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 1, 1995
| | 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 May 12, 1995 was 74,868,201.
(2)
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 1, 1995
and December 31, 1994 ............................. 3
Consolidated Statements of Income for the Three
Month Periods Ended April 1, 1995 and
April 2, 1994...................................... 4
Consolidated Statements of Cash Flows
for the Three Month Periods
Ended April 1, 1995 and April 2, 1994.............. 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
SIGNATURE .................................................... 14
PART I - FINANCIAL INFORMATION (3)
ITEM 1. FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands except share data)
(Unaudited)
April 1, December 31,
ASSETS 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 59,759 $ 71,419
Marketable securities 190,769 258,932
Accounts receivable - trade 239,941 159,766
Inventories 363,082 423,003
Deferred income tax benefits 31,007 32,547
Other current assets 67,263 76,864
Total current assets 951,821 1,022,531
PROPERTY AND EQUIPMENT - NET 234,854 236,560
OTHER ASSETS 28,939 30,571
$1,215,614 $1,289,662
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 82,801 $ 138,581
Accrued expenses 146,446 156,924
Income taxes payable 21,094 7,894
Total current liabilities 250,341 303,399
LONG-TERM DEBT 1,202 1,227
DEFERRED INCOME TAXES 1,901 2,052
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 16,875 --
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 41,390 56,714
Retained earnings 1,177,375 1,164,850
Cumulative translation adjustment (2,360) (1,637)
1,304,624 1,308,146
Common stock in treasury, at cost
13,302,972 shares in 1995 and
11,214,688 shares in 1994 (359,329) (325,162)
Total stockholders' equity 945,295 982,984
$1,215,614 $1,289,662
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 amounts in thousands, except per common share data)
(Unaudited)
Three Months Ended
(13 weeks) (14 weeks)
April 1, April 2,
1995 1994
NET SALES $527,076 $541,368
Cost of goods sold 335,009 353,748
GROSS PROFIT 192,067 187,620
Selling, general & administrative expenses 150,406 146,943
OPERATING INCOME 41,661 40,677
Investment and other income-net 2,924 2,860
INCOME BEFORE PROVISION FOR INCOME TAXES 44,585 43,537
Provision for income taxes 16,500 16,100
NET INCOME $ 28,085 $ 27,437
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 76,074 78,850
EARNINGS PER COMMON SHARE $0.37 $0.35
DIVIDENDS PAID PER COMMON SHARE $0.11 $0.11
The accompanying notes to consolidated financial statements are an integral
part of these statements.
/TABLE
(5)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in thousands)
(Unaudited)
Three Months Ended
(13 weeks) (14 weeks)
April 1, April 2,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $28,085 $ 27,437
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,617 8,359
Other - net (151) (647)
Change in current assets and liabilities:
(Increase) in accounts receivable (80,175) (81,091)
Decrease in inventories 59,921 62,321
Decrease (increase) in deferred
income tax benefits 733 (505)
Decrease (increase) in other
current assets 9,601 (1,490)
(Decrease) in accounts payable (55,780) (52,505)
(Decrease) in accrued expenses (18,918) (13,348)
Increase in income taxes payable 13,200 11,579
Net cash used in operating
activities (33,867) (39,890)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (1,598) (39,735)
Sales of investment instruments 72,236 60,562
Purchases of property and equipment (7,669) (15,955)
Purchase of trademarks (845) (757)
Other-net 2,003 (1,566)
Net cash provided by
investing activities 64,127 2,549
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (25) (26)
Proceeds from exercise of common stock options -- 21
Proceeds from sale of put warrants 1,550 --
Dividends paid (8,555) (8,871)
Repurchase of common stock (34,167) --
Net cash used in
financing activities (41,197) ( 8,876)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (723) 118
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,660) (46,099)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 71,419 104,720
CASH AND CASH EQUIVALENTS AT END OF PERIOD $59,759 $ 58,621
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. In December 1994, the Company recorded a $30.0 million
restructuring charge. The amount includes $16.8 million
related to the phase out of its First Issue business, $10.2
million for the streamlining of operating and administrative
functions and $3.0 million for the restructuring of its
Moderate Division. Principal items included in the charge
are estimated contract termination costs, severance and
related benefits for staff reductions, losses on contracts
and the write-off of certain assets. This charge reduced net
income by $18.9 million, or $.24 per common share, in the
fourth quarter of 1994. The remaining balance of the
restructuring liability as of April 1, 1995 was $25.8
million. Of the $4.2 million expended for restructuring
costs, $2.4 million was related to severance costs, $1.3
million to losses on contracts and write-offs of certain
assets, and $0.5 million to other miscellaneous costs. The
majority of the remaining liabilities should be paid or
settled during the 1995 fiscal year.
4. 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.
(7)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following are summaries of available-for-sale marketable
securities:
(Dollars in thousands)
April 1, 1995
Gross Estimated
Unrealized Fair
Cost Gains Losses Value
Tax exempt notes
and bonds $214,438 $64 $(1,661) $212,841
U.S. & foreign
government securities 11,364 -- (211) 11,153
Collateralized mortgage
obligations 8,332 4 (1,386) 6,950
Total debt securities 234,134 68 (3,258) 230,944
Equity securities 2,528 -- (880) 1,648
$236,662 $68 $(4,138) $232,592
(Dollars in thousands)
December 31, 1994
Gross Estimated
Unrealized Fair
Cost Gains Losses Value
Tax exempt notes
and bonds $309,126 $83 $(3,060) $306,149
U.S. & foreign
government securities 11,323 -- (905) 10,418
Collateralized mortgage
obligations 8,569 3 (1,785) 6,787
Total debt securities 329,018 86 (5,750) 323,354
Equity securities 2,528 -- (588) 1,940
$331,546 $86 $(6,338) $325,294
(Dollars in thousands)
April 1, 1995
Estimated
Fair
Cost Value
Due in one year or less $123,955 $123,168
Due after one year through
three years 101,847 100,826
Due after three years 8,332 6,950
234,134 230,944
Equity securities 2,528 1,648
$236,662 $232,592
/TABLE
(8)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At April 1, 1995, and December 31, 1994, the above investments
included $40,175,000 and $64,422,000, respectively, of tax
exempt notes and bonds which are classified as cash and cash
equivalents and equity securities which are included in other
assets in the consolidated balance sheets.
For the period ended April 1, 1995, gross realized gains on
sales of available-for-sale securities totaled $88,000. 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 periods ended April 1, 1995 and April 2,
1994, was a credit of $1,375,000 (net of $807,000 in deferred
income taxes) and a charge of $4,764,000 (net of $2,798,000 in
deferred income taxes), respectively, which were included in
retained earnings. As of April 1, 1995 and December 31, 1994,
the fair value adjustment for available-for-sale securities
was a charge of $2,564,000 (net of $1,506,000 in deferred
income taxes) and a charge of $3,939,000 (net of $2,313,000 in
deferred income taxes), respectively, included in retained
earnings.
5. Inventories are stated at the lower of cost (first-in, first-
out for wholesale operations and retail method for retail and
outlet operations) or market and consist of the following:
(Dollars in thousands)
April 1, December 31,
1995 1994
Raw materials $ 54,011 $ 55,724
Work-in-process 19,796 21,527
Finished goods 289,275 345,752
$363,082 $423,003
6. Property and equipment - net
(Dollars in thousands)
April 1, December 31,
1995 1994
Land and buildings $123,735 $123,746
Machinery and equipment 119,614 117,686
Furniture and fixtures 51,247 50,518
Leasehold improvements 121,859 117,104
416,455 409,054
Less: Accumulated depreciation
and amortization 181,601 172,494
$234,854 $236,560
/TABLE
(9)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. In February 1995, in connection with its previously announced
stock repurchase program, the Company sold put warrants in
privately negotiated transactions based on the then-current
market price of the Common Stock. The warrants, if exercised,
commit the Company to purchase a total of 1,000,000 shares of
its Common Stock in September, October and December 1995 on
the respective expiration dates. The proceeds of $1.6 million
from the sale of the put warrants have been recorded in
capital in excess of par value. The Company's potential $16.9
million obligation to buy back 1,000,000 shares of Common
Stock has been charged to capital in excess of par value and
recorded as Put Warrants.
8. On March 23, 1995, 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 2, 1995 to
stockholders of record at the close of business on May 8,
1995. The liability for the declared dividend of approximately
$8.4 million is included in accrued expenses as of April 1,
1995.
9. During the quarters ended April 1, 1995 and April 2, 1994, the
Company made income tax payments of $2,153,000 and $6,061,000,
respectively. During the quarters ended April 1, 1995 and
April 2, 1994, the Company made interest payments of $33,000
and $68,000, respectively.
10. The Company enters into foreign exchange contracts to hedge
transactions denominated in foreign currencies for periods of
up to 18 months and to hedge expected payment of intercompany
transactions with its non-U.S. subsidiaries. Gains and losses
on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the
transaction is completed. As of April 1, 1995, the Company
had contracts maturing in 1995 and 1996 to purchase at
contracted forward rates 595,835,000 Spanish pesetas and
35,096,800 Japanese yen and to sell 33,500,000 Canadian
dollars and 10,400,000 British sterling. The aggregate U.S.
dollar value of all foreign exchange contracts is
approximately $43,400,000. Unrealized gains and losses for
outstanding foreign exchange contracts were not material at
April 1, 1995.
(10)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the 1995 first quarter (13 weeks) decreased $14
million, or 2.6%, from the 1994 first quarter (14 weeks). This
result included a 9.9% decrease in domestic net sales of Misses and
Petite COLLECTION, LIZSPORT and LIZWEAR (collectively,
"Sportswear"), to $234 million, reflecting lower average unit
prices and slightly lower unit volume resulting from weakness in
demand. Sales of the Moderate Division (consisting of RUSS, THE
VILLAGER, and CRAZY HORSE brands) decreased 21%, to $22 million,
due primarily to a planned decrease in unit volume and to a lesser
extent a decline in average unit prices in each case resulting from
weakness in demand. Accessories sales declined 11%, to $44 million,
due to lower average unit prices as a result of changes in product
mix. Sales of the ELISABETH Division declined 13%, to $33 million,
due in equal parts to lower unit volume and lower average unit
prices as a result of changes in product mix. These declines were
offset in part by sales increases in DANA BUCHMAN (19%, to $31
million) and dresses and suits (12%, to $35 million), in each case
primarily due to higher unit volume. In addition, sales of the
Company's LIZ CLAIBORNE, ELISABETH, DANA BUCHMAN and First Issue
stores, and international retail operations (collectively, the
"Retail Operations") increased 41%, to $42 million, due to the
opening of new domestic retail stores (117 at 1995 first quarter
end as compared with 78 at 1994 first quarter end) and European
retail leased departments. In late 1994, the Company announced
plans to phase out of the First Issue retail store business and to
close or convert its 77 First Issue locations to other Company-
operated retail formats. To date, ten of such locations have been
converted to an ELISABETH format and four to a LIZ CLAIBORNE
format; this phase out is presently expected to be completed by
June 1996. First Issue accounted for $17 million of 1995 first
quarter sales, as compared with $14 million of 1994 first quarter
sales. See Note 3 of the Notes to Consolidated Financial
Statements.
Notwithstanding the sales decline, gross profit dollars increased
2.4% on a quarter-to-quarter basis, as the overall gross profit
percentage improved from 34.7% to 36.4%. This gain in profit
margin from depressed prior period levels reflected lower markdowns
of Sportswear, due primarily to lower excess inventory positions,
and the higher proportion of net sales represented by, and improved
margins within, DANA BUCHMAN (which is generally a higher margin
business). Margins also improved within the ELISABETH Division due
to reduced markdowns on lower excess inventory positions. While
margins within the outlet operations and Moderate Division showed
some improvement, they remained at depressed levels. Overall
margin improvement was offset by significant margin erosion at
First Issue, as inventory is liquidated during the phase-out
period.
(11)
RESULTS OF OPERATIONS (continued)
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 1994 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.
Selling, general and administrative ("SG&A") expenses increased
$3.5 million, or 2.4%, on a quarter-to-quarter basis, representing
28.5% of first quarter 1995 sales as compared with 27.1% of 1994
first quarter sales. These results reflected the continued
expansion of the Company's outlets and the Retail Operations ($8.6
million), partially offset by lowered expense levels across
substantially all of the remaining divisions. These declines
reflected the extra week in the 1994 quarter, as well as the
implementation of a number of expense reduction initiatives. In
general, the percentage decrease in SG&A levels at these divisions
was slighlty outpaced by their percentage rate of sales decline.
The period-to-period increase in investment and other income - net
reflected higher rates of return realized on the Company's
investment portfolio, which grew slightly, notwithstanding
expenditures under the Company's ongoing stock repurchase program.
As a result of the factors described above, on a period-to-period
basis, the Company's income before provision for income taxes
increased 2.4%. These results included continuing operating losses
within the Retail Operations and the Moderate Division. The
provision for income taxes reflected the change in pre-tax income;
as a result, net income increased 2.4%.
The earnings per common share computation reflected a lower number
of outstanding shares on a period-to-period basis as a result of
the Company's stock repurchase program.
The retail environment remains highly promotional, and the tone of
business continues to be difficult. Forward merchandise
commitments continue to be planned on a conservative basis,
particularly for Sportswear. The Company is in the process of
implementing a comprehensive process reengineering and profit
improvement initiative, and has announced a number of three-year
goals for this project. The Company has previously announced its
expectation that earnings for the 1995 year will show improvement
over 1994, although any such improvement will be moderated by
continuing losses within the Retail Operations and Moderate
Division.
(12)
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Net cash used in operating activities was $33.8 million through
April 1, 1995, compared to $39.9 million used in operating
activities through April 2, 1994, primarily because of a decrease
in other current assets of $9.6 million in 1995,compared to an
increase of $1.5 million in 1994, offset in part by a larger
decrease in accounts payable and accrued expenses in 1995 compared
to 1994. Net cash provided by investing activities was $64.1
million in 1995 compared to $2.5 million in 1994. The fluctuations
in net cash provided by investing activities is related to the
changes in marketable securities and capital expenditures on a
period-to-period basis. Net cash used in financing activities was
$41.2 million in 1995 compared to $8.9 million in 1994, reflecting
$34.2 million expended in the Company's stock repurchase program in
1995. As of May 12, 1995, the Company had expended or committed to
expend approximately $437 million of the $450 million authorized
under that program, covering an aggregate of 16.7 million shares.
Inventories at April 1, 1995 were $363.1 million, down from $423.0
million at year-end and $374.3 million at April 2, 1994. On a
period-to-period basis, the inventory levels reflected decreases
within the wholesale apparel divisions due to a reduction of excess
inventories, offset in part by the expansion of an in-stock reorder
program in several divisions and the expansion of the Retail
Operations.
The Company's anticipated capital expenditures for 1995 currently
approximate $50 million, of which $7.7 million has been expended
through April 1, 1995. These expenditures consist primarily of
leasehold improvements of new stores and leased departments for the
Retail Operations, expansion of the Company's Alabama distribution
facility, and the upgrading of data processing systems. These
expenditures will be financed through available capital and future
earnings. Any increased working capital needs will be met by
current funds. Bank lines of credit, which are available to
finance import transactions and direct borrowings were $282
million at April 1, 1995. 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 an
action styled Ressler et al. vs. Liz Claiborne, Inc., et al.,
pending in the United States District Court for the Eastern
District of New York. The plaintiffs seek compensatory damages on
behalf of a class of purchasers of the Company's Common Stock
during the period commencing September 21, 1992 through and
including July 16, 1993, and allege that the defendants violated
the federal securities laws by, among other things, making
misrepresentations or omissions of material facts that artificially
(13)
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 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 the Company's directors and two former Vice
Chairmen. The complaints contain allegations of breach by the
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 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. In July 1994, the Laz Schneider
action was consolidated into the Goldberg action. In August 1994,
the defendants moved to dismiss the consolidated complaint.
The 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.
(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 15, 1995 BY /s/Samuel M. Miller
SAMUEL M. MILLER
Senior Vice President - Finance
Chief Financial and Accounting
Officer