SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...............to.................
Commission file number: 0-9831
LIZ CLAIBORNE, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2842791
----------------------------- -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1441 Broadway, New York, New York 10018
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(212) 354-4900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_].
The number of shares of Registrant's Common Stock, par value $1.00 per share,
outstanding at November 14, 2000 was 51,820,556.
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PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000,
January 1, 2000 and October 2, 1999 3
Condensed Consolidated Statements of Income for the Nine and
Three Month Periods Ended September 30, 2000 and October 2, 1999 4
Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended September 30, 2000 and October 2, 1999 5
Notes to Condensed Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-17
OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Statement Regarding Forward-Looking Disclosure 18-19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
(Unaudited) (Unaudited)
Sept. 30, Jan. 1, Oct. 2,
2000 2000 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,934 $ 37,940 $ 11,242
Accounts receivable - trade 542,542 298,924 508,887
Inventories 457,421 418,348 408,726
Deferred income tax benefits 29,609 27,764 32,043
Other current assets 80,395 75,633 79,082
------------ ----------- -----------
Total current assets 1,131,901 858,609 1,039,980
------------ ----------- -----------
PROPERTY AND EQUIPMENT - NET 302,851 284,171 275,531
GOODWILL AND INTANGIBLES - NET 270,862 227,663 123,737
OTHER ASSETS 35,959 41,358 87,238
------------ ----------- -----------
TOTAL ASSETS $ 1,741,573 $ 1,411,801 $ 1,526,486
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ -- $ -- $ 86,200
Accounts payable 217,885 184,556 217,021
Accrued expenses 147,256 160,220 153,764
Income taxes payable 35,833 7,535 43,438
------------ ----------- -----------
Total current liabilities 400,974 352,311 500,423
------------ ----------- -----------
LONG TERM DEBT 437,301 116,085 --
OTHER NON CURRENT LIABILITIES 15,000 15,000 15,000
DEFERRED INCOME TAXES 31,959 23,111 17,870
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 4,543 3,125 1,811
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 88,219
Capital in excess of par value 83,632 80,257 79,718
Retained earnings 1,957,501 1,827,720 1,784,812
Accumulated other comprehensive loss (4,645) (3,263) (2,702)
------------ ----------- -----------
2,124,707 1,992,933 1,950,047
Common stock in treasury, at cost, 35,143,928 , 31,498,577
and 25,187,948 shares (1,272,911) (1,090,764) (958,665)
------------ ----------- -----------
Total stockholders' equity 851,796 902,169 991,382
------------ ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,741,573 $ 1,411,801 1,526,486
============ ============ ===========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
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<TABLE>
<CAPTION>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per common share data)
(Unaudited) (Unaudited)
-------------------------------------------------------
Nine Months Ended Three Months Ended
---------------------------- ----------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 2,350,151 $ 2,129,489 $ 879,025 $ 821,024
Cost of goods sold 1,428,868 1,308,765 528,370 499,943
------------ ------------ ------------ -------------
GROSS PROFIT 921,283 820,724 350,655 321,081
Selling, general & administrative expenses 682,448 597,268 239,117 216,044
Restructuring charge 5,402 -- 5,402
------------ ------------ ------------ -------------
OPERATING INCOME 233,433 223,456 106,136 105,037
Other Income (Expense), net 7,477 (1,124) 5,159 (523)
Interest (Expense) Income, net (14,323) 1,610 (6,495) (644)
------------ ------------ ------------ -------------
INCOME BEFORE PROVISIONFOR INCOME TAXES 226,587 223,942 104,800 103,870
Provision for income taxes 81,570 81,300 37,728 37,500
------------ ------------ ------------ -------------
NET INCOME $ 145,017 $ 142,642 $ 67,072 $ 66,370
=========== ============ ============ =============
NET INCOME PER WEIGHTED AVERAGE SHARE, BASIC $2.69 $2.27 $1.27 $1.08
NET INCOME PER WEIGHTED AVERAGE SHARE, DILUTED $2.67 $2.26 $1.26 $1.08
WEIGHTED AVERAGE SHARES, BASIC 53,936 62,852 52,771 61,335
WEIGHTED AVERAGE SHARES, DILUTED 54,353 63,034 53,222 61,546
DIVIDENDS PAID PER COMMON SHARE $0.34 $0.34 $0.11 $0.11
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
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<TABLE>
<CAPTION>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
-----------------------------
Nine Months Ended
-----------------------------
September 30, October 2,
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 145,017 $ 142,642
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 54,755 49,807
Deferred taxes 7,205 4,260
Restructuring charge 5,402 --
Other - net 10,200 4,559
Change in current assets and liabilities:
(Increase) in accounts receivable (244,295) (247,640)
(Increase) decrease in inventories (23,600) 84,818
(Increase) decrease in other current assets (3,836) 6,564
Increase (decrease) in accounts payable 28,477 (10,937)
(Decrease) increase in accrued expenses (28,311) 20,034
Increase in income taxes payable 28,298 32,404
------------ -------------
Net cash (used in) provided by operating activities (20,688) 86,177
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (14,572) --
Disposals of investment instruments 14,572 64,874
Purchases of property and equipment (50,307) (51,942)
Purchases of trademarks and licenses (3,600) --
Purchase of restricted equity investment -- (29,000)
Payments for acquisitions, net of cash acquired (53,037) (138,311)
Other - net (4,603) (4,492)
------------ -------------
Net cash (used in) investing activities (111,547) (158,871)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in commercial paper, net 321,216 --
Short term borrowings, net -- 86,200
Proceeds from exercise of common stock options 16,481 4,060
Dividends paid (18,256) (21,292)
Purchase of common stock, net of put warrant premiums (202,170) (150,010)
------------ -------------
Net cash provided by (used in) financing activities 117,271 (81,042)
------------ -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,042) 319
------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (16,006) (153,417)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,940 164,659
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,934 $ 11,242
============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from this report, as is permitted by such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest annual report on Form 10-K. Certain
items previously reported in specific captions in the accompanying financial
statements have been reclassified to conform with the current period's
classifications.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of a normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for the
full year.
2. ACQUISITIONS AND LICENSING COMMITMENTS
On July 26, 2000, the Company completed the purchase of the majority of the
assets of the Monet Group ("Monet") for a total purchase price of $40.2 million.
Monet is a leading designer and marketer of branded fashion jewelry sold through
department stores, popular priced merchandisers and internationally under the
Monet, Monet Pearl, Monet Signature, Monet2, Trifari and Marvella brands. Excess
purchase price over fair market value of the underlying net assets was allocated
to goodwill and property based on preliminary estimates of fair values, and is
subject to adjustment. Goodwill is being amortized on a straight-line basis over
20 years. The fair value of assets acquired was $51.3 million and liabilities
assumed were $15.4 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.
On November 2, 1999, the Company completed the purchase of the entire equity
interest of Podell Industries, Inc.; on June 8, 1999, the Company completed the
purchase of 85.0 percent of the equity interest of Lucky Brand Dungarees, Inc.;
and on February 12, 1999, the Company completed the purchase of 84.5 percent of
the equity interest of Segrets, Inc., which was subsequently increased to
approximately 97.5% in October 2000.
In August 1999, the Company consummated a license agreement with Kenneth Cole
Productions, Inc.; in January 1998 and December 1999, the Company consummated
license agreements with an affiliate of Donna Karan International, Inc.; and in
July 1998, the Company consummated a license agreement with Candie's, Inc. The
Company acts as licensee under these agreements.
Reference is made to the Company's latest annual report on Form 10-K for further
information regarding the transactions consummated in 1998 and 1999.
6
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. COMPREHENSIVE INCOME
Comprehensive income is comprised of net income, the effects of foreign currency
translation and changes in unrealized gains and losses on securities. Total
comprehensive income for interim periods was as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, October 2, September 30, October 2,
(Dollars in thousands) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
------------- ------------ ------------- ------------
Comprehensive income, net of tax:
Net income $ 145,017 $ 142,642 $ 67,072 $ 66,370
Foreign currency translation (1,042) 319 (195) 303
Changes in unrealized gains or losses
on securities (340) (177) (2,877) (360)
Reclassification adjustment for gains
or losses included in net income -- (300) 431 --
------------- ------------ ------------- ------------
Comprehensive income, net of tax: $ 143,635 $ 142,484 $ 64,431 $ 66,313
============= ============ ============= ============
</TABLE>
4. MARKETABLE SECURITIES
There were no available-for-sale marketable securities at September 30, 2000,
January 1, 2000 or October 2, 1999.
For the nine-month periods ended September 30, 2000 and October 2, 1999, gross
realized gains on sales of available-for-sale securities totaled $10,417,000 and
$751,000, respectively. The net adjustment to unrealized holding gains and
losses on available-for-sale securities for the nine month periods ended
September 30, 2000 and October 2, 1999, was a charge of $340,000 (net of
$192,000 in deferred income taxes) and a charge of $477,000 (net of $275,000 in
deferred income taxes), respectively, which was included in retained earnings.
7
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. INVENTORIES, NET
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market and consist of the following:
(Dollars in thousands)
Sept. 30, Jan. 1, Oct. 2,
2000 2000 1999
---------- ---------- ---------
Raw materials $ 23,250 $ 24,028 $ 13,021
Work in process 10,311 7,516 10,345
Finished goods 423,860 386,804 385,360
---------- ---------- ---------
$ 457,421 $ 418,348 $ 408,726
========== ========== =========
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(Dollars in thousands)
Sept. 30, Jan. 1, Oct. 2,
2000 2000 1999
---------- ---------- ----------
Land and buildings $ 132,215 $ 131,681 $ 134,548
Machinery and equipment 267,356 243,262 240,960
Furniture and fixtures 76,340 67,928 64,652
Leasehold improvements 168,766 145,100 134,795
---------- ---------- ----------
644,677 587,971 574,955
Less: Accumulated depreciation
and amortization 341,826 303,800 299,424
---------- ---------- ----------
$ 302,851 $ 284,171 $ 275,531
========== ========== ==========
7. RESTRUCTURING CHARGE
In December 1998, the Company recorded a $27.0 million (pre-tax) 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 reserve was $5.1 million as of January 1, 2000, and $3.7
million as of September 30, 2000. For the nine months ended September 30, 2000,
the Company recorded spending against this reserve of $1.9 million, and deemed
$1.1 million of the reserve to be no longer necessary.
In September 2000, the Company recorded a net restructuring charge of $5.4
million (pre-tax), representing a new charge of $6.5 million, principally to
cover the closure of eight additional under-performing specialty retail stores,
the closure of one of our divisional offices, and severance related costs,
reduced by the $1.1 million deemed no longer necessary as stated above. This
charge reduced net income by $3.5 million, or $.06 per common share, in the
third quarter of 2000.
8
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. CASH DIVIDENDS and COMMON STOCK REPURCHASE
On September 22, 2000, the Company's Board of Directors declared a quarterly
cash dividend on the Company's common stock at the rate of $.1125 per share, to
be paid on December 8, 2000 to stockholders of record at the close of business
on November 17, 2000. Also, on October 14, 1999, the Company's Board of
Directors authorized the Company to purchase up to an additional $450 million of
its common stock in open market purchases and privately negotiated transactions.
As of November 14, 2000, we have $96.4 million remaining in our buyback
authorization.
9. EARNINGS PER COMMON SHARE
The following is an analysis of the differences between basic and diluted
earnings per share in accordance with SFAS No. 128 "Earnings per Share."
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
(Dollars in thousands) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $145,017 $142,642 $ 67,072 $ 66,370
Weighted average common
Shares outstanding 53,936 62,852 52,771 61,335
Effect of dilutive securities:
Stock options and restricted stock grants 417 172 451 211
Put warrants -- 10 -- --
-------- -------- -------- --------
Weighted average common Shares outstanding
and common share equivalents 54,353 63,034 53,222 61,546
======== ======== ======== ========
</TABLE>
10. CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
During the nine months ended September 30, 2000, the Company made income tax
payments of $40,532,000 and interest payments of $4,437,000. During the nine
months ended October 2, 1999, the Company made income tax payments of
$40,488,000 and interest payments of $641,000.
9
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. FORWARD CONTRACTS
The Company enters into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year. Gains and
losses on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the transactions are completed
and are accounted for as part of the underlying transaction. As of September 30,
2000, the Company had forward contracts maturing through December 2000 to sell
23,000,000 Canadian dollars, 1,000,000 British pounds sterling, and 150,000,000
Spanish pesetas. The aggregate U.S. dollar value of the foreign exchange
contracts is approximately $18,261,000. Unrealized gains and losses for
outstanding foreign exchange forward contracts were not material at September
30, 2000.
12. 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 and other trademarks. The Retail
segment operates specialty retail and outlet stores that sell these apparel and
non-apparel products to the public.
<TABLE>
<CAPTION>
For the Six Months ended September 30, 2000
Wholesale Wholesale Other/
(in thousands) Apparel Non-Apparel Retail Elim. Total
------------------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $1,709,754 $ 285,719 $ 344,750 $ 9,928 $2,350,151
Intercompany sales 145,690 15,035 -- (160,725) --
---------- ----------- --------- --------- ----------
1,855,444 300,754 344,750 (150,797) 2,350,151
Segment operating profit (loss)
from external customers $173,707 $ 25,931 $ 35,693 $ (1,898) $ 233,433
Intercompany segment operating
profit (loss) 35,828 5,986 -- (41,814) --
---------- ----------- --------- --------- ----------
209,535 31,917 35,693 (43,712) 233,433
</TABLE>
10
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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended October 2, 1999
Wholesale Wholesale Other/
(in thousands) Apparel Non-Apparel Retail Elim. Total
------------------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $1,572,838 $ 231,733 $ 317,888 $ 7,030 $2,129,489
Intercompany sales 130,784 17,914 -- (148,698) --
---------- ----------- --------- --------- ----------
1,703,622 249,647 317,888 (141,668) 2,129,489
Segment operating profit (loss)
from external customers $ 174,065 $ 16,556 $ 32,432 $ 403 $ 223,456
Intercompany segment operating
profit (loss) 31,083 6,430 -- (37,513) --
---------- ----------- --------- --------- ----------
205,148 22,986 32,432 (37,110) 223,456
For the Three Months Ended September 30, 2000
Wholesale Wholesale Other/
(in thousands) Apparel Non-Apparel Retail Elim. Total
------------------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $ 609,329 $ 139,619 $ 126,524 $ 3,553 $ 879,025
Intercompany sales 62,217 7,441 -- (69,658) --
---------- ----------- --------- --------- ----------
671,546 147,060 126,524 (66,105) 879,025
Segment operating profit (loss)
from external customers $ 74,180 $ 22,734 $ 12,914 $ (3,692) $ 106,136
Intercompany segment operating
profit (loss) 13,826 2,027 -- (15,853) --
---------- ----------- --------- --------- ----------
88,006 24,761 12,914 (19,545) 106,136
For the Three Months Ended October 2, 1999
Wholesale Wholesale Other/
(in thousands) Apparel Non-Apparel Retail Elim. Total
------------------------------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers $ 601,291 $ 104,670 $ 112,256 $ 2,807 $ 821,024
Intercompany sales 37,989 5,285 -- (43,274) --
---------- ----------- --------- --------- ----------
639,280 109,955 112,256 (40,467) 821,024
Segment operating profit (loss)
from external customers $ 74,006 $ 13,815 $ 14,169 $ 3,047 $ 105,037
Intercompany segment operating
profit (loss) 13,282 2,962 -- (16,244) --
---------- ----------- --------- --------- ----------
87,288 16,777 14,169 (13,197) 105,037
</TABLE>
The reconciling item to adjust segment operating profit to consolidated pre-tax
income for the nine month periods consists of net other income of $7.5 million
and net interest expense of $14.3 million for 2000, and net other expense of
$1.1 million and net interest income of $1.6 million for 1999. The reconciling
item to adjust segment operating profit to consolidated pre-tax income for the
third quarter consists of net other income of $5.2 million and net interest
expense of $6.5 million for 2000, and net other expense of $0.5 million and net
interest expense of $0.6 million for 1999.
11
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. DRESS LICENSE
In February 2000, the Company consummated an agreement with Leslie Fay Company,
Inc. to license the Company's Liz Claiborne Dresses and Elisabeth Dresses
labels. The licensing agreement was effective as of the date of the agreement
and has not interrupted the flow of merchandise. Not included in the agreement
are dresses sold as part of the Liz Claiborne Collection, Lizsport, Lizwear, Liz
& Co. and Elisabeth sportswear lines. The initial term of the license agreement
runs through February 28, 2005, with an option to renew on the part of the
licensee, for two additional 5-year terms, if certain sales thresholds are met.
14. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2000, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("EITF") announced that it reached a conclusion on issue 00-14
"Accounting for Certain Sales Incentives." Issue 00-14 establishes requirements
for the recognition and display of sales incentives such as discounts, coupons
and rebates within the financial statements. The Company will adopt this
consensus in the fourth quarter of 2000. The Company has not historically
offered to its customers discount coupons or rebates. Any product discounts
offered to customers are reflected as a reduction in the selling price of the
product recorded in net sales. Therefore, the Company does not expect this new
rule to have a material effect on the Company's reported results or financial
position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133), as amended by FAS No. 137 and FAS No. 138.
FAS No. 133, as amended, is effective prospectively for the Company beginning in
the year 2001, and establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings or other
comprehensive income depending on whether such derivative is designated as part
of a hedge transaction. The Company believes that adoption of this statement, as
amended, will not have a material impact on the Company's financial position,
results of operations or cash flows.
12
<PAGE>
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates the following business segments: Wholesale Apparel,
Wholesale Non-Apparel and Retail. All data and discussion with respect to our
specific segments included within this "Management's Discussion and Analysis" is
presented after applicable intercompany eliminations. Please refer to Note 12 of
Notes to Condensed Consolidated Financial Statements (Unaudited).
Third quarter ended September 30, 2000 compared to third quarter ended October
2, 1999
Net sales for the third quarter of 2000 were $879.0 million, an increase of
$58.0 million, or 7.1%, over net sales of $821.0 million for the third quarter
of 1999. This increase reflected a 1.3% increase in our Wholesale Apparel
segment to $609.3 million, an increase of 33.4% in Wholesale Non-Apparel to
$139.6 million, and an increase in Retail of 12.7% to $126.5 million. The third
quarter typically represents the Company's highest sales quarter in each year,
reflecting normal seasonal variations.
The increase in net sales of Wholesale Apparel primarily reflected continued
strength of our Special Markets and LUCKY BRAND DUNGAREES businesses due to
higher unit volume partially offset by slightly lower net average unit selling
prices. The net sales of our LUCKY BRAND DUNGAREES business along with the net
sales of our LAUNDRY business acquired on November 2, 1999, the sales generated
by the March 2000 launch of our Crazy Horse Men's apparel line and the August
2000 launch of our licensed Kenneth Cole New York women's apparel line together
accounted for $46.3 million of our 2000 third quarter total net sales increase.
The increase also reflected sales increases in our Claiborne men's business due
to higher unit volume partially offset by lower net average unit selling prices,
and in our ELISABETH business due to higher net average unit selling prices
partially offset by lower unit volume. These gains were partially offset by
sales declines reflecting lower unit volume in our Casual business resulting
from the difficult retail apparel environment and a planned shift in receipts at
two of our major accounts from the third quarter into the fourth quarter, and
sales decreases resulting from the licensing of our dress business in February
2000. We have also experienced sales declines in our DANA BUCHMAN and DKNY
(R)JEANS and DKNY(R)ACTIVE businesses reflecting in both cases lower net average
unit selling prices reflecting higher markdowns partially offset by higher unit
volume, and also sales declines in our Career business due to lower unit volume.
The increase in net sales of our Wholesale Non-Apparel segment reflected gains
in all of our businesses in this segment, most notably in our Jewelry division,
reflecting the inclusion of our MONET business acquired on July 26, 2000 and, to
a lesser extent, increases in our Liz and Special Markets brands. The growth in
our Cosmetics business reflects higher unit volume partially offset by lower net
average unit selling prices, and is benefiting from the launch of our LUCKY YOU
fragrance line in August 2000.
The increase in net sales of our Retail segment reflected a 10.7% increase in
our Outlet store sales resulting primarily from 14 additional stores on a
period-to-period basis (we ended the third quarter with 151 Outlet stores),
helped by a slightly positive comparable store sales increase. Our Specialty
Retail store sales increased 8.9%, due to a significant comparable store sales
increase for our LUCKY BRAND DUNGAREES stores and six new LUCKY BRAND DUNGAREES
stores opened in the quarter. We ended the quarter with a total of 106 Specialty
Retail stores across nine formats.
Gross profit dollars increased $29.6 million, or 9.2%, in 2000 over 1999. Gross
profit as a percent of sales increased to 39.9% in 2000 from 39.1% in 1999. This
increase in gross profit rate in the quarter reflected lower initial unit costs
as a result of continued consolidation, configuration and certification of our
supplier base, combined with improved matching of our production orders with our
customer orders at the SKU level through the use of our new systems and revamped
business processes implemented in late 1999. These processes also enabled us to
better manage our inventories and continue to improve margins on the sale of
excess inventories in the third quarter. Our gross profit rate also benefited
from the licensing of our low margin Dress business and the purchase of our
MONET business, as well as increased penetration of our new businesses,
including LAUNDRY, LUCKY BRAND DUNGAREES and SIGRID OLSEN, which generally run
at relatively higher gross margin rates than the Company average. These
increases were partially offset by increased financial support paid to our
retail customers in our better-priced apparel businesses, significantly lower
margins in our DKNY(R)JEANS Women's business, and lower margins within, and
increased penetration of, our Special Markets business, which runs at a lower
gross profit rate than the Company average.
Selling, general and administrative expenses ("SG&A") increased $23.1 million,
or 10.7%, in 2000 over 1999, and expressed as a percent of sales increased to
27.2% in 2000 from 26.3% in 1999. These results principally reflect relatively
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higher SG&A rates in our MONET, LAUNDRY, LUCKY BRAND DUNGAREES and SIGRID OLSEN
businesses, the planned dilution from the start-up costs of our new CITY DKNY
(R) license, and the planned increase in distribution costs resulting from the
start-up of our new automated facility constructed in Mt. Pocono, PA, as well as
the increase in depreciation and amortization of leasehold improvements at our
New York offices and the significant investment over the past several years in
the technological upgrading of our distribution facilities and information
systems. The reduced sales penetration of our relatively lower cost casual
apparel business also contributed to the rate increase. These factors were
partially offset by increased penetration of our Special Markets business, which
is supported by relatively lower SG&A levels. The increase in the dollar level
of our SG&A was mitigated by the acceleration of our expense management and cost
reduction programs during the quarter.
In September 2000, the Company recorded a restructuring charge of $5.4 million
(pre-tax), net of $1.1 million of a prior period restructuring charge deemed no
longer necessary (See Note 7 of Notes to Condensed Consolidated Financial
Statements). This charge is principally to cover the closure of eight additional
under-performing specialty retail stores, the closure of one of our divisional
offices, and severance related costs. This charge reduced net income by $3.5
million, or $.06 per common share, in the third quarter of 2000.
As a result of the factors described above, operating income, before a pre-tax
restructuring charge of $5.4 million, increased $6.5 million, or 6.2%, to $111.5
million, and as a percent of sales fell to 12.7% from 12.8% last year. Segment
operating income in our Wholesale Apparel segment increased $0.2 million to
$74.2 million (12.2% of sales) in 2000 compared to $74.0 million (12.3% of
sales) in 1999. Segment operating income in our Wholesale Non-Apparel segment
increased $8.9 million to $22.7 million (16.3% of sales) in 2000 compared to
$13.8 million (13.2% of sales) in 1999. Segment operating income in our Retail
segment decreased $1.3 million to $12.9 million (10.2% of sales) in 2000
compared to $14.2 million (12.6% of sales) in 1999.
Net other income in 2000 was $5.2 million compared to other expense of $0.5
million in 1999. Other income for the 2000 period includes a special investment
gain of $5.4 million related to the sale of marketable equity securities, net of
associated expenses, partially offset by minority interest and other
non-operating expenses.
Net interest expense in 2000 was $6.5 million compared to $0.6 million in 1999.
This $5.9 million increase reflects higher net interest costs incurred to
finance our strategic initiatives including our recently acquired businesses,
the repurchase of common stock, capital expenditures primarily related to the
technological upgrading of our distribution facilities and information systems,
and in-store merchandise shops.
Net income increased $0.7 million in 2000 to $67.1 million, and declined as a
percent of net sales to 7.6% in 2000 from 8.1% in 1999, due to the factors
described above. As described above, net income for the third quarter of 2000
includes an after-tax restructuring charge of $3.5 million, and an after-tax
special investment gain of $3.5 million. Diluted earnings per common share,
excluding the restructuring charge and special investment gain, increased 16.7%
to $1.26 in 2000 from $1.08 in 1999. Diluted earnings per common share,
including the restructuring charge and special investment gain was $1.26 in the
third quarter of 2000. Our average diluted shares outstanding declined by 8.3
million, or 13.5% in the third quarter of 2000, on a period-to-period basis, to
53.2 million as a result of our ongoing stock repurchase program. We purchased
1.177 million shares during the third quarter of 2000 for $50.4 million. Since
the end of the third quarter we have purchased an additional 449 thousand shares
for $18.9 million. As of November 14, 2000, we have $96.4 million remaining in
our buyback authorization.
Nine months ended September 30, 2000 compared to nine months ended October 2,
1999
Net sales for the nine months of 2000 were $2,350.2 million, an increase of
$220.7 million, or 10.4%, over net sales of $2,129.5 million for the nine months
of 1999. This increase reflected an 8.7% increase in our Wholesale Apparel
segment to $1,709.8 million, an increase of 23.3% in Wholesale Non-Apparel to
$285.7 million, and an increase in Retail of 8.5% to $344.8 million.
The increase in net sales of Wholesale Apparel primarily reflected significant
growth in our Special Markets business due to higher unit volume and higher net
average unit selling prices, and the inclusion of sales for a full nine months
of our new businesses: SIGRID OLSEN, LUCKY BRAND DUNGAREES and LAUNDRY, the
March 2000 launch of our CRAZY HORSE Men's apparel line, and the August 2000
launch of our licensed KENNETH COLE NEW YORK women's apparel line, which
together accounted for $142.3 million of our 2000 nine months total net sales
increase. The increase also reflected sales increases in our Claiborne men's
business due to higher unit volume partially offset by lower net average unit
selling prices, and in our ELISABETH business due to higher unit volume and
higher net average unit selling prices. These gains were partially offset by
sales decreases resulting from the licensing of our dress business in February
2000; sales declines in our DANA BUCHMAN business due to lower net average unit
selling prices reflecting higher markdowns, partially offset by slightly higher
unit volume; sales declines in our Casual business, due to the third quarter
sales decline, as well as sales declines in our Career business due to lower
unit volume and lower net average unit selling prices.
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The increase in our Wholesale Non-Apparel segment was due to significant net
sales increases in our Cosmetics business, which is benefiting from continued
strong sales of our licensed CANDIE'S and owned CURVE fragrances, and from the
launch of our LUCKY YOU fragrance in August. The increase also reflected gains
in our Jewelry business, which includes the sales of our MONET business acquired
on July 26, 2000. We also experienced gains in our Handbags business due to
higher unit volume partially offset by lower net average unit selling prices.
These gains were partially offset by a decline in our fashion accessories
business, due primarily to lower net average unit selling prices partially
offset by higher unit volume.
The increase in net sales of our Retail segment reflected increased Outlet store
sales, primarily due to 14 additional stores on a period-to-period basis
partially offset by a low single-digit comparable store sales decrease. Our
Specialty Retail Store sales increased slightly, with a significant increase due
to the inclusion of the sales of 18 additional LUCKY BRAND DUNGAREES stores,
offset by a low single- digit decline in comparable store sales in the balance
of our Specialty Retail stores. The decline in comparable store sales in our
Outlet and Specialty Retail stores reflect the aforementioned difficult retail
apparel environment and the specialty stores heavy reliance on better priced
women's apparel.
Gross profit dollars increased $100.6 million, or 12.3%, in 2000 over 1999.
Gross profit as a percent of sales increased to 39.2% in 2000 from 38.5% in
1999. This increase in gross profit rate primarily reflected the same factors
described above in the third quarter discussion.
SG&A increased $85.2 million, or 14.3%, in 2000 over 1999, and expressed as a
percent of sales increased to 29.0% in 2000 from 28.0% in 1999. This increase in
SG&A rate primarily reflected the same factors described above in the third
quarter discussion, as well as the startup cost of the new KENNETH COLE
license.
As a result of the factors described above, operating income, before a pre-tax
restructuring charge of $5.4 million, increased $15.4 million, or 6.9%, to
$238.8 million, and operating income as a percent of sales decreased to 10.2%,
compared to 10.5% in 1999. Segment operating income in our Wholesale Apparel
segment decreased $0.4 million to $173.7 million (10.2% of sales) in 2000
compared to $174.1 million (11.1% of sales) in 1999. Segment operating income in
our Wholesale Non-Apparel segment increased $9.4 million to $25.9 million (9.1%
of sales) in 2000 compared to $16.6 million (7.1% of sales) in 1999. Segment
operating income in our Retail segment increased $3.3 million to $35.7 million
(10.4% of sales) in 2000 compared to $32.4 million (10.2% of sales) in 1999.
Net other income for the nine months of 2000 was $7.5 million compared to other
expense of $1.1 million in 1999. This year's other income includes a special
investment gain of $8.8 million related to our sale of marketable equity
securities, net of associated expenses, partially offset by minority interest
and other non-operating expenses.
Net interest expense for the nine months of 2000 was $14.3 million compared to
interest income of $1.6 million in 1999. This $15.9 million change reflects
higher net interest costs incurred to finance our strategic initiatives
including our recently acquired businesses, the repurchase of common stock,
capital expenditures primarily related to the technological upgrading of our
distribution facilities and information systems, and in-store merchandise shops.
Net income increased $2.4 million in 2000 to $145.0 million, and declined as a
percent of net sales to 6.2% in 2000 from 6.7% in 1999, due to the factors
described above. As described above, net income for the nine months of 2000
includes an after-tax restructuring charge of $3.5 million, and an after-tax
special investment gain of $5.6 million. Diluted earnings per common share,
excluding the restructuring charge and special investment gain, increased 16.4%
to $2.63 in 2000. Diluted earnings per common share, including the restructuring
charge and special investment gain, were $2.67 in 2000. Our average diluted
shares outstanding declined by 8.7 million for the nine months of 2000 on a
period-to-period basis, to 54.4 million, as a result of our ongoing stock
repurchase program. We purchased 5.082 million shares during the nine months of
2000 for $203.6 million.
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Forward Outlook
While the macroeconomic and retail environments are challenging, the Company
remains optimistic that, with our diversified portfolio, we can generate a 9% to
10% sales increase in the fourth quarter of 2000, giving us an approximate 10%
sales increase for the full year, and enabling us to meet the fourth quarter EPS
consensus of $0.96, resulting in diluted EPS of $3.58, or 14.7% EPS growth for
the year (before this year's restructuring charge and special investment gains).
For the full year 2001, we remain optimistic about our ability to achieve a
sales increase of 5% to 7% and an EPS increase of 11% to 13% (before this year's
restructuring charge and special investment gain, and before any incremental
acquisitions or share repurchases.) See Item 5, Statement Regarding
Forward-Looking Disclosure.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
We ended the third quarter of 2000 with $21.9 million in cash and cash
equivalents, compared to $11.2 million at the end of the 1999 third quarter, and
$437.3 million of debt compared to $ 86.2 million at the end of the third
quarter of 1999. This $340.4 million change in our cash and debt position,
reflecting a use of cash over the last twelve months, is primarily attributable
to our expenditure of $92.6 million for purchase price payments in connection
with the acquisitions of MONET, LAUNDRY and LUCKY BRAND DUNGAREES, net of cash
acquired, $334.7 million for the repurchase of common stock, $92.8 million for
capital expenditures primarily related to the technological upgrading of our
distribution facilities and information systems, and in-store merchandise shops,
offset by our operating cash flow. Our borrowings peaked at $480.3 million
during the quarter.
Net cash used in operating activities for the nine months of 2000 was $20.7
million, compared to $86.2 million net cash provided in 1999. This $107.0
million change in cash flow primarily reflected the significant reduction of our
inventory levels in 1999 versus 1998 due to the inventory management initiatives
implemented at the end of 1998, which, as mentioned below, are currently still
in effect.
Inventory increased $48.7 million, or 11.9%, at the 2000 third quarter end
compared to 1999. Excluding the inventories of our recently acquired and
launched businesses, inventories in the balance of our business were up 6.5%. We
also improved our average inventory turnover rate by 10.4% in the 12 months
ended in the third quarter of 2000, to 4.4 times from 4.0 times during 12 months
ended in the third quarter of 1999.
Our accounts receivable ended the quarter at $542.5 million, up 6.6% over last
year. This increase in accounts receivable primarily reflected the significant
volume growth in our Special Markets business, and the assumption of the
accounts receivable of LAUNDRY and MONET, which accounted for approximately
53.0% of the increase.
Net cash used in investing activities was $111.5 million in 2000, compared to
$158.9 million in 1999. The 2000 net cash used primarily reflected $40.2 million
for the purchase of MONET and additional payments related to the purchase of our
LUCKY BRAND DUNGAREES business, along with capital expenditures of $50.3
million, compared to the 1999 acquisition costs of $138.3 million for our 84.5%
interest in SIGRID OLSEN, our 85% interest in LUCKY BRAND DUNGAREES, and capital
expenditures of $51.9 million, as well as $29.0 million for an equity investment
in Kenneth Cole Productions, Inc. partially offset by disposals of investments
of $64.9 million.
Net cash provided by financing activities was $117.3 million in 2000, compared
to net cash used of $81.0 million in 1999. This $198.3 million year over year
increase in cash flow reflected net borrowings of $321.2 million for the nine
months of 2000 compared to $86.2 million in 1999, and an increase in net
proceeds from the exercise of stock options of $12.4 million, partially offset
by an increase of $52.2 million expended for stock repurchases.
Our anticipated capital expenditures for the full year 2000 approximate $70
million, of which $50.3 million has been expended through September 30, 2000.
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 our New York offices and the opening of an additional 11 Specialty Retail
stores and 8 Outlet stores. In addition, we anticipate spending approximately
$20 million on in-store merchandise shops for the full year of 2000. Capital
expenditures, in-store shops and working capital cash needs will be financed
with net cash provided by operating activities and our revolving credit and
trade letter of credit facilities.
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In December 1999, the Company received $600 million of financing commitments
under a bank revolving credit facility to finance our liquidity needs. This bank
facility, which has received credit ratings of BBB from Standard & Poors and
Baa2 from Moody's Investor Services, may be either drawn upon or used as a
liquidity facility to support the issuance of A2/P2 rated commercial paper. At
September 30, 2000, we had $437.3 million outstanding under our commercial paper
program. In addition, we have in place $435 million of letter of credit
facilities primarily to support our merchandise purchasing requirements. At
September 30, 2000, we had $300 million outstanding under these letter of credit
facilities. We anticipate that the commercial paper program and bank and letter
of credit facilities will be sufficient to fund our future liquidity
requirements and that we will be able to adjust the amounts available under
these facilities if necessary. We are in the process of finalizing a renewal of
this bank revolving credit facility, which is expected to increase the size of
the program from $600 million to $750 million.
CERTAIN INTEREST RATE AND FOREIGN CURRENCY RISKS
We finance our capital needs through available cash and marketable securities,
operating cash flow, letter of credit and bank revolving credit facilities and
commercial paper issuances. Our floating rate bank revolving credit facility and
commercial paper program expose us to market risk for changes in interest rates.
We mitigate the risks associated with changes in foreign currency rates through
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In January 1999, two actions were filed in California naming as defendants more
than a dozen United States-based apparel companies that source garments from
Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based garment factories. The actions assert that the Saipan factories
engage in unlawful practices relating to the recruitment and employment of
foreign workers and that the apparel companies, by virtue of their alleged
relationships with the factories, have violated various federal and state laws.
One action, filed in California Superior Court in San Francisco by a union and
three public interest groups, alleges unfair competition and false advertising
(the "State Court Action"). The State Court Action seeks equitable relief,
unspecified amounts for restitution and disgorgement of profits, interest and an
award of attorney's fees. The third, initially filed in Federal Court for the
Central District of California and subsequently transferred, first to the
District of Hawaii and then ordered transferred to Saipan (which order is
subject to a stay pending appeal), is brought on behalf of a purported class
consisting of the Saipan factory workers (the "Federal Court Action"). The
Federal Court Action alleges claims under the civil RICO statute and the Alien
Tort Claims Act, premised on supposed violations of the federal anti-peonage and
indentured servitude statutes, as well as other violations of Saipan and
international law, and seeks equitable relief and unspecified damages, including
treble and punitive damages, interest and an award of attorney's fees. A third
action, brought in Federal Court in Saipan solely against the garment factory
defendants on behalf of a putative class of their workers, alleges violations of
federal and Saipanese wage and employment laws. The Company sources products in
Saipan but was not named as a defendant in the actions. The Company, and certain
other apparel companies not named as defendants, were advised in writing,
however, that they would be added as parties if a consensual resolution of the
complaint was not reached. The Company has since reached an agreement to settle
all claims that were or could have been asserted in the Federal or State Court
actions. To date, several other apparel companies have also agreed to settle
these claims. The agreement concluded by the Company is subject to Federal Court
approval. Under the terms of the agreement, if the settlement does not receive
final Federal Court approval, the Company will be entitled to a refund of the
entire settlement amount except for funds of up to $10,000 spent on costs of
notice to the settlement class. As part of the settlement, the Company has since
been named as a defendant, along with certain other apparel companies, in a
State Court action in California styled Union of Needletrades Industrial and
Textile Employees, et al. v. Brylane, L.P., et al., pending in the San Francisco
County Superior Court, and in a Federal Court action styled Doe I, et al. v.
Brylane, L.P. et al., currently pending in the United States District Court for
the District of Hawaii, that mirror portions of the larger State and Federal
Court actions but do not include RICO and certain of the other claims alleged in
those actions. The newly filed actions against the Company will remain inactive
unless settlement is not finally approved by the Federal Court. Because the
litigation is at a preliminary stage, with no merits discovery having taken
place, if the settlement is not finally approved by the Federal Court, we cannot
at this juncture determine the likelihood of a favorable or unfavorable outcome,
or the magnitude of the latter if it were to occur. Although the outcome of any
such litigation 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 financial position or results of operations.
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Item 5. Statement Regarding Forward-Looking Disclosure
Statements contained herein (including, without limitation, those set out under
the heading "Forward Outlook" or otherwise in Item 2. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" above) and in
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases, and in oral statements made by, or with the
approval of, authorized personnel that relate to the Company's future
performance, including, without limitation, statements with respect to the
Company's anticipated results of operations or level of business for 2000, 2001
or any other future period, are forward-looking statements within the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
statements, which are indicated by words or phrases such as "plan",
"anticipate", "estimate", "project", "management expects", "the Company
believes", "remains optimistic", or "currently envisions" and similar phrases,
are based on current expectations only, and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
Among the factors that could cause actual results to materially differ include
changes in regional, national, and global microeconomic and macroeconomic
conditions, including the levels of consumer confidence and spending, consumer
income growth, higher personal debt levels, rising energy costs, increasing
interest rates and increased stock market volatility; risks related to retailer
and consumer acceptance of the Company's products; risks associated with
competition and the marketplace, including the financial condition of, and
consolidations, restructurings and other ownership changes in, the apparel (and
related products) industry and the retail industry, the introduction of new
products or pricing changes by the Company's competitors, the Company's ability
to effectively to remain competitive with respect to product, value and service;
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 to
customers; risks relating to retailers' buying patterns and purchase commitments
for apparel products in general and the Company's products specifically; the
Company's ability to correctly balance the level of its commitments with actual
orders; the Company's ability to effectively distribute its product within its
targeted markets; risks related to the Company's ability to establish, defend
and protect its trademarks and other proprietary rights and other risks relating
to managing intellectual property issues; uncertainties relating to the
Company's ability to successfully implement its growth strategies, integrate
recent or future acquisitions, maintain product licenses, or successfully launch
new products and lines; risks associated with the entry into new markets, either
through internal development activities or acquisitions; 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; risks
associated with changes in social, political, economic and other conditions
affecting foreign operations and sourcing.
With respect to foreign sourcing, the Company notes that legislation which would
further restrict the importation of and/or increase the costs of textiles and
apparel produced abroad has been periodically 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.
In light of the very substantial portion of the Company's products which are
manufactured by foreign suppliers, the enactment of new legislation or the
administration of current international trade regulations, or executive action
affecting international textile agreements could adversely affect the Company's
operations.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities, acquisitions or licensing. The
entry into new markets (including the development and launch of new product
categories and product lines), such as the Company's entry into the moderate
market, the acquisition of businesses, such as the Company's acquisitions of
Segrets, Lucky Brand, Laundry and Monet, and the licensing of brands such as
DKNY(R)JEANS and DKNY(R)ACTIVE, CITY DKNY(R), KENNETH COLE NEW YORK, REACTION
KENNETH COLE AND UNLISTED.COM, are accompanied by risks inherent in any such new
business venture and may require methods of operations and marketing strategies
different from those employed in the Company's other businesses. Moreover,
certain new businesses may be lower margin businesses and may require the
Company to achieve significant cost efficiencies. In addition, new markets,
product categories, product lines and businesses 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
18
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return on investment will not be generated; risks that expenditures required for
capital items or working capital will 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. In addition, businesses licensed by the Company are
subject to risks inherent in such transactions, including compliance with terms
set forth in the applicable license agreements, including among other things the
maintenance of certain levels of sales, and the public perception and/or
acceptance of the licensor's brands or other product lines, which are not within
the Company's control.
Reference is also made to the other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices as are set forth in our 1999 Annual Report on Form 10-K,
including, without limitation, those set forth under the heading
"Business-Competition: Certain Risks".
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule as of September 30, 2000.
(b) The Company did not file any reports on Form 8-K in the quarter.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DATE: November 14, 2000
LIZ CLAIBORNE, INC.
By: /s/ Michael Scarpa By: /s/ Elaine H. Goodell
------------------ ---------------------
MICHAEL SCARPA ELAINE H. GOODELL
Vice President - Chief Financial Vice President - Corporate
Officer Controller and Chief Accounting
(Principal financial officer) Officer
(Principal accounting officer)
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