-----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, EisV/see8VBw8N8/p+FAK7iF9zFx7qvxhbqTeD8vC5yXeEu1nANXteRDv8bVgiVt 5am59qJb0NUtkIk9mjk27w== 0000874016-99-000012.txt : 19991115 0000874016-99-000012.hdr.sgml : 19991115 ACCESSION NUMBER: 0000874016-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991112 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: 99747112 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 October 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-10746 JONES APPAREL GROUP, INC. (Exact name of registrant as specified in its charter) Pennsylvania 06-0935166 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 250 Rittenhouse Circle Bristol, Pennsylvania 19007 (Address of principal (Zip Code) executive offices) (215) 785-4000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock November 10, 1999 - --------------------- ----------------- $.01 par value 122,504,740 2 JONES APPAREL GROUP, INC. Index Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets October 3, 1999 and December 31, 1998............. 3 Consolidated Statements of Income Quarters and Nine Months ended October 3, 1999 and September 27, 1998.......... 4 Consolidated Statements of Stockholders' Equity Nine Months ended October 3, 1999 and September 27, 1998.............................. 5 Consolidated Statements of Cash Flows Nine Months ended October 3, 1999 and September 27, 1998.............................. 6 Notes to Consolidated Financial Statements.......... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................... 18 Item 5. Other Information................................... 20 Item 6. Exhibits and Reports on Form 8-K.................... 21 Signatures..................................................... 21 Index to Exhibits.............................................. 22 - 2 - 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements JONES APPAREL GROUP, INC. CONSOLIDATED BALANCE SHEETS
October 3, December 31, 1999 1998 ------------- ------------- (Unaudited) ASSETS CURRENT: Cash and cash equivalents......................................... $ 36,491 $ 129,024 Accounts receivable............................................... 462,570 169,225 Inventories....................................................... 702,294 268,175 Receivable from and advances to contractors....................... 25,009 19,207 Deferred income taxes............................................. 97,727 32,143 Prepaid expenses and other current assets......................... 37,244 14,069 ----------- ---------- TOTAL CURRENT ASSETS.............................................. 1,361,335 631,843 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $184,038 and $76,460........... 256,050 156,043 GOODWILL, less accumulated amortization of $16,410 and $2,714..... 877,817 323,009 OTHER INTANGIBLES, less accumulated amortization of $30,387 and $9,919.............................................. 355,016 29,705 DEFERRED INCOME TAXES............................................. 69,882 2,261 OTHER ASSETS...................................................... 78,468 45,811 ----------- ----------- $2,998,568 $1,188,672 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings............................................. $ 423,793 $ - Current portion of long-term debt and capital lease obligations... 8,968 6,522 Accounts payable.................................................. 239,021 100,282 Income taxes payable.............................................. 62 13,654 Accrued costs of closing stores and other facilities.............. 55,787 - Accrued compensation.............................................. 28,279 11,746 Accrued interest and bank fees.................................... 12,488 5,369 Accrued expenses and other current liabilities.................... 124,247 36,315 ----------- ----------- TOTAL CURRENT LIABILITIES......................................... 892,645 173,888 ----------- ----------- NONCURRENT LIABILITIES: Long-term debt.................................................... 804,886 379,247 Obligations under capital leases.................................. 33,653 35,406 Other............................................................. 55,471 5,782 ----------- ----------- TOTAL NONCURRENT LIABILITIES...................................... 894,010 420,435 ----------- ----------- TOTAL LIABILITIES................................................. 1,786,655 594,323 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - shares authorized 1,000; none issued...................................................... - - Common stock, $.01 par value - shares authorized 200,000; issued 134,363 and 115,412....................................... 1,344 1,154 Additional paid in capital........................................ 689,487 234,787 Retained earnings................................................. 755,091 593,781 Accumulated other comprehensive income............................ (146) (2,287) ----------- ----------- 1,445,776 827,435 Less treasury stock, 11,948 and 11,918 shares, at cost............ (233,863) (233,086) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY........................................ 1,211,913 594,349 ----------- ----------- $2,998,568 $1,188,672 =========== =========== All amounts in thousands except per share data See notes to consolidated financial statements
- 3 - 4 JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter ended Nine Months ended ----------------------------- ------------------------------ October 3, September 27, October 3, September 27, 1999 1998 1999 1998 ------------- ------------- ------------- ------------- Net sales......................................................... $1,139,397 $495,727 $2,220,147 $1,181,240 Licensing income.................................................. 7,272 4,590 16,001 11,406 ------------- ------------- ------------- ------------- Total revenues.................................................... 1,146,669 500,317 2,236,148 1,192,646 Cost of goods sold................................................ 668,246 324,724 1,336,947 778,372 Purchase accounting adjustments to cost of goods sold (1)......... 39,050 - 45,559 - ------------- ------------- ------------- ------------- Gross profit...................................................... 439,373 175,593 853,642 414,274 Selling, general and administrative expenses...................... 280,211 78,342 530,050 211,942 Amortization of goodwill.......................................... 7,212 - 13,696 - ------------- ------------- ------------- ------------- Operating income.................................................. 151,950 97,251 309,896 202,332 Net interest expense.............................................. 24,789 1,156 41,284 2,745 ------------- ------------- ------------- ------------- Income before provision for income taxes.......................... 127,161 96,095 268,612 199,587 Provision for income taxes........................................ 52,136 36,997 107,302 76,841 ------------- ------------- ------------- ------------- Net income........................................................ $75,025 $59,098 $161,310 $122,746 ============= ============= ============= ============= Earnings per share Basic......................................................... $0.61 $0.59 $1.45 $1.22 Diluted....................................................... $0.59 $0.57 $1.40 $1.17 Weighted average common shares and share equivalents outstanding Basic......................................................... 122,382 100,886 111,415 100,821 Diluted....................................................... 126,253 104,426 115,425 104,613 (1) Reflects a non-cash increase in cost of goods sold attributable to the fair value of inventory over FIFO cost, recorded as a result of the acquisition of Nine West Group Inc. as required by the purchase method of accounting. All amounts in thousands except per share data See notes to consolidated financial statements
- 4 - 5 JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Total Additional other stockholders' Common paid-in Retained comprehensive Treasury equity stock capital earnings income stock ------------- ------- ----------- -------- ------------- --------- Balance, January 1, 1998........................ $435,632 $545 $122,582 $438,917 ($1,524) ($124,888) Nine months ended September 27, 1998: Comprehensive income Net income.................................... 122,746 - - 122,746 - - Foreign currency translation adjustments...... (535) - - - (535) - ----------- Total comprehensive income.................. 122,211 ----------- Amortization of deferred compensation in connection with executive stock options........ 158 - 158 - - - Exercise of stock options....................... 8,986 6 9,080 - - (100) Tax benefit derived from exercise of stock options.................................. 5,685 - 5,685 - - - Effect of 2-for-1 stock split................... - 549 (549) - - - Treasury stock acquired......................... (72,149) - - - - (72,149) ----------- ------- ----------- -------- ---------- --------- Balance, September 27, 1998..................... $500,523 $1,100 $136,956 $561,663 ($2,059) ($197,137) =========== ======= =========== ======== ========== ========= Accumulated Total Additional other stockholders' Common paid-in Retained comprehensive Treasury equity stock capital earnings income stock ------------- ------- ----------- -------- ------------- --------- Balance, January 1, 1999........................ $ 594,349 $1,154 $234,787 $593,781 ($2,287) ($233,086) Nine months ended October 3, 1999: Comprehensive income Net income.................................... 161,310 - - 161,310 - - Foreign currency translation adjustments...... 2,141 - - - 2,141 - ----------- Total comprehensive income.................. 163,451 ----------- Amortization of deferred compensation in connection with executive stock options........ 95 - 95 - - - Exercise of stock options....................... 11,542 13 11,529 - - - Tax benefit derived from exercise of stock options.................................. 7,460 - 7,460 - - - Stock issued as additional consideration for acquisition of Sun Apparel, Inc. .............. 14,334 6 14,328 - - - Treasury stock acquired......................... (777) - - - - (777) Stock and options issued for acquisition of Nine West Group Inc., net of issuance costs.... 421,657 171 421,486 - - - Other........................................... (198) - (198) - - - ----------- ------- ----------- -------- ---------- --------- Balance, October 3, 1999........................ $1,211,913 $1,344 $689,487 $755,091 ($146) ($233,863) =========== ======= =========== ======== ========== ========= All amounts in thousands See notes to consolidated financial statements
- 5 - 6 JONES APPAREL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months ended -------------------------------- October 3, September 27, 1999 1998 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.............................................. $161,310 $122,746 ----------- ----------- Adjustments to reconcile net income to net cash used in operating activities, net of acquisition of Nine West Group Inc.: Amortization of goodwill............................ 13,696 - Depreciation and other amortization................. 33,221 11,254 Provision for losses on accounts receivable......... 5,895 825 Deferred income taxes............................... 10,212 (3,174) Other............................................... 834 362 (Increase) decrease in Trade receivables................................. (249,969) (165,353) Inventories....................................... 16,840 27,638 Prepaid expenses and other current assets......... 30,941 (7,293) Other assets...................................... (2,039) (5,828) Increase (decrease) in: Accounts payable.................................. 78,827 (8,473) Taxes payable..................................... 6,242 42,761 Accrued expenses and other liabilities............ (48,556) 9,850 ----------- ----------- Total adjustments................................. (103,856) (97,431) ----------- ----------- Net cash provided by operating activities............... 57,454 25,315 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.................................... (19,444) (37,546) Acquisition of Nine West Group Inc. net of cash acquired .................................. (433,824) - Additional consideration paid for acquisition of Sun Apparel, Inc. .................................. (20,137) - Acquisition of intangibles.............................. (28,429) - Decrease in cash restricted for capital additions....... - 11,193 Other................................................... 5,373 (116) ----------- ----------- Net cash used in investing activities................... (496,461) (26,469) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of 7.5% Senior Notes, net of discount........... 173,533 - Issuance of 7.875% Senior Notes, net of discount......... 222,820 - Debt issuance costs...................................... (5,592) - Repurchase of Nine West Senior Notes..................... (344,033) - Premiums paid on repurchase of Nine West Senior Notes.... (12,854) - Net borrowings under various credit facilities........... 305,673 41,950 Principal payments on capitalized leases................. (3,377) (2,806) Acquisition of treasury stock............................ (777) (72,149) Proceeds from exercise of stock options.................. 11,542 8,986 Other.................................................... (228) - ----------- ----------- Net cash provided by (used in) financing activities...... 346,707 (24,019) ----------- ----------- EFFECT OF EXCHANGE RATES ON CASH......................... (233) (5) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS................ (92,533) (25,178) CASH AND CASH EQUIVALENTS, beginning of period........... 129,024 40,134 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period................. $36,491 $14,956 =========== =========== All amounts in thousands See notes to consolidated financial statements
- 6 - 7 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts of Jones Apparel Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The financial statements have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") for interim financial information and in accordance with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the footnotes therein included within the Company's Annual Report on Form 10-K. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 1999. The Company reports interim results in 13 week quarters; however, the annual reporting period is the calendar year. 2. Acquisition of Nine West On June 15, 1999, the Company acquired Nine West Group Inc. ("Nine West"). In the acquisition, the Company purchased all the outstanding shares of Nine West's common stock for a total purchase price of $463.6 million in cash and approximately 17.1 million shares of common stock, valued for financial reporting purposes at $24.35 per share (the average closing price for the week containing March 1, 1999, the date the definitive Agreement and Plan of Merger was signed). In addition, the Company assumed $493.7 million of Nine West's outstanding debt, a portion of which has been refinanced. Nine West is a leading designer, developer, manufacturer and marketer of women's footwear and accessories. Nine West markets collections of casual, career and dress footwear and accessories under multiple brand names which are targeted to various segments of the women's footwear and accessories markets. The acquisition has been accounted for under the purchase method of accounting for business combinations. Accordingly, the consolidated financial statements include the results of operations of Nine West from the acquisition date. The purchase price was allocated to Nine West's assets and liabilities, tangible and intangible, with the excess of the purchase price over the fair value of the net assets acquired of approximately $543.0 million being amortized on a straight-line basis over 30 years. During the quarter ended October 3, 1999, an appraisal of certain acquired assets was completed and purchase price allocations were adjusted accordingly. As part of the purchase price allocation, $62.3 million was recorded for severance payments and expected costs and losses relating to the restructuring of domestic and international operations and the closing of certain retail stores, of which $55.8 million remained accrued at October 3, 1999. - 7 - 8 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as if the acquisition and its related financing had taken place on January 1, 1998. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on January 1, 1998, or which may result in the future. For comparative purposes, the pro forma amounts for the nine months ended September 27, 1998 include the results of Sun Apparel, Inc.(acquired on October 2, 1998) as if it had also been acquired on January 1, 1998. October 3, September 27, Nine months ended: 1999 1998 ---------- ------------ Net revenues (in thousands)............ $ 3,035,782 $ 2,994,904 Net income (in thousands).............. 173,138 140,397 Basic earnings per common share........ $1.42 $1.14 Diluted earnings per common share...... $1.38 $1.10 3. Accounts Receivable Accounts receivable consists of the following (amounts in thousands): October 3, December 31, 1999 1998 ---------- ----------- Accounts receivable..................... $ 369,265 $ 172,528 Securitized interest in accounts receivable................... 111,988 - Allowance for doubtful accounts......... (18,683) (3,303) ---------- ----------- $ 462,570 $ 169,225 ========== =========== 4. Inventories Inventories are summarized as follows (amounts in thousands): October 3, December 31, 1999 1998 ---------- ----------- Raw materials.......................... $ 31,979 $ 33,928 Work in process........................ 57,466 43,041 Finished goods......................... 612,849 191,206 ---------- ----------- $ 702,294 $ 268,175 ========== =========== - 8 - 9 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Common Stock On May 6, 1998, the Company's Board of Directors authorized a two-for-one stock split of the Company's common stock in the form of a 100% stock dividend for shareholders of record as of June 4, 1998, with stock certificates issued on June 25, 1998. In connection with the common stock split, the Board of Directors approved an increase in the number of shares authorized to 200,000,000. On June 25, 1998, a total of 50,497,911 shares of common stock were issued in connection with the split. The stated par value of each share was not changed from $0.01. All share and per share amounts have been restated to retroactively reflect the stock split. 6. Statement of Cash Flows Nine Months Ended: October 3, September 27, (In thousands) 1999 1998 ----------- ----------- Supplemental disclosures of cash flow information: Cash paid during the nine months for: Interest................................ $ 29,085 $ 4,039 Income taxes............................ 83,503 49,518 Supplemental disclosures of non-cash investing and financing activities: Equipment acquired through capital lease financing......................... 1,641 21,310 Tax benefits related to stock options.... 7,460 5,685 Common stock issued as additional consideration for acquisition of Sun Apparel, Inc. ...................... 14,334 - Detail of acquisitions: Fair value of assets acquired............ $1,723,838 $ - Liabilities assumed...................... (838,550) - Common stock and options issued.......... (421,687) - ---------- ----------- Net cash paid for acquisitions........... 463,601 - Cash acquired in acquisitions............ 29,777 - ---------- ----------- Cash paid for acquisitions............... $ 433,824 $ - ========== =========== 7. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000. The Company is currently reviewing SFAS No. 133 and has of yet been unable to fully evaluate the impact, if any, it may have on future operating results or financial statement disclosures. - 9 - 10 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Segment Information With the acquisition of Nine West, the Company has redefined the operating segments it uses for financial reporting purposes. The Company operates in three reportable segments: wholesale apparel, wholesale footwear and accessories, and retail. Historical data has been restated to reflect these changes. Summarized below are the Company's segment sales and operating income (loss) as defined by these new reportable segments for the quarters and nine months ended October 3, 1999 and September 27, 1998.
Wholesale Wholesale Footwear & Other & Apparel Accessories Retail Eliminations Consolidated --------- ----------- --------- ------------ ------------ For the quarter ended October 3, 1999 Revenues from external customers.......... $ 639,038 $ 224,183 $ 276,176 $ 7,272 $ 1,146,669 Intersegment revenues..................... 30,326 39,019 - (69,345) - ---------- ---------- --------- ---------- ----------- Total revenues............................ 669,364 263,202 276,176 (62,073) 1,146,669 ---------- ---------- --------- ---------- ----------- Segment income............................ $ 141,292 $ 4,871 $ 10,380 $ 2,619 159,162 ========== ========== ========= ========== Amortization of goodwill.................. (7,212) Net interest expense...................... (24,789) ----------- Income before provision for income taxes.. $ 127,161 =========== For the quarter ended September 27, 1998 Revenues from external customers.......... $ 452,350 $ - $ 43,377 $ 4,590 $ 500,317 Intersegment revenues..................... 38,253 - - (38,253) - ---------- ---------- --------- ---------- ----------- Total revenues............................ 490,603 - 43,377 (33,663) 500,317 ---------- ---------- --------- ---------- ----------- Segment income............................ $ 104,674 $ - $ 36 $ (7,459) 97,251 ========== ========== ========= ========== Net interest expense...................... (1,156) ----------- Income before provision for income taxes.. $ 96,095 =========== For the nine months ended October 3, 1999 Revenues from external customers.......... $1,557,228 $ 277,897 $ 385,022 $ 16,001 $ 2,236,148 Intersegment revenues..................... 74,654 47,006 - (121,660) - ---------- ---------- --------- ---------- ----------- Total revenues............................ 1,631,882 324,903 385,022 (105,659) 2,236,148 ---------- ---------- --------- ---------- ----------- Segment income............................ $ 306,152 $ 10,230 $ 17,996 $ (10,786) 323,592 ========== ========== ========= ========== Amortization of goodwill.................. (13,696) Net interest expense...................... (41,284) ----------- Income before provision for income taxes.. $ 268,612 =========== For the nine months ended September 27, 1998 Revenues from external customers.......... $1,063,990 $ - $ 117,250 $ 11,406 $ 1,192,646 Intersegment revenues..................... 89,528 - - (89,528) - ---------- ---------- --------- ---------- ----------- Total revenues............................ 1,153,518 - 117,250 (78,122) 1,192,646 ---------- ---------- --------- ---------- ----------- Segment income............................ $ 212,888 $ - $ 8,270 $ (18,826) 202,332 ========== ========== ========= ========== Net interest expense...................... (2,745) ----------- Income before provision for income taxes.. $ 199,587 =========== Total assets at October 3, 1999............. $1,865,114 $ 767,662 $ 429,544 $ (63,752) $ 2,998,568 Total assets at September 27, 1998.......... 672,446 - 75,096 (11,473) 736,069
- 10 - 11 JONES APPAREL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. Supplemental Summarized Financial Information Certain of the Company's subsidiaries function as obligors and co-obligors of the Company's outstanding debt, including Jones Apparel Group USA, Inc. ("Jones USA"), Jones Apparel Group Holdings, Inc. ("Jones Holdings") and Nine West Group Inc. ("Nine West"). On January 1, 1999, Jones Apparel Group, Inc. ("Jones") consummated a corporate reorganization under which two new wholly owned subsidiaries, Jones USA and Jones Holdings, were created. On that date, the operating assets of Jones were transferred to Jones USA. Jones and Jones Holdings function as co-obligors with respect to the outstanding debt securities of Jones USA and certain of the outstanding debt securities of Nine West. In addition, Nine West functions as a co-obligor with respect to all of Jones USA's outstanding debt securities, and Jones USA functions as a co-obligor with respect to the outstanding debt securities of Nine West as to which Jones and Jones Holdings function as co-obligors. The following summarized financial information represents the results of Jones USA for the first nine months of 1999, Nine West since the date of acquisition and pro forma information for Jones USA for the first nine months of 1998, assuming the reorganization had taken place on January 1, 1998 (all amounts in thousands). Separate financial statements and other disclosures concerning Jones USA, Nine West and Jones Holdings are not presented, because management has determined that such information is not material to the holders of the outstanding debt.
Other and Jones USA Nine West Eliminations Consolidated ----------- ---------- ------------ ------------- On or for the nine months ended October 3, 1999: Current assets.............. $ 1,381,496 $ 584,281 $(604,442) $ 1,361,335 Noncurrent assets........... 155,271 1,023,917 458,045 1,637,233 Current liabilities......... 829,457 533,441 (470,253) 892,645 Noncurrent liabilities...... 707,242 191,562 (4,794) 894,010 Total revenues.............. 1,135,054 549,851 551,243 2,236,148 Gross profit................ 426,004 198,492 229,146 853,642 Operating income............ 174,425 13,087 122,384 309,896 Net income.................. 78,942 (3,768) 86,136 161,310 On or for the nine months ended September 27, 1998: Current assets.............. $ 510,481 $ - $ 41,441 $ 551,922 Noncurrent assets........... 135,171 - 48,976 184,147 Current liabilities......... 520,649 - (339,553) 181,096 Noncurrent liabilities...... 48,993 - 5,303 54,296 Excess of net assets acquired over cost......... 154 - - 154 Total revenues.............. 1,101,289 - 91,357 1,192,646 Gross profit................ 357,162 - 57,112 414,274 Operating income............ 139,262 - 63,070 202,332 Net income.................. 75,848 - 46,898 122,746
- 11 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The following discussion provides information and analysis of the Company's results of operations for the quarterly and nine month periods ended October 3, 1999 and September 27, 1998, respectively, and its liquidity and capital resources. The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto included elsewhere herein. On October 2, 1998, the Company completed its acquisition of Sun Apparel, Inc. ("Sun") and on June 15, 1999, the Company completed its acquisition of Nine West Group Inc. ("Nine West"). The results of operations of Sun and Nine West are included in the Company's operating results from the respective dates of acquisition. Accordingly, the financial position and results of operations presented and discussed herein are generally not directly comparable between years. With the acquisition of Nine West, the Company has redefined the operating segments it uses for financial reporting purposes. The Company operates in three reportable segments: wholesale apparel, wholesale footwear and accessories, and retail. Historical data has been restated to reflect these changes. Results of Operations Statements of Income Expressed as a Percentage of Total Revenues Quarter ended Nine Months ended ------------------------ ------------------------- October 3, September 27, October 3, September 27, 1999 1998 1999 1998 ---------- ------------- ---------- -------------- Net sales 99.4% 99.1% 99.3% 99.0% Licensing income 0.6% 0.9% 0.7% 1.0% ---------- ------------- ---------- -------------- Total revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 58.3% 64.9% 59.8% 65.3% ---------- ------------- ---------- -------------- Gross profit before purchase accounting adjustments 41.7% 35.1% 40.2% 34.7% Purchase accounting adjustments to cost of goods sold 3.4% - 2.0% - ---------- ------------- ---------- -------------- Gross profit 38.3% 35.1% 38.2% 34.7% Selling, general and administrative expenses 24.4% 15.7% 23.7% 17.8% Amortization of goodwill 0.6% - 0.6% - ---------- ------------- ---------- -------------- Operating income 13.3% 19.4% 13.9% 17.0% Net interest expense 2.2% 0.2% 1.8% 0.2% ---------- ------------- ---------- -------------- Income before provision for income taxes 11.1% 19.2% 12.0% 16.7% Provision for income taxes 4.5% 7.4% 4.8% 6.4% ---------- ------------- ---------- -------------- Net income 6.5% 11.8% 7.2% 10.3% ========== ============= ========== ============== Totals may not agree due to rounding. Quarter Ended October 3, 1999 Compared to Quarter Ended September 27, 1998 Revenues. Total revenues for the 13 weeks ended October 3, 1999 (hereinafter referred to as the "third quarter of 1999") increased 129.2%, or $646.4 million, to $1.1 billion, compared to $500.3 million - 12 - 13 for the 13 weeks ended September 27, 1998 (hereinafter referred to as the "third quarter of 1998"). The revenue growth resulted primarily from the net sales of product lines added as a result of the Sun and Nine West acquisitions ($164.1 million and $460.4 million of the increase, respectively). The breakdown of total revenues for both periods is as follows: Third Third Quarter Quarter Increase/ Percent (in millions) of 1999 of 1998 (Decrease) Change ------------------------------------------------ Wholesale apparel $639.0 $452.3 $186.7 41.3% Wholesale footwear and accessories 224.2 - 224.2 - Retail 276.2 43.4 232.8 536.4% Other 7.3 4.6 2.7 58.7% ------------------------------------------------ Total revenues $1,146.7 $500.3 $646.4 129.2% ================================================ Wholesale apparel revenues increased primarily as a result of the acquisition of Sun, increases in shipments of Lauren by Ralph Lauren products and initial shipments of the Ralph by Ralph Lauren line, partially offset by planned lower shipments of Jones New York collection products. The increases in wholesale footwear and accessories and retail revenues are the result of the acquisition of Nine West. Gross Profit. The gross profit margin increased to 38.3% in the third quarter of 1999 compared to 35.1% in the third quarter of 1998. Wholesale apparel gross profit margins increased to 38.3% in the third quarter of 1999 compared to 33.8% in the third quarter of 1998, resulting from lower overseas production costs, the favorable impact of currency devaluations in Asia, and continued improvement in inventory management. Retail gross profit margins also increased to 48.4% from 38.1%, primarily due to the acquisition of Nine West. Gross profit was negatively impacted during the third quarter of 1999 by a $39.1 million writeoff of adjustments required under purchase accounting to mark up acquired Nine West inventory to market value upon acquisition; without this charge, the gross profit margin for the third quarter of 1999 would have been 41.7%. SG&A Expenses. Selling, general and administrative ("SG&A") expenses of $280.2 million in the third quarter of 1999 represented an increase of $201.9 million over the third quarter of 1998. As a percentage of total revenues, SG&A expenses increased to 24.4% in the third quarter of 1999 from 15.7% for the comparable period in 1998. Sun and Nine West accounted for $37.2 million and $151.4 million, respectively, of the increase, with the remainder primarily due to increased royalty and advertising expenses. Operating Income. The resulting third quarter of 1999 operating income of $152.0 million increased 56.2%, or $54.7 million, over the $97.3 million for the third quarter of 1998. The operating margin decreased to 13.3% in the third quarter of 1999 from 19.4% in the third quarter of 1998, due to the factors discussed above and the amortization of goodwill resulting from the Sun and Nine West acquisitions. - 13 - 14 Net Interest Expense. Net interest expense was $24.8 million in the third quarter of 1999 compared to $1.1 million in the comparable period of 1998, primarily as a result of the debt incurred to finance the Sun and Nine West acquisitions. Provision for Income Taxes. The effective income tax rate was 41.0% for the third quarter of 1999 compared to 38.5% for the third quarter of 1998. The increase was primarily due to the nondeductibility of goodwill amortization in the third quarter of 1999. Net Income. Net income increased 27.0% to $75.0 million in the third quarter of 1999, an increase of $15.9 million over the net income of $59.1 million earned in the third quarter of 1998. Net income as a percentage of total revenues was 6.5% in the third quarter of 1999 and 11.8% in the third quarter of 1998. Excluding the amortization of goodwill resulting from the Sun and Nine West acquisitions, net income for the third quarter of 1999 would have been $82.2 million ($0.65 per diluted share). Nine Months Ended October 3, 1999 Compared to Nine Months Ended September 27, 1998 Revenues. Total revenues for the 39 weeks ended October 3, 1999 (hereinafter referred to as the "first nine months of 1999") increased 87.5%, or $1.0 billion, to $2.2 billion, compared to $1.2 billion for the 39 weeks ended September 27, 1998 (hereinafter referred to as the "first nine months of 1998). The revenue growth resulted primarily from the net sales of product lines added as a result of the Sun and Nine West acquisitions ($441.4 million and $546.0 million of the increase, respectively). The breakdown of total revenues for both periods is as follows: First First Nine Months Nine Months Increase/ Percent (in millions) of 1999 of 1998 (Decrease) Change ------------------------------------------------ Wholesale apparel $1,557.2 $1,064.0 $ 493.2 46.4% Wholesale footwear and accessories 277.9 - 277.9 - Retail 385.0 117.2 267.8 228.5% Other 16.0 11.4 4.6 40.4% ------------------------------------------------ Total revenues $2,236.1 $1,192.6 $1,043.5 87.5% ================================================ Wholesale apparel revenues increased primarily as a result of the acquisition of Sun and increased shipments of Jones New York Sport and Lauren by Ralph Lauren products and the initial shipments of the Ralph by Ralph Lauren line, partially offset by planned lower shipments of Jones New York collection products and the repositioning of the Evan-Picone line from better to moderate. The increases in wholesale footwear and accessories and retail are the result of the acquisition of Nine West. Gross Profit. The gross profit margin increased to 38.2% in the first nine months of 1999 compared to 34.7% in the first nine months of 1998. Wholesale apparel gross profit margins increased to 37.5% in the first nine months of 1999 compared to 32.7% in the first nine months of 1998, resulting from the increase in sales of Lauren by Ralph Lauren products and the addition of the Polo Jeans label (both of which carry higher margins than the corporate average), lower overseas production costs, the favorable impact of currency devaluations in Asia, and continued improvement in inventory management. Retail gross profit margins also increased to 49.3% from 46.5%, primarily due to the acquisition of Nine West. - 14 - 15 Gross profit was negatively impacted during the first nine months of 1999 by a $45.6 million writeoff of adjustments required under purchase accounting to mark up acquired Nine West inventory to market value upon acquisition; without this charge, the gross profit margin for the first nine months of 1999 would have been 40.2%. SG&A Expenses. SG&A expenses of $530.1 million in the first nine months of 1999 represented an increase of $318.2 million over the first nine months of 1998. As a percentage of total revenues, SG&A expenses increased to 23.7% in the first nine months of 1999 from 17.8% for the comparable period in 1998. Sun and Nine West accounted for $100.5 million and $179.7 million, respectively, of the increase with the remainder primarily due to increased royalty and advertising expenses. Operating Income. The resulting first nine months of 1999 operating income of $309.9 million increased 53.2%, or $107.6 million, over the $202.3 million achieved during the first nine months of 1998. The operating margin decreased to 13.9% in the first nine months of 1999 from 17.0% in the first nine months of 1998, due to the factors discussed above and the amortization of goodwill resulting from the Sun and Nine West acquisitions. Net Interest Expense. Net interest expense was $41.3 million in the first nine months of 1999 compared to $2.7 million in the comparable period of 1998, primarily as a result of the debt incurred to finance the Sun and Nine West acquisitions. Provision for Income Taxes. The effective income tax rate was 40.0% for the first nine months of 1999 compared to 38.5% for the first nine months of 1998. The increase was primarily due to the nondeductibility of goodwill amortization in the first nine months of 1999. Net Income. Net income increased 31.4% to $161.3 million in the first nine months of 1999, an increase of $38.6 million over the net income of $122.7 million earned in the first nine months of 1998. Net income as a percentage of total revenues was 7.2% in the first nine months of 1999 and 10.3% in the first nine months of 1998. Excluding the amortization of goodwill resulting from the Sun and Nine West acquisitions, net income for the first nine months of 1999 would have been $175.0 million ($1.52 per diluted share). Liquidity and Capital Resources The Company's principal capital requirements have been to fund acquisitions, working capital needs, capital expenditures and repurchases of the Company's common stock on the open market. The Company has historically relied primarily on internally generated funds, trade credit, bank borrowings and the issuance of notes to finance its operations and expansion. As of October 3, 1999, total cash and cash equivalents were $36.5 million, an increase of $21.5 million over the $15.0 million reported as of September 27, 1998 and a decrease of $92.5 million from the $129.0 million reported as of December 31, 1998. Net cash provided by operations was $57.5 million in the first nine months of 1999, primarily due to $208.2 million of earnings before depreciation and amortization, decreases in inventories and prepaid expenses and other current assets and a higher level of accounts payable, offset by increases in accounts receivable. Net cash provided by operations was $25.3 million in the first nine months of 1998, primarily due to $134.0 million of earnings before depreciation and amortization, an increase in taxes payable and a decrease in inventories, offset primarily by an increase in accounts receivable. - 15 - 16 Net cash used in investing activities increased $470.0 million in the first nine months of 1999 over the first nine months of 1998, due primarily to the acquisition of Nine West, costs relating to acquiring certain trademarks, and additional consideration related to the acquisition of Sun (discussed below). Capital expenditures were $19.4 million in the first nine months of 1999 compared to $37.5 million in the first nine months of 1998. Financing activities provided $346.7 million of cash in the first nine months of 1999, primarily from the issuance of $400.0 million of senior notes as well as a $305.7 million increase in bank borrowings and $11.5 million in proceeds from employees exercising stock options, offset by $356.9 million in payments related to the repurchase of a portion of Nine West's outstanding notes. In connection with the Nine West acquisition, the Company sold $175.0 million of 7.50% Senior Notes due 2004 and $225.0 million of 7.875% Senior Notes due 2006. In addition to financing the cash portion of the acquisition, the proceeds of these notes and the increase in bank borrowings were also used to repurchase substantially all of Nine West's $94.0 million of 9% Series B Senior Subordinated Notes due 2007 (the "Nine West Subordinated Notes") and $186.1 million of Nine West's 5.5% Convertible Subordinated Notes due 2003 (the "Nine West Convertible Notes"), as well as $64.9 million of Nine West's 8.375% Senior Notes due 2005 (the "Nine West Senior Notes"). During the first nine months of 1998, financing activities provided $32.0 million of cash, primarily the result of increased bank borrowings of $45.1 million, most of which was used to repurchase $30.6 million of the Company's common stock on the open market. As of October 3, 1999, a total of $232.9 million had been expended under previously announced programs to acquire up to $300.0 million of such shares. The Company may authorize additional share repurchases in the future depending on, among other things, market conditions and the Company's financial condition. As part of the acquisition of Nine West, the Company has assumed all obligations under the Nine West Convertible Notes and the Nine West Senior Notes. At October 3, 1999, $0.1 million of the Nine West Subordinated Notes, $0.5 million of the Nine West Convertible Notes, $131.6 million of the Nine West Senior notes, $175.0 million of the 7.50% Senior Notes due 2004, $225.0 million of the 7.875% Senior Notes due 2006 and $265.0 million of the 6.25% Senior Notes due 2001 were outstanding. All the Company's notes pay interest semiannually and contain certain covenants, including, among others, restrictions on liens, sale-leaseback transactions, and additional secured debt. The terms of the acquisition agreement for Sun require the Company to pay the former Sun shareholders additional consideration of $2.00 for each $1.00 of Sun's earnings before interest and taxes (as defined in the merger agreement) for each of the years 1998 through 2001 that exceeds certain targeted levels. This additional consideration is to be paid 59% in cash and 41% in the Company's common stock, the value of which will be determined by the prices at which the common stock trades in a defined period preceding delivery in each year. During the first nine months of 1999, the Company paid $20.1 million in cash and issued 586,550 shares of common stock (valued at $14.3 million) of additional consideration for the Sun acquisition. In connection with the Nine West acquisition, the Company entered into new and amended agreements with First Union National Bank, as administrative agent, and other lending institutions to borrow an aggregate principal amount of up to $1.2 billion under Senior Credit Facilities. These facilities, of which the entire amount is available for letters of credit or cash borrowings, provide for a $500.0 million 364-day Revolving Credit Facility and a $700.0 million Five-Year Revolving Credit Facility. At October 3, 1999, $190.6 million was outstanding under the 364-Day Revolving Credit Facility (comprised of $174.6 in outstanding letters of credit and $16.0 million in cash borrowings) and $402.0 million in cash borrowings was outstanding under the Company's Five-Year Revolving Credit Facility. Borrowings under the Senior Credit Facilities may also be used for working capital and other - 16 - 17 general corporate purposes, including permitted acquisitions and stock repurchases. The Senior Credit Facilities are unsecured and require the Company to satisfy both a coverage ratio of earnings before interest, taxes, depreciation, amortization and rent to interest expense plus rents and a net worth maintenance covenant, as well as other restrictions, including (subject to exceptions) limitations on the Company's ability to incur additional indebtedness, prepay subordinated indebtedness, make acquisitions, enter into mergers, and pay dividends. Nine West has a five-year Receivables Facility (created in 1995 and amended in 1998) which permits Nine West to obtain up to $132.0 million of funding based on the sale, without recourse, of eligible Nine West accounts receivable. As of October 3, 1999, Nine West had sold $204.0 million of outstanding trade accounts receivable into the Receivables Facility and had received proceeds of $92.0 million. The Company also has various unsecured foreign lines of credit in Europe, Australia and Canada, under which $7.5 million was outstanding at October 3, 1999. The Company believes that funds generated by operations, proceeds from issuance of the various notes discussed above, the Senior Credit Facilities and the foreign lines of credit will provide the financial resources sufficient to meet its foreseeable working capital, letter of credit, capital expenditure and stock repurchase requirements and any ongoing obligations to the former Sun shareholders. Year 2000 The Company uses various types of technology in the operations of its business. Some of this technology incorporates date identification functions; however, many of these date identification functions were developed to use only two digits to identify a year. These date identification functions, if not corrected, could cause their related technologies to fail or create erroneous results on or after January 1, 2000. The Company has assessed, with both internal and external resources, the impact of Year 2000 issues on its information and non-information technology systems. As part of this process, the Company retained the services of an independent consultant that specializes in Year 2000 evaluation and remediation work. In addition, the Company has developed a plan with respect to the Year 2000 readiness of its internal technology systems. This plan involves (i) creating awareness inside the Company of Year 2000 issues, (ii) analyzing the Company's Year 2000 state of readiness, (iii) testing, correcting and updating systems and computer software as needed, and (iv) incorporating the corrected or updated systems and software into the Company's business. The Company has been and continues to be in contact with selected key vendors, suppliers and customers regarding various critical systems. The Company has mailed questionnaires to identified significant third parties to determine the extent to which the Company is vulnerable to the failure of these third parties to become Year 2000 compliant. None of the responses received have disclosed Year 2000 issues which would have an adverse affect on the Company. However, third parties are under no contractual obligation to provide Year 2000 compliance information to the Company, and any failure of such third parties to become Year 2000 compliant involves risks and uncertainties. The Company has completed the correcting and updating of its critical systems to ensure Year 2000 compliance and has substantially completed any necessary remediation of its non-critical systems. However, there can be no assurances that any systems and products of other companies on which the Company relies found not to be Year 2000 compliant will not have an adverse effect on the Company's business, operations or financial condition. - 17 - 18 In a continuing effort to become more productive and competitive, the Company replaces portions of its software and hardware when warranted by significant business and/or technology changes. While these replacements are not specifically intended to resolve the Year 2000 issue, the new software and hardware is designed to function properly with respect to dates related to the Year 2000 and beyond. As of October 3, 1999, the Company had incurred approximately $1.0 million in direct external costs related to the Year 2000 issue. The Company does not separately track the internal costs incurred for the Year 2000 plan as such costs are principally the related payroll costs for the management information systems service group. The Company believes that additional costs related to the Year 2000 issue will not be material to its business, operations or financial condition. However, estimates of Year 2000 related costs are based on numerous assumptions; there is no certainty that estimates will be achieved and actual costs could be materially greater than anticipated. The Company anticipates that it will fund its additional Year 2000 costs from current working capital. Based on its assessment and remediation efforts to date, the Company is not aware of any material issues that would prevent it or its significant third party vendors, suppliers and customers from completing efforts necessary to achieve Year 2000 compliance on a timely basis. Accordingly, the Company has not developed a contingency plan. Item 3. Quantitative and Qualitative Disclosures About Market Risk With its acquisition of Nine West, the Company substantially increased both its foreign operations and level of debt. As a result, the market risk inherent in the Company's financial instruments principally represents the potential loss in fair value, earnings or cash flows arising from adverse changes in interest rates or foreign currency exchange rates. The Company manages this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The counterparties are major financial institutions. Company policy allows the use of derivative financial instruments for identifiable market risk exposures, including interest rate and foreign currency fluctuations. The Company does not enter into derivative financial contracts for trading or other speculative purposes. Part II. OTHER INFORMATION Item 1. Legal Proceedings The Company has been named as one of multiple defendants in two lawsuits challenging working conditions for foreign contract workers in garment factories in Saipan (part of the U.S. Commonwealth of the Northern Mariana Islands). One suit was filed in federal court in Los Angeles by several anonymous plaintiffs on behalf of a purported class of garment workers; the second was filed in state court in San Francisco by a labor union and three nonprofit groups. The Company and the other defendants in the federal suit moved to transfer venue to the District of the Northern Mariana Islands. On September 29, 1999, the court ruled that the action should be transferred, but transferred it to the District of Hawaii. On October 22 and 26, two defendants filed petitions in the Ninth Circuit Court of Appeals for a writ of mandamus to compel transfer of this suit to the Marianas, and on November 3 the Company joined in one of those petitions. No action has as yet been taken on those petitions. On September 3, 1999, the California state court held a hearing on the defendant's demurrer to plaintiffs' complaint. The court reserved decision, but permitted the plaintiffs to amend their - 18 - 19 complaint to address apparent shortcomings in the allegations. On September 23, 1999, plaintiffs served their amended complaint, and on October 6, 1999, the Company and the other defendants renewed their demurrer. Plaintiffs' counsel in these two actions have announced additional settlements that bring to nine the number of U.S.-based companies, some of whom have not been previously named as defendants in these actions, who have agreed on a proposed settlement structure for these claims consisting of a cash payment and institution of an independent monitoring program and specified standards for production of garments in Saipan. Such class settlements are subject to approval by the federal court, which plaintiffs have not yet sought. At this early stage, the Company is not in a position to evaluate the likelihood of an unfavorable outcome. The Federal Trade Commission is currently conducting an inquiry with respect to Nine West's resale pricing policies to determine whether Nine West violated the federal antitrust laws by agreeing with others to restrain the prices at which retailers sell footwear and other products marketed by Nine West. In addition, Attorneys General from the States of Florida, New York, Ohio and Texas are conducting similar inquiries. Since January 13, 1999, more than 25 putative class actions have been filed on behalf of purchasers of Nine West's footwear in four separate federal courts. These federal complaints allege that Nine West violated Section 1 of the Sherman Act by engaging in a conspiracy with its retail distributors to fix the minimum prices at which the footwear marketed by Nine West was sold to the public and seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. All of these putative federal class action complaints have been transferred and consolidated into a single action in the United States District Court for the Southern District of New York. On April 9, 1999, Nine West and certain retail distributors named as co-defendants in the action moved to dismiss the complaint. The motion is fully submitted. Discovery in the consolidated action was stayed pending a decision on the motion to dismiss pursuant to an order of the Court issued at a status conference on March 25, 1999. In addition, five putative class actions based on the same alleged conduct have been filed in state courts in New York, the District of Columbia, Wisconsin, California and Minnesota alleging violations of those states' respective antitrust laws. The five state actions likewise seek injunctive relief, unspecified compensatory and treble damages, and attorneys' fees. Nine West has moved to dismiss each of these state actions or, in the alternative, to stay them pending resolution of the consolidated federal action pending in the Southern District of New York. On October 22, 1999, the state court in Westchester County, New York granted Nine West's motion to dismiss. On October 22, 1999, the state court in San Diego, California granted Nine West's demurrer to the amended complaint filed in California, dismissing that action with prejudice. On July 27, 1999, the state court in Hennepin County, Minnesota granted Nine West's motion to stay the action in that state pending a decision on the motion to dismiss filed in federal court in the Southern District in New York, and reserved decision as to Nine West's motion to dismiss until after that time. Nine West's motions in Wisconsin and the District of Columbia remain pending. The Company does not anticipate that the inquiries or lawsuits will result in a material adverse financial effect on the Company. On March 3, 4 and 5, 1999, four purported stockholder class action suits were filed against the Company, Nine West and the members of Nine West's Board of Directors in the Delaware Court of Chancery. These complaints allege, among other things, that the defendants have breached their fiduciary duties to Nine West stockholders by failing to maximize stockholder value in connection with - 19 - 20 entering into the Merger Agreement with the Company. The Company believes that the complaints are without merit and plans to defend vigorously against the complaints. The Company has been named as a defendant in various actions and proceedings, including actions brought by certain employees whose employment has been terminated arising from its ordinary business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse financial effect on the Company. Item 5. Other information Statement Regarding Forward-looking Disclosure This Report includes, and incorporates by reference, "forward-looking statements" within the meaning of the Private Securities Reform Act of 1995. All statements regarding the Company's expected financial position, business and financing plans are forward-looking statements. The words "believes," "expects," "plans," "intends," "anticipates" and similar expressions identify forward-looking statements. Forward-looking statements also include representations of the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of national and regional economic conditions, the overall level of consumer spending, the performance of the Company's products within the prevailing retail environment, customer acceptance of both new designs and newly-introduced product lines, financial difficulties encountered by customers, the effects of vigorous competition in the markets in which the Company operates, the integration of Nine West Group Inc., Sun Apparel, Inc., or other acquired businesses into the Company's existing operations, the termination or non-renewal of the licenses with Polo Ralph Lauren Corporation, the Company's extensive foreign operations and manufacturing, pending litigation and investigations, the failure of customers or suppliers to achieve Year 2000 compliance, changes in the costs of raw materials, labor and advertising, and the Company's ability to secure and protect trademarks and other intellectual property rights. All statements other than statements of historical facts included in this Report, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition," are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed in this Report in conjunction with the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Index to Exhibits. (b) Reports on Form 8-K Not applicable. - 20 - 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JONES APPAREL GROUP, INC. ------------------------- (Registrant) Date: November 12, 1999 By /s/ Sidney Kimmel ------------------------- SIDNEY KIMMEL Chief Executive Officer By /s/ Wesley R. Card ------------------------- WESLEY R. CARD Chief Financial Officer - 21 - 22 INDEX TO EXHIBITS Number Description - ------ ----------- 10.1* Letter Agreement, dated July 22, 1999, among Nine West Group Inc., Nine West Funding Corporation, Corporate Receivables Corporation, the Liquidity Providers named therein, Citicorp North America, Inc. and The Bank of New York, extending the term of the Amended and Restated Series 1995-1 Certificate Purchase Agreement. 10.2* Employment Agreement dated as of June 15, 1999 between the Registrant and Mark J. Schwartz.# 27* Financial Data Schedule (filed only electronically). * Filed herewith. # Management contract or compensatory plan or arrangement. - 22 - EX-10.1 2 Exhibit 10.1. CITICORP NORTH AMERICA, INC. July 22, 1999 CITIBANK, N.A. CORPORATE RECEIVABLES 450 Mamaroneck Avenue CORPORATION Harrison, NY 10528 c/o Citicorp North America, Inc. Attn: Corporate Asset 450 Mamaroneck Avenue Funding Department Attn: Corporate Asset Funding Department CREDIT AGRICOLE INDOSUEZ NINE WEST GROUP INC. 55 E. Monroe St. 1129 Westchester Avenue Suite 4700 White Plains, NY 10604 Chicago, IL 60693 Attn: Chief Executive Officer Attn: Kathleen Martens CREDIT COMMUNAL DE BELGIQUE, NINE WEST FUNDING CORPORATION NEW YORK BRANCH 1129 Westchester Avenue 405 Lexington Ave. White Plains, NY 10604 54th Floor Attn: Chief Executive Officer New York, NY 10074 Attn: Caroline Van Bogaert NORDDEUTSCHE LANDESBANK THE BANK OF NEW YORK GIROZENTRALE, NEW YORK BRANCH 101 Barclay Street 1270 Avenue of the Americas New York, NY 10286 14th Floor Attn: Asset Backed Unit New York, NY 10020 Attn: Josef Haas Re: Nine West Trade Receivables Master Trust, Floating Rate Trade Receivables Backed Certificates, Series 1995-1, Investor Certificate Ladies and Gentlemen: We hereby make reference to the (i) Pooling and Servicing Agreement dated as of December 28, 1995 (the "Pooling and Servicing Agreement"), among Nine West Funding Corporation, as Transferor (the "Transferor"), Nine West Group Inc. ("Nine West"), as Servicer (in its capacity as Servicer, the "Servicer"), and The Bank of New York, as Trustee (the "Trustee"), (ii) the Amended and Restated Series 1995-1 Certificate Purchase Agreement dated as of July 31, 1998 (the "Certificate Purchase Agreement"), among the Transferor, as seller thereunder, Corporate Receivables Corporation, as Purchaser (the "Purchaser"), the financial 2 institutions parties thereto from time to time as Liquidity Providers, Citicorp North America, Inc. as Program Agent (the "Program Agent"), and the Trustee and the Amended and Restated Series 1995-1 Investor Certificate of the Nine West Trade Receivables Master Trust assigned thereunder (the "Certificate") and (iii) the Amended and Restated Series 1995-1 Supplement to Pooling and Servicing Agreement dated as of July 31, 1998 (the "Supplement"), among the Transferor, the Servicer and the Trustee. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Certificate Purchase Agreement, or in the Pooling and Servicing Agreement or the Supplement (as such terms are defined therein). We are writing to you in our capacity as Program Agent. In accordance with the terms of Section 2.08 of the Certificate Purchase Agreement, we hereby request an extension of the Term, for an Extension Term commencing on July 30, 1999 and ending on July 28, 2000. Notwithstanding the prior execution and delivery of this letter agreement, such extension shall not become effective prior to July 30, 1999. By executing a copy of this letter agreement in the appropriate space provided below, and delivering such copy to counsel to the Program Agent, at its address at Sidley & Austin, 1722 Eye Street, N.W., Washington, DC 20006, Attn: Rainier Gonzalez (202/736-8694), you acknowledge, in the case of each Liquidity Provider so executing this letter agreement, to extend your respective Liquidity Provider Commitment for the above-described Extension Term. This letter agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same letter agreement. Very truly yours, CITICORP NORTH AMERICA, INC., as Program Agent under the Certificate Purchase Agreement By /s/ Kathy Simmons ------------------ Name: KATHY SIMMONS Title: VICE PRESIDENT 3 Each of the undersigned hereby agrees to the terms of this attached letter agreement: CITIBANK, N.A. By /s/ Kathy Simmons -------------------- Name: Kathy Simmons Title: Vice President CREDIT AGRICOLE INDOSUEZ By /s/ Katherine L. Abbott ----------------------- Name: Katherine L. Abbott Title: First Vice President By /s/ Laurence F. Grant ----------------------- Name: Laurence F. Grant Title: Senior Relationship Manager CREDIT COMMUNAL DE BELGIQUE, NEW YORK BRANCH By /s/ Caroline Junius /s/ Plyush K. Sahay ----------------------- -------------------- Name: Caroline Junius Plyush K. Sahay Title: Vice President Vice President, Controller NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ Stephen K. Hunter /s/ Josef Haas --------------------- --------------- Name: Stephen K. Hunter Josef Haas Title: SVP VP CORPORATE RECEIVABLES CORPORATION By: Citicorp North America, Inc. as Attorney-in-fact By /s/ Kathy Simmons -------------------- Name: Kathy Simmons Title: Vice President 4 THE BANK OF NEW YORK, not in its individual capacity, but solely as Trustee of the Nine West Trade Receivables Master Trust By: /s/ Kimberly Gilfoil --------------------- Name: Kimberly Gilfoil Title: Assistant Treasurer NINE WEST FUNDING CORPORATION By /s/ Jeffrey K. Howald ----------------------- Name: Jeffrey K. Howald Title: Senior Vice President - Finance NINE WEST GROUP INC. By /s/ Efthimios P. Sotos ----------------------- Name: Efthimios P. Sotos Title: Assistant Treasurer EX-10.2 3 Exhibit 10.2. EMPLOYMENT AGREEMENT AGREEMENT made as of June 15, 1999 (the "Employment Commencement Date") by and between JONES APPAREL GROUP, INC., a Pennsylvania corporation (the "Company"), and MARK J. SCHWARTZ (the "Executive"). W I T N E S S E T H: WHEREAS, the Company wishes to employ the Executive, and the Executive wishes to enter into employment with the Company, on the terms and conditions hereinafter set forth. NOW, THEREFORE, it is agreed as follows: 1. Employment. (a) During the term of this Agreement, Company shall employ the Executive (i) during the "Transition Period" (as herein defined) as Chairman and Chief Executive Officer of Nine West Group Inc. ("NWG"), the Company's wholly-owned subsidiary, and (ii) thereafter with such responsibilities as the Company and the Executive shall mutually agree, each acting in his sole discretion. The Executive shall report directly to the Chief Executive Officer of the Company. During the Transition Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote all of Executive's business time and attention to the business affairs of the Company, and to perform such responsibilities in a professional manner. Notwithstanding the foregoing, during the term of this Agreement, it shall not be a violation of this Agreement for the Executive to (w) serve on civic or charitable boards or committees, or corporate boards (subject to Section 9 hereof); (x) deliver lectures, fulfill speaking engagements or teach at educational institutions; (y) oversee the affairs of Palladin Capital Group, Inc. ("Palladin") (subject to Section 9 hereof); and (z) attend to personal business, so long as such activities do not interfere with the performance of the Executive's responsibilities hereunder. (b) It is the intention of the parties that Executive's primary objectives immediately following the Employment Commencement Date shall be the management of NWG, the initiation of certain rationalization and cost-reduction programs and the assessment and, as appropriate, the retention and realignment or reassignment, of the senior executive staff of NWG. The "Transition Period" shall commence with the Employment Commencement Date and shall end with the completion of those objectives, as determined by the Chief Executive Officer of the Company, but shall not exceed the Term, unless the Company and the Executive shall mutually agree. During the Transition Period, Executive shall maintain his primary office at the offices of NWG in White Plains, New York. 2. Term. The term of this Agreement (the "Term") shall be for the period commencing on 2 June 15, 1999 and ending on June 14, 2001 (the "Expiration Date"). 3. Salary, Fringe Benefits and Allowances. (a) Throughout the Term, the Executive shall receive a salary at the annual rate of not less than $850,000. The Executive's salary shall be payable at such regular times and intervals as the Company customarily pays its executive employees from time to time, but no less frequently than once a month. (b) During the Term, the Executive shall be eligible to participate in all savings and retirement plans, practices, policies and programs in effect at the end of the Transition Period, to the extent applicable generally to other senior executive employees of the Company. (c) During the Term, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare, fringe and other benefit plans, practices, policies and programs in effect at the end of the Transition Period, provided by the Company (including, without limitation, medical, prescription drug, dental, disability, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior executives of the Company. (d) The Executive shall be entitled to an aggregate of four (4) weeks paid vacation during each calendar year of the Term. The Executive shall also be entitled to the benefits of the Company's policies relating to sick leave and holidays. (e) The Executive shall have all expenses reasonably incurred by Executive on behalf of the Company reimbursed by the Company in accordance with the Company's standard policy and practice. For air travel on Company business, the Executive shall be entitled to first class travel. (f) During the Transition Period, the Company shall make available to the Executive all perquisites that are made available to senior executives of the Company. 4. Bonus. Within 90 days following the end of (a) each calendar year during the Term and (b) the Termination Date, Executive shall receive an annual bonus equal to the Target Bonus (as defined herein) for the applicable period. 5. Stock Options. (a) Subject to the absolute authority of the Stock Option Committee of the Board of Directors of the Company from time to time to grant (or not to grant) to eligible individuals options to purchase common stock ("Common Stock") of the Company ("Options"), it is the intention of the Company and the expectation of the Executive that the Executive will receive a one-time grant of Options to purchase 467,000 shares of Common Stock, on the following terms and conditions: 2 3 (i) the exercise price per share of the Options shall be the fair market value of the common stock on the date of grant; (ii) the Options shall vest ratably on the first two anniversaries of the date of grant, or at the end of the Transition Period, whichever first occurs; and (iii) the Options shall expire on the tenth anniversary of the date of grant, without regard to the termination of the employment of the Executive for any reason. (b) The Options shall be granted on such other terms and conditions as are generally made applicable to Options granted to the other senior executives of the Company. (c) If any term or condition of the agreement evidencing the grant of options is inconsistent herewith, the terms of this Section 5 shall be controlling and binding on the Company and the Executive. 6. Termination of Employment. (a) By the Company for Cause, or by the Executive without Good Reason. The Company may terminate the Executive's employment for Cause (as defined herein) before the Expiration Date. If the Executive's employment is terminated for Cause, or if Executive resigns during the Term without Good Reason (as defined below), the Company shall pay to the Executive any unpaid salary through the date of termination, as well as reimburse the Executive for any unpaid reimbursable expenses incurred on behalf of the Company, and thereafter the Company shall have no additional obligations to the Executive under this Agreement. (b) By the Company without Cause, or by the Executive following the Transition Period or for Good Reason; Death or Disability. The Company may terminate the Executive's employment before the Expiration Date without Cause, and the Executive may terminate Executive's employment before the Expiration Date either by reason of the Transition Period's having ended or for Good Reason, upon 30-days written notice to the other party. If the Executive's employment is so terminated by the Company without Cause, or by the Executive either by reason of the Transition Period's having ended or for Good Reason, as the case may be, or if the Executive's employment terminates before the Expiration Date because of Executive's death or Disability (as defined herein), the Company shall pay and provide to the Executive or the Executive's duly appointed personal representative, as the case may be, (i) any unpaid salary through the date of termination, as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) the Target Bonus for the fiscal year in which termination occurs, prorated for the portion of such year preceding termination, (iii) during each month of the Severance Period (as defined below), an amount equal to the sum of (x) Executive's monthly salary at the rate in effect immediately preceding termination and (y) one-twelfth of the Executive's Target Bonus for the year in which termination occurs (the aggregate of such monthly payments in clauses "(x)" and "(y)" being herein referred to as the "Severance Period Compensation"), (iv) throughout the Severance Period, continuation of Executive's participation 3 4 (including the Company's contributions thereto) in all benefit plans and practices which were in effect at the end of the Transition Period and which, at the end of the Transition Period, Executive either was participating or in which Executive was eligible to participate, provided however, that in the latter case, Executive indicates his intention to participate in writing within 30 days following termination, and (v) other than with respect to termination by reason of death or Disability, reimbursement to the Executive for up to $10,000 of executive outplacement services. Except as set forth in this Subsection 6(b), the Company shall not have any additional obligations to the Executive under this Agreement in the event of Executive's termination of employment under this Subsection 6(b). (c) Change of Control. If, following a "Change of Control" (as defined herein) and prior to the Expiration Date, the Company terminates the Executive's employment without Cause, or the Executive terminates employment hereunder for Good Reason, the Company shall pay to the Executive, within 20 days following termination, (i) any unpaid salary through the date of termination, as well as reimbursement of any unpaid reimbursable expenses incurred on behalf of the Company, (ii) the Target Bonus for the fiscal year in which termination occurs, prorated for the portion of such year preceding termination, (iii) a lump-sum payment equal to the product of (x) the sum of (q) Executive's yearly salary at the rate in effect immediately preceding termination and (r) Executive's Target Bonus for the year in which termination occurs, multiplied by (y) a fraction, the numerator of which is the number of whole months remaining in the Term and the denominator of which is 36, (iv) a lump-sum equal to the Company's cost for health insurance, life insurance and retirement benefits for the Severance Period, and (v) reimbursement to the Executive for up to $10,000 of executive outplacement services. (d) Buyout/Payout Following the Transition Anniversary Date. (i) Upon 30- days written notice from either party to the other party, effective on such date, which (other than as provided in Section 6(d)(ii) hereof) shall be no earlier than the Transition Anniversary Date, as provided in such notice (the "Acceleration Date"), (i) the Company may either terminate the Executive's employment and make the Acceleration Payment (as herein defined) to the Executive on the Acceleration Date, or, ir Executive's employment has previously been terminated and Executive then is receiving Severance Period Compensation, make the Acceleration Payment to the Executive on the Acceleration Date, and (ii) the Executive may either terminate Executive's employment and receive from the Company the Acceleration Payment on the Acceleration Date, or, if Executive's employment has previously been terminated and Executive then is receiving Severance Period Compensation, receive from the Company the Acceleration Payment on the Acceleration Date, in all such events on the following terms and conditions: (x) The Acceleration Payment shall be equal to the present value of the Severance Period Compensation on the Acceleration Date, discounted at an annual rate of 7.5%; and (y) from and after the Acceleration Date, the non-competition 4 5 restrictions of Section 9(a)(i) hereof shall terminate. (ii) If, prior to the Transition Anniversary Date, the Executive gives the required notice to the Company that he is terminating his employment solely by reason of the Transition Period's having ended, the Company, upon 10-days written notice to the Executive, may elect to make the Acceleration Payment to the Executive on the employment termination date set forth in Executive's notice to the Company. If the Company makes such election, the terms and conditions of Section 6(d)(i) shall apply and the payment date of the Acceleration Payment shall become the Acceleration Date. (e) As used herein: (i) the term "Cause" shall mean (v) the Executive's commission of an act of fraud or dishonesty or a crime involving money or other property of the Company; (w) the Executive's conviction of a felony or a plea of guilty or nolo contendere to an indictment for a felony; (x) if, in carrying out Executive's duties hereunder, the Executive engages in conduct which constitutes willful misconduct or gross negligence; (y) the Executive's failure to carry out a lawful order of the Board of Directors of the Company or its Chief Executive Officer; or (z) a material breach by the Executive of this Agreement. Any act or failure to act on the part of the Executive which is based upon authority given pursuant to a resolution duly adopted by the Board of Directors of the Company or authorized in writing by the Chief Executive Officer of the Company, or based upon the advice of counsel for the Company, shall not constitute Cause as used herein. For purposes of this provision only, a breach shall be "material" if it is demonstrably injurious to the Company, its affiliates or any of its respective business units, financially or otherwise. Cause shall not exist unless and until the Company (i) has delivered to the Executive a written Notice of Termination that specifically identifies the events, actions, or non-actions, as applicable, that the Company believes constitute Cause hereunder, and, in the case of termination for Cause under clauses (x), (y) or (z) above, the Executive has been provided with an opportunity to cure the offending conduct (if curable) within 30 days after delivery of the written Notice of Termination, and has not so cured such conduct (if curable), and (ii) the Executive has been provided an opportunity to be heard (with counsel) within 30 days after delivery of the notice of Termination; provided, however, that in the case of termination for Cause under clauses (x), (y), and (z) above, the date of termination shall be no earlier than 35 days after delivery of the Notice of Termination. (ii) the term "Good Reason" shall mean any one of the following: (1) a material breach of the Company's obligations under this Agreement, which breach has not been cured within 20 business days after the Company's receipt of written notice from the Executive of such breach; (2) a reduction in the Executive's then annual base salary; 5 6 (3) the relocation by the Company of the Executive's office to a location (other than White Plains, New York) more than 30 miles from the Company's offices at 1411 Broadway, New York, New York; (4) the failure to pay the Executive any undisputed portion of the Executive's compensation within 15 business days after the date of receipt of written notice that such compensation or payment is due; (5) the failure to continue in effect any compensation or benefit plan in which the Executive is participating or in which Executive is eligible to participate, in each case as of the end of the Transition Period, unless either (i) an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan; or (ii) the failure to continue the Executive's participation therein (or in such substitute or alternative plan) does not discriminate against the Executive, both with respect to the amount of benefits provided and the level of the Executive's participation, relative to other similarly situated participants; or (6) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted in this Agreement. (iii) the terms "Disabled" or "Disability" shall mean the Executive's physical or mental incapacity which renders the Executive incapable, even with a reasonable accommodation by the Company, of performing the essential functions of the duties required of Executive by this Agreement for 120 or more consecutive days. (iv) the term "Severance Period" shall mean the period commencing with the event giving rise thereto (e.g. termination of the Executive's employment by the Company) and ending with the Expiration Date. (v) the term "Target Bonus" shall mean 75% of Executive's annual salary for any given year during the Term. (vi) the term "Transition Anniversary Date" shall mean the first anniversary of the date on which the Transition Period ends. (vii) A "Change of Control" shall be deemed to have occurred if, following the date of this Agreement: (i) an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the combined voting power of the Company's outstanding securities 6 7 ordinarily having the right to vote at elections of directors; or (ii) individuals who constitute the Company's Board of Directors on the date hereof cease for any reason to constitute at least a majority thereof, other than as a result of the death, resignation or removal of such individuals (and the appointment of alternates to fill the vacancies thus created); or (iii)the Company consummates a plan or agreement providing (a) for a merger or consolidation of the Company other than with a wholly- owned subsidiary, and other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (b) for a sale, lease exchange and/or other disposition of all or substantially all of the assets of the Company. (d) The Executive shall have no obligation to seek other employment or otherwise mitigate the Company's obligations to make payments under this Section 6, and the Company's obligations shall not be reduced by the amount, if any, of other compensation or income earned or received by the Executive after the effective date of Executive's termination. 7. Company Property. Any trade name or mark, program, discovery, process, design, invention or improvement which the Executive makes or develops, which relates, directly or indirectly, to the business of the Company or its affiliates, or Executive's employment by the Company, shall be considered as "made for hire" and shall belong to the Company and shall be promptly disclosed to the Company. During the Executive's employment and thereafter, the Executive shall, without additional compensation, execute and deliver to or as requested by the Company, any instruments of transfer and take such other action as the Company may reasonably request to carry out the provisions hereof, including filing, at the Company's sole expense, trademark, patent or copyright applications for any trade name or mark, invention or writing covered hereby and assigning such applications to the Company. 8. Confidential Information. The Executive shall not, either during the term of Executive's employment by the Company or thereafter, disclose to anyone or use (except, in each case, in the performance of Executive's responsi- bilities hereunder and in the regular course of the Company's business), any information acquired by the Executive in connection with or during the period of Executive's employment by the Company, with respect to any confidential, proprietary or secret aspect of the affairs of the Company or any of its affiliates, including but not limited to the requirements and terms of dealings with existing or potential licensors, licensees, designers, suppliers and customers and methods of doing business, all of which the Executive 7 8 acknowledges are confidential and proprietary to the Company, and any of its affiliates, as the case may be. Confidential information shall not include (a) information already in the public domain, (b) information previously revealed by a third party not in violation of this Agreement or any agreement of confidentiality binding on such party or ( c) information already known by the recipient. Further, Executive shall not be in violation of this Section 8 if he reveals confidential, secret or proprietary information only (y) in response to compulsory process or other legal compulsion, or (3) in a proceeding authorized herein, in either which event he shall first, to the extent practicable, given prior written notice to the Company. 9. Competition; Recruitment; Non-Disparagement. (a) Except to the extent provided for in clause (d) hereof, the Executive shall not, at any time during Executive's employment by the Company and during the following periods (the "Non-Compete Period") and under the following circumstances, engage or hold an economic interest (as an owner, stockholder, partner, officer, or employee) in any business which then competes, directly or indirectly, with the business conducted by the Company or any of its subsidiaries or affiliates at the time of Executive's termination of employment: (i) during the Severance Period (provided that the Company is making the payments to Executive required hereby during such Severance Period); and (ii) if the Company shall have given Executive written notice thereof prior to termination of employment by the Company with Cause, or within 10 days thereafter in the event of termination by the Executive without Good Reason, during a period equal to the Severance Period, provided that the Company shall pay to the Executive during such period monthly payments equal to the sum of (x) Executive's monthly salary at the rate in effect immediately preceding termination and (y) one-twelfth of the Executive's Target Bonus for the year in which termination occurs. (b) The Executive shall not, at any time during Executive's employment by the Company and thereafter during the period ending one year immediately following the Transition Anniversary Date, recruit, solicit for employment, hire or engage, or assist any person or entity in recruiting, soliciting for employment, hiring or engaging, any employee of the Company, any of its subsidiaries or affiliates or any person who was an employee of the Company, any of its subsidiaries or affiliates within one year before the termination of the Executive's employment; provided that the foregoing restrictions shall in no event apply to any person who was an employee of Palladin immediately prior to June 15, 1999. (c) For the longer of any period applicable under this Section 9 or a period of three years immediately following the date of termination, (i) the Company, and its respective affiliates and employees shall not disparage the Executive, and (ii) the Executive shall not disparage the Company, or its respective affiliates and employees. (d) The Executive acknowledges that these provisions are necessary for 8 9 the protection of the Company, and its subsidiaries and affiliates and are not unreasonable, because the Executive would be able to recruit and hire personnel other than employees of the Company, and any of their subsidiaries and affiliates. The Executive further agrees that a breach of Section 7, 8 or 9 of this Agreement that causes material damage to the Company shall result in the immediate cessation of any payments pursuant to this Section 9 and Section 6 hereof, if applicable. The duration and the scope of these restrictions on the Executive's activities are divisible, so that if any provision of this Section 9 is held or deemed to be invalid, that provision shall be automatically modified to the extent necessary to make it valid. The ownership of less than 5% of the stock or other form of equity of a publicly owned company which competes with the Company, any of its subsidiaries or affiliates, in and of itself, shall not be considered a violation of the provisions of this Section 9. Neither Executive's employment (following termination of Executive's employment with the Company) with nor holding an economic investment in any consulting, investment banking, investment fund or similar independent person or entity shall constitute competition prohibited hereby even if such person or entity holds equity or debt interests in, or renders advisory services to, a competitor, so long as Executive does not himself actively engage (directly or indirectly) in rendering such services to such competitor. 10. Notices. Any notice or other communication to the Company or to the Executive under this Agreement shall be in writing and shall be considered given when personally delivered, sent by prepaid courier or mailed by certified mail, return receipt requested, to such party at Executive's address below, or to the Company at 1411 Broadway, New York, New York 10018, Attention: General Counsel (or at such other address as such party may specify by written notice to the other party). 11. Successors; Binding Agreement. (a) Company's Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company, except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the business or assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the business or assets of the Company and such assignee or transferee assumes all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company will require any such successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid, which executes and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all the terms and provisions of this Agreement or by operation of law. (b) Executive's Successors. This Agreement shall not be assignable by the Executive. This Agreement and all rights of the Executive hereunder shall inure to the benefit of 9 10 and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees,devisees and legatees. Upon the Executive's death, all amounts to which Executive is entitled hereunder, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 12. Indemnification. The Company shall indemnify Executive and hold the Executive harmless, to the maximum extent permitted by applicable law, from and against all claims, actions, suits, proceedings, loss, damage, liability, costs, charges and expenses, including reasonable attorneys' and other professional's fees and costs arising in connection with the Executive's performance of Executive's duties hereunder or Executive's status as an employee, officer, director or agent of the Company or its affiliates, in accordance with the Company's indemnity policies for its senior executives in effect as of the Employment Commencement Date, or if more favorable to the Executive, as subsequently amended. 13. Interest on Late Payments. "Undisputed Late Obligations" shall bear interest beginning on the Due Date until paid in full at an annual rate of one percent (1.0%) plus the prime rate as declared from time to time by First Union National Bank. For purposes hereof, "Undisputed Late Obligations" shall mean any obligation which remains unpaid 5 days after written notice thereof is delivered to the other party in accordance with Section 10 (the "Due Date") for money under this Agreement owing from one party to another, which obligation (i) is not subject to any bona fide dispute or (ii) has been adjudicated by an arbitration panel or court of competent jurisdiction to be due and payable. 14. Arbitration. (a) In the event of any dispute, controversy or claim between the parties hereto arising out of or relating to this Agreement, including any dispute as to the construction, validity, enforceability or breach of this Agreement or the arbitrability of any issue arising hereunder (each a "dispute"), representatives of the parties shall meet at a place mutually agreed upon by such parties as soon as reasonably possible (but not later than ten (10) days after notice from any party hereto to the other that the party giving notice has such a dispute) and shall enter into good faith negotiations aimed at resolving the dispute. If they are unable to resolve the dispute in a mutually satisfactory manner within ten (10) days from the date of such meeting, they shall proceed as set forth below. (b) First, the parties shall endeavor to: (i) choose a mutually acceptable alternative dispute resolution ("ADR") mechanism, including without limitation choosing one or more third party arbitrators; and (ii) set forth the general framework for the ADR process. If the parties are unable to agree to a mutually acceptable ADR mechanism within ten (10) days from the date of the initial proposal from any party with respect thereto, the parties shall enter into binding arbitration as set forth below. (c) All disputes among the parties arising out of or relating to this Agreement that 10 11 are not resolved by good faith negotiations between the parties or by an ADR mechanism as set forth above shall be resolved solely by binding arbitration pursuant to the United States Arbitration Act, 9 U.S.C. Section 1 et seq. Either party may commence arbitration proceedings at any time after the fifth day after delivery of notice from one party to the other of the inability of the parties to agree upon a mutually acceptable ADR mechanism as set forth above. (d) Any arbitration shall be conducted in the New York City metropolitan area (or such other area mutually agreeable to all parties) before a single arbitrator mutually selected by the parties thereto or, in the event the parties shall fail to agree, by a three-person panel selected and acting pursuant to the Commercial Arbitration Rules and, if applicable at such time, the Streamlined Arbitration Rules and Procedures then in effect of the AAA. Any three person arbitration panel shall consist of one arbitrator selected by each disputing party within ten (10) days of the initiation of binding arbitration, as provided herein, and one arbitrator (who shall become the presiding arbitrator) selected by the first two arbitrators within ten (10) days of the latter of the first two arbitrators' acceptances to act as arbitrators. In the event that any disputing party shall fail to appoint timely an arbitrator, or in the event that the first two arbitrators fail to reach agreement within 10 days as to the presiding arbitrator, any disputing party may request the AAA to appoint such arbitrator. Before submitting a list of potential arbitrators to the parties for their consideration, the AAA shall consult with each party to discuss the applicable qualifications for the proposed arbitrators. Each arbitrator shall be a currently licensed lawyer in the United States of America with at least ten (10) years experience in commercial practice in the United States. (e) Unless otherwise agreed by the disputing parties prior to the commencement of the arbitration: (i) The parties shall commence arbitration proceedings within thirty (30) days of the selection of the presiding arbitrator. (ii) The presentation of evidence and all discovery shall be controlled by the arbitrator/panel, with a preference to be shown for written discovery over depositions. The arbitrators shall have the right to employ experts to assist them in any arbitration proceeding. (iii)The arbitrator(s) shall be and remain at all times wholly independent and neutral. (iv) If either party so requests, the decision of the arbitrator/panel shall be reduced to writing and shall set forth the arbitrator/panel's findings of fact and conclusions of law. The arbitrator/panel shall afford any such remedy as is within the scope of the Agreement (including equitable relief) or otherwise appropriate under applicable law. (v) The award shall be made on an expedited basis within thirty (30) 11 12 days of a hearing, or if there is not a hearing, within thirty (30) days of the submission of all papers. (vi) The award shall include as part of the arbitrator/panel's determination the responsibility among the parties for payment of the arbitrator/panel/s fees and expenses. (vii)The award shall be final and binding upon the parties, without any further right of appeal absent fraud or intentional malfeasance by the arbitrator/panel, and may be entered for enforcement in any court of competent jurisdiction or an application may be made to any such court for a judicial acceptance of such award and an order of enforcement, as applicable. Any monetary award shall be promptly paid by the losing party to the prevailing party, free of deduction or offset except as provided for in the award, with interest thereon as otherwise provided in this Agreement from the date of any breach or violation of this Agreement (as determined as part of the award) to but not including the date of payment. To the extent allowed by applicable law, any losing party resisting payment of any such award shall also be responsible for reimbursing the prevailing party for any fees and expenses incurred by such prevailing party incident to the enforcement thereof. (f) Each party will participate in any such arbitration in good faith and will (and will direct its representatives, employees and affiliates to, and will request each other participant in any ADR mechanism and each arbitrator to) hold the existence, content and result of any dispute in confidence except to the extent that disclosure of any such information is required by law. (g) The arbitration will proceed in the absence of a disputing party who, after due notice, fails to answer or appear. An award shall not be made solely upon the default of any such party, but the arbitrator/panel shall require each party that is present to submit such evidence as the arbitrator/panel may determine is reasonably necessary to make an award. (h) If an arbitrator, whether sole or part of a panel, should withdraw, die or otherwise become incapable of serving, or should such arbitrator refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator and, subject to the rules applicable to the ADR process or arbitration applicable in such circumstances, the dispute resolution process shall continue. (i) This Article 14 shall be a complete defense to any suit, action or proceeding instituted before any court or agency with respect to any matter resolvable hereunder, provided, however, that, notwithstanding this provision, any party may seek interim judicial relief to preserve the status quo pending arbitration, in aid of ADR or arbitration or to enforce any award hereunder. 12 13 15. Fees and Costs. The Company shall reimburse the Executive (or the Executive shall reimburse the Company) for all reasonable costs, including without limitation reasonable attorneys' and other professional's fees, of the Executive or the Company, as the case may be, in any dispute, arbitration or proceeding arising under this Agreement (collectively, a "Proceeding"), so long as the Executive or the Company, as the case may be, "prevails in substantial part" with respect to Executive's or the Company's claims or defenses in such Proceeding provided, however, that in no event shall the reimbursing party be required to pay to the other party an amount greater than the reimbursing party paid for its/his own legal costs related to the issue in question. For purposes hereof, the Executive shall be deemed to have "prevailed in substantial part" if (i) the Executive is the party originally demanding a Proceeding, and the arbitrator(s) shall have awarded the Executive at least 75% of the amount originally demanded by the Executive, or (ii) the Company is the party originally demanding a Proceeding, and the arbitrator(s) shall have denied the Company the relief originally requested. The Company shall be deemed to have "prevailed in substantial part" if (i) the Executive is the party originally demanding a Proceeding and the arbitrator(s) shall have awarded the Executive less than 25% of the amount originally demanded by the Executive or (ii) the Company is the party originally demanding a Proceeding and the arbitrator(s) shall have granted Company the relief originally requested. 16. Miscellaneous. (a) Given that a breach of the provisions of this Agreement would injure the Company irreparably, the Company may, in addition to its other remedies, obtain an injunction or other comparable relief restraining any violation of this Agreement, and no bond, security or other undertaking shall be required of the Company in connection therewith. (b) The provisions of this Agreement are separable, and if any provision of this Agreement is invalid or unenforceable, the remaining provisions shall continue in full force and effect. (c) This Agreement constitutes the entire understanding and agreement between the parties, supersedes all other existing agreements between them and cannot be amended, unless such amendment is in writing and signed by both parties to this Agreement. (d) This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to any otherwise applicable choice of laws rules), where it has been entered and where it is to be performed. To the extent this Agreement provides for or allows judicial relief, the parties hereto consent to the exclusive jurisdiction of any federal or state court in the State of New York to resolve any dispute arising under this Agreement or otherwise. (e) The headings in this Agreement are solely for convenience of reference and shall not affect its interpretation. 13 14 (f) The failure of either party to insist on strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. For any waiver of a provision of this Agreement to be effective, it must be in writing and signed by the party against whom the waiver is claimed. (g) The obligations of the Executive and the Company hereunder shall survive the termination of the term of this Agreement and the Executive's employment hereunder, to the extent necessary to give full effect to the provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first above written. JONES APPAREL GROUP, INC. By: /s/ Sidney Kimmel -------------------------- Chairman and Chief Executive Officer /s/ Mark J. Schwartz -------------------------- Executive Address: 30 Tisdale Road Scarsdale, NY 10583 14 EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JONES APPAREL GROUP, INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED OCTOBER 3, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 OCT-03-1999 36,491 0 481,253 18,683 702,294 1,361,335 440,088 184,038 2,998,568 892,645 804,886 0 0 1,344 1,210,569 2,998,568 2,220,147 2,236,148 1,382,506 1,382,506 530,050 5,895 43,771 268,612 107,302 161,310 0 0 0 161,310 1.45 1.40
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