SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 12, 2003
CANDIE'S, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 001-10593 11-2481903
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
400 Columbus Avenue, Valhalla, New York 10595
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 769-8600
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets
On May 12, 2003, Candie's, Inc. (the "Company") granted Steven Madden, Ltd.
("Madden") the exclusive worldwide license to design, manufacture, sell,
distribute and market footwear under the Candie's(r) brand. The license
agreement expires on December 31, 2009, subject to renewal options for four
additional terms of three years each contingent on Madden meeting certain
performance and minimum sale standards. The terms of the license agreement were
determined by negotiations between representatives of the Company and Madden.
Notwithstanding such terms which provided for, among other things, Madden to
commence shipment of Candie's branded footwear for the Fall 2003 season, the
Company currently anticipates that, with respect to the transition of this
footwear business, the Company will make shipments of Spring 2003 Candie's
branded footwear products and will continue shipments of Candie's branded
footwear products for the Fall 2003 season.
Item 5. Other Events
In connection with the Company's transition from a designer and distributor
of Candie's branded footwear products to a licensor of such rights, the Company
has evaluated its retail operations and is planning to close its 11 concept
stores which have not performed to the Company's expectations. The Company will
continue to operate 10 outlet stores at least through the end of 2003.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable
(b) Pro Forma Financial Information
Page No.
Introduction PF-1
Pro forma condensed consolidated balance sheet PF-2
as of January 31, 2003
Pro forma condensed consolidated statement of operations PF-3
for the year ended January 31, 2003
(c) Exhibits
10.1 License Agreement dated May 12, 2003 among IP Holdings, LLC, Candie's,
Inc. and Steven Madden, Ltd.*
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*Portions of this document have been omitted and filed separately with the
Securities and Exchange Commission pursuant to the Company's request for
confidential treatment of such information.
(b) Pro Forma Financial Information
Introduction
In May 2003, Candie's, Inc. (the "Company") entered into agreements to
license the rights to its primary footwear brands, Candie's and Bongo, to Steven
Madden, Ltd. and Kenneth Cole Productions, Inc., respectively. The following
unaudited pro forma condensed consolidated financial statements give effect to
the transition of the Company from a manufacturer and distributor of these
footwear products to a licensor of said products. This will result in a
substantial reduction of the Company's footwear operations, including the
termination of employees and closing of offices. In addition, in connection with
the transition and because of the current retail environment, the Company plans
to close its eleven concept retail stores which have been performing below
expectations. The pro forma financial information reflects these matters and has
been prepared utilizing the historical financial statements of the Company
included in its Annual Report on Form 10-K for the year ended January 31, 2003.
The pro forma condensed consolidated statement of operations for the year
ended January 31, 2003 assumes that the transition of the Company to a licensor
and the closing of the eleven retail stores had occured as of February 1, 2002.
The pro forma condensed consolidated balance sheet at January 31, 2003 assumes
these events occured on that date.
The pro forma condensed consolidated statement of operations also reflects
the full year's operations of Unzipped Apparel, LLC ("Unzipped"), a company
acquired by the Company as of April 30, 2002.
After the transition to a licensor for its primary footwear brands, the
operations of the Company will consist of: (i) distribution of jeanswear
products through Unzipped; (ii) sale of men's footwear; (iii) outlet retails
stores; and (iv) licensing of footwear and other products.
The pro forma financial information does not purport to be indicative of
the results which actually would have been obtained had the footwear license
transition or retail store closings occured on the dates indicated or the
results which may be obtained in the future.
PF - 1
Candie's, Inc
Pro Forma Condensed Consolidated Balance Sheet
as of January 31, 2003
(000's omitted)
Reported
Consolidated Pro Forma Pro Forma
January 31, 2003 Adjustment Adjusted
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Current Assets
Cash $ 1,899 $ 1,000 (1) $ 2,899
Accounts receivable, net 8,456 - 8,456
Due from factors and accounts receivable, net 17,966 - 17,966
Due from affiliate 230 - 230
Inventories 19,016 - 19,016
Deferred income taxes 3,109 - 3,109
Prepaid advertising and other 1,140 - 1,140
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Total Current Assets 51,816 1,000 52,816
Property and equipment, at cost
Furniture, fixtures and equipment 9,157 - 9,157
Less: Accumulated depreciation and
amortization 6,514 - 6,514
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2,643 - 2,643
Other assets:
Goodwill, net 25,241 - 25,241
Intangibles, net 17,818 - 17,818
Restricted cash 2,900 - 2,900
Deferred finance fees 2,326 - 2,326
Deferred income taxes 513 - 513
Other 180 - 180
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48,978 - 48,978
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Total Assets $ 103,437 $ 1,000 $ 104,437
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Liabilities and Stockholders' Equity
Current Liabilities:
Revolving notes payable - banks $ 21,577 $ - $ 21,577
Accounts payable and accrued expenses 15,493 2,464 (2) 17,957
Due to affiliates 6,203 - 6,203
Current portion of long-term debt 2,648 - 2,648
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Total Current Liabilites 45,921 2,464 48,385
Deferred revenue - 1,000 (1) 1,000
Other liabilities 11,000 - 11,000
Long-term liabilities 17,505 - 17,505
Stockholders' Equity
Common stock 25 - 25
Additional paid-in capital 69,812 - 69,812
Retained earnings (deficit) (40,159) (2,464) (2) (42,623)
Less: Treasury stock (667) - (667)
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Total Stockholders' Equity 29,011 (2,464) 26,547
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Total Liabilities and Stockholders Equity $ 103,437 $ 1,000 $ 104,437
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(1) $1 million cash received from Steven Madden, Ltd. upon signing the license agreement.
(2) Restructuring expenses related to employee terminations and office and retail store
closings (primarily estimates of lease termination liabilities).
PF -2
Candie's Inc
Pro Forma Condensed Consolidated Statement of Operations
for the Year ended January 31, 2003
(000's omitted, except per share data)
Historical Historical Pro Forma Pro Forma
Reported Unzipped Unzipped Adjusted Pro Forma Year End
@ 1/31/03 2/1/02-4/30/02 Adjustments Historical Adjustments 1/31/2003
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Net sales $ 151,643 $ 13,175 $ - $ 164,818 $ (76,207) (4) $ 88,611
Licensing income 5,140 - (414) (1) 4,726 5,164 (5) 9,890
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Net revenue 156,783 13,175 (414) 169,544 (71,043) 98,501
Cost of goods sold 116,306 10,863 - 127,169 (54,396) (4) 72,773
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Gross profit 40,477 2,312 (414) 42,375 (16,647) 25,728
Selling, general and
administrative expenses 37,872 2,087 (358) (2) 39,601 (21,545) (4)(6) 18,056
Special charges 3,566 - - 3,566 - 3,566
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Operating income (961) 225 (56) (792) 4,898 4,106
Other expenses:
Interest expense 3,373 260 220 (3) 3,853 - 3,853
Equity (income) in
joint venture (250) - 250 (1) - - -
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3,123 260 470 3,853 - 3,853
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Income before income taxes (4,084) (35) (526) (4,645) 4,898 253
(Benefit) Provision for
income taxes (139) 13 - (126) - (7) (126)
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Net income $(3,945) $ (48) $ (526) $ (4,519) $ 4,898 $ 379
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Earnings per share:
Basic $ (0.17) $ 0.02
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Diluted $ (0.17) $ 0.01
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Weighted average number of
common shares outstanding:
Basic 23,681 24,355 (8)
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Diluted 23,681 26,156 (8)
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(1) Reversal of licensing income ($414) and equity income ($250) from Unzipped Joint Venture.
(2) Includes $414 expense reduction related to the reversal of licensing income, and first quarter amortization of $56 of
intangibles in connection with Unzipped acquisition.
(3) Includes first quarter interest expense of $220 on the $11 million notes for the first quarter.
(4) Represents elimination of Candie's wholesale business and all concept stores.
(5) Includes 7% (amount specified in each license agreement) of wholesales branded revenue and amortization of the $1 million
prepaid licensing fee by Steven Madden Ltd over the six year term of the agreement.
(6) Includes an estimate of the expenses that will remain upon transitioning to a licensor for footwear ($6,578). Restructuring
expenses of $2,464 have not been included in this adjustment.
(7) Income taxes have not been adjusted due to prior years' net operating loss carryforwards and existing valuation reserves on
deferred tax assets related thereto.
(8) Includes shares issued in connection with Unzipped acquisition for the full year and, for the diluted number of shares, the
calculation also includes the stock equivalents.
PF - 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CANDIE'S, INC.
(Registrant)
By: /s/Richard Danderline
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Richard Danderline
Executive Vice President,
Finance and Operations
Date: May 27, 2003
Exhibits
10.1 License Agreement dated May 12, 2003 among IP Holdings, LLC, Candie's, Inc.
and Steven Madden, Ltd.*
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*Portions of this document have been omitted and filed separately with the
Securities and Exchange Commission pursuant to the Company's request for
confidential treatment of such information.