
credited with their proportionate share of the operating profit generated by the
Retail segment. The profit credited to the wholesale segments from the Retail
segment is eliminated in consolidation.
The Company's segments are business units that offer either different
products or distribute similar products through different distribution channels.
The segments are each managed separately because they either manufacture and
distribute distinct products with different production processes or distribute
similar products through different distribution channels.
<TABLE>
<CAPTION>
January 2, 1999
-------------------------------------------------------------------------------
Wholesale Wholesale Corporate/
In thousands Apparel Non-Apparel Retail Eliminations Totals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $1,802,832 $ 296,713 $ 430,839 $ 4,884 $2,535,268
Intercompany sales 183,218 23,602 -- (206,820) --
Depreciation expense 34,393 4,118 12,527 3,323 54,361
Segment operating profit (loss) 243,708 46,590 45,341 (77,961) 257,678
Segment assets 1,119,680 98,701 142,156 367,344 1,727,881
Expenditures for long-lived assets 102,870 12,282 14,420 -- 129,572
</TABLE>
<TABLE>
<CAPTION>
January 3, 1998
-------------------------------------------------------------------------------
Wholesale Wholesale Corporate/
In thousands Apparel Non-Apparel Retail Eliminations Totals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $1,705,760 $ 289,574 $ 411,436 $ 5,831 $2,412,601
Intercompany sales 153,836 18,667 -- (172,503) --
Depreciation expense 26,251 3,753 10,875 4,284 45,163
Segment operating profit (loss) 250,232 38,152 40,325 (51,414) 277,295
Segment assets 1,075,319 77,464 114,422 500,433 1,767,638
Expenditures for long-lived assets 37,218 2,485 7,840 3,750 51,293
</TABLE>
<TABLE>
<CAPTION>
December 28, 1996
-------------------------------------------------------------------------------
Wholesale Wholesale Corporate/
In thousands Apparel Non-Apparel Retail Eliminations Totals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $1,544,767 $ 272,140 $ 393,501 $ 7,110 $2,217,518
Intercompany sales 175,752 18,222 -- (193,974) --
Depreciation expense 22,871 3,885 10,239 5,132 42,127
Segment operating profit (loss) 216,265 28,377 49,200 (59,127) 234,715
Expenditures for long-lived assets 15,243 878 6,054 -- 22,175
========================================================================================================================
</TABLE>
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LIZ CLAIBORNE INC. AND SUBSIDIARIES
In the "Corporate/Eliminations" column the segment assets consist primarily of
the Company's investment portfolio and the segment operating loss consists
primarily of the elimination of the profit transfer from the retail segment to
the wholesale segments and in the 1998 fiscal year a $27,000,000 restructuring
charge.
The reconciling item to adjust segment operating profit to consolidated
pre-tax income consists of income generated by the Company's investment
portfolio in the amount of $8,999,000 in 1998, $15,849,000 in 1997 and
$14,350,000 in 1996. The reconciling item to adjust depreciation expense to the
consolidated statements of cash flows consists of amortization of trademarks in
the amount of $1,424,000 in 1998, $861,000 in 1997 and $723,000 in 1996.
A reconciliation to adjust segment assets to consolidated assets follows:
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
In thousands 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Total segment assets $ 1,727,881 $ 1,767,638
Intercompany receivables (22,415) (23,681)
Investments in wholly owned
subsidiaries (338,267) (449,773)
Other 25,592 11,101
Total consolidated assets $ 1,392,791 $ 1,305,285
=========== ===========
================================================================================
</TABLE>
NOTE 16: OTHER COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income"
which requires reporting of comprehensive income and its components in a
financial statement. The following table contains the components of the
adjustment to unrealized gains (losses) on available for sale securities
included in the consolidated statements of stockholders' equity.
<TABLE>
<CAPTION>
Jan. 2, Jan. 3, Dec. 28,
In thousands 1999 1998 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gain (loss)
on available for sale
securities, net of tax:
Unrealized holding
gain (loss) $ 1,627 $ 951 $(1,190)
Reclassification
adjustment (961) 396 199
Net unrealized
gain (loss) $ (666) $ 1,347 $ (991)
======= ======= =======
================================================================================
</TABLE>
NOTE 17: LEGAL PROCEEDINGS
On May 6, 1998, Mademoiselle Knitwear, Inc. ("Mademoiselle"), a former knitgoods
supplier for the Company, filed suit against the Company and three labor unions.
The suit seeks $30 million in compensatory damages, trebling under civil RICO,
and $50 million in punitive damages for a variety of claims against the Company
related to an alleged commitment by the Company to supply orders to Mademoiselle
for a certain number of knitwear goods during the period June 1992 through June
1998. On June 26, 1998, the Company and the union defendants moved to dismiss
the complaint for failure to state a claim for relief. The court heard oral
argument on the motion on October 1, 1998. At the conclusion of the argument,
The court indicated that it would dismiss the RICO and prima facie tort claims
against the Company and would issue a later decision on the remainder of the
claims. Discovery remains stayed.
On September 30, 1997, a related punitive class action, Chun Hua Mui v. Union of
Needletrades Industrial And Textile Employees (UNITE), et. al, was filed against
the Company and the three unions who are defendants in the Mademoiselle lawsuit
noted above. The employee complaint seeks on behalf of a class of current and
former Mademoiselle employees $30 million in damages, an injunction requiring
the Company to provide knitwear orders to Mademoiselle through June 1998, and a
constructive trust on certain liquidated damage payments paid by the Company to
UNITE in May 1997. The Company and the unions moved to dismiss the complaint for
failure to state a claim for relief. On August 18, 1998, the court issued an
opinion dismissing all of the claims against the Company, including the claim
under Section 302 of the NLRA brought jointly against the Company and the
unions. On September 2, 1998, plaintiffs moved for reargument of the dismissal
of the contract claims against the Company or, alternatively, for leave to amend
the complaint. The Company responded and the matter was fully briefed and
submitted to the court on October 30, 1998. On December 31, 1998, the court
issued an opinion granting reargument but adhering to its original determination
dismissing the contract claims against the Company and denying plaintiff's
motion for leave to amend. In that same opinion, the court granted class
certification with respect to the claims remaining in the case, which are
pending only against various of the union defendants.
The Company believes that these claims are without merit and intends to defend
these actions vigorously. Although the outcome of any such litigation 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
financial position or results of operations.
NOTE 18: SUBSEQUENT EVENT
On February 12, 1999, the Company completed the purchase of 84.5 percent of the
equity interest of Segrets, Inc. whose core business consists of the Sigrid
Olsen lines of sportswear. The total amount of funds required to acquire the
interest and refinance certain indebtedness was approximately $54 million. After
a 5 year period, the Company may elect to or be required to purchase the
remaining equity interest at an amount equal to their fair market value. The
annual net sales of Segrets, Inc. in 1998 were approximately $60 million.
Unaudited pro forma information related to this acquisition is not included as
the impact of this transaction is not material to the consolidated results of
the Company.
NOTE 19
Accrued Expenses
Accrued expenses at January 2, 1999 and January 3, 1998 consisted of the
following:
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
---- ----
<S> <C> <C>
Payroll and bonuses ........................ $23,660 $35,761
Taxes, other than taxes
on income .............................. 11,263 9,988
Employee benefits .......................... 14,266 17,048
Advertising ................................ 12,006 10,248
Restructuring reserve ...................... 26,283 --
Other ...................................... 41,439 65,771
- --------------------------------------------------------------------------------
$128,917 $138,816
======== ========
</TABLE>
<PAGE> 45
UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 1998 and 1997 is set forth in the
table below:
<TABLE>
<CAPTION>
March June September December
---------------------- ---------------------- ---------------------- -----------------------
All amounts in thousands (13 weeks) (14 weeks)
except per common share data 1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $656,005 $596,556 $565,219 $537,900 $703,904 $685,920 $610,140 $592,225
Gross profit 255,538 231,321 224,916 211,839 276,974 283,729 239,674 242,769
Net income 45,886 42,121 30,963 28,932 62,697 66,604 29,831* 46,987
Basic earnings per share $ .69 $ .59 $ .47 $ .41 $ .96 $ .95 $ .46* $ .70
Diluted earnings per share $ .69 $ .59 $ .47 $ .41 $ .96 $ .95 $ .46* $ .70
Dividends paid
per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
======== ======== ======== ======== ======== ======== ======== ========
====================================================================================================================================
</TABLE>
*Includes the after tax effect of a restructuring charge of $17,100 ($27,000
pretax) or $.26 per common share in 1998.
<PAGE> 46
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Liz Claiborne, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------------
(1) (2)
(In thousands)
Balance at Charged to Charged to Other Balance
Beginning Costs and Accounts Deductions at End
Description of Period Expenses -Describe -Describe of Period
- ----------- ---------- ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 1999:
Accounts Receivable - allowance for
doubtful accounts $ 2,591 $ 231 $ -- $ 657(A) $ 2,165
-------- ------ ------- ------ --------
YEAR ENDED JANUARY 3, 1998:
Accounts Receivable - allowance for
doubtful accounts $ 2,430 $ 551 $ -- $ 390(A) $ 2,591
-------- ------ ------- ------ --------
YEAR ENDED DECEMBER 28, 1996:
Accounts Receivable - allowance for
doubtful accounts $ 3,727 $ 896 $ -- $2,193(A) $ 2,430
-------- ------ ------- ------ --------
</TABLE>
NOTES:
(A) Uncollectible accounts written off, less recoveries.
<PAGE> 47
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by
reference from Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992 [the
"1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value
$1.00 per share (incorporated herein by reference from Exhibit
4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 4, 1998, between
Registrant and First Chicago Trust Company of New York, as
Rights Agent (incorporated herein by reference from Exhibit 1
to Registrant's Form 8-A dated as of December 4, 1998).
10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is
incorporated herein by this reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan (incorporated
herein by reference from Exhibit 10(hh) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1983 [the "1983 Annual Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan (incorporated herein
by reference from Exhibit 10(d)(i) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988).
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc. 1984 Stock
Option Plan (the "1984 Option Plan") (incorporated herein by
reference from Exhibit 10(nn) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984 Option Plan
(incorporated herein by reference from Exhibit 10(e)(i) to the
1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended
and restated (incorporated herein by reference from Exhibit
10(f) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1989 ["the 1989 Annual
Report"]).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company (incorporated herein by
reference from Exhibit 10(b) to Registrant's Quarterly Report
on Form 10-Q for the period ended July 2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g) to the 1992 Annual
Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated
herein by reference from Exhibit 10(g)(i) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
26, 1993 [the "1993 Annual Report"]).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
<PAGE> 48
Exhibit
No. Description
- ------- -----------
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by
reference from Exhibit 10(a) to Registrant's Quarterly Report
on Form 10-Q for the period ended July 2, 1994).
10(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e) (iii) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [the "1996 Annual Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iv) to the 1996 Annual Report).
10(e)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(v) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 3, 1998 [the
"1997 Annual Report"].
10(e)(vi)+* - Amendment No. 9 to the Savings Plan.
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement
Plan (the "Profit-Sharing Plan") (incorporated herein by
reference from Exhibit 10(h) to the 1992 Annual Report).
10(g)+ - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj) to the
1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i) to the
1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended October 1,
1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July 1,
1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(iv) to the 1996 Annual
Report).
10(g)(v)+* - Amendment No. 6 to the Profit-Sharing Plan.
10(h) - National Collective Bargaining Agreement, made and entered
into as of June 1, 1997, by and between Liz Claiborne, Inc.
and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through May 31,
2000 (incorporated herein by reference from Exhibit 10(h) to
the 1997 Annual Report).
10(h)(i) - Jobbers Agreement, made and entered into as of June 1, 1997,
by and between Liz Claiborne, Inc. and the Union of
Needletrades, Industrial and Textile Employees (UNITE) for the
period June 1, 1997 through May 31, 2000 (incorporated herein
by reference from Exhibit 10(h)(i) to the 1997 Annual Report).
10(i) - Executive Liability and Indemnification Policy No.
8103-53-79G, with Chubb Group of Insurance Companies (the
"Insurance Policy") (incorporated herein by reference from
Exhibit 10(l) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 [the "1994 Annual
Report"]).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
<PAGE> 49
Exhibit
No. Description
- ------- -----------
10(i)(i)* - Summary of Extension of the Insurance Policy.
10(j)+ - Excess Coverage Directors and Officers Liability Insurance
Policy No. 483-73-56, with National Union Fire Insurance
Company of Pittsburgh, PA (the "Excess Policy") (incorporated
herein by reference from Exhibit 10(j) to the 1996 Annual
Report).
10(j)(i)+* - Summary of Extension of the Excess Policy.
10(k)+* - Description of Liz Claiborne, Inc. 1998 Salaried Employee
Incentive Bonus Plan.
10(l) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for
premises located at 1441 Broadway, New York, New York between
Registrant and Lechar Realty Corp. (incorporated herein by
reference from Exhibit 10(n) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1990).
10(m)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors'
1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan")
(incorporated herein by reference from Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(m)(i)+ - Form of Option Agreement under the Outside Directors' 1991
Plan (incorporated herein by reference from Exhibit 10(m)(i)
to the 1996 Annual Report).
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992
Plan") (incorporated herein by reference from Exhibit 10(p) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991.
10(n)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(p)(i) to the 1993 Annual Report).
10(n)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by
reference from Exhibit 10(n)(ii) to the 1997 Annual Report).
10(n)(iii)+*- Amendment No. 3 to the 1992 Plan.
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by reference from
Exhibit 10(q) to the 1992 Annual Report).
10(p)+ - Form of Option Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(r) to the 1992 Annual
Report).
10(q)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q) to the
1996 Annual Report).
10(r)+ - Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
10(s)+ - Form of Restricted Transformation Share Agreement under the
1992 Plan (incorporated herein by reference from Exhibit 10(s)
to the 1997 Annual Report).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
<PAGE> 50
Exhibit
No. Description
- ------- -----------
10(t)+* - Description of Supplemental Life Insurance Plans.
10(u)+ - Description of unfunded death/disability benefits for certain
executives (incorporated herein by reference from Exhibit
10(u) to the 1992 Annual Report).
10(v)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus Plan
(incorporated herein by reference from Exhibit 10(v) to the
1994 Annual Report).
10(w)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as
amended and restated effective as of January 1,
1997)(incorporated herein by reference from Exhibit 10(w) to
the 1996 Annual Report).
10(x)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated
herein by reference from Exhibit 10(x) to the 1996 Annual
Report).
10(y)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment Agreement")
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended April 2, 1994).
10(y)(i)+ - Amendment to the Employment Agreement, dated as of November
20, 1995, between Registrant and Paul R. Charron (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual
Report).
10(y)(ii)+ - Amendment to the Employment Agreement, dated as of September
19, 1996, between Registrant and Paul R. Charron (including
the Liz Claiborne Retirement Income Accumulation Plan for the
benefit of Mr. Charron) (incorporated herein by reference from
Exhibit 10(y)(ii) to the 1996 Annual Report).
10(z)+ - Employment Agreement dated as of September 26, 1996 between
Registrant and Denise V. Seegal (incorporated herein by
reference from Exhibit 10(z) to the 1996 Annual Report).
10(aa)+ - Agreements, dated as of May 15, 1996, and May 17, 1996,
between Registrant and Jerome A. Chazen (incorporated herein
by reference from Exhibit 10(aa) to the 1996 Annual Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
99* - Undertakings.
(b) Reports on Form 8-K.
Registrant filed a Report on Form 8-K during the last quarter
of its fiscal year ended January 2, 1999. Such report, which
was filed on December 7, 1998, included information under Item
5, "Other Events", with respect to Registrant's adoption of a
Rights Agreement to replace the Stockholder Rights Agreement
which expired on December 21, 1998.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
* Filed herewith.
<PAGE> 1
Exhibit 10(e)(vi)
AMENDMENT NO. 9
TO THE
LIZ CLAIBORNE SAVINGS PLAN
(As Amended and Restated Effective January 1, 1987)
The Liz Claiborne Savings Plan as amended and restated
effective January 1, 1987 (the "Plan") is hereby further amended effective
January 1, 1998 in the following respects:
(1) Section 8.3 is restated to read as follows:
"8.3 Payment Medium. The vested balance of a Member's
Accounts shall be paid by (a) allocating all or a part of his
Accounts' balances to the Company Stock Fund as of the
Valuation Date established for distribution thereof in
accordance with the provisions of Article IX, and (b)
distributing the number of shares of Company stock then held
in the Trust for his Accounts equal to the portion of his
Accounts to be distributed to him; provided, that the Member
may request that his Accounts be distributed, in whole or in
part, in cash. Notwithstanding the foregoing, if the value of
a Member's vested interest in his Accounts does not exceed
(and did not exceed at the time of any prior distribution
under the Plan) $5,000 ($3,500 if prior to January 1, 1998)
(including, if applicable, a value equal to zero), such
Member's distribution shall be paid in cash except as the
Committee shall otherwise direct; provided, that the Member
may request that his Accounts be distributed, in whole or in
part, in shares of Company stock. If distribution is to be
made in cash in respect of any portion of a Member's interest
in the Trust Fund represented by Company stock, such Company
stock shall be converted into its cash equivalent based on the
value of Company stock as of the Valuation Date established
for distribution thereof."
(2) That portion of Section 9.1 that follows the subparagraph
entitled
"Option IV" is restated to read as follows:
"Notwithstanding the foregoing, (a) if the value of a Member's
vested interest in his Accounts does not exceed (and did not
exceed at the time of any prior distribution under the Plan)
$5,000 ($3,500 if prior to January 1, 1998) (including, if
applicable, a value equal to zero), Option I applies, (b) if
no timely election of Option I, II or III is received, and the
value of a Member's vested interest in his Accounts exceeds
(or exceeded at the time of any prior distribution under the
Plan) $5,000 ($3,500 if prior to January 1, 1998),
<PAGE> 2
Option IV applies, and (c) if no timely election of Option III
applies, distribution upon death (whether before or after
termination of employment for any other reason) shall be made
in a single payment as soon as administratively practicable
after the Valuation Date coincident with or next following the
date of death. If the Beneficiary is the Member's spouse,
distribution shall be made or begin within 90 days after the
Member's death if reasonably practicable and otherwise as soon
as practicable. If the Member had attained his Normal
Retirement Date prior to his death, distribution shall be made
or begin not later than 60 days following the close of the
Plan Year in which his death occurs. Any amount credited to
the deceased Participant's Accounts as of the last day of the
Plan Year in which he dies shall be distributed to his
Beneficiary, or included in the amounts being distributed
under Option III, as soon as practicable. No withdrawals under
Article VII may be made from any Accounts continued in the
Trust Fund following a Member's Termination of Employment. Any
amount distributable under Option II, III or IV of this
Article IX shall be held in the Member's Accounts until
distribution, and until distributed such Accounts shall be
subject to the periodic revaluation of the Trust Fund
described in Article IV. Notwithstanding the foregoing
provisions of this Section 9.1, no distributions shall be made
during the period July 1, 1994 through September 15, 1994, or
such other period of time as shall be determined by the
Recordkeeper and approved by the Committee."
(3) Section 9.13.3 is restated to read as follows:
"9.13.3 Default Procedure. If, upon Termination
of Employment, the value of a Member's vested interest in
his Accounts does not exceed (and did not exceed at the
time of any prior distribution under the Plan) $5,000
($3,500 if prior to January 1, 1998) and such Member does
not make a timely election under Section 9.13 whether or
not to directly rollover his distribution from the Plan,
such distribution shall be made directly to the Member."
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed by its duly authorized officer the 12th day of August, 1998.
LIZ CLAIBORNE, INC.
By: /s/ Samuel M. Miller
_____________________
ATTEST:
/s/ Nicholas J. Rubino
___________________________
2
<PAGE> 1
Exhibit 10(g)(v)
AMENDMENT NO. 6
TO THE
LIZ CLAIBORNE PROFIT-SHARING RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1987)
The Liz Claiborne Profit-Sharing Retirement Plan as amended
and restated effective January 1, 1987 (the "Plan") is hereby further amended
effective January 1, 1998 in the following respects:
(1) Section 7.4 is restated to read as follows:
"7.4 Small Benefits. Notwithstanding the preceding
provisions of this Article VII, in the event that a Member's
employment shall terminate for any reason other than death,
and if the vested balance of his Account as of the Valuation
Date coincident with or next following the date on which his
employment terminates does not exceed (and did not exceed as
of the date of any prior distribution to him under the Plan)
$5,000 ($3,500 if prior to January 1, 1998) (including, if
applicable, a value equal to zero), then such vested balance
shall be distributed to him in cash (if the balance is greater
than zero) if his employment terminated prior to July 1, 1994,
as soon as practicable after such Valuation Date, unless such
Member elects to receive such distribution as of any later
Valuation Date within the same Plan Year as the year in which
his employment terminates, and if his employment terminates on
or after July 1, 1994, as soon as practicable after the end of
the Plan Year in which his employment terminates, unless such
Member elects to receive such distribution as of any earlier
Valuation Date coincident with or following the date his
employment terminates. Effective for distributions made on or
after January 1, 1993, if such a Member does not make a timely
election under Section 7.7 whether or not to directly roll
over his distribution from the Plan, such distribution shall
be made directly to the Member."
(2) Section 7.5 is restated to read as follows:
"7.5 Limitation on Distribution. Notwithstanding any
other provision of this Plan, but subject to Article XII, if a
Member's employment terminates and his vested interest under
the Plan exceeds (or exceeded as of the date of any prior
distribution to him under the Plan) $5,000 ($3,500 if prior to
January 1, 1998), such vested interest shall not be
"immediately distributed"
<PAGE> 2
(within the meaning of section 411(a)(11) of the Code) without
his written consent."
(3) Section 8.5 is restated to read as follows:
"8.5 Small Benefits. Notwithstanding the preceding
provisions of this Article VIII, if the balance of any
Distribution Account to be distributed to a Beneficiary does
not exceed (and did not exceed as of the date of any prior
distribution to him under the Plan) $5,000 ($3,500 if prior to
January 1, 1998) such vested balance shall be paid to such
Beneficiary in accordance with Section 8.3.1."
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed by its duly authorized officer the 12th day of August, 1998.
LIZ CLAIBORNE, INC.
By: /s/ Samuel M. Miller
_____________________
ATTEST:
/s/ Nicholas J. Rubino
___________________________
2
<PAGE> 1
EXHIBIT 10(i)(i)
SUMMARY OF EXTENSION OF THE EXECUTIVE LIABILITY AND
INDEMNIFICATION POLICY NO. 8103-53-79G (THE "POLICY")
The Policy has been extended to August 11, 2001. The annual premium for the
period August 11, 1998 to August 11, 1999 is $273,000.
<PAGE> 1
EXHIBIT 10(j)(i)
SUMMARY OF EXTENSION OF THE EXCESS COVERAGE DIRECTORS AND OFFICERS
LIABILITY INSURANCE POLICY NO. 483-73-56 (THE "POLICY")
The Policy has been extended to August 11, 1999. The annual premium for the
period August 11, 1998 to August 11, 1999 is $90,000.
<PAGE> 1
EXHIBIT 10(k)
DESCRIPTION OF LIZ CLAIBORNE, INC. 1998 SALARIED
EMPLOYEE INCENTIVE BONUS PLAN
For the 1998 fiscal year, Liz Claiborne, Inc. maintained a bonus plan for full
time salaried employees under which bonuses were earned based upon a combination
of return on invested operating capital and earnings per share, as measured
against pre-established targets, and, as applicable, achievement of targeted
levels of divisional direct operating profit and/or departmental performance
considerations and the achievement of individual goals, subject to certain terms
and conditions. A similar bonus plan is anticipated for 1999.
<PAGE> 1
Exhibit 10(n)(iii)
AMENDMENT TO THE
LIZ CLAIBORNE, INC. 1992 STOCK INCENTIVE PLAN
WHEREAS, Liz Claiborne, Inc. (the "Company") has adopted the Liz
Claiborne, Inc. 1992 Stock Incentive Plan (the "Plan");
WHEREAS, Section 3.1 of the Plan provides that the Plan may be amended
by the Board of Directors of the Company (the "Board");
WHEREAS, the Board has determined that it is in the best interests of
the Company and its stockholders to amend the Plan, in the manner contemplated
below, subject to and effective upon the approval of the amendment by the
stockholders of the Company at the 1998 Annual Meeting of Stockholders of the
Company, so as to insert limitations called for under Section 162(m) of the
Internal Revenue Code;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 1.2(a) of the Plan is amended by adding at the end of such Section
the following:
"To the extent required for compensation realized from awards under the
Plan to be deductible by the Company pursuant to Section 162(m) of the Internal
Revenue Code of 1986, the members of the Committee shall be "outside directors"
within the meaning of Section 162(m)."
2. The final sentence of Section 1.5(a) of the Plan is amended to read as
follows:
"Except for the limit with respect to stock options and stock
appreciation rights set forth in Section 1.5(d) and the limit with respect to
incentive stock options set forth in Section 2.2(h), no provision of this Plan
shall be deemed to limit the number of shares with respect to which the
Committee may make awards to any eligible person."
3. A new Section 1.5(d) is added to the Plan to read as follows:
"(d) Subject to adjustment as provided in Section 1.5(b), the total
number of shares of Common Stock with respect to which stock options and stock
appreciation rights may be granted to any one employee of the Company or a
subsidiary during any one calendar year shall not exceed 200,000 shares."
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer the 14 day of May, 1998.
LIZ CLAIBORNE, INC.
By: /s/ Samuel M. Miller
ATTEST:
/s/ Nicholas J. Rubino
<PAGE> 1
EXHIBIT 10(t)
DESCRIPTION OF SUPPLEMENTAL LIFE INSURANCE PLANS
Vice Presidents of Liz Claiborne, Inc. (the "Company") receive universal life
insurance policies which provide coverage equal to two times annual base salary.
The Company pays the premiums on each policy during the employment period,
enabling the employee to have a portable life insurance policy with a minimal
cash surrender value.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
LIZ CLAIBORNE, INC.
Claiborne Limited Hong Kong
Liz Claiborne Cosmetics, Inc. Delaware
Liz Claiborne Accessories, Inc. Delaware
Liz Claiborne Accessories-Sales, Inc. Delaware
Liz Claiborne Export, Inc. Delaware
Liz Claiborne Foreign Holdings, Inc. Delaware
Liz Claiborne International Limited Hong Kong
Liz Claiborne (Israel) Ltd. Israel
Liz Claiborne (Italy) Ltd. Delaware
L. C. Licensing, Inc. Delaware
Liz Claiborne Sales, Inc. Delaware
Liz Claiborne-Texas, Inc. Delaware
LCI Investments, Inc. Delaware
LCI Holdings, Inc. Delaware
Liz Claiborne (Canada) Limited Canada
Liz Claiborne, S.A. Costa Rica
L.C. Caribbean Holdings, Inc. Delaware
Liz Claiborne Shoes, Inc. Delaware
L. C. Service Company, Inc. Delaware
Liz Claiborne Europe U.K.
Liz Claiborne do Brasil Industria E Comercio Ltda. Brazil
LC/QL Investments, Inc. Delaware
L.C. Dyeing, Inc. Delaware
L.C. Augusta, Inc. Delaware
Textiles Liz Claiborne Guatemala, S.A. Guatemala
Liz Claiborne (Malaysia) SDN.BHD Malaysia
Liz Claiborne B.V. Netherlands
L.C. Special Markets, Inc. Delaware
Liz Claiborne Foreign Sales Corporation US Virgin Islands
Liz Claiborne Operations (Israel) 1993 Limited Israel
Liz Claiborne GmbH Germany
Liz Claiborne De El Salvador, S.A., de C. V. El Salvador
L.C.I. Fragrances, Inc. Delaware
DB Newco, Inc. Delaware
LC Libra, LLC. Delaware
Liz Claiborne Japan, Inc. Delaware
Segrets, Inc. Delaware
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 2-77590, 2-95258, 2-33661, 33-51257,
033-63859, 333-09851 and 333-48423.
/s/ Arthur Andersen LLP
New York, New York
April 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 164,659
<SECURITIES> 65,625
<RECEIVABLES> 252,045
<ALLOWANCES> 0
<INVENTORY> 475,077
<CURRENT-ASSETS> 1,075,293
<PP&E> 540,419
<DEPRECIATION> 283,057
<TOTAL-ASSETS> 1,392,791
<CURRENT-LIABILITIES> 363,351
<BONDS> 0
0
0
<COMMON> 88,219
<OTHER-SE> 892,891
<TOTAL-LIABILITY-AND-EQUITY> 1,392,791
<SALES> 2,535,268
<TOTAL-REVENUES> 2,535,268
<CGS> 1,538,166
<TOTAL-COSTS> 1,538,166
<OTHER-EXPENSES> 739,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 480
<INCOME-PRETAX> 266,677
<INCOME-TAX> 97,300
<INCOME-CONTINUING> 169,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,377
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.57
<FN>
<F1> The earnings per share information has been prepared in accordance with
Statement of Financial Accounting Standards No. 128 "Earnings per Share",
and the basic and diluted earnings per share have been entered in place of
primary and fully diluted, respectively.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
To Be Incorporated By Reference Into
Registration Statements on Forms S-8
(File Nos. 2-77590, 2-95258, 2-33661, 33-51257, 033-63859, 333-09851
and 333-48423)
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
