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 March 30, 1997
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 May 12, 1997
$.01 par value 51,978,760
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Financial Statements:
Consolidated Balance Sheets
March 30, 1997 and December 31, 1996................ 3
Consolidated Statements of Income
Thirteen Weeks ended March 30,1997
and March 31, 1996................................ 4
Consolidated Statement of Stockholders' Equity
Thirteen Weeks ended March 30, 1997................. 5
Consolidated Statements of Cash Flows
Thirteen Weeks ended March 30, 1997 and
March 31, 1996.. ................................. 6
Notes to Consolidated Financial Statements.................. 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9 - 11
PART II. OTHER INFORMATION....................................... 12 - 13
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, December 31,
1997 1996
-------- -----------
(Unaudited)
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 20,529 $ 30,085
Accounts receivable, net of allowance of $3,757 and $2,263............................ 186,229 112,678
Inventories........................................................................... 221,032 214,437
Receivable from and advances to contractors........................................... 9,231 11,490
Deferred taxes........................................................................ 11,648 9,708
Prepaid expenses and other current assets............................................. 14,148 11,432
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TOTAL CURRENT ASSETS................................................................ 462,817 389,830
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $35,740 and $33,127.................................. 64,584 61,696
INTANGIBLES, less accumulated amortization of $6,327 and $5,896......................... 25,857 26,288
DEFERRED TAXES.......................................................................... 820 461
OTHER ASSETS............................................................................ 9,868 9,834
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$563,946 $488,109
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................................................. $ 9,217 $ -
Current portion of long-term debt and capital lease obligations....................... 2,836 3,067
Accounts payable...................................................................... 89,617 72,569
Income taxes payable.................................................................. 25,310 8,959
Accrued expenses and other current liabilities........................................ 13,139 11,265
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TOTAL CURRENT LIABILITIES........................................................... 140,119 95,860
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NONCURRENT LIABILITIES:
Obligations under capital leases...................................................... 11,681 12,134
Long-term debt........................................................................ 5 7
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TOTAL NONCURRENT LIABILITIES........................................................ 11,686 12,141
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TOTAL LIABILITIES................................................................... 151,805 108,001
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EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 2,918 3,379
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - -
Common stock, $.01 par value - shares authorized 100,000;
issued 53,800 and 53,595............................................................. 538 536
Additional paid in capital............................................................ 103,461 99,140
Retained earnings..................................................................... 346,732 317,192
Cumulative foreign currency translation adjustments................................... (1,246) (1,154)
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449,485 415,714
Less treasury stock, 1,635 and 1,600 shares, at cost.................................. (40,262) (38,985)
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TOTAL STOCKHOLDERS' EQUITY.......................................................... 409,223 376,729
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$563,946 $488,109
======= =======
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Thirteen weeks ended
---------------------
March 30, March 31,
1997 1996
-------- --------
Net sales................................................. $317,990 $260,351
Cost of goods sold........................................ 214,884 187,557
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Gross profit.............................................. 103,106 72,794
Selling, general and administrative expenses.............. 59,096 42,718
Licensing income.......................................... (3,465) (2,576)
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Income from operations.................................... 47,475 32,652
Net interest expense...................................... 362 521
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Income before provision for income taxes.................. 47,113 32,131
Provision for income taxes................................ 17,573 11,792
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Net income................................................ $29,540 $20,339
======= =======
Earnings per share
Primary................................................. $0.55 $0.38
Fully diluted........................................... $0.55 $0.38
Weighted average common shares and
share equivalents outstanding
Primary................................................. 54,002 53,531
Fully diluted........................................... 54,083 53,769
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
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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, 1997.............................. $536 $99,140 $317,192 ($1,154) $(38,985) $376,729
Thirteen weeks ended March 30, 1997:
Director stock options issued......................... - 71 - - - 71
Recognition of deferred compensation in connection
with director stock options......................... - (71) - - - (71)
Amortization of deferred compensation................. - 79 - - - 79
Net income............................................ - - 29,540 - - 29,540
Exercise of stock options............................. 2 2,535 - - - 2,537
Tax benefit derived from exercise of stock options.... - 1,707 - - - 1,707
Acquisition of treasury stock......................... - - - - (1,277) (1,277)
Foreign currency translation adjustments.............. - - - (92) - (92)
------- ---------- ---------- ---------- --------- ----------
Balance, March 30, 1997............................... $538 $103,461 $346,732 ($1,246) $(40,262) $409,223
======= ========== ========== ========== ========= ==========
<FN>
All amounts in thousands
See notes to consolidated financial statements
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Thirty-nine weeks ended
--------------------------
March 30, March 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $29,540 $20,339
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Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................................. 2,827 2,006
Provision for losses on accounts receivable............................................... 1,556 222
Deferred taxes............................................................................ (2,299) 3,309
Other..................................................................................... 25 130
Increase in:
Trade receivables....................................................................... (75,169) (77,377)
Inventories............................................................................. (6,672) (21,838)
Prepaid expenses and other current assets............................................... (475) (1,592)
Other assets............................................................................ (35) (202)
Increase in:
Accounts payable........................................................................ 17,064 27,496
Taxes payable........................................................................... 18,086 7,344
Accrued expenses and other current liabilities.......................................... 1,865 989
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Total adjustments..................................................................... (43,227) (59,513)
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Net cash used in operating activities....................................................... (13,687) (39,174)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (5,611) (3,025)
Acquisition of property under capital lease............................................... - (1,382)
Proceeds from the disposition of assets................................................... - 53
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Net cash used in investing activities....................................................... (5,611) (4,354)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings......................................................... 9,217 39,241
Repayment of capital leases and long-term debt............................................ (766) (569)
Acquisition of treasury stock............................................................. (1,277) (6,134)
Proceeds from exercise of stock options................................................... 2,537 2,489
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Net cash provided by financing activities................................................... 9,711 35,027
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EFFECT OF EXCHANGE RATES ON CASH............................................................ 31 (47)
------- -------
NET DECREASE IN CASH........................................................................ (9,556) (8,548)
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 30,085 16,864
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CASH AND CASH EQUIVALENTS, end of period.................................................... $20,529 $8,316
======= =======
<FN>
All amounts in thousands
See notes to consolidated financial statements
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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, 1997. 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):
March 30, December 31,
1997 1996
-------- -----------
Raw materials..................... $52,634 $38,571
Work in process................... 37,214 37,682
Finished goods.................... 131,184 138,184
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$221,032 $214,437
======= =======
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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 thirteen weeks ended March 30, 1997
and March 31, 1996 were $548,000 and $703,000, respectively.
Cash payments made for income taxes for the thirteen weeks ended March 30,
1997 and March 31, 1996 were $1,806,000 and $550,000, respectively.
Equipment acquired through capital lease financing during the thirteen
weeks ended March 30, 1997 amounted to $81,000.
Reduction in income tax payments resulting from the exercise of employee
stock options during the quarter ended March 30, 1997 and March 31, 1996
were $1,707,000 and $1,610,000, respectively.
5. New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earning per Share," which provides
for the calculation of "basic" and "diluted" earnings per share. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution from
the assumed exercise of stock options in a manner similar to fully diluted
earnings per share, except that the use of the market price at the end of the
period, when that price is higher than the average market price for the period,
has been eliminated. This standard is effective for periods ending after
ecember 15, 1997. The adoption of this standard is not expected to have a
significant effect on the Company's earnings per share calculation. Under FAS
No. 128, basic and diluted earning per share for the thirteen weeks ended March
30, 1997 would be $0.57 and $0.55, respectively.
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.
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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 week periods ended March 30, 1997 and
March 31, 1996 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 March 30, 1997 Compared to Quarter Ended March 31, 1996
Net Sales. Net sales in the thirteen weeks ended March 31, 1997
(hereinafter referred to as the "first quarter of 1997") increased by 22.1%, or
$57.6 million, to $318.0 million as compared to $260.4 million in the thirteen
weeks ended March 31, 1996 (hereinafter referred to as the "first quarter of
1996"). 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 resulting from
the mix of products shipped. Career sportswear sales increased by 36.3% or
$53.7 million, to $201.5 million in the first quarter of 1997 as compared to
$147.8 million in the first quarter of 1996. Casual sportswear sales for the
first quarter of 1997 increased by 3.0%, or $2.3 million, to $77.8 million as
compared to $75.5 million in the first quarter of 1996. Net sales for the
Company's suit, dress and other category increased by 4.3%, or $1.6 million,
to $38.7 million in the first quarter of 1997 as compared to $37.1 million in
the first quarter of 1996.
Gross Profit. The gross profit margin was 32.4% in the first quarter of
1997 as compared to 28.0% in the first quarter of 1996. 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.
SG&A Expenses. Selling, general and administrative expenses ("SG&A"
expenses) of $59.1 million in the first quarter of 1997 represented an increase
of $16.4 million over the first quarter of 1996. As a percentage of sales, SG&A
expenses increased to 18.6% in the first quarter of 1997 from 16.4% for the
comparable period in 1996. Expenses associated with the Lauren Ralph Lauren
product advertising and royalties and associated operating costs, as well as the
Company's overall sales growth, added significant expenses during the quarter.
Retail store operating expenses increased by $1.8 million, reflecting the added
cost of 17 more stores in operation at the end of the first quarter of 1997
compared to the end of the first quarter of 1996.
Licensing Income. Licensing income increased by $0.9 million to $3.5
million in the first quarter of 1997 as compared to $2.6 million in the first
quarter of 1996. Licensees under the Jones New York label accounted for $0.7
million of the increase while income from licenses under the Evan-Picone label
increased by $0.2 million.
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Operating Income. The resulting first quarter of 1997 operating profit of
$47.5 million increased by 45.4%, or $14.8 million, as compared to $32.7 million
during the first quarter of 1996. The operating profit margin increased to
14.9% for the first quarter of 1997 from the 12.5% achieved during the first
quarter of 1996.
Net Interest Expense. Net interest expense was $0.4 million in the first
quarter of 1997 compared to $0.5 million in the comparable period of 1996. The
primary reasons for the change were lower average borrowings during the first
quarter of 1997.
Provision for Income Taxes. The effective income tax rate was 37.3% for
the first quarter of 1997 as compared to 36.7% for the first quarter of 1996.
The increase was primarily due to higher state income tax provisions for the
first quarter of 1997.
Net Income. Net income increased by 45.2% to $29.5 million in the first
quarter of 1997, an increase of $9.2 million over the net income of $20.3
million earned in the first quarter of 1996. Net income as a percentage of
sales was 9.3% in the first quarter of 1997 and 7.8% in the first quarter of
1996.
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.
Net cash used in operations was $13.7 million in the first quarter of
1997, compared to $39.2 million in the first quarter of 1996, primarily
reflecting the effects of a higher net income for the first quarter of 1997
(before depreciation and amortization charges) and a smaller increase in
inventories ($6.7 million in 1997 compared to $21.2 million in 1996), offset by
larger increases in taxes payable and a smaller increase in accounts payable.
The inventory change was primarily the result of a higher proportion of
off-shore production, which turns faster than domestic production.
Net cash used in investing activities was $1.3 million higher in the first
quarter of 1997 than in the first quarter of 1996 due to additional capital
improvements and replacements. Expenditures for capital improvements,
replacements and property under capital lease for the full year 1997 are
expected to approximate $18 million, of which $10 million represents the
estimated cost of an additional warehouse facility under construction to support
anticipated growth.
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net cash provided by financing activities was $9.7 million in the first
quarter of 1997 as compared to $35.0 million in the first quarter of 1996. The
principal reasons for the changes were decreases in the amounts of short-term
borrowings to fund working capital requirements and transactions involving the
Company's Common Stock. In the first quarter of 1997, the Company repurchased
$1.3 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 March 30, 1997, an aggregate of $39.5
million had been expended pursuant to the stock repurchase program. Proceeds
from the issuance of common stock to employees exercising stock options amounted
to $2.5 million in the first quarters of both 1997 and 1996.
As of March 30, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $330.0 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 $190.0
million for unsecured borrowings with rates depending on the borrowing vehicle
utilized. At March 30, 1997 $99.9 million was utilized for letters of credit
and there were $9.2 million of short-term borrowings outstanding, leaving $220.9
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$4.0
million to be used for unsecured borrowings under which no amounts were
outstanding at March 30, 1997. 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.
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
OTHER INFORMATION
Part II.
Item 5. Other information
Statement Regarding Forward-looking Disclosure
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, 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. All statements other than
statements of historical facts included in this Quarterly Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
Item 6. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 30, 1997.
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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: May 13, 1997 By /s/ Sidney Kimmel
----------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
----------------------------
WESLEY R. CARD
Chief Financial Officer
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