1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 30, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
1441 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-354-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of class Name of each exchange on which registered
-------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
Based upon the closing sale price on the New York Stock
Exchange composite tape on March 1, 1996, the aggregate market value of the
registrant's Common Stock, par value $1 per share, held by non-affiliates of the
registrant on such date was approximately $2,258,015,602.
Number of shares of the registrant's Common Stock, par value
$1 per share, outstanding as of March 1, 1996: 73,312,003 shares.
------------------------------------
Documents Incorporated by Reference:
Registrant's Proxy Statement relating to its Annual Meeting of
Stockholders to be held on May 16, 1996 - Part III.
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PART I
Item 1. Business.
Overview
Liz Claiborne, Inc. designs and markets an extensive range of
women's fashion apparel and accessories, with versatile collections appropriate
for wearing occasions ranging from casual to dressy. The Company also designs
and markets men's apparel and furnishings, as well as fragrances for women and
men. A portfolio of products licensed to carry the Company's LIZ CLAIBORNE or
CLAIBORNE brand includes women's shoes, home furnishings, optics, sunglasses and
men's suits. Products are manufactured to the Company's specifications in the
United States and abroad and are marketed through leading department and
specialty stores and other channels in the United States, Canada, Europe, Asia,
and Central and South America. The Company's products are also marketed through
the Company's own retail stores, which operate under a variety of formats in the
United States. Although they offer a wide array of styles, all of Liz
Claiborne's lines share the common characteristics of innovative fashion and
exceptionally high quality and value. The Company believes that it is the
largest "better" women's sportswear and dress company in the United States.
Generally, the Company's sportswear products are conceived and marketed as
"designer" items, but are priced in the "better" apparel range.
At March 1, 1996, the Company's order book reflected unfilled
customer orders for approximately $536 million of merchandise, as compared to
approximately $443 million at March 1, 1995. Order book data at any given date
is materially affected by the timing of recording orders and of shipments.
Accordingly, order book data should not be taken as indicative of eventual
actual shipments or net sales, or as providing meaningful period-to-period
comparisons.
As used herein, the term the "Company" refers to Liz
Claiborne, Inc., a Delaware corporation, together with its consolidated
subsidiaries, and its predecessor New York corporation (incorporated in 1976).
Narrative Description of Business
The Company's business is operated through separate divisions
which each have responsibility for sales, production and product development.
In the first quarter of 1996, the Company reorganized several
of its divisions into four new groupings: Liz Claiborne Casual, which includes
the "misses" lines of the LIZSPORT, LIZWEAR and LIZ & CO. casual sportswear
divisions; COLLECTION, which includes the STUDIO line; Special Sizes, which
includes the ELISABETH (large size) division and the above sportswear divisions'
petite lines; and Special Markets Group, which includes the Moderate Division.
The Company seeks in its product offerings to offer
versatility to its consumers, both in terms of individual items and overall
collections. Substantially all items in each sportswear collection are sold as
"separates" rather than as ensembles, such as suits. Collections are structured,
however, through the use of related styles, color schemes and fabrics, to enable
the consumer to assemble outfits consisting of separate items which are designed
to be worn together. By offering similar or related styles, color schemes and
fabrics over an extended period, the Company intends to provide the consumer
with a wardrobe which can be coordinated with other Company items from season to
season.
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The following is a comparison of net sales by product/division for each of the
five fiscal years ended December 30, 1995.
(Dollars in millions)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Sportswear-Misses .......................... $ 679.1 $ 772.5 $ 878.0 $ 947.7 $ 903.7
Sportswear-Petites ......................... 213.6 227.6 253.5 268.5 250.7
-------- -------- -------- -------- --------
Total Women's Sportswear .......... 892.7 1,000.1 1,131.5 1,216.2 1,154.4
Accessories and Other Non-Apparel .......... 330.4 368.1 344.3 285.2 253.4
Retail Specialty Stores .................... 195.0 150.0 114.4 92.9 77.4
Outlet Stores .............................. 155.0 140.1 122.4 113.9 84.7
Dana Buchman ............................... 136.2 112.9 90.2 73.5 28.9
Elisabeth .................................. 131.1 137.2 143.5 161.0 130.5
Dresses and Suits .......................... 123.0 121.9 130.0 171.3 180.3
Men's Sportswear and Furnishings ........... 113.1 101.7 80.7 94.0 124.6
Liz & Co. .................................. 83.9 75.8 91.9 96.4 75.9
Moderate Sportswear ........................ 81.3 111.6 78.7 21.2* --
-------- -------- -------- -------- --------
2,241.7 2,319.4 2,327.6 2,325.6 2,110.1
Intercompany Sales Elimination ............. (160.1) (156.5) (123.3) (131.3) (102.9)
-------- -------- -------- -------- --------
Net Sales ......................... $2,081.6 $2,162.9 $2,204.3 $2,194.3 $2,007.2
======== ======== ======== ======== ========
Net Sales by Geographic Areas
Domestic ................................... $1,943.4 $2,039.9 $2,091.0 $2,092.5 $1,923.6
International .............................. 138.2 123.0 113.3 101.8 83.6
-------- -------- -------- -------- --------
Net Sales ......................... $2,081.6 $2,162.9 $2,204.3 $2,194.3 $2,007.2
======== ======== ======== ======== ========
- ----------
* Partial Year Sales
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Liz Claiborne Casual offers casual sportswear under three of
the Company's trademarks. The LIZSPORT Division offers all-American sportswear
for less formal work settings and casual occasions. The LIZWEAR Division offers
denim and denim-related sportswear, including twills and fashion coordinates.
The LIZ & CO. Division offers versatile career and casual knitwear.
The COLLECTION Division offers professional careerwear under
the LIZ CLAIBORNE trademark with desk-to-dinner versatility. A line of casual
careerwear under the STUDIO trademark, initially shipped in January 1996, is now
offered by the COLLECTION Division. The COLLECTION Division's products offer the
consumer coordinated designs and integrated groupings.
The DANA BUCHMAN Division offers collections for the women's
"bridge" market, the price range between better sportswear and designer clothing
under the Company's DANA BUCHMAN trademark. The Division offers products with
elegant styling in distinctive fabrics, in "misses", large and petite sizes. In
February 1996, the Division commenced shipment of a new line of sophisticated
casual wear under the Company's new DANA B. AND KAREN trademark.
The ELISABETH Division offers large-sized classic careerwear,
weekend casual, and wardrobe basics in both "misses" and petite proportions
under the Company's ELISABETH trademark.
The Dress Division offers dresses and suits providing
day-into- evening versatility and special occasion dresses under the Company's
LIZ CLAIBORNE trademarks in both the "misses" and petite size ranges, as well as
special occasion dresses under the LIZ NIGHT trademark.
The Menswear Division offers men's business-casual wear,
sportswear and furnishings (dress shirts and ties) under the CLAIBORNE
trademark.
During 1995, each of the above Divisions presented three to
six seasonal collections. The Company has announced that commencing in 1996, its
major sportswear divisions will present four seasonal collections each year.
The Accessories Division offers handbags, small leather goods,
hats, belts, scarves, socks, tights and bodywear -- primarily under the LIZ
CLAIBORNE trademark -- which mirror major fashion trends and complement many of
the Company's other product lines.
The Company's Cosmetic and Jewelry Divisions operate under a
single management. Cosmetic offerings include fragrance and bath and body-care
products under the LIZ CLAIBORNE, REALITIES, VIVID and CLAIBORNE FOR MEN
trademarks. In March 1996, the Company introduced new women's and men's
fragrance and bath and body product lines under its new CURVE trademark, with
shipping to commence in the third quarter of 1996. Jewelry offerings include
collections of fashion jewelry, such as earrings, necklaces, bracelets and pins,
to complement the Company's women's apparel and accessories lines.
In late 1994, the Company announced plans to phase out its
First Issue retail store business and to close or convert its 77 First Issue
locations to other Company-operated retail formats. As of March 1, 1996, the
phase out has been completed. (See "Item 7. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations.")
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The Moderate Sportswear Division offers updated career and
casual clothing under the Company's RUSS trademark; traditional mainstream
sportswear under the Company's THE VILLAGER trademark; and fashion related
separates with a jeanswear attitude under the Company's CRAZY HORSE trademark.
These product lines are sold in department stores, national chains and specialty
stores. See "Competition and Certain Other Risks."
Effective June 30, 1995, the business formerly operated by the
Company's Shoe Division was licensed to a third party. (See "Item 7. --
Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
Sales and Marketing
The Company's wholesale sales are made primarily to department
and specialty store customers throughout the United States. Retail sales are
also made through the Company's own retail stores and outlet stores, as well as
to international customers, direct-mail catalog companies, military exchanges
and other outlets. The Company is currently evaluating its methods of doing
business internationally. At 1995 year end, LIZ CLAIBORNE products were being
sold in over 50 markets outside the United States. The Company expects to
continue expansion to additional markets.
The Company currently operates a total of 117 prototype and
presentational specialty retail stores located throughout the United States
which carry exclusively Company products: 46 LIZ CLAIBORNE stores, 64 ELISABETH
large- size apparel stores, 6 CLAIBORNE mens' stores and one DANA BUCHMAN store.
These stores typically range in size from 2,000 square feet to 12,000 square
feet. In 1995, the LIZ CLAIBORNE flagship store, an approximately 17,000 square
foot store which carries the full line of Liz Claiborne women's apparel and
related items, opened on Fifth Avenue in New York City. The Company's retail
stores enable it to closely track sales and other product data, obtain market
information and experiment with new products, visual presentation and new ideas
for enhancing customer service. This information is used to help the Company's
wholesale customers more quickly respond to consumer preferences.
In Canada, the Company operates a wholesale business which
sells primarily to major department store chains. In addition, during 1995, the
Company began its expansion into the Canadian specialty store market. In
Western Europe, the Company operates leased or licensed departments, or
concessions, at leading specialty stores. These departments are currently the
Company's primary method of doing business in Europe. Although the Company plans
to add additional concessions in Europe, it is also evaluating options to
service European retailers on a wholesale basis. In other international markets,
the Company has granted retail licenses to third parties under which they
operate LIZ CLAIBORNE stores and shops. During 1995, 22 additional licensed
stores and shops were opened in a total of 16 countries. During 1996, the
Company plans to grant additional store licenses, as well as open wholesale
accounts in new markets.
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Approximately 83% of 1995 sales were made to the Company's 100
largest customers. Except for Dillard's Department Stores, Inc., which accounted
for approximately 11% of 1995 and 1994 sales, no single customer accounted for
more than 6% of 1995 or 1994 sales. However, certain of the Company's customers
are under common ownership; when considered together as a group under common
ownership, sales to the eight department store customers which were owned at
year-end 1995 by The May Department Stores Company accounted for approximately
18% of 1995 and 17% of 1994 sales. Sales to the eleven department store
customers which were owned at year-end 1995 by Federated Stores, Inc. accounted
for approximately 17% of 1995 and 16% of 1994 sales. See Note 8 of Notes to
Consolidated Financial Statements. Many major department store groups make
centralized buying decisions; accordingly, any material change in the Company's
relationship with any such group could have a material adverse effect on the
Company's operations. The Company expects that its largest customers will
continue to account for a significant percentage of its sales.
Sales to the Company's department and specialty store
customers are made primarily through the Company's New York City showrooms.
Orders from the Company's customers generally precede the
related shipping periods by several months. The Company's largest customers
discuss with the Company retail trends and their plans regarding their
anticipated levels of total purchases of Company products for future seasons.
These discussions are intended to assist the Company in planning the production
and timely delivery of its products. The Company continually monitors retail
sales in order to assess directly consumer response to its products.
The Company has implemented and continues to expand in-stock
reorder programs in several divisions to enable customers to reorder certain
items for quick delivery. See "Manufacturing." In 1995, as part of these
programs, the Company began implementation of LizRim, an inventory replenishment
system, which has been installed at a number of its retail customers.
Effective January 1, 1996, the Company lowered the trade
discount offered by its LIZWEAR, LIZSPORT, LIZ & CO., ELISABETH, Dress and LIZ
CLAIBORNE COLLECTION Divisions from the previous 10% level to 8% (the prevailing
standard in the industry). The Company is redeploying the additional funds
received as a result of this change towards a national advertising campaign, an
expanded in-store presentation program and similar brand-enhancing activities,
in an effort to stimulate full price sales at retail. In January 1996, the
Company introduced LIZEDGE, an in-store servicing and maintenance program
designed to enhance the way the Company's products appear on the selling floor,
and in March 1996, introduced LIZVIEW, a special presentation program designed
to create a more effective retail presence at department stores. (See "Item 7.
- -- Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
The Company maintains cooperative advertising programs under
which it will generally share the costs of each customer's advertising and
promotional expenditures, up to a stated percentage of the customer's purchases.
The Company incurred costs under these cooperative advertising programs of
approximately $39 million in respect of 1995 sales. The Company spent
approximately $4 million in 1995 on national advertising. The Company plans to
expend significantly greater amounts on national advertising in 1996.
The Company currently operates 76 outlet stores, virtually all
of which are located in "outlet centers" comprised primarily of manufacturer-
operated stores.
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Manufacturing
The Company does not own any product manufacturing facilities;
all of its products are manufactured in accordance with its specifications
through arrangements with independent suppliers.
A very substantial portion of the Company's sales is
represented by products produced abroad, mainly in the Far East, the Caribbean
and Central America. The Company also sources in the United States and other
regions. The Company does not itself own quota and therefore must obtain quota
from its suppliers and vendors. During 1995, the Company's products were
manufactured by several hundred suppliers. The Company's products are currently
manufactured in approximately 35 different countries, including China, Sri
Lanka, South Korea, the Dominican Republic, Indonesia and Hong Kong. The Company
continually seeks additional suppliers throughout the world for its sourcing
needs. The Company's largest supplier of finished products manufactured less
than 6% of the Company's purchases of finished products during 1995.
Approximately 28% of the Company's 1995 purchases of finished products were
manufactured by its ten largest suppliers, as compared to 24% of 1994 purchases.
The percentage of the Company's production represented by its ten largest
suppliers increased in 1995 as compared to 1994, and the Company is planning to
allocate even larger portions of its production requirements to suppliers which
appear to have superior capacity, quality (of product and operations) and
financial resources, thus increasing the percent of purchases accounted for by
the Company's leading suppliers. The Company's purchases from its suppliers are
effected through individual purchase orders specifying the price and quantity of
the items to be produced. Generally, the Company does not have any long-term,
formal arrangements with any of the suppliers which manufacture its products.
The Company believes that it is the largest customer of many of its
manufacturing suppliers and considers its relations with such suppliers to be
satisfactory.
The Company's fabrics, trimmings and other materials are
obtained in bulk from various foreign and domestic suppliers. During 1995, the
raw materials used in Company products were purchased from several hundred
suppliers, located primarily in South Korea, Japan, Taiwan, Hong Kong and Italy.
Approximately 25% of the Company's expenditures for raw materials during 1995
and 1994 were accounted for by its five largest raw material suppliers, with no
single raw material supplier accounting for more than 7% of 1995 raw material
expenditures. Generally, the Company does not have any long-term, formal
arrangements with any supplier of raw materials. The Company has a 50% interest
in a joint venture which supplies certain types of domestically dyed and
finished fabrics for use in certain Company products; the Company is currently
analyzing its options with respect to this venture. To date, the Company has
experienced little difficulty in satisfying its raw material requirements and
considers its sources of supply adequate.
The Company operates under substantial time constraints in
producing each of its collections. See "Sales and Marketing." In order to
deliver, in a timely manner, merchandise which reflects current tastes, the
Company attempts to schedule a substantial portion of its materials and
manufacturing commitments relatively late in the production cycle, thereby
favoring suppliers able to make quick adjustments in response to changing
production needs. However, in order to secure necessary materials and
manufacturing facilities, the Company must make substantial advance commitments,
often as much as seven months prior to the receipt of firm orders from customers
for the items to be produced. The Company has and continues to implement a
number of initiatives designed to reduce the time required to move a product
from design to the sales floor.
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If the Company should misjudge its ability to sell its
products, it could be faced with substantial outstanding fabric and/or
manufacturing commitments, resulting in excess merchandise inventories. See
"Competition; Certain Risks". The Company was left with significant excess
merchandise inventory positions during 1993 and into the first half of 1994 due
to the Company's increased 1993 commitments compared to 1992 and the decreased
demand for certain of the Company's apparel at retail.
The Company's arrangements with foreign suppliers are subject
to the risks of doing business abroad, including currency fluctuations and
revaluations, restrictions on the transfer of funds and in certain parts of the
world, political instability. The Company's operations have not been materially
affected by any of such factors to date. However, due to the large portion of
the Company's products which are produced abroad, any substantial disruption of
its relationships with its foreign suppliers could adversely affect the
Company's operations.
Import and Import Restrictions
Virtually all of the Company's merchandise imported into the
United States is subject to United States duties. In addition, bilateral
agreements between the major exporting countries and the United States impose
quotas that limit the amount of certain categories of merchandise that may be
imported into the United States. The majority of such agreements contain
"consultation" clauses which allow the United States, under certain
circumstances, to impose unilateral restrictions on the importation of certain
categories of merchandise that are not subject to specified limits under the
terms of an agreement. These bilateral agreements have been negotiated under the
framework of the Multi Fiber Arrangement ("MFA"), which has been in effect since
1974. The United States, a participant in international negotiations known as
the "Uruguay Round", ratified legislation enacting and implementing the various
agreements of the Uruguay Round, effective January 1, 1995, including the
Uruguay Round Agreement on Textiles and Clothing which requires World Trade
Organization Member countries to phase out textile and apparel quotas in three
stages over a ten year period. In addition, it regulates trade in non-integrated
textile and apparel quotas during the ten year transition period. However, even
with respect to integrated textile and apparel quota categories, the United
States remains free to establish numerical restraints in response to a
particular product being imported in such increased quantities as to cause (or
threaten) serious damage to the relevant domestic industry. The U. S.
legislation implementing the Uruguay Round also changes the rule of origin for
many textiles and apparel products effective July 1, 1996, with certain minor
exceptions. This change would determine country of origin based on "assembly"
for most textile and apparel products. The Uruguay Round also incorporates
modest duty reductions for textile and apparel products over a ten year staging
schedule. This will likely result in a modification of current patterns of
international trade with respect to apparel and textiles. In addition, there are
various United States initiatives pending concerning the trading status of
certain countries, which, if enacted, would likely increase the cost of doing
business in such countries. (See "Item 7. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations".)
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In addition, each of the countries in which the Company's
products are sold have laws and regulations regarding import restrictions and
quotas. Because the United States and other countries in which the Company's
products are manufactured and sold may, from time to time, impose new quotas,
duties, tariffs, surcharges or other import controls or restrictions, or adjust
presently prevailing quota allocations or duty or tariff rates or levels, the
Company maintains a program of intensive monitoring of import and quota-related
developments. The Company seeks continually to minimize its potential exposure
to import and quota-related risks through, among other measures, allocation of
production to merchandise categories that are not subject to quota pressures,
adjustments in product design and fabrication, shifts of production among
countries and manufacturers, and otherwise, as well as through geographical
diversification of its sources of supply.
In light of the very substantial portion of the Company's
products which are manufactured by foreign suppliers, the enactment of new
legislation or the administration of current international trade regulations, or
executive action affecting textile agreements, could adversely affect the
Company's operations.
Trademarks
The Company utilizes a variety of trademarks on its products,
including LIZ CLAIBORNE, LIZ, CLAIBORNE, LIZWEAR, LIZSPORT, LIZ CLAIBORNE
COLLECTION, LIZ NOW, LIZ NIGHT, LIZ CLAIBORNE STUDIO, its triangular logomark,
DANA BUCHMAN, dana b. and karen, ELISABETH, LIZ & CO., LEATHER CO., RUSS, THE
VILLAGER, CRAZY HORSE, REALITIES, VIVID and CURVE. The Company has registered or
applied for registration of a multitude of trademarks for use on apparel and
apparel-related products, including accessories, cosmetics and jewelry in the
United States as well as numerous foreign territories. The Company also has a
number of design patents. The Company regards its trademarks and other
proprietary rights as valuable assets and believes that they have significant
value in the marketing of its products. The Company vigorously protects its
trademarks and other intellectual property rights against infringement.
Licensing
The Company has five license agreements pursuant to which
third party licensees produce merchandise under the Company's trademarks in
accordance with designs furnished or approved by the Company. The present terms
of these agreements (exclusive of renewal terms) expire at various dates through
2010. Current licenses cover women's and men's sunglasses and readers; women's
and men's ophthalmic frames for prescription eyewear; home furnishing products
(with the first collections shipped in the first quarter of 1995), men's
tailored clothing (with the first collections shipped in the third quarter of
1995), and women's career, career-casual, casual and sport shoes (with the first
licensed collections shipped in the third quarter of 1995). Each of the licenses
provides for the payment to the Company of a percentage of the licensee's sales
of the licensed products against a guaranteed minimum royalty which generally
increases over the term of the agreement.
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Competition; Certain Risks
The apparel and related product markets are highly
competitive, both within the United States and abroad.
The Company's ability to effectively compete depends on a
number of factors, including the Company's ability to effectively anticipate,
gauge and respond to changing consumer demands and tastes, to effectively
translate these market trends into appropriate, saleable product offerings
relatively far in advance, and to operate within substantial production and
delivery constraints. In addition, consumer and customer acceptance and support
(especially by the Company's largest customers), depend upon, among other
things, product, value and services.
The Company believes that, based on sales, it is among the
largest apparel companies operating in the United States. Although the Company
is unaware of any comprehensive trade statistics, it believes, based on its
knowledge of the market and available trade information, that measured by sales,
it is the largest "better" women's sportswear and dress company in the United
States. A number of apparel companies have announced plans to distribute new
collections of women's "better" sportswear through the department store channel
of distribution, commencing in 1996.
In addition to the competitive factors described above, the
Company's business, including its revenues and profitability, is influenced by
and subject to a number of factors which are inherently uncertain and therefore
difficult to predict, including the general retail environment and general
economic conditions; the Company's relationships with its customers, especially
its major department store customers; the Company's ability to correctly judge
the level of its fabric and/or merchandise commitments; the Company's ability to
effectively distribute its products within its targeted markets (including
distribution through wholesale accounts and Company operated retail stores and
concession locations); and the chance of substantial disruption of the Company's
relationships with its suppliers and manufacturers. See "Sales and Marketing."
and "Manufacturing."
The Company from time to time reviews its possible entry into
new markets. The entry into new markets, such as the Company's entry into the
moderate market, is accompanied by risks inherent in any new business. New
businesses may require methods of operations and marketing strategies different
from those employed in the Company's other businesses. Certain new businesses
may be lower margin businesses and will require the Company to achieve
significant cost efficiencies, in part by using sources of supply different from
the Company's sources for other products. In addition, new markets may involve
buyers, store customers and/or competitors different from the Company's
historical buyers, customers and competitors.
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Employees
At December 30, 1995, the Company had more than 7,400
full-time employees, as compared with approximately 8,000 full-time employees at
December 31, 1994.
As a member of a manufacturers' association, the Company is
bound by collective bargaining agreements with affiliates of UNITE, the
successor to the International Ladies' Garment Workers' Union and the
Amalgamated Clothing and Textile Workers of America, covering, at December 30,
1995, approximately 1,750 of the Company's full-time apparel, accessories and
cosmetics employees in the United States and Canada. These collective bargaining
agreements expire on various dates through 1997.
The Company considers its relations with its employees to be
satisfactory and has not experienced any interruption of operations due to labor
disputes.
Item 2. Properties.
The Company's showrooms, sales, merchandising and design
staffs, as well as its executive offices, are located at 1441 Broadway, New
York, New York, where the Company leases approximately 276,000 square feet under
a master lease which expires at the end of 2001 and contains certain renewal
options and rights of first refusal for additional space. The Company currently
leases office space at two other buildings in New York City covering
approximately 60,000 and 24,000 square feet (with terms expiring in 1996 and
2003, respectively).
The Company owns its approximately 450,000 square foot
principal New Jersey warehouse and distribution facility located at One
Claiborne Avenue, North Bergen, New Jersey. This facility also houses the
Company's production and certain other administrative personnel. The Company
also owns an approximately 300,000 square foot office facility at this location
which was completed in 1994. The Company presently leases approximately 969,000
square feet in 6 other New Jersey warehouse facilities, the current terms of
which expire through 2008. The Company also owns an approximately 313,000 square
foot warehouse and distribution facility located on approximately 80 acres in
Mt. Pocono, Pennsylvania. The Company's approximately 270,000 square foot
facility in Augusta, Georgia (located on a 98-acre site), has been leased to a
joint venture comprised of a wholly-owned subsidiary of the Company and an
unrelated third party. This facility is used as a dyeing and finishing
operation. The Company occupies an approximately 290,000 square foot warehouse
and distribution facility located on an approximately 124 acre site in
Montgomery, Alabama. The Company has options to purchase an additional 80 acres
adjacent to the facility. The Company currently is planning to expand its
operations at this location. The Company is the lessee of the Georgia and
Alabama facilities pursuant to industrial development financing. The Company
also leases showroom, warehouse and office space in various other domestic and
international locations.
The Company leases space for its 117 retail specialty stores
(aggregating approximately 518,000 square feet in various malls) and for 75 of
its outlet stores (aggregating approximately 740,000 square feet).
The Company believes that its existing facilities are well
maintained, in good operating condition and are adequate for its present level
of operations. (See Note 8 of Notes to Consolidated Financial Statements.)
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Item 3. Legal Proceedings.
The Company and certain of its present and former officers and
directors are parties to several pending legal proceedings and claims, including
an action styled Ressler et al. vs. Liz Claiborne, Inc., et al., pending in the
United States District Court for the Eastern District of New York. The
plaintiffs seek compensatory damages on behalf of a class of purchasers of the
Company's Common Stock during the period commencing September 21, 1992 through
and including July 16, 1993, and allege that the defendants violated the federal
securities laws by, among other things, making misrepresentations or omissions
of material facts that artificially inflated the market price of the Common
Stock during the class period. An earlier-filed lawsuit before the same court as
Ressler, styled Fishbaum vs. Chazen, et. al., made allegations similar to the
Ressler complaint and sought damages on behalf of a class of purchasers of the
company's Common Stock for the period commencing March 30, 1993, through and
including July 16, 1993. An amended complaint was filed in the Ressler action in
May 1994 to add Fishbaum as a plaintiff. In June 1994, the court granted the
defendants' motion to dismiss the Fishbaum complaint, with leave to amend, on
the grounds that the complaint did not adequately set forth the requisite
element of scienter. In July 1994, the Company moved to dismiss the Ressler
complaint. In August 1995, the Court granted that motion, again with leave to
amend, on the grounds that the Ressler complaint failed to comply with pleading
requirements of the Federal Rules of Civil Procedure. However, the Court
rejected the contention that scienter had not been adequately pled. In response
to the defendants' motion for reconsideration of that latter point, the Court
indicated that the Company could present the scienter issue again in moving to
dismiss a new amended complaint. In October 1995, a second amended complaint was
filed in the Ressler action. In December 1995, the defendants moved to dismiss
that complaint.
In April 1994, two stockholder derivative actions, which
contain substantially similar allegations, styled Goldberg Family Trust vs.
Chazen, et al. and Liz Claiborne, Inc., nominal defendant, and Laz Schneider vs.
Chazen, et al. and Liz Claiborne, Inc., nominal defendant, were brought in the
Court of Chancery of the State of Delaware against certain of the Company's
directors and two of its former Vice Chairmen. The complaints contain
allegations that the individual defendants breached their fiduciary obligations
to the Company and its shareholders committed corporate mismanagement and wasted
corporate assets in connection with the Company's stock repurchase program and
the defense of pending legal proceedings, and were unjustly enriched in
connection with the sale of shares of the Company's Common Stock between
September 1992 and July 1993 by certain of its present and former officers and
directors. In July 1994, the Laz Schneider action was consolidated with the
Goldberg action. In August 1994, the defendants moved to dismiss the
consolidated complaint. The motion is pending.
The Company believes that the litigations described in this
Item are without merit and intends to vigorously defend these actions. Although
the outcome of any such litigation or claim cannot be determined with certainty,
management is of the opinion that the final outcome of these litigations should
not have a material adverse effect on the Company's results of operations or
financial position.
- 12 -
13
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
Executive Officers of the Registrant.
Information as to the executive officers of the Company is set forth below:
Name Age Position(s)
- ---- --- -----------
Jerome A. Chazen 69 Chairman of the Board
Paul R. Charron 53 President and Chief Executive Officer
Jorge L. Figueredo 35 Senior Vice President - Human Resources
Samuel M. Miller 58 Senior Vice President - Finance, Chief
Financial Officer
John R. Thompson 44 Senior Vice President - Service, Systems and
Reengineering, Chief Information Officer
Robert J. Zane 56 Senior Vice President - Manufacturing and
Sourcing
- 13 -
14
Executive officers serve at the discretion of the Board of
Directors.
Mr. Chazen has served in various senior executive positions
and as a Director of the Company since 1977. In 1985, he was elected Co-Chairman
of the Board of the Company, and became Vice Chairman of the Board in 1987. In
1989, Mr. Chazen became Chairman of the Board. Mr. Chazen also serves on the
board of directors of Taubman Centers, Inc., an owner and operator of regional
shopping centers.
Mr. Charron joined the Company as Vice Chairman and Chief
Operating Officer, and became a Director, in May 1994. Effective May 1995, he
became President and Chief Executive Officer. Prior to joining the Company, he
served as Executive Vice President of VF Corporation, an apparel manufacturer,
from 1993, and as a Group Vice President of VF Corporation from 1988 to 1993.
Mr. Figueredo joined the Company in 1984 as Administrator,
Warehouse Employee Relations and served in various management positions
thereafter. In 1992, he was promoted to Vice President, Human Resources
Operations. In 1994, he was promoted to Senior Vice President - Human Resources.
Mr. Miller, a certified public accountant, joined the Company
in 1988 as Senior Vice President - Finance (Chief Financial and Accounting
Officer) after more than sixteen years in various senior financial positions
within the apparel industry.
Mr. Thompson joined the Company in February 1995 as Senior
Vice President of Service, Systems and Reengineering and Chief Information
Officer. Prior to joining the Company, Mr. Thompson served as Executive Vice
President for Business Systems/Logistics and Chief Information Officer of
Goody's Family Clothing, Inc., an apparel retailer, from 1993 to 1995. From 1991
to 1993, Mr. Thompson was Vice President Business Systems and Management
Information Systems for Lee Apparel Company, an apparel manufacturer. Mr.
Thompson also served as Executive Vice President and Chief Information Officer
of Quick Response Services, Inc., an information management services company,
from 1987 to 1991.
Mr. Zane joined the Company in September 1995 as Senior Vice
President - Manufacturing and Sourcing. Prior to joining the Company, Mr. Zane
owned and operated Medallion Tekstil, a private label manufacturing company he
founded in 1989. Prior to that, Mr. Zane was Vice President, Sourcing at Bernard
Chaus, Inc. and Executive Vice President at Murjani International, Inc.
- 14 -
15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock trades on the New York Stock
Exchange ("NYSE") under the symbol LIZ. The table below sets forth the high and
low closing sale prices of the Common Stock (based on the NYSE composite tape)
for the periods indicated.
Calendar Period High Low
--------------- ---- ---
1995:
1st Quarter 18 14 1/2
2nd Quarter 21 1/4 17 3/4
3rd Quarter 25 3/4 21 1/8
4th Quarter 30 23 3/4
1994:
1st Quarter 24 1/8 20 1/2
2nd Quarter 26 1/4 19 7/8
3rd Quarter 23 5/8 20 1/4
4th Quarter 24 1/8 15 5/8
On March 5 1996, the closing sale price of the Common Stock on
the NYSE was $35 5/8. As of March 5, 1996, the approximate number of record
holders of Common Stock was 11,160.
The Company has paid regular quarterly cash dividends since
May 1984. Quarterly dividends for the last two fiscal years were paid as
follows:
Calendar Period Dividends Paid per Common Share
1995:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
1994:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
The Company plans to continue paying quarterly cash dividends
on its Common Stock. The amount of any such dividend will depend on the
Company's earnings, financial position, capital requirements and other relevant
factors.
- 15 -
16
In December 1989, the Board of Directors first authorized the
repurchase, as market and business conditions warranted, of the Company's Common
Stock for cash in open market purchases and privately negotiated transactions.
From time to time thereafter, the Board has authorized additional repurchases.
As of March 4, 1996, the Company had expended or had commitments to expend,
through the sale of put warrants, (see Note 8 of Notes to Consolidated Financial
Statements) approximately $499 million of the $550 million authorized under its
stock repurchase program, covering an aggregate of 18.9 million shares.
Item 6. Selected Financial Data.
The following table sets forth certain information regarding
the Company's operating results and financial position and is qualified in its
entirety by the consolidated financial statements and notes thereto which appear
elsewhere herein:
(All dollar amounts in thousands except per common share data)
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net sales $ 2,081,630 $ 2,162,901 $ 2,204,297 $ 2,194,330 $ 2,007,177
Gross profit 790,701 755,207 750,916 830,116 799,675
Net income 126,914 82,849* 126,924** 218,824 222,748
Working capital 758,314 719,132 750,001 832,789 763,851
Total assets 1,329,243 1,289,662 1,236,338 1,256,308 1,170,645
Long-term debt
excluding
current portion 1,115 1,227 1,334 1,434 1,615
Stockholders'
equity 988,226 982,984 978,291 997,775 909,599
Earnings per
common share 1.69 1.06* 1.56** 2.61 2.61
Book value at
year-end 13.41 12.77 12.41 12.05 10.67
Dividends paid
per common share .45 .45 .44 .39 .33
Weighted average
common shares
outstanding 75,002,861 78,526,724 81,509,120 83,965,342 85,457,204
- --------------------------------------------------------------------------------
* Includes the after tax effect of a restructuring charge of $18,900 ($30,000
pretax) or $.24 per common share in 1994.
** Includes a credit representing the cumulative effect of a change in the
method of accounting for income taxes of $1,643 or $.02 per common share in
1993.
- 16 -
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The following table sets forth items in the Consolidated Statements of Income as
a percent of net sales and the percentage change of those items as compared to
the prior year.
PERCENT OF NET YEAR TO YEAR
SALES PERCENTAGE CHANGE
- -----------------------------------------------------------------------------------
FISCAL YEARS 1995 1994 1993 1995 VS. 1994 VS.
1994 1993
- -----------------------------------------------------------------------------------
NET SALES 100.0% 100.0% 100.0% (3.8)% (1.9)%
----- ----- -----
Cost of goods sold 62.0 65.1 65.9 (8.3) (3.1)
----- ----- -----
GROSS PROFIT 38.0 34.9 34.1 4.7 .6
Selling, general and
administrative expenses 28.8 27.9 25.8 (.7) 6.4
Restructuring charge -- 1.4 -- -- --
----- ----- -----
OPERATING INCOME 9.2 5.6 8.3 57.5 (33.9)
Investment and other
income-net .6 .5 .7 20.8 (34.0)
----- ----- -----
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING
PRINCIPLE 9.8 6.1 9.0 54.5 (33.9)
Provision for income
taxes 3.7 2.3 3.3 56.8 (33.9)
----- ----- -----
INCOME BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 6.1 3.8 5.7 53.2 (33.9)
Cumulative effect of a
change in the method of
accounting for income
taxes -- -- .1 -- --
----- ----- -----
NET INCOME 6.1% 3.8% 5.8% 53.2% (34.7)%
===== ===== =====
- 17 -
18
RESULTS OF OPERATIONS
continued
The Company's net sales for 1995 (52 weeks) were $2.08
billion, compared to $2.16 billion in 1994 (53 weeks) and $2.20 billion in 1993
(52 weeks). The 1995 net sales decline of 3.8% reflected a 9% decrease in
domestic net sales of Misses and Petite COLLECTION, LIZSPORT and LIZWEAR
(collectively, "Sportswear"), to $861 million, and a 32% decrease in domestic
net sales of the Moderate Division to $71 million. The Sportswear net sales
decrease reflected planned unit volume declines and slightly lower average unit
selling prices due to product mix. The Moderate Division's net sales decline
reflected a planned unit volume decrease. Also contributing to the net sales
result was a decrease in the net sales of accessories (6%, to $175 million), due
primarily to lower average unit selling prices, reflecting lower initial selling
prices and changes in product mix, and ELISABETH (4%, to $131 million),
principally reflecting lower off-price sales volume, offset by increased sales
to the Company's new ELISABETH stores. Effective June 30, 1995, the business
formerly operated by the Company's Shoe Division was licensed to a third party.
The Shoe Division accounted for $39 million of 1995 net sales (six months),
compared to $63 million in 1994 (twelve months) (see Note 3 of Notes to
Consolidated Financial Statements). These declines were offset in part by a 30%
sales increase within the Company's LIZ CLAIBORNE, ELISABETH, DANA BUCHMAN,
CLAIBORNE, First Issue and international retail stores and leased departments
(collectively, the "Retail Operations"), to $195 million, reflecting higher
average numbers of domestic retail stores and European retail leased
departments. In late 1994, the Company announced plans to phase out the First
Issue retail store business and to close or convert its 77 First Issue locations
to other Company-operated retail formats. As of March 1, 1996, the phase out has
been completed; First Issue accounted for $53 million of 1995 net sales,
compared to $64 million in 1994 (see Note 2 of Notes to Consolidated Financial
Statements). Net sales gains were also posted by DANA BUCHMAN (21%, to $136
million), menswear (11%, to $113 million) and LIZ & CO. (11%, to $84 million).
The DANA BUCHMAN net sales increase primarily reflected higher unit volume, as
well as slightly higher average unit selling prices. The menswear and LIZ & CO.
net sales increases were due to higher unit volume. Net sales of the outlet
operations increased 11%, to $155 million, principally reflecting the opening of
new stores (76 at 1995 year end compared with 70 at 1994 year end). The 1994 net
sales decrease reflected a 12% decline in the net sales of Sportswear, to $1
billion, primarily resulting from substantially lower average unit prices due to
weakness in demand, the liquidation during the first half of 1994 of significant
prior year excess inventory at distressed prices, and changes in product mix.
The net sales result also reflected an 18% decline in LIZ & CO. sales, to $76
million, due primarily to lower unit volume. These decreases were partially
offset by increases in sales of the Moderate Division (42%, to $112 million),
menswear (26%, to $102 million), and DANA BUCHMAN (25%, to $113 million). These
increases primarily reflected higher unit volume, although more than half of the
menswear increase was due to higher average unit prices as a result of a higher
proportion of regular price sales. In addition, sales of the Retail Operations
increased 31%, to $150 million, due to the opening of new domestic retail stores
(113 at 1994 year end compared with 78 at 1993 year end) as well as the
conversion of most of the Company's European business from a wholesale to a
leased department operation. First Issue accounted for $64 million of the Retail
Operations' 1994 sales, compared to $51 million in 1993. Sales of the Company's
outlet stores increased 14%, to $140 million, in 1994, due
- 18 -
19
RESULTS OF OPERATIONS
continued
to the opening of new stores (70 at 1994 year end compared with 61 at 1993 year
end). The 1994 and 1993 results also reflected the delay of certain shipments of
1994 Spring season merchandise into 1994.
Gross profit dollars increased $35 million, or 4.7%, in 1995.
Gross profit margins were 38.0% in 1995, compared to 34.9% in 1994 and 34.1% in
1993. The margin improvement in 1995 generally reflected lower markdowns
resulting from lower excess inventory positions, an increase in average unit
selling prices realized on close-out merchandise, and slightly lower average
unit costs across substantially all of the wholesale apparel divisions.
Significant margin gains were realized by the ELISABETH and LIZ & CO. Divisions,
as well as the outlet operations. Although Sportswear margins improved, gross
profit dollars declined somewhat, reflecting the lower sales base. Moderate
margins remained at depressed levels notwithstanding significant improvement
over 1994. Overall margins were favorably impacted by the larger percentage of
sales represented by the Retail Operations and the DANA BUCHMAN Division (which
are generally higher margin businesses) and the lower percentage of sales
represented by the Moderate Division (which is a lower margin business). Margins
within the Retail Operations declined slightly from 1994 levels, and DANA
BUCHMAN margins improved. Margin improvements were partially offset by margin
declines within the menswear and jewelry businesses due to a lower proportion of
regular price sales, reflecting weakness in demand. Gross profit dollars
increased slightly in 1994, reflecting an improvement in the overall gross
profit percentage from the depressed level of 1993, on a slightly lower sales
base. Margins were negatively impacted throughout 1994 by the highly promotional
retail environment. While Sportswear gross margins showed some improvement,
notwithstanding the liquidation during the first half of significant excess
prior year inventory, volume declines resulted in lower gross profit dollars.
Margin percentages of the Menswear and Dress Divisions improved from depressed
1993 levels, due to a higher proportion of regular price sales. Also
contributing to the margin improvement was the higher proportion of the
Company's net sales represented by the Retail Operations and the DANA BUCHMAN
and Accessories Divisions (which are all generally higher margin businesses).
These increases were offset by severely depressed margins within the Moderate
Division (which is a lower margin business) due to a very low proportion of
regular price sales, and the higher proportion of the Company's sales
represented by this Division. In addition, margins declined in the Cosmetics
Division, reflecting weak demand and changes in product mix, and in the
ELISABETH Division, reflecting a lower proportion of regular price sales due
primarily to the liquidation of excess prior year inventory.
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 1995
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.
- 19 -
20
RESULTS OF OPERATIONS
continued
Selling, general and administrative ("SG&A") expenses
decreased $4 million (0.7%) in 1995 over 1994, compared with an increase of $36
million (6.4%) in 1994 over 1993. These expenses represented 28.8% of net sales
in 1995 compared to 27.9% in 1994 and 25.8% in 1993. The 1995 SG&A results
reflect lower expense levels as expense reduction initiatives continue; however,
the percentage decrease in the sales of certain divisions slightly outpaced
their percentage decreases in expense levels. The 1995 results also reflect
increases resulting from the continued expansion of the Company's outlets and
Retail Operations ($21.8 million increase in 1995), as well as expansion of the
DANA BUCHMAN Division and the expansion of in-store retail shop programs at a
number of divisions. These results reflect $6 million of direct expenses related
to the Shoe Division in 1995 (six months), compared with $12 million in 1994
(twelve months). The 1994 results reflected the continued expansion of the
Retail Operations, which accounted for approximately three-quarters of the
dollar increase. Also reflected in the 1994 dollar increase was the expansion of
the Moderate and DANA BUCHMAN Divisions and outlet operations, partially offset
by an overall expense reduction within the wholesale better-apparel businesses;
however, the overall percentage decrease in the sales of these businesses
slightly outpaced their percentage decrease in expense levels.
Investment and other income-net increased on a year-to-year
basis by $2 million in 1995, compared with a year-to-year decrease of $5 million
in 1994. The 1995 increase reflected an increase in the Company's investment
portfolio of cash equivalents and marketable securities, notwithstanding the
ongoing stock repurchase program, as well as slightly higher interest rates. The
1994 decrease was due to lower rates of return realized on the investment
portfolio, as well as a decrease in the average portfolio, reflecting in part
the stock repurchase program.
As a result of the factors described above, the Company's
income before provision for income taxes and cumulative effect of a change in
accounting principle expressed as a percentage of net sales was 9.8% in 1995,
compared to 6.1% in 1994 and 9.0% in 1993. The 1995 results included continuing
operating losses within the Retail Operations and the Moderate Division. The
1994 results reflected a $30 million charge which was provided to cover the
estimated costs associated with the restructuring of the Retail Operations and
Moderate Division, as well as the Company's strategic efforts to streamline
operating and administrative functions. This charge included estimated losses on
the phase out of the First Issue retail business, contract termination costs,
severance and the write-off of certain assets (see Note 2 of Notes to
Consolidated Financial Statements). 1994 operating income was also reduced by
continuing losses within the Company's Moderate Division, Retail Operations and
outlets. The provision for income taxes expressed as a percentage of net sales
was 3.7% in 1995, 2.3% in 1994 and 3.3% in 1993, reflecting changes in pre-tax
income, and in 1995 an increase in the effective income tax rate.
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 year 1993. The
cumulative effect on prior years of this accounting change is reflected in the
consolidated statements of income as a one-time increase in 1993 net income of
$1.6 million, or $.02 per common share (see Note 1 of Notes to Consolidated
Financial Statements).
- 20 -
21
RESULTS OF OPERATIONS
continued
The earnings per common share computations reflected a lower
number of outstanding shares on a period-to-period basis as a result of the
Company's stock repurchase program.
Net income expressed as a percentage of net sales was 6.1% in
1995, compared with 3.8% in 1994 and 5.8% in 1993. The 1995 increase was
principally due to higher operating margins and higher investment and other
income-net, offset in part by a higher provision for income taxes. The 1994
decrease was primarily due to lower operating margins and lower investment and
other income-net, offset in part by a lower provision for income taxes. The 1995
and 1994 year-to-year results also reflected the restructuring charge discussed
above, which reduced 1994 after-tax net income by $19 million.
The retail environment remains highly promotional, and the
tone of business continues to be difficult. The Company continues the process of
implementing a comprehensive business transformation effort which includes
process reengineering and profit improvement programs, and is progressing
towards a number of previously announced three-year goals for this initiative.
The Company continues to expect that earnings for the first half of 1996 will
show improvement over 1995 levels although any such improvement will be
moderated by continuing losses within certain operations. As part of its ongoing
strategic review process, the Company continues to evaluate certain business
operations.
Effective January 1, 1996, the Company lowered the trade
discount offered by its Sportswear, Dress, LIZ & CO. and ELISABETH Divisions
from the previous 10% level to 8% (the prevailing standard in the industry). The
Company is redeploying the additional funds received as a result of this change
towards a national advertising campaign, an expanded in-store presentation
program and similar brand-enhancing activities, in an effort to stimulate full
price sales at retail. As a result of this change, the net sales of the affected
divisions will increase by approximately 2% over the results they would have
reported without the change in trade discount, with corresponding dollar
increases in gross margin and SG&A expenses.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities was $222 million in
1995, compared to $173 million in 1994 and $120 million in 1993. The
year-to-year increase in 1995 primarily reflects higher net income, a larger
decrease in accounts receivable ($34 million in 1995 compared to $15 million in
1994), a smaller increase in deferred income tax benefits ($0.4 million in 1995
compared to $15 million in 1994) and a $5 million increase in income taxes
payable compared to an $8 million decrease in 1994, offset by a decrease in
accrued expenses of $1 million compared to an increase in 1994 (including
accruals associated with the restructuring charge) of $59 million. The 1994
increase was due primarily to a decrease in inventory levels in 1994 compared to
an increase in 1993 and a larger increase in accrued expenses in 1994 (including
accruals associated with the restructuring charge), offset in part by lower net
income. Net cash used in investing activities was $134 million in 1995, compared
to $131 million in 1994 and net cash provided by investing activities of $1
million in 1993. The year-to-year fluctuations in net cash used in or provided
by investing activities is related to the increase or decrease in marketable
securities and capital expenditures, as well as the cash proceeds from the sale
of certain Shoe Division assets realized in 1995. Net cash used in financing
activities was $104 million in 1995, compared to $75 million in 1994 and $148
million in 1993. The
- 21 -
22
RESULTS OF OPERATIONS
continued
changes in net cash used in financing activities principally reflects amounts
expended in the Company's stock repurchase program. As of March 4, 1996, the
Company had expended or had commitments to expend, through the sale of put
warrants (see Note 8 of Notes to Consolidated Financial Statements),
approximately $499 million of the $550 million authorized under its stock
repurchase program, covering an aggregate of 18.9 million shares.
The decrease in 1995 year end inventory levels over the prior
year end reflected the sale of inventory related to the Company's former Shoe
Division and the reduction of ongoing inventory levels within the outlet
operations, offset in part by planned earlier receipt of spring merchandise
across substantially all of the Company's wholesale apparel divisions and the
expansion of in-stock reorder programs in several divisions. The higher
inventory levels required by the expanded in-stock reorder programs and, to a
lesser degree the expansion of the Retail Operations, had a negative impact on
the Company's 1995 inventory turnover rate. The existence of excess inventory
(which takes additional time to liquidate) during the first half of 1994 had a
negative impact on the Company's 1994 inventory turnover rate and gross profit
margin.
The Company's anticipated capital expenditures for 1996
currently approximate $45 million. These expenditures consist primarily of
certain building and equipment expenses, including expansion of the Company's
Alabama distribution facility and the upgrading of management information
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 decreased by the Company from $282 million at
December 31, 1994 to $270 million at December 30, 1995 to reduce excess lines.
The Company expects to be able to adjust these lines as required.
INFLATION
The moderate rate of inflation over the past few years has not
had a significant impact on the Company's sales and profitability.
Item 8. Financial Statements and Supplementary Data.
Information called for by this Item 8 is included following the
"Index to Consolidated Financial Statement Schedules" appearing at the end of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
- 22-
23
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to Executive Officers of the Company is set
forth in Part I of this Annual Report on Form 10-K.
Information with respect to Directors of the Company which is called
for by this Item 10 is incorporated by reference to the information set forth
under the heading "Election of Directors" in the Company's Proxy Statement
relating to its 1996 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A (the "Company's 1996 Proxy Statement").
Item 11. Executive Compensation.
Information called for by this Item 11 is incorporated by reference to
the information set forth under the heading "Executive Compensation" in the
Company's 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information called for by this Item 12 is incorporated by reference to
the information set forth under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's 1996
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information called for by this Item 13 is incorporated by reference to
the information set forth under the headings "Election of Directors" and
"Employment Arrangements" in the Company's 1996 Proxy Statement.
- 23 -
24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
PAGE REFERENCE
1995 FORM 10-K
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets of December 30, 1995
and December 31, 1994 F-3
Consolidated Statements of Income for the
Three Fiscal Years Ended December 30, 1995 F-4
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended December 30, 1995 F-5
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended December 30, 1995 F-6
Notes to Consolidated Financial Statements F-7 to F-17
UNAUDITED QUARTERLY RESULTS F-18
NOTE: Schedules other than those referred to above and parent
company condensed financial statements have been omitted as
inapplicable or not required under the instructions contained
in Regulation S-X or the information is included elsewhere in
the financial statements or the notes thereto.
- 24 -
25
3. Exhibits.
Exhibit
No. Description
- ------- -----------
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a)
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated
herein by reference from Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992 [the "1992 Annual
Report"]).
4(a) - Specimen certificate for Registrant's Common Stock,
par value $1.00 per share (incorporated herein by
reference from Exhibit 4(a) to the 1992 Annual
Report).
4(b) - Rights Agreement, dated December 7, 1988, as amended,
between Registrant and First Chicago Trust Company of
New York, as Rights Agent (successor to The Chase
Manhattan Bank, N.A.) (incorporated herein by
reference from Exhibit 4(d) to Registrant's Report on
Form 8-A dated January 29, 1991).
4(b)(i) - Amendment to Rights Agreement, dated March 1990,
between Registrant and First Chicago Trust Company of
New York, as Rights Agent (successor to The Chase
Manhattan Bank, N.A.) (incorporated herein by
reference from Exhibit 4(d)(i) to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1989 [the "1989 Annual Report"]).
4(b)(ii) - Amendment to Rights Agreement, dated as of January
24, 1992, between Registrant and First Chicago Trust
Company of New York, as Rights Agent (incorporated
herein by reference from Exhibit 4(b)(ii) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991 [the "1991 Annual
Report"]).
10(a) - Reference is made to Exhibits 4(b) - 4(b)(ii) filed
hereunder, which are incorporated herein by this
reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan
(incorporated herein by reference from Exhibit 10(hh)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983 [the "1983 Annual
Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan
(incorporated herein by reference from Exhibit
10(d)(i) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988 [the
"1988 Annual Report"]).
- ---------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
- 25 -
26
Exhibit
No. Description
- ------- -----------
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc.
1984 Stock Option Plan (the "1984 Option Plan")
(incorporated herein by reference from Exhibit 10(nn)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984
Option Plan (incorporated herein by reference from
Exhibit 10(e)(i) to the 1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as
amended and restated (incorporated herein by
reference from Exhibit 10(f) to the 1989 Annual
Report).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between
Liz Claiborne, Inc. and IDS Trust Company
(incorporated herein by reference from Exhibit 10(b)
to Registrant's Quarterly Report on Form 10-Q for the
period ended July 2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan
(incorporated herein by reference from Exhibit 10(g)
to the 1992 Annual Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan
(incorporated herein by reference from Exhibit 10(g)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1993 [the "1993 Annual
Report"]).
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated
herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the
period ended July 2, 1994).
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing
Retirement Plan (the "Profit-Sharing Plan")
(incorporated herein by reference from Exhibit 10(h)
to the 1992 Annual Report).
10(g) - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj)
to the 1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit
10(i)(i) to the 1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a)
to Registrant's Quarterly Report on Form 10-Q for the
period ended October 1, 1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a)
to Registrant's Quarterly Report on Form 10-Q for the
period ended July 1, 1995).
- ---------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
- 26 -
27
Exhibit
No. Description
- ------- -----------
10(h)* - Collective Bargaining Agreement, dated June 1, 1994,
between New York Skirt and Sportswear Association,
Inc. (of which Registrant is a member) and
Amalgamated Ladies' Garment Cutters' Union, Local 10,
I.L.G.W.U. and Blouse, Skirt, Sportswear, Children's
Wear & Allied Workers' Union, Local 23-25, I.L.G.W.U.
10(i) - Executive Liability and Indemnification Policy No.
81035379F, with Chubb Group of Insurance Companies
(the "Insurance Policy") (incorporated herein by
reference from Exhibit 10(l) to Registrant's Annual
Report on Form 10-K for Fiscal Year ended December
31, 1994 [the "1994 Annual Report"].
10(i)(i)* - Summary of Extension of the Insurance Policy.
10(j)* - Excess Coverage Directors and Officers Liability
Insurance Policy No. ZKA9400406, with Lloyds of
London (the "Excess Insurance Policy").
10(j)(i)* - Summary of Extension of the Excess Insurance Policy.
10(k)+* - Description of 1995 Salaried Employee Incentive Bonus
Plan.
10(l) - Lease, dated as of January 1, 1990 for premises
located at 1441 Broadway, New York, New York between
Registrant and Lechar Realty Corp. (incorporated
herein by reference from Exhibit 10(n) to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990).
10(m)+* - Liz Claiborne, Inc. Amended and Restated Outside
Directors' 1991 Stock Ownership Plan.
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the
"1992 Plan") (incorporated herein by reference from
Exhibit 10(p) to the 1991 Annual Report).
10(n)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein
by reference from Exhibit 10(p)(i) to the 1993 Annual
Report).
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by
reference from Exhibit 10(q) to the 1992 Annual
Report).
10(p)+ - Form of Option Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(r)
to the 1992 Annual Report).
10(q)+ - Form of Restricted Career Share Agreement under the
1992 Plan (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report of
Form 10-Q for the period ended September 30, 1995).
- ---------------------------------------------------------------------
* Filed herewith.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
- 27 -
28
Exhibit
No. Description
- ------- -----------
10(r)+ - Description of unfunded deferred compensation
arrangement for Jerome A. Chazen (incorporated herein
by reference from Exhibit 10(s) to the 1992 Annual
Report).
10(s)+* - Description of Supplemental Life Insurance Plans.
10(t)+ - Description of unfunded death/disability benefits for
certain executives (incorporated herein by reference
from Exhibit 10(u) to the 1992 Annual Report).
10(u)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus
Plan (incorporated herein by reference from Exhibit
10(v) to the 1994 Annual Report).
10(v)+ - Liz Claiborne Supplemental Executive Retirement Plan
(the "SERP") (incorporated by reference from Exhibit
10(w) to the 1994 Annual Report).
10(w)+* - Description of the Liz Claiborne, Inc. Bonus Deferral
Plan.
10(x)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment
Agreement") (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on
Form 10-Q for the period ended April 2, 1994).
10(x)(i)+* - Amendment to the Employment Agreement, dated as of
November 20, 1995, between Registrant and Paul R.
Charron.
10(y) - Agreement dated as of January 2, 1995, between
Registrant and Harvey Falk (incorporated herein by
reference from Exhibit 10(y) to the 1994 Annual
Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
29* - Undertakings.
(b) Reports on Form 8-K.
Not applicable.
- ---------------------------------------------------------------------
* Filed herewith.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
- 28 -
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 28, 1996.
LIZ CLAIBORNE, INC.
By /s/Samuel M. Miller
----------------------
Samuel M. Miller,
Senior Vice President-Finance/
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities indicated, on March
28, 1996.
Signature Title
--------- -----
/s/Paul R. Charron Chief Executive Officer, Principal Executive
- ------------------------
Paul R. Charron Officer, President and Director
/s/Jerome A. Chazen
- ------------------------
Jerome A. Chazen Chairman of the Board and Director
/s/Lee Abraham
- ------------------------
Lee Abraham Director
- ------------------------
Eileen H. Bedell Director
/s/Ann M. Fudge
- ------------------------
Ann M. Fudge Director
/s/J. James Gordon
- ------------------------
J. James Gordon Director
/s/Sherwin Kamin
- ------------------------
Sherwin Kamin Director
/s/Kay Koplovitz
- ------------------------
Kay Koplovitz Director
/s/Louis Lowenstein
- ------------------------
Louis Lowenstein Director
/s/Paul E. Tierney, Jr.
- ------------------------
Paul E. Tierney, Jr. Director
- 29 -
30
INDEX
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 30, 1995 and December 31, 1994 F-3
Consolidated Statements of Income for the
Three Fiscal Years Ended December 30, 1995 F-4
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended December 30, 1995 F-5
Consolidated Statements of Cash Flows
for the Three Fiscal Years Ended December 30, 1995 F-6
Notes to Consolidated Financial Statements F-7 to F-17
UNAUDITED QUARTERLY RESULTS F-18
NOTE: Schedules other than those referred to above and parent
company condensed financial statements have been omitted as
inapplicable or not required under the instructions contained
in Regulation S-X or the information is included elsewhere in
the financial statements or the notes thereto.
F-1
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Liz Claiborne, Inc.:
We have audited the accompanying consolidated balance sheets of Liz Claiborne,
Inc. (a Delaware corporation) and subsidiaries as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Liz Claiborne, Inc. and
subsidiaries as of December 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 30, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 1 to the consolidated financial statements, effective
December 27, 1992, the Company changed its method of accounting for income
taxes.
/s/ Arthur Andersen
New York, New York
February 19, 1996
F-2
32
CONSOLIDATED BALANCE SHEETS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 54,722 $ 71,419
Marketable securities 383,128 258,932
Accounts receivable - trade 126,053 159,766
Inventories 393,363 423,003
Deferred income tax benefits 30,235 32,547
Other current assets 77,710 76,864
----------- -----------
Total current assets 1,065,211 1,022,531
----------- -----------
PROPERTY AND EQUIPMENT - NET 239,467 236,560
OTHER ASSETS 24,565 30,571
----------- -----------
$ 1,329,243 $ 1,289,662
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 138,800 $ 138,581
Accrued expenses 155,449 156,924
Income taxes payable 12,648 7,894
----------- -----------
Total current liabilities 306,897 303,399
----------- -----------
LONG-TERM DEBT 1,115 1,227
DEFERRED INCOME TAXES 7,722 2,052
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 25,283 --
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 35,075 56,714
Retained earnings 1,255,325 1,164,850
Cumulative translation adjustment (1,256) (1,637)
----------- -----------
1,377,363 1,308,146
Common stock in treasury, at cost - 14,526,922
shares in 1995 and 11,214,688 shares in 1994 (389,137) (325,162)
----------- -----------
Total stockholders' equity 988,226 982,984
----------- -----------
$ 1,329,243 $ 1,289,662
=========== ===========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
33
CONSOLIDATED STATEMENTS OF INCOME
LIZ CLAIBORNE, INC. AND SUBSIDIARIES FISCAL YEARS ENDED
----------------------------------------------------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER COMMON SHARE DATA DECEMBER 30, DECEMBER 31, DECEMBER 25,
1995 1994 1993
------------ ------------ ------------
NET SALES $2,081,630 $2,162,901 $2,204,297
Cost of goods sold 1,290,929 1,407,694 1,453,381
---------- ---------- ----------
GROSS PROFIT 790,701 755,207 750,916
Selling, general and administrative expenses 600,471 604,421 568,286
Restructuring charge -- 30,000 --
---------- ---------- ----------
OPERATING INCOME 190,230 120,786 182,630
Investment and other income - net 12,884 10,663 16,151
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 203,114 131,449 198,781
Provision for income taxes 76,200 48,600 73,500
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 126,914 82,849 125,281
Cumulative effect of a change in the method
of accounting for income taxes -- -- 1,643
---------- ---------- ----------
NET INCOME $ 126,914 $ 82,849 $ 126,924
========== ========== ==========
EARNINGS PER COMMON SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE $ 1.69 $ 1.06 $ 1.54
Cumulative effect of a change in the method
of accounting for income taxes -- -- .02
---------- ---------- ----------
NET INCOME PER COMMON SHARE $ 1.69 $ 1.06 $ 1.56
========== ========== ==========
DIVIDENDS PAID PER COMMON SHARE $ .45 $ .45 $ .44
========== ========== ==========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
34
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Common Stock Capital in Cumulative Common
--------------------
Number of Excess of Retained Translation Stock in
ALL DOLLAR AMOUNTS IN THOUSANDS Shares Amount Par Value Earnings Adjustment Treasury Total
---------- ------- ---------- ----------- ------- --------- ---------
BALANCE, DECEMBER 26, 1992 88,218,617 $88,219 $55,528 $ 1,034,280 $(1,410) $(178,842) $ 997,775
Net income -- -- -- 126,924 -- -- 126,924
Exercise of stock options and
related tax benefits -- -- 1,171 (2,134) -- 6,687 5,724
Cash dividends paid -- -- -- (35,657) -- -- (35,657)
Translation adjustment -- -- -- -- 131 -- 131
Purchase of 4,179,800 shares
of common stock -- -- -- -- -- (116,606) (116,606)
---------- ------- ------- ----------- ------- --------- ---------
BALANCE, DECEMBER 25, 1993 88,218,617 88,219 56,699 1,123,413 (1,279) (288,761) 978,291
Effect of a change in accounting
for available-for-sale securities,
net of tax -- -- -- 2,848 -- -- 2,848
Net income -- -- -- 82,849 -- -- 82,849
Exercise of stock options and
related tax benefits -- -- 15 (134) -- 431 312
Cash dividends paid -- -- -- (35,304) -- -- (35,304)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax -- -- -- (6,787) -- -- (6,787)
Translation adjustment -- -- -- -- (358) -- (358)
Purchase of 1,960,300 shares of
common stock -- -- -- -- -- (39,591) (39,591)
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- (2,035) -- 2,759 724
---------- ------- ------- ----------- ------- --------- ---------
BALANCE, DECEMBER 31, 1994 88,218,617 $88,219 $56,714 $ 1,164,850 $(1,637) $(325,162) $ 982,984
Net income -- -- -- 126,914 -- -- 126,914
Exercise of stock options and
related tax benefits -- -- 27 (132) -- 659 554
Cash dividends paid -- -- -- (33,627) -- -- (33,627)
Proceeds from sale of put warrants -- -- 3,617 -- -- -- 3,617
Reclassification of put warrant
obligations -- -- (25,283) -- -- -- (25,283)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax -- -- -- 4,549 -- -- 4,549
Translation adjustment -- -- -- -- 381 -- 381
Purchase of 3,749,900 shares of
common stock -- -- -- -- -- (74,800) (74,800)
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- (7,229) -- 10,166 2,937
---------- ------- -------- ----------- ------- --------- ---------
BALANCE, DECEMBER 30, 1995 88,218,617 $88,219 $ 35,075 $ 1,255,325 $(1,256) $(389,137) $ 988,226
========== ======= ======== =========== ======= ========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
------------------------------------------------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
DECEMBER 30, DECEMBER 31, DECEMBER 25,
ALL DOLLAR AMOUNTS IN THOUSANDS 1995 1994 1993
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 126,914 $ 82,849 $ 126,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 39,043 35,039 32,278
Other-net 7,524 513 (5,231)
Change in current assets and liabilities:
Decrease in accounts receivable - trade 33,713 14,669 25,748
Decrease (increase) in inventories 12,362 13,590 (50,714)
(Increase) in deferred income tax benefits (416) (15,169) (1,403)
(Increase) in other current assets (846) (7,809) (13,671)
Increase (decrease) in accounts payable 219 (2,545) 2,388
(Decrease) increase in accrued expenses (1,475) 59,159 10,435
Increase (decrease) in income taxes payable 4,754 (7,653) (6,562)
--------- --------- ---------
Net cash provided by operating activities 221,792 172,643 120,192
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (344,626) (181,739) (375,748)
Disposals of investment instruments 227,119 121,713 466,069
Purchases of property and equipment (34,357) (70,594) (91,407)
Purchase of trademarks (2,595) (3,193) (1,817)
Proceeds from sale of certain assets 17,872 -- --
Other-net 2,102 2,935 4,336
--------- --------- ---------
Net cash (used in) provided by investing activities (134,485) (130,878) 1,433
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (112) (107) (100)
Proceeds from exercise of common stock options 537 297 4,553
Dividends paid (33,627) (35,304) (35,657)
Purchase of common stock, net of put warrant premiums (71,183) (39,591) (116,606)
--------- --------- ---------
Net cash used in financing activities (104,385) (74,705) (147,810)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 381 (361) 184
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (16,697) (33,301) (26,001)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 71,419 104,720 130,721
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 54,722 $ 71,419 $ 104,720
========= ========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Liz Claiborne,
Inc. and its wholly-owned subsidiaries (the "Company"). All intercompany
balances and transactions have been eliminated in consolidation. The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. The Company is primarily
engaged in the design and marketing of a broad range of apparel, as well as
accessories and fragrances. The principal market for the products is the United
States.
CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the date of acquisition are classified as cash equivalents.
MARKETABLE SECURITIES
Investments are stated at market in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" which was adopted by the Company at the beginning of
the 1994 fiscal year. Gains and losses on investment transactions are recognized
in income based on settlement dates. Unrealized gains and losses are included in
retained earnings until realized. Dividends on equity securities are recorded in
income based on payment dates. Interest is recognized when earned.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out for wholesale
operations and retail method for retail and outlet operations) or market.
PROPERTY AND EQUIPMENT - NET
Property and equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the
straight-line method over their estimated useful lives of 20 to 39 years.
Machinery and equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. subsidiaries have been translated at year-end
exchange rates. Revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting translation adjustments have been
recorded as a separate component of stockholders' equity. Gains and losses on
translation of intercompany transactions with foreign subsidiaries of a
long-term investment nature are also included in this component of stockholders'
equity.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts to hedge transactions
denominated in foreign currencies for periods up to 12 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.
Transaction gains and losses included in income were not significant in fiscal
1995, 1994 and 1993. As of December 30, 1995, the Company had contracts maturing
through December 1996 to purchase at contracted forward rates 42,427,000
Japanese yen and to sell 37,000,000 Canadian dollars and 4,600,000 British
pounds sterling. The aggregate U.S. dollar value of all foreign exchange
contracts is approximately $35,000,000 at year end 1995, as compared with
approximately $50,000,000 at year end 1994. Unrealized gains and losses for
outstanding foreign exchange contracts were not material at December 30, 1995
and December 31, 1994.
REVENUE RECOGNITION
Revenue within wholesale operations is recognized at the time merchandise is
shipped from the Company's distribution centers. Retail and outlet store
revenues are recognized at the time of sale.
CHANGE IN ACCOUNTING PRINCIPLES - INCOME TAXES
The Company adopted the provisions of SFAS No. 109 "Accounting for Income Taxes"
as of the beginning of fiscal 1993. The effect of this accounting change in
fiscal 1993 was an increase in net income of $1,643,000, or $.02 per common
share.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed using the weighted average number
of shares outstanding during each period. The inclusion of shares subject to
unexercised stock options would not have a material dilutive effect.
FISCAL YEAR
In 1994, the Company changed its fiscal year to the Saturday closest to December
31 from the last Saturday in December. This change had no effect on the 1995 or
1994 year end date. The 1994 fiscal year reflects a 53-week period, while the
1995 and 1993 fiscal years each reflect a 52-week period.
NOTE 2
RESTRUCTURING CHARGE
In December 1994, the Company recorded a $30.0 million restructuring charge. The
amount included $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 charge as of December 30, 1995 was $13.3 million. Of the $16.7
million expended for restructuring costs, $7.1 million was related to severance
costs, $5.5 million to losses on contracts and write-off of certain assets and
$4.1 million to other miscellaneous costs. The majority of the remaining
liabilities should be paid or settled during 1996. First Issue accounted for
$53.3 million of fiscal 1995 net sales, as compared with $63.9 million in 1994,
and incurred operating losses of $8.9 million in fiscal 1995, as compared with
$17.3 million in 1994. The 26 First Issue locations remaining at December 30,
1995 will be converted to other Company-operated retail formats or closed during
the first quarter of 1996.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 3
LICENSE AGREEMENT
Effective June 30, 1995, the Company entered into an agreement with a third
party to operate under license the shoe business formerly operated by the
Company's Shoe Division. As part of the transaction, the Company received $18.0
million in cash, plus other consideration valued at $4.9 million, in exchange
for inventory and other assets. The Shoe Division had net sales of $38.9 million
in the first half of fiscal 1995 and $62.7 million in fiscal 1994. The operating
results of the shoe business for each period were not material to the Company's
overall operating results.
NOTE 4
MARKETABLE SECURITIES
The Company adopted the provisions of 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 gains on securities classified as
available-for-sale, which were previously carried at amortized cost. This
increase in stockholders' equity was included in retained earnings.
The following are summaries of available-for-sale marketable securities and
maturities:
DECEMBER 30, 1995
-----------------------------------------------------------
Gross Unrealized Estimated
-----------------------
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ---------------------- ---- ----- ------ ----------
Tax exempt notes and bonds ......... $409,763 $ 1,285 $ (86) $410,962
U.S. & foreign government securities 12,124 187 (129) 12,182
Collateralized mortgage obligations 7,118 -- (231) 6,887
-------- ------- --------- --------
429,005 1,472 (446) 430,031
Equity securities .................. 1,721 -- -- 1,721
-------- ------- --------- --------
$430,726 $ 1,472 $ (446) $431,752
======== ======= ========= ========
DECEMBER 31, 1994
-----------------------------------------------------------
Gross Unrealized Estimated
-----------------------
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair 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
-------- ------- --------- --------
329,018 86 (5,750) 323,354
Equity securities .................. 2,528 -- (588) 1,940
-------- ------- --------- --------
$331,546 $ 86 $ (6,338) $325,294
======== ======= ========= ========
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
DECEMBER 30, 1995
-------------------------
Estimated
(DOLLARS IN THOUSANDS) Cost Fair Value
- ---------------------- ---- ----------
Due in one year or less .......................... $128,827 $128,823
Due after one year through three years ........... 244,245 245,206
Due after three years ............................ 55,933 56,002
-------- --------
429,005 430,031
Equity securities ................................ 1,721 1,721
-------- --------
$430,726 $431,752
======== ========
These investments include $46,903,000 in 1995 and $64,422,000 in 1994 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 fiscal years 1995 and 1994, gross realized gains of available-for-sale
securities totaled $956,000 and $674,000, respectively, and gross realized
losses totaled $1,167,000 and $412,000, respectively. The adjustment to
unrealized gains and losses on available-for-sale securities which was included
in retained earnings was a credit of $4,549,000 (net of $2,729,000 in deferred
income taxes) and a charge of $6,787,000 (net of $3,986,000 in deferred income
taxes) in fiscal 1995 and 1994, respectively.
NOTE 5
INVENTORIES
Inventories are summarized as follows:
DECEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
Raw materials .................... $ 41,972 $ 55,724
Work in process .................. 17,018 21,527
Finished goods ................... 334,373 345,752
-------- --------
$393,363 $423,003
======== ========
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 6
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------------------
Land and buildings ........................... $124,195 $123,746
Machinery and equipment ...................... 137,847 117,686
Furniture and fixtures ....................... 52,848 50,518
Leasehold improvements ....................... 127,422 117,104
-------- --------
442,312 409,054
Less-accumulated depreciation and amortization 202,845 172,494
-------- --------
$239,467 $236,560
======== ========
The Company's land and building located in Mount Pocono, Pennsylvania is pledged
as collateral against long-term debt of $1,115,000.
NOTE 7
INCOME TAXES
The provisions for income taxes are as follows: FISCAL YEARS ENDED
(52 WEEKS) (53 WEEKS) (52 WEEKS)
DECEMBER 30, DECEMBER 31, DECEMBER 25,
(DOLLARS IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------------------
Current:
Federal ........... $57,617 $ 48,117 $ 63,273
Foreign ........... 3,003 1,962 4,139
State and local ... 9,300 8,950 12,250
------- -------- --------
69,920 59,029 79,662
Deferred - net ......... 6,280 (10,429) (6,162)
------- -------- --------
$76,200 $ 48,600 $ 73,500
======= ======== ========
Liz Claiborne, Inc. and its U.S. subsidiaries file a consolidated federal income
tax return. Deferred income tax benefits and deferred income taxes represent the
tax effects of revenues, costs and expenses which are recognized for tax
purposes in different periods from those used for financial statement purposes.
The current income tax provisions have not been reduced by $27,000 in 1995,
$15,000 in 1994 and $1,171,000 in 1993, of tax benefits arising from the
exercise of nonqualified stock options. These amounts have been credited to
capital in excess of par value.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The effective income tax rate differs from the statutory federal income tax rate
as follows:
FISCAL YEARS ENDED
--------------------------------------------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
DECEMBER 30, DECEMBER 31, DECEMBER 25,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
Federal tax provision at statutory rate ............... 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit .. 3.0 4.4 4.0
Tax-exempt interest income ............................ (3.2) (2.3) (1.5)
Other-net ............................................. 2.7 (0.1) (0.5)
---- ---- ----
37.5% 37.0% 37.0%
==== ==== ====
The components of net deferred taxes arising from temporary differences as of
December 30, 1995 and December 31, 1994 are as follows:
(DOLLARS IN THOUSANDS) DECEMBER 30, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX ASSET TAX LIABILITY TAX ASSET TAX LIABILITY
--------- ------------- --------- -------------
Inventory valuation ................................... $ 14,235 $ -- $14,515 $ --
Unremitted earnings from foreign subsidiaries ......... -- 13,481 -- 12,906
Restructuring liability ............................... 4,988 -- 9,857 --
Accounts receivable valuation ......................... 5,486 -- 4,485 --
Unrealized investment (gains)/losses .................. (384) -- 2,313 --
Depreciation .......................................... -- (7,430) -- (6,749)
Other-net ............................................. 5,910 (1,671) 1,377 (4,105)
-------- -------- ------- --------
$ 30,235 $ 7,722 $32,547 $ 2,052
======== ======== ======= ========
Management believes that the deferred tax benefits will be fully realized
through future taxable income and reversals of deferred tax liabilities.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 8
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases office, showroom, warehouse/distribution and retail space,
computers and other equipment under various noncancellable operating lease
agreements which expire through December 2013. Rental expense for 1995, 1994 and
1993 was approximately $74,902,000, $67,208,000 and $56,664,000, respectively.
At December 30, 1995, the minimum aggregate rental commitments are as follows:
(DOLLARS IN THOUSANDS)
FISCAL YEAR OPERATING LEASES
1996 ............................................ $ 52,357
1997 ............................................ 48,357
1998 ............................................ 45,855
1999 ............................................ $ 44,607
2000 ............................................ 42,885
Thereafter ...................................... 144,611
Certain rental commitments have renewal options extending through the year 2029.
Some of these renewals are subject to adjustments in future periods. Many of the
leases call for additional charges, some of which are based upon various
escalations, and, in the case of outlet and retail leases, the gross sales of
the individual stores above base levels.
At December 30, 1995, the Company had entered into commitments for the purchase
of raw materials and for the production of finished goods totaling approximately
$565,681,000.
In 1995, in connection with its stock repurchase program, the Company sold put
warrants on 2.0 million shares of common stock in privately negotiated
transactions based on the then-current market price of the common stock. The
warrants give the holders the right at maturity to require the Company to
repurchase shares of its common stock at specified prices. As of December 30,
1995, warrants on 1.0 million shares of common stock had expired unexercised and
warrants on an additional 1.0 million shares remained outstanding, which, if
exercised, will require the Company to purchase up to 1.0 million shares of its
common stock at various dates in 1996. The proceeds of $3.6 million from the
sale of put warrants have been recorded in capital in excess of par value. The
Company's potential $25.3 million obligation to buy back 1.0 million shares of
common stock has been charged to capital in excess of par value and is reflected
as put warrants on the consolidated balance sheets as of December 30, 1995.
In the normal course of business, the Company extends credit, on open account,
to its retail store customers, after a credit analysis based on a number of
financial and other criteria. In recent years, a number of corporate groups
which include certain of the Company's largest department store customers have
been involved in highly leveraged financial transactions and certain of these
customers have filed for protection under Chapter 11 of the Federal Bankruptcy
Code. Subsequently, certain customers have emerged from protection under Chapter
11. In 1995, three corporate groups of department store customers accounted for
18%, 17% and 11%, respectively, of net sales. In 1994, two corporate groups of
department store customers accounted for 17% and 11%, respectively, of net
sales. In 1993, two corporate groups of department store customers accounted for
18% and 11%, respectively, of net sales. The Company does not believe that this
concentration of sales and credit risk represents a material risk of loss with
respect to its financial position as of December 30, 1995.
The Company is a party to several pending legal proceedings and claims. Although
the outcome of such actions cannot be determined with certainty, management is
of the opinion that the final outcome should not have a material adverse effect
on the Company's results of operations or financial position.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 9
LINES OF CREDIT
As of December 30, 1995, the Company had bank lines of credit aggregating
$270,000,000 which were available to cover letters of credit issued by the banks
and direct borrowings. The Company has not used these facilities for direct
borrowings.
At December 30, 1995 and December 31, 1994, the Company had outstanding letters
of credit of $210,145,000 and $204,113,000, respectively.
NOTE 10
STOCK PLANS
In February 1984 and March 1992, the Company adopted plans under which
nonqualified options to acquire shares of common stock may be granted to
officers, other key employees and directors selected by the plans'
administrative committee. Payment by option holders upon exercise of an option
may be made in cash or, with the consent of the committee, by delivering
previously acquired shares of Company common stock. Stock appreciation rights
may be granted in connection with all or any part of any option granted under
the plans, and may also be granted without a grant of a stock option. The
grantee of a stock appreciation right has the right, with the consent of the
committee, to receive either in cash or in shares of common stock, an amount
equal to the appreciation in the fair market value of the covered shares from
the date of grant to the date of exercise. Options and rights are exercisable
over a period of time designated by the committee (but not prior to one year
from the date of grant) and are subject to such other terms and conditions as
the committee determines. Vesting schedules will be accelerated upon merger of
the Company or the happening of certain other events. Options and rights may not
be transferred during the lifetime of a holder.
Awards under the 1992 plan may also be made in the form of stock appreciation
rights, incentive stock options, dividend equivalent rights, restricted stock,
unrestricted stock and performance shares. To date, no stock appreciation
rights, incentive stock options, dividend equivalent rights, unrestricted stock
or performance shares have been granted under the plan. Exercise prices for
awards under the plans are determined by the committee; to date, all stock
options have been granted at an exercise price not less than the fair market
value of the underlying shares on the date of grant.
The 1992 plan provides initially for the issuance of up to 2,500,000 shares of
common stock with respect to options, stock appreciation rights and other awards
granted under the plan, and provides that the Board of Directors may increase
such number by an amount equal to 1% of the common stock outstanding as of
January 1, 1994 and each January 1st thereafter. At December 30, 1995, there
were available for future grant 1,632,892 shares under the 1992 plan. The 1992
plan expires in 2002. The 1984 plan has expired; awards made thereunder prior to
its termination remain in effect in accordance with their terms.
Since January 1990, the Company has delivered treasury shares upon the exercise
of stock options. The difference between the cost of the treasury shares, on a
first-in, first-out basis, and the exercise price of the options has been
reflected in retained earnings.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Changes in common shares under option for the three fiscal years in the period
ended December 30, 1995 are summarized as follows:
1995 1994 1993
----------------------------- ------------------------------ -----------------------------
PRICE RANGE PRICE RANGE PRICE RANGE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
Beginning of year....... 2,450,421 $15.75-$58.50 3,728,249 $19.00-$58.50 3,698,417 $15.13-$58.50
Granted................... 1,085,875 15.00- 28.63 123,000 15.75- 25.63 1,125,575 19.00- 42.38
Exercised................. (30,502) 19.00- 29.25 (13,496) 21.00- 22.00 (244,196) 15.13- 40.00
Cancelled................. (923,924) 17.13- 58.50 (1,387,332) 20.13- 58.50 (851,547) 15.50- 58.50
--------- ------------- ---------- ------------- --------- -------------
End of year.............. 2,581,870 $15.00-$58.50 2,450,421 $15.75-$58.50 3,728,249 $19.00-$58.50
========= ============= ========== ============= ========= =============
Exercisable at
end of year............. 829,253 $15.75-$49.50 1,019,674 $19.00-$49.50 892,529 $22.00-$49.50
========= ============= ========= ============= ========= =============
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation." This Statement is effective beginning
in 1996. Adoption of SFAS No. 123 will require the Company to disclose
additional information relating to the stock option plans and the Company's pro
forma net income and earnings per share, as if the options granted were expensed
at their fair value at the time of grant.
On January 11, 1996, 660,750 nonqualified options to acquire shares of common
stock were granted to officers and other key employees with an exercise price of
$26.88.
In June 1995, the committee granted 416,000 shares of common stock to a group of
key executives in connection with a "Career Share Program" under the 1992 Plan.
These shares are subject to restrictions on transfer and subject to risk of
forfeiture until earned by continued employment. The restrictions expire on
December 20, 2004. The expiration of the restrictions may be accelerated if the
total return of the common stock exceeds that of a predetermined group of
competitors or upon the happening of certain other events. The unearned
compensation related to this restricted stock grant as of December 30, 1995 was
$5,373,000 and is included in retained earnings on the consolidated balance
sheets. The unearned compensation amount is currently being amortized over a
period of three years in anticipation of the accelerated expiration of the
restrictions.
In May 1994, the committee granted 85,000 shares of common stock in connection
with the hiring of a key executive. These shares are subject to restrictions on
transfer and subject to risk of forfeiture until earned by continued employment.
The restrictions expire on the last day of each of the Company's fiscal years
1994 through 2001, at the rate of 10,000 shares of common stock per year through
the year 2000 and 15,000 shares in the year 2001. The expiration of the
restrictions may be accelerated if the market value of the common stock attains
certain predetermined levels or upon the happening of certain other events. The
unearned compensation related to this restricted stock grant as of December 30,
1995 was $1,560,000 and is included in retained earnings on the consolidated
balance sheets.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
In 1992, options were granted to certain of the Company's senior officers at a
price of $58.50 per share, representing 150% of the market price at the date of
grant. At December 30, 1995, 50,000 of these options remained outstanding; they
will become exercisable on October 21, 1998 and expire on October 21, 2000,
subject to certain exceptions.
In November 1991, the Company adopted an outside directors' stock ownership plan
under which non-employee directors automatically receive, as part of their
annual retainer, shares of common stock with a value of $10,000 on each January
1. The shares so issued are nontransferable for a period of three years
following the grant date, subject to certain exceptions. In 1995, 4,116 shares
of common stock were issued under this plan. Not more than one twentieth of one
percent (0.05%) of the shares of common stock outstanding from time to time may
be issued under the plan, which will expire in 2002.
NOTE 11
PROFIT-SHARING RETIREMENT,
SAVINGS AND DEFERRED COMPENSATION PLANS
The Company adopted a noncontributory, defined contribution profit-sharing
retirement plan in January 1983. The plan covers all eligible U.S. employees who
are 21 years of age with one or more years of service and who are not covered by
collective bargaining agreements. The plan pays benefits based on an employee's
vested account balance in accordance with qualification rules set out in the
plan. Vesting begins at 20% after two years of service, and from the 3rd through
6th years, vesting increases by 20% each year until full vesting occurs. Each
year, profit-sharing contributions, if any, are determined by the Board of
Directors. The Company's 1995, 1994 and 1993 plan contribution expenses, which
are included in selling, general and administrative expenses, were $5,572,000,
$6,166,000 and $5,646,000, respectively.
The Company adopted a 401(k) savings plan effective January 1985. The plan
covers all eligible US employees who are 21 years of age with one or more years
of service and who are not covered by collective bargaining agreements. The plan
pays benefits based on an employee's vested account balance. Subject to Internal
Revenue Code limitations, participants may contribute from 1% to 15% of their
salary on a before-tax basis. Such contributions are fully and immediately
vested. Vesting of the Company's matching contribution is on the same basis as
the profit sharing retirement plan. The Company's 1995, 1994 and 1993 plan
contribution expenses, which are included in selling, general and administrative
expenses, were $2,044,000, $2,082,000 and $2,015,000, respectively.
The Company has established an unfunded deferred compensation arrangement for a
senior executive which accrues for four years at the rate of $375,000 per year
commencing on January 1, 1993. The accrued amount, plus interest, will be
payable upon retirement.
In 1993, the Company adopted a supplemental retirement plan for executives whose
benefits under the profit-sharing retirement plan and the savings plan are
constrained by the operation of certain Internal Revenue Code limitations. The
supplemental plan provides a benefit equal to the difference between the
contribution that would be made for an executive under the two tax-qualified
plans absent such limitations and the actual contribution under those plans.
Supplemental benefits vest on the same schedule applicable under the
tax-qualified plans. The supplemental plan is not funded. The plan as amended
also allows participants to contribute up to 100% of their annual bonus and up
to 15% of their salary. Eligible executives employed on August 5, 1993 were
credited with a retroactive supplemental plan benefit for the prior years in
which the legal limitations had affected their tax-qualified plan benefits. The
Company's plan expenses, which are included in selling, general and
administrative expenses, were $405,000, $362,000 and $773,000 in 1995, 1994 and
1993, respectively.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 12
STOCKHOLDER RIGHTS PLAN
The Company has adopted a Stockholder Rights Plan under which one preferred
stock purchase right is attached to each share of common stock outstanding.
Pursuant to the Rights Agreement covering the Stockholder Rights Plan, the
rights become exercisable ten days, subject to extension, after a party or group
acquires or makes a tender offer for 20% or more of the Company's common stock.
Each right entitles its holder, under certain circumstances, to buy 1/100 share
of a newly created Series A Junior Participating Preferred Stock for $85. If 20%
of the Company's common stock is acquired by a party or group, each right not
owned by a 20%-or-more stockholder will entitle the holder to purchase Company
common stock having a market value of twice the exercise price of the right. In
addition, if the Company is involved in a merger or certain other business
combinations in which it is not the surviving corporation, each right not owned
by a 20%-or-more stockholder will entitle the holder to purchase common stock of
the surviving corporation having a market value of twice the exercise price of
the right. The rights, which expire on December 21, 1998 and do not have voting
rights, may be redeemed by the Company at $.01 per right prior to their becoming
exercisable.
NOTE 13
CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
During fiscal 1995, 1994 and 1993, the Company made income tax payments of
$65,590,000, $72,415,000 and $84,689,000, respectively. Non-cash investing
activities which are not included in the cash flow statements for 1995 and 1994
include a direct financing lease receivable with a disposition of property and
equipment of $1,120,000 and $1,177,000, respectively, and in 1995, a reversal of
the remaining direct financing lease receivable and acquisition of property and
equipment of $9,738,000.
NOTE 14
ACCRUED EXPENSES
Accrued expenses at December 30, 1995 and December 31, 1994 consisted of the
following:
DECEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 1995 1994
------------------------------------------------------------------------
Payroll and bonuses ................ $ 40,070 $ 27,103
Taxes, other than taxes on income .. 8,072 8,190
Employee benefits .................. 19,153 17,232
Advertising ........................ 15,461 15,807
Restructuring reserve .............. 13,316 28,163
Common stock in transit ............ -- 11,083
Other .............................. 59,377 49,346
-------- --------
$155,449 $156,924
======== ========
47
UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 1995 and 1994 is set forth in the
table below:
March June September December
-------------------- -------------------- -------------------- ---------------------
All dollar amounts in thousands
except per common share data 1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Net sales $527,076 $541,368 $474,849 $490,043 $582,572 $616,788 $497,133 $ 514,702
Gross profit 192,067 187,620 176,698 168,910 228,315 226,408 193,621 172,269
Net income (loss) 28,085 27,437 17,022 15,895 48,165 42,887 33,642 (3,370)*
Earnings (loss) per common share $ .37 $ .35 $ .23 $ .20 $ .64 $ .55 $ .45 $ (.04)*
Dividends paid per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
- ---------------------------------------------------------------------------------------------------------------------------------
* Includes the after tax effect of a restructuring charge of $18,900 ($30,000
pretax) or $.24 per common share in 1994.
48
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein
by reference from Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 26, 1992 [the "1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par
value $1.00 per share (incorporated herein by reference
from Exhibit 4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated December 7, 1988, as amended,
between Registrant and First Chicago Trust Company of
New York, as Rights Agent (successor to The Chase
Manhattan Bank, N.A.) (incorporated herein by reference
from Exhibit 4(d) to Registrant's Report on Form 8-A
dated January 29, 1991).
4(b)(i) - Amendment to Rights Agreement, dated March 1990,
between Registrant and First Chicago Trust Company of
New York, as Rights Agent (successor to The Chase
Manhattan Bank, N.A.) (incorporated herein by reference
from Exhibit 4(d)(i) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 30, 1989
[the "1989 Annual Report"]).
4(b)(ii) - Amendment to Rights Agreement, dated as of January 24,
1992, between Registrant and First Chicago Trust
Company of New York, as Rights Agent (incorporated
herein by reference from Exhibit 4(b)(ii) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991 [the "1991 Annual
Report"]).
10(a) - Reference is made to Exhibits 4(b) - 4(b)(ii) filed
hereunder, which are incorporated herein by this
reference.
10(b)+ - Liz Claiborne, Inc. 1984 Stock Option Plan
(incorporated herein by reference from Exhibit 10(hh)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983 [the "1983 Annual
Report"]).
10(b)(i)+ - Amendment to the 1984 Stock Option Plan (incorporated
herein by reference from Exhibit 10(d)(i) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 [the "1988 Annual
Report"]).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
49
Exhibit
No. Description
- ------- -----------
10(c)+ - Form of Option Agreement under Liz Claiborne, Inc. 1984
Stock Option Plan (the "1984 Option Plan")
(incorporated herein by reference from Exhibit 10(nn)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1984).
10(c)(i)+ - Amended Form of Option Agreement under the 1984 Option
Plan (incorporated herein by reference from Exhibit
10(e)(i) to the 1992 Annual Report).
10(d)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as
amended and restated (incorporated herein by reference
from Exhibit 10(f) to the 1989 Annual Report).
10(d)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz
Claiborne, Inc. and IDS Trust Company (incorporated
herein by reference from Exhibit 10(b) to Registrant's
Quarterly Report on Form 10-Q for the period ended July
2, 1994).
10(e)+ - Amendment Nos. 1 and 2 to the Savings Plan
(incorporated herein by reference from Exhibit 10(g) to
the 1992 Annual Report).
10(e)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan
(incorporated herein by reference from Exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 26, 1993 [the "1993 Annual
Report"]).
10(e)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July
2, 1994).
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing
Retirement Plan (the "Profit-Sharing Plan")
(incorporated herein by reference from Exhibit 10(h) to
the 1992 Annual Report).
10(g) - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj)
to the 1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i)
to the 1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the
period ended October 1, 1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the
period ended July 1, 1995).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
50
Exhibit
No. Description
- ------- -----------
10(h)* - Collective Bargaining Agreement, dated June 1, 1994,
between New York Skirt and Sportswear Association, Inc.
(of which Registrant is a member) and Amalgamated
Ladies' Garment Cutters' Union, Local 10, I.L.G.W.U.
and Blouse, Skirt, Sportswear, Children's Wear & Allied
Workers' Union, Local 23-25, I.L.G.W.U.
10(i) - Executive Liability and Indemnification Policy No.
81035379F, with Chubb Group of Insurance Companies (the
"Insurance Policy") (incorporated herein by reference
from Exhibit 10(l) to Registrant's Annual Report on
Form 10-K for Fiscal Year ended December 31, 1994 [the
"1994 Annual Report"].
10(i)(i)* - Summary of Extension of the Insurance Policy.
10(j)* - Excess Coverage Directors and Officers Liability
Insurance Policy No. ZKA9400406, with Lloyds of London
(the "Excess Insurance Policy").
10(j)(i)* - Summary of Extension of the Excess Insurance Policy.
10(k)+* - Description of 1995 Salaried Employee Incentive Bonus
Plan.
10(l) - Lease, dated as of January 1, 1990 for premises located
at 1441 Broadway, New York, New York between Registrant
and Lechar Realty Corp. (incorporated herein by
reference from Exhibit 10(n) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
29, 1990).
10(m)+* - Liz Claiborne, Inc. Amended and Restated Outside
Directors' 1991 Stock Ownership Plan.
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the
"1992 Plan") (incorporated herein by reference from
Exhibit 10(p) to the 1991 Annual Report).
10(n)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein
by reference from Exhibit 10(p)(i) to the 1993 Annual
Report).
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by
reference from Exhibit 10(q) to the 1992 Annual
Report).
10(p)+ - Form of Option Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(r) to
the 1992 Annual Report).
10(q)+ - Form of Restricted Career Share Agreement under the
1992 Plan (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report of Form
10-Q for the period ended September 30, 1995).
- --------------------------------------------------------------------------------
* Filed herewith.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).
51
Exhibit
No. Description
- ------- -----------
10(r)+ - Description of unfunded deferred compensation
arrangement for Jerome A. Chazen (incorporated herein
by reference from Exhibit 10(s) to the 1992 Annual
Report).
10(s)+* - Description of Supplemental Life Insurance Plans.
10(t)+ - Description of unfunded death/disability benefits for
certain executives (incorporated herein by reference
from Exhibit 10(u) to the 1992 Annual Report).
10(u)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus
Plan (incorporated herein by reference from Exhibit
10(v) to the 1994 Annual Report).
10(v)+ - Liz Claiborne Supplemental Executive Retirement Plan
(the "SERP") (incorporated by reference from Exhibit
10(w) to the 1994 Annual Report).
10(w)+* - Description of the Liz Claiborne, Inc. Bonus Deferral
Plan.
10(x)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment
Agreement") (incorporated herein by reference from
Exhibit 10(a) to Registrant's Quarterly Report on Form
10-Q for the period ended April 2, 1994).
10(x)(i)+* - Amendment to the Employment Agreement, dated as of
November 20, 1995, between Registrant and Paul R.
Charron.
10(y) - Agreement dated as of January 2, 1995, between
Registrant and Harvey Falk (incorporated herein by
reference from Exhibit 10(y) to the 1994 Annual
Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
29* - Undertakings.
(b) Reports on Form 8-K.
Not applicable.
- --------------------------------------------------------------------------------
* Filed herewith.
+ Compensation plan or arrangement required to be noted as provided in Item
14(a)(3).