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
<PAGE> 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 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JONES APPAREL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 3, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
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
=========== ===========
<FN>
All amounts in thousands except per share data
See notes to consolidated financial statements
</TABLE>
- 3 -
<PAGE> 4
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
----------------------------- ------------------------------
October 3, September 27, October 3, September 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
<FN>
(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
</TABLE>
- 4 -
<PAGE> 5
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<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)
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)
=========== ======= =========== ======== ========== =========
<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, 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)
=========== ======= =========== ======== ========== =========
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
- 5 -
<PAGE> 6
JONES APPAREL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended
--------------------------------
October 3, September 27,
1999 1998
------------ -------------
<S> <C> <C>
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
=========== ===========
<FN>
All amounts in thousands
See notes to consolidated financial statements
</TABLE>
- 6 -
<PAGE> 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 -
<PAGE> 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
========== ===========
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<PAGE> 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 -
<PAGE> 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.
<TABLE>
<CAPTION>
Wholesale
Wholesale Footwear & Other &
Apparel Accessories Retail Eliminations Consolidated
--------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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<PAGE> 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.
<TABLE>
<CAPTION>
Other and
Jones USA Nine West Eliminations Consolidated
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
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
</TABLE>
- 11 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
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
<PAGE> 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:
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(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
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<PAGE> 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
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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;
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<PAGE> 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
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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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-03-1999
<CASH> 36,491
<SECURITIES> 0
<RECEIVABLES> 481,253
<ALLOWANCES> 18,683
<INVENTORY> 702,294
<CURRENT-ASSETS> 1,361,335
<PP&E> 440,088
<DEPRECIATION> 184,038
<TOTAL-ASSETS> 2,998,568
<CURRENT-LIABILITIES> 892,645
<BONDS> 804,886
0
0
<COMMON> 1,344
<OTHER-SE> 1,210,569
<TOTAL-LIABILITY-AND-EQUITY> 2,998,568
<SALES> 2,220,147
<TOTAL-REVENUES> 2,236,148
<CGS> 1,382,506
<TOTAL-COSTS> 1,382,506
<OTHER-EXPENSES> 530,050
<LOSS-PROVISION> 5,895
<INTEREST-EXPENSE> 43,771
<INCOME-PRETAX> 268,612
<INCOME-TAX> 107,302
<INCOME-CONTINUING> 161,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,310
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.40
</TABLE>
