-----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, JnUf9CjSzm1bNyMC+k27266f5JZsRCdGEgL4Pmjfjw8xI2tkuol3CNF4KmKeOpgH 2Lk4QjFwV1ithlabuJusDA== 0000874016-98-000004.txt : 19980812 0000874016-98-000004.hdr.sgml : 19980812 ACCESSION NUMBER: 0000874016-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980811 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: SEC FILE NUMBER: 001-10746 FILM NUMBER: 98682434 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 June 28, 1998 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 6, 1998 $.01 par value 101,063,348 JONES APPAREL GROUP, INC. Index PART I. FINANCIAL INFORMATION Page No. -------- Financial Statements: Consolidated Balance Sheets June 28, 1998 and December 31, 1997................. 3 Consolidated Statements of Income Thirteen and Twenty-six Weeks ended June 28, 1998 and June 29, 1997................................. 4 Consolidated Statement of Stockholders' Equity Twenty-six Weeks ended June 28, 1998................ 5 Consolidated Statements of Cash Flows Twenty-six Weeks ended June 28, 1998 and June 29, 1997.. .................................. 6 Notes to Consolidated Financial Statements.................. 7 - 9 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 10 - 14 PART II. OTHER INFORMATION....................................... 14 - 16 - 2 - JONES APPAREL GROUP, INC. CONSOLIDATED BALANCE SHEETS
June 28, December 31, 1998 1997 -------- ----------- (Unaudited) ASSETS CURRENT: Cash and cash equivalents............................................................. $ 45,567 $ 40,134 Accounts receivable, net of allowance of $3,157 and $2,767 for doubtful accounts...... 93,367 91,747 Inventories........................................................................... 259,498 255,055 Receivable from and advances to contractors........................................... 12,978 7,833 Prepaid and refundable income taxes................................................... 4,705 5,993 Deferred taxes........................................................................ 28,333 26,269 Prepaid expenses and other current assets............................................. 10,434 13,740 ------- ------- TOTAL CURRENT ASSETS................................................................ 454,882 440,771 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $42,984 and $44,189.................................. 111,387 81,934 CASH RESTRICTED FOR CAPITAL ADDITIONS................................................... 3,754 11,193 INTANGIBLES, less accumulated amortization of $8,086 and $7,687......................... 29,539 30,604 OTHER ASSETS............................................................................ 20,023 16,265 ------- ------- $619,585 $580,767 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings................................................................. $ 881 $ - Current portion of long-term debt and capital lease obligations....................... 5,282 4,199 Accounts payable...................................................................... 78,800 90,429 Accrued expenses and other current liabilities........................................ 18,246 15,574 ------- ------- TOTAL CURRENT LIABILITIES........................................................... 103,209 110,202 ------- ------- NONCURRENT LIABILITIES: Obligations under capital leases...................................................... 28,195 18,457 Long-term debt........................................................................ 12,719 8,833 Other................................................................................. 6,107 6,107 ------- ------- TOTAL NONCURRENT LIABILITIES........................................................ 47,021 33,397 ------- ------- TOTAL LIABILITIES................................................................... 150,230 143,599 ------- ------- EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 614 1,536 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - - Common stock, $.01 par value - shares authorized 200,000; issued 109,867 and 108,955........................................................... 1,099 545 Additional paid in capital............................................................ 135,688 122,582 Retained earnings..................................................................... 502,565 438,917 Accumulated other comprehensive income................................................ (1,800) (1,524) ------- ------- 637,552 560,520 Less treasury stock, 8,871 and 6,767 shares, at cost.................................. (168,811) (124,888) ------- ------- TOTAL STOCKHOLDERS' EQUITY.......................................................... 468,741 435,632 ------- ------- $619,585 $580,767 ======= ======= All amounts in thousands except per share data See notes to consolidated financial statements
- 3 - JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended --------------------- ----------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- Net sales................................................. $305,361 $262,988 $685,512 $580,978 Licensing income.......................................... 3,193 3,301 6,816 6,766 ------- ------- ------- ------- Total revenues............................................ 308,554 266,289 692,328 587,744 Cost of goods sold........................................ 201,086 178,542 453,647 393,426 ------- ------- ------- ------- Gross profit.............................................. 107,468 87,747 238,681 194,318 Selling, general and administrative expenses.............. 66,405 56,632 133,599 115,729 ------- ------- ------- ------- Operating income.......................................... 41,063 31,115 105,082 78,589 Net interest expense...................................... 351 267 1,590 629 ------- ------- ------- ------- Income before provision for income taxes.................. 40,712 30,848 103,492 77,960 Provision for income taxes................................ 15,674 11,568 39,844 29,141 ------- ------- ------- ------- Net income................................................ $25,038 $19,280 $63,648 $48,819 ======= ======= ======= ======= Earnings per share Basic................................................... $0.25 $0.19 $0.63 $0.47 Diluted................................................. $0.24 $0.18 $0.61 $0.45 Weighted average common shares and share equivalents outstanding Basic................................................... 100,841 103,934 100,788 103,999 Diluted................................................. 105,085 108,029 104,707 107,957 All amounts in thousands except per share data See notes to consolidated financial statements
- 4 - JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Total Additional other stockholders' Common paid-in Retained comprehensive Treasury equity stock capital earnings income stock ------------- ------- ----------- -------- ------------- --------- Balance, January 1, 1998........................ $435,632 $545 $122,582 $438,917 ($1,524) ($124,888) Twenty-six weeks ended June 28, 1998: Comprehensive income Net income.................................... 63,648 - - 63,648 - - Foreign currency translation adjustments...... (276) - - - (276) - ------------- Total comprehensive income.................. 63,372 ------------- Amortization of deferred compensation in connection with executive stock options........ 138 - 138 - - - Exercise of stock options....................... 7,993 5 8,088 - - (100) Tax benefit derived from exercise of stock options................................... 5,429 - 5,429 - - - Effect of 2-for-1 stock split................... - 549 (549) Treasury stock acquired......................... (43,823) - - - - (43,823) ------------- ------- ----------- -------- ------------- --------- Balance, June 28, 1998.......................... $468,741 $1,099 $135,688 $502,565 ($1,800) ($168,811) ============= ======= =========== ======== ============= ========= All amounts in thousands See notes to consolidated financial statements
- 5 - JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-six weeks ended -------------------------- June 28, June 29, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.................................................................................. $63,648 $48,819 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................................. 6,950 5,877 Provision for losses on accounts receivable............................................... 420 1,783 Deferred taxes............................................................................ (3,004) (8,399) Other..................................................................................... 290 87 (Increase) decrease in: Trade receivables....................................................................... (2,108) 6,282 Inventories............................................................................. (4,671) (59,694) Prepaid expenses and other current assets............................................... (1,886) (4,023) Other assets............................................................................ (2,827) (687) Increase (decrease) in: Accounts payable........................................................................ (11,589) 16,975 Taxes payable........................................................................... 6,725 (256) Accrued expenses and other current liabilities.......................................... 2,776 3,462 ------- ------- Total adjustments..................................................................... (8,924) (38,593) ------- ------- Net cash provided by operating activities................................................... 54,724 10,226 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................................................... (24,247) (13,523) Decrease (increase) in cash restricted for capital additions.............................. 7,439 (9,015) Other..................................................................................... (121) - ------- ------- Net cash used in investing activities....................................................... (16,929) (22,538) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings......................................................... 881 11,879 Proceeds from capital lease............................................................... - 10,000 Repayment of capital leases and long-term debt............................................ (2,347) (1,846) Increase in long-term debt................................................................ 5,000 - Acquisition of treasury stock............................................................. (43,823) (14,005) Proceeds from exercise of stock options................................................... 7,993 6,185 ------- ------- Net cash provided by (used in) financing activities......................................... (32,296) 12,213 ------- ------- EFFECT OF EXCHANGE RATES ON CASH............................................................ (66) 24 ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ 5,433 (75) CASH AND CASH EQUIVALENTS, beginning of period.............................................. 40,134 30,085 ------- ------- CASH AND CASH EQUIVALENTS, end of period.................................................... $45,567 $30,010 ======= ======= All amounts in thousands See notes to consolidated financial statements
- 6 - JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts of Jones Apparel Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") for interim financial information and in accordance with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the footnotes therein included within the Company's Annual Report on Form 10-K. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 1998. The Company reports interim results in 13 week quarters; however, the annual reporting period is the calendar year. Certain reclassifications have been made to conform prior period data with the current presentation. 2. Inventories Inventories are summarized as follows (amounts in thousands): June 28, December 31, 1998 1997 -------- ----------- Raw materials..................... $23,348 $27,045 Work in process................... 40,974 41,294 Finished goods.................... 195,176 186,716 -------- -------- $259,498 $255,055 ======== ======== - 7 - JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 3. Statement of Cash Flows Cash payments made for interest for the twenty-six weeks ended June 28, 1998 and June 29, 1997 were $2,642,000 and $1,176,000, respectively. Cash payments made for income taxes for the twenty-six weeks ended June 28, 1998 and June 29, 1997 were $48,454,000 and $37,751,000, respectively. Property and equipment acquired through capital lease financing during the twenty-six weeks ended June 28, 1998 and June 29, 1997 amounted to $12,054,000 and $220,000, respectively. Reduction in income tax payments resulting from the exercise of employee stock options during the twenty-six weeks ended June 28, 1998 and June 29, 1997 were $5,429,000 and $3,866,000, respectively. Under the provisions of the Company's 1991 Stock Option Plan, employees exercising stock options during the twenty-six weeks ended June 28, 1998 exchanged 3,826 shares of the Company's Common Stock (valued at $100,000) for 8,332 newly issued shares and during the twenty-six weeks ended June 29, 1997 exchanged 4,244 shares of the Company's Common Stock (valued at $100,000) for 17,926 newly issued shares. 4. New Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." Results of operations and financial position will be unaffected by implementation of this new standard. SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statement periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. This statement need not be applied to interim financial statements in the initial year of application, but comparative information shall be reported in interim period financial statements in the following year. The Company is currently reviewing SFAS No. 131 and has of yet been unable to fully evaluate the impact, if any, it may have on future financial statement disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 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 is effective for all fiscal years beginning after June 15, 1999. Results of operations and financial position will be unaffected by implementation of this new standard. - 8 - JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Capital Stock On May 6, 1998, the Company's Board of Directors authorized a two-for-one stock split of the Company's Common Stock in the form of a 100% stock dividend for shareholders of record as of June 4, 1998, with stock certificates to be issued June 25, 1998. In connection with the Common Stock split, the Board of Directors approved an increase in the number of shares authorized to 200,000,000. On June 25, 1998, a total of 50,497,911 shares of Common Stock were issued, net of treasury stock, in connection with the split. The stated par value of each share was not changed from $0.01. All share and per share amounts have been restated to retroactively reflect the stock split. - 9 - JONES APPAREL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 28, 1998 and June 29, 1997, respectively, 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 Statements of Income Expressed as a Percentage of Total Revenues Thirteen weeks ended Twenty-six weeks ended --------------------- ---------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- Net sales 99.0% 98.8% 99.0% 9.9% Licensing income 1.0% 1.2% 1.0% 1.1% -------- -------- -------- -------- Total revenue 100.0% 100.0% 100.0% 100.0% Cost of goods sold 65.2% 67.0% 65.5% 66.9% -------- -------- -------- -------- Gross profit 34.8% 33.0% 34.5% 33.1% Selling, general and administrative expenses 21.5% 21.3% 19.3% 19.7% -------- -------- -------- -------- Operating income 13.3% 11.7% 15.2% 13.4% Net interest expense 0.1% 0.1% 0.2% 0.1% -------- -------- -------- -------- Income before provision for income taxes 13.2% 11.6% 14.9% 13.3% Provision for income taxes 5.1% 4.3% 5.8% 5.0% -------- -------- -------- -------- Net income 8.1% 7.2% 9.2% 8.3% ======== ======== ======== ======== Totals may not agree due to rounding. Quarter Ended June 28, 1998 Compared to Quarter Ended June 29, 1997 Net Sales. Net sales in the thirteen weeks ended June 28, 1998 (hereinafter referred to as the "second quarter of 1998") increased 16.1%, or $42.4 million, to $305.4 million, compared to $263.0 million in the thirteen weeks ended June 29, 1997 (hereinafter referred to as the "second quarter of 1997"). The increase was due primarily to an increase in the number of units shipped, as well as the impact of a higher average price per unit resulting from the mix of products shipped. The breakdown of net sales by category for both periods is as follows: - 10 - JONES APPAREL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Second Second Quarter Quarter Increase/ Percent (In millions) of 1998 of 1997 (Decrease) Change ------- ------- -------- ------- Career sportswear $136.5 $129.3 $7.2 5.6% Casual sportswear 69.2 64.0 5.2 8.1% Lifestyle collection 68.4 36.7 31.7 86.4% Suits, dress, and other 31.3 33.0 (1.7) (5.2%) ------- ------- -------- ------- Net sales $305.4 $263.0 $42.4 16.1% ======= ======= ======== ======= The increase in Lifestyle collection was primarily due to a large increase in shipments under the Lauren by Ralph Lauren label. The decrease in suits, dress, and other was mainly the result of the repositioning of the Saville label. Licensing Income. Licensing income decreased $0.1 million to $3.2 million in the second quarter of 1998 compared to $3.3 million in the second quarter of 1997. Income from licenses under the Jones New York label increased $0.1 million, while income from licenses under the Evan-Picone label decreased $0.2 million. Gross Profit. The gross profit margin was 34.8% in the second quarter of 1998 compared to 33.0% in the second quarter of 1997. The gross profit improvement was attributable to the significant increase in sales of the Lifestyle collection, which carries higher margins than the corporate average and lower overseas production costs due to the favorable impact of currency devaluations in Asia. SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses) of $66.4 million in the second quarter of 1998 represented an increase of $9.8 million over the second quarter of 1997. As a percentage of total revenues, SG&A expenses increased to 21.5% in the second quarter of 1998 from 21.3% for the comparable period in 1997. The increase was primarily due to expenditures under the Lauren by Ralph Lauren advertising campaign. While royalties and operating expenses also added significant expenses during the quarter, the effect was offset by the proportionately larger increase in sales and gross profit. Retail store operating expenses increased $3.1 million, reflecting the added cost of 33 more stores in operation at the end of the second quarter of 1998 compared to the end of the second quarter of 1997. Operating Income. The resulting second quarter of 1998 operating income of $41.1 million increased 32.0%, or $10.0 million, compared to $31.1 million during the second quarter of 1997. The operating margin increased to 13.3% for the second quarter of 1998 from the 11.7% achieved during the second quarter of 1997. Net Interest Expense. Net interest expense was $0.4 million in the second quarter of 1998 compared to $0.3 million in the comparable period of 1997. Provision for Income Taxes. The effective income tax rate was 38.5% for the second quarter of 1998 compared to 37.5% for the second quarter of 1997. The increase was primarily due to higher state income tax provisions for the second quarter of 1998. - 11 - JONES APPAREL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net Income. Net income increased 29.9% to $25.0 million in the second quarter of 1998, an increase of $5.7 million over the net income of $19.3 million earned in the second quarter of 1997. Net income as a percentage of total revenues was 8.1% in the second quarter of 1998 and 7.2% in the second quarter of 1997. Six Months Ended June 28, 1998 Compared to Six Months Ended June 29, 1997 Net Sales. Net sales in the twenty-six weeks ended June 28, 1998 (hereinafter referred to as the "first six months of 1998") increased 18.0%, or $104.5 million, to $685.5 million, compared to $581.0 million in the twenty-six weeks ended June 29, 1997 (hereinafter referred to as the "first six months of 1997"). The increase was due primarily to an increase in the number of units shipped, as well as the impact of a higher average price per unit resulting from the mix of products shipped. The breakdown of net sales by category for both periods is as follows: First First Six Months Six Months Increase/ Percent (In millions) of 1998 of 1997 (Decrease) Change ---------- ---------- --------- ------- Career sportswear $308.0 $278.3 $29.7 10.7% Casual sportswear 153.4 139.0 14.4 10.4% Lifestyle collection 161.0 92.0 69.0 75.0% Suits, dress, and other 63.1 71.7 (8.6) (12.0%) ---------- ---------- --------- ------- Net sales $685.5 $581.0 $104.5 18.0% ========== ========== ========= ======= The increase in Lifestyle collection was primarily due to a large increase in shipments under the Lauren by Ralph Lauren label. The decrease in suits, dress, and other was the result of the termination of the Christian Dior suit license and the repositioning of the Saville label. Licensing Income. Licensing income increased $0.1 million to $6.8 million in the first six months of 1998 compared to $6.7 million in the first six months of 1997. Income from licenses under the Jones New York label increased $0.4 million while income from licenses under the Evan-Picone label decreased $0.3 million. Gross Profit. The gross profit margin was 34.5% in the first six months of 1998 compared to 33.1% in the first six months of 1997. The gross profit improvement was attributable to the significant increase in sales of the Lifestyle collection, which carries higher margins than the corporate average and lower overseas production costs due to the favorable impact of currency devaluations in Asia. SG&A Expenses. Selling, general and administrative expenses of $133.6 million in the first six months of 1998 represented an increase of $17.9 million over the first six months of 1997. As a percentage of total revenues, SG&A expenses decreased to 19.3% in the first six months of 1998 from 19.7% for the comparable period in 1997. While advertising, royalties and operating expenses added significant expenses during the quarter, the effect was offset by the proportionately larger increase in sales and gross profit. Retail store operating expenses increased $4.8 million, reflecting the added cost of 33 more stores in operation at the end of the first six months of 1998 compared to the end of the first six months of 1997. - 12 - JONES APPAREL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating Income. The resulting first six months of 1998 operating income of $105.1 million increased 33.7%, or $26.5 million, compared to $78.6 million during the first six months of 1997. The operating margin increased to 15.2% for the first six months of 1998 from the 13.4% achieved during the first six months of 1997. Net Interest Expense. Net interest expense was $1.6 million in the first six months of 1998 compared to $0.6 million in the comparable period of 1997. The change primarily reflects an increase in capital lease obligations and long-term debt associated with the construction of warehouse facilities. Provision for Income Taxes. The effective income tax rate was 38.5% for the first six months of 1998 compared to 37.4% for the first six months of 1997. The increase was primarily due to higher state income tax provisions for the first six months of 1998. Net Income. Net income increased 30.4% to $63.6 million in the first six months of 1998, an increase of $14.8 million over the net income of $48.8 million earned in the first six months of 1997. Net income as a percentage of total revenues was 9.2% in the first six months of 1998 and 8.3% in the first six months of 1997. 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. Net cash provided by operations was $54.7 million in the first six months of 1998, compared to $10.2 million in the first six months of 1997. The change primarily reflects the effect of higher net income for the first six months of 1998 (before depreciation and amortization) and a smaller increase in inventories ($4.7 million in 1998 compared to $59.7 million in 1997) as well as an increase in taxes payable. These amounts were offset by a decrease in accounts payable of $11.6 million in 1998 compared to an increase of $17.0 million in 1997. Net cash used in investing activities was $5.6 million lower in the first six months of 1998, compared to the first six months of 1997, due to additional capital improvements and replacements, offset by a decrease in restricted cash. Expenditures for capital improvements, replacements and property under capital leases for the full year 1998 are expected to approximate $30 million, of which $17 million represents the estimated cost to complete an additional warehouse facility under construction to support anticipated growth. Net cash used in financing activities was $32.3 million in the first six months of 1998 compared to net cash provided by financing activities of $12.2 million in the first six months of 1997. The principal reasons for the change were a smaller increase in the amounts of short-term borrowings to fund working capital requirements and transactions involving the Company's Common Stock. The Company repurchased $43.8 million and $14.0 million of its Common Stock on the open market for the six months ended June 28, 1998 and June 29, 1997, respectively, under announced programs to acquire up to $200.0 million of such shares. As of June 28, 1998, $32.2 million remained available for additional stock repurchases under these plans. - 13 - JONES APPAREL GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Proceeds from the issuance of common stock to employees exercising stock options amounted to $8.0 million in the first six months of 1998 compared to $6.2 million in the first six months of 1997. Under the Company's existing credit arrangements, $182.9 million was utilized for letters of credit and $0.9 million of short-term borrowings were outstanding at June 28, 1998. 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. OTHER INFORMATION Part II. Item 4. Submission of Matters to a Vote of Security Holders (a) Annual Meeting of Shareholders May 27, 1998 (c) Proposals
Broker Election of Directors For Against Withheld Abstain Nonvotes ---------- ------- -------- ------- -------- Sidney Kimmel 48,289,312 * 264,999 * - Herbert J. Goodfriend 48,288,650 * 265,661 * - Irwin Samelman 48,308,293 * 246,018 * - Geraldine Stutz 48,431,791 * 122,520 * - Howard Gittis 48,434,476 * 119,835 * - Ratification of Appointment of BDO Seidman, LLP as Independent Public Accountants 48,534,716 8,858 * 10,737 - *Not Applicable
- 14 - Item 5. Other information Statement Regarding Forward-looking Disclosure This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended which represent the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of national and regional economic conditions, the overall level of consumer spending, the performance of the Company's products within the prevailing retail environment, customer acceptance of both new designs and newly-introduced product lines, and financial difficulties encountered by customers. All statements, other than statements of historical facts included in this Quarterly 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, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed in this Report. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Item 6. Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 28, 1998. - 15 - JONES APPAREL GROUP, INC. 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 11, 1998 By /s/ Sidney Kimmel ---------------------------- SIDNEY KIMMEL Chief Executive Officer By /s/ Wesley R. Card ---------------------------- WESLEY R. CARD Chief Financial Officer - 16 - EX-3.(I) 2 Exhibit 3.(i). Amended and Restated Articles of incorporation of the Corporation. 1. The name of the corporation is Jones Apparel Group, Inc. 2. The location and post office address of the initial registered office of the corporation in this Commonwealth is 220 Rittenhouse Circle, Keystone Industrial Park, Bristol, Pennsylvania, 19007. 3. The corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purposes: the corporation shall have unlimited power to engage in and do any lawful act concerning any or all lawful business for which corporations may be incorporated under the Pennsylvania Business Corporation Law, including to power to engage in manufacturing, this corporation being incorporated under the said Business Corporation Law. 4. The term for which the corporation is to exist is perpetual. 5. The aggregate number of shares which the corporation shall have authority to issue is: TWO HUNDRED ONE MILLION (201,000,000) consisting of (i) Two Hundred Million (200,000,000) shares of Common Stock of the par value of $.01 per share and (ii) One Million (1,000,000) shares of Preferred Stock of the par value of $.01 per share. The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof of the Preferred Stock, and of the Common Stock are as follows: A. Preferred Stock. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article 5, to file an amendment to the corporation's Articles of Incorporation pursuant to 15 Pa.C.S. Section 1914(c) to provide for the issuance of the Preferred Stock in series and to establish the number of shares to be included in each such series. The Preferred Stock may be issued either as a class without series, or as so determined from time to time by the Board of Directors, either in whole or in part in one or more series, each series to be appropriately designated by a distinguishing number, letter or title prior to the issue of any shares thereof. Whenever the term "Preferred Stock" is used in this Article 5, it shall be deemed to mean and include Preferred Stock issued as a class without series, or one or more series thereof, or both, unless the context shall otherwise require. There is hereby expressly granted to the Board of Directors of the corporation authority, subject to the limitations provided by law, to fix the voting power, the designations, and the relative preferences, powers, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the shares of each series of said Preferred Stock and the variations in the relative powers, rights, preferences and limitations as between series, and to increase the number of shares constituting each series, and to decrease such number of shares (but not less than the number of outstanding shares of the series), in the resolution or resolutions adopted by the Board of Directors providing for the issue of said Preferred Stock. The authority of the Board of Directors of the corporation with respect to each series shall include, but shall not be limited to, the authority to determine the following: 1. The designation of the series; 2. The number of shares initially constituting such series; 3. The increase, and the decrease to a number not less than the number of the outstanding shares of such series, of the number of shares constituting such series theretofore fixed; 4. The rate or rates and the times and conditions under which dividends on the shares of such series shall be paid, and, (i) if such dividends are payable in preference to, or in relation to, the dividends payable on any other class or classes of stock, the terms and conditions of such payment, and (ii) if such dividends shall be cumulative, the date or dates from and after which they shall accumulate; 5. Whether or not the shares of such series shall be redeemable, and, if such shares shall be redeemable, the terms and conditions of such redemption, including, but not limited to, the date or dates upon or after which such shares shall be redeemable and the amount per share which shall be payable upon such redemption, which amount may vary under conditions and at different redemption dates; 6. The amount payable on the shares of such series in the event of a dissolution of, or upon any distribution of the assets of, the corporation; 7. Whether or not the shares of such series may be convertible into, or exchangeable for, shares of any other class or series and the price or prices and the rates of exchange and the terms of any adjustments to be made in connection with such conversion or exchange; 8. Whether or not the shares of such series shall have voting rights in addition to the voting rights provided by law, and, if such shares shall have such voting rights, the terms and conditions thereof, including but not limited to, the right of the holders of such shares to vote as a separate class either alone or with the holders of shares of one or more other series of Preferred Stock and the right to have more or less than one vote per share; 9. Whether or not a purchase fund shall be provided for the shares of such series, and, if such a purchase fund shall be provided, the terms and conditions thereof; 10. Whether or not a sinking fund shall be provided for the redemption of the shares of such series and if such a sinking fund shall be provided, the terms and conditions thereof; and 11. Any other powers, preferences and relative, participating, optional, or other special rights, and qualifications, limitations or restrictions thereof, as shall not be inconsistent with the provisions of this Article 5 or the limitations provided by law. B. Common Stock. 1. Subject to the rights of the Preferred shareholders, the holders of the Common Stock shall be entitled to receive such dividends as may be declared thereon by the Board of Directors of the Corporation in its discretion, from time to time, out of any funds or assets of the corporation lawfully available for the payment of such dividends. 2. In the event of any liquidation, dissolution or winding up of the corporation, or any reduction of its capital, resulting in a distribution of its assets to its shareholders, whether voluntary or involuntary, then, after there shall have been paid or set apart for the holders of the Preferred Stock the full preferential amounts to which they are entitled, the holders of the Common Stock shall be entitled to receive, as a class, pro rata, the remaining assets of the corporation available for distribution to its shareholders. 3. For any and all purposes of these Articles of Incorporation, neither the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the corporation, nor a sale, transfer or lease of all or substantially all of the assets of the corporation, or any other transaction or series of transactions having the effect of a reorganization shall be deemed to be a liquidation, dissolution or winding-up of the corporation. 4. Except as otherwise expressly provided by law or in a resolution of the Board of Directors providing voting rights to the holders of the Preferred Stock, the holders of the Common Stock shall possess exclusive voting power for the election of directors and for all other purposes and each holder thereof shall be entitled to one vote for each share thereof. 6. The name(s) and post office address(es) of each incorporator(s) and the number and class of shares subscribed by such incorporator(s) is (are): Name Address Number and class of shares Frances Kuzinar 1510 The Fidelity Building One (1) Common Philadelphia, PA 19109 7. In all elections for Directors, each shareholder entitled to vote shall be entitled to only one vote for each share held, it being intended hereby to deny shareholders the right of cumulative voting in the election of Directors. 8. Except as otherwise provided by law, and subject to the provisions of, applicable law, any action which may be taken at a meeting of the shareholders or of a class of shareholders of the corporation may be taken without a meeting, provided a consent or consents in writing to such action, setting forth the action so taken, shall be (1) signed by the shareholders entitled to cast a majority (or such larger percentage as may be required by law) of the number of votes which all such shareholders are entitled to cast thereon, and (2) filed with the Secretary of the corporation. EX-11 3 EXHIBIT 11 JONES APPAREL GROUP, INC. Computation of Basic and Diluted Earnings per Share (In thousands except per share amounts) For the Quarter Ended For the Six Months Ended --------------------- ------------------------ June 28, June 29, June 28, June 29, 1998 1997 1998 1997 ------- ------- ------- ------- Basic Earnings per Share: - ------------------------- Net income.................... $25,038 $19,280 $63,348 $48,819 ======== ======= ======= ======= Weighted average number of shares outstanding............ 100,841 103,934 100,788 103,999 ======== ======= ======= ======= Basic earnings per share...... $0.25 $0.19 $0.63 $0.47 ======== ======= ======= ======= Diluted Earnings per Share: - --------------------------- Net income.................... $25,038 $19,280 $63,348 $48,819 ======== ======= ======= ======= Weighted average number of shares outstanding............ 100,841 103,934 100,788 103,999 Assumed issuances under exercise of stock options..... 4,244 8,339 3,919 3,958 -------- ------- ------- ------- 105,085 108,029 104,707 107,957 ======== ======= ======= ======= Diluted earnings per share.... $0.24 $0.18 $0.61 $0.45 ======== ======= ======= ======= Adjusted for 2-for-1 stock split effective June 28, 1998. EX-27 4
5 1,000 6-MOS DEC-31-1998 JUN-28-1998 45,567 0 96,524 3,157 259,498 454,882 154,371 42,984 619,585 103,209 0 0 0 1,099 467,642 619,585 685,512 692,328 453,647 453,647 133,599 420 1,590 103,492 39,844 63,648 0 0 0 63,648 .63 .61
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