UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended May 4, 1996
Commission File No. 1-11161
Nine West Group Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1093855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9 West Broad Street
Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
(314) 579-8812
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $.01 par value, outstanding as of the
close of business on June 12, 1996: 35,622,209.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income - Thirteen weeks
ended May 4, 1996 and April 29, 1995 3
Condensed Consolidated Balance Sheets - May 4, 1996 and
February 3, 1996 4
Condensed Consolidated Statements of Cash Flows - Thirteen
weeks ended May 4, 1996 and April 29, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
2
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
May 4 April 29
1996 1995
(In thousands except per share data)
Net revenues......................... $355,068 $170,531
Cost of goods sold................... 202,277 92,212
-------- --------
Gross profit....................... 152,791 78,319
Selling, general and
administrative expenses............. 115,819 54,988
Amortization of acquisition goodwill,
trademarks and trade names.......... 2,391 -
-------- --------
Operating income................... 34,581 23,331
Interest expense - net............... 9,967 91
Other income - net................... 468 235
-------- --------
Income before income taxes......... 25,082 23,475
Income tax expense................... 10,032 9,425
-------- --------
Net income......................... $ 15,050 $ 14,050
======== ========
Weighted average common
shares outstanding.................. 36,572 34,810
-------- --------
Earnings per common share............ $ 0.41 $ 0.40
======== ========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
3
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
May 4 February 3
1996 1996
(Unaudited)
ASSETS (In thousands except share data)
Current Assets:
Cash........................................... $ 28,484 $ 20,782
Accounts receivable - net...................... 58,022 78,867
Inventories - net.............................. 412,691 396,676
Deferred income taxes.......................... 43,686 46,088
Assets held for sale........................... 32,013 31,118
Prepaid expenses and other current assets...... 14,543 18,249
---------- ----------
Total current assets........................ 589,439 591,780
Property and equipment - net...................... 118,196 136,719
Deferred income taxes............................. 21,932 21,658
Goodwill.......................................... 231,639 233,149
Trademarks and trade names........................ 145,124 146,053
Other assets...................................... 29,226 30,733
---------- ----------
Total assets............................... $1,135,556 $1,160,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 126,484 $ 139,731
Accrued expenses and other current liabilities. 109,812 134,737
Current portion of long-term debt.............. 20,000 20,000
---------- ----------
Total current liabilities................... 256,296 294,468
Long-term debt.................................... 454,000 471,000
Other non-current liabilities..................... 71,766 66,298
---------- ----------
Total liabilities........................... 782,062 831,766
---------- ----------
Stockholders' Equity:
Common stock($0.01 par value, 100,000,000 shares
authorized; 35,569,214 and 35,240,052 shares
issued and outstanding)........................ 355 352
Warrants......................................... 57,600 57,600
Additional paid-in capital....................... 141,710 131,595
Retained earnings................................ 153,829 138,779
---------- ----------
Total stockholders' equity.................. 353,494 328,326
---------- ----------
Total liabilities and stockholders' equity. $1,135,556 $1,160,092
========== ==========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
4
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
May 4 April 29
1996 1995
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 15,050 $ 14,050
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 8,176 2,318
Provision for losses on accounts receivable........ 4,005 (408)
Provision for losses on inventory.................. (93) (2,602)
Loss on disposal of property and equipment......... 238 57
Deferred income taxes.............................. 2,128 1,050
Changes in assets and liabilities:
Increase in balance of accounts receivable sold. 11,921 -
Accounts receivable............................. 4,919 3,339
Inventory....................................... (17,282) 9,335
Prepaid expenses and other assets............... 1,762 (2,054)
Accounts payable................................ (13,247) (2,738)
Accrued expenses and other liabilities.......... (14,303) (3,477)
--------- --------
Net cash provided by operating activities............. 3,274 18,870
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (8,199) (12,487)
Proceeds from sale of property and equipment.......... 19,773 -
Net increase in other assets.......................... (264) (250)
--------- --------
Net cash provided (used) by investing activities...... 11,310 (12,737)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under financing agreements.. 18,000 (3,900)
Repayments of debt.................................... (35,000) -
Net proceeds from issuance of stock................... 10,118 3,515
--------- --------
Net cash used by financing activities................. (6,882) (385)
--------- --------
NET INCREASE IN CASH.................................. 7,702 5,748
CASH, BEGINNING OF PERIOD............................. 20,782 4,256
--------- --------
CASH, END OF PERIOD................................... $ 28,484 $ 10,004
========= ========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements.
5
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Nine West Group Inc. (the "Company"), its wholly-owned subsidiaries and its
controlled-interest joint ventures. The accompanying financial statements have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. All intercompany transactions and balances have been
eliminated from the financial statements for the periods presented. The results
of operations for the thirteen weeks ended May 4, 1996 are not necessarily
indicative of the results to be expected for the full year ending February 1,
1997.
On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Financial information for the thirteen weeks ended May
4, 1996 (the "First Quarter of 1996") is not comparable to financial information
for the thirteen weeks ended April 29, 1995 (the "First Quarter of 1995") as the
Acquisition was not consummated until May 23, 1995.
During the second quarter of fiscal 1995, the Company changed its fiscal
year from December 31 to a 52/53-week period ending on the Saturday closest to
January 31. The financial statement information with respect to the First
Quarter of 1995 included in this Quarterly Report has been restated to reflect
the results of operations of the Company for the thirteen-week period which
began on January 29, 1995 and ended on April 29, 1995.
Certain information and disclosures normally included in the notes to
condensed consolidated financial statements have been condensed or omitted as
permitted by the rules and regulations of the Securities and Exchange
Commission, although the Company believes the disclosures are adequate to make
the information presented not misleading. The accompanying unaudited financial
statements should be read in conjunction with the financial statements contained
in the Annual Report on Form 10-K of the Company for the 53 weeks ended February
3, 1996.
2. INVENTORIES
Inventories are valued at the lower of cost or market. Approximately 63%
of inventory values were determined by using the FIFO (first in, first out)
method of valuation as of May 4, 1996; the remainder was determined by using the
weighted average cost method. Inventory is comprised of (in thousands):
Raw materials............................................... $ 24,621
Work in process............................................. 3,460
Finished goods.............................................. 384,610
--------
Total inventory........................................ $412,691
========
6
3. CASH FLOWS
Cash paid for income taxes was $6.4 million and $2.0 million for the First
Quarter of 1996 and 1995, respectively. Cash paid for interest was $9.9 million
and $117,000 for the First Quarter of 1996 and 1995, respectively.
4. ACQUISITION
In connection with the Acquisition, the Company assumed and included, in
the allocation of the acquisition cost, accruals for involuntary severance and
termination benefits of $8.6 million and relocation costs of $8.2 million.
These severance and relocation costs were incurred as a result of the Company's
integration plan announced during fiscal 1995. The integration plan relates to
the elimination of 295 administrative positions that have become duplicative
through the combination of operations and process efficiencies realized, and
relocation of certain Footwear Group functional and operational employees. Of
these 295 position reductions, approximately 204 were eliminated by May 4, 1996,
with the remaining reductions to be substantially completed during the remainder
of 1996. As of May 4, 1996, approximately $4.1 million ($2.2 million during the
First Quarter of 1996) of severance and termination benefits and $4.6 million
($400,000 during the First Quarter of 1996) of relocation costs had been paid
and charged against these liabilities. These accruals are subject to
adjustment. Any liability recorded in excess of total costs incurred will be
recorded as an adjustment to goodwill. Any costs incurred in excess of the
liability recorded will be included in the determination of net income.
The following unaudited pro forma condensed combined summary of operations
(the "Pro Forma Summary") gives effect to the Acquisition as if such transaction
had occurred at the beginning of the period presented. The Pro Forma Summary
has been prepared utilizing the historical financial statements of the Footwear
Group. Pro forma adjustments include the amortization of goodwill, trademarks
and trade names, additional interest expense in connection with debt incurred to
finance the Acquisition, the elimination of operating results with respect to
discontinued brands, the elimination of operating results with respect to assets
held for sale, the elimination of expenses associated with contracts not
acquired, and the elimination of transactions between the Footwear Group and its
former parent company. The Pro Forma Summary excludes the one-time increase in
cost of goods sold attributable to the fair value of inventory over the FIFO
cost as required by the purchase method of accounting.
13-weeks Ended
April 29, 1995
--------------
(in thousands, except per share amounts)
Net revenues...................................... $323,297
Net loss.......................................... (4,007)
Loss per common share............................. $ (0.12)
The foregoing Pro Forma Summary should not be considered indicative of
actual results that would have occurred had the Acquisition been consummated on
the date or for the period indicated, and does not purport to be indicative of
results of operations as of any future date or for any period.
7
5. BUSINESS RESTRUCTURING AND INTEGRATION CHARGES
During fiscal 1995, the Company began the implementation of its planned
business restructuring and integration activities related to the Acquisition.
While some of the costs associated with the restructuring and integration of the
Footwear Group into the Company are reflected in the allocation of the
acquisition cost of the Footwear Group, the Company incurred and accrued
expenses for restructuring and integration costs of $51.9 million in the fourth
quarter of 1995 (the "Restructuring Charge"). The major components of the
Restructuring Charge are: (1) severance and termination benefits of $7.7
million; (2) write-down of assets, principally leasehold improvements, of $14.6
million; (3) accruals for lease and other contract terminations of $7.0 million;
(4) inventory valuation adjustments of $10.4 million; and (5) other integration
and consolidation costs of $12.2 million.
The Restructuring Charge reflects plans to restructure international
sourcing operations located in Italy, Korea and the Far East, and the
consolidation and integration of various corporate and business unit operations
and support functions. In relation to the Company's restructuring of its retail
operations, the plan includes the elimination of duplicate product lines, the
closing of approximately 40 of the Company's under performing Banister retail
stores and conversion of a number of stores to other nameplates or formats
during fiscal 1996, and the termination of the Company's agreement with
Burlington Coat Factory for its operation of 84 leased shoe departments during
1996.
Total cash outlays related to this charge are estimated at approximately
$22.0 million, of which $7.7 million has been paid through May 4, 1996,
including $3.3 million paid during the First Quarter of 1996. The Restructuring
Charge balance at May 4, 1996 of $27.3 million is included in accrued expenses
and other current liabilities.
During the First Quarter of 1996, the Company continued its planned
business restructuring and integration activities. The following table shows
the activity recorded against the major components of the Restructuring Charge
accrual through May 4, 1996:
Other
Severance Lease and Integration
and Asset Contract Inventory and
Termination Write- Termination Valuation Consolidation
(in thousands) Benefits Downs Costs Adjustments Costs Total
--------- ------- ----------- ----------- ------------ ------
1995 Provision.............. $7,650 $14,620 $7,046 $10,423 $12,161 $51,900
1995 Activity............... 836 14,620 235 - 4,253 19,944
--------- ------ ----------- ----------- ------------ ------
February 3, 1996 balance.... 6,814 - 6,811 10,423 7,908 31,956
First Quarter 1996 activity. 922 - 692 1,485 1,561 4,660
--------- ------ ----------- ----------- ------------ ------
May 4, 1996 balance $5,892 $ - $6,119 $ 8,938 $ 6,347 $27,296
========= ====== =========== =========== ============ ======
In connection with the restructuring of its international sourcing
operations, the Company has substantially completed the liquidation of its
sourcing offices located in the Far East and began to source substantially all
of its Far East production through its new agency arrangement.
In connection with the restructuring of its retail operations the Company
has completed 17 of its 40 planned Banister retail store closings through May 4,
8
1996. The remaining 23 planned Banister retail store closings are expected to
be substantially completed by the end of 1996. During the First Quarter of
1996, the Company also closed 16 of its leased departments operating within
Burlington Coat Factory stores, and on May 10, 1996 entered into an agreement
with a third party to liquidate the remaining 68 Burlington leased departments.
The Company anticipates that the Burlington liquidation will be substantially
completed by the end of the second quarter of 1996.
Severance and termination benefits relate to approximately 475 employees,
of whom 420 were store managers and associates, 50 were engaged in manufacturing
positions, principally related to the liquidation of the Company's Far East
office, and five were management employees. As of May 4, 1996, approximately
165 employees had been terminated, with approximately $1.8 million of severance
and termination benefits being paid and charged against the liability ($922,000
during the First Quarter). The remaining separations are expected to be
substantially completed during the remainder of 1996.
6. SALE/LEASEBACK TRANSACTION
During the First Quarter of 1996, the Company consummated the sale (for
$20.3 million) and leaseback of its distribution facility located in West
Deptford, New Jersey. The lease has been classified as an operating lease.
The cost and accumulated depreciation associated with this facility of
approximately $16.4 million and $2.0 million, respectively, have been removed
from the property and equipment accounts. The net gain realized on the sale of
approximately $5.3 million (net of transaction costs) has been deferred and will
be credited to income as rent expense adjustments over the 20-year initial lease
term. Payments under the lease will approximate $1.7 million annually.
7. SUBSEQUENT EVENTS
On June 5, 1996, the Company consummated the settlement (the "Settlement")
of its previously reported post-closing balance sheet dispute with The United
States Shoe Corporation ("U.S. Shoe"), a subsidiary of Luxottica Group S.p.A.
("Luxottica"). Pursuant to the Settlement, U.S. Shoe was obligated to pay to
the Company the sum of $25.0 million, which will be recorded as a reduction in
goodwill. In addition to settling the post-closing balance sheet dispute, the
Company, U.S. Shoe and Luxottica agreed that the Company would repurchase, for a
price of $67.5 million, the warrants to purchase 3.7 million of its shares of
common stock (the "Common Stock")issued by the Company to U.S. Shoe in
connection with the consummation of the Acquisition (the "Warrants"). The
Warrants were exercisable for shares of Common Stock at a price of $35.50 per
share.
The net payment by the Company to U.S. Shoe of $42.5 million was financed
by the Company under its existing revolving credit facility. As part of the
Settlement, the Company reassigned to U.S. Shoe two license agreements which had
been transferred to it in connection with the Acquisition relative to the
"Capezio" trademark, which is owned by U.S. Shoe. These two license agreements
pertain to products which do not relate to the Company's principal businesses
and which generate insignificant revenue to the Company. The Company will
retain in perpetuity all of the other license agreements relative to the
trademark "Capezio" originally assigned to it in connection with the
Acquisition, and the license to produce and market "Capezio" footwear.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements of the Company and the Notes
thereto included in Item 1 of this report.
All references to "First Quarter of 1996" and "First Quarter of 1995" are
to the Company's thirteen-week periods ended May 4, 1996 and April 29, 1995,
respectively.
On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Financial information for the thirteen weeks ended May
4, 1996 (the "First Quarter of 1996") is not comparable to financial information
for the thirteen weeks ended April 29, 1995 (the "First Quarter of 1995") as the
Acquisition was not consummated until May 23, 1995.
During the second quarter of fiscal 1995, the Company changed its fiscal
year from December 31 to a 52/53-week period ending on the Saturday closest to
January 31. The financial statement information with respect to the First
Quarter of 1995 included in this Quarterly Report has been restated to reflect
the results of operations of the Company for the thirteen-week period which
began on January 29, 1995 and ended on April 29, 1995.
RESULTS OF OPERATIONS
The following table sets forth the Company's condensed consolidated
statements of income in thousands of dollars and as a percentage of net revenues
for the First Quarter of 1996 and First Quarter of 1995.
Thirteen Weeks Ended
May 4 April 29
(in thousands of dollars) 1996 1995
---------------- ----------------
(Unaudited)
Net revenues............................... $355,068 100.0% $170,531 100.0%
Cost of goods sold......................... 202,277 57.0 92,212 54.1
-------- ----- -------- -----
Gross profit............................ 152,791 43.0 78,319 45.9
Selling, general and
administrative expenses................... 115,819 32.6 54,988 32.2
Amortization of acquisition goodwill,
trademarks and trade names................ 2,391 0.7 - -
-------- ----- -------- -----
Operating income........................ 34,581 9.7 23,331 13.7
Interest expense - net..................... 9,967 2.8 91 0.1
Other income - net......................... 468 0.2 235 0.2
-------- ----- -------- -----
Income before income taxes.............. 25,082 7.1 23,475 13.8
Income tax expense......................... 10,032 2.9 9,425 5.6
-------- ----- -------- -----
Net income.............................. $ 15,050 4.2% $ 14,050 8.2%
======== ===== ======== =====
10
THIRTEEN WEEKS ENDED MAY 4, 1996 COMPARED
TO THIRTEEN WEEKS ENDED APRIL 29, 1995
NET REVENUES. Net revenues were $355.1 million in the First Quarter of
1996 compared to $170.5 million in the First Quarter of 1995, an increase of
$184.6 million, or 108.2%. Net revenues of the Company's wholesale division
increased by $97.8 million, or 98.4%, of which $91.1 million is attributable to
the net revenues of the Footwear Group and $6.7 million is attributable to the
increase in net revenues of the Company's wholesale brands that were marketed by
the Company prior to the Acquisition. Sales through the Company's retail stores
increased $86.8 million, or 121.9%. A substantial portion of this increase is
attributable to the 425 Footwear Group retail stores acquired by the Company in
connection with the Acquisition and the opening (net of closings) of 134
additional domestic and foreign retail stores by the Company. Comparable store
sales (including the sales of the acquired Footwear Group stores, had they been
acquired as of the beginning of the comparable period of the prior year)
increased 3.0% for the First Quarter of 1996. Comparable store sales do not
include the results of the leased departments operating within Burlington Coat
Factory stores, which will be closed during 1996. Comparable store sales
include the net revenues of all stores open for an entire month during the
comparable current year and prior year periods. During the First Quarter of
1996, wholesale net revenues accounted for 55.5% of the Company's consolidated
net revenues, while retail operations accounted for the remaining 44.5%.
GROSS PROFIT. Gross profit was $152.8 million in the First Quarter of 1996,
an increase of $74.5 million, or 95.1%, from $78.3 million in the First Quarter
of 1995. Gross profit as a percentage of net revenues decreased to 43.0% in the
First Quarter of 1996 from 45.9% in the First Quarter of 1995. The decrease in
gross profit as a percentage of net revenues is primarily attributable to the
Acquisition as the Footwear Group's gross margins are lower than the Company's
margins prior to the Acquisition.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses (excluding the amortization of goodwill,
trademarks and trade names related to the Acquisition) were $115.8 million in
the First Quarter of 1996, compared to $55.0 million in the First Quarter of
1995, an increase of $60.8 million, or 110.5%. SG&A expense expressed as a
percentage of net revenues rose to 32.6% in the First Quarter of 1996 from 32.2%
in the First Quarter of 1995. The increase is due primarily to the higher level
of SG&A expenses, expressed as a percentage of net revenues, of the Footwear
Group and the increase in the Company's retail operations as compared to its
wholesale operations. The Company's retail operations have a higher expense
level as a percentage of net revenues than its wholesale operations.
OPERATING INCOME. Operating income was $34.6 million, or 9.7% of net
revenues, for the First Quarter of 1996 compared to $23.3 million, or 13.7% of
net revenues, for the First Quarter of 1995. The reduction in operating income
as a percentage of net revenues is attributable to the factors discussed above
and the amortization of goodwill, trademarks and trade names related to the
Acquisition.
INTEREST EXPENSE - NET. Interest expense - net was $10.0 million in the
First Quarter of 1996 compared to $91,000 in the First Quarter of 1995, an
increase of $9.9 million. The increased expense is due to approximately $520
million in average term loans and revolving credit loans outstanding during the
11
First Quarter of 1996 as a result of borrowings required to finance the
Acquisition and meet the Company's working capital requirements.
NET INCOME. Net income for the First Quarter of 1996 was $15.1 million, or
$0.41 per share, compared to net income of $14.1 million, or $0.40 per share,
for the First Quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operations and borrowings
under its credit agreement (the "Credit Agreement") to finance its operations
and expansion. Cash provided by operating activities was $3.3 million for the
First Quarter of 1996, compared to $18.9 million for the First Quarter of 1995.
This decrease in First Quarter 1996 cash flow from operations as compared to the
First Quarter as of 1995 is due primarily to: (1) additional working capital
requirements as a result of the Acquisition and the Company's expansion; (2)
$2.6 million of severance and relocation payments made in connection with the
Acquisition; and (3) $3.3 million of payments made in connection with the
Restructuring Charge. Working capital was $333.1 million at May 4, 1996,
compared to $297.3 million at February 3, 1996. Working capital increased during
the First Quarter of 1996 due to: (1) a $16.1 million increase in inventory to
support wholesale backlog requirements and inventory required for new stores;
(2) a $13.2 million order decrease in accounts payable; and (3) a $24.9 million
decrease in accrued expenses and other current liabilities. These working
capital increases were partially offset by a $20.9 million decrease in accounts
receivable attributable to the accounts receivable securitization program.
Working capital may vary from time to time as a result of seasonal requirements,
the timing of factory shipments and the Company's "open stock" and "quick
response" wholesale programs, which require an increased investment in
inventories.
Total cash outlays related to the Restructuring Charge are estimated at
approximately $22.0 million, of which $3.3 million was paid during the First
Quarter of 1996, bringing total payments through May 4, 1996 to $7.7 million.
In connection with the Acquisition, the Company assumed and included in the
allocation of the acquisition cost of the Footwear Group: (1) accruals for
involuntary severance and termination benefits of $8.6 million; and (2)
relocation costs of $8.2 million. As of May 4, 1996, approximately $4.1 million
and $4.6 million of severance and termination benefits, and relocation costs,
respectively, had been charged against these liabilities ($2.2 million and
$400,000 of severance and termination benefits, and relocation costs,
respectively, were charged during the First Quarter of 1996). The Company
anticipates that the remaining cash outlays relating to these actions will be
substantially completed in fiscal 1996.
On May 23, 1995, the Company entered into a $700.0 million Credit Agreement
which included term loans of: (1) a $400.0 million, six and one-half year,
quarterly amortizing term loan; and (2) a $150.0 million, non-amortizing term
loan. Subsequent to the Acquisition, the Company entered into several
transactions that permanently reduced the commitments undet the Credit Agreement
by an aggregate of $96.0 million. These transactions included: (1) proceeds of
$71.0 million from an accounts receivable securitization program; (2) proceeds
of $20.0 million from the sale and leaseback of the Company's West Deptford, New
Jersey distribution facility during the First Quarter of 1996; and (3) the
scheduled principal repayment of $5.0 million against the amortizing term loan.
12
In addition to the term loans, the Company may borrow up to $150.0 million on a
revolving basis and through letters of credit. As of June 12, 1996, $88.0
million of borrowings and $31.7 million of letters of credit were outstanding on
a revolving basis and $30.3 million was available for future borrowing. The
collective effect of the aforementioned transactions has reduced the Company's
senior secured credit commitment from $700.0 million to $604.0 million.
Amounts outstanding under the Credit Agreement are secured by substantially
all assets of the Company, excluding receivables related to the Receivables
Facility, and bear interest, at the Company's option, at rates based on
Citibank's base rate or the Eurodollar index rate. Borrowings under the Credit
Agreement will become unsecured should the Company reach an "investment grade"
rating on its long term indebtedness. The Company has entered into interest
rate hedge agreements to reduce the impact on interest expense from fluctuating
interest rates on variable rate debt. The weighted average interest rate on
borrowings outstanding as of May 4, 1996 was approximately 6.92%.
The $42.5 million net payment made by the Company to U.S. Shoe on June 5,
1996, in connection with the settlement of the post-closing balance sheet
dispute and the repurchase by the Company, of the Warrants was financed under
its existing revolving credit facility.
On June 13, 1996 the Company announced that it is making a private offering
of $175.0 million principal amount of Convertible Subordinated Notes due 2003.
The Company will grant to the initial purchasers the option to purchase up to an
additional $26,250,000 principal amount of notes solely to cover over
- - -allotments. The Notes will be convertible into Nine West common stock at a
fixed conversion price per share to be determined, subject to adjustment in
certain circumstances. The Notes will be redeemable by Nine West on or after
July 1, 1999 at declining redemption prices. The Company intends to use the net
proceeds to repay a portion of the borrowings outstanding under its Credit
Agreement.
Capital expenditures totaled $8.2 million and $12.5 million in the First
Quarter of 1996 and 1995, respectively. Capital expenditures in the First
Quarter of 1996 relate primarily to the Company's store expansion and remodeling
programs. Capital expenditures in the First Quarter of 1995 relate primarily to
the Company's store expansion and remodeling programs and the construction and
equipping of a 170,000 square foot addition to its New Jersey distribution
center, which commenced in October 1994 and was completed in June 1995 at a
total cost of approximately $7.8 million. Capital expenditures with respect to
warehouse expansion totaled $5.1 million in the First Quarter of 1995. The
Company estimates that its capital expenditures for fiscal 1996 will be between
$55.0 million and $60.0 million, primarily for the on-going expansion of its
retail operations, equipment for its distribution and manufacturing facilities,
and international expansion. The actual amount of the Company's capital
expenditures depends in part on requirements related to the integration of the
Footwear Group into the Company, the number of new stores opened, the number of
stores remodeled and the amount of any construction allowances the Company may
receive from the landlords of its new stores. The opening and success of new
stores will be dependent upon, among other things, general economic and business
conditions affecting consumer spending, the availability of desirable locations
and the negotiation of acceptable lease terms for new locations. As of June 12,
1996, the Company had commitments for approximately $17.2 million of capital
expenditures, related to commitments as of such date to open 121 retail stores,
13
84 of which are intended to be opened during the remainder of fiscal 1996.
The Company expects that its current cash, cash flow anticipated to be
generated from operations and availability under its revolving credit facility
will be sufficient to fund its planned store openings, growth and expansion,
business restructuring and integration of the Footwear Group, and other
operating cash needs for at least the next twelve months.
SEASONALITY
The Company's footwear and accessories are marketed primarily for each of
the four seasons, with the highest volume of products sold during the last three
fiscal quarters. The Company's retail operations, however, generally experience
their weakest results in the first quarter. Because the timing of shipments of
products for any season may vary from year to year, the results for any
particular quarter may not be indicative of results for the full year. The
Company has not had significant overhead and other costs generally associated
with large seasonal variations.
INFLATION
The Company believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's revenues or
profitability. In the past, the Company has been able to maintain its profit
margins during inflationary periods.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 5, 1996, the Company consummated the settlement (the "Settlement")
of its previously reported post-closing balance sheet dispute with The United
States Shoe Corporation ("U.S. Shoe"), a subsidiary of Luxottica Group S.p.A.
("Luxottica"). Pursuant to the Settlement, U.S. Shoe was obligated to pay to
the Company the sum of $25.0 million. The $25.0 settlement will be recorded as
a reduction in Goodwill. In addition to settling the post-closing balance sheet
dispute, the Company and U.S. Shoe agreed that the Company would repurchase, for
a price of $67.5 million, the warrants to purchase 3.7 million of its shares of
common stock (the "Common Stock")issued by the Company to U.S. Shoe in
connection with the consummation of the Acquisition (the "Warrants"). The
Warrants were exercisable for shares of Common Stock at a price of $35.50 per
share.
The net payment by the Company to U.S. Shoe of $42.5 million was financed
by the Company under its existing revolving credit facility. As part of the
Settlement, the Company reassigned to U.S. Shoe two license agreements which had
been transferred to it in connection with the Acquisition relative to the
"Capezio" trademark, which is owned by U.S. Shoe. These two license agreements
pertain to products which do not relate to the Company's principal businesses
and which generate insignificant revenue to the Company. The Company will
retain in perpetuity all of the other license agreements relative to the
trademark "Capezio" originally assigned to it in connection with the
Acquisition, and the license to produce and market "Capezio" footwear.
The Company has been named as a defendant in various actions and
proceedings, including actions brought by certain terminated employees, arising
from its ordinary business activities. Although the liability that could arise
with respect to these actions cannot be accurately predicted, in the opinion of
the Company, any such liability will not have a material adverse effect on its
financial position.
ITEM 5. OTHER INFORMATION
On June 13, 1996, the Company issued a press release which is attached
hereto as exhibit 99 and is incorporated by reference herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Index to Exhibits
(b) Reports on 8-K:
None
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
--------------------
Robert C. Galvin
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
Date: June 13, 1996
16
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- - ------ -------
*2.1.2 Amendment to Asset Purchase Agreement and Settlement Agreement,
dated as of May 29, 1996, by and among the Registrant, Luxottica
Group S.p.A. and The United States Shoe Corporation.
*10.19.2 Amendment No. 2 to the Credit Agreement, dated as of May 29, 1996,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as agents.
*11 Computation of earnings per share.
*99 Press Release of the Registrant, dated June 13, 1996.
*Filed herewith
17