-----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, IZhDYSPCR0lW/XRhs0jw+qf8qgHpCYag2tfhx0v0SlKTdA3U8UH0J5dbAtgoOd0L Cokx413GEf6xoRbzKl3wYA== 0000887124-98-000018.txt : 19980916 0000887124-98-000018.hdr.sgml : 19980916 ACCESSION NUMBER: 0000887124-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980915 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: 98709602 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 August 1, 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 August 1, 1998: 35,937,998. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page ---- Item 1 Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Income - 13 and 26 weeks ended August 1, 1998 and August 2, 1997 3 Condensed Consolidated Balance Sheets - August 1, 1998 and January 31, 1998 4 Condensed Consolidated Statements of Cash Flows - 26 weeks ended August 1, 1998 and August 2, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3 Quantitative and Qualitative Disclosures About Market Risk 19 PART II - OTHER INFORMATION Item 1 Legal Proceedings 20 Item 4 Submission of Matters to a Vote of Security Holders 20 Item 6 Exhibits and Reports on Form 8-K 21 Signatures 22 NINE WEST GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) 13 Weeks Ended 26 Weeks Ended ------------------ ------------------ August 1 August 2 August 1 August 2 1998 1997 1998 1997 -------- -------- -------- -------- Net revenues......................... $527,958 $495,684 $976,240 $901,767 Cost of goods sold................... 313,582 289,045 570,804 513,287 -------- -------- -------- -------- Gross profit....................... 214,376 206,639 405,436 388,480 Selling, general and administrative expenses............. 162,802 144,018 324,601 282,422 Amortization of acquisition goodwill and other intangibles............... 2,826 2,418 5,348 4,752 -------- -------- -------- -------- Operating income................... 48,748 60,203 75,487 101,306 Interest expense..................... 13,280 12,589 28,079 24,900 -------- -------- -------- -------- Income before income taxes......... 35,468 47,614 47,408 76,406 Income tax expense................... 13,831 18,688 18,488 29,989 -------- -------- -------- -------- Net income......................... $ 21,637 $ 28,926 $ 28,920 $ 46,417 ======== ======== ======== ======== Weighted average common shares and common share equivalents used in earnings per share calculation: Basic.............................. 35,938 35,825 35,927 35,816 ======== ======== ======== ======== Diluted............................ 39,050 39,423 35,978 39,555 ======== ======== ======== ======== Earnings per share: Basic.............................. $ 0.60 $ 0.81 $ 0.80 $ 1.30 ======== ======== ======== ======== Diluted............................ $ 0.60 $ 0.78 $ 0.80 $ 1.26 ======== ======== ======== ======== 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) August 1 January 31 1998 1998 ---------- ---------- ASSETS Current Assets: Cash................................................ $ 27,522 $ 23,674 Accounts receivable................................. 12,961 40,715 Securitized interest in accounts receivable......... 111,670 91,208 Inventories......................................... 516,930 543,503 Prepaid expenses and other current assets........... 61,049 100,031 ---------- ---------- Total current assets.............................. 730,132 799,131 Property and equipment - net.......................... 171,760 172,795 Goodwill - net........................................ 232,949 231,130 Trademarks and trade names - net...................... 139,637 139,750 Other assets.......................................... 45,763 48,733 ---------- ---------- Total assets.................................... $1,320,241 $1,391,539 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.................................... $ 109,160 $ 100,075 Accrued expenses and other current liabilities...... 97,698 105,444 Current portion of long-term debt................... 3,433 4,235 ---------- ---------- Total current liabilities......................... 210,291 209,754 Long-term debt........................................ 576,892 687,263 Other non-current liabilities......................... 66,784 55,674 ---------- ---------- Total liabilities............................... 853,967 952,691 ---------- ---------- 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 and outstanding, respectively).............. 359 358 Additional paid-in capital.......................... 143,989 143,278 Retained earnings................................... 326,838 297,918 Cumulative currency translation adjustment.......... (4,912) (2,706) ---------- ---------- Total stockholders' equity........................ 466,274 438,848 ---------- ---------- Total liabilities and stockholders' equity.... $1,320,241 $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) 26 Weeks Ended --------------------- August 1 August 2 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 28,920 $ 46,417 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization...................... 24,301 18,731 Deferred income taxes and other.................... 1,046 3,180 Changes in assets and liabilities: Accounts receivable including securitized interest in accounts receivable................ 8,570 (58,723) Inventories..................................... 29,417 (18,128) Prepaid expenses and other assets............... 29,102 (8,082) Accounts payable................................ 9,085 8,273 Accrued expenses and other liabilities.......... (1,551) (22,329) -------- -------- Net cash provided (used) by operating activities...... 128,890 (30,661) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment................... (17,465) (23,506) Proceeds from sale of property and equipment.......... 16,351 - Acquisition of business - net of cash acquired........ (9,049) (13,871) Other investing activities............................ (1,394) (977) -------- -------- Net cash used by investing activities................. (11,557) (38,354) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under financing agreements (108,502) 73,306 Net proceeds from issuance of long-term debt.......... - 317,546 Repayments of long-term debt.......................... (3,489) (322,000) Net proceeds from issuance of stock and other......... (1,494) 1,845 -------- -------- Net cash (used) provided by financing activities...... (113,485) 70,697 -------- -------- NET INCREASE IN CASH.................................. 3,848 1,682 CASH, BEGINNING OF PERIOD............................. 23,674 25,176 -------- -------- CASH, END OF PERIOD................................... $ 27,522 $ 26,858 ======== ======== 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 26 weeks ended August 1, 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 Report on Form 10-Q for the 13 weeks ended May 2, 1998. 2. 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): 13 Weeks Ended 26 Weeks Ended ------------------ ------------------ August 1 August 2 August 1 August 2 1998 1997 1998 1997 -------- -------- -------- -------- Earnings: Net income (numerator for basic calculation)..................... $ 21,637 $ 28,926 $ 28,920 $ 46,417 Effect of convertible notes....... 1,679 1,670 - 3,339 -------- -------- -------- -------- Numerator for diluted calculation. $ 23,316 $ 30,596 $ 28,920 $ 49,756 ======== ======== ======== ======== Shares: Weighted average common shares outstanding (denominator for basic calculation)............... 35,938 35,825 35,927 35,816 Effect of stock options........... 56 542 51 683 Effect of convertible notes....... 3,056 3,056 - 3,056 -------- -------- -------- -------- Denominator for diluted calculation...................... 39,050 39,423 35,978 39,555 ======== ======== ======== ======== Earnings per share: Basic ............................ $ 0.60 $ 0.81 $ 0.80 $ 1.30 ======== ======== ======== ======== Diluted .......................... $ 0.60 $ 0.78 $ 0.80 $ 1.26 ======== ======== ======== ========
The impact of the convertible notes was excluded from the diluted earnings per share calculation for the 26 weeks ended August 1, 1998 as its effect on the reported per share amount was anti-dilutive. For the 13 and 26 weeks ended August 1, 1998 and August 2, 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 August 1, 1998 and August 2, 1997, the number of stock options whose impact was not included in the diluted computation was 4.5 million and 1.3 million, respectively. For the 26 weeks ended August 1, 1998 and August 2, 1997, the number of stock options whose impact was not included in the diluted computation was 4.5 million and 1.2 million, respectively. These options were outstanding at the end of each of the respective periods. 3. 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 26 Weeks Ended ------------------ ------------------ August 1 August 2 August 1 August 2 1998 1997 1998 1997 -------- -------- -------- -------- Net income...................... $ 21,637 $ 28,926 $ 28,920 $ 46,417 Currency translation adjustment. (2,691) 222 (2,206) 113 -------- -------- -------- -------- Comprehensive income....... $ 18,946 $ 29,148 $ 26,714 $ 46,530 ======== ======== ======== ======== 4. INVENTORIES Inventories are valued at the lower of cost or market. Approximately 59% and 60% of inventory values were determined by using the FIFO (first in, first out) method of valuation as of August 1, 1998 and January 31, 1998, respectively; the remainder was determined by using the weighted average cost method. Inventory is comprised of (in thousands): August 1 January 31 1998 1998 -------- ---------- Raw materials................................ $ 19,403 $ 19,672 Work in process.............................. 1,804 1,987 Finished goods............................... 495,723 521,844 -------- -------- Total inventory......................... $516,930 $543,503 ======== ======== 5. 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 August 1, 1998, $67.0 million of borrowings and $32.3 million of letters of credit were outstanding on a revolving basis and $500.7 million was available for future borrowing. 6. CASH FLOWS Cash paid for income taxes was $0.4 million and $13.7 million for the 26 weeks ended August 1, 1998 and August 2, 1997, respectively. Cash paid for interest was $31.6 million and $23.2 million for the 26 weeks ended August 1, 1998 and August 2, 1997, respectively. 7. 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 August 1, 1998 and January 31, 1998, and condensed consolidating statements of income and cash flows for the 13 and 26 week periods ended August 1, 1998 and August 2, 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 AUGUST 1, 1998 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $245,598 $563,477 $92,852 $(373,969) $527,958 Cost of goods sold................... 135,544 462,525 48,451 (332,938) 313,582 -------- -------- ------- --------- -------- Gross profit....................... 110,054 100,952 44,401 (41,031) 214,376 Selling, general and administrative expenses............. 98,690 69,768 36,844 (42,500) 162,802 Amortization of acquisition goodwill and other intangibles............... 449 1,894 483 - 2,826 -------- -------- ------- --------- -------- Operating income................... 10,915 29,290 7,074 1,469 48,748 Interest expense..................... 3,397 7,905 2,011 (33) 13,280 Equity in net earnings of subsidiaries........................ 16,596 - - (16,596) - -------- -------- ------- --------- -------- Income before income taxes......... 24,114 21,385 5,063 (15,094) 35,468 Income tax expense................... 2,477 10,723 631 - 13,831 -------- -------- ------- --------- -------- Net income......................... $ 21,637 $ 10,662 $ 4,432 $ (15,094) $ 21,637 ======== ======== ======= ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME 13 WEEKS ENDED AUGUST 2, 1997 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $227,847 $594,718 $59,499 $(386,380) $495,684 Cost of goods sold................... 115,871 484,375 34,268 (345,469) 289,045 -------- -------- ------- --------- -------- Gross profit....................... 111,976 110,343 25,231 (40,911) 206,639 Selling, general and administrative expenses............. 95,956 68,220 19,851 (40,009) 144,018 Amortization of acquisition goodwill and other intangibles............... 1,390 930 98 - 2,418 -------- -------- ------- --------- -------- Operating income................... 14,630 41,193 5,282 (902) 60,203 Interest expense..................... 2,884 7,942 1,722 41 12,589 Equity in net earnings of subsidiaries........................ 21,333 - - (21,333) - -------- -------- ------- --------- -------- Income before income taxes......... 33,079 33,251 3,560 (22,276) 47,614 Income tax expense................... 4,153 14,236 299 - 18,688 -------- -------- ------- --------- -------- Net income......................... $ 28,926 $ 19,015 $ 3,261 $ (22,276) $ 28,926 ======== ======== ======= ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME 26 WEEKS ENDED AUGUST 1, 1998 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $454,728 $1,212,999 $170,515 $(862,002) $976,240 Cost of goods sold................... 244,205 1,022,272 87,943 (783,616) 570,804 -------- ---------- -------- --------- -------- Gross profit....................... 210,523 190,727 82,572 (78,386) 405,436 Selling, general and administrative expenses............. 199,958 137,707 67,891 (80,955) 324,601 Amortization of acquisition goodwill and other intangibles............... 1,858 2,823 667 - 5,348 -------- ---------- -------- --------- -------- Operating income................... 8,707 50,197 14,014 2,569 75,487 Interest expense..................... 7,183 16,664 4,232 - 28,079 Equity in net earnings of subsidiaries........................ 28,431 - - (28,431) - -------- ---------- -------- --------- -------- Income before income taxes......... 29,955 33,533 9,782 (25,862) 47,408 Income tax expense................... 1,035 15,774 1,679 - 18,488 -------- ---------- -------- --------- -------- Net income......................... $ 28,920 $ 17,759 $ 8,103 $ (25,862) $ 28,920 ======== ========== ======== ========= ========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME 26 WEEKS ENDED AUGUST 2, 1997 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated -------- ------------ ------------- ----------- ------------ Net revenues......................... $413,474 $1,124,797 $97,099 $(733,603) $901,767 Cost of goods sold................... 206,411 904,490 57,012 (654,626) 513,287 -------- ---------- ------- --------- -------- Gross profit....................... 207,063 220,307 40,087 (78,977) 388,480 Selling, general and administrative expenses............. 190,959 140,225 29,428 (78,190) 282,422 Amortization of acquisition goodwill and other intangibles............... 2,778 1,858 116 - 4,752 -------- ---------- ------- --------- -------- Operating income................... 13,326 78,224 10,543 (787) 101,306 Interest expense..................... 5,411 15,676 3,660 153 24,900 Equity in net earnings of subsidiaries........................ 42,046 - - (42,046) - -------- ---------- ------- --------- -------- Income before income taxes......... 49,961 62,548 6,883 (42,986) 76,406 Income tax expense................... 3,544 25,470 975 - 29,989 -------- ---------- ------- --------- -------- Net income......................... $ 46,417 $ 37,078 $ 5,908 $ (42,986) $ 46,417 ======== ========== ======= ========= ========
CONDENSED CONSOLIDATING BALANCE SHEETS AUGUST 1, 1998 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated ---------- ------------ ------------- ----------- ------------ ASSETS Current Assets: Cash............................... $ 10,090 $ 48 $ 17,384 $ - $ 27,522 Accounts receivable................ 52,702 (63,166) 23,710 (285) 12,961 Securitized interest in accounts receivable........................ - - 111,670 - 111,670 Inventories........................ 164,912 285,480 73,555 (7,017) 516,930 Prepaid expenses and other current assets.................... 27,635 26,405 6,782 227 61,049 Due (to) from affiliates........... (158,373) 273,411 (119,700) 4,662 - ---------- -------- -------- --------- ---------- Total current assets............. 96,966 522,178 113,401 (2,413) 730,132 Property and equipment - net......... 124,059 22,448 25,253 - 171,760 Goodwill - net....................... 205,443 - 27,506 - 232,949 Trademarks and trade names - net..... 1,113 136,765 1,759 - 139,637 Other assets......................... 36,251 3,298 6,379 (165) 45,763 Investment in subsidiaries........... 727,030 - - (727,030) - ---------- -------- -------- --------- ---------- Total assets................... $1,190,862 $684,689 $174,298 $(729,608) $1,320,241 ========== ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable................... $ 20,049 $ 72,565 $ 16,546 $ - $ 109,160 Accrued expenses and other current liabilities....................... 65,631 11,518 20,834 (285) 97,698 Current portion of long-term debt.. - - 3,433 - 3,433 ---------- -------- -------- --------- ---------- Total current liabilities........ 85,680 84,083 40,813 (285) 210,291 Long-term debt....................... 567,225 - 9,667 - 576,892 Other non-current liabilities........ 66,790 - 798 (804) 66,784 ---------- -------- -------- --------- ---------- Total liabilities.............. 719,695 84,083 51,278 (1,089) 853,967 Stockholders' equity................. 471,167 600,606 123,020 (728,519) 466,274 ---------- -------- -------- --------- ---------- Total liabilities and stockholders' equity........ $1,190,862 $684,689 $174,298 $(729,608) $1,320,241 ========== ======== ======== ========= ==========
CONDENSED CONSOLIDATING BALANCE SHEETS JANUARY 31, 1998 (In thousands) Nine Adjusting West and 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...................... 177,515 310,665 63,649 (8,326) 543,503 Prepaid expenses and other current assets.................. 43,627 31,984 10,516 13,904 100,031 Due (to) from affiliates......... (77,139) 155,217 (82,328) 4,250 - ---------- -------- -------- --------- --------- Total current assets........... 199,252 479,081 111,530 9,268 799,131 Property and equipment - net....... 123,945 23,701 38,738 (13,589) 172,795 Goodwill - net..................... 207,418 - 23,712 - 231,130 Trademarks and trade names - net... 1,128 138,622 - - 139,750 Other assets....................... 35,687 1,270 11,963 (187) 48,733 Investment in subsidiaries......... 721,916 - - (721,916) - ---------- -------- -------- --------- --------- Total assets................. $1,289,346 $642,674 $185,943 $(726,424) $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...... 54,713 - 869 92 55,674 ---------- -------- -------- --------- ---------- Total liabilities............ 847,832 60,006 45,321 (468) 952,691 Stockholders' equity............... 441,514 582,668 140,622 (725,956) 438,848 ---------- -------- -------- --------- ---------- Total liabilities and stockholders' equity...... $1,289,346 $642,674 $185,943 $(726,424) $1,391,539 ========== ======== ======== ========= ==========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS 26 WEEKS ENDED AUGUST 1, 1998 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net cash provided by operating activities.......................... $ 103,895 $ 884 $ 24,110 $ 1 $ 128,890 --------- --------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.. (12,190) (1,144) (4,131) - (17,465) 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........... (1,365) 90 (119) - (1,394) --------- --------- -------- -------- --------- Net cash provided (used) by investing activities.......................... 2,796 (1,054) (13,299) - (11,557) --------- --------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments under financing agreements.......................... (107,860) - (642) - (108,502) Repayments of long-term debt......... - - (3,489) - (3,489) Net proceeds from issuance of stock and other........................... 733 179 (2,405) (1) (1,494) --------- --------- -------- -------- --------- Net cash (used) provided by financing activities.......................... (107,127) 179 (6,536) (1) (113,485) --------- --------- -------- -------- --------- NET (DECREASE) INCREASE IN CASH...... (436) 9 4,275 - 3,848 CASH, BEGINNING OF PERIOD............ 10,526 39 13,109 - 23,674 --------- --------- -------- -------- --------- CASH, END OF PERIOD.................. $ 10,090 $ 48 $ 17,384 $ - $ 27,522 ========= ========= ======== ======== =========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS 26 WEEKS ENDED AUGUST 2, 1997 (In thousands) Nine Adjusting West and Group Guarantor Non-Guarantor Elimination Inc. Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------ Net cash (used) provided by operating activities.......................... $ (51,160) $ 2,552 $ 17,966 $ (19) $ (30,661) --------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment.. (15,073) (3,990) (4,443) - (23,506) Acquisition of business - net of cash acquired............................ - - (13,871) - (13,871) Other investing activities........... (1,919) 1,446 (533) 29 (977) --------- -------- -------- -------- --------- Net cash (used) provided by investing activities.......................... (16,992) (2,544) (18,847) 29 (38,354) --------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under financing agreements.......................... 70,100 - 3,206 - 73,306 Net proceeds from issuance of long-term debt...................... 317,546 - - - 317,546 Repayments of long-term debt......... (322,000) - - - (322,000) Net proceeds from issuance of stock and other........................... 1,733 - 122 (10) 1,845 --------- -------- -------- -------- --------- Net cash provided (used) by financing activities.......................... 67,379 - 3,328 (10) 70,697 --------- -------- -------- -------- --------- NET (DECREASE) INCREASE IN CASH...... (773) 8 2,447 - 1,682 CASH, BEGINNING OF PERIOD............ 23,505 26 1,645 - 25,176 --------- -------- -------- -------- --------- CASH, END OF PERIOD.................. $ 22,732 $ 34 $ 4,092 $ - $ 26,858 ========= ======== ======== ======== =========
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 second quarter of 1998 was $21.6 million, or $0.60 per diluted share, a 25.2% decrease from net income of $28.9 million, or $0.78 per diluted share, for the second quarter of 1997. Net income for the 26 weeks ended August 1, 1998 was $28.9 million, or $0.80 per diluted share, a 37.7% decrease from net income of $46.4 million, or $1.26 per diluted share, for the 26 weeks ended August 2, 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 13 weeks and 26 weeks ended August 1, 1998, principally the continuing weakness in the domestic and international retail footwear markets which resulted in heavy promotional pricing activity in the Company's wholesale and retail business. In addition, the Company anticipates that its operating margins for 1998 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 $528.0 million in the second quarter of 1998 compared to $495.7 million in the second quarter of 1997, an increase of $32.3 million, or 6.5%. For the 26 weeks ended August 1, 1998, net revenues were $976.2 million compared to $901.8 million in the comparable prior year period, an increase of $74.5 million, or 8.3%. The increase in net revenues for both the second quarter and 26 weeks ended August 1, 1998 is due primarily to growth in the Company's international business. Domestic wholesale net revenues decreased by $2.6 million, or 1.0%, and $10.3 million, or 2.2%, for the 13 weeks and 26 weeks ended August 1, 1998, respectively, due primarily to heavy promotional pricing activity resulting from the weakness in the domestic retail footwear market, offset in part by an increase in the Company's accessories business of $11.9 million, or 91.7%, for the second quarter of 1998, and $20.3 million, or 84.6%, for the 26 weeks ended August 1, 1998. Domestic retail net revenues increased $1.2 million, or 0.6%, and $12.3 million, or 3.4%, for the 13 weeks and 26 weeks ended August 1, 1998, due primarily to increased volume from 59 retail locations opened (net of closings) since August 2, 1997 ($16.8 million and $33.8 million for the second quarter and 26 weeks ended August 1, 1998, respectively). Domestic comparable store sales decreased by $15.6 million, or 8.2%, for the second quarter of 1998, and decreased $21.5 million, or 6.2%, for the 26 weeks ended August 1, 1998, due to weakness in the domestic retail footwear market. International net revenues increased $33.7 million, or 79.6%, for the second quarter of 1998, and $72.4 million, or 109.8%, for the 26 weeks ended August 1, 1998, due primarily to increased volume from 169 retail locations opened or acquired (net of closings) since August 2, 1997 ($34.7 million and $73.9 million for the 13 weeks and 26 weeks ended August 1, 1998, respectively). International comparable store sales decreased by $1.1 million, or 3.3%, for the second quarter of 1998, and decreased $2.5 million, or 4.3%, for the 26 weeks ended August 1, 1998, due to weakness in the international retail footwear market. During the 13 weeks and 26 weeks ended August 1, 1998, retail operations accounted for 52% and 51%, respectively, of the Company's consolidated net revenues, while wholesale operations accounted for the remaining 48% and 49%, respectively. Net revenues from the Company's international segment, which is primarily retail, 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 26 weeks ended August 1, 1998. GROSS PROFIT. Gross profit was $214.4 million in the second quarter of 1998 compared to $206.6 million in the second quarter of 1997, an increase of $7.7 million, or 3.7%. Gross profit for the 26 weeks ended August 1, 1998 was $405.4 million, compared to $388.5 million for the comparable prior year period, an increase of $16.9 million, or 4.4%. Gross profit as a percentage of net revenues was 40.6% and 41.5% for the second quarter and first 26 weeks of 1998, compared to 41.7% and 43.1% for the comparable prior year periods. The decrease in gross profit as a percentage of net revenues is due primarily to the weakness in the domestic retail footwear market which resulted in excess inventory in the domestic retail environment and corresponding heavy promotional pricing activity in the Company's domestic wholesale and retail business. 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. SELLING, GENERAL & ADMINISTRATIVE EXPENSES. SG&A expenses were $162.8 million in the second quarter of 1998, compared to $144.0 million in the second quarter of 1997, an increase of $18.8 million, or 13.0%. SG&A expenses were $324.6 million for the 26 weeks ended August 1, 1998, compared to $282.4 million in the comparable prior year period, an increase of $42.2 million, or 14.9%. SG&A expense expressed as a percentage of net revenues was 30.8% and 33.3% for the second quarter and first 26 weeks of 1998, respectively, up from 29.1% and 31.3% for comparable prior year periods. The increase in SG&A expenses as a percentage of net revenues is due primarily to the continuing 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 $13.3 million in the second quarter of 1998, compared to $12.6 million in the second quarter of 1997, an increase of $0.7 million, or 5.5%. Interest expense was $28.1 million for the first 26 weeks of 1998, compared to $24.9 million for the comparable prior year period, an increase of $3.2 million, or 12.8%. The increase in interest expense relates primarily to an increase in the Company's weighted average interest rates and, for the first 26 weeks of 1998 is also attributable 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. Weighted average debt outstanding was approximately $650 million for the second quarter of 1998, compared to approximately $685 million for the comparable prior year period. For the 26 weeks ended August 1, 1998, weighted average debt outstanding was approximately $680 million, compared to approximately $670 million for the comparable prior year period. Weighted average interest rates were 7.3% and 6.6% for the second quarter of 1998 and 1997, respectively, and 7.3% and 6.4% for the first 26 weeks of 1998 and 1997, respectively. The increase in the weighted average interest rates 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 $128.9 million for the first 26 weeks of 1998, compared to cash used by operating activities of $30.7 million for the first 26 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 $519.8 million at August 1, 1998, compared to $589.4 million at January 31, 1998, a decrease of $69.5 million. The decrease in working capital was primarily due to: (1) a $26.6 million decrease in inventories due primarily to inventory management improvements; and (2) a $39.0 million decrease in prepaid expenses and other current assets. 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 for investing activities during the 26 weeks ended August 1, 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 $13.9 million for the purchase of The Shoe Studio Group Limited. 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 $17.5 million and $23.5 million in the first 26 weeks ended August 1, 1998 and August 2, 1997, respectively, and related primarily to the Company's retail location expansion and remodeling programs ($11.0 million and $14.2 million for the 26 weeks ended August 1, 1998 and August 2, 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 ($3.8 million). The Company estimates that total capital expenditures for 1998 will be approximately $50 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 August 1, 1998, the Company had commitments for approximately $9.0 million of capital expenditures, related to commitments to open 46 international retail locations during the remainder of 1998, and 47 domestic retail locations, of which 27 are intended to be opened during the remainder of 1998. Cash used for financing activities includes a $108.0 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. 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 August 1, 1998, $67.0 million of borrowings and $32.3 million of letters of credit were outstanding on a revolving basis and $500.7 million was available for future borrowing. 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 using two digits rather than four to define the applicable year. Such software may recognize a date using "00" as the year 1900 rather than the year 2000 (the "Year 2000" issue). The Company utilizes software and related technologies that will be affected by the date change in the Year 2000. The Company is resolving the Year 2000 issue by modifying or replacing significant portions of its computer software and certain items of hardware. If such 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 such failures which cannot be quantified at this time. In March 1997, the Company commenced a comprehensive review of its domestic information technology software and hardware and established a timetable to complete the corrections required by the Year 2000 issue. The Company expects to complete the development, programming changes and unit testing, including compatibility testing, with respect to its domestic internal systems in the first quarter of fiscal 1999, and as of August 1, 1998, estimates that it has completed approximately 50% of these procedures, consistent with its timetable. Through the second quarter of 1998 the Company expended approximately $2.5 million related to the domestic Year 2000 remediation program. The Company currently expects that the total cost of this program, including both incremental spending and redeployed resources, will be approximately $5.0 million. The Company is currently evaluating the readiness of its international operations, which are primarily retail, and expects that the total cost related to the international Year 2000 remediation program will be less than $1.0 million. Cost of the remediation programs 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. In addition to reviewing its internal systems, the Company is focusing on Year 2000 compliance by its significant customers, vendors and suppliers, including electronic commerce issues. There can be no assurance that the systems of other companies that interact with the Company will be Year 2000 compliant at all, in a timely manner, or in a manner that is compatible with the Company's systems. The failure of such third parties to address effectively such issues could have a materially adverse effect on the Company. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1998 Annual Meeting of Stockholders of the Company was held on June 4, 1998. The election of two Class II directors was the only proposal submitted to a vote of stockholders at the meeting. Results of the vote were as follows: Election of Class II directors of the Company. For Withheld ---------- ------------ Jerome Fisher 27,613,599 159,826 Vincent Camuto 27,615,054 158,371 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: 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: September 15, 1998 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEET AS OF AUGUST 1, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JAN-30-1999 AUG-01-1998 27,522 0 181,860 (57,229) 516,930 730,132 262,443 (90,683) 1,320,241 210,291 576,892 0 0 359 465,915 1,320,241 976,240 976,240 570,804 570,804 328,656 1,293 28,079 47,408 18,488 28,920 0 0 0 28,920 0.80 0.80
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