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JNY > SEC Filings for JNY > Form 8-K on 13-Feb-2014All Recent SEC Filings

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Form 8-K for JONES GROUP INC


13-Feb-2014

Regulation FD Disclosure


Item 7.01 Regulation FD Disclosure.

As previously announced, on December 19, 2013, The Jones Group Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger Agreement") with Jasper Parent LLC ("Parent") and Jasper Merger Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of Parent, providing for the merger of Merger Sub with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent (the "Surviving Corporation"). Parent and Merger Sub are beneficially owned by affiliates of Sycamore Partners, L.P. and Sycamore Partners A, L.P. (collectively, the "Sponsor").

Substantially concurrent with the closing of the Merger, Parent intends to transfer ownership of certain of the Company's business lines to separate controlled affiliates of the Sponsor. Following completion of such transfers, the Surviving Corporation's business (the "RemainCo Business") will be comprised of the Nine West Business and the Jeanswear Business (each as defined in the Merger Agreement, which the Company previously filed as Exhibit 2.1 to the Current Report on Form 8-K on December 23, 2013), together with certain corporate level assets and obligations to be retained by the Surviving Corporation. The Nine West Business and the Jeanswear Business are referred to herein as "Nine West Co." and "Jeanswear Co.", respectively.

On February 12, 2014, the commitment letter relating to the debt financing for the RemainCo Business was amended to, among other things, increase the senior secured term loan B from $400 million to $470 million and to decrease from $525 million to $455 million the senior unsecured bridge facility available to fund the repurchase of any of the Company's existing senior unsecured notes due 2019 in connection with a change of control offer therefor. See "Pro Forma Capitalization" below for more detail on the RemainCo Business' capitalization as adjusted for the transactions.

In connection with the arrangement of the debt financing for the RemainCo Business, the Sponsor and the Company's management prepared certain preliminary financial and other information related to the RemainCo Business, which will be disclosed to prospective lenders on the date hereof and which has been reproduced below. Such preliminary financial and other information does not represent a comprehensive statement of the financial results for the RemainCo Business or for the Company. Such preliminary financial and other information has been derived from the Company's internal books and records, and the Company's independent auditors have not completed their audit of such preliminary financial information and, as a result, such information is preliminary and subject to change (and such changes could be material). The estimates are subject to risks and uncertainties, many of which are not within the Company's control. In addition, such results do not purport to indicate the RemainCo Business' results of operations for any future period beyond the year ended December 31, 2013. The Company does not expect to disclose publicly whether or not this preliminary financial information has changed, or to update such results. Such preliminary financial information may vary from, and may not be directly comparable to, the historical financial information of the RemainCo Business or the Company on a consolidated basis and any such differences may be material. Accordingly, investors and shareholders should not place undue reliance on such financial information.


This Current Report on Form 8-K contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (the "SEC" ). For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. To supplement the RemainCo Business' preliminary financial information presented in accordance with GAAP, the Sponsor and the Company's management disclosed to prospective lenders on the date hereof non-GAAP information regarding the effect on Net Revenues, Operating Income, Gross Profit, Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), EBITDA Before Rent Expense ("EBITDAR"), Rent Expense and Capital Expenditures related to, among other things:

the impairments recorded as a result of the annual review of indefinite-lived intangible assets and goodwill;

severance, fixed asset impairment and other charges and credits related to the closure of underperforming retail locations;

the amortization of certain acquired intangible assets from the acquisition of Atwood Italia S.r.l.;

investment consulting fees, legal fees, accounting fees and other items related to the acquisitions and other business development activities;

severance and restricted stock amortization related to executive management changes; and

present value accruals and adjustments for liabilities related to leases on properties currently not in use.

These non-GAAP measures were provided by the Sponsor and the Company's management to enhance the user's overall understanding of the RemainCo Business' preliminary financial results. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for or superior to GAAP results. The non-GAAP measures of Adjusted Net Revenue, Adjusted Gross Profit, Adjusted Operating Income, EBITDA, Adjusted EBITDA, Adjusted EBITDAR, Adjusted Rent Expense and Adjusted Capital Expeditures included herein have been reconciled to the equivalent GAAP measure.


Pro Forma Capitalization

The following table summarizes the RemainCo Business' capitalization as adjusted
for the carveout transactions and proposed financing:(1)
--------------------------------------------------------------------------------
                                                                                               PF 2013
$MM                                                                        (Preliminary and Unaudited)

Debt:(2)
Guaranteed ABL Revolver ($250MM Capacity) (3)                                                       55
Guaranteed Senior Secured Term Loan B                                                              470
Guaranteed Total Debt (4)                                                                          525
Rolled Unsecured Fixed Rate Guaranteed Loan Notes (5) (6)                                           10
Rolled 2019 Notes                                                                                  400
Rolled 2034 Notes                                                                                  250
Total Debt                                                                                       1,185

Pro Forma Financials
Adjusted Net Revenues                                                                            2,223
Pro Forma Adjusted EBITDA                                                                          236
Pro Forma Adjusted EBITDAR                                                                         276
Adjusted Capital Expenditures                                                                       22
Adjusted Rent Expense                                                                               40
Capitalized at 8.0x                                                                                318
Pro Forma Credit Ratios
Secured Debt / Pro Forma Adj. EBITDA                                                               2.2 x
Guaranteed Debt / Pro Forma Adj. EBITDA                                                            2.2 x
Guaranteed Rent-Adj. Debt / Pro Forma Adj. EBITDAR                                                 3.1 x
Total Debt / Pro Forma Adj. EBITDA                                                                 5.0 x
Total Rent-Adj. Debt / Pro Forma Adj. EBITDAR                                                      5.4 x
Pro Forma Adj. EBITDA / Cash Interest Expense                                                      3.6 x
Pro Forma Adj. EBITDA- Adj. CapEx / Cash Interest Expense                                          3.2 x



1) This presentation contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. Adjusted Net Revenues, Adjusted Gross Profit, Adjusted Operating Income, Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro Forma Adjusted EBITDAR, Adjusted Capital Expenditures, and Adjusted Rent Expense, and any ratios derived therefrom, are non-GAAP financial measures that exclude certain items such as asset impairments and restructuring activities in order to estimate the RemainCo Business' financial results and financial position on a going forward basis. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for GAAP results.

2) Transaction structure assumes the existing 2019 Notes are not put to the Company in connection with the required change of control offer. If less than $25 million of the 2019 Notes are put, the Company will increase its draw on the ABL Revolver. If more than $25 million of the 2019 Notes are put, the Company plans to use the Senior Unsecured Bridge Facility (or issue senior notes) with a minimum size of $250 million by reducing the draw on the ABL Revolver to zero and then reducing the Term Loan accordingly. If all of the 2019 Notes were to put, the expected capitalization would include a $470 million Term Loan and $455 million Senior Unsecured Bridge Facility (or senior notes) with no draw on the ABL Revolver and $260 million of Rollover Debt.

3) ABL Revolver may also be drawn for seasonal working capital needs unrelated to funding the transaction.

4) Guaranteed debt includes newly-issued debt supported by upstream guaranties and where appropriate for rent-adjusted leverage metrics, Adjusted Rent Expense capitalized at 8x.

5) 6.2MM of TJG 2016 Unsecured Fixed Rate Guaranteed Loan Notes converted at USD/GBP exchange rate of 1.64 as of February 7, 2014.

6) TJG 2016 Unsecured Fixed Rate Guaranteed Loan Notes to be supported by a letter of credit issued under the new ABL, and are not included in the Guaranteed Debt calculation.


RemainCo Business Summary Financial Highlights(1)

--------------------------------------------------------------------------------
Preliminary Income Statement and Cash Flow Items
$MM
                                                (Preliminary and Unaudited)
                                                  2011          2012        2013

Selected Income Statement Items
Adjusted Net Revenues                            2,180         2,186       2,223
Adjusted Gross Profit                              665           665         675
 % Margin                                         30.5 %        30.4 %      30.4 %
Adjusted EBITDA                                    161           174         198
% Margin                                           7.4 %         8.0 %       8.9 %
Pro Forma Adjusted EBITDA                                                    236
% Margin                                                                    10.6 %
Cash Flow Summary
Adjusted EBITDA                                    161           174         198
Adjusted Capital Expenditures                      (18 )         (27 )       (22 )
Free Cash Flow (Adj. EBITDA - Adj. CapEx)          143           147         176
Free Cash Flow Conversion                           89 %          85 %        89 %



1) This presentation contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. Adjusted Net Revenues, Adjusted Gross Profit, Adjusted Operating Income, Adjusted EBITDA, Pro Forma Adjusted EBITDA, Pro Forma Adjusted EBITDAR, Adjusted Capital Expenditures, and Adjusted Rent Expense, and any ratios derived therefrom, are non-GAAP financial measures that exclude certain items such as asset impairments and restructuring activities in order to estimate the RemainCo Business' financial results and financial position on a going forward basis. These measures should be considered in addition to results prepared in accordance with GAAP, but are not a substitute for GAAP results.



Selected Preliminary Historical Income Statement Data $MM (Preliminary and Unaudited)
Year Ended December 31,                                    2011        2012        2013
Net Sales                                                 2,137       2,147       2,190
Licensing Income                                             53          49          48
Other Revenues                                                1           1           1
Total Revenues                                            2,191       2,197       2,239
Cost of Goods Sold                                        1,519       1,524       1,553
Gross Profit                                                672         673         686
Selling, General and Administrative Expenses                596         574         565
Goodwill Impairment                                           -           -           3
Trademark Impairments                                        32          18           7
Operating Income                                             44          81         111


--------------------------------------------------------------------------------
Notes


1) The preliminary financial information with respect to the RemainCo Business on a standalone basis after giving effect to the transactions has been prepared by, and is the responsibility of, the Sponsor and the Company's management and does not represent a comprehensive statement of the financial results for the RemainCo Business or the Company. Such preliminary financial information has been derived from the Company's internal books and records and the Company's independent auditors have not completed their audit of such preliminary financial information and, as a result, such information is preliminary and subject to change (and such changes could be material). The estimates are subject to risks and uncertainties, many of which are not within the Company's control. In addition, such results do not purport to indicate the RemainCo Business' results of operations for any future period beyond the year ended December 31, 2013. The Company does not expect to disclose publicly whether or not this preliminary financial information has changed, or to update such results. The carveout financial information varies from, and is not directly comparable to the historical financial information of the Company on a consolidated basis and any such differences may be material. No representations or warranties are made with respect to the accuracy or completeness of the preliminary financial information. Accordingly, you should not place undue reliance on such financial information.


2013 Compared with 2012

Revenues. Total revenues for 2013 were $2.24 billion, compared with $2.20 billion for 2012, an increase of 1.9%. Revenues by segment were as follows:

                                                                     Increase         Percent
  (In millions)                             2013          2012       (Decrease)        Change

  Wholesale jeanswear                  $   827.8         747.2             80.6          10.8 %
  Wholesale footwear and accessories     1,003.5       1,023.2            (19.7 )        (1.9 )
  Retail                                   359.0         377.8            (18.8 )        (5.0 )
  Licensing                                 48.2          48.4             (0.2 )        (0.4 )
  Total revenues                       $ 2,238.5     $ 2,196.6     $       41.9           1.9 %

Wholesale jeanswear revenues increased $80.6 million, primarily due to increased shipments of our Gloria Vanderbilt, l.e.i., Nine West Jeans, Jessica Simpson, Bandolino and private label product lines resulting from positive product performance of both replenishment and fashion product at the retail level across our key customers. This was slightly offset by decreased shipments of our Energie product line due to poor retail performance.

Wholesale footwear and accessories revenues decreased $19.7 million. Footwear revenues decreased $31.7 million, primarily due to decreased shipments of the following footwear lines: Enzo Angiolini, B Brian Atwood and Circa Joan & David resulting from poor product performance; Boutique 9, Joan & David, Jones New York, Rachel Rachel Roy and Gloria Vanderbilt resulting from our decision to exit the footwear category of these brands; Bandolino due to the exit of a program with a customer in the value channel; Mootsies Tootsies due to the decision of a retail customer to exit the brand in 2012, and Sam & Libby due to the sale of the trademark in August 2012. Our Nine West international business decreased primarily from decreased shipments to our licensees in Asia, Canada, United Arab Emirates, Central and South America and South Africa and the exit of our licensee in Russia and Poland. These decreases were partially offset by increased value channel sales of our Nine West and Anne Klein footwear lines, an increase in sales to internet retailers of our Nine West footwear line, increased sales of our Easy Spirit and Nine & Co footwear lines due to strong performance at retail, shipments of our Cloud 9 footwear lines, which launched in Fall 2012, increased shipments of product for our private label businesses, the wholesale launch of Kurt Geiger footwear in the United States in Fall 2013, and a full year of sales of the acquired Brian Atwood product line. Accessories revenues increased $12.0 million, primarily due to strong product performance of our Anne Klein and Nine West handbag lines, the launch of our B Brian Atwood handbags and our Nine West, Napier, Givenchy and Anne Klein jewelry lines resulting from positive product performance at the retail level. These increases were partially offset by a decrease in shipments of Nine & Co and Rachel Rachel Roy handbags resulting from our decision to exit this category for those brands.

Retail revenues decreased $18.8 million, primarily due to a net $19.7 million reduction related to our program to close underperforming locations and a 0.9% decrease in comparable store sales ($3.0 million), partially offset by $3.9 million in sales for new retail stores opened under the Kurt Geiger and Brian Atwood brands. We began the current period with 373 retail locations and had a net decrease of 69 locations to end the year with 304 locations. Our comparable e-commerce business sales increased 14.6% ($7.1 million) while our comparable footwear store sales decreased 3.5% ($10.1 million). Comparable stores are locations (including e-commerce sites) that have been open for a full year, are not scheduled to close in the current period and are not scheduled for a footprint expansion or downsize by more than 25% or relocation to a different street or mall.


Licensing revenues decreased $0.2 million, primarily due to decreased licensing revenue from termination of our licenses with licensees in Poland and Russia and the repurchase of a footwear license from one our licensees in the fourth quarter of 2013.

Gross Profit. The gross profit margins were 30.7% and 30.6% in 2013 and 2012, respectively.

Wholesale jeanswear gross profit margins were 24.4% and 24.0% for 2013 and 2012, respectively. The increase was primarily due to the mix of products sold as well as improved margins for certain brands due to lower production costs and/or increased wholesale prices for certain brands.

Wholesale footwear and accessories gross profit margins were 26.5% and 26.0% for 2013 and 2012, respectively. The increase was primarily due to lower sourcing and agent costs resulting from the mix of licensees in our Nine West international business and the mix of products sold.

Retail gross profit margins were 47.2% and 47.4% for 2013 and 2012, respectively. The decrease was primarily due to the mix of products sold.

Selling, General and Administrative Expenses. SG&A expenses were $564.5 million and $574.1 million in 2013 and 2012, respectively.

Wholesale jeanswear SG&A expenses decreased $0.8 million, primarily due to a $4.0 million decrease in marketing and advertising expenses, a $1.1 million decrease in outside services due to lower fabric testing costs and a $0.4 million decrease in administrative expenses. These decreases were partially offset by a $2.5 million increase in compensation expense due to higher headcount to support revenue growth, a $0.8 million increase in royalties associated with the growth of the Jessica Simpson brand, a $0.7 million increase in distribution expenses driven by increased sales volume, and a $0.5 million increase in restricted stock amortization and $0.2 million of other net cost increases.

Wholesale footwear and accessories SG&A expenses decreased $25.2 million, primarily due to a net $16.6 million decrease in losses recorded related to future costs of leases on buildings we do not currently use, a $7.0 million reduction in compensation expenses (due to headcount reductions, the transfer of certain positions to our retail and licensing and other segments, as well as reduced pension expense), a $4.0 million net decrease in occupancy and depreciation expenses, a $2.1 million decrease in severance expense, a $1.8 million net decrease in advertising and marketing, a $1.2 million decrease in samples and $2.0 million of other net cost decreases. These decreases were partially offset by a $6.2 million decrease in support costs charged to other business units, a $2.6 million increase in administrative expenses and $0.7 million of expenses added as a result of the operating the Brian Atwood business for a full year.

Retail SG&A expenses increased $1.3 million, primarily due to a $6.0 million increase in operating costs for new retail stores opened under the Kurt Geiger and Brian Atwood brands, a $5.7 million increase in store-related asset impairment charges compared with the prior period, a $2.8 million increase in lease termination fees, $1.8 million due to the settlement of a legal matter, and $0.4 million in other net increases. These increases were partially offset by a net $10.2 million decrease in employee compensation and occupancy costs, a $4.0 million decrease in support costs from other business units and a $1.2 million loss on disposal of fixed assets in the prior year related to store closings.

SG&A expenses for the licensing and other segment increased $15.1 million, primarily due to a $4.8 million effect of unfavorable exchange rate differences between the U.S. Dollar and the British Pound and Canadian Dollar (primarily related to intercompany balances), a $4.5 million increase in corporate allocations from Jones, a $3.1 million gain on sale of a trademark in the prior year, $2.1 million increase in administrative expenses, $0.3 million decrease in advertising contribution payments from our licensees in 2013 and $0.3 million in other net increases.


Trademark and Goodwill Impairment Losses. As a result of our annual trademark impairment analyses, we recorded trademark impairment charges of $7.2 million and $17.9 million in 2013 and 2012, respectively, as a result of decreases in projected revenues for certain brands. As a result of our annual goodwill impairment analysis, we recorded goodwill impairment charges of $3.2 million in 2013. For more information, see "Goodwill and Other Intangible Assets" in Notes to Consolidated Financial Statements.

Operating Income. The resulting operating income for 2013 was $111.3 million, compared with $81.1 million for 2012, due to the factors described above.

2012 Compared with 2011

Revenues. Total revenues for 2012 were $2.20 billion, compared with $2.19 billion for 2011, an increase of 0.3%. Revenues by segment were as follows:

                                                                      Increase       Percent
  (In millions)                             2012          2011       (Decrease)       Change

  Wholesale jeanswear                  $   747.2         776.9            (29.7 )       (3.8 %)
  Wholesale footwear and accessories     1,023.2         939.4             83.8          8.9
  Retail                                   377.8         421.3            (43.5 )      (10.3 )
  Licensing                                 48.4          53.3             (4.9 )       (9.2 )
  Total revenues                       $ 2,196.6     $ 2,190.9     $        5.7          0.3 %

Wholesale jeanswear revenues decreased $29.7 million, primarily due to reduced shipments of our l.e.i. product line in the first half of 2012 (resulting from a challenging retail environment), our Gloria Vanderbilt and Erika product lines (resulting from the change in Penney's retail strategy), our Grane product line (resulting from poor product performance at the retail level), our Bandolino product line (resulting from a change in retail strategy at Macy's, Inc.) and our Energie product line (resulting from a continued challenging retail climate in the moderate junior zone and product assortment issues). These decreases were partially offset by increased shipments of our Nine West denim product line (resulting from additional club and special markets business) and our Jessica Simpson product line (resulting from positive product performance at the retail level and new product extensions).

Wholesale footwear and accessories revenues increased $83.8 million, primarily due to increased shipments of our Nine West and AK Anne Klein handbag and jewelry product lines (resulting from positive performance at the retail level and increase in our jewelry market share as a result of a competitor's exit), the launch of our B Brian Atwood and Rachel Roy footwear product lines in fall 2011 and 2012, respectively, a $3.7 million increase in revenues from the acquired Brian Atwood business and increased shipments of our Easy Spirit, Nine West, Bandolino, Enzo Angiolini, Anne Klein and private label footwear product lines (all resulting from positive performance at the retail level). Sales in . . .

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