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 28, 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 November 10, 1997
$.01 par value 51,316,206
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Financial Statements:
Consolidated Balance Sheets
September 28, 1997 and December 31, 1996............ 3
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks ended September 28, 1997
and September 29, 1996............................. 4
Consolidated Statements of Stockholders' Equity
Thirty-nine Weeks ended September 28, 1997........... 5
Consolidated Statements of Cash Flows
Thirty-nine Weeks ended September 28, 1997 and
September 29, 1996................................. 6
Notes to Consolidated Financial Statements.................. 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10 - 13
PART II. OTHER INFORMATION....................................... 14 - 15
- 2 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 12,315 $ 30,085
Accounts receivable, net of allowance of $3,757 and $2,263............................ 211,070 112,678
Inventories........................................................................... 277,003 214,437
Receivable from and advances to contractors........................................... 7,709 11,490
Deferred taxes........................................................................ 22,785 9,708
Prepaid expenses and other current assets............................................. 12,504 11,432
------- -------
TOTAL CURRENT ASSETS................................................................ 543,386 389,830
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $41,379 and $33,127.................................. 74,653 61,696
CASH RESTRICTED FOR CAPITAL ADDITIONS................................................... 6,022 -
INTANGIBLES, less accumulated amortization of $7,189 and $5,896......................... 24,995 26,288
DEFERRED TAXES.......................................................................... 2,060 461
OTHER ASSETS............................................................................ 14,613 9,834
------- -------
$665,729 $488,109
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................................................. $ 45,104 $ -
Current portion of long-term debt and capital lease obligations....................... 3,431 3,067
Accounts payable...................................................................... 93,626 72,569
Income taxes payable.................................................................. 22,828 8,959
Accrued expenses and other current liabilities........................................ 16,284 11,265
------- -------
TOTAL CURRENT LIABILITIES........................................................... 181,273 95,860
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases...................................................... 19,259 12,134
Long-term debt........................................................................ - 7
------- -------
TOTAL NONCURRENT LIABILITIES........................................................ 19,259 12,141
------- -------
TOTAL LIABILITIES................................................................... 200,532 108,001
EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 1,996 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 54,311 and 53,595............................................................. 543 536
Additional paid in capital............................................................ 118,644 99,140
Retained earnings..................................................................... 414,950 317,192
Cumulative foreign currency translation adjustments................................... (1,215) (1,154)
------- -------
532,922 415,714
Less treasury stock, 2,277 and 1,600 shares, at cost.................................. (69,721) (38,985)
------- -------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 463,201 376,729
------- -------
$665,729 $488,109
======= =======
<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 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------- ------------ ------------ ------------
Net sales................................................. $445,972 $309,019 $1,026,950 $762,645
Licensing income.......................................... 4,536 4,209 11,302 9,444
------- ------- --------- -------
Total revenues............................................ 450,508 313,228 1,038,252 772,089
Cost of goods sold........................................ 303,308 213,522 696,733 533,322
------- ------- --------- -------
Gross profit.............................................. 147,200 99,706 341,519 238,767
Selling, general and administrative expenses.............. 67,818 49,918 183,547 134,792
------- ------- --------- -------
Income from operations.................................... 79,382 49,788 157,972 103,975
Net interest expense...................................... 1,081 1,007 1,710 1,991
------- ------- --------- -------
Income before provision for income taxes.................. 78,301 48,781 156,262 101,984
Provision for income taxes................................ 29,363 17,903 58,504 37,428
------- ------- --------- -------
Net income................................................ $48,938 $30,878 $97,758 $64,556
======= ======= ========= =======
Earnings per share
Primary................................................. $0.90 $0.58 $1.81 $1.20
Fully diluted........................................... $0.90 $0.58 $1.80 $1.20
Weighted average common shares and
share equivalents outstanding
Primary................................................. 54,317 53,474 54,092 53,634
Fully diluted........................................... 54,344 53,634 54,366 53,817
<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, 1997.............................. $536 $99,140 $317,192 ($1,154) $(38,985) $376,729
Thirty-nine weeks ended September 28, 1997:
Amortization of deferred
compensation and related items....................... - 2,731 - - - 2,731
Net income............................................ - - 97,758 - - 97,758
Exercise of stock options............................. 7 10,384 - - (100) 10,291
Tax benefit derived from exercise of stock options.... - 6,389 - - - 6,389
Acquisition of treasury stock......................... - - - - (30,636) (30,636)
Foreign currency translation adjustments.............. - - - (61) - (61)
------- ---------- ---------- ---------- --------- ----------
Balance, September 28, 1997.......................... $543 $118,644 $414,950 ($1,215) $(69,721) $463,201
======= ========== ========== ========== ========= ==========
<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 28, September 29,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $97,758 $64,556
------- -------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................................. 11,494 6,385
Provision for losses on accounts receivable............................................... 2,009 683
Deferred taxes............................................................................ (14,676) 6,828
Other..................................................................................... 154 529
Decrease (increase) in:
Trade receivables....................................................................... (100,454) (80,765)
Inventories............................................................................. (62,623) (46,089)
Prepaid expenses and other current assets............................................... 2,691 1,563
Other assets............................................................................ (4,780) (2,089)
Increase in:
Accounts payable........................................................................ 21,064 19,645
Taxes payable........................................................................... 20,253 11,490
Accrued expenses and other current liabilities.......................................... 5,045 5,119
------- -------
Total adjustments..................................................................... (119,823) (76,701)
------- -------
Net cash used in operating activities....................................................... (22,065) (12,145)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (21,743) (21,308)
Changes in cash restricted for capital additions.......................................... (6,022) -
Trademark costs........................................................................... - (1,519)
Proceeds from disposition of assets....................................................... - 109
------- -------
Net cash used in investing activities....................................................... (27,765) (22,718)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings......................................................... 45,104 37,507
Proceeds from capital lease............................................................... 10,000 5,000
Repayment of capital leases and long-term debt............................................ (2,738) (1,915)
Acquisition of treasury stock............................................................. (30,636) (20,713)
Proceeds from exercise of stock options................................................... 10,291 7,814
Other..................................................................................... - (37)
------- -------
Net cash provided by financing activities................................................... 32,021 27,656
------- -------
EFFECT OF EXCHANGE RATES ON CASH............................................................ 39 (7)
------- -------
NET DECREASE IN CASH........................................................................ (17,770) (7,214)
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 30,085 16,864
------- -------
CASH AND CASH EQUIVALENTS, end of period.................................................... $12,315 $9,650
======= =======
<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, 1997. The Company reports interim results in 13 week quarters;
however, the annual reporting period is the calendar year.
Certain reclassifications have been made to conform prior period data
with the current presentations.
2. Inventories
Inventories are summarized as follows (amounts in thousands):
September 28, December 31,
1997 1996
-------- ------------
Raw materials..................... $40,461 $38,571
Work in process................... 44,977 37,682
Finished goods.................... 191,565 138,184
------- -------
$277,003 $214,437
======= =======
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.
- 7 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Statement of Cash Flows
Cash payments made for interest for the thirty-nine weeks ended September
28, 1997 and September 29, 1996 were $2,892,000 and $2,369,000, respectively.
Cash payments made for income taxes for the thirty-nine weeks ended
September 28, 1997 and September 29, 1996 were $52,892,000 and $18,295,000,
respectively.
Equipment acquired through capital lease financing during the thirty-nine
weeks ended September 28, 1997 was $220,000.
Reduction in income tax payments resulting from the exercise of employee
stock options during the thirty-nine weeks ended September 28, 1997 and
September 29, 1996 were $6,389,000 and $4,429,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the thirty-nine weeks ended September 28,
1997 exchanged 2,122 shares of the Company's Common Stock (valued at $100,000)
for 8,963 newly issued shares and 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.
5. New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings 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 December 15, 1997. The adoption of this standard is not expected to have
a significant effect on the Company's earnings per share calculation. Under
SFAS No. 128, basic and diluted earnings per share for the thirty-nine weeks
ended September 28, 1997 would be $1.88 and $1.81, respectively. Basic and
diluted earnings per share for the thirty-nine weeks ended September 29, 1996
would be $1.23 and $1.21, respectively. Under SFAS No. 128, basic and diluted
earnings per share for the thirteen weeks ended September 28, 1997 would be $.94
and $.90, respectively. Basic and diluted earnings per share for the
thirteen weeks ended September 29, 1996 would be $.59 and $.58, respectively.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
- 8 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(Unaudited)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which supersedes SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of and
enterprise about which separate financial information is available that is
evaluated regularly by Management in deciding how to allocate resources and
in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these
standards, Management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures.
6. Capital Stock
On July 30, 1996, the Company's Board of Directors approved a two-for-one
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.
- 9 -
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 28, 1997 and September 29, 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
Statements of Income Expressed as a Percentage of Total Revenues
Thirteen weeks ended Thirty-nine weeks ended
--------------------------- ----------------------------
September 28, September 29, September 28, September 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net sales 99.0% 98.7% 98.9% 98.8%
Licensing income 1.0% 1.3% 1.1% 1.2%
------------- ------------- ------------- -------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 67.3% 68.2% 67.1% 69.1%
------------- ------------- ------------- -------------
Gross margin 32.7% 31.8% 32.9% 30.9%
Selling, general and
administrative expenses 15.1% 15.9% 17.7% 17.5%
------------- ------------- ------------- -------------
Operating margin 17.6% 15.9% 15.2% 13.5%
Net interest expense 0.2% 0.3% 0.2% 0.3%
------------- ------------- ------------- -------------
Income before provision
for income taxes 17.4% 15.6% 15.1% 13.2%
Provision for income taxes 6.5% 5.7% 5.6% 4.8%
------------- ------------- ------------- -------------
Net income 10.9% 9.9% 9.4% 8.4%
============= ============= ============= =============
<FN>
Totals may not agree due to rounding.
Quarter Ended September 28, 1997 Compared to Quarter Ended September 29, 1996
Net Sales. Net sales in the thirteen weeks ended September 28, 1997
(hereinafter referred to as the "third quarter of 1997") increased by 44.3%,
or $137.0 million, to $446.0 million compared to $309.0 million in the
thirteen weeks ended September 29, 1996 (hereinafter referred to as the
"third 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 19.6%, or $32.2 million, to $196.1 million in the third quarter of
1997 compared to $163.9 million in the third quarter of 1996. Casual
sportswear sales for the third quarter of 1997 increased by 35.3%, or $28.2
million, to $108.1 million compared to $79.9 million in the third quarter
of 1996. Lifestyle collection sales, which include Lauren by Ralph Lauren
and Jones New York Country, increased by $74.1 million to $100.8 million in
the third quarter of 1997 compared to $26.7 million in the third quarter
of 1996. Net sales for the Company's suit, dress and other category increased
by 6.5%, or $2.5 million, to $41.0 million in the third quarter of 1997
compared to $38.5 million in the third quarter of 1996.
- 10 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Licensing Income. Licensing income increased by $0.3 million to $4.5 million
in the third quarter of 1997 compared to $4.2 million in the third quarter
of 1996. Licensees under the Jones New York label accounted for $0.6 million of
the increase while income from licenses under the Evan-Picone label decreased
by $0.3 million.
Gross Profit. The gross profit margin was 32.7% in the third quarter of 1997
compared to 31.8% in the third quarter of 1996. The increase was primarily
attributable to the impact of higher gross profit margins from the Company's
major product lines including, in 1997, the new Lauren by Ralph Lauren label,
which carries higher margins than the corporate average.
SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses)
of $67.8 million in the third quarter of 1997 represented an increase of
$17.9 million over the third quarter of 1996. As a percentage of total
revenues, SG&A expenses decreased to 15.1% in the third quarter of 1997 from
15.9% for the comparable period in 1996. While advertising, royalties and
operating expenses associated with Lauren by Ralph Lauren sales, as well as
the Company's overall sales growth, added significant expenses during the
quarter, the effect was offset by the proportionately larger increase in
sales and gross profit. Retail store operating expenses increased by
$1.8 million, reflecting the added cost of 29 more stores in operation at the
end of the third quarter of 1997 compared to the end of the third quarter of
1996.
Operating Income. The resulting third quarter of 1997 operating income of
$79.4 million increased by 59.4%, or $29.6 million, compared to $49.8 million
during the third quarter of 1996. The operating margin increased to 17.6%
for the third quarter of 1997 from the 15.9% achieved during the third
quarter of 1996.
Net Interest Expense. Net interest expense was $1.1 million in the third
quarter of 1997 compared to $1.0 million in the comparable period of 1996.
Provision for Income Taxes. The effective income tax rate was 37.5% for the
third quarter of 1997 compared to 36.7% for the third quarter of 1996. The
increase was primarily due to higher state income tax provisions for the
third quarter of 1997.
Net Income. Net income increased by 58.5% to $48.9 million in the third
quarter of 1997, an increase of $18.0 million over the net income of $30.9
million earned in the third quarter of 1996. Net income as a percentage of
total revenues was 10.9% in the third quarter of 1997 and 9.9% in the third
quarter of 1996.
Nine Months Ended September 28, 1997 Compared to Nine Months Ended
September 29, 1996
Net Sales. Net sales in the thirty-nine weeks ended September 28, 1997
(hereinafter referred to as the "first nine months of 1997") increased by
34.7%, or $264.4 million, to $1,027.0 million compared to $762.6 million in
the thirty-nine weeks ended September 29, 1996 (hereinafter referred to as
the "first nine months of 1996"). The increase was due primarily to an
increase in the number of units shipped,
- 11 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
as well as the impact of a higher average price per unit resulting from the mix
of products shipped. Career sportswear sales increased by 14.3%, or $59.3
million, to $474.4 million in the first nine months of 1997 compared to
$415.1 million in the first nine months of 1996. Casual sportswear sales for
the first nine months of 1997 increased by 18.2%, or $38.1 million, to $247.1
million compared to $209.0 million in the first nine months of 1996.
Lifestyle collection sales, which include Lauren by Ralph Lauren and Jones
New York Country, increased by $163.1 million, to $192.8 million in the first
nine months of 1997 compared to $29.7 million in the first nine months of
1996. Net sales for the Company's suit, dress and other category increased by
3.6%, or $3.9 million, to $112.7 million in the first nine months of 1997
compared to $108.8 million in the first nine months of 1996.
Licensing Income. Licensing income increased by $1.9 million to $11.3 million
in the first nine months of 1997 compared to $9.4 million in the first
nine months of 1996. Licensees under the Jones New York label accounted for
$1.8 million of the increase while income from licenses under the
Evan-Picone label increased by $0.1 million.
Gross Profit. The gross profit margin was 32.9% in the first nine months of
1997 compared to 30.9% in the first nine months of 1996. The increase was
primarily attributable to the impact of higher gross profit margins from the
Company's major product lines including, in 1997, the new Lauren by Ralph
Lauren label, which carries higher margins than the corporate average.
SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses)
of $183.5 million in the first nine months of 1997 represented an increase of
$48.8 million over the first nine months of 1996. As a percentage of total
revenues, SG&A expenses increased to 17.7% in the first nine months of 1997
from 17.5% for the comparable period in 1996. Advertising, royalties and
operating expenses associated with Lauren by Ralph Lauren sales, as well as the
Company's overall sales growth, added significant expenses during the first
nine months. Retail store operating expenses increased by $5.6 million,
reflecting the added cost of 29 more stores in operation at the end of the
first nine months of 1997 than at the end of the first nine months of 1996.
Operating Income. The resulting first nine months of 1997 operating income of
$158.0 million increased by 51.9%, or $54.0 million, compared to $104.0
million during the first nine months of 1996. The operating margin increased
to 15.2% for the first nine months of 1997 from the 13.5% achieved during the
first nine months of 1996.
Net Interest Expense. Net interest expense was $1.7 million in the first
nine months of 1997 compared to $2.0 million in the comparable period of
1996. The primary reasons for the change were lower average borrowings and
higher average cash balances during the first nine months of 1997.
Provision for Income Taxes. The effective income tax rate was 37.4% for the
first nine months of 1997 compared to 36.7% for the first nine months of
1996. The increase was primarily due to higher state income tax provisions for
the first nine months of 1997.
Net Income. Net income increased by 51.4% to $97.8 million in the first nine
months of 1997, an increase of $33.2 million over the net income of $64.6
million earned in the first nine months of 1996. Net income as a percentage of
total revenues was 9.4% in the first nine months of 1997 and 8.4% in the
first nine months of 1996.
- 12 -
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 $22.1 million in the first nine months of
1997, compared to $12.1 million in the first nine months of 1996. The change
primarily reflects the effect of an increase in trade receivables and
inventories ($163.1 million in 1997 compared to a $126.9 million increase in
1996) and the generation of a $14.8 million deferred tax benefit in 1997
compared to a deferred tax expense of $6.8 million in 1996. The changes are
offset by higher net income for the first nine months of 1997 (before
depreciation and amortization charges) and an increase in taxes payable of
$20.3 million in 1997 compared to $11.5 million in 1996.
Net cash used in investing activities was $5.0 million higher in the first
nine months of 1997 than in the first nine months 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 $25 million, of which $10 million represents
the estimated cost of an additional warehouse facility under construction to
support anticipated growth.
Net cash provided by financing activities was $32.0 million in the first nine
months of 1997 compared to $27.7 million in the first nine months of 1996.
The principal reasons for the changes were increases in the amounts of
short-term borrowings to fund working capital requirements, proceeds from
capital lease financing and transactions involving the Company's Common Stock.
In the first nine months of 1997, the Company repurchased $30.6 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.
As of September 28, 1997, an aggregate of $69.7 million had been expended
pursuant to the stock repurchase program. On October 22, 1997 the Board of
Directors authorized an additional common stock repurchase program to acquire
up to $100 million of the Company's outstanding common stock. This share
repurchase program authorizes the Company to purchase the shares from time to
time, commencing upon expiration or completion of its current repurchase
program. The current program, under which the Company has repurchased $92.4
million as of October 22, 1997, expires December 15, 1997. Proceeds from the
issuance of common stock to employees exercising stock options amounted to $10.3
million in the first nine months of 1997 compared to $7.8 million in the
first nine months of 1996.
As of September 28, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $425.0 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 million for unsecured borrowings with rates depending on the
borrowing vehicle utilized. At September 28, 1997, $110.1 million was
utilized for letters of credit and there were $45.1 million of short-term
borrowings outstanding, leaving $269.8 million available for additional
borrowings and letters of credit at that date.
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JONES APPAREL GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 September 28, 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.
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
September 28, 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: November 11, 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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