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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
For the fiscal year ended January 3, 1998
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. [ X ]
Based upon the closing sale price on the New York Stock
Exchange composite tape on March 16, 1998, 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 $3,452,723,292.
Number of shares of the registrant's Common Stock, par value
$1 per share, outstanding as of March 16, 1998: 66,001,538 shares.
Documents Incorporated by Reference:
Registrant's Proxy Statement relating to its Annual Meeting of
Stockholders to be held on May 14, 1998 - Part III.
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PART I
Item 1. Business.
Overview
Liz Claiborne, Inc. designs and markets an extensive range of fashion
apparel and accessories, with versatile collections appropriate to wearing
occasions ranging from casual to dressy, and fragrances. The Company's portfolio
of marks includes the DANA BUCHMAN, DANA B. & KAREN, LIZ CLAIBORNE, LIZSPORT,
LIZWEAR, LIZ & CO., ELISABETH, JH COLLECTIBLES, EMMA JAMES, VILLAGER, FIRST
ISSUE, RUSS and CRAZY HORSE brands for women and the CLAIBORNE brand for men.
Products licensed to carry the Company's marks include women's shoes, home
furnishings, outerwear, swimwear, optics, sunglasses, watches, and men's
tailored clothing. In addition, in January 1998, the Company consummated a
license agreement with an affiliate of Donna Karen International, Inc. to
design, produce, market and sell men's and women's sportswear, jeanswear, and
activewear products under the DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and
logos.
Products are manufactured to the Company's specifications in the United
States and abroad and are marketed through leading department and specialty
stores and other channels in the United States, Canada, Europe, Asia, and
Central and South America. Although they offer a wide array of styles, all of
the Company's lines share the common characteristics of innovative fashion and
exceptionally high quality and value. The Company believes that it is the
largest "better" women's sportswear and dress company in the United States.
Generally, the Company's sportswear products are conceived and marketed as
"designer" items, but are priced in the "better" apparel range.
At February 27, 1998, the Company's order book reflected unfilled customer
orders for approximately $747 million of merchandise (including DKNY(R) JEANS
products), as compared to approximately $690 million at February 28, 1997.
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. Substantially all orders will be
filled within the 1998 fiscal year. There are no seasonal factors affecting
the backlog disclosed above.
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
In order to reach a broad spectrum of consumers, the Company offers an
array of products under its portfolio of brands through a variety of
distribution channels at a broad range of price points. The Company seeks in its
product offerings to provide versatility to its consumers, in terms of
individual items, price points and overall collections of items.
In January 1998, the Company eliminated its Special Sizes Unit and
realigned its ELISABETH and petite businesses as stand-alone operating units.
Currently, the Company's women's "better" sportswear product lines are organized
into the Casual Unit (consisting of "misses" LIZSPORT, LIZWEAR and LIZ & CO.
product); the COLLECTION Division (consisting of "misses" COLLECTION and STUDIO
(casual careerwear) product); the ELISABETH Division (consisting of "misses" and
petite ELISABETH and ELISABETH-LIZ & Co. large-sized sportswear product); and
the Petite Unit (consisting of petite sizings for each of the LIZSPORT, LIZWEAR,
LIZ & Co. and COLLECTION product lines).
Substantially all products in each sportswear collection are sold as
separate items. Collections are structured, however, through the use of related
styles, color schemes and fabrics, to enable the consumer to assemble outfits
consisting of separate items which are designed to be worn together. By offering
similar or related styles, color schemes and fabrics over an extended period,
the Company intends to provide the consumer with a wardrobe which can be
coordinated with other Company items from season to season.
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The following is a comparison of net sales by product/division for each of the
five fiscal years ended January 3, 1998.
(Dollars in millions)
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Casual(1) ....................................... $ 708.5 $ 607.6 $ 555.9 $ 610.2 $ 695.6
Special Sizes(2) ............................... 440.0 410.3 344.7 364.8 397.0
Collection and Studio ........................... 182.8 209.7 207.1 238.1 274.3
---------- ---------- ---------- ---------- ----------
Total Better Women's Sportswear ........ 1,331.3 1,227.6 1,107.7 1,213.1 1,366.9
Accessories and Other Non-Apparel ............... 314.1 297.5 330.4 368.1 344.3
Outlet Stores ................................... 228.6 193.8 155.0 140.1 122.4
Dana Buchman .................................... 189.5 188.7 136.2 112.9 90.2
Retail Specialty Stores ......................... 182.9 199.7 195.0 150.0 114.4
Men's Sportswear and Furnishings ................ 145.7 121.6 113.1 101.7 80.7
Special Markets(3)............................... 104.0 77.3 81.3 111.6 78.7
Dresses ......................................... 89.0 105.3 123.0 121.9 130.0
---------- ---------- ---------- ---------- ----------
2,585.1 2,411.5 2,241.7 2,319.4 2,327.6
Intercompany Sales Elimination .................. (172.5) (194.0) (160.1) (156.5) (123.3)
---------- ---------- ---------- ---------- ----------
Net Sales .............................. $ 2,412.6 $ 2,217.5 $ 2,081.6 $ 2,162.9 $ 2,204.3
========== ========== ========== ========== ==========
Net Sales by Geographic Areas
Domestic ........................................ $ 2,273.3 $ 2,092.3 $ 1,943.4 $ 2,039.9 $ 2,091.0
International ................................... 139.3 125.2 138.2 123.0 113.3
---------- ---------- ---------- ---------- ----------
Net Sales .............................. $ 2,412.6 $ 2,217.5 $ 2,081.6 $ 2,162.9 $ 2,204.3
========== ========== ========== ========== ==========
- ---------------
1. Casual: Liz & Co., Lizsport, Lizwear
2. Special Sizes: Elisabeth, Liz Claiborne Petites
3. Special Markets: Emma James, First Issue, Russ, Villager, Crazy Horse
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The Casual Unit offers "misses" casual sportswear under three of the
Company's trademarks. The LIZSPORT Division offers all-American sportswear,
including twill products, 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. As a result of the realignment of the Company's petite
businesses, as of January 1998, the Casual Unit's products are offered in petite
sizes under the Company's Petite Unit.
The COLLECTION Division offers "misses" professional careerwear with
desk-to-dinner versatility under the LIZ CLAIBORNE trademark and casual
careerwear under the STUDIO trademark. As a result of the realignment of the
Company's petite businesses, as of January 1998, the COLLECTION Division's
products are offered in petite sizes under the Company's Petite Unit.
The DANA BUCHMAN Division offers collections for the women's "bridge"
market (the market between the "better" and designer markets) under the
Company's DANA BUCHMAN trademark and casual wear under the Company's
DANA B. & KAREN trademark, and dresses under both trademarks. In September 1997,
the Company introduced a line of "upscale" specialty store products under the
Company's DANA BUCHMAN LUXE trademark; shipping commenced in February 1998. The
Division offers products with elegant styling in distinctive fabrics, in
"misses", large and petite sizes.
The ELISABETH Division, which until January 1998 was part of the Special
Sizes Unit, offers large-sized classic careerwear, weekend casual and wardrobe
basics in "plus" sizes (including petite proportions) under the Company's
ELISABETH and ELISABETH-LIZ & CO. trademarks.
The Dresses Division offers dresses and suits providing day-into-evening
versatility under the Company's LIZ CLAIBORNE COLLECTION trademark in
both the "misses" and petite size ranges, large-sized dresses under the
ELISABETH trademark and special occasion dresses under the LIZ NIGHT trademark.
The Menswear Division offers men's business-casual wear, sportswear and
furnishings (dress shirts and ties) under the CLAIBORNE trademark.
Each of the above Divisions presented four seasonal collections during
1997, except that the DANA BUCHMAN Division presented three, and the Dresses
Division presented five, seasonal collections.
The Accessories Group offers a wide variety of products through its
Handbag/Small Leather Goods, Fashion Accessories and Jewelry Divisions,
primarily under the LIZ CLAIBORNE trademark. These offerings mirror major
fashion trends and complement many of the Company's other product lines. In
March 1998, the Accessories Group introduced a line of accessories bearing the
DANA BUCHMAN trademark, with shipping anticipated to commence in June 1998.
The Company's Cosmetics Division offers fragrance and bath and body-care
products under the LIZ CLAIBORNE, REALITIES, VIVID, CLAIBORNE FOR MEN, CURVE,
and, commencing in the third quarter of 1997, LIZSPORT and CLAIBORNE SPORT
trademarks.
The Special Markets Unit offers updated career and casual clothing under
four Company trademarks: EMMA JAMES ("upper-moderate" priced related separates
for the casual workplace, sold in department stores nationally), VILLAGER
("popular" priced relaxed separates for soft career and weekend dressing, sold
in regional department stores), FIRST ISSUE ("value" priced relaxed career and
everyday wear, sold exclusively in Sears department stores), and RUSS ("budget"
priced casual separates, sold in Wal-Mart stores and other mass merchandisers).
The EMMA JAMES line first shipped in January 1997. The RUSS line first shipped
to Wal-Mart stores in January 1997. In the third quarter of 1997, the Company
announced that it was repositioning its CRAZY HORSE brand ("moderate" priced
casual separates) to be sold exclusively at J.C. Penney stores; shipping is
expected to commence by the third quarter of 1998. See "Competition; Certain
Risks."
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In January 1998, the Company consummated a license agreement with an
affiliate of Donna Karan International, Inc. to design, produce, market and
sell men's and women's sportswear, jeanswear and activewear products under the
DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos. DKNY(R) JEANS products
were first shipped in the first quarter of 1998, and DKNY(R) ACTIVE products are
anticipated to be shipped in the first quarter of 1999.
In March 1998, the Company announced plans to launch a line of women's
apparel under the JH COLLECTIBLES trademark, which will consist of clothing for
all occasions, ranging from relaxed office attire to stylish weekend wear. The
Company expects the line to be available in department stores beginning Spring
1999.
Sales and Marketing
The Company's wholesale sales are made primarily to department, specialty
and chain 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 continues to evaluate its methods of doing business
internationally. At 1997 year-end, LIZ CLAIBORNE products were being sold in
over 70 markets outside the United States. The Company expects to continue
expansion within these markets and to expand to additional markets.
The Company currently operates a total of 113 prototype and presentational
specialty retail stores, located throughout the United States, which carry
solely Company products: 52 LIZ CLAIBORNE stores, 53 ELISABETH large-size
apparel stores, 7 CLAIBORNE mens' stores and one DANA BUCHMAN store. These
stores typically range in size from 2,000 square feet to 12,000 square feet. The
LIZ CLAIBORNE flagship store, an approximately 17,000 square foot facility, is
located on Fifth Avenue in New York City. The Company's retail stores enable it
to more closely track sales and other product data, obtain market information
and experiment with new products, visual presentation and ideas for enhancing
customer service. This information is used to help the Company's wholesale
customers respond more quickly to consumer preferences.
In Canada, the Company operates a wholesale business which sells primarily
to department store chains and specialty stores. During 1997, the Company
continued its LIZ CLAIBORNE and DANA BUCHMAN product distribution in Canada and
its expansion into the moderate market. During 1997, the Company continued to
operate in Western Europe, principally through leased departments, or
concessions, with a concentration in the United Kingdom and Spain, with
wholesale distribution in Denmark, Belgium, Ireland and France; the Company
plans to further expand wholesale distribution in international markets. In
other international markets, the Company has continued to add retail licenses
with third parties; at year-end 1997, these operations were comprised of 117
stores and dedicated department store shop-in-shops in 24 countries.
Approximately 87% of 1997 sales were made to the Company's 100 largest
customers. Except for Dillard's Department Stores, Inc., which accounted for
approximately 12% of 1997 and 11% of 1996 sales, no single customer accounted
for more than 6% of 1997 or 1996 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 1997 by The May Department Stores Company accounted for
approximately 19% of 1997 and 18% of 1996 sales, and sales to the seven
department store customers which were owned at year-end 1997 by Federated
Department Stores, Inc. accounted for approximately 17% of 1997 and 1996 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.
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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." During 1997, the Company continued the
expansion of LIZRIM, an inventory replenishment system installed at a number of
its retail customers.
In 1997, the Company continued to expand its LIZEDGE program, an in-store
marketing and merchandising program designed to enhance the way the Company's
products appear on the selling floor and to encourage multiple item, regular
price sales. As part of this expansion, the Company's retail store customers
designated certain of their employees as LIZEDGE "consultants," who "ring the
register," merchandise the selling floor and establish one-on-one relationships
with consumers. In addition, in 1997, the Company's Accessories Group introduced
the Accessories' LIZEDGE Program, a similar servicing and maintenance program.
In 1997, the Company expanded its LIZVIEW program, a program designed to
enhance the presentation of the Company's product on retail selling floors
generally through the use of proprietary fixturing and layouts. At year-end
1997, over 600 LIZVIEW shops were installed in more than 350 stores,
representing over 900,000 square feet of upgraded selling space. The Company has
requests for more than 1,400 additional LIZVIEW installations and anticipates
that approximately 500 will be installed during 1998.
The Company spent approximately $31 million on national advertising in
1997, compared with approximately $23 million in 1996. Current plans call for
1998 advertising expenditures of approximately $33 million. The Company
maintains cooperative advertising programs under which it generally shares the
costs of each customer's advertising and promotional expenditures, up to a
stated percentage of the customer's purchases. The Company incurred costs under
the cooperative advertising programs of approximately $58 million in respect of
1997 sales.
In the fourth quarter of 1997, the Company launched a consumer website
featuring fashion, retail and corporate information regarding LIZ CLAIBORNE
product. During 1998, the Company plans to expand the website to include
information specific to the ELISABETH and CLAIBORNE product lines.
The Company currently operates 102 outlet stores, virtually all of which
are located in "outlet centers" comprised primarily of manufacturer-operated
stores.
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 1997, the Company's products were manufactured by
several hundred suppliers. The Company's products are currently manufactured in
approximately 30 different countries, including China, the Dominican Republic,
Sri Lanka, Saipan, South Korea, the United States, and Hong Kong. The Company
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continually seeks additional suppliers throughout the world for its sourcing
needs. The Company's largest supplier of finished products manufactured less
than 6.5% of the Company's purchases of finished products during 1997.
Approximately 30% of the Company's 1997 purchases of finished products were
manufactured by its ten largest suppliers, as compared to 28% of 1996 and 1995
purchases. The Company expects that the percentage of production represented by
its largest suppliers will continue to increase in light of the Company's
ongoing worldwide factory certification initiative, under which the Company is
planning to allocate even larger portions of its production requirements to
suppliers which appear to have superior capacity, quality (of product and
operations) and financial resources. The Company's purchases from its suppliers
are affected through individual purchase orders specifying the price and
quantity of the items to be produced. Generally, the Company does not have any
long-term, formal arrangements with any of the suppliers which manufacture its
products. 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.
During 1997, most of the Company's fabrics, trimmings and other materials
were obtained in bulk from various foreign and domestic suppliers. Where the
Company purchases completed product "packages" from its contractors, the
contractor is itself responsible to purchase all necessary raw materials and
other product components. Inasmuch as the Company intends to continue to move
towards purchasing an increasing portion of its products as "packages," the
Company continues its development of a group of "approved suppliers" to supply
raw materials and other product components directly to its contractors; the
Company anticipates purchasing a substantial portion of its products as
"packages" in 1998. During 1997, the raw materials used in Company products were
purchased from several hundred suppliers, located in the United States, South
Korea, Taiwan, Hong Kong, Japan and Italy. Approximately 30% of the Company's
expenditures for raw materials during 1997 and 28% during 1996 were accounted
for by its five largest raw material suppliers, with no single raw material
supplier accounting for more than 8% of 1997 raw material purchases. Generally,
the Company does not have any long-term, formal arrangements with any supplier
of raw materials. To date, the Company has experienced little difficulty in
satisfying its raw material requirements and considers its sources of supply
adequate.
The Company operates under substantial time constraints in producing each
of its collections. See "Sales and Marketing." In order to deliver, in a timely
manner, merchandise which reflects current tastes, the Company attempts to
schedule a substantial portion of its materials and manufacturing commitments
relatively late in the production cycle, thereby favoring suppliers able to make
quick adjustments in response to changing production needs. However, in order to
secure necessary materials and manufacturing facilities, the Company must make
substantial advance commitments, often as much as seven months prior to the
receipt of firm orders from customers for the items to be produced. The Company
continues to seek to reduce the time required to move products from design to
the customer.
If the Company should misjudge its ability to sell its products, it could
be faced with substantial outstanding fabric and/or manufacturing commitments,
resulting in excess merchandise inventories. See "Competition; Certain Risks".
For example, the Company was left with significant excess merchandise inventory
positions during 1993 and into the first half of 1994 due to the Company's
increased 1993 commitments compared to 1992 and the decreased demand for certain
of the Company's apparel at retail.
The Company's arrangements with foreign suppliers are subject to the risks
of doing business abroad, including currency fluctuations and revaluations,
restrictions on the transfer of funds and, in certain parts of the world,
political, economic and currency instability. The Company's operations have not
been materially affected by any such factors to date. However, due to the large
portion of the Company's products which are produced abroad, any substantial
disruption of its relationships with its foreign suppliers could adversely
affect the Company's operations.
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Import and Import Restrictions
Virtually all of the Company's merchandise imported into the United States
is subject to United States duties. In addition, bilateral agreements between
the major exporting countries and the United States impose quotas that limit the
amount of certain categories of merchandise that may be imported into the United
States. The majority of such agreements contain "consultation" clauses which
allow the United States, under certain circumstances, to impose unilateral
restrictions on the importation of certain categories of merchandise that are
not subject to specified limits under the terms of an agreement. These bilateral
agreements have been negotiated under the framework of the MultiFiber
Arrangement ("MFA"), which has been in effect since 1974. The United States, a
participant in international negotiations known as the "Uruguay Round," ratified
legislation enacting and implementing the various agreements of the Uruguay
Round, effective January 1, 1995, including the Uruguay Round Agreement on
Textiles and Clothing which requires World Trade Organization member countries
to phase out textile and apparel quotas in three stages over a ten year period.
In addition, it regulates trade in non-integrated textile and apparel quotas
during the ten year transition period. However, even with respect to integrated
textile and apparel quota categories, the United States remains free to
establish numerical restraints in response to a particular product being
imported in such increased quantities as to cause (or threaten) serious damage
to the relevant domestic industry. United States legislation implementing the
Uruguay Round also changes the rule of origin for many textiles and apparel
products effective July 1, 1996, with certain minor exceptions. This change
would determine country of origin based on "assembly" for most textile and
apparel products. The Uruguay Round also incorporates modest duty reductions for
textile and apparel products over a ten year staging schedule. This will likely
result in a modification of current patterns of international trade with respect
to apparel and textiles. 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".
In addition, each of the countries in which the Company's products are sold
have laws and regulations regarding import restrictions and quotas. Because the
United States and other countries in which the Company's products are
manufactured and sold may, from time to time, impose new quotas, duties,
tariffs, surcharges or other import controls or restrictions, or adjust
presently prevailing quota allocations or duty or tariff rates or levels, the
Company maintains a program of intensive monitoring of import and quota-related
developments. The Company seeks continually to minimize its potential exposure
to import and quota-related risks through, among other measures, allocation of
production to merchandise categories that are not subject to quota pressures,
adjustments in product design and fabrication, shifts of production among
countries and manufacturers, as well as through geographical diversification of
its sources of supply.
In light of the very substantial portion of the Company's products which
are manufactured by foreign suppliers, the enactment of new legislation or the
administration of current international trade regulations, or executive action
affecting textile agreements, could adversely affect the Company's operations.
Trademarks
The Company utilizes a variety of trademarks in connection with its
products, including LIZ CLAIBORNE, LIZ, CLAIBORNE, LIZWEAR, LIZSPORT, LIZ
CLAIBORNE COLLECTION, LIZ NIGHT, LIZ CLAIBORNE STUDIO, its LC logomark, its
triangular logomark, DANA BUCHMAN, DANA B. & KAREN, DANA BUCHMAN LUXE,
ELISABETH, LIZ & CO., LEATHER CO., EMMA JAMES, FIRST ISSUE, RUSS, VILLAGER,
CRAZY HORSE, REALITIES, VIVID, CURVE and CLAIBORNE SPORT. In February 1997, the
Company acquired several trademarks from JH Collectibles,Inc.,including JH
COLLECTIBLES, JH and JUNIOR HOUSE; the Company has announced plans to launch a
line of women's apparel under the JH COLLECTIBLES trademark in 1999. In January
1998, the Company licensed exclusive rights in the Western Hemisphere to the
DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for men's and women's
sportswear, jeanswear and activewear.
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See "Item 1.--Business-Narrative Description of Business." 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 eleven license arrangements pursuant to which third party
licensees produce merchandise under the Company's trademarks in accordance with
designs furnished or approved by the Company, the present terms of which (not
including renewal terms) expire at various dates through 2010. Current licenses
cover women's career, career-casual, casual and sport shoes; home furnishing
products; women's outerwear and rainwear apparel; women's swimwear and related
merchandise; women's and men's ophthalmic frames for prescription eyewear;
women's and men's sunglasses and readers; women's watches; men's tailored
clothing; men's accessories; tabletop products; and boys' apparel. Each of the
licenses provides for the payment to the Company of a percentage of the
licensee's sales of the licensed products against a guaranteed minimum royalty
which generally increases over the term of the agreement.
Competition; Certain Risks
The apparel and related product markets are highly competitive, both within
the United States and abroad.
The Company's ability to successfully compete depends on a number of
factors, including the Company's ability to effectively anticipate, gauge and
respond to changing consumer demands and tastes, to translate market trends into
appropriate, saleable product offerings relatively far in advance, and to
operate within substantial production and delivery constraints. In addition,
consumer and customer acceptance and support (especially by the Company's
largest customers) depend upon, among other things, product, value and service.
The Company believes that, based on sales, it is among the largest apparel
companies operating in the United States. Although the Company is unaware of any
comprehensive trade statistics, it believes, based on its knowledge of the
market and available trade information, that measured by sales, it is the
largest "better" women's sportswear and dress company in the United States.
Commencing in 1996, a number of apparel companies began distribution of new
collections of women's "better" sportswear through the department store channel
of distribution.
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, manufacturers and employees. See also the
competitive and risk factors discussed under the headings "Sales and Marketing"
and "Manufacturing".
The Company from time to time reviews its possible entry into new markets.
The entry into new markets (including the development and launch of new product
categories), such as the Company's entry into the moderate market, is
accompanied by risks inherent in any new business and may require methods of
operations and
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marketing strategies different from those employed in the Company's other
businesses. Certain new businesses may be lower margin businesses and may
require the Company to achieve significant cost efficiencies. In addition, new
markets may involve buyers, store customers and/or competitors different from
the Company's historical buyers, customers and competitors.
For a discussion of the Company's information system upgrade project,
including efforts to assure Year 2000 compliance, and the risks associated with
such efforts, see "Item 7-- Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000/Information Systems Upgrade."
Employees
At January 3, 1998, the Company had approximately 7,300 full-time
employees, as compared with approximately 7,100 full-time employees at December
28, 1996. The Company considers its relations with its employees to be
satisfactory and to date has not experienced any interruption of operations due
to labor disputes.
The Company is bound by a national collective bargaining agreement with the
Union of Needletrades, Industrial and Textile Employees (UNITE), agreements with
various locals and a Jobbers Agreement with UNITE. These agreements cover
approximately 1,800 of the Company's full-time employees and expire on May 31,
2000. Most of the union-represented employees are employed in the eight
warehouse and distribution facilities the Company operates in New Jersey,
Pennsylvania and Alabama.
Item 2. Properties.
The Company's showrooms and executive offices, as well as its sales,
merchandising and design staffs, are located at 1441 Broadway, New York, New
York, where the Company leases approximately 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
29,000 and 93,000 square feet (with terms expiring in 2003 and 2013,
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. The Company presently
leases approximately 912,000 square feet in six other New Jersey warehouse and
distribution facilities, the current terms of which expire through 2008. The
Company also owns an approximately 313,000 square foot warehouse and
distribution facility located on 80 acres in Mt. Pocono, Pennsylvania, and is in
the process of expanding this facility to include an additional 319,000 square
foot warehouse and distribution facility. The Company leases pursuant to
industrial development financing an approximately 290,000 square foot warehouse
and distribution facility located on a 124 acre site in Montgomery, Alabama. The
Company also leases showroom, warehouse and office space in various other
domestic and international locations. The Company leases space for its 113
retail specialty stores (aggregating approximately 493,000 square feet in
various malls) and for its 102 outlet stores (aggregating approximately 922,000
square feet). The Company is seeking to sell its approximately 270,000 square
foot facility in Augusta, Georgia (located on a 98-acre site and previously used
in connection with a dyeing and finishing joint venture).
The Company believes that its existing facilities are well maintained, in
good operating condition and, upon occupancy of additional space, will be
adequate for its present level of operations. See Note 8 of Notes to
Consolidated Financial Statements.
- 10 -
11
Item 3. Legal Proceedings.
Various legal actions are pending against the Company, including the
following:
The Company and certain of its present and former officers and directors
are defendants in 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 Company's motion to dismiss the Fishbaum complaint,
with leave to amend, on the grounds that the complaint did not adequately set
forth the requisite element of scienter. In July 1994, the Company moved to
dismiss the Ressler complaint. In August 1995, the Court granted that motion,
again with leave to amend, on the grounds that the Ressler complaint failed to
comply with pleading requirements of the Federal Rules of Civil Procedure.
However, the Court rejected the contention that scienter had not been adequately
pled. In response to the Company's motion for reconsideration of that latter
point, the Court indicated that the Company could present the scienter issue
again in moving to dismiss a new amended complaint. In October 1995, a second
amended complaint was filed. In December 1995, the Company moved to dismiss that
complaint. The motion was argued in May 1996 and has not yet been decided.
In April 1994, two stockholder derivative actions, which contain
substantially similar allegations, styled Goldberg Family Trust vs. Chazen, et
al. and Liz Claiborne, Inc., nominal defendant, and Laz Schneider vs. Chazen, et
al. and Liz Claiborne, Inc., nominal defendant, were brought in the Court of
Chancery of the State of Delaware against certain of the Company's former and
present directors and two of its former Vice Chairmen. The complaints contain
allegations that the individual defendants breached their fiduciary obligations
to the Company and its 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. See Note 8 of Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
- 11 -
12
Executive Officers of the Registrant.
Information as to the executive officers of the Company is set forth below:
Name Age Position(s)
Paul R. Charron 55 Chairman of the Board and Chief Executive
Officer
Denise V. Seegal 44 President
Jorge L. Figueredo 37 Senior Vice President - Human Resources
Samuel M. Miller 60 Senior Vice President - Finance, Chief
Financial Officer
John R. Thompson 46 Senior Vice President - Service, Systems and
Reengineering, Chief Information Officer
Robert J. Zane 58 Senior Vice President - Manufacturing and
Sourcing
Executive officers serve at the discretion of the Board of Directors.
Mr. Charron joined the Company as Vice Chairman and Chief Operating
Officer, and became a Director, in 1994. In 1995, Mr. Charron became President
(a position he held until October 1996) and Chief Executive Officer of the
Company. In 1996, Mr. Charron became Chairman of the Board of the Company. Prior
to joining the Company, Mr. Charron served as Executive Vice President of VF
Corporation, an apparel manufacturer, from 1993 to 1994, and as a Group Vice
President of VF Corporation from 1988 to 1993.
Ms. Seegal joined the Company in 1996 as President. Prior to joining the
Company, Ms. Seegal served as President of the CK Men's and Women's divisions of
Calvin Klein, Inc. from 1994 to 1996 and as President of the DKNY divisions of
the Donna Karan Company from 1989 to 1994.
Mr. Figueredo joined the Company in 1984 as Administrator, Warehouse
Employee Relations and served in various management positions thereafter. In
1992, Mr. Figueredo was promoted to Vice President, Human Resources Operations.
In 1994, Mr. Figueredo 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 1995 as Senior Vice President of
Service, Systems and Reengineering, Chief Information Officer. Prior to joining
the Company, Mr. Thompson served as Executive Vice President for Business
Systems/Logistics and Chief Information Officer of Goody's Family Clothing,
Inc., an apparel retailer, from 1993 to 1995. 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 Vice
President of Marketing and Sales of Quick Response Services, Inc., an
information management services company, from 1987 to 1991.
Mr. Zane joined the Company in 1995 as Senior Vice President -
Manufacturing and Sourcing. Prior to joining the Company, Mr. Zane owned and
operated Medallion Tekstil, a private label manufacturing company he founded in
1989. Prior to that, Mr. Zane was Vice President, Sourcing at Bernard Chaus,
Inc. and Executive Vice President at Murjani International, Inc.
- 12 -
13
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
--------------- ---- ---
1997:
1st Quarter 45 3/4 38 1/4
2nd Quarter 48 13/16 43 5/8
3rd Quarter 57 43 3/4
4th Quarter 57 3/16 39 3/4
1996:
1st Quarter 35 5/8 26 3/8
2nd Quarter 37 3/4 33 1/4
3rd Quarter 37 5/8 28 1/8
4th Quarter 45 36 1/4
On March 3, 1998, the closing sale price of the Company's Common Stock was
$50 5/8. As of March 3, 1998, the approximate number of record holders of
Common Stock was 9,409.
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
--------------- -------------------------------
1997:
1st Quarter $.1125
2nd Quarter $.1125
3rd Quarter $.1125
4th Quarter $.1125
1996:
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.
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
16, 1998, 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 $887 million of the $975 million authorized under its stock
repurchase program, covering an aggregate of 27.4 million shares.
- 13 -
14
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)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Net sales $ 2,412,601 $ 2,217,518 $ 2,081,630 $ 2,162,901 $ 2,204,297
Gross profit 969,658 876,435 790,701 755,207 750,916
Net income 184,644 155,665 126,914 82,849* 126,924**
Working capital 729,763 815,429 757,199 717,905 748,667
Total assets 1,305,285 1,382,750 1,329,243 1,289,662 1,236,338
Stockholders'
equity 921,627 1,020,492 988,226 982,984 978,291
Per common share data:
Basic earnings 2.65 2.15 1.69 1.06* 1.56**
Diluted earnings 2.63 2.14 1.69 1.05* 1.55**
Book value at
year end 13.94 14.37 13.41 12.77 12.41
Dividends paid .45 .45 .45 .45 .44
Weighted average
common shares
outstanding 69,619,167 72,396,130 75,002,861 78,526,724 81,509,120
Weighted average
common shares
and share
equivalents
outstanding 70,191,115 72,845,100 75,299,746 78,550,547 81,648,719
- --------------------------------------------------------------------------------
* 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.
All earnings per share have been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 128 "Earnings per Share."
- 14 -
15
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 1997 1996 1995 1997 VS. 1996 VS.
1996 1995
- --------------------------------------------------------------------------------
NET SALES 100.0% 100.0% 100.0% 8.8% 6.5%
Cost of goods sold 59.8 60.5 62.0 7.6 3.9
----- ----- -----
GROSS PROFIT 40.2 39.5 38.0 10.6 10.8
Selling, general and
administrative expenses 28.7 28.9 28.8 7.9 6.9
----- ----- -----
OPERATING INCOME 11.5 10.6 9.2 18.1 23.4
Investment and other
income-net .7 .6 .6 10.4 11.4
----- ----- -----
INCOME BEFORE PROVISION
FOR INCOME TAXES 12.2 11.2 9.8 17.7 22.6
Provision for income
taxes 4.5 4.2 3.7 16.2 22.6
----- ----- -----
NET INCOME 7.7% 7.0% 6.1% 18.6% 22.7%
===== ===== =====
The Company's net sales for 1997 (53 weeks) were $2.41 billion, compared to
$2.22 billion in 1996 (52 weeks) and $2.08 billion in 1995 (52 weeks). The 1997
results reflected increased net sales of better casual women's sportswear, men's
sportswear and Special Markets product as well as increased net sales of the
outlet operations, partially offset by lower net sales of COLLECTION product and
dresses as well as lower net sales of the retail operations.
The 1997 net sales results reflected an 8% increase in the sales of the
Company's better women's sportswear lines, comprised of: a 17% increase in the
net sales of Casual product, to $708 million, and a 7% increase in the net sales
of Special Sizes product, to $440 million, due in each case to higher unit
volume, partially offset by a 13% decrease in the net sales of the COLLECTION
product, to $183 million, due to planned lower unit volume, reflecting weakness
in demand. New product offerings accounted for $58 million of the net sales
increase: $28 million of net sales of LIZSPORT and CLAIBORNE SPORT, the
Company's latest fragrances (initially shipped in July 1997), $20 million of net
sales of ELISABETH/LIZ & CO. (initially shipped in September 1996) and $10
million of net sales of CURVE for women and CURVE for men (initially shipped in
July 1996). Sales of the SPORT and CURVE fragrances more than offset the
continuing decline in net sales of the Company's ongoing fragrance products. Net
sales of men's sportswear and furnishings increased 20%, to $146 million, due
primarily to
- 15 -
16
Results of Operations
continued
higher unit volume and, to a lesser extent, higher average unit selling prices.
Net sales of Special Markets product increased 35%, to $104 million, due to
higher unit volume. Net sales of the outlet operations increased 18%, to $229
million, reflecting additional stores (97 at 1997 year end as compared with 82
at 1996 year end) and the inclusion of one extra week in 1997. The 1997 net
sales increase was moderated by a 15% decrease in dress sales, to $89 million,
due to planned lower unit volume, reflecting weakness in demand, and a 12%
decrease in net sales of the Company's domestic retail stores, to $145 million,
principally reflecting weakness in demand for ELISABETH product and dresses
within a generally soft environment for women's apparel specialty stores.
Effective with the 1997 fiscal year, the Company lowered its internal transfer
pricing for goods sold by its wholesale divisions to its domestic retail stores
to a cost basis. The change reduced the net sales figures reported by the
wholesale divisions and increased the gross margin dollars and percentage of the
domestic retail operations. This change had no effect on the Company's
consolidated results and did not have any material effect on the divisional
disclosures contained herein.
The 1996 net sales results reflected an 11% increase in the sales of the
Company's better sportswear lines, comprised of: a 9% increase in the net sales
of Casual product, to $608 million, due in equal parts to higher unit volume and
higher average unit selling prices; a 19% increase in the net sales of Special
Sizes product, to $410 million, due to a significant increase in unit volume,
with 31% of the increase due to the new LIZ & CO. petite line and, to a lesser
extent, the additional product required by the Company's new ELISABETH stores
(61 at 1996 year end as compared with 51 at 1995 year end), notwithstanding
lower net sales of petite COLLECTION product; and a 1% increase in the net sales
of COLLECTION product, to $210 million, reflecting the inclusion of the expanded
STUDIO line, offset by a 12% decrease in the net sales of misses COLLECTION
product due to weakness in demand. Net sales of DANA BUCHMAN product increased
39%, to $189 million, due to higher unit volume, with approximately 45% of the
increase relating to the introduction of the DANA B. & KAREN line. Net sales of
the outlet operations increased 25%, to $194 million, reflecting improved store
productivity and new store openings (82 at 1996 year end as compared with 76 at
1995 year end). Net sales of men's sportswear and furnishings increased 8%, to
$122 million, due to higher unit volume. The 1996 net sales increase was
moderated by a 14% decrease in dress sales, to $105 million, due in equal parts
to lower unit volume and lower average unit selling prices, reflecting weakness
in demand. Approximately 18% of the 1996 net sales increase was attributable to
the change in trade terms (from 10% to 8%, the prevailing standard in the
industry), effective as of January 1, 1996.
Gross profit margins were 40.2% in 1997, compared to 39.5% in 1996 and
38.0% in 1995. Gross profit dollars increased $93 million, or 10.6%, in 1997 and
$86 million, or 10.8%,in 1996. The 1997 results principally reflected the larger
percentage of net sales represented by the Cosmetics Division and outlet
operations (generally higher margin businesses), higher margins within those
businesses, and better margins on close-out sales. The improvement in cosmetics
margins reflected initial shipments of the Company's SPORT fragrances in the
second half of the year. Gross margins for Special Markets product increased
significantly, due to a higher proportion of regular price sales. The overall
gross margin improvement was moderated by lower margins within the ELISABETH and
COLLECTION Divisions due to a lower proportion of regular price sales.
Approximately one-half of the 1996 improvement in gross margin percentage
was due to the change in trade terms referred to above. The 1996 gross profit
results also reflected higher initial gross margins due in part to a larger
proportion of product shipped by ocean vessel transport as compared to more
costly air transport. Overall margins were favorably impacted by significant
margin improvements in the outlet operations, as well as higher margins within,
and a higher proportion of net sales represented by, the DANA BUCHMAN Division
and the Cosmetics Division (both of which are higher margin businesses). The
- 16 -
17
Results of Operations
continued
improvements in gross margin percentage were moderated by lower margins realized
on dress sales, lower margins within the Special Markets Unit (principally
reflecting the repositioning of the brands), and lower margins within the
Company's domestic retail store operations due to higher store markdowns.
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") and/or retaliatory duties,
quotas or other trade sanctions, which, if enacted, would increase the cost of
products purchased from suppliers in such countries. The PRC's MFN treatment was
renewed in July 1997 for an additional year. In light of the very substantial
portion of the Company's products which are manufactured by foreign suppliers,
the enactment of new legislation or the administration of current international
trade regulations, or executive action affecting international textile
agreements, could adversely affect the Company's operations.
Selling, general and administrative ("SG&A") expenses increased $51
million, or 7.9%, in 1997 over 1996, compared with an increase of $41 million,
or 6.9%, in 1996 over 1995. These expenses represented 28.7% of net sales in
1997, compared to 28.9% in 1996 and 28.8% in 1995. The 1997 dollar increase
principally reflected the continued expansion of the Company's brand enhancing
activities (including a national advertising campaign and in-store service and
presentation program), and marketing expenses related to the introduction of the
new SPORT fragrances. Additional expenses associated with the expansion of the
Company's outlet operations, incremental expenses related to the higher sales
volume in certain divisions, and the additional week included in the 1997 fiscal
year, also contributed to the SG&A increase. The increase was moderated by
continuing expense reduction initiatives.
The 1996 dollar increase in SG&A expenses principally reflected the
continued expansion of the Company's brand enhancing activities described above,
the costs of which were funded through the redeployment of funds generated as a
result of the change in trade terms, and marketing expenses related to the
introduction of the new CURVE fragrances. Additional expenses associated with
the expansion of the Company's DANA BUCHMAN Division and the Company's domestic
retail stores and outlet operations, as well as incremental expenses related to
the higher sales volume in certain divisions, also contributed to the SG&A
increase. The increase was partially offset by continuing expense reduction
initiatives. The Company's former shoe and watch businesses together accounted
for approximately $1 million and $10 million of 1996 and 1995 direct expenses,
respectively, prior to the license of such businesses to third parties.
Investment and other income-net increased on a year-to-year basis by $1.5
million in each of 1997 and 1996, reflecting in each case an increase in the
Company's average investment portfolio, notwithstanding the Company's ongoing
stock repurchase program. The 1996 increase was moderated by various other
income and expense items.
As a result of the factors described above, the Company's income before
provision for income taxes increased on a year-to-year basis 18% in 1997,
compared with 23% in 1996. These results included losses within the Special
Markets Unit (although the 1997 losses were significantly lower than those in
1996). The provision for income taxes reflected the changes in pre-tax income
and a decrease in the effective tax rate from 37.5% in 1996 to 37.0% in 1997.
Net income expressed as a percentage of net sales was 7.7% in 1997,
compared with 7.0% in 1996 and 6.1% in 1995. These increases were principally
due to higher operating margins.
- 17 -
18
Results of Operations
continued
The earnings per common share computations reflected a lower number of
average outstanding shares on a period-to-period basis as a result of the
Company's ongoing stock repurchase program. Earnings per common share were
computed in accordance with Statement of Financial Accounting Standards No. 128
"Earnings per Share" (see Notes 1 and 13 of Notes to Consolidated Financial
Statements).
The retail environment remains intensely competitive and highly
promotional, and the tone of business continues to be challenging. During 1997,
the Company completed the first phase of a comprehensive business transformation
effort, including process reengineering and profit improvement programs. The
Company is currently implementing the second phase of the program and has
established certain new goals including the continuation of cost reduction
programs, improvements in the Company's operating margins and return on
operating capital, and enhanced customer and consumer responsiveness
initiatives. Over the past few years, the Company has licensed a number of
product categories to third parties; management continues to explore entry into
a licensing arrangement covering its cosmetics business. Management believes
that ongoing product improvements, as well as the Company's stepped up marketing
activities, will continue to enhance customer and consumer response to its
product offerings, resulting in continued growth in 1998.
Financial Position, Capital Resources and Liquidity
Net cash provided by operating activities was $145 million in 1997,
compared to $238 million in 1996 and $222 million in 1995. The year-to-year
decrease in 1997 primarily reflects a change in inventory levels ($47 million
increase in 1997 compared to a decrease of $44 million in 1996), and changes in
other current assets and current liabilities, offset in part by higher net
income.
Net cash used in investing activities was $57 million in 1997, compared to
net cash provided by investing activities of $156 million in 1996 and net cash
used in investing activities of $134 million in 1995. The fluctuations in net
cash used in and provided by investing activities are related to the net
purchases of investments of $13 million in 1997, compared to net disposals of
$176 million in 1996 and net purchases of $118 million in 1995 as well as
changes in the level of capital expenditures on a year-to-year basis.
Net cash used in financing activities was $274 million in 1997, compared to
$123 million in 1996 and $104 million in 1995. The changes in net cash used in
financing activities principally reflects the amount expended in the Company's
stock repurchase program, partially offset by the proceeds from the exercise of
stock options and the sale of put warrants. As of March 3, 1998, the Company had
expended or committed to expend, through the sale of put warrants (see Note 8 of
Notes to Consolidated Financial Statements), approximately $887 million of the
$975 million authorized under its stock repurchase program, covering an
aggregate of 27.4 million shares.
The increase in 1997 year end inventory levels over the prior year end
reflected earlier receipt of spring merchandise across substantially all of the
Company's wholesale apparel divisions and an increase in the inventory levels of
an in-stock reorder program within certain divisions. Lower average inventory
levels had a positive impact on the Company's 1997 inventory turnover rate.
The Company's anticipated capital expenditures for 1998 currently
approximate $80 million. These expenditures consist primarily of the information
systems upgrade discussed below, the technological upgrading and expansion of
the Company's distribution facilities (including certain building and equipment
expenditures) and the expansion of the retail and outlet operations. Capital
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, were $470 million at
year end 1997 and $270 million at year end 1996. The Company expects to be able
to continue to adjust these lines as required.
- 18 -
19
Results of Operations
continued
Year 2000/Information Systems Upgrade
Many existing computer systems and software products, including several
used by the Company, accept only two digit entries in the date code field.
Beginning in the year 2000, and in certain instances prior to the year 2000,
these date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, the Company's date
critical functions may be materially adversely affected unless these computer
systems and software products are or become able to accept four digit entries
("year 2000 compliant").
In 1996, the Company commenced a comprehensive upgrade of its management
information systems, which involves substantial changes to the Company's present
hardware and software, and is expected to provide certain competitive benefits
and also result in the Company's information systems being year 2000 compliant
upon completion. The planning stage of this project was recently completed and
the systems development and pilot implementation stages are currently in
progress. Management currently expects that full implementation of the project
will involve a commitment of approximately $50-$60 million over the four year
period ending with year end 1999. Approximately $40-$45 million of such amount
is in the form of capital expenditures, while the remaining $10-$15 million is
being expensed as incurred. As of January 3, 1998, capital expenditures related
to the project totaled $11 million and an additional $4 million had been
expensed as incurred. The Company's financial systems were upgraded for year
2000 compliance during 1997. Project purchases of approximately $20 million are
included in the anticipated 1998 capital expenditures, and approximately $5
million in project associated expenses are expected to be incurred in 1998. The
testing and the initial implementation phases of a significant portion of the
project are currently expected to be completed during the first six months of
1998. The Company expects that with the completion of the project, the year 2000
issue will not pose significant operational problems. There can be no assurance,
however, that the Company's systems will be rendered year 2000 compliant in a
timely manner, or that the Company will not incur significant unforeseen
additional expenses to assure such compliance. Failure to successfully complete
and implement the upgrade project on a timely basis could have a material
adverse effect on the Company's operations.
The Company has begun formal communications with all of its suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own year 2000 issues. The Company's
estimated project costs and timetables are based on presently available
information, and include the Company's assessment of the abilities of third
parties to address the issue effectively. There can be no assurance, however,
that the systems of other companies on which the Company's processes rely will
be timely converted, or that a failure to successfully convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have an impact on the Company's operations.
Certain Interest Rate and Foreign Currency Risks
The Company has no long-term debt, and finances its capital needs through
available capital and future earnings. The Company's exposure to market risk for
changes in interest rates relates primarily to the Company's investment
portfolio. The Company, by policy, mitigates its exposure by limiting maturity
and placing its investments with high credit quality issuers and limits the
amount of credit exposure to any one issuer. To ensure liquidity, the portfolio
includes only marketable securities readily tradable in an active market. The
table below presents amortized cost amounts and related weighted average yields
by year of maturity for the Company's investment portfolio as of January 3,
1998:
- 19 -
20
Results of Operations
continued
1998 1999 2000 Total
---------------- ---------------- ---------------- ----------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------- ------ ----- ------ ----- ------ ----- ------ -----
Tax exempt securities $172,949 4.04% $114,276 4.15% $4,435 4.22% $291,660 4.09%
Taxable securities 52,675 5.71 -- -- -- -- 52,675 5.71
-------- -------- ------ --------
$225,624 4.43% $114,276 4.15% $4,435 4.22% $344,335 4.34%
======== ======== ====== ========
The Company reduces the risks associated with changes in foreign currency
rates by entering into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with 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.
The table below presents the amount of contracts outstanding, contract rates and
unrealized gains as of January 3, 1998:
U.S. Dollar Contract Unrealized
(Dollars in thousands) Amount Rate Gain
- ---------------------- ----------- -------- ----------
Canadian dollars $1,466 .7328 $54
British pounds sterling $ 410 1.6419 $ 1
Inflation
The rate of inflation over the past few years has not had a significant
impact on the Company's sales and profitability.
********************
Statements contained herein that relate to the Company's future
performance, including, without limitation, statements with respect to the
Company's anticipated results for any portion of fiscal 1998, shall be deemed
forward-looking statements within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, as a number of factors affecting the
Company's business and operations could cause actual results to differ
materially from those contemplated by the forward-looking statements. Those
factors include the overall level of consumer spending and the performance of
the Company's products within the prevailing retail environment, as well as such
other factors as are set forth in the Company's 1997 Annual Report on Form 10-K,
including, without limitation, those set forth under the heading "Business -
Competition; Certain Risks."
Item 8. Financial Statements and Supplementary Data.
Information called for by this Item 8 is included following the "Index to
Consolidated Financial Statements and Schedules" appearing at the end of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
- 20-
21
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to Executive Officers of the Company is set forth
in Part I of this Annual Report on Form 10-K.
Information with respect to Directors of the Company which is called for by
this Item 10 is incorporated by reference to the information set forth under the
heading "Election of Directors" in the Company's Proxy Statement relating to its
1998 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the
"Company's 1998 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 1998 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 1998
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information called for by this Item 13 is incorporated by reference to the
information set forth under the headings "Election of Directors" and "Executive
Compensation-Employment Arrangements" in the Company's 1998 Proxy Statement.
- 21 -
22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
PAGE REFERENCE
--------------
1997 FORM 10-K
--------------
MANAGEMENT'S REPORT AND REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of January 3, 1998
and December 28, 1996 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 3, 1998 F-5
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended January 3, 1998 F-6 to F-7
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended January 3, 1998 F-8
Notes to Consolidated Financial Statements F-9 to F-21
UNAUDITED QUARTERLY RESULTS F-22
2. Schedules.
SCHEDULE II -- Valuation and Qualifying Accounts F-23
NOTE: Schedules other than those referred to above and parent
company condensed financial statements have been omitted as
inapplicable or not required under the instructions contained
in Regulation S-X or the information is included elsewhere in
the financial statements or the notes thereto.
- 22 -
23
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 period
ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by
reference from Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992 [the
"1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value
$1.00 per share (incorporated herein by reference from Exhibit
4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 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 Exhibits 1 and 2
to Registrant's Form 8-A dated December 21, 1988).
4(b)(i) - Amendment No. 1 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) - Appointment of Rights Agent, dated as of January 24, 1992,
between Registrant and First Chicago Trust Company of New
York, as Rights Agent under the Rights Agreement (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).
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).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
- 23 -
24
Exhibit
No. Description
- ------- -----------
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)(i) 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(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iii) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [the "1996 Annual Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iv) to the 1996 Annual Report.
10(e)(v)+* - Amendment No. 8 to the Savings Plan.
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement
Plan (the "Profit-Sharing Plan") (incorporated herein by
reference from Exhibit 10(h) to the 1992 Annual Report).
10(g) - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj) to the
1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i) to
the 1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended October 1,
1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July 1,
1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(iv) to the 1996 Annual
Report).
10(h)* - National Collective Bargaining Agreement, made and entered
into as of June 1, 1997, by and between Liz Claiborne, Inc.
and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through May 31,
2000.
10(h)(i)* - Jobbers Agreement, made and entered into as of June 1, 1997,
by and between Liz Claiborne, Inc. and the Union of
Needletrades, Industrial and Textile Employees (UNITE) for
the period June 1, 1997 through May 31, 2000.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith
- 24 -
25
Exhibit
No. Description
- ------- -----------
10(i) + - Executive Liability and Indemnification Policy No.
8103-53-79G, with Chubb Group of Insurance Companies (the
"Insurance Policy") (incorporated herein by reference from
Exhibit 10(l) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 [the "1994 Annual
Report"]).
10(i)(i)+* - Summary of Extension of the Insurance Policy.
10(j) - Excess Coverage Directors and Officers Liability Insurance
Policy No. 483-73-56, with National Union Fire Insurance
Company of Pittsburgh, PA (the "Excess Policy") (incorporated
herein by reference from Exhibit 10(j) to the 1996 Annual
Report).
10(j)(i)* - Summary of Extension of the Excess Policy.
10(k)+* - Description of Liz Claiborne, Inc. 1997 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 Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990).
10(m)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors'
1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan")
(incorporated herein by reference from Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(m)(i)+ - Form of Option Agreement under the Outside Directors' 1991
Plan (incorporated herein by reference from Exhibit 10(m)(i)
to the 1996 Annual Report).
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992
Plan") (incorporated herein by reference from Exhibit 10(p) to
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(n)(ii)+* - Amendment No. 2 to the 1992 Plan.
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by reference from
Exhibit 10(q) to the 1992 Annual Report).
10(p)+ - Form of Option Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(r) to the 1992 Annual
Report).
10(q)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q) to the
1996 Annual Report).
10(r)+ - Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
10(s)+* - Form of Restricted Transformation Share Agreement under the
1992 Plan.
10(t)+* - Description of Supplemental Life Insurance Plans.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith.
- 25 -
26
Exhibit
No. Description
- ------- -----------
10(u)+ - Description of unfunded death/disability benefits for certain
executives (incorporated herein by reference from Exhibit
10(u) to the 1992 Annual Report).
10(v)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus Plan
(incorporated herein by reference from Exhibit 10(v) to the
1994 Annual Report).
10(w)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as
amended and restated effective as of January 1, 1997)
(incorporated herein by reference from Exhibit 10(w) to the
1996 Annual Report).
10(x)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated
herein by reference from Exhibit 10(x) to the 1996 Annual
Report).
10(y)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment Agreement")
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended April 2, 1994).
10(y)(i)+ - Amendment to the Employment Agreement, dated as of November
20, 1995, between Registrant and Paul R. Charron (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual
Report).
10(y)(ii)+ - Amendment to the Employment Agreement, dated as of September
19, 1996, between Registrant and Paul R. Charron (including
the Liz Claiborne Retirement Income Accumulation Plan for the
benefit of Mr. Charron)(incorporated herein by reference from
Exhibit 10(y)(ii) to the 1996 Annual Report).
10(z)+ - Employment Agreement dated as of September 26, 1996 between
Registrant and Denise V. Seegal (incorporated herein by
reference from Exhibit 10(z) to the 1996 Annual Report).
10(aa)+ - Agreements dated as of May 15, 1996 and May 17, 1996, between
Registrant and Jerome A. Chazen (incorporated herein by
reference from Exhibit 10(aa) to the 1996 Annual Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
27.1* - Financial Data Schedule for 1996.
27.2* - Financial Data Schedule for 1997 interim periods.
27.3* - Financial Data Schedule for 1996 interim periods.
99* - Undertakings.
(b) Reports on Form 8-K.
Not applicable.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith.
- 26 -
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on April 2, 1998.
LIZ CLAIBORNE, INC.
By /s/Samuel M. Miller
----------------------------
Samuel M. Miller,
Senior Vice President-Finance,
Chief Financial Officer/
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 April 2,
1998.
Signature Title
--------- -----
/s/Paul R. Charron Chairman of the Board, Chief Executive Officer
- -------------------------- and Director/Principal Executive Officer
Paul R. Charron
/s/Lee Abraham
- --------------------------
Lee Abraham Director
/s/Bernard W. Aronson
- --------------------------
Bernard W. Aronson Director
/s/Eileen H. Bedell
- --------------------------
Eileen H. Bedell Director
/s/Ann M. Fudge
- --------------------------
Ann M. Fudge Director
/s/J. James Gordon
- --------------------------
J. James Gordon Director
/s/Kenneth P. Kopelman
- --------------------------
Kenneth P. Kopelman Director
/s/Kay Koplovitz
- --------------------------
Kay Koplovitz Director
/s/Paul E. Tierney, Jr.
- --------------------------
Paul E. Tierney, Jr. Director
- 27 -
28
INDEX
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
------
MANAGEMENT'S REPORT AND REPORT
OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
January 3, 1998 and December 28, 1996 F-4
Consolidated Statements of Income for the
Three Fiscal Years Ended January 3, 1998 F-5
Consolidated Statements of Stockholders' Equity
for the Three Fiscal Years Ended January 3, 1998 F-6 to F-7
Consolidated Statements of Cash Flows
for the Three Fiscal Years Ended January 3, 1998 F-8
Notes to Consolidated Financial Statements F-9 to F-21
UNAUDITED QUARTERLY RESULTS F-22
SCHEDULE II -- Valuation and Qualifying Accounts F-23
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
29
MANAGEMENT'S REPORT
The management of Liz Claiborne Inc. is responsible for the preparation,
objectivity and integrity of the consolidated financial statements and other
information contained in this Annual Report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and include some amounts that are based on management's informed
judgments and best estimates.
To help assure that financial information is reliable and assets are
safeguarded, management maintains a system of internal controls and procedures
which it believes is effective in accomplishing these objectives. These controls
and procedures are designed to provide reasonable assurance, at appropriate
costs, that transactions are executed and recorded in accordance with
management's authorization.
The independent public accountants have audited the Company's consolidated
financial statements as described in their report. In the course of their
audits, the independent public accountants have developed an overall
understanding of the Company's accounting and financial controls and have
conducted other tests as they considered necessary to support their opinion on
the financial statements. The independent public accountants report their
findings and recommendations to management and the Audit Committee of the Board
of Directors. Control procedures are implemented or revised as appropriate to
respond to these recommendations. There have not been any material control
weaknesses brought to the attention of management or the Audit Committee during
the periods covered by the report of the independent public accountants.
However, in as much as the independent public accountants' audits consisted of
selected tests of control policies and procedures and did not cover the entire
system of internal control, they would not necessarily disclose all weaknesses
which might exist.
The Audit Committee, which consists solely of non-management directors,
meets with the independent public accountants, internal auditors and management
periodically to review their respective activities and the discharge of their
respective responsibilities. Both the independent public accountants and the
internal auditors have unrestricted access to the Audit Committee, with or
without management, to discuss the scope and results of their audits and any
recommendations regarding the system of internal controls.
/s/ Paul R. Charron /s/ Samuel Miller
Paul R. Charron Samuel M. Miller
Chairman of the Board Senior Vice President Finance,
and Chief Executive Officer Chief Financial Officer
F-2
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Liz Claiborne, Inc.:
We have audited the accompanying consolidated balance sheets of Liz Claiborne,
Inc. (a Delaware corporation) and subsidiaries as of January 3, 1998 and
December 28, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended January 3, 1998. 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.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index of financial
statements are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Liz Claiborne, Inc. and
subsidiaries as of January 3, 1998 and December 28, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 3, 1998 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
New York, New York
February 22, 1998
F-3
31
CONSOLIDATED BALANCE SHEETS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 138,185 $ 322,881
Marketable securities 221,343 205,855
Accounts receivable - trade 181,303 158,168
Inventories 396,249 349,427
Deferred income tax benefits 31,647 31,555
Other current assets 88,693 74,212
----------- -----------
Total current assets 1,057,420 1,142,098
----------- -----------
PROPERTY AND EQUIPMENT - NET 214,624 223,284
OTHER ASSETS 33,241 17,368
----------- -----------
$ 1,305,285 $ 1,382,750
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 173,812 $ 163,666
Accrued expenses 138,816 152,241
Income taxes payable 15,029 10,762
----------- -----------
Total current liabilities 327,657 326,669
----------- -----------
DEFERRED INCOME TAXES 10,542 8,253
COMMITMENTS AND CONTINGENCIES
PUT WARRANTS 45,459 27,336
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 30,731 38,577
Retained earnings 1,541,894 1,382,247
Cumulative translation adjustment (2,673) (4,311)
----------- -----------
1,658,171 1,504,732
Common stock in treasury, at cost - 22,120,305
shares in 1997 and 17,212,585 shares in 1996 (736,544) (484,240)
----------- -----------
Total stockholders' equity 921,627 1,020,492
----------- -----------
$ 1,305,285 $ 1,382,750
=========== ===========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-4
32
CONSOLIDATED STATEMENTS OF INCOME
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED
-----------------------------------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER COMMON SHARE DATA JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
NET SALES $2,412,601 $2,217,518 $2,081,630
Cost of goods sold 1,442,943 1,341,083 1,290,929
---------- ---------- ----------
GROSS PROFIT 969,658 876,435 790,701
Selling, general and administrative expenses 692,363 641,720 600,471
---------- ---------- ----------
OPERATING INCOME 277,295 234,715 190,230
Investment and other income - net 15,849 14,350 12,884
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 293,144 249,065 203,114
Provision for income taxes 108,500 93,400 76,200
---------- ---------- ----------
NET INCOME $ 184,644 $ 155,665 $ 126,914
========== ========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 2.65 $ 2.15 $ 1.69
========== ========== ==========
Diluted $ 2.63 $ 2.14 $ 1.69
========== ========== ==========
DIVIDENDS PAID PER COMMON SHARE $ .45 $ .45 $ .45
========== ========== ==========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-5
33
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 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
Net income -- -- -- 155,665 -- -- 155,665
Exercise of stock options and
related tax benefits -- -- 1,719 1,778 -- 11,070 14,567
Cash dividends paid -- -- -- (32,318) -- -- (32,318)
Proceeds from sale of put warrants -- -- 3,836 -- -- -- 3,836
Reclassification of put warrant
obligations, net -- -- (2,053) -- -- -- (2,053)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax -- -- -- (991) -- -- (991)
Translation adjustment -- -- -- -- (3,055) -- (3,055)
Purchase of 3,211,462 shares of
common stock -- -- -- -- -- (107,617) (107,617)
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 2,788 -- 1,444 4,232
---------- ------- -------- ----------- ------- --------- --------
BALANCE, DECEMBER 28, 1996 88,218,617 88,219 38,577 1,382,247 (4,311) (484,240) 1,020,492
F-6
34
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (CONTINUED)
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 28, 1996 88,218,617 $88,219 $ 38,577 $ 1,382,247 $(4,311) $(484,240) $ 1,020,492
Net income -- -- -- 184,644 -- -- 184,644
Exercise of stock options and
related tax benefits -- -- 3,670 638 -- 14,564 18,872
Cash dividends paid -- -- -- (31,162) -- -- (31,162)
Proceeds from sale of put warrants -- -- 6,607 -- -- -- 6,607
Reclassification of put warrant
obligations, net -- -- (18,123) -- -- -- (18,123)
Adjustment to unrealized gains
(losses) on available-for-sale
securities, net of tax -- -- -- 1,347 -- -- 1,347
Translation adjustment -- -- -- -- 1,638 -- 1,638
Purchase of 5,382,600 shares of
common stock -- -- -- -- -- (264,852) (264,852)
Issuance of common stock under
restricted stock and employment
agreements, net -- -- -- 4,180 -- (2,016) 2,164
---------- ------- -------- ----------- ------- --------- -----------
BALANCE, JANUARY 3, 1998 88,218,617 $88,219 $ 30,731 $ 1,541,894 $(2,673) $(736,544) $ 921,627
========== ======= ======== =========== ======= ========= ===========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-7
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED
------------------------------------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
JANUARY 3, DECEMBER 28, DECEMBER 30,
ALL DOLLAR AMOUNTS IN THOUSANDS 1998 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 184,644 $ 155,665 $ 126,914
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46,024 42,850 39,043
Other-net 8,103 6,452 7,524
Change in current assets and liabilities:
(Increase) decrease in accounts receivable - trade (23,135) (32,115) 33,713
(Increase) decrease in inventories (46,822) 43,936 12,362
(Increase) in deferred income tax benefits (888) (676) (416)
(Increase) decrease in other current assets (14,481) 3,498 (846)
Increase in accounts payable 10,146 24,866 219
(Decrease) in accrued expenses (22,809) (4,323) (1,587)
Increase (decrease) in income taxes payable 4,267 (1,886) 4,754
--------- --------- ---------
Net cash provided by operating activities 145,049 238,267 221,680
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment instruments (370,546) (348,646) (344,626)
Disposals of investment instruments 357,162 524,323 227,119
Purchases of property and equipment (34,037) (23,337) (34,357)
Purchases of trademarks (3,750) -- (2,595)
Proceeds from sale of certain shoe division assets -- -- 17,872
Other-net (6,027) 3,828 2,102
--------- --------- ---------
Net cash (used in) provided by investing activities (57,198) 156,168 (134,485)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 15,222 12,878 537
Dividends paid (31,162) (32,318) (33,627)
Purchase of common stock, net of put warrant premiums (258,245) (103,781) (71,183)
--------- --------- ---------
Net cash used in financing activities (274,185) (123,221) (104,273)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,638 (3,055) 381
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (184,696) 268,159 (16,697)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 322,881 54,722 71,419
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 138,185 $ 322,881 $ 54,722
========= ========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-8
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Liz Claiborne, Inc. is primarily engaged in the design and marketing of a broad
range of apparel, accessories and fragrances. The Company's products are sold
principally in the United States. The consolidated financial statements include
the accounts of Liz Claiborne, Inc. and its wholly-owned subsidiaries (the
"Company"). All intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts in the financial
statements and related notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months or less
at the date of acquisition are classified as cash equivalents.
MARKETABLE SECURITIES
Investments are stated at market. The estimated fair value of the marketable
securities is based on quoted prices in an active market. Gains and losses on
investment transactions are determined using the specific identification method
and are recognized in income based on settlement dates. Unrealized gains and
losses are included in 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 (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT - NET
Property and equipment is stated at cost less accumulated depreciation and
amortization. Buildings and building improvements are depreciated using the
straight-line method over their estimated useful lives of 20 to 39 years.
Machinery and equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives of five to seven years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
TRADEMARKS
Trademarks are amortized on a straight-line basis over their estimated useful
lives of 25 years and amounted to $16.1 million in 1997 and $13.1 million in
1996. These amounts are included in other assets on the consolidated balance
sheets.
F-9
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 loans with foreign subsidiaries of a long-term
investment nature are also included in this component of stockholders' equity.
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company enters into foreign exchange forward contracts to hedge transactions
denominated in foreign currencies for periods of less than one year and to hedge
expected payment of intercompany transactions with its non-U.S. subsidiaries.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are recognized in the period in which the transaction is completed
and are accounted for as part of the underlying transaction. Transaction gains
and losses included in income were not significant in fiscal 1997, 1996 and
1995. As of January 3, 1998, the Company had forward contracts maturing through
March 1998 to sell 2,000,000 Canadian dollars and 250,000 British pounds
sterling. The aggregate U.S. dollar value of the foreign exchange contracts was
approximately $1,900,000 at year end 1997, as compared with approximately
$9,800,000 at year end 1996. Unrealized gains and losses for outstanding foreign
exchange forward contracts were not material at January 3, 1998 and December 28,
1996.
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. All revenue is net of returns.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed when
the advertising takes place. Costs associated with cooperative advertising
programs, under which the Company generally shares the costs of each customer's
advertising and promotional expenditures up to a stated percentage of the
customer's purchases, are expensed when the related revenues are recognized.
Advertising and promotion expenses were $89 million in 1997, $73 million in 1996
and $43 million in 1995.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which was
adopted by the Company at the end of the 1997 fiscal year, using the weighted
average number of shares outstanding during each period. Shares subject to
unexercised stock options and put warrants were included in the diluted earnings
per share calculation using the treasury stock method (see Note 13 of Notes to
Consolidated Financial Statements). The earnings per common share for each
period presented have been restated to reflect the adoption of SFAS No. 128.
F-10
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31. The 1997
fiscal year reflects a 53-week period, while the 1996 and 1995 fiscal years each
reflects a 52-week period.
PRIOR YEARS' RECLASSIFICATION
Certain items previously reported in specific captions in the accompanying
financial statements have been reclassified to conform with the current year's
classifications.
NOTE 2
LICENSING COMMITMENTS
In January 1998, the Company consummated a license agreement with an affiliate
of Donna Karan International, Inc. to design, produce, market and sell men's and
women's sportswear, jeanswear and activewear products under the "DKNY(R) JEANS"
and "DKNY(R) ACTIVE" marks and logos. Under the agreement, the Company is
obligated to pay a royalty equal to a percentage of net sales of the "DKNY(R)
JEANS" and "DKNY(R) ACTIVE" products. The initial term of the license agreement
is for 15 years through December 31, 2012, with an option to renew for an
additional 15 year period, if certain sales thresholds are met. Subject to the
terms of the license agreement, aggregate minimum royalties for the initial 15
year term total $152 million.
NOTE 3
LICENSE AGREEMENTS
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. In 1996, the Company also licensed its watch
business. The Shoe and Watch Divisions had combined net sales of $47.1 million
in 1995, prior to the license agreements. The operating results of the shoe and
watch businesses for each period were not material to the Company's overall
operating results.
F-11
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 4
MARKETABLE SECURITIES
The following are summaries of available-for-sale marketable securities and
maturities:
JANUARY 3, 1998
----------------------------------------------
Gross Unrealized Estimated
-----------------
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ---------------------- ---- ----- ------ ----------
Tax exempt notes and bonds .. $291,659 $ 863 $ -- $292,522
Commercial paper ............ 52,676 -- -- 52,676
-------- ------ -------- --------
344,335 863 -- 345,198
Equity securities ........... 3,567 670 -- 4,237
-------- ------ -------- --------
$347,902 $1,533 $ -- $349,435
======== ====== ======== ========
DECEMBER 28, 1996
--------------------------------------------------
Gross Unrealized Estimated
--------------------
(DOLLARS IN THOUSANDS) Cost Gains Losses Fair Value
- ---------------------- ---- ----- ------ ----------
Tax exempt notes and bonds .............. $354,392 $ 357 $ (288) $354,461
Commercial paper ........................ 148,651 -- -- 148,651
U.S. and foreign government securities .. 12,877 74 (272) 12,679
Collateralized mortgage obligations ..... 7,112 -- (442) 6,670
-------- ------- --------- --------
523,032 431 (1,002) 522,461
Equity securities ....................... 236 -- (39) 197
-------- ------- --------- --------
$523,268 $ 431 $ (1,041) $522,658
======== ======= ========= ========
JANUARY 3, 1998
--------------------
Estimated
(DOLLARS IN THOUSANDS) Cost Fair Value
- ---------------------- ---- ----------
Due in one year or less . . . . . . . . . . . . $225,624 $225,746
Due after one year through three years . . . 118,711 119,452
-------- --------
344,335 345,198
Equity securities . . . . . . . . . . . . . . . . 3,567 4,237
-------- --------
$347,902 $349,435
======== ========
These investments include $128,092,000 in 1997 and $316,606,000 in 1996 of tax
exempt notes and bonds and commercial paper which are classified as cash and
cash equivalents.
F-12
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
For the fiscal years 1997, 1996 and 1995, gross realized gains on
available-for-sale securities totaled $891,000, $1,881,000 and $956,000,
respectively, and gross realized losses totaled $1,185,000, $491,000 and
$1,167,000, respectively. The adjustment to unrealized gains and losses on
available-for-sale securities which was included in retained earnings was a
credit of $1,347,000 (net of $796,000 in deferred income taxes) and a charge of
$991,000 (net of $645,000 in deferred income taxes) in fiscal 1997 and 1996,
respectively.
NOTE 5
INVENTORIES
Inventories are summarized as follows:
JANUARY 3, DECEMBER 28,
(DOLLARS IN THOUSANDS) 1998 1996
- --------------------------------------------------------------------------------
Raw materials .......... $ 27,924 $ 28,198
Work in process ........ 16,020 17,209
Finished goods ......... 352,305 304,020
-------- --------
$396,249 $349,427
======== ========
NOTE 6
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JANUARY 3, DECEMBER 28,
(DOLLARS IN THOUSANDS) 1998 1996
- --------------------------------------------------------------------------------
Land and buildings ............................. $125,538 $124,125
Machinery and equipment ........................ 153,040 138,620
Furniture and fixtures ......................... 59,869 55,022
Leasehold improvements ......................... 131,730 126,956
-------- --------
470,177 444,723
Less-accumulated depreciation and amortization . 255,553 221,439
-------- --------
$214,624 $223,284
======== ========
F-13
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 7
INCOME TAXES
The provisions for income taxes are as follows:
FISCAL YEARS ENDED
-----------------------------------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
JANUARY 3, DECEMBER 28, DECEMBER 30,
(DOLLARS IN THOUSANDS) 1998 1996 1995
- ----------------------------------------------------------------------
Current:
Federal .......... $ 86,210 $76,898 $57,617
Foreign .......... 2,450 2,055 3,003
State and local .. 14,400 14,300 9,300
-------- ------- -------
103,060 93,253 69,920
Deferred - net ........ 5,440 147 6,280
-------- ------- -------
$108,500 $93,400 $76,200
======== ======= =======
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 exclude $3,670,000 in 1997, $1,719,000 in 1996
and $27,000 in 1995, arising from the exercise of nonqualified stock options.
These amounts have been credited to capital in excess of par value.
The effective income tax rate differs from the statutory federal income tax rate
as follows:
FISCAL YEARS ENDED
----------------------------------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
- ----------------------------------------------------------------------------------------------------
Federal tax provision at statutory rate .................. 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit ..... 3.2 3.7 3.0
Tax-exempt interest income ............................... (2.2) (2.7) (3.2)
Other-net ................................................ 1.0 1.5 2.7
------ ------ ------
37.0% 37.5% 37.5%
====== ====== ======
F-14
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
The components of net deferred taxes arising from temporary differences as of
January 3, 1998 and December 28, 1996 are as follows:
(DOLLARS IN THOUSANDS) JANUARY 3, 1998 DECEMBER 28, 1996
- -------------------------------------------------------------------------------------------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX ASSET TAX LIABILITY TAX ASSET TAX LIABILITY
--------- ------------- --------- -------------
Inventory valuation ............................... $ 18,257 $ -- $13,301 $ --
Unremitted earnings from foreign subsidiaries ..... -- 15,733 -- 14,342
Accounts receivable valuation ..................... 4,156 -- 5,805 --
Unrealized investment (gains)/losses .............. (567) -- 229 --
Depreciation ...................................... -- (6,852) -- (5,933)
Other-net ......................................... 9,801 1,661 12,220 (156)
-------- ------- ------- -------
$ 31,647 $10,542 $31,555 $ 8,253
======== ======= ======= =======
Management believes that the deferred tax benefits will be fully realized
through future taxable income and reversals of deferred tax liabilities.
NOTE 8
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases office, showroom, warehouse/distribution and retail space,
computers and other equipment under various noncancellable operating lease
agreements which expire through December 2013. Rental expense for 1997, 1996 and
1995 was approximately $77,278,000, $74,685,000 and $74,902,000, respectively.
At January 3, 1998, the minimum aggregate rental commitments are as follows:
(DOLLARS IN THOUSANDS)
FISCAL YEAR OPERATING LEASES
- --------------------------------------------------------------------------------
1998........................................................... $ 53,917
1999........................................................... 51,127
2000........................................................... 47,404
2001........................................................... 45,665
2002 .......................................................... 29,327
Thereafter..................................................... 119,640
Certain rental commitments have renewal options extending through the year 2030.
Some of these renewals are subject to adjustments in future periods. Many of the
leases call for additional charges, some of which are based upon various
escalations, and, in the case of outlet and retail leases, the gross sales of
the individual stores above base levels.
At January 3, 1998, the Company had entered into commitments for the purchase of
raw materials and for the production of finished goods totaling approximately
$696,450,000.
In 1997, in connection with its stock repurchase program, the Company sold put
warrants on 1.65 million shares of common stock in privately negotiated
transactions based on the then-current market price of the common stock. The
warrants give the holders the right at maturity to require the Company to
repurchase shares of its common stock at specified prices. The Company has the
option to settle in cash or shares of common stock. In 1997, warrants on
1,463,000 shares of common stock expired unexercised, and warrants on 37,500
shares of common stock were exercised. Warrants on an additional 900,000 shares
remained outstanding at January 3,
F-15
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1998; if exercised, these warrants will require the Company to purchase up to
900,000 shares of its common stock at various dates ranging from January 15
through August 17, 1998, with strike prices ranging from $42.61 to $53.25.
Subsequent to January 3, 1998, warrants on 250,000 shares of common stock,
expiring in July 1998, were sold with proceeds of $.9 million, and warrants on
250,000 shares of common stock were exercised. In 1996, the Company sold put
warrants on 1.25 million shares of common stock. As of December 28, 1996,
warrants on 1.5 million shares of common stock had expired unexercised or were
terminated and warrants on an additional 750,000 shares remained outstanding,
and expired at various dates ranging from March 25 through July 30, 1997, with
strike prices ranging from $33.19 to $39.78. The proceeds from the sale of put
warrants of $6.6 million in 1997 and $3.8 million in 1996 have been recorded in
capital in excess of par value. The Company's potential obligations of $45.5
million in 1997 and $27.3 million in 1996 to buy back 900,000 and 750,000
shares, respectively, of common stock have been charged to capital in excess of
par value and reflected as put warrants on the consolidated balance sheets.
In the normal course of business, the Company extends credit, on open account,
to its retail store customers, after a credit analysis based on a number of
financial and other criteria. In the past, a number of corporate groups which
include certain of the Company's largest department store customers have been
involved in highly leveraged financial transactions and certain of these
customers have filed for protection under Chapter 11 of the Federal Bankruptcy
Code. Subsequently, certain customers have emerged from protection under Chapter
11. In 1997, three corporate groups of department store customers accounted for
19%, 17% and 12%, respectively, of net sales. In 1996 and 1995, three corporate
groups of department store customers accounted for 18%, 17% and 11%,
respectively, of net sales. The Company does not believe that this concentration
of sales and credit risk represents a material risk of loss with respect to its
financial position as of January 3, 1998.
At January 3, 1998, the Company had approximately 25% of its work force covered
by collective bargaining agreements. The agreements currently in effect will
expire in 2000.
The Company is a party to several pending legal proceedings and claims. Although
the outcome of such actions cannot be determined with certainty, management is
of the opinion that the final outcome should not have a material adverse effect
on the Company's results of operations or financial position.
NOTE 9
LINES OF CREDIT
As of January 3, 1998, the Company had bank lines of credit aggregating
$470,000,000 which were available to cover letters of credit issued by the
banks. The lines of credit expire at various dates in 1998.
At January 3, 1998 and December 28, 1996, the Company had outstanding letters of
credit of $243,200,000 and $195,567,000, respectively. These letters of credit,
which have terms ranging from one to ten months, collateralize the Company's
obligations to third parties for the purchase of inventory. The fair value of
these letters of credit approximates contract values.
NOTE 10
STOCK PLANS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock-based
compensation plans, which are described below. Accordingly, no compensation cost
has been recognized for its fixed stock option grants. Had compensation costs
for the Company's stock option grants been determined based on the fair value at
the grant dates for awards under these plans in accordance with SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts as follows:
F-16
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FISCAL YEARS ENDED
-----------------------------------------------
(Dollars in thousands except per common share data) (53 WEEKS) (52 WEEKS) (52 WEEKS)
- --------------------------------------------------- JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
- --------------------------------------------------------------------------------------------------------
Net income:
As reported ......................................... $ 184,644 $ 155,665 $ 126,914
Pro forma ........................................... $ 180,698 $ 153,918 $ 125,960
Basic earnings per share:
As reported ......................................... $ 2.65 $ 2.15 $ 1.69
Pro forma ........................................... $ 2.60 $ 2.13 $ 1.68
Diluted earnings per share:
As reported ......................................... $ 2.63 $ 2.14 $ 1.69
Pro forma ........................................... $ 2.57 $ 2.11 $ 1.67
For this purpose, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1997, 1996 and 1995,
respectively: dividend yield of 1% for all years, expected volatility of 34%,
34% and 35%, risk free interest rates of 6.2%, 5.4% and 7.8% and expected lives
of four years.
In February 1984 and March 1992, the Company adopted plans under which
nonqualified options to acquire shares of common stock may be granted to
officers, other key employees and directors selected by the plans'
administrative committee ("the committee"). Payment by option holders upon
exercise of an option may be made in cash or, with the consent of the committee,
by delivering previously acquired shares of Company common stock. Stock
appreciation rights may be granted in connection with all or any part of any
option granted under the plans, and may also be granted without a grant of a
stock option. The grantee of a stock appreciation right has the right, with the
consent of the committee, to receive either in cash or in shares of common
stock, an amount equal to the appreciation in the fair market value of the
covered shares from the date of grant to the date of exercise. Options and
rights are exercisable over a period of time designated by the committee (but
not prior to one year from the date of grant) and are subject to such other
terms and conditions as the committee determines. Vesting schedules will be
accelerated upon merger of the Company or the happening of certain other events.
Options and rights may not be transferred during the lifetime of a holder.
Awards under the 1992 plan may also be made in the form of incentive stock
options, dividend equivalent rights, restricted stock, unrestricted stock and
performance shares. To date, no stock appreciation rights, incentive stock
options, dividend equivalent rights or performance shares have been granted
under the plan. Exercise prices for awards under the plan are determined by the
committee; to date, all stock options have been granted at an exercise price not
less than the quoted market value of the underlying shares on the date of grant.
The 1992 plan provides initially for the issuance of up to 2,500,000 shares of
common stock with respect to options, stock appreciation rights and other awards
granted under the plan, and provides that the Board of Directors may increase
such number by an amount equal to 1% of the common stock outstanding as of
January 1, 1994 and each January 1st thereafter. At January 3, 1998, there were
available for future grant 2,810,098 shares under the 1992 plan. The 1992 plan
expires in 2002. The 1984 plan has expired; awards made thereunder prior to its
termination remain in effect in accordance with their terms.
Since January 1990, the Company has delivered treasury shares upon the exercise
of stock options. The difference between the cost of the treasury shares, on a
first-in, first-out basis, and the exercise price of the options has been
reflected in retained earnings.
Changes in common shares under option for the three fiscal years in the period
ended January 3, 1998 are summarized as follows:
F-17
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------- ---------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of year......... 2,175,923 $26.34 2,581,870 $26.83 2,450,421 $32.06
Granted................... 840,960 39.38 726,900 27.73 1,085,875 17.32
Exercised................. (557,842) 27.12 (486,484) 26.74 (30,502) 25.48
Cancelled................. (250,731) 29.66 (646,363) 29.56 (923,924) 29.57
--------- ----- -------- ----- -------- ------
End of year.............. 2,208,310 $30.73 2,175,923 $26.34 2,581,870 $26.83
========= ====== ========= ====== ========= ======
Exercisable at
end of year............. 723,927 $23.28 493,098 $30.87 829,253 $35.19
========= ====== ========= ====== ========= ======
Weighted average fair
value of options granted
during the year........... $13.08 $ 8.93 $ 6.43
- ------------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about options outstanding at January
3, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------- --------------------------------------
Weighted Average
Range of Outstanding Remaining Weighted Average Exercisable at Weighted Average
Exercise Prices at Jan. 3, 1998 Contractual Life Exercise Price Jan. 3, 1998 Exercise Price
--------------- --------------- ---------------- ---------------- -------------- ----------------
$15.00 - $25.00 743,841 3.5 years $19.19 535,856 $18.36
25.01 - 35.00 456,799 7.9 years 27.15 60,383 27.39
35.01 - 60.00 1,007,670 7.5 years 40.87 127,688 41.98
- --------------------------------------------------------------------------------------------------------------------------------
$15.00 - $60.00 2,208,310 6.2 years $30.73 723,927 $23.28
- --------------------------------------------------------------------------------------------------------------------------------
On January 6, 1998, nonqualified options to acquire 878,600 shares of common
stock were granted to officers and other key employees with an exercise price of
$41.125.
F-18
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
In January 1996 and June 1995, the committee granted 43,500 and 416,000 shares,
respectively, of common stock to a group of key executives. As of January 3,
1998, 380,100 of these shares remained outstanding. These shares are subject to
restrictions on transfer and subject to risk of forfeiture until earned by
continued employment. The restrictions expired in 1998 due to the total return
on the Company's common stock exceeding that of a predetermined group of
competitors. The unearned compensation was amortized over a period of three
years in anticipation of the accelerated expiration of the restrictions. On
January 6, 1998, the committee granted 341,350 additional shares of common
stock, subject to the full vesting of the shares granted in 1996 and 1995, to a
group of key executives. These shares are subject to similar conditions and
restrictions as those granted in 1996 and 1995, including the accelerated
expiration of the restrictions if the total return on the common stock of the
Company exceeds that of a predetermined group of competitors.
In May 1994, the committee granted 85,000 shares of common stock in connection
with the hiring of a key executive. These shares are subject to restrictions on
transfer and subject to risk of forfeiture until earned by continued employment.
The restrictions expire on the last day of each of the Company's fiscal years
1994 through 2001. The expiration of the restrictions may be accelerated if the
market value of the common stock attains certain predetermined levels or upon
the happening of certain other events. In 1996, one-third of the then 65,000
unvested restricted shares (or 21,665 shares) vested in accordance with the
accelerated vesting provisions of the employment agreement. The remaining shares
where scheduled to vest at the rate of 6,667 shares of common stock per year
through the year 2000 and 10,000 shares in the year 2001. The unearned
compensation related to all restricted stock grants as of January 3, 1998 and
December 28, 1996 was $939,000 and $4,622,000, respectively, and is included in
retained earnings on the consolidated balance sheets. During 1997, the common
stock attained the predetermined level which will allow the remaining shares to
vest on January 2, 1999.
In 1992, options were granted to certain of the Company's senior officers at a
price of $58.50 per share, representing 150% of the market price at the date of
grant. At January 3, 1998, 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.
The Company's outside directors' stock ownership plan provides non-employee
directors, as part of their annual retainer, shares of common stock with a value
of $15,000 on the first business day of each fiscal year. The shares so issued
are nontransferable for a period of three years following the grant date,
subject to certain exceptions. In 1997, 1,701 shares of common stock were issued
under this plan. This plan also provides each non-employee director a grant of
options to purchase 1,000 shares of common stock on the first business day of
each fiscal year. Not more than one half of one percent (0.50%) of the shares of
common stock outstanding from time to time may be issued under the plan, which
will expire in 2006.
NOTE 11
PROFIT-SHARING RETIREMENT,
SAVINGS AND DEFERRED COMPENSATION PLANS
The Company's noncontributory, defined contribution profit-sharing retirement
plan covers all eligible U.S. employees who are 21 years of age with one or more
years of service and who are not covered by collective bargaining agreements.
The plan pays benefits based on an employee's vested account balance in
accordance with qualification rules set out in the plan. Vesting begins at 20%
after two years of service, and from the 3rd through 6th years, vesting
increases by 20% each year until full vesting occurs, except that for employees
commencing employment after December 31, 1996, vesting will be on a "cliff"
(100%) basis after a period of five years of service. Each year, profit-sharing
contributions, if any, are determined by the Board of Directors. The Company's
1997, 1996 and 1995 plan contribution expense, which is included in selling,
general and administrative expenses, was $5,888,000, $5,590,000 and $5,572,000,
respectively.
F-19
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Company's 401(k) savings plan covers all eligible U.S. employees who are 21
years of age with one or more years of service and who are not covered by
collective bargaining agreements. The plan pays benefits based on an employee's
vested account balance. Subject to Internal Revenue Code limitations,
participants may contribute from 1% to 15% of their salary on a before-tax
basis. Such contributions are fully and immediately vested. Vesting of the
Company's matching contribution (equal to 50% of the first 5% contributed by the
participant) begins at 20% after two years of service, and from the 3rd through
6th years, vesting increases by 20% each year until full vesting occurs. The
Company's 1997, 1996 and 1995 plan contribution expense, which is included in
selling, general and administrative expenses, was $2,181,000, $2,016,000 and
$2,044,000, respectively.
The Company has a supplemental retirement plan for executives whose benefits
under the profit-sharing retirement plan and the savings plan are expected to be
constrained by the operation of certain Internal Revenue Code limitations. The
supplemental plan provides a benefit equal to the difference between the
contribution that would be made for an executive under the two tax-qualified
plans absent such limitations and the actual contribution under those plans. The
plan also allows participants to defer up to 15% of their salary. Supplemental
benefits attributable to participant deferrals are fully vested at all times and
the balance of a participant's benefits vests on the same basis as the matching
contribution under the Company's 401(k) plan and profit-sharing retirement plan.
Under a separate bonus deferral plan participants may defer up to 100% of their
annual bonus. These supplemental plans are not funded. The Company's expenses
related to these plans, which are included in selling, general and
administrative expenses, were $1,462,000, $889,000 and $405,000 in 1997, 1996
and 1995, respectively.
In 1996, the Company established an unfunded deferred compensation arrangement
for a senior executive which accrues over a six year period as of the first day
of each fiscal year beginning in 1996, based on an amount equal to 15% of the
sum of the senior executive's base salary and bonus. The accrued amount plus
earnings will become fully vested on December 28, 2002, provided the senior
executive is the Chairman of the Board and Chief Executive Officer of the
Company on such date. This arrangement also provides for the deferral of an
amount equal to the portion of the executive's base salary that exceeds $1
million. The deferred amount plus earnings will be fully vested at all times.
NOTE 12
STOCKHOLDER RIGHTS PLAN
The Company has 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.
F-20
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTE 13
EARNINGS PER COMMON SHARE
The following is an analysis of the differences between basic and diluted
earnings per common share in accordance with SFAS No. 128 "Earnings per Share."
January 3, December 28, December 30,
(In thousands) 1998 1996 1995
---------------------- -------- -------- ------
Net income $184,644 $155,665 $126,914
-------- -------- --------
Weighted average common
shares outstanding 69,619 72,396 75,003
Effect of dilutive securities:
Stock options 483 411 126
Put warrants 89 38 171
-------- -------- --------
Weighted average common
shares and common share
equivalents 70,191 72,845 75,300
======== ======== ========
NOTE 14
CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES
During fiscal 1997, 1996 and 1995, the Company made income tax payments of
$98,425,000, $94,632,000, and $65,590,000, respectively. Non-cash investing
activities which are not included in the consolidated statements of cash flows
for 1995 include a direct financing lease receivable with a disposition of
property and equipment of $1,120,000 and a reversal of the remaining direct
financing lease receivable and acquisition of property and equipment of
$9,738,000.
NOTE 15
ACCRUED EXPENSES
Accrued expenses at January 3, 1998 and December 28, 1996 consisted of the
following:
JANUARY 3, DECEMBER 28,
(DOLLARS IN THOUSANDS) 1998 1996
- ------------------------------------------------------------------
Payroll and bonuses $ 35,761 $ 42,065
Taxes, other than taxes on income 9,988 9,432
Employee benefits 17,048 16,784
Advertising 10,248 17,042
Common stock in transit -- 2,420
Other 65,771 64,498
-------- --------
$138,816 $152,241
======== ========
F-21
49
UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 1997 and 1996 is set forth in the
table below:
March June September December
---------------------- --------------------- --------------------- ---------------------
All dollar amounts in thousands (14 weeks) (13 weeks)
except per common share data 1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $596,556 $556,558 $537,900 $500,595 $685,920 $622,102 $592,225 $538,263
Gross profit 231,321 211,242 211,839 192,604 283,729 254,120 242,769 218,469
Net income 42,121 35,886 28,932 22,670 66,604 56,223 46,987 40,886
Basic earnings per common share $ .59 $ .49 $ .41 $ .31 $ .95 $ .78 $ .70 $ .57
Diluted earnings per common share $ .59 $ .49 $ .41 $ .31 $ .95 $ .78 $ .70 $ .57
Dividends paid per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
- ------------------------------------------------------------------------------------------------------------------------------------
F-22
50
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Column A Column B Column C Column D Column E
ADDITIONS
------------------------------
(In thousands)
(1) (2)
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE - DESCRIBE END OF PERIOD
- ----------------------------------- ---------- ---------- -------------- ---------- -------------
YEAR ENDED JANUARY 3, 1998:
Accounts Receivable - allowance for
doubtful accounts $2,430 $ 551 $ -- $ 390(A) $2,591
------ ------ ---------- ------ ------
YEAR ENDED DECEMBER 28, 1996:
Accounts Receivable - allowance for
doubtful accounts $3,727 $ 896 $ -- $2,193(A) $2,430
------ ------ ---------- ------ ------
YEAR ENDED DECEMBER 30, 1995:
Accounts Receivable - allowance for
doubtful accounts $1,316 $2,814 $ -- $ 403(A) $3,727
------ ------ ---------- ------ ------
NOTES:
(A) Uncollectible accounts written off, less recoveries.
F-23
51
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3(a) - Restated Certificate of Incorporation of Registrant
(incorporated herein by reference from Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended June 26, 1993).
3(b) - By-laws of Registrant, as amended (incorporated herein by
reference from Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992 [the
"1992 Annual Report"]).
4(a) - Specimen certificate for Registrant's Common Stock, par value
$1.00 per share (incorporated herein by reference from Exhibit
4(a) to the 1992 Annual Report).
4(b) - Rights Agreement, dated as of December 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 Exhibits 1 and 2
to Registrant's Form 8-A dated December 21, 1988).
4(b)(i) - Amendment No. 1 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) - Appointment of Rights Agent, dated as of January 24, 1992,
between Registrant and First Chicago Trust Company of New
York, as Rights Agent under the Rights Agreement (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).
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).
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
52
Exhibit
No. Description
- ------- -----------
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)(i) 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(e)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iii) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28,
1996 [the "1996 Annual Report"]).
10(e)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by
reference from Exhibit 10(e)(iv) to the 1996 Annual Report).
10(e)(v)+* - Amendment No. 8 to the Savings Plan.
10(f)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement
Plan (the "Profit-Sharing Plan") (incorporated herein by
reference from Exhibit 10(h) to the 1992 Annual Report).
10(g) - Trust Agreement related to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(jj) to the
1983 Annual Report).
10(g)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan
(incorporated herein by reference from Exhibit 10(i)(i) to the
1993 Annual Report).
10(g)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended October 1,
1994).
10(g)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the period ended July 1,
1995).
10(g)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated
herein by reference from Exhibit 10(g)(iv) to the 1996 Annual
Report).
10(h)* - National Collective Bargaining Agreement, made and entered
into as of June 1, 1997, by and between Liz Claiborne, Inc.
and the Union of Needletrades, Industrial and Textile
Employees (UNITE) for the period June 1, 1997 through May 31,
2000.
10(h)(i)* - Jobbers Agreement, made and entered into as of June 1, 1997,
by and between Liz Claiborne, Inc. and the Union of
Needletrades, Industrial and Textile Employees (UNITE) for the
period June 1, 1997 through May 31, 2000.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith.
53
Exhibit
No. Description
- ------- -----------
10(i) + - Executive Liability and Indemnification Policy No.
8103-53-79G, with Chubb Group of Insurance Companies (the
"Insurance Policy") (incorporated herein by reference from
Exhibit 10(l) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 [the "1994
Annual Report"]).
10(i)(i)+* - Summary of Extension of the Insurance Policy.
10(j) - Excess Coverage Directors and Officers Liability Insurance
Policy No. 483-73-56, with National Union Fire Insurance
Company of Pittsburgh, PA (the "Excess Policy")(incorporated
herein by reference from Exhibit 10(j) to the 1996 Annual
Report).
10(j)(i)* - Summary of Extension of the Excess Policy.
10(k)+* - Description of Liz Claiborne, Inc. 1997 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 Registrant's Annual Report on Form 10-K
for the fiscal year ended December 29, 1990).
10(m)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors'
1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan")
(incorporated herein by reference from Exhibit 10(m) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 [the "1995 Annual Report"]).
10(m)(i)+ - Form of Option Agreement under the Outside Directors' 1991
Plan (incorporated herein by reference from Exhibit 10(m)(i)
to the 1996 Annual Report).
10(n)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992
Plan") (incorporated herein by reference from Exhibit 10(p) to
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(n)(ii)+* - Amendment No. 2 to the 1992 Plan.
10(o)+ - Form of Option Agreement under the 1992 Plan for
premium-priced options (incorporated herein by reference from
Exhibit 10(q) to the 1992 Annual Report).
10(p)+ - Form of Option Agreement under the 1992 Plan (incorporated
herein by reference from Exhibit 10(r) to the 1992 Annual
Report).
10(q)+ - Form of Option Grant Certificate under the 1992 Plan
(incorporated herein by reference from Exhibit 10(q) to the
1996 Annual Report).
10(r)+ - Form of Restricted Career Share Agreement under the 1992 Plan
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995).
10(s)+* - Form of Restricted Transformation Share Agreement under
the 1992 Plan.
10(t)+* - Description of Supplemental Life Insurance Plans.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith.
54
Exhibit
No. Description
- ------- -----------
10(u)+ - Description of unfunded death/disability benefits for certain
executives (incorporated herein by reference from Exhibit
10(u) to the 1992 Annual Report).
10(v)+ - Form of the Liz Claiborne Section 162(m) Cash Bonus Plan
(incorporated herein by reference from Exhibit 10(v) to the
1994 Annual Report).
10(w)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as
amended and restated effective as of January 1,
1997)(incorporated herein by reference from Exhibit 10(w) to
the 1996 Annual Report).
10(x)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated
herein by reference from Exhibit 10(x) to the 1996 Annual
Report).
10(y)+ - Employment Agreement dated as of May 9, 1994, between
Registrant and Paul R. Charron (the "Employment Agreement")
(incorporated herein by reference from Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the period
ended April 2, 1994).
10(y)(i)+ - Amendment to the Employment Agreement, dated as of November
20, 1995, between Registrant and Paul R. Charron (incorporated
herein by reference from Exhibit 10(x)(i) to the 1995 Annual
Report).
10(y)(ii)+ - Amendment to the Employment Agreement, dated as of September
19, 1996 between Registrant and Paul R. Charron (including the
Liz Claiborne Retirement Income Accumulation Plan for the
benefit of Mr. Charron)(incorporated herein by reference from
Exhibit 10(y)(ii) to the 1996 Annual Report).
10(z)+ - Employment Agreement dated as of September 26, 1996, between
Registrant and Denise V. Seegal (incorporated herein by
reference from Exhibit 10(z) to the 1996 Annual Report).
10(aa)+ - Agreements dated as of May 15, 1996 and May 17, 1996, between
Registrant and Jerome A. Chazen (incorporated herein by
reference from Exhibit 10(aa) to the 1996 Annual Report).
21* - List of Registrant's Subsidiaries.
23* - Consent of Independent Public Accountants.
27* - Financial Data Schedule.
27.1* - Financial Data Schedule for 1996.
27.2* - Financial Data Schedule for 1997 interim periods.
27.3* - Financial Data Schedule for 1996 interim periods.
99* - Undertakings.
(b) Reports on Form 8-K.
Not applicable.
- --------------------------------------------------------------------------------
+ Compensation plan or arrangement required to be noted as provided
in Item 14(a)(3).
* Filed herewith.