UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended October 31, 1998
Commission File No. 1-11161
Nine West Group Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1093855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Nine West Plaza
1129 Westchester Avenue
White Plains, New York 10604
(Address of principal executive offices) (Zip Code)
(314) 579-8812
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, $.01 par value, outstanding as of the
close of business on October 31, 1998: 33,985,098.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income - 13 and 39
weeks ended October 31, 1998 and November 1, 1997 3
Condensed Consolidated Balance Sheets - October 31, 1998
and January 31, 1998 4
Condensed Consolidated Statements of Cash Flows - 39 weeks
ended October 31, 1998 and November 1, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
13 Weeks Ended 39 Weeks Ended
---------------------- ----------------------
October 31 November 1 October 31 November 1
1998 1997 1998 1997
-------- -------- ---------- ----------
Net revenues......................... $485,720 $496,563 $1,461,960 $1,398,330
Cost of goods sold................... 277,197 275,145 848,001 788,432
-------- -------- ---------- ----------
Gross profit....................... 208,523 221,418 613,959 609,898
Selling, general and
administrative expenses............. 166,277 147,120 490,878 429,542
Amortization of acquisition goodwill
and other intangibles............... 2,674 2,458 8,022 7,210
-------- -------- ---------- ----------
Operating income................... 39,572 71,840 115,059 173,146
Interest expense..................... 13,549 14,882 41,628 39,782
-------- -------- ---------- ----------
Income before income taxes......... 26,023 56,958 73,431 133,364
Income tax expense................... 10,150 22,356 28,638 52,345
-------- -------- ---------- ----------
Income before extraordinary item... 15,873 34,602 44,793 81,019
Extraordinary gain (net of income
taxes of $1,869).................... 2,923 - 2,923 -
-------- -------- ---------- ----------
Net income......................... $ 18,796 $ 34,602 $ 47,716 $ 81,019
======== ======== ========== ==========
Weighted average common shares and
common share equivalents used in
earnings per share calculation:
Basic.............................. 34,797 35,845 35,550 35,826
======== ======== ========== ==========
Diluted............................ 34,797 39,516 35,558 39,552
======== ======== ========== ==========
Basic earnings per share:
Income before extraordinary item... $ 0.46 $ 0.97 $ 1.26 $ 2.26
Extraordinary gain - net........... 0.08 - 0.08 -
-------- -------- ---------- ----------
Net income....................... $ 0.54 $ 0.97 $ 1.34 $ 2.26
======== ======== ========== ==========
Diluted earnings per share:
Income before extraordinary item... $ 0.46 $ 0.92 $ 1.26 $ 2.18
Extraordinary gain - net........... 0.08 - 0.08 -
-------- -------- ---------- ----------
Net income....................... $ 0.54 $ 0.92 $ 1.34 $ 2.18
======== ======== ========== ==========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
October 31 January 31
1998 1998
---------- ----------
ASSETS
Current Assets:
Cash.............................................. $ 16,330 $ 23,674
Accounts receivable............................... 6,551 40,715
Securitized interest in accounts receivable....... 98,198 91,208
Inventories....................................... 502,456 543,503
Prepaid expenses and other current assets......... 57,383 100,031
---------- ----------
Total current assets............................ 680,918 799,131
Property and equipment - net........................ 175,278 172,795
Goodwill - net...................................... 231,509 231,130
Trademarks and trade names - net.................... 138,537 139,750
Other assets........................................ 46,456 48,733
---------- ----------
Total assets.................................. $1,272,698 $1,391,539
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 87,737 $ 100,075
Accrued expenses and other current liabilities.... 89,935 105,444
Current portion of long-term debt................. 3,623 4,235
---------- ----------
Total current liabilities....................... 181,295 209,754
Long-term debt...................................... 558,669 687,263
Other non-current liabilities....................... 65,945 55,674
---------- ----------
Total liabilities............................. 805,909 952,691
---------- ----------
Stockholders' Equity:
Preferred stock ($0.01 par value, 25,000,000
shares authorized; none issued and outstanding).. - -
Common stock ($0.01 par value, 100,000,000 shares
authorized; 35,937,998 and 35,818,831 shares
issued, respectively)............................ 359 358
Additional paid-in capital........................ 144,096 143,278
Retained earnings................................. 345,634 297,918
Cumulative currency translation adjustment........ (3,309) (2,706)
---------- ----------
486,780 438,848
Less treasury stock, at cost (1,952,900 shares). (19,991) -
---------- ----------
Total stockholders' equity.................... 466,789 438,848
---------- ----------
Total liabilities and stockholders' equity.. $1,272,698 $1,391,539
========== ==========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
39 Weeks Ended
----------------------
October 31 November 1
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 47,716 $ 81,019
Adjustments to reconcile net income to net cash
used by operating activities:
Extraordinary gain................................. (4,792) -
Depreciation and amortization...................... 36,167 28,787
Deferred income taxes and other.................... 4,094 11,654
Changes in assets and liabilities:
Accounts receivable including securitized
interest in accounts receivable................ 28,452 (53,761)
Inventories..................................... 43,891 (27,182)
Prepaid expenses and other assets............... 31,091 (4,721)
Accounts payable................................ (12,338) 24,822
Accrued expenses and other liabilities.......... (10,272) (21,852)
-------- --------
Net cash provided by operating activities............. 164,009 38,766
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (30,948) (56,599)
Proceeds from sale of property and equipment.......... 16,351 -
Acquisition of business - net of cash acquired........ (9,049) (20,503)
Other investing activities............................ (2,291) (148)
-------- --------
Net cash used by investing activities................. (25,937) (77,250)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under financing agreements (92,904) 49,138
Net proceeds from issuance of long-term debt.......... - 316,865
Repayments of long-term debt.......................... (32,737) (326,913)
Purchases of stock for treasury....................... (19,991) -
Net proceeds from issuance of stock and other......... 216 3,307
-------- --------
Net cash (used) provided by financing activities...... (145,416) 42,397
-------- --------
NET (DECREASE) INCREASE IN CASH....................... (7,344) 3,913
CASH, BEGINNING OF PERIOD............................. 23,674 25,176
-------- --------
CASH, END OF PERIOD................................... $ 16,330 $ 29,089
======== ========
The accompanying Notes are an integral part of the Condensed Consolidated
Financial Statements
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Nine West Group Inc. (the "Company"), its wholly-owned subsidiaries and its
controlled-interest joint ventures. The accompanying financial statements have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, such information contains all adjustments necessary
for a fair presentation of the results of such periods. Certain prior year
amounts have been reclassified to conform to the current presentation. All
intercompany transactions and balances have been eliminated from the financial
statements for the periods presented. The results of operations for the 39
weeks ended October 31, 1998 are not necessarily indicative of the results to
be expected for the 52 weeks ending January 30, 1999 ("1998").
Certain information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted as permitted
by the rules and regulations of the Securities and Exchange Commission,
although the Company believes the disclosure is adequate to make the
information presented not misleading. The accompanying unaudited financial
statements should be read in conjunction with the financial statements
contained in the Company's Annual Report on Form 10-K for the 52 weeks ended
January 31, 1998 ("1997") and Quarterly Reports on Form 10-Q for periods
subsequent thereto.
2. EXTRAORDINARY ITEM
During the 13 weeks ended October 31, 1998, the Company repurchased $31.0
million face amount of its 9% Series B Senior Subordinated Notes due 2007 and
$4.0 million face amount of its 8-3/8% Series B Senior Notes due 2005, at a
discount, resulting in a $4.8 million extraordinary gain ($2.9 million on an
after-tax basis) on early extinguishment of debt.
3. EARNINGS PER SHARE
Following is a reconciliation of the earnings and shares used in the basic
and diluted per share computations for income before extraordinary item (in
thousands):
13 Weeks Ended 39 Weeks Ended
------------------ ------------------
Oct. 31 Nov. 1 Oct. 31 Nov. 1
1998 1997 1998 1997
-------- -------- -------- --------
Earnings:
Income before extraordinary item
(numerator for basic calculation) $ 15,873 $ 34,602 $ 44,793 $ 81,019
Effect of convertible notes....... - 1,671 - 5,010
-------- -------- -------- --------
Numerator for diluted calculation. $ 15,873 $ 36,273 $ 44,793 $ 86,029
======== ======== ======== ========
Shares:
Weighted average common shares
outstanding (denominator for
basic calculation)............... 34,797 35,845 35,550 35,826
Effect of stock options........... - 615 8 670
Effect of convertible notes....... - 3,056 - 3,056
-------- -------- -------- --------
Denominator for diluted
calculation...................... 34,797 39,516 35,558 39,552
======== ======== ======== ========
Earnings per share before
extraordinary item:
Basic ............................ $ 0.46 $ 0.97 $ 1.26 $ 2.26
======== ======== ======== ========
Diluted .......................... $ 0.46 $ 0.92 $ 1.26 $ 2.18
======== ======== ======== ========
The impact of the convertible notes was excluded from the diluted earnings
per share calculation for the 13 and 39 weeks ended October 31, 1998 as its
effect on the reported per share amounts was anti-dilutive.
For the 13 and 39 weeks ended October 31, 1998 and November 1, 1997,
certain outstanding stock options were not included in the computation of
diluted earnings per share, because the respective exercise prices were greater
than the average market price of the Common Stock. For the 13 weeks ended
October 31, 1998 and November 1, 1997, the number of stock options whose impact
was not included in the diluted computation was 5.8 million and 1.3 million,
respectively. For the 39 weeks ended October 31, 1998 and November 1, 1997,
the number of stock options whose impact was not included in the diluted
computation was 5.7 million and 1.2 million, respectively. These options were
outstanding at the end of each of the respective periods.
4. COMPREHENSIVE INCOME
Effective with the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." Comprehensive income is generally defined as all changes in
stockholders' equity exclusive of transactions with owners. SFAS No. 130
requires the disclosure of comprehensive income and its components.
Comprehensive income, net of taxes, is comprised of (in thousands):
13 Weeks Ended 39 Weeks Ended
------------------ ------------------
Oct. 31 Nov. 1 Oct. 31 Nov. 1
1998 1997 1998 1997
-------- -------- -------- --------
Net income...................... $ 18,796 $ 34,602 $ 47,716 $ 81,019
Currency translation adjustment. 1,603 (88) (603) 25
-------- -------- -------- --------
Comprehensive income....... $ 20,399 $ 34,514 $ 47,113 $ 81,044
======== ======== ======== ========
5. INVENTORIES
Inventories are valued at the lower of cost or market. Approximately 57%
and 60% of inventory values were determined by using the FIFO (first in, first
out) method of valuation as of October 31, 1998 and January 31, 1998,
respectively; the remainder was determined by using the weighted average cost
method.
Inventories are comprised of (in thousands):
October 31 January 31
1998 1998
---------- ----------
Raw materials................................ $ 18,128 $ 19,672
Work in process.............................. 1,924 1,987
Finished goods............................... 482,404 521,844
-------- --------
Total inventories....................... $502,456 $543,503
======== ========
6. LONG-TERM DEBT
Effective December 15, 1998, the Company reduced the commitment under its
revolving credit facility to $500.0 million from $600.0 million. Under the
terms of the revolving credit facility, up to $150.0 million may be utilized
for letters of credit and up to $250.0 million may be in the form of
multicurrency borrowings. As of October 31, 1998, $72.0 million of borrowings
and $50.6 million of letters of credit were outstanding on a revolving basis
and, on a pro forma basis after the commitment reduction, $377.4 million was
available for future borrowing.
7. CASH FLOWS
Cash paid for income taxes was $12.7 million and $33.1 million for the 39
weeks ended October 31, 1998 and November 1, 1997, respectively. Cash paid for
interest was $49.7 million and $28.4 million for the 39 weeks ended October 31,
1998 and November 1, 1997, respectively.
8. SUBSEQUENT EVENTS
On November 6, 1998, the Company's Board of Directors approved the
consolidation of certain manufacturing operations in order to optimize global
sourcing activities. As part of this process, the Company will close its
footwear manufacturing facility in Osgood, Indiana and a Caribbean-based
component facility, and it will reconfigure and integrate certain operations at
three facilities in Vanceburg and Hebron, Kentucky, and Vevay, Indiana. The
closings and reconfigurations will begin in January 1999 and will continue
through the first half of 1999. Approximately 700 positions are affected by
this action and are evenly distributed between domestic and foreign operations.
A pre-tax charge of approximately $7.0 million will be recorded in the fourth
quarter of 1998 for this action, of which approximately $4.0 million represent
cash outlays, substantially all of which are expected to be paid by the end of
1999.
9. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Certain of the Company's debt is fully and unconditionally guaranteed on a
joint and several basis by certain wholly-owned domestic subsidiaries of the
Company. Accordingly, condensed consolidating balance sheets as of October 31,
1998 and January 31, 1998, and condensed consolidating statements of income and
cash flows for the 13 and 39 week periods ended October 31, 1998 and November
1, 1997, respectively, for such guarantor subsidiaries are provided. These
condensed consolidating financial statements have been prepared using the
equity method of accounting in accordance with the requirements for
presentation of such information. Separate financial statements and other
disclosures concerning the guarantor subsidiaries are not presented because
management has determined that they are not material to investors. There are
no contractual restrictions on distributions from each of the guarantor
subsidiaries to the Company.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
13 WEEKS ENDED OCTOBER 31, 1998
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $241,764 $609,066 $77,923 $(443,033) $485,720
Cost of goods sold................... 130,027 514,583 40,055 (407,468) 277,197
-------- -------- ------- --------- --------
Gross profit....................... 111,737 94,483 37,868 (35,565) 208,523
Selling, general and
administrative expenses............. 109,741 57,728 34,373 (35,565) 166,277
Amortization of acquisition goodwill
and other intangibles............... 1,412 929 333 - 2,674
-------- -------- ------- --------- --------
Operating income................... 584 35,826 3,162 - 39,572
Interest expense..................... 2,646 8,121 2,782 - 13,549
Equity in net earnings of
subsidiaries........................ 19,899 - - (19,899) -
-------- -------- ------- --------- --------
Income before income taxes......... 17,837 27,705 380 (19,899) 26,023
Income tax expense................... 1,964 7,576 610 - 10,150
-------- -------- ------- --------- --------
Income before extraordinary item.. 15,873 20,129 (230) (19,899) 15,873
Extraordinary gain (net of income
taxes of $1,869)................... 2,923 - - - 2,923
-------- -------- ------- --------- --------
Net income......................... $ 18,796 $ 20,129 $ (230) $ (19,899) $ 18,796
======== ======== ======= ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
13 WEEKS ENDED NOVEMBER 1, 1997
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $219,931 $638,957 $72,567 $(434,892) $496,563
Cost of goods sold................... 107,404 521,695 39,189 (393,143) 275,145
-------- -------- ------- --------- --------
Gross profit....................... 112,527 117,262 33,378 (41,749) 221,418
Selling, general and
administrative expenses............. 97,120 66,542 25,237 (41,779) 147,120
Amortization of acquisition goodwill
and other intangibles............... 1,387 929 142 - 2,458
-------- -------- ------- --------- --------
Operating income................... 14,020 49,791 7,999 30 71,840
Interest expense..................... 4,845 8,171 1,836 30 14,882
Equity in net earnings of
subsidiaries........................ 29,609 - - (29,609) -
-------- -------- ------- --------- --------
Income before income taxes......... 38,784 41,620 6,163 (29,609) 56,958
Income tax expense................... 4,182 16,631 1,543 - 22,356
-------- -------- ------- --------- --------
Net income......................... $ 34,602 $ 24,989 $ 4,620 $ (29,609) $ 34,602
======== ======== ======= ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
39 WEEKS ENDED OCTOBER 31, 1998
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $696,492 $1,822,065 $248,438 $(1,305,035) $1,461,960
Cost of goods sold................... 375,040 1,534,703 127,998 (1,189,740) 848,001
-------- ---------- -------- --------- --------
Gross profit....................... 321,452 287,362 120,440 (115,295) 613,959
Selling, general and
administrative expenses............. 308,734 195,175 102,264 (115,295) 490,878
Amortization of acquisition goodwill
and other intangibles............... 4,235 2,787 1,000 - 8,022
-------- ---------- -------- --------- --------
Operating income................... 8,483 89,400 17,176 - 115,059
Interest expense..................... 9,829 24,785 7,014 - 41,628
Equity in net earnings of
subsidiaries........................ 49,138 - - (49,138) -
-------- ---------- -------- --------- --------
Income before income taxes......... 47,792 64,615 10,162 (49,138) 73,431
Income tax expense................... 2,999 23,350 2,289 - 28,638
-------- ---------- -------- --------- --------
Income before extraordinary item..... 44,793 41,265 7,873 (49,138) 44,793
Extraordinary gain (net of income
taxes of $1,869)................... 2,923 - - - 2,923
-------- ---------- -------- --------- --------
Net income......................... $ 47,716 $ 41,265 $ 7,873 $ (49,138) $ 47,716
======== ========== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
39 WEEKS ENDED NOVEMBER 1, 1997
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------- ----------- ------------
Net revenues......................... $633,405 $1,763,754 $169,666 $(1,168,495) $1,398,330
Cost of goods sold................... 313,908 1,427,000 96,201 (1,048,677) 788,432
-------- ---------- ------- --------- --------
Gross profit....................... 319,497 336,754 73,465 (119,818) 609,898
Selling, general and
administrative expenses............. 288,079 206,766 54,698 (120,001) 429,542
Amortization of acquisition goodwill
and other intangibles............... 4,165 2,787 258 - 7,210
-------- ---------- ------- --------- --------
Operating income................... 27,253 127,201 18,509 183 173,146
Interest expense..................... 10,256 23,847 5,496 183 39,782
Equity in net earnings of
subsidiaries........................ 71,748 - - (71,748) -
-------- ---------- ------- --------- --------
Income before income taxes......... 88,745 103,354 13,013 (71,748) 133,364
Income tax expense................... 7,726 42,101 2,518 - 52,345
-------- ---------- ------- --------- --------
Net income......................... $ 81,019 $ 61,253 $10,495 $ (71,748) $ 81,019
======== ========== ======= ========= ========
CONDENSED CONSOLIDATING BALANCE SHEETS
OCTOBER 31, 1998
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------- ----------- ------------
ASSETS
Current Assets:
Cash............................... $ 6,466 $ 19 $ 9,845 $ - $ 16,330
Accounts receivable................ 58,635 (73,275) 21,191 - 6,551
Securitized interest in accounts
receivable........................ - - 98,198 - 98,198
Inventories........................ 173,131 247,707 81,618 - 502,456
Prepaid expenses and other
current assets.................... 23,603 27,597 5,883 300 57,383
Due (to) from affiliates........... (223,026) 328,510 (105,184) (300) -
---------- -------- -------- --------- ----------
Total current assets............. 38,809 530,558 111,551 - 680,918
Property and equipment - net......... 125,080 21,471 28,727 - 175,278
Goodwill - net....................... 204,039 - 27,470 - 231,509
Trademarks and trade names - net..... 1,106 135,835 1,596 - 138,537
Other assets......................... 36,357 3,288 6,977 (166) 46,456
Investment in subsidiaries........... 745,093 - - (745,093) -
---------- -------- -------- --------- ----------
Total assets................... $1,150,484 $691,152 $176,321 $(745,259) $1,272,698
========== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 18,018 $ 59,077 $ 10,642 $ - $ 87,737
Accrued expenses and other current
liabilities....................... 59,711 12,248 17,976 - 89,935
Current portion of long-term debt.. - - 3,623 - 3,623
---------- -------- -------- --------- ----------
Total current liabilities........ 77,729 71,325 32,241 - 181,295
Long-term debt....................... 538,344 - 20,325 - 558,669
Other non-current liabilities........ 64,334 - 913 698 65,945
---------- -------- -------- --------- ----------
Total liabilities.............. 680,407 71,325 53,479 698 805,909
Stockholders' equity................. 470,077 619,827 122,842 (745,957) 466,789
---------- -------- -------- --------- ----------
Total liabilities and
stockholders' equity........ $1,150,484 $691,152 $176,321 $(745,259) $1,272,698
========== ======== ======== ========= ==========
CONDENSED CONSOLIDATING BALANCE SHEETS
JANUARY 31, 1998
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------- ----------- ------------
ASSETS
Current Assets:
Cash............................. $ 10,526 $ 39 $ 13,109 $ - $ 23,674
Accounts receivable.............. 44,723 (18,824) 15,376 (560) 40,715
Securitized interest in accounts
receivable...................... - - 91,208 - 91,208
Inventories...................... 174,674 305,180 63,649 - 543,503
Prepaid expenses and other
current assets.................. 43,628 31,984 10,515 13,904 100,031
Due (to) from affiliates......... (72,262) 156,341 (83,803) (276) -
---------- -------- -------- --------- ----------
Total current assets........... 201,289 474,720 110,054 13,068 799,131
Property and equipment - net....... 123,945 23,701 38,738 (13,589) 172,795
Goodwill - net..................... 207,417 - 23,713 - 231,130
Trademarks and trade names - net... 1,128 138,622 - - 139,750
Other assets....................... 35,688 1,270 11,962 (187) 48,733
Investment in subsidiaries......... 719,273 - - (719,273) -
---------- -------- -------- --------- ----------
Total assets................. $1,288,740 $638,313 $184,467 $(719,981) $1,391,539
---------- -------- -------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................. $ 38,554 $ 52,723 $ 8,798 $ - $ 100,075
Accrued expenses and other
current liabilities............. 80,298 7,283 18,423 (560) 105,444
Current portion of long-term debt - - 4,235 - 4,235
---------- -------- -------- --------- ----------
Total current liabilities...... 118,852 60,006 31,456 (560) 209,754
Long-term debt..................... 674,267 - 12,996 - 687,263
Other non-current liabilities...... 54,107 - 868 699 55,674
---------- -------- -------- --------- ----------
Total liabilities............ 847,226 60,006 45,320 139 952,691
Stockholders' equity............... 441,514 578,307 139,147 (720,120) 438,848
---------- -------- -------- --------- ----------
Total liabilities and
stockholders' equity...... $1,288,740 $638,313 $184,467 $(719,981) $1,391,539
========== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
39 WEEKS ENDED OCTOBER 31, 1998
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
Net cash provided (used) by operating
activities.......................... $ 151,472 $ 2,301 $ 10,237 $ (1) $ 164,009
--------- --------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (19,309) (2,622) (9,017) - (30,948)
Proceeds from sale of property and
equipment........................... 16,351 - - - 16,351
Acquisition of business - net of cash
acquired............................ - - (9,049) - (9,049)
Other investing activities........... (1,063) 46 (1,274) - (2,291)
--------- --------- -------- -------- ---------
Net cash used by investing
activities.......................... (4,021) (2,576) (19,340) - (25,937)
--------- --------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under
financing agreements................ (102,860) - 9,956 - (92,904)
Repayments of long-term debt......... (29,498) - (3,239) - (32,737)
Purchases of stock for treasury...... (19,991) - - - (19,991)
Net proceeds from issuance of stock
and other........................... 838 255 (878) 1 216
--------- --------- -------- -------- ---------
Net cash (used) provided by financing
activities.......................... (151,511) 255 5,839 1 (145,416)
--------- --------- -------- -------- ---------
NET DECREASE IN CASH................. (4,060) (20) (3,264) - (7,344)
CASH, BEGINNING OF PERIOD............ 10,526 39 13,109 - 23,674
--------- --------- -------- -------- ---------
CASH, END OF PERIOD.................. $ 6,466 $ 19 $ 9,845 $ - $ 16,330
========= ========= ======== ======== =========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
39 WEEKS ENDED NOVEMBER 1, 1997
(In thousands)
Nine
West
Group Guarantor Non-Guarantor Elimination
Inc. Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
Net cash (used) provided by operating
activities.......................... $ (11,418) $ 8,785 $ 41,314 $ 85 $ 38,766
--------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.. (41,213) (7,291) (8,095) - (56,599)
Acquisition of business - net of cash
acquired............................ - - (20,503) - (20,503)
Other investing activities........... 454 (184) (343) (75) (148)
--------- -------- -------- -------- ---------
Net cash used by investing
activities.......................... (40,759) (7,475) (28,941) (75) (77,250)
--------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under financing
agreements.......................... 45,001 - 4,137 - 49,138
Net proceeds from issuance of
long-term debt...................... 316,865 - - - 316,865
Repayments of long-term debt......... (322,000) - (4,913) - (326,913)
Net proceeds from issuance of stock
and other........................... 3,281 4 32 (10) 3,307
--------- -------- -------- -------- ---------
Net cash provided (used) by financing
activities.......................... 43,147 4 (744) (10) 42,397
--------- -------- -------- -------- ---------
NET (DECREASE) INCREASE IN CASH...... (9,030) 1,314 11,629 - 3,913
CASH, BEGINNING OF PERIOD............ 23,505 26 1,645 - 25,176
--------- -------- -------- -------- ---------
CASH, END OF PERIOD.................. $ 14,475 $ 1,340 $ 13,274 $ - $ 29,089
========= ======== ======== ======== =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements of the Company and the Notes
thereto included in Item 1 of this report.
RESULTS OF OPERATIONS
NET INCOME. Net income for the third quarter of 1998 was $18.8 million,
or $0.54 per diluted share, a 45.7% decrease from net income of $34.6 million,
or $0.92 per diluted share, for the third quarter of 1997. Net income for the
39 weeks ended October 31, 1998 was $47.7 million, or $1.34 per diluted share,
a 41.1% decrease from net income of $81.0 million, or $2.18 per diluted share,
for the 39 weeks ended November 1, 1997. The 1998 net income figures include
an extraordinary gain of $4.8 million ($2.9 million on an after-tax basis)
related to the Company's repurchase of $31.0 million face amount of its 9%
Series B Senior Subordinated Notes due 2007 and $4.0 million face amount of its
8-3/8% Series B Senior Notes due 2005, at a discount. Excluding the effect of
this repurchase, net income for the third quarter and 39 weeks ended October
31, 1998 was $15.9 million, or $0.46 per diluted share, and $44.8 million, or
$1.26 per diluted share, respectively.
The Company anticipates that net revenues and operating margins through at
least the fourth quarter of 1998 will be negatively impacted by the factors
which adversely affected the Company's net revenues and operating margins
during the 13 weeks and 39 weeks ended October 31, 1998, principally the
continuing weakness in consumer demand in the domestic and international retail
footwear markets. This weakness has resulted in excess inventory at the retail
level and corresponding heavy promotional pricing activity in the Company's
wholesale and retail businesses. In addition, the Company anticipates that its
operating margins will continue to be negatively impacted by the continuing
shift in the sales mix towards retail operations which provide higher gross
profit margins but also carry higher selling, general and administrative
expense ("SG&A") margins than wholesale operations. See "--Net Revenues,"
"--Gross Profit" and "--Selling, General and Administrative Expenses."
NET REVENUES. Net revenues were $485.7 million in the third quarter of
1998 compared to $496.6 million in the third quarter of 1997, a decrease of
$10.9 million, or 2.2%. For the 39 weeks ended October 31, 1998, net revenues
were $1.5 billion compared to $1.4 billion in the comparable prior year period,
an increase of $63.6 million, or 4.6%.
Domestic wholesale net revenues decreased by $15.5 million, or 6.1%, and
$25.7 million, or 3.5%, for the 13 weeks and 39 weeks ended October 31, 1998,
respectively, due primarily to heavy promotional pricing activity resulting
from the weakness in consumer demand in the domestic retail footwear market.
This decrease was offset in part by an increase in net revenues for the
Company's wholesale accessories business of $15.7 million, or 88.5%, for the
third quarter of 1998, and $36.0 million, or 86.2%, for the 39 weeks ended
October 31, 1998.
Domestic retail net revenues decreased $6.9 million, or 3.7%, for the 13
weeks ended October 31, 1998, due primarily to a comparable store sales
decrease of $15.3 million, or 8.7%, partially offset by increased volume from
11 retail locations opened (net of closings) since November 1, 1997 ($8.4
million). For the 39 weeks ended October 31, 1998, domestic retail net
revenues increased $5.4 million, or 1.0%, due primarily to increased volume
from 11 retail locations opened (net of closings) since November 1, 1997 ($42.2
million), partially offset by a comparable store sales decrease of $36.8
million, or 7.1%. Domestic comparable store sales decreased due to weakness in
consumer demand in the domestic retail footwear market.
International net revenues, which are primarily derived from retail
operations, increased $11.5 million, or 20.3%, for the third quarter of 1998,
and $83.9 million, or 68.5%, for the 39 weeks ended October 31, 1998, due
primarily to increased volume from 104 retail locations opened or acquired (net
of closings) since November 1, 1997 ($13.9 million and $87.7 million for the 13
weeks and 39 weeks ended October 31, 1998, respectively). International
comparable store sales decreased by $2.5 million, or 5.9%, for the third
quarter of 1998, and decreased $5.1 million, or 5.0%, for the 39 weeks ended
October 31, 1998, due to weakness in the international retail footwear market.
During the 13 weeks and 39 weeks ended October 31, 1998, wholesale
operations accounted for 51% and 50%, respectively, of the Company's
consolidated net revenues, while retail operations accounted for the remaining
49% and 50%, respectively. During the 13 weeks and 39 weeks ended November 1,
1997, wholesale operations accounted for 53% and 54% of the Company's
consolidated net revenues, respectively, while retail operations accounted for
the remaining 47% and 46%, respectively. Net revenues from the Company's
international segment are included in the wholesale and retail percentages
noted above and accounted for 14% of the Company's consolidated net revenues
for both the 13 weeks and 39 weeks ended October 31, 1998, compared to 11% and
9% of consolidated net revenues for the comparable prior year periods.
GROSS PROFIT. Gross profit was $208.5 million in the third quarter of
1998 compared to $221.4 million in the third quarter of 1997, a decrease of
$12.9 million, or 5.8%. Gross profit for the 39 weeks ended October 31, 1998
was $614.0 million, compared to $609.9 million for the comparable prior year
period, an increase of $4.1 million, or 0.7%. Gross profit as a percentage of
net revenues was 42.9% and 42.0% for the third quarter and first 39 weeks of
1998, compared to 44.6% and 43.6% for the comparable prior year periods. The
decrease in gross profit as a percentage of net revenues was due primarily to
decreased gross margins in the Company's domestic wholesale business and, to a
lesser extent, in its domestic retail business, due primarily to the weakness
in consumer demand in the domestic retail footwear market which resulted in
excess inventory and corresponding heavy promotional pricing activity.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. SG&A expenses were $166.3
million in the third quarter of 1998, compared to $147.1 million in the third
quarter of 1997, an increase of $19.2 million, or 13.0%. SG&A expenses were
$490.9 million for the 39 weeks ended October 31, 1998, compared to $429.5
million in the comparable prior year period, an increase of $61.4 million, or
14.3%. SG&A expense expressed as a percentage of net revenues was 34.2% and
33.6% for the third quarter and first 39 weeks of 1998, respectively, up from
29.6% and 30.7% for the comparable prior year periods. The increase in SG&A
expenses as a percentage of net revenues is due primarily to the continued
shift in the sales mix in both the Company's domestic and international
segments towards retail operations, which carry higher SG&A margins than
wholesale operations, and decreased comparable store sales in the Company's
domestic retail business.
INTEREST EXPENSE. Interest expense was $13.5 million in the third quarter
of 1998, compared to $14.9 million in the third quarter of 1997. The decrease
of $1.4 million, or 8.9%, was due primarily to a decrease in the Company's
weighted average debt. Interest expense was $41.6 million for the first 39
weeks of 1998, compared to $39.8 million for the comparable prior year period,
an increase of $1.8 million, or 4.6%. The increase in interest expense during
the first 39 weeks of 1998 relates primarily to an increase in the Company's
weighted average interest rates. Weighted average debt outstanding was
approximately $585 million for the third quarter of 1998, compared to
approximately $705 million for the comparable prior year period. For the 39
weeks ended October 31, 1998, weighted average debt outstanding was
approximately $645 million, compared to approximately $680 million for the
comparable prior year period. The decrease in weighted average debt in both
the third quarter and first 39 weeks of 1998 is attributable primarily to the
increase in cash provided by operating activities discussed below, as well as
to additional factors impacting working capital. Weighted average interest
rates were 7.5% and 7.3% for the third quarter of 1998 and 1997, respectively,
and 7.3% and 6.7% for the first 39 weeks of 1998 and 1997, respectively. The
increase in the weighted average interest rate during the first 39 weeks of
1998 is attributable primarily to the refinancing of the Company's debt at the
end of the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operating activities and
borrowings under the Company's revolving credit facility to finance its
operations and expansion. Cash provided by operating activities was $164.0
million for the first 39 weeks of 1998, compared to $38.8 million for the first
39 weeks of 1997. The increase in cash provided by operating activities is due
primarily to enhancements to the Company's accounts receivable securitization
program and inventory management improvements which resulted in a significant
decrease in the Company's investment in inventory.
Working capital was $499.6 million at October 31, 1998, compared to $589.4
million at January 31, 1998, a decrease of $89.8 million. The decrease in
working capital was primarily due to a $27.2 million decrease in accounts
receivable, including securitized interest in accounts receivable, a $41.0
million decrease in inventories, and a $42.6 million decrease in prepaid
expenses and other current assets. These factors were partially offset by a
$12.3 million decrease in accounts payable and a $15.5 million decrease in
accrued expenses and other current liabilities. 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.
Cash used by investing activities was $25.9 million for the first 39 weeks
of 1998, compared to $77.3 million for the first 39 weeks of 1997. Cash used
by investing activities during the 39 weeks ended October 31, 1998 includes
$9.0 million for the purchase of Cable & Co. (UK) Limited, a United Kingdom-
based footwear and accessories company, involving 25 retail locations situated
primarily in the United Kingdom, and during the comparable prior year period
includes $20.5 million for the purchase of The Shoe Studio Group Limited and 52
retail concessions from British Shoe Corporation. Proceeds from the sale of
property and equipment includes $16.4 million for the sale of certain office
and warehouse facilities located in Cincinnati, Ohio, which the Company had
acquired in connection with the acquisition of the Footwear Division of The
United States Shoe Corporation. Capital expenditures totaled $30.9 million and
$56.6 million in the 39 weeks ended October 31, 1998 and November 1, 1997,
respectively, and related primarily to the Company's retail location expansion
and remodeling programs ($19.0 million and $25.4 million for the 39 weeks ended
October 31, 1998 and November 1, 1997, respectively), and in 1997, include
expenditures related to the consolidation and relocation of the Company's
offices in Stamford, Connecticut and Cincinnati, Ohio to a new facility in
White Plains, New York ($19.3 million). The Company estimates that total
capital expenditures for 1998 will be approximately $47 million. The actual
amount of the Company's capital expenditures depends, in part, on the number of
new retail locations opened, the number of retail locations remodeled and the
amount of any construction allowances the Company may receive from the
landlords of its new retail locations. The Company's ongoing evaluation of its
retail operations has led to a decision to grow its retail network at a slower
pace by applying rigorous standards to all retail location opening and closing
decisions. The opening and success of new retail locations will be dependent
upon, among other things, general economic and business conditions affecting
consumer spending, the availability of desirable locations and the negotiation
of acceptable lease terms for new locations. As of October 31, 1998, the
Company had commitments for approximately $6.0 million of capital expenditures,
related to commitments to open 27 domestic retail locations (12 during the
fourth quarter of 1998 and 15 during 1999) and 17 international retail
locations (10 during the fourth quarter of 1998 and 7 during 1999).
Cash used by financing activities was $145.4 million for the first 39
weeks of 1998, compared to cash provided by financing activities of $42.4
million for the first 39 weeks of 1997. Cash used by financing activities
includes a $92.9 million reduction in borrowings under the Company's revolving
credit facility. The decrease in borrowings is primarily attributable to the
factors impacting cash provided by operating activities noted above. Effective
December 15, 1998, the Company reduced the commitment under its revolving
credit facility to $500.0 million from $600.0 million. Under the terms of the
revolving credit facility, up to $150.0 million may be utilized for letters of
credit and up to $250.0 million may be in the form of multicurrency borrowings.
As of October 31, 1998, $72.0 million of borrowings and $50.6 million of
letters of credit were outstanding on a revolving basis and, on a pro forma
basis after the commitment reduction, $377.4 million was available for future
borrowing. Cash used for repayments of long-term debt includes $29.5 million
for the repurchase of $31.0 million face amount of its 9% Series B Senior
Subordinated Notes due 2007 and $4.0 million face amount of its 8-3/8% Series B
Senior Notes due 2005, at a discount, resulting in a $4.8 million extraordinary
gain ($2.9 million on an after-tax basis). Cash used for purchases of stock
for treasury relates to the Company's repurchase of approximately 2.0 million
shares of its outstanding common stock for $20.0 million, which reflects the
limitation currently imposed under the Company's credit agreement.
On November 6, 1998, the Company's Board of Directors approved the
consolidation of certain manufacturing operations in order to optimize global
sourcing activities. As part of this process, the Company will close its
footwear manufacturing facility in Osgood, Indiana and a Caribbean-based
component facility, and it will reconfigure and integrate certain operations at
three facilities in Vanceburg and Hebron, Kentucky, and Vevay, Indiana. The
closings and reconfigurations will begin in January 1999 and will continue
through the first half of 1999. Approximately 700 positions are affected by
this action and are evenly distributed between domestic and foreign operations.
A pre-tax charge of approximately $7.0 million will be recorded in the fourth
quarter of 1998 for this action, of which approximately $4.0 million represent
cash outlays, substantially all of which are expected to be paid by the end of
1999.
The Company expects that its current cash balances, cash provided by
operations and borrowings under the revolving credit facility will continue to
provide the capital flexibility necessary to fund future opportunities and
expansion as well as to meet existing obligations. The Company continuously
evaluates potential acquisitions of businesses which complement its existing
operations. Depending on various factors, including, among others, the cash
consideration required in such potential acquisitions and the market value of
the Company's common stock, the Company may determine to finance any such
transaction with its existing sources of liquidity, or may pursue financing
through one or more public or private offerings of the Company's securities, or
both.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment, software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. The Company has undertaken a comprehensive analysis and remediation
program with respect to its information technology ("IT") systems and other
systems and facilities to identify the systems that could be affected by the
technical problems associated with the year 2000 and to ensure that they will
function properly with respect to dates in the year 2000 and thereafter (the
"Year 2000 Program"). If modifications and replacements are not made in a
timely manner, the Company could experience a temporary inability to process
transactions, send invoices or engage in other important business activities
due to system failures or miscalculations, the impact of which cannot be
quantified at this time.
The Company's Year 2000 Program is divided into the following four phases
with the following estimated time frames:
(1) PLANNING (fourth quarter of 1996 - second quarter of 1998) - Establishing
a Year 2000 program team and developing a comprehensive strategy.
(2) ASSESSMENT (third quarter of 1997 - first quarter of 1999) - Assessing
the Year 2000 impact on the Company through inventory and analysis of
systems supporting the core business areas and processes, prioritizing
their conversion or replacement and identifying and securing necessary
resources to do so. This phase may include developing contingency plans,
if necessary.
(3) RENOVATION (fourth quarter of 1997 - second quarter of 1999) -
Converting, replacing, or eliminating selected platforms, applications,
databases and utilities and modifying interfaces.
(4) VALIDATION AND IMPLEMENTATION (first quarter of 1998 - third quarter of
1999) - Testing, verifying and validating converted or replaced
platforms, applications, databases and utilities in an operational
environment and implementing contingency plans, if necessary.
In the third quarter of 1997, the Company commenced the assessment of its
domestic IT software and hardware. The Company expects to substantially
complete the development, programming changes and unit testing, including
compatibility testing, and be Year 2000 compliant with respect to its domestic
IT systems in the first quarter of 1999. In the first quarter of 1998, the
Company commenced the assessment of its international IT software and hardware.
The Company expects to substantially complete the development, programming
changes and unit testing, including compatibility testing, and be Year 2000
compliant with respect to its international IT systems in the second quarter of
1999. The Company plans to complete the assessment of its non-computer
equipment that could be affected by the technical problems associated with the
Year 2000 issue by the first quarter of 1999 and to fully test such equipment
by the end of the second quarter of 1999. As of October 31, 1998, the Company
has completed approximately 60% of all phases of the Year 2000 Program,
consistent with its timetable.
Through the third quarter of 1998, the Company has expended approximately
$3.4 million related to its global Year 2000 Program. The Company currently
expects that the total costs of the Year 2000 Program, including both
incremental spending and redeployed resources, will be approximately $6.0
million. The costs of the Year 2000 Program will be funded through existing
sources of liquidity. Time and cost estimates are based on currently available
information. Developments that could affect estimates include, but are not
limited to, the availability and cost of trained personnel and the ability to
locate and correct all relevant computer code and systems.
The Company has been communicating, and continues to communicate, directly
with selected key vendors, suppliers and customers regarding various critical
systems. Additionally, the Company has mailed questionnaires to other
significant third parties to determine the extent to which the Company is
vulnerable to the failure of these third parties to become Year 2000 compliant.
Third parties are under no contractual obligation to provide Year 2000
compliance information to the Company, and any failure of such third parties to
become Year 2000 compliant involves risks and uncertainties.
Based upon its assessment and remediation efforts to date, the Company is
not aware of any material issues that would prevent it or its significant third
party vendors, suppliers and customers from completing efforts necessary to
achieve Year 2000 compliance on a timely basis. Accordingly, the Company is
not able to develop a contingency plan for dealing with the most reasonably
likely worst case scenario at this time.
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 the overall strength of the general domestic and
international retail environments including the continuation of weakness in the
domestic and international footwear markets; the ability of the Company to
predict and respond to changes in consumer demand and preferences in a timely
manner; increased competition in the footwear and accessory industry and the
Company's ability to remain competitive in the areas of style, price and
quality; acceptance by consumers of new product lines; the ability of the
Company to manage general and administrative costs; changes in the costs of
leather and other raw materials, labor and advertising; the ability of the
Company to secure and protect trademarks and other intellectual property
rights; retail store construction delays; the availability of desirable retail
locations and the negotiation of acceptable lease terms for such locations; and
the ability of the Company to place its products in desirable sections of its
department store customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 1, 1997, the Company learned that on April 10, 1997, the Securities
and Exchange Commission ("SEC") entered a formal order of investigation of the
Company. Based on conversations with the staff of the SEC dating back to the
Fall of 1996, when an informal investigation was commenced, the Company
believes that this investigation is primarily focused on the revenue
recognition policies and practices of certain of the Company's divisions that
were acquired from The United States Shoe Corporation in 1995. On October 29,
1997, the Company received a subpoena issued by the SEC in connection with its
investigation requesting the Company to produce certain documents relating to
the purchase by the Company of products manufactured in Brazil from 1994 to
date, including documents concerning the prices paid for such products and the
customs duties paid in connection with their importation into the United
States. The Company has been cooperating fully with the staff of the SEC and
intends to continue its cooperation. Based on the information presently
available to it, the Company does not anticipate that the investigation of its
revenue recognition policies and practices will have a material adverse
financial effect on the Company. The Company believes that no issues exist in
respect of its customs policies and practices. Therefore, based on the limited
information presently available to it concerning this aspect of the
investigation, the Company does not anticipate that it will have a material
adverse financial effect on the Company, although no assurances can be given as
to its ultimate impact on the Company.
In addition, on October 29, 1997, the Company learned that the United
States Customs Service had commenced an investigation of the Company relating
to the Company's importation of Brazilian footwear from 1995 to date. On April
14, 1998, the United States Customs Service informed the Company that such
investigation had been terminated with no action taken against 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 amount of any liability
that could arise with respect to these actions cannot be accurately predicted,
in the opinion of the Company, any such liability will not have a material
adverse financial effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Index to Exhibits
(b) Reports on Form 8-K:
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
---------------------------
Robert C. Galvin
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
Date: December 15, 1998
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
4.7.1 Supplemental Indenture, dated as of September 15, 1998, among
the Registrant, Nine West Manufacturing II Corporation, a
subsidiary of the Registrant, Nine West Development Corporation,
Nine West Distribution Corporation, Nine West Footwear
Corporation and Nine West Manufacturing Corporation
(collectively, the "Existing Guarantors") and The Bank of New
York, as trustee under the Senior Note Indenture dated as of
July 9, 1997.
4.8.1 Supplemental Indenture, dated as of September 15, 1998, among
the Registrant, Nine West Manufacturing II Corporation, the
Existing Guarantors and The Bank of New York, as trustee under
the Senior Subordinated Note Indenture dated as of July 9, 1997.
10.25 Amended and Restated Series 1995-1 Supplement to Pooling and
Servicing Agreement, dated as of July 31, 1998, among Nine West
Funding Corporation, The Bank of New York and the Registrant.
10.26 Amended and Restated Series 1995-1 Certificate Purchase
Agreement, dated as of July 31, 1998, among Nine West Funding
Corporation, Corporate Receivables Corporation, the Liquidity
Providers named therein, Citicorp North America, Inc. and The
Bank of New York.
10.27 Employment Agreement, dated October 19, 1998, between
Robert C. Galvin and the Registrant.
27 Financial Data Schedule.