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 March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
(Address of principal (Zip Code)
executive offices)
(215) 785-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at May 11, 1998
$.01 par value 50,386,450
<PAGE>
JONES APPAREL GROUP, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
--------
Financial Statements:
Consolidated Balance Sheets
March 29, 1998 and December 31, 1997................ 3
Consolidated Statements of Income
Thirteen Weeks ended March 29, 1998
and March 30, 1997................................ 4
Consolidated Statement of Stockholders' Equity
Thirteen Weeks ended March 29, 1998................. 5
Consolidated Statements of Cash Flows
Thirteen Weeks ended March 29, 1998 and
March 30, 1997.. ................................. 6
Notes to Consolidated Financial Statements.................. 7 - 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9 - 11
PART II. OTHER INFORMATION....................................... 12 - 13
- 2 -
<PAGE>
<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 29, December 31,
1998 1997
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents............................................................. $ 15,365 $ 40,134
Accounts receivable, net of allowance of $2,977 and $2,767 for doubtful accounts...... 192,916 91,747
Inventories........................................................................... 242,705 255,055
Receivable from and advances to contractors........................................... 9,708 7,833
Prepaid and refundable income taxes................................................... - 5,993
Deferred taxes........................................................................ 28,595 26,269
Prepaid expenses and other current assets............................................. 10,569 13,740
------- -------
TOTAL CURRENT ASSETS................................................................ 499,858 440,771
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $39,638 and $44,189.................................. 97,558 81,934
CASH RESTRICTED FOR CAPITAL ADDITIONS................................................... 9,182 11,193
INTANGIBLES, less accumulated amortization of $7,552 and $7,687......................... 30,071 30,604
OTHER ASSETS............................................................................ 17,205 16,265
------- -------
$653,874 $580,767
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings................................................................. $ 36,111 $ -
Current portion of long-term debt and capital lease obligations....................... 4,733 4,199
Accounts payable...................................................................... 81,349 90,429
Income taxes payable.................................................................. 29,341 -
Accrued expenses and other current liabilities........................................ 17,308 15,574
------- -------
TOTAL CURRENT LIABILITIES........................................................... 168,842 110,202
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases...................................................... 29,142 18,457
Long-term debt........................................................................ 8,583 8,833
Other................................................................................. 6,107 6,107
------- -------
TOTAL NONCURRENT LIABILITIES........................................................ 43,832 33,397
------- -------
TOTAL LIABILITIES................................................................... 212,674 143,599
------- -------
EXCESS OF NET ASSETS ACQUIRED OVER COST................................................. 1,075 1,536
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares authorized 1,000; none issued................ - -
Common stock, $.01 par value - shares authorized 100,000;
issued 54,739 and 54,478............................................................. 547 545
Additional paid in capital............................................................ 129,624 122,582
Retained earnings..................................................................... 477,527 438,917
Accumulated other comprehensive income................................................ (1,426) (1,524)
------- -------
606,272 560,520
Less treasury stock, 4,386 and 3,384 shares, at cost.................................. (166,147) (124,888)
------- -------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 440,125 435,632
------- -------
$653,874 $580,767
======= =======
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
</TABLE>
- 3 -
<PAGE>
<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Thirteen weeks ended
---------------------
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................. $380,151 $317,990
Licensing income.......................................... 3,623 3,465
------- -------
Total revenues............................................ 383,774 321,455
Cost of goods sold........................................ 252,561 214,884
------- -------
Gross profit.............................................. 131,213 106,571
Selling, general and administrative expenses.............. 67,193 59,096
------- -------
Operating income.......................................... 64,020 47,475
Net interest expense...................................... 1,239 362
------- -------
Income before provision for income taxes.................. 62,781 47,113
Provision for income taxes................................ 24,171 17,573
------- -------
Net income................................................ $38,610 $29,540
======= =======
Earnings per share
Basic................................................... $0.77 $0.57
Diluted................................................. $0.74 $0.55
Weighted average common shares and
share equivalents outstanding
Basic................................................... 50,366 52,084
Diluted................................................. 52,163 53,995
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
</TABLE>
- 4 -
<PAGE>
<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Accumulated
Total Additional other
stockholders' Common paid-in Retained comprehensive Treasury
equity stock capital earnings income stock
------------- ------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998........................ $435,632 $545 $122,582 $438,917 ($1,524) ($124,888)
Thirteen weeks ended March 29, 1998:
Comprehensive income
Net income.................................... 38,610 - - 38,610 - -
Foreign currency translation adjustments...... 98 - - - 98 -
-------------
Total comprehensive income.................. 38,708
-------------
Amortization of deferred compensation in
connection with executive stock options........ 73 - 73 - - -
Exercise of stock options....................... 4,276 2 4,374 - - (100)
Tax benefit derived from exercise of
stock options................................... 2,595 - 2,595 - - -
Treasury stock acquired......................... (41,159) - - - - (41,159)
------------- ------- ----------- -------- ------------- ----------
Balance, March 29, 1998......................... $440,125 $547 $129,624 $477,527 ($1,426) ($166,147)
============= ======= =========== ======== ============= ==========
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
- 5 -
<PAGE>
<TABLE>
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Thirteen weeks ended
--------------------------
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................................. $38,610 $29,540
------- -------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................................. 3,308 2,827
Provision for losses on accounts receivable............................................... 213 1,556
Deferred taxes............................................................................ (2,912) (2,299)
Other..................................................................................... 179 25
(Increase) decrease in:
Trade receivables....................................................................... (101,336) (75,169)
Inventories............................................................................. 12,399 (6,672)
Prepaid expenses and other current assets............................................... 1,306 (475)
Other assets............................................................................ (338) (35)
Increase (decrease) in:
Accounts payable........................................................................ (9,097) 17,064
Taxes payable........................................................................... 37,912 18,086
Accrued expenses and other current liabilities.......................................... 1,721 1,865
------- -------
Total adjustments..................................................................... (56,645) (43,227)
------- -------
Net cash used in operating activities....................................................... (18,035) (13,687)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................................................... (6,795) (5,611)
Decrease in cash restricted for capital additions......................................... 2,011 -
Other..................................................................................... (122) -
------- -------
Net cash used in investing activities....................................................... (4,906) (5,611)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings......................................................... 36,111 9,217
Repayment of capital leases and long-term debt............................................ (1,085) (766)
Acquisition of treasury stock............................................................. (41,159) (1,277)
Proceeds from exercise of stock options................................................... 4,276 2,537
------- -------
Net cash provided by (used in) financing activities......................................... (1,857) 9,711
------- -------
EFFECT OF EXCHANGE RATES ON CASH............................................................ 29 31
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................................... (24,769) (9,556)
CASH AND CASH EQUIVALENTS, beginning of period.............................................. 40,134 30,085
------- -------
CASH AND CASH EQUIVALENTS, end of period.................................................... $15,365 $20,529
======= =======
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
- 6 -
<PAGE>
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
The financial statements have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") for interim financial information
and in accordance with the requirements of Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements and the
footnotes therein included within the Company's Annual Report on Form 10-K.
In the opinion of management, the information presented reflects all
adjustments necessary for a fair statement of interim results. All such
adjustments are of a normal and recurring nature. The foregoing interim results
are not necessarily indicative of the results of operations for the full year
ending December 31, 1998. The Company reports interim results in 13 week
quarters; however, the annual reporting period is the calendar year.
Certain reclassifications have been made to conform prior period data with the
current presentation.
2. Inventories
Inventories are summarized as follows (amounts in thousands):
March 29, December 31,
1998 1997
-------- -----------
Raw materials..................... $30,743 $27,045
Work in process................... 30,623 41,294
Finished goods.................... 181,339 186,716
-------- --------
$242,705 $255,055
======== ========
- 7 -
<PAGE>
JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Statement of Cash Flows
Cash payments made for interest for the thirteen weeks ended March 29, 1998
and March 30, 1997 were $1,556,000 and $548,000, respectively.
Cash payments made for income taxes for the thirteen weeks ended March 29,
1998 and March 30, 1997 were $1,406,000 and $1,806,000, respectively.
Property and equipment acquired through capital lease financing during the
thirteen weeks ended March 29, 1998 and March 30, 1997 amounted to
$12,054,000 and $81,000, respectively.
Reduction in income tax payments resulting from the exercise of employee stock
options during the thirteen weeks ended March 29, 1998 and March 30, 1997
were $2,595,000 and $1,707,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the thirteen weeks ended March 29, 1998
exchanged 1,931 shares of the Company's Common Stock (valued at $100,000) for
4,166 newly issued shares.
4. New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Results of operations and financial
position will be unaffected by implementation of this new standard.
SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.
SFAS No. 131 is effective for financial statement periods beginning after
December 15, 1997 and requires comparative information for earlier years to
be restated. This statement need not be applied to interim financial statements
in the initial year of application, but comparative information shall be
reported in interim period financial statements in the following year. The
Company is currently reviewing SFAS No. 131 and has of yet been unable to fully
evaluate the impact, if any, it may have on future financial statement
disclosures.
5. Capital Stock
On May 6, 1998, the Company's Board of Directors authorized a
two-for-one stock split of the Company's Common Stock in the form of a 100%
stock dividend for shareholders of record as of June 4, 1998, with stock
certificates to be issued June 25, 1998. In connection with the Common Stock
split, the Board of Directors approved an increase in the number of shares
authorized to 200,000,000.
- 8 -
<PAGE>
JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following discussion provides information and analysis of the Company's
results of operations for the thirteen week periods ended March 29, 1998 and
March 30, 1997, and its liquidity and capital resources. The following
discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere herein.
Results of Operations
Statements of Income Expressed as a Percentage of Total Revenues
Thirteen weeks ended
-------------------------
March 29, March 30,
1998 1997
-------- --------
Net sales 99.1% 98.9%
Licensing income 0.9% 1.1%
-------- --------
Total revenues 100.0% 100.0%
Cost of goods sold 65.8% 66.8%
-------- --------
Gross profit 34.2% 33.2%
Selling, general and
administrative expenses 17.5% 18.4%
-------- --------
Operating income 16.7% 14.8%
Net interest expense 0.3% 0.1%
-------- --------
Income before provision
for income taxes 16.4% 14.7%
Provision for income taxes 6.3% 5.5%
-------- --------
Net income 10.1% 9.2%
======== ========
Totals may not agree due to rounding.
Quarter Ended March 29, 1998 Compared to Quarter Ended March 30, 1997
Net Sales. Net sales in the thirteen weeks ended March 29, 1998 (hereinafter
referred to as the "first quarter of 1998") increased 19.6%, or $62.2
million, to $380.2 million compared to $318.0 million in the thirteen weeks
ended March 30, 1997 (hereinafter referred to as the "first quarter of 1997").
The increase was due primarily to an increase in the number of units shipped,
as well as the impact of a higher average price per unit resulting from the mix
of products shipped. The increase was partially offset by the termination of
the Christian Dior suit license and the repositioning of the Saville label.
The breakdown of net sales by category for both periods is as follows:
- 9 -
<PAGE>
JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
First First
Quarter Quarter Increase/ Percent
(In millions) of 1998 of 1997 (Decrease) Change
------- ------- -------- -------
Career sportswear $171.5 $149.0 $22.5 15.1%
Casual sportswear 84.2 75.0 9.2 12.3%
Lifestyle collection 92.6 55.3 37.3 67.5%
Suits, dress, and other 31.9 38.7 (6.8) (17.6%)
------- ------- -------- -------
Net sales $380.2 $318.0 $62.2 19.6%
======= ======= ======== =======
Licensing Income. Licensing income increased $0.1 million to $3.6 million in
the first quarter of 1998 compared to $3.5 million in the first quarter of
1997. Income from licenses under the Jones New York label increased $0.2
million while income from licenses under the Evan-Picone label decreased $0.1
million.
Gross Profit. The gross profit margin was 34.2% in the first quarter of 1998
compared to 33.2% in the first quarter of 1997. The gross profit improvement
was primarily attributable to the significant increase in sales of the Lifestyle
collection, which carries higher margins than the corporate average.
SG&A Expenses. Selling, general and administrative expenses ("SG&A" expenses)
of $67.2 million in the first quarter of 1998 represented an increase of $8.1
million over the first quarter of 1997. As a percentage of total revenues, SG&A
expenses decreased to 17.5% in the first quarter of 1998 from 18.4% for the
comparable period in 1997. While advertising, royalties and operating
expenses added significant expenses during the quarter, the effect was offset
by the proportionately larger increase in sales and gross profit. Retail
store operating expenses increased $1.7 million, reflecting the added cost of 23
more stores in operation at the end of the first quarter of 1998 compared to
the end of the first quarter of 1997.
Operating Income. The resulting first quarter of 1998 operating income of
$64.0 million increased 34.8%, or $16.5 million, compared to $47.5 million
during the first quarter of 1997. The operating margin increased to 16.7% for
the first quarter of 1998 from the 14.8% achieved during the first quarter of
1997.
Net Interest Expense. Net interest expense was $1.2 million in the first
quarter of 1998 compared to $0.4 million in the comparable period of 1997.
The primary reason for the change was an increase in average overall borrowings
for the quarter.
Provision for Income Taxes. The effective income tax rate was 38.5% for the
first quarter of 1998 compared to 37.3% for the first quarter of 1997. The
increase was primarily due to higher state income tax provisions for the first
quarter of 1998.
Net Income. Net income increased 30.7% to $38.6 million in the first quarter
of 1998, an increase of $9.1 million over the net income of $29.5 million
earned in the first quarter of 1997. Net income as a percentage of total
revenues was 10.1% in the first quarter of 1998 and 9.2% in the first quarter
of 1997.
- 10 -
<PAGE>
JONES APPAREL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and, beginning in 1995, to repurchase the
Company's Common Stock on the open market. The Company has historically relied
primarily on internally generated funds, trade credit and bank borrowings to
finance its operations and expansion.
Net cash used in operations was $18.0 million in the first three months of
1998, compared to $13.7 million in the first three months of 1997. The
change primarily reflects the effect of a larger increase in trade receivables
($101.3 million in 1998 compared to $75.2 million in 1997) and a decrease
in accounts payable ($9.1 million decrease in 1998 compared to a $17.1 million
increase in 1997). These were offset by higher net income for the first
three months of 1998 (before depreciation and amortization charges),
an increase in taxes payable and a decrease in inventories.
Net cash used in investing activities was $0.7 million lower in the first
three months of 1998, compared to the first three months of 1997, due to
additional capital improvements and replacements offset by a decrease in
restricted cash. Expenditures for capital improvements, replacements and
property under capital leases for the full year 1998 are expected to approximate
$30 million, of which $17 million represents the estimated cost of an
additional warehouse facility under construction to support anticipated
growth.
Net cash used by financing activities was $1.9 million in the first three
months of 1998 compared to net cash provided by financing activities of $9.7
million in the first three months of 1997. The principal reasons for the change
were increases in the amounts of short-term borrowings to fund working
capital requirements and transactions involving the Company's Common Stock.
In the first three months of 1998, the Company repurchased $41.2 million of
its Common Stock on the open market under an announced program under which
the Company is authorized to acquire up to $100.0 million of such shares. As of
March 29, 1998, an aggregate of $65.2 million had been expended pursuant to
the stock repurchase program. For the three months ended March 30, 1997, $1.3
million was expended under a prior stock repurchase program. Proceeds from the
issuance of common stock to employees exercising stock options amounted to
$4.3 million in the first three months of 1998 compared to $2.5 million in the
first three months of 1997.
Under the Company's existing credit arrangements, $145.6 million was utilized
for letters of credit and $36.1 million of short-term borrowings were
outstanding at March 29, 1998. The Company believes that funds generated by
operations and the bank credit arrangements will provide the financial
resources sufficient to meet its foreseeable working capital, letter of credit,
capital expenditure and stock repurchase requirements.
- 11 -
<PAGE>
JONES APPAREL GROUP, INC.
OTHER INFORMATION
OTHER INFORMATION
Part II.
Item 5. Other information
Statement Regarding Forward-looking Disclosure
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements, other than
statements of historical facts included in this Quarterly Report, including,
without limitation, the statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed in this Report. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
Item 6. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 29, 1998.
- 12 -
<PAGE>
JONES APPAREL GROUP, INC.
OTHER INFORMATION (CONTINUED)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JONES APPAREL GROUP, INC.
(Registrant)
Date: May 13, 1998 By /s/ Sidney Kimmel
----------------------------
SIDNEY KIMMEL
Chief Executive Officer
By /s/ Wesley R. Card
----------------------------
WESLEY R. CARD
Chief Financial Officer
- 13 -
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] MAR-30-1998
[CASH] 15,365
[SECURITIES] 0
[RECEIVABLES] 195,893
[ALLOWANCES] 2,977
[INVENTORY] 242,705
[CURRENT-ASSETS] 499,858
[PP&E] 137,195
[DEPRECIATION] 39,637
[TOTAL-ASSETS] 653,874
[CURRENT-LIABILITIES] 168,842
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 547
[OTHER-SE] 439,578
[TOTAL-LIABILITY-AND-EQUITY] 653,874
[SALES] 380,151
[TOTAL-REVENUES] 383,774
[CGS] 252,561
[TOTAL-COSTS] 252,561
[OTHER-EXPENSES] 67,193
[LOSS-PROVISION] 213
[INTEREST-EXPENSE] 1,556
[INCOME-PRETAX] 62,781
[INCOME-TAX] 24,171
[INCOME-CONTINUING] 38,610
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 38,610
<EPS-BASIC> .77
[EPS-DILUTED] .74
</TABLE>
