UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 52 weeks ended January 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 (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Nine West Plaza
1129 Westchester Avenue
White Plains, New York 10604
(Address of Principal (Zip Code)
Executive Offices)
(314) 579-8812
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class: on Which Registered:
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _X_
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on April 17, 1998: $805,098,994.
Total number of shares of Common Stock, $.01 par value per share,
outstanding as of the close of business on April 17, 1998: 35,919,664.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K is incorporated herein by
reference to the Registrant's definitive proxy statement, filed on April 30,
1998.
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business 3
Item 2 Properties 16
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters 18
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 7A Quantitative and Qualitative Disclosures About Market Risk 31
Item 8 Financial Statements and Supplementary Data 31
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 31
PART III 59
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-K 60
PART I
ITEM 1. BUSINESS.
General
Nine West Group Inc. (together with its subsidiaries, the "Company") is a
leading designer, developer and marketer of quality, fashionable women's
footwear and accessories. The Company markets a full collection of casual,
career and dress footwear and accessories under multiple brand names, each of
which is targeted to a distinct segment of the women's footwear and accessories
markets, from "fashion" to "comfort" styles and from "moderate" to "bridge"
price points. The Company's footwear and accessories are sold to more than
7,000 department, specialty and independent retail stores and through 1,459 of
its own retail locations operating as of January 31, 1998. In addition to its
flagship Nine West label, the Company's internationally recognized brands
include Amalfi, Bandolino, Luca B. for Calico, cK/Calvin Klein Shoes and Bags
(under license), Easy Spirit, Enzo Angiolini, Evan Picone (under license), 9 &
Co., Pappagallo, Pied a Terre, Selby, Westies and The Shoe Studio Group Limited
brands. The Company's Jervin private label division also arranges for the
purchase of footwear by major retailers and other wholesalers for sale under the
customers' own labels. The Company believes that its primary strengths are:
(1) its widely-recognized brand names, (2) the high quality, value and styling
of its products, (3) its ability to respond quickly to changing fashion trends,
(4) its established sourcing relationships with efficient manufacturers in
Brazil and other locations, (5) the broad distribution of its products through
both wholesale and retail channels and (6) its ability to provide timely and
reliable delivery to its customers. The Company believes that it is one of the
few established footwear companies that offer several complete lines of
well-known women's leather footwear in a wide variety of colors, styles and
retail price points and that, as a result, it is able to capitalize on what the
Company believes is a continuing trend among major wholesale accounts to
consolidate footwear purchasing from among a narrowing group of vendors. In
addition, the Company believes that the sale of footwear and accessories through
its retail stores increases consumers' awareness of the Company's brands.
On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Financial information for 1997 and 1996 is not
comparable to 1995, as Footwear Group results are included in the entire 1997
and 1996 periods and are included in 1995 for the 37-week period from May 23,
1995 through February 3, 1996.
Divisions
The Company distributes its footwear and accessories through wholesale
channels and its own retail stores. Prior to March 1997, the Company's business
was operated through two distinct divisions, wholesale and retail. In March
1997, the Company reorganized its business operations to unite its wholesale and
retail operations through vertically-structured business divisions centered
around the Company's brands. Each such division is responsible for the design,
development and management of its branded footwear. Certain branded divisions,
as well as the Company's international division, are responsible for both
wholesale operations and the Company's specialty retail stores. Retail
operations other than specialty retail stores are conducted through a value-
based division. The Company believes that this vertical structure enhances
brand equities and the consistency of brand image and presentation.
During the periods presented below, the percentage of net revenues
contributed by the Company's wholesale and retail operations is as follows:
1997 1996 1995
---- ---- ----
Wholesale......................... 51% 55% 55%
Retail............................ 49 45 45
--- --- ---
Total........................ 100% 100% 100%
=== === ===
Wholesale Operations
The Company's domestic wholesale operations include the sale of both brand
name and private label footwear and/or accessories through 12 branded divisions,
as well as the Jervin private label division and the Accessories division. The
Jervin private label division earns commissions on an agency basis for arranging
with manufacturers the production of footwear for sale under its customers'
private labels. The Jervin division provides design expertise, selects the
manufacturer, oversees the manufacturing process and arranges the sale of
footwear to the customer. The Accessories division produces and sells handbags
and small leather goods under the names "Nine West," "Easy Spirit" and "Enzo
Angiolini" through the Company's retail stores and primarily under the name
"Nine West" through wholesale channels. Additionally, the Company's licensees
sell products, including jewelry, legwear and sunglasses, to wholesale customers
primarily under the name "Nine West."
The following table summarizes selected aspects of the products sold by the
Company:
<TABLE>
<S> <C> <C> <C>
Retail Price Range
------------------
Product Market
Division Classification Segments Shoes Boots
- -------- -------------- -------- ----- -----
Nine West Contemporary Upper Moderate $49 to $79 $90 to $160
Amalfi Refined Classics Salon $110 to $140 $150 to $185
Bandolino Modern Classics Better $60 to $85 $80 to $160
Luca B. for Affordable Fashion Moderate $49 to $60 $65 to $75
Calico
cK/Calvin Dress Tailored Bridge $45 to $185 $115 to $265
Klein Shoes Casual
and Bags Seasonal Sport
Easy Spirit Comfort/Fit Upper Moderate $40 to $85 $80 to $125
Active Sport/Casuals
Enzo Sophisticated Better $60 to $90 $100 to $165
Angiolini Classics
Evan Picone Contemporary Bridge $80 to $110 $120 to $150
9 & Co. Junior/Trend Moderate $30 to $60 $55 to $100
Pappagallo Classic Upper Moderate $49 to $69 $79 to $85
Selby Traditional/Comfort Moderate $60 to $80 $80 to $100
Specialty Traditional/ Moderate/ $25 to $40 $35 to $50
Marketing/ Contemporary Lower Moderate
Westies
Jervin All Upper Moderate/ $12 to $100 $30 to $125
Private Label Lower
Product Market
Division Classification Segments Retail Price Range
- -------- -------------- -------- -------------------
Accessories Handbags and Moderate/Better $30 to $150
small leather goods
cK/Calvin Handbags and small Bridge $25 to $295
Klein Shoes leather goods
and Bags
</TABLE>
Domestic Specialty Retail Operations of Branded Divisions
The Company's Nine West, Easy Spirit, Enzo Angiolini, 9 & Co. and cK/Calvin
Klein Shoes and Bags divisions market footwear and accessories directly to
consumers through the Company's domestic specialty retail stores operating in
mall and urban retail center locations. Each of these branded divisions sells
footwear and accessories under its respective brand name. Certain Nine West
stores also offer a selection of the Bandolino line of footwear. Enzo Angiolini
stores also offer a selection of the Amalfi and Evan Picone lines of footwear.
Certain of the Company's retail stores also sell products licensed by the
Company, including jewelry, legwear and sunglasses. The Company plans to open
approximately 30 domestic specialty retail locations (net of closings) in 1998.
The following table summarizes selected aspects of the Company's domestic
specialty retail stores:
<TABLE>
<S> <C> <C> <C> <C> <C>
Enzo cK/Calvin
Nine West Easy Spirit Angiolini 9 & Co. Klein
--------- ----------- --------- ------- ---------
Number of locations 293 219 79 74 3
Brands offered Nine West and, Easy Spirit Enzo 9 & Co. cK/Calvin
in selected Angiolini and Klein
locations, in selected
Bandolino locations,
Evan Picone
and Amalfi
Retail price range
of shoes and boots $45 to $175 $45 to $125 $55 to $175 $35 to $70 $45 to $265
Retail price range
of handbags and
small leather goods $24 to $158 $22 to $99 $30 to $248 N/A $25 to $295
Type of location Upscale and Upscale and Upscale malls Regional Upscale
regional malls regional malls and urban malls and Malls
and urban and urban retail urban
retail centers retail centers centers retail
centers
Average store size
(in square feet) 1,497 1,368 1,282 1,565 2,009
Revenues per square
foot during 1997 (a) $497 $487 $527 $319 N/A (b)
(a) Revenues per square foot are determined by dividing total retail net revenues
by the annual average gross retail square footage.
(b) Amounts for cK/Calvin Klein are not included as the first of those stores was not open
until September 1, 1997.
</TABLE>
Domestic Value-Based Retail Stores Division
The Company's domestic value-based retail stores are operated by the
Company's Value-Based Retail Stores division under the following names: Nine
West Outlet, Easy Spirit Outlet, Enzo Angiolini Outlet and Banister. This
division also operates leased departments in Stein Mart stores. The outlet
concept was implemented by the Company in order to target more value-oriented
retail customers and to offer a distribution channel for its residual
inventories. In 1997, 25% to 30% of the Nine West and Enzo Angiolini Outlet
stores' merchandise consisted of discontinued styles from the Company's
specialty retail stores and the Company's wholesale operations, with the
remainder of the merchandise consisting of new production of current and proven
prior season's styles. Banister and Stein Mart stores carry the Company's
brands of women's footwear and a limited selection of other suppliers' women's
and men's dress, casual and athletic footwear. The Easy Spirit Outlet stores
sell primarily the Easy Spirit brand and focus on the size, width and comfort
business with a selection of Selby styles in selected stores. The Company plans
to open approximately 10 domestic value-based retail locations (net of closings)
in 1998.
The following table summarizes selected aspects of the Company's domestic
value-based retail stores:
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine West Easy Spirit Enzo Angiolini
Outlet Outlet Outlet Banister Stein Mart
--------- ----------- -------------- -------- ----------
Number of locations 149 35 9 142 108
Brands offered Primarily Easy Spirit Primarily All Company All Company
Nine West and Selby Enzo Angiolini brands brands
Retail price range
of shoes and boots $30 to $125 $30 to $100 $30 to $195 $30 to $125 $30 to $125
Type of location Mfr's Mfr's Mfr's Mfr's Strip
outlet outlet outlet outlet centers
centers centers centers centers
Average store size
(in square feet) 2,658 2,488 2,301 4,622 2,759
Revenues per square
foot during 1997 (a) $351 $235 $310 $178 $176
(a) Revenues per square foot are determined by dividing total retail net revenues by
the annual average gross retail square footage.
</TABLE>
Domestic Retail Expansion
The Company plans to open a total of approximately 40 domestic specialty
and value-based retail locations in 1998. Proposed sites for the Company's
retail stores are selected based on location, including the area's population
density and level of traffic, average sales per square foot of the shopping
mall, urban retail center or manufacturers' outlet center locations, average
household income and other local demographics. Outlet stores generally are
located outside the shopping radius of the Company's wholesale customers and its
specialty retail stores. The types of stores opened by the Company and the
results generated by such stores depend on various factors, including, among
others, general economic and business conditions affecting consumer spending,
the performance of the Company's wholesale and retail operations, the acceptance
by consumers of the Company's retail concepts, the availability of desirable
locations and the ability of the Company to negotiate acceptable lease terms for
new locations, hire and train personnel and otherwise manage such expansion.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for additional
information regarding planned store openings and capital expenditures.
International Division
In 1995, the Company organized an international division for the purpose of
promoting wholesale and retail growth. The Company's international division
sells footwear and, in some cases, accessories under each of the Company's brand
names. The Company currently markets its products to customers in more than 40
countries, including Australia, Canada, Chile, China, France, Hong Kong, Japan,
Malaysia, Mexico, Singapore, Taiwan, Thailand and the United Kingdom through 348
specialty retail locations (100 specialty retail stores and 248 specialty retail
concessions). At the end of 1997, the Company operated specialty retail
locations in the United Kingdom (180), Canada (27) and France (7). The Company
operates 134 specialty retail locations in Australia (20), Japan (26), Hong Kong
(24), Malaysia (2), Singapore (5), Taiwan (42) and Thailand (15) through joint
ventures. During 1997, the Company acquired three specialty retail stores and
148 specialty retail concessions in the United Kingdom and opened (net of
closings) 113 specialty retail locations in Asia, Australia, Canada and Europe.
The Company expects to continue its expansion of international specialty retail
locations in 1998, with plans to open or acquire approximately 100 additional
retail locations (net of closings). In addition, subject to the Company's
ability to find acceptable partners for its international specialty retail
locations, the Company intends to continue to establish its retail presence in
certain other international markets through various arrangements with
established retailers in those markets. The Company is currently developing
strategic plans to further penetrate markets in Europe, Central and South
America and Asia. However, the Company presently has no commitments to expand
into any country other than those in which it currently operates. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information
regarding planned store openings and capital expenditures.
The following table summarizes selected aspects of the Company's
international division retail locations:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine Easy Enzo cK/Calvin Pied a Shoe
West Spirit Angiolini Klein Terre Studio
---- ------ --------- --------- ------ ------
Number of locations 138 2 11 18 20 159
Brands Offered Primarily Easy Primarily cK/Calvin Pied a Bertie, Roland
Nine West Spirit Enzo Klein Terre and Cartier, Roberto
& Selby Angiolini a selection Vianni, Vivaldi,
of cK/Calvin Nine West and
Klein a selection of
other brands
Retail price range $50 to $190 $50 to $125 $60 to $210 $100 to $270 $85 to $250 $40 to $200
of shoes and boots
(in U.S. dollars)
Type of locations Upscale and Regional Department Department Urban retail Department
regional malls, malls store store locations, store
urban retail concessions concessions regional concessions
locations and and upscale and upscale malls and
department malls malls department
store store
concessions concessions
Average store size 798 1,478 336 688 1,313 1,547
(in square feet)
Revenues per square $684 N/A(b) N/A(b) N/A(b) $739 $543
foot during 1997(a)
(a) Revenues per square foot are determined by dividing total retail net revenues by the annual average
gross square footage.
(b) Amounts for Easy Spirit, Enzo Angiolini and cK/Calvin Klein are not included as the first of those
stores was not opened until May 30, 1997, March 29, 1997 and April 26, 1997, respectively.
</TABLE>
Accessories Division
In January 1995, the Company established the Nine West Accessories division
through the acquisition of the operations of L.J.S. Accessory Collections Inc.,
a designer, developer and marketer of quality handbags and small leather goods.
The Accessories division produces and sells handbags and small leather goods
under the names "Nine West," "Easy Spirit" and "Enzo Angiolini" through the
Company's retail stores and, primarily under the name "Nine West," through
wholesale channels.
Design
Separate design teams for each branded division (which are staffed with a
line builder, one or two designers and, in some cases, a fashion director)
develop the Company's brands by independently interpreting global lifestyle,
clothing, footwear and accessories trends. To research and confirm such trends,
the teams: (1) travel extensively in Asia, Europe and major American markets;
(2) conduct extensive market research on retailer and consumer preferences; and
(3) subscribe to fashion and color information services. The teams separately
develop between 60 and 200 initial designs for each season. Working closely with
senior management, each team selects 20 to 80 styles that maintain each brand's
distinct personality. Samples are refined and then produced. After the samples
are evaluated, lines are modified further for presentation at each season's shoe
shows.
Manufacturing
The Company relies on its long-standing relationships with its Brazilian
and Chinese manufacturers through its independent buying agents, its own
factories, and its third party manufacturers in other countries, to provide a
steady source of inventory. Allocation of production among the Company's
footwear manufacturers is determined based upon a number of factors, including
manufacturing capabilities, delivery requirements and pricing.
Approximately 57% of the Company's footwear products are manufactured by
more than 30 independently owned footwear manufacturers in Brazil. As a result
of the number of entrepreneurial factory owners, the highly skilled labor force,
the modern, efficient vertically-integrated factories and the availability of
high-quality raw materials, the Brazilian manufacturers are able to produce
significant quantities of moderately priced, high-quality leather footwear. The
Company believes that its relationships with its Brazilian manufacturers provide
it with a responsive and active source of supply of its products, and
accordingly, give the Company a significant competitive advantage. The Company
also believes that purchasing a significant percentage of its products in Brazil
allows it to maximize production flexibility while limiting its capital
expenditures, work-in-process inventory and costs of managing a larger
production work force. Because of the sophisticated manufacturing techniques
and vertical integration of these manufacturers, individual production lines can
be quickly changed from one style to another, and production of certain styles
can be completed in as few as four hours, from uncut leather to boxed footwear.
Historically, instability in Brazil's political and economic environment
has not had a material adverse effect on the Company's financial condition or
results of operations. The Company cannot predict, however, the effect that
future changes in economic or political conditions in Brazil could have on the
economics of doing business with its Brazilian manufacturers. Although the
Company believes that it could find alternative manufacturing sources for those
products which it currently sources in Brazil, the establishment of new
manufacturing relationships would involve various uncertainties, and the loss of
a substantial portion of its Brazilian manufacturing capacity before the
alternative sourcing relationships were fully developed could have a material
adverse effect on the Company's financial condition or results of operations.
However, as a result of the Acquisition, the Company now has manufacturing
operations in the United States, the Dominican Republic and Honduras and
additional relationships in China and other countries as potential alternative
sources for its products.
The Company currently owns and operates three domestic footwear
manufacturing factories and one component factory which, during 1997,
manufactured collectively approximately 10% of all footwear products sold by the
Company. During 1997, as part of its continuing program of consolidating
operations and optimizing its global sourcing activities, the Company closed two
domestic manufacturing factories and one component factory. See "Item 2 -
Properties" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations." The Company's footwear
manufacturing factories can produce different styles on the same line to
increase flexibility and respond to various demands. The domestic factories
source raw materials worldwide, including from the Company's vendors in Brazil.
These factories typically operate with two shifts but can expand to three when
demand is high. The Company also leases and operates three foreign factories
which produce primarily the upper components used by the Company's domestic
factories. Two of these factories are located in the Dominican Republic and one
is located in Honduras.
The Company's footwear is also manufactured by independent third parties
located in China (approximately 15%) and, to a lesser extent, Korea and other
countries in the Far East, and in Italy, Spain, Mexico and Uruguay. The
Company's accessories are manufactured by third party manufacturers in the Far
East.
The largest Brazilian factories operate tanneries for processing leather
and produce lasts, heels and other footwear components. Raw materials for the
production of footwear and accessories are purchased worldwide by the Company
for its domestic production needs, and by the third party manufacturers, based
on input from the Company.
The price paid by the Company for any style of footwear is determined after
a physical sample of the style is produced, and is dependent on, among other
things, the materials used and the quantity ordered for such style of footwear.
Once a price list by style has been prepared and agreed to with a manufacturer,
changes in prices generally occur only as a result of substitution of materials
at the request of the Company. During the past year, there have been moderate
increases in the general price of leather, which have generally been reflected
in the selling price of the Company's products. Because products are purchased
from the Brazilian and Asian manufacturers in pre-set United States dollar
prices, the Company generally has not been adversely affected by fluctuations in
exchange rates.
The Company places its projected orders for each season's styles with its
manufacturers prior to the time the Company has received all of its customers'
orders. Because of the Company's close working relationships with its third
party manufacturers (which allows for flexible production schedules and
production of large quantities of footwear within a short period of time), most
of the Company's orders are finalized only after it has received orders from a
majority of its customers. As a result, the Company believes that, in
comparison to its competitors, it is better able to meet sudden demands for
particular designs, more quickly exploit market trends as they occur, reduce
inventory risk and more efficiently fill reorders booked during a particular
season.
The Company does not have any contracts with any of its manufacturers, but
relies on its long-standing relationships with its Brazilian manufacturers
directly and through its independent buying agent, Bentley Services Inc. (the
"Agent"). The Agent and its affiliates have overseen the activities of the
Brazilian manufacturers for more than ten years. In consultation with the
Company, the Agent selects the proper manufacturer for the style being produced,
monitors the manufacturing process, inspects finished goods and coordinates
shipments of finished goods to the United States. The Company entered into a
five-year contract with the Agent effective January 1, 1992, which has been
extended for an additional five years, which provides that the Agent, its
owners, employees, directors and affiliates will not act as a buying agent for,
or sell leather footwear manufactured in Brazil to, other importers,
distributors or retailers for resale in the United States, Canada or the United
Kingdom. As compensation for services rendered, the Agent receives a percentage
of the sales price of the merchandise shipped to the Company. Neither the Agent
nor any of its principals is affiliated with the Company. Paramont Trading
S.A., an affiliate of the Agent, serves as the Company's buying agent in China.
In addition to the Agent and Paramont Trading S.A., the Company utilizes its own
buying offices in Italy, Korea and Spain.
Marketing
The Company introduces new collections of footwear at industry-wide shoe
shows, held four times yearly in New York City and twice yearly in Las Vegas,
and at regional shoe shows throughout the year. The Company also introduces new
accessory collections at market shows that occur four times each year in New
York City. After each show, members of the Company's 149-person direct sales
force visit customers to review the lines and take orders. The Company presently
has footwear showrooms in New York City and Dallas, an accessories showroom in
New York City, and a cK/Calvin Klein Shoes and Bags showroom in New York City,
where buyers view and place orders for the Company's products. In addition,
licensees show the licensed products within their own showrooms.
The Company promotes its business with certain department and specialty
retail stores through "concept marketing teams," enabling the Company to bring
its retail and sales planning expertise to individual retailers. Concept
marketing teams are headed by members of branded division management who have
extensive retail backgrounds and include field merchandising associates who
monitor sales of the Company's footwear on a daily basis. Under this program,
the concept marketing teams work with the retailer to create a "focus area" or
"concept shop" within the store that displays the full collection of an entire
brand in one area. Currently, the Company has over 3,000 focus areas and concept
shops. The concept marketing team assists the department and specialty retail
stores by: (1) recommending how to display the Company's products; (2)
educating the store personnel about the Company and its products; (3) selecting
the appropriate product assortment; (4) recommending when a product should be
re-ordered or its retail price marked-down; (5) providing sales guidance,
including the training of store personnel; and (6) developing advertising
programs for the retailers to promote sales of the Company's products. The goal
of the concept marketing teams is to promote high retail sell-throughs of the
Company's products at attractive profit margins for its retail customers.
Through this approach, customers are encouraged to devote greater selling space
to the Company's products and the Company is better able to assess consumer
preferences, the future ordering needs of its customers and inventory
requirements.
Advertising and Promotion
The Company's brands are positioned and marketed through consistent,
integrated communication programs, including national advertising, special
events, product packaging and in-store visual support. Easy Spirit advertises
on television and in lifestyle, health and fitness magazines. The Company's in-
house creative services department works closely with senior management and
oversees the conception, production and execution of virtually all aspects of
these activities. The Company also participates in cooperative advertising
programs in newspapers and magazines with its major wholesale customers and
shares the cost of its wholesale customers' advertising based on total
purchases. The Company produces national advertising campaigns for its Nine
West, Enzo Angiolini and Pied a Terre brands in major fashion magazines,
including Vogue, In Style, Marie Claire, Glamour, Vanity Fair, Elle and Harper's
Bazaar. In 1997, 1996 and 1995, the Company incurred $57.7 million, $45.2
million and $33.1 million, respectively, of advertising expenses. The increase
in advertising expenses in 1997 is attributable primarily to increased national
advertising in accordance with the Company's planned expansion of its marketing
plan. Additionally, the increase in advertising expenditures during the last
three years was attributable primarily to the addition of advertising
expenditures associated with the Acquisition, of which the television
advertising of the Easy Spirit brand constituted a significant component. These
additional expenditures were included for all of 1997 and 1996, and only the 37-
week period subsequent to the Acquisition in 1995. Under the Company's license
agreement with Calvin Klein, Inc. (the "License Agreement"), the Company has
agreed to meet certain thresholds based on Revenues (as defined in the License
Agreement) for cooperative, trade and local advertising for the cK/Calvin Klein
retail locations, and consumer advertising and promotion of licensed products
and the licensed trademark.
The Company also believes that an expanded retail network will promote
brand name recognition and support the merchandising of complete lines by, and
the marketing efforts of, its wholesale customers.
Restrictions on Imports
Imports into the United States are affected by, among other things, the
cost of transportation and the imposition of import duties. The United States,
Brazil and other countries in which the Company's products might be manufactured
may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duty or tariff levels,
which could affect the Company's operations and its ability to import products
at current or increased levels. The Company cannot predict the likelihood or
frequency of any such events occurring. While the Company is subject to certain
duties, it has not been subject to quotas or other import restrictions.
The Company's imported products are subject to United States customs duties
and, in the ordinary course of its business, the Company may from time to time
be subject to claims for duties and other charges. United States customs duties
currently incurred by the Company are 10% of factory cost on footwear made
principally of leather and between 6% and 37.5% of factory cost on synthetic
footwear. United States customs duties currently incurred by the Company are
10% of factory cost on handbags made of leather, 20% of factory cost on handbags
made of synthetic fibers and between 7% and 19.5% of factory cost on handbags
made of natural fibers. During 1997, approximately 90% of the Company's net
revenues were derived from the sale of leather footwear and accessories.
Distribution
The Company utilizes fully integrated information systems to facilitate the
receipt, processing and distribution of its merchandise through its domestic
distribution centers, which consist of two leased facilities located in West
Deptford, New Jersey and one leased facility located in Cincinnati, Ohio. Upon
completion of manufacturing, the Company's products are inspected, bar coded,
packed and shipped from the manufacturing facilities to the distribution
centers. In 1997, ocean freight of imported products manufactured overseas
accounted for approximately 94% of the Company's shipments. Warehouse personnel
log in shipments utilizing bar codes, which enable easy identification of
products and allow the Company's wholesale customers to participate in its "open
stock" and "quick response" inventory management programs. The Company's open
stock inventory management program allows its wholesale customer to fill their
smaller, single or multiple pair reorders in basic sizes and colors, rather than
purchasing larger case good quantities. The quick response program generally
allows for a 48-hour replenishment with open-stock inventories from the time the
order is placed until it is shipped. In the Fall of 1997, the Company completed
installation of a new inventory sortation system in its West Deptford facilities
which enhances the quick response program. Orders for quick response shipments
are typically received via electronic data interchange ("EDI"). Although, the
open stock and quick response programs require the Company to maintain more
sizes and widths of footwear than are normally carried in the pre-packaged cases
and, therefore, increased inventory levels, these programs give the customer the
advantage of carrying smaller inventories and improving inventory turns and
customer order fill rates. The Company believes its ability to offer this
flexibility to its customers gives it a significant competitive advantage and
reduces the incidence of mark-down allowances and returns.
The Company utilizes various arrangements for the receipt, processing and
distribution of its merchandise internationally. The Company leases
distribution facilities in Hong Kong, Taiwan, Thailand, Singapore and Australia.
It also utilizes third party warehousing services in Holland, the United
Kingdom, Japan and Canada.
Management Information Systems
The Company's management information systems provide, among other things,
comprehensive order entry/tracking, production, financial, EDI, distribution,
and decision support information for the Company's marketing, manufacturing,
importing, accounting and distribution functions. Additionally, the Company's
retail information systems provide merchandising/planning, automated
replenishment, inventory control, point-of-sale, store performance/tracking, and
sales audit functions.
The Company utilizes software and related technologies that will be
affected by the date change in the year 2000 (the "Year 2000" issue). The
Company is resolving the Year 2000 issue by modifying or replacing significant
portions of its business application software and certain items of hardware. If
such modifications and conversions are not made in a timely or effective 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 Company is also working with its significant
suppliers and customers to address any impact of their Year 2000 issues on the
Company.
The Company's software and hardware testing, modifications and conversions
relating to the Year 2000 issue are expected to be completed in early 1999, at a
total cost of $2.6 million, which is being funded through existing sources of
liquidity.
Competition
Competition is intense in the women's footwear and accessories business.
The principal elements of competition in the footwear and accessories markets
include style, quality, price, comfort, brand loyalty and customer service. The
location and atmosphere of retail stores are additional competitive factors
affecting the Company's retail operations. The Company's competitors include
numerous domestic and foreign manufacturers, importers and distributors of
women's footwear and accessories. The Company's primary retail competitors are
large national chains, department stores, specialty footwear stores and other
outlet stores.
The Company believes that its brand recognition, ability to respond quickly
to fashion trends, expertise in style and color and understanding of consumer
preferences are significant factors in its business. The Company also believes
that its ability to deliver quality merchandise in a timely manner is a major
competitive advantage.
Backlog
At January 31, 1998, the Company had unfilled wholesale customer orders of
approximately $298.8 million compared to $311.0 million at February 1, 1997. The
backlog at any particular time is affected by a number of factors, including the
scheduling of product shipments and the mix of product and style (open stock or
seasonal inventory) orders, as well as customer demand. Backlog is also affected
by a continuing trend among customers to reduce the lead time on their orders.
Accordingly, a comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
Credit and Collection
The Company, through its credit department, manages all of its customer
credit functions, including extensions of credit, collections and investigations
of accounts receivable and chargebacks, and the application of cash and credits.
The Company's bad debt expense was 0.1% of net revenues for 1997.
Principal Customers
The Company's ten largest wholesale customers represented 36% of gross
revenues for 1997. Certain of the Company's wholesale customers are under
common ownership. When considered as a group under common ownership, sales to
the department store divisions owned by Federated Department Stores, Inc.
represented 12% and 13% of the Company's net revenues in 1997 and 1996,
respectively. While the Company believes that purchasing decisions have
generally been made independently by each department store customer, there is a
trend among department stores toward more centralized purchasing decisions.
Trademarks and Patents
The Company owns federal registrations and/or pending federal applications
in the United States Patent and Trademark Office for most of the trademarks and
variations thereof that it uses, including Amalfi, Bandolino, Banister, Luca B.
for Calico, Easy Spirit, Enzo Angiolini, Joyce, 9 & Co., Nine West, Nine West
Kids, NW, Pappagallo, Pied a Terre, Selby, Westies and others. In addition, the
Company has entered into license agreements to produce and sell footwear under
the Evan Picone name, footwear and accessories under the cK/Calvin Klein name
and women's footwear under the Capezio name and has been assigned rights under
license agreements for the production of various other products under the
Capezio name. None of the federal registrations are currently being challenged
in any legal proceedings. In addition, the Company from time to time registers
certain of its trademarks in other countries, including, but not limited to,
Australia, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy,
Japan, Korea, Mexico and the United Kingdom. In the United Kingdom, the Company
owns registrations for certain trademarks, including Bertie, Roland Cartier,
Roberto Vianni and Vivaldi, for use on footwear and/or accessories.
The Company regards the trademarks and other proprietary rights that it
owns and uses as valuable assets and intends to defend them vigorously against
infringement. Most of the registrations for the Company's trademarks are
currently scheduled to expire or be canceled at various times between 1998 and
2008; however, trademark registrations can be renewed and maintained if the
marks are still in use for the goods and services covered by such registrations.
The Company has granted licenses to certain companies to manufacture and
market non-footwear products, including hosiery, sunglasses, jewelry, children's
shoes, outerwear, belts and slippers under various of the Company's trademarks.
The Company also holds several patents and has several patent applications
pending in the United States Patent and Trademark Office and around the world.
Employees
The Company employs approximately 10,300 full-time and 6,300 part-time
employees, 10,200 of whom are employed in the Company's retail stores.
Approximately 150 of the Company's 450 distribution employees are represented by
labor unions. The Company considers its relationships with its employees and
labor unions to be good.
Executive Officers of the Registrant
Jerome Fisher, age 67, has been Chairman of the Board and a director of the
Company since its organization. Mr. Fisher and Vincent Camuto founded the
Company in 1977. Mr. Fisher is principally responsible for long-range corporate
strategy, long-range financial planning, review and evaluation of potential
mergers and acquisitions, and the Company's international expansion.
Vincent Camuto, age 61, has been a director and head of product development
of the Company since its organization. Prior to being named Chief Executive
Officer of the Company in May 1995, Mr. Camuto served as President from February
1993 to May 1995. Mr. Camuto and Jerome Fisher founded the Company in 1977. Mr.
Camuto is principally responsible for the day-to-day management of the Company,
including supervising the design, manufacture, marketing and distribution of the
Company's products.
Robert C. Galvin, age 38, has been Executive Vice President and Chief
Financial Officer since April 30, 1996. From October 1995 to April 1996, Mr.
Galvin served as Senior Vice President - Strategic Planning. Prior to October
1995, Mr. Galvin was a partner at Deloitte & Touche LLP in charge of the
Connecticut retail and distribution practice of that firm and specialized in
mergers and acquisitions. In that capacity, Mr. Galvin consulted with the
Company beginning in 1987 and advised the Company with respect to the
Acquisition.
Executive officers of the Company serve at the pleasure of the Board of
Directors.
ITEM 2. Properties.
During 1997, the Company relocated its principal executive offices from a
159,000 square foot facility in Stamford, Connecticut and its Cincinnati, Ohio
offices from a 201,000 square foot facility to a new 366,460 square foot
corporate headquarters facility in White Plains, New York (the "Relocation").
The White Plains facility is leased pursuant to a 25-year operating lease which
expires in February 2022. The Company has lease obligations on 101,179 square
feet of space in the Stamford facility until December 31, 2002, but is actively
seeking to assign or sublease this property. Certain of the Company's
administrative functions are conducted in a 38,000 square foot facility in St.
Louis, Missouri which is owned by the Company.
The Company currently leases two distribution facilities in West Deptford,
New Jersey comprising 719,466 square feet pursuant to leases expiring in 2002
and 2016. At January 31, 1998, the Company also owned a 224,000 square foot
warehouse, a 489,000 square foot distribution center and a 201,000 square foot
office facility located in Cincinnati, Ohio. On April 1, 1998, the Company
consummated the sale of those facilities and leased back the 489,000 square foot
distribution center pursuant to a lease with an initial term which expires in
2003. The Company also leases distribution space in Hong Kong, Taiwan,
Thailand, Singapore and Australia and utilizes third party warehousing services
in Holland, the United Kingdom, Japan and Canada for the receipt, processing and
distribution of merchandise internationally. The Company believes that these
facilities are suitable for its domestic and international distribution needs.
The Company currently owns and operates three footwear manufacturing plants
and one component plant, with an aggregate of approximately 231,000 square feet
of space in Kentucky and Indiana. The Company also leases one machinery parts
warehouse with approximately 20,000 square feet of space in Kentucky and an
88,000 square foot raw materials warehouse and product development center in
Kentucky, two component plants with a total of approximately 102,000 square feet
of space in the Dominican Republic and one component plant with approximately
29,000 square feet of space in Honduras. During 1997, the Company's
manufacturing plants operated at approximately 92.0% of optimum production
capacity. The Company believes that its manufacturing and component plants are
suitable for its domestic production needs.
The Company also owns three closed factories in Kentucky and Indiana with
approximately 221,000 square feet of space, which the Company intends to sell.
The Company operates three showrooms in New York, New York and one in
Dallas, Texas with an aggregate of approximately 51,000 square feet of space
under leases that expire in 1999, 2002, 2003 and 2005. The Company is currently
subleasing its former New York showroom for the remainder of its lease term,
which expires on September 30, 1998.
All of the Company's retail locations are leased pursuant to leases that
extend for terms which average ten years. Certain leases allow the Company to
terminate its obligations after three years in the event that a particular
location does not achieve specified sales volume. Many leases include clauses
that provide for contingent payments based on sales volumes, and many leases
contain escalation clauses for increases in operating costs and real estate
taxes.
ITEM 3. LEGAL PROCEEDINGS.
On May 1, 1997, the Company learned that on April 10, 1997, the Securities
and Exchange Commission (the "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 liability that could arise
with respect to these actions cannot be accurately predicted, in the opinion of
the Company, any such liability will not have a material adverse financial
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
The common stock of the Company ( the "Common Stock") is listed and trades
on the New York Stock Exchange ("NYSE"). The following table sets forth the
high and low closing sales prices per share for the Common Stock, as reported on
the NYSE Composite Tape, for the end of each quarter of the last two years.
High Low
---- ---
Fifty-two weeks ended February 1, 1997:
Thirteen weeks ended May 4, 1996........................... $44-5/8 $34
Thirteen weeks ended August 3, 1996........................ 52-1/8 42-3/8
Thirteen weeks ended November 2, 1996...................... 57-1/8 49-5/8
Thirteen weeks ended February 1, 1997...................... 52 44-1/4
Fifty-two weeks ended January 31, 1998:
Thirteen weeks ended May 3, 1997........................... $52-3/8 $39-1/4
Thirteen weeks ended August 2, 1997........................ 41-3/4 32-1/2
Thirteen weeks ended November 1, 1997...................... 43-5/16 34-5/16
Thirteen weeks ended January 31, 1998...................... 35-3/4 25-5/8
As of April 17, 1998, the number of holders of record of the Common Stock
was 242.
The Company has not paid (since its initial public offering in February
1993 (the "Offering")), and does not currently intend to pay in the immediate
future, cash dividends on its Common Stock. Subject to compliance with certain
financial covenants set forth in the Company's credit agreement and the
indentures with respect to the Company's outstanding debt securities (See "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources") and restrictions contained in any
future financing agreements, the payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected balance sheet and income statement information for
the last three years has been derived from the Consolidated Financial Statements
of the Company audited by Deloitte & Touche LLP, independent auditors, whose
report thereon appears elsewhere in this report. The selected financial data
for the transition period from January 1, 1995 through January 28, 1995 and for
1994 and 1993 have been derived from the audited (unless noted otherwise)
financial statements of the Company, not presented herein. This information
should be read in conjunction with and is qualified by reference to the
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
report.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Transition
52 Weeks 52 Weeks 53 Weeks Period Year Ended
Ended Ended Ended January 1 to December 31
January 31 February 1 February 3 January 28 ------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
INCOME STATEMENT DATA (a) (in thousands except retail operating data and per share data)
Net revenues.............................................. $1,865,318 $1,603,115 $1,258,630 $42,539 $652,457 $552,194
Cost of goods sold........................................ 1,063,581 913,946 720,963 24,582 364,533 313,566
Purchase accounting adjustments to cost of goods sold (b). - - 34,864 - - -
---------- ---------- ---------- ------- -------- --------
Gross profit............................................ 801,737 689,169 502,803 17,957 287,924 238,628
Selling, general and administrative expenses (c).......... 609,991 479,284 381,021 16,402 178,916 155,920
Business restructuring and integration expenses (d)....... - 18,970 51,900 - - -
Amortization of acquisition goodwill and other
intangibles............................................. 9,648 9,562 6,637 - - -
---------- ---------- ---------- ------- -------- --------
Operating income from continuing operations............. 182,098 181,353 63,245 1,555 109,008 82,708
Interest expense.......................................... 54,014 41,947 29,611 - 2,199 3,255
---------- ---------- ---------- ------- -------- --------
Income from continuing operations before income taxes... 128,084 139,406 33,634 1,555 106,809 79,453
Income tax expense........................................ 49,953 55,762 14,658 614 42,919 30,208
---------- ---------- ---------- ------- -------- --------
Income from continuing operations before cumulative
effect of change in accounting principle and pro
forma tax effects .................................... $ 78,131 $ 83,644 $ 18,976 $ 941 $ 63,890 $ 49,245
========== ========== ========== ======= ======== ========
Income from continuing operations (e)................... $ 78,131 $ 83,644 $ 18,976 $ 941 $ 63,890 $ 58,656
========== ========== ========== ======= ======== ========
Net income (f).......................................... $ 78,131 $ 81,008 $ 18,976 $ 941 $ 63,890 $ 58,656
========== ========== ========== ======= ======== ========
Weighted average common shares:
Basic shares outstanding.............................. 35,836 35,647 35,011 34,655 34,555
Diluted shares outstanding............................ 39,462 38,554 35,707
Earnings per share: (g)
Basic income from continuing operations............... $ 2.18 $ 2.35 $ 0.54 $ 0.03 $ 1.85
========== ========== ========== ======= ========
Basic net income...................................... $ 2.18 $ 2.27 $ 0.54 $ 0.03 $ 1.85
========== ========== ========== ======= ========
Diluted income from continuing operations............. $ 2.15 $ 2.27 $ 0.53
========== ========== ==========
Diluted net income.................................... $ 2.15 $ 2.21 $ 0.53
========== ========== ==========
December 31
January 31 February 1 February 3 ------------------
1998 1997 1996 1994 1993
BALANCE SHEET DATA ---- ---- ---- ---- ----
Working capital........................................... $ 589,377 $ 491,674 $ 297,312 $170,015 $171,482
Total assets.............................................. 1,391,539 1,261,063 1,160,092 302,791 292,808
Long-term debt and due to stockholders.................... 687,263 600,407 471,000 2,400 50,951
Stockholders' equity...................................... $ 438,848 $ 360,540 $ 328,326 $234,627 $165,499
RETAIL OPERATING DATA (unaudited)
Retail locations open at end of period:
Nine West............................................... 293 285 268 229 203
Easy Spirit............................................. 219 167 131 - -
9 & Co.................................................. 74 79 63 43 28
Enzo Angiolini.......................................... 79 66 54 34 13
cK/Calvin Klein......................................... 3 - - - -
----- ----- --- --- ---
Total mall-based...................................... 668 597 516 306 244
----- ----- --- --- ---
Nine West outlet........................................ 158 141 123 100 62
Easy Spirit outlet...................................... 35 19 11 - -
Banister................................................ 142 138 142 - -
Stein Mart.............................................. 108 82 67 - -
----- ----- --- --- ---
Total value-based..................................... 443 380 343 100 62
----- ----- --- --- ---
Total domestic...................................... 1,111 977 859 406 306
International....................................... 348 84 29 4 -
----- ----- --- --- ---
Total............................................. 1,459 1,061 888 410 306
===== ===== === === ===
Revenues per square foot (h):
Nine West............................................... $ 497 $ 529 $ 543 $ 581 $ 573
Easy Spirit............................................. 487 538 495 - -
9 & Co.................................................. 319 308 322 293 274
Enzo Angiolini.......................................... 527 571 552 539 -
cK/Calvin Klein......................................... - - - - -
Nine West outlet........................................ 349 367 359 361 368
Easy Spirit outlet...................................... 235 195 210 - -
Banister................................................ 178 162 166 - -
Stein Mart.............................................. 176 171 179 - -
International........................................... $ 602 $ 774 $ 842 $ - $ -
Square footage of gross space at end of period............ 2,820,169 2,248,988 1,985,270 691,338 506,100
(footnotes follow)
</TABLE>
Notes:
(a) Income statement data for 1997 and 1996 is not comparable to the prior
years, as such information:(1) reflects 52-week periods (364 days) ended
January 31, 1998 and February 1, 1997 while 1995 reflects a 53-week period
(371 days) ended February 3, 1996 and prior years are 365-day periods; and
(2)includes the results of operations of the Footwear Group during the full
52-week period, while such Footwear Group results are only included in the
1995 period for the 37-week period from May 23, 1995 through February 3,
1996 and are excluded from all periods prior to the Acquisition. The
transition period was created due to the change in the Company's fiscal
year. See "Basis of Presentation and Description of Business" and
"Acquisitions" in the Notes to Consolidated Financial Statements.
(b) Reflects a $34.9 million pre-tax non-recurring increase in cost of goods
sold, attributable to the fair value of inventory over FIFO cost,
recorded as a result of the Acquisition.
(c) The fifty-two week period ended January 31, 1998 includes a $6.3 million
pre-tax charge ($3.8 million on an after-tax basis)for severance and other
costs related to the elimination of 85 corporate positions. 1993 includes
a $1.2 million charge for compensation and net life insurance expense
relating to the Company's three principal stockholders (the "Principal
Stockholders") that would have been in excess of the amounts existing
(including discretionary bonuses) under arrangements in effect since the
consummation of the Offering. In addition, 1993 includes a one-time
payment of $8.5 million ($5.0 million on an after-tax basis) made to the
Agent occasioned by the consummation of the Offering.
(d) Represents business restructuring and integration expenses associated
primarily with the restructuring of North American manufacturing facilities
in 1996 and with the integration of the Footwear Group into the Company in
1995. See "Business Restructuring and Integration Expenses" in the Notes
to Consolidated Financial Statements.
(e) Represents unaudited pro forma amount in 1993. A pro forma income tax
adjustment of $2.1 million is reflected in 1993 related to federal and
state income taxes (assuming a 41% effective tax rate in 1993) as if the
Company had not been treated as an S corporation prior to the Offering. In
connection with the Offering, the Company adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes." The cumulative effect of this
change through February 8, 1993 increased net income by $11.5 million for
1993.
(f) Pro forma net income was $59.3 million, or $1.78 per share, in 1993. Pro
forma adjustments reflect the reduction in selling, general and
administrative expenses by $1.2 million for compensation and net life
insurance expense related to the Company's Principal Stockholders that
would have been in excess of the amounts existing (including discretionary
bonuses) under arrangements in effect since the consummation of the
Offering. Historical net income was $60.7 million in 1993.
(g) During 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." All previously disclosed weighted
average common shares and earnings per share data have been calculated to
reflect the provisions of SFAS No. 128. See "Summary of Significant
Accounting Policies" in the Notes to Consolidated Financial Statements.
(h) Revenues per square foot are determined by dividing total retail net
revenues by the annual average gross retail square footage. Amounts for
cK/Calvin Klein are not included as the first of those stores was not open
until September 1, 1997. Revenues per square foot for 1995 with respect to
those retail concepts operated by the Footwear Group (i.e., Easy Spirit,
Easy Spirit Outlet, Banister and Stein Mart), are based upon pro forma
revenues as though the Acquisition was consummated at the beginning of
1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
On May 23, 1995, the Company consummated its Acquisition of the Footwear
Group. Financial information for 1997 and 1996 is not comparable with 1995, as
Footwear Group results are included in the entire 1997 and 1996 periods and are
included in 1995 for the 37-week period from May 23, 1995 through February 3,
1996.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the notes thereto contained elsewhere
in this report.
Results of Operations
Net income for 1997 was $78.1 million, or $2.15 per share on a diluted
basis, compared to net income of $81.0 million, or $2.21 per share on a diluted
basis, for 1996 and $19.0 million, or $0.53 per share on a diluted basis, for
1995. Results for 1997 include a $6.3 million pre-tax charge for severance and
other costs related to the elimination of 85 corporate positions, representing
approximately 6% of the corporate workforce (the "Severance Charge"). Results
for 1996 include a net pre-tax charge of $19.0 million attributable primarily to
costs associated with the restructuring of the Company's North American
manufacturing facilities (the "Restructuring Charge"), and a $2.6 million after-
tax loss on disposal of discontinued operation related to the Company's former
Texas Boot division. Net income for 1995 includes a $34.9 million pre-tax non-
recurring increase in cost of goods sold attributable to the fair value of
inventory over FIFO cost recorded as a result of the Acquisition (the "Cost of
Goods Sold Adjustment") and a $51.9 million pre-tax charge in business
restructuring and integration expenses and charges associated with the
integration of the Footwear Group into the Company (the "Integration Charge").
Excluding the charges, loss on disposal of discontinued operation and Cost of
Goods Sold Adjustment outlined above, net income for 1997 was $82.0 million, or
$2.25 per share, compared to $95.0 million, or $2.57 per share, for 1996 and
$71.6 million, or $2.01 per share, for 1995.
The Company anticipates that net revenues and net income for at least the
first half of 1998 will continue to be negatively impacted by the factors which
adversely affected the Company's net revenues and net income during 1997,
including overall softness in the domestic retail environment, the downturn in
the Asian economy and increased selling, general and administrative ("SG&A") and
interest expenses. See "--Net Revenues," "--Gross Profit," "--Selling, General
and Administrative Expenses" and "--Interest Expense."
Since the Acquisition was consummated, the Company has continued to
evaluate all facets of its business and operations. Resulting from this ongoing
evaluation were decisions that led to the Severance Charge, the Restructuring
Charge and the Integration Charge, which were recorded in the fourth quarters of
1997, 1996 and 1995, respectively. The Restructuring Charge consisted of a
charge of $21.3 million, offset by the reversal of an excess of the Integration
Charge of $2.3 million, resulting in a net pre-tax charge to earnings of $19.0
million, 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 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) accruals for lease and other contract terminations of $4.9 million;
and (3) plant closing costs of $2.6 million.
During 1997, the Company substantially completed the domestic manufacturing
facility closures and reconfigurations, the Relocation and the 9 & Co. store
closures, resulting in charges recorded against the Restructuring Charge accrual
of $13.8 million in asset write-downs, $1.7 million in lease and contract
termination costs and $2.1 million in plant closing costs. The balance of the
Restructuring Charge accrual of $3.7 million consists of $3.2 million related to
lease and contract termination costs and $0.5 million for plant closing 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. As of and during the 52 weeks ended January 31,
1998, the Company had terminated substantially all of the affected employees,
and approximately $5.1 million 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.
During 1995, the Company began the implementation of its planned business
restructuring and integration activities related to the Acquisition. While some
of the costs associated with the restructuring and integration of the Footwear
Group into the Company were reflected in the allocation of the Acquisition cost,
the Company incurred the Integration Charge in the fourth quarter of 1995. The
major components of the Integration Charge were: (1) severance and termination
benefits of $7.7 million; (2) write-down of assets, principally leasehold
improvements, of $14.6 million; (3) inventory valuation adjustments of $10.4
million; (4) accruals for lease and other contract terminations of $7.0 million;
and (5) other integration and consolidation costs of $12.2 million. The
Integration Charge reflected the restructuring of international sourcing
operations and consolidation of certain manufacturing and sourcing facilities,
the consolidation and integration of various corporate and business unit
operations and support functions and the restructuring of the Company's retail
operations, which included the elimination of duplicate product lines, the
closing of approximately 40 of the Company's underperforming Banister retail
stores, the conversion of a number of stores to other nameplates or formats and
the termination of the Company's agreement with Burlington Coat Factory for its
operation of 84 shoe departments (the "Burlington Leased Departments") during
1996.
The Integration Charge severance and termination benefits related to
approximately 475 employees, of which 420 were store managers and associates, 50
were engaged in manufacturing positions, principally related to the liquidation
of the Company's Far East office as a result of entering into a new agency
arrangement, and five were management employees. As of January 31, 1998, all of
the Integration Charge terminations and activities were substantially completed.
Net Revenues
Net revenues were $1.9 billion in 1997, an increase of $262.2 million, or
16.4%, compared to net revenues of $1.6 billion in 1996. Domestic wholesale net
revenues increased by $42.2 million, or 4.8%, primarily due to the impact of the
Company's cK/Calvin Klein Shoes and Bags division ($33.3 million), which did not
have revenues during the comparable 1996 period, and increased revenues from the
Company's accessories business ($16.5 million). These increases were partially
offset by net revenue decreases in certain of the Company's other wholesale
divisions, primarily due to softness in the retail environment, which resulted
in heavy promotional pricing activity. Additionally, during the second half of
1997, the Company's wholesale net revenues were negatively impacted by untimely
introduction of key fashion footwear styles, and selected styles within certain
of the Company's key brands not being priced competitively. Net revenues from
domestic retail operations increased $62.3 million, or 9.1%, primarily due to
the opening (net of closings) of 134 retail locations in 1997 ($42.8 million)
and increased volume from 143 stores opened (net of closings) in 1996 ($38.6
million). These increases were offset by a decrease in net revenues
attributable to the closing of the Burlington Leased Departments and 25 Banister
stores in 1996 ($13.7 million) and a 0.9% decrease in comparable store sales
($5.4 million) due to the same factors adversely affecting domestic wholesale
revenues during the period. International net revenues, derived primarily in
Western Europe, Asia, Canada and Australia, increased $157.7 million, or 407.1%.
This increase was primarily due to the opening or acquisition (net of closings)
of 264 retail locations ($124.0 million), a comparable store sales increase of
8.2% ($7.5 million), and increased international wholesale net revenues ($26.2
million).
Net revenues were $1.6 billion in 1996 compared to $1.3 billion in 1995, an
increase of $344.5 million, or 27.4%. Net revenues of the Company's wholesale
division increased by $189.8 million, or 27.2%, of which approximately $116.0
million is attributable to the increase in net revenues resulting from the
Acquisition and $73.8 million is attributable to the increase in net revenues of
the Company's wholesale division due to increased revenues from virtually all of
the footwear brands and the growth and development of the Company's accessories
business. Sales through the Company's retail stores increased $154.7 million,
or 27.6%. The increase in net revenues of the retail division is primarily
attributable to the Acquisition of the Footwear Group ($84.9 million), the
opening (net of closings) of 143 domestic and 55 international retail stores
($39.9 million), increased volume from stores opened in 1995 ($34.5 million)
and comparable store sales increases ($15.7 million). These increases were
offset by a decrease in sales attributable to the closing of the Burlington
Leased Departments and 25 Banister retail stores ($20.3 million). The
Burlington Leased Departments and 25 Banister stores have been excluded from the
143 domestic openings (net of closings) mentioned above. Comparable store
sales (including the sales of the acquired Footwear Group stores, had they been
acquired as of the beginning of the comparable period of the prior year)
increased 2.2% for 1996. Comparable store sales, excluding the results of the
Banister stores and Stein Mart leased departments, increased 5.2% during 1996.
Comparable store sales for Banister and Stein Mart decreased during 1996 due to
the significant 1995 promotional activity required to dispose of excess
inventory acquired and to begin the repositioning of inventory to more of its
branded product. Comparable store sales for both periods exclude the results of
the 84 Burlington Leased Departments, which were closed during the first and
second quarters of 1996.
During 1997, 1996 and 1995, wholesale net revenues accounted for 51.2%,
55.4% and 55.4% of the Company's consolidated net revenues, respectively, while
retail net revenues accounted for the remaining 48.8%, 44.6% and 44.6%,
respectively. Net revenues from the Company's international segment, which are
included in the wholesale and retail percentages noted above, accounted for
10.5%, 2.4% and 1.0% of the Company's consolidated net revenues during 1997,
1996 and 1995, respectively.
Gross Profit
1997 gross profit was $801.7 million, an increase of $112.6 million, or
16.3%, compared to gross profit of $689.2 million in 1996. Gross profit as a
percentage of net revenues was 43.0% for both 1997 and 1996. 1997 gross profit
margins were positively impacted 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 growth in the
Company's international business, which is primarily retail. These positive
gross profit margin factors were offset by heavy promotional pricing activity in
both the Company's domestic wholesale and retail businesses as a result of
overall softness in the domestic retail environment and by the downturn of the
Asian economy. Additionally, the Company anticipates that its wholesale and
retail gross margins for at least the first half of 1998 will continue to be
negatively impacted by the continuation of the soft domestic retail environment
and the downturn in the Asian economy.
Gross profit was $689.2 million in 1996, an increase of $151.5 million, or
28.2%, from $537.7 million in 1995 (excluding the Cost of Goods Sold
Adjustment). Gross profit as a percentage of net revenues increased to 43.0% in
1996 from 42.7% in 1995. The increase in gross profit margin was attributable
primarily to improved gross profit margins in the Banister and Stein Mart
stores, due in part to the Company's repositioning of the product mix.
During 1997, 1996 and 1995, there were moderate increases in the general
price of leather, which have generally been reflected in the selling price of
the Company's products. While the Company is not in a position to reasonably
anticipate or predict how changes in labor, leather, and other raw material
prices will ultimately impact the Company's gross profit margins in the future,
the Company anticipates that such increases will be reflected in the selling
price of the Company's products, to the extent possible under economic and
competitive conditions prevailing at the time.
Selling, General and Administrative Expenses
SG&A expenses were $610.0 million in 1997, compared to $479.3 million in
1996. Excluding the Severance Charge, SG&A expenses in 1997 were $603.7
million, an increase of $124.4 million, or 26.0%, and expressed as a percentage
of net revenues, increased to 32.4% for 1997 from 29.9% in 1996. The increase
in SG&A expenses as a percentage of net revenues is due primarily to a shift in
the sales mix towards retail operations (2.0%) which carry overall higher SG&A
margins than wholesale operations. Additionally, during 1997 the Company
incurred higher domestic wholesale SG&A margins due primarily to costs
associated with the expansion of the Company's cK/Calvin Klein Shoes and Bags
division and higher advertising and promotional expenses related to the
Company's expanded marketing plan, partially offset by a reduction in bonus
expense as compared to the prior period, and incurred higher domestic retail
SG&A margins due to an increase in fixed costs as a percentage of net revenues
resulting from the decrease in comparable store sales, and higher expenses
associated with the Company's previously-mentioned expanded marketing plan.
These negative SG&A margin factors were partially offset by reduced corporate
compensation expense due primarily to activities associated with the
Restructuring Charge and Integration Charge. The Company anticipates that SG&A
expenses as a percentage of net revenues will continue to increase in 1998 due
to the continued expansion of the Company's domestic and international retail
businesses.
SG&A expenses were $479.3 million in 1996, compared to $381.0 million in
1995, an increase of $98.3 million, or 25.8%. SG&A expenses expressed as a
percentage of net revenues decreased to 29.9% in 1996 from 30.3% in 1995. The
decrease in SG&A expenses expressed as a percentage of net revenues is due
primarily to cost savings resulting from the consolidation and integration of
various corporate and business unit operations and support functions following
the consummation of the Acquisition. The decrease in SG&A expenses as a
percentage of net revenues was offset in part by an increase in SG&A expenses as
a percentage of net revenues attributable to higher advertising expenses of the
Footwear Group which were included for the full 52 weeks of 1996 compared to
only 37 weeks during the 1995 period.
Interest Expense
Interest expense was $54.0 million in 1997 compared to $41.9 million in
1996, an increase of $12.1 million, or 28.9%. This increase relates primarily
to the increase in capital required to finance the expansion of the Company's
domestic and international businesses, including expansion through acquisitions
and opening of additional retail locations, in addition to higher interest rates
during 1997. Weighted average debt outstanding was approximately $690.0 million
during 1997 and $560.0 million during 1996. Weighted average interest rates
were 6.9% and 6.5% in 1997 and 1996, respectively. The increase in the weighted
average interest rate in 1997 is primarily attributable to the refinancing of
the Company's $312.0 million quarterly amortizing term loan under the Company's
previous credit facility with the net proceeds from the issuance of the Notes
(defined below). The Company anticipates that interest expense will be higher
during 1998 compared to 1997 as a result of the additional financial resources
required to continue the expansion of the business and an increase in the
weighted average interest rate incurred on outstanding indebtedness due to the
higher interest rates borne by the Notes.
Interest expense was $41.9 million in 1996 compared to $29.6 million in
1995, an increase of $12.3 million or, 41.7%. The increased expense was
primarily due to Acquisition-related debt, which was outstanding only for the
37-week period subsequent to the Acquisition in 1995, but was outstanding during
all of 1996. The increase in interest expense attributable to increased
outstanding debt was partially offset by a decrease in the weighted average
interest rate from 7.4% during 1995 to 6.5% during 1996, which was the result of
the amendment and restatement of the Company's credit agreement and the
refinancing of the Company's bank debt with two lower cost alternatives: the
issuance of $185.7 million principal amount of 5-1/2% Convertible Subordinated
Notes Due 2003 (the "Convertible Notes") during the second quarter of 1996 and
the Company's revolving accounts receivable securitization program (the
"Receivables Facility").
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operating activities and
borrowings under the Company's Credit Agreement (defined below) to finance
operations and expansion. Cash provided by operating activities was $70.3
million in 1997, compared to cash used by operating activities of $87.9 million
in 1996 and cash provided by operating activities of $137.6 million in 1995.
The $158.2 million increase in 1997 cash flow from operations as compared to
1996 is due primarily to more effective inventory management, which resulted in
a significant decrease in the Company's investment in inventory as compared to
1996 ($91.8 million), and decreases in cash used by accounts payable ($51.2
million) and accrued expenses and other liabilities ($28.1 million).
1996 cash flow from operations decreased $225.5 million as compared to 1995
due primarily to: (1) additional working capital requirements as a result of the
Acquisition and the Company's expansion; (2) $7.8 million of severance and
relocation payments made in 1996 in connection with the Acquisition compared to
$6.1 million of severance and relocation payments in 1995; and (3) $14.4 million
of payments made in 1996 in connection with the Integration Charge compared to
$4.4 million in 1995.
Working capital was $589.4 million at January 31, 1998 compared to $491.7
million at February 1, 1997, an increase of $97.7 million. The increase in
working capital is due primarily to: (1) a $31.2 million increase in accounts
receivable, including securitized interest in accounts receivable, attributable
to growth in the Company's wholesale business and lower aggregate advances under
the Receivables Facility; (2) a $41.7 million increase in inventory, which is
attributable primarily to the operation of 134 additional domestic and 264
additional international retail locations since February 1, 1997, partially
offset by a slight decrease of in-store inventories for domestic and
international retail locations for 1997 as compared to 1996; and (3) a $28.8
million decrease in current portion of long-term debt due to refinancing
associated with the issuance of the Notes (discussed below). 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.
Total cash outlays related to the Severance Charge are estimated to be $6.3
million and are expected to be paid during 1998. Cash outlays for the
Restructuring Charge are estimated to be $7.5 million and are expected to be
paid over a three-year period. During 1997, $3.8 million of cash expenses were
paid and charged against the Restructuring Charge liability, including $2.1
million for plant closing costs and $1.7 million for lease and contract
terminations. Total cash outlays for the Integration Charge were
approximately $20.3 million, of which $1.5 million, $14.4 million and $4.4
million were paid during 1997, 1996 and 1995, respectively. In connection with
the Acquisition, the Company assumed and included in the allocation of the
Acquisition cost accruals for involuntary severance and termination benefits of
$8.6 million and relocation costs of $8.2 million. As of January 31, 1997,
substantially all severance and termination benefits and relocation costs were
paid and charged against these liabilities, of which $2.9 million, $7.8 million
and $6.1 million were paid during 1997, 1996 and 1995, respectively.
In July 1997, the Company issued $200.0 million of its 8-3/8% Senior Notes
due August 15, 2005 (the "Senior Notes") and $125.0 million of its 9% Senior
Subordinated Notes due August 15, 2007 (the "Senior Subordinated Notes" and,
together with the Senior Notes, the "Notes"). The Notes are fully and
unconditionally guaranteed on a senior basis with respect to the Senior Notes
and on a senior subordinated basis with respect to the Senior Subordinated Notes
by certain subsidiaries of the Company. The Senior Notes are not redeemable at
the option of the Company prior to maturity. The Senior Subordinated Notes are
redeemable, in whole or in part, at the option of the Company, at any time on or
after August 15, 2002, at declining redemption prices. Prior to August 15,
2000, the Company may redeem up to 30% of the Senior Subordinated Notes with the
net proceeds of one or more public equity offerings at a redemption price of
109%; provided, that at least $87.5 million of Senior Subordinated Notes remain
outstanding after such redemption. The proceeds from the issuance of the Notes
were approximately $316.6 million (net of initial purchasers' discounts and
offering expenses of $8.4 million) and were used to repay the quarterly
amortizing term loan ($312.0 million) and a portion of revolving debt ($4.6
million) outstanding under the Company's previous credit facility.
Under the terms of the Company's amended and restated credit agreement (the
"Credit Agreement"), the Company may borrow up to $600.0 million under a
revolving credit facility which expires in July 2002. Amounts outstanding under
the Credit Agreement bear interest, at the Company's option, at rates based on
Citibank, N.A.'s base rate or the Eurodollar rate, and are secured by
substantially all assets of the Company and its domestic subsidiaries (excluding
receivables transferred to the Trust (defined below) under the Receivables
Facility). The Credit Agreement permits letters of credit outstanding on a
revolving basis not to exceed $150.0 million, and provides for up to $250.0
million in multicurrency borrowings. As of January 31, 1998, $175.0 million of
borrowings and $36.2 million of letters of credit were outstanding on a
revolving basis and $388.8 million was available for future borrowing.
In June 1996, the Company issued the Convertible Notes, which are
convertible into Common Stock at a price of $60.76 per share, subject to
adjustment in certain circumstances. The Convertible Notes are redeemable, in
whole or in part, at the option of the Company, at any time on or after July 16,
1999, at declining redemption prices plus any accrued interest. The Convertible
Notes are subordinated in right of payment to all existing and future senior
indebtedness of the Company. Proceeds from the issuance of the Convertible
Notes were approximately $181.3 million (net of underwriters' discounts of $4.4
million) and were used to repay a portion of the indebtedness outstanding under
the Company's previous credit facility.
Provisions of the Notes, Credit Agreement and Convertible Notes contain
various covenants which, among other things, limit the Company's ability to
incur indebtedness, incur liens, declare or pay dividends or make restricted
payments, consolidate, merge or sell assets.
In December 1995, the Company entered into an agreement to create the five-
year Receivables Facility, under which up to $115.0 million of funding may be
obtained based on the sale, without recourse, of the accounts receivable of the
Company. The principal benefit of the Receivables Facility is a reduction in
the Company's cost of funding related to long-term debt. In December 1997, the
Receivables Facility was reduced to $95.0 million to reduce fees and thereby
minimize operating expenses. As of January 31, 1998 and February 1, 1997, the
Company had sold $159.7 million and $153.9 million, respectively, of outstanding
trade accounts receivable to Nine West Funding Corporation ("Nine West
Funding"), which were, in turn, transferred by Nine West Funding to a trust
formed to purchase the accounts receivable (the "Trust"). As of January 31,
1998 and February 1, 1997, the Company received proceeds of $68.5 million and
$72.2 million, respectively, from the Trust, which were used to repay debt.
On February 17, 1998, the Company authorized a share buy-back program in an
amount not to exceed $20.0 million, which reflects limits currently imposed
under the Company's Credit Agreement. Under the buy-back program, the Company
would purchase from time to time, depending on market conditions, either
outstanding shares of its Common Stock or long-term call options on shares of
its Common Stock. The timing and terms of these transactions, including
maturities of call options, will depend upon market conditions, the Company's
liquidity, covenant requirements under its existing financing arrangements and
other considerations including SEC rules and regulations.
On June 5, 1996, the Company made a net payment of $42.5 million to The
United States Shoe Corporation, in connection with the settlement of the post-
closing balance sheet dispute relating to the Acquisition and the repurchase by
the Company of warrants issued in connection with the Acquisition, which was
financed under the Company's Credit Agreement.
Cash used for investing activities during 1997 includes $26.4 million for
acquisitions, including the acquisition of The Shoe Studio Group Limited and the
acquisition from British Shoe Corporation of a substantial portion of its
footwear and accessories concession business within major department stores in
the United Kingdom, in addition to other acquisition-related investing
activities, which, both individually and in the aggregate, were not material to
the financial statements taken as a whole. Capital expenditures totaled $76.2
million in 1997, $42.8 million in 1996 and $39.9 million in 1995. Capital
expenditures in 1997 consisted primarily of expenditures relating to the
Relocation ($25.9 million), in addition to the Company's retail store expansion
and remodeling programs in both 1997 ($39.1 million) and 1996 ($28.5 million).
Capital expenditures in 1995 related primarily to the Company's store expansion
and remodeling programs and to a lesser extent the construction and equipping of
a 170,000 square foot addition to its New Jersey distribution center. The
Company estimates that its capital expenditures for 1998 will be approximately
$60.0 million, relating primarily to the ongoing expansion of its domestic and
international retail operations (approximately $40.0 million), equipment for its
distribution, manufacturing and management information systems (approximately
$5.0 million) and leasehold improvements, furniture and fixtures, and equipment
associated with the Relocation (approximately $5.0 million). The actual amount
of the Company's capital expenditures depends, in part, on the number of new
stores opened, the number of stores remodeled, the amount of any construction
allowances the Company may receive from the landlords of its new stores and any
unexpected costs incurred in connection with the Relocation and year 2000
compliance (See "-- Year 2000 Compliance"). The opening and success of new
stores will be dependent upon, among other things, general economic and business
conditions affecting consumer spending, the availability of desirable locations
and the negotiation of acceptable lease terms for new locations.
The Company expects that its current cash balances, cash provided by
operations and borrowings under the Credit Agreement 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 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.
The Company does not currently intend to pay cash dividends on its Common
Stock in the immediate future. Subject to compliance with certain financial
covenants set forth in the Notes, Credit Agreement, Convertible Notes and
restrictions contained in any future financing agreements, the payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
Year 2000 Compliance
The Company utilizes software and related technologies that will be
affected by the date change in the Year 2000 issue. The Company is resolving
the Year 2000 issue by modifying or replacing significant portions of its
business application software and certain items of hardware. If such
modifications and conversions are not made in a timely or effective 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 Company is also working with its significant
suppliers and customers to address any impact of their Year 2000 issues on the
Company.
The Company's software and hardware testing, modifications and conversions
are expected to be completed in early 1999, at a total cost of $2.6 million,
which is being funded through existing sources of liquidity.
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.
New Statements of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. The Company has determined
that this statement will not have a material effect on the Company's financial
statement disclosures.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which addresses segment
reporting, including, where applicable, requirements to report selected segment
information quarterly and provide entity-wide disclosures about products and
services, major customers, and the geographic areas in which the entity holds
assets and reports revenues. This statement is effective for fiscal years
beginning after December 15, 1997. Management is currently evaluating the
effects of this change on the Company's financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. This statement
is effective for fiscal years beginning after December 15, 1997. Management is
currently evaluating the effects of this change on the Company's financial
statement disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Management's Responsibility for Financial Statements................... 32
Independent Auditors' Report........................................... 33
Consolidated Statements of Income - Fifty-two weeks ended January 31,
1998 and February 1, 1997 and the fifty-three weeks ended February 3,
1996................................................................... 34
Consolidated Balance Sheets - January 31, 1998 and February 1, 1997.... 35
Consolidated Statements of Cash Flows - Fifty-two weeks ended
January 31, 1998 and February 1, 1997 and the fifty-three weeks ended
February 3, 1996....................................................... 36
Consolidated Statements of Stockholders' Equity - Fifty-two weeks ended
January 31, 1998 and February 1, 1997 and the fifty-three weeks ended
February 3, 1996....................................................... 37
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K).... 38-58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements presented in this report are the
responsibility of the Company's management and have been prepared in conformity
with generally accepted accounting principles. Some of the amounts included in
the consolidated financial information are necessarily based on estimates and
judgments of management.
The Company maintains accounting and related internal control systems
designed to provide, among other things, reasonable assurance that transactions
are executed in accordance with management's authorization and that they are
recorded and reported properly. There are limitations inherent in all systems
of internal control, and the Company weighs the cost of such systems against the
expected benefits.
The consolidated financial statements have been audited by the Company's
independent auditors, Deloitte & Touche LLP. Their primary role is to render an
independent professional opinion on the fairness of the financial statements
taken as a whole. Their audit, which is performed in accordance with generally
accepted auditing standards, includes a study and evaluation of the Company's
accounting systems and internal controls sufficient to express their opinion on
those financial statements.
The Audit Committee of the Board of Directors, which is composed entirely
of directors who are not employees of the Company, meets periodically with
management and the independent auditors to review the results of their work and
to satisfy itself that their responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and meet
with it (with and without management present) to discuss appropriate matters.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Nine West Group Inc.:
We have audited the accompanying consolidated balance sheets of Nine West Group
Inc. and subsidiaries (the "Company") as of January 31, 1998 and February 1,
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the fifty-two weeks ended January 31, 1998 and February 1,
1997 and the fifty-three weeks ended February 3, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at January 31, 1998 and
February 1, 1997, and the results of their operations and their cash flows for
the fifty-two weeks ended January 31, 1998 and February 1, 1997, and the fifty-
three weeks ended February 3, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Stamford, Connecticut
March 17, 1998, except
for the sixth paragraph
of Note 3 dated April 1,
1998 and the third
paragraph of Note 21
dated April 14, 1998
<TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Net revenues....................... $1,865,318 $1,603,115 $1,258,630
Cost of goods sold................. 1,063,581 913,946 720,963
Purchase accounting adjustments
to cost of goods sold............. - - 34,864
---------- ---------- ----------
Gross profit..................... 801,737 689,169 502,803
Selling, general and
administrative expenses........... 609,991 479,284 381,021
Business restructuring and
integration expenses.............. - 18,970 51,900
Amortization of acquisition
goodwill and other intangibles.... 9,648 9,562 6,637
---------- ---------- ----------
Operating income from continuing
operations...................... 182,098 181,353 63,245
Interest expense................... 54,014 41,947 29,611
---------- ---------- ----------
Income from continuing
operations before income taxes.. 128,084 139,406 33,634
Income tax expense................. 49,953 55,762 14,658
---------- ---------- ----------
Income from continuing
operations...................... 78,131 83,644 18,976
Loss on disposal of
discontinued operation (net of
tax benefits of $1,419)........... - (2,636) -
---------- ---------- ----------
Net income....................... $ 78,131 $ 81,008 $ 18,976
========== ========== ==========
Weighted average shares outstanding:
Basic............................ 35,836 35,647 35,011
Diluted.......................... 39,462 38,554 35,707
Basic earnings per share:
Continuing operations............ $ 2.18 $ 2.35 $ 0.54
Loss on disposal of
discontinued operation.......... - (0.08) -
---------- ---------- ----------
Basic earnings per share....... $ 2.18 $ 2.27 $ 0.54
========== ========== ==========
Diluted earnings per share:
Continuing operations............ $ 2.15 $ 2.27 $ 0.53
Loss on disposal of
discontinued operation.......... - (0.06) -
---------- ---------- ----------
Diluted earnings per share..... $ 2.15 $ 2.21 $ 0.53
========== ========== ==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
<TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<S> <C> <C>
January 31 February 1
1998 1997
---- ----
ASSETS
Current Assets:
Cash.............................................. $ 23,674 $ 25,176
Accounts receivable - net......................... 40,715 18,987
Securitized interest in accounts receivable....... 91,208 81,731
Inventories....................................... 543,503 501,830
Prepaid expenses and other current assets......... 100,031 94,282
--------- ---------
Total current assets............................. 799,131 722,006
Property and equipment - net....................... 172,795 138,249
Goodwill - net..................................... 231,130 211,142
Trademarks and trade names - net................... 139,750 143,494
Other assets....................................... 48,733 46,172
---------- ----------
Total assets................................... $1,391,539 $1,261,063
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 100,075 $ 91,059
Accrued expenses and other current liabilities.... 105,444 106,273
Current portion of long-term debt................. 4,235 33,000
---------- ----------
Total current liabilities........................ 209,754 230,332
Long-term debt..................................... 687,263 600,407
Other non-current liabilities...................... 55,674 69,784
---------- ----------
Total liabilities............................... 952,691 900,523
---------- ----------
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; 35,818,831 and 35,792,613
shares issued and outstanding)................... 358 358
Additional paid-in capital........................ 143,278 140,388
Retained earnings................................. 297,918 219,787
Cumulative currency translation adjustment........ (2,706) 7
---------- ----------
Total stockholders' equity...................... 438,848 360,540
---------- ----------
Total liabilities and stockholders' equity..... $1,391,539 $1,261,063
========== ==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
<TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 78,131 $ 81,008 $ 18,976
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization....................... 39,952 32,983 24,409
Provision for losses on accounts receivable......... 6,826 6,797 15,762
Provision for losses on inventory................... (492) 4,536 11,729
Loss on disposal of discontinued operation.......... - 2,636 -
Business restructuring and integration.............. (18,966) (9,247) 43,779
Deferred income taxes and other..................... 11,738 14,055 (22,517)
Changes in assets and liabilities excluding effects
of acquisitions:
Receivables including securitized
interest in accounts receivable.................. (34,621) (29,165) 19,116
Inventory......................................... (15,545) (107,388) (48,283)
Prepaid expenses and other assets................. (11,801) (19,893) (548)
Accounts payable.................................. 2,534 (48,703) 69,946
Accrued expenses and other liabilities............ 12,532 (15,524) 5,256
--------- --------- --------
Net cash provided (used) by operating activities....... 70,288 (87,905) 137,625
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (76,232) (42,806) (39,944)
Proceeds from sale of property and equipment........... - 19,617 -
Business acquisitions - net of cash acquired........... (26,394) (11,580) (581,261)
Acquisition purchase price settlement.................. - 25,000 -
Proceeds from sale of discontinued operation........... - 2,800 -
Other assets........................................... (2,714) 6,046 (176)
--------- --------- --------
Net cash used by investing activities.................. (105,340) (923) (621,381)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under financing agreements... 49,376 128,000 (11,710)
Proceeds from issuance of long-term debt............... 316,648 232,016 559,810
Repayments of long-term debt........................... (332,295) (218,000) (61,000)
Repurchase of warrants................................. - (67,500) -
Net proceeds from issuance of stock and other.......... (179) 18,706 13,182
--------- --------- --------
Net cash provided by financing activities.............. 33,550 93,222 500,282
--------- --------- --------
NET (DECREASE) INCREASE IN CASH........................ (1,502) 4,394 16,526
CASH, BEGINNING OF PERIOD.............................. 25,176 20,782 4,256
--------- --------- --------
CASH, END OF PERIOD.................................... $ 23,674 $ 25,176 $ 20,782
========= ========= ========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
<TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock
------------------- Cumulative
Number of Additional Currency Total
Outstanding Paid-In Retained Translation Stockholders'
Shares Amount Warrants Capital Earnings Adjustment Equity
----------- ------ -------- ---------- -------- ----------- -------------
Balance at January 28, 1995..... 34,716,605 $347 $ 0 $118,418 $119,803 $ 0 $238,568
Net income..................... 18,976 18,976
Shares issued under stock plans,
including tax benefit......... 523,447 5 13,177 13,182
Issuance of warrants to effect
Footwear Group acquisition.... 57,600 57,600
---------- ------ -------- -------- -------- ------- --------
Balance at February 3, 1996..... 35,240,052 352 57,600 131,595 138,779 0 328,326
Net income..................... 81,008 81,008
Adjustment for foreign currency
translation.................... 7 7
Shares issued under stock plans,
including tax benefit......... 552,561 6 18,693 18,699
Repurchase of warrants......... (57,600) (9,900) (67,500)
---------- ------ -------- -------- -------- ------- --------
Balance at February 1, 1997..... 35,792,613 358 0 140,388 219,787 7 360,540
Net income..................... 78,131 78,131
Adjustment for foreign currency
translation.................... (2,713) (2,713)
Shares issued under stock plans,
including tax benefit......... 26,218 - 2,890 2,890
---------- ------ -------- -------- -------- ------- --------
Balance at January 31, 1998..... 35,818,831 $358 $ 0 $143,278 $297,918 $(2,706) $438,848
========== ==== ======== ======== ======== ======= ========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Nine West
Group Inc. (the "Company"), its wholly-owned subsidiaries and its controlled-
interest joint ventures. All intercompany transactions and balances have been
eliminated from the consolidated financial statements for all periods presented.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years 1997 and 1996 consisted of the 52-week periods which ended on
January 31, 1998 and February 1, 1997, respectively. Fiscal 1995 consisted of
the 53-week period which ended on February 3, 1996. References to years in this
annual report relate to fiscal years rather than calendar years.
On May 23, 1995, the Company consummated its acquisition (the
"Acquisition") of the footwear business of The United States Shoe Corporation
(the "Footwear Group"). Financial information for 1997 and 1996 is not
comparable to 1995, as Footwear Group results are included in the entire 1997
and 1996 periods and are included in 1995 for the 37-week period from May 23,
1995 through February 3, 1996.
The Company designs, develops, manufactures and markets women's footwear
and accessories. The Company operates in the footwear and accessories industry,
marketing its products through wholesale and retail channels in the United
States as well as other countries. The Company markets footwear under the Nine
West, Amalfi, Bandolino, Luca B. for Calico, cK/Calvin Klein Shoes and Bags
(under license), Easy Spirit, Enzo Angiolini, Evan Picone (under license), 9 &
Co., Pappagallo, Pied a Terre, Selby, Westies and The Shoe Studio Group Limited
brands, and under private labels. The Company markets women's accessories under
the Nine West, Easy Spirit, Enzo Angiolini and cK/Calvin Klein Shoes and Bags
(under license) labels. The majority of the Company's footwear products are
manufactured in Brazil. The Company's footwear products are also manufactured
in China, Italy, Spain and other countries at independent factories not owned by
the Company. The Company also manufactures footwear products at three domestic
shoe factories and one domestic component factory owned by the Company and three
foreign component factories which are leased and operated by the Company. The
Company has entered into a long-term contract with its buying agent to oversee
its third-party sourcing activities in Brazil. The Company does not have any
contracts with its independent manufacturers, but relies on its long-standing
relationship with the Brazilian factories and its buying agent, in addition to
its own factories, to provide an uninterrupted source of inventory.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable - Net
The Company provides credit to and performs ongoing credit evaluations of
its wholesale customers, many of which are major retailers. The Company had a
significant customer which accounted for approximately 12%, 13%, and 9% of net
revenues in 1997, 1996 and 1995, respectively. The Company believes that its
broad customer base will reduce the impact that any financial difficulties of
such retailers or loss of the customer might have on the Company's operating
results. The Company maintains an allowance for potential credit losses on
accounts receivable. The allowance for doubtful accounts and other allowances
was $51.0 million and $47.3 million at January 31, 1998 and February 1, 1997,
respectively, and is recorded under the balance sheet caption "Accounts
receivable - net."
Inventories
Inventories are valued at the lower of cost or market. Approximately 60%
and 62% of inventories were determined by using the FIFO (first in, first out)
method of valuation as of January 31, 1998 and February 1, 1997, respectively;
the remainder is determined by the weighted average cost method. The Company
makes provisions for obsolete or slow moving inventories as necessary to
properly reflect inventory value.
Property and Equipment - Net
Property and equipment are stated at cost and are depreciated on the
straight-line method over their estimated useful lives which range from 2 to 30
years. Investments in property under lease are depreciated over the shorter of
their useful lives or their related lease terms.
Goodwill - Net and Trademarks and Trade Names - Net
Goodwill is the excess of purchase price over the fair value of net assets
acquired in business combinations accounted for under the purchase method of
accounting. Substantially all intangible assets are amortized on a straight-
line basis over 40 years. Goodwill is presented in the consolidated balance
sheet net of accumulated amortization of $16.1 million and $10.1 million as of
January 31, 1998 and February 1, 1997, respectively. Trademarks and trade names
are presented in the consolidated balance sheet net of accumulated amortization
of $10.0 million and $6.3 million as of January 31, 1998 and February 1, 1997,
respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment losses are recognized in operating results in the event that the
undiscounted expected future cash flows to be generated by the related asset are
less than the carrying value of the asset.
Foreign Currency Translation
Foreign currency financial statements of the Company's international
subsidiaries are translated into U.S. dollars using period-end rates of exchange
for assets and liabilities and monthly average rates of exchange for revenues
and expenses. The resulting translation adjustments are recorded as a separate
component of stockholders' equity.
Net Revenues
Wholesale revenues, including commissions received in conjunction with
private label footwear, are recognized upon shipment of products to customers.
Allowances for estimated discounts and returns are recognized when sales are
recorded. Retail revenues are recognized when the payment is received from
customers. Revenues are recorded net of returns and exclude sales tax.
Licensing revenue is recognized on the basis of net sales by the licensee.
Advertising Expense
The Company records national advertising campaign costs as an expense when
the advertising takes place and cooperative advertising costs as incurred.
Advertising expense was $57.7 million, $45.2 million and $33.1 million in 1997,
1996 and 1995, respectively.
Income Taxes
Income taxes are based upon income for financial reporting purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Earnings Per Share
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," effective for 1997. SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. All previously disclosed earnings per share data
have been recalculated to reflect the provisions of SFAS No. 128.
Stock-Based Compensation
Stock-based compensation cost is accounted for under SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits continued application
of the intrinsic value method of Accounting Principles Board ("APB") Opinion No.
25. Under the intrinsic value method, compensation cost represents the excess,
if any, of the quoted market price of the Company's common stock (the "Common
Stock") at the grant date over the amount the grantee must pay for the stock.
The Company's policy is to grant stock options at fair market value at the date
of grant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
New Statements of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. This statement is effective
for fiscal years beginning after December 15, 1997. The Company has determined
that this statement will not have a material effect on the Company's financial
statement disclosures.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which addresses segment
reporting, including, where applicable, requirements to report selected segment
information quarterly and provide entity-wide disclosures about products and
services, major customers, and the geographic areas in which the entity holds
assets and reports revenues. This statement is effective for fiscal years
beginning after December 15, 1997. Management is currently evaluating the
effects of this change on the Company's financial statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits." This Statement revises
employer's disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. This statement
is effective for fiscal years beginning after December 15, 1997. Management is
currently evaluating the effects of this change on the Company's financial
statement disclosures.
Reclassifications
Reclassifications have been made to certain prior year amounts to conform
to the current year presentation.
3. ACQUISITIONS
On May 23, 1995, the Company consummated the Acquisition for a total
purchase price of $560.0 million in cash, plus warrants (the "Warrants"),
exercisable for a period of eight and one-half years from the date of issuance,
to purchase 3.7 million shares of Common Stock at an exercise price of $35.50
per share. The Acquisition was accounted for under the purchase method of
accounting.
The following unaudited pro forma condensed combined summary of operations
(the "Pro Forma Summary") gives effect to the Acquisition as if such transaction
had occurred at the beginning of the period presented. The Pro Forma Summary
has been prepared utilizing the historical financial statements of the Footwear
Group. Pro forma adjustments include the amortization of goodwill, trademarks
and trade names, additional interest expense in connection with debt incurred to
finance the Acquisition, and the elimination of: operating results with respect
to discontinued brands and assets held for sale, expenses associated with
contracts not acquired, and transactions between the Footwear Group and its
former parent company. The Pro Forma Summary excludes a $34.9 million pre-tax
non-recurring increase in cost of goods sold attributable to the fair value of
inventory over the FIFO cost as required by the purchase method of accounting.
1995
----------
(in thousands, except per share amounts)
Net revenues............................. $1,435,679
Net income............................... 15,115
Basic earnings per share................. 0.43
Diluted earnings per share............... $ 0.42
The foregoing Pro Forma Summary should not be considered indicative of
actual results that would have occurred had the Acquisition been consummated on
the date or for the period indicated, and does not purport to be indicative of
results of operations as of any future date or for any future period.
On June 5, 1996, the Company and The United States Shoe Corporation ("U.S.
Shoe") consummated a settlement (the "Settlement") of a post-closing balance
sheet dispute relating to the Acquisition. Pursuant to the Settlement, U.S.
Shoe paid the Company $25.0 million, which was recorded as a reduction of
goodwill. In addition, the Company repurchased the Warrants for $67.5 million.
The net payment by the Company to U.S. Shoe of $42.5 million was financed with
borrowings under the Company's revolving credit facility.
In connection with the Acquisition, the Company assumed and included in the
allocation of the Acquisition cost accruals for involuntary severance and
termination benefits of $8.6 million and relocation costs of $8.2 million.
These severance and relocation costs were incurred as a result of the Company's
integration plan announced during 1995. The integration plan related to the
elimination of 295 administrative positions that became duplicative through the
combination of operations and process efficiencies realized and relocation of
certain Footwear Group functional and operational employees. As of January 31,
1998, all of the position eliminations were completed, and substantially all
severance and termination benefits and relocation costs were paid and charged
against these liabilities, of which $2.9 million, $7.8 million and $6.1 million
were paid during 1997, 1996 and 1995, respectively.
Included in the assets acquired in the Acquisition were certain office and
warehouse facilities located in Cincinnati, Ohio (the "Cincinnati Facilities")
and the Texas Boot division ("Texas Boot"). Upon acquisition, the Company
determined that the Cincinnati Facilities and Texas Boot did not meet its long-
term strategic objectives and decided to sell them. The Company consummated the
sale of Texas Boot on January 24, 1997. See Note 5, "Loss on Disposal of
Discontinued Operation." The net assets related to the Cincinnati Facilities
are accounted for as an asset held for sale and are recorded in the balance
sheet within the caption "Prepaid expenses and other current assets" at their
estimated net proceeds, which was approximately $13.6 million at January 31,
1998 and February 1, 1997. On April 1, 1998, the Company consummated the sale
of the Cincinnati Facilities and leaseback of the distribution center portion
thereof, and received cash proceeds of $16.4 million. The lease has been
classified as an operating lease. The gain on the sale will be deferred and
credited to income as a rent expense adjustment over the five-year term of the
lease. Payments under the lease will approximate $0.7 million annually.
During the past three years, the Company has also completed several smaller
acquisitions, each of which has been accounted for in accordance with the
purchase method of accounting. The consolidated financial statements include
the operating results of each business acquired from its date of acquisition.
Pro forma results of operations have not been presented as the effects of these
acquisitions, both individually and in the aggregate, were not material to the
financial statements taken as a whole.
4. BUSINESS RESTRUCTURING AND INTEGRATION EXPENSES
In the fourth quarter of 1996, the Company recorded a charge of $21.3
million, offset by the reversal of an excess of the Integration Charge (defined
below) of $2.3 million, resulting in a net pre-tax charge to earnings of $19.0
million (the "Restructuring Charge"). The Restructuring Charge related to 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)
accruals for lease and other contract terminations of $4.9 million; and (3)
plant closing costs of $2.6 million.
During 1997, the Company substantially completed the domestic manufacturing
facility closures and reconfigurations, the Relocation and the 9 & Co. store
closures resulting in charges recorded against the Restructuring Charge accrual
of $13.8 million in asset write-downs, $1.7 million in lease and contract
termination costs and $2.1 million in plant closing costs. The balance of the
Restructuring Charge accrual of $3.7 million consists of $3.2 million related to
lease and contract termination costs and $0.5 million for plant closing costs.
The Restructuring Charge accrual balance is recorded in the balance sheet within
the caption "Accrued expenses and other current liabilities." Cash outlays
related to the Restructuring Charge are estimated to be $7.5 million and are to
be paid over a three-year period. As of and during the 52 weeks ended January
31, 1998, $3.8 million of cash expenses were paid and charged against the
Restructuring Charge liability.
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. See Note 16, "Employee Benefit Plans." As of and
during the 52 weeks ended January 31, 1998, the Company had terminated
substantially all of the affected employees, and approximately $5.1 million of
severance and termination benefit payments were paid and charged against the
severance plan liability.
During the fourth quarter of 1995, the Company incurred and accrued
expenses for restructuring and integration costs of $51.9 million associated
with the Acquisition (the "Integration Charge"). The Integration Charge
reflected the restructuring of international sourcing operations and
consolidation of certain manufacturing and sourcing facilities, the
consolidation and integration of various corporate and business unit operations
and support functions and restructuring of the Company's retail operations,
which included the elimination of duplicate product lines, the closing of
approximately 40 of the Company's underperforming Banister retail stores, the
conversion of a number of stores to other nameplates or formats, and the
termination of the Company's agreement with Burlington Coat Factory for its
operation of 84 shoe departments during 1996. As of January 31, 1998,
substantially all of the Integration Charge terminations and activities had been
completed. The Integration Charge also included period costs of approximately
$3.2 million in 1995, which were expensed as incurred and which consisted of
integration-related outside consulting fees paid in connection with the
implementation of major process improvements.
The following table summarizes the major components and activity of the
Integration Charge through 1997 (in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Other
Lease and Integration
Severance and Asset Contract Inventory and
Termination Write- Termination Valuation Consolidation
Benefits Downs Costs Adjustments Costs Total
-------- ------ ----- ----------- ----- -----
1995 provision........... $7,650 $14,620 $7,046 $10,423 $12,161 $51,900
1995 activity............ (836) (14,620) (235) - (4,253) (19,944)
------ ------- ------ ------- ------- -------
February 3, 1996 balance. 6,814 0 6,811 10,423 7,908 31,956
1996 activity............ (5,388) - (4,866) (10,423) (7,540) (28,217)
Reversal of excess
Integration Charge...... (335) - (1,795) - (133) (2,263)
------ ------- ------ ------- ------- -------
February 1, 1997 balance. 1,091 0 150 0 235 1,476
1997 activity............ (1,091) - (150) - (235) (1,476)
------ ------- ------ ------- ------- -------
January 31, 1998 balance. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
====== ======= ====== ======= ======= =======
</TABLE>
Integration Charge severance and termination benefits related to
approximately 475 employees, of which 420 were store managers and associates, 50
were engaged in manufacturing positions, principally related to the liquidation
of the Company's Far East office as a result of entering into a new agency
arrangement, and five were management employees. As of January 31, 1998, all of
the Integration Charge terminations and activities were substantially completed.
Total cash outlays relating to the Integration Charge were approximately $20.3
million, of which $1.5 million, $14.4 million and $4.4 million were paid during
1997, 1996 and 1995, respectively.
5. LOSS ON DISPOSAL OF DISCONTINUED OPERATION
Upon acquisition, the Company determined that Texas Boot did not meet its
long-term strategic objectives and decided to sell the business. Accordingly,
the net assets of Texas Boot were accounted for as an asset held for sale. The
results of operations related to these assets held for sale, subsequent to July
29, 1995, and interest expense on the allocated debt, which aggregate
approximately $4.7 million of losses and $4.8 million of income, have been
excluded from the 1996 and 1995 consolidated statements of income, respectively.
See Note 3 "Acquisitions." During the second quarter of 1996, the holding
period under Emerging Issues Task Force Issue Number 87-11 had expired, and the
Company accounted for the expected loss from the disposal of net assets and
anticipated operating losses from the measurement date through the estimated
date of disposal as a discontinued operation, resulting in a charge of $2.6
million, net of income tax benefits of $1.4 million. The sale of Texas Boot was
consummated on January 24, 1997. The Company received $2.8 million in cash and
notes and other financial instruments in the total amount of $5.2 million in
connection with this disposition.
6. EARNINGS PER SHARE
Following is a reconciliation of the earnings and shares used in the basic
and diluted per share computations for income from continuing operations (in
thousands):
1997 1996 1995
---- ---- ----
Earnings:
Income from continuing operations (numerator
for basic calculation)...................... $78,131 $83,644 $18,976
Effect of convertible notes.................. 6,707 4,063 -
------- ------- -------
Numerator for diluted calculation............ $84,838 $87,707 $18,976
======= ======= =======
Shares:
Weighted average common shares outstanding
(denominator for basic calculation)......... 35,836 35,647 35,011
Effect of stock options...................... 570 1,052 696
Effect of convertible notes.................. 3,056 1,855 -
------- ------- -------
Denominator for diluted calculation.......... 39,462 38,554 35,707
======= ======= =======
Earnings per share - continuing operations
Basic ..................................... $ 2.18 $ 2.35 $ 0.54
======= ======= =======
Diluted ................................... $ 2.15 $ 2.27 $ 0.53
======= ======= =======
For 1997 and 1995, certain outstanding stock options were not included in
the computation of diluted earnings per share of Common Stock, because the
respective exercise prices were greater than the average market price of the
Common Stock. In 1997 and 1995, the number of stock options not included in the
diluted computation was 1.3 million and 0.1 million, respectively. These
options were outstanding at the end of each of the respective years.
7. INVENTORIES
Inventories consist of (in thousands):
January 31 February 1
1998 1997
---- ----
Raw materials................................ $ 19,672 $ 26,446
Work in process.............................. 1,987 3,543
Finished goods............................... 521,844 471,841
-------- --------
Total inventories....................... $543,503 $501,830
======== ========
8. PROPERTY AND EQUIPMENT - NET
Property and equipment consists of (in thousands):
January 31 February 1
1998 1997
---- ----
Land......................................... $ 525 $ 525
Buildings and improvements................... 9,438 9,223
Machinery, equipment and fixtures............ 130,351 114,941
Leasehold improvements....................... 109,935 74,928
Construction in progress..................... 8,826 4,557
-------- --------
259,075 204,174
Accumulated depreciation and amortization.... 86,280 65,925
-------- --------
Property and equipment - net............ $172,795 $138,249
======== ========
9. SALE/LEASEBACK TRANSACTION
In May 1996, the Company consummated the sale (for $20.3 million) and
leaseback of its distribution facility located in West Deptford, New Jersey.
The lease has been classified as an operating lease. The cost and accumulated
depreciation associated with this facility of approximately $16.4 million and
$2.0 million, respectively, have been removed from the property and equipment
accounts. The approximately $5.3 million (net of transaction costs) net gain
realized on the sale has been deferred and is being credited to income as a rent
expense adjustment over the 20-year initial term of the lease. Payments under
the lease approximate $2.0 million annually.
10. FINANCIAL INSTRUMENTS
The Company, as a result of its global operating and financing activities,
is exposed to changes in interest rates and foreign currency exchange rates
which may adversely affect results of operations and financial condition. In
seeking to minimize the risks and/or costs associated with such activities, the
Company manages exposure to changes in interest rates and foreign currency
exchange rates through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
instruments eligible for utilization include forward, option and swap
agreements. The Company does not use financial instruments for trading or other
speculative purposes.
At January 31, 1998, the Company had outstanding an interest rate swap and
collars with an aggregate notional principal amount of $300.0 million to
effectively fix a portion of its interest rate exposure on its floating rate
debt. The Company's 1997 weighted average interest rate on long term debt of
6.9% was not significantly impacted by these financial instruments. In 1996,
the Company's outstanding interest rate swap and collars increased the weighted
average interest rate on long term debt from 6.4% to 6.5%. Differentials which
occur due to changes in interest rates are recognized in interest expense during
the period to which the payment/receipt relates. The fair value of these
instruments was an unfavorable $1.2 million, based on a commonly accepted
pricing methodology using market prices as of January 31, 1998. The Company's
interest rate swap and collars have expiration dates ranging from June 1998 to
December 2000.
The following table summarizes, by major currency, the outstanding
contractual amounts of the Company's forward exchange contracts in U.S. dollars
(in thousands). The forward exchange contracts outstanding as of January 31,
1998 mature on various dates through September 1998.
January 31, 1998 February 1, 1997
---------------- ----------------
BUY SELL BUY SELL
------- ------- ------- -------
Spanish Peseta.............. $25,665 $ - $34,628 $ -
Italian Lire................ 19,518 - 42,167 -
U.K. Pound Sterling......... - 24,768 - -
------- ------- ------- -------
Total..................... $45,183 $24,768 $76,795 $ 0
======= ======= ======= =======
Gains and losses arising from foreign currency exchange contracts are
recorded when the related hedged transaction occurs. The fair value of foreign
currency exchange contracts as of January 31, 1998 was an unfavorable $0.4
million, based upon third party dealer valuations as an estimate of the amount
the Company would have to pay upon termination of the specific contracts.
Financial instruments expose the Company to counterparty credit risk for
nonperformance and to market risk for changes in interest and currency rates.
The Company manages exposure to counterparty credit risk through specific
minimum credit standards, diversification of counterparties and procedures to
monitor the amount of credit exposure. The Company's financial instrument
counterparties are substantial investment or commercial banks with significant
experience with such instruments. The Company also has procedures to monitor
the impact of market risk on the fair value and costs of its financial
instruments considering reasonably possible changes in interest and currency
rates.
11. ACCOUNTS RECEIVABLE SECURITIZATION
In December 1995, the Company entered into an agreement to create a five-
year revolving accounts receivable securitization facility (the "Receivables
Facility"), under which up to $115.0 million of funding may be obtained based
upon the sale, without recourse, of the accounts receivable of the Company. The
principal benefit of the Receivables Facility is a reduction in the Company's
cost of funding related to long-term debt. In December 1997, the Receivables
Facility was reduced to $95.0 million to reduce fees and thereby minimize
operating expense.
As of January 31, 1998 and February 1, 1997, the Company had sold $159.7
million and $153.9 million, respectively, of outstanding trade accounts
receivable to Nine West Funding Corporation ("Nine West Funding"), which were,
in turn, transferred by Nine West Funding to a trust formed to purchase the
accounts receivable (the "Trust"). As of January 31, 1998 and February 1, 1997,
the Company received proceeds of $68.5 million and $72.2 million, respectively,
from the Trust, which were used to repay debt. Nine West Funding maintained a
subordinated interest in the remaining assets of the Trust of $91.2 million and
$81.7 million, which are recorded under the caption "Securitized interest in
accounts receivable" on the Company's balance sheet as of January 31, 1998 and
February 1, 1997, respectively. The effective interest rate incurred by the
Company on amounts transferred by Nine West Funding to the Trust under the
Receivables Facility was 6.4% as of January 31, 1998.
12. INCOME TAXES
The components of income from continuing operations before income taxes are
as follows (in thousands):
1997 1996 1995
---- ---- ----
Domestic operations................ $113,646 $132,063 $27,236
Foreign operations................. 14,438 7,343 6,398
-------- -------- -------
Total......................... $128,084 $139,406 $33,634
======== ======== =======
Income tax expense (benefit) consists of the following (in thousands):
1997 1996 1995
---- ---- ----
Current provision:
Federal............................ $32,419 $36,122 $31,663
State and local.................... 4,652 5,305 6,848
Foreign............................ 3,473 541 156
------- ------- -------
Total......................... 40,544 41,968 38,667
------- ------- -------
Deferred provision:
Federal............................ 9,327 10,579 (19,937)
State and local.................... 2,099 3,364 (4,348)
Foreign............................ (2,017) (149) 276
------- ------- -------
Total......................... 9,409 13,794 (24,009)
------- ------- -------
Total provision $49,953 $55,762 $14,658
======= ======= =======
The differences between income tax expense shown in the consolidated
statements of income and the computed income tax expense based on the federal
statutory corporate tax rate are (in thousands):
1997 1996 1995
---- ---- ----
Computed income taxes based on federal
statutory corporate tax rate of 35%.... $44,829 $48,792 $11,772
State and local income taxes, net of
federal benefit........................ 4,388 5,635 1,542
Earnings in jurisdictions taxed at rates
different from U.S. statutory rate..... (3,597) (2,206) (1,807)
Foreign dividends....................... 3,720 2,288 1,666
Other................................... 613 1,253 1,485
------- ------- -------
Total income tax expense.............. $49,953 $55,762 $14,658
======= ======= =======
Appropriate U.S. and foreign taxes have been provided for earnings of
subsidiary companies that are expected to be remitted to Nine West Group Inc.
The cumulative amount of unremitted earnings from foreign subsidiaries that are
expected to be indefinitely reinvested was $5.4 million on January 31, 1998.
The taxes that would be paid upon the remittance of these indefinitely
reinvested earnings are $0.2 million based on current tax laws.
The tax effects of significant items comprising the Company's net deferred
tax asset are (in thousands):
January 31 February 1
1998 1997
Deferred tax assets: ---- ----
Inventory allowances and capitalization.......... $ 6,158 $ 8,737
Provision for losses on accounts receivable...... 15,587 12,822
Business restructuring and integration expenses.. 5,823 10,623
Deferred rent.................................... 4,716 3,734
Employee benefit plans........................... 10,201 14,610
Fixed assets..................................... 5,636 7,238
Net operating loss carry forwards................ 1,162 -
Other accruals not currently deductible.......... 9,116 6,362
------- -------
Gross deferred tax assets...................... 58,399 64,126
------- -------
Deferred tax liabilities:
Intangible assets................................ 12,325 7,628
------- -------
Net deferred tax asset......................... $46,074 $56,498
======= =======
Included in:
Prepaid expenses and other current assets........ $32,184 $38,236
Other assets..................................... 13,890 18,262
------- -------
Net deferred tax asset......................... $46,074 $56,498
======= =======
For tax purposes, the Company had available at January 31, 1998 foreign net
operating loss carry forwards of $3.6 million. Of this amount, $1.5 million
will expire in the year 2003, and $2.1 million will be available indefinitely.
13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of (in thousands):
January 31 February 1
1998 1997
---- ----
Salaries, compensation and benefits.............. $ 26,733 $ 29,430
Interest payable................................. 17,741 2,541
Restructuring charges............................ 3,743 22,709
Other accrued expenses and other current
liabilities..................................... 57,227 51,593
-------- --------
Accrued expenses and other current liabilities... $105,444 $106,273
======== ========
14. LONG-TERM DEBT
Long-term debt includes (in thousands):
January 31 February 1
1998 1997
---- ----
Senior notes....................................... $195,223 $ -
Senior subordinated notes.......................... 122,014 -
Quarterly amortizing term loan..................... - 322,000
Revolving credit facility.......................... 175,000 130,000
Convertible notes.................................. 182,031 181,407
Other debt obligations............................. 17,230 -
-------- --------
691,498 633,407
Less portion payable within one year............... 4,235 33,000
-------- --------
Total long-term debt... $687,263 $600,407
======== ========
In July 1997, the Company issued $200.0 million of its 8-3/8% Senior Notes
due August 15, 2005 (the "Senior Notes") and $125.0 million of its 9% Senior
Subordinated Notes due August 15, 2007 (the "Senior Subordinated Notes" and,
together with the Senior Notes, the "Notes"). The Notes are fully and
unconditionally guaranteed on a senior basis with respect to the Senior Notes
and on a senior subordinated basis with respect to the Senior Subordinated Notes
by certain subsidiaries of the Company. The Senior Notes are not redeemable at
the option of the Company prior to maturity. The Senior Subordinated Notes are
redeemable, in whole or in part, at the option of the Company, at any time on or
after August 15, 2002, at declining redemption prices. Prior to August 15,
2000, the Company may redeem up to 30% of the Senior Subordinated Notes with the
net proceeds of one or more public equity offerings at a redemption price of
109%, provided that at least $87.5 million of Senior Subordinated Notes remain
outstanding after such redemption. The Notes constitute unsecured obligations
of the Company. The Notes are fully and unconditionally guaranteed on a senior
basis with respect to the Senior Notes and on a senior subordinated basis with
respect to the Senior Subordinated Notes by four of the Company's domestic
subsidiaries.
In connection with the issuance of the Notes, on August 1, 1997, the
Company amended and restated its credit agreement to permit the Company to
borrow up to $600.0 million under a revolving credit facility which expires in
July 2002. Under the terms of the amended and restated credit agreement (the
"Credit Agreement"), letters of credit outstanding on a revolving basis may not
exceed $150.0 million. Amounts outstanding under the Credit Agreement bear
interest, at the Company's option, at rates based on Citibank, N.A.'s base rate
or the Eurodollar rate, and are secured by substantially all assets of the
Company and its domestic subsidiaries (excluding receivables transferred to the
Trust under the Receivables Facility). Borrowings under the Credit Agreement
will become unsecured once the Company reaches an "investment grade" rating on
its long-term senior unsecured indebtedness. As of January 31, 1998, $175.0
million of borrowings and $36.2 million of letters of credit were outstanding on
a revolving basis and $388.8 million was available for future borrowing.
In June 1996, the Company issued $185.7 million of its 5-1/2% Convertible
Subordinated Notes due July 15, 2003 (the "Convertible Notes") which are
convertible into Common Stock at a price of $60.76 per share, subject to
adjustment in certain circumstances. The Convertible Notes are redeemable, in
whole or in part, at the option of the Company, at any time on or after July 16,
1999, at declining redemption prices plus any accrued interest. The Convertible
Notes are subordinated in right of payment to all existing and future senior
indebtedness of the Company.
Provisions of the Notes, Credit Agreement and Convertible Notes contain
various covenants which, among other things, limit the Company's ability to
incur indebtedness, incur liens, declare or pay dividends or make restricted
payments, consolidate, merge or sell assets.
The annual maturities of long-term debt are approximately $4.2 million,
$3.4 million, $5.2 million, $0.0 million, and $179.4 million for 1998 through
2002, respectively. The carrying value of the Company's long-term debt
approximates its fair value, which was estimated based upon the current rates
offered to the Company for debt with similar terms and remaining maturities.
15. LEASE COMMITMENTS
The Company leases office, distribution center, factory and retail
locations, and equipment under operating leases expiring at various dates
through 2022 with renewal options for additional periods. Most retail store
leases require both contingent payments based on sales volume and contain
escalation clauses for increases in operating costs and real estate taxes.
Rent expense for operating leases was $120.7 million, $80.7 million and
$59.9 million for 1997, 1996 and 1995, respectively. Included in rent expense
are minimum rent payments of $114.5 million, $74.3 million and $53.3 million for
1997, 1996 and 1995, respectively.
Future minimum operating lease payments under noncancelable leases with
initial or remaining terms of one year or more at January 31, 1998 consist of
(in thousands):
Fiscal Minimum
Year Payments
---- --------
1998...................... $ 90,804
1999...................... 84,437
2000...................... 77,584
2001...................... 71,757
2002...................... 66,775
2003 and thereafter....... 322,760
--------
Total minimum lease payments $714,117
========
16. EMPLOYEE BENEFIT PLANS
Defined Benefit Plans - As of December 31, 1996, the Company amended its
retirement plans to freeze benefits thereunder, and merged three defined benefit
pension plans acquired in connection with the Acquisition into its previously
existing plan (the "Plan"). As of January 1, 1997, the Plan was further amended
to take the form of a cash balance plan (the Plan and amendments thereto are
referred to herein as the "Cash Balance Plan"). The Cash Balance Plan expresses
the retirement benefit as an account balance which increases each year through a
combination of interest and credits to the account based on a percentage of
compensation. The Company's funding policy is to make the minimum annual
contributions required by applicable regulations. The assets of the Cash
Balance Plan have been invested primarily in common stock and government bonds.
Net pension cost related to the Cash Balance Plan includes the following
components (in thousands):
1997 1996 1995
---- ---- ----
Service cost................................. $ 4,063 $ 3,280 $2,590
Interest cost on projected benefit
obligation.................................. 3,147 4,055 2,918
Actual return on plan assets................. (10,724) (5,417) (7,058)
Amortization of transition assets............ (19) (19) (19)
Other net amortization and deferral.......... 4,528 (212) 3,512
------- ------- ------
Pension cost................................ $ 995 $ 1,687 $1,943
======= ======= ======
The assumptions used to develop accrued pension cost at the end of the
year, as well as pension cost in the following year, are:
January 31 February 1 February 3
1998 1997 1996
---- ---- ----
Discount rate................................ 7.0% 7.5% 7.25%
Rate of increase in compensation levels...... 4.5 4.5 4.5
Expected long-term rate of return on assets.. 9.0 9.0 9.0
The Defined Benefit Plans' funded status and the related accrued pension
costs are (in thousands):
January 31 February 1
1998 1997
---- ----
Accumulated benefit obligations:
Vested.................................. $(42,836) $(42,058)
Nonvested............................... (1,521) (2,074)
-------- --------
Accumulated plan benefits............. $(44,357) $(44,132)
======== ========
Projected benefit obligation.............. $(44,657) $(44,132)
Less: plan assets at fair value
(principally marketable securities)..... 61,483 58,435
-------- --------
Plan assets in excess of projected benefit
obligation............................. 16,826 14,303
Unrecognized net gain..................... (8,005) (3,335)
Unrecognized prior service cost........... (13,392) (14,525)
Unrecognized net transition asset......... (178) (197)
-------- --------
Accrued pension cost.................. $ (4,749) $ (3,754)
======== ========
The Company provides a Supplemental Executive Retirement Plan ("SERP") in
which certain key employees and officers are eligible to participate. In
connection with the Acquisition, the Company acquired an additional SERP in
which certain Footwear Group employees participate. The SERPs provide
supplemental pension benefits that are not available under the defined benefit
pension plan. Benefits paid under the SERPs are based on length of service and
final compensation, without regard to the limitations of the Internal Revenue
Code (the "Code"), and are reduced by the full amount of benefits payable under
the Cash Balance Plan. The SERPs are unfunded, and benefits thereunder are paid
from the general assets of the Company. Effective December 31, 1995, the SERPs
were amended to freeze the total benefit payable to participants. As
participants accrue future benefits in the qualified pension plan, the benefits
payable under the SERPs decrease. The net periodic cost for the SERPs was
$369,000, $338,000 and $1.2 million during 1997, 1996 and 1995, respectively.
The Company's SERP liability as of January 31, 1998 and February 1, 1997 was
$5.3 million and $5.2 million, respectively.
Defined Contribution Plans - As of January 1, 1997, the 401(k) savings plan
acquired by the Company in connection with the Acquisition was merged into the
Company's preexisting 401(k) savings plan (the "Savings Plan"). Additionally, a
non-qualified compensation plan, the Supplemental Savings Plan (the
"Supplemental Plan" and, together with the Savings Plan, the "Savings Plans"),
was established for employees designated by the Company's retirement committee
(the "Retirement Committee"). The Savings Plan allows each participant to
contribute up to 15.0% (limited to 6.0% for highly compensated employees) of his
or her salary for the year. The Company makes matching contributions to the
Savings Plan equal to 50.0% of the participant's contribution up to 6.0% of his
or her salary. The Supplemental Plan allows each participant to contribute up
to 15.0% of his or her salary for the year. The Company makes matching
contributions to the Supplemental Plan equal to 50.0% of the participant's
contribution up to 6.0% of his or her salary, limited to a maximum of $4,750 in
1997. At the end of the plan year, discrimination testing will determine the
amount of Supplemental Plan contributions, not to exceed 6.0%, that will be
transferred into the Savings Plan. The cost of the Savings Plans to the Company
was $2.0 million, $2.2 million and $1.5 million for 1997, 1996 and 1995,
respectively.
The Company also maintains a non-qualified deferred compensation plan (the
"Executive Deferred Compensation Plan"). The purpose of the Executive Deferred
Compensation Plan is to provide to certain eligible employees of the Company the
opportunity to: (1) defer elements of their compensation (including any
investment income thereon) which might not otherwise be deferrable under the
Savings Plans; and (2) receive the benefit of additions to their deferral
comparable to those obtainable under the Savings Plans in the absence of certain
restrictions and limitations in the Code. The Executive Deferred Compensation
Plan is unfunded; benefits are paid from the general assets of the Company. The
Company's liability under the Executive Deferred Compensation Plan as of January
31, 1998 and February 1, 1997 was $9.5 million and $4.9 million, respectively.
Health Benefit Plans - In connection with the Acquisition, the Company
acquired postretirement benefit plans that partially subsidize healthcare costs
and provide life insurance for certain eligible retirees of the Footwear Group.
Net periodic cost of these benefits includes the following components (in
thousands):
1997 1996 1995
---- ---- ----
Service cost...................... $ 20 $ 41 $ 56
Interest cost..................... 250 389 536
Amortization of (gain) loss....... (606) (447) -
----- ---- ----
Net periodic (benefit) cost....... $(336) $(17) $592
===== ==== ====
The postretirement medical plan was amended on August 1, 1996 to eliminate
coverage for those active employees who were under age 50 as of December 31,
1996. This amendment resulted in a curtailment gain of $461,000 for 1996. The
liability associated with the postretirement medical plan has been significantly
reduced as the share of the premiums paid by participants has increased.
Currently, medical benefits for post-age 65 retirees is maintained by the
Company, but the full cost of these benefits is paid by the retiree. The
accumulated postretirement benefit obligation is as follows (in thousands):
January 31 February 1
1998 1997
---- ----
Retirees.......................... $ 1,471 $ 4,273
Fully eligible active employees... 545 242
Other active employees............ 310 297
------- -------
Accumulated postretirement benefit
obligation....................... 2,326 4,812
Unamortized gain.................. 7,615 5,547
------- -------
Accrued postretirement cost..... $ 9,941 $10,359
======= =======
For 1997, a 12.0% and 9.0% increase in the cost of covered healthcare
benefits was assumed in the pre- and post-age 65 categories, respectively. This
rate was assumed to decrease gradually to 5.0% by 2006 and remain at that level
thereafter. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. For example, a 1.0% increase in the healthcare trend
rate would increase the accumulated postretirement benefit obligation by 5.5% as
of January 31, 1998 and the net periodic cost by 6.7% for the year. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% and 7.25% at January 31, 1998
and February 1, 1997, respectively. The Company funds these benefits as claims
are incurred.
Severance Plans - The Company provides certain severance benefits for
former employees of the Footwear Group. These plans give severance, health,
placement and certain other benefits to former Footwear Group employees based on
length of service, final compensation, and certain other factors. The Company's
liability under such plans was $4.5 million and $16.9 million at January 31,
1998 and February 1, 1997, respectively. See Note 3, "Acquisitions" and Note 4,
"Business Restructuring and Integration Expenses."
17. STOCK OPTION PLANS
The Company has three stock option plans which provide for the issuance of
options and other stock-based awards to management, employees, directors and
other persons performing significant services for the Company. Under these
plans, the Company is authorized to issue up to an aggregate of 9.7 million
shares of Common Stock, with vesting periods of up to five years at option
prices not less than the fair market value on the date of grant. Outstanding
options have terms up to 10 years and are exercisable in successive annual
increments conditional upon active employment or service, except for periods
following retirement, disability or death. The number of shares available for
issuance under the plans and the number of shares issuable pursuant to exercise
of the outstanding stock options is subject to adjustment upon certain changes
in the Company's capitalization.
Activity in the Company's stock option plans was (shares in thousands):
Weighted Average
Shares Exercise Price
------ -----------------
Outstanding at December 31, 1994....... 2,801 $24.57
Granted................................... 1,495 30.59
Exercised................................. (463) 22.39
Forfeited................................. (45) 25.10
-----
Outstanding at February 3, 1996........ 3,788 27.20
=====
Granted................................... 1,271 44.55
Exercised................................. (553) 25.28
Forfeited................................. (86) 29.57
-----
Outstanding at February 1, 1997........ 4,420 32.98
=====
Granted................................... 1,722 30.67
Exercised................................. (76) 27.10
Forfeited................................. (93) 37.58
-----
Outstanding at January 31, 1998........ 5,973 32.32
=====
Shares exercisable at February 3, 1996.... 915 $24.73
Shares exercisable at February 1, 1997.... 921 28.20
Shares exercisable at January 31, 1998.... 2,198 $29.96
The weighted average range of options outstanding at January 31, 1998 are
(shares in thousands):
Options Outstanding Options Exercisable
--------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Estimated Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ---------- ----------- ----------- -------- ----------- --------
$17 to 27 1,662 5.7 $25.14 993 $24.96
27 to 37 3,023 8.4 30.24 895 29.88
$37 to 50 1,288 8.5 $46.44 310 $46.20
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its three stock-based compensation plans. Had compensation cost
for the Company's three stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share on a pro forma basis would have
been (in thousands, except per share amounts):
1997 1996 1995
------- ------- -------
Pro forma net income................. $68,435 $73,866 $15,956
Pro forma basic earnings per share... 1.91 2.07 0.45
Pro forma diluted earnings per share. $ 1.90 $ 2.02 $ 0.45
Assumptions:
Risk-free interest rate.............. 5.5% 6.0% 5.0%
Volatility........................... 29.0% 33.0% 35.0%
Expected life........................ 5 years 3 years 3 years
The weighted average grant date fair value of options granted was $12.37,
$13.98 and $9.25 for 1997, 1996 and 1995, respectively. The fair value of each
option grant was estimated using the Black-Scholes options-pricing model.
Results can vary materially depending on the assumptions applied within the
model, and the resulting compensation expense may not be representative of
compensation expense to be incurred on a pro forma basis in future years.
18. SHAREHOLDER RIGHTS PLAN
On February 17, 1998, the Company adopted a shareholder rights plan (the
"Rights Plan") and designated 70,000 shares of its 25,000,000 authorized shares
of preferred stock, par value $.01 per share, as Series A Junior Participating
Preferred Stock (the "Series A Preferred Stock"). Pursuant to the Rights Plan,
on March 4, 1998, the Company paid a dividend of one preferred share purchase
right (a "Right") for each outstanding share of the Company's Common Stock.
Generally, the Rights become exercisable (1) a specified period after a party
acquires beneficial ownership of 20% or more of the Common Stock (an "Acquiring
Person") or (2) following the commencement or public announcement of an offer
for 20% or more of the Company's Common Stock. Each Right provides that, when
exercisable, the holder may purchase one one-thousandth of a share of Series A
Preferred Stock, at a price of $120, subject to adjustment. For purposes of
this calculation, there shall be disregarded shares of Common Stock which either
of two named principal shareholders of the Company or their respective estates
had the right to acquire on February 17, 1998, or acquire or obtain the right to
acquire subsequent to February 17, 1998, in either case under employee benefit
plans of the Company. After a party becomes an Acquiring Person, each holder of
a Right will have the right to exercise the Right to purchase the number of
Shares of Common Stock or, in certain situations, common stock of the Acquiring
Person, having a market value of two times the exercise price. Alternatively,
the Company has the option to exchange the Rights for shares of Common Stock or
Series A Preferred Stock, at an exchange ratio of one share of Common Stock, or
fractional shares of Series A Preferred Stock equivalent in value thereto, per
Right, at any time after a party has acquired at least 20% but less than 50% of
the Common Stock. The Company may redeem each Right for $.01 per Right at any
time after an Acquiring Person becomes such. In general, none of the benefits
of the Rights will be available to an Acquiring Person. The Rights will expire
on February 16, 2008, unless earlier exchanged or redeemed.
19. CASH FLOWS
Cash paid for income taxes was $39.7 million, $46.0 million and $28.7
million for 1997, 1996 and 1995, respectively. Cash paid for interest was $37.1
million, $39.0 million and $29.4 million for 1997, 1996 and 1995, respectively.
Excluded from the consolidated statement of cash flows for 1997 is a $15.4
million non-cash debt obligation incurred by the Company in conjunction with its
acquisition of The Shoe Studio Group Limited. In 1995, non-cash financing
activities included the issuance of warrants, valued at $57.6 million, in
connection with the Acquisition. See Note 3, "Acquisitions."
20. RELATED PARTY TRANSACTIONS
During 1997, the Company's principal executive offices were moved from
Stamford, Connecticut, to White Plains, New York. The former executive offices
are leased from a partnership in which the Company's principal stockholders have
a 15.5% limited partnership interest. The lease was renegotiated and extended
at current market rates during 1993 and expires on December 31, 2002. Rent
payments related to the Company's former executive offices for 1997, 1996 and
1995 were $2.3 million, $2.1 million and $1.8 million, respectively.
21. COMMITMENTS AND CONTINGENCIES
Share Buy-back Program
On February 17, 1998, the Company authorized a share buy-back program in an
amount not to exceed $20.0 million, which reflects limits currently imposed
under the Company's Credit Agreement. Under the buy-back program, the Company
would purchase from time to time, depending on market conditions, either
outstanding shares of Common Stock or long-term call options on shares of its
Common Stock. The timing and terms of the transactions, including maturities,
will depend upon market conditions, the Company's liquidity, covenant
requirements under its existing financing arrangements and other considerations,
including Securities and Exchange Commission ("SEC") rules and regulations.
Legal Actions
On May 1, 1997, the Company learned that on April 10, 1997, the 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 U.S. Shoe 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 their ultimate
impact on the Company.
In addition, on October 29, 1997, the Company learned that the United
States Customs Service has 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.
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the last two years appears below
(in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
Net revenues..................... $406,083 $495,684 $496,563 $466,988
Gross profit..................... 181,841 206,639 221,418 191,839
Net income (loss)................ 17,491 28,926 34,602 (2,888)
Earnings (loss) per share
Basic.......................... 0.49 0.81 0.97 (0.08)
Diluted........................ $ 0.48 $ 0.78 $ 0.92 $ (0.08)
1996
Net revenues..................... $355,911 $421,509 $444,016 $381,679
Gross profit..................... 153,673 176,433 194,460 164,603
Income from continuing
operations...................... 15,050 25,791 35,298 7,505
Earnings per share from
continuing operations*
Basic.......................... 0.43 0.72 0.99 0.21
Diluted........................ $ 0.41 $ 0.69 $ 0.93 $ 0.20
*The total of quarterly earnings per share does not equal the annual amount, as
earnings per share is calculated independently for each quarter. Diluted
earnings per share reflects the impact of Common Stock equivalents, including
outstanding stock options and the Convertible Notes, unless the impact is
antidilutive.
For the first, third and fourth quarters of 1996, net income, basic earnings per
share and diluted earnings per share are equivalent to income from continuing
operations. Net income, basic earnings per share and diluted earnings per share
for the second quarter of 1996 were $23.1 million, $0.65 and $0.62,
respectively, which includes the loss on disposal of discontinued operation.
See Note 5, "Loss on Disposal of Discontinued Operation."
The fourth quarter of 1997 includes a $6.3 million pre-tax charge ($3.8 million
on an after-tax basis) for severance and other costs related to the elimination
of 85 corporate positions. Excluding this amount, net income, basic earnings
per share and diluted earnings per share were $0.9 million, $0.03 and $0.03,
respectively.
The fourth quarter of 1996 includes a net pre-tax charge of $19.0 million ($11.4
million on an after-tax basis) attributable primarily to costs associated with
the restructuring of the Company's North American manufacturing facilities.
Excluding this charge, income from continuing operations, basic earnings per
share and diluted earnings per share were $18.9 million, $0.53 and $0.52,
respectively.
23. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
Substantially all of the Company's operations are in the footwear and
accessories industry. A summary of operations by geographic area is presented
below. All inter-area sales are from domestic to international affiliates and
are accounted for at prices that provide a profit and are in accordance with the
rules and regulations of the respective governing authorities. Inter-area sales
were $21.7 million, $9.9 million and $1.5 million during 1997, 1996 and 1995,
respectively.
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Net revenues:
Domestic $1,668,862 $1,564,372 $1,245,999
International 196,456 38,743 12,631
---------- ---------- ----------
Total $1,865,318 $1,603,115 $1,258,630
========== ========== ==========
Operating income from
continuing operations:
Domestic $ 180,014 $ 181,248 $ 62,752
International 2,084 105 493
---------- ---------- ----------
Total $ 182,098 $ 181,353 $ 63,245
========== ========== ==========
Assets at end of year:
Domestic $1,249,827 $1,219,870 $1,145,029
International 141,712 41,193 15,063
---------- ---------- ----------
Total $1,391,539 $1,261,063 $1,160,092
========== ========== ==========
PART III
Pursuant to General Instruction G(3) of Form 10-K, the information required
by Items 10, 11, 12 and 13 of Part III of Form 10-K is incorporated herein by
reference to the Company's definitive proxy statement to be used in connection
with the Company's 1998 Annual Meeting of Stockholders (other than the portions
thereof not deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934) except for the information regarding the executive
officers of the Company, which is included in Part I of this Annual Report on
Form 10-K under "Item 1 - Business."
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
The following financial statements of Nine West Group Inc. are
included in Item 8 of this report:
Independent Auditors' Report
Consolidated Statements of Income - Fifty-two weeks ended January 31,
1998 and February 1, 1997 and the fifty-three weeks ended February 3,
1996
Consolidated Balance Sheets - January 31, 1998 and February 1, 1997
Consolidated Statements of Cash Flows - Fifty-two weeks ended
January 31, 1998 and February 1, 1997 and the fifty-three weeks ended
February 3, 1996
Consolidated Statements of Stockholders' Equity - Fifty-two weeks
ended January 31, 1998 and February 1, 1997 and the fifty-three weeks
ended February 3, 1996
Notes to Consolidated Financial Statements (includes certain
supplemental financial information required by Item 8 of Form 10-K)
2. Financial Statement Schedules:
Schedule II - Valuation and qualifying accounts for the fifty-two weeks
ended January 31, 1998 and February 1, 1997 and the
fifty-three weeks ended February 3, 1996
All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions, are shown in the financial statements or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Index to Exhibits
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
2.1 Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of
March 15, 1995, by and among the Registrant, Footwear Acquisition
Corp. and The United States Shoe Corporation (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K dated March
15, 1995)
2.1.1 Amendment No. 1 to Asset Purchase Agreement, dated May 23, 1995
(incorporated by reference to Exhibit 2.3 to the Current Report on
Form 8-K dated May 23, 1995)
2.1.2 Amendment to Asset Purchase Agreement and Settlement Agreement, dated
as of May 29, 1996, by and among the Registrant, Luxottica Group
S.p.A. and The United States Shoe Corporation (incorporated by
reference to Exhibit 2.1.2 to the Quarterly Report on Form 10-Q for
the quarterly period ended May 4, 1996)
2.2 Form of Warrant Agreement (incorporated by reference to Exhibit 2.2 to
the Current Report on Form 8-K dated March 15, 1995)
3.1 Form of Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Amendment No. 6 to the
Registration Statement of the Registrant on Form S-1 (Registration No.
33-47556) filed on April 29, 1992 (the "First Registration
Statement"))
3.2 Second Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K dated May
23, 1995)
*4.1 Specimen stock certificate for shares of Common Stock, $.01 par value,
of the Registrant
4.2 Form of Definitive 5-1/2% Convertible Subordinated Note of the
Registrant Due 2003 (incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q for the quarterly period ended August 3,
1996)
4.3 Form of Restricted Global 5-1/2% Convertible Subordinated Note of the
Registrant Due 2003 (incorporated by reference to Exhibit 4.3 to the
Quarterly Report on Form 10-Q for the quarterly period ended August 3,
1996)
4.4 Form of Regulation S Global 5-1/2% Convertible Subordinated Note of
the Registrant Due 2003 (incorporated by reference to Exhibit 4.4 to
the Quarterly Report on Form 10-Q for the quarterly period ended
August 3, 1996)
4.5 Indenture, dated as of June 26, 1996, between the Registrant, as
issuer, and Chemical Bank, as trustee, relating to the Registrant's
5-1/2% Convertible Subordinated Notes Due 2003 (incorporated by
reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q for the
quarterly period ended August 3, 1996)
4.6 Note Resale Registration Rights Agreement, dated as of June 26, 1996,
by and among the Registrant and the Purchasers Named Therein
(incorporated by reference to Exhibit 4.6 to the Quarterly Report on
Form 10-Q for the quarterly period ended August 3, 1996)
4.7 Senior Note Indenture dated as of July 9, 1997 among the Registrant
and Nine West Development Corporation, Nine West Distribution
Corporation, Nine West Footwear Corporation and Nine West
Manufacturing Corporation, as Guarantors, and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 (Registration No. 333-34085) filed on August 21,
1997)
4.8 Senior Subordinated Note Indenture dated as of July 9, 1997 among the
Registrant and Nine West Development Corporation, Nine West
Distribution Corporation, Nine West Footwear Corporation and Nine West
Manufacturing Corporation, as Guarantors, and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 (Registration No. 333-34085) filed on August 21,
1997)
4.9 Registration Rights Agreement dated July 9, 1997 among the Registrant
and Nine West Development Corporation, Nine West Distribution
Corporation, Nine West Footwear Corporation and Nine West
Manufacturing Corporation, as Guarantors, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., Citicorp
Securities, Inc. and NationsBanc Capital Markets, Inc. (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.10 Form of Global 8-3/8% Senior Notes due 2005 (incorporated by reference
to Exhibit 4.4 to the Registration Statement on Form S-4 (Registration
No. 333-34085) filed on August 21, 1997)
4.11 Form of Definitive 8-3/8% Senior Notes due 2005 (incorporated by
reference to Exhibit 4.5 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.12 Form of 8-3/8% Series B Senior Notes due 2005 (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.13 Form of 9% Senior Subordinated Notes due 2007 (incorporated by
reference to Exhibit 4.7 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.14 Form of 9% Series B Senior Subordinated Notes due 2007 (incorporated
by reference to Exhibit 4.8 to the Registration Statement on Form S-4
(Registration No. 333-34085) filed on August 21, 1997)
4.15 Form of Unrestricted Global 5-1/2% Convertible Subordinated Note Due
2003 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to
the Registration Statement on Form S-3 (Registration No. 333-12545)
filed on August 21, 1997)
4.16 Rights Agreement, dated as of February 17, 1998, between the
Registrant and The Bank of New York which includes the form of
Certificate of Designation for the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit
B and the Summary of Rights to Purchase Shares of Preferred Stock of
the Registrant as Exhibit C (incorporated by reference to Exhibit 4.1
to the Current Report on Form 8-K dated February 17, 1998)
10.1 Registration Rights Agreement (the "Registration Rights Agreement") by
and among the Registrant, Jerome Fisher, Vincent Camuto, and J. Wayne
Weaver (incorporated by reference to Exhibit 10.1 to Amendment No. 2
to the First Registration Statement)
10.1.1 Amendment No. 1 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.1 to Amendment No. 6 to the First
Registration Statement)
10.1.2 Amendment No. 2 to Registration Rights Agreement (incorporated by
reference to Exhibit 10.1.2 to Amendment No. 2 to the Registration
Statement of the Registrant on Form S-1 (Registration No. 33-65584) as
filed on July 28, 1993 (the "Second Registration Statement"))
10.1.3 Amendment No. 3 to Registration Rights Agreement (incorporated by
reference to Exhibit 4 to Amendment No. 2 to Schedule 13D filed by
Jerome Fisher, Anne Fisher, Vincent Camuto and J. Wayne Weaver on
January 4, 1994 ("Amendment No. 2 to Schedule 13D"))
10.1.4 Amendment No. 4 to Registration Rights Agreement by and among the
Registrant, Jerome Fisher, Vincent Camuto and J. Wayne Weaver
(incorporated by reference to Exhibit 10.1.4 to Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1994)
10.2 Piggyback Registration Rights Agreement (the "Piggyback Registration
Rights Agreement") between the Registrant and Marc Fisher
(incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the
First Registration Statement)
10.2.1 Amendment No. 1 to Piggyback Registration Rights Agreement
(incorporated by reference to Exhibit 10.2.1 to Amendment No. 6 to the
First Registration Statement)
10.3 Agreement by and among J. Wayne Weaver, Jerome Fisher and The Jerome
Fisher Trust, Vincent Camuto and the Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to the First Registration
Statement)**
10.3.1 Amendment No. 1 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant
(incorporated by reference to Exhibit 10.3.1 to Amendment No. 6 to the
First Registration Statement)**
10.3.2 Amendment No. 2 to agreement by and among J. Wayne Weaver, Jerome
Fisher and The Jerome Fisher Trust, Vincent Camuto and the Registrant
(incorporated by reference to Exhibit 2 to Amendment No. 2 to Schedule
13D)**
10.4 Shareholders Agreement by and among the Registrant, Vincent Camuto and
Jerome Fisher (incorporated by reference to Exhibit 10.4 to Amendment
No. 2 to the First Registration Statement)**
10.4.1 Amendment No. 1 to Shareholders Agreement (incorporated by reference
to Exhibit 10.4.1 to Amendment No. 6 to the First Registration
Statement)**
10.4.2 Amendment No. 2 to Shareholders Agreement (incorporated by reference
to Exhibit 3 to Amendment No. 2 to Schedule 13D)**
10.5 Buying Agency Agreement between the Registrant and Bentley Services
Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K"))***
10.5.1 Agreement Regarding Extension of Term, dated March 3, 1997, between
the Registrant and Bentley Services Inc. (incorporated by reference to
Exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K for the
52 weeks ended February 1, 1997 (the "1996 10-K"))
10.6 Summary Description of Incentive Bonus Program of the Registrant
(incorporated by reference to Exhibit 10.6 to Amendment No. 2 to the
First Registration Statement)**
10.7 Summary Description of Life Insurance and Medical Reimbursement Plan
for Certain Officers of the Registrant (incorporated by reference to
Exhibit 10.7 to Amendment No. 2 to the First Registration Statement)**
10.8 Employment Agreement (the "Fisher Employment Agreement") between
Jerome Fisher and the Registrant (incorporated by reference to Exhibit
10.8 to Amendment No. 2 to the First Registration Statement)**
10.8.1 Amendment No. 1 to the Fisher Employment Agreement (incorporated by
reference to Exhibit 10.8.1 to Amendment No. 6 to the First
Registration Statement)**
10.9 Employment Agreement (the "Camuto Employment Agreement") between
Vincent Camuto and the Registrant (incorporated by reference to
Exhibit 10.9 to Amendment No. 2 to the First Registration Statement)**
10.9.1 Amendment No. 1 to the Camuto Employment Agreement (incorporated by
reference to Exhibit 10.9.1 to Amendment No. 6 to the First
Registration Statement)**
10.13 Form of S Corporation Termination Agreement among the Registrant,
Jerome Fisher, Vincent Camuto, J. Wayne Weaver, Marc Fisher, Robert V.
Camuto, Andrea M. Camuto and John V. Camuto (incorporated by reference
to Exhibit 10.13 to Amendment No. 7 to the First Registration
Statement)
10.14 Second Amended and Restated Stock Option Plan of the Registrant
(effective as of March 8, 1994) (incorporated by reference to Exhibit
10.14 to the 1993 10-K)**
10.15 Summary of Supplemental Executive Retirement Plan of the Registrant
(incorporated by reference to Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "1994
10-K"))**
10.15.1 Amendment and Restatement of The United States Shoe Corporation
Supplemental Executive Salaried Employee Benefit Plan (incorporated by
reference to Exhibit 10.15.1 to the Registrant's Annual Report on Form
10-K for the year ended February 3, 1996 (the "1995 10-K"))**
10.16 Deferred Compensation Plan of the Registrant (incorporated by
reference to Exhibit 10.16 to the 1994 10-K)**
10.17 1993 Directors' Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.18 to Amendment No. 1 to the Second
Registration Statement)**
10.18 First Amended and Restated 1994 Long-Term Performance Plan
(incorporated by reference to Exhibit 10.18 to the 1996 10-K)**
10.19 Credit Agreement (the "Credit Agreement"), dated as of May 23, 1995,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as Agents (incorporated by reference to Exhibit 10.21 to
the Quarterly Report on Form 10-Q for the quarterly period ended July
29, 1995)
10.19.1 Amendment No. 1 to the Credit Agreement (incorporated by reference to
Exhibit 10.19.1 to the 1995 10-K)
10.19.2 Amendment No. 2 to the Credit Agreement, dated as of May 29, 1996,
among the Registrant, Citibank, N.A. and Merrill Lynch Capital
Corporation, as agents (incorporated by reference to Exhibit 10.19.2
to the Quarterly Report on Form 10-Q for the quarterly period ended
May 4, 1996)
10.19.3 Amended and Restated Credit Agreement, dated as of August 2, 1996,
among the Registrant, the financial institutions listed on the
signature pages thereof and Citibank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.19.3 to the Quarterly Report
on Form 10-Q for the quarterly period ended August 3, 1996)
10.19.4 Amended and Restated Credit Agreement, dated as of August 1, 1997,
among the Company, the subsidiaries of the Company named therein and
from time to time party thereto as guarantors, the financial
institutions listed on the signature pages thereof and Citibank, N.A.,
as administrative agent (incorporated by reference to Exhibit 10.1 to
Amendment No. 1 to the Registration Statement on Form S-3
(Registration No. 333-12545) filed on August 21, 1997)
10.20 Employment Agreement, dated April 6, 1995, between Noel E. Hord and
the Registrant (incorporated by reference to Exhibit 10.21 to
Quarterly Report on Form 10-Q for the quarterly period ended July 29,
1995)**
*10.20.1 Severance Agreement, dated February 24, 1998, between Noel E. Hord
and the Registrant**
10.21 Nine West Group Inc. First Amended and Restated Incentive Bonus Plan
(incorporated by reference to Exhibit 10.21 to the 1996 10-K)**
10.23 Receivables Purchase Agreement, dated as of December 28, 1995, between
Nine West Funding Corporation and the Registrant (incorporated by
reference to Exhibit 10.23 to the 1995 10-K)
10.24 Nine West Trade Receivables Master Trust Pooling and Servicing
Agreement (the "Pooling Agreement"), dated as of December 28, 1995,
among Nine West Funding Corporation, The Bank of New York and the
Registrant (incorporated by reference to Exhibit 10.24 to the 1995
10-K)
10.25 Series 1995-1 Supplement to Pooling Agreement, dated as of December
28, 1995, among Nine West Funding Corporation, The Bank of New York
and the Registrant (incorporated by reference to Exhibit 10.25 to the
1995 10-K)
10.26 Class A Certificate Purchase Agreement, dated as of December 28, 1995,
among Nine West Funding Corporation, Corporate Receivables
Corporation, the Liquidity Providers Named Therein, Citicorp North
America, Inc., and The Bank of New York (incorporated by reference to
Exhibit 10.26 to the 1995 10-K)
10.27 Class B Certificate Purchase Agreement, dated as of December 28, 1995,
among Nine West Funding Corporation, the Purchasers Named Therein,
Citicorp North America, Inc., and The Bank of New York (incorporated
by reference to Exhibit 10.27 to the 1995 10-K)
10.28 Lease, dated February 28, 1997, between Westpark I LLC and the
Registrant (incorporated by reference to Exhibit 10.28 to the 1996
10-K)
*21 Subsidiaries of the Registrant
*23 Consent of Deloitte & Touche, LLP
24 Power of Attorney (contained herein on signature page)
*27.1 1997 Financial Data Schedule
*27.2 1997 Financial Data Schedules - Interim Periods Only - Restated
*27.3 1996 Financial Data Schedules - Including Interim Periods - Restated
*Filed herewith
**Management contract or compensation plan arrangement
***Confidential treatment has been granted for marked portions of this exhibit
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 30, 1998.
Nine West Group Inc.
(Registrant)
By: /s/ Robert C. Galvin
-------------------------------
Robert C. Galvin
Executive Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
this page to this Annual Report on Form 10-K for the fiscal year ended January
31, 1998 (the "Form 10-K") constitutes and appoints Robert C. Galvin, Jeffrey K.
Howald and Joel K. Bedol and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to Form 10-K, and file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and grants unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might and could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Name Capacity Date
- ---------------------- -------- ----
/s/ Jerome Fisher Chairman of the Board April 30, 1998
- ---------------------- and Director (Principal
Jerome Fisher (Executive Officer)
/s/ Vincent Camuto Chief Executive Officer April 30, 1998
- ---------------------- and Director (Principal
Vincent Camuto Executive Officer)
/s/ Robert C. Galvin Executive Vice President, April 30, 1998
- ---------------------- Chief Financial Officer and
Robert C. Galvin Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
/s/ C. Gerald Goldsmith Director April 30, 1998
- ------------------------
C. Gerald Goldsmith
/s/ Henry W. Pascarella Director April 30, 1998
- ------------------------
Henry W. Pascarella
/s/ Salvatore M. Salibello Director April 30, 1998
- ---------------------------
Salvatore M. Salibello
</TABLE>
SCHEDULE II
<TABLE>
NINE WEST GROUP INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For the years ended January 31, 1998, February 1, 1997 and February 3, 1996
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at Charged to Balance
Beginning Balance Costs and at End
Description of Period Acquired Expenses Deductions of Period
----------- --------- -------- -------- ---------- ---------
Year ended January 31, 1998:
Allowance for doubtful accounts.... $ 7,464 $ - $ 1,275 $3,209 (A) $ 5,530
Reserve for returns and allowances. 39,886 - 5,551 - 45,437
------- ------- ------- ------ -------
$47,350 $ - $ 6,826 $3,209 $50,967
======= ======= ======= ====== =======
Year ended February 1, 1997:
Allowance for doubtful accounts.... $ 9,233 $ - $ 1,830 $3,599 (A) $ 7,464
Reserve for returns and allowances. 33,519 - 6,367 - 39,886
------- ------- ------- ------ -------
$42,752 $ - $ 8,197 $3,599 $47,350
======= ======= ======= ====== =======
Year ended February 3, 1996:
Allowance for doubtful accounts.... $ 1,285 $ 6,725 $ 3,238 $2,015 (A) $ 9,233
Reserve for returns and allowances. 12,178 7,538 13,803 - 33,519
------- ------- ------- ------ -------
$13,463 $14,263 $17,041 $2,015 $42,752
======= ======= ======= ====== =======
(A) Represents accounts written off, net of recoveries.
</TABLE>
EXHIBIT 4.1
[FORM OF FACE OF CERTIFICATE]
- --------------------------------------------------------------------------------
CERTIFICATE OF STOCK
N [PICTURE]
NUMBER SHARES
COMMON STOCK COMMON STOCK
CUSIP 65440D 10 2
SEE REVERSE FOR
CERTAIN DEFINITIONS
NINE WEST GROUP INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
" THIS CERTIFIES THAT "
" "
" "
" "
" IS THE OWNER OF "
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR
VALUE OF $0.01 PER SHARE OF
Nine West Group Inc., transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
In Witness Whereof, the Corporation has caused this certificate to be
signed by its duly authorized officers and to be sealed with its seal.
Dated:
""""""""""""""""""""""" """"""""""""""""""""""""""""
" COUNTERSIGNED AND " TRANSFER AGENT " /s/Jerome Fisher "
" REGISTERED BY: " AND REGISTRAR " CHAIRMAN OF THE BOARD "
" THE BANK OF NEW YORK" /s/ " /s/ Vincent Camuto "
""""""""""""""""""""""" AUTHORIZED OFFICER " CHIEF EXECUTIVE OFFICER "
" /s/Robert C. Galvin "
" EXECUTIVE VICE PRESIDENT,"
[CORPORATE SEAL] " CHIEF FINANCIAL OFFICER "
" AND TREASURER "
""""""""""""""""""""""""""""
- --------------------------------------------------------------------------------
[FORM OF REVERSE SIDE OF CERTIFICATE]
- --------------------------------------------------------------------------------
NINE WEST GROUP INC.
NINE WEST GROUP INC. WILL FURNISH TO ITS STOCKHOLDERS WITHOUT CHARGE
UPON REQUEST ADDRESSED TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL
OFFICE, A PRINTED COPY OF THE DESIGNATIONS, TERMS, LIMITATIONS AND
RELATIVE RIGHTS AND PREFERENCES OF ALL CLASSES OF ITS CAPITAL STOCK.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - .....Custodian.....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts
of survivorship and not as to Minors Act
tenants in common ...................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________
________________________________________________________________________
________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE,
OF ASSIGNEE)
________________________________________________________________________
________________________________________________________________________
__________________________________________________________________shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________Attorney
to transfer the said shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated, _______________
__________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
- --------------------------------------------------------------------------------
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in a Rights Agreement between Nine West Group Inc. (the "Company")
and The Bank of New York, as Rights Agent, dated as of February 17, 1998 and as
amended from time to time (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The Company
will mail to the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under certain
--------------
circumstances, as set forth in the Rights Agreement, Rights owned by or
- -----------------------------------------------------------------------
transferred to any Person who is or becomes an Acquiring Person (as defined in
- --------------------------------------------------------------------------------
the Rights Agreement) and certain transferees thereof will become null and void
- --------------------------------------------------------------------------------
and will no longer be transferable.
- --------------------------------------------------------------------------------
AGREEMENT dated February 24 1998, between NINE WEST GROUP INC., a Delaware
corporation with principal offices at 9 West Plaza, 1129 Westchester Avenue,
White Plains, New York 10604 (the "Company") and NOEL E. HORD, an individual
residing at 727 Oenoke Ridge Road, New Canaan, CT 06840 ("Hord").
W I T N E S S E T H:
WHEREAS, the Company and Hord entered into an agreement dated April 6,
1995, relating to the employment of Hord as President and Chief Operating
Officer of the Company (the "Employment Agreement"); and
WHEREAS, Hord has voluntarily terminated his employment and the
Employment Agreement; and
WHEREAS, the parties hereto have decided to resolve all issues under
the Employment Agreement (including, without limitation, compensation and
benefits) and all other rights and obligations relating to the employment of
Hord by the Company and the termination of such employment; and
WHEREAS, the parties hereto have entered into an agreement dated
January 27, 1998 (the "Letter of Intent") which sets forth in principle the
terms and conditions upon which Hord's employment with the Company shall
terminate, with the intention that such terms and conditions shall be embodied
in this definitive agreement.
NOW THEREFORE, for good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Termination of Employment and the Employment Agreement.
The parties hereby agree and acknowledge that Hord resigned as
President, Chief Operating Officer and an employee of the Company, and from all
other capacities in which he served Nine West and its subsidiaries and
affiliates, effective January 27, 1998 (the "Resignation Date"). The Employment
Agreement is hereby terminated effective as of the Resignation Date and neither
the Company nor Hord shall have, as of the Resignation Date, any further rights
or obligations to each other (i) under the Employment Agreement, (ii) with
respect to the employment of Hord by the Company or (iii) with respect to the
termination of such employment, except as specifically set forth in this
Agreement.
2. Termination Payment; Benefits.
(A) Termination Payment. The Company shall pay Hord the sum of
Two Million Six Hundred Thousand dollars ($2,600,000), less any federal, state
and local income and payroll withholding taxes which the Company deems to be
required under applicable law (the "Termination Payment") in full settlement,
discharge and satisfaction of any and all amounts or benefits owed or which may
be owed by the Company or by any Company benefit program, plan or practice to
Hord, and any and all rights which Hord has or may have under the Employment
Agreement or otherwise as a result of his employment with the Company or the
termination of such employment including, without limitation, bonuses payable
under the Employment Agreement and/or under the Nine West Group Inc. First
Amended and Restated Incentive Bonus Plan (the "Incentive Bonus Plan"), use of
any automobile provided by the Company or any automobile allowance given by the
Company, accrued vacation pay and any and all other compensation or benefits
payable or provided to Hord by the Company or its subsidiaries or affiliates,
except as expressly provided in Sections 2(b), 2(c), 2(d), 2(e) or 2(g) hereof.
The Termination Payment shall be paid to Hord on March 2, 1998. The Termination
Payment shall not be taken into account in determining the benefits payable or
provided to Hord under any compensation or benefit program, plan or practice of
the Company. As of the Resignation Date and except as expressly provided in
Sections 2(b), 2(c), 2(d), 2(e) or 2(g) hereof, Hord shall cease to be eligible
for or accrue benefits under any and all programs, plans and practices of the
Company which pay or provide current or deferred compensation, bonuses,
incentives, commissions, medical or dental benefits, life or other insurance
benefits, retirement benefits, fringe benefits, severance pay or other
termination benefits, or perquisites of any kind or nature (collectively
"Compensation and Benefit Programs").
(b) COBRA. Hord shall be eligible as of the Resignation Date
for health and dental insurance benefits in accordance with the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"); provided,
however, that the Company shall continue to pay the full cost of the applicable
premiums for such COBRA coverage until the earlier of (i) December 31, 1998, or
(ii) the date upon which the Company would be permitted under COBRA to terminate
Hord's COBRA coverage including, without limitation, such earlier time as Hord
commences new employment or business activity and becomes eligible for health
and dental benefits with such new employer or business; and provided, further,
that Hord files a valid COBRA election with respect to such COBRA coverage.
Hord shall promptly notify the Company in writing when he becomes eligible to
participate in another health or dental plan, and shall provide the Company with
information which it reasonably requests to determine if and when the Company is
permitted to terminate Hord's COBRA coverage. After December 31, 1998 (assuming
Hord's COBRA coverage has not terminated), Hord may elect to continue health and
dental coverage at his own expense in accordance with the provisions of COBRA
and the applicable Company plan for the balance of the applicable COBRA
continuation period.
(c) Qualified and Nonqualified Retirement Plans. Hord shall be
entitled to benefits under the Nine West Group Inc. 401(k) Savings Plan, the
Pension Plan for Employees of Nine West Group Inc., the Nine West Group Inc.
Executive Deferred Compensation Plan, the Nine West Group Inc. Supplemental
Savings Plan and the United States Shoe Corporation Supplemental Executive
Salaried Employee's Benefit Plan, in accordance with the respective terms and
conditions of each such plan but subject to the cessation of his active
participation therein as of the Resignation Date.
(d) Stock Options and Restricted Stock. In accordance with the
determination of the Compensation Committee of the Board of Directors of the
Company (the "Committee"), (i) Hord's rights with respect to options to purchase
40,000 shares of Company common stock under the Nine West Group Inc. First
Amended and Restated 1994 Long-Term Performance Plan (the "Stock Option Plan")
granted pursuant to a Nonqualified Stock Option Agreement between Hord and the
Company dated as of May 23, 1995 (the "Stock Option Agreement") shall be fully
vested, and (ii) the exercise period for such options to purchase 40,000 shares
shall expire on February 29, 2000. In addition, the parties acknowledge and
agree that the "Period of Restriction" (as defined in that certain Restricted
Stock Agreement between Hord and the Company dated May 23, 1995 (the "Restricted
Stock Agreement")) with respect to 10,000 shares subject to the Restricted Stock
Agreement terminated with the release of the Company's earnings for fiscal year
1996 on March 18, 1997. Except as provided above in this Section 2(d) with
respect to the options to purchase 40,000 shares and the 10,000 shares for which
the "Period of Restriction" terminated on March 18, 1997, Hord shall have no
further rights with respect to any options or restricted shares granted under
the Stock Option Plan, the Stock Option Agreement or the Restricted Stock
Agreement. In accordance with the determination of the Committee, the foregoing
provisions of this Section 2(d) shall constitute an amendment to the Stock
Option Agreement and the Restricted Stock Agreement, as applicable.
(e) Outplacement Services. The Company shall pay for
professional career outplacement services for Hord up to a maximum of Twenty
Thousand dollars ($20,000).
(f) Expenses. Hord acknowledges that he has not incurred since
the Resignation Date, and agrees that he shall not incur after the date hereof,
any expenses, obligations or liabilities on behalf of the Company. Reimbursement
for all expenses, obligations and liabilities incurred prior to the Resignation
Date (including, without limitation, expenses reflected on Hord's expense
reports submitted for periods prior to the Resignation Date) shall be paid in
accordance with the Company's reimbursement policies as soon as practicable
following the Resignation Date and in no event later than March 2, 1998.
(g) Compensation Between Resignation Date and March 1, 1998.
The Company shall pay Hord the sum of Thirty-Three Thousand Three Hundred and
Thirty-Three Dollars ($33,333) on February 13, 1998 and on February 27, 1998, in
full satisfaction of any and all salary, vacation pay and other compensation
which Hord may have earned from the Resignation Date to March 1, 1998. The
payments under this Section 2(g) shall be subject to deductions for any federal,
state and local income and payroll taxes which the Company deems to be required
under applicable law. The payments made pursuant to this Section 2(g) shall not
be taken into account in determining the benefits payable or provided to Hord
under the Compensation and Benefit Programs.
3. Release of Claims.
(a) Hord Claims. In consideration for the Termination Payment,
the other compensation and benefits hereunder and the settlement of all
disputes, if any, between the Company and Hord regarding the terms and
conditions of Hord's employment with the Company, the termination of such
employment and the amounts payable and benefits provided to Hord by the Company,
Hord on behalf of himself and his heirs, representatives and assigns, hereby
completely releases, waives and forever discharges the Company Released Parties
(as hereinafter defined), from any and all claims, complaints, causes of action,
rights, obligations, liabilities, grievances or demands for damages, expenses,
losses or compensation of any and every kind, nature and character, known or
unknown, howsoever arising which Hord has or may have against the Company
Released Parties from the beginning of the world to the date of this Agreement,
whether or not relating to Compensation and Benefit Programs and whether arising
under or in any way connected with the Employment Agreement or the termination
of such agreement, or arising under or in any way connected with Hord's
employment or termination of employment with the Company or otherwise
(collectively the "Hord Claims"). Hord acknowledges and agrees that the Hord
Claims released hereunder shall include, without limitation, claims arising
under or relating to the laws of the United States or any state thereof, any and
all claims relating to or based upon breach of contract, breach of promise,
promissory or equitable estoppel, wrongful discharge, unjust dismissal, whistle-
blowing, breach of fiduciary duty, breach of the implied covenant of good faith
and fair dealing, defamation, wrongful denial of benefits, negligence,
intentional tort or discrimination under local, state or federal law, including,
without limitation, the Employee Retirement Income Security Act of 1974, Title
VII of the Civil Rights Act of 1964, as amended, and the Americans with
Disabilities Act, regardless of whether based on national origin, age, race,
membership in any protected group or classification, or otherwise. The Hord
Claims do not include, and Hord does not waive, any rights to enforce Hord's
rights and the Company's obligations under this Agreement. The term "Company
Released Parties" means each and all of the Company, its subsidiaries and
affiliates, and their respective officers, directors, shareholders, employees,
successors and assigns.
(b) No Actions. Hord shall not bring any administrative or
legal action against any of the Company Released Parties for any rights waived
or Hord Claims released under this Agreement, and Hord represents and warrants
that no such action has been brought to date. Hord further agrees that should
he bring any type of administrative or legal action with respect to Hord Claims
released under this Agreement or if the Company is the prevailing party in an
action to enforce its rights under this Agreement, Hord shall bear all legal
fees and costs, including those of the Company Released Parties, and he waives
any right to a remedy, financial or otherwise, in connection with any such
action. Hord hereby warrants, represents and agrees that he has not and shall
not assign, transfer or convey in any manner any Hord Claims, and that he has
not attempted or purported to do so. Hord further agrees that he shall not
solicit any current, former or future employee or shareholder of the Company or
any other person or entity to bring any administrative or legal action against
any of the Company Released Parties, and he shall not voluntarily participate in
any such action or proceeding brought by any such current, former or future
employee or shareholder of the Company or any other person or entity.
(c) Company Claims. In consideration of this Agreement and the
settlement of all disputes, if any, between the Company and Hord regarding the
terms and conditions of Hord's employment with the Company, the termination of
such employment and the amounts payable to Hord by the Company, the Company, on
behalf of itself, the Company Released Parties and their heirs, representatives,
successors and assigns, hereby completely releases, waives and forever
discharges Hord and his heirs and representatives from any and all claims,
complaints, causes of action, rights, obligations, liabilities, grievances or
demands for damages, expenses, losses or compensation of any and every kind,
nature and character, known or unknown, howsoever arising which the Company
Released Parties have or may have against Hord arising under or in any way
connected with the Employment Agreement or the termination of such agreement or
arising under or with respect to Hord's employment with or termination of
employment from the Company or otherwise (collectively, the "Company Claims").
The Company Claims do not include, and the Company does not waive, any rights to
enforce the Company's rights and Hord's obligations under this Agreement.
4. Restrictive Covenants.
(a) Confidential Information. Hord expressly covenants and
agrees that he shall not at any time hereafter directly or indirectly use,
convey or permit the use of any trade secrets or other proprietary and/or
confidential information of, or relating to, the Company or any of its
affiliates or subsidiaries, in connection with any activity or business. Hord
also agrees that he shall not at any time hereafter divulge such information to
any person, firm or corporation whatsoever. The obligations of Hord contained
in this Section 4(a) shall not apply to any information which was known to the
public at the time of its receipt by Hord or shall become known generally to the
public in any manner other than by an improper act of Hord.
(b) Non-Competition. Hord agrees that from the date hereof
until February 29, 2000, he shall not, without the prior written consent of the
Company, directly or indirectly, as sole proprietor, shareholder, partner,
employee, officer, director, trustee, advisor, consultant or independent
contractor, or in any other manner or capacity whatsoever, engage or participate
in manufacturing, importing, exporting, distributing or retailing of women's
footwear in any state of the United States or Canada. Hord understands that the
provisions of this Section 4(b) may limit his ability to earn a livelihood in a
business similar to the business of the Company in the specified geographic
locations but nevertheless agrees and hereby acknowledges that (i) such
provisions do not impose a greater restraint than is necessary to protect the
goodwill and other business interests of the Company; (ii) such provisions
contain reasonable limitations as to time, geographical area and the scope of
activity to be restrained; and (iii) the consideration provided under this
Agreement including, without limitation, the Termination Payment, is sufficient
to compensate Hord for the restrictions set forth in this Section 4(b). In
consideration of the foregoing and in light of his education, skills and
abilities, Hord agrees that he shall not assert that, and it should not be
considered that, any provisions of this Section 4(b) preventing him from earning
a living or otherwise are void, voidable or unenforceable or should be voided or
held unenforceable.
(c) Non-Solicitation of Employees. From the date hereof until
February 29, 2000, Hord shall not, without the express written consent of the
Company, recruit, solicit or induce any employees of the Company to terminate
their employment with the Company.
(d) Equitable Relief. Hord agrees that the remedy at law for
any breach by him of any of the agreements set forth in this Section 4 may be
inadequate and that in the event of any such breach, the Company may, in
addition to the other remedies which may be available to it at law, obtain
injunctive relief prohibiting Hord from the breach of such covenants and
agreements.
5. Notice of Proceedings. Hord shall, in the event he is requested
or required to testify or otherwise provide any information in, or with respect
to, any administrative, court or other legal proceeding involving the Company or
any of its subsidiaries or affiliates, within three (3) days after receiving or
being notified of such request or requirement, provide the Company with written
notice specifying the nature of such request or requirement and any other
information which Hord has been provided regarding such proceeding or which Hord
has provided to another party regarding such proceeding. Hord shall not testify
or otherwise provide any information in, or with respect to, any such proceeding
for a period of ten (10) days after receipt by the Company of notice thereof
from Hord, unless the failure to do so would, in the reasonable judgment of his
attorney, subject Hord to prosecution for a crime.
6. Assistance in Litigation. At all times hereafter, Hord shall,
upon reasonable notice, and at the Company's expense, furnish such information
and proper assistance to the Company as it may reasonably request in connection
with any administrative, court or other legal proceeding in which the Company or
any of its subsidiaries or affiliates is, or may become, a party (other than any
litigation between Employee and the Company or any of its subsidiaries or
affiliates).
7. No Disparagement or Harm. Neither the Company nor Hord shall make
any comments or statements relating to the other which are critical or
derogatory or which may tend to denigrate, disparage or otherwise injure the
business or reputation of the other.
8. Return of Property. Hord shall return to the Company no later
than March 2, 1998, all data and documentation relating to the Company
(including tangible evidence of trade secrets or confidential information)
including, without limitation, reports, files, memoranda, records, computers,
software, credit cards, keys, computer access codes, computer disks,
instructional manuals, financial records and all physical or personal property,
received or prepared, or which Hord helped to prepare, in connection with his
employment with the Company. Hord shall not retain any copies, reproductions,
or excerpts of such property. The obligations of Hord under this Section 8
shall not relate to any data or documentation which is publicly available.
9. No Admission of Liability. Although the Company has agreed to
make certain monetary payments hereunder in consideration for the release of the
Hord Claims, the parties hereto acknowledge that nothing herein may be viewed as
an admission of liability by the Company.
10. PNC Bank Agreement. Hord agrees that (i) he has relinquished to
the Company and has waived any rights he had, may have or may become entitled to
under Trust #1042607 (the "Trust") established pursuant to that certain Trust
Agreement between The United States Shoe Corporation and PNC Bank, Ohio,
National Association dated November 14, 1994, as the same may have been amended
from time to time (the "Trust Agreement") and the related Amended and Restated
Severance Compensation Agreement dated November 14, 1994 (the "Severance
Agreement"), which relate to the payment of severance benefits as described
therein, and (ii) he has executed a letter evidencing his consent to both the
termination of the Trust in accordance with Section 12(c) of the Trust Agreement
and the payment to the Company (as successor in interest to The United States
Shoe Corporation) of all assets held under the Trust as soon as practicable
after execution of such letter. The parties hereto further agree to execute or
forward such other instruments as may be requested by PNC Bank, Ohio, National
Association to confirm the foregoing agreement of the parties under this Section
10 hereof.
11. Public Announcement. Nine West has made a public announcement
and regulatory filings indicating the resignation of Hord as President, Chief
Operating Officer and an employee of the Company, and Hord acknowledges that the
Company may make additional regulatory filings as the Company may, in its sole
discretion, deem necessary or advisable.
12. Miscellaneous.
(a) Binding Agreement. This Agreement shall be binding on and
inure to the benefit of the successors and assigns of the Company and each of
the Company Released Parties and their successors and assigns. This Agreement
shall be binding on and inure to the benefit of Hord and his heirs and legal
representatives. This Agreement may not be assigned by Hord.
(b) Headings. The headings of the several sections of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or modify any of the terms of the provisions hereof.
(c) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
excluding its conflicts of laws rules. The parties agree to the exclusive
jurisdiction and venue of the Supreme Court of the State of New York for
Westchester County and/or the United States District Court for the Southern
District of New York for the resolution of any and all disputes arising under
this Agreement. Jurisdiction over the parties shall be sufficiently obtained
either by personal delivery, by overnight delivery service (such as Federal
Express) or by mailing the applicable documents to the party sought to be
served.
(d) Severability. If any provision of this Agreement is deemed
invalid or unenforceable, the validity of the other provisions of this Agreement
shall not be impaired. If Section 4(b) of this Agreement shall be deemed
invalid as to its scope, then notwithstanding such invalidity, such Section 4(b)
shall be deemed valid to the fullest extent permitted by law, and the parties
agree that, if any court makes such a determination, it shall have the power to
reduce the duration, scope and/or area of such Section 4(b) and/or to delete
specific words and phrases by "blue penciling" and, in its reduced or blue
penciled form, such Section 4(b) shall then be enforceable as permitted by law.
(e) Knowing and Voluntary. By signing this Agreement, Hord
hereby acknowledges that (i) he has carefully read and fully understands all of
the provisions of this Agreement and the consequences of such provisions, (ii)
he knowingly and voluntarily agrees to all of the provisions of this Agreement,
(iii) he has been given ample opportunity and time within which to consider this
Agreement prior to his execution of the Agreement, and (iv) he has been provided
an opportunity to consult with an attorney of his own choice and has, in fact,
done so.
(f) Notices. All notices, requests, consents and other
communications required or permitted to be given hereunder shall be in writing
and shall be given by hand to the person so notified, or by prepaid overnight
delivery service (such as Federal Express) or by certified United States mail,
return receipt requested with all postage, fees and charges prepaid enclosed in
a sealed wrapper, marked personal and confidential, and addressed, as follows:
To the Company at: Nine West Group Inc.
9 West Plaza
1129 Westchester Avenue
White Plains, New York 10604
Attn.: Joel E. Bedol, Esq.
Senior Vice President
and General Counsel
To Hord at: 727 Oenoke Ridge Road
New Canaan, CT 06840
Copy to: Christine Chipman, Esq.
30 Main Street
Suite 204
Danbury, CT 06810
All such notices and other communications shall be effective, if given by hand
or overnight delivery service (such as Federal Express), when delivered or, if
mailed, three (3) days after mailing from a post office maintained by the United
States Postal Service. Any party hereto may, from time to time, and in like
manner, designate any other address to which any notice, request, consent or
other communication addressed to such party or any copies thereof shall be sent.
(g) Further Instruments. Hord and the Company shall execute all
instruments and take all actions as may be necessary or advisable to effectuate
the terms of this Agreement including executing or delivering any waivers,
elections, forms or notices with respect to the matters covered in this
Agreement.
(h) Entire Agreement. Except as otherwise expressly provided
herein, this Agreement constitutes the entire agreement between the parties
relating to the subject matter referred to herein, and supersedes (i) any and
all prior written or oral agreements between the Company and Hord relating to
such matters, including, without limitation, the Employment Agreement, the
Letter of Intent, the Stock Option Agreement and the Restricted Stock Agreement,
and (ii) except to the extent expressly provided herein, the Compensation and
Benefit Programs including, without limitation, the Stock Option Plan and the
Incentive Bonus Plan. No modification, waiver or termination of this Agreement,
or any part thereof, shall be effective unless in writing and signed by the
party or parties sought to be bound thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Nine West Group Inc.
By: /s/ Vincent Camuto
----------------------------
Name: Vincent Camuto
Title: Chief Executive Officer
/s/ Noel E. Hord
----------------------------
Noel E. Hord
EXHIBIT 21
JURISDICTION OF
SUBSIDIARIES INCORPORATION
- ------------ ---------------
Cable & Co (UK) Limited United Kingdom
Community Urban Redevelopment of Duck Creek, Inc. Ohio
Compania de Calzados de Exportacion, S.L. Spain
Conca Del Sol International Cayman Islands
Nine West Asia Ltd. Bermuda
Nine West Boot Corporation Delaware
Nine West Canada Corporation Ontario
Nine West Development Corporation Delaware
Nine West Distribution Corporation Delaware
Nine West Footwear Corporation Delaware
Nine West France S.A.R.L. France
Nine West Funding Corporation Delaware
Nine West Group Italy S.r.l. Italy
Nine West - Honduras d/b/a U.S. Shoe - Honduras Cayman Islands
Nine West Hong Kong Limited Hong Kong
Nine West Manufacturing Corporation Delaware
Nine West Manufacturing II Corporation Delaware
Nine West Melbourne Pty Ltd Australia
Nine West Servicos de Assessoria de Compras Ltda. Brazil
Nine West Singapore Pte Ltd Singapore
Nine West UK Holdings Limited United Kingdom
Nine West UK Limited United Kingdom
Pied a Terre Group Limited United Kingdom
Rayne Shoes (1994) Limited United Kingdom
The Shoe Studio Group Limited United Kingdom
The Shops for Pappagallo, Inc. Ohio
Vivaldi Shoes Limited United Kingdom
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-72746 and 333-2262) and in the Registration Statements on Form
S-3 (Nos. 333-2656 and 333-12545) of Nine West Group Inc. of our reports dated
March 17, 1998, except for the sixth paragraph of Note 3 dated April 1, 1998 and
the third paragraph of Note 21 dated April 14, 1998, appearing in the Annual
Report on Form 10-K of Nine West Group Inc. and subsidiaries for the fiscal year
ended January 31, 1998.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Stamford, Connecticut
April 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC.
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998, AND THE CONSOLIDATED STATEMENT OF INCOME
AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FIFTY-TWO WEEKS ENDED JANUARY 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 23,674
<SECURITIES> 0
<RECEIVABLES> 182,890
<ALLOWANCES> (50,967)
<INVENTORY> 543,503
<CURRENT-ASSETS> 799,131
<PP&E> 259,075
<DEPRECIATION> (86,280)
<TOTAL-ASSETS> 1,391,539
<CURRENT-LIABILITIES> 209,754
<BONDS> 687,263
0
0
<COMMON> 358
<OTHER-SE> 438,490
<TOTAL-LIABILITY-AND-EQUITY> 1,391,539
<SALES> 1,865,318
<TOTAL-REVENUES> 1,865,318
<CGS> 1,063,581
<TOTAL-COSTS> 1,063,581
<OTHER-EXPENSES> 618,364
<LOSS-PROVISION> 1,275
<INTEREST-EXPENSE> 54,014
<INCOME-PRETAX> 128,084
<INCOME-TAX> 49,953
<INCOME-CONTINUING> 78,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,131
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC.
CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER 1, 1997, AUGUST 2, 1997 AND MAY 3, 1997, AND THE
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THIRTY-
NINE, TWENTY-SIX AND THIRTEEN WEEKS THEN ENDED, RESPECTIVELY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-02-1997 FEB-02-1997 FEB-02-1997
<PERIOD-END> NOV-01-1997 AUG-02-1997 MAY-03-1997
<CASH> 29,089 26,858 29,281
<SECURITIES> 0 0 0
<RECEIVABLES> 201,131 217,685 153,564
<ALLOWANCES> (43,242) (54,834) (47,309)
<INVENTORY> 554,393 539,467 508,748
<CURRENT-ASSETS> 830,895 827,734 730,456
<PP&E> 253,219 218,307 197,297
<DEPRECIATION> (85,808) (77,425) (71,666)
<TOTAL-ASSETS> 1,409,352 1,384,046 1,255,372
<CURRENT-LIABILITIES> 218,172 223,822 195,412
<BONDS> 686,834 689,788 610,574
0 0 0
0 0 0
<COMMON> 359 358 358
<OTHER-SE> 444,507 408,444 379,191
<TOTAL-LIABILITY-AND-EQUITY> 1,409,352 1,384,046 1,255,372
<SALES> 1,398,330 901,767 406,083
<TOTAL-REVENUES> 1,398,330 901,767 406,083
<CGS> 788,432 513,287 224,242
<TOTAL-COSTS> 788,432 513,287 224,242
<OTHER-EXPENSES> 437,789 287,558 140,430
<LOSS-PROVISION> (1,037) (384) 308
<INTEREST-EXPENSE> 39,782 24,900 12,311
<INCOME-PRETAX> 133,364 76,406 28,792
<INCOME-TAX> 52,345 29,989 11,301
<INCOME-CONTINUING> 81,019 46,417 17,491
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 81,019 46,417 17,491
<EPS-PRIMARY> 2.26 1.30 0.49
<EPS-DILUTED> 2.18 1.26 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NINE WEST GROUP INC. CONSOLIDATED BALANCE
SHEETS AS OF FEBRUARY 1, 1997, NOVEMBER 2, 1996, AUGUST 3, 1996 AND MAY 4, 1996, AND THE CONSOLIDATED STATEMENTS OF
INCOME AND CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FIFTY-TWO, THIRTY-NINE, TWENTY-SIX AND THIRTEEN WEEKS THEN
ENDED, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997 FEB-01-1997 FEB-01-1997
<PERIOD-START> FEB-04-1996 FEB-04-1996 FEB-04-1996 FEB-04-1996
<PERIOD-END> FEB-01-1997 NOV-02-1996 AUG-03-1996 MAY-04-1996
<CASH> 25,176 25,727 34,208 28,484
<SECURITIES> 0 0 0 0
<RECEIVABLES> 148,068 138,694 111,269 104,668
<ALLOWANCES> (47,350) (54,386) (50,180) (46,646)
<INVENTORY> 501,830 459,182 438,835 412,691
<CURRENT-ASSETS> 722,006 638,457 623,515 589,439
<PP&E> 204,174 188,665 180,673 171,446
<DEPRECIATION> (65,925) (61,997) (57,264) (53,250)
<TOTAL-ASSETS> 1,261,063 1,181,403 1,147,720 1,135,556
<CURRENT-LIABILITIES> 230,332 234,210 232,773 256,296
<BONDS> 600,407 524,076 529,338 454,000
0 0 0 0
0 0 0 0
<COMMON> 358 358 356 355
<OTHER-SE> 360,182 352,080 312,840 353,139
<TOTAL-LIABILITY-AND-EQUITY> 1,261,063 1,181,403 1,147,720 1,135,556
<SALES> 1,603,115 1,221,436 777,420 355,911
<TOTAL-REVENUES> 1,603,115 1,221,436 777,420 355,911
<CGS> 913,946 696,870 447,314 202,238
<TOTAL-COSTS> 913,946 696,870 447,314 202,238
<OTHER-EXPENSES> 505,986 364,654 240,257 117,926
<LOSS-PROVISION> 1,830 2,601 1,637 698
<INTEREST-EXPENSE> 41,947 30,409 20,143 9,967
<INCOME-PRETAX> 139,406 126,902 68,069 25,082
<INCOME-TAX> 55,762 50,763 27,228 10,032
<INCOME-CONTINUING> 83,644 76,139 40,841 15,050
<DISCONTINUED> (2,636) (2,636) (2,649) 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 81,008 73,503 38,192 15,050
<EPS-PRIMARY> 2.27 2.06 1.07 0.43
<EPS-DILUTED> 2.21 1.99 1.04 0.41
</TABLE>
