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 October 3, 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.
Outstanding at
Class of Common Stock November 10, 1999
- --------------------- -----------------
$.01 par value 122,504,740
2
JONES APPAREL GROUP, INC.
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
October 3, 1999 and December 31, 1998............. 3
Consolidated Statements of Income
Quarters and Nine Months ended
October 3, 1999 and September 27, 1998.......... 4
Consolidated Statements of Stockholders' Equity
Nine Months ended October 3, 1999 and
September 27, 1998.............................. 5
Consolidated Statements of Cash Flows
Nine Months ended October 3, 1999 and
September 27, 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................................... 18
Item 5. Other Information................................... 20
Item 6. Exhibits and Reports on Form 8-K.................... 21
Signatures..................................................... 21
Index to Exhibits.............................................. 22
- 2 -
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
October 3, December 31,
1999 1998
------------- -------------
(Unaudited)
ASSETS
CURRENT:
Cash and cash equivalents......................................... $ 36,491 $ 129,024
Accounts receivable............................................... 462,570 169,225
Inventories....................................................... 702,294 268,175
Receivable from and advances to contractors....................... 25,009 19,207
Deferred income taxes............................................. 97,727 32,143
Prepaid expenses and other current assets......................... 37,244 14,069
----------- ----------
TOTAL CURRENT ASSETS.............................................. 1,361,335 631,843
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $184,038 and $76,460........... 256,050 156,043
GOODWILL, less accumulated amortization of $16,410 and $2,714..... 877,817 323,009
OTHER INTANGIBLES, less accumulated amortization of
$30,387 and $9,919.............................................. 355,016 29,705
DEFERRED INCOME TAXES............................................. 69,882 2,261
OTHER ASSETS...................................................... 78,468 45,811
----------- -----------
$2,998,568 $1,188,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings............................................. $ 423,793 $ -
Current portion of long-term debt and capital lease obligations... 8,968 6,522
Accounts payable.................................................. 239,021 100,282
Income taxes payable.............................................. 62 13,654
Accrued costs of closing stores and other facilities.............. 55,787 -
Accrued compensation.............................................. 28,279 11,746
Accrued interest and bank fees.................................... 12,488 5,369
Accrued expenses and other current liabilities.................... 124,247 36,315
----------- -----------
TOTAL CURRENT LIABILITIES......................................... 892,645 173,888
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt.................................................... 804,886 379,247
Obligations under capital leases.................................. 33,653 35,406
Other............................................................. 55,471 5,782
----------- -----------
TOTAL NONCURRENT LIABILITIES...................................... 894,010 420,435
----------- -----------
TOTAL LIABILITIES................................................. 1,786,655 594,323
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000;
none issued...................................................... - -
Common stock, $.01 par value - shares authorized 200,000;
issued 134,363 and 115,412....................................... 1,344 1,154
Additional paid in capital........................................ 689,487 234,787
Retained earnings................................................. 755,091 593,781
Accumulated other comprehensive income............................ (146) (2,287)
----------- -----------
1,445,776 827,435
Less treasury stock, 11,948 and 11,918 shares, at cost............ (233,863) (233,086)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................................ 1,211,913 594,349
----------- -----------
$2,998,568 $1,188,672
=========== ===========
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
- 3 -
4
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter ended Nine Months ended
----------------------------- ------------------------------
October 3, September 27, October 3, September 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Net sales......................................................... $1,139,397 $495,727 $2,220,147 $1,181,240
Licensing income.................................................. 7,272 4,590 16,001 11,406
------------- ------------- ------------- -------------
Total revenues.................................................... 1,146,669 500,317 2,236,148 1,192,646
Cost of goods sold................................................ 668,246 324,724 1,336,947 778,372
Purchase accounting adjustments to cost of goods sold (1)......... 39,050 - 45,559 -
------------- ------------- ------------- -------------
Gross profit...................................................... 439,373 175,593 853,642 414,274
Selling, general and administrative expenses...................... 280,211 78,342 530,050 211,942
Amortization of goodwill.......................................... 7,212 - 13,696 -
------------- ------------- ------------- -------------
Operating income.................................................. 151,950 97,251 309,896 202,332
Net interest expense.............................................. 24,789 1,156 41,284 2,745
------------- ------------- ------------- -------------
Income before provision for income taxes.......................... 127,161 96,095 268,612 199,587
Provision for income taxes........................................ 52,136 36,997 107,302 76,841
------------- ------------- ------------- -------------
Net income........................................................ $75,025 $59,098 $161,310 $122,746
============= ============= ============= =============
Earnings per share
Basic......................................................... $0.61 $0.59 $1.45 $1.22
Diluted....................................................... $0.59 $0.57 $1.40 $1.17
Weighted average common shares and
share equivalents outstanding
Basic......................................................... 122,382 100,886 111,415 100,821
Diluted....................................................... 126,253 104,426 115,425 104,613
<FN>
(1) 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.
All amounts in thousands except per share data
See notes to consolidated financial statements
- 4 -
5
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, January 1, 1998........................ $435,632 $545 $122,582 $438,917 ($1,524) ($124,888)
Nine months ended September 27, 1998:
Comprehensive income
Net income.................................... 122,746 - - 122,746 - -
Foreign currency translation adjustments...... (535) - - - (535) -
-----------
Total comprehensive income.................. 122,211
-----------
Amortization of deferred compensation in
connection with executive stock options........ 158 - 158 - - -
Exercise of stock options....................... 8,986 6 9,080 - - (100)
Tax benefit derived from exercise of
stock options.................................. 5,685 - 5,685 - - -
Effect of 2-for-1 stock split................... - 549 (549) - - -
Treasury stock acquired......................... (72,149) - - - - (72,149)
----------- ------- ----------- -------- ---------- ---------
Balance, September 27, 1998..................... $500,523 $1,100 $136,956 $561,663 ($2,059) ($197,137)
=========== ======= =========== ======== ========== =========
Accumulated
Total Additional other
stockholders' Common paid-in Retained comprehensive Treasury
equity stock capital earnings income stock
------------- ------- ----------- -------- ------------- ---------
Balance, January 1, 1999........................ $ 594,349 $1,154 $234,787 $593,781 ($2,287) ($233,086)
Nine months ended October 3, 1999:
Comprehensive income
Net income.................................... 161,310 - - 161,310 - -
Foreign currency translation adjustments...... 2,141 - - - 2,141 -
-----------
Total comprehensive income.................. 163,451
-----------
Amortization of deferred compensation in
connection with executive stock options........ 95 - 95 - - -
Exercise of stock options....................... 11,542 13 11,529 - - -
Tax benefit derived from exercise of
stock options.................................. 7,460 - 7,460 - - -
Stock issued as additional consideration for
acquisition of Sun Apparel, Inc. .............. 14,334 6 14,328 - - -
Treasury stock acquired......................... (777) - - - - (777)
Stock and options issued for acquisition of
Nine West Group Inc., net of issuance costs.... 421,657 171 421,486 - - -
Other........................................... (198) - (198) - - -
----------- ------- ----------- -------- ---------- ---------
Balance, October 3, 1999........................ $1,211,913 $1,344 $689,487 $755,091 ($146) ($233,863)
=========== ======= =========== ======== ========== =========
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 5 -
6
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months ended
--------------------------------
October 3, September 27,
1999 1998
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $161,310 $122,746
----------- -----------
Adjustments to reconcile net income to net cash
used in operating activities, net of acquisition
of Nine West Group Inc.:
Amortization of goodwill............................ 13,696 -
Depreciation and other amortization................. 33,221 11,254
Provision for losses on accounts receivable......... 5,895 825
Deferred income taxes............................... 10,212 (3,174)
Other............................................... 834 362
(Increase) decrease in
Trade receivables................................. (249,969) (165,353)
Inventories....................................... 16,840 27,638
Prepaid expenses and other current assets......... 30,941 (7,293)
Other assets...................................... (2,039) (5,828)
Increase (decrease) in:
Accounts payable.................................. 78,827 (8,473)
Taxes payable..................................... 6,242 42,761
Accrued expenses and other liabilities............ (48,556) 9,850
----------- -----------
Total adjustments................................. (103,856) (97,431)
----------- -----------
Net cash provided by operating activities............... 57,454 25,315
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (19,444) (37,546)
Acquisition of Nine West Group Inc.
net of cash acquired .................................. (433,824) -
Additional consideration paid for acquisition
of Sun Apparel, Inc. .................................. (20,137) -
Acquisition of intangibles.............................. (28,429) -
Decrease in cash restricted for capital additions....... - 11,193
Other................................................... 5,373 (116)
----------- -----------
Net cash used in investing activities................... (496,461) (26,469)
----------- -----------
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...................................... (5,592) -
Repurchase of Nine West Senior Notes..................... (344,033) -
Premiums paid on repurchase of Nine West Senior Notes.... (12,854) -
Net borrowings under various credit facilities........... 305,673 41,950
Principal payments on capitalized leases................. (3,377) (2,806)
Acquisition of treasury stock............................ (777) (72,149)
Proceeds from exercise of stock options.................. 11,542 8,986
Other.................................................... (228) -
----------- -----------
Net cash provided by (used in) financing activities...... 346,707 (24,019)
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH......................... (233) (5)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................ (92,533) (25,178)
CASH AND CASH EQUIVALENTS, beginning of period........... 129,024 40,134
----------- -----------
CASH AND CASH EQUIVALENTS, end of period................. $36,491 $14,956
=========== ===========
<FN>
All amounts in thousands
See notes to consolidated financial statements
- 6 -
7
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 $463.6
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 has been 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 $543.0 million being amortized on a straight-line basis
over 30 years. During the quarter ended October 3, 1999, an appraisal
of certain acquired assets was completed and purchase price allocations
were adjusted accordingly. As part of the purchase price allocation,
$62.3 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, of which $55.8
million remained accrued at October 3, 1999.
- 7 -
8
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 nine months ended September 27, 1998 include the results of
Sun Apparel, Inc.(acquired on October 2, 1998) as if it had also been
acquired on January 1, 1998.
October 3, September 27,
Nine months ended: 1999 1998
---------- ------------
Net revenues (in thousands)............ $ 3,035,782 $ 2,994,904
Net income (in thousands).............. 173,138 140,397
Basic earnings per common share........ $1.42 $1.14
Diluted earnings per common share...... $1.38 $1.10
3. Accounts Receivable
Accounts receivable consists of the following (amounts in thousands):
October 3, December 31,
1999 1998
---------- -----------
Accounts receivable..................... $ 369,265 $ 172,528
Securitized interest in
accounts receivable................... 111,988 -
Allowance for doubtful accounts......... (18,683) (3,303)
---------- -----------
$ 462,570 $ 169,225
========== ===========
4. Inventories
Inventories are summarized as follows (amounts in thousands):
October 3, December 31,
1999 1998
---------- -----------
Raw materials.......................... $ 31,979 $ 33,928
Work in process........................ 57,466 43,041
Finished goods......................... 612,849 191,206
---------- -----------
$ 702,294 $ 268,175
========== ===========
- 8 -
9
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
Nine Months Ended: October 3, September 27,
(In thousands) 1999 1998
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest................................ $ 29,085 $ 4,039
Income taxes............................ 83,503 49,518
Supplemental disclosures of non-cash
investing and financing activities:
Equipment acquired through capital
lease financing......................... 1,641 21,310
Tax benefits related to stock options.... 7,460 5,685
Common stock issued as additional
consideration for acquisition of
Sun Apparel, Inc. ...................... 14,334 -
Detail of acquisitions:
Fair value of assets acquired............ $1,723,838 $ -
Liabilities assumed...................... (838,550) -
Common stock and options issued.......... (421,687) -
---------- -----------
Net cash paid for acquisitions........... 463,601 -
Cash acquired in acquisitions............ 29,777 -
---------- -----------
Cash paid for acquisitions............... $ 433,824 $ -
========== ===========
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 -
10
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 nine months ended October 3, 1999 and September 27, 1998.
Wholesale
Wholesale Footwear & Other &
Apparel Accessories Retail Eliminations Consolidated
--------- ----------- --------- ------------ ------------
For the quarter ended October 3, 1999
Revenues from external customers.......... $ 639,038 $ 224,183 $ 276,176 $ 7,272 $ 1,146,669
Intersegment revenues..................... 30,326 39,019 - (69,345) -
---------- ---------- --------- ---------- -----------
Total revenues............................ 669,364 263,202 276,176 (62,073) 1,146,669
---------- ---------- --------- ---------- -----------
Segment income............................ $ 141,292 $ 4,871 $ 10,380 $ 2,619 159,162
========== ========== ========= ==========
Amortization of goodwill.................. (7,212)
Net interest expense...................... (24,789)
-----------
Income before provision for income taxes.. $ 127,161
===========
For the quarter ended September 27, 1998
Revenues from external customers.......... $ 452,350 $ - $ 43,377 $ 4,590 $ 500,317
Intersegment revenues..................... 38,253 - - (38,253) -
---------- ---------- --------- ---------- -----------
Total revenues............................ 490,603 - 43,377 (33,663) 500,317
---------- ---------- --------- ---------- -----------
Segment income............................ $ 104,674 $ - $ 36 $ (7,459) 97,251
========== ========== ========= ==========
Net interest expense...................... (1,156)
-----------
Income before provision for income taxes.. $ 96,095
===========
For the nine months ended October 3, 1999
Revenues from external customers.......... $1,557,228 $ 277,897 $ 385,022 $ 16,001 $ 2,236,148
Intersegment revenues..................... 74,654 47,006 - (121,660) -
---------- ---------- --------- ---------- -----------
Total revenues............................ 1,631,882 324,903 385,022 (105,659) 2,236,148
---------- ---------- --------- ---------- -----------
Segment income............................ $ 306,152 $ 10,230 $ 17,996 $ (10,786) 323,592
========== ========== ========= ==========
Amortization of goodwill.................. (13,696)
Net interest expense...................... (41,284)
-----------
Income before provision for income taxes.. $ 268,612
===========
For the nine months ended September 27, 1998
Revenues from external customers.......... $1,063,990 $ - $ 117,250 $ 11,406 $ 1,192,646
Intersegment revenues..................... 89,528 - - (89,528) -
---------- ---------- --------- ---------- -----------
Total revenues............................ 1,153,518 - 117,250 (78,122) 1,192,646
---------- ---------- --------- ---------- -----------
Segment income............................ $ 212,888 $ - $ 8,270 $ (18,826) 202,332
========== ========== ========= ==========
Net interest expense...................... (2,745)
-----------
Income before provision for income taxes.. $ 199,587
===========
Total assets at October 3, 1999............. $1,865,114 $ 767,662 $ 429,544 $ (63,752) $ 2,998,568
Total assets at September 27, 1998.......... 672,446 - 75,096 (11,473) 736,069
- 10 -
11
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 nine months of 1999, Nine West since the date
of acquisition and pro forma information for Jones USA for the first nine
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 nine months
ended October 3, 1999:
Current assets.............. $ 1,381,496 $ 584,281 $(604,442) $ 1,361,335
Noncurrent assets........... 155,271 1,023,917 458,045 1,637,233
Current liabilities......... 829,457 533,441 (470,253) 892,645
Noncurrent liabilities...... 707,242 191,562 (4,794) 894,010
Total revenues.............. 1,135,054 549,851 551,243 2,236,148
Gross profit................ 426,004 198,492 229,146 853,642
Operating income............ 174,425 13,087 122,384 309,896
Net income.................. 78,942 (3,768) 86,136 161,310
On or for the nine months
ended September 27, 1998:
Current assets.............. $ 510,481 $ - $ 41,441 $ 551,922
Noncurrent assets........... 135,171 - 48,976 184,147
Current liabilities......... 520,649 - (339,553) 181,096
Noncurrent liabilities...... 48,993 - 5,303 54,296
Excess of net assets
acquired over cost......... 154 - - 154
Total revenues.............. 1,101,289 - 91,357 1,192,646
Gross profit................ 357,162 - 57,112 414,274
Operating income............ 139,262 - 63,070 202,332
Net income.................. 75,848 - 46,898 122,746
- 11 -
12
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 nine month periods ended
October 3, 1999 and September 27, 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 Nine Months ended
------------------------ -------------------------
October 3, September 27, October 3, September 27,
1999 1998 1999 1998
---------- ------------- ---------- --------------
Net sales 99.4% 99.1% 99.3% 99.0%
Licensing income 0.6% 0.9% 0.7% 1.0%
---------- ------------- ---------- --------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 58.3% 64.9% 59.8% 65.3%
---------- ------------- ---------- --------------
Gross profit before
purchase accounting
adjustments 41.7% 35.1% 40.2% 34.7%
Purchase accounting
adjustments to
cost of goods sold 3.4% - 2.0% -
---------- ------------- ---------- --------------
Gross profit 38.3% 35.1% 38.2% 34.7%
Selling, general
and administrative
expenses 24.4% 15.7% 23.7% 17.8%
Amortization of
goodwill 0.6% - 0.6% -
---------- ------------- ---------- --------------
Operating income 13.3% 19.4% 13.9% 17.0%
Net interest expense 2.2% 0.2% 1.8% 0.2%
---------- ------------- ---------- --------------
Income before
provision for income
taxes 11.1% 19.2% 12.0% 16.7%
Provision for income
taxes 4.5% 7.4% 4.8% 6.4%
---------- ------------- ---------- --------------
Net income 6.5% 11.8% 7.2% 10.3%
========== ============= ========== ==============
Totals may not agree due to rounding.
Quarter Ended October 3, 1999 Compared to Quarter Ended September 27, 1998
Revenues. Total revenues for the 13 weeks ended October 3, 1999
(hereinafter referred to as the "third quarter of 1999") increased 129.2%,
or $646.4 million, to $1.1 billion, compared to $500.3 million
- 12 -
13
for the 13 weeks ended September 27, 1998 (hereinafter referred to as
the "third quarter of 1998"). The revenue growth resulted primarily
from the net sales of product lines added as a result of the Sun and Nine
West acquisitions ($164.1 million and $460.4 million of the increase,
respectively). The breakdown of total revenues for both periods is as
follows:
Third Third
Quarter Quarter Increase/ Percent
(in millions) of 1999 of 1998 (Decrease) Change
------------------------------------------------
Wholesale apparel $639.0 $452.3 $186.7 41.3%
Wholesale footwear
and accessories 224.2 - 224.2 -
Retail 276.2 43.4 232.8 536.4%
Other 7.3 4.6 2.7 58.7%
------------------------------------------------
Total revenues $1,146.7 $500.3 $646.4 129.2%
================================================
Wholesale apparel revenues increased primarily as a result of the acquisition
of Sun, increases in shipments of Lauren by Ralph Lauren products and initial
shipments of the Ralph by Ralph Lauren line, partially offset by planned lower
shipments of Jones New York collection products. The increases in wholesale
footwear and accessories and retail revenues are the result of the acquisition
of Nine West.
Gross Profit. The gross profit margin increased to 38.3% in the third
quarter of 1999 compared to 35.1% in the third quarter of 1998. Wholesale
apparel gross profit margins increased to 38.3% in the third quarter of 1999
compared to 33.8% in the third quarter of 1998, resulting from lower overseas
production costs, the favorable impact of currency devaluations in Asia, and
continued improvement in inventory management. Retail gross profit margins
also increased to 48.4% from 38.1%, primarily due to the acquisition of
Nine West.
Gross profit was negatively impacted during the third quarter of 1999 by a
$39.1 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 third quarter of 1999
would have been 41.7%.
SG&A Expenses. Selling, general and administrative ("SG&A") expenses of
$280.2 million in the third quarter of 1999 represented an increase of
$201.9 million over the third quarter of 1998. As a percentage of total
revenues, SG&A expenses increased to 24.4% in the third quarter of 1999
from 15.7% for the comparable period in 1998. Sun and Nine West accounted
for $37.2 million and $151.4 million, respectively, of the increase, with
the remainder primarily due to increased royalty and advertising expenses.
Operating Income. The resulting third quarter of 1999 operating income
of $152.0 million increased 56.2%, or $54.7 million, over the $97.3 million
for the third quarter of 1998. The operating margin decreased to 13.3%
in the third quarter of 1999 from 19.4% in the third quarter of 1998, due
to the factors discussed above and the amortization of goodwill resulting
from the Sun and Nine West acquisitions.
- 13 -
14
Net Interest Expense. Net interest expense was $24.8 million in
the third quarter of 1999 compared to $1.1 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 41.0% for
the third quarter of 1999 compared to 38.5% for the third quarter of 1998.
The increase was primarily due to the nondeductibility of goodwill
amortization in the third quarter of 1999.
Net Income. Net income increased 27.0% to $75.0 million in the third
quarter of 1999, an increase of $15.9 million over the net income of
$59.1 million earned in the third quarter of 1998. Net income as a
percentage of total revenues was 6.5% in the third quarter of 1999 and
11.8% in the third quarter of 1998. Excluding the amortization of goodwill
resulting from the Sun and Nine West acquisitions, net income for the
third quarter of 1999 would have been $82.2 million ($0.65 per diluted share).
Nine Months Ended October 3, 1999 Compared to Nine Months Ended
September 27, 1998
Revenues. Total revenues for the 39 weeks ended October 3, 1999
(hereinafter referred to as the "first nine months of 1999") increased
87.5%, or $1.0 billion, to $2.2 billion, compared to $1.2 billion for
the 39 weeks ended September 27, 1998 (hereinafter referred to as
the "first nine months of 1998). The revenue growth resulted primarily
from the net sales of product lines added as a result of the Sun and
Nine West acquisitions ($441.4 million and $546.0 million of the
increase, respectively). The breakdown of total revenues for both
periods is as follows:
First First
Nine Months Nine Months Increase/ Percent
(in millions) of 1999 of 1998 (Decrease) Change
------------------------------------------------
Wholesale apparel $1,557.2 $1,064.0 $ 493.2 46.4%
Wholesale footwear
and accessories 277.9 - 277.9 -
Retail 385.0 117.2 267.8 228.5%
Other 16.0 11.4 4.6 40.4%
------------------------------------------------
Total revenues $2,236.1 $1,192.6 $1,043.5 87.5%
================================================
Wholesale apparel revenues increased primarily as a result of the
acquisition of Sun and increased shipments of Jones New York Sport and
Lauren by Ralph Lauren products and the 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 accessories and retail are the result of the acquisition
of Nine West.
Gross Profit. The gross profit margin increased to 38.2% in the first
nine months of 1999 compared to 34.7% in the first nine months of 1998.
Wholesale apparel gross profit margins increased to 37.5% in the first
nine months of 1999 compared to 32.7% in the first nine 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. Retail gross profit margins also
increased to 49.3% from 46.5%, primarily due to the acquisition
of Nine West.
- 14 -
15
Gross profit was negatively impacted during the first nine months
of 1999 by a $45.6 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 nine months of 1999 would have been 40.2%.
SG&A Expenses. SG&A expenses of $530.1 million in the first nine
months of 1999 represented an increase of $318.2 million over the
first nine months of 1998. As a percentage of total revenues, SG&A
expenses increased to 23.7% in the first nine months of 1999 from
17.8% for the comparable period in 1998. Sun and Nine West accounted
for $100.5 million and $179.7 million, respectively, of the increase
with the remainder primarily due to increased royalty and advertising
expenses.
Operating Income. The resulting first nine months of 1999 operating
income of $309.9 million increased 53.2%, or $107.6 million, over the
$202.3 million achieved during the first nine months of 1998. The
operating margin decreased to 13.9% in the first nine months of 1999
from 17.0% in the first nine 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 $41.3 million in the
first nine months of 1999 compared to $2.7 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 40.0%
for the first nine months of 1999 compared to 38.5% for the first nine
months of 1998. The increase was primarily due to the nondeductibility
of goodwill amortization in the first nine months of 1999.
Net Income. Net income increased 31.4% to $161.3 million in the first
nine months of 1999, an increase of $38.6 million over the net income
of $122.7 million earned in the first nine months of 1998. Net income
as a percentage of total revenues was 7.2% in the first nine months of
1999 and 10.3% in the first nine months of 1998. Excluding the
amortization of goodwill resulting from the Sun and Nine West
acquisitions, net income for the first nine months of 1999 would
have been $175.0 million ($1.52 per diluted share).
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 October 3, 1999, total cash and cash
equivalents were $36.5 million, an increase of $21.5 million over the
$15.0 million reported as of September 27, 1998 and a decrease of
$92.5 million from the $129.0 million reported as of December 31, 1998.
Net cash provided by operations was $57.5 million in the first nine
months of 1999, primarily due to $208.2 million of earnings before
depreciation and amortization, decreases in inventories and prepaid
expenses and other current assets and a higher level of accounts
payable, offset by increases in accounts receivable. Net cash provided
by operations was $25.3 million in the first nine months of 1998,
primarily due to $134.0 million of earnings before depreciation and
amortization, an increase in taxes payable and a decrease in inventories,
offset primarily by an increase in accounts receivable.
- 15 -
16
Net cash used in investing activities increased $470.0 million in the
first nine months of 1999 over the first nine 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
$19.4 million in the first nine months of 1999 compared to $37.5
million in the first nine months of 1998.
Financing activities provided $346.7 million of cash in the first
nine months of 1999, primarily from the issuance of $400.0 million
of senior notes as well as a $305.7 million increase in bank borrowings
and $11.5 million in proceeds from employees exercising stock options,
offset by $356.9 million in payments related to the repurchase of a
portion of Nine West's outstanding notes. In connection with the Nine West
acquisition, the Company sold $175.0 million of 7.50% Senior Notes due
2004 and $225.0 million of 7.875% Senior Notes due 2006. In addition
to financing the cash portion of the acquisition, the proceeds of
these notes and the increase in bank borrowings were also used to
repurchase substantially all of Nine West's $94.0 million of 9% Series B
Senior Subordinated Notes due 2007 (the "Nine West Subordinated Notes")
and $186.1 million of Nine West's 5.5% Convertible Subordinated Notes
due 2003 (the "Nine West Convertible Notes"), as well as $64.9 million
of Nine West's 8.375% Senior Notes due 2005 (the "Nine West Senior Notes").
During the first nine months of 1998, financing activities provided
$32.0 million of cash, primarily the result of increased bank borrowings
of $45.1 million, most of which was used to repurchase $30.6 million of
the Company's common stock on the open market. As of October 3, 1999,
a total of $232.9 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 the Nine West Convertible Notes and the Nine West Senior
Notes. At October 3, 1999, $0.1 million of the Nine West Subordinated Notes,
$0.5 million of the Nine West Convertible Notes, $131.6 million of the
Nine West Senior notes, $175.0 million of the 7.50% Senior Notes due 2004,
$225.0 million of the 7.875% Senior Notes due 2006 and $265.0 million
of the 6.25% Senior Notes due 2001 were outstanding. 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.
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 nine 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 October 3, 1999, $190.6 million was outstanding under
the 364-Day Revolving Credit Facility (comprised of $174.6 in outstanding
letters of credit and $16.0 million in cash borrowings) and $402.0 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
- 16 -
17
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.
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 October 3, 1999, Nine West had sold $204.0 million
of outstanding trade accounts receivable into the Receivables Facility and
had received proceeds of $92.0 million.
The Company also has various unsecured foreign lines of credit in Europe,
Australia and Canada, under which $7.5 million was outstanding at
October 3, 1999.
The Company believes that funds generated by operations, proceeds from
issuance 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 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 has completed the correcting and updating of its critical
systems to ensure Year 2000 compliance and has substantially completed
any necessary remediation of its non-critical systems. However,
there can be no assurances that any systems and products of other companies
on which the Company relies found not to be Year 2000 compliant will not
have an adverse effect on the Company's business, operations or financial
condition.
- 17 -
18
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 and hardware is designed to function properly with respect to
dates related to the Year 2000 and beyond.
As of October 3, 1999, the Company had incurred approximately $1.0 million
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.
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.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as one of multiple defendants in two lawsuits
challenging working conditions for foreign contract workers in garment
factories in Saipan (part of the U.S. Commonwealth of the Northern Mariana
Islands). One suit was filed in federal court in Los Angeles by several
anonymous plaintiffs on behalf of a purported class of garment workers; the
second was filed in state court in San Francisco by a labor union and three
nonprofit groups. The Company and the other defendants in the federal suit
moved to transfer venue to the District of the Northern Mariana Islands.
On September 29, 1999, the court ruled that the action should be transferred,
but transferred it to the District of Hawaii. On October 22 and 26, two
defendants filed petitions in the Ninth Circuit Court of Appeals for a writ
of mandamus to compel transfer of this suit to the Marianas, and on November 3
the Company joined in one of those petitions. No action has as yet been taken
on those petitions. On September 3, 1999, the California state court held a
hearing on the defendant's demurrer to plaintiffs' complaint. The court
reserved decision, but permitted the plaintiffs to amend their
- 18 -
19
complaint to address apparent shortcomings in the allegations. On September
23, 1999, plaintiffs served their amended complaint, and on October 6, 1999,
the Company and the other defendants renewed their demurrer.
Plaintiffs' counsel in these two actions have announced additional settlements
that bring to nine the number of U.S.-based companies, some of whom have not
been previously named as defendants in these actions, who have agreed on a
proposed settlement structure for these claims consisting of a cash payment
and institution of an independent monitoring program and specified standards
for production of garments in Saipan. Such class settlements are subject to
approval by the federal court, which plaintiffs have not yet sought. 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. On April 9, 1999,
Nine West and certain retail distributors named as co-defendants in the
action moved to dismiss the complaint. The motion is fully submitted.
Discovery in the consolidated action was stayed pending a decision on
the motion to dismiss pursuant to an order of the Court issued at a
status conference on March 25, 1999.
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. Nine West has moved to dismiss each of these state
actions or, in the alternative, to stay them pending resolution of the
consolidated federal action pending in the Southern District of New York.
On October 22, 1999, the state court in Westchester County, New York
granted Nine West's motion to dismiss. On October 22, 1999, the state
court in San Diego, California granted Nine West's demurrer to the
amended complaint filed in California, dismissing that action with
prejudice. On July 27, 1999, the state court in Hennepin County,
Minnesota granted Nine West's motion to stay the action in that state
pending a decision on the motion to dismiss filed in federal court in
the Southern District in New York, and reserved decision as to Nine
West's motion to dismiss until after that time. Nine West's motions
in Wisconsin and the District of Columbia remain pending. 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
- 19 -
20
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 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 Exhibits.
(b) Reports on Form 8-K
Not applicable.
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21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JONES APPAREL GROUP, INC.
-------------------------
(Registrant)
Date: November 12, 1999 By /s/ Sidney Kimmel
-------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
-------------------------
WESLEY R. CARD
Chief Financial Officer
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22
INDEX TO EXHIBITS
Number Description
- ------ -----------
10.1* Letter Agreement, dated July 22, 1999, among Nine West Group Inc.,
Nine West Funding Corporation, Corporate Receivables Corporation,
the Liquidity Providers named therein, Citicorp North America, Inc.
and The Bank of New York, extending the term of the Amended and
Restated Series 1995-1 Certificate Purchase Agreement.
10.2* Employment Agreement dated as of June 15, 1999 between the
Registrant and Mark J. Schwartz.#
27* Financial Data Schedule (filed only electronically).
* Filed herewith.
# Management contract or compensatory plan or arrangement.
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