UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(Address of principal (Zip Code)
executive offices)
(215) 785-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at November 13, 1996
$.01 par value 53,569,760
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Financial Statements:
Consolidated Balance Sheets
September 29, 1996 and December 31, 1995............ 3
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks ended September 29,
1996 and October 1, 1995.......................... 4
Consolidated Statements of Stockholders' Equity
Thirty-nine Weeks ended September 29, 1996.......... 5
Consolidated Statements of Cash Flows
Thirty-nine Weeks ended September 29, 1996 and
October 1, 1995................................... 6
Notes to Consolidated Financial Statements.................. 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9 - 13
PART II. OTHER INFORMATION....................................... 14 - 15
- 2 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 29, December 31,
1996 1995
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 9,650 $ 16,864
Accounts receivable, net of allowance of $2,425 and $2,257............................ 172,239 92,147
Inventories........................................................................... 222,765 176,626
Receivable from and advances to contractors........................................... 21,227 21,083
Deferred taxes........................................................................ 6,792 12,265
Prepaid expenses and other current assets............................................. 10,771 12,480
------- -------
TOTAL CURRENT ASSETS................................................................ 443,444 331,465
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $20,926 and $16,991.................................. 28,564 21,293
PROPERTY UNDER CAPITAL LEASES, net of accumulated amortization of $9,748 and $8,394..... 22,574 15,364
INTANGIBLES, less accumulated amortization of $5,461 and $4,107......................... 26,750 26,585
DEFERRED TAXES.......................................................................... 1,392 120
OTHER ASSETS............................................................................ 8,221 6,132
------- -------
$530,945 $400,959
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................................................. $ 37,507 $ -
Current portion of long-term debt and capital lease obligations....................... 2,888 2,327
Accounts payable...................................................................... 78,721 59,077
Income taxes payable.................................................................. 12,116 2,427
Accrued expenses and other current liabilities........................................ 11,900 6,781
------- -------
TOTAL CURRENT LIABILITIES........................................................... 143,132 70,612
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases...................................................... 12,665 10,102
Long-term debt........................................................................ 10 49
------- -------
TOTAL NONCURRENT LIABILITIES........................................................ 12,675 10,151
------- -------
TOTAL LIABILITIES................................................................... 155,807 80,763
------- -------
EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 3,839 5,221
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - -
Common stock, $.01 par value - shares authorized 100,000;
issued 53,489 and 52,564............................................................. 267 263
Additional paid in capital............................................................ 97,356 84,172
Retained earnings..................................................................... 300,874 236,318
Cumulative foreign currency translation adjustments................................... (1,084) (1,140)
------- -------
397,413 319,613
Less treasury stock, 1,193 and 261 shares, at cost.................................... (26,114) (4,638)
------- -------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 371,299 314,975
------- -------
$530,945 $400,959
======= =======
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
- 3 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Thirteen weeks ended Thirty-nine weeks ended
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
Net sales................................................. $309,019 $243,505 $762,645 $591,795
Cost of goods sold........................................ 213,522 174,129 533,322 414,388
------- ------- ------- -------
Gross profit.............................................. 95,497 69,376 229,323 177,407
Selling, general and administrative expenses.............. 49,918 34,241 134,792 102,017
Net licensing income...................................... (4,209) (3,024) (9,444) (7,226)
------- ------- ------- -------
Income from operations.................................... 49,788 38,159 103,975 82,616
Net interest expense...................................... 1,007 694 1,991 1,219
------- ------- ------- -------
Income before provision for income taxes.................. 48,781 37,465 101,984 81,397
Provision for income taxes................................ 17,903 13,487 37,428 29,971
------- ------- ------- -------
Net income................................................ $30,878 $23,978 $64,556 $51,426
======= ======= ======= =======
Earnings per share - primary.............................. $0.58 $0.45 $1.20 $0.97
Earnings per share - fully diluted........................ $0.58 $0.45 $1.20 $0.97
Weighted average common shares and
share equivalents outstanding
Primary................................................. 53,474 53,436 53,634 52,876
Fully diluted........................................... 53,634 53,521 53,817 53,202
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
- 4 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Cumulative
foreign Total
Additional currency stock-
Common paid-in Retained translation Treasury holders'
stock capital earnings adjustments stock equity
------- ----------- ----------- ----------- ---------- -----------
Balance, January 1, 1996.............................. $263 $84,172 $236,318 ($1,140) $(4,638) $314,975
Thirty-nine weeks ended September 29, 1996:
Executive stock options issued........................ - 274 - - - 274
Recognition of deferred compensation in connection
with executive stock options........................ - (274) - - - (274)
Amortization of deferred compensation of
executive stock options outstanding................. - 219 - - - 219
Net income............................................ - - 64,556 - - 64,556
Exercise of stock options............................. 4 8,573 - - - 8,577
Tax benefit derived from exercise of stock options.... - 4,429 - - - 4,429
Stock tendered as payment for options exercised....... - - - - (763) (763)
Acquisition of treasury stock......................... - - - - (20,713) (20,713)
Registration of 1996 Stock Option Plan................ - (37) - - - (37)
Foreign currency translation adjustments.............. - - - 56 - 56
------- ---------- ---------- ---------- --------- ----------
Balance, September 29, 1996........................... $267 $97,356 $300,874 ($1,084) $(26,114) $371,299
======= ========== ========== ========== ========= ==========
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 5 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Thirty-nine weeks ended
September 29, October 1,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $64,556 $51,426
------- -------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................................. 6,385 4,960
Provision for losses on accounts receivable............................................... 683 (652)
Deferred taxes............................................................................ 6,828 7,804
Other..................................................................................... 529 (50)
Decrease (increase) in:
Trade receivables....................................................................... (80,765) (78,479)
Inventories............................................................................. (46,089) (44,527)
Prepaid expenses and other current assets............................................... 1,563 (1,730)
Other assets............................................................................ (2,089) (3,986)
Increase in:
Accounts payable........................................................................ 19,645 14,436
Taxes payable........................................................................... 11,490 7,011
Accrued expenses and other current liabilities.......................................... 5,119 2,395
------- -------
Total adjustments..................................................................... (76,701) (92,818)
------- -------
Net cash used in operating activities....................................................... (12,145) (41,392)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (21,308) (9,373)
Trademark costs........................................................................... (1,519) (28)
Other..................................................................................... 109 611
------- -------
Net cash used in investing activities....................................................... (22,718) (8,790)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings......................................................... 37,507 33,558
Proceeds from capital lease............................................................... 5,000 5,000
Repayment of capital leases and long-term debt............................................ (1,915) (2,049)
Acquisition of treasury stock............................................................. (20,713) -
Net proceeds from issuance of common stock................................................ 7,814 3,755
Other..................................................................................... (37) -
------- -------
Net cash provided by financing activities................................................... 27,656 40,264
------- -------
EFFECT OF EXCHANGE RATES ON CASH............................................................ (7) (283)
------- -------
NET DECREASE IN CASH........................................................................ (7,214) (10,201)
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 16,864 21,126
------- -------
CASH AND CASH EQUIVALENTS, end of period.................................................... $9,650 $10,925
======= =======
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 6 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Jones
Apparel Group, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). The financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally made in an annual Form 10-K filing. Accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and the footnotes
therein included within the Company's Annual Report on Form 10-K.
The financial information has been prepared in accordance with the
Company's customary accounting practices and has not been audited. All
significant intercompany balances and transactions have been eliminated. In
the opinion of management, the information presented reflects all adjustments
necessary for a fair statement of interim results. All such adjustments are of
a normal and recurring nature. The foregoing interim results are not
necessarily indicative of the results of operations for the full year ending
December 31, 1996. The Company reports interim results in 13 week quarters;
however, the annual reporting period is the calendar year.
2. Inventories
Inventories are summarized as follows (amounts in thousands):
September 29, December 31,
1996 1995
Raw materials..................... $34,838 $36,908
Work in process................... 33,533 30,872
Finished goods.................... 154,394 108,846
------- -------
$222,765 $176,626
======= =======
- 7 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings Per Share
The computation of earnings per share is based on the weighted average
number of common shares outstanding during the period plus, in periods in which
they have a dilutive effect, the effect of common shares contingently issuable
upon exercise of stock options. Fully diluted earnings per share also reflect
additional dilution related to stock options due to the use of the market price
at the end of the period when this price is higher than the average price for
the period.
4. Statement of Cash Flows
Cash payments made for interest for the thirty-nine weeks ended September
29, 1996 and October 1, 1995 were $2,369,000 and $1,511,000, respectively.
Cash payments made for income taxes for the thirty-nine weeks ended
September 29, 1996 and October 1, 1995 were $18,295,000 and $13,919,000,
respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the thirty-nine weeks ended September 29,
1996 exchanged 28,000 shares of the Company's Common Stock (valued at
$763,000) for 67,430 newly issued shares and during the thirty-nine weeks
ended October 1, 1995 exchanged 11,536 shares of the Company's Common Stock
(valued at $168,000) for 24,000 newly issued shares.
5. New Accounting Standards.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," which allows a choice of either the intrinsic value method or
the fair value method of accounting for employee stock options effective for
fiscal years beginning after December 15, 1995. The Company has selected the
option to continue the use of the current intrinsic value method.
6. Capital Stock
On July 30, 1996, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock dividend
for shareholders of record as of September 12, 1996. Concurrently, the number
of authorized shares of Common Stock was increased to 100,000,000. On October
2, 1996, a total of 26,744,580 shares of Common Stock were issued in connection
with the split. The stated par value of each share was not changed from $0.01.
All share and per share amounts have been restated to retroactively reflect the
stock split.
- 8 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following discussion provides information and analysis of the Company's
results of operations for the thirteen and thirty-nine week periods ended
September 29, 1996 and October 1, 1995 and its liquidity and capital resources.
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements included elsewhere herein.
Results of Operations
Quarter Ended September 29, 1996 Compared to Quarter Ended October 1, 1995
Net Sales. Net sales in the thirteen weeks ended September 29, 1996
(hereinafter referred to as the "third quarter of 1996") increased by 26.9%, or
$65.5 million, to $309.0 million as compared to $243.5 million in the thirteen
weeks ended October 1, 1995 (hereinafter referred to as the "third quarter of
1995"). The increase was due primarily to an increase in the number of units
shipped, as well as the impact of a higher average price per unit shipped
resulting from the mix of products shipped. Career sportswear sales increased
by 37.0% or $50.7 million, to $187.6 million in the third quarter of 1996 as
compared to $136.9 million in the third quarter of 1995. Casual sportswear
sales for the third quarter of 1996 increased by 18.6%, or $13.0 million, to
$82.9 million as compared to $69.9 million in the third quarter of 1995. Net
sales for the Company's suit, dress and other category increased by 4.9%, or
$1.8 million, to $38.5 million in the third quarter of 1996 as compared to
$36.7 million in the third quarter of 1995.
Looking forward, the Company believes that continued sales growth is
achievable in its three product categories. Career sportswear sales will
continue to increase, aided by the introduction of the new Lauren Ralph Lauren
label, which shipped its initial product to customers in the third quarter of
1996. Casual sportswear sales should continue to increase strongly, although
not at the growth rates achieved in 1995 and 1994. The Company has rapidly
expanded its penetration of this category into the Company's existing customer
distribution. Further growth will come primarily from additional sales into
existing retail distribution doors (although further distribution expansion
opportunities remain) and potentially from growth in the less developed casual
label Jones & Co. Casual sportswear sales will also benefit in 1996 from
the addition of two new labels, Jones Studio and Jones Jeans, into the existing
customer base. The Company's suit and dress category should also continue to
show steady growth for the remainder of 1996.
While the Company believes the current promotional retail climate will
continue, it believes its initiatives with new product lines and the
potential for growth under its existing labels should provide for continued
sales growth.
Gross Profit. The gross profit margin was 30.9% in the third quarter of
1996 as compared to 28.5% in the third quarter of 1995. The increase was
primarily attributable to the impact of higher gross profit margins from the
Company's major product lines as well as the introduction of the new Lauren
Ralph Lauren label, which carries higher margins than the corporate average.
- 9 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SG&A Expenses. Selling, general and administrative expenses ("SG&A"
expenses) of $49.9 million in the third quarter of 1996 represented an increase
of $15.7 million over the third quarter of 1995. As a percentage of sales,
SG&A expenses increased to 16.2% in the third quarter of 1996 from 14.1% for
the comparable period in 1995. Expenses associated with the Lauren Ralph
Lauren product launch and associated operating costs added significant expenses
to the quarter. Retail store operating expenses increased by $2.7 million,
reflecting the added cost of 18 more stores in operation at the end of the
third quarter of 1996 compared to the end of the third quarter of 1995.
Net Licensing Income. Net licensing income increased by $1.2 million to
$4.2 million in the third quarter of 1996 as compared to $3.0 million in the
third quarter of 1995. Licensees under the Jones New York label accounted for
$0.4 million of the increase while income from licenses under the Evan-Picone
label rose by $0.8 million.
Operating Income. The resulting third quarter 1996 operating profit of
$49.8 million increased by 30.5%, or $11.6 million, as compared to $38.2
million during the third quarter of 1995. The operating profit margin
increased to 16.1% for the third quarter of 1996 from the 15.7% achieved
during the third quarter of 1995.
Net Interest Expense. Net interest expense was $1.0 million in the
third quarter of 1996 compared to $0.7 million in the comparable period of
1995. The primary reasons for the change were higher average overall
borrowings and interest on capital leases for additional warehouse facilities
during the third quarter of 1996.
Provision for Income Taxes. The effective income tax rate was 36.7% for
the third quarter of 1996 as compared to 36.0% for the third quarter of 1995.
The decrease was primarily due to higher state income tax provisions for the
third quarter of 1996.
Net Income. Net income increased by 28.8% to $30.9 million in the third
quarter of 1996, an increase of $6.9 million over the net income of $24.0
million earned in the third quarter of 1995. Net income as a percentage of
sales was 10.0% in the third quarter of 1996 and 9.8% in the third quarter
of 1995.
Nine Months Ended September 29, 1996 Compared to
Nine Months Ended October 1, 1995
Net Sales. Net sales in the thirty-nine weeks ended September 29, 1996
(hereinafter referred to as the "first nine months of 1996") increased by 28.9%,
or $170.8 million, to $762.6 million as compared to $591.8 million in the
thirty-nine weeks ended October 1, 1995 (hereinafter referred to as the "first
nine months of 1995") due primarily to an increase in the number of units
shipped as well as the impact of a higher average price per unit shipped
resulting primarily from the mix of products shipped. Career sportswear sales
increased by 29.6%, or $100.2 million, to $438.8 million in the first nine
months of 1996 as compared to $338.6 million in the first nine months of 1995.
Casual sportswear sales for the first nine months of 1996 increased by 35.6%,
or $56.5 million, to $215.0 million as compared to $158.5 million in the first
nine months of 1995. Net sales for the Company's suit, dress and other
category increased by 14.9%, or $14.1 million, to $108.8 million in the first
nine months of 1996 as compared to $94.7 million in the first nine months
of 1995.
- 10 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Gross Profit. The gross profit margin was 30.1% in the first nine months
of 1996 as compared to 30.0% in the first nine months of 1995. The increase
was primarily attributable to the impact of higher gross profit margins from
the Company's major product lines, including the impact of the Lauren Ralph
Lauren label, offset by increased buying agent commissions on foreign-sourced
production due to the outsourcing to an independent agent in Hong Kong
functions which were performed by the Company's own staff in 1995.
SG&A Expenses. Selling, general and administrative expenses ("SG&A"
expenses) of $134.8 million in the first nine months of 1996 represented an
increase of $32.8 million over the first nine months of 1995. As a percentage
of sales, SG&A expenses increased to 17.7% in the first nine months of 1996 from
17.2% for the comparable period in 1995. Expenses associated with the Lauren
Ralph Lauren product launch and associated operating costs added significant
expenses during the third quarter of 1996. Retail store operating expenses
increased by $7.1 million, reflecting the added cost of 18 more stores in
operation at the end of the first nine months of 1996 compared to the end of
the first nine months of 1995.
Net Licensing Income. Net licensing income increased by $2.2 million to
$9.4 million in the first nine months of 1996 as compared to $7.2 million in
the first nine months of 1995. Income from licenses under the Jones New York
label increased by $0.9 million while income from licenses under the Evan-
Picone label rose by $1.3 million.
Operating Income. The resulting first nine months 1996 operating profit of
$104.0 million increased by 25.9%, or $21.4 million, as compared to $82.6
million during the first nine months of 1995. The operating profit margin
decreased to 13.6% in the first nine months of 1996 from 14.0% in 1995 as a
result of the higher percentage of SG&A expenses to sales in the first nine
months of 1996.
Net Interest Expense. Net interest expense was $2.0 million in the
first nine months of 1996 compared to $1.2 million in the comparable period
of 1995. The primary reasons for the change were higher average overall
borrowings and interest on capital leases for additional warehouse facilities
during the first nine months of 1996.
Provision for Income Taxes. The effective income tax rate was 36.7% for
the first nine months of 1996 as compared to 36.8% for the first nine months
of 1995. The decrease was primarily due to reduced state income tax provisions
for the first nine months of 1996.
Net Income. Net income increased by 25.5% to $64.6 million in the first
nine months of 1996, an increase of $13.2 million over the net income of $51.4
million earned in the first nine months of 1995. Net income as a percentage of
sales was 8.5% in the first nine months of 1996, compared to the 8.7% earned
in the first nine months of 1995.
Liquidity and Capital Resources
The Company's principal capital requirements have been to fund working
capital needs, capital expenditures and, beginning in 1995, to repurchase
the Company's Common Stock on the open market. The Company has historically
relied primarily on internally generated funds, trade credit and bank
borrowings to finance its operations and expansion.
- 11 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net cash used in operations was $12.1 million in the first nine months of
1996, compared to $41.4 million in the first nine months of 1995, reflecting
the effects of a higher net income for the first nine months of 1996 (before
depreciation and amortization charges) and a larger increase in accounts
payable, taxes payable and accrued expenses ($36.3 million in total in 1996
compared to $23.8 million in 1995), offset by larger increases in inventories
($46.1 million in 1996 compared to $44.5 million in 1995) and accounts
receivable ($80.8 million in 1996 compared to $78.5 million in 1995). The
inventory increase was primarily the result of the inventory levels required
to meet anticipated wholesale shipments for the fourth quarter of 1996.
Net cash used in investing activities was $13.9 million higher in the
first nine months of 1996 than in the first nine months of 1995, primarily
due to amounts expended to complete construction of an additional warehouse
facility to support anticipated growth in the number of units shipped in 1996.
Expenditures for capital improvements, replacements and property under capital
lease for the full year 1996 are expected to approximate $25 million, of
which $6 million represents the estimated cost of an additional warehouse
facility under construction to support anticipated growth.
Net cash provided by financing activities was $27.7 million in the first
nine months of 1996 as compared to $40.3 million in the first nine months of
1995. The principal reasons for the changes were increases in the amounts of
short-term borrowings to fund working capital requirements and transactions
involving the Company's Common Stock. In the first nine months of 1996, the
Company repurchased $20.7 million of its Common Stock on the open market under
an announced program under which the Company is authorized to acquire up to
$100.0 million of such shares through the end of 1997. As of September 29,
1996, an aggregate of $25.4 million had been expended pursuant to the stock
repurchase program. Proceeds from the issuance of common stock to employees
exercising stock options amounted to $7.8 million and $3.8 million in the first
nine months of 1996 and 1995, respectively.
As of September 29, 1996, the Company had credit arrangements with five
United States financial institutions which totaled $310.0 million. These lines,
which may be used for unsecured borrowings and letters of credit (issued
primarily to finance foreign inventory purchases), contain an aggregate sub-
limit of $170.0 million for unsecured borrowings with rates depending on the
borrowing vehicle utilized. At September 29, 1996, $86.9 million was
utilized for letters of credit and there were $37.1 million of short-term
borrowings outstanding, leaving $186.0 million available for additional
borrowings and letters of credit at that date. The Company also has a line
of credit with a Canadian institution for C$3.0 million to be used for
unsecured borrowings under which C$0.5 million (US$0.4 million) was
outstanding at September 29, 1996. The Company believes that funds generated
by operations and the bank credit arrangements will provide the financial
resources sufficient to meet its foreseeable working capital, letter
of credit, capital expenditure and stock repurchase requirements.
In recent years, certain retail customers have undergone financial
restructurings or have been involved in highly leveraged financial
transactions. Further, some of the retail customers with whom the Company
conducts business are operating under, or have recently emerged from, the
protection of federal bankruptcy laws. The Company attempts to minimize its
credit risk in these situations by closely monitoring its accounts receivable
balances and shipping levels to these customers and by monitoring their ongoing
financial performance and credit status. To date, developments within these
companies have not had a material effect on the Company's financial position
or results of operations.
- 12 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
However, in light of the significant portion of the Company's net sales which
are made to these customers, any material financial difficulties encountered,
or financial restructurings or reorganization of such customers, could have
an adverse effect on the Company's financial position or results of operations.
Inflation
The Company does not believe that the relatively moderate rates of
inflation which have been experienced in the United States and Canada, where
it competes, have had a significant effect on its net sales or profitability.
- 13 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
OTHER INFORMATION
Part II.
CAUTIONARY STATEMENT FOR THE PURPOSES OF "SAFE HARBOR PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995."
Under the new safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995 with respect to forward-looking statements, the Company is
providing the following cautionary statements.
The Company wishes to caution readers that the following important factors,
among others, could cause the Company's actual consolidated results for the
balance of 1996, and beyond, to differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company, including,
without limitation, forward-looking statements made under the caption "Net
Sales" in Management's Discussion and Analysis of Financial Condition and
Results of Operations above.
These factors include the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines,
and financial difficulties encountered by customers as described under
"Liquidity and Capital Resources" in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.(i). Amended and Restated Articles of Incorporation of the Corporation.
(b) There were no reports on Form 8-K filed during the quarter ended
September 29, 1996.
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
OTHER INFORMATION (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JONES APPAREL GROUP, INC.
(Registrant)
Date: November 13, 1996 By /s/ Sidney Kimmel
----------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
----------------------------
WESLEY R. CARD
Chief Financial Officer
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