[TEXT]
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 April 2, 1994
| | 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 5/12/94 was 78,778,502.
(2)
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 2, 1994
and December 25, 1993 ............................. 3
Consolidated Statements of Income for the Three
Month Periods Ended April 2, 1994 and
March 27, 1993..................................... 4
Consolidated Statements of Cash Flows
for the Three Month Periods
Ended April 2, 1994 and March 27, 1993............. 5
Notes to Consolidated Financial Statements .......... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 10-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................... 12
Item 6. Exhibits and Reports on Form 8-K ................... 13
SIGNATURE .................................................... 14
(3)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
(Unaudited)
April 2, December 25,
ASSETS 1994 1993
CURRENT ASSETS:
Cash and cash equivalents $ 58,621 $ 104,720
Marketable securities 180,350 204,571
Accounts receivable - trade 255,526 174,435
Inventories 374,272 436,593
Deferred income tax benefits 16,695 15,065
Other current assets 70,545 69,055
Total current assets 956,009 1,004,439
PROPERTY AND EQUIPMENT - NET 210,209 202,068
OTHER ASSETS 32,002 29,831
$1,198,220 $1,236,338
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 88,621 $ 141,126
Accrued expenses 84,417 97,765
Income taxes payable 27,126 15,547
Total current liabilities 200,164 254,438
LONG-TERM DEBT 1,308 1,334
DEFERRED INCOME TAXES 1,627 2,275
COMMITMENTS AND CONTINGENCIES
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 56,699 56,699
Retained earnings 1,139,968 1,123,413
Cumulative translation adjustment (1,109) (1,279)
1,283,777 1,267,052
Common stock in treasury, at cost
9,367,210 shares in 1994 and
9,371,217 shares in 1993 (288,656) (288,761)
Total stockholders' equity 995,121 978,291
$1,198,220 $1,236,338
The accompanying notes to consolidated financial statements are an integral
part of these statements.
/TABLE
(4)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(All dollar amounts in thousands, except common share data)
(Unaudited)
Three Months Ended
(14 weeks) (13 weeks)
April 2, March 27,
1994 1993
NET SALES $541,368 $531,347
Cost of goods sold 353,748 339,566
GROSS PROFIT 187,620 191,781
Selling, general & administrative expenses 146,943 132,452
OPERATING INCOME 40,677 59,329
Investment and other income-net 2,860 4,709
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 43,537 64,038
Provision for income taxes 16,100 23,000
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 27,437 41,038
Cumulative effect of a change in the
method of accounting for income taxes -- 1,643
NET INCOME $ 27,437 $ 42,681
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 78,850,388 82,671,613
EARNINGS PER COMMON SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $0.35 $0.50
Cumulative effect of a change in the
method of accounting for income taxes -- 0.02
NET INCOME $0.35 $0.52
DIVIDENDS PAID PER COMMON SHARE $0.11 $0.10
The accompanying notes to consolidated financial statements are an integral
part of these statements.
(5)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
Three Months Ended
(14 weeks) (13 weeks)
April 2, March 27,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,437 $ 42,681
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,359 7,745
Non-current deferred income taxes (648) 188
Cumulative effect of a change in
accounting for income taxes -- (1,643)
Tax benefit on exercise of stock options 1 833
Change in current assets and liabilities:
(Increase) in accounts receivable (81,091) (78,282)
Decrease in inventories 62,321 34,831
(Increase) in deferred
income tax benefits (505) (1,248)
(Increase) in other current assets (1,490) (18,443)
(Decrease) in accounts payable (52,505) (59,255)
(Decrease) increase in accrued expenses (13,348) 6,825
Increase in income taxes payable 11,579 8,133
Net cash used in operating
activities (39,890) (57,635)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (39,735) (93,777)
Sales of investment instruments 60,562 153,452
Purchases of property and equipment (15,955) (14,527)
Purchase of trademarks (757) (303)
Other-net (1,566) 527
Net cash provided by
investing activities 2,549 45,372
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (26) (25)
Proceeds from exercise of common stock options 21 2,497
Dividends paid (8,871) (8,270)
Repurchase of common stock -- (25,716)
Net cash used in
financing activities (8,876) (31,514)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 118 245
NET CHANGE IN CASH AND CASH EQUIVALENTS (46,099) (43,532)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 104,720 130,721
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,621 $ 87,189
The accompanying notes to consolidated financial statements are an integral
part of these statements.
/TABLE
(6)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included
herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted from this report,
as is permitted by such rules and regulations; however, the
Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested
that these condensed financial statements be read in
conjunction with the financial statements and the notes
thereto included in the Company's latest annual report.
2. In the opinion of management, the information furnished
reflects all adjustments, all of which are of a normal
recurring nature, necessary for a fair presentation of the
results for the reported interim periods. Certain items
previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with
the current year's classifications. Results of operations
for interim periods are not necessarily indicative of results
for the full year.
3. The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" as of the
beginning of fiscal 1994. In accordance with SFAS No.115,
prior period financial statements have not been restated to
reflect the change in accounting principle. The effect as of
December 26, 1993 of adopting SFAS No.115 was an increase in
the opening balance of stockholders' equity of $2,848,000
(net of $1,673,000 in deferred income taxes) to reflect the
net unrealized holding gains on securities classified as
available-for-sale previously carried at amortized cost.
This increase in stockholders' equity was included in
retained earnings.
(7)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a summary of available-for-sale marketable
securities:
(Dollars in thousands) Dec. 25,
1993
April 2, 1994
Gross Estimated
Unrealized Fair
Cost Gains Losses Value Cost
Tax exempt notes
and bonds $213,517 $ 11 $(1,521) $212,007 $278,033
U.S. & foreign
government securities 10,708 -- (659) 10,049 10,619
Collateralized mortgage
obligations 7,601 -- (1,225) 6,376 8,201
Total debt securities 231,826 11 (3,405) 228,432 296,853
Equity securities 2,527 353 -- 2,880 5,000
$234,353 $364 $(3,405) $231,312 $301,853
(Dollars in thousands)
April 2, 1994
Estimated
Fair
Cost Value
Due in one year or less $ 77,016 $ 76,144
Due after one year thru three
years 109,396 108,620
Due after three years 45,414 43,668
231,826 228,432
Equity securities 2,527 2,880
$234,353 $231,312
At April 2, 1994, the above investments include $48,082,000 of tax
exempt notes and bonds which are classified as cash and cash
equivalents and equity securities which are included in other long-
term assets in the consolidated balance sheets.
For the period ended April 2, 1994 gross realized gains and
(losses) on sales of available-for-sale securities totaled $686,000
and ($9,000), respectively. The net adjustment to unrealized
holding gains and losses on available-for-sale securities for the
period was a charge of $4,764,000 which was included in retained
earnings.
(8)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Inventories are stated primarily at the lower of cost (first-
in, first-out) or market and consist of the following:
(Dollars in thousands)
April 2, December 25,
1994 1993
Raw materials $ 48,251 $ 56,560
Work-in-process 19,819 24,006
Finished goods 306,202 356,027
$374,272 $436,593
5. Property and equipment - net
(Dollars in thousands)
April 2, December 25,
1994 1993
Land and buildings $ 67,392 $ 67,049
Machinery and equipment 104,831 99,644
Furniture and fixtures 40,896 39,489
Leasehold improvements 102,486 99,802
Construction in progress 44,813 38,491
360,418 344,475
Less: Accumulated depreciation
and amortization 150,209 142,407
$210,209 $202,068
6. On April 21, 1994, the Company's Board of Directors declared
a quarterly cash dividend on the Company's Common Stock at the
rate of $0.1125 per share, to be paid on June 3, 1994, to
stockholders of record at the close of business on May 9,
1994.
7. For the quarters ended April 2, 1994 and March 27, 1993, the
Company made income tax payments of $6,061,000 and
$14,329,000, respectively. For the quarters ended April 2,
1994 and March 27, 1993, the Company made interest payments of
$68,000 and $24,000, respectively. As of April 2, 1994, the
fair value adjustment for available-for-sale securities was a
charge of $1,916,000 (which reflects an unrealized loss net of
$1,125,000 in deferred income taxes) included in retained
earnings.
(9)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. The Company adopted the provisions of SFAS No. 109 "Accounting
for Income Taxes" as of the beginning of fiscal 1993. SFAS
No. 109 requires a change from the deferred method to the
asset and liability method of accounting for income taxes.
The cumulative effect on prior years of this accounting change
is reflected in the consolidated statement of income for the
three months ended March 27, 1993 as a one-time increase in
net income of $1,643,000, or $.02 per share.
9. The Company enters into foreign exchange contracts to hedge
transactions denominated in foreign currencies and to hedge
expected payment of intercompany transactions with its non-
U.S. subsidiaries. Gains and losses on contracts which hedge
specific foreign currency denominated commitments are
recognized in the period in which the transaction is
completed. As of April 2, 1994, the Company had contracts
maturing in 1994 to purchase at contracted forward rates
789,684,000 Spanish pesetas and 4,077,000 Dutch guilders and
to sell 12,000,000 Canadian dollars and 7,300,000 British
sterling. The aggregate U.S. dollar value of all foreign
exchange contracts is approximately $27,000,000.
(10)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The quarter-to-quarter increase in net sales of 1.9% was due to an
additional week in the 1994 period (14 weeks) compared to 1993 (13
weeks) and the shipment in the 1994 first quarter of certain Spring
season merchandise delayed from fiscal 1993. The results for the
1994 quarter also reflected higher unit volume within the RUSS, THE
VILLAGER and CRAZY HORSE Divisions (collectively, the "Russ
Divisions"), continued expansion of the Company's retail and outlet
operations, as well as gains in the DANA BUCHMAN and Shoe
Divisions. The increase was offset by substantially lower average
unit selling prices in the Company's Misses and Petite sportswear
group and lower unit volume within the Dress, LIZ & CO. and
Cosmetics Divisions. The lower average unit selling prices within
the Misses and Petite sportswear group were required to liquidate
excess prior season inventory.
Gross profit expressed as a percentage of net sales decreased to
34.7% for the first quarter of 1994 from 36.1% for the 1993 first
quarter. This decrease reflected margin erosion in several of the
wholesale apparel divisions, primarily the Misses and Petite
sportswear group, LIZ & CO. and ELISABETH Divisions, principally
due to a lower proportion of regular price sales, as well as lower
margins within the Cosmetics Division due to product mix. Also
contributing to the margin decrease was the higher proportion of
net sales represented by, and lower margins within, the Russ
Divisions (which are lower margin businesses) and higher markdowns
within the outlet operations, contributing to an operating loss in
those opertions. The decrease in the gross profit percentage was
partially offset by improved margins of the Retail, International,
Menswear and Shoe Divisions.
Legislation which would further restrict the importation and/or
increase the cost of textiles and apparel produced abroad has
periodically been introduced in Congress. Although it is unclear
whether any new legislation will be enacted into law, it appears
likely that various new legislative or executive initiatives will
be proposed. These initiatives may include a reevaluation of the
trading status of certain countries, including Most Favored Nation
("MFN") treatment for the People's Republic of China ("PRC"),
which, if enacted, would increase the cost of products purchased
from suppliers in such countries. The PRC's MFN treatment was
renewed in July 1993 for an additional year. In light of the very
substantial portion of the Company's products which are
manufactured by foreign suppliers, the enactment of new legislation
or the administration of current international trade regulations,
or executive action affecting international textile agreements,
could adversely affect the Company's operations.
The period-to-period dollar increase in selling, general and
administrative expenses was 10.9%. These expenses represented
27.1% of 1994 first quarter net sales, up from 24.9% of 1993 first
(11)
RESULTS OF OPERATIONS (continued)
quarter net sales. The dollar increase in expenses resulted
primarily from the extra week in the quarter, the continued
expansion of the Company's Retail, Russ and DANA BUCHMAN Divisions
and increased costs associated with the VIVID fragrance (introduced
in July 1993).
The decrease in investment and other income-net on a period-to-
period basis was due to a decrease in the Company's portfolio of
cash equivalents and marketable securities reflecting in part the
Company's stock repurchase program as well as a slightly lower rate
of return realized on the Company's portfolio.
As a result of the factors described above, on a period-to-period
basis, the Company's income before provision for income taxes and
cumulative effect of a change in accounting principle declined
32.0%, resulting in a decrease in net income of 35.7%, as the
provision for income taxes declined to reflect the profit decrease.
The results for the first quarter also reflected the continuing
investment in the Russ and Retail Divisions.
The Company adopted the Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes" and changed its
method of accounting for income taxes as of the beginning of fiscal
1993. The cumulative effect on prior years of this accounting
change is reflected in the consolidated statement of income for the
three months ended March 27, 1993 as a one-time increase in net
income of $1.6 million or $0.02 per share. Management believes
that the $16.7 million deferred tax benefit will be fully realized
through reversals of existing deferred tax liabilities of $1.6
million and future taxable income.
The earnings per common share computation reflected a lower number
of outstanding shares on a period-to-period basis, as a result of
the Company's stock repurchase program.
As previously announced, the continued liquidation at distressed
prices of excess prior season inventory, is expected to continue to
negatively impact gross margins in the second quarter. The Company
continues to view 1994 as a year in which it has begun a far-
reaching process of rebuilding and restructuring.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital increased $5.8 million during the
1994 first quarter, primarily as a result of the excess of
internally generated profits over dividends paid. Inventories at
April 2, 1994 were $374.3 million, down from $436.6 million at year
end 1993, and 6.6% higher than the $351.0 million at 1993 first
quarter end. The increase in inventory levels on a period-to-
period basis reflected incremental inventories resulting from the
expansion of the Russ Divisions, the Company's new women's
(12)
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY (continued)
fragrance, VIVID, as well as the balance of the excess prior season
inventory. On April 21, 1994, the Company's Board of Directors
authorized an additional $50 million under the previously announced
stock repurchase program. As of May 12, 1994, the Company had
expended or committed to expend approximately $359 million of the
$400 million authorized under the program, covering an aggregate of
12,114,000 shares.
The Company's anticipated capital expenditures for 1994 currently
approximate $90 million. These expenditures consist primarily of
certain building and equipment expenditures, including expansions
of and improvements to the Company's North Bergen, New Jersey
office facility, as well as distribution facilities in Pennsylvania
and Alabama, leasehold improvements of new stores for the Company's
Retail Division, and the upgrading of data processing systems.
These expenditures will be financed through available capital and
future earnings. Increased working capital needs will be met by
current funds. Bank lines of credit, which are available to
finance import transactions and direct borrowings, were $295
million at April 2, 1994. The Company expects to be able to adjust
these lines as required.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain of its officers and directors are parties
to several pending legal proceedings and claims, including actions
styled Fishbaum v. Chazen et al., and Ressler et al. vs. Liz
Claiborne, Inc. et al. both pending in the United States District
Court for the Eastern District of New York. Plaintiff in the
Fishbaum case seeks compensatory damages on behalf of a class of
purchasers of the Company's Common Stock during the period
commencing March 30, 1993 through and including July 16, 1993 and
alleges that the defendants violated the federal securities laws
by, among other things, making misrepresentations or omission of
material facts which artificially inflated the market price of the
Common Stock during the class period. In October 1993, the Company
moved to dismiss the Fishbaum complaint. Arguments on the motion
were presented in March 1994. The Ressler complaint makes
allegations similar to the Fishbaum complaint, but seeks damages on
behalf of a class of purchasers of the Company's Common Stock for
the period commencing September 21, 1992 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 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 Court
of Delaware against the Company's directors and its former Vice
Chairman. The complaints contain allegations of breach by the
(13)
directors of their fiduciary obligations to the Company and its
shareholders and corporate mismanagement, waste of corporate assets
in connection with the Company's stock repurchase program and the
defense of pending legal proceedings, and unjust enrichment 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.
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Employment Agreement, dated as of May 9, 1994, between
Liz Claiborne, Inc. and Paul R. Charron.
(b) The Company filed a report on Form 8-K dated March 9, 1994, to
report the change of the Company's fiscal year end from the last
Saturday in December to the Saturday closest to December 31,
commencing with the 1994 fiscal year.
(14)
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
LIZ CLAIBORNE, INC.
DATE: May 16, 1994 BY /s/Samuel M. Miller
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting
Officer
EXHIBIT INDEX
Exhibit No. Description Page Number
Employment Agreement, dated as of
May 9, 1994, between Liz Claiborne,
Inc. and Paul R. Charron