-----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, IqBQeYwzEsLJdYy/3dRk/kcd3anRk9a8HnJN/vuKIHRyBCjHbk3AA0GOgmV/7q8B FiU72lATfTRMPlsfLB1caQ== 0000874016-96-000006.txt : 19960816 0000874016-96-000006.hdr.sgml : 19960816 ACCESSION NUMBER: 0000874016-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-10746 FILM NUMBER: 96613736 BUSINESS ADDRESS: STREET 1: 250 RITTENHOUSE CIRCLE 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 June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-10746 JONES APPAREL GROUP, INC. (Exact name of registrant as specified in its charter) Pennsylvania 06-0935166 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 250 Rittenhouse Circle Bristol, Pennsylvania 19007 (Address of principal (Zip Code) executive offices) (215) 785-4000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class of Common Stock Outstanding at August 13, 1996 $.01 par value 26,119,580 JONES APPAREL GROUP, INC. AND SUBSIDIARIES Index PART I. FINANCIAL INFORMATION Page No. Financial Statements: Consolidated Balance Sheets June 30, 1996 and December 31, 1995................. 3 Consolidated Statements of Income Thirteen and Twenty-six Weeks ended June 30, 1996 and July 2, 1995.................................. 4 Consolidated Statements of Stockholders' Equity Twenty-six Weeks ended June 30, 1996 and July 2, 1995.................................. 5 Consolidated Statements of Cash Flows Twenty-six Weeks ended June 30, 1996 and July 2, 1995...................................... 6 Notes to Consolidated Financial Statements.................. 7 - 8 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 9 - 13 PART II. OTHER INFORMATION....................................... 14 - 16 - 2 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 1996 1995 ASSETS CURRENT: Cash and cash equivalents............................................................. $ 13,288 $ 16,864 Accounts receivable, net of allowance of $2,503 and $2,257............................ 96,513 92,147 Inventories........................................................................... 238,002 176,626 Receivable from and advances to contractors........................................... 22,959 21,083 Deferred taxes........................................................................ 12,827 12,265 Prepaid expenses and other current assets............................................. 13,293 12,480 ------- ------- TOTAL CURRENT ASSETS................................................................ 396,882 331,465 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $19,640 and $16,991.................................. 23,997 21,293 PROPERTY UNDER CAPITAL LEASES, net of accumulated amortization of $9,292 and $8,394..... 19,122 15,364 INTANGIBLES, less accumulated amortization of $5,007 and $4,107......................... 27,204 26,585 DEFERRED TAXES.......................................................................... 1,148 120 OTHER ASSETS............................................................................ 6,359 6,132 ------- ------- $474,712 $400,959 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings................................................................. $ 18,839 $ - Current portion of long-term debt and capital lease obligations....................... 2,890 2,327 Accounts payable...................................................................... 73,766 59,077 Income taxes payable.................................................................. 6,558 2,427 Accrued expenses and other current liabilities........................................ 9,385 6,781 ------- ------- TOTAL CURRENT LIABILITIES........................................................... 111,438 70,612 NONCURRENT LIABILITIES: Obligations under capital leases...................................................... 13,389 10,102 Long-term debt........................................................................ 12 49 ------- ------- TOTAL NONCURRENT LIABILITIES........................................................ 13,401 10,151 ------- ------- TOTAL LIABILITIES................................................................... 124,839 80,763 EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 4,300 5,221 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - - Common stock, $.01 par value - shares authorized 50,000; issued 26,712 and 26,282............................................................. 267 263 Additional paid in capital............................................................ 96,126 84,172 Retained earnings..................................................................... 269,995 236,318 Cumulative foreign currency translation adjustments................................... (1,115) (1,140) ------- ------- 356,273 319,613 Less treasury stock, 460 and 131 shares, at cost...................................... (19,700) (4,638) ------- ------- TOTAL STOCKHOLDERS' EQUITY.......................................................... 345,573 314,975 ------- ------- $474,712 $400,959 ======= ======= All amounts in thousands except per share data See notes to consolidated financial statements
- 3 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended June 30, July 2, June 30, July 2, 1996 1995 1996 1995 Net sales................................................. $193,275 $156,303 $453,626 $348,290 Cost of goods sold........................................ 132,243 107,309 319,800 240,259 ------- ------- ------- ------- Gross profit.............................................. 61,032 48,994 133,826 108,031 Selling, general and administrative expenses.............. 42,157 33,538 84,874 67,775 Net licensing income...................................... (2,659) (1,909) (5,235) (4,201) ------- ------- ------- ------- Income from operations.................................... 21,534 17,365 54,187 44,457 Net interest expense...................................... 463 207 984 526 ------- ------- ------- ------- Income before provision for income taxes.................. 21,071 17,158 53,203 43,931 Provision for income taxes................................ 7,733 6,438 19,526 16,483 ------- ------- ------- ------- Net income................................................ $13,338 $10,720 $33,677 $27,448 ======= ======= ======= ======= Earnings per share - primary.............................. $0.49 $0.41 $1.25 $1.04 Earnings per share - fully diluted........................ $0.49 $0.41 $1.25 $1.04 Weighted average common shares and share equivalents outstanding Primary................................................. 26,983 26,369 26,875 26,298 Fully diluted........................................... 26,983 26,415 26,922 26,405 All amounts in thousands except per share data See notes to consolidated financial statements
- 4 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Cumulative foreign Total Additional currency stock- Common paid-in Retained translation Treasury holders' stock capital earnings adjustments stock equity ------- ----------- ----------- ----------- ---------- ----------- Balance, January 1, 1995............................... $259 $76,711 $172,916 ($1,208) $ - $248,678 Twenty-six weeks ended July 2, 1995: Amortization of deferred compensation of executive stock options outstanding.................. - 330 - - - 330 Net income............................................. - - 27,448 - - 27,448 Exercise of stock options.............................. 1 1,404 (3) - 15 1,417 Tax benefit derived from exercise of stock options..... - 586 - - - 586 Stock tendered as payment for options exercised........ - - - - (168) (168) Foreign currency translation adjustments............... - - - 16 - 16 ------ ---------- ---------- ---------- ---------- ---------- Balance, July 2, 1995.................................. $260 $79,031 $200,361 ($1,192) $(153) $278,307 ====== ========== ========== ========== ========== ========== Cumulative foreign Total Additional currency stock- Common paid-in Retained translation Treasury holders' stock capital earnings adjustments stock equity ------- ----------- ----------- ----------- ---------- ----------- Balance, January 1, 1996.............................. $263 $84,172 $236,318 ($1,140) $(4,638) $314,975 Twenty-six weeks ended June 30, 1996: Executive stock options issued........................ - 274 - - - 274 Recognition of deferred compensation in connection with executive stock options........................ - (274) - - - (274) Amortization of deferred compensation of executive stock options outstanding................. - 145 - - - 145 Net income............................................ - - 33,677 - - 33,677 Exercise of stock options............................. 4 7,844 - - - 7,848 Tax benefit derived from exercise of stock options.... - 4,002 - - - 4,002 Stock tendered as payment for options exercised....... - - - - (763) (763) Acquisition of treasury stock......................... - - - - (14,299) (14,299) Registration of 1996 Stock Option Plan................ - (37) - - - (37) Foreign currency translation adjustments.............. - - - 25 - 25 ------- ---------- ---------- ---------- --------- ---------- Balance, June 30, 1996............................... $267 $96,126 $269,995 ($1,115) $(19,700) $345,573 ======= ========== ========== ========== ========= ========== All amounts in thousands See notes to consolidated financial statements
- 5 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-six weeks ended June 30, July 2, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.................................................................................. $33,677 $27,448 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................................. 4,146 3,452 Provision for losses on accounts receivable............................................... 460 (399) Deferred taxes............................................................................ 1,929 5,518 Other..................................................................................... 154 4 Decrease (increase) in: Trade receivables....................................................................... (4,825) (14,855) Inventories............................................................................. (61,383) (46,899) Prepaid expenses and other current assets............................................... (2,697) 2,821 Other assets............................................................................ (227) (3,512) Increase in: Accounts payable........................................................................ 14,690 7,601 Taxes payable........................................................................... 4,614 692 Accrued expenses and other current liabilities.......................................... 2,639 1,630 ------- ------- Total adjustments..................................................................... (40,500) (43,947) ------- ------- Net cash used in operating activities....................................................... (6,823) (16,499) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................................................... (6,088) (4,126) Acquisition of property under capital lease............................................... (4,656) (108) Trademark costs........................................................................... (1,519) - Other..................................................................................... 108 362 ------- ------- Net cash used in investing activities....................................................... (12,155) (3,872) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings......................................................... 18,839 3,345 Proceeds from capital lease............................................................... 5,000 - Repayment of capital leases and long-term debt............................................ (1,187) (1,543) Acquisition of treasury stock............................................................. (14,299) - Net proceeds from issuance of common stock................................................ 7,085 1,249 Other..................................................................................... (37) - ------- ------- Net cash provided by financing activities................................................... 15,401 3,051 ------- ------- EFFECT OF EXCHANGE RATES ON CASH............................................................ 1 (172) ------- ------- NET DECREASE IN CASH........................................................................ (3,576) (17,492) CASH AND CASH EQUIVALENTS, beginning of period.............................................. 16,864 21,126 ------- ------- CASH AND CASH EQUIVALENTS, end of period.................................................... $13,288 $3,634 ======= ======= All amounts in thousands See notes to consolidated financial statements
- 6 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts of Jones Apparel Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally made in an annual Form 10-K filing. Accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements and the footnotes therein included within the Company's Annual Report on Form 10-K. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. All significant intercompany balances and transactions have been eliminated. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 1996. The Company reports interim results in 13 week quarters; however, the annual reporting period is the calendar year. 2. Inventories Inventories are summarized as follows (amounts in thousands): June 30, December 31, 1996 1995 Raw materials..................... $31,555 $36,908 Work in process................... 45,567 30,872 Finished goods.................... 160,880 108,846 ------- ------- $238,002 $176,626 ======= ======= - 7 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Earnings Per Share The computation of earnings per share is based on the weighted average number of common shares outstanding during the period plus, in periods in which they have a dilutive effect, the effect of common shares contingently issuable upon exercise of stock options. Fully diluted earnings per share also reflect additional dilution related to stock options due to the use of the market price at the end of the period when this price is higher than the average price for the period. 4. Statement of Cash Flows Cash payments made for interest for the twenty-six weeks ended June 30, 1996 and July 2, 1995 were $1,272,000 and $767,000, respectively. Cash payments made for income taxes for the twenty-six weeks ended June 30, 1996 and July 2, 1995 were $12,198,000 and $9,562,000, respectively. Employees exercising stock options during the twenty-six weeks ended June 30, 1996 exchanged 14,000 shares of the Company's Common Stock (valued at $763,000) for 33,715 newly issued shares and during the twenty-six weeks ended July 2, 1995 exchanged 5,768 shares of the Company's Common Stock (valued at $168,000) for 12,000 newly issued shares under the provisions of the Company's 1991 Stock Option Plan. 5. New Accounting Standards. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," which allows a choice of either the intrinsic value method or the fair value method of accounting for employee stock options effective for fiscal years beginning after December 15, 1995. The Company has selected the option to continue the use of the current intrinsic value method. - 8 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following discussion provides information and analysis of the Company's results of operations for the thirteen and twenty-six week periods ended June 30, 1996 and July 2, 1995 and its liquidity and capital resources. The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements included elsewhere herein. Results of Operations Quarter Ended June 30, 1996 Compared to Quarter Ended July 2, 1995 Net Sales. Net sales in the thirteen weeks ended June 30, 1996 (hereinafter referred to as the "second quarter of 1996") increased by 23.7%, or $37.0 million, to $193.3 million as compared to $156.3 million in the thirteen weeks ended July 2, 1995 (hereinafter referred to as the "second quarter of 1995") due primarily to an increase in the number of units shipped, as well as the impact of a higher average price per unit shipped resulting from the mix of products shipped. Career sportswear sales increased by 16.0% or $14.3 million, to $103.5 million in the second quarter of 1996 as compared to $89.2 million in the second quarter of 1995. Casual sportswear sales for the second quarter of 1996 increased by 49.3%, or $18.7 million, to $56.6 million as compared to $37.9 million in the second quarter of 1995. Net sales for the Company's suit, dress and other category increased by 13.7%, or $4.0 million, to $33.2 million in the second quarter of 1996 as compared to $29.2 million in the second quarter of 1995. Looking forward, the Company believes that continued sales growth is achievable in its three product categories. Career sportswear sales will continue to increase, aided by the introduction of the new Lauren Ralph Lauren label, scheduled for initial shipping to customers in the third quarter of 1996. Casual sportswear sales should continue to increase strongly, although not at the growth rates achieved in 1995 and 1994. The Company has rapidly expanded its penetration of this category into the Company's existing customer distribution. Further growth will come primarily from additional sales into existing retail distribution doors, although further distribution expansion opportunities remain. Casual sportswear sales will also benefit in 1996 from the addition of two new labels, Jones Studio and Jones Jeans, into the existing customer base. The Company's suit and dress category should also continue to show steady growth in 1996. While the Company believes the current promotional retail climate will continue, it believes its initiatives with new product lines and the potential for growth under its existing labels should provide for continued sales growth. Gross Profit. The gross profit margin was 31.6% in the second quarter of 1996 as compared to 31.3% in the second quarter of 1995. The increase was primarily attributable to the impact of higher gross profit margins from the Company's major product lines, offset by increased buying agent commissions on foreign-sourced production due to the outsourcing to an independent agent in Hong Kong functions which were performed by the Company's own staff in 1995. - 9 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses) of $42.2 million in the second quarter of 1996 represented an increase of $8.6 million over the second quarter of 1995. As a percentage of sales, SG&A expenses increased to 21.8% in the second quarter of 1996 from 21.5% for the comparable period in 1995. Retail store operating expenses increased by $2.0 million, reflecting the added cost of 16 more stores in operation at the end of the second quarter of 1996 compared to the end of the second quarter of 1995. Net Licensing Income. Net licensing income increased by $0.8 million to $2.7 million in the second quarter of 1996 as compared to $1.9 million in the second quarter of 1995. Licensees under the Jones New York label accounted for $0.5 million of the increase while income from licenses under the Evan-Picone label rose by $0.3 million. Operating Income. The resulting second quarter 1996 operating profit of $21.5 million increased by 24.0%, or $4.1 million, as compared to $17.4 million during the second quarter of 1995. The operating profit margin remained constant at 11.1%. Net Interest Expense. Net interest expense was $0.5 million in the second quarter of 1996 compared to $0.2 million in the comparable period of 1995. The primary reason for the change was higher average overall borrowings during the second quarter of 1996. Provision for Income Taxes. The effective income tax rate was 36.7% for the second quarter of 1996 as compared to 37.5% for the second quarter of 1995. The decrease was primarily due to reduced state income tax provisions for the second quarter of 1996. Net Income. Net income increased by 24.4% to $13.3 million in the second quarter of 1996, an increase of $2.6 million over the net income of $10.7 million earned in the second quarter of 1995. Net income as a percentage of sales was 6.9% in the both quarters. Six Months Ended June 30, 1996 Compared to Six Months Ended July 2, 1995 Net Sales. Net sales in the twenty-six weeks ended June 30, 1996 (hereinafter referred to as the "first six months of 1996") increased by 30.2%, or $105.3 million, to $453.6 million as compared to $348.3 million in the twenty-six weeks ended July 2, 1995 (hereinafter referred to as the "first six months of 1995") due primarily to an increase in the number of units shipped, as well as the impact of a higher price per unit shipped resulting primarily from the mix of products shipped. Career sportswear sales increased by 24.5% or $49.5 million, to $251.2 million in the first six months of 1996 as compared to $201.7 million in the first six months of 1995. Casual sportswear sales for the first six months of 1996 increased by 49.1%, or $43.5 million, to $132.1 million as compared to $88.6 million in the first six months of 1995. Net sales for the Company's suit, dress and other category increased by 21.2%, or $12.3 million, to $70.3 million in the first six months of 1996 as compared to $58.0 million in the first six months of 1995. - 10 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Gross Profit. The gross profit margin was 29.5% in the first six months of 1996 as compared to 31.0% in the first six months of 1995. Approximately one- half of the gross margin decline was the result of an increase in off-price sales in the first six months of 1996 as compared to 1995. The balance of the decline was primarily attributable to increased buying agent commissions on foreign-sourced production due to the outsourcing to an independent agent in Hong Kong functions which were performed by the Company's own staff in 1995. SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses) of $84.9 million in the first six months of 1996 represented an increase of $17.1 million over the first six months of 1995. As a percentage of sales, SG&A expenses decreased to 18.7% in the first six months of 1996 from 19.5% for the comparable period in 1995. Retail store operating expenses increased by $4.6 million, reflecting the added cost of 16 more stores in operation at the end of the first six months of 1996 compared to the end of the first six months of 1995. Net Licensing Income. Net licensing income increased by $1.0 million to $5.2 million in the first six months of 1996 as compared to $4.2 million in the first six months of 1995. Income from licenses under the Jones New York label increased by $0.6 million while income from licenses under the Evan- Picone label rose by $0.4 million. Operating Income. The resulting first six months 1996 operating profit of $54.2 million increased by 21.9%, or $9.7 million, as compared to $44.5 million during the first six months of 1995. The operating profit margin decreased to 11.9% in the first six months of 1996 from 12.8% in 1995, largely as a result of the lower gross profit margin offset by the lower percentage of SG&A expenses to sales in the first six months of 1996. Net Interest Expense. Net interest expense was $1.0 million in the first six months of 1996 compared to $0.5 million in the comparable period of 1995. The primary reason for the change was higher average overall borrowings during the first six months of 1996. Provision for Income Taxes. The effective income tax rate was 36.7% for the first six months of 1996 as compared to 37.5% for the first six months of 1995. The decrease was primarily due to reduced state income tax provisions for the first six months of 1996. Net Income. Net income increased by 22.7% to $33.7 million in the first six months of 1996, an increase of $6.3 million over the net income of $27.4 million earned in the first six months of 1995. Net income as a percentage of sales was 7.4% in the first six months of 1996, compared to the 7.9% earned in the first six months of 1995. Liquidity and Capital Resources The Company's principal capital requirements have been to fund working capital needs, capital expenditures and, beginning in 1995, to repurchase the Company's Common Stock on the open market. The Company has historically relied primarily on internally generated funds, trade credit and bank borrowings to finance its operations and expansion. - 11 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net cash used in operations was $6.8 million in the first six months of 1996, compared to $16.5 million in the first six months of 1995, reflecting the effects of a higher net income for the first six months of 1996, a smaller increase in accounts receivable ($4.8 million in 1996 compared to $14.9 million in 1995) and a larger increase in accounts payable ($14.7 million in 1996 compared to $7.6 million in 1995), offset by a larger increase in inventories ($61.4 million in 1996 compared to $46.9 million in 1995). The inventory increase was the result of the net addition of 8 retail stores in 1996 and the inventory levels required to meet anticipated wholesale shipments for the third and early parts of the fourth quarters of 1996. Net cash used in investing activities was $8.3 million higher in the first six months of 1996 than in the first six months of 1995, primarily due to amounts expended to complete construction of an additional warehouse facility to support anticipated growth in the number of units shipped in 1996. Expenditures for capital improvements, replacements and property under capital lease for the full year 1996 are expected to approximate $15 million, of which $5 million represents the estimated cost of an additional warehouse facility under construction to support anticipated growth. Net cash provided by financing activities was $15.4 million in the first six months of 1996 as compared to $3.1 million in the first six months of 1995. The principal reasons for the changes were increases in the amounts of short- term borrowings to fund working capital requirements and transactions involving the Company's Common Stock. In the first six months of 1996, the Company repurchased $14.3 million of its Common Stock on the open market under an announced program under which the Company is authorized to acquire up to $100.0 million of such shares through the end of 1997. As of June 30, 1996, an aggregate of $18.9 million had been expended pursuant to the stock repurchase program. Proceeds from the issuance of common stock to employees exercising stock options amounted to $7.8 million and $1.2 million in the first six months of 1996 and 1995, respectively. As of June 30, 1996, the Company had credit arrangements with five United States financial institutions which totaled $260.0 million. These lines, which may be used for unsecured borrowings and letters of credit (issued primarily to finance foreign inventory purchases), contain an aggregate sub-limit of $135.0 million for unsecured borrowings with rates depending on the borrowing vehicle utilized. At June 30, 1996, $76.6 million was utilized for letters of credit and there were $18.2 million of short-term borrowings outstanding, leaving $165.2 million available for additional borrowings or letters of credit at that date. The Company also has a line of credit with a Canadian institution for C$3.0 million to be used for unsecured borrowings under which C$0.8 million (US$0.6 million) was outstanding at June 30, 1996. The Company believes that funds generated by operations and the bank credit arrangements will provide the financial resources sufficient to meet its foreseeable working capital, letter of credit, capital expenditure and stock repurchase requirements. In recent years, certain retail customers have undergone financial restructurings or have been involved in highly leveraged financial transactions. Further, some of the retail customers with whom the Company conducts business are operating under, or have recently emerged from, the protection of federal bankruptcy laws. The Company attempts to minimize its credit risk in these situations by closely monitoring its accounts receivable balances and shipping levels to these customers and by monitoring their ongoing financial performance and credit status. To date, developments within these companies have not had a material effect on the Company's financial position or results of operations. - 12 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) However, in light of the significant portion of the Company's net sales which are made to these customers, any material financial difficulties encountered, or financial restructurings or reorganization of such customers, could have an adverse effect on the Company's financial position or results of operations. Inflation The Company does not believe that the relatively moderate rates of inflation which have been experienced in the United States and Canada, where it competes, have had a significant effect on its net sales or profitability. - 13 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES OTHER INFORMATION Part II. Item 4. Submission of matters to a vote of security holders (a) Annual Meeting of Shareholders April 23, 1996 (c) Proposals
Broker For Against Withheld Abstain Nonvotes Election of Directors Sidney Kimmel 17,260,695 * 161,082 * - Herbert J. Goodfriend 17,260,701 * 161,076 * - Irwin Samelman 17,260,695 * 161,082 * - Geraldine Stutz 17,260,695 * 161,082 * - Howard Gittis 17,260,701 * 161,076 * - Ratification of Appointment of BDO Seidman as Independent Public Accountants 17,409,353 1,688 * 10,736 - Approval of the Adoption of the 1996 Stock Option Plan 11,167,302 4,918,181 * 487,355 - *Not Applicable
Item 5. Other information - 14 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES OTHER INFORMATION (CONTINUED) CAUTIONARY STATEMENT FOR THE PURPOSES OF "SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995." Under the new safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to forward-looking statements, the Company is providing the following cautionary statements. The Company wishes to caution readers that the following important factors, among others, could cause the Company's actual consolidated results for the balance of 1996, and beyond, to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company, including, without limitation, forward-looking statements made under the caption "Net Sales" in Management's Discussion and Analysis of Financial Condition and Results of Operations above. These factors include the overall level of consumer spending, the performance of the Company's products within the prevailing retail environment, customer acceptance of both new designs and newly-introduced product lines, and financial difficulties encountered by customers as described under "Liquidity and Capital Resources" in Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 6. Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 30, 1996. - 15 - JONES APPAREL GROUP, INC. AND SUBSIDIARIES OTHER INFORMATION (CONTINUED) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. JONES APPAREL GROUP, INC. (Registrant) Date: August 14, 1996 By /s/ Sidney Kimmel ---------------------------- SIDNEY KIMMEL Chief Executive Officer By /s/ Wesley R. Card ---------------------------- WESLEY R. CARD Chief Financial Officer - 13 - EX-27 2
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 13,288 0 96,513 2,503 238,002 396,882 72,051 28,932 474,712 111,438 0 0 0 267 345,306 474,712 453,626 453,626 319,800 319,800 84,874 460 984 53,203 19,526 33,677 0 0 0 33,677 1.25 1.25
-----END PRIVACY-ENHANCED MESSAGE-----