-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DwgrFu+FMCzpZYTco8TEX8wLqkfIkIEK1aI6PGy3TMB4kYQB1RNYhNUtBYCnnbrX 1+LR9O6kvbJqOBbOlAYdxA== 0000874016-00-000003.txt : 20000515 0000874016-00-000003.hdr.sgml : 20000515 ACCESSION NUMBER: 0000874016-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000402 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES APPAREL GROUP INC CENTRAL INDEX KEY: 0000874016 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 060935166 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10746 FILM NUMBER: 627975 BUSINESS ADDRESS: STREET 1: 250 RITTENHOUSE CIRCLE STREET 2: KEYSTONE PK CITY: BRISTOL STATE: PA ZIP: 19007 BUSINESS PHONE: 2157854000 MAIL ADDRESS: STREET 1: 250 RITTENHOUSE CIRCLE CITY: BRISTOL STATE: PA ZIP: 19007 10-Q 1 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 April 2, 2000 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 May 10, 1999 - --------------------- ----------------- $.01 par value 118,439,102 -1- 2 JONES APPAREL GROUP, INC. Index Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets April 2, 2000 and December 31, 1999.............. 3 Consolidated Statements of Income Quarters ended April 2, 2000 and April 4, 1999... 4 Consolidated Statements of Stockholders' Equity Quarters ended April 2, 2000 and April 4, 1999... 5 Consolidated Statements of Cash Flows Quarters ended April 2, 2000 and April 4, 1999... 6 Notes to Consolidated Financial Statements......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................. 15 Item 5. Other Information.................................. 16 Item 6. Exhibits and Reports on Form 8-K................... 16 Signatures.................................................. 17 Index to Exhibits........................................... 17 -2- 3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Jones Apparel Group, Inc. Consolidated Balance Sheets (All amounts in millions except per share data) April 2, December 31, 2000 1999 ---------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 34.6 $ 47.0 Accounts receivable, net of allowance for doubtful accounts of $22.2 and $26.6 593.9 271.1 Inventories 546.5 619.6 Prepaid and refundable income taxes - 34.5 Deferred taxes 91.4 98.9 Prepaid expenses and other current assets 60.9 59.5 --------- --------- TOTAL CURRENT ASSETS 1,327.3 1,130.6 PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization 242.9 239.8 GOODWILL, less accumulated amortization 1,018.0 989.9 OTHER INTANGIBLES, at cost, less accumulated amortization 342.7 345.4 OTHER ASSETS 85.5 86.3 --------- --------- $ 3,016.4 $ 2,792.0 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt and current portion of long-term debt and capital lease obligations $ 533.2 $ 266.9 Accounts payable 222.5 205.1 Accrued restructuring costs 57.9 61.1 Income taxes payable 16.5 - Accrued employee compensation 17.1 34.1 Accrued expenses and other current liabilities 89.0 94.2 --------- --------- TOTAL CURRENT LIABILITIES 936.2 661.4 --------- --------- NONCURRENT LIABILITIES: Long-term debt 801.4 801.5 Obligations under capital leases 31.7 32.7 Other 51.3 55.4 --------- --------- TOTAL NONCURRENT LIABILITIES 884.4 889.6 --------- --------- TOTAL LIABILITIES 1,820.6 1,551.0 --------- --------- COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - shares authorized 1.0; none issued - - Common stock, $.01 par value - shares authorized 200.0; issued 135.2 and 134.6 1.4 1.4 Additional paid-in capital 700.8 693.0 Retained earnings 852.8 782.2 Accumulated other comprehensive income (1.3) 0.3 --------- --------- 1,553.7 1,476.9 Less treasury stock, 17.5 and 12.0 shares, at cost (357.9) (235.9) --------- --------- TOTAL STOCKHOLDERS' EQUITY 1,195.8 1,241.0 --------- --------- $ 3,016.4 $ 2,792.0 ========= ========= [FN] See accompanying notes to consolidated financial statements -3- 4 Jones Apparel Group, Inc. Consolidated Statements of Income (Unaudited) (All amounts in millions except per share data) April 2, April 4, Quarter Ended 2000 1999 - ---------------- --------- --------- NET SALES $ 1,077.5 $ 574.8 LICENSING INCOME (NET) 4.9 4.3 --------- --------- Total revenues 1,082.4 579.1 COST OF GOODS SOLD 644.6 364.8 --------- --------- Gross profit 437.8 214.3 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 285.4 115.7 AMORTIZATION OF GOODWILL 8.6 2.7 --------- --------- Operating income 143.8 95.9 INTEREST EXPENSE AND FINANCING COSTS 26.4 7.8 INTEREST INCOME (0.3) (1.1) --------- --------- Income before provision for income taxes 117.7 89.2 PROVISION FOR INCOME TAXES 47.1 34.8 --------- --------- NET INCOME $ 70.6 $ 54.4 ========= ========= EARNINGS PER SHARE Basic $0.59 $0.53 Diluted $0.58 $0.51 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 119.3 103.6 Diluted 122.0 107.2 [FN] See accompanying notes to consolidated financial statements -4- 5 Jones Apparel Group, Inc. Consolidated Statements of Stockholders' Equity (Unaudited) (All amounts in millions)
Accumulated stock- Total Additional other holders' Common paid-in Retained comprehensive Treasury equity stock capital earnings income stock --------- ------ ---------- --------- ------------ -------- BALANCE, JANUARY 1, 1999: $ 594.4 $ 1.2 $ 234.8 $ 593.8 $ (2.3) $(233.1) QUARTER ENDED APRIL 4, 1999: Comprehensive income: Net income 54.4 - - 54.4 - - Foreign currency translation adjustments 0.3 - - - 0.3 - --------- Total comprehensive income 54.7 --------- Exercise of stock options 1.3 - 1.3 - - - Tax benefit derived from exercise of stock options 0.9 - 0.9 - - - --------- ------ ---------- --------- ------------ -------- BALANCE, APRIL 4, 1999 $ 651.3 $ 1.2 $ 237.0 $ 648.2 $ (2.0) $(233.1) ========= ====== ========== ========= ============ ======== BALANCE, JANUARY 1, 2000: $ 1,241.0 $ 1.4 $ 693.0 $ 782.2 $ 0.3 $(235.9) QUARTER ENDED APRIL 2, 2000: Comprehensive income: Net income 70.6 - - 70.6 - - Foreign currency translation adjustments (1.6) - - - (1.6) - --------- Total comprehensive income 69.0 --------- Amortization of deferred compensation in connection with executive stock options 0.1 - 0.1 - - - Exercise of stock options 4.3 - 4.4 - - (0.1) Tax benefit derived from exercise of stock options 3.3 - 3.3 - - - Treasury stock acquired (121.9) - - - - (121.9) --------- ------ ---------- --------- ------------ -------- BALANCE, APRIL 2, 2000 $ 1,195.8 $ 1.4 $ 700.8 $ 852.8 $ (1.3) $(357.9) ========= ====== ========== ========= ============ ======== See accompanying notes to consolidated financial statements
-5- 6 Jones Apparel Group, Inc. Consolidated Statements of Cash Flows (Unaudited) (All amounts in millions) April 2, April 4, Quarter Ended 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 70.6 $ 54.4 -------- -------- Adjustments to reconcile net income to net cash used in operating activities, net of acquisitions: Amortization of goodwill 8.6 2.7 Depreciation and other amortization 13.6 7.7 Provision for losses on trade receivables 0.6 2.4 Deferred taxes 15.9 1.1 Other 0.2 0.5 Decrease (increase) in: Trade receivables, including a $67.0 payment in 2000 to terminate Nine West's accounts receivable securitization program (323.5) (161.0) Inventories 65.9 (5.6) Prepaid expenses and other current assets (1.4) (2.0) Other assets (0.8) (5.1) Increase (decrease) in: Accounts payable 17.5 33.6 Taxes payable 54.6 26.7 Accrued expenses and other current liabilities (71.7) 19.0 Other liabilities 0.2 - -------- -------- Total adjustments (220.3) (80.0) -------- -------- Net cash used in operating activities (149.7) (25.6) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (13.2) (5.1) Adjustments to acquisition costs (0.1) 0.7 Acquisition of intangibles (0.9) (2.1) Proceeds from sale of property, plant and equipment 4.4 - -------- -------- Net cash used in investing activities (9.8) (6.5) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under long-term credit facilities 266.1 (0.5) Principal payments on capital leases (1.0) (1.1) Purchases of treasury stock (121.9) - Proceeds from exercise of stock options 4.3 1.3 Other - (0.1) -------- -------- Net cash provided by (used in) financing activities 147.5 (0.4) -------- -------- EFFECT OF EXCHANGE RATES ON CASH (0.4) - -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (12.4) (32.5) CASH AND CASH EQUIVALENTS, BEGINNING 47.0 129.0 -------- -------- CASH AND CASH EQUIVALENTS, ENDING $ 34.6 $ 96.5 ======== ======== [FN] See accompanying notes to consolidated financial statements -6- 7 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. As used in this Report, "Sun" refers to Sun Apparel, Inc. and "Nine West" refers to Nine West Group Inc. (acquired June 15, 1999). The results of Nine West are included in the Company's operating results from the date of acquisition and, therefore, the Company's operating results for the periods presented are not comparable. 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, 2000. The Company reports interim results in 13 week quarters; however, the annual reporting period is the calendar year. ACCRUED RESTRUCTURING COSTS In connection with the acquisitions of Nine West and Sun (acquired October 2, 1998), the Company assessed and formulated preliminary plans to restructure certain operations of each company. These plans involved the closure of manufacturing facilities, certain offices, foreign subsidiaries, and selected domestic and international retail locations. The objectives of the plans were to eliminate unprofitable or marginally profitable lines of business and reduce overhead expenses. The accrual of these costs and liabilities was recorded as an increase to goodwill and include:
Balance at Net Balance at (in millions) December 31, 1999 Additions Payments April 2, 2000 ----------------- --------- -------- ------------- Severance and other employee costs $ 26.7 $ 9.7 $ 10.0 $ 26.4 Closing of retail stores 15.0 (4.0) 1.5 9.5 Consolidation of facilities 14.4 0.5 0.2 14.7 Other 5.0 2.9 0.6 7.3 ------ ------ ------ ------ Total $ 61.1 $ 9.1 $ 12.3 $ 57.9 ====== ====== ====== ======
Estimated severance payments and other employee costs of $26.4 million accrued at April 2, 2000 relate to the remaining estimated severance for approximately 970 employees at locations to be closed, costs associated with employees transferring to continuing offices and other related costs. Employee groups affected (totaling an estimated 3,600 employees) include retail sales personnel at closed store locations, accounting, administrative, customer service and management personnel at closed facilities, manufacturing and production personnel at closed plant locations and duplicate corporate -7- 8 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) headquarters management and administrative personnel. During the quarter ended April 2, 2000, payments of $10.0 million to approximately 750 employees were made and charged against the reserve. Accrued liabilities for the closing of Nine West retail stores of $9.5 million at April 2, 2000 relate primarily to lease obligations and other closing costs for the remaining 127 stores to be closed after April 2, 2000 from the approximately 250 stores originally identified to be closed. The $14.7 million accrued at April 2, 2000 for the consolidation of facilities relate primarily to expected costs to be incurred, including lease obligations, for closing certain Nine West facilities in connection with consolidating their operations into other existing Company facilities. The Company's plans have not been finalized in all areas, and additional restructuring costs may result as the Company continues to evaluate and assess the impact of duplicate responsibilities and office locations, underperforming retail locations and international operations. Any additional costs relating to Nine West incurred before June 15, 2000 will be recorded as additional goodwill; after that date, additional costs will be charged to operations in the period in which they occur. Any additional costs for Sun will be charged to operations in the period in which they occur. INVENTORIES Inventories are summarized as follows (in millions): April 2, December 31, 2000 1999 ------- ----------- Raw materials $ 34.1 $ 25.6 Work in process 38.5 42.5 Finished goods 473.9 551.5 ------- ----------- $546.5 $619.6 ======= =========== STATEMENT OF CASH FLOWS Quarter Ended: April 2, April 4, (In millions) 2000 1999 ------- ----------- Supplemental disclosures of cash flow information: Cash paid (received) during the quarter for: Interest $ 21.3 $ 11.7 Income taxes, net of refunds (23.4) 4.4 Supplemental disclosures of non-cash investing and financing activities: Tax benefits related to stock options 3.3 0.9 -8- 9 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. SEGMENT INFORMATION Upon the acquisition of Nine West, the Company redefined the operating segments it uses for financial reporting purposes. Historical data has been restated to reflect these changes. The Company's operations are comprised of three reportable segments: wholesale apparel, wholesale footwear and accessories, and retail. The Company identifies operating segments based on, among other things, the way that the Company's management organizes the components of the Company's business for purposes of allocating resources and assessing performance. Segment revenues are generated from the sale of apparel, footwear and accessories through wholesale channels and the Company's own retail locations. The wholesale segments include wholesale operations with third party department and retail stores while the retail segment includes retail operations by Company-owned retail stores. The Company defines segment profit as operating income before amortization of goodwill, interest expense and income taxes. Summarized below are the Company's segment sales and income (loss) by reportable segments for the quarters ended April 2, 2000 and April 4, 1999.
(In millions) Wholesale Wholesale Footwear & Other & Apparel Accessories Retail Eliminations Consolidated --------- ----------- -------- ------------ ------------ For the quarter ended April 2, 2000 Revenues from external customers $ 595.2 $ 245.8 $ 236.5 $ 4.9 $1,082.4 Intersegment revenues 26.4 33.2 - (59.6) - --------- ----------- -------- ------------ ------------ Total revenues 621.6 279.0 236.5 (54.7) 1,082.4 --------- ----------- -------- ------------ ------------ Segment income $ 115.8 $ 56.9 $ (5.6) $ (14.7) 152.4 ========= =========== ======== ============ Amortization of goodwill (8.6) Net interest expense (26.1) ------------ Income before provision for income taxes $ 117.7 ============ For the quarter ended April 4, 1999 Revenues from external customers $ 542.2 $ - $ 32.6 $ 4.3 $ 579.1 Intersegment revenues 28.2 - - (28.2) - --------- ----------- -------- ------------ ------------ Total revenues 570.4 - 32.6 (23.9) 579.1 --------- ----------- -------- ------------ ------------ Segment income $ 108.5 $ - $ 1.3 $ (11.2) 98.6 ========= =========== ======== ============ Amortization of goodwill (2.7) Net interest expense (6.7) ------------ Income before provision for income taxes $ 89.2 ============
-9- 10 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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. 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 quarters of 2000 and 1999 and Nine West for the first quarter of 2000. 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 (In millions) Jones USA Nine West Eliminations Consolidated --------- --------- ------------ ------------ On or for the quarter ended April 2, 2000: Current assets $1,523.4 $ 586.1 $(782.2) $1,327.3 Noncurrent assets 156.1 1,065.3 467.7 1,689.1 Current liabilities 971.1 559.9 (594.8) 936.2 Noncurrent liabilities 708.0 181.8 (5.4) 884.4 Total revenues 432.2 455.3 194.9 1,082.4 Gross profit 166.7 197.9 280.0 644.6 Operating income 70.4 41.6 31.8 143.8 Net income 27.0 22.2 21.4 70.6 On or for the quarter ended April 4, 1999: Current assets $ 592.8 $ - $ 171.0 $ 763.8 Noncurrent assets 146.9 - 412.0 558.9 Current liabilities 327.5 - (75.2) 252.3 Noncurrent liabilities 412.2 - 6.9 419.1 Total revenues 404.9 - 174.2 579.1 Gross profit 139.8 - 74.5 214.3 Operating income 53.9 - 42.0 95.9 Net income 28.5 - 25.9 54.4 -10- 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 periods ended April 2, 2000 and April 4, 1999, 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 June 15, 1999, the Company completed its acquisition of Nine West. The results of operations of Nine West are included in the Company's operating results from the date of acquisition. Accordingly, the financial position and results of operations presented and discussed herein are not directly comparable between years. 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 --------------------------- April 2, April 4, 2000 1999 ---------- ---------- Net sales 99.5% 99.3% Licensing income (net) 0.5% 0.7% ---------- ---------- Total revenues 100.0% 100.0% Cost of goods sold 59.6% 63.0% ---------- ---------- Gross profit 40.4% 37.0% Selling, general and administrative expenses 26.4% 20.0% Amortization of goodwill 0.8% 0.5% ---------- ---------- Operating income 13.3% 16.6% Net interest expense 2.4% 1.2% ---------- ---------- Income before provision for income taxes 10.9% 15.4% Provision for income taxes 4.4% 6.0% ---------- ---------- Net income 6.5% 9.4% ========== ========== Totals may not agree due to rounding. Quarter Ended April 2, 2000 Compared to Quarter Ended April 4, 1999 Revenues. Total revenues for the 13 weeks ended April 2, 2000 (hereinafter referred to as the "first quarter of 2000") increased 86.9%, or $503.3 million, to $1.1 billion, compared to $574.8 million for the 13 weeks ended April 4, 1999 (hereinafter referred to as the "first quarter of 1999"). The revenue growth resulted primarily from the net sales of product lines added as a result of the Nine West acquisition ($455.3 million of the increase). The breakdown of total revenues for both periods is as follows: -11- 12 First First Quarter Quarter Percent (in millions) of 2000 of 1999 Increase Change -------- ------- -------- ------- Wholesale apparel $ 595.2 $542.2 $ 53.0 9.8% Wholesale footwear and accessories 245.8 - 245.8 - Retail 236.5 32.6 203.9 625.5% Other 4.9 4.3 0.6 14.0% -------- ------- -------- ------- Total revenues $1,082.4 $579.1 $503.3 86.9% ======== ======= ======== ======= Wholesale apparel revenues increased primarily as a result of increases in shipments of Lauren by Ralph Lauren and Polo Jeans Company products and initial shipments of the Ralph by Ralph Lauren line, partially offset by planned lower shipments of Jones New York and Rena Rowan 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 40.4% in the first quarter of 2000 compared to 37.0% in the first quarter of 1999, primarily due to proportionally higher retail sales in the first quarter of 2000 than in the first quarter of 1999. Wholesale apparel gross profit margins increased to 37.6% in the first quarter of 2000 compared to 35.8% in the first quarter of 1999, resulting from the sales mix being weighted more towards products carrying higher margins (such as Lauren by Ralph Lauren, Ralph by Ralph Lauren and Polo Jeans Company), lower overseas production costs and a continuing focus on inventory management. Retail gross profit margins decreased to 50.5% from 53.7%, primarily due to the acquisition of Nine West. Selling, general and administrative ("SG&A") expenses. SG&A expenses of $285.4 million in the first quarter of 2000 represented an increase of $169.7 million over the first quarter of 1999. As a percentage of total revenues, SG&A expenses increased to 26.4% in the first quarter of 2000 from 20.0% for the comparable period in 1999. Nine West accounted for $150.6 million of the increase, with the remainder primarily due to increased royalty and advertising expenses. Operating Income. The resulting first quarter of 2000 operating income of $143.8 million increased 49.9%, or $47.9 million, over the $95.9 million for the first quarter of 1999. The operating margin decreased to 13.3% in the first quarter of 2000 from 16.6% in the first quarter of 1999, due to the factors discussed above and the additional amortization of goodwill resulting from the Nine West acquisition. Net Interest Expense. Net interest expense was $26.1 million in the first quarter of 2000 compared to $6.7 million in the comparable period of 1999, primarily as a result of the debt incurred to finance the Nine West acquisition and repurchase treasury shares during the first quarter of 2000. Provision for Income Taxes. The effective income tax rate was 40.0% for the first quarter of 2000 compared to 39.0% for the first quarter of 1999. The increase was primarily due to the nondeductibility of the additional goodwill amortization in the first quarter of 2000. Net Income. Net income increased 29.8% to $70.6 million in the first quarter of 2000, an increase of $16.2 million over the net income of $54.4 million earned in the first quarter of 1999. Net income as a percentage of total revenues was 6.5% in the first quarter of 2000 and 9.4% in the first quarter of 1999. Excluding the amortization of goodwill resulting from the Sun and Nine West acquisitions, net income -12- 13 for the first quarters of 2000 and 1999 would have been $79.2 million and $57.1 million, respectively ($0.65 and $0.53 per diluted share, respectively). 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. Cash Used in Operations. Operating activities used $149.7 million of cash in the first quarter of 2000 and $25.6 million in the first quarter of 1999. The additional cash used in operations during the first quarter of 2000 was primarily due to a higher increase in accounts receivable compared to the first quarter of 1999, a result of both the timing of shipments during the first quarter of 2000 and the discontinuance of Nine West's five- year Receivables Facility (see below). Cash Used in Investing Activities. Investing activities used $9.8 million during the first quarter of 2000, an increase of $3.3 million over the first quarter of 1999. This increase was primarily due to a higher level of capital expenditures during the first quarter of 2000. Total capital expenditures for 2000 are expected to be approximately $60.0 million. Cash Provided by (Used in) Financing Activities. Financing activities provided $147.5 million of cash in the first quarter of 2000, compared to a usage of $0.4 million in the first quarter of 1999, as a result of higher borrowings under the Company's long-term credit facilities offset by purchases of treasury stock. The Company repurchased $121.9 million of its common stock on the open market during the first quarter of 2000. As of April 2, 2000, a total of $356.9 million has been expended under announced programs to acquire up to $500.0 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. Proceeds from the issuance of common stock to employees exercising stock options amounted to $4.3 million and $1.3 million in the first quarters of 2000 and 1999, respectively. Liquidity. 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. On April 5, 2000, the Company paid $26.6 million in cash and issued 669,323 shares of common stock (valued at $18.3 million) as additional consideration for the Sun acquisition related to 1999 earnings, which will be recorded as additional goodwill in the second quarter of 2000. During the first quarter of 2000, the Company terminated a five-year Receivables Facility (created in 1995 and amended in 1998) which permitted Nine West to obtain up to $132.0 million of funding based on the sale, without recourse, of eligible Nine West accounts receivable. As a result of this termination, reported net accounts receivable will no longer be reduced by proceeds received under the Receivables Facility. This termination will not affect the Company's liquidity. -13- 14 At April 2, 2000, the Company had credit 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 April 2, 2000, $256.0 million was outstanding under the 364-Day Revolving Credit Facility (comprised of $234.8 million in outstanding letters of credit and $9.2 million in cash borrowings) and $510.0 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. The Company also has a total of approximately $25.8 million of unsecured foreign lines of credit in Europe, Australia and Canada, under which $4.9 million was outstanding at April 2, 2000. The Company believes that funds generated by operations, 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 completed its Year 2000 software program conversions and compliance programs during the fourth quarter of 1999. The total external costs for such programs was approximately $1.1 million. Subsequent to December 31, 1999, the Company has not experienced any Year 2000 problems either internally or from outside sources. The Company has no reason to believe that Year 2000 failures will materially affect it in the future. However, since it may take several additional months before it is known whether the Company or third party suppliers, vendors or customers may have undergone Year 2000 problems, no assurances can be given that the Company will not experience losses or disruptions due to Year 2000 computer-related problems. The Company will continue to monitor the operation of its computers and microprocessor-based devices for any Year 2000 problems. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued 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 is not yet able to fully evaluate the impact, if any, it may have on future operating results or financial statement disclosures. -14- 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk The market risk inherent in the Company's financial instruments 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. 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. The Company employs an interest rate hedging strategy utilizing swaps to effectively float a portion of its interest rate exposure on its fixed rate financing arrangements. The primary interest rate exposures on floating rate financing arrangements are with respect to United States, United Kingdom and Australian short-term local currency rates. The Company had approximately $1.2 billion in variable rate financing arrangements at April 2, 2000. Other than the interest rate swaps, there were no outstanding derivative financial contracts at April 2, 2000. Part II. OTHER INFORMATION Item 1. Legal Proceedings On March 6, 2000, the Company and Nine West entered into settlement agreements with the Attorneys General of the 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, American Samoa, the Northern Mariana Islands and Guam (the "States"), and with the Federal Trade Commission, resolving allegations that Nine West engaged in violations of the antitrust laws by coercing retailers to adhere to resale prices of its products. Both agreements are without any admission of liability on the part of Nine West. The agreement with the States resolves ongoing investigations and a parens patriae action brought on behalf of consumers in the United States District Court for the Southern District of New York in White Plains. The settlement consists of injunctive relief in the form of a consent decree which specifies the manner in which Nine West may implement its resale pricing policies with its retailer customers, along with a payment of $34.0 million which will be used to benefit consumers. The settlement requires court approval. In a separate settlement on March 6, 2000, Nine West agreed to a consent order with the Federal Trade Commission which also specifies the manner in which Nine West may implement its resale pricing policies with its retailer customers. The consent order, which resolved an ongoing investigation by the FTC, was given final approval by the Commission on April 11, 2000. There have been no other material changes from the information previously reported under Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. -15- 16 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 Litigation 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, Sun, 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 and Results of Operations," 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. -16- 17 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: May 12, 2000 By /s/ Sidney Kimmel ------------------------------ SIDNEY KIMMEL Chief Executive Officer By /s/ Wesley R. Card ------------------------------ WESLEY R. CARD Chief Financial Officer INDEX TO EXHIBITS Number Description 10.1* Agreement Regarding Termination of Nine West Trade Receivables Master Trust Securitization Transaction, dated as of March 3, 2000, entered into by and among Nine West Funding Corporation, The Bank of New York, in its capacity as trustee, Nine West Group Inc., Nine West Footwear Corporation, Jones Apparel Group, Inc., Corporate Receivables Corporation, Citibank, N.A. and the other financial institutions parties to the Amended and Restated Certificate Purchase Agreement and Citicorp North America, Inc. as the program agent. 99.1* Decision and Order of the Federal Trade Commission In the Matter of Nine West Group Inc., Docket No. C-3937, dated April 11, 2000. 27* Financial Data Schedule (filed only electronically). _________ * Filed herewith. -17- EX-10.1 2 EXHIBIT 10.1 AGREEMENT REGARDING TERMINATION OF NINE WEST TRADE RECEIVABLES MASTER TRUST SECURITIZATION TRANSACTION This AGREEMENT REGARDING TERMINATION OF NINE WEST TRADE RECEIVABLES MASTER TRUST SECURITIZATION TRANSACTION (this "Termination Agreement"), dated as of March 3, 2000, is entered into by and among Nine West Funding Corporation (the "Transferor"), The Bank of New York, in its capacity as trustee (the "Trustee"), Nine West Group Inc. ("Nine West"), Nine West Footwear Corporation ("Nine West Footwear"), Jones Apparel Group, Inc. ("Jones"), Corporate Receivables Corporation ("CRC"), Citibank, N.A. and the other financial institutions parties to the CPA (as defined below) (each, a "Liquidity Provider") and Citicorp North America, Inc. ("CNAI") as the program agent (the "Program Agent") with respect to the following facts and circumstances. A. (i) Each of the Transferor, CRC, CNAI, the Trustee, and the Liquidity Providers previously entered into that certain Amended and Restated Certificate Purchase Agreement dated as of July 31, 1998 (the "CPA"), (ii) the Transferor, Nine West as Servicer, and the Trustee previously entered into that certain Pooling and Servicing Agreement dated as of December 28, 1995 (the "PSA") and the Amended and Restated Series 1995-1 Supplement thereto dated as of July 31, 1998 (the "Series Supplement"), (iii) Nine West and the Transferor previously entered into that certain Receivables Purchase Agreement dated as of December 28, 1995 (the "Nine West RPA"), (iv) Nine West Footwear and Nine West previously entered into that certain Receivables Purchase Agreement dated as of December 28, 1995 (the "Nine West Footwear RPA") and (v) Jones previously entered into that certain Undertaking Agreement dated as of June 15, 1999, in favor of CRC, the Liquidity Providers, CNAI and the Trustee (the "Undertaking Agreement"). B. Pursuant to the Nine West Footwear RPA, Nine West Footwear sold to Nine West (a) all of the Receivables originated by Nine West Footwear during the "Effective Period" (as defined therein) and (b) all Collections with respect to, and other proceeds of, such Receivables. Pursuant to the Nine West RPA, Nine West sold to the Transferor (a) all of the Receivables originated by the Originators prior to the last "Purchase Date" thereunder (as defined therein) and (b) all Collections with respect to, and other proceeds of, such Receivables (collectively, the "Transferor Receivables"). Pursuant to the PSA, the Transferor conveyed to the Nine West Trade Receivables Master Trust (the "Trust") without recourse (a) the Transferor Receivables, (b) all of the Transferor's rights and remedies under the Nine West RPA and (c) all monies from time to time on deposit in, and all Eligible Investments and other securities, investments, and other investments purchased from funds on deposit in, the Concentration Account, the Collection Accounts and any Series Account, and any Enhancement (collectively, the "Trust Assets"). C. Pursuant to the Undertaking Agreement, Jones unconditionally and irrevocably undertook for the benefit of the Liquidity Providers, the Trustee, CRC and the Program Agent to cause the due and punctual performance and observance by each of Footwear and Nine West of all of the terms, covenants, conditions, agreements and undertakings on the part of Footwear or Nine West, as applicable, to be performed or observed under the Nine West 1 2 Footwear RPA, the Nine West RPA, the PSA, the CPA, the Series Supplement, and the other documents delivered in connection therewith in accordance with the terms thereof. D. The transactions contemplated by the Nine West Footwear RPA, the Nine West RPA, the PSA, the CPA, the Series Supplement, the Undertaking Agreement and the related agreements entered into in connection therewith are referred to herein collectively as the "Securitization Transaction," and the Nine West Footwear RPA, the Nine West RPA, the PSA, the CPA, the Series Supplement, the Undertaking Agreement and the related agreements entered into in connection therewith are referred to herein collectively as the "Securitization Documents." Unless otherwise indicated, capitalized terms used but not defined herein shall have the respective meanings assigned thereto in the PSA as modified by the Series Supplement. E. Each of the parties hereto now desires to terminate the Securitization Transaction and each of the Securitization Documents entered into in connection therewith, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties hereto hereby agrees as follows: Section 1. Repayment of Amended and Restated Series 1995-1 Certificates. Notwithstanding anything to the contrary contained in the Securitization Documents, subject to the terms and conditions of this Termination Agreement, on the Closing Date, the Transferor agrees to remit to the Program Agent (to the appropriate account specified in Schedule I hereto), and the Program Agent, on behalf of CRC (as sole Holder of the Series 1995-1 Certificate) and each of the Liquidity Providers, hereby agrees to accept, in full satisfaction of all amounts payable in respect of the Invested Amount, any accrued and unpaid Debt Service Amount and all other amounts payable to the Holder under the Series 1995-1 Certificate, an aggregate cash payment of $67,342,316.11 (the "Certificate Payment Amount"), consisting of the sum of (i) $67,000,000.00 in respect of the outstanding Invested Amount on the Closing Date and (ii) $342,316.11 in respect of the Debt Service Amount accrued and unpaid thereon through the Closing Date, all as set forth in Schedule I hereto. Section 2. Payment of Fees, Expenses and Other Amounts. Notwithstanding anything to the contrary contained in the Securitization Documents, subject to the terms and conditions of this Termination Agreement, on the Closing Date, the Transferor agrees to pay, and each of the Liquidity Providers, the Servicer, and the Program Agent (each individually, a "Reimbursed Party" and collectively with CRC, the "Reimbursed Parties") hereby agrees to accept payment, as follows: 2.1 to the Trustee (to the account specified in Schedule II hereto), all obligations owing in respect of any accrued and unpaid Series Trustee's Fee accrued through the Closing Date, which amount is set forth in Schedule II hereto; 2.2 to the Program Agent, on behalf of the Liquidity Providers (to the respective account specified in Schedule III hereto), (i) all obligations owing in respect of any accrued and unpaid Facility Fees accrued through the Closing Date, which amounts are set forth in Schedule III hereto; and 2.3 to or for the account of the Program Agent (to the respective accounts specified in Schedule IV hereto), (i) all obligations owing in respect of any accrued and unpaid 2 3 Program Fee accrued through the Closing Date and (ii) all reasonable fees, costs and expenses incurred by the Program Agent's counsel in connection with the administration of, and all prior amendments and modifications to, the Securitization Documents, the execution and delivery of this Termination Agreement and the consummation of the transactions contemplated hereby, which amounts are set forth in Schedule IV hereto. Section 3. Purchase and Sale of Receivables and Trust Assets. 3.1 Purchase of Receivables by Transferor from Trustee. Notwithstanding anything to the contrary contained in the Securitization Documents, effective as of the Closing Date, upon satisfaction of the conditions precedent set forth in Section 5 hereof, in consideration of the receipt by the Program Agent of the Certificate Payment Amount and the receipt by all of the Reimbursed Parties of the other fees, costs and expenses and other amounts payable to such Persons hereunder, the Trustee, on behalf of the Trust, hereby agrees to sell, convey, assign and deliver to the Transferor, and the Transferor hereby agrees to purchase and accept the conveyance, assignment and delivery of, all of the Trustee's right, title and interest in and to the Trust Assets owned or held by the Trustee as of the Closing Date, and any and all other rights, title, licenses or interests in respect thereof acquired by the Trustee pursuant to the Securitization Documents, all without recourse or warranty, express or implied, of any kind, except that the Trustee represents that such Transferor Receivables are free and clear of any adverse claim created by or through the Trustee. 3.2 Purchase of Receivables by Nine West from Transferor. Notwithstanding anything to the contrary contained in the Securitization Documents, effective as of the Closing Date, upon satisfaction of the conditions precedent set forth in Section 5 hereof, the Transferor hereby agrees to sell, convey, assign and deliver to Nine West, and Nine West hereby agrees to purchase and accept the conveyance, assignment and delivery of all of the Tranferor's right, title and interest in and to the Transferor Receivables owned or held by the Transferor as of the completion of the purchase and sale contemplated by Section 3.1, and any and all other rights, title, licenses or interests in respect thereof acquired by the Transferor pursuant to the Securitization Documents, all without recourse or warranty, express or implied, of any kind, except that the Transferor represents that such Transferor Receivables are free and clear of any adverse claim created by or through the Transferor, in consideration of (i) the payment of a cash purchase price of $67,000,000.00 (the "Transferor Cash Price") and (ii) the return, cancellation and retirement of the Subordinated Note. Section 4. Termination. Each of the parties hereto agrees that, effective as of the Closing Date, upon the satisfaction of the conditions precedent set forth in Section 5 hereof, except for obligations and liabilities of any party arising under the Securitization Documents that expressly survive the termination of the Securitization Documents (including, without limitation, in accordance with Sections 8.04 and 8.05 of the CPA), and after giving effect to the transfers described in Section 3 hereof, the Securitization Transaction shall be deemed terminated, each of the Securitization Documents (including, without limitation, the Nine West Footwear RPA, the Nine West RPA, the PSA, the Series Supplement, and the Undertaking Agreement) shall be deemed terminated, null and void and of no further force or effect, with the result that no party hereto nor any other party to any of the Securitization Documents shall have any further obligations thereunder or otherwise with respect to the Securitization Transaction on or after the Closing Date; provided, however, that if any Reimbursed Party is required by law to repay (as a preference or otherwise) to any of Jones, Nine West, Nine West Footwear, the Transferor, or a trustee for any of them, any Obligor, a court or any other Person, any required payment or deposit previously received hereunder or under any Securitization Documents, then such 3 4 payment or deposit obligation shall be reinstated by the amount of such repayment and Nine West and Jones will jointly and severally indemnify and hold such Reimbursed Party harmless for the amount of such repayment, interest thereon required (or believed in good faith by such Reimbursed Party to be required) to be paid in connection therewith and all losses, liabilities, costs and expenses related thereto including but not limited to reasonable attorneys' fees and expenses), and any such reinstated obligation shall survive the transactions contemplated hereby. 4.1 Termination of Trust. Upon satisfaction of the conditions precedent set forth in Section 5 hereto, the Closing Date shall be deemed the Termination Date of Series 1995-1. Pursuant to Section 12 of the PSA, the Transferor hereby exercises its option to terminate the Trust upon the Termination Date of Series 1995-1. The parties hereby agree that the Trust and the respective obligations and responsibilities of the Transferor, the Servicer and the Trustee created thereby shall terminate, except with respect to those obligations which pursuant to Section 12.01 of the PSA shall expressly survive the termination. 4.2 Waiver of Notices. Each of the Trustee and CRC hereby waives all notices required to be provided to such Person under Section 12.02 of the PSA. Section 5. Condition Precedent. This Termination Agreement shall become effective as of the date hereof upon occurrence of the following: 5.1 the receipt by the Trustee of executed counterparts of this Termination Agreement duly executed by each of the parties hereto; 5.2 the receipt by the Trustee of the cancelled Series 1995-1 Certificate; 5.3 the execution and delivery by the parties thereto of bills of sale and assignment substantially in the forms attached hereto as Exhibit A (the "Bank of New York Bill of Sale") and Exhibit B (the "Nine West Funding Bill of Sale") and such other documents as may be reasonably necessary to evidence the purchases and sales contemplated by Section 3 hereof; 5.4 the receipt by the Transferor of the cancelled Subordinated Note; 5.5 the receipt by the Program Agent of an amount equal to the sum of the Certificate Payment Amount and all other amounts payable to CRC hereunder by federal funds bank wire transfer of immediately available funds to the accounts specified by the Program Agent on Schedule I hereto; 5.6 the receipt by the Trustee of an amount equal to the accrued and unpaid Series Trustee's Fee by federal funds bank wire transfer of immediately available funds to the accounts specified on Schedule II hereto; 5.6 the receipt by the Liquidity Providers of an amount equal to the sum of the accrued and unpaid Facility Fee and all other amounts payable to the Liquidity Providers hereunder by federal funds bank wire transfer of immediately available funds to the applicable account specified on Schedule III hereto; 5.7 the receipt by the Program Agent and its counsel of an amount equal to the sum of the accrued and unpaid Program Fee and all other amounts payable to the Program Agent 4 5 hereunder by federal funds bank wire transfer of immediately available funds to the accounts specified on Schedule IV hereto; and 5.8 the receipt by CNAI or its counsel of: (a) fully executed originals of this Termination Agreement; and (b) all such consents, authorizations or other agreements as CNAI or its counsel shall deem necessary or appropriate in order to consummate the termination of the Securitization Transaction and the other transactions contemplated hereby. Section 6. Further Assurances. In furtherance of the foregoing, each of the parties hereto hereby agrees as follows: 6.1 Upon satisfaction of the conditions precedent set forth in Section 5 hereof, any security interests in the Receivables granted (i) by Nine West Footwear to Nine West, (ii) by Nine West to the Transferor or (ii) by the Transferor to the Trustee shall be deemed released and terminated, null and void and of no further force or effect, in each case as of the Closing Date. The Trustee agrees that it shall execute and deliver or cause to be executed and delivered to the Transferor and/or Nine West any and all financing statements and notices to Originators as Nine West may deem necessary, expedient or appropriate in order to (i) release and terminate such security interests and (ii) evidence the purchases and sales contemplated by Section 3 hereof. 6.2 Effective as of the Closing Date, upon satisfaction of the conditions precedent set forth in Section 5 hereof, the Trustee agrees that all of its right, title and interest in and to any and all Series Accounts shall be deemed released and terminated, null and void and of no further force or effect as of the Closing Date. The Trustee agrees that, on or after the Closing Date, it shall execute and deliver to the Transferor any notice, acknowledgment, assignment, agreement or other instrument as it may deemed reasonably necessary, expedient or appropriate in order to effect the assignment of such Series Account to the Transferor and/or to terminate any rights of the Trustee in or to any Series Accounts. 6.3 On or after the Closing Date, each party hereto shall execute any and all further documents and perform such other reasonable actions as may be or become necessary, expedient or appropriate to effectuate the termination of the Securitization Transaction and the Securitization Documents as contemplated hereby and the purchases and sales contemplated by Section 3 hereof. 7. Representations and Warranties. As an inducement to the other parties to enter into this Termination Agreement, as of the date hereof and as of the Closing Date, each of the parties hereto hereby represents and warrants as follows: 7.1 This Termination Agreement has been and, as of the Closing Date, all other agreements entered into in connection herewith, as applicable, shall have been, duly executed and delivered by such party. This Termination Agreement constitutes and, as of the Closing Date, all other agreements entered into in connection herewith, as applicable, shall constitute, a legal, valid and binding obligation of such party, enforceable against it in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and by limitations on the availability of equitable remedies). 5 6 7.2 Such party has and, as of the Closing Date, will have, full power and right to enter into this Termination Agreement and all other agreements entered into in connection herewith, as applicable, and consummate the transactions contemplated hereby pursuant to the terms hereof. 7.3 The execution, delivery and performance of this Termination Agreement and the other agreements entered into in connection herewith, as applicable, and the consummation of the transactions contemplated hereby will not (i) conflict with or result in a breach of any of the terms of the charter, bylaws or other organizational documents of such party, (ii) constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, agreement or other material instrument or obligation to which such party is a party or by which such party is bound, or (iii) violate any judgment, order, injunction, decree, statute, rule, law or regulation applicable to such party. Section 8. Execution in Counterparts. This Termination Agreement may be executed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same agreement. Section 9. GOVERNING LAW. THIS TERMINATION AGREEMENT IS DEEMED TO BE A CONTRACT MADE UNDER, AND WILL BE GOVERNED BY AND BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES). Section 10. Direction of the Trustee. By executing this Termination Agreement, each of CRC, the Liquidity Providers and the Program Agent hereby confirms, acknowledges and agrees that the Trustee is authorized and empowered to enter into this Termination Agreement and to take the actions contemplated to be entered into and taken (as the case may be) by the Trustee pursuant to the terms hereof; including, without limitation, the termination of the Trust in accordance with Article 12 of the PSA and Section 4.1 hereof. 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Termination Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. NINE WEST FUNDING CORPORATION By: /s/ Efthimios P. Sotos ---------------------- Name: Efthimios P. Sotos Title: Assistant Treasurer NINE WEST GROUP INC. By: /s/ Efthimios P. Sotos ---------------------- Name: Efthimios P. Sotos Title: Assistant Treasurer JONES APPAREL GROUP, INC. By: /s/ Wesley R. Card ------------------ Name: Wesley R. Card Title: Chief Financial Officer CORPORATE RECEIVABLES CORPORATION By: /s/ Kathy Simmons ----------------- Name: Kathy Simmons Title: Vice President CITICORP NORTH AMERICA, INC., as Program Agent By: /s/ Kathy Simmons ----------------- Name: Kathy Simmons Title: Vice President THE BANK OF NEW YORK, as Trustee By: /s/ Erwin Soriano ----------------- Name: Erwin Soriano Title: Assistant Treasurer 7 8 CITIBANK, NATIONAL ASSOCIATION By: /s/ Kathy Simmons ----------------- Name: Kathy Simmons Title: Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ Thomas P. Gillis /s/ Laurence F. Grant ------------------------------------------ Name: Thomas P. Gillis Laurence F. Grant Title: Vice President, Vice President, Manager Sr. Relationship Mgr. CREDIT COMMUNAL DE BELGIQUE, NEW YORK BRANCH By: /s/ Jan E. van Panhuys /s/ Caroline Junius ------------------------------------------ Name: Jan E. van Panhuys Caroline Junius Title: General Manager Vice President NORDDEUTSCHE LANDESBANK GIRONZENTRALE, NEW YORK BRANCH By: /s/ Stephen K. Hunter /s/ Josef Haas ------------------------------------- Name: Stephen K. Hunter Josef Haas Title: Senior Vice Vice President President EX-99.1 3 9810386 UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION COMMISSIONERS: Robert Pitofsky, Chairman Sheila F. Anthony Mozelle W. Thompson Orson Swindle Thomas B. Leary - ----------------------------) ) In the Matter of ) ) NINE WEST GROUP INC., ) DECISION AND ORDER a corporation. ) ) DOCKET NO. C-3937 ) - ----------------------------) The Federal Trade Commission having initiated an investigation of certain acts and practices of Nine West Group Inc., hereinafter sometimes referred to as Respondent, and Respondent having been furnished thereafter with a copy of a draft of Complaint that the Northeast Regional Office presented to the Commission for its consideration and which, if issued by the Commission, would charge Respondent with violations of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. Section 45; and Respondent, its attorneys, and counsel for the Commission having thereafter executed an Agreement Containing Consent Order ("Consent Agreement"), containing an admission by Respondent of all the jurisdictional facts set forth in the aforesaid draft of Complaint, a statement that the signing of said Consent Agreement is for settlement purposes only and does not constitute an admission by Respondent that the law has been violated as alleged in such Complaint, or that the facts as alleged in such Complaint, other than jurisdictional facts, are true, and waivers and other provisions as required by the Commission's Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the Respondent has violated the said Act, and that a Complaint should issue stating its charges in that respect, and having thereupon accepted the executed Consent Agreement and placed such Agreement on the public record for a period of thirty (30) days for the receipt and consideration of public comments, now in further conformity with the procedure described in Commission Rule 2.34, 16 C.F.R. Section 2.34, the Commission hereby makes the following jurisdictional findings and issues the following Order: 2 1. Respondent Nine West Group Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware. The mailing address and principal place of business of Respondent Nine West Group is Nine West Plaza, 1129 Westchester Avenue, White Plains, New York 10604-3529. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the Respondent, and the proceeding is in the public interest. ORDER I. IT IS ORDERED that for the purpose of this order, the following definitions shall apply: (A) "Nine West" means Nine West Group Inc., its parent, Jones Apparel Group, Inc., and their affiliates, subsidiaries, divisions and other organizational units of any kind, that sold or sell Nine West Products as defined herein, their successors and assigns and their present officers, directors, employees, agents, representatives and other persons acting on their behalf. As used herein, "Nine West" shall not be construed to bring within the terms of this order any product that bears or is marketed in packaging that bears a trademark owned by Jones Apparel Group, Inc. or any of its predecessors, subsidiaries, units, divisions or affiliates other than Nine West Group Inc. (B) "Respondent" means Nine West. (C) "Nine West Products" means all women's footwear sold under brand labels owned by Nine West, including, but not limited to, the following: Amalfi, Bandolino, Calico, Capezio, cK/Calvin Klein, Easy Spirit, Enzo Angiolini, Evan-Picone, Joyce, Nine West, Pappagallo, Selby, Westies, and 9 & Co., that are offered for sale to consumers located in the United States of America and U.S. territories and possessions, or to dealers, by Nine West. (D) "Dealer" means any person, corporation or entity not owned by Nine West, or by any entity owned or controlled by Nine West, that in the course of its business sells any Nine West Products in or into the United States of America. (E) "Resale price" means any price, price floor, minimum price, maximum discount, price range, or any mark-up formula or margin of profit used by any dealer for pricing any product. "Resale price" includes, but is not limited to, any suggested, established, or customary resale price. 2 3 II. IT IS FURTHER ORDERED that Nine West, directly or indirectly, or through any corporation, subsidiary, division or other device, in connection with the manufacturing, offering for sale, sale or distribution of any Nine West Products in or into the United States of America in or affecting "commerce," as defined by the Federal Trade Commission Act, forthwith cease and desist from: (A) Fixing, controlling, or maintaining the resale price at which any dealer may advertise, promote, offer for sale or sell any Nine West Products. (B) Requiring, coercing, or otherwise pressuring any dealer to maintain, adopt, or adhere to any resale price. (C) Securing or attempting to secure any commitment or assurance from any dealer concerning the resale price at which the dealer may advertise, promote, offer for sale or sell any Nine West Products. (D) For a period of ten (10) years from the date on which this order becomes final, adopting, maintaining, enforcing or threatening to enforce any policy, practice or plan pursuant to which Respondent notifies a dealer in advance that: (1) the dealer is subject to warning or partial or temporary suspension or termination if it sells, offers for sale, promotes or advertises any Nine West Products below any resale price designated by Respondent; and (2) the dealer will be subject to a greater sanction if it continues or renews selling, offering for sale, promoting or advertising any Nine West Products below any such designated resale price. As used herein, the phrase "partial or temporary suspension or termination" includes but is not limited to any disruption, limitation, or restriction of supply: (1) of some, but not all, Nine West Products; or (2) to some, but not all, dealer locations or businesses; or (3) for any delimited duration. As used herein, the phrase "greater sanction" includes but is not limited to a partial or temporary suspension or termination of greater scope or duration than the one previously implemented by Respondent, or a complete suspension or termination. PROVIDED that nothing in this order shall prohibit Nine West from announcing resale prices in advance and unilaterally refusing to deal with those who fail to comply. PROVIDED FURTHER that nothing in this order shall prohibit Nine West from establishing and maintaining cooperative advertising programs that include conditions as to the prices at which dealers offer Nine West Products, so long as such advertising programs are not a part of a resale price maintenance scheme and do not otherwise violate this order. 3 4 III. IT IS FURTHER ORDERED that, for a period of five (5) years from the date on which this order becomes final, Nine West shall clearly and conspicuously state the following on any list, advertising, book, catalogue, or promotional material where it has suggested any resale price for any Nine West Products to any dealer: ALTHOUGH NINE WEST MAY SUGGEST RESALE PRICES FOR PRODUCTS, RETAILERS ARE FREE TO DETERMINE ON THEIR OWN THE PRICES AT WHICH THEY WILL ADVERTISE AND SELL NINE WEST PRODUCTS. IV. IT IS FURTHER ORDERED that, within thirty (30) days after the date on which this order becomes final, Nine West shall mail by first class mail the letter attached as Exhibit A, together with a copy of this order, to each director, officer, dealer, distributor, agent, and sales representative engaged in the sale of any Nine West Products in or into the United States of America. V. IT IS FURTHER ORDERED that, for a period of two (2) years after the date on which this order becomes final, Nine West shall mail by first class mail the letter attached as Exhibit A, together with a copy of this order, to each new director, officer, dealer, distributor, agent, and sales representative engaged in the sale of any Nine West Products in or into the United States of America, within ninety (90) days of the commencement of such person's employment or affiliation with Nine West. VI. IT IS FURTHER ORDERED that Nine West shall notify the Commission at least thirty (30) days prior to any proposed changes in Nine West such as dissolution, assignment or sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order. VII. IT IS FURTHER ORDERED that, within sixty (60) days after the date this order becomes final, and at such other times as the Commission or its staff shall request, Nine West shall file 4 5 with the Commission a verified written report setting forth in detail the manner and form in which Nine West has complied and is complying with this order. VIII. IT IS FURTHER ORDERED that this order shall terminate on April 11, 2020. By the Commission. /s/ Donald S. Clark Donald S. Clark Secretary SEAL: ISSUED: April 11, 2000 5 6 EXHIBIT A [NINE WEST LETTERHEAD] Dear Retailer: The Attorneys General of [x number] of States, and the Federal Trade Commission have conducted investigations into Nine West Group Inc.'s sales policies. To expeditiously resolve the investigations and to avoid disruption to the conduct of its business, Nine West Group Inc. has agreed, without admitting any violation of the law, to the entry of a Consent Order by the Federal Trade Commission and a Final Judgment and Consent Decree by the States prohibiting certain practices relating to resale prices. Copies of the Consent Order and the Final Judgment and Consent Decree are enclosed. This letter and the accompanying Orders are being sent to all of our dealers, sales personnel and representatives. The Orders spell out our obligations in greater detail, but we want you to know and understand the following. Under both orders you can advertise and sell our products at any price you choose. While we may send materials to you which may contain our suggested retail prices, you remain free to sell and advertise those products at any price you choose. We look forward to continuing to do business with you in the future. Sincerely yours, ___________________________ President of Sales and Marketing Nine West Group Inc. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JONES APPAREL GROUP, INC. FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED APRIL 2, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000000 3-MOS DEC-31-2000 APR-02-2000 35 0 616 22 547 1,327 435 192 3,016 936 791 0 0 1 1,195 3,016 1,078 1,082 645 645 294 1 26 118 47 71 0 0 0 71 .59 .58 -----END PRIVACY-ENHANCED MESSAGE-----