UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52-weeks ended February 1, 1997
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 (I.R.S. Employer
of Incorporation or Organization) Identification Number)
9 West Broad Street
Stamford, Connecticut 06902
(Address of Principal (Zip Code)
Executive Offices)
(314) 579-8812
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class: on Which Registered:
Common Stock, par value $.01 per share New York Stock Exchange
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. Yes: X 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A No. 1 or
any amendment to this Form 10-K/A No. 1. ___
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on April 4, 1997: $1,295,524,514.
Total number of shares of Common Stock, $.01 par value per share,
outstanding as of the close of business on April 4, 1997: 35,792,613.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K is incorporated herein by
reference to the Registrant's definitive proxy statement, filed on April 11,
1997.
EXPLANATORY NOTE
----------------
The undersigned Registrant hereby amends, as and to the extent set forth
below, the following items, financial statements, financial statement schedules,
exhibits or other portions of its Annual Report on Form 10-K for the 1996 fiscal
year ended February 1, 1997, filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934:
TABLE OF CONTENTS
Page
----
PART I
*Item 1 Business x
*Item 2 Properties xx
**Item 3 Legal Proceedings xx
*Item 4 Submission of Matters to a Vote of Security Holders xx
PART II
*Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters xx
*Item 6 Selected Financial Data xx
*Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations xx
*Item 8 Financial Statements and Supplementary Data xx
*Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure xx
* PART III xx
PART IV
* Exhibits, Financial Statement Schedules and Reports on Form 8-K xx
* These items have not been amended and are included herein for
convenience of reference only.
** These items have been amended and restated in their entirety.
PART I
ITEM 1. BUSINESS.
General
Nine West Group Inc. (together with its subsidiaries, the "Company") is a
leading designer, developer and marketer of quality, fashionable women's
footwear and accessories. The Company markets a full collection of casual,
career and dress footwear and accessories under multiple brand names, each of
which is targeted to a distinct segment of the women's footwear and accessories
markets, from "fashion" to "comfort" styles and from "moderate" to "bridge"
price points. The Company's footwear and accessories are sold to more than
7,000 department, specialty and independent retail stores in more than 16,000
locations and through 1,061 of its own retail stores operating as of February 1,
1997. In addition to its flagship Nine West label, the Company's nationally
recognized brands include Amalfi, Bandolino, Calico, cK/Calvin Klein Shoes and
Bags (under license), Easy Spirit, Enzo Angiolini, Evan Picone (under license),
9 & Co., Pappagallo, Pied a Terre, Selby and Westies. The Company's Jervin
private label division also arranges for the purchase of footwear by major
retailers and other wholesalers for sale under the customers' own labels. The
Company believes that its primary strengths are: (1) its widely-recognized
brand names, (2) the high quality, value and styling of its products, (3) its
ability to respond quickly to changing fashion trends, (4) its established
sourcing relationships with efficient manufacturers in Brazil and other
locations, (5) the broad distribution of its products through both wholesale and
retail channels and (6) its ability to provide timely and reliable delivery to
its customers. The Company believes that it is one of the few established
footwear companies that offer several complete lines of well-known women's
leather footwear in a wide variety of colors, styles and retail price points and
that, as a result, it is able to capitalize on what the Company believes is a
continuing trend among major wholesale accounts to consolidate footwear
purchasing from among a narrowing group of vendors. In addition, the Company
believes that the sale of footwear and accessories through its retail stores
increases consumers' awareness of the Company's brands.
Effective June 27, 1995, the Board of Directors of the Company approved the
change of the Company's fiscal year from December 31 to a 52/53-week period
ending on the Saturday closest to January 31. The change in the Company's
fiscal year created a transition period consisting of the four weeks which began
on January 1, 1995 and ended on January 28, 1995. All references to years in
this Annual Report on Form 10-K relate to fiscal years as defined in the Notes
to Consolidated Financial Statements. See "Item 8 - Financial Statements and
Supplementary Data."
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 1996, 1995 and 1994 is not
comparable between years, as Footwear Group results are included in the entire
1996 period and are included in 1995 for the 37-week period from May 23, 1995
through February 3, 1996.
Divisions
The Company distributes its footwear and accessories through wholesale
channels and its own retail stores. Prior to March 1997, the Company's business
was operated through two distinct divisions, wholesale and retail. In March
1997, the Company reorganized its business operations to unite its wholesale and
retail operations through vertically-structured business divisions centered
around the Company's brands. Each such division is responsible for the design,
development and management of its branded footwear. Certain branded divisions,
as well as the Company's international division, are responsible for both
wholesale operations and the Company's specialty retail stores. Retail
operations other than specialty retail stores are conducted through a value-
based division. The Company believes that this vertical structure will enhance
brand equities and the consistency of brand image and presentation.
During the periods presented below, the percentage of net revenues
contributed by the Company's wholesale and retail operations is as follows:
1996 1995 1994
---- ---- ----
Wholesale......................... 55% 55% 58%
Retail............................ 45 45 42
--- --- ---
Total........................ 100% 100% 100%
=== === ===
Wholesale Operations
The Company's domestic wholesale operations include the sale of both brand
name and private label footwear and/or accessories through 12 branded divisions,
as well as the Jervin private label division and the Accessories division. The
Jervin private label division earns commissions on an agency basis for arranging
with manufacturers the production of footwear for sale under its customers'
private labels. The Jervin division provides design expertise, selects the
manufacturer, oversees the manufacturing process and arranges the sale of
footwear to the customer. The Accessories division produces and sells handbags
and small leather goods under the names "Nine West" and "Enzo Angiolini" for
sale to department stores and through the Company's retail stores.
The following table summarizes selected aspects of the products sold by the
Company:
Retail Price Range
------------------
Product Market Shoes/
Division Classification Segments Accessories Boots
- -------- -------------- -------- ----------- -----
Amalfi Refined Classics Salon $110 to $140 $125 to $200
Bandolino Modern Classics Better $50 to $85 $80 to $160
Calico Affordable Fashion Moderate $50 to $65 $79 to $99
cK/Calvin Dress Tailored Bridge $50 to $185 $145 to $285
Klein Shoes City/Casual
and Bags Street Athletic
Easy Spirit Comfort/Fit Upper Moderate $60 to $80 $80 to $100
Active Sport/Casuals
Enzo Sophisticated Better $60 to $90 $100 to $165
Angiolini Classics
Evan Picone Fashion Forward Bridge $80 to $110 $120 to $150
9 & Co. Junior/Trend Moderate $30 to $60 $55 to $75
Nine West Contemporary Upper Moderate $49 to $79 $90 to $140
Pappagallo Classic Upper Moderate $60 to $70 $80 to $90
Selby Traditional/Comfort Moderate $60 to $80 $80 to $100
Specialty Traditional/ Moderate/
Marketing/ Contemporary Lower Moderate $25 to $40 $35 to $50
Westies
Jervin Upper Moderate/
Private Label All Moderate $30 to $70 $50 to $140
Accessories Handbags and Moderate/Better $30 to $180
small leather goods
Domestic Specialty Retail Operations of Branded Divisions
The Company's Nine West, Easy Spirit, 9 & Co. and Enzo Angiolini divisions
market footwear and accessories directly to consumers through the Company's
domestic specialty retail stores operating in mall and urban retail center
locations. Each of these branded divisions sells footwear and accessories under
its respective brand name. Certain Nine West stores also offer a selection of
the Bandolino line of footwear. Enzo Angiolini stores also offer a selection of
the Amalfi and Evan Picone lines of footwear.
The following table summarizes selected aspects of the Company's domestic
specialty retail stores:
Enzo
Nine West Easy Spirit 9 & Co. Angiolini
--------- ----------- ------- ---------
Number of locations 285 167 79 66
Anticipated 1997
openings (net of
closings) 15 49 0 14
Brands offered Nine West and, Easy Spirit 9 & Co. Enzo
in selected Angiolini and
locations, in selected
Bandolino locations,
Evan Picone
and Amalfi
Retail price range
of shoes and boots $45 to $175 $45 to $120 $35 to $70 $55 to $195
Type of location Upscale and Upscale and Regional Upscale malls
regional malls regional malls malls and and urban
and urban and urban urban retail
retail centers retail centers retail centers
centers
Average store size
(in square feet) 1,481 1,302 1,591 1,254
Revenues per square
foot during 1996 (a) $529 $538 $308 $571
(a) Determined by dividing total retail net revenues by the annual average
gross retail square footage.
Domestic Value-Based Retail Stores Division
The Company's domestic value-based retail stores are operated by the
Company's Value-Based Retail Stores division under the following names: Nine
West Outlet, Easy Spirit Outlet, Enzo Angiolini Outlet and Banister. This
division also operates leased departments in Stein Mart stores. The outlet
concept was implemented by the Company in order to target more value-oriented
retail customers and to offer a distribution channel for its residual
inventories. In 1996, 25% to 30% of the Nine West and Enzo Angiolini Outlet
stores' merchandise consisted of discontinued styles from the Company's
specialty retail stores and the Company's wholesale operations, with the
remainder of the merchandise consisting of new production of current and proven
prior season's styles. Banister and Stein Mart stores carry the Company's
brands of women's footwear and a limited selection of other suppliers' women's,
men's and athletic footwear. The Easy Spirit Outlet stores sell primarily the
Easy Spirit brand and focus on the size, width and comfort business with a
selection of Selby styles in selected stores.
The following table summarizes selected aspects of certain of the Company's
domestic value-based retail stores:
Nine West Easy Spirit Enzo Angiolini
Outlet Outlet Outlet Banister Stein Mart
--------- ----------- -------------- -------- ----------
Number of locations 133 19 8 138 82
Anticipated 1997
openings (net of
closings) 15 15 5 11 18
Brands offered Primarily Easy Spirit Primarily All Company All Company
Nine West and Selby Enzo Angiolini brands brands
Retail price range
of shoes and boots $30 to $125 $30 to $100 $30 to $195 $30 to $125 $30 to $125
Type of location Mfr's Mfr's Mfr's Mfr's Strip
outlet outlet outlet outlet centers
centers centers centers centers
Average store size
(in square feet) 2,654 2,526 2,281 4,844 2,874
Revenues per square
foot during 1996 (a) $368 $195 $340 $162 $171
(a) Determined by dividing total retail net revenues by the annual average gross
retail square footage.
Domestic Retail Expansion
The Company believes that the expansion of its retail network represents an
opportunity for growth. Proposed sites for the Company's retail stores are
selected based on location, including the area's population density and level of
traffic, average sales per square foot of the shopping mall, urban retail center
or manufacturers' outlet center locations, average household income and other
local demographics. Outlet stores generally are located outside the shopping
radius of the Company's wholesale customers and its specialty retail stores.
The types of stores opened by the Company and the results generated by such
stores depend on various factors, including, among others, general economic and
business conditions affecting consumer spending, the performance of the
Company's wholesale and retail operations, the acceptance by consumers of the
Company's retail concepts, the availability of desirable locations and the
ability of the Company to negotiate acceptable lease terms for new locations,
hire and train personnel and otherwise manage such expansion. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information
regarding planned store openings and capital expenditures.
International Division
In 1995, the Company organized an international division for the purpose of
promoting wholesale and retail growth. The Company's international division
sells footwear and accessories under each of the Company's brand names and, in
addition, sells the Pied a Terre brand in Europe. The Company currently markets
its products to customers in more than 40 countries, including Australia,
Canada, Chile, China, France, Mexico and the United Kingdom. During 1996, the
Company acquired 13 specialty retail stores in Canada and 16 specialty retail
stores and one specialty retail concession in the United Kingdom and opened a
net 25 specialty retail locations in Asia, Australia and Canada, bringing the
total number of international specialty retail locations to 84 (62 specialty
retail stores and 22 specialty retail concessions). All international specialty
retail locations operate under the Nine West name, except for the Pied a Terre
specialty retail locations in the United Kingdom. The Company currently
operates 51 of its 84 total international specialty retail locations through
joint ventures in Australia, Hong Kong, Malaysia, Singapore, Taiwan and
Thailand. The expansion of the Company's international specialty retail
locations is expected to continue in 1997, with 180 to 190 international
specialty retail locations anticipated to be operating by the end of 1997. In
addition, subject to the Company's ability to find acceptable partners for its
international specialty retail locations, the Company will continue to establish
its retail presence in certain other international markets through various
arrangements with established retailers in those markets. The Company is
currently developing strategic plans to further penetrate markets in Canada,
Europe, Central and South America, the Middle East and Asia. However, the
Company presently has no commitments to expand into any country other than those
in which it currently operates locations. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for additional information regarding planned store openings
and capital expenditures.
Accessories Division
In January 1995, the Company established the Nine West Accessories division
through the acquisition of the operations of L.J.S. Accessory Collections Inc.,
a designer, developer and marketer of quality handbags and small leather goods.
The Accessories division produces and sells handbags and small leather goods
under the names "Nine West" and "Enzo Angiolini" through wholesale channels and
the Company's retail stores.
Design
Separate design teams for each branded division (which are staffed with a
fashion director, line builder and one or two designers) develop the Company's
brands by independently interpreting global lifestyle, clothing, footwear and
accessories trends. To research and confirm such trends, the teams: (1) travel
extensively in Asia, Europe and major American markets; (2) conduct extensive
market research on retailer and consumer preferences; and (3) subscribe to
fashion and color information services. The teams separately develop between 60
and 200 initial designs for each season. Working closely with senior management,
each team selects 20 to 80 styles that maintain each brand's distinct
personality. Samples are refined and then produced. After the samples are
evaluated, lines are modified further for presentation at each season's shoe
shows.
Manufacturing
The Company relies on its long-standing relationships with its Brazilian
and Chinese manufacturers through its independent buying agent, its own domestic
factories, and its third party manufacturers in other countries, to provide a
steady source of inventory. Allocation of production among the Company's
footwear manufacturers is determined based upon a number of factors, including
manufacturing capabilities, delivery requirements and pricing.
Approximately 61% of the Company's footwear products are manufactured by
more than 28 independently owned footwear manufacturers in Brazil. As a result
of the number of entrepreneurial factory owners, the highly skilled labor force,
the modern, efficient vertically-integrated factories and the availability of
high-quality raw materials, the Brazilian manufacturers are able to produce
significant quantities of moderately priced, high-quality leather footwear. The
Company believes that its relationships with its Brazilian manufacturers provide
it with a responsive and active source of supply of its products, and
accordingly, give the Company a significant competitive advantage. The Company
also believes that purchasing a significant percentage of its products in Brazil
allows it to maximize production flexibility while limiting its capital
expenditures, work-in-process inventory and costs of managing a larger
production work force. Because of the sophisticated manufacturing techniques
and vertical integration of these manufacturers, individual production lines can
be quickly changed from one style to another, and production of certain styles
can be completed in as few as four hours, from uncut leather to boxed footwear.
Historically, instability in Brazil's political and economic environment
has not had a material adverse effect on the Company's financial condition or
results of operations. The Company cannot predict, however, the effect that
future changes in economic or political conditions in Brazil could have on the
economics of doing business with its Brazilian manufacturers. Although the
Company believes that it could find alternative manufacturing sources for those
products which it currently sources in Brazil, the establishment of new
manufacturing relationships would involve various uncertainties, and the loss of
a substantial portion of its Brazilian manufacturing capacity before the
alternative sourcing relationships were fully developed could have a material
adverse effect on the Company's financial condition or results of operations.
However, as a result of the Acquisition, the Company now has manufacturing
operations in the United States and additional relationships in other countries
as potential alternative sources for its products.
As a result of the Acquisition, the Company owned and operated five
domestic footwear manufacturing factories and two component factories which,
during 1996, manufactured approximately 11.6% of all footwear products sold by
the Company. In February 1997, the Company announced that, as part of its
continuing program of consolidating operations and optimizing its global
sourcing activities, it would close three of its domestic manufacturing
factories and terminate or reconfigure certain operations conducted at two
additional factories commencing in April 1997 and continuing through late 1997.
See "Item 2 - Properties" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations." As of April 24,
1997, the Company had closed two factories and begun reconfiguring operations at
two other factories. The Company's footwear manufacturing factories can produce
different styles on the same line to increase flexibility to respond to various
demands. The domestic factories source raw materials worldwide, including from
the Company's vendors in Brazil. These factories typically operate with two
shifts but can expand to three when demand is high. The Company also leases and
operates three foreign factories which produce primarily the upper components
used by the Company's domestic factories. Two of these factories are located in
the Dominican Republic and one is located in Honduras.
The Company's footwear is also manufactured by third parties located in
China, Korea and other countries in the Far East, and in Italy, Spain, Mexico
and Uruguay. The Company's accessories are manufactured by third party
manufacturers in the Far East.
The largest Brazilian factories operate tanneries for processing leather
and produce lasts, heels and other footwear components. Raw materials for the
production of footwear and accessories are purchased worldwide by the Company
for its domestic production needs, and by the third party manufacturers, based
on input from the Company.
The price paid by the Company for any style of footwear is determined after
a physical sample of the style is produced, and is dependent on, among other
things, the materials used and the quantity ordered for such style of footwear.
Once a price list by style has been prepared and agreed to with a manufacturer,
changes in prices generally occur only as a result of substitution of materials
at the request of the Company. During the past year, there have been moderate
increases in the general price of leather, which have generally been reflected
in the selling price of the Company's products. Because products are purchased
from the Brazilian manufacturers in pre-set United States dollar prices, the
Company generally has not been adversely affected by fluctuations in exchange
rates.
The Company places its projected orders for each season's styles with its
manufacturers prior to the time the Company has received all of its customers'
orders. Because of the Company's close working relationships with its third
party manufacturers (which allows for flexible production schedules and
production of large quantities of footwear within a short period of time), most
of the Company's orders are finalized only after it has received orders from a
majority of its customers. As a result, the Company believes that, in
comparison to its competitors, it is better able to meet sudden demands for
particular designs, more quickly exploit market trends as they occur, reduce
inventory risk and more efficiently fill reorders booked during a particular
season.
The Company does not have any contracts with any of its manufacturers, but
relies on its long-standing relationships with its Brazilian manufacturers
directly and through its independent buying agent, Bentley Services Inc. (the
"Agent"). The Agent and its affiliates have overseen the activities of the
Brazilian manufacturers for more than ten years. In consultation with the
Company, the Agent selects the proper manufacturer for the style being produced,
monitors the manufacturing process, inspects finished goods and coordinates
shipments of finished goods to the United States. The Company entered into a
five-year contract with the Agent effective January 1, 1992, which has been
extended an additional five years, which provides that the Agent, its owners,
employees, directors and affiliates will not act as a buying agent for, or sell
leather footwear manufactured in Brazil to, other importers, distributors or
retailers for resale in the United States, Canada or the United Kingdom. As
compensation for services rendered, the Agent receives a percentage of the sales
price of the merchandise shipped to the Company. Neither the Agent nor any of
its principals is affiliated with the Company. Paramont Trading S.A., an
affiliate of the Agent, serves as the Company's buying agent in China. In
addition to the Agent and Paramont Trading S.A., the Company utilizes its own
buying offices in Italy and Spain.
Marketing
The Company introduces new collections of footwear at industry-wide shoe
shows, held four times yearly in New York and twice yearly in Las Vegas, and at
regional shoe shows throughout the year. The Company also introduces new
accessory collections at market shows that occur four times each year in New
York. After each show, members of the Company's 184-person direct sales force
visit customers to review the lines and take orders. The Company presently has
footwear showrooms in New York and Dallas, an accessories showroom in New York,
and a cK/Calvin Klein Shoes and Bags showroom in New York, where buyers view and
place orders for the Company's products.
The Company promotes its business with certain department and specialty
retail stores through "concept marketing teams," enabling the Company to bring
its retail and sales planning expertise to individual retailers. Concept
marketing teams are headed by members of branded division management who have
extensive retail backgrounds and include "store rotators" who monitor sales of
the Company's footwear on a daily basis. Under this program, the concept
marketing teams work with the retailer to create a focus area or "concept shop"
within the store that displays the full collection of an entire brand in one
area. Currently, the Company has over 2,000 focus areas and "concept shops". The
concept marketing team assists the department and specialty retail stores by:
(1) recommending how to display the Company's products; (2) educating the store
personnel about the Company and its products; (3) selecting the appropriate
product assortment; (4) recommending when a product should be re-ordered or its
retail price marked-down; (5) providing sales guidance, including the training
of store personnel; and (6) developing advertising programs for the retailers to
promote sales of the Company's products. The goal of the concept marketing teams
is to promote high retail sell-throughs of the Company's products at attractive
profit margins for its retail customers. Through this approach, customers are
encouraged to devote greater selling space to the Company's products and the
Company is better able to assess consumer preferences, the future ordering needs
of its customers and inventory requirements.
Advertising and Promotion
The Company's brands are positioned and marketed through consistent,
integrated communication programs, including national advertising, special
events, product packaging and in-store visual support. Easy Spirit advertises
in lifestyle magazines and on television. The Company's in-house creative
services department works closely with senior management and oversees the
conception, production and execution of virtually all aspects of these
activities. The Company also participates in cooperative advertising programs
in newspapers and magazines with its major wholesale customers and shares the
cost of its wholesale customers' advertising based on total purchases. The
Company produces national advertising campaigns for its Nine West, Enzo
Angiolini and Bandolino brands in major fashion magazines, including Vogue,
Marie Claire, Glamour, Vanity Fair, Elle, Mademoiselle and Harper's Bazaar. In
1996, 1995 and 1994, the Company spent $45.2 million, $33.1 million and $9.3
million, respectively, on advertising. The increase in advertising expenditures
during the last three years was primarily attributable to the addition of
advertising expenditures associated with the Acquisition, of which the
television advertising of the Easy Spirit brand constituted a significant
component. These additional expenditures were included for all of 1996, only
the 37-week period subsequent to the Acquisition in 1995 and none of 1994.
Under the Company's license agreement with Calvin Klein, Inc. (the "License
Agreement"), the Company has agreed to meet certain thresholds based on Revenues
(as defined in the License Agreement) for cooperative, trade and local
advertising for the cK/Calvin Klein retail locations, and consumer advertising
and promotion of licensed products and the licensed trademark.
The Company also believes that an expanded retail network will promote
brand name recognition and support the merchandising of complete lines by, and
the marketing efforts of, its wholesale customers.
Restrictions on Imports
Imports into the United States are affected by, among other things, the
cost of transportation and the imposition of import duties. The United States,
Brazil and other countries in which the Company's products might be manufactured
may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duty or tariff levels,
which could affect the Company's operations and its ability to import products
at current or increased levels. The Company cannot predict the likelihood or
frequency of any such events occurring. While the Company is subject to certain
duties, it has not been subject to quotas or other import restrictions.
The Company's imported products are subject to United States customs duties
and, in the ordinary course of its business, the Company may from time to time
be subject to claims for duties and other charges. United States customs duties
currently incurred by the Company are 10% of factory cost on footwear made
principally of leather and between 6% and 37.5% of factory cost on synthetic
footwear. During 1996, approximately 96.3% of the Company's net revenues were
derived from the sale of leather footwear. United States customs duties
currently incurred by the Company are 10% of factory cost on handbags made of
leather, 20% of factory cost on handbags made of synthetic fibers and between 7%
and 19.5% of factory cost on handbags made of fibers.
Distribution
The Company utilizes fully integrated information systems to facilitate the
receipt, processing and distribution of its merchandise through its two
distribution centers located in West Deptford, New Jersey and Cincinnati, Ohio.
Upon completion of manufacturing, the Company's products are inspected, bar
coded, packed and shipped from the manufacturing facilities to the distribution
centers. In 1996, ocean freight of imported products manufactured overseas
accounted for approximately 96% of the Company's shipments. Warehouse personnel
log in shipments utilizing bar codes, which enable easy identification of
products and allow the Company's wholesale customers to participate in its "open
stock" and "quick response" inventory management programs. The Company's open
stock inventory management program allows its wholesale customer to fill their
smaller, single or multiple pair reorders in basic sizes and colors, rather than
purchasing larger case good quantities. The quick response program generally
allows for a 48-hour replenishment with open-stock inventories from the time the
order is placed until it is shipped. Orders for quick response shipments are
typically received via electronic data interchange ("EDI"). Although, the open
stock and quick response programs require the Company to maintain more sizes and
widths of footwear than are normally carried in the pre-packaged cases and,
therefore, increased inventory levels, these programs give the customer the
advantage of carrying smaller inventories and improving inventory turns. The
Company believes its ability to offer this flexibility to its customers gives it
a significant competitive advantage and reduces the incidence of mark-down
allowances and returns.
Management Information Systems
The Company's management information systems provide, among other things,
comprehensive order entry/tracking, production, financial, EDI, distribution,
and decision support information for the Company's marketing, manufacturing,
importing, accounting and distribution functions. Additionally, the Company's
retail information systems provide merchandising/planning, automated
replenishment, inventory control, point-of-sale, store performance/tracking, and
sales audit functions.
During 1996, the Company continued the consolidation of the Footwear
Group's management information systems with those of the Company into one
comprehensive and integrated set of systems. The remaining system
consolidations are anticipated to be completed during 1997. To support this
effort, additional computing and storage capacity has been installed at the
Company's Stamford location.
Competition
Competition is intense in the women's footwear and accessories business.
The principal elements of competition in the footwear and accessories markets
include style, quality, price, comfort, brand loyalty and customer service. The
location and atmosphere of retail stores are additional competitive factors in
the Company's retail division. The Company's competitors include numerous
domestic and foreign manufacturers, importers and distributors of women's
footwear and accessories. The Company's primary retail competitors are large
national chains, department stores, specialty footwear stores and other outlet
stores.
The Company believes that its brand recognition, ability to respond quickly
to fashion trends, expertise in style and color and understanding of consumer
preferences are significant factors in its business. The Company also believes
that its ability to deliver quality merchandise in a timely manner is a major
competitive advantage.
Backlog
At February 1, 1997, the Company had unfilled wholesale orders of
approximately $311.0 million compared to $267.0 million at February 3, 1996. The
backlog at any particular time is affected by a number of factors, including
seasonality and the scheduling of the manufacturing and shipment of products.
Backlog is also affected by a continuing program to reduce the lead time on
orders placed with each manufacturer and by utilization of the Company's EDI
system. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
Credit and Collection
The Company, through its credit department, manages all of its customer
credit functions, including extensions of credit, collections and investigations
of accounts receivable and chargebacks, and the application of cash and credits.
The Company's bad debt expense was 0.03% of net revenues for 1996.
Principal Customers
The Company's ten largest wholesale customers represented 43% of net
revenues for 1996. While no single wholesale customer accounted for more than
10% of net revenues during 1996, certain of the Company's wholesale customers
are under common ownership. When considered as a group under common ownership,
sales to the department store divisions owned by Federated Department Stores,
Inc. (which merged with Broadway stores in February of 1996) represented 13% of
the Company's net revenues in 1996. While the Company believes that purchasing
decisions have generally been made independently by each department store
customer, there is a trend among department stores toward more centralized
purchasing decisions.
Trademarks and Patents
The Company owns federal registrations and pending federal applications in
the United States Patent and Trademark Office for most of the trademarks and
variations thereof that it uses, including Amalfi, Bandolino, Banister, Calico,
Easy Spirit, Enzo Angiolini, 9 & Co., Nine West, Nine West Kids, NW Nine West,
Pappagallo, Pied a Terre, Selby, Westies and others. In addition, the Company
has entered into licensing agreements to produce and sell footwear under the
Evan Picone name and footwear and accessories under the cK/Calvin Klein name.
None of the federal registrations are currently being challenged in any legal
proceedings. In addition, the Company from time to time registers certain of
its trademarks in other countries, including, but not limited to, Australia,
Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan,
Korea, Mexico and the United Kingdom.
The Company regards the trademarks and other proprietary rights that it
owns and uses as valuable assets and intends to defend them vigorously against
infringement. Most of the registrations for the Company's trademarks are
currently scheduled to expire or be canceled at various times between 1997 and
2007; however, trademark registrations can be renewed and maintained if the
marks are still in use for the goods and services covered by such registrations.
The Company has granted licenses to certain companies to manufacture and
market non-footwear products, including hosiery, sunglasses and jewelry, under
various of the Company's trademarks.
The Company also holds several patents and has several patent applications
pending in the United States Patent and Trademark Office and around the world.
Employees
The Company employs approximately 8,799 full-time and 4,282 part-time
employees, 8,277 of whom are employed in the Company's retail stores.
Approximately 182 of the Company's 444 distribution employees are represented by
labor unions. The Company considers its relationships with its employees and
labor unions to be good.
Executive Officers of the Registrant
Jerome Fisher, age 66, has been Chairman of the Board and a director of the
Company since its organization. Mr. Fisher and Vincent Camuto founded the
Company in 1977. Mr. Fisher is principally responsible for long-range corporate
strategy, long-range financial planning, review and evaluation of potential
mergers and acquisitions, and the Company's international expansion.
Vincent Camuto, age 60, has been a director and head of product development
of the Company since its organization. Prior to being named Chief Executive
Officer of the Company in May 1995, Mr. Camuto served as President from February
1993 to May 1995. Mr. Camuto and Jerome Fisher founded the Company in 1977. Mr.
Camuto is principally responsible for the day-to-day management of the Company,
including supervising the design, manufacture, marketing and distribution of the
Company's products.
Noel E. Hord, age 50, has been President and Chief Operating Officer since
May 1995 and is principally responsible for the supervision and coordination of
the Company's retail and wholesale operations, and its administrative and
operational functions. From May 1993 to May 23, 1995, Mr. Hord was President of
the Footwear Group of U.S. Shoe. From 1991 to 1993, Mr. Hord was Group
President of the Nine West and Enzo Angiolini divisions of the Company.
Robert C. Galvin, age 37, has been Executive Vice President and Chief
Financial Officer since April 30, 1996. From October 1995 to April 1996, Mr.
Galvin served as Senior Vice President - Strategic Planning. Prior to October
1995, Mr. Galvin was a partner at Deloitte & Touche LLP in charge of the
Connecticut retail and distribution practice of that firm and specialized in
mergers and acquisitions. In that capacity, Mr. Galvin consulted with the
Company beginning in 1987 and advised the Company with respect to the
Acquisition.
Executive officers of the Company serve at the pleasure of the Board of
Directors.
ITEM 2. PROPERTIES.
The Company's principal executive offices in Stamford, Connecticut consist
of approximately 159,000 square feet of office space. The majority of the space
in the facility is leased by the Company pursuant to a lease that expires on
December 31, 2002. This space is principally used for the Company's executive,
retail, sales and marketing offices.
In February 1997, the Company entered into a 25-year operating lease for
its new 366,460 square foot headquarters facility in White Plains, New York.
This space will replace the Company's Stamford, Connecticut and Cincinnati, Ohio
offices and become its new principal executive offices. The Company has begun
efforts to sublease its Stamford offices upon relocation to the new facility in
White Plains, which is scheduled to occur during the second half of 1997.
Certain of the Company's administrative functions (including accounting,
treasury, credit and collections) are conducted in a 38,000 square foot facility
in St. Louis, Missouri owned by the Company.
The Company currently operates a 493,000 square foot distribution facility
in West Deptford, New Jersey which is situated on approximately 34 acres of
land. The Company consummated a "sale/leaseback" transaction during the first
quarter of 1996, pursuant to which it sold the distribution facility for $20.0
million, and thereafter leased it back under an operating lease having an
initial term of 20 years, subject to six 5-year renewal options. Additionally,
in February 1997, the Company entered into an agreement for the development and
lease of a 226,446 square foot distribution facility in West Deptford, New
Jersey. The construction of such facility is expected to be completed by
September 1997.
The Company currently owns and operates a 224,000 square foot warehouse, a
489,000 square foot distribution center and a 201,000 square foot office
facility located in Cincinnati, Ohio (the "Cincinnati Facilities"). As a result
of changing the distribution of certain acquired Footwear Group brands to the
Company's distribution facility in New Jersey and the future relocation of the
Company's Cincinnati offices to White Plains, the capacity of the Cincinnati
Facilities exceeds the Company's current and anticipated needs. As such, the
Company is currently in negotiations to sell the Cincinnati Facilities and
intends to lease a distribution facility that will better suit its anticipated
needs.
In September 1996, the Company entered into an agreement for the
development and lease of an 88,000 square foot raw materials warehouse and
product development center in Hebron, Kentucky. The construction of such
facility is expected to be completed during the second quarter of 1997.
The Company owns five footwear manufacturing plants, a product development
facility and two component plants, with an aggregate of approximately 499,000
square feet of space, in Kentucky, Indiana and Ohio. As noted above, the
Company has closed two of the footwear manufacturing plants and intends to close
a third plant and reconfigure operations in two component plants during 1997.
The Company intends to sell the closed facilities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The Company
also leases one machinery parts warehouse facility (with approximately 20,000
square feet of space) in Kentucky, two component plants (with approximately
102,000 square feet of space) in the Dominican Republic and one component plant
(with approximately 63,000 square feet of space) in Honduras. During 1996, the
Company's manufacturing plants operated at approximately 86.3% of optimum
production capacity. The Company believes that following the closures referred
to above, its manufacturing and component plants are suitable for its domestic
production needs.
The Company operates a 33,000 square foot showroom in New York, pursuant to
a lease that expires on December 31, 2003 and a 2,300 square foot showroom in
Dallas pursuant to a lease that expired on January 31, 1997. The Company is
currently in negotiations to renew the Dallas showroom lease. The Company also
leases a showroom with 11,000 square feet of space in New York for its
Accessories division and a showroom in New York for its cK/Calvin Klein Shoes
and Bags division. The Company has subleased its former New York showroom for
the remainder of the lease term, which expires on September 30, 1998.
All of the Company's retail stores are leased pursuant to leases that
extend for terms which average ten years. Certain leases allow the Company to
terminate its obligations after three years in the event that a particular store
does not achieve specified sales volume. Many leases include clauses that
provide for contingent payments based on sales volumes, and many leases contain
escalation clauses for increases in operating costs and real estate taxes.
The current terms (including automatic renewal options) of the Company's
retail store leases, including leases for 44 future stores, expire as follows:
Years Lease Number of
Terms Expire Stores
- ------------ ---------
1997-1999............................................... 298
2000-2002............................................... 238
2003-2005............................................... 416
2006 and later.......................................... 153
ITEM 3. LEGAL PROCEEDINGS.
On May 1, 1997, the Company learned that on April 10, 1997, the United
States Securities and Exchange Commission (the "SEC") entered a formal order of
investigation with respect to, among other things, the Company's revenue
recognition policies and practices. The Company had been cooperating fully with
the Staff of the SEC when the investigation was informal, and intends to
continue cooperating with the SEC. The Company does not anticipate that the
investigation will have a material adverse financial effect on the Company.
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 financial
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The Common Stock is listed and trades on the New York Stock Exchange
("NYSE"). The following table sets forth the high and low closing sales prices
per share for the Common Stock, as reported on the NYSE Composite Tape, for the
end of each quarter of the last two years.
High Low
---- ---
Fifty-three weeks ended February 3, 1996:
Thirteen weeks ended April 29, 1995........................ $33 $27-1/8
Thirteen weeks ended July 29, 1995......................... 41 31-1/8
Thirteen weeks ended October 28, 1995...................... 46 39-3/8
Fourteen weeks ended February 3, 1996...................... $48-1/2 $29-1/2
Fifty-two weeks ended February 1, 1997:
Thirteen weeks ended May 4, 1996........................... $44-5/8 $34
Thirteen weeks ended August 3, 1996........................ 52-1/8 42-3/8
Thirteen weeks ended November 2, 1996...................... 57-1/8 49-5/8
Thirteen weeks ended February 1, 1997...................... $52 $44-1/4
As of April 4, 1997, the number of holders of record of the Common Stock
was 233.
The Company has not paid (since its initial public offering in February
1993 (the "Offering")), and does not currently intend to pay in the immediate
future, cash dividends on its Common Stock. Subject to compliance with certain
financial covenants set forth in the Company's existing credit agreement (See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources") and restrictions
contained in any future financing agreements, the payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected balance sheet and income statement information for
the last three years and the transition period from January 1, 1995 through
January 28, 1995, has been derived from the Consolidated Financial Statements of
the Company audited by Deloitte & Touche LLP, independent auditors, whose report
thereon appears elsewhere in this report. The selected financial data for 1993
and 1992 have been derived from the audited (unless noted otherwise) financial
statements of the Company, not presented herein. This information should be
read in conjunction with and is qualified by reference to the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this report.
Transition
52 Weeks 53 Weeks Period
Ended Ended January 1 to Year Ended December 31
February 1 February 3 January 28 ------------------------
1997 1996 1995 1994 1993 1992
---------- ------- ---- ---- ------- ----
INCOME STATEMENT DATA(a) (in thousands except retail operating data and per share data)
Net revenues.............................................. $1,603,115 $1,258,630 $42,539 $652,457 $552,194 $461,936
Cost of goods sold........................................ 913,946 720,963 24,582 364,533 313,566 263,967
Purchase accounting adjustments to cost of goods sold(b).. - 34,864 - - - -
---------- ---------- ------- -------- -------- --------
Gross profit............................................ 689,169 502,803 17,957 287,924 238,628 197,969
Selling, general and administrative expenses(c)........... 479,284 381,021 16,402 178,916 155,920 138,672
Business restructuring and integration expenses(d)........ 18,970 51,900 - - - -
Amortization of acquisition goodwill and other
intangibles............................................. 9,562 6,637 - - - -
---------- ---------- ------- -------- -------- --------
Operating income from continuing operations............. 181,353 63,245 1,555 109,008 82,708 59,297
Interest expense.......................................... 41,947 29,611 - 2,199 3,255 6,882
---------- ---------- ------- -------- -------- --------
Income from continuing operations before income taxes... 139,406 33,634 1,555 106,809 79,453 52,415
Income tax expense (historical)........................... 55,762 14,658 614 42,919 30,208 4,906
---------- ---------- ------- -------- -------- --------
Income from continuing operations before cumulative
effect of change in accounting principle and pro
forma tax effects .................................... $ 83,644 $ 18,976 $ 941 $ 63,890 $ 49,245 $ 47,509
========== ========== ======= ======== ======== ========
Income from continuing operations (e)................... $ 83,644 $ 18,976 $ 941 $ 63,890 $ 58,656 $ 31,449
========== ========== ======= ======== ======== ========
Net income (f).......................................... $ 81,008 $ 18,976 $ 941 $ 63,890 $ 58,656 $ 31,449
========== ========== ======= ======== ======== ========
Weighted average common shares including equivalents:
Primary............................................... 36,699 35,707 34,655 34,555
Fully diluted......................................... 38,853
Primary earnings per share:
Income from continuing operations..................... $ 2.28 $ 0.53 $ 0.03 $ 1.85
========== ========== ======= ========
Net income............................................ $ 2.21 $ 0.53 $ 0.03 $ 1.85
========== ========== ======= ========
Fully diluted earnings per share:
Income from continuing operations..................... $ 2.26
==========
Net income............................................ $ 2.19
==========
RETAIL OPERATING DATA (unaudited)
Stores open at end of period:
Nine West............................................... 285 268 231 229 203 180
Easy Spirit............................................. 167 131 - - - -
9 & Co.................................................. 79 63 43 43 28 6
Enzo Angiolini.......................................... 66 54 34 34 13 -
----- --- --- --- --- ---
Total mall-based...................................... 597 516 308 306 244 186
----- --- --- --- --- ---
Nine West outlet........................................ 141 123 100 100 62 44
Easy Spirit outlet...................................... 19 11 - - - -
Banister................................................ 138 142 - - - -
Stein Mart.............................................. 82 67 - - - -
----- --- --- --- --- ---
Total value-based..................................... 380 343 100 100 62 44
----- --- --- --- --- ---
Total domestic stores............................... 977 859 408 406 306 230
International stores................................ 84 29 4 4 - -
----- --- --- --- --- ---
Total stores...................................... 1,061 888 412 410 306 230
===== === === === === ===
Revenues per square foot(g):
Nine West............................................... $ 529 $ 543 $ 581 $ 573 $ 554
Easy Spirit............................................. 538 495 - - -
9 & Co.................................................. 308 322 293 274 -
Enzo Angiolini.......................................... 571 552 539 - -
Nine West outlet........................................ 367 359 361 368 381
Easy Spirit outlet...................................... 195 210 - - -
Banister................................................ 162 166 - - -
Stein Mart.............................................. 171 179 - - -
International........................................... $ 774 $ 842 $ - $ - $ -
Square footage of gross store space at end of period...... 2,248,988 1,985,270 691,338 506,100 364,824
December 31
February 1 February 3 ----------------------------
1997 1996 1994 1993 1992
BALANCE SHEET DATA ---- ---- ---- ---- ----
Working capital........................................... $ 491,674 $ 297,312 $170,015 $171,482 $105,891
Total assets.............................................. 1,261,063 1,160,092 302,791 292,808 199,068
Long-term debt and due to stockholders.................... 600,407 471,000 2,400 50,951 88,322
Stockholders' equity...................................... $ 360,540 $ 328,326 $234,627 $165,499 $ 54,636
(footnotes follow)
Notes:
(a) Income statement data for 1996 is not comparable to the prior years, as
such information:(1) reflects a 52-week period (364 days) ended February 1,
1997 while 1995 reflects a 53-week period (371 days) ended February 3, 1996
and prior years are 365-day periods; and (2)includes the results of
operations of the Footwear Group during the full 52-week period, while such
Footwear Group results are only included in the 1995 period for the 37-week
period from May 23, 1995 through February 3, 1996 and are excluded from all
periods prior to the Acquisition. The Transition period was created due to
the change in the Company's fiscal year. See "Basis of Presentation and
Description of Business" and "Acquisitions" in the Notes to Consolidated
Financial Statements.
(b) Reflects a $34.9 million non-recurring increase in cost of goods sold,
attributable to the fair value of inventory over FIFO cost, recorded as a
result of the Acquisition as required by the purchase method of accounting.
(c) Selling, general and administrative expenses include $1.2 million and $11.3
million for 1993 and 1992, respectively, for compensation and net life
insurance expense relating to the Principal Stockholders that would have
been in excess of the amounts existing (including discretionary bonuses)
under arrangements in effect since the consummation of the Offering. In
addition, 1993 includes a one-time payment of $8.5 million ($5.0 million
net of income taxes) made to the Agent for past services occasioned upon
the consummation of the Offering.
(d) Represents business restructuring and integration expenses associated
primarily with the restructuring of North American manufacturing facilities
in 1996 and with the integration of the Footwear Group into the Company in
1995. See "Business Restructuring and Integration Expenses" in the Notes
to Consolidated Financial Statements.
(e) Represents unaudited pro forma amounts in 1993 and 1992. Pro forma income
tax adjustments of $2.1 million and $16.1 million are reflected in 1993 and
1992, respectively, related to federal and state income taxes (assuming a
41% effective tax rate in 1993 and 40% in 1992) as if the Company had not
been treated as an S corporation during the periods prior to the Offering.
In connection with the Offering, the Company adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes." The cumulative effect of this
change through February 8, 1993, increased net income by $11.5 million for
1993.
(f) Pro forma net income was $59.3 million, or $1.78 per share, in 1993. Pro
forma adjustments reflect the reduction in selling, general and
administrative expenses by $1.2 million for compensation and net life
insurance expense relating to the Company's three principal stockholders
(the "Principal Stockholders") that would have been in excess of the
amounts existing (including discretionary bonuses) under arrangements in
effect since the consummation of the Offering on February 9, 1993.
Historical net income was $60.7 million and $47.5 million in 1993 and 1992,
respectively.
(g) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage. Revenues per
square foot for 1995 with respect to those retail concepts operated by the
Footwear Group (i.e., Easy Spirit, Easy Spirit Outlet, Banister and Stein
Mart), are based upon pro forma revenues as though the Acquisition was
consummated at the beginning of 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
Effective June 27, 1995, the Board of Directors of the Company approved the
change of the Company's fiscal year from December 31 to a 52/53-week period
ending on the Saturday closest to January 31. The change in the Company's
fiscal year created a transition period consisting of the four weeks which began
on January 1, 1995 and ended on January 28, 1995. All references to years in
the following discussion and analysis relate to fiscal years as defined in the
Notes to Consolidated Financial Statements.
On May 23, 1995, the Company consummated its Acquisition of the Footwear
Group. Financial information for 1996, 1995 and 1994 is not comparable between
years, as Footwear Group results are included in the entire 1996 period and are
included in 1995 for the 37-week period from May 23, 1995 through February 3,
1996.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the notes thereto contained elsewhere
in this report.
Results of Operations
Income from continuing operations for 1996 was $83.6 million, or $2.26 per
share on a fully diluted basis, compared to income from continuing operations of
$19.0 million, or $0.53 per share, for 1995. Results for 1996 include a net
pretax charge of $19.0 million (the "Restructuring Charge"), of which
approximately $13.8 million represents non-cash charges, primarily attributable
to costs associated with the restructuring of North American manufacturing
facilities. Excluding the effect of the Restructuring Charge, income from
continuing operations for 1996 would have been $95.0 million, or $2.55 per
share, on a fully diluted basis. Results for 1995 include: (1) a $34.9 million
non-recurring increase in cost of goods sold, attributable to the fair value of
inventory over FIFO cost, recorded as a result of the Acquisition (the "Cost of
Goods Sold Adjustment"); and (2) $51.9 million in business restructuring and
integration expenses and charges associated with the integration of the Footwear
Group into the Company (the "Integration Charge"). Excluding the effect of these
adjustments, income from continuing operations for 1995 would have been $71.6
million, or $2.01 per share.
Since the Acquisition was consummated, the Company has continued to
evaluate all facets of its business, from the sourcing of product to retail
operations. Resulting from this ongoing review and analysis were decisions that
led to the Restructuring Charge. In the fourth quarter of 1996, the Company
recorded a charge of $21.3 million, offset by a reversal of an excess of the
Integration Charge of $2.3 million, resulting in a net pretax charge to earnings
of $19.0 million, for costs associated with: (1) the restructuring of North
American manufacturing facilities; (2)the consolidation and relocation of the
Company's offices in Stamford, Connecticut and Cincinnati, Ohio to a new
facility in White Plains, New York (the "Relocation"); and (3)the repositioning
of the 9 & Co. brand, which included the evaluation of retail site locations and
the resulting closure of fifteen 9 & Co. stores. The major components of the
Restructuring Charge are: (1) write-down of assets of $13.8 million; (2)
accruals for lease and other contract terminations of $4.9 million; and (3)
plant closing costs of $2.6 million. Total cash outlays are expected to be $5.2
million, to be paid over a three-year period beginning in 1997.
The Restructuring Charge reflects plans to close three domestic factories
and discontinue or reconfigure certain operations at two other domestic
manufacturing facilities. Domestic footwear production is expected to decrease
from a current level of 7.5 million pairs to 5.0 million pairs by the end of
1997, as the Company pursues global sourcing opportunities in an effort to
reduce overall product cost. The Company expects to save approximately $0.50 to
$1.75 per pair depending on the construction and style of the shoe, as well as
the global sourcing site, beginning in 1998. This action will affect 1,025
employees, or approximately 50% of the Company's domestic manufacturing work
force. Total severance and termination benefit costs associated with this
action are $9.6 million, which relate to benefits covered by the Company's
existing severance plans. See "Employee Benefit Plans" in the Notes to
Consolidated Financial Statements.
During 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 were reflected in the allocation of the Acquisition cost,
the Company incurred and accrued expenses for restructuring and integration
costs of $51.9 million in the fourth quarter of 1995. The major components of
the Integration Charge were: (1) severance and termination benefits of $7.7
million; (2) write-down of assets, principally leasehold improvements, of $14.6
million; (3) inventory valuation adjustments of $10.4 million; (4) accruals for
lease and other contract terminations of $7.0 million; and (5) other integration
and consolidation costs of $12.2 million. Total cash outlays related to this
charge are expected to be approximately $20.3 million, of which $14.4 million
and $4.4 million was paid during 1996 and 1995, respectively. The remaining
liability for these activities at February 1, 1997 was $1.5 million, primarily
related to severance payments that exceeded one year. The balance of this
liability will be paid in 1997.
The Integration Charge reflects plans to restructure international sourcing
operations, to consolidate manufacturing and sourcing facilities located in
Italy, Korea and the Far East, and to consolidate and integrate various domestic
corporate and business unit operations and support functions. These business
restructuring and integration actions (collectively, the "Integration Plan") are
expected to save approximately $7.0 million annually. 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, the conversion of a number of
stores to other nameplates or formats during 1996, and the termination of the
Company's agreement with Burlington Coat Factory for its operation of 84 shoe
departments (the "Burlington Leased Departments") during 1996. The duplicate
product lines mentioned above include: (1) the replacement of several footwear
brands purchased from third party vendors and sold in the Company's Banister and
certain other stores, with the Company's own branded footwear in the same
product classifications and price points, and the elimination of certain product
classifications (such as athletic, children's and men's footwear), from such
stores; and (2) the elimination of one of the Company's footwear brands.
Severance and termination benefits relate to approximately 475 employees,
of which 420 were store managers and associates, 50 were engaged in
manufacturing positions, principally related to the liquidation of the Company's
Far East office as a result of entering into a new agency arrangement, and five
were management employees. As of February 1, 1997, approximately 450 employees
had been terminated, with $6.6 million of severance and termination benefits
being paid and charged against the liability. The remaining separations will be
completed during 1997. See "Employee Benefit Plans" in the Notes to
Consolidated Financial Statements.
The Integration Charge also included period costs of approximately $3.2
million in 1995, which were expensed as incurred and which consisted of
integration-related outside consulting fees paid in connection with the
implementation of major process improvements. The process improvements included
the elimination of redundant operations ($684,000) and certain financial
accounting systems ($995,000) and efficiency improvements in certain warehousing
($564,000) and retail store ($995,000) operations and systems.
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 relate to the elimination of 295 administrative
positions which had 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 246 were eliminated by February l, 1997, with the remainder to be
completed in 1997. As of February 1, 1997, approximately $6.3 million of
severance and termination benefits and $7.6 million of relocation costs were
paid and charged against these liabilities. See "Acquisitions" in the Notes to
Consolidated Financial Statements.
The following table sets forth the Company's consolidated statements of
income in thousands of dollars and as a percentage of net revenues for the last
three years. For comparative purposes, 1996 excludes the Restructuring Charge
and 1995 excludes the Cost of Goods Sold Adjustment and the Integration Charge.
As Adjusted As Adjusted
1996 1995 1994
----------------- ----------------- ---------------
Net revenues................. $1,603,115 100.0% $1,258,630 100.0% $652,457 100.0%
Cost of goods sold........... 913,946 57.0 720,963 57.3 364,533 55.9
---------- ----- ---------- ----- -------- -----
Gross profit.............. 689,169 43.0 537,667 42.7 287,924 44.1
Selling, general and
administrative expenses... 479,284 29.9 381,021 30.3 178,916 27.4
Amortization of acquisition
goodwill and other
intangibles .............. 9,562 0.6 6,637 0.5 - -
---------- ----- ---------- ----- -------- -----
Operating income from
continuing operations..... 200,323 12.5 150,009 11.9 109,008 16.7
Interest expense............. 41,947 2.6 29,611 2.3 2,199 0.3
---------- ----- ---------- ----- -------- -----
Income from continuing
operations before income
taxes..................... 158,376 9.9 120,398 9.6 106,809 16.4
Income tax expense........... 63,350 4.0 48,761 3.9 42,919 6.6
---------- ----- ---------- ----- -------- -----
Income from continuing
operations................ $ 95,026 5.9% $ 71,637 5.7% $ 63,890 9.8%
========== ===== ========== ===== ======== =====
Net Revenues
Net revenues were $1.6 billion in 1996 compared to $1.3 billion in 1995, an
increase of $344.5 million, or 27.4%. Net revenues of the Company's wholesale
division increased by $189.8 million, or 27.2%, of which: (1) approximately
$116.0 million is attributable to the increase in net revenues resulting from
the Acquisition, the results of operations of which, for 1995, are included only
for the 37 weeks following the consummation of the Acquisition; and (2) $73.8
million is attributable to the increase in net revenues of the Company's
wholesale division due to increased revenues from virtually all of the footwear
brands and the growth and development of the Company's accessories business.
Sales through the Company's retail stores increased $154.7 million, or 27.6%.
The increase in net revenues of the retail division is attributable to: (1) the
Acquisition of the Footwear Group ($84.9 million); (2) the opening (net of
closings) of 143 domestic and 55 international retail stores ($74.4 million);
and (3) comparable store sales increases ($15.7 million). These increases were
offset by a decrease in sales attributable to the closing of 84 Burlington
Leased Departments and 25 Banister retail stores ($20.3 million). The 84
Burlington Leased Departments and 25 Banister stores have been excluded from the
143 domestic openings (net of closings) mentioned above. 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 2.2% for 1996. Comparable store sales, excluding the results of the
Banister stores and Stein Mart leased departments increased 5.2% during 1996.
Comparable store sales for Banister and Stein Mart decreased during 1996 due to
the significant 1995 promotional activity required to dispose of excess
inventory acquired and to begin the repositioning of inventory to more of its
branded product. Comparable store sales, for all periods, exclude the results
of the 84 Burlington Leased Departments, which were closed during the first and
second quarters of 1996.
Net revenues increased by $606.2 million, or 92.9%, in 1995 from net
revenues $652.5 million in 1994. Net revenues of the Company's wholesale
division increased by $317.8 million, or 83.6%, of which: (1) $262.7 million is
attributable to the Acquisition; and (2) $55.1 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 $288.4 million, or 105.8%, of which: (1) $193.9 million is
attributable to the acquisition of 425 Footwear Group stores and the opening
(net of closings) of 10 additional Footwear Group stores during 1995; and (2)
$94.5 million is primarily attributable to the opening (net of closings) of 100
additional retail stores in formats operated by the Company prior to the
Acquisition. 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) decreased 1.1% for 1995. Excluding the
impact of the Banister stores and Stein Mart leased departments, comparable
store sales for 1995 increased 0.6%. The decrease in the Banister and Stein
Mart comparable store sales was due to the repositioning of inventory to more of
the Company's branded products and highly promotional 1994 sales activity,
resulting in the total Company comparable store sales decrease. The weaker than
anticipated retail environment during the fourth quarter holiday season, and the
blizzard conditions both in the Midwest and Northeast, which resulted in 502
store days lost for the fourth quarter, also adversely affected comparable store
results for the year. Comparable store sales, for all periods, exclude the
results of the 84 Burlington Leased Departments, which were closed during the
first and second quarters of 1996.
During 1996, 1995 and 1994, wholesale net revenues accounted for 55.4%,
55.4% and 58.2%, respectively, of the Company's consolidated net revenues, while
retail operations accounted for the remaining 44.6%, 44.6% and 41.8%,
respectively.
Gross Profit
Gross profit was $689.2 million in 1996, an increase of $151.5 million, or
28.2%, from $537.7 million in 1995 (excluding the Cost of Goods Sold
Adjustment). Gross profit as a percentage of net revenues increased to 43.0% in
1996 from 42.7% in 1995. The increase in gross profit as a percentage of net
revenues is primarily attributable to improved gross profit margins in the
Banister and Stein Mart stores, due in part to the Company's repositioning of
the product mix.
Gross profit (excluding the Cost of Goods Sold Adjustment) in 1995
increased $249.7 million, or 86.7%, from $287.9 million in 1994. Gross profit
as a percentage of net revenues decreased to 42.7% in 1995 from 44.1% in 1994.
The decrease in gross profit as a percentage of net revenues is primarily
attributable to the acquisition of the Footwear Group, whose gross margins were
historically five to six percentage points lower than the Company's gross
margins prior to the Acquisition.
During the past two years, there have been moderate increases in the
general price of leather, which have generally been reflected in the selling
price of the Company's products. While the Company is not in a position to
reasonably anticipate or predict how changes in labor, leather, and other raw
material prices will ultimately impact the Company's gross profit margins in the
future, the Company anticipates that such increases will be reflected in the
selling price of the Company's products, to the extent possible under economic
and competitive conditions prevailing at the time.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses (excluding the
amortization of acquisition goodwill and other intangibles related to the
Acquisition and the Restructuring Charge) were $479.3 million in 1996, compared
to $381.0 million in 1995 (excluding the amortization of acquisition goodwill
and other intangibles related to the Acquisition and the Integration Charge), an
increase of $98.3 million, or 25.8%. SG&A expenses expressed as a percentage of
net revenues improved to 29.9% in 1996 from 30.3% in 1995. The decrease in SG&A
expenses expressed as a percentage of net revenues is due primarily to cost
savings resulting from the consolidation and integration of various corporate
and business unit operations and support functions since the Acquisition was
consummated. The decrease in SG&A expenses as a percentage of net revenues was
offset in part by an increase in SG&A expenses as a percentage of net revenues
attributable to higher advertising expenses of the Footwear Group which were
included for the full 52 weeks of 1996 compared to only 37 weeks during the 1995
period. While SG&A expenses as a percentage of net revenues during 1997 and the
foreseeable future are expected to increase as a result of the opening of
additional retail stores by the Company (including the commitments as of March
18, 1997 to open approximately 120 retail stores), such increases are not
expected to have an adverse effect on the Company's operating margin, since
these higher expenses are expected to be offset by the higher gross profit as a
percentage of net revenues achieved by the Company's retail operations. SG&A
expenses as a percentage of net revenues for the Company will increase beginning
in 1997 in connection with: (1) an expanded marketing plan which includes higher
advertising and promotional expenses than those incurred during 1996 and prior
years; (2) the Company's continued international expansion; and (3) costs
associated with the Company's recently launched cK/Calvin Klein Shoes and Bags
division. The Company expects that the initiatives outlined in the
Restructuring and Integration Charges, and the ongoing integration of the
Footwear Group, will continue to produce synergies which will reduce SG&A
expenses.
SG&A expenses (excluding the amortization of acquisition goodwill and other
intangibles related to the Acquisition and the Integration Charge) increased
$202.1 million, or 113.0%, in 1995 from SG&A expenses of $178.9 million in 1994.
SG&A expenses expressed as a percentage of net revenues rose to 30.3% in 1995
from 27.4% in 1994. The increase is due primarily to: (1) higher expenses as a
percentage of net revenues experienced by the Footwear Group which are
attributable to, among other things, significant expenditures by the Footwear
Group for advertising which are included for the 37-week period following the
consummation of the Acquisition; (2) the higher number of retail stores
operating in 1995 which carry a higher expense level as a percentage of net
revenues in relation to the Company's wholesale operations; and (3) the costs
associated with performing duplicate functions and operating duplicate
facilities during the integration of the Footwear Group into the Company.
Operating Income
Operating income (excluding the Restructuring Charge) was $200.3 million,
or 12.5% of net revenues, in 1996 compared to $150.0 million, or 11.9% of net
revenues, in 1995 (excluding the Cost of Goods Sold Adjustment and the
Integration Charge). The increase in operating income as a percentage of net
revenues is attributable to the factors discussed above, offset slightly by the
increase in amortization of acquisition goodwill and other intangibles related
to the Acquisition. Fifty-two weeks of amortization is included in 1996
results, compared to 37 weeks of amortization during 1995.
Operating income (excluding the Cost of Goods Sold Adjustment and the
Integration Charge) in 1995 increased $41.0 million, or 37.6%, from $109.0
million or 16.7% of net revenues in 1994. The reduction in operating income as
a percentage of net revenues in 1995 is attributable to the factors discussed
above, and the amortization of acquisition goodwill and other intangibles
related to the Acquisition of $6.6 million in 1995.
Interest Expense
Interest expense was $41.9 million in 1996 compared to $29.6 million in
1995, an increase of $12.3 million or, 41.7%. The increased expense was
primarily due to Acquisition-related debt, which was outstanding only for the
37-week period subsequent to the Acquisition in 1995, but was outstanding during
all of 1996. The increased expense was partially offset by a decrease in the
weighted average interest rate from 7.4% during 1995 to 6.5% during 1996. In
addition to amending and restating the Company's credit agreement (the "Credit
Agreement") in order to achieve more favorable interest rate terms, the decrease
in the weighted average interest rate is also attributable to refinancing the
Company's bank debt with lower cost alternatives such as: (1) the issuance of
$187.5 million principal amount of 5.5% convertible subordinated notes due July
15, 2003 (the "Notes") during the second quarter of 1996; and (2) the Company's
revolving accounts receivable securitization program (the "Receivables
Facility").
Interest expense increased by $27.4 million in 1995 from $2.2 million in
1994. The increased expense is due to $559.8 million in term loans and a
revolving credit loan incurred by the Company to finance the Acquisition.
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operations and borrowings
under the Company's Credit Agreement to finance operations and expansion. Cash
used by operating activities was $87.9 million in 1996, compared to cash
provided by operating activities of $137.6 million in 1995 and $66.0 million in
1994. The $225.5 million decrease in 1996 cash flow from operations as compared
to 1995 is due primarily to: (1) additional working capital requirements as a
result of the Acquisition and the Company's expansion; (2) $7.8 million of
severance and relocation payments made in 1996 in connection with the
Acquisition compared to $6.1 million of severance and relocation payments in
1995; and (3) $14.4 million of payments made in 1996 in connection with the
Integration Charge compared to $4.4 million in 1995.
The $71.6 million increase in 1995 cash flow from operations as compared to
1994 is due primarily to: (1) proceeds of $61.6 million from the sale of trade
accounts receivable as part of the Receivables Facility; (2) changes in working
capital attributable to the Company's change in fiscal year end; and (3) the
additional working capital requirements of the Footwear Group. Cash flows from
operations in 1995 include the effects of changes in Footwear Group working
capital from the Acquisition date to February 3, 1996. Cash flows from
operations in 1995 include cash outlays of: (1) $6.1 million of severance and
relocation payments that were accrued in connection with the Acquisition; and
(2) $4.4 million of payments made in connection with the Integration Charge.
Working capital was $491.7 million at February 1, 1997 compared to $297.3
million at February 3, 1996. The increase in the working capital balance is due
primarily to: (1) a $105.2 million increase in inventory due to inventory
requirements of 118 additional domestic retail stores and 55 additional
international stores operating at year-end, wholesale on-order requirements and
expansion of open stock programs, early production of inventory for Easy Spirit
in preparation for the domestic factory closings and a shift in the timing of
factory shipments between years; and (2) a $77.1 million decrease in accounts
payable and accrued expenses and other current liabilities. Additionally,
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 to be
$5.2 million and are expected to be paid over a three-year period beginning in
1997. Cash outlays for the Integration Charge are expected to be $20.3 million,
of which $14.4 million was paid during 1996, bringing total payments through
February 1, 1997, made in connection with the Integration Charge, to $18.8
million. In connection with the Acquisition, the Company assumed and included
in the allocation of acquisition cost: (1) accruals for involuntary severance
and termination benefits of $8.6 million; and (2) relocation costs of $8.2
million. As of February 1, 1997, approximately $6.3 million and $7.6 million of
severance and termination benefits, and relocation costs, respectively, were
paid and charged against these liabilities ($4.4 million and $3.4 million of
severance and termination benefits, and relocation costs, respectively, were
paid during 1996). The Company anticipates that the remaining $4.4 million in
cash outlays related to the Acquisition related severance and termination
benefits and relocation costs, and the Integration Charge will be substantially
paid in the first quarter of 1997.
Under the Credit Agreement, the Company has a $322.0 million quarterly
amortizing term loan and may borrow up to $225.0 million under a revolving
credit facility, including letters of credit up to $100.0 million. The Credit
Agreement expires on November 1, 2001. 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 the Citibank, N.A. 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
senior 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. See "Financial Instruments" in the Notes to
Consolidated Financial Statements. As of March 18, 1997, $124.0 million of
borrowings and $35.4 million of letters of credit were outstanding on a
revolving basis and $65.6 million was available for future borrowing.
The Credit Agreement contains various operating covenants which, among
other things, impose certain limitations on the Company's ability to incur
liens, incur indebtedness, merge, consolidate or declare and make dividend
payments. Under the Credit Agreement, the Company is required to comply with
financial covenants relative to net worth, fixed charge coverage and leverage.
Borrowings under the Credit Agreement may be prepaid or retired by the Company
without penalty prior to the maturity date of November 1, 2001. Loans under the
Credit Agreement are subject to mandatory prepayments under certain conditions.
In December 1995, the Company entered into an agreement to create the five-
year Receivables Facility, under which up to $115.0 million of funding may be
obtained based on the accounts receivable of the Company. The principal benefit
of the Receivables Facility is a reduction in the Company's cost of funding
related to its long-term debt. Proceeds from the Receivables Facility of $61.6
million were used to permanently pay-down a portion of the non-amortizing term
loan. The effective interest rate incurred by the Company on funding obtained
under the Receivables Facility was 6.2% as of February 1, 1997.
In June 1996, the Company issued $185.7 million of Notes. The Notes are
convertible into common stock of the Company at a conversion price of $60.76 per
share, subject to adjustment in certain circumstances. The Notes are
redeemable, in whole or in part, at the option of the Company, at any time on or
after July 16, 1999, at declining redemption prices plus any accrued interest.
The Notes are subordinated in right of payment to all existing and future senior
indebtedness of the Company. Proceeds from the issuance of the Notes were
approximately $181.3 million (net of underwriter's discounts of $4.4 million)
and were used to repay a portion of the outstanding indebtedness under the
Credit Agreement.
The weighted average interest rate on the Company's long-term debt
outstanding (including the Notes) as of February 1, 1997 was approximately 6.2%.
The Company continually evaluates its financing alternatives to reduce cost of
capital.
On June 5, 1996, the Company made a net payment of $42.5 million to The
United States Shoe Corporation ("U.S. Shoe"), in connection with: (1) the
settlement of the post-closing balance sheet dispute relating to the
Acquisition; and (2) the repurchase by the Company of the Warrants, which was
financed under the Company's revolving credit facility. See "Acquisitions" in
the Notes to Consolidated Financial Statements.
Capital expenditures totaled $42.8 million in 1996, $39.9 million in 1995
and $23.1 million in 1994. Capital expenditures in 1996 relate primarily to the
Company's retail store expansion and remodeling programs. Capital expenditures
in 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 the distribution center expansion totaled $5.2
million in 1995. Capital expenditures in 1994 relate primarily to the Company's
store expansion and remodeling programs. The Company estimates that its capital
expenditures for 1997 will be approximately $75.0 million to $85.0 million,
relating primarily to: (1) the ongoing expansion of its domestic and
international retail operations (approximately $50.0 million); (2) equipment for
its distribution and manufacturing facilities (approximately $6.0 million); and
(3) leasehold improvements, furniture and fixtures, and equipment associated
with the Relocation (approximately $20.0 million). 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, the amount of any construction
allowances the Company may receive from the landlords of its new stores and any
unexpected costs incurred in connection with the Relocation. 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.
The Company expects that its current cash balances, cash flows anticipated
to be generated from operations and availability under its revolving credit
facility will be sufficient to fund the Relocation, business restructuring and
integration of the Footwear Group, and other operating cash needs and growth
opportunities (including planned domestic and international retail store
openings for 1997) for at least the next 12 months. From time to time, the
Company evaluates potential acquisitions of businesses which complement the
business of the Company. Depending on the cash consideration required in such
potential acquisitions, the Company may determine to finance such transactions
with its cash flows from operations, or may pursue raising additional funds
through various financing vehicles, such as additional bank financing or one or
more public or private offerings of the Company's securities, or both.
The Common Stock of Nine West Group Inc. has been listed and traded on the
New York Stock Exchange since February 2, 1993 (trading symbol NIN). The Common
Stock was listed in connection with the Offering.
The Company does not currently intend to pay cash dividends on its Common
Stock in the immediate future. Subject to compliance with certain financial
covenants set forth in the Credit Agreement and restrictions contained in any
future financing agreements, the payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.
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. Because the timing of shipment 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.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report which are not historical facts
contain forward-looking information with respect to the Company's plans,
projections or future performance, the occurrence of which involve certain risks
and uncertainties that could cause the Company's actual results or plans to
differ materially from those expected by the Company. Certain of such risks and
uncertainties relate to competition in the industry; changes in the prevailing
costs of leather and other raw materials, labor and advertising; changes in
consumer demands and preferences; retail store construction delays; the
availability of desirable retail locations and the negotiation of acceptable
lease terms for such locations; the ability of the Company to place its products
in desirable sections of its department store customers; the level of savings to
be achieved from initiatives outlined in the Restructuring and Integration
Charges and the ongoing integration of the Footwear Group; and unexpected costs
incurred in connection with the Relocation.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is
required to be adopted in 1997. The general requirements of SFAS No. 128
principally apply to the presentation of earnings per share in the financial
statements. Primary and fully diluted earnings per share will be replaced by
"basic" and "diluted" earnings per share, respectively. The basic calculation
will compute earnings per share based only on the weighted average number of
common shares outstanding as compared to primary earnings per share which
includes common stock equivalents. The diluted earnings per share calculation
will be computed similarly to fully diluted Earnings per share. Earnings per
share for the Company will be affected due to outstanding convertible debt and
equity instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Management's Responsibility for Financial Statements................... XX
Independent Auditors' Report........................................... XX
Consolidated Statements of Income - Fifty-two weeks ended February 1,
1997, Fifty-three weeks ended February 3, 1996, transition period
beginning January 1, 1995 and ending on January 28, 1995, and the year
ended December 31, 1994................................................ XX
Consolidated Balance Sheets - February 1, 1997 and February 3, 1996... XX
Consolidated Statements of Cash Flows - Fifty-two weeks ended
February 1, 1997, Fifty-three weeks ended February 3, 1996, transition
period beginning January 1, 1995 and ending on January 28, 1995, and
the year ended December 31, 1994....................................... XX
Consolidated Statements of Stockholders' Equity - Fifty-two weeks ended
February 1, 1997, Fifty-three weeks ended February 3, 1996, transition
period beginning January 1, 1995 and ending on January 28, 1995, and
the year ended December 31, 1994....................................... XX
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K).... XX-XX
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements presented in this report are the
responsibility of the Company's management and have been prepared in conformity
with generally accepted accounting principles. Some of the amounts included in
the consolidated financial information are necessarily based on estimates and
judgments of management.
The Company maintains accounting and related internal control systems
designed to provide, among other things, reasonable assurance that transactions
are executed in accordance with management's authorization and that they are
recorded and reported properly. There are limitations inherent in all systems
of internal control, and the Company weighs the cost of such systems against the
expected benefits.
The consolidated financial statements have been audited by the Company's
independent auditors, Deloitte & Touche LLP. Their primary role is to render an
independent professional opinion on the fairness of the financial statements
taken as a whole. Their audit, which is performed in accordance with generally
accepted auditing standards, includes a study and evaluation of the Company's
accounting systems and internal controls sufficient to express their opinion on
those financial statements.
The Audit Committee of the Board of Directors, which is composed entirely
of directors who are not employees of the Company, meets periodically with
management and the independent auditors to review the results of their work and
to satisfy itself that their responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and meet
with it (with and without management present) to discuss appropriate matters.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Nine West Group Inc.:
We have audited the accompanying consolidated balance sheets of Nine West
Group Inc. and subsidiaries (the "Company") as of February 1, 1997 and February
3, 1996, and the related consolidated statements of income, stockholders' equity
and cash flows for the fifty-two weeks ended February 1, 1997, the fifty-three
weeks ended February 3, 1996 and the year ended December 31, 1994 and for the
transition period from January 1 to January 28, 1995. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at February 1, 1997
and February 3, 1996, and the results of their operations and their cash flows
for the fifty-two weeks ended February 1, 1997, the fifty-three weeks ended
February 3, 1996 and the year ended December 31, 1994 and for the transition
period from January 1 to January 28, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Stamford, Connecticut
March 17, 1997
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Transition
1996 1995 Period 1994
---- ---- ---------- ----
(in thousands except per share data)
Net revenues..................... $1,603,115 $1,258,630 $42,539 $652,457
Cost of goods sold............... 913,946 720,963 24,582 364,533
Purchase accounting adjustments
to cost of goods sold........... - 34,864 - -
---------- ---------- ------- --------
Gross profit.................... 689,169 502,803 17,957 287,924
Selling, general and
administrative expenses......... 479,284 381,021 16,402 178,916
Business restructuring and
integration expenses............ 18,970 51,900 - -
Amortization of acquisition
goodwill and other intangibles.. 9,562 6,637 - -
---------- ---------- ------- --------
Operating income from continuing
operations..................... 181,353 63,245 1,555 109,008
Interest expense................. 41,947 29,611 - 2,199
---------- ---------- ------- --------
Income from continuing operations
before income taxes............ 139,406 33,634 1,555 106,809
Income tax expense............... 55,762 14,658 614 42,919
---------- ---------- ------- --------
Income from continuing
operations..................... 83,644 18,976 941 63,890
Loss on disposal of
discontinued operation (net of
tax benefits of $1,419)........ (2,636) - - -
---------- ---------- ------- --------
Net income...................... $ 81,008 $ 18,976 $ 941 $ 63,890
========== ========== ======= ========
Weighted average common shares
and common share equivalents
outstanding:
Primary........................ 36,699 35,707 34,655 34,555
Fully diluted.................. 38,853
Primary earnings per share:
Continuing operations.......... $ 2.28 $0.53 $0.03 $1.85
Loss on disposal of
discontinued operation......... (0.07) - - -
---------- ---------- ------- --------
Primary earnings per share....... $ 2.21 $ 0.53 $ 0.03 $ 1.85
========== ========== ======= ========
Fully diluted earnings per share:
Continuing operations.......... $ 2.26
Loss on disposal of
discontinued operation......... (0.07)
----------
Fully diluted earnings per share. $ 2.19
==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 1 February 3
1997 1996
---- ----
(in thousands except share data)
ASSETS
Current Assets:
Cash.............................................. $ 25,176 $ 20,782
Accounts receivable - net......................... 100,718 78,867
Inventories - net................................. 501,830 396,676
Deferred income taxes............................. 38,236 46,088
Assets held for sale - net........................ 13,589 31,118
Prepaid expenses and other current assets......... 42,457 18,249
--------- ----------
Total current assets............................. 722,006 591,780
Property and equipment - net....................... 138,249 136,719
Deferred income taxes.............................. 18,262 21,658
Goodwill - net..................................... 203,020 233,149
Trademarks and trade names - net................... 142,337 146,053
Other assets....................................... 37,189 30,733
---------- ----------
Total assets..................................... $1,261,063 $1,160,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 91,059 $139,731
Accrued expenses and other current liabilities.... 106,273 134,737
Current portion of long-term debt................. 33,000 20,000
---------- ----------
Total current liabilities....................... 230,332 294,468
Long-term debt..................................... 600,407 471,000
Other non-current liabilities...................... 69,784 66,298
---------- ----------
Total liabilities............................... 900,523 831,766
---------- ----------
Stockholders' Equity:
Common stock ($0.01 par value, 100,000,000
shares authorized; 35,792,613 and 35,240,052
shares issued and outstanding)................... 358 352
Warrants.......................................... - 57,600
Additional paid-in capital........................ 140,395 131,595
Retained earnings................................. 219,787 138,779
---------- ----------
Total stockholders' equity...................... 360,540 328,326
---------- ----------
Total liabilities and stockholders' equity..... $1,261,063 $1,160,092
========== ==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Transition
1996 1995 Period 1994
---- ---- ---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 81,008 $ 18,976 $ 941 $63,890
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization....................... 32,983 24,409 727 7,558
Provision for losses on accounts receivable......... 6,797 15,762 (822) 2,485
Provision for losses on inventory................... 4,536 11,729 306 2,849
Loss on disposal of property and equipment.......... 2,807 1,660 - 274
Loss on disposal of discontinued operation.......... 2,636 - - -
Business restructuring and integration expenses..... (9,247) 43,779 - -
Deferred income taxes............................... 11,248 (24,177) 521 215
Changes in assets and liabilities excluding effects
of acquisitions:
Increase in balance of accounts receivable sold... 10,610 61,590 - -
Accounts receivable............................... (39,775) (42,474) 4,666 (9,657)
Inventory......................................... (107,388) (48,283) (6,914) 10,660
Prepaid expenses and other assets................. (19,893) (548) 314 (1,075)
Accounts payable.................................. (48,703) 69,946 4,104 (10,926)
Accrued expenses and other current liabilities.... (15,524) 5,256 (4,213) (312)
--------- -------- ------ -------
Net cash provided (used) by operating activities....... (87,905) 137,625 (370) 65,961
--------- -------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (42,806) (39,944) (360) (23,096)
Proceeds from sale of property and equipment........... 19,617 - - -
Business acquisitions - net of cash acquired........... (11,580) (581,261) (1,820) -
Acquisition purchase price settlement.................. 25,000 - - -
Proceeds from sale of discontinued operation........... 2,800 - - -
Net (increase) decrease in other assets................ 6,046 (176) (182) (1,477)
--------- -------- ------ -------
Net cash used by investing activities.................. (923) (621,381) (2,362) (24,573)
--------- -------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under financing agreements... 128,000 (11,710) 1,500 (40,971)
Proceeds from issuance of long-term debt............... 232,016 559,810 - -
Repayments of long-term debt........................... (218,000) (61,000) - (7,745)
Repurchase of warrants................................. (67,500) - - -
Net proceeds from issuance of stock.................... 18,706 13,182 - 4,121
--------- -------- ------ -------
Net cash provided (used) by financing activities....... 93,222 500,282 1,500 (44,595)
--------- -------- ------ -------
NET INCREASE (DECREASE) IN CASH........................ 4,394 16,526 (1,232) (3,207)
CASH, BEGINNING OF PERIOD.............................. 20,782 4,256 5,488 8,695
--------- -------- ------ -------
CASH, END OF PERIOD.................................... $ 25,176 $ 20,782 $4,256 $ 5,488
========= ======== ====== =======
The accompanying Notes are an integral part of the Consolidated Financial Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
--------------------
Number of Additional Total
Outstanding Paid-In Retained Stockholders'
Shares Amount Warrants Capital Earnings Equity
----------- ------ -------- ---------- -------- -------------
(in thousands except share data)
Balance at December 31, 1993.... 34,386,450 $344 $ - $110,183 $ 54,972 $165,499
Net income..................... 63,890 63,890
Stock options exercised,
including tax benefit......... 222,095 2 5,236 5,238
---------- ---- ------ -------- -------- --------
Balance at December 31, 1994.... 34,608,545 $346 $ - $115,419 $118,862 $234,627
Net income..................... 941 941
Issuance of stock to effect
L.J.S. acquisition............ 108,060 1 2,999 3,000
---------- ---- ------ -------- -------- --------
Balance at January 28, 1995..... 34,716,605 347 - 118,418 119,803 238,568
Net income..................... 18,976 18,976
Stock options exercised,
including tax benefit......... 523,447 5 13,177 13,182
Issuance of warrants to effect
Footwear Group acquisition.... 57,600 57,600
---------- ---- ------- -------- -------- --------
Balance at February 3, 1996..... 35,240,052 352 57,600 131,595 138,779 328,326
Net income..................... 81,008 81,008
Stock options exercised,
including tax benefit......... 552,561 6 18,700 18,706
Repurchase of warrants......... (57,600) (9,900) (67,500)
---------- ---- ------- -------- -------- --------
Balance at February 1, 1997..... 35,792,613 $358 $ - $140,395 $219,787 $360,540
========== ==== ======= ======== ======== ========
The accompanying Notes are an integral part of the Consolidated Financial Statements.
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Nine West
Group Inc. (the "Company"), its wholly-owned subsidiaries and its controlled-
interest joint ventures. All intercompany transactions and balances have been
eliminated from the consolidated financial statements for all periods presented.
Effective June 27, 1995, the Board of Directors of the Company approved the
change of the Company's fiscal year from December 31 to a 52/53-week period
ending on the Saturday closest to January 31. Fiscal 1996 consists of the
52-week period which ended on February 1, 1997. Fiscal 1995 consists of the
53-week period which began on January 29, 1995 and ended on February 3, 1996.
Fiscal 1994 consists of the 12-month period which ended on December 31, 1994.
References to years in this annual report relate to these fiscal years. The
change in the Company's fiscal year created a transition period consisting of
the four weeks which began on January 1, 1995 and ended on January 28, 1995 (the
"Transition Period").
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 1996, 1995 and 1994 is not
comparable between years, as Footwear Group results are included in the entire
1996 period and are included in 1995 for the 37-week period from May 23, 1995
through February 3, 1996.
The Company designs, develops, manufactures and markets women's footwear
and accessories. The Company operates in the footwear and accessories industry,
marketing its products through wholesale and retail channels in the United
States as well as in other countries. The Company markets footwear under the
brand names Nine West, Amalfi, Bandolino, Calico, cK/Calvin Klein Shoes and
Bags, Easy Spirit, Enzo Angiolini, Evan Picone, 9 & Co., Pappagallo, Pied a
Terre, Selby and Westies, and under private labels. The Company's products are
manufactured principally in Brazil, and to a lesser extent in Italy, Spain and
China, at independent factories not owned by the Company. The Company's
footwear is also manufactured at five domestic shoe factories, two domestic
component factories and three foreign component factories that are owned by the
Company. The Company has announced a restructuring plan for its North American
manufacturing facilities to be completed in 1997. See "Business Restructuring
and Integration Expenses." The Company has entered into a long-term contract
with its buying agent to oversee its third-party sourcing activities in Brazil
and other countries. The Company does not have any contracts with its
independent manufacturers, but relies on its long-standing relationship with the
Brazilian factories and its buying agent, in addition to its own factories, to
provide an uninterrupted source of inventory.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are valued at the lower of cost or market. Approximately 62%
and 65% of inventories were determined by using the FIFO (first in, first out)
method of valuation as of February 1, 1997 and February 3, 1996, respectively;
the remainder is determined by the weighted average cost method. Inventory is
comprised of (in thousands):
February 1, 1997 February 3, 1996
---------------- ----------------
Raw materials................. $ 27,969 $ 22,450
Work in process............... 3,543 3,890
Finished goods................ 470,318 370,336
-------- --------
Total inventory............. $501,830 $396,676
======== ========
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed on the straight-line method over the estimated useful lives or, if
shorter, the lease terms of the real estate to which the assets relate. The
estimated useful lives by class of asset are:
Estimated Life
In Years
--------------
Buildings and improvements................ 5-30
Machinery, equipment and fixtures......... 2-12
Leasehold improvements.................... 5-10
Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures which materially increase values, improve capacities or
extend useful lives are capitalized. Upon sale or retirement of property and
equipment, the costs and related accumulated depreciation or amortization are
eliminated from the respective accounts and any resulting gain or loss is
included in operations.
Net Revenues
Wholesale revenues, including commissions received in conjunction with
private label footwear, are recognized upon shipment of products to customers.
Retail revenues are recognized when the payment is received from customers.
Revenues are net of returns and exclude sales tax. Licensing revenue is
recognized on the basis of net sales by the licensee. Allowances for estimated
discounts and returns are provided when sales are recorded. Actual discounts
and returns incurred could differ from those estimates.
Retail Store Opening Costs
Costs of opening new retail stores are amortized over the one-year period
immediately following the incurrence of such costs.
Earnings Per Share
Primary earnings per share are computed by dividing net income by the
number of weighted average common shares and common share equivalents
outstanding. Primary weighted average common shares and common share
equivalents for 1996 and 1995 consist of common stock issued and outstanding of
35,647,000 and 35,011,000 shares and primary common stock equivalents of
1,052,000 and 696,000 shares, respectively. Primary weighted average common
shares and common share equivalents for 1994 consist of 34,555,000 common shares
issued and outstanding.
Fully diluted earnings per share assumes conversion to common stock of
$185.7 million principal amount of 5.5% convertible subordinated notes due 2003
(the "Notes"), issued in June 1996, and adjusts net earnings by the
after-tax interest expense related to the Notes.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is
required to be adopted in 1997. The general requirements of SFAS No. 128
principally apply to the presentation of earnings per share in the financial
statements. Primary and fully diluted earnings per share will be replaced by
"basic" and "diluted" earnings per share, respectively. The basic calculation
will compute earnings per share based only on the weighted average number of
common shares outstanding as compared to primary earnings per share which
includes common stock equivalents. The diluted earnings per share calculation
will be computed similarly to fully diluted earnings per share. Earnings per
share for the Company will be affected due to outstanding convertible debt and
equity instruments.
Reclassifications
Reclassifications have been made to certain prior year amounts to conform
to current year presentation.
Cash Flows
Cash paid for income taxes was $46.0 million, $28.7 million and $45.9
million for 1996, 1995 and 1994, respectively. Cash paid for interest was $39.0
million, $29.4 million and $2.3 million for 1996, 1995 and 1994, respectively.
In 1995, non-cash financing activities included the issuance of warrants, valued
at $57.6 million, in connection with the Acquisition. See "Acquisitions."
During the Transition Period, non-cash financing activities included the
issuance of $3.0 million of Common Stock in connection with the acquisition of
L.J.S. Accessory Collections, Inc.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect: (1) the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements; and (2) the reported amounts of revenues and expenses during the
reporting period. While management used the best available information to make
such estimates, future adjustments may be necessary if actual conditions and
results differ substantially from the assumptions used in making the estimates.
Such changes could have a significant effect on the consolidated financial
statements.
Intangible Assets
Intangible assets are amortized on a straight-line basis over their
estimated lives. See "Acquisitions." The carrying values of intangible assets
are periodically reviewed by the Company and impairments are recognized when the
expected future undiscounted operating cash flows derived from such intangible
assets is less than their carrying value.
3. Acquisitions
On May 23, 1995, the Company consummated the Acquisition for a total
purchase price of $560.0 million in cash, plus warrants (the "Warrants"),
exercisable for a period of eight and one-half years from the date of issuance,
to purchase 3.7 million shares of Common Stock at an exercise price of $35.50
per share.
On June 5, 1996, the Company and The United States Shoe Corporation ("U.S.
Shoe") consummated a settlement (the "Settlement") of a post-closing balance
sheet dispute relating to the Acquisition. Pursuant to the Settlement, U.S.
Shoe was obligated to pay the Company $25.0 million, which has been recorded as
a reduction in goodwill. In addition, the Company and U.S. Shoe agreed that the
Company would repurchase the Warrants for $67.5 million. The net payment by the
Company to U.S. Shoe of $42.5 million was financed with borrowings under the
Company's revolving credit facility.
The Acquisition was accounted for under the purchase method of accounting,
whereby the purchase price was allocated to the assets acquired and liabilities
assumed based upon their relative fair values as of May 23, 1995. The relative
fair values of the assets acquired and liabilities assumed are based upon
valuations and other information. 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 1995.
The integration plan relates to the elimination of 295 administrative positions
that became duplicative through the combination of operations and process
efficiencies realized and relocation of certain Footwear Group functional and
operational employees. As of February 1, 1997, approximately 246 of the 295
positions were eliminated, with the remaining reductions to be completed in
1997. As of February 1, 1997, approximately $6.3 million of severance and
termination benefits and $7.6 million of relocation costs were paid and charged
against these liabilities ($4.4 million and $3.4 million, respectively, during
1996). Goodwill, trademarks and trade names are amortized on a straight-line
basis over a 40-year period.
The following table summarizes the allocation of the aggregate
consideration paid (in thousands) to the fair value of the assets acquired and
the liabilities assumed by the Company in connection with the Acquisition:
Current assets
Cash..................................... $ 2,394
Accounts receivable...................... 51,293
Inventories.............................. 212,856
Assets held for sale..................... 34,488
Deferred income taxes.................... 11,892
Other.................................... 1,062
-------------------
Total current assets.................. $313,985
Property and equipment...................... 58,988
Cost in excess of net assets acquired....... 208,862
Trademarks and trade names.................. 148,627
Deferred income taxes....................... 20,521
Other assets................................ 22,550
--------
773,533
Accounts payable............................ (27,656)
Accrued expenses............................ (80,951)
Other non-current liabilities............... (48,671)
------------------
(157,278)
--------
Net consideration paid................ $616,255
========
Included in the assets acquired in the Acquisition were: (1) certain office
and warehouse facilities located in Cincinnati, Ohio (the "Cincinnati
Facilities"); and (2) the Texas Boot division ("Texas Boot"). The Company
consummated the sale of Texas Boot on January 24, 1997. See "Discontinued
Operation." Upon Acquisition, the Company determined that the Cincinnati
Facilities did not meet its long-term strategic objectives and decided to sell
the Cincinnati Facilities within one year from the date of Acquisition. The net
assets related to the Cincinnati Facilities were recorded in the balance sheet
under the caption "Assets held for sale - net" at their estimated net proceeds.
The Company is currently in negotiations to sell the Cincinnati Facilities.
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 periods 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 $34.9 million for 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.
1995 1994
---------- ----------
(in thousands, except per share amounts)
Net revenues............................. $1,435,679 $1,264,359
Net income............................... 15,115 54,697
Earnings per common share................ $ 0.42 $ 1.58
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.
During the past two years, the Company has also completed several smaller
acquisitions, each of which has been accounted for in accordance with the
purchase method of accounting. The consolidated financial statements include
the operating results of each business acquired from its date of acquisition.
Pro forma results of operations have not been presented as the effects of these
acquisitions, both individually and in the aggregate, were not material to the
financial statements taken as a whole.
4. BUSINESS RESTRUCTURING AND INTEGRATION EXPENSES
In the fourth quarter of 1996, the Company recorded a charge of $21.3
million, offset by a reversal of an excess of the Integration Charge (defined
below) of $2.3 million, resulting in a net pretax charge to earnings of $19.0
million (the "Restructuring Charge"), for costs associated with: (1) the
restructuring of North American manufacturing facilities; (2)the consolidation
and relocation of the Company's offices in Stamford, Connecticut and Cincinnati,
Ohio to a new facility in White Plains, New York; and (3) the repositioning of
the 9 & Co. brand, which included the evaluation of retail site locations and
the resulting closure of fifteen 9 & Co. stores. The major components of the
Restructuring Charge are: (1) write-down of assets of $13.8 million; (2)
accruals for lease and other contract terminations of $4.9 million; and (3)
plant closing costs of $2.6 million. The Restructuring Charge balance of $21.3
million at February 1, 1997 is included in accrued expenses and other current
liabilities.
The Restructuring Charge reflects plans to close three domestic factories
and discontinue or reconfigure certain operations at two other domestic
manufacturing facilities. Domestic footwear production is expected to decrease
from a current level of 7.5 million pairs to 5.0 million pairs by the end of
1997, as the Company pursues global sourcing opportunities in an effort to
reduce overall product cost. This action will affect 1,025 employees, or
approximately 50% of the Company's domestic manufacturing work force. Total
severance and termination benefit costs associated with this action are $9.6
million, which relate to benefits covered by the Company's existing severance
plans. See "Employee Benefit Plans."
During 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 were reflected in the allocation of the Acquisition cost,
the Company incurred and accrued expenses for restructuring and integration
costs of $51.9 million in the fourth quarter of 1995 (the "Integration Charge").
The major components of the Integration Charge were: (1) severance and
termination benefits of $7.7 million; (2) write-down of assets, principally
leasehold improvements, of $14.6 million; (3) inventory valuation adjustments of
$10.4 million; (4) accruals for lease and other contract terminations of $7.0
million; and (5) other integration and consolidation costs of $12.2 million.
Total cash outlays related to this charge are expected to be approximately $20.3
million, of which $14.4 million and $4.4 million was paid during 1996 and 1995,
respectively. The remaining liability for these activities at February 1, 1997
was $1.5 million, primarily related to severance payments that exceeded one
year, and is included in accrued expenses and other current liabilities.
The Integration Charge reflects plans to restructure international sourcing
operations and consolidate certain manufacturing and sourcing facilities 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
included 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 1996, and
the termination of the Company's agreement with Burlington Coat Factory for its
operation of 84 shoe departments during 1996.
Severance and termination benefits relate to approximately 475 employees,
of which 420 were store managers and associates, 50 were engaged in
manufacturing positions, principally related to the liquidation of the Company's
Far East office as a result of entering into a new agency arrangement, and five
were management employees. As of February 1, 1997, approximately 450 employees
had been terminated, with $6.6 million of severance and termination benefits
being paid and charged against the liability. The remaining separations will be
completed during 1997.
The Integration Charge also included period costs of approximately $3.2
million in 1995, which were expensed as incurred and which consisted of
integration-related outside consulting fees paid in connection with the
implementation of major process improvements. The process improvements included
the elimination of redundant operations ($684,000) and certain financial
accounting systems ($995,000) and efficiency improvements in certain warehousing
($564,000) and retail store ($995,000) operations and systems.
The following table summarizes the activity of the Integration Charge through
February 1, 1997:
Other
Lease and Integration
Severance 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
1996 activity............ (5,388) (-) (4,866) (10,423) (7,540) (28,217)
Reversal of excess
Integration Charge...... (335) (-) (1,795) (-) (133) (2,263)
------ ------- ------ ------- ------- -------
February 1, 1997 balance. $1,091 $ - $ 150 $ - $ 235 $ 1,476
====== ======= ====== ======= ======= =======
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 (1) the closing of all 84 leased departments operated within
Burlington Coat Factory stores; and (2) 35 of 40 planned Banister retail store
closings through February 1, 1997. The remaining five planned Banister retail
store closings are expected to be completed during the first quarter of 1997.
5. DISCONTINUED OPERATION
Upon Acquisition, the Company determined that Texas Boot did not meet its
long-term strategic objectives and decided to sell the business within one year
from the date of the Acquisition. The net assets related to the business were
recorded in the balance sheet under the caption "Assets held for sale - net" at
their estimated net proceeds, as adjusted for estimated cash flows from
operations and estimated interest expense during the holding period
(approximately one year) on the incremental debt incurred to finance the
purchase of these assets. The results of operations related to these assets
held for sale, subsequent to July 29, 1995 and interest expense on the allocated
debt, which aggregate approximately $4.7 million of losses and $4.8 million of
income, have been excluded from the 1996 and 1995 consolidated statements of
income, respectively, as required by Emerging Issues Task Force ("EITF") 87-11.
See "Acquisitions." During the second quarter of 1996, the holding period under
EITF 87-11 had expired and the Company accounted for the expected loss from the
disposal of net assets and anticipated operating losses from the measurement
date through the estimated date of disposal as a discontinued operation,
resulting in a charge of $2.6 million, net of income tax benefits of $1.4
million. The sale of Texas Boot was consummated on January 24, 1997. The
Company received $2.8 million in cash and notes and other financial instruments
in the total amount of $5.2 million in connection with this disposition. See
"Restatement of Quarterly Financial Data."
6. ACCOUNTS RECEIVABLE - NET
Receivables are presented net of reserves for doubtful accounts and other
allowances of $47.3 million and $42.8 million at February 1, 1997 and February
3, 1996, respectively.
7. PROPERTY AND EQUIPMENT - NET
Property and equipment consists of (in thousands):
February 1 February 3
1997 1996
---- ----
Land......................................... $ 629 $ 2,158
Buildings and improvements................... 9,119 21,555
Machinery, equipment and fixtures............ 114,941 101,030
Leasehold improvements....................... 74,928 65,620
Construction in progress..................... 4,557 326
-------- --------
204,174 190,689
Accumulated depreciation and amortization.... 65,925 53,970
-------- --------
Property and equipment - net................. $138,249 $136,719
======== ========
8. SALE/LEASEBACK TRANSACTION
In May 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.
9. FINANCIAL INSTRUMENTS
The Company uses risk management financial instruments to reduce its
exposure to changes in interest rates and foreign exchange rates. The Company
does not hold or issue financial instruments for trading or speculative
purposes. The notional principal amounts of risk management financial
instruments summarized in this note do not represent amounts actually exchanged
by the parties. The amounts exchanged are calculated on the basis of the
notional principal amounts and the other terms of the risk management financial
instruments, which relate to interest rates and exchange rates. While these
financial instruments are subject to risk of loss from changes in exchange and
interest rates, such losses would be generally offset by gains on the related
hedged transactions.
Foreign Currency Transactions - Substantially all purchases of inventory
are made in pre-set U.S. dollar prices. For some inventory purchases which are
denominated in foreign currencies, the Company enters into forward exchange
contracts to protect the Company from the risk that eventual dollar cash
purchases from foreign suppliers will be adversely affected by changes in
exchange rates. Unrealized gains and losses arising from contracts that hedge
firm commitments to purchase inventory from foreign third party suppliers are
deferred and recognized as adjustments to carrying amounts when the hedged
transaction occurs. The fair value of foreign currency contracts as of February
1, 1997 was an unfavorable $4.0 million, based upon third party dealer
valuations as an estimate of the amount the Company would pay upon termination
of the specific contracts. The following table summarizes, by major currency,
the outstanding contractual amounts of the Company's forward exchange contracts
in U.S. dollars (in thousands). The forward exchange contracts outstanding as
of February 1, 1997 mature on various dates through December of 1997.
February 1 February 3
1997 1996
---- ----
Spanish Peseta.............. $34,628 $12,848
Italian Lire................ 42,167 10,757
------- -------
Total..................... $76,795 $23,605
======= =======
Interest Rate Instruments - The Company manages interest rate exposure by
adjusting its mix of floating rate debt and fixed rate debt. As part of the
management of exposure to the fluctuation of interest rates, the Company has
entered into interest rate swaps and collars to effectively fix a portion of its
interest rate exposure on its floating rate debt. At February 1, 1997, the
Company had outstanding interest rate swaps and collars with an aggregate
notional principal amount of $300.0 million with expiration dates ranging from
June 1997 to December 2000. An additional agreement with a notional principal
amount of $100.0 million was entered into on November 26, 1996, but will not
become effective until June 6, 1997. The effect of these transactions is to
limit exposure to interest rate fluctuations with respect to 66% of the
Company's outstanding floating rate debt. The fair value of these instruments
was a favorable $1.2 million, based on a commonly accepted pricing methodology
using market prices as of February 1, 1997.
Accounts Receivable Securitization - In December 1995, the Company entered
into an agreement to create a five-year revolving accounts receivable
securitization facility (the "Receivables Facility"), under which up to $115.0
million of funding may be obtained based upon the sale, without recourse, of the
accounts receivable of the Company. The principal benefit of the Receivables
Facility is a reduction in the Company's cost of funding related to long-
term debt. Proceeds from the transfer of receivables to a trust (the "Trust")
were used to repay long-term debt. During the term of the Receivables Facility,
cash generated by the collection of accounts receivable will be used to purchase
substantially all accounts receivable from the Company on an ongoing basis or
make payments to investors of the Trust.
As of February 1, 1997 and February 3, 1996, the Company had sold $153.9
million and $127.1 million, respectively, of outstanding trade accounts
receivable to Nine West Funding Corporation ("Nine West Funding").
Consequently, Nine West Funding transferred all trade receivables to the Trust
and, as of February 1, 1997 and February 3, 1996, received $72.2 million and
$61.6 million, respectively, from investors who maintain an interest in all of
the assets of the Trust. Nine West Funding maintained a subordinated interest
in the remaining assets of the Trust of $81.7 million and $65.5 million, which
are included in accounts receivable on the Company's balance sheet as of
February 1, 1997 and February 3, 1996, respectively. The Company may terminate
the Receivables Facility at any time. All expenses incurred by the Company with
respect to the Receivables Facility are directly charged to income during the
period in which they are incurred. The effective interest rate incurred by the
Company on amounts transferred by Nine West Funding to the Trust under the
Receivables Facility was 6.2% as of February 1, 1997.
The Company is exposed to credit-related losses in the event of
nonperformance by counter parties to financial instruments, but it does not
expect any counter parties to fail as all counter parties have investment grade
ratings.
10. INCOME TAXES
The components of income from continuing operations before income taxes are
as follows (in thousands):
1996 1995 1994
---- ---- ----
Domestic operations................ $132,063 $27,236 $106,809
Foreign operations................. 7,343 6,398 -
-------- ------- --------
Total......................... $139,406 $33,634 $106,809
======== ======= ========
Income tax expense (benefit) consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Current Provision:
Federal............................ $36,122 $31,663 $34,483
State and local.................... 5,305 6,848 8,221
Foreign............................ 541 156 -
-------- ------- -------
Total......................... 41,968 38,667 42,704
-------- ------- -------
Deferred Provision:
Federal............................ 10,579 (19,937) (28)
State and local.................... 3,364 (4,348) 243
Foreign............................ (149) 276 -
-------- ------- -------
Total......................... 13,794 (24,009) 215
-------- ------- -------
Total Provision $ 55,762 $14,658 $42,919
======== ======= =======
The differences between income tax expense shown in the consolidated
statements of income and the computed income tax expense based on the federal
statutory corporate tax rate are (in thousands):
1996 1995 1994
---- ---- ----
Computed income taxes based on federal
statutory corporate tax rate of 35%.... $48,792 $11,772 $37,383
State and local income taxes, net of
federal benefit........................ 5,635 1,542 5,568
Earnings in jurisdictions taxed at rates
different from U.S. statutory rate..... (2,206) (1,807) -
Foreign dividends....................... 2,288 1,666 -
Other................................... 1,253 1,485 (32)
------- ------- -------
Total income tax expense.............. $55,762 $14,658 $42,919
======= ======= =======
Appropriate U.S. and foreign taxes have been provided for earnings of
subsidiary companies that are expected to be remitted to Nine West Group Inc.
The cumulative amount of unremitted earnings from foreign subsidiaries that are
expected to be indefinitely reinvested was approximately $1,833,000 on February
1, 1997. The taxes that would be paid upon the remittance of these indefinitely
reinvested earnings are approximately $342,000 based on current tax laws.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's net deferred tax asset are (in
thousands):
February 1 February 3
1997 1996
Deferred tax assets: ---- ----
Inventory allowances and capitalization.......... $ 8,737 $ 6,948
Returns and allowances........................... 9,970 9,460
Allowance for bad debts.......................... 2,852 1,741
Business restructuring and integration expenses.. 10,623 17,402
Deferred rent.................................... 3,734 2,762
Pension.......................................... 3,785 3,923
Accrued postretirement and postemployment........ 10,825 11,563
Fixed assets..................................... 7,238 3,901
Other accruals not currently deductible.......... 6,362 13,518
------- -------
Total deferred tax assets...................... $64,126 $71,218
======= =======
Deferred tax liabilities:
Intangible assets................................ $ 7,628 $ 3,472
------- -------
Total deferred tax liabilities................. $ 7,628 $ 3,472
======= =======
11. LONG-TERM DEBT
Long-term debt includes (in thousands):
February 1 February 3
1997 1996
---- ----
Revolving credit facility.......................... $130,000 $ 2,000
Quarterly amortizing term loan..................... 322,000 400,000
Non-amortizing term loan .......................... - 89,000
Convertible notes.................................. 181,407 -
-------- --------
633,407 491,000
Less portion payable within one year............... 33,000 20 000
-------- --------
Total long-term debt............................ $600,407 $471,000
======== ========
In August 1996, the Company amended and restated its credit agreement (the
"Credit Agreement"). Under the Credit Agreement, the Company has a $322.0
million quarterly amortizing term loan and may borrow up to $225.0 million under
a revolving credit facility, including letters of credit up to $100.0 million.
The Credit Agreement expires on November 1, 2001. 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 the Citibank, N.A. base rate or the
Eurodollar index rate. Borrowings under the Credit Agreement will become
unsecured should the Company achieve an "investment grade" rating on its
long-term senior 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. As of February 1, 1997, $130.0 million of
borrowings and $37.0 million of letters of credit were outstanding on a
revolving basis and $58.0 million was available for future borrowing.
The Credit Agreement contains various operating covenants which, among
other things, impose certain limitations on the Company's ability to incur
liens, incur indebtedness, merge, consolidate or declare and make dividend
payments. Under the Credit Agreement the Company is required to comply with
financial covenants relative to net worth, fixed charge coverage and leverage.
Borrowings under the Credit Agreement may be prepaid or retired by the Company
without penalty prior to the maturity date of November 1, 2001. Loans under the
Credit Agreement are subject to mandatory prepayments under certain conditions.
In June 1996, the Company issued the Notes. The Notes are due July 15,
2003 and are convertible into Common Stock at a conversion price of $60.76 per
share, subject to adjustment in certain circumstances. The Notes are
redeemable, in whole or in part, at the option of the Company, at any time on or
after July 16, 1999, at declining redemption prices plus any accrued interest.
The Notes are subordinated in right of payment to all existing and future senior
indebtedness of the Company. Proceeds from the issuance of the Notes were
approximately $181.3 million (net of underwriters' discounts of $4.4 million)
and were used to repay a portion of the indebtedness outstanding under the
Credit Agreement. The weighted average interest rate on the Company's long-term
debt outstanding, including the Notes, as of February 1, 1997 was approximately
6.2%. The annual maturities of long-term debt are approximately $33.0 million,
$55.0 million, $75.0 million, $75.0 million, and $84.0 million for 1997 through
2001, respectively.
The carrying value of the Company's long-term debt approximates its fair
value, which was estimated based upon the current rates offered to the Company
for debt with similar terms and remaining maturities.
12. LEASE COMMITMENTS
The Company leases office, distribution center, factory and retail store
space, and equipment under operating leases expiring at various dates through
2016 with renewal options for additional periods. Certain leases require both
contingent payments based on sales volume and contain escalation clauses for
increases in operating costs and real estate taxes.
Rent expense for operating leases was $80.7 million, $59.9 million and
$27.3 million for 1996, 1995 and 1994, respectively. Included in rent expense
are minimum rent payments of $74.3 million, $53.3 million and $24.0 million for
1996, 1995 and 1994, respectively.
Future minimum operating lease payments and sublease income under
noncancelable leases with initial or remaining terms of one year or more at
February 1, 1997 consisted of (in thousands):
Fiscal Minimum Sublease
Year Payments Income Net
---- -------- ------ ---
1997...................... $ 82,872 $ 417 $ 82,455
1998...................... 76,714 305 76,409
1999...................... 64,695 72 64,623
2000...................... 61,068 72 60,996
2001...................... 57,019 72 56,947
2002 and thereafter....... 185,777 246 185,531
-------- ------ --------
Total minimum lease payments $528,145 $1,184 $526,961
======== ====== ========
From February 2, 1997 to March 3, 1997, the Company entered into several
operating lease commitments for additional stores. The additional minimum lease
commitments undertaken for these agreements total approximately $1.4 million,
$2.3 million, $2.3 million, $2.4 million and $2.4 million for 1997 through 2001,
respectively, and aggregate approximately $8.8 million for the years ending
subsequent to 2001.
In February 1997, the Company entered into a 25-year operating lease for
its new 366,460 square foot headquarters facility in White Plains, New York.
The minimum lease commitments undertaken for this agreement total approximately
$4.9 million in 1998 and $5.3 million for each of years 1999 through 2001 and
aggregate approximately $102.7 million for the years ending subsequent to 2001.
13. EMPLOYEE BENEFIT PLANS
In connection with the Acquisition, the Company acquired additional benefit
plans. Benefit plan data is not comparable between the years presented as
benefit plan data for the Footwear Group is included for all of 1996, for only
the 37-week period in 1995 following the Acquisition (May 23, 1995 through
February 3, 1996) and is excluded from all prior periods.
Defined Benefit Plans - As of December 31, 1996, the Company amended its
retirement plans to freeze benefits thereunder, and merged three defined benefit
pension plans acquired in connection with the Acquisition into its previously
existing plan. A new plan is being considered by the Company which would be
based on length of service and compensation, but such plan has not yet been
adopted. It is intended that the new plan would continue to cover substantially
all of the Company's employees while reducing the administrative costs
associated with maintaining multiple plans. The Company's funding policy is to
make the minimum annual contributions required by applicable regulations. The
plans' assets are primarily invested in common stock and government bonds.
Net pension cost related to the plans include the following components (in
thousands):
1996 1995 1994
---- ---- ----
Service cost................................. $ 3,280 $ 2,590 $ 744
Interest cost on projected benefit
obligation.................................. 4,055 2,918 355
Actual return on plan assets................. (5,417) (7,058) 25
Amortization of transition assets............ (19) (19) (17)
Other net amortization and deferral.......... (212) 3,512 (262)
------- ------- -----
Pension cost................................ $1,687 $ 1,943 $ 845
======= ======= =====
The assumptions used to develop net pension expense were:
1996 1995 1994
---- ---- ----
Discount rate................................ 7.5% 7.25% 8.5%
Rate of increase in compensation levels...... 4.5 4.5 5.5
Expected long-term rate of return on assets.. 9.0 9.0 8.1
The plan's funded status and the related accrued pension costs (in
thousands) were:
February 1 February 3
1997 1996
---- ----
Accumulated benefit obligations:
Vested.................................. $(42,058) $(45,427)
Nonvested............................... (2,074) (1,496)
-------- --------
Accumulated plan benefits............. $(44,132) $(46,923)
======== ========
Projected benefit obligation.............. $(44,132) $(56,447)
Plan assets at fair value (principally
marketable securities)................. 58,435 60,294
-------- --------
Projected benefit obligation in
deficiency of plan assets.............. 14,303 3,847
Unrecognized net gain..................... (3,335) (6,121)
Unrecognized prior service cost........... (14,525) (584)
Unrecognized net transition asset......... (197) (216)
-------- --------
Accrued pension cost.................. $ (3,754) $ (3,074)
======== ========
On January 1, 1995, the Company adopted a Supplemental Executive Retirement
Plan ("SERP") in which certain key employees and officers are eligible to
participate. In connection with the Acquisition, the Company acquired an
additional SERP in which certain Footwear Group employees participate. The
SERPs provide supplemental pension benefits that are not available under the
defined benefit pension plan. Benefits paid under the SERPs are based on length
of service and final compensation, without regard to the limitations of the
Internal Revenue Code (the "Code"), and are reduced by the full amount of
benefits payable under the pension plan. The SERPs are unfunded; benefits are
paid from the general assets of the Company. During 1995, the Company recorded a
net curtailment loss of $913,000 in connection with the decision to curtail the
SERPs. The net periodic cost for these SERP plans was $338,000 and $1.2 million
during 1996 and 1995, respectively. The Company's SERP liability as of February
1, 1997 and February 3, 1996 was $5.2 million and $5.1 million, respectively.
Defined Contribution Plans - As of January 1, 1997, the 401(k) savings plan
acquired by the Company in connection with the Acquisition was merged into the
Company's preexisting 401(k) savings plan (the "Savings Plan"). Additionally, a
non-qualified compensation plan, the Supplemental Savings Plan, was established
for employees designated by the Company's retirement committee (the "Retirement
Committee"). The Savings Plan allows each participant to contribute up to 15.0%
(limited to 6.0% for highly compensated employees) of his or her salary for the
year. The Company makes matching contributions to the Savings Plan equal to
50.0% of the participant's contribution up to 6.0% of his or her salary. The
Supplemental Savings Plan allows each participant to contribute up to 15.0% of
his or her salary for the year. The Company makes matching contributions to the
Supplemental Savings Plan equal to 50.0% of the participant's contribution up to
6.0% of his or her salary, limited to a maximum of $4,750 in 1997. At the end
of the plan year, when discrimination testing is completed, the Retirement
Committee will determine the amount of Supplemental Savings Plan contributions,
not to exceed 6.0%, that will be transferred into the Savings Plan. The cost of
these plans to the Company was $2.2 million, $1.5 million and $510,000 for 1996,
1995 and 1994, respectively.
The Company also maintains a non-qualified deferred compensation plan (the
"Deferred Compensation Plan"). The purpose of the Deferred Compensation Plan is
to provide to certain eligible employees of the Company the opportunity to: (1)
defer elements of their compensation (including any investment income thereon)
which might not otherwise be deferrable under the savings plans; and (2) receive
the benefit of additions to their deferral comparable to those obtainable under
the savings plans in the absence of certain restrictions and limitations in the
Code. The Deferred Compensation Plan is unfunded; benefits are paid from the
general assets of the Company. The Company's liability under the Deferred
Compensation Plan as of February 1, 1997 and February 3, 1996 was $4.9 million
and $2.1 million, respectively.
Health Benefit Plans - In connection with the Acquisition, the Company
acquired postretirement benefit plans that partially subsidize healthcare costs
and provide life insurance for certain eligible retirees of the Footwear Group.
Net periodic cost of these benefits includes the following components (in
thousands):
1996 1995
---- ----
Service cost...................... $ 41 $ 56
Interest cost..................... 389 536
Amortization of (gain)/loss....... (447) -
----- ----
Net periodic (benefit) cost....... $ (17) $592
===== ====
The postretirement medical plan was amended on August 1, 1996 to eliminate
coverage for those active employees who were under age 50 as of December 31,
1996. This amendment resulted in a curtailment gain of $461,000 for 1996.
Additionally, the liability associated with this plan was significantly
reduced due to an increase in the premiums paid by participating employees.
The accumulated postretirement benefit obligation was as follows (in
thousands):
February 1 February 3
1997 1996
---- ----
Retirees.......................... $ 4,273 $ 6,005
Fully eligible active employees... 242 145
Other active employees............ 297 611
------- -------
Accumulated postretirement benefit
obligation....................... 4,812 6,761
Unamortized gain.................. 5,547 4,353
------- -------
Accrued postretirement cost..... $10,359 $11,114
======= =======
For 1996, a 12.0% and 10.0% increase in the cost of covered healthcare
benefits was assumed in the pre- and post- age 65 categories, respectively.
This rate was assumed to decrease gradually to 5.5% by 2006 and remain at that
level thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. For example, a 1.0% increase in the healthcare
trend rate would increase the accumulated postretirement benefit obligation by
6.5% as of February 1, 1997 and the net periodic cost by 8.0% for the year. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at both February 1, 1997
and February 3, 1996. The Company funds these benefits as claims are incurred.
Severance Plans - The Company provides certain severance benefits for
eligible former employees of the Footwear Group. These plans give severance,
health, placement and certain other benefits to the former Footwear Group
employees based on length of service, final compensation, and certain other
factors. The Company's liability under such plans was $16.9 million and $18.0
million at February 1, 1997 and February 3, 1996, respectively. See
"Acquisitions" and "Business Restructuring and Integration Expenses."
14. STOCK OPTION PLANS
Under the Nine West Group Inc. First Amended and Restated 1994 Long-Term
Performance Plan (the "Performance Plan"), stock options and other stock-based
awards are granted to key employees of the Company and other persons performing
significant services for the Company. The total number of shares of Common
Stock originally authorized for issuance under the Performance Plan was
3,000,000 shares. In 1996, the Company amended the Performance Plan to effect
certain changes, including an increase in the total number of shares of Common
Stock that may be issued thereunder to 6,500,000 shares. No person may receive
grants under the Performance Plan which could result in such person receiving
more than 1,500,000 shares of Common Stock over the ten-year life of the
Performance Plan (subject to adjustment). Options may be granted either as
incentive stock options, which permit the deferral of taxable income related to
their exercise, as non-qualified stock options, or as stock appreciation rights
("SARs"). Options outstanding under the Performance Plan become exercisable in
successive annual increments over a period of three to five years, beginning on
the first anniversary of the date the options were granted. The term of each
option or SARs may not exceed ten years from the date of grant. In addition,
the per share option price may not be less than the market value of a share of
Common Stock on the date of grant and is payable to the Company in full upon
exercise. The number of shares available for issuance under the Performance Plan
and the number of shares issuable pursuant to exercise of the outstanding stock
options and SARs is subject to adjustment upon certain changes in the Company's
capitalization.
The Company's Second Amended and Restated Stock Option Plan (the "Stock
Option Plan") provides that stock options may be granted through the year 2003
to management, other employees and other persons performing significant services
for the Company. Three million shares are available for issuance pursuant to
the exercise of stock options under the Stock Option Plan, which provides that
no more than 500,000 shares of Common Stock shall be issuable to any person over
the term of the plan. Options may be granted either as incentive stock options
or as non-qualified stock options. Options outstanding under the Stock Option
Plan become exercisable in successive annual increments over a period of three
to five years, beginning on the first anniversary of the date the options were
granted. The term of each option may not exceed ten years from the date of
grant. In addition, the per share option price may not be less than the market
value of a share of Common Stock on the date of grant and is payable to the
Company in full upon exercise. The number of shares available for issuance
under the Stock Option Plan and the number of shares issuable pursuant to
exercise of the outstanding stock options is subject to adjustment upon certain
changes in the Company's capitalization.
The Nine West Group Inc. Directors' Stock Option Plan (the "Directors'
Plan") provides that options to purchase 5,000 shares of Common Stock will be
granted annually through the year 2003 to "Eligible Directors" (generally,
non-employee directors). All options granted under the Directors' Plan are
granted as of the first business day after the annual stockholders meeting. The
maximum number of shares of Common Stock issuable pursuant to the Directors'
Plan is 172,000.
Activity in the Company's stock option plans was (shares in thousands):
Weighted Average
Shares Exercise Price
------ -----------------
Outstanding at December 31, 1993....... 2,923 $23.95
Granted................................... 193 27.19
Exercised................................. (222) 18.55
Forfeited................................. (93) 25.03
-----
Outstanding at December 31, 1994....... 2,801 24.57
=====
Granted................................... 1,495 30.59
Exercised................................. (463) 22.39
Forfeited................................. (45) 25.10
-----
Outstanding at February 3, 1996........ 3,788 27.20
=====
Granted................................... 1,271 44.55
Exercised................................. (553) 25.28
Forfeited................................. (86) 29.57
-----
Outstanding at February 1, 1997........ 4,420 32.98
=====
Shares exercisable at February 1, 1997.... 813 $27.31
=====
The weighted average range of options outstanding is (shares in thousands):
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Estimated Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------- ----------- ----------- -------- ----------- --------
$17 to $27 1,690 6.7 $25.13 373 $24.29
$27 to $37 1,466 8.0 30.28 420 29.24
$37 to $47 1,264 9.5 46.61 20 42.43
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its three stock-based compensation plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement No. 123, the Company's net
income and earnings per share on a pro forma basis would have been (in
thousands, except per share amounts):
1996 1995
----------------- -----------------
As Pro As Pro
Reported Forma Reported Forma
-------- ------- -------- ------
Net income....................... $81,008 $69,220 $18,976 $9,338
Primary earnings per share....... 2.21 1.89 0.53 0.26
Fully diluted earnings per share. 2.19 1.89
The fair value of each option grant was estimated using the Black-Scholes
options-pricing model. The following assumptions were used for 1996 and 1995,
respectively: (1) risk-free interest rates of 6.0% and 5.0%; (2) volatility of
33.0% and 35.0%; and (3) expected lives of three years. Results can vary
materially depending on the assumptions applied within the model, and the
resulting compensation expense may not be representative of compensation expense
to be incurred on a pro forma basis in future years.
15. STOCKHOLDERS' EQUITY
The Company has 25,000,000 shares of preferred stock, par value $0.01 per
share, authorized. None of the preferred stock has been issued.
In connection with the Acquisition, the Company issued the Warrants. On
June 5, 1996, the Company repurchased all 3.7 million Warrants from U.S. Shoe
pursuant to the Settlement. See "Acquisitions."
16. RELATED PARTY TRANSACTIONS
The Company's principal executive offices, located in Stamford,
Connecticut, are leased from a partnership in which the Company's principal
stockholders have a 15.5% limited partnership interest. The lease was
renegotiated and extended at current market rates during 1993 and expires on
December 31, 2002. Rent expense related to the Company's principal executive
offices for 1996, 1995 and 1994 was $2.1 million, $1.8 million and $1.6 million,
respectively.
17. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into employment agreements with certain key
executives for periods ranging from one to five years. Such agreements provide
for payments and certain allowances of $16.0 million, $10.9 million, $4.1
million, $2.1 million and $361,000 for 1997 through 2001, respectively.
Other Legal Actions
The Company has been named as a defendant in several legal actions,
including actions brought by certain terminated employees, arising from its
normal business activities. Although the amount of any liability that could
arise with respect to these actions cannot be accurately predicted, in the
opinion of the Company, any such liability will not have a material adverse
effect on its financial position, results of operations or liquidity.
18. ADVERTISING EXPENSE
Advertising expense was $45.2 million, $33.1 million and $9.3 million in
1996, 1995 and 1994, respectively. The Company records national advertising
campaign costs as an expense when the advertising takes place and cooperative
advertising costs as incurred. Advertising expense for the Company is expected
to increase by several million dollars in 1997 in connection with expanded
marketing plans for several key brands.
19. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company had a significant customer which accounted for approximately
13.0% and 9.0% of net revenues in 1996 and 1995, respectively. It also had a
different customer which accounted for approximately 10.0% of net revenues for
1994. Like many of its competitors, the Company sells to major retailers. The
Company believes that its broad customer base will reduce the impact that any
financial difficulties of such retailers might have on the Company's operations.
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data for the quarterly periods of 1996 and 1995 are not
comparable due to the impact of the Acquisition, Restructuring Charge and
Integration Charge. See "Basis of Presentation and Description of Business" and
"Business Restructuring and Integration Expenses."
Summarized quarterly financial data for the last two years (in thousands,
except per share data) appears below:
Earnings (Loss)
Net Revenues Gross Profit Income(Loss) Per Share*
from Continuing from Continuing
Operations Operations
---------------------- ------------------ ---------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
First quarter........ $ 355,911 $ 170,673 $153,673 $ 78,499 $15,050 $14,050 $0.41 $0.40
Second quarter....... 421,509 346,369 176,433 115,583 25,791 3,024 0.69 0.09
Third quarter........ 444,016 392,773 194,460 161,313 35,298 20,798 0.93 0.57
Fourth quarter....... 381,679 348,815 164,603 147,408 7,505 (18,896) 0.20 (0.52)
---------- ---------- -------- -------- ------- ------- ----- -----
Total year......... $1,603,115 $1,258,630 $689,169 $502,803 $83,644 $18,976 $2.26 $0.53
========== ========== ======== ======== ======= ======= ===== =====
*The total of quarterly earnings per share do not equal the annual amount as
earnings per share is calculated independently for each quarter. The fourth
quarter of 1996 reflects primary earnings per share, as the fully diluted
calculation was anti-dilutive.
In the fourth quarter of 1996, the Company recorded a charge of $21.3
million, offset by a reversal of the excess of the Integration Charge of $2.3
million, resulting in a net pretax charge to earnings of $19.0 million.
Excluding these restructuring expenses, income from continuing operations and
earnings per share would have been $18.9 million, or $0.52 per share, and $95.0
million, or $2.55 per share, for the 1996 fourth quarter and full year,
respectively.
The Company incurred business restructuring and integration expenses of
$51.9 million during the fourth quarter of 1995 and charges to cost of goods
sold during the second, third and fourth quarters of 1995 ($24.0 million, $10.5
million and $344,000, respectively), attributable to the fair value of inventory
over FIFO cost, as required by the purchase method of accounting. Excluding
these business restructuring and integration expenses, and purchase accounting
adjustments, income from continuing operations and earnings per share would have
been $17.0 million or $0.49 per share, $27.3 million or $0.75 per share, $13.3
million or $0.37 per share, and $71.6 million or $2.01 per share for second
quarter, third quarter, fourth quarter and full year of 1995, respectively.
21. RESTATEMENT OF 1996 QUARTERLY FINANCIAL DATA (UNAUDITED)
In the fourth quarter of 1996, the Company corrected its method of
accounting with respect to Texas Boot, which subsequent to July 29, 1995, had
been reflected as an asset held for sale, and the results of operations related
to these assets held for sale and interest expense on the allocated debt had
been excluded from the 1996 and 1995 consolidated statements of income. During
the second quarter of 1996, the holding period under EITF 87-11 had expired. As
a result of this correction, the expected loss from the disposal of net assets
and anticipated operating losses from the measurement date through the date of
disposal were reported retroactive to the second quarter of 1996 as a
discontinued operation. The sale of Texas Boot was consummated on January 24,
1997. See "Discontinued Operation." Accordingly, results for the quarters
ended August 3, 1996 and November 2, 1996 have been restated. The following
financial data has been restated for the quarter ended August 3, 1996: (1)
income from continuing operations from $26.0 million to $25.8 million; (2)
earnings per share from continuing operations from $0.70 to $0.69; (3) net
income from $26.0 million to $23.4 million; and (4)net earnings per share from
$0.70 to $0.62. The following financial data has been restated for the quarter
ended November 2, 1996: (1)income from continuing operations and net income from
$35.6 million to $35.3 million; and (2)earnings per share from continuing
operations and net earnings per share from $0.94 to $0.93.
PART III
Pursuant to General Instruction G(3) of Form 10-K, the information required
by Items 10, 11, 12 and 13 of Part III of Form 10-K is incorporated herein by
reference to the Company's definitive proxy statement to be used in connection
with the Company's 1997 Annual Meeting of Stockholders (other than the portions
thereof not deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934) except for the information regarding the executive
officers of the Company, which is included in Part I of this Annual Report on
Form 10-K under "Item 1 - Business."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The following financial statements of Nine West Group Inc. are
included in Item 8 of this report:
Independent Auditors' Report
Consolidated Statements of Income - Fifty-two weeks ended February 1,
1997, fifty-three weeks ended February 3, 1996, transition period
beginning January 1, 1995 and ending January 28, 1995, and the year
ended December 31, 1994
Consolidated Balance Sheets - February 1, 1997 and February 3, 1996
Consolidated Statements of Cash Flows - Fifty-two weeks ended
February 1, 1997, fifty-three weeks ended February 3, 1996, transition
period beginning January 1, 1995 and ending January 28, 1995, and
the year ended December 31, 1994
Consolidated Statements of Stockholders' Equity - Fifty-two weeks
ended February 1, 1997, fifty-three weeks ended February 3, 1996,
transition period beginning January 1, 1995 and ending January 28,
1995, and the year ended December 31, 1994
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K)
2. Financial Statement Schedules:
Schedule II - Valuation and qualifying accounts for the fifty-two
weeks ended February 1, 1997, fifty-three weeks ended
February 3, 1996, transition period beginning January
1, 1995 and ending January 28, 1995, and the year
ended December 31, 1994
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are shown in the
financial statements or are inapplicable, and therefore have been
omitted.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Index to Exhibits
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
2.1 Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of
March 15, 1995, by and among the Registrant, Footwear Acquisition
Corp. and The United States Shoe Corporation (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K dated March
15, 1995)
2.1.1 Amendment No. 1 to Asset Purchase Agreement, dated May 23, 1995
(incorporated by reference to Exhibit 2.3 to the Current Report on
Form 8-K dated May 23, 1995)
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 (incorporated by
reference to Exhibit 2.1.2 to the Quarterly Report on Form 10-Q for
the quarterly period ended May 4, 1996)
2.2 Form of Warrant Agreement (incorporated by reference to Exhibit 2.2 to
the Current Report on Form 8-K dated March 15, 1995)
3.1 Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment No. 6 to the
Registration Statement of the Registrant on Form S-1 (Registration No.
33-47556) filed on April 29, 1992 (the "First Registration
Statement"))
3.2 Second Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K dated May
23, 1995)
*4.1 Specimen stock certificate for shares of Common Stock, $.01 par value,
of the Registrant
4.2 Form of Definitive 5-1/2% Convertible Subordinated Note of the
Registrant Due 2003 (incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q for the quarterly period ended August 3,
1996)
4.3 Form of Restricted Global 5-1/2% Convertible Subordinated Note of the
Registrant Due 2003 (incorporated by reference to Exhibit 4.3 to the
Quarterly Report on Form 10-Q for the quarterly period ended August 3,
1996)
4.4 Form of Regulation S Global 5-1/2% Convertible Subordinated Note of
the Registrant Due 2003 (incorporated by reference to Exhibit 4.4 to
the Quarterly Report on Form 10-Q for the quarterly period ended
August 3, 1996)
4.5 Indenture, dated as of June 26, 1996, between the Registrant, as
issuer, and Chemical Bank, as trustee, relating to the Registrant's
5-1/2% Convertible Subordinated Notes Due 2003 (incorporated by
reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q for the
quarterly period ended August 3, 1996)
4.6 Note Resale Registration Rights Agreement, dated as of June 26, 1996,
by and among the Registrant and the Purchasers Named Therein
(incorporated by reference to Exhibit 4.6 to the Quarterly Report on
Form 10-Q for the quarterly period ended August 3, 1996)
10.1 Registration Rights Agreement (the "Registration Rights Agreement") by
and among the Registrant, Jerome Fisher, Vincent Camuto, and J. Wayne
Weaver (incorporated by reference to Exhibit 10.1 to Amendment No. 2
to the First Registration Statement)
10.1.1 Amendment No. 1 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.1 to Amendment No. 6 to the First
Registration Statement)
10.1.2 Amendment No. 2 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.2 to Amendment No. 2 to the Registration
Statement of the Registrant on Form S-1 (Registration No. 33-65584) as
filed on July 28, 1993 (the "Second Registration Statement"))
10.1.3 Amendment No. 3 to Registration Rights Agreement (incorporated by
reference to Exhibit 4 to Amendment No. 2 to Schedule 13D filed by
Jerome Fisher, Anne Fisher, Vincent Camuto and J. Wayne Weaver on
January 4, 1994 ("Amendment No. 2 to Schedule 13D"))
10.1.4 Amendment No. 4 to Registration Rights Agreement by and among the
Registrant, Jerome Fisher, Vincent Camuto and J. Wayne Weaver
(incorporated by reference to Exhibit 10.1.4 to Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994)
10.2 Piggyback Registration Rights Agreement (the "Piggyback Registration
Rights Agreement") between the Registrant and Marc Fisher
(incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the
First Registration Statement)
10.2.1 Amendment No. 1 to Piggyback Registration Rights Agreement
(incorporated by reference to Exhibit 10.2.1 to Amendment No. 6 to the
First Registration Statement)
10.3 Agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome
Fisher Trust, Vincent Camuto and the Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to the First Registration
Statement)**
10.3.1 Amendment No. 1 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant
(incorporated by reference to Exhibit 10.3.1 to Amendment No. 6 to the
First Registration Statement)**
10.3.2 Amendment No. 2 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant
(incorporated by reference to Exhibit 2 to Amendment No. 2 to Schedule
13D)**
10.4 Shareholders Agreement by and among the Registrant, Vincent Camuto and
Jerome Fisher (incorporated by reference to Exhibit 10.4 to Amendment
No. 2 to the First Registration Statement)**
10.4.1 Amendment No. 1 to Shareholders Agreement (incorporated by reference
to Exhibit 10.4.1 to Amendment No. 6 to the First Registration
Statement)**
10.4.2 Amendment No. 2 to Shareholders Agreement (incorporated by reference
to Exhibit 3 to Amendment No. 2 to Schedule 13D)**
10.5 Buying Agency Agreement between the Registrant and Bentley Services
Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K"))***
*10.5.1 Agreement Regarding Extension of Term, dated March 3, 1997, between
the Registrant and Bentley Services Inc.
10.6 Summary Description of Incentive Bonus Program of the Registrant
(incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
First Registration Statement)**
10.7 Summary Description of Life Insurance and Medical Reimbursement Plan
for Certain Officers of the Registrant (incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the First Registration Statement)**
10.8 Employment Agreement (the "Fisher Employment Agreement") between
Jerome Fisher and the Registrant (incorporated by reference to Exhibit
10.8 to Amendment No. 2 to the First Registration Statement)**
10.8.1 Amendment No. 1 to the Fisher Employment Agreement (incorporated by
reference to Exhibit 10.8.1 to Amendment No. 6 to the First
Registration Statement)**
10.9 Employment Agreement (the "Camuto Employment Agreement") between
Vincent Camuto and the Registrant (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the First Registration Statement)**
10.9.1 Amendment No. 1 to the Camuto Employment Agreement (incorporated by
reference to Exhibit 10.9.1 to Amendment No. 6 to the First
Registration Statement)**
10.13 Form of S Corporation Termination Agreement among the Registrant,
Jerome Fisher, Vincent Camuto, J. Wayne Weaver, Marc Fisher, Robert V.
Camuto, Andrea M. Camuto and John V. Camuto (incorporated by reference
to Exhibit 10.13 to Amendment No. 7 to the First Registration
Statement)
10.14 Second Amended and Restated Stock Option Plan of the Registrant
(effective as of March 8, 1994) (incorporated by reference to Exhibit
10.14 to the 1993 10-K)**
10.15 Summary of Supplemental Executive Retirement Plan of the Registrant
(incorporated by reference to Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "1994
10-K"))**
10.15.1 Amendment and Restatement of The United States Shoe Corporation
Supplemental Executive Salaried Employee Benefit Plan (incorporated by
reference to Exhibit 10.15.1 to the Registrant's Annual Report on Form
10-K for the year ended February 3, 1996 (the "1995 10-K"))**
10.16 Deferred Compensation Plan of the Registrant (incorporated by
reference to Exhibit 10.16 to the 1994 10-K)**
10.17 1993 Directors' Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.18 to Amendment No. 1 to the Second
Registration Statement)**
*10.18 First Amended and Restated 1994 Long-Term Performance Plan**
10.19 Credit Agreement (the "Credit Agreement"), dated as of May 23, 1995,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as Agents (incorporated by reference to Exhibit 10.21 to
the Quarterly Report on Form 10-Q for the quarterly period ended July
29, 1995)
10.19.1 Amendment No. 1 to the Credit Agreement (incorporated by reference to
Exhibit 10.19.1 to the 1995 10-K)
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 (incorporated by reference to Exhibit 10.19.2
to the Quarterly Report on Form 10-Q for the quarterly period ended
May 4, 1996)
10.19.3 Amended and Restated Credit Agreement, dated as of August 2, 1996,
among the Registrant, the financial institutions listed on the
signature pages thereof and Citibank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.19.3 to the Quarterly Report
on Form 10-Q for the quarterly period ended August 3, 1996)
10.20 Employment Agreement, dated April 6, 1995, between Noel E. Hord and
the Registrant (incorporated by reference to Exhibit 10.21 to
Quarterly Report on Form 10-Q for the quarterly period ended July 29,
1995)**
*10.21 Nine West Group Inc. First Amended and Restated Incentive Bonus Plan**
10.23 Receivables Purchase Agreement, dated as of December 28, 1995, between
Nine West Funding Corporation and the Registrant (incorporated by
reference to Exhibit 10.23 to the 1995 10-K)
10.24 Nine West Trade Receivables Master Trust Pooling and Servicing
Agreement (the "Pooling Agreement"), dated as of December 28, 1995,
among Nine West Funding Corporation, The Bank of New York and the
Registrant (incorporated by reference to Exhibit 10.24 to the 1995
10-K)
10.25 Series 1995-1 Supplement to Pooling Agreement, dated as of December
28, 1995, among Nine West Funding Corporation, The Bank of New York
and the Registrant (incorporated by reference to Exhibit 10.25 to the
1995 10-K)
10.26 Class A Certificate Purchase Agreement, dated as of December 28, 1995,
among Nine West Funding Corporation, Corporate Receivables
Corporation, the Liquidity Providers Named Therein, Citicorp North
America, Inc., and The Bank of New York (incorporated by reference to
Exhibit 10.26 to the 1995 10-K)
10.27 Class B Certificate Purchase Agreement, dated as of December 28, 1995,
among Nine West Funding Corporation, the Purchasers Named Therein,
Citicorp North America, Inc., and The Bank of New York (incorporated
by reference to Exhibit 10.27 to the 1995 10-K)
*10.28 Lease, dated February 28, 1997, between Westpark I LLC and the
Registrant
*11 Computation of earnings per share
*21 Subsidiaries of the Registrant
*23 Consent of Deloitte & Touche, LLP
24 Power of Attorney (contained herein on signature page)
*Filed herewith
**Management contract or compensation plan arrangement
***Confidential treatment has been granted for marked portions of this exhibit
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to the
report to be signed on its behalf by the undersigned, thereunto duly authorized,
on May 6, 1997.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
-------------------------------
Robert C. Galvin
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to the report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board and May 6, 1997
- ----------------------------- Director (Principal
Jerome Fisher Executive Officer)
* Chief Executive Officer and May 6, 1997
- ----------------------------- Director (Principal
Vincent Camuto Executive Officer)
/s/ Robert C. Galvin Executive Vice President, May 6, 1997
- ----------------------------- Chief Financial Officer and
Robert C. Galvin Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
* Director May 6, 1997
- -----------------------------
C. Gerald Goldsmith
* Director May 6, 1997
- -----------------------------
Salvatore M. Salibello
* Director May 6, 1997
- -----------------------------
Henry W. Pascarella
*By: /s/ Robert C. Galvin
-----------------------
Robert C. Galvin
Attorney-in-Fact
SCHEDULE II
NINE WEST GROUP INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended February 1, 1997, February 3, 1996, and December 31, 1994
(in thousands)
Balance at Charged to Balance
Beginning Balance Costs and at End
Description of Period Acquired Expenses Deductions of Period
----------- --------- -------- -------- ---------- ---------
Year ended February 1, 1997:
Allowance for doubtful accounts.... $ 9,233 $ - $ 430 $2,199 (A) $ 7,464
Reserve for returns and allowances. 33,519 - 6,367 - 39,886
------- ------- ------- ------ -------
$42,752 $ - $ 6,797 $2,199 $47,350
======= ======= ======= ====== =======
Year ended February 3, 1996:
Allowance for doubtful accounts.... $ 1,285 $ 6,725 $ 1,959 $ 736 (A) $ 9,233
Reserve for returns and allowances. 12,178 7,538 13,803 - 33,519
------- ------- ------- ------ -------
$13,463 $14,263 $15,762 $ 736 $42,752
======= ======= ======= ====== =======
Transition Period from Jan 1
to Jan 28, 1995:
Allowance for doubtful accounts.... $ 811 $ - $ 91 $ (383)(A) $ 1,285
Reserve for returns and allowances. 13,091 - (913) - 12,178
------- ------- ------- ------ -------
$13,902 $ - $ (822) $ (383) $13,463
======= ======= ======= ====== =======
Year ended December 31, 1994:
Allowance for doubtful accounts.... $ 806 $ - $ (360) $(365)(A) $ 811
Reserve for returns and allowances. 10,246 - 2,845 - 13,091
------- ------- ------- ----- -------
$11,052 $ - $ 2,485 $(365) $13,902
======= ======= ======= ===== =======
(A) Represents accounts written off, net of recoveries.