Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 785-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- ----------------------------- -----------------------------
Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 1997 was approximately $1,598,323,842.
As of March 24, 1997, there were 52,165,060 shares of the registrant's
Common Stock outstanding.
2
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the registrant's III
proxy statement for the registrant's
1997 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K.
- 2 -
3
PART I
ITEM 1. BUSINESS
General
Jones Apparel Group, Inc. (the "Company") is a leading designer and marketer
of better priced women's sportswear, suits and dresses. The Company has
pursued a multi-brand strategy by marketing its products under severally
nationally known brands, including its Jones New York, Evan-Picone and Rena
Rowan for Saville labels and the recently licensed Lauren Ralph Lauren label.
Each label is differentiated by its own distinctive styling and pricing
strategy. The Company primarily contracts for the manufacture of its
products through a worldwide network of quality manufacturers. The Company
has capitalized on its nationally known brand names by entering into 35
licenses for the Jones New York brand name and 14 licenses for the Evan-Picone
brand name with select manufacturers of women's and men's apparel and
accessories. In 1996, the Company had net sales of $1.0 billion, which was a
31.5% increase in net sales over 1995.
Products
The Company participates in four principal segments of the women's apparel
market: career sportswear, casual sportswear, suits and dresses. Career and
casual sportswear are marketed as groups of skirts, pants, jackets, blouses,
sweaters and related accessories which, while sold as separates, are
coordinated as to styles, color schemes and fabrics and are designed to be
worn together. For its sportswear and dress collections, the Company will
develop several groups in a selling season. New sportswear and dress
collections are introduced in four or five of the principal selling seasons -
Spring, Summer, Fall I, Fall II and Holiday/Resort, while suit collections
have traditionally been developed for the Fall and Spring seasons. The
introduction of different groups in each season is spaced to ensure that
retail customers frequently are introduced to new merchandise.
The Company's major product categories are summarized in the
following table:
Career Casual Suits &
Sportswear Sportswear Coats Dresses
------------- -------------- ------------ ------------
Industry Better Better Better Better
Categories
Brand Jones New Jones New Jones New Jones New
Labels York, York Sport, York, York,
Lauren Ralph Lauren Ralph Lauren Ralph Lauren Ralph
Lauren, Lauren, Lauren,
Lauren,
Jones*Wear, Jones*Wear, Jones*Wear, Evan-Picone,
Rena Rowan Jones Jeans, Saville Picone Evening
for Saville, Jones & Co,
Evan-Picone Jones New
York Country,
Jones Studio
Product Skirts, Skirts, Suits Dresses
Offerings blouses, blouses,
pants, pants,
jackets, jackets,
sweaters sweaters
- 3 -
4
The Company's success is enhanced by its ability to maintain a name brand or
designer image while its products are generally sold in the women's better
market at the following retail price points:
Skirts Blouses Casual Tops Suits &
Jackets and Pants and Sweaters and Bottoms Coats Dresses
- --------- --------- ------------ ----------- --------- ---------
$130-$250 $60-$150 $50-$150 $25-$100 $170-$500 $100-$275
The following chart sets forth a breakdown of the Company's apparel sales by
dollar amount (in thousands and as a percentage of the Company's total sales)
during the past three fiscal years.
1994 1995 1996
------------- ------------- -------------
Career Sportswear $410,000 65% $439,000 57% $577,000 56%
Casual Sportswear $107,000 17% $211,000 27% $302,000 30%
Suits, Dresses and Other $116,000 18% $126,000 16% $142,000 14%
Career Sportswear. The Company's flagship label, Jones New York, offers
consumers an extensive range of better sportswear geared primarily for the
career woman's working needs. The Jones New York products are sold in misses,
petites and women's sizes and are marketed under the Jones New York, Jones New
York Petite and Jones New York Woman labels.
In 1991, the Company first shipped a line of career sportswear under the Rena
Rowan for Saville label and subsequently introduced women's sizes for this label
in the Spring 1992 season and petite sizes in the Spring 1993 season.
In 1992, the Company commenced shipment of a new career sportswear line using
the Jones*Wear label. This line is sold to selected retail accounts that do not
carry the Company's other lines of career sportswear.
In November 1993, the Company acquired the Evan-Picone and other related
trademarks. The Company introduced a line of career sportswear under this label
for the Spring 1994 season. In 1996, the Company made a $1.5 million payment to
satisfy all future royalty obligations to the former owner of the Evan-Picone
trademark.
In October 1995, the Company acquired an exclusive license to manufacture and
market women's shirts, blouses, skirts, jackets, suits, sweaters, pants, vests,
coats, outerwear and hats under the Lauren Ralph Lauren trademark in the United
States pursuant to license and design service agreements with the licensor,
which expire on December 31, 2001. Upon expiration of the initial term, the
Company has the right to renew the license for an additional three-year period,
provided that it meets certain minimum sales level requirements. The license
agreements provide for the payment by the Company of a percentage of net sales
against guaranteed minimum royalty and design service payments as set forth in
the agreements. In July 1996, the Company began shipping a collection of better
career and casual sportswear under this label for the Fall 1996 season. In
March 1997, the Company introduced a collection of Petite sportswear to begin
shipping for the Fall 1997 season. Coats and suits were also introduced in
March 1997 for the Fall 1997 season.
Casual Sportswear. Jones New York Sport offers a collection of casual
sportswear which complements the Jones New York career line. These products are
designed to be worn in a less formal working environment as well as for weekend
and casual wear. Jones New York Sport is offered in misses, petite and women's
sizes.
- 4 -
5
The Company also offers a line of casual products under the Jones & Co label
designed primarily to be worn in a less formal working environment.
In 1995, the Company introduced two new casual sportswear lines. Jones
Studio, introduced for the Spring 1996 season, provides casual separates based
on emerging trends in the retail marketplace. Jones New York Country,
introduced for the Fall 1995 season, is a collection of classic country-styled
casualwear that is sold exclusively through the Company's two full price retail
stores and twenty-two factory outlet stores bearing the Jones New York Country
name. In 1996, the Company introduced Jones Jeans, a denim and cotton-based
collection for the women's market.
Suits. The Company produces suits under the brand names Jones New York and
Saville. Jones New York is a better priced brand, which was introduced by the
Company in 1989. Saville, the Company's original line of suits, is targeted to
sell in the opening price points of the better price category. Jones New York
currently offers products in misses and petite sizes and Saville offers petite,
misses and women's sizes. During 1997, the Company is phasing out its licensed
Christian Dior suit business.
Dresses. In June 1992, the Company commenced shipping collections of career
dresses under the Jones New York brand name, targeted to sell at better prices.
In 1994, the Company also introduced a line of better priced career dresses
under the Evan-Picone Dress label. A line of evening dresses under the Picone
Evening label was launched in 1996 for the Holiday 1996 season.
Other. The Company also produces sportswear for the private label market.
While there is significant additional demand in this market, the Company has
not actively pursued more private label business in order to concentrate on the
expansion of its name brand business.
Design
Each product line of the Company has its own design team which is responsible
for the creation, development and coordination of the product group offerings
within each line. The Company believes its design staff of 210 people is widely
recognized for its distinctive styling of garments and its ability to update
fashion classics with contemporary trends. The Company's designers travel
throughout the world for fabrics and colors, and attempt to stay continuously
abreast of the latest fashion trends. In addition, the Company actively
monitors the retail sales of its products to determine changes in consumer
trends.
The design process generally begins with the development of a color scheme and
fabric selection for all groups within a product line and takes 14-16 weeks
before final samples are produced. Jones' designers and product managers
generally meet twice weekly at its production facilities in Bristol,
Pennsylvania to review design concepts, styles and sample garments. Once a
concept for a line is developed, it takes a design team approximately four
weeks to prepare sketches and pick colors and fabrics. The line is developed
completely and silhouettes are prepared during the next eight to twelve weeks.
Final designs and fabric swatches are formalized on concept boards which are
reviewed internally to determine their appeal and ensure consistency with the
Company's offerings. In some cases, concept boards are also previewed with
major customers before being finalized. As a line is being finalized,
samples of the garments are produced and designs are modified accordingly.
For most sportswear lines, the Company will develop several groups in a
season. A group typically consists of an assortment of skirts, pants, jackets,
blouses, sweaters and various accessories. The Company believes that it is able
to minimize design risks because the Company often will not have started cutting
fabrics until the first few weeks of a major selling season. Since different
styles within a group often use the same fabric, the Company can redistribute
styles and, in some cases, colors, to fit current market demand.
- 5 -
6
Once prototypes are approved for production, the Company's pattern makers
create the patterns that will be used to cut the material. Cutting patterns
are designed using a computer-aided design ("CAD") system which minimizes the
amount of fabric needed to manufacture each garment, thereby maximizing fabric
yield. Once a design is completed on the system, the cutting pattern may be
automatically traced on paper patterns or copied on computer tapes for
automatic cutting machines.
In accordance with standard industry practices for licensed products, Polo
Ralph Lauren Enterprises, L.P. has the right to approve the Company's designs
for the Lauren Ralph Lauren product line.
Manufacturing
Apparel sold by the Company is produced in accordance with its design,
specification and production schedules. The Company contracts for the cutting
and sewing of the majority of its garments with approximately 118 contractors
located in the United States and 208 in overseas locations. The Company also
operates two manufacturing facilities of its own. During 1996, approximately
35% of the Company's products were manufactured in the United States and Mexico
and 65% in other parts of the world, primarily Asia.
The Company believes that outsourcing allows it to maximize production
flexibility while avoiding significant capital expenditures, work-in-process
inventory build-ups and costs of managing a larger production work force.
The Company's fashion designers, production staff and quality control personnel
closely supervise garments manufactured by contractors to ensure that they meet
the Company's high standards. See "Quality Control" below.
The Company's products are manufactured according to plans prepared each year
which reflect prior years' experience, current fashion trends, economic
conditions and management estimates of a line's performance. The average
lead time from the commitment for the purchase of piece goods in the greighe
phase (no specific color assortment) through the production and shipment of
finished goods ranges from six to eight months. However, the average lead
time from assortment of greighe piece goods by specific colors to subsequent
shipment of finished goods ranges from four to six months. The Company orders
piece goods concurrently with concept board development. The purchase of piece
goods is controlled and coordinated on a divisional basis. The Company limits
its exposure to specific colors and fabrics by committing to purchase a portion
of total projected demand with options to purchase additional volume if demand
meets the plan. The Company believes that its policy of limiting its
commitments for purchases early in the season minimizes its exposure to
excess inventory and obsolescence.
The Company's production administration staff oversees all apparel
manufacturing. This staff coordinates product engineering (including
pattern and sample making), allocation of production among contractors and
quality control. The Company allocates product among contractors based on a
manufacturer's capabilities, the availability of production capacity and quota,
quality, pricing and flexibility in meeting changing production requirements on
relatively short notice. The staff also attempts to ensure that all garments
in a particular group arrive at the Company's distribution centers at the
same time for consolidation and delivery to customers.
The Company believes its extensive experience in logistics and production
management underlies its success in coordinating with contractors who
manufacture different garments included within the same product group. The
Company has had long-term mutually satisfactory business relationships with
many of its contractors, but does not have long-term written agreements with
any of them.
The Company has had an active program in place to monitor compliance by its
contract manufacturers with applicable laws relating to the payment of wages and
working conditions. In 1996, the Company became a participant in the United
States Department of Labor's Apparel Manufacturers Compliance Program for that
- 6 -
7
purpose. Under that program, and through the Company's independent agreements
with each of its domestic and foreign manufacturers, the Company regularly
audits such compliance and requires corrective action when appropriate.
Quality Control
The Company's comprehensive quality control program is designed to ensure
that purchased raw materials and finished goods meet the Company's exacting
standards. Substantially all of the fabric purchases for domestically
manufactured garments are inspected upon receipt in either the Company's
Pennsylvania and North Carolina warehouse facilities (where they are stored
prior to shipment for cutting) or at the contractor's warehouse. Fabrics for
foreign manufactured garments are inspected by the Company's contractors upon
receipt in their warehouses. The Company's quality control program includes
inspection of prototypes of each garment prior to cutting by the contractors
to ensure compliance with the Company's specifications.
Domestic contractors are supervised by the Company's quality control staff
based primarily in Bristol, while foreign manufacturers' operations are
monitored by both Company personnel and buying agents located in other
countries. All finished goods are shipped to the Company's warehouses for
final inspection and distribution.
Supplies
The Company generally supplies the raw material to its domestic manufacturers
and occasionally to foreign manufacturers. Otherwise, the raw materials are
purchased directly by the manufacturer in accordance with the Company's
specifications. Raw materials, which are in most instances made and/or
colored especially for the Company, consist principally of piece goods and
yarn and are purchased by the Company from a number of domestic and foreign
textile mills and converters. The Company's foreign finished goods purchases
are generally purchased on a letter of credit basis, while its domestic
purchases are generally purchased on an open order basis. The Company
does not have long-term formal arrangements with any of its suppliers.
However, the Company has experienced little difficulty in satisfying its raw
material requirements and considers its sources of supply adequate.
Marketing
The Company distributes its products through approximately 1,550 customers,
including department stores, specialty retailer accounts and direct mail catalog
companies throughout the United States and Canada representing approximately
7,700 locations. Department stores account for approximately two-thirds of
the Company's sales. The Company's ten largest customers accounted for
approximately 64% of sales in 1996. No single customer accounted for more
than 10% of net sales; however, certain of the Company's customers are under
common ownership. When considered together as a group under common ownership,
sales to nine department store customers currently owned by the Federated
Department Stores, Inc. ("Federated") accounted for approximately 20% of 1996
sales and sales to eight department store customers currently owned by the
May Department Stores Company ("May") accounted for approximately 20% of 1996
sales. While the Company believes that purchasing decisions are generally
made independently by each department store customer (including the stores
in the Federated and May groups), in some cases the trend may be toward more
centralized purchasing decisions. The Company attempts to minimize its credit
risk from its concentration of customers by closely monitoring accounts
receivable balances and shipping levels and the ongoing financial performance
and credit status of its customers. Among the Company's leading customers
are Lord & Taylor, Hecht's and Foley's stores, which are a part of the May
group, Macy's Department Stores, Lazarus and Bloomingdale's, which are part
of the Federated group, Dillard's, Dayton Hudson and Nordstrom.
- 7 -
8
The Company has a direct sales force of 144 sales people (excluding employees
in the Company's factory outlet stores) which includes individuals located in
the Company's New York and Toronto showrooms as well as in regional sales
offices and showrooms that the Company leases in Atlanta, Dallas, Los Angeles
and Seattle. The Company also has five domestic and ten Canadian independent
sales representatives who work on a commission basis and who, in some cases,
also market products of other non-competing apparel companies. In addition,
senior management is actively involved in selling to major accounts. Products
are marketed to department stores and specialty retailing customers during
"market weeks," which are generally four to six months in advance of the five
corresponding industry selling seasons.
While the Company typically will allocate a six week period to market a line,
most major orders are written within the first three weeks of any market period.
Since piece goods for a line usually are not cut until the first few weeks of a
marketing period, the Company is able to tailor production schedules and styles
to current market demands and minimize excess inventory.
As one of the primary apparel resources for many of its customers, the Company
is able to influence the mix, quantity and timing of orders placed by its retail
accounts enabling the Company to market complete lines of sportswear and
minimize excess inventory. The Company's close relationships with its retail
accounts allow it to efficiently monitor production schedules and inventories.
The Company believes retail demand for its products is enhanced by the
Company's ability to provide its retail accounts and consumers with
knowledgeable sales support. In this regard, the Company has an established
program to place retail sales specialists in many major department stores.
These individuals have been trained by the Company to support the sale of its
products by educating other store personnel and consumers about the Company's
products and by coordinating the Company's marketing activities with those of
the stores. In addition, the retail sales specialists provide the Company with
firsthand information concerning consumer reactions to the Company's products.
Certain of the retail sales specialists rotate among several different stores
rather than working at just one store. The salary expenses for the retail sales
specialists are frequently shared by the stores. The Company currently has 75
retail sales specialists in department stores such as Macy's, Dillard's,
Bloomingdale's, Lord & Taylor, Hecht's and Foley's. In addition, the Company
has a program of designated sales personnel in which a store agrees to designate
certain sales personnel who will devote a substantial portion of their time to
selling Jones products in return for certain benefits. The Company currently
has approximately 750 designated sales personnel.
The Company employs a cooperative advertising program with its major retail
accounts, whereby it shares the cost of its retail accounts' advertising and
promotional expenses, up to a preset maximum percentage of the retail accounts'
purchases. An important part of the marketing program includes prominent
displays of the Company's products in retail accounts' sales catalogs.
Factory Outlet Stores
At December 31, 1996, the Company operated a total of 196 factory outlet
stores and four full price stores. The Company operates four coffee bars in
close proximity to four of its factory outlet stores as a convenience to its
customers. Manufacturer's outlet malls are generally located either in high
traffic tourist areas or on major highways to vacation destinations and major
cities. The 196 factory outlet stores operated by the Company are located in
107 outlet malls throughout the United States. These locations are generally
situated in select geographic markets which are not in direct competition with
the Company's primary customers. The Company's outlet stores focus on breadth
of product line and customer service as well as value pricing. In addition to
its brand name merchandise, these stores also sell merchandise produced by
licensees of the Company. The Company's outlet store expansion strategy is to
continue to open multiple stores in select outlet malls for specific product
lines which target different customer segments.
- 8 -
9
The Company opened 54, closed 10 and combined two stores in 1995 and opened
47 and closed 22 stores in 1996. The following table sets forth certain
information regarding the number and type of stores open and aggregate store
sales for each of the years in the three year period ended December 31, 1996.
1994 1995 1996
Retail stores open at end of period: ---- ---- ----
Store Type Description
- ---------------------- -----------------------------
Jones New York Jones New York sportswear 70 78 82
Jones New York Full price retail showcase 2 2 2
for products
Executive Suite Jones New York and Executive 26 33 28
Suite men's and women's
suits and furnishings
Jones New York Woman Large sizes 7 5 2
Jones New York Dress Jones New York dresses 3 2 3
Saville Rena Rowan for Saville 3 1 1
merchandise
Jones New York Sport Jones New York Sport and 3 2 22
Jones & Co casual sportswear
Strictly Business Women's and men's suits 5 5 4
Evan-Picone Evan-Picone sportswear 1 23 17
Jones New York Country Jones New York Country 0 9 22
casual sportswear
Jones New York Country Full price retail showcase 0 0 2
for products
Factory Finale Close out merchandise 13 15 15
--- --- ---
Total retail stores open at end of period 133 175 200
Aggregate net store sales (in thousands) $77,393 $102,307 $129,767
Square footage of gross store space at end of period 358,884 478,975 557,100
Nearly all stores are leased under long-term leases (typically five years).
The average store size is 2,785 square feet, ranging from a minimum of 1,386
square feet to a maximum of 6,600 square feet.
Licensing of Company Brands
As of December 31, 1996, the Company had 35 license agreements pursuant to
which independent licensees sell products under the Company's Jones New York
(and related) trademarks in accordance with designs furnished or approved by
the Company in various territories in the United States and Canada. Current
licenses cover men's tailored clothing and overcoats, women's intimate apparel,
women's rainwear, outerwear, leather outerwear and woolen coats, footwear,
belts, scarves, umbrellas, eyewear, fragrances, costume jewelry, hair
accessories, cosmetic travel accessories and home sewing patterns, mens' knit
and woven shirts and sweaters, mens' and boys' neckwear and men's and women's
hosiery and slippers. Each of the licenses provides for the payment to
the Company of a percentage of the licensee's net sales of the licensed
products against guaranteed minimum royalty payments which generally increase
over the term of the agreement. During 1996, the Company received $7,651,000
of Jones New York (and related names) licensing income.
- 9 -
10
As of December 31, 1996, the Company had 14 license agreements pursuant to
which independent licensees sell products under the Company's Evan-Picone
trademarks in accordance with designs furnished or approved by the Company in
various territories in the United States and Canada. These licenses cover
women's coats, footwear, eyewear and accessories, men's tailored clothing,
men's topcoats, mens' knit and woven shirts and sweaters, men's and boy's
neckwear, men's and women's hosiery and home sewing patterns. Each of the
licenses provides for the payment to the Company of a percentage of the
licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1996, the Company received $5,855,000 of Evan-Picone licensing income.
Trademarks
The Company utilizes a variety of owned trademarks, including Jones New York,
Jones New York Sport, Jones & Co, Jones*Wear, JNY, Jones New York Country,
Jones Jeans, Saville, Rena Rowan for Saville, Ellen Kaye, Evan-Picone, Picone
Sport, Elements by Evan-Picone, Studio Picone, Evan-Picone Sport, Tailored by
Evan-Picone New York, Executive Suite, Strictly Business and Factory Finale.
The Company has registered or applied for registration for these and other
trademarks for use on a variety of items of apparel and apparel-related
products in the United States and Canada. In addition, the Company has
registered certain of its trademarks in other countries. These registered
trademarks expire at various dates through 2011. The Company also licenses
the Lauren Ralph Lauren label (see "Products" above). The Company regards its
trademarks and other proprietary rights as valuable assets and believes that
they have significant value in the marketing of its products. The Company
vigorously protects its trademarks against infringement.
Imports and Import Restrictions
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Hong Kong, Taiwan and Korea. These agreements impose
quotas on the amount and type of goods which can be imported into the United
States from these countries. Such agreements also allow the United States to
impose at any time restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specified limits.
The bilateral agreements through which quotas are imposed have been negotiated
under the framework established by the Arrangement Regarding International
Trade in Textiles, known as the Multifiber Arrangement ("MFA"). Under the
Uruguay Round Agreement on Textiles and Clothing, dated December 15, 1993,
quotas established pursuant to the MFA will be gradually phased out over a
ten-year transition period, after which textile and clothing trade will be fully
integrated into the General Agreement on Trade and Tariffs ("GATT") and will be
subject to the same disciplines as other sectors. The GATT agreement provides
for expanded trade, improved market access, lower tariffs, and improved
safeguard mechanisms.
The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its manufacturing
sources, the maintenance of overseas offices, allocation of overseas production
to merchandise categories where more quota is available and shifts of production
among countries and manufacturers.
The Company's imported products are also subject to United States customs
duties and, in the ordinary course of business, the Company is from time to
time subject to claims by the United States Customs Service for duties and
other charges. The passage by Congress of the North America Free Trade Act
("NAFTA") at the end of 1993 has enabled the Company to take advantage of
lower manufacturing costs in Mexico.
- 10 -
11
The United States and the other countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adversely adjust presently prevailing quotas, duty or tariff
levels, which could adversely affect the Company's operations and its ability to
continue to import products at current or increased levels. The Company cannot
predict the likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater geographic
distances from the Company than its domestic manufacturers, the Company is
generally required to allow greater lead time for foreign orders, which reduces
the Company's manufacturing flexibility. Foreign imports are also affected by
the high cost of transportation into the United States.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in the
disruption of trade from exporting countries, any significant fluctuation in
the value of the dollar against foreign currencies and restrictions on the
transfer of funds.
Backlog
At December 31, 1996, the Company had unfilled customer orders of
approximately $419 million, compared to approximately $301 million of such
orders at December 31, 1995 (excluding approximately $27 million and $25
million, respectively, with respect to merchandise on order for the Company's
factory outlet and full-price retail stores). These amounts include both
confirmed orders and unconfirmed orders which the Company believes, based on
industry practice and past experience, will be confirmed. The amount of
unfilled orders at a particular time is affected by a number of factors,
including the timing of the receipt and processing of customer orders and
scheduling of the manufacture and shipping of the product, which in some
instances is dependent on the desires of the customer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
Competition
There is intense competition in the sectors of the apparel industry in which
the Company participates. The Company competes with many other manufacturers,
some of which are larger and have greater resources than the Company.
The Company competes primarily on the basis of fashion, price and quality.
The Company believes its competitive advantages include its ability to
effectively anticipate and respond to changing consumer demands, its premier
brand names and range of products and its ability to operate within the
industry's production and delivery constraints. Furthermore, the Company's
established brand names and relationships with retailers have resulted in a
highly loyal following of customers.
The Company considers the risk of formidable new competitors to be minimal
due to barriers to entry such as significant startup costs and the long-term
nature of supplier and customer relations. It has been the Company's belief
that during the past few years, major department stores and specialty retailers
have been increasingly unwilling to source garments from suppliers who are not
well capitalized or do not have established reputations for delivering quality
merchandise in a timely manner. However, there can be no assurance that
significant new competitors will not develop in the future.
Employees
At December 31, 1996, the Company had approximately 2,945 full-time
employees. This total includes approximately 20 in executive or
senior managerial positions, approximately 1,800 in quality control,
production, design and distribution positions, approximately 345 in
sales, clerical and office positions and
- 11 -
12
approximately 780 in the Company factory outlet and full-price retail stores.
The Company also employs approximately 686 part-time employees, of which
approximately 656 work in the Company factory outlet and full-price retail
stores.
Approximately 335 of the Company's employees are members of the Teamsters
Union, which has a four year labor agreement with the Company expiring in
March 1998. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive office, warehousing and distribution
facilities are located in Bristol, Pennsylvania. The Company leases its
headquarters facility from a partnership which is equally owned by its
Chairman and Chief Executive Officer and a former shareholder of the Company.
See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The lease
for this facility terminates in 1998.
The general location, use and approximate size of the Company's principal
properties, all of which are leased, are set forth below:
Approximate Area
Location Use in Square Feet
- --------------------- ----------------------------- ----------------
Bristol, Pennsylvania Headquarters, warehouse 403,000
and distribution
Bristol, Pennsylvania Materials warehouse 102,400
Bristol, Pennsylvania Distribution warehouse 208,000
Bristol, Pennsylvania Computer and accounting 16,425
services
Bristol, Pennsylvania Administrative services 22,500
Ciudad Juarez, Mexico Production 66,850
Downsview, Canada Canadian headquarters, 114,300
warehouse and distribution
El Paso, Texas Administrative services 33,250
Lawrenceburg, Tennessee Distribution warehouses 870,000
New York, New York Executive and sales offices 145,700
Rural Hall, North Carolina Materials warehouse 232,200
The Company leases space for 196 outlet stores, four full-price retail stores
and four coffee bars (aggregating approximately 560,866 square feet) at
locations across the United States. The Company also leases regional sales
offices and showrooms in Atlanta, Dallas, Los Angeles and Seattle. The Company
believes that its existing facilities are well maintained, in good operating
condition and that its existing and planned facilities will be adequate for its
operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
- 12 -
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Price range of common stock:
1996
High $24-1/4 $27-3/4 $37-3/8 $37-3/8
Low $17-13/16 $23-1/4 $22-9/16 $29-5/8
1995
High $13-15/16 $15-7/16 $18-3/8 $19-3/4
Low $11-5/16 $12-15/16 $14-7/8 $15-3/16
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "JNY". The above figures set forth, for the periods indicated, the
high and low sale prices per share of the Company's Common Stock as reported on
the New York Stock Exchange Composite Tape. The last reported sale price per
share of the Company's Common Stock on February 26, 1997 was $37-3/8 and on that
date there were 146 holders of record of the Company's Common Stock. To date,
the Company has not paid any cash dividends on shares of its Common Stock.
The Company anticipates that all of its future earnings will be retained for
its financial requirements and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. All stock prices have been adjusted to
reflect the 2-for-1 stock split effective October 2, 1996.
- 13 -
14
ITEM 6. SELECTED FINANCIAL DATA
The following financial information is qualified by reference to, and should
be read in conjunction with, the Company's Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this report. The
selected consolidated financial information presented below is derived from the
Company's audited Consolidated Financial Statements for each of the five years
in the period ended December 31, 1996.
Year Ended December 31, 1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
Income Statement Data
Net sales $1,021,042 $776,365 $633,257 $541,152 $436,572
Gross profit 303,792 229,952 194,682 177,410 150,728
Operating income 130,256 101,131 87,862 78,925 67,552
Income before
provision for
income taxes 127,763 99,668 87,345 79,019 66,617
Provision for
income taxes 46,889 36,183 32,425 30,660 25,314
Net income 80,874 63,485 54,920 48,359 41,303
Per Share Data
Net income per
share $1.50 $1.19 $1.04 $0.92 $0.79
Dividends paid
per share - - - - -
Weighted average
number of common
shares and share
equivalents
outstanding 54,077 53,458 52,925 52,413 52,379
December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Balance Sheet Data
Working capital $293,970 $260,853 $204,221 $159,175 $122,376
Total assets 488,109 400,959 318,286 266,594 184,639
Short-term debt,
including current
portion of capital
lease obligations 3,067 2,327 1,859 1,722 1,131
Long-term debt,
including capital
lease obligations 12,141 10,151 8,029 9,545 4,783
Stockholders' equity 376,729 314,975 248,678 189,120 134,791
Represents income before cumulative effect of change in accounting
principle for the year ended December 31, 1993. In 1993, the Company
recorded a cumulative effect of a change in accounting principle for
income taxes as a result of the adoption of SFAS 109 which increased
net income by $1,376,000. Net income per share for the year ended
December 31, 1993, including this change in accounting principle,
was $0.95.
All net income per share numbers are presented on a fully diluted basis.
Net income per share for the years ended December 31, 1996 and 1995 on a
primary basis was $1.51 and $1.20, respectively. No dilution existed for
all other periods presented.
On July 30, 1996, the Company's Board of Directors approved 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 September 12, 1996.
Concurrently, the number of authorized shares of Common Stock was
increased to 100,000,000. On October 2, 1996, a total of 26,744,580
shares of Common Stock were issued in connection with the split. The
stated par value of each share remained at $0.01. All share and per
share amounts have been restated to retroactively reflect the stock split.
- 14 -
15
ITEM 7. 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 from 1994 through 1996 and its liquidity and capital
resources. The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements included elsewhere herein.
The Company has achieved compound annual growth rates of 27% for net sales and
22% for income from operations from 1994 to 1996. Net sales and income from
operations in 1996 increased 32% and 29%, respectively, over 1995.
The Company believes that it has achieved this growth by enhancing the brand
equity of each of its labels through its focus on exceptional design, quality
and value. The Company has also leveraged the strength of its brands to
increase both the number of locations and amount of selling space in which its
products are offered, as well as to introduce new product extensions. The
Company has also benefitted from a trend among its major retail accounts to
concentrate their women's apparel buying among a narrowing group of apparel
vendors. As an example of the success of its product extensions, the Company's
casual sportswear division, designed to address the trend toward more casual
dressing, increased to 30% of the Company's net sales in 1996 as compared to
17% in 1994.
The Company believes that it has continued opportunities to increase both
its career and casual sportswear businesses by further developing its brands,
increasing the number of locations that sell its product, expanding the amount
of floor space within existing locations, and introducing new products. Career
sportswear sales, which increased to $577.2 million in 1996 from $409.9 million
in 1994, will be aided by the full rollout of the new Lauren Ralph Lauren label,
which was first shipped to customers in the third quarter of 1996. Casual
sportswear sales, which grew from $107.5 million in 1994 to $302.4 million in
1996, also present growth opportunities, although not necessarily at the rates
historically achieved. Increases in the Company's suit and dress businesses
(principally the Jones New York, Evan-Picone and Saville labels) will be offset
by the phaseout of the Christian Dior label.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net Sales
Net sales in 1996 increased by 31.5%, or $244.6 million, to $1,021.0 million
as compared to $776.4 million in 1995, due primarily to an increase in the
number of units shipped. Career sportswear sales increased by 31.5%, or $138.1
million, to $577.2 million in 1996 as compared to $439.1 million in 1995.
Casual sportswear sales in 1996 increased by 43.3%, or $91.4 million, to $302.4
million as compared to $211.0 million in 1995. Net sales for the Company's
suit, dress and other category increased by 12.0%, or $15.1 million, to $141.4
million in 1996 as compared to $126.3 million in 1995.
- 15 -
16
Gross Profit
The gross profit margin was 29.8% in 1996 as compared to 29.6% in 1995. The
increase was primarily attributable to the impact of higher gross profit margins
from the Company's major product lines as well as the introduction of the new
Lauren Ralph Lauren label, which carries higher margins than the corporate
average.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $186.6
million in 1996 represented an increase of $47.5 million over $139.1 million
in 1995. As a percentage of sales, SG&A expenses increased to 18.3% in 1996
from 17.9% in 1995. Expenses associated with the Lauren Ralph Lauren product
advertising and royalties and associated operating costs, as well as the
Company's overall sales growth, added significant expenses during 1996. Retail
store operating expenses increased by $10.2 million, reflecting the added cost
of 25 new stores in operation at the end of 1996.
Licensing Income
Licensing income increased by $2.7 million to $13.0 million in 1996 as
compared to $10.3 million in 1995. Income from licenses under the Jones New
York label increased $2.1 million while income from licenses under the
Evan-Picone label rose by $0.6 million.
Operating Income
The resulting 1996 operating profit of $130.3 million increased by $29.2
million, as compared to $101.1 million during 1995. The operating profit
margin decreased to 12.8% in 1996 from 13.0% in 1995, largely as a result of
the higher percentage of SG&A expenses to sales during 1996.
Net Interest Expense
Net interest expense was $2.5 million in 1996 compared to $1.5 million in
1995. The primary reasons for the change were higher average overall borrowings
and interest on capital leases for additional warehouse facilities during 1996.
Provision for Income Taxes
The effective income tax rate for 1996 was 36.7% as compared to 36.3% in 1995.
The increase was primarily due to higher state income tax provisions for 1996.
Net Income
Net income increased by 27.4% to $80.9 million in 1996, an increase of $17.4
million over the net income of $63.5 million earned in 1995. Net income as a
percentage of sales was 7.9% in 1996, compared to 8.2% in 1995.
1995 Compared to 1994
Net Sales
Net sales in 1995 increased by 22.6%, or $143.1 million, to $776.4 million as
compared to $633.3 million in 1994, due primarily to an increase in the number
of units shipped. Career sportswear sales increased by 7.1%, or $29.2 million,
to $439.1 million in 1995 as compared to $409.9 million in 1994. Casual
sportswear sales in 1995 increased by 96.3%, or $103.5 million, to $211.0
million as compared to $107.5 million in 1994. Net sales for the Company's
suit, dress and other category increased by 9.0%, or $10.4 million, to $126.3
million in 1995 as compared to $115.9 million in 1994.
Gross Profit
The gross profit margin was 29.6% in 1995 as compared to 30.7% in 1994.
The gross margin impact of the large increase in casual sportswear sales,
which carry lower margins than the Company's other product
- 16 -
17
categories, was the major factor, although the impact was somewhat offset by
improved margins in the Company's career sportswear divisions.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $139.1
million in 1995 represented an increase of $23.8 million over 1994. As a
percentage of sales, SG&A expenses decreased to 17.9% in 1995 from 18.2% in
1994. Retail store operating expenses increased by $10.7 million, reflecting
the added cost of 42 new stores in operation at the end of 1995. Amortization
of the Evan-Picone trademark amounted to $1.3 million for each year, offset by
amortization of the excess of net assets acquired over cost of $1.8 million and
$3.0 million in 1995 and 1994, respectively. Capitalized startup costs for new
labels, net of amortization, were $1.6 million in 1995.
Licensing Income
Licensing income increased by $1.8 million to $10.3 million in 1995 as
compared to $8.5 million in 1994. Licenses under the Jones New York and
Evan-Picone labels contributed equally to the growth.
Operating Income
The resulting 1995 operating profit of $101.1 million increased by $13.2
million, as compared to $87.9 million during 1994. The operating profit margin
decreased to 13.0% in 1995 from 13.9% in 1994, largely as a result of the lower
gross profit margins offset by the lower percentage of SG&A expenses to sales
achieved during 1995.
Net Interest Expense
Net interest expense was $1.5 million in 1995 compared to $0.5 million in
1994. The increase was the result of higher average overall borrowings and
borrowing rates during 1995.
Provision for Income Taxes
The effective income tax rate for 1995 was 36.3% as compared to 37.1% in
1994. The decrease was primarily due to reduced state income tax provisions
for 1995.
Net Income
Net income increased by 15.6% to $63.5 million in 1995, an increase of $8.6
million over the net income of $54.9 million earned in 1994. Net income as a
percentage of sales was 8.2% in 1995, compared to 8.7% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and, beginning in 1995, to repurchase the Company's
Common Stock on the open market. The Company has historically relied
primarily on internally generated funds, trade credit and bank borrowings to
finance its operations and expansion.
Net cash provided by operations was $70.7 million, $8.9 million and $8.8
million in 1996, 1995 and 1994, respectively. The $61.8 million improvement
for 1996 was primarily due to higher net income, a $37.8 million increase in
inventories in 1996 as compared to a $53.1 million increase in 1995, a $10.6
million reduction in prepaid expenses and other current assets and a larger
increase in accrued expenses in 1996 over 1995 ($4.5 million and $0.8 million,
respectively). The inventory increase for 1995 and 1996 was the result of
the inventory levels required to meet anticipated wholesale shipments for
the first quarter of the following year and the net addition of 42 retail
stores in 1995 and 25 retail stores during 1996. The increase in accounts
receivable for both 1995 and 1996 resulted from the increase in net sales
during the fourth quarter. The increase in cash provided by operations
from 1994 to 1995 was primarily due to higher adjusted net income
- 17 -
18
and an increase in accounts payable of $13.4 million, offset by net increases
in accounts receivable of $17.9 million and inventories of $53.1 million.
Net cash used in investing activities increased by $19.9 million in 1996 to
$35.3 million and increased by $1.1 million in 1995 to $15.4 million. Cash
used in investing activities has been primarily for the opening of additional
warehouse facilities, the acquisition of the minority interest of Fashion
Enterprises, Inc. in 1994 (see Note 3 to Notes to Consolidated Financial
Statements) and a $1.5 million payment made in 1996 to satisfy all future
royalty obligations to the former owner of the Evan-Picone trademark. In
addition, to support anticipated growth in the number of units shipped, the
Company has committed to the construction of an additional warehouse facility
in 1997. This facility, including related equipment, is estimated to cost
$10.0 million and the Company plans to finance all or a portion of the
construction through capital lease financing.
Net cash provided by (used in) financing activities was $(22.2) million in
1996, $2.4 million in 1995 and $(0.1) million in 1994. The principal reasons
for the changes were $5.0 million in proceeds from capital leases in each of
the years 1996 and 1995 for construction of additional warehouse facilities and
transactions involving the Company's Common Stock. In 1996 and 1995, the
Company repurchased $33.6 million and $4.6 million, respectively, of its
Common Stock on the open market under an announced program under which the
Company is authorized to acquire up to $100.0 million of such shares through
the end of 1997. As of December 31, 1996, an aggregate of $38.2 million had
been expended pursuant to the stock repurchase program. Proceeds from the
issuance of common stock to employees exercising stock options amounted to $9.1
million, $4.7 million and $1.6 million in 1996, 1995 and 1994, respectively.
As of December 31, 1996, the Company had credit arrangements with six United
States financial institutions which totalled $330.0 million (see Note 6 of
Notes to Consolidated Financial Statements). These lines, which may be used
for unsecured borrowings and letters of credit (issued primarily to finance
foreign inventory purchases), contain an aggregate sub-limit of $190.0 million
for unsecured borrowings with rates depending on the borrowing vehicle utilized.
At December 31, 1996, $100.1 million was utilized for letters of credit and
there were no short-term borrowings outstanding, leaving $229.9 million
available for additional borrowings or letters of credit at that date. The
Company also has a line of credit with a Canadian institution for C$4.0 million
to be used for unsecured borrowings under which no amounts were outstanding at
December 31, 1996.
The Company believes that funds generated by operations and the bank credit
arrangements will provide the financial resources sufficient to meet its
foreseeable working capital, letter of credit, capital expenditure and stock
repurchase requirements.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
which have been experienced in the United States and Canada, where it competes,
have had a significant effect on its net sales or profitability.
SEASONALITY OF BUSINESS
Historically, the Company's sales and profit levels fluctuate by quarter.
As a result, the Company experiences seasonal increases and decreases in
its working capital requirements. These patterns result primarily from the
timing of shipments for each season; however, the timing of seasonal shipments
can vary from quarter to quarter. Fall merchandise is shipped principally in
the third quarter while Spring merchandise is shipped primarily in the first
quarter. Summer and Holiday/Resort goods, the smaller of the seasons, are
shipped primarily in the second and fourth quarters, respectively. For an
analysis of quarterly historical operating trends, see Note 16 of Notes to
Consolidated Financial Statements.
- 18 -
19
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which provides
for the calculation of "basic" and "diluted" earnings per share as opposed to
the current "primary" and "fully diluted" earnings per share. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
from the assumed exercise of stock options in a manner similar to fully diluted
earnings per share, except that the use of the market price at the end of the
period when that price is higher than the average market price for the period
has been eliminated. This standard is effective for periods ending after
December 15, 1997. The adoption of this standard is not expected to have a
significant effect on the Company's earnings per share calculation.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations of beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements other than
statements of historical facts included in this Annual 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, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Report. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of Jones Apparel Group, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and other financial information presented in this report. The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and properly reflect the effects of
certain estimates and judgements made by management.
The Company's management maintains an effective system of internal control
that is designed to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and executed in accordance with
management's authorization. The system is continuously monitored by direct
management review, the independent accountants and by internal auditors who
conduct an extensive program of audits throughout the Company.
The Company's consolidated financial statements have been audited by BDO
Seidman, LLP, independent accountants. Their audits were conducted in
accordance with generally accepted auditing standards, and included a review
of financial controls and tests of accounting records and procedures as they
considered necessary in the circumstances.
- 19 -
20
The Audit Committee of the Board of Directors, which consists of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to review accounting, reporting, auditing and internal
control matters. The committee has direct and private access to both internal
and external auditors.
/s/ Sidney Kimmel /s/ Wesley R. Card
Sidney Kimmel Wesley R. Card
Chairman Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Jones Apparel Group, Inc.
We have audited the accompanying consolidated balance sheets of Jones Apparel
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jones
Apparel Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 7, 1997
- 20 -
21
Jones Apparel Group, Inc.
Consolidated Balance Sheets
(All amounts in thousands except per share data)
December 31, 1996 1995
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,085 $ 16,864
Accounts receivable, net of allowance
of $2,263 and $2,257 for doubtful accounts 112,678 92,147
Inventories 214,437 176,626
Receivable from and advances to contractors 11,490 21,083
Deferred taxes 9,708 12,265
Prepaid expenses and other current assets 11,432 12,480
-------- --------
TOTAL CURRENT ASSETS 389,830 331,465
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and amortization 61,696 36,657
INTANGIBLES, at cost less accumulated amortization 26,288 26,585
DEFERRED TAXES 461 120
OTHER ASSETS 9,834 6,132
-------- --------
$488,109 $400,959
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 41 $ 71
Current portion of capital lease obligations 3,026 2,256
Accounts payable 72,569 59,077
Income taxes payable 8,959 2,427
Accrued expenses and other current liabilities 11,265 6,781
-------- --------
TOTAL CURRENT LIABILITIES 95,860 70,612
-------- --------
NONCURRENT LIABILITIES:
Obligations under capital leases 12,134 10,102
Long-term debt 7 49
-------- --------
TOTAL NONCURRENT LIABILITIES 12,141 10,151
-------- --------
TOTAL LIABILITIES 108,001 80,763
-------- --------
COMMITMENTS AND CONTINGENCIES - -
EXCESS OF NET ASSETS ACQUIRED OVER COST 3,379 5,221
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares
authorized 1,000; none issued - -
Common stock, $.01 par value - shares
authorized 100,000; issued 53,595 and 52,563 536 263
Additional paid-in capital 99,140 84,172
Retained earnings 317,192 236,318
Cumulative foreign currency translation adjustment (1,154) (1,140)
-------- --------
415,714 319,613
Less treasury stock, 1,600 and 261 shares, at cost (38,985) (4,638)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 376,729 314,975
-------- --------
$488,109 $400,959
======== ========
See accompanying notes to consolidated financial statements
- 21 -
22
Jones Apparel Group, Inc.
Consolidated Statements of Income
(All amounts in thousands except per share data)
Year Ended December 31, 1996 1995 1994
---------- -------- --------
NET SALES $1,021,042 $776,365 $633,257
COST OF GOODS SOLD 717,250 546,413 438,575
---------- -------- --------
Gross profit 303,792 229,952 194,682
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 186,572 139,135 115,307
LICENSING INCOME (13,036) (10,314) (8,487)
---------- -------- --------
Income from operations 130,256 101,131 87,862
INTEREST EXPENSE 3,040 1,908 1,212
INTEREST INCOME (547) (445) (695)
---------- -------- --------
Income before provision for
income taxes 127,763 99,668 87,345
PROVISION FOR INCOME TAXES 46,889 36,183 32,425
---------- -------- --------
NET INCOME $ 80,874 $ 63,485 $ 54,920
========== ======== ========
EARNINGS PER SHARE
Primary $1.51 $1.20 $1.04
Fully diluted $1.50 $1.19 $1.04
WEIGHTED AVERAGE COMMON SHARES AND SHARE
EQUIVALENTS OUTSTANDING
Primary 53,665 53,046 52,924
Fully diluted 54,077 53,458 52,925
See accompanying notes to consolidated financial statements
- 22 -
23
Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity
(All amounts in thousands)
Cumulative
foreign
currency
trans- Total
Additional lation stock-
Common paid-in Retained adjust- Treasury holders'
stock capital earnings ments stock equity
---- ------- -------- ------- -------- --------
BALANCE, JANUARY 1, 1994 $256 $71,688 $117,996 $ (820) $ - $189,120
YEAR ENDED DECEMBER 31, 1994:
Executive stock
options issued - 428 - - - 428
Recognition of deferred
compensation in
connection with
executive stock options - (428) - - - (428)
Amortization of deferred
compensation of
executive stock options
outstanding - 274 - - - 274
Net income - - 54,920 - - 54,920
Exercise of stock options 3 1,620 - - - 1,623
Tax benefit derived from
exercise of stock options - 3,129 - - - 3,129
Foreign currency
translation adjustments - - - (388) - (388)
---- ------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1994 259 76,711 172,916 (1,208) - 248,678
YEAR ENDED DECEMBER 31, 1995:
Amortization of deferred
compensation in
connection with
executive stock options - 232 - - - 232
Net income - - 63,485 - - 63,485
Exercise of stock options 4 4,730 (83) - 168 4,819
Tax benefit derived from
exercise of stock options - 2,499 - - - 2,499
Stock tendered as payment
for options exercised - - - - (168) (168)
Treasury stock acquired - - - - (4,638) (4,638)
Foreign currency
translation adjustments - - - 68 - 68
---- ------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 263 84,172 236,318 (1,140) (4,638) 314,975
YEAR ENDED DECEMBER 31, 1996:
Executive stock
options issued - 274 - - - 274
Recognition of deferred
compensation in
connection with
executive stock options - (274) - - - (274)
Amortization of deferred
compensation in
connection with
executive stock options - 290 - - - 290
Net income - - 80,874 - - 80,874
Exercise of stock options 6 9,825 - - - 9,831
Tax benefit derived from
exercise of stock options - 5,157 - - - 5,157
Stock tendered as payment
for options exercised - - - - (763) (763)
Treasury stock acquired - - - - (33,584) (33,584)
Effect of 2-for-1
stock split 267 (267) - - - -
Registration of 1996
Stock Option Plan - (37) - - - (37)
Foreign currency
translation adjustments - - - (14) - (14)
---- ------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1996 $536 $99,140 $317,192 $(1,154) $(38,985) $376,729
==== ======= ======== ======= ======== ========
See accompanying notes to consolidated financial statements
- 23 -
24
Jones Apparel Group, Inc.
Consolidated Statements of Cash Flows
(All amounts in thousands)
Year Ended December 31, 1996 1995 1994
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $80,874 $63,485 $54,920
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,948 6,724 4,192
Provision for losses on trade receivables 800 (464) (355)
Deferred taxes 7,233 7,622 3,038
Other 416 40 390
Decrease (increase) in:
Trade receivables (21,349) (17,873) (27,200)
Inventories (37,814) (53,077) (23,326)
Prepaid expenses and other current assets 10,624 (10,746) (4,656)
Other assets (3,703) (5,027) (2,416)
Increase (decrease) in:
Accounts payable 13,498 13,371 3,668
Taxes payable 6,673 4,116 1,775
Accrued expenses and other
current liabilities 4,492 768 (1,187)
------- ------- -------
Total adjustments (10,182) (54,546) (46,077)
------- ------- -------
Net cash provided by operating activities 70,692 8,939 8,843
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (34,066) (16,013) (9,490)
Proceeds from disposition of assets 261 635 3
Acquisition of trademarks and licenses (1,492) (28) (78)
Acquisition of minority interest in
Fashion Enterprises, Inc. - - (4,694)
------- ------- -------
Net cash used in investing activities (35,297) (15,406) (14,259)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and
capital leases (2,623) (2,606) (1,760)
Purchases of treasury stock (33,584) (4,638) -
Proceeds from capital leases 5,000 5,000 -
Proceeds from exercise of stock options 9,068 4,651 1,623
Other (37) - -
------- ------- -------
Net cash provided by (used in)
financing activities (22,176) 2,407 (137)
------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH 2 (202) (331)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 13,221 (4,262) (5,884)
CASH AND CASH EQUIVALENTS, BEGINNING 16,864 21,126 27,010
------- ------- -------
CASH AND CASH EQUIVALENTS, ENDING $30,085 $16,864 $21,126
======= ======= =======
See accompanying notes to consolidated financial statements
- 24 -
25
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash, cash equivalents and
accounts receivable. The Company places its cash and cash equivalents in
investment-grade, short-term debt instruments with quality financial
institutions and the U.S. Government and, by policy, limits the amount of
credit exposure in any one financial vehicle. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The allowance for non-collection
of accounts receivable is based upon the expected collectibility of
all accounts receivable.
Financial Instruments
The fair value of cash and cash equivalents and receivables approximate their
carrying value due to their short-term maturities.
Inventories
Inventories are stated at the lower of cost or market. Wholesale inventories
are determined using the first-in, first-out method while retail inventories
are determined using the retail method.
Property, Plant, Equipment and Depreciation
Depreciation and amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from five to eight years.
Leased Property Under Capital Leases
Property under capital leases is amortized over the lives of the respective
leases or the estimated useful lives of the assets.
Intangibles
Intangibles, which include trademarks and license agreements, are amortized
on a straight-line basis over the estimated useful lives of the assets.
Startup Costs
Costs incurred in the startup phase of new labels are capitalized and
amortized over a period of 18 months beginning in the period with initial
shipments of products bearing the label.
Excess of Net Assets Acquired Over Cost
The excess of net assets acquired over cost of acquired businesses is
amortized using the straight-line method over a five year period.
- 25 -
26
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Foreign Currency Translation
The financial statements of the foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translations." Balance sheet accounts are translated at the
current exchange rate and income statement items are translated at the average
exchange rate for the period. Gains and losses resulting from the translation
are accumulated in a separate component of stockholders' equity. Segment data
is not provided as foreign operations are not material.
Treasury Stock
Treasury stock is recorded at net acquisition cost. Gains and losses on
disposition are recorded as increases or decreases to capital with losses in
excess of previously recorded gains charged directly to retained earnings.
Revenue Recognition
Sales are recognized upon shipment of products or, in the case of retail
sales, at the time of register receipt. Allowances for estimated returns are
provided when sales are recorded.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Current tax assets and liabilities are recognized for the estimated
Federal, foreign, state and local income taxes payable or refundable on the tax
returns for the current year. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary timing
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based
on the changes to the respective assets and liabilities from period to period.
Stock Options
The Company uses the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount the employee must
pay to acquire the stock. The compensation cost is recognized over the vesting
period of the options.
Earnings per Share
The computation of earnings per share is based on the weighted average number
of common shares outstanding during the period plus, in periods in which they
have a dilutive effect, the effect of common shares issuable upon exercise of
stock options. Fully diluted earnings per share also reflect additional
dilution related to stock options due to the use of the market price at the
end of the period when this price is higher than the average market price for
the period.
Cash Equivalents
The Company considers all highly liquid debt instruments to be cash
equivalents.
Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" in 1996. The Company reviews certain long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
In that regard, the Company assesses the recoverability of such assets based
upon estimated non-discounted cash flow forecasts.
- 26 -
27
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 2. COMMON STOCK
On July 30, 1996, the Company's Board of Directors approved 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 September 12, 1996. Concurrently,
the number of authorized shares of Common Stock was increased to 100,000,000.
On October 2, 1996, a total of 26,744,580 shares of Common Stock were issued in
connection with the split. The stated par value of each share remained at
$0.01. The issuance of authorized but unissued shares resulted in the transfer
of $267,000 from additional paid-in capital to common stock, representing the
par value of the shares issued. All share and per share amounts have been
restated to retroactively reflect the stock split.
NOTE 3. ACQUISITIONS
On November 8, 1993, the Company acquired 80% ownership of Fashion
Enterprises, Inc. ("FEI") as a result of a reorganization plan confirmed by
the U.S. Bankruptcy Court for the Western District of Texas. FEI operates as
an exclusive manufacturing contractor for the Company. FEI was located in El
Paso, Texas with two manufacturing facilities in Ciudad de Juarez, Mexico.
The Company acquired its 80% ownership in satisfaction of a $410,000 advance
that had been made to FEI prior to bankruptcy and its agreement to finance FEI's
reorganization plan with up to $650,000 in loans. The acquisition was accounted
for as a purchase with the results of FEI included from the acquisition date.
In connection with the FEI acquisition, the Company recorded a deferred tax
asset for the tax effect of FEI's net operating loss carryforward, which was
completely utilized by December 31, 1996. The acquisition of FEI and its net
operating losses resulted in an excess of net assets acquired over cost of
$15,336,000 after application to all noncurrent assets acquired. This amount
is being amortized on a straight-line basis over five years from the date of
acquisition.
On December 15, 1994, the Company acquired the remaining 20% of FEI for
$4,694,000 in cash. The acquisition of this minority interest reduced the
recorded excess of net assets acquired over cost by $4,755,000. On December
31, 1994, FEI was merged with and into the Company.
NOTE 4. INVENTORIES
Inventories are summarized as follows:
December 31, 1996 1995
(In thousands) -------- --------
Raw materials $ 38,571 $ 36,908
Work in process 37,682 30,872
Finished goods 138,184 108,846
-------- --------
$214,437 $176,626
======== ========
- 27 -
28
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
December 31, 1996 1995
(In thousands) -------- --------
Land and buildings $ 36,763 $ 13,839
Leasehold improvements 24,712 19,424
Machinery and equipment 25,340 16,203
Furniture and fixtures 6,932 5,197
Construction in progress 1,076 7,379
-------- --------
94,823 62,042
Less: accumulated depreciation and amortization 33,127 25,385
-------- --------
$ 61,696 $ 36,657
======== ========
Included in property, plant and equipment are the following capitalized
leases:
December 31, 1996 1995
(In thousands) -------- --------
Buildings $ 31,006 $ 13,839
Machinery and equipment 3,538 3,186
Construction in progress - 6,733
-------- --------
34,544 23,758
Less: accumulated amortization 10,243 8,394
-------- --------
$ 24,301 $ 15,364
======== ========
NOTE 6. SHORT-TERM BORROWINGS
At December 31, 1996, the Company had credit arrangements with six United
States financial institutions which totalled $330,000,000. These lines,
which may be used for unsecured borrowings and letters of credit (issued
primarily to finance foreign inventory purchases), contain an aggregate
sub-limit of $190,000,000 for unsecured borrowings with rates depending on
the borrowing vehicle utilized. At December 31, 1996, the estimated
aggregate interest rate on the lines was 7.25%. The Company was committed
for unexpired bank letters of credit at December 31, 1996 in the amount of
$100,124,000 and there were no short-term borrowings outstanding, leaving
$229,876,000 available for additional borrowings or letters of credit at
that date. The Company also has a line of credit with a Canadian institution
for C$4,000,000 to be used for unsecured borrowings under which no amounts
were outstanding at December 31, 1996.
- 28 -
29
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 7. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
December 31, 1996 1995
(In thousands) -------- --------
Warehouses, office facility and equipment $ 15,160 $ 12,358
Less: current portion 3,026 2,256
-------- --------
Obligations under capital leases - noncurrent $ 12,134 $ 10,102
======== ========
The Company occupies a warehouse and office facility leased from an
affiliated real estate partnership which is 50% owned by the Company's Chairman.
The fifteen year net lease runs until March 15, 1998 and requires minimum annual
rent payments of $1,000,000. The lease was capitalized at the fair market value
of the facility which approximated the present value of the minimum lease
payments.
The Company occupies warehouse and office facilities leased from the City of
Lawrenceburg, Tennessee. Three ten-year net leases run until February 2004,
July 2005 and May 2006, respectively, and require minimum annual rent payments
of $500,000 each plus accrued interest. In connection with these leases, the
Company guaranteed $15,000,000 of Industrial Development Bonds issued in order
to construct the facilities, $12,583,000 of which remained unpaid as of
December 31, 1996. The financing agreement with the issuing authority (i)
requires the Company to maintain stipulated levels of insurance and tangible
net worth, (ii) requires the Company to maintain minimum ratios of cash flow
to debt service and liabilities to tangible net worth and (iii) contains
certain other restrictions.
The Company also leases various equipment under three to five year leases
at an aggregate annual rental of $671,000. The equipment has been capitalized
at its fair market value of $2,429,000, which approximates the present value of
the minimum lease payments.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1996:
Year Ending December 31,
(In thousands)
1997 $ 3,996
1998 2,885
1999 2,601
2000 2,012
2001 1,910
Later years 5,853
------
Total minimum lease payments 19,257
Less: amount representing interest 4,097
-------
Present value of net minimum lease payments $15,160
=======
- 29 -
30
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 8. COMMITMENTS
(a) LEASES. Total rent expense charged to operations for the years ended
December 31, 1996, 1995 and 1994 was $18,888,000, $15,359,000 and $11,155,000,
respectively.
The following is a schedule by year of future minimum rental payments required
under operating leases for the next five years:
Year Ending December 31,
(In thousands)
1997 $ 15,580
1998 14,365
1999 13,210
2000 11,012
2001 9,347
Later years 5,859
--------
$ 69,373
========
Certain of the leases provide for renewal options and the payment of real
estate taxes and other occupancy costs.
(b) CONTINGENT LIABILITIES. Various lawsuits and claims arising during the
normal course of business are pending against the Company and its consolidated
subsidiaries. In the opinion of management, the ultimate liability, if any,
resulting from these matters will have no significant effect on the Company's
consolidated financial position, results of operations or liquidity.
(c) ROYALTIES. Under an exclusive license to manufacture certain items
under the Lauren Ralph Lauren trademark pursuant to license and design service
agreements with Polo Ralph Lauren, L.P., the Company is obligated to pay Polo
Ralph Lauren, L.P. a percentage of net sales of Lauren Ralph Lauren products.
Under these agreements, minimum payments of $7,000,000 are due for each of the
years 2000 and 2001. The license and design service agreements expire on
December 31, 2001 and provide for certain renewal options at that time.
- 30 -
31
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 9. INCOME TAXES
The following summarizes the provision for income taxes:
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
Current:
Federal $ 34,522 $ 23,236 $ 25,528
State and local 3,733 3,030 2,545
Foreign 1,401 2,295 1,314
-------- -------- --------
39,656 28,561 29,387
-------- -------- --------
Deferred:
Federal 7,722 7,653 2,774
State and local (489) (31) 264
-------- -------- --------
7,233 7,622 3,038
-------- -------- --------
Provision for income taxes $ 46,889 $ 36,183 $ 32,425
======== ======== ========
The foreign and domestic components of income before provision for income
taxes were as follows:
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
United States $125,650 $ 94,224 $ 84,164
Canada 2,378 2,666 1,516
Other (265) 2,778 1,665
-------- -------- --------
Income before provision for
income taxes $127,763 $ 99,668 $ 87,345
======== ======== ========
The provision for income taxes on adjusted historical income differs from the
amounts computed by applying the applicable Federal statutory rates due to the
following:
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
Provision for Federal income taxes
at the statutory rate $ 44,717 $ 34,884 $ 30,571
State and local income taxes, net
of federal benefit 2,108 1,949 2,449
Amortization of excess of net
assets acquired over cost (645) (645) (1,056)
Other items, net 709 (5) 461
-------- -------- --------
Provision for income taxes $ 46,889 $ 36,183 $ 32,425
======== ======== ========
- 31 -
32
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company has not provided for U.S. Federal and foreign withholding taxes on
$1,545,000 of foreign subsidiaries' undistributed earnings as of December 31,
1996. Such earnings are intended to be reinvested indefinitely. It is not
practical to determine the amount of income tax liability that would have
resulted had such earnings been actually repatriated. On repatriation certain
foreign countries impose withholding taxes. The amount of withholding tax that
would be payable on remittance of the entire amount of undistributed earnings
would approximate $85,000.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
December 31, 1996 1995
(In thousands) -------- --------
Deferred tax assets:
Nondeductible accruals and allowances $ 8,009 $ 1,860
Operating loss carryforwards - 10,670
Depreciation and amortization 1,118 (25)
Other (net) 1,042 (120)
-------- --------
Net deferred tax asset $ 10,169 $ 12,385
======== ========
NOTE 10. INTANGIBLE ASSETS
Intangible assets consist of trademarks and license agreements. Intangibles
are amortized on a straight-line basis over their estimated lives, which
vary from 1-1/2 to 20 years. Trademarks and license agreements as of December
31, 1996 and 1995 consisted of:
Useful
lives
December 31, 1996 1995 (years)
(In thousands) -------- -------- -----------
Trademarks $ 26,865 $ 25,373 20
License agreements 5,319 5,319 1-1/2 to 19
-------- --------
32,184 30,692
Less: accumulated amortization 5,896 4,107
-------- --------
$ 26,288 $ 26,585
======== ========
- 32 -
33
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. SIGNIFICANT CUSTOMERS
The significant portion of the Company's sales are to retailers throughout the
United States and Canada. Sales to nine department store customers currently
owned by the Federated Department Stores, Inc. ("Federated") accounted for
20%, 21% and 20% for the years ended December 31, 1996, 1995 and 1994,
respectively. Sales to eight department store customers currently owned by
the May Department Stores Company ("May") accounted for 20%, 19% and 19% for
the years ended December 31, 1996, 1995 and 1994, respectively. Federated and
May accounted for 42% of accounts receivable at December 31, 1996.
NOTE 12. COMMON STOCK REPURCHASE PROGRAM
In 1995, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's Common Stock in open market transactions over
a two-year period ending in December, 1997. As of December 31, 1996,
1,572,200 shares had been acquired at a total cost of $38,222,000, leaving
$61,778,000 available for future repurchases.
NOTE 13. STOCK OPTIONS
At December 31, 1996, the Company has two stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the plans.
Under APB Opinion 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
Under the Company's 1991 and 1996 Stock Option Plans, options to purchase an
aggregate of not more than 5,000,000 shares and 4,000,000 shares, respectively,
of common stock may be granted from time to time to key employees, officers,
directors, advisors and independent consultants to the Company or to any of its
subsidiaries. The Plans are administered by the Board of Directors, which has
empowered a committee of directors to administer the Plans.
Under both plans, the per share exercise price for incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of the
common stock on the date the option is granted (110% of fair market value on
the date of grant of an ISO if the optionee owns more than 10% of the Company).
Under the 1991 Plan, the per share exercise price for non-qualified stock
options ("NQSOs") will not be less than 75% of the fair market value on the
date the option is granted. The 1996 Plan has no restrictions on NQSO
pricing. Under the 1991 Plan, options may be granted for a term to be
determined by the committee of not less than one or more than ten years from
the date of grant; under the 1996 Plan, options may be granted for a term
of not less than six months or more than ten years from the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value-based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1995 and 1996,
respectively: no dividends paid for all years; expected volatility of 40.7%
and 38.9%; risk-free interest rates of 6.16% and 6.20%; and expected lives of
3.0 and 3.0 years.
- 33 -
34
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Under the accounting provisions of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the following table.
December 31, 1996 1995
------- -------
Net income (in thousands)
As reported $80,874 $63,485
Pro forma 79,074 63,387
Primary earnings per share
As reported $1.51 $1.20
Pro forma $1.47 $1.19
Fully diluted earnings per share
As reported $1.50 $1.19
Pro forma $1.46 $1.19
The following table contains information on stock options for the three year
period ended December 31, 1996:
Exercise Weighted
Option price range average
shares per share price
--------- ------------------ --------
Outstanding, January 1, 1994 5,038,200 $0.40 to $16.125 $7.59
Granted 1,274,000 $12.00 to $17.125 $12.76
Exercised 660,500 $0.40 to $11.25 $2.46
Forfeited 1,925,334 $0.40 to $17.125 $8.79
--------- ------------------ --------
Outstanding, December 31, 1994 3,726,366 $0.40 to $16.125 $9.65
Granted 180,000 $12.00 to $17.75 $14.28
Exercised 777,766 $0.40 to $14.25 $6.20
Forfeited 78,000 $7.00 to $16.125 $13.63
--------- ------------------ --------
Outstanding, December 31, 1995 3,050,600 $0.40 to $17.75 $10.71
Granted 2,166,000 $14.715 to $34.375 $24.53
Exercised 1,031,230 $0.40 to $14.5625 $9.53
Forfeited 76,200 $7.00 to $24.00 $16.80
--------- ------------------ --------
Outstanding, December 31, 1996 4,109,170 $0.40 to $34.375 $18.17
========= ================== ========
Exercisable at year-end
1994 941,966 $0.40 to $16.125 $6.20
1995 980,400 $0.40 to $15.0625 $8.93
1996 733,770 $0.40 to $17.50 $9.56
1991 Plan 1996 Plan
--------- ---------
Available for future grants
1994 1,040,334 -
1995 938,334 -
1996 49,534 2,799,000
- 34 -
35
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Exercise price Exercise price Total
less than market equal to market options
---------------- --------------- -------
Weighted-average fair value of:
Options granted in 1995 - $4.74 $4.74
Options granted in 1996 $8.46 $8.00 $8.01
The following table summarizes information about stock options outstanding at
December 31, 1996.
Range of exercise prices: $0.40 $11.25 $21.125 $32.625 $0.40
to to to to to
$9.50 $19.625 $24.75 $34.375 $34.375
-------- --------- --------- ------- ---------
Outstanding Options
Number outstanding
at December 31, 1996 450,600 1,663,570 1,755,000 240,000 4,109,170
Weighted-average remaining
contractual life (years) 5.5 8.5 10.6 10.4 9.2
Weighted-average
exercise price $6.30 $13.13 $23.98 $23.80 $18.17
Exercisable options
Number outstanding
at December 31, 1996 280,600 453,170 - - 733,770
Weighted-average
exercise price $4.59 $12.63 - - $9.56
NOTE 14. EMPLOYEE BENEFIT PLAN
The Company maintains the Jones Apparel Group, Inc. Retirement Plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. Full-time employees
not covered by a collective bargaining agreement and meeting certain other
requirements are eligible to participate in the Plan. Under the Plan,
employees may elect to have up to 15% of their salary deferred and deposited
with a qualified trustee, who in turn invests the money in a variety of
investment vehicles as selected by each employee. From July 1, 1991 through
March 31, 1994, the Company matched 25% of each participant's contributions
with the Company's contribution limited to a maximum of 1% of the employee's
total compensation subject to limitations imposed by the Internal Revenue
Code. On April 1, 1994, these amounts were increased to 30% and 1.8%,
respectively, for employees earning less than $150,000 per year. On April 1,
1996, the contribution rates were increased to 50% and 3.0%, respectively, for
employees earning less than $150,000 per year and 35% and 2.1%, respectively,
for employees earning over $150,000 per year. The Company may, at its sole
discretion, contribute additional amounts to all employees on a pro rata basis.
All employee contributions into the Plan are 100% vested, while the Company's
matching contributions vest over a five year period. The Company contributed
approximately $801,000, $369,000 and $292,000 to the Plan during the years
ended December 31, 1996, 1995 and 1994, respectively.
- 35 -
36
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 15. STATEMENT OF CASH FLOWS
Cash interest payments during the years ended December 31, 1996, 1995 and
1994 were $3,207,000, $2,118,000 and $1,279,000, respectively.
Cash income tax payments during the years ended December 31, 1996, 1995 and
1994 were $32,110,000, $23,068,000 and $26,459,000, respectively.
Equipment acquired through capital lease financing during the years ended
December 31, 1996, 1995 and 1994 amounted to $353,000, $216,000 and $381,000,
respectively.
Reductions in income tax payments resulting from the exercise of employee
stock options during the years ended December 31, 1996, 1995 and 1994 were
$5,157,000, $2,499,000 and $3,129,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the year ended December 31, 1996 exchanged
28,000 shares of the Company's Common Stock (valued at $763,000) for 67,430
newly issued shares and during the year ended December 31, 1995 exchanged
11,536 shares of the Company's Common Stock (valued at $168,000) for 24,000
newly issued shares.
NOTE 16. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
Unaudited interim consolidated financial information for the two years
ended December 31, 1996 is summarized as follows (earnings per share are
fully diluted where applicable):
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1996
Net sales $260,350 $193,275 $309,019 $258,398
Gross profit 72,793 61,032 95,497 74,470
Income from operations 32,652 21,534 49,788 26,282
Net income 20,339 13,338 30,878 16,319
Earnings per share $0.38 $0.25 $0.58 $0.30
1995
Net sales $191,987 $156,303 $243,505 $184,570
Gross profit 59,037 48,994 69,376 52,545
Income from operations 27,092 17,365 38,159 18,515
Net income 16,728 10,720 23,978 12,059
Earnings per share $0.32 $0.20 $0.45 $0.22
- 36 -
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Office
- -------------- --- -------------------------------------
Sidney Kimmel 69 Chairman and Director
Herbert J. Goodfriend 70 Vice Chairman and Director
Jackwyn Nemerov 45 President
Irwin Samelman 66 Executive Vice President, Marketing
and Director
Wesley R. Card 49 Chief Financial Officer
Gary R. Klocek 46 Controller
Geraldine Stutz 68 Director
Howard Gittis 63 Director
Prior to February 11, 1997, each director who was not a full-time employee
of the Company received an annual retainer of $20,000 for services as a
director plus $1,500 for each board and separate committee meeting attended
during the year. Effective February 11, 1997, each director who is not a
full-time employee of the Company will receive an annual grant of options to
purchase 1,000 shares of the Company's common stock at an exercise price of
$1.00 per share. Each option will expire on the tenth anniversary of its date
of grant, and will be exercisable, in whole or in part, during the exercise
period. Officers are appointed by the Board of Directors.
The Board of Directors has appointed an Audit Committee consisting of Ms.
Stutz and Mr. Gittis. The Audit Committee meets periodically to review and
make recommendations with respect to the Company's internal controls and
financial reports, and in connection with such reviews, has met with
appropriate Company financial personnel and the Company's independent
certified public accountants. The Board of Directors has also appointed a
Stock Option Committee consisting of Ms. Stutz and Mr. Gittis to administer
the 1991 and 1996 Stock Option Plans and a Compensation Committee consisting
of Ms. Stutz and Mr. Gittis to determine cash and other incentive compensation
to be paid to the Company's executive officers.
- 37 -
38
Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970.
Mr. Kimmel has served as Chairman since 1975. Prior to 1975, Mr. Kimmel
occupied various executive offices including President of Jones New York and
Vice President of John Meyer of Norwich. Prior to founding Jones, Mr. Kimmel
was employed by W.R. Grace & Co. and was President of Villager, Inc., a
sportswear company.
Mr. Goodfriend joined the Company in 1990 after serving as the Company's legal
counsel for the previous three years and has served as a director since July
1991. Before joining Jones, Mr. Goodfriend served as a director of Villager,
Inc. and Venice Industries, Inc. In addition, Mr. Goodfriend is engaged in the
practice of law and is of counsel to the firm of Phillips Nizer Benjamin Krim &
Ballon LLP, which performs legal services for the Company.
Ms. Nemerov was appointed President in January 1997. She joined the Company
in 1985 and served as President of the Company's casual sportswear divisions
and the Lauren Ralph Lauren division. Prior to joining Jones, Ms. Nemerov was
President of the Gloria Vanderbilt division of Murjani, Inc. from 1980 through
1985.
Mr. Samelman has been Executive Vice President, Marketing of the Company
since 1991 and has served as a director since July 1991. In addition, from 1987
to 1991, Mr. Samelman provided marketing consulting services to the Company
through Samelman Associates, Inc., a private consulting company controlled by
him. Prior thereto, Mr. Samelman was Regional Marketing Manager of Russ Togs,
Inc. and Vice President of Villager, Inc.
Mr. Card joined the Company in 1990. Prior to joining Jones, Mr. Card held
the positions of Executive Vice President and Chief Financial Officer of
Carolyne Roehm, Inc., and Corporate Vice President, Controller and Assistant
Secretary of Warnaco, Inc.
Mr. Klocek has been Controller of the Company since August 1987. Prior to
joining Jones, Mr. Klocek held various positions with Atlantic Richfield
Company ("ARCO") from 1979 through 1987, his last position being Manager of
Cost and Inventory Control for one of ARCO's subsidiaries.
Ms. Stutz has been a director of the Company since July 1991. Since 1993,
Ms. Stutz has been a principal partner of Panache Productions, a fashion and
marketing service. During the previous five years, she was Publisher of Panache
Press at Random House, a book publisher. From 1960 until 1986, Ms. Stutz was
President of Henri Bendel. Ms. Stutz serves on the Board of Directors of
Tiffany & Co., The Theatre Development Fund and The Actors' Fund.
Mr. Gittis has been a director of the Company since April 1992. During the
past five years, Mr. Gittis' principal occupation has been Director and Vice
Chairman of MacAndrews & Forbes Holdings Inc., a diversified holding company.
In addition, Mr. Gittis is a director of Andrews Group Incorporated, California
Federal Bank, a Federal Savings Bank, Consolidated Cigar Corporation,
Consolidated Cigar Holdings Inc., First Nationwide Holdings Inc., First
Nationwide (Parent) Holdings Inc., Loral Space and Communications Ltd.,
Mafco Consolidated Group Inc., Pneumo Abex Corporation, Power Control
Technologies, Inc., Revlon, Inc., Revlon Consumer Products Corporation,
Revlon Worldwide Corporation and Rutherford-Moran Oil Corporation.
Key Employees
The following persons, although not executive officers of the Company, make
significant business contributions to the Company:
- 38 -
39
Rena Rowan was the original creator of the Jones New York line and served as
the division's Chief Designer from 1970 to 1982. She is currently Vice
President, Design of the Company. From 1991 to 1993 Ms. Rowan was an executive
vice president of the Company. Prior to the inception of Jones New York, Ms.
Rowan was employed by Villager, Inc. and Rosenau, Inc.
Howard Buerkle has been President of Retail Operations for the Company since
1989. From 1986 through 1989, Mr. Buerkle was President of the retail division
of Inwear/Martinique.
Ellen Daniel joined Jones in 1994 in the dual capacity of Senior Vice
President - Corporate Merchandising Manager and President of Evan-Picone
division. From 1982 through 1994, Ms. Daniel was employed by Liz Claiborne,
most recently as Senior Vice President - Corporate Design Director.
Ira Dansky joined the Company in 1996 as General Counsel. Prior to joining
the Company, Mr. Dansky was engaged in private law practice from 1987 through
1996, prior to which he served as Associate General Counsel of Xerox
Corporation.
Ronald Harrison, Vice President of Manufacturing, joined the Company in 1981.
Mr. Harrison had been Plant Manager for Chief Apparel, Inc. from 1965 through
1981.
Barbara Kennedy has been President of the Jones New York Dress Division since
August 1991. From 1983 through August 1991, Ms. Kennedy was employed by
Bloomingdale's in various capacities, most recently as Vice President,
Merchandise Manager.
Robert Kutner, President of Jones Apparel Group Canada, Inc., joined the
Company in 1983. Prior to 1983, Mr. Kutner was employed by Highland Queen Corp.
Jeffrey Levy, President of Rena Rowan for Saville, joined the Company in 1990.
Prior to joining Jones, Mr. Levy was Vice President of Sales and National Sales
Manager, of Russ Togs, Inc. from 1984 through 1990.
Benny Lin joined Jones Apparel Group in December 1995 as Creative Director of
the Lauren Ralph Lauren division. Mr. Lin had been Fashion Director at Macy's
East prior to joining the Company.
Martin Marlowe joined Jones Apparel Group in 1992 as Vice President of Foreign
Manufacturing. Prior to joining Jones, Mr. Marlowe was President of Jodi
International, an apparel importer, from 1988 to 1992.
Helen Merril, President of the Evan-Picone Dress Divisions, joined Jones
Apparel Group in October 1993. Prior to joining the Company, Ms. Merril held
the positions of President of Scassi Dress of De Peche Corporation and President
of Nippon Boutique of Albert Nippon Inc.
Susan Metzger, Vice President of Sales for the Lauren Ralph Lauren division,
joined the Company in May 1996. Prior to joining Jones Apparel Group, Ms.
Metzger held the positions of Vice President of Sales of Chaus, Inc. and Sales
Manager of JH Collectibles.
Deanna Randall, who joined the Company in 1981, has held various sales and
marketing positions with the Company, and is currently President of the Jones
New York career division.
John Sammaritano, Vice President of Distribution, joined Jones in 1975. Mr.
Sammaritano had been Vice President of Distribution for Villager, Inc. from 1964
through 1975.
- 39 -
40
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions "EXECUTIVE
COMPENSATION" and "EMPLOYMENT AND COMPENSATION ARRANGEMENTS" is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" is incorporated herein
by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the captions "CERTAIN
TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
are incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
1. The schedule and report of independent certified public
accountants thereon, listed on the Index to Financial Statement
Schedules attached hereto.
2. The Exhibits, which are listed on the Exhibit Index
attached hereto.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
- 40 -
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 27, 1997
JONES APPAREL GROUP, INC.
(Registrant)
By: /s/ Sidney Kimmel
-------------------------
Sidney Kimmel, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- --------------------------- --------------
/s/ Sidney Kimmel Chairman and Director March 27, 1997
- ----------------- (Chief Executive Officer)
(Sidney Kimmel)
/s/ Wesley R. Card Financial Officer March 27, 1997
- ------------------ (Principal Financial Officer)
(Wesley R. Card)
/s/ Gary R. Klocek Controller March 27, 1997
- ------------------ (Principal Accounting Officer)
(Gary R. Klocek)
/s/ Herbert J. Goodfriend Vice Chairman and Director March 27, 1997
- -------------------------
(Herbert J. Goodfriend)
/s/ Irwin Samelman Executive Vice President, March 27, 1997
- ------------------ Marketing and Director
(Irwin Samelman)
/s/ Geraldine Stutz Director March 27, 1997
- -------------------
(Geraldine Stutz)
/s/ Howard Gittis Director March 27, 1997
- -----------------
(Howard Gittis)
- 41 -
42
JONES APPAREL GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants on Schedule
Schedule II. Valuation and qualifying accounts
Schedules other than those listed above have been omitted since the
information is not applicable, not required or is included in the
respective financial statements or notes thereto.
EXHIBIT INDEX
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 3.1 Articles of Incorporation, as amended
(1) 3.1 3.3 By-Laws
(3) 3.3 3.4 Amendment to By-Laws
(1) 10.2 10.2 Lease Agreement between the Registrant and
Bristol Associates, L.P., re: 250 Rittenhouse
Circle
(1) 10.5 10.5 Form of 1991 Stock Option Plan +
(1) 10.7 10.7 Employment and Stock Option Agreements between
the Registrant and Herbert J. Goodfriend +
(2) 10.17 10.17 Note Agreement with The Industrial Development
Board of the City of Lawrenceburg, Tennessee
(2) 10.18 10.18 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1995
(2) 10.19 10.19 Lease agreement between the Registrant and the
Industrial Development Board of the City of
Lawrenceburg
(3) 10.20 10.20 Letter Agreement between the Registrant and
Philadelphia National Bank
(3) 10.21 10.21 Letter Agreement between the Registrant and
First Fidelity Bank
(3) 10.22 10.22 Letter Agreement between the Registrant and the
Bank of New York
- 42 -
43
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(3) 10.23 10.23 Letter Agreement between the Registrant and
Chase Manhattan Bank
(4) 10.24 10.24 Letter Agreement between the Registrant and
Chase Manhattan Bank
(4) 10.25 10.25 Letter Agreement between the Registrant and
Bank of Boston
(4) 10.26 10.26 Series 1996 Note Agreement with The Industrial
Development Board of the City of Lawrenceburg,
Tennessee
(4) 10.27 10.27 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1996
(4) 10.28 10.28 First Amendment to Lease Agreement between the
Registrant and the Industrial Development Board
of the City of Lawrenceburg
(4) 10.29 10.29 Agreement between the Registrant and Herbert J.
Goodfriend with respect to consulting services
following termination of employment +
* 10.30 Series 1996 Note Agreement with The Industrial
Development Board of the City of Lawrenceburg,
Tennessee
* 10.31 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1996
* 10.32 Lease Agreement between the Registrant and the
Industrial Development Board of the City of
Lawrenceburg
* 10.33 Form of 1996 Stock Option Plan +
* 10.34 Letter Agreement between the Registrant and
CoreStates Bank
* 10.35 Master Short Term Borrowing Agreement between
the Registrant and CoreStates Bank
* 10.36 Letter Agreement between the Registrant and
First Union Bank
* 10.37 Letter Agreement between the Registrant and the
Bank of New York
* 10.38 Letter Agreement between the Registrant and
Bank of Boston
* 10.39 Money Market Line Commercial Promissory Note
between the Registrant and Bank of Boston
* 10.40 License Agreement between the Registrant and
Polo Ralph Lauren, L.P., dated October 18,
1995#
- 42 -
43
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 10.41 Design Services Agreement between the Registrant
and Polo Ralph Lauren, L.P., dated October
18, 1995#
* 10.42 Lease Agreement between the Registrant and The
Shelton Companies
* 10.43 Letter Agreement between the Registrant and
Israel Discount Bank of New York
* 11 Computation of Earnings per Share
* 21 List of Subsidiaries
* 23 Consent of BDO Seidman, LLP
* 27 Financial Data Schedule. (Exhibit 27 is
submitted as an exhibit only in the electronic
format of this Annual Report on Form 10-K
submitted to the Securities and Exchange
Commission.)
____________________
* Filed herewith.
# Portions deleted pursuant to application for confidential treatment under
Rule 24B-2 of the Securities Exchange Act of 1934.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by Reference to the Company's Registration Statement on Form
S-1 (file No. 33-39742).
(2) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
(3) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(4) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
- 44 -
45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
The audits referred to in our report dated February 7, 1997 relating to the
consolidated financial statements of Jones Apparel Group, Inc. and subsidiaries,
which is contained in Item 8 of Form 10-K, included the audit of the financial
statement schedule listed in the accompanying index for each of the three years
ended December 31, 1996. The financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 7, 1997
- 45 -
46
SCHEDULE II
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(In Thousands)
Column A Column B Column C Column D Column E
- ------------------------------- ---------- ------------------------- ---------- ---------
Additions
-------------------------
Balance at Charged to Charged to Balance
beginning costs and other Deductions at end of
Description of period expenses accounts period
- ------------ ---------- ---------- ----------- ---------- ---------
For the year ended
December 31, 1994:
Allowance for doubtful accounts $3,720 $(355) $ - $805 $2,560
For the year ended
December 31, 1995:
Allowance for doubtful accounts $2,560 $(464) $ - $(161) $2,257
For the year ended
December 31, 1996:
Allowance for doubtful accounts $2,257 $(800) $ - $(806) $2,263
Doubtful accounts written off (recovered) against accounts receivable.
- 46 -