-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S6d9FS5EJcdt4qPxTZNGh+DrIQPN1ZfSfMCXWltbhCXFb40JUumTqa9I5w94PJPY zndCwyQ8DuFXUq6+CZRDsw== 0000887124-98-000011.txt : 19980617 0000887124-98-000011.hdr.sgml : 19980617 ACCESSION NUMBER: 0000887124-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980616 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NINE WEST GROUP INC /DE CENTRAL INDEX KEY: 0000887124 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 061093855 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11161 FILM NUMBER: 98648864 BUSINESS ADDRESS: STREET 1: NINE WEST PLAZA STREET 2: 1129 WESTCHESTER AVE CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 3145798812 MAIL ADDRESS: STREET 1: NINE WEST PLAZA STREET 2: 1129 WESTCHESTER AVENUE CITY: WHITE PLAINS STATE: NY ZIP: 10604 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirteen weeks ended May 2, 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 May 2, 1998: 35,927,998. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page ---- Item 1 Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Income - Thirteen weeks ended May 2, 1998 and May 3, 1997 3 Condensed Consolidated Balance Sheets - May 2, 1998 and January 31, 1998 4 Condensed Consolidated Statements of Cash Flows - Thirteen weeks ended May 2, 1998 and May 3, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3 Quantitative and Qualitative Disclosures About Market Risk 12 PART II - OTHER INFORMATION Item 1 Legal Proceedings 13 Item 2 Changes in Securities and Use of Proceeds 13 Item 6 Exhibits and Reports on Form 8-K 14 Signatures 15 NINE WEST GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) Thirteen Weeks Ended ----------------------- May 2 May 3 1998 1997 ---------- ---------- Net revenues.......................................... $ 448,282 $ 406,083 Cost of goods sold.................................... 257,222 224,242 ---------- ---------- Gross profit........................................ 191,060 181,841 Selling, general and administrative expenses.......... 161,799 138,404 Amortization of acquisition goodwill and other intangibles.................................... 2,522 2,334 ---------- ---------- Operating income.................................... 26,739 41,103 Interest expense...................................... 14,799 12,311 ---------- ---------- Income before income taxes.......................... 11,940 28,792 Income tax expense.................................... 4,657 11,301 ---------- ---------- Net Income.......................................... $ 7,283 $ 17,491 ========== ========== Weighted average common shares and common share equivalents used in earnings per share calculation: Basic............................................... 35,916 35,806 ========== ========== Diluted............................................. 35,962 39,621 ========== ========== Earnings per share: Basic............................................... $ 0.20 $ 0.49 ========== ========== Diluted............................................. $ 0.20 $ 0.48 ========== ========== 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) May 2 January 31 1998 1998 ---------- ---------- ASSETS Current Assets: Cash................................................ $ 22,515 $ 23,674 Accounts receivable................................. 13,921 40,715 Securitized interest in accounts receivable......... 101,170 91,208 Inventories......................................... 550,849 543,503 Prepaid expenses and other current assets........... 73,820 100,031 ---------- ---------- Total current assets.............................. 762,275 799,131 Property and equipment - net.......................... 171,219 172,795 Goodwill - net........................................ 234,363 231,130 Trademarks and trade names - net...................... 140,856 139,750 Other assets.......................................... 41,565 48,733 ---------- ---------- Total assets.................................... $1,350,278 $1,391,539 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................... $ 83,571 $ 100,075 Accrued expenses and other current liabilities...... 82,805 105,444 Current portion of long-term debt................... 4,732 4,235 ---------- ---------- Total current liabilities......................... 171,108 209,754 Long-term debt........................................ 663,415 687,263 Other non-current liabilities......................... 68,530 55,674 ---------- ---------- Total liabilities............................... 903,053 952,691 ---------- ---------- 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; 35,927,998 and 35,818,831 shares issued and outstanding, respectively).............. 359 358 Additional paid-in capital.......................... 143,886 143,278 Retained earnings................................... 305,201 297,918 Cumulative currency translation adjustment.......... (2,221) (2,706) ---------- ---------- Total stockholders' equity........................ 447,225 438,848 ---------- ---------- Total liabilities and stockholders' equity.... $1,350,278 $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) Thirteen Weeks Ended ----------------------- May 2 May 3 1998 1997 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 7,283 $ 17,491 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization...................... 12,110 9,114 Deferred income taxes and other.................... 8,600 761 Changes in assets and liabilities: Accounts receivable including securitized interest in accounts receivable.............. 18,082 (5,537) Inventory....................................... (4,502) (6,919) Prepaid expenses and other assets............... 11,052 6,463 Accounts payable................................ (16,504) (16,114) Accrued expenses and other current liabilities.. (14,525) (9,988) ---------- ---------- Net cash provided (used) by operating activities...... 21,596 (4,729) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment................... (7,361) (7,498) Proceeds from sale of property and equipment.......... 16,351 - Acquisition of business - net of cash acquired........ (9,025) - Other assets.......................................... (53) (185) ---------- ---------- Net cash used by investing activities................. (88) (7,683) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under financing agreements (23,761) 20,000 Repayments of long-term debt.......................... - (5,000) Net proceeds from issuance of stock and other......... 1,094 1,517 ---------- ---------- Net cash (used) provided by financing activities...... (22,667) 16,517 ---------- ---------- NET (DECREASE) INCREASE IN CASH....................... (1,159) 4,105 CASH, BEGINNING OF PERIOD............................. 23,674 25,176 ---------- ---------- CASH, END OF PERIOD................................... $ 22,515 $ 29,281 ========== ========== 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 13 weeks ended May 2, 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 Annual Report on Form 10-K of the Company for the 52 weeks ended January 31, 1998 ("1997"). 2. BUSINESS RESTRUCTURING CHARGE In the fourth quarter of 1996, the Company recorded a charge of $21.3 million, offset by a reversal of a $2.3 million excess of the restructuring and integration cost accrual associated with the acquisition of the Footwear Division of The United States Shoe Corporation (the "Acquisition"), 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 which contemplated the closure of three domestic manufacturing facilities and discontinuation or reconfiguration of certain operations at two other domestic 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 involved the evaluation of retail site locations and the closure of fifteen 9 & Co. stores. The major components of the Restructuring Charge were: (1) write-down of assets of $13.8 million; (2) lease and other contract terminations of $4.9 million; and (3) plant closing costs of $2.6 million. Cash outlays related to the Restructuring Charge are estimated to be $7.5 million and are to be paid over a three-year period ending in fiscal 1999. During 1997, the Company substantially completed the domestic manufacturing facility closures and reconfigurations, the Relocation and the 9 & Co. store closures. As of May 2, 1998, the charges recorded against the Restructuring Charge accrual included $13.8 million in asset write-downs, $2.2 million in lease and contract termination costs and $2.1 million in plant closing costs. As of May 2, 1998, total cash outlays recorded against the Restructuring Charge accrual were $4.3 million, of which $0.5 million was paid and charged during the first 13 weeks of 1998. The remaining balance of the Restructuring Charge accrual of $3.2 million is recorded in the balance sheet within the caption "Accrued expenses and other current liabilities" and consists primarily of cash outlays related to lease and contract termination costs. The initiatives outlined in the Restructuring Charge affected the employment of approximately 1,135 employees. Of these employees, 1,025 held manufacturing positions and represented approximately 50% of the Company's domestic manufacturing workforce, and 110 were corporate employees affected by the Relocation. Total severance and termination benefit costs associated with these initiatives are $9.6 million, which relate to benefits provided by the Company's severance plans. During 1997, the Company terminated substantially all of the affected employees. As of May 2, 1998, $6.6 million ($1.5 million and $2.0 million during the thirteen weeks ended May 2, 1998 and May 3, 1997, respectively) of severance and termination benefit payments were paid and charged against the severance plan liability. The remaining severance and termination benefit payments will be substantially completed during 1998. 3. EARNINGS PER SHARE Following is a reconciliation of the earnings and shares used in the basic and diluted per share computations for net income (in thousands): Thirteen weeks ended -------------------- May 2 May 3 1998 1997 ---- ---- Earnings: Net income (numerator for basic calculation). $ 7,283 $17,491 Effect of convertible notes.................. - 1,669 ------- ------- Numerator for diluted calculation............ $ 7,283 $19,160 ======= ======= Shares: Weighted average common shares outstanding (denominator for basic calculation)......... 35,916 35,806 Effect of stock options...................... 46 759 Effect of convertible notes.................. - 3,056 ------- ------- Denominator for diluted calculation.......... 35,962 39,621 ======= ======= Earnings per share: Basic ....................................... $ 0.20 $ 0.49 ======= ======= Diluted ..................................... $ 0.20 $ 0.48 ======= ======= The impact of the convertible notes was excluded from the diluted earnings per share calculation for the first quarter of 1998 as its effect on the reported per share amount was anti-dilutive. For the first quarters of 1998 and 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 first quarters of 1998 and 1997, the number of stock options whose impact was not included in the diluted computation was 4.3 million and 1.1 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): Thirteen weeks ended -------------------- May 2 May 3 1998 1997 ------ ------- Net income................................... $7,283 $17,491 Currency translation adjustment.............. 485 (109) ------ ------- Comprehensive income.................... $7,768 $17,382 ====== ======= 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 May 2, 1998 and January 31, 1998, respectively; the remainder was determined by using the weighted average cost method. Inventory is comprised of (in thousands): May 2 January 31 1998 1998 -------- ---------- Raw materials................................ $ 18,523 $ 19,672 Work in process.............................. 2,564 1,987 Finished goods............................... 529,762 521,844 -------- -------- Total inventory......................... $550,849 $543,503 ======== ======== 6. LONG-TERM DEBT The Company is permitted to borrow up to $600 million under its revolving credit facility, of which 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 May 2, 1998, $150.0 million of borrowings and $32.8 million of letters of credit were outstanding on a revolving basis and $417.2 million was available for future borrowing. 7. CASH FLOWS The Company received income tax refunds of $0.2 million during the 13 weeks ended May 2, 1998. Cash paid for income taxes was $0.4 million for the 13 weeks ended May 3, 1997. Cash paid for interest was $21.9 million and $10.2 million for the 13 weeks ended May 2, 1998 and May 3, 1997, respectively. 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 first quarter of 1998 was $7.3 million, or $0.20 per diluted share, a 58.4% decrease from net income of $17.5 million, or $0.48 per diluted share, for the first quarter of 1997. The Company anticipates that net revenues and operating margins for 1998 will continue to be negatively impacted by the factors which adversely affected the Company's net revenues and operating margins during the first quarter of 1998, including weakness in the domestic and international retail footwear markets. In addition, the Company anticipates that its operating margins for 1998 will continue to be negatively impacted by the 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 $448.3 million in the first quarter of 1998 compared to $406.1 million in the first quarter of 1997, an increase of $42.2 million, or 10.4%, due primarily to new store openings. Domestic wholesale net revenues decreased by $7.7 million, or 3.4%, due primarily to heavy promotional pricing activity resulting from the continued weakness in the domestic retail footwear market. Net revenues from domestic retail operations increased $11.2 million, or 7.0%, due primarily to increased volume from 116 retail locations opened (net of closings) since the comparable prior year period ($17.0 million). Domestic comparable store sales decreased by $5.8 million, or 3.8%, due to weakness in the domestic retail footwear market. International net revenues increased $38.7 million, or 164.1%, due primarily to increased volume from 287 retail locations opened or acquired (net of closings) since the comparable prior year period ($39.2 million). International comparable store sales decreased by 5.7% due to weakness in the international retail footwear market. During the first quarter of 1998, wholesale operations accounted for 51% of the Company's consolidated net revenues, while retail operations accounted for the remaining 49%, and net revenues from the Company's international segment, which are included in the wholesale and retail percentages noted above, accounted for 14% of the Company's consolidated net revenues. GROSS PROFIT. Gross profit was $191.1 million in the first quarter of 1998 compared to $181.8 million in the first quarter of 1997, an increase of $9.3 million, or 5.1%. Gross profit as a percentage of net revenues was 42.6% for the first quarter of 1998, compared to 44.8% for the comparable prior year period. The decrease in gross profit as a percentage of net revenues is due primarily to heavy promotional pricing activity in the Company's domestic wholesale and retail businesses resulting from the continued weakness in the domestic retail footwear market. This decrease was offset somewhat by a greater percentage of the Company's net revenues being derived from its retail operations, which produce greater gross profit margins than the Company's wholesale operations, including substantial growth in the Company's international business, which is primarily retail. SELLING, GENERAL & ADMINISTRATIVE EXPENSES. SG&A expenses were $161.8 million in the first quarter of 1998, compared to $138.4 million in the first quarter of 1997, an increase of $23.4 million, or 16.9%. SG&A expense expressed as a percentage of net revenues was 36.1% for the first quarter of 1998, up from 34.1% for the comparable prior year period. The increase in SG&A expenses as a percentage of net revenues for the first quarter of 1998 is due primarily to a 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. INTEREST EXPENSE. Interest expense was $14.8 million in the first quarter of 1998, compared to $12.3 million in the first quarter of 1997, an increase of $2.5 million, or 20.2%. This increase relates to the increase in capital required to finance the expansion of the Company's domestic and international businesses, including acquisitions and the opening of additional retail locations, and to higher interest rates during the first quarter of 1998 compared to the first quarter of 1997. Weighted average debt outstanding was approximately $705 million and $650 million during the first quarters of 1998 and 1997, respectively. Weighted average interest rates were 7.2% and 6.2% during the first quarters of 1998 and 1997, respectively. The increase in the weighted average interest rate in 1998 is attributable primarily to the refinancing of the Company's debt during 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 $21.6 million for the first 13 weeks of 1998, compared to cash used by operating activities of $4.7 million for the first 13 weeks of 1997. This $26.3 million increase is due primarily to a $23.6 million increase in cash provided by accounts receivable, including securitized interest in accounts receivable, resulting primarily from higher aggregate advances under the Company's accounts receivable securitization program. Working capital was $591.2 million at May 2, 1998, compared to $589.4 million at January 31, 1998. 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. In the fourth quarter of 1996, the Company recorded the Restructuring Charge of $21.3 million, offset by a reversal of a $2.3 million excess of the restructuring and integration cost accrual associated with the Acquisition, resulting in a net pretax charge to earnings of $19.0 million. Cash outlays related to the Restructuring Charge are estimated to be $7.5 million and are to be paid over a three-year period ending in fiscal 1999. As of May 2, 1998, total cash outlays recorded against the Restructuring Charge accrual were $4.3 million, of which $0.5 million was paid and charged during the first 13 weeks of 1998. Total severance and termination benefit costs associated with the Restructuring Charge are $9.6 million, which relate to benefits provided by the Company's existing severance plans. As of May 2, 1998, $6.6 million ($1.5 million and $2.0 million during the thirteen weeks ended May 2, 1998 and May 3, 1997, respectively) of severance and termination benefits were paid and charged against the severance plan liability. The remaining severance and termination benefit payments will be substantially completed during 1998. The Company is permitted to borrow up to $600 million under its revolving credit facility, of which 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 May 2, 1998, $150.0 million of borrowings and $32.8 million of letters of credit were outstanding on a revolving basis and $417.2 million was available for future borrowing. Cash used for investing activities during the first 13 weeks of 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. 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. Capital expenditures totaled $7.4 million and $7.5 million in the first 13 weeks of 1998 and 1997, respectively, and related primarily to the Company's retail location expansion and remodeling programs ($4.0 million and $3.6 million for the first 13 weeks of 1998 and 1997, respectively). The Company estimates that total capital expenditures for 1998 will be approximately $55.0 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 May 2, 1998, the Company had commitments for approximately $13.0 million of capital expenditures, related to commitments to open approximately 60 international retail locations during the remainder of 1998, and 56 domestic retail locations, of which approximately 38 are intended to be opened during the remainder of 1998. 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. 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; 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 17, 1998, the Board of Directors of the Company declared a dividend of one preferred share purchase right (each, a "Right") for each outstanding share of the Company's common stock. The dividend was payable on March 4, 1998, to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (the "Preferred Stock"), par value $.01 per share, of the Company at a price of $120 per one one-thousandth of a share of Preferred Stock, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated as of February 17, 1998, between the Company and The Bank of New York, as rights agent (the "Rights Agreement"). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: Exhibit Number Exhibit ------ ------- 27 Financial Data Schedule, filed herewith. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated February 17, 1998, for the purpose of reporting under Item 5 thereof the declaration on such date of a dividend of one preferred share purchase right for each outstanding share of Company common stock, the description and terms of which are set forth in the Rights Agreement attached thereto as Exhibit 4.1. The Company filed a Current Report on Form 8-K dated April 15, 1998, for the purpose of reporting the issuance of a press release announcing that it had been informed by the United States Customs Service that the investigation which the Company was advised of on October 29, 1997 relating to the Company's importation of Brazilian footwear from 1995 to such date had been terminated with no action taken against the Company. A copy of the press release was filed therewith as Exhibit 20.1. 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: June 15, 1998 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC. CONSOLIDATED BALANCE SHEET AS OF MAY 2, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-30-1999 MAY-02-1998 22,515 0 166,969 (51,878) 550,849 762,275 263,979 (92,760) 1,350,278 171,108 663,415 0 0 359 446,866 1,350,278 448,282 448,282 257,222 257,222 163,724 597 14,799 11,940 4,657 7,283 0 0 0 7,283 0.20 0.20
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