UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(Address of principal (Zip Code)
executive offices)
(215) 785-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at August 12, 1999
$.01 par value 122,423,840
JONES APPAREL GROUP, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
July 4, 1999 and December 31, 1998.................. 3
Consolidated Statements of Income
Quarters and six months ended July 4, 1999
and March 29, 1998.................................. 4
Consolidated Statements of Stockholders' Equity
Six months ended July 4, 1999 and March 29, 1998.... 5
Consolidated Statements of Cash Flows
Six months ended July 4, 1999 and March 29, 1998.... 6
Notes to Consolidated Financial Statements............ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................... 19
Item 4. Submission of Matters to a Vote of Security Holders... 20
Item 5. Other Information..................................... 21
Item 6. Exhibits and Reports on Form 8-K...................... 21
Signatures...................................................... 22
Index to Exhibits............................................... 23
- 2 -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
July 4, December 31,
1999 1998
---------- -----------
(Unaudited)
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 45,603 $ 129,024
Accounts receivable................................................................... 262,554 169,225
Inventories........................................................................... 772,446 268,175
Receivable from and advances to contractors........................................... 24,795 19,207
Deferred taxes........................................................................ 78,815 32,143
Prepaid expenses and other current assets............................................. 72,890 14,069
--------- ---------
TOTAL CURRENT ASSETS................................................................ 1,257,103 631,843
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $179,663 and $76,460................................. 269,307 156,043
GOODWILL, less accumulated amortization of $9,198 and $2,714............................ 1,061,347 323,009
OTHER INTANGIBLES, less accumulated amortization of $11,232 and $9,919.................. 170,036 29,705
DEFERRED INCOME TAXES................................................................... 26,356 2,261
OTHER ASSETS............................................................................ 84,899 45,811
--------- ---------
$2,869,048 $1,188,672
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.................................................................. $ 154,661 $ -
Current portion of long-term debt and capital lease obligations....................... 8,936 6,522
Accounts payable...................................................................... 199,691 100,282
Income taxes payable.................................................................. - 13,654
Accrued costs of closing stores and other facilities.................................. 38,227 -
Accrued compensation.................................................................. 29,090 9,979
Accrued interest and bank fees........................................................ 17,702 5,369
Accrued expenses and other current liabilities........................................ 131,265 38,082
--------- ---------
TOTAL CURRENT LIABILITIES........................................................... 579,572 173,888
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt........................................................................ 1,055,316 379,247
Obligations under capital leases...................................................... 33,561 35,406
Other................................................................................. 66,391 5,782
--------- ---------
TOTAL NONCURRENT LIABILITIES........................................................ 1,155,268 420,435
--------- ---------
TOTAL LIABILITIES................................................................... 1,734,840 594,323
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - -
Common stock, $.01 par value - shares authorized 200,000;
issued 134,193 and 115,412........................................................... 1,342 1,154
Additional paid in capital............................................................ 687,504 234,787
Retained earnings..................................................................... 680,066 593,781
Accumulated other comprehensive income................................................ (1,618) (2,287)
--------- ---------
1,367,294 827,435
Less treasury stock, 11,918 shares, at cost........................................... (233,086) (233,086)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 1,134,208 594,349
--------- ---------
$2,869,048 $1,188,672
========= =========
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
- 3 -
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended Six Months ended
-------------------- ---------------------
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
---------- -------- ---------- --------
Net sales....................................... $505,942 $305,361 $1,080,749 $685,512
Licensing income................................ 4,443 3,193 8,730 6,816
------- ------- --------- -------
Total revenues.................................. 510,385 308,554 1,089,479 692,328
Cost of goods sold.............................. 303,936 201,086 668,702 453,647
Purchase accounting adjustments to cost
of goods sold <F1>............................ 6,508 - 6,508 -
------- ------- --------- -------
Gross profit.................................... 199,941 107,468 414,269 238,681
Selling, general and administrative expenses.... 134,082 66,405 249,839 133,599
Amortization of goodwill........................ 3,781 - 6,484 -
------- ------- --------- -------
Operating income................................ 62,078 41,063 157,946 105,082
Net interest expense............................ 9,807 351 16,495 1,590
------- ------- --------- -------
Income before provision for income taxes........ 52,271 40,712 141,451 103,492
Provision for income taxes...................... 20,386 15,674 55,166 39,844
------- ------- --------- -------
Net income...................................... $31,885 $25,038 $86,285 $63,648
======= ======= ========= =======
Earnings per share
Basic......................................... $0.29 $0.25 $0.81 $0.63
Diluted....................................... $0.28 $0.24 $0.78 $0.61
Weighted average common shares and
share equivalents outstanding
Basic......................................... 108,525 100,841 106,020 100,788
Diluted....................................... 113,114 105,085 110,100 104,707
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
<F1> Reflects a non-cash increase in cost of goods sold attributable to the
fair value of inventory over FIFO cost, recorded as a result of the acquisition
of Nine West Group Inc. as required by the purchase method of accounting.
- 4 -
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Total Additional other
stockholders' Common paid-in Retained comprehensive Treasury
equity stock capital earnings income stock
------------- ------- ----------- -------- ------------- ---------
Balance, December 31, 1997...................... $435,632 $545 $122,582 $438,917 ($1,524) ($124,888)
Six months ended June 28, 1998:
Comprehensive income
Net income.................................... 63,648 - - 63,648 - -
Foreign currency translation adjustments...... (276) - - - (276) -
-------------
Total comprehensive income.................. 63,372
-------------
Amortization of deferred compensation in
connection with executive stock options........ 138 - 138 - - -
Exercise of stock options....................... 7,993 5 8,088 - - (100)
Tax benefit derived from exercise of
stock options.................................. 5,429 - 5,429 - - -
Effect of 2-for-1 stock split................... - 549 (549) - - -
Treasury stock acquired......................... (43,823) - - - - (43,823)
------------- ------- ----------- -------- ------------- ---------
Balance, June 28, 1998.......................... $468,741 $1,099 $135,688 $502,565 ($1,800) ($168,811)
============= ======= =========== ======== ============= =========
Accumulated
Total Additional other
stockholders' Common paid-in Retained comprehensive Treasury
equity stock capital earnings income stock
------------- ------- ----------- -------- ------------- ---------
Balance, December 31, 1998...................... $ 594,349 $1,154 $234,787 $593,781 ($2,287) ($233,086)
Six months ended July 4, 1999:
Comprehensive income
Net income.................................... 86,285 - - 86,285 - -
Foreign currency translation adjustments...... 669 - - - 669 -
-------------
Total comprehensive income.................. 86,954
-------------
Amortization of deferred compensation in
connection with executive stock options........ 88 - 88 - - -
Exercise of stock options....................... 9,937 11 9,926 - - -
Tax benefit derived from exercise of
stock options.................................. 6,889 - 6,889 - - -
Stock issued as additional consideration for
acquisition of Sun Apparel,Inc. ............... 14,334 6 14,328 - - -
Stock and options issued for acquisition of
Nine West Group inc., net of issuance costs.... 421,657 171 421,486 - - -
------------- ------- ----------- -------- ------------- ---------
Balance, April 4, 1999.......................... $1,134,208 $1,342 $687,504 $680,066 ($1,618) ($233,086)
============= ======= =========== ======== ============= =========
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 5 -
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended
---------------------------
July 4, June 28,
1999 1998
--------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $ 86,285 $ 63,648
-------- --------
Adjustments to reconcile net income to net cash provided by operating activities,
net of acquisition of Nine West Group Inc.:
Amortization of Goodwill................................................................... 6,484 -
Depreciation and other amortization....................................................... 16,621 6,950
Provision for losses on accounts receivable............................................... 2,343 420
Deferred income taxes..................................................................... (454) (3,004)
Other..................................................................................... 1,007 290
(Increase) decrease in:
Trade receivables....................................................................... (46,482) (2,108)
Inventories............................................................................. (21,532) (4,671)
Prepaid expenses and other current assets............................................... (5,588) (1,886)
Other assets............................................................................ 24,171 (2,827)
Increase (decrease) in:
Accounts payable........................................................................ 39,502 (11,589)
Taxes payable........................................................................... (28,362) 6,725
Accrued expenses and other current liabilities.......................................... (18,835) 2,776
-------- --------
Total adjustments..................................................................... (31,125) (8,924)
-------- --------
Net cash provided by operating activities................................................... 55,160 54,724
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (10,360) (24,247)
Acquisition of Nine West Group Inc. net of cash acquired.................................. (433,485) -
Additional consideration paid for acquisition of Sun Apparel, Inc. ....................... (20,137) -
Acquisition of intangibles................................................................ (6,223) -
Decrease in cash restricted for capital additions......................................... - 7,439
Other..................................................................................... 143 (121)
-------- --------
Net cash used in investing activities....................................................... (470,062) (16,929)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of 7.5% Senior Notes, net of discount............................................ 173,533 -
Issuance of 7.875% Senior Notes, net of discount.......................................... 222,820 -
Debt issuance costs....................................................................... (5,567) -
Repurchase of 9% Senior Notes............................................................. (93,918) -
Premiums paid on repurchase of Senior Notes............................................... (10,353) -
Net borrowings under long-term credit facilities.......................................... 37,377 5,286
Principal payments on capitalized leases.................................................. (2,297) (1,752)
Acquisition of treasury stock............................................................. - (43,823)
Proceeds from exercise of stock options................................................... 9,937 7,993
Other..................................................................................... (30) -
-------- --------
Net cash provided by (used in) financing activities......................................... 331,502 (32,296)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH............................................................ (21) (66)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ (83,421) 5,433
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 129,024 40,134
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................................................... $ 45,603 $ 45,567
======== ========
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 6 -
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
The financial statements have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") for interim financial information and
in accordance with the requirements of Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements and
the footnotes therein included within the Company's Annual Report on Form 10-K.
In the opinion of management, the information presented reflects all
adjustments necessary for a fair statement of interim results. All such
adjustments are of a normal and recurring nature. The foregoing interim results
are not necessarily indicative of the results of operations for the full year
ending December 31, 1999. The Company reports interim results in 13 week
quarters; however, the annual reporting period is the calendar year.
2. Acquisition of Nine West
On June 15, 1999, the Company acquired Nine West Group Inc. ("Nine West"). In
the acquisition, the Company purchased all the outstanding shares of Nine West's
common stock for a total purchase price of $463.2 million in cash and
approximately 17.1 million shares of common stock, valued for financial
reporting purposes at $24.35 per share (the average closing price for the week
containing March 1, 1999, the date the definitive Agreement and Plan of Merger
was signed). In addition, the Company assumed $493.7 million of Nine
West's outstanding debt, a portion of which either has been or will be
refinanced.
Nine West is a leading designer, developer, manufacturer and marketer of
women's footwear and accessories. Nine West markets collections of casual,
career and dress footwear and accessories under multiple brand names which are
targeted to various segments of the women's footwear and accessories markets.
The acquisition has been accounted for under the purchase method of accounting
for business combinations. Accordingly, the consolidated financial statements
include the results of operations of Nine West from the acquisition date. The
purchase price was allocated to Nine West's assets and liabilities, tangible and
intangible, with the excess of the purchase price over the fair value of the net
assets acquired of approximately $719.4 million being amortized on a straight-
line basis over 30 years. As part of the purchase price allocation, $38.4
million was recorded for severance payments and expected costs and losses
relating to the restructuring of domestic and international operations and
the closing of certain retail stores, all of which remained accrued at July 4,
1999. Additional adjustments to the purchase price allocation may result from
the completion of an appraisal of the acquired assets which is currently in
progress.
- 7 -
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company as if the acquisition and
its related financing had taken place on January 1, 1998. These pro forma
results have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisition occurred on January 1, 1998, or which may result
in the future. For comparative purposes, the pro forma amounts for the six
months ended June 28, 1998 include the results of Sun Apparel, Inc. (acquired
on October 2, 1998) as if it had also been acquired on January 1, 1998.
July 4, June 28,
Six months ended: 1999 1998
---------- ----------
Net revenues (in thousands)........... $1,899,405 $1,855,712
Net income (in thousands)............. 77,804 62,051
Basic earnings per common share....... $0.64 $0.50
Diluted earnings per common share..... $0.62 $0.49
3. Accounts Receivable
Accounts receivable consists of the following (amounts in thousands):
July 4, December 31,
1999 1998
-------- --------
Accounts receivable..................... $181,906 $172,528
Securitized interest in
accounts receivable................... 96,428 -
Allowance for doubtful accounts......... (15,780) (3,303)
------- -------
$262,554 $169,225
======= =======
4. Inventories
Inventories are summarized as follows (amounts in thousands):
July 4, December 31,
1999 1998
-------- ------------
Raw materials............................ $ 43,892 $ 33,928
Work in process.......................... 66,457 43,041
Finished goods........................... 662,097 191,206
-------- --------
$772,446 $268,175
======== ========
- 8 -
5. Common Stock
On May 6, 1998, the Company's Board of Directors authorized 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 June 4, 1998, with stock certificates issued
on June 25, 1998. In connection with the common stock split, the Board of
Directors approved an increase in the number of shares authorized to
200,000,000. On June 25, 1998, a total of 50,497,911 shares of common stock
were issued in connection with the split. The stated par value of each share
was not changed from $0.01. All share and per share amounts have been restated
to retroactively reflect the stock split.
6. Statement of Cash Flows
Six Months Ended: July 4, June 28,
(In thousands) 1999 1998
-------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest.............................. $ 17,702 $ 2,642
Income taxes.......................... 67,250 48,454
Supplemental disclosures of non-cash
investing and financing activities:
Equipment acquired through capital
lease financing...................... - 12,054
Tax benefits related to stock options 6,889 5,429
Common stock issued as additional
consideration for acquisition of
Sun Apparel, Inc..................... 14,334 -
Detail of acquisitions:
Fair value of assets acquired......... $1,665,937 $ -
Liabilities assumed................... (810,765) -
Common stock and options issued....... (421,687) -
--------- ------
Net cash paid for acquisitions........ 433,485 -
Cash acquired in acquisitions......... 29,777 -
--------- ------
Cash paid for acquisitions............ $ 463,262 -
========= ======
7. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133, as amended
by SFAS No. 137, is effective for all fiscal years beginning after June 15,
2000. The Company is currently reviewing SFAS No. 133 and has of yet been
unable to fully evaluate the impact, if any, it may have on future operating
results or financial statement disclosures.
- 9 -
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Segment Information
With the acquisition of Nine West, the Company has redefined the operating
segments it uses for financial reporting purposes. The Company operates in
three reportable segments: wholesale apparel, wholesale footwear and
accessories, and retail. Historical data has been restated to reflect these
changes. Summarized below are the Company's segment sales and operating
income (loss) as defined by these new reportable segments for the quarters
and six months ended July 4, 1999 and June 28, 1998.
Wholesale
Wholesale Footwear & Other &
Apparel Accessories Retail Eliminations Consolidated
--------- ----------- ------ ------------ ------------
For the quarter ended July 4, 1999
Revenues from external customers..... $376,016 $ 53,721 $ 76,213 $ 4,435 $ 510,385
Intersegment revenues................ 16,123 7,987 - (24,110) -
------- ------- ------- ------- ---------
Total revenues....................... 392,139 61,708 76,213 (19,675) 510,385
------- ------- ------- ------- ---------
Operating income..................... $ 59,849 $ 5,367 $ 6,353 $ (5,710) 65,859
======= ======= ======= =======
Amortization of goodwill............. (3,781)
Net interest expense................. (9,807)
---------
Income before provision for
income taxes....................... $ 52,271
=========
For the quarter ended June 28, 1998
Revenues from external customers..... $263,126 $ - $ 42,235 $ 3,193 $ 308,554
Intersegment revenues................ 24,964 - - (24,964) -
------- ------- ------- ------- ---------
Total revenues....................... 288,090 - 42,235 (21,771) 308,554
------- ------- ------- ------- ---------
Operating income..................... $ 39,818 $ - $ 6,424 $ (5,180) 41,062
======= ======= ======= =======
Net interest expense................. (351)
---------
Income before provision for
income taxes....................... $ 40,711
=========
For the six months ended July 4, 1999
Revenues from external customers..... $918,190 $ 53,721 $108,846 $ 8,722 $1,089,479
Intersegment revenues................ 44,328 7,987 - (52,315) -
------- ------- ------- ------- ---------
Total revenues....................... 962,518 61,708 108,846 (43,593) 1,089,479
------- ------- ------- ------- ---------
Operating income..................... $164,860 $ 5,367 $ 7,616 $(13,413) 164,430
======= ======= ======= =======
Amortization of goodwill............. (6,484)
Net interest expense................. (16,495)
---------
Income before provision for
income taxes....................... $ 141,451
=========
For the six months ended June 28, 1998
Revenues from external customers..... $611,639 $ - $ 73,873 $ 6,816 $ 692,328
Intersegment revenues................ 51,275 - - (51,275) -
------- ------- ------- ------- ---------
Total revenues....................... 662,914 - 73,873 (44,459) 692,328
------- ------- ------- ------- ---------
Operating income..................... $108,214 $ - $ 8,235 $(11,367) 105,082
======= ======= ======= =======
Net interest expense................. (1,590)
---------
Income before provision for
income taxes....................... $ 103,492
=========
Total assets at July 4, 1999......... $1,518,040 $687,040 $459,634 $204,334 $2,869,048
Total assets at June 28, 1998........ 526,909 - 66,529 26,148 619,586
- 10 -
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Supplemental Summarized Financial Information
Certain of the Company's subsidiaries function as obligors and co-obligors of
the Company's outstanding debt, including Jones Apparel Group USA, Inc. ("Jones
USA"), Jones Apparel Group Holdings, Inc. ("Jones Holdings") and Nine West
Group Inc. ("Nine West").
On January 1, 1999, Jones Apparel Group, Inc. ("Jones") consummated a
corporate reorganization under which two new wholly owned subsidiaries, Jones
USA and Jones Holdings, were created. On that date, the operating assets of
Jones were transferred to Jones USA. Jones and Jones Holdings function as
co-obligors with respect to the outstanding debt securities of Jones USA and
certain of the outstanding debt securities of Nine West. In addition, Nine
West functions as a co-obligor with respect to all of Jones USA's outstanding
debt securities, and Jones USA functions as a co-obligor with respect to the
outstanding debt securities of Nine West as to which Jones and Jones Holdings
function as co-obligors.
The following summarized financial information represents the results of
Jones USA for the first six months of 1999, Nine West since the date of
acquisition and pro forma information for Jones USA for the first six months
of 1998, assuming the reorganization had taken place on January 1, 1998 (all
amounts in thousands). Separate financial statements and other disclosures
concerning Jones USA, Nine West and Jones Holdings are not presented, because
management has determined that such information is not material to the
holders of the outstanding debt.
Other and
Jones USA Nine West Eliminations Consolidated
--------- --------- ------------ ------------
On or for the six months ended July 4, 1999:
Current assets.............. $1,053,431 $ 633,894 $(430,222) $1,257,103
Noncurrent assets........... 154,760 1,018,357 438,828 1,611,945
Current liabilities......... 500,740 323,741 (244,909) 579,572
Noncurrent liabilities...... 707,410 443,552 4,306 1,155,268
Total revenues.............. 649,970 89,454 341,325 1,080,749
Gross profit................ 238,449 31,651 144,169 414,269
Operating income............ 83,383 2,345 72,218 157,946
Net income.................. 38,914 17 47,354 86,285
On or for the six months ended June 28, 1998:
Current assets.............. $383,884 $ - $ 70,998 $ 454,882
Noncurrent assets........... 119,300 - 45,403 164,703
Current liabilities......... 425,073 - (321,864) 103,209
Noncurrent liabilities...... 41,718 - 5,303 47,021
Excess of net assets
acquired over cost........ 614 - - 614
Total revenues.............. 632,033 - 60,295 692,328
Gross profit................ 200,519 - 38,162 238,681
Operating income............ 66,366 - 38,716 105,082
Net income.................. 35,818 - 27,830 63,648
- 11 -
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following discussion provides information and analysis of the Company's
results of operations for the quarterly and six month periods ended July 4,
1999 and June 28, 1998, respectively, and its liquidity and capital resources.
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included
elsewhere herein.
On October 2, 1998, the Company completed its acquisition of Sun Apparel,
Inc. ("Sun") and on June 15, 1999, the Company completed its acquisition of
Nine West Group Inc. ("Nine West"). The results of operations of Sun and Nine
West are included in the Company's operating results from the respective dates
of acquisition. Accordingly, the financial position and results of operations
presented and discussed herein are generally not directly comparable between
years.
With the acquisition of Nine West, the Company has redefined the operating
segments it uses for financial reporting purposes. The Company operates in
three reportable segments: wholesale apparel, wholesale footwear and
accessories, and retail. Historical data has been restated to reflect
these changes.
Results of Operations
Statements of Income Expressed as a Percentage of Total Revenues
Quarter ended Six Months ended
------------------ ------------------
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
-------- -------- -------- --------
Net sales 99.1% 99.0% 99.2% 99.0%
Licensing income 0.9% 1.0% 0.8% 1.0%
-------- -------- -------- --------
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 60.8% 65.2% 62.0% 65.5%
-------- -------- -------- --------
Gross profit 39.2% 34.8% 38.0% 34.5%
Selling, general and
administrative expenses 26.3% 21.5% 22.9% 19.3%
Amortization of goodwill 0.7% - 0.6% -
-------- -------- -------- --------
Operating income 12.2% 13.3% 14.5% 15.2%
Net interest expense 1.9% 0.1% 1.5% 0.2%
-------- -------- -------- --------
Income before provision
for income taxes 10.2% 13.2% 13.0% 14.9%
Provision for income taxes 4.0% 5.1% 5.1% 5.8%
-------- -------- -------- --------
Net income 6.2% 8.1% 7.9% 9.2%
======== ======== ======== =========
Totals may not agree due to rounding.
Quarter Ended July 4, 1999 Compared to Quarter Ended June 28, 1998
Revenues. Total revenues for the thirteen weeks ended July 4, 1999
(hereinafter referred to as the "second quarter of 1999") increased
65.4%, or $201.8 million, to $510.4 million, compared to $308.6
million for the thirteen weeks ended June 28, 1998 (hereinafter
referred to as the "second quarter of 1998"). The revenue growth
resulted primarily from the net sales of product lines added as a result
- 12 -
of the Sun and Nine West acquisitions ($134.0 million and $ 89.2 million of
the increase, respectively). The breakdown of total revenues for both
periods is as follows:
Second Second
Quarter Quarter Increase/ Percent
(in millions) of 1999 of 1998 (Decrease) Change
------- ------- -------- -------
Wholesale apparel $376.0 $263.0 $113.0 42.9%
Wholesale footwear
and accessories 53.7 - 53.7 -
Retail 76.2 42.4 33.8 79.7%
Other 4.5 3.2 1.3 28.9%
------- ------- -------- -------
Total revenues $510.4 $308.6 $201.8 65.4%
======= ======= ======== =======
Wholesale apparel revenues increased primarily as a result of the acquisition
of Sun, increases in shipments of Jones New York Sport products and initial
shipments of the Ralph by Ralph Lauren line, partially offset by planned lower
shipments of Jones New York collection products and the repositioning of the
Evan-Picone line from better to moderate. The increases in wholesale footwear
and retail revenues are the result of the acquisition of Nine West.
Gross Profit. The gross profit margin increased to 39.2% in the second
quarter of 1999 compared to 34.8% in the second quarter of 1998. This
improvement was attributable to higher margins in wholesale apparel (38.4%
in the second quarter of 1999 compared to 31.1% in the second quarter of 1998)
resulting from lower overseas production costs, the favorable impact of
currency devaluations in Asia, and continued improvement in inventory
management. Gross profit was negatively impacted during the second quarter
of 1999 by a $6.5 million writeoff of adjustments required under purchase
accounting to mark up acquired Nine West inventory to market value upon
acquisition; without this charge, the gross profit margin for the second
quarter of 1999 would have been 40.4%.
SG&A Expenses. Selling, general and administrative ("SG&A") expenses of
$134.1 million in the second quarter of 1999 represented an increase of $67.7
million over the second quarter of 1998. As a percentage of total revenues,
SG&A expenses increased to 26.3% in the second quarter of 1999 from 21.5% for
the comparable period in 1998. Sun and Nine West accounted for $31.1 million
and $28.2 million, respectively, of the increase with the remainder primarily
due to increased royalty and advertising expenses. Retail store operating
expenses exclusive of Nine West decreased $1.4 million from the second quarter
of 1998.
Operating Income. The resulting second quarter of 1999 operating income of
$62.1 million increased 51.2%, or $21.0 million, over the $41.1 million for the
second quarter of 1998. The operating margin decreased to 12.2% in the second
quarter of 1999 from 13.3% in the second quarter of 1998, due to the factors
discussed above and the amortization of goodwill resulting from the Sun and
Nine West acquisitions.
Net Interest Expense. Net interest expense was $9.8 million in the second
quarter of 1999 compared to $0.4 million in the comparable period of 1998,
primarily as a result of the debt incurred to finance the Sun and Nine West
acquisitions.
- 13 -
Provision for Income Taxes. The effective income tax rate was 39.0% for the
second quarter of 1999 compared to 38.5% for the second quarter of 1998. The
increase was primarily due to the nondeductibility of goodwill amortization in
the second quarter of 1999.
Net Income. Net income increased 27.3% to $31.9 million in the second quarter
of 1999, an increase of $6.9 million over the net income of $25.0 million earned
in the second quarter of 1998. Net income as a percentage of total revenues was
6.2% in the second quarter of 1999 and 8.1% in the second quarter of 1998.
Six Months Ended July 4, 1999 Compared to Six Months Ended June 28, 1998
Revenues. Total revenues for the 26 weeks ended July 4, 1999 (hereinafter
referred to as the "first six months of 1999") increased 57.4%, or $0.4 billion,
to $1.1 billion, compared to $0.7 billion for the 26 weeks ended June 28, 1998
(hereinafter referred to as the "first six months of 1998"). The revenue growth
resulted primarily from the net sales of product lines added as part of the Sun
and Nine West acquisitions ($277.3 million and $89.2 million of the increase,
respectively). The breakdown of total revenues for both periods is as follows:
First Six First Six
Months Months Increase/ Percent
(in millions) of 1999 of 1998 (Decrease) Change
------- ------- -------- -------
Wholesale apparel $ 918.2 $611.6 $306.6 50.1%
Wholesale footwear
and accessories 53.7 - 53.7 -
Retail 108.9 73.9 35.0 47.4%
Other 8.7 6.8 1.9 27.9%
-------- ------- -------- -------
Total revenues $1,089.5 $692.3 $397.2 57.4%
======== ======= ======== =======
Wholesale apparel revenues increased primarily as a result of the acquisition
of Sun and increased shipments of the Jones New York Sport and Lauren by Ralph
Lauren labels, partially offset by planned lower shipments of Jones New York
collection products and the repositioning of the Evan-Picone line from better
to moderate. The increases in wholesale footwear and retail are the result of
the acquisition of Nine West.
Gross Profit. The gross profit margin increased to 38.0% in the first six
months of 1999 compared to 34.5% in the first six months of 1998. This
improvement was attributable to higher margins in wholesale apparel (36.9%
in the first six months of 1999 compared to 31.8% in the first six months of
1998) resulting from the increase in sales of Lauren by Ralph Lauren products
and the addition of the Polo Jeans label (both of which carry higher margins
than the corporate average), lower overseas production costs, the favorable
impact of currency devaluations in Asia, and continued improvement in
inventory management. Gross profit was negatively impacted during the first
six months of 1999 by a $6.5 million writeoff of adjustments required under
purchase accounting to mark up acquired Nine West inventory to market value
upon acquisition; without this charge, the gross profit margin for the first
six months of 1999 would have been 38.6%.
- 14 -
SG&A Expenses. SG&A expenses of $249.8 million in the first six months of
1999 represented an increase of $116.2 million over the first six months of
1998. As a percentage of total revenues, SG&A expenses increased to 22.9% in
the first six months of 1999 from 19.3% for the comparable period in 1998.
Sun and Nine West accounted for $63.3 million and $28.2 million, respectively,
of the increase with the remainder primarily due to increased royalty and
advertising expenses. Retail store operating expenses exclusive of Nine
West increased $0.8 million over the first six months of 1998.
Operating Income. The resulting first six months of 1999 operating income of
$157.9 million increased 50.3%, or $52.8 million, over the $105.1 million
achieved during the first six months of 1998. The operating margin decreased
to 14.5% in the first six months of 1999 from 15.2% in the first six months of
1998, due to the factors discussed above and the amortization of goodwill
resulting from the Sun and Nine West acquisitions.
Net Interest Expense. Net interest expense was $16.5 million in the first
six months of 1999 compared to $1.6 million in the comparable period of 1998,
primarily as a result of the debt incurred to finance the Sun and Nine West
acquisitions.
Provision for Income Taxes. The effective income tax rate was 39.0% for
the first six months of 1999 compared to 38.5% for the first six months of
1998. The increase was primarily due to the nondeductibility of goodwill
amortization in the first six months of 1999.
Net Income. Net income increased 35.6% to $86.3 million in the first six
months of 1999, an increase of $22.7 million over the net income of $63.6
million earned in the first six months of 1998. Net income as a percentage
of total revenues was 7.9% in the first six months of 1999 and 9.2% in the
first six months of 1998.
Liquidity and Capital Resources
The Company's principal capital requirements have been to fund acquisitions,
working capital needs, capital expenditures and repurchases of the Company's
common stock on the open market. The Company has historically relied primarily
on internally generated funds, trade credit, bank borrowings and the issuance
of notes to finance its operations and expansion. As of July 4, 1999, total
cash and cash equivalents were $45.6 million, the same as reported as of June
28, 1998 and a decrease of $83.4 million from the $129.0 million reported as
of December 31, 1998.
Net cash provided by operations was $55.2 million in the first six months
of 1999, primarily due to $109.4 million of earnings before depreciation and
amortization, a decrease in other assets and a higher level of accounts
payable. These sources of cash were offset by increases in accounts
receivable and inventories and decreases in taxes payable, accrued expenses
and other liabilities. Net cash provided by operations was $54.7 million in
the first six months of 1998, primarily due to $70.6 million of earnings
before depreciation and amortization, offset primarily by a decrease in
accounts payable.
Net cash used in investing activities increased $453.1 million in the first
six months of 1999 over the first six months of 1998, due primarily to the
acquisition of Nine West, costs relating to acquiring certain trademarks, and
additional consideration related to the acquisition of Sun (discussed below).
Capital expenditures were $10.4 million in the first six months of 1999
compared to $24.2 million in the first six months of 1998.
Financing activities provided $331.5 million of cash in the first six months
of 1999, primarily from the issuance of $400.0 million of senior notes as well
as a $37.4 million increase in bank borrowings and
- 15 -
$9.9 million in proceeds from employees exercising stock options. In
connection with the Nine West acquisition, the Company sold $175 million of
7.50% Senior Notes due 2004 and $225 million of 7.875% Senior Notes due
2006. In addition to financing the cash portion of the acquisition, the
proceeds of these notes were also used to repurchase substantially all of
Nine West's $94 million of 9% Series B Senior Subordinated Notes due 2007.
During the first six months of 1998, financing activities used $32.3 million
of cash, primarily the result of the repurchase of $43.8 million of its
common stock on the open market, offset by $8.0 million in proceeds from
employees exercising stock options. As of July 4, 1999, a total of $232.1
million had been expended under previously announced programs to acquire
up to $300.0 million of such shares. The Company may authorize additional
share repurchases in the future depending on, among other things,
market conditions and the Company's financial condition.
As part of the acquisition of Nine West, the Company has assumed all
obligations under Nine West's $196.0 million 8-3/8% Series B Senior Notes
due 2005 and $185.7 million 5-1/2% Convertible Subordinated Notes due 2003.
These notes, the $175.0 million of 7.50% Senior Notes due 2004, the $225.0
million of 7.875% Senior Notes due 2006 and the Company's previously existing
$265 million of 6.25% Senior Notes due 2001 were outstanding at July 4, 1999.
All the Company's notes pay interest semiannually and contain certain covenants,
including, among others, restrictions on liens, sale-leaseback transactions,
and additional secured debt. On July 14, 1999, the Company announced a Change
of Control Offer to repurchase the 5-1/2% Convertible Subordinated Notes, which
is expected to be completed by the end of the third quarter of 1999. On that
date, the Company also announced a Change of Control Offer to repurchase the
8-3/8% Series B Senior Notes due 2005. Based on the current interest rate
environment, the Company is uncertain how much, if any, of the notes will
be repurchased.
The terms of the acquisition agreement for Sun require the Company to pay the
former Sun shareholders additional consideration of $2.00 for each $1.00 of
Sun's earnings before interest and taxes (as defined in the merger agreement)
for each of the years 1998 through 2001 that exceeds certain targeted levels.
This additional consideration is to be paid 59% in cash and 41% in the Company's
common stock, the value of which will be determined by the prices at which the
common stock trades in a defined period preceding delivery in each year. During
the first six months of 1999, the Company paid $20.1 million in cash and issued
586,550 shares of common stock (valued at $14.3 million) of additional
consideration for the Sun acquisition.
In connection with the Nine West acquisition, the Company entered into new
and amended agreements with First Union National Bank, as administrative agent,
and other lending institutions to borrow an aggregate principal amount of up to
$1.2 billion under Senior Credit Facilities. These facilities, of which the
entire amount is available for letters of credit or cash borrowings, provide
for a $500.0 million 364-day Revolving Credit Facility and a $700.0 million
Five-Year Revolving Credit Facility. At July 4, 1999, $283.5 million was
outstanding under the 364-Day Revolving Credit Facility (comprised of the
$267.3 in outstanding letters of credit and $16.2 million in cash borrowings)
and $125.0 million in cash borrowings was outstanding under the Company's Five-
Year Revolving Credit Facility. Borrowings under the Senior Credit Facilities
may also be used for working capital and other general corporate purposes,
including permitted acquisitions and stock repurchases. The Senior Credit
Facilities are unsecured and require the Company to satisfy both a coverage
ratio of earnings before interest, taxes, depreciation, amortization and
rent to interest expense plus rents and a net worth maintenance covenant,
as well as other restrictions, including (subject to exceptions) limitations
on the Company's ability to incur additional indebtedness, prepay subordinated
indebtedness, make acquisitions, enter into mergers, and pay dividends.
- 16 -
Nine West has a five-year Receivables Facility (created in 1995 and amended
in 1998) which permits Nine West to obtain up to $132.0 million of funding
based on the sale, without recourse, of eligible Nine West accounts receivable.
As of July 4, 1999, Nine West had sold $193.4 million of outstanding trade
accounts receivable into the Receivables Facility and had received proceeds
of $97.0 million.
The Company also has various unsecured foreign lines of credit in Europe,
Australia and Canada, under which $13.4 million was outstanding at July 4, 1999.
The Company believes that funds generated by operations, proceeds from the
issuances of the various notes discussed above, the Senior Credit Facilities
and the foreign lines of credit will provide the financial resources sufficient
to meet its foreseeable working capital, letter of credit, capital expenditure
and stock or note repurchase requirements and any ongoing obligations to the
former Sun shareholders.
Year 2000
The Company uses various types of technology in the operations of its
business. Some of this technology incorporates date identification functions;
however, many of these date identification functions were developed to use only
two digits to identify a year. These date identification functions, if not
corrected, could cause their related technologies to fail or create erroneous
results on or after January 1, 2000.
The Company has assessed, with both internal and external resources, the
impact of Year 2000 issues on its information and non-information technology
systems. As part of this process, the Company retained the services of an
independent consultant that specializes in Year 2000 evaluation and remediation
work. In addition, the Company has developed a plan with respect to the Year
2000 readiness of its internal technology systems. This plan involves (i)
creating awareness inside the Company of Year 2000 issues, (ii) analyzing the
Company's Year 2000 state of readiness, (iii) testing, correcting and updating
systems and computer software as needed, and (iv) incorporating the corrected
or updated systems and software into the Company's business. The Company has
been and continues to be in contact with selected key vendors, suppliers and
customers regarding various critical systems. The Company has mailed
questionnaires to identified significant third parties to determine the extent
to which the Company is vulnerable to the failure of these third parties to
become Year 2000 compliant. None of the responses received have disclosed
Year 2000 issues which would have an adverse affect on the Company. However,
third parties are under no contractual obligation to provide Year 2000
compliance information to the Company, and any failure of such third parties
to become Year 2000 compliant involves risks and uncertainties.
The Company is in the final testing and correcting stages with respect to
those technology systems that have been identified as having Year 2000 issues.
Approximately 90% of the Company's Year 2000 plan has been completed and the
Company anticipates substantially completing the implementation of this plan
before October 2, 1999. However, there can be no assurances that this plan will
be completed by the estimated date or that the systems and products of other
companies on which the Company relies will not have an adverse effect on its
business, operations or financial condition.
In a continuing effort to become more productive and competitive, the Company
replaces portions of its software and hardware when warranted by significant
business and/or technology changes. While these replacements are not
specifically intended to resolve the Year 2000 issue, the new software
- 17 -
and hardware is designed to function properly with respect to dates
related to the Year 2000 and beyond.
As of July 4, 1999, the Company had incurred approximately $700,000 in direct
external costs related to the Year 2000 issue. The Company does not separately
track the internal costs incurred for the Year 2000 plan as such costs are
principally the related payroll costs for the management information systems
service group. The Company believes that additional costs related to the Year
2000 issue will not be material to its business, operations or financial
condition. However, estimates of Year 2000 related costs are based on numerous
assumptions; there is no certainty that estimates will be achieved and actual
costs could be materially greater than anticipated. The Company anticipates
that it will fund its additional Year 2000 costs from current working capital.
Based on its assessment and remediation efforts to date, the Company is not
aware of any material issues that would prevent it or its significant third
party vendors, suppliers and customers from completing efforts necessary to
achieve Year 2000 compliance on a timely basis. Accordingly, the Company has
not developed a contingency plan.
Recent Developments
On July 9, 1999, an agreement was announced under which the Company agreed to
repurchase the Jones New York and Jones New York Sport shoe licenses from
Maxwell Shoe Company, Inc. for $25 million in cash. The Company intends to
produce Jones New York and Jones New York Sport shoes through its Nine West
subsidiary.
In connection with the Nine West acquisition, the Company announced on
August 3, 1999 the closing of Nine West's domestic footwear manufacturing
operations in Kentucky and Indiana and its component operations in the
Dominican Republic. Approximately 550 employees in the United States and
approximately 1,170 employees in the Dominican Republic will be affected as
a result of the closings. The Company anticipates meeting its production
requirements through its global sourcing network.
The Company also announced that it will close Nine West's administrative
office in St. Louis, Missouri (housing approximately 190 employees) and will
integrate those operations into the Company's administrative office in Bristol,
Pennsylvania and Nine West's headquarters in White Plains, New York.
The closings are expected to be substantially completed by the end of the
calendar year. All estimated costs connected with the closings have been
accrued as of July 4, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
With its acquisition of Nine West, the Company substantially increased both
its foreign operations and level of debt. As a result, the market risk inherent
in the Company's financial instruments principally represents the potential loss
in fair value, earnings or cash flows arising from adverse changes in interest
rates or foreign currency exchange rates. The Company manages this exposure
through regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. The counterparties are
major financial institutions. Company policy allows the use of derivative
financial instruments for identifiable market risk exposures, including interest
rate and foreign currency fluctuations. The Company does not enter into
derivative financial contracts for trading or other speculative purposes.
- 18 -
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about January 13 or January 14, 1999, 23 unidentified Asian garment
workers filed a putative class-action lawsuit against 22 garment manufacturers
with factories located in Saipan (part of the U.S. Commonwealth of the Northern
Mariana Islands). The lawsuit, filed in federal court in Saipan, alleges
violations of federal labor statutes, and other laws. Also on or about January
13, 1999, a similarly unidentified group of garment workers represented by some
of the same law firms which brought the Saipan case filed a similar class-action
lawsuit in federal court in Los Angeles against 11 Saipan garment manufacturers
(including ten named in the first suit) and 17 U.S. clothing retailers and
designers, including the Company, alleging violations of federal racketeering
statutes and other laws, based on allegedly unfair and illegal treatment of
foreign workers. Also on or about January 13, 1999, a third lawsuit was filed
in state court in San Francisco by a labor union and three nonprofit groups
asserting claims of unlawful and unfair business practices and misleading
advertising against all the retailers and designers named in the Los Angeles
action, including the Company, one additional retailer and other unnamed
defendants. The two suits against the Company seek unspecified compensatory
and punitive damages as well as injunctive relief. The Company has reviewed
the pleadings. On March 29, 1999, the Company filed a demurrer (a motion to
dismiss) in state court in San Francisco with respect to the state suit.
On March 29, 1999, the customer defendants (including the Company) and the
manufacturer defendants filed motions requesting a transfer of the Los
Angeles federal case to the federal district court in Saipan. On April 12,
1999, the customer defendants (including the Company) filed a motion to
dismiss in federal court in Los Angeles requesting that the court dismiss
the federal suit. On July 19, the federal court in Saipan issued an order
dismissing the Saipan action brought on behalf of the unnamed plaintiffs
without prejudice to amendment to include non-anonymous plaintiffs. The
order was stayed until September 8, 1999, pending the plaintiffs'
interlocutory appeal. The federal court in Saipan issued a further order
on August 6, 1999, dismissing the non-federal law claims in the Saipan
action without prejudice. Counsel for the plaintiffs have represented that
they have reached preliminary class-wide settlements with three of the
customer co-defendants and with several clothing designers and retailers
that are not currently defendants which would, subject to court approvals,
resolve the Los Angeles and San Francisco actions against those parties.
The federal court on Los Angeles conducted a hearing on August 9 concerning
the defendants' motion to transfer venue, and reserved decision. At this
early stage, the Company is not in a position to evaluate the likelihood of
an unfavorable outcome.
The Federal Trade Commission is currently conducting an inquiry with respect
to Nine West's resale pricing policies to determine whether Nine West violated
the federal antitrust laws by agreeing with others to restrain the prices at
which retailers sell footwear and other products marketed by Nine West. In
addition, Attorneys General from the States of Florida, New York, Ohio and Texas
are conducting similar inquiries.
Since January 13, 1999, more than 25 putative class actions have been filed on
behalf of purchasers of Nine West's footwear in four separate federal courts.
These federal complaints allege that Nine West violated Section 1 of the Sherman
Act by engaging in a conspiracy with its retail distributors to fix the minimum
prices at which the footwear marketed by Nine West was sold to the public and
seek injunctive relief, unspecified compensatory and treble damages, and
attorneys' fees. All of these putative federal class action complaints have
been transferred and consolidated into a single action in the United States
District Court for the Southern District of New York, except for the most recent
federal complaint, filed in the United States District Court for the Eastern
District of Pennsylvania, which is in the process of being transferred and
consolidated with the consolidated federal action in
- 19 -
New York. In addition, five putative class actions based on the same alleged
conduct have been filed in state courts in New York, the District of Columbia,
Wisconsin, California and Minnesota alleging violations of those states'
respective antitrust laws. The five state actions likewise seek injunctive
relief, unspecified compensatory and treble damages, and attorneys' fees.
Based on the short period of time that has elapsed since the inception of the
inquiries and the filing of the lawsuits, Nine West's existing policies relating
to resale pricing and the limited information available to the Company with
respect to compliance with those policies, the Company does not anticipate that
the inquiries or lawsuits will result in a material adverse financial effect on
the Company.
On March 3, 4 and 5, 1999, four purported stockholder class action suits
were filed against the Company,Nine West and the members of Nine West's Board
of Directors in the Delaware Court of Chancery. These complaints allege,
among other things, that the defendants have breached their fiduciary
duties to Nine West stockholders by failing to maximize stockholder value
in connection with entering into the Merger Agreement with the Company.
The Company believes that the complaints are without merit and plans to
defend vigorously against the complaints.
The Company has been named as a defendant in various actions and
proceedings, including actions brought by certain employees whose
employment has been terminated arising from its ordinary business
activities. Although the amount of any liability that could arise
with respect to these actions cannot be accurately predicted, in the
opinion of the Company, any such liability will not have a material
adverse financial effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Stockholders was held on May 27, 1999.
The proposals submitted to the vote of the stockholders and the results
of the votes were as follows:
Broker
For Against Withheld Abstain Nonvotes
Election of Directors
Sidney Kimmel 98,121,307 * 1,255,798 * -
Jackwyn Nemerov 98,177,284 * 1,199,821 * -
Irwin Samelman 98,155,851 * 1,221,254 * -
Geraldine Stutz 98,356,951 * 1,020,154 * -
Howard Gittis 98,189,197 * 1,187,908 * -
Eric A. Rothfeld 98,170,047 * 1,201,693 * -
Mark J. Schwartz 98,170,047 * 1,207,058 * -
Ratification of the
Selection of BDO
Seidman, LLP as
the Independent
Certified Public
Accountants 99,315,081 28,084 * 33,940 -
Approval of the
1999 Stock
Option Plan 50,591,043 32,778,988 * 111,223 15,895,851
Approval of the
Executive Annual
Incentive Plan 98,544,066 713,586 * 119,453 -
*Not Applicable
- 20 -
Item 5. Other information
Statement Regarding Forward-looking Disclosure
This Report includes, and incorporates by reference, "forward-looking
statements" within the meaning of the Private Securities Reform Act of 1995.
All statements regarding the Company's expected financial position, business
and financing plans are forward-looking statements. The words "believes,"
"expects," "plans," "intends," "anticipates" and similar expressions
identify forward-looking statements. Forward-looking statements also
include representations of 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, financial difficulties encountered by
customers, the effects of vigorous competition in the markets in which the
Company operates, the integration of Nine West Group Inc., Sun Apparel,
Inc., or other acquired businesses into the Company's existing operations, the
termination or non-renewal of the licenses with Polo Ralph Lauren Corporation,
the Company's extensive foreign operations and manufacturing, pending
litigation and investigations, the failure of customers or suppliers to
achieve Year 2000 compliance, changes in the costs of raw materials, labor
and advertising, and the Company's ability to secure and protect trademarks
and other intellectual property rights. All statements other than statements
of historical facts included in this 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, such expectations may prove to be incorrect. Important factors
that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in this Report in
conjunction with the forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhbits.
(b) Reports on Form 8-K
During the quarter ended July 4, 1999, the Company filed the following two
Current Reports on Form 8-K with the Securities and Exchange Commission:
(1) A Current Report on Form 8-K, dated April 7, 1999, announcing the filing
of a registration statement on Form S-4 relating to the proposed issuance
of common stock by the Company in connection with the proposed
acquisition of Nine West and containing certain historical data of Nine
West and certain unaudited pro forma consolidated financial statements
that give effect to the acquisition of Nine West by the Company under
the purchase method of accounting.
- 21 -
(2) A Current Report on Form 8-K, dated June 15, 1999, announcing the
consummation of the merger pursuant to which the Company acquired
Nine West.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JONES APPAREL GROUP, INC.
(Registrant)
Date: August 17, 1999 By /s/ Sidney Kimmel
----------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
----------------------------
WESLEY R. CARD
Chief Financial Officer
- 22 -
INDEX TO EXHIBITS
Number Description
4.1* Second Supplemental Indenture for 8-3/8% Series B Senior Notes due 2005
dated as of June 15, 1999, among Jack Asset Sub Inc., Jones Apparel
Group, Inc., Jones Apparel Group Holdings, Inc., Jones Apparel Group
USA, Inc., and The Bank of New York, as trustee.
4.2* Second Supplemental Indenture for 9% Series B Senior Notes due 2005
dated as of June 2, 1999, between Nine West Group Inc., Jack Asset Sub
Inc., Jill Acquisition Sub Inc. and The Bank of New York, as trustee.
4.3* Second Supplemental Indenture for 6.25% Senior Notes due 2001 dated as of
June 15, 1999, among Jones Apparel Group, Inc., Jones Apparel Group
Holdings, Inc., Jones Apparel Group USA, Inc., Jack Asset Sub Inc.,
and The Chase Manhattan Bank, as trustee.
4.4* Second Supplemental Indenture for 5-1/2% Convertible Subordinated Notes
due 2003 dated as of June 15, 1999, between Jack Asset Sub Inc., Jill
Acquisition Sub Inc. and Chase Manhattan Bank, as trustee.
4.5* Exchange and Registration Rights Agreement dated June 15, 1999 among the
Company, Bear, Stearns & Co. Inc., Chase Securities Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc.,
BancBoston Robertson Stephens Inc., Banc of America Securities LLC, ING
Baring Furman Selz LLC, Lazard Freres & Co. LLC, Tucker Anthony Cleary
Gull, Brean Murray & Co., Inc., and The Buckingham Research Group
Incorporated.
4.6* Senior Note Indenture dated as of June 15, 1999 among Jones Apparel
Group, Inc. Jones Apparel Group Holdings, Inc. Jones Apparel Group USA,
Inc., Nine West Group Inc., and The Bank of New York, as trustee,
including Form of 7.50% Senior Notes due 2004 and Form of 7.875% Senior
Notes due 2006
10.1* Second Amended and Restated 364-Day Credit Agreement dated as of June 15,
1999 among Jones Apparel Group USA Inc. and the Additional Obligors
referred to therein, the Lenders referred to therein, and First Union
National Bank, as Administrative Agent.
10.2* Five-Year Credit Agreement dated as of June 15, 1999 among Jones
Apparel Group USA Inc. and the Additional Obligors referred to therein,
the Lenders referred to therein, and First Union National Bank, as
Administrative Agent.
10.3 Jones Apparel Group, Inc. 1999 Stock Option Plan (incorporated by
reference to Annex A of the Company's Proxy Statement for the
Company's 1999 Annual Meeting of Stockholders).
10.4 Jones Apparel Group, Inc. Executive Annual Incentive Plan
(incorporated by reference to Annex B of the Company's Proxy Statement
for the Company's 1999 Annual Meeting of Stockholders).
27* Financial Data Schedule (filed only electronically)
* filed herewith