SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 785-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- ----------------------------- -----------------------------
Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 1998 was approximately $2,365,861,580.
As of March 23, 1998, there were 50,322,550 shares of the registrant's
Common Stock outstanding.
2
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
------------------------------------ ----
Those portions of the registrant's III
proxy statement for the registrant's
1998 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K.
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PART I
ITEM 1. BUSINESS
General
Jones Apparel Group, Inc. (the "Company") is a leading designer and
marketer of better priced women's sportswear, suits and dresses. The Company
has pursued a multi-brand strategy by marketing its products under several
nationally known brands, including Jones New York, Evan-Picone and
Rena Rowan, and the licensed brand Lauren by Ralph Lauren. Each label is
differentiated by its own distinctive styling and pricing strategy. The
Company primarily contracts for the manufacture of its products through a
worldwide network of quality manufacturers. The Company has capitalized on
its nationally known brand names by entering into 32 licenses for the Jones
New York brand name and 16 licenses for the Evan-Picone brand name with
select manufacturers of women's and men's apparel and accessories.
Products
The Company's brands cover the entire women's better apparel market. Within
those brands, various product classifications include career and casual
sportswear, dresses and suits, and a combination of all components termed
lifestyle collection. Career and casual sportswear are marketed as groups of
skirts, pants, jackets, blouses, sweaters and related accessories which,
while sold as separates, are coordinated as to styles, color schemes and
fabrics, and are designed to be worn together. For its sportswear and dress
collections, the Company will develop several groups in a selling season.
New sportswear and dress collections are introduced in four or five of the
principal selling seasons - Spring, Summer, Fall I, Fall II and Holiday/Resort,
while suit collections have traditionally been developed for the Fall and Spring
seasons. The introduction of different groups in each season is spaced to
ensure that retail customers frequently are introduced to new merchandise.
The Company's major product categories are summarized in the
following table:
Career Casual Lifestyle Suits, Dresses
Sportswear Sportswear Collection and Other
-------------- ------------- ------------- ----------------
Industry Better Better Better Better
Categories
Brand Labels Jones New York, Jones New York Lauren by Jones New York,
Jones Wear, Sport, Ralph Lauren, Evan-Picone,
Rena Rowan, Jones Wear, Jones New Saville
Evan-Picone, Jones Jeans, York Country
Jones & Co,
Jones Studio
Product Skirts, blouses Skirts, blouses, Skirts, Suits,
Offerings pants, jackets, pants, jackets, blouses, dresses
sweaters sweaters pants, jackets,
sweates, suits,
coats
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The Company's success is enhanced by its ability to maintain a name brand or
designer image while its products are generally sold in the women's better
market at the following retail price points:
Skirts Blouses Casual Tops Suits &
Jackets and Pants and Sweaters and Bottoms Coats Dresses
- --------- --------- ------------ ----------- --------- ---------
$150-$280 $70-$140 $70-$200 $25-$90 $200-$450 $125-$250
The following chart sets forth a breakdown of the Company's apparel sales by
dollar amount (in thousands and as a percentage of the Company's total sales)
during the past three fiscal years.
1997 1996 1995
------------ ------------ ------------
Career Sportswear $613,000 45% $529,000 52% $439,000 57%
Casual Sportswear $323,000 24% $292,000 29% $209,000 27%
Lifestyle Collection $293,000 21% $59,000 6% $2,000 0%
Suits, Dresses and Other $143,000 10% $141,000 13% $126,000 16%
Career Sportswear. The Company's flagship brand, Jones New York, offers
consumers an extensive range of better sportswear geared primarily for the
career woman's working needs. Jones New York products are sold in misses,
petites and women's sizes and are marketed under the Jones New York, Jones New
York Petite and Jones New York Woman labels.
Career sportswear under the Rena Rowan label is positioned at the opening
price point in better apparel and includes misses, petites and women's sizes.
The Company's Evan-Picone line of career sportswear is positioned at a price
point between the Jones New York and Rena Rowan brands and includes misses
and women's sizes.
A career sportswear line using the Jones Wear label is sold to selected retail
accounts that do not carry the Company's other lines of career sportswear.
Casual Sportswear. Jones New York Sport offers a collection of casual
sportswear which complements the Jones New York career line. These products
are designed to be worn for weekend and informal workday dressing. Jones New
York Sport is offered in misses, petite and women's sizes. The Company also
offers a business casual collection under the Jones & Co label designed to meet
the needs of the informal workplace and business "dress down" days.
Jones Studio, introduced for the Spring 1996 season, provides business casual
sportswear separates. In 1996, the Company introduced Jones Jeans, a denim and
cotton-based collection for the women's market. Petites and misses sizes
were added for Spring 1998.
Lifestyle Collection. Jones New York Country, introduced for the Fall 1995
season, is a collection of classic country-styled casualwear. Prior to 1997,
this label was exclusive to the Company's own retail outlets. The
distribution of Jones New York Country products has now been extended to several
specialty stores.
In October 1995, the Company acquired an exclusive license to manufacture
and market women's shirts, blouses, skirts, jackets, suits, sweaters, pants,
vests, coats, outerwear and hats under the Lauren by Ralph
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Lauren trademark in the United States, pursuant to license and design service
agreements with the licensor, which expire on December 31, 2001. Upon
expiration of the initial term, the Company has the right to renew the
license for an additional three-year period, provided that it meets certain
minimum sales level requirements. The agreements provide for the payment by the
Company of a percentage of net sales against guaranteed minimum royalty and
design service payments as set forth in the agreements. In July 1996, the
Company began shipping a collection of better career and casual sportswear under
this label for the Fall 1996 season. The Company introduced a collection of
Petite sportswear which began shipping in the Fall 1997 season. Coats and
suits were also introduced in the Fall 1997 season.
Suits. The Company produces suits under the brand names Jones New York and
Saville. Jones New York is a better priced brand. Saville is targeted to
sell at the opening price points of the better price category. Jones New
York currently offers products in misses and petite sizes and Saville offers
petite, misses and women's sizes. During 1997, the Company phased out its
licensed Christian Dior suit business.
Dresses. The Company ships collections of career dresses under the Jones New
York and Evan-Picone brand names, targeted to sell at better prices.
Other. The Company also produces sportswear for the private label market.
While there is significant additional demand in this market, the Company has
not actively pursued more private label business in order to concentrate on
the expansion of its name brand business.
The Company has introduced a collection of men's casual sportswear under the
Jones New York label for the Fall 1998 selling season.
Design
Each product line of the Company has its own design team which is
responsible for the creation, development and coordination of the product
group offerings within each line. The Company believes its design staff of
215 people is widely recognized for its distinctive styling of garments and
its ability to update fashion classics with contemporary trends. The Company's
designers travel throughout the world for fabrics and colors, and attempt to
stay continuously abreast of the latest fashion trends. In addition, the
Company actively monitors the retail sales of its products to determine changes
in consumer trends.
For most sportswear lines, the Company will develop several groups in a
season. A group typically consists of an assortment of skirts, pants,
jackets, blouses, sweaters and various accessories. The Company believes
that it is able to minimize design risks because the Company often will not have
started cutting fabrics until the first few weeks of a major selling season.
Since different styles within a group often use the same fabric, the Company
can redistribute styles and, in some cases, colors, to fit current market
demand.
In accordance with standard industry practices for licensed products, Polo
Ralph Lauren Corporation has the right to approve the Company's designs for
the Lauren by Ralph Lauren product line.
Manufacturing
Apparel sold by the Company is produced in accordance with its design,
specification and production schedules. The Company contracts for the
cutting and sewing of the majority of its garments with approximately 133
contractors located in the United States and 280 in overseas locations. The
Company also operates one manufacturing facility of its own. During 1997,
approximately 30% of the Company's products were manufactured in the United
States and Mexico, and 70% in other parts of the world, primarily Asia.
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The Company believes that outsourcing allows it to maximize production
flexibility while avoiding significant capital expenditures, work-in-process
inventory build-ups and costs of managing a larger production work force.
The Company's fashion designers, production staff and quality control personnel
closely supervise garments manufactured by contractors to ensure that they meet
the Company's high standards. See "Quality Control" below.
The Company's products are manufactured according to plans prepared each year
which reflect prior years' experience, current fashion trends, economic
conditions and management estimates of a line's performance. The Company
orders piece goods concurrently with concept board development. The purchase
of piece goods is controlled and coordinated on a divisional basis. The Company
limits its exposure to specific colors and fabrics by committing to purchase
a portion of total projected demand with options to purchase additional
volume if demand meets the plan. The Company believes that its policy of
limiting its commitments for purchases early in the season minimizes its
exposure to excess inventory and obsolescence.
The Company believes its extensive experience in logistics and production
management underlies its success in coordinating with contractors who
manufacture different garments included within the same product group. The
Company has had long-term mutually satisfactory business relationships with
many of its contractors, but does not have long-term written agreements with any
of them.
The Company has an active program in place to monitor compliance by its
contract manufacturers with applicable laws relating to the payment of wages
and working conditions. In 1996, the Company became a participant in the
United States Department of Labor's Apparel Manufacturers Compliance Program for
that purpose. Under that program, and through the Company's independent
agreements with each of its domestic and foreign manufacturers, the Company
regularly audits such compliance and requires corrective action when
appropriate.
Quality Control
The Company's comprehensive quality control program is designed to ensure that
purchased raw materials and finished goods meet the Company's exacting
standards. Substantially all of the fabric purchases for domestically
manufactured garments are inspected upon receipt in either the Company's
Pennsylvania and North Carolina warehouse facilities (where they are stored
prior to shipment for cutting) or at the contractor's warehouse. Fabrics for
foreign manufactured garments are inspected by the Company's contractors upon
receipt in their warehouses. The Company's quality control program includes
inspection of prototypes of each garment prior to cutting by the contractors
to ensure compliance with the Company's specifications.
Domestic contractors are supervised by the Company's quality control staff
based primarily in Pennsylvania, while foreign manufacturers' operations are
monitored by both Company personnel and buying agents located in other
countries. All finished goods are shipped to the Company's warehouses for
final inspection and distribution.
Supplies
The Company generally supplies the raw material to its domestic
manufacturers and occasionally to foreign manufacturers. Otherwise, the raw
materials are purchased directly by the manufacturer in accordance with the
Company's specifications. Raw materials, which are in most instances made
and/or colored especially for the Company, consist principally of piece goods
and yarn and are purchased by the Company from a number of domestic and
foreign textile mills and converters. The Company's foreign finished goods
purchases are generally purchased on a letter of credit basis, while its
domestic purchases are generally purchased on an open order basis.
The Company does not have long-term formal arrangements
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with any of its suppliers. However, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its
sources of supply adequate.
Marketing
The Company distributes its products through approximately 1,225 customers,
including department stores, specialty retailer accounts and direct mail
catalog companies throughout the United States and Canada representing
approximately 6,800 locations. Department stores account for approximately
two-thirds of the Company's sales. The Company's ten largest customers
accounted for approximately 67% of sales in 1997. No single customer
accounted for more than 10% of net sales; however, certain of the Company's
customers are under common ownership. When considered together as a group
under common ownership, sales to seven department store customers currently
owned by Federated Department Stores, Inc. ("Federated") accounted for
approximately 20% of 1997 sales and sales to eight department store customers
currently owned by The May Department Stores Company ("May") accounted for
approximately 19% of 1997 sales. While the Company believes that purchasing
decisions are generally made independently by each department store customer
(including the stores in the Federated and May groups), in some cases the trend
may be toward more centralized purchasing decisions. The Company attempts to
minimize its credit risk from its concentration of customers by closely
monitoring accounts receivable balances and shipping levels and the ongoing
financial performance and credit status of its customers. Among the
Company's leading customers are May group members Lord & Taylor, Hecht's and
Foley's; Federated group members Macy's Department Stores, Lazarus and
Bloomingdale's; and independent stores Dillard's, Dayton Hudson and Nordstrom.
The Company has a direct sales force of 174 sales people (excluding
employees in the Company's factory outlet stores) which includes individuals
located in the Company's New York and Toronto showrooms as well as in
regional sales offices and showrooms that the Company leases in Atlanta, Dallas,
Los Angeles and Seattle. The Company also has a small number of independent
sales representatives. In addition, senior management is actively involved
in selling to major accounts. Products are marketed to department stores and
specialty retailing customers during "market weeks," which are generally four to
six months in advance of the five corresponding industry selling seasons.
While the Company typically will allocate a six week period to market a
line, most major orders are written within the first three weeks of any
market period. Since piece goods for a line usually are not cut until the
first few weeks of a marketing period, the Company is able to tailor production
schedules and styles to current market demands and minimize excess inventory.
As one of the primary apparel resources for many of its customers, the Company
is able to influence the mix, quantity and timing of orders placed by its
retail accounts enabling the Company to market complete lines of sportswear
and minimize excess inventory. The Company's close relationships with its
retail accounts allow it to efficiently monitor production schedules and
inventories.
The Company believes retail demand for its products is enhanced by the
Company's ability to provide its retail accounts and consumers with
knowledgeable sales support. In this regard, the Company has an established
program to place retail sales specialists in many major department stores.
These individuals have been trained by the Company to support the sale of its
products by educating other store personnel and consumers about the Company's
products and by coordinating the Company's marketing activities with those of
the stores. In addition, the retail sales specialists provide the Company with
firsthand information concerning consumer reactions to the Company's
products. In addition, the Company has a program of designated sales
personnel in which a store agrees to designate certain sales personnel who will
devote a substantial portion of their time to selling Jones products in return
for certain benefits.
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The Company employs a cooperative advertising program with its major retail
accounts, whereby it shares the cost of its retail accounts' advertising and
promotional expenses, up to a preset maximum percentage of the retail
accounts' purchases. An important part of the marketing program includes
prominent displays of the Company's products in retail accounts' sales
catalogs.
Factory Outlet Stores
At December 31, 1997, the Company operated a total of 214 factory outlet
stores and 5 full price stores. The Company operates six coffee bars in close
proximity to six of its factory outlet stores as a convenience to its
customers. Manufacturer's outlet malls are generally located either in high
traffic tourist areas or on major highways to vacation destinations and major
cities. The 214 factory outlet stores operated by the Company are located in
120 outlet malls throughout the United States. These locations are generally
situated in select geographic markets which are not in direct competition with
the Company's primary customers. The Company's outlet stores focus on breadth of
product line and customer service as well as value pricing. In addition to
its brand name merchandise, these stores also sell merchandise produced by
licensees of the Company. The Company's outlet store expansion strategy is
to continue to open multiple stores in select outlet malls for specific
product lines which target different customer segments.
The Company opened 45 and closed 26 stores in 1997 and opened 47 and closed 22
stores in 1996. The following table sets forth certain information regarding
the number and type of stores open and aggregate store sales for each of the
years in the three year period ended December 31, 1997.
Retail stores open at end of period:
Store Type Description 1997 1996 1995
- ---------------------- ---------------------------- ---- ---- ----
Jones New York Jones New York sportswear 85 82 78
Jones New York Full price retail showcase 2 2 2
for products
Executive Suite Jones New York and Executive 21 28 33
Suite men's and women's
suits and furnishings
Jones New York Sport Jones New York Sport and 31 22 2
Jones & Co casual sportswear
Evan-Picone Evan-Picone sportswear 15 17 23
Jones New York Country Jones New York Country 35 22 9
casual sportswear
Jones New York Country Full price retail showcase 3 2 -
for products
Factory Finale Close out merchandise 19 15 15
Other concepts Various 8 10 13
---- ---- ----
Total retail stores open at end of period 219 200 175
Aggregate net store sales (in thousands) $153,830 $129,767 $102,307
Square footage of gross store space at end of period 607,632 557,100 478,975
Nearly all stores are leased under long-term leases (typically five years).
The average store size is approximately 2,775 square feet, ranging from a
minimum of 1,386 square feet to a maximum of 6,600 square feet.
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Licensing of Company Brands
As of December 31, 1997, the Company had 32 license agreements under which
independent licensees sell products under the Company's Jones New York (and
related) trademarks in accordance with designs furnished or approved by the
Company in various territories in the United States and Canada. Current
licenses include men's tailored clothing and overcoats, women's intimate
apparel, women's rainwear, outerwear, leather outerwear and woolen coats,
footwear and handbags, belts, scarves, women's swimwear, umbrellas, eyewear,
fragrances, costume jewelry, hair accessories, and cosmetic travel accessories.
Each of the licenses provides for the payment to the Company of a percentage of
the licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1997, the Company received $9,436,000 of Jones New York (and related
names) licensing income.
As of December 31, 1997, the Company had 16 license agreements under which
independent licensees sell products under the Company's Evan-Picone
trademarks in accordance with designs furnished or approved by the Company
in various territories in the United States and Canada. These licenses include
women's woolen coats, footwear, men's tailored clothing, mens' knit and woven
shirts and sweaters, men's neckwear, and men's and women's hosiery. Each of
the licenses provides for the payment to the Company of a percentage of the
licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1997, the Company received $5,945,000 of Evan-Picone licensing income.
Trademarks
The Company utilizes a variety of trademarks which it owns, including Jones
New York, Jones New York Sport, Jones & Co, Jones*Wear, Jones Wear, JNY, Jones
New York Country, Jones Jeans, Saville, Rena Rowan, Ellen Kaye, Evan-Picone,
Picone Sport, Elements by Evan-Picone, Picone Studio, Evan-Picone Sport,
Executive Suite and Strictly Business. The Company has registered or applied
for registration for these and other trademarks for use on a variety of items of
apparel and apparel-related products in the United States and Canada. In
addition, the Company has registered certain of its trademarks in certain other
countries. The Company's material registered trademarks Jones New York,
Jones New York Sport, Rena Rowan and Evan-Picone, have their Federal
trademark registrations expire in 2006, 2004, 2002, and 2003, respectively, with
its other registered trademarks expiring at various dates through 2014, all of
which are subject to renewal. The Company carefully monitors trademark
expiration dates to ensure uninterrupted registration of its trademarks. The
Company also licenses the Lauren by Ralph Lauren label (see "Products" above).
The Company regards its trademarks and other proprietary rights as valuable
assets and believes that they have significant value in the marketing of its
products. The Company vigorously protects its trademarks against infringement.
Imports and Import Restrictions
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Hong Kong, Taiwan and Korea. These agreements impose
quotas on the amount and type of goods which can be imported into the United
States from these countries. Such agreements also allow the United States to
impose at any time restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specified limits.
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The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its
manufacturing sources, the maintenance of overseas offices, allocation of
overseas production to merchandise categories where more quota is available
and shifts of production among countries and manufacturers.
The Company's imported products are also subject to United States customs
duties and, in the ordinary course of business, the Company is from time to time
subject to claims by the United States Customs Service for duties and other
charges.
The United States and the other countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, which could adversely affect the Company's operations and its
ability to continue to import products at current or increased levels. The
Company cannot predict the likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater geographic
distances from the Company than its domestic manufacturers, the Company is
generally required to allow greater lead time for foreign orders, which
reduces the Company's manufacturing flexibility. Foreign imports are also
affected by the high cost of transportation into the United States.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in
the disruption of trade from exporting countries, any significant fluctuation
in the value of the dollar against foreign currencies and restrictions on the
transfer of funds. However, the recent instability of Asian financial markets
is not expected to have a material impact on the Company's financial results.
Backlog
On December 31, 1997, the Company had unfilled customer orders of
approximately $557 million, compared to approximately $419 million of such
orders at December 31, 1996. These amounts include both confirmed orders and
unconfirmed orders which the Company believes, based on industry practice and
past experience, will be confirmed. The amount of unfilled orders at a
particular time is affected by a number of factors, including the timing of
the receipt and processing of customer orders and scheduling of the
manufacture and shipping of the product, which in some instances is dependent on
the desires of the customer. Accordingly, a comparison of unfilled orders from
period to period is not necessarily meaningful and may not be indicative of
eventual actual shipments.
Competition
There is intense competition in the sectors of the apparel industry in which
the Company participates. The Company competes with many other manufacturers,
some of which are larger and have greater resources than the Company.
The Company competes primarily on the basis of fashion, price and quality.
The Company believes its competitive advantages include its ability to
effectively anticipate and respond to changing consumer demands, its premier
brand names and range of products and its ability to operate within the
industry's production and delivery constraints. Furthermore, the Company's
established brand names and relationships with retailers have resulted in a
highly loyal following of customers.
The Company considers the risk of formidable new competitors to be minimal due
to barriers to entry such as significant startup costs and the long-term nature
of supplier and customer relations. It has been the
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Company's belief that during the past few years, major department stores and
specialty retailers have been increasingly unwilling to source garments from
suppliers who are not well capitalized or do not have established reputations
for delivering quality merchandise in a timely manner. However, there can be
no assurance that significant new competitors will not develop in the future.
Employees
At December 31, 1997, the Company had approximately 3,135 full-time employees.
This total includes 25 in executive or senior managerial positions,
approximately 1,870 in quality control, production, design and distribution
positions, approximately 380 in sales, clerical and office positions and
approximately 860 in the Company factory outlet and full-price retail stores.
The Company also employs approximately 790 part-time employees, of which
approximately 720 work in the Company factory outlet and full-price retail
stores.
Approximately 350 of the Company's employees are members of the Teamsters
Union, which has a four year labor agreement with the Company expiring in March
2002. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The general location, use and approximate size of the Company's principal
properties, all of which are leased, are set forth below:
Approximate Area
Location Use in Square Feet
- --------------------- ----------------------------- ----------------
Bristol, Pennsylvania Headquarters, warehouse 419,200
and distribution
Bristol, Pennsylvania Materials warehouse 102,400
Bristol, Pennsylvania Distribution warehouse 208,000
Bristol, Pennsylvania Computer and accounting 16,425
services
Bristol, Pennsylvania Administrative services 22,500
Ciudad Juarez, Mexico Production 66,850
Downsview, Canada Canadian headquarters, 114,300
warehouse and distribution
El Paso, Texas Administrative services 33,250
Lawrenceburg, Tennessee Distribution warehouses 1,205,100
New York, New York Executive and sales offices 156,700
Rural Hall, North Carolina Materials warehouse 232,200
The Company leases space for 214 outlet stores, five full-price retail stores
and six coffee bars (aggregating approximately 613,500 square feet) at
locations across the United States. The Company also leases regional sales
offices and showrooms in Atlanta, Dallas, Los Angeles and Seattle. The Company
believes that its existing facilities are well maintained, in good operating
condition and that its existing and planned facilities will be adequate for
its operations for the foreseeable future.
The Company occupies a warehouse and office facility which is leased from an
affiliated real estate partnership which is 50% owned by the Company's Chairman.
The lease runs until March 31, 1998. Minimum annual rent payments are
$1,000,000. The lease was capitalized at the fair market value of the
facility which approximated the present value of the minimum lease payments.
Upon the expiration of the lease, the Company has agreed to purchase the
property from the partnership for $10,500,000, which
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approximates fair market value, and enter into a sale and leaseback arrangement
with an unrelated third party. See "Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Price range of common stock:
1997
High $41 3/8 $49 1/8 $57 3/16 $57 5/16
Low $32 1/8 $36 1/8 $46 5/8 $40 7/16
1996
High $24 1/4 $27 3/4 $37 3/8 $37 3/8
Low $17 13/16 $23 1/4 $22 9/16 $29 5/8
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "JNY". The above figures set forth, for the periods indicated, the
high and low sale prices per share of the Company's Common Stock as reported
on the New York Stock Exchange Composite Tape. The last reported sale price
per share of the Company's Common Stock on March 17, 1998 was $55 11/16 and on
that date there were 154 holders of record of the Company's Common Stock.
To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company anticipates that all of its future earnings will be retained
for its financial requirements and does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. All stock prices have been
adjusted to reflect the 2-for-1 stock split effective October 2, 1996.
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ITEM 6. SELECTED FINANCIAL DATA
The following financial information is qualified by reference to, and should
be read in conjunction with, the Company's Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this report.
The selected consolidated financial information presented below is derived from
the Company's audited Consolidated Financial Statements for each of the five
years in the period ended December 31, 1997.
Year Ended December 31, 1997 1996 1995 1994 1993
---------- ---------- -------- -------- --------
Income Statement Data
Net sales $1,372,458 $1,021,042 $776,365 $633,257 $541,152
Licensing income <F1> 15,013 13,036 10,314 8,487 4,907
---------- ---------- -------- -------- --------
Total revenues 1,387,471 1,034,078 786,679 641,744 546,059
Cost of goods sold 940,149 717,250 546,413 438,575 363,742
---------- ---------- -------- -------- --------
Gross profit <F2> 447,322 316,828 240,266 203,169 182,317
Selling, general and
administrative expense 250,685 186,572 139,135 115,307 103,392
---------- ---------- -------- -------- --------
Operating income 196,637 130,256 101,131 87,862 78,925
Interest expense 3,584 3,040 1,908 1,212 716
Interest income (1,556) (547) (445) (695) (810)
---------- ---------- -------- -------- --------
Income before provision
for income taxes 194,609 127,763 99,668 87,345 79,019
Provision for 72,884 46,889 36,183 32,425 30,660
income taxes ---------- ---------- -------- -------- --------
Net income $121,725 $80,874 $63,485 $54,920 $48,359 <F3>
========== ========== ======== ======== ========
Per Share Data <F4><F5>
Net income per share
Basic $2.35 $1.55 $1.22 $1.06 $0.95 <F3>
Diluted $2.26 $1.51 $1.20 $1.04 $0.92 <F3>
Dividends paid per share - - - - -
Weighted average number
of common shares
outstanding
Basic 51,899 52,333 52,130 51,656 50,789
Diluted 53,905 53,651 53,024 52,889 52,286
December 31, 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Balance Sheet Data
Working capital $330,569 $293,970 $260,853 $204,221 $159,175
Total assets 580 767 488,109 400,959 318,286 266,594
Short-term debt,
including current
portion of capital
lease obligations 4,199 3,067 2,327 1,859 1,722
Long-term debt,
including capital
lease obligations 27,290 12,141 10,151 8,029 9,545
Stockholders' equity 435,632 376,729 314,975 248,678 189,120
<F1> Represents license fees received by the Company (net of related expenses).
-13-
14
<F2> Historically, the Company included licensing income as a separate line
item in operating income. In accordance with current industry practice,
the Company has included this amount in total revenues and gross profit.
All periods presented reflect this reclassification of licensing income.
<F3> Represents income before cumulative effect of change in accounting
principle for the year ended December 31, 1993. In 1993, the Company
recorded a cumulative effect of a change in accounting principle for
income taxes as a result of the adoption of SFAS No. 109 which increased
net income by $1,376,000. Basic and diluted income per share for the year
ended December 31, 1993, including this change in accounting principle, was
$0.98 and $0.95, respectively.
<F4> 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 remained at $0.01. All share and per share amounts have been
restated to retroactively reflect the stock split.
<F5> During 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. This Statement, effective for financial statements issued for
periods ending after December 15, 1997, requires restatement of all
prior-period EPS data presented. All periods have been restated to
comply with the provisions of SFAS No. 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
STATEMENTS OF INCOME EXPRESSED AS A PERCENTAGE OF TOTAL REVENUES
Year Ended December 31, 1997 1996 1995
------ ------ ------
Net sales 98.9% 98.7% 98.7%
Licensing income 1.1% 1.3% 1.3%
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
Cost of goods sold 67.8% 69.4% 69.5%
------ ------ ------
Gross profit 32.2% 30.6% 30.5%
Selling, general and
administrative expenses 18.1% 18.0% 17.7%
------ ------ ------
Operating income 14.2% 12.6% 12.9%
Interest expense 0.3% 0.3% 0.2%
Interest income (0.1%) (0.1%) (0.1%)
------ ------ ------
Income before provision
for income taxes 14.0% 12.4% 12.7%
Provision for income taxes 5.3% 4.5% 4.6%
------ ------ ------
Net income 8.8% 7.8% 8.1%
====== ====== ======
Totals may not agree due to rounding.
-14-
15
GENERAL
The following discussion provides information and analysis of the Company's
results of operations from 1995 through 1997 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.
The Company has achieved compound annual growth rates of 32.8% for total
revenues and 39.4% for operating income from 1995 to 1997. Total revenues and
operating income in 1997 increased 34.2% and 51.0%, respectively, over 1996.
The Company believes that it has achieved this growth by enhancing the brand
equity of each of its labels and successfully adding new labels, such as Lauren
by Ralph Lauren, through its focus on exceptional design, quality and value.
The Company has leveraged the strength of its brands to increase both the
number of locations and amount of selling space in which its products are
offered, as well as to introduce new product extensions. The Company has
also benefitted from a trend among its major retail accounts to concentrate
their women's apparel buying among a narrowing group of apparel vendors.
RESULTS OF OPERATIONS
1997 Compared to 1996
Net Sales
Net sales in 1997 increased 34.4%, or $0.4 billion, to $1.4 billion compared
to $1.0 billion in 1996, due primarily to an increase in the number of units
shipped, and also, to a lesser extent, higher average selling prices per
unit. Career sportswear sales increased 15.9%, or $83.9 million, to $612.8
million in 1997 compared to $528.9 million in 1996. Casual sportswear sales
in 1997 increased 10.8%, or $31.5 million, to $323.4 million compared to
$291.9 million in 1996. Lifestyle collection sales in 1997 increased $234.1
million, to $292.9 million compared to $58.8 million in 1996, largely the
result of the rapid growth in sales of the Lauren by Ralph Lauren label.
Net sales for the Company's suit, dress and other category increased 1.4%, or
$2.0 million, to $143.4 million in 1997, compared to $141.4 million in 1996.
Licensing Income
Licensing income increased $2.0 million to $15.0 million in 1997, compared to
$13.0 million in 1996. Income from licenses under the Jones New York label
increased $1.8 million while income from licenses under the Evan-Picone label
rose $0.2 million. The increases were primarily due to higher sales volume by
licensees.
Gross Profit
The gross profit margin was 32.2% in 1997, compared to 30.6% in 1996. The
increase was attributable to the impact of stronger margins across major product
categories and the proportionately larger increase in sales of the Lauren by
Ralph Lauren label, which was introduced in Fall 1996 and carries higher margins
than the corporate average.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $250.7
million in 1997 represented an increase of $64.1 million over $186.6 million
in 1996. As a percentage of total revenues, SG&A expenses increased to 18.1% in
1997 from 18.0% in 1996. Expenses associated with Lauren by Ralph Lauren
product advertising, royalties, store displays and associated operating costs,
as well as the Company's overall sales growth, added significant expenses during
1997. Retail store operating expenses increased $6.9 million, reflecting the
added cost of 19 new stores in operation at the end of 1997.
-15-
16
Operating Income
The resulting 1997 operating income increased $66.3 million to $196.6 million,
compared to $130.3 million during 1996. The operating margin increased to 14.2%
in 1997 from 12.6% in 1996 as a result of the higher gross profit margins
during 1997.
Net Interest Expense
Net interest expense was $2.0 million in 1997 compared to $2.5 million in
1996. The primary reason for the change was an increase in interest income
of $1.0 million, which offset higher interest on capital leases for
additional warehouse facilities constructed during 1997.
Provision for Income Taxes
The effective income tax rate for 1997 was 37.5% compared to 36.7% in 1996.
The increase was primarily due to higher state income tax provisions for 1997.
Net Income
Net income increased 50.5% to $121.7 million in 1997, an increase of $40.8
million over the net income of $80.9 million earned in 1996. Net income as a
percentage of total revenues was 8.8% in 1997 compared to 7.8% in 1996.
1996 Compared to 1995
Net Sales
Net sales in 1996 increased 31.5%, or $244.6 million, to $1,021.0 million,
compared to $776.4 million in 1995, due primarily to an increase in the number
of units shipped. Career sportswear sales increased 20.5%, or $89.8 million,
to $528.9 million in 1996 compared to $439.1 million in 1995. Casual
sportswear sales in 1996 increased 39.7%, or $83.0 million, to $291.9 million
compared to $208.9 million in 1995. Lifestyle collection sales in 1996
increased $56.7 million to $58.8 million, compared to $2.1 million in 1995,
primarily due to the 1996 introduction of the Lauren by Ralph Lauren label.
Net sales for the Company's suit, dress and other category increased 12.0%,
or $15.1 million, to $141.4 million in 1996 compared to $126.3 million in 1995.
Licensing Income
Licensing income increased $2.7 million to $13.0 million in 1996 as compared
to $10.3 million in 1995. Income from licenses under the Jones New York label
increased $2.1 million, while income from licenses under the Evan-Picone
label rose $0.6 million.
Gross Profit
The gross profit margin was 30.6% in 1996 compared to 30.5% in 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 by Ralph Lauren label, which carries higher margins than the
corporate average.
SG&A Expenses
SG&A expenses of $186.6 million in 1996 represented an increase of $47.5
million over $139.1 million in 1995. As a percentage of total revenues, SG&A
expenses increased to 18.0% in 1996 from 17.7% in 1995. Expenses associated
with the Lauren by Ralph Lauren product advertising and royalties and associated
operating costs, as well as the Company's overall sales growth, added
significant expenses during 1996. Retail store operating expenses increased
$10.2 million, reflecting the added cost of 25 new stores in operation at the
end of 1996.
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17
Operating Income
The resulting 1996 operating income of $130.3 million increased $29.2 million,
as compared to $101.1 million during 1995. The operating margin decreased to
12.6% in 1996 from 12.9% in 1995, largely as a result of the higher
percentage of SG&A expenses to sales during 1996.
Net Interest Expense
Net interest expense was $2.5 million in 1996 compared to $1.5 million in
1995. The primary reasons for the change were higher average overall
borrowings and interest on capital leases for additional warehouse facilities
during 1996.
Provision for Income Taxes
The effective income tax rate for 1996 was 36.7% as compared to 36.3% in 1995.
The increase was primarily due to higher state income tax provisions for 1996.
Net Income
Net income increased 27.4% to $80.9 million in 1996, an increase of $17.4
million over the net income of $63.5 million earned in 1995. Net income as a
percentage of total revenues was 7.8% in 1996, compared to 8.1% in 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. As of December 31, 1997, total cash and cash
equivalents were $40.1 million, a $10.0 million increase over the $30.1 million
reported as of December 31, 1996.
Net cash provided by operations was $110.6 million, $70.7 million and $8.9
million in 1997, 1996 and 1995, respectively. The $39.9 million improvement for
1997 was primarily due to a higher net income and a decrease in trade
receivables compared to an increase in the previous two years. While fourth
quarter 1997 sales increased 33.7% over 1996, accounts receivable at the end of
1997 decreased $18.9 million from 1996. This was due to the provision for
allowances that will be granted to customers and fourth quarter shipments
occurring earlier than in prior years, allowing cash collections on a greater
portion of the resulting receivables before the end of the year. Inventories
increased $41.0 million in 1997, $37.8 million in 1996 and $53.1 million in
1995, all of which reflected the inventory levels required to meet anticipated
wholesale shipments for the first quarter of the following year and the net
addition of 19 retail stores in 1997, 25 in 1996, and 42 in 1995.
Net cash used in investing activities increased to $43.3 million, an increase
of $8.0 million over 1996. Cash used in investing activities has been
primarily for the opening of additional warehouse facilities (including, in
1997, cash restricted for use in completing warehouse facilities under
construction at the end of the year), new retail stores and existing store
renovations, computer system hardware and software upgrades and a
$1.5 million payment made in 1996 to satisfy all future royalty obligations to
the former owner of the Evan-Picone trademark. In addition, to support
anticipated growth in the number of units shipped, the Company has committed
to the construction of additional warehouse facilities in 1998. These
facilities, including related equipment, are estimated to cost $28.0 million
and the Company plans to finance all or a portion of the construction through
capital lease financing and long-term debt.
Net cash provided by (used in) financing activities was $(57.2) million in
1997, $(22.2) million in 1996 and $2.4 million in 1995. The principal
reasons for the changes were: (i) $10.0 and $5.0 million in proceeds from
capital leases in 1997 and 1996, respectively, for construction of additional
warehouse facilities; (ii) issuance of $10.0 million in long-term debt in
1997 for construction of an additional warehouse facility; and (iii)
-17-
18
transactions involving the Company's Common Stock. In 1997 and 1996, the
Company repurchased $85.8 million and $33.6 million, respectively, of its
Common Stock on the open market under two announced programs under which the
Company is authorized to acquire an aggregate of up to $200.0 million of such
shares. As of December 31, 1997, $100.0 million had been expended pursuant to
the first stock repurchase program (the maximum authorized) and an additional
$24.0 million had been expended under the second program. Proceeds from the
issuance of common stock to employees exercising stock options amounted to
$12.5 million, $9.1 million and $4.7 million in 1997, 1996 and 1995,
respectively.
As of December 31, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $425.0 million (see Note 5 of
Notes to Consolidated Financial Statements). 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 December 31, 1997, $153.7 million was utilized for letters
of credit and there were no short-term borrowings outstanding. 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 December
31, 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.
THE YEAR 2000
The Company is currently evaluating the impact of the Year 2000 on its
management and information systems. At this time, management believes that
the impact of the Year 2000 will have no material effect on its operations or
financial results.
INFLATION
The Company believes that the relatively moderate rates of inflation which
have been experienced in the United States and Canada, where it competes, have
not had a significant effect on its net sales or profitability.
SEASONALITY OF BUSINESS
Historically, the Company's sales and profit levels fluctuate by quarter.
As a result, the Company experiences seasonal increases and decreases in its
working capital requirements. These patterns result primarily from the
timing of shipments for each season; however, the timing of seasonal shipments
can vary from quarter to quarter. Fall merchandise is shipped principally in
the third quarter while Spring merchandise is shipped primarily in the first
quarter. Summer and Holiday/Resort goods, the smaller of the seasons, are
shipped primarily in the second and fourth quarters, respectively. For an
analysis of quarterly historical operating trends, see Note 14 of Notes to
Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued two new disclosure
standards.
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
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19
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. The adoption of these standards is not
expected to have a material effect on the Company's financial position or
results of operations. The Company is currently reviewing SFAS No. 131 and
has of yet been unable to fully evaluate the impact, if any, it may have on
future financial statement disclosures.
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 Annual Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition," 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of Jones Apparel Group, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial
statements and other financial information presented in this report. The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and properly reflect the
effects of certain estimates and judgements made by management.
The Company's management maintains an effective system of internal control
that is designed to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and executed in accordance with
management's authorization. The system is continuously monitored by direct
management
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20
review, the independent accountants and by internal auditors who conduct an
extensive program of audits throughout the Company.
The Company's consolidated financial statements have been audited by BDO
Seidman, LLP, independent accountants. Their audits were conducted in
accordance with generally accepted auditing standards, and included a review
of financial controls and tests of accounting records and procedures as they
considered necessary in the circumstances.
The Audit Committee of the Board of Directors, which consists of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to review accounting, reporting, auditing and
internal control matters. The committee has direct and private access to both
internal and external auditors.
/s/ Sidney Kimmel /s/ Wesley R. Card
Sidney Kimmel Wesley R. Card
Chairman Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Jones Apparel Group, Inc.
We have audited the accompanying consolidated balance sheets of Jones Apparel
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jones
Apparel Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 6, 1998
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21
Jones Apparel Group, Inc.
Consolidated Balance Sheets
(All amounts in thousands except per share data)
December 31, 1997 1996
------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $40,134 $30,085
Accounts receivable, net of allowance
of $2,767 and $2,263 for doubtful accounts 91,747 112,678
Inventories 255,055 214,437
Receivable from and advances to contractors 7,833 11,490
Prepaid and refundable income taxes 5,993 -
Deferred taxes 26,269 9,708
Prepaid expenses and other current assets 13,740 11,432
-------- --------
TOTAL CURRENT ASSETS 440,771 389,830
PROPERTY, PLANT AND EQUIPMENT, at cost,
less accumulated depreciation and amortization 81,934 61,696
CASH RESTRICTED FOR CAPITAL ADDITIONS 11,193 -
INTANGIBLES, at cost, less
accumulated amortization 30,604 26,288
OTHER ASSETS 16,265 10,295
-------- --------
$580,767 $488,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $4,199 $3,067
Accounts payable 90,429 72,569
Income taxes payable - 8,959
Accrued expenses and other current liabilities 15,574 11,265
-------- --------
TOTAL CURRENT LIABILITIES 110,202 95,860
-------- --------
NONCURRENT LIABILITIES:
Obligations under capital leases 18,457 12,134
Long-term debt 8,833 7
Other 6,107 -
-------- --------
TOTAL NONCURRENT LIABILITIES 33,397 12,141
-------- --------
TOTAL LIABILITIES 143,599 108,001
-------- --------
COMMITMENTS AND CONTINGENCIES - -
EXCESS OF NET ASSETS ACQUIRED OVER COST 1,536 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 54,478 and 53,595 545 536
Additional paid-in capital 122,582 99,140
Retained earnings 438,917 317,192
Cumulative foreign currency
translation adjustment (1,524) (1,154)
-------- --------
560,520 415,714
Less treasury stock,
3,384 and 1,600 shares, at cost (124,888) (38,985)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 435,632 376,729
-------- --------
$580,767 $488,109
======== ========
See accompanying notes to consolidated financial statements
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22
Jones Apparel Group, Inc.
Consolidated Statements of Income
(All amounts in thousands except per share data)
Year Ended December 31, 1997 1996 1995
---------- ---------- --------
NET SALES $1,372,458 $1,021,042 $776,365
LICENSING INCOME 15,013 13,036 10,314
---------- ---------- --------
Total revenues 1,387,471 1,034,078 786,679
COST OF GOODS SOLD 940,149 717,250 546,413
---------- ---------- --------
Gross profit 447,322 316,828 240,266
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 250,685 186,572 139,135
---------- ---------- --------
Operating income 196,637 130,256 101,131
INTEREST EXPENSE 3,584 3,040 1,908
INTEREST INCOME (1,556) (547) (445)
---------- ---------- --------
Income before provision for
income taxes 194,609 127,763 99,668
PROVISION FOR INCOME TAXES 72,884 46,889 36,183
---------- ---------- --------
NET INCOME $121,725 $80,874 $63,485
========== ========== ========
EARNINGS PER SHARE
Basic $2.35 $1.55 $1.22
Diluted $2.26 $1.51 $1.20
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic 51,899 52,333 52,130
Diluted 53,905 53,651 53,024
See accompanying notes to consolidated financial statements
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23
Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity
(All amounts in thousands)
CAPTION>
Cumulative
foreign Total
Additional currency Stock-
Common paid-in Retained translation Treasury holders'
stock capital earnings adjustments stock equity
---- -------- -------- ------- --------- --------
BALANCE, JANUARY 1, 1995 $259 $76,711 $172,916 $(1,208) $ - $248,678
YEAR ENDED DECEMBER 31, 1995:
Amortization of deferred
compensation in connection
with executive stock options - 232 - - - 232
Net income - - 63,485 - - 63,485
Exercise of stock options 4 4,730 (83) - 168 4,819
Tax benefit derived from
exercise of stock options - 2,499 - - - 2,499
Stock tendered as payment for
options exercised - - - - (168) (168)
Treasury stock acquired - - - - (4,638) (4,638)
Foreign currency translation
adjustments - - - 68 - 68
--- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 263 84,172 236,318 (1,140) (4,638) 314,975
YEAR ENDED DECEMBER 31, 1996:
Amortization of deferred
compensation in connection
with executive stock options - 290 - - - 290
Net income - - 80,874 - - 80,874
Exercise of stock options 6 9,825 - - - 9,831
Tax benefit derived from
exercise of stock options - 5,157 - - - 5,157
Stock tendered as payment
for options exercised - - - - (763) (763)
Treasury stock acquired - - - - (33,584) (33,584)
Effect of 2-for-1 stock split 267 (267) - - - -
Registration of 1996
Stock Option Plan - (37) - - - (37)
Foreign currency translation
adjustments - - - (14) - (14)
--- -------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1996 536 99,140 317,192 (1,154) (38,985) 376,729
YEAR ENDED DECEMBER 31, 1997:
Amortization of deferred
compensation in connection
with executive stock options
and related items - 2,778 - - - 2,778
Net income - - 121,725 - - 121,725
Exercise of stock options 9 12,597 - - - 12,606
Tax benefit derived from
exercise of stock options - 8,067 - - - 8,067
Stock tendered as payment
for options exercised - - - - (100) (100)
Treasury stock acquired - - - - (85,803) (85,803)
Foreign currency translation
adjustments - - - (370) - (370)
---- -------- -------- ------- --------- --------
BALANCE, DECEMBER 31, 1997 $545 $122,582 $438,917 $(1,524) $(124,888) $435,632
==== ======== ======== ======= ========= ========
See accompanying notes to consolidated financial statements
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24
Jones Apparel Group, Inc.
Consolidated Statements of Cash Flows
(All amounts in thousands)
Year Ended December 31, 1997 1996 1995
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $121,725 $80,874 $63,485
-------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,594 8,948 6,724
Provision for losses on
trade receivables 1,870 800 (464)
Deferred taxes (17,907) 7,233 7,622
Other 264 416 40
Decrease (increase) in:
Trade receivables 18,917 (21,349) (17,873)
Inventories (40,961) (37,814) (53,077)
Prepaid expenses and
other current assets 1,264 10,624 (10,746)
Other assets (6,273) (3,703) (5,027)
Increase (decrease) in:
Accounts payable 17,909 13,498 13,371
Taxes payable (5,253) 6,673 4,116
Accrued expenses and other
current liabilities 4,428 4,492 768
-------- ------- -------
Total adjustments (11,148) (10,182) (54,546)
-------- ------- -------
Net cash provided by
operating activities 110,577 70,692 8,939
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (32,149) (34,066) (16,013)
Proceeds from disposition of assets - 261 635
Increase in cash restricted
for capital additions (11,193) - -
Acquisition of trademarks and licenses - (1,492) (28)
-------- ------- -------
Net cash used in investing activities (43,342) (35,297) (15,406)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
debt and capital leases (3,939) (2,623) (2,606)
Purchases of treasury stock (85,803) (33,584) (4,638)
Proceeds from issuance of
long-term debt 10,000 - -
Proceeds from capital leases 10,000 5,000 5,000
Proceeds from exercise of stock options 12,507 9,068 4,651
Other - (37) -
Net cash provided by (used in) -------- ------- -------
financing activities (57,235) (22,176) 2,407
-------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH 49 2 (202)
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,049 13,221 (4,262)
CASH AND CASH EQUIVALENTS, BEGINNING 30,085 16,864 21,126
-------- ------- -------
CASH AND CASH EQUIVALENTS, ENDING $40,134 $30,085 $16,864
======== ======= =======
See accompanying notes to consolidated financial statements
-24-
25
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The Company designs, contracts for the manufacture of, and markets a broad
range of women's career and casual sportswear, suits and dresses. The
Company sells its products to better specialty and department stores and also
operates its own network of factory outlet stores. In addition, the Company
licenses the use of several of its brand names to select manufacturers of
women's and men's apparel and accessories.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash, cash equivalents and
accounts receivable. The Company places its cash and cash equivalents in
investment-grade, short-term debt instruments with quality financial
institutions and the U.S. Government and, by policy, limits the amount of
credit exposure in any one financial vehicle. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The allowance for non-collection
of accounts receivable is based upon the expected collectibility of all
accounts receivable.
Financial Instruments
The fair value of cash and cash equivalents and receivables approximate their
carrying value due to their short-term maturities. The fair value of
long-term debt instruments, including the current portion, approximates the
carrying value and is estimated based on the current rates offered to the
Company for debt of similar maturities.
Inventories
Inventories are stated at the lower of cost or market. Wholesale inventories
are determined using the first-in, first-out method while retail inventories
are determined using the retail method.
Property, Plant, Equipment and Depreciation
Depreciation and amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from three to twenty years.
Leased Property Under Capital Leases
Property under capital leases is amortized over the lives of the respective
leases or the estimated useful lives of the assets.
Intangibles
Intangibles, which include trademarks and license agreements, are amortized on
a straight-line basis over the estimated useful lives of the assets.
-25-
26
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Excess of Net Assets Acquired Over Cost
The excess of net assets acquired over cost of acquired businesses is
amortized using the straight-line method over a five year period.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translations." Balance sheet accounts are
translated at the current exchange rate and income statement items are
translated at the average exchange rate for the period. Gains and losses
resulting from translation are accumulated in a separate component of
stockholders' equity. Segment data is not provided as foreign operations are
not material.
Treasury Stock
Treasury stock is recorded at net acquisition cost. Gains and losses on
disposition are recorded as increases or decreases to additional paid-in
capital with losses in excess of previously recorded gains charged directly
to retained earnings.
Revenue Recognition
Sales are recognized upon shipment of products or, in the case of retail
sales, at the time of register receipt. Allowances for estimated returns are
provided when sales are recorded.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Current tax assets and liabilities are recognized for the estimated
Federal, foreign, state and local income taxes payable or refundable on the
tax returns for the current year. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary timing
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based
on the changes to the respective assets and liabilities from period to period.
Stock Options
The Company uses the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount the employee
must pay to acquire the stock. The compensation cost is recognized over the
vesting period of the options.
Earnings per Share
During 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. This
Statement, effective for financial statements issued for periods ending after
December 15, 1997, requires restatement of all prior-period EPS data
presented. 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
reflect, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options. All periods
presented have been restated to comply with the provisions of SFAS No. 128.
Cash Equivalents
The Company considers all highly liquid short-term investments to be cash
equivalents.
-26-
27
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Long-Lived Assets
The Company reviews certain long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In that regard, the Company assesses
the recoverability of such assets based upon estimated non-discounted cash flow
forecasts.
Presentation of Prior Year Data
Certain reclassifications have been made to conform prior year data with the
current presentation.
New Accounting Standards
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. The adoption of these standards is not
expected to have a material effect on the Company's financial position or
results of operations. The Company is currently reviewing SFAS No. 131 and
has of yet been unable to fully evaluate the impact, if any, it may have on
future financial statement disclosures.
NOTE 2. INVENTORIES
Inventories are summarized as follows:
December 31, 1997 1996
(In thousands) -------- --------
Raw materials $27,045 $38,571
Work in process 41,294 37,682
Finished goods 186,716 138,184
-------- --------
$255,055 $214,437
======== ========
-27-
28
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
December 31, 1997 1996
(In thousands) ------- -------
Land and buildings $37,893 $36,763
Leasehold improvements 29,230 24,712
Machinery and equipment 31,979 25,340
Furniture and fixtures 9,666 6,932
Construction in progress 17,355 1,076
------- -------
126,123 94,823
Less: accumulated depreciation and amortization 44,189 33,127
------- -------
$81,934 $61,696
======= =======
Included in property, plant and equipment are the following capitalized
leases:
December 31, 1997 1996
(In thousands) ------- -------
Buildings $32,137 $31,006
Machinery and equipment 3,759 3,538
Construction in progress 9,937 -
------- -------
45,833 34,544
Less: accumulated amortization 12,626 10,243
------- -------
$33,207 $24,301
======= =======
At December 31, 1997, the Company had commitments to construct additional
warehouse facilities. These facilities, which will be completed during 1998,
will cost an estimated $28,000,000 in the aggregate. As of December 31,
1997, a total of $9,937,000 had been expended on these projects and the Company
had $11,193,000 in cash on hand restricted for use in their completion.
-28-
29
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
Useful
lives
December 31, 1997 1996 (years)
(In thousands) ------- ------- ----------
Trademarks $32,972 $26,865 15 to 20
License agreements 5,319 5,319 51/2 to 19
------- -------
38,291 32,184
Less: accumulated amortization 7,687 5,896
------- -------
$30,604 $26,288
======= =======
NOTE 5. SHORT-TERM BORROWINGS
At December 31, 1997, the Company had credit arrangements with six United
States financial institutions which totaled $425,000,000. 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
$170,000,000 for unsecured borrowings with rates depending on the borrowing
vehicle utilized. At December 31, 1997, the estimated aggregate interest
rate on the lines was 7.1%. The Company was committed for unexpired bank
letters of credit at December 31, 1997 in the amount of $153,744,000 and there
were no short-term borrowings outstanding. The Company also has a line of
credit with a Canadian institution for C$4,000,000 to be used for unsecured
borrowings under which no amounts were outstanding at December 31, 1997.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, 1997 1996
(In thousands) ------ ------
7.125% Industrial revenue bonds, due 2007 $9,833 $ -
Other debt 10 48
------ ------
9,843 48
Less: current portion 1,010 41
------ ------
$8,833 $ 7
====== ======
During 1997, the Company issued $10.0 million of long-term debt to finance
construction of a new warehouse facility. The aggregate maturities for
long-term debt for the five years after December 31, 1997 are approximately
$1,000,000 per year.
-29-
30
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 7. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
December 31, 1997 1996
(In thousands) ------- -------
Warehouses, office facilities and equipment $21,646 $15,160
Less: current portion 3,189 3,026
------- -------
Obligations under capital leases - noncurrent $18,457 $12,134
======= =======
The Company occupies a warehouse and office facility which is leased from an
affiliated real estate partnership which is 50% owned by the Company's
Chairman. The lease runs until March 15, 1998. Minimum annual rent payments
are $1,000,000. The lease was capitalized at the fair market value of the
facility which approximated the present value of the minimum lease payments.
Upon the expiration of the lease, the Company has agreed to purchase the
property from the partnership for $10,500,000, which approximates fair market
value, and enter into a sale and leaseback arrangement with an unrelated third
party.
The Company occupies warehouse and office facilities leased from the City of
Lawrenceburg, Tennessee. Four ten-year net leases run until February 2004,
July 2005, May 2006 and April 2007, respectively, and require minimum annual
rent payments of $500,000, $500,000, $500,000, and $1,000,000, respectively,
plus accrued interest. In connection with these leases, the Company guaranteed
$25,000,000 of Industrial Development Bonds issued in order to construct the
facilities, $20,417,000 of which remained unpaid as of December 31, 1997.
The financing agreement with the issuing authority (i) requires the Company to
maintain stipulated levels of insurance and tangible net worth, (ii) requires
the Company to maintain minimum ratios of cash flow to debt service and
liabilities to tangible net worth and (iii) contains certain other restrictions.
The Company also leases various equipment under three to five year leases at
an aggregate annual rental of $767,000. The equipment has been capitalized
at its fair market value of $2,650,000, which approximates the present value
of the minimum lease payments.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1997:
Year Ending December 31,
(In thousands)
1998 $4,638
1999 4,254
2000 3,523
2001 3,345
2002 3,166
Later years 8,994
-------
Total minimum lease payments 27,920
Less: amount representing interest 6,274
-------
Present value of net minimum lease payments $21,646
=======
-30-
31
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 8. SIGNIFICANT CUSTOMERS
A significant portion of the Company's sales are to retailers throughout the
United States and Canada. Sales to department stores owned by Federated
Department Stores, Inc. ("Federated") accounted for 20%, 20% and 21% for the
years ended December 31, 1997, 1996 and 1995, respectively. Sales to
department stores owned by The May Department Stores Company ("May")
accounted for 19%, 20% and 19% for the years ended December 31, 1997, 1996
and 1995, respectively. Federated and May accounted for approximately 43%
of accounts receivable at December 31, 1997.
NOTE 9. COMMITMENTS
(a) LEASES. Total rent expense charged to operations for the years ended
December 31, 1997, 1996 and 1995 was $22,159,000, 18,888,000 and $15,359,000,
respectively.
The following is a schedule by year of future minimum rental payments required
under operating leases for the next five years:
Year Ending December 31,
(In thousands)
1998 $18,059
1999 17,320
2000 15,124
2001 13,416
2002 8,506
Later years 17,617
-------
$90,042
=======
Certain of the leases provide for renewal options and the payment of real
estate taxes and other occupancy costs.
(b) CONTINGENT LIABILITIES. Various lawsuits and claims arising during the
normal course of business are pending against the Company and its
consolidated subsidiaries. In the opinion of management, the ultimate
liability, if any, resulting from these matters will have no significant effect
on the Company's consolidated financial position, results of operations or
liquidity.
(c) ROYALTIES. Under an exclusive license to manufacture certain items
under the Lauren by Ralph Lauren trademark pursuant to license and design
service agreements with Polo Ralph Lauren Corporation, the Company is
obligated to pay Polo Ralph Lauren Corporation a percentage of net sales of
Lauren by Ralph Lauren products. Under these agreements, minimum payments of
$7,000,000 are due for each of the years 2000 and 2001. The license and
design service agreements expire on December 31, 2001 and provide for certain
renewal options at that time.
-31-
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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 10. INCOME TAXES
The following summarizes the provision for income taxes:
Year ended December 31, 1997 1996 1995
(In thousands) ------- ------- -------
Current:
Federal $78,811 $34,522 $23,236
State and local 10,524 3,733 3,030
Foreign 1,456 1,401 2,295
------- ------- -------
90,791 39,656 28,561
------- ------- -------
Deferred:
Federal (15,359) 7,722 7,653
State and local (2,240) (489) (31)
Foreign (308) - -
------- ------- -------
(17,907) 7,233 7,622
------- ------- -------
Provision for income taxes $72,884 $46,889 $36,183
======= ======= =======
The foreign and domestic components of income before provision for income taxes
were as follows:
Year ended December 31, 1997 1996 1995
(In thousands) -------- -------- -------
United States $192,482 $125,650 $94,224
Canada 1,815 2,378 2,666
Other 312 (265) 2,778
-------- -------- -------
Income before provision
for income taxes $194,609 $127,763 $99,668
======== ======== =======
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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The provision for income taxes on adjusted historical income differs from the
amounts computed by applying the applicable Federal statutory rates due to
the following:
Year ended December 31, 1997 1996 1995
(In thousands) ------- -------- -------
Provision for Federal income
taxes at the statutory rate $68,113 $44,717 $34,884
State and local income taxes,
net of federal benefit 5,385 2,108 1,949
Amortization of excess of net
assets acquired over cost (645) (645) (645)
Other items, net 31 709 (5)
------- ------- -------
Provision for income taxes $72,884 $46,889 $36,183
======= ======= =======
The Company has not provided for U.S. Federal and foreign withholding taxes on
$2,727,000 of foreign subsidiaries' undistributed earnings as of December 31,
1997. Such earnings are intended to be reinvested indefinitely.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
December 31, 1997 1996
(In thousands) ------- -------
Deferred tax assets:
Nondeductible accruals and allowances $23,587 $ 8,009
Depreciation and amortization 561 1,118
Other (net) 2,286 1,042
------- -------
Net deferred tax asset $26,434 $10,169
======= =======
-33-
34
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. COMMON 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 remained at
$0.01. The issuance of authorized but unissued shares resulted in the transfer
of $267,000 from additional paid-in capital to common stock, representing the
par value of the shares issued. All share and per share amounts have been
restated to retroactively reflect the stock split.
In 1995, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's Common Stock in open market transactions over
a two-year period ending in December, 1997. The program expired on October
27, 1997, through which date 2,823,394 shares had been acquired at a cost of
$100,000,000.
In 1997, the Board of Directors authorized an additional program to
repurchase the Company's Common Stock from time to time in open market
transactions not to exceed $100,000,000 in aggregate price. This program was
to commence upon the earlier of December 15, 1997 or the full utilization of
the previous buy-back program and has no time limit. As of December 31,
1997, 530,106 shares had been acquired at a cost of $24,025,000, leaving
$75,975,000 available for future repurchases at that date.
NOTE 12. STATEMENT OF CASH FLOWS
Cash interest payments during the years ended December 31, 1997, 1996 and
1995 were $3,941,000, $3,207,000 and $2,118,000, respectively.
Cash income tax payments during the years ended December 31, 1997, 1996 and
1995 were $96,251,000, $32,110,000 and $23,068,000, respectively.
In connection with an agreement entered into for the formal acquisition of and
payment for a currently utilized trademark, the Company recorded a $6,107,000
intangible asset and an offsetting long-term liability.
Reductions in income tax payments resulting from the exercise of employee
stock options during the years ended December 31, 1997, 1996 and 1995 were
$8,067,000, $5,157,000 and $2,499,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the year ended December 31, 1997 exchanged
2,122 shares of the Company's Common Stock (valued at $100,000) for 8,163
newly issued shares, during the year ended December 31, 1996 exchanged 28,000
shares of the Company's Common Stock (valued at $763,000) for 67,430 newly
issued shares and during the year ended December 31, 1995 exchanged 11,536
shares of the Company's Common Stock (valued at $168,000) for 24,000 newly
issued shares.
-34-
35
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 13. STOCK OPTIONS
At December 31, 1997, the Company has two stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the
plans. Under APB Opinion 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation cost is recognized.
Under the Company's 1991 and 1996 Stock Option Plans, options to purchase an
aggregate of not more than 5,000,000 shares and 4,000,000 shares,
respectively, of common stock may be granted from time to time to key
employees, officers, directors, advisors and independent consultants to the
Company or to any of its subsidiaries. The Plans are administered by the
Board of Directors, which has empowered a committee of directors to
administer the Plans.
Under both plans, the per share exercise price for incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of
the common stock on the date the option is granted (110% of fair market value
on the date of grant of an ISO if the optionee owns more than 10% of the
Company). Under the 1991 Plan, the per share exercise price for non-
qualified stock options ("NQSOs") will not be less than 75% of the fair
market value on the date the option is granted. The 1996 Plan has no
restrictions on NQSO pricing. Under the 1991 Plan, options may be granted
for a term to be determined by the committee of not less than one or more
than ten years from the date of grant; under the 1996 Plan, options may be
granted for a term of not less than six months or more than ten years from
the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings
per share as if compensation cost for the Company's stock option plans had
been determined in accordance with the fair value-based method prescribed in
FASB Statement 123. The Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997, 1996 and
1995, respectively: no dividends paid for all years; expected volatility of
34.7%, 38.9% and 40.7%; risk-free interest rates of 6.04%, 6.20% and 6.16%;
and expected lives of 3.4, 3.0 and 3.0 years.
Under the accounting provisions of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated in the following table.
December 31, 1997 1996 1995
-------- ------- -------
Net income (in thousands)
As reported $121,725 $80,874 $63,485
Pro forma 116,120 79,074 63,387
Basic earnings per share
As reported $2.35 $1.55 $1.22
Pro forma $2.24 $1.51 $1.22
Diluted earnings per share
As reported $2.26 $1.51 $1.20
Pro forma $2.15 $1.47 $1.20
-35-
36
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table contains information on stock options for the three
year period ended December 31, 1997:
Exercise Weighted
Option price range average
shares per share price
--------- ------------------ ------
Outstanding, January 1, 1995 3,726,366 $0.40 to $16.125 $9.65
Granted 180,000 $12.00 to $17.75 $14.28
Exercised 777,766 $0.40 to $14.25 $6.20
Forfeited 78,000 $7.00 to $16.125 $13.63
--------- ------------------ ------
Outstanding, December 31, 1995 3,050,600 $0.40 to $17.75 $10.71
Granted 2,166,000 $14.715 to $34.375 $24.53
Exercised 1,031,230 $0.40 to $14.5625 $9.53
Forfeited 76,200 $7.00 to $24.00 $14.93
--------- ------------------ ------
Outstanding, December 31, 1996 4,109,170 $0.40 to $34.375 $18.17
Granted 1,717,000 $1.00 to $51.50 $47.04
Exercised 883,118 $7.00 to $36.625 $14.28
Forfeited 18,800 $12.375 to $24.75 $21.46
--------- ------------------ ------
Outstanding, December 31, 1997 4,924,252 $0.40 to $51.50 $28.88
========= ================== ======
Exercisable at year-end
1995 980,400 $0.40 to $15.0625 $8.93
1996 733,770 $0.40 to $17.50 $9.56
1997 894,854 $0.40 to $34.375 $13.90
1991 Plan 1996 Plan
--------- ---------
Available for future grants
1995 938,334 -
1996 49,534 2,799,000
1997 3,134 1,147,200
Exercise price Exercise price Total
less than market equal to market options
---------------- --------------- -------
Weighted-average
fair value of:
Options granted in 1995 - $4.74 $4.74
Options granted in 1996 $8.46 $8.00 $8.01
Options granted in 1997 $35.72 $14.90 $15.20
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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information about stock options outstanding at
December 31, 1997.
Range of exercise prices: $0.40 $11.25 $21.125 $32.625 $44.00 $0.40
to to to to to to
$9.50 $19.625 $24.3125 $39.25 $51.50 $51.50
------- --------- --------- ------- --------- ---------
Outstanding Options
Number outstanding
at December 31, 1997 361,167 1,044,867 1,579,218 324,000 1,615,000 4,924,252
Weighted-average remaining
contractual life (years) 3.4 6.9 8.6 9.0 9.8 8.3
Weighted-average
exercise price $5.86 $13.55 $23.97 $34.53 $47.61 $28.88
Exercisable options
Number outstanding
at December 31, 1997 261,169 373,067 253,618 7,000 - 894,854
Weighted-average
exercise price $4.61 $13.16 $23.98 $34.38 - $13.90
NOTE 14. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
Unaudited interim consolidated financial information for the two years ended
December 31, 1997 is summarized as follows:
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1997
Net sales $317,990 $262,988 $445,972 $345,508
Total revenues 321,455 266,289 450,508 349,219
Gross profit 106,571 87,747 147,201 105,803
Operating income 47,475 31,115 79,383 38,664
Net income 29,540 19,280 48,938 23,967
Diluted earnings per share $0.55 $0.36 $0.90 $0.45
1996
Net sales $260,350 $193,275 $309,019 $258,398
Total revenues 262,926 195,934 313,228 261,990
Gross profit 75,369 63,691 99,706 78,062
Operating income 32,652 21,534 49,788 26,282
Net income 20,339 13,338 30,878 16,319
Diluted earnings per share $0.38 $0.25 $0.58 $0.30
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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 15. EMPLOYEE BENEFIT PLAN
The Company maintains the Jones Apparel Group, Inc. Retirement Plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. Full-time
employees not covered by a collective bargaining agreement and meeting
certain other requirements are eligible to participate in the Plan. Under the
Plan, employees may elect to have up to 10% of their salary deferred and
deposited with a qualified trustee, who in turn invests the money in a
variety of investment vehicles as selected by each employee.
From January 1, 1995 through March 31, 1996, the Company matched 30% of each
participant's contributions with the Company's contribution limited to a
maximum of 1.8% of the employee's total compensation for employees earnings
less than $150,000 per year. For employees earning over $150,000 per year,
the Company matched 25% of each participant's contributions with the Company's
contribution limited to a maximum of 1% of the employee's total compensation.
On April 1, 1996, the Company matching contribution rates were increased to
50% and 3.0% of total compensation, respectively, for employees earning up to
$150,000 per year and 35% and 2.1% of total compensation, respectively, for
employees earning over $150,000 per year.
Contributions and salary deferrals are subject to limitations imposed by the
Internal Revenue Code. The Company may, at its sole discretion, contribute
additional amounts to all employees on a pro rata basis. All employee
contributions into the Plan are 100% vested, while the Company's matching
contributions vest over a five-year period. The Company contributed
approximately $1,241,000, $801,000 and $369,000 to the Plan during the years
ended December 31, 1997, 1996 and 1995, respectively.
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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 16. EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three years ended
December 31, 1997, 1996 and 1995 are calculated as follows (in thousands
except per share amounts):
Net Per-share
Income Shares Amount
-------- ------ ------
For the year ended December 31, 1997:
Basic earnings per share $121,725 51,899 $2.35
Effect of assumed conversion
of employee stock options - 2,006 $0.09
-------- ------ ------
Diluted earnings per share $121,725 53,905 $2.26
======== ====== ======
For the year ended December 31, 1996:
Basic earnings per share $80,874 52,333 $1.55
Effect of assumed conversion
of employee stock options - 1,318 $0.04
------- ------ ------
Diluted earnings per share $80,874 53,651 $1.51
======= ====== ======
For the year ended December 31, 1995:
Basic earnings per share $63,485 52,130 $1.22
Effect of assumed conversion
of employee stock options - 894 $0.02
------- ------ ------
Diluted earnings per share $63,485 53,024 $1.20
======= ====== ======
Options to purchase 1,590,000 shares of common stock at exercise prices
ranging from $45 5/16 to $51 1/2 per share were outstanding during a portion
of 1997 but were not included in the computation of diluted earnings per
share because the exercise prices of the options were greater than the average
market price of the common shares. These options, which expire between
July 22 and December 12, 2007, were all outstanding at the end of 1997.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Office
- --------------------- --- -----------------------------------
Sidney Kimmel 70 Chairman and Director
Herbert J. Goodfriend 71 Vice Chairman and Director
Jackwyn Nemerov 46 President
Irwin Samelman 67 Executive Vice President, Marketing
and Director
Wesley R. Card 50 Chief Financial Officer
Patrick M. Farrell 48 Vice President and
Corporate Controller
Geraldine Stutz 69 Director
Howard Gittis 64 Director
Each director who is not a full-time employee of the Company will receive an
annual grant of options to purchase 1,000 shares of the Company's common stock
at an exercise price of $1.00 per share. Each option will expire on the
tenth anniversary of its date of grant, and will be exercisable, in whole or in
part, commencing six months from the date of grant and thereafter during the
exercise period. Officers are appointed by the Board of Directors.
The Board of Directors has appointed an Audit Committee consisting of Ms.
Stutz and Mr. Gittis. The Audit Committee meets periodically to review and
make recommendations with respect to the Company's internal controls and
financial reports, and in connection with such reviews, has met with appropriate
Company financial personnel and the Company's independent certified public
accountants. The Board of Directors has also appointed a Stock Option
Committee consisting of Ms. Stutz and Mr. Gittis to administer the 1991 and
1996 Stock Option Plans and a Compensation Committee consisting of Ms. Stutz and
Mr. Gittis to determine cash and other incentive compensation to be paid to
the Company's executive officers.
Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970.
Mr. Kimmel has served as Chairman since 1975. Prior to 1975, Mr. Kimmel
occupied various executive offices including President
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of Jones New York and Vice President of John Meyer of Norwich. Prior to
founding Jones, Mr. Kimmel was employed by W.R. Grace & Co. and was President of
Villager, Inc., a sportswear company.
Mr. Goodfriend joined the Company in 1990 after serving as the Company's legal
counsel for the previous three years and has served as a director since July
1991. Before joining Jones, Mr. Goodfriend served as a director of Villager,
Inc. and Venice Industries, Inc. In addition, Mr. Goodfriend is engaged in the
practice of law and is of counsel to the firm of Phillips Nizer Benjamin Krim &
Ballon LLP, which performs legal services for the Company.
Ms. Nemerov was appointed President in January 1997. She joined the Company
in 1985 and served as President of the Company's casual sportswear divisions
and the Lauren by Ralph Lauren division. Prior to joining Jones, Ms. Nemerov
was President of the Gloria Vanderbilt division of Murjani, Inc. from 1980
through 1985.
Mr. Samelman has been Executive Vice President, Marketing of the Company since
1991 and has served as a director since July 1991. In addition, from 1987 to
1991, Mr. Samelman provided marketing consulting services to the Company
through Samelman Associates, Inc., a private consulting company controlled by
him. Prior thereto, Mr. Samelman was Regional Marketing Manager of Russ Togs,
Inc. and Vice President of Villager, Inc.
Mr. Card joined the Company in 1990. Prior to joining Jones, Mr. Card held
the positions of Executive Vice President and Chief Financial Officer of
Carolyne Roehm, Inc., and Corporate Vice President, Controller and Assistant
Secretary of Warnaco, Inc.
Mr. Farrell was appointed Vice President and Corporate Controller in November
1997. He joined the Company in 1994 as Director of Internal Audit and served
as Vice President, Finance and Administration of Retail Operations of the
Company since 1995. Prior to joining the Company, Mr. Farrell was Director of
Internal Audit for Crystal Brands, Inc.
Ms. Stutz has been a director of the Company since July 1991. Since 1993, Ms.
Stutz has been a principal partner of Panache Productions, a fashion and
marketing service. During the previous five years, she was Publisher of
Panache Press at Random House, a book publisher. From 1960 until 1986, Ms.
Stutz was President of Henri Bendel. Ms. Stutz serves on the Board of
Directors of Tiffany & Co., The Theatre Development Fund and The Actors' Fund.
Mr. Gittis has been a director of the Company since April 1992. During the
past five years, Mr. Gittis' principal occupation has been Director and Vice
Chairman of MacAndrews & Forbes Holdings Inc., a diversified holding company.
In addition, Mr. Gittis is a director of Andrews Group Incorporated,
California Federal Bank, a Federal Savings Bank, Consolidated Cigar
Corporation, Consolidated Cigar Holdings Inc., First Nationwide Holdings
Inc., First Nationwide (Parent) Holdings Inc., Loral Space and Communications
Ltd., Mafco Consolidated Group Inc., Pneumo Abex Corporation, Power Control
Technologies, Inc., Revlon, Inc., Revlon Consumer Products Corporation, Revlon
Worldwide Corporation and Rutherford-Moran Oil Corporation.
Key Employees
The following persons, although not executive officers of the Company, make
significant business contributions to the Company:
Rena Rowan was the original creator of the Jones New York line and served as
the division's Chief Designer from 1970 to 1982. She is currently
Vice President, Design of the Company. From 1991 to 1993, Ms.
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42
Rowan was an executive vice president of the Company. Prior to the inception of
Jones New York, Ms. Rowan was employed by Villager, Inc. and Rosenau, Inc.
Anita Britt, Director of Investor Relations and Financial Planning, joined the
Company in December 1993. Prior to joining the Company, Ms. Britt was
Director of Internal Audit of American Reliance Group, Inc.
Howard Buerkle has been President of Retail Operations for the Company since
1989. From 1986 through 1989, Mr. Buerkle was President of the retail
division of Inwear/Martinique.
Ellen Daniel, President of the Evan-Picone Collection division, joined Jones
in 1994. From 1982 through 1994, Ms. Daniel was employed by Liz Claiborne,
most recently as Senior Vice President - Corporate Design Director.
Ira Dansky joined the Company in 1996 as General Counsel. Prior to joining
the Company, Mr. Dansky was engaged in private law practice from 1987
through 1996, prior to which he served as Associate General Counsel of
Xerox Corporation.
Ronald Harrison, Vice President of Manufacturing, joined the Company in 1981.
Mr. Harrison had been Plant Manager for Chief Apparel, Inc. from 1965 through
1981.
Joseph Hiess was appointed President of the Jones New York Men's Sportswear
division in August 1997. Prior to his appointment, Mr. Hiess served as head
of Design and Marketing of JJ Farmer, a menswear company he founded in 1986
and subsequently sold to Salant Corporation in 1993.
Barbara Kennedy has been President of the Jones New York Dress Division since
August 1991. From 1983 through August 1991, Ms. Kennedy was employed by
Bloomingdale's in various capacities, most recently as Vice President,
Merchandise Manager.
Gary R. Klocek has been Controller of Jones Apparel Group, Inc. since
August 1987. Prior to joining Jones, Mr. Klocek held various positions with
Atlantic Richfield Company ("ARCO") from 1979 through 1987, his last position
being Manager of Cost and Inventory Control for one of ARCO's subsidiaries.
Jeffrey Levy, President of Rena Rowan, joined the Company in 1990. Prior to
joining Jones, Mr. Levy was Vice President of Sales and National Sales
Manager, of Russ Togs, Inc. from 1984 through 1990.
Benny Lin, Senior Vice President - Creative Director, joined Jones Apparel
Group in December 1995. Mr. Lin had been Fashion Director at Macy's East
prior to joining the Company.
Martin Marlowe joined Jones Apparel Group in 1992 as Vice President of Foreign
Manufacturing. Prior to joining Jones, Mr. Marlowe was President of Jodi
International, an apparel importer, from 1988 to 1992.
Helen Merril, President of the Evan-Picone Dress Divisions, joined Jones
Apparel Group in October 1993. Prior to joining the Company, Ms. Merril held
the positions of President of Scassi Dress of De Peche Corporation and
President of Nippon Boutique of Albert Nippon Inc.
Susan Metzger, Vice President of Sales for the Lauren by Ralph Lauren
division, joined the Company in May 1996. Prior to joining Jones Apparel
Group, Ms. Metzger held the positions of Vice President of Sales of Chaus,
Inc. and Sales Manager of JH Collectibles.
Heather Pech, President of the Jones New York Sport Collection division,
joined the Company in 1990. Ms. Pech had been Account Executive at
Calvin Klein, Inc. prior to joining Jones.
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43
Deanna Randall, who joined the Company in 1981, has held various sales and
marketing positions with the Company, and is currently President of the
Jones New York career division.
Susan Rieland, President of Casual Design, joined the Company in 1994. Ms.
Rieland had been Account Executive at Rafaella prior to joining Jones.
John Sammaritano, Vice President of Distribution, joined Jones in 1975.
Mr. Sammaritano had been Vice President of Distribution for Villager, Inc.
from 1964 through 1975.
Richard Shaw, President of Jones Apparel Group Canada, Inc., joined the
Company in May 1997. Prior to joining the Company, Mr. Shaw served as
President of Liz Claiborne Canada, which he helped launch in 1987.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions
"EXECUTIVE COMPENSATION" and "EMPLOYMENT AND COMPENSATION ARRANGEMENTS"
is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the captions "CERTAIN
TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
are incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The schedule and report of independent certified public accountants
thereon, listed on the Index to Financial Statement Schedules
attached hereto.
2. The Exhibits, which are listed on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
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44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment to the Annual Report
on Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 26, 1998
JONES APPAREL GROUP, INC.
(Registrant)
By: /s/ Sidney Kimmel
Sidney Kimmel, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ----------------------------- --------------
/s/ Sidney Kimmel Chairman and Director March 26, 1998
- ----------------- (Chief Executive Officer)
(Sidney Kimmel)
/s/ Wesley R. Card Chief Financial Officer March 26, 1998
- ------------------ (Principal Financial Officer)
(Wesley R. Card)
/s/ Patrick M. Farrell Vice President and March 26, 1998
- ---------------------- Corporate Controller
(Patrick M. Farrell) (Principal Accounting Officer)
/s/ Herbert J. Goodfriend Vice Chairman and Director March 26, 1998
- -------------------------
(Herbert J. Goodfriend)
/s/ Irwin Samelman Executive Vice President, March 26, 1998
- ------------------ Marketing and Director
(Irwin Samelman)
/s/ Geraldine Stutz Director March 26, 1998
- -------------------
(Geraldine Stutz)
/s/ Howard Gittis Director March 26, 1998
- -----------------
(Howard Gittis)
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45
JONES APPAREL GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants on Schedule
Schedule II. Valuation and qualifying accounts
Schedules other than those listed above have been omitted since the information
is not applicable, not required or is included in the respective financial
statements or notes thereto.
EXHIBIT INDEX
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(5) 3.1 3.1 Articles of Incorporation, as amended
(1) 3.3 3.3 By-Laws
(3) 3.4 3.4 Amendment to By-Laws
(1) 10.2 10.2 Lease Agreement between the Registrant and
Bristol Associates, L.P., re:
250 Rittenhouse Circle
(1) 10.5 10.5 Form of 1991 Stock Option Plan+
(1) 10.7 10.7 Employment and Stock Option
Agreements between the Registrant and
Herbert J. Goodfriend+
(2) 10.17 10.17 Note Agreement with The Industrial
Development Board of the City of
Lawrenceburg, Tennessee
(2) 10.18 10.18 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1995
(2) 10.19 10.19 Lease agreement between the Registrant and
the Industrial
Development Board of the City of Lawrenceburg
(4) 10.26 10.26 Series 1996 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
(4) 10.27 10.27 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1996
(4) 10.28 10.28 First Amendment to Lease Agreement between
the Registrant and the Industrial
Development Board of the City of Lawrenceburg
(4) 10.29 10.29 Agreement between the Registrant and
Herbert J. Goodfriend with respect to
consulting services following termination
of employment
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46
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(5) 10.30 10.30 Series 1996 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
(5) 10.31 10.31 Industrial Development Board of the City of
Lawrenceburg Taxable
Revenue Note, Series 1996
(5) 10.32 10.32 Lease Agreement between the Registrant and
the Industrial Development Board of the
City of Lawrenceburg
(5) 10.33 10.33 Form of 1996 Stock Option Plan+
(5) 10.34 10.34 Letter Agreement between the Registrant and
CoreStates Bank
(5) 10.35 10.35 Master Short Term Borrowing Agreement
between the Registrant and CoreStates Bank
(5) 10.36 10.36 Letter Agreement between the Registrant and
First Union National Bank
(5) 10.37 10.37 Letter Agreement between the Registrant and
the Bank of New York
(5) 10.38 10.38 Letter Agreement between the Registrant and
Bank of Boston
(5) 10.39 10.39 Money Market Line Commercial Promissory
Note between the Registrant and Bank of Boston
(5) 10.40 10.40 License Agreement between the Registrant
and Polo Ralph Lauren, L.P., dated October
18, 1995#
(5) 10.41 10.41 Design Services Agreement between the
Registrant and Polo Ralph Lauren, L.P.,
dated October 18, 1995#
(5) 10.42 10.42 Lease Agreement between the Registrant and
The Shelton Companies
(5) 10.43 10.43 Letter Agreement between the Registrant and
Israel Discount Bank of New York
* 10.44 Series 1997 Note Agreement with The
Industrial Development Board of the City of
Lawrenceburg, Tennessee
* 10.45 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series
1997
* 10.46 Amendment to Lease Agreement between the
Registrant and the Industrial Development
Board of the City of Lawrenceburg
* 10.47 Letter Agreement between the Registrant
and First Union National Bank
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Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 10.48 Letter Agreement between the Registrant and
CoreStates Bank
* 10.49 Letter Agreement between the Registrant and
BankBoston
* 10.50 Money Market Line Commercial Promissory
Note between the Registrant and BankBoston
* 10.51 Letter Agreement between the Registrant and
The Chase Manhattan Bank
* 10.52 Term Note and Unconditional Guaranty with
First Union National Bank
* 11 Computation of Earnings per Share
* 21 List of Subsidiaries
* 23 Consent of BDO Seidman, LLP
* 27 Financial Data Schedule (6)
* 27.1 Restated Financial Data Schedule for 1996
and 1995 (6)
* 27.2 Restated Financial Data Schedule for 1997
interim periods (6)
* 27.3 Restated Financial Data Schedule for 1996
interim periods (6)
____________________
* Filed herewith.
# Portions deleted pursuant to application for confidential treatment under
Rule 24B-2 of the Securities Exchange Act of 1934.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by Reference to the Company's Registration Statement on Form
S-1 (file No. 33-39742).
(2) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
(3) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(4) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(5) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(6) Exhibit 27 is submitted as an exhibit only in the electronic format of this
Annual Report on Form 10-K submitted to the Securities and Exchange
Commission.)
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48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
The audits referred to in our dated February 6, 1998 relating to the
consolidated financial statements of Jones Apparel Group, Inc. and subsidiaries,
which is contained in Item 8 of Form 10-K, included the audits of the financial
statement schedule listed in the accompanying index for each of the three years
ended December 31, 1997. The financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 6, 1998
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49
SCHEDULE II
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In Thousands)
Column A Column B Column C Column D Column E
- ------------------------------- ---------- ------------------------- ---------- ---------
Additions
-------------------------
Balance at Charged to Charged to Balance
beginning costs and other Deductions at end of
Description of period expenses accounts <F1> period
- ------------ ---------- ---------- ----------- ---------- ---------
For the year ended
December 31, 1995:
Allowance for doubtful accounts $2,560 $(464) $ - $(161) $2,257
For the year ended
December 31, 1996:
Allowance for doubtful accounts $2,257 $(800) $ - $(806) $2,263
For the year ended
December 31, 1997:
Allowance for doubtful accounts $2,263 $(1,870) $ - $2,374 $2,767
<F1> Doubtful accounts written off (recovered) against accounts receivable.
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