===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 9, 1994
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission File Number: 1-4715
The Warnaco Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4032739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Park Avenue
New York, New York 10016
(Address of registrant's principal executive offices)
(212) 661-1300
(Registrant's telephone number, including area code)
Copies of all communications to:
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016
Attention: Vice President and General Counsel
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 [ ]
The number of shares outstanding of the registrant's Class A Common Stock
as of November 18, 1994 is as follows: 42,044,192.
===========================================================================
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
THE WARNACO GROUP, INC.
Consolidated Condensed Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
April 9, January 8,
1994 1994
-------- --------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash (restricted $386 and $886, respectively)................................ $ 4,652 $ 4,651
Accounts receivable -- net(1)................................................ 146,643 126,507
Inventories:
Finished goods............................................................. 148,168 120,203
Work in process............................................................ 56,047 65,285
Raw materials.............................................................. 52,803 54,015
-------- --------
Total inventories(2)...................................................... 257,018 239,503
Other current assets........................................................... 30,390 22,148
-------- --------
Total current assets...................................................... 438,703 392,809
-------- --------
Property, plant and equipment, (net of accumulated depreciation of $66,911
and $65,257, respectively)................................................... 76,842 73,636
Other assets:
Intangibles and other assets -- net.......................................... 276,283 222,188
-------- --------
$791,828 $688,633
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable................................................................ $ 5,142 $ 5,819
Borrowing under revolving credit facility.................................... 175,133 100,523
Current portion of long-term debt............................................ 47,059 49,171
Accounts payable and accrued liabilities..................................... 99,561 112,557
Federal and other income taxes............................................... 2,607 2,778
-------- --------
Total current liabilities................................................. 329,502 270,848
-------- --------
Long-term debt................................................................. 252,865 245,518
Other long-term liabilities.................................................... 18,168 13,132
Stockholders' equity:
Preferred Stock; $.01 par value.............................................. -- --
Common Stock; $.01 par value(3).............................................. 420 404
Capital in excess of par value(3)............................................ 337,889 315,068
Cumulative translation adjustment............................................ (154) 279
Accumulated deficit............................................................ (138,264) (147,225)
Notes receivable for common stock issued....................................... (8,598) (9,391)
-------- --------
Total stockholders' equity................................................ 191,293 159,135
-------- --------
$791,828 $688,633
======== ========
</TABLE>
(1) Includes $7.3 million acquired from Calvin Klein, Inc. on March 14, 1994.
(2) Includes $7.8 million acquired from Calvin Klein, Inc. on March 14, 1994.
(3) Adjusted to reflect the two-for-one stock split for shareholders of record
on September 8, 1994 and effective October 3, 1994.
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
THE WARNACO GROUP, INC.
Consolidated Condensed Statements of Operations (unaudited)
(in thousands of dollars except share data)
<TABLE>
<CAPTION>
Quarter ended
----------------------------------
April 9, 1994 April 3, 1993
------------- -------------
<S> <C> <C>
Net revenues(1)............................................................. $ 147,731 $ 156,750
Cost of goods sold.......................................................... 97,355 101,953
----------- -----------
Gross profit................................................................ 50,376 54,797
Selling, administrative and general expenses................................ 30,260 32,790
Loss on California earthquake............................................... 3,000 --
----------- -----------
Income before interest and income taxes..................................... 17,116 22,007
Interest expense............................................................ 7,405 9,905
Provision for income taxes.................................................. 750 1,350
----------- -----------
Income from continuing operations(2)........................................ 8,961 10,752
Cumulative effect of change in method of accounting for
postretirement benefits................................................... -- (10,500)
----------- -----------
Net income.................................................................. $ 8,961 $ 252
=========== ===========
Net income applicable to common stockholders................................ $ 8,961 $ 252
=========== ===========
Income (loss) per common share:(3)
Income from continuing operations(2)...................................... $ 0.22 $ 0.27
Cumulative effect of change in method of accounting for
postretirement benefits................................................. -- (0.26)
----------- -----------
Net income per common share(3).............................................. $ 0.22 $ 0.01
----------- -----------
Weighted average number of common shares outstanding(3)..................... 40,151,954 39,763,458
=========== ===========
</TABLE>
(1) Menswear sales on discontinued brands (Dior, Nicklaus and Puritan) were
lower by $15 million. Olga sales were lower by $14 million, due to
earthquake interruption, partially offset by an anticipated recovery of
approximately $8 million. Excluding these two items, net revenues would
have been $168.7 million, up 8% over last year.
(2) Income from continuing operations, before the loss on California
earthquake was $12.0 million ($.30 per share), an increase of 11.2% over
the $10.8 million ($0.27 per share) recorded last year.
(3) Adjusted to reflect the two-for-one stock split for shareholders of
record on September 8, 1994 and effective October 3, 1994.
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
THE WARNACO GROUP, INC.
Consolidated Condensed Statements of Cash Flow (unaudited)
Increase (Decrease) in Cash
(in thousands of dollars)
<TABLE>
<CAPTION>
Quarter ended
----------------------------
April 9, 1994 April 3, 1993
----------- -----------
<S> <C> <C>
Cash flow from operations:
Net income................................................................... $ 8,961 $ 252
Non cash items included in net income:
Depreciation and amortization.............................................. 4,698 5,303
Interest................................................................... 274 976
Loss on California earthquake.............................................. 3,000 --
Cumulative effect of change in method of accounting for
postretirement benefits................................................... -- 10,500
Income taxes paid............................................................ (921) (784)
Other changes in operating accounts.......................................... (53,623) (33,200)
Other........................................................................ (3,434) (6,503)
-------- --------
Cash used in operations........................................................ (41,045) (23,456)
-------- --------
Cash flow from investing activities:
Net proceeds from sale of fixed assets....................................... 115 --
Purchase of property, plant & equipment...................................... (5,520) (4,261)
Payment for purchase of Calvin Klein underwear businesses and trademarks..... (33,500) --
-------- --------
Cash used in investing activities.............................................. (38,905) (4,261)
-------- --------
Cash flow from financing activities:
Borrowings under revolving credit facilities................................. 71,723 21,524
Net proceeds from the sale of Class A common stock and repayment
of notes receivable from employees......................................... 793 101
Repayments of debt........................................................... -- (223)
Proceeds from other financings............................................... 7,445 2,587
Increase in deferred financing costs......................................... (10) --
-------- --------
Cash provided from financing activities........................................ 79,951 23,989
-------- --------
Increase (decrease) in cash.................................................... 1 (3,728)
Cash at beginning of period.................................................... 4,651 3,763
-------- --------
Cash at end of period.......................................................... $ 4,652 $ 35
======== ========
Other changes in operating accounts:
Accounts receivable.......................................................... $(12,312) $(16,178)
Inventories.................................................................. (12,572) (7,121)
Other current assets......................................................... (8,242) (5,665)
Accounts payable and accrued liabilities..................................... (21,247) (5,586)
Income taxes payable......................................................... 750 1,350
-------- --------
$(53,623) $(33,200)
======== ========
Supplemental disclosure of cash flow information:
In the month of March, Warnaco completed the acquisition of
Calvin Klein underwear businesses and trademarks
Fair value of assets acquired............................................. $ 69,588
Cash paid................................................................. (33,500)
Issuance of common stock.................................................. (22,836)
--------
Liabilities assumed.......................................................... $ 13,252
========
</TABLE>
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
THE WARNACO GROUP, INC.
Notes to Consolidated Condensed Financial Statements
1. In the opinion of the Company, the accompanying consolidated
condensed financial statements contained all the adjustments (all of which
were of a normal recurring nature) necessary to present fairly the financial
position of the Company as of April 9, 1994 as well as its results of
operations and cash flows for the periods ended April 9, 1994 and April 3,
1993. Operating results for interim periods may not be indicative of results
for the full fiscal year.
2. Certain amounts for prior periods have been reclassified to be
comparable with the current period presentation.
3. In the first quarter of 1994, there is a $3.0 million non-recurring
charge related to the January 1994 California earthquake.
4. On March 14, 1994, the Company acquired the Calvin Klein worldwide
businesses and trademarks for men's underwear, a worldwide license for Calvin
Klein men's accessories and the Calvin Klein worldwide businesses and
trademarks for women's intimate apparel upon the expiration of an existing
license on December 31, 1994.
5. On August 25, 1994, the Company's Board of Directors authorized a
two-for-one stock split for shareholders of record on September 8, 1994 and
effective October 3, 1994. The split increased the number of outstanding
shares of common stock and outstanding options by 100%. Exercise prices for
outstanding options were adjusted to reflect the split. All outstanding share
and per share information has been adjusted to reflect the split as if it had
occurred at the beginning of each period presented.
6. In August 1994, the Company purchased 286,600 shares of its
outstanding common stock on the open market at an average price of $17.45 per
share. Total cost of the purchase was approximately $5 million and is included
in stockholders' equity as treasury stock.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
STATEMENT OF OPERATIONS (selected data)
(amounts in millions of dollars)
<TABLE>
<CAPTION>
First Quarter 1994 First Quarter 1993
---------------- ----------------
<S> <C> <C>
Net revenues(1)....................................... $147.7 $156.8
Cost of goods sold.................................... 97.3 102.0
------ ------
Gross profit.......................................... 50.4 54.8
% to net revenues................................... 34.1% 35.0%
Selling, administrative and general................... 30.3 32.8
------ ------
Income before earthquake, interest and income taxes... 20.1 22.0
% to net revenues................................... 13.6% 14.0%
Loss on California earthquake......................... 3.0 --
Income before interest and income taxes............... 17.1 22.0
Interest expense...................................... 7.4 9.9
Provision for income taxes............................ 0.7 1.3
------ ------
Income from continuing operations(2).................. $ 9.0 $ 10.8
====== ======
</TABLE>
(1) Menswear sales on discontinued brands (Dior, Nicklaus and Puritan) were
lower by $15 million. Olga sales were lower by $14 million due to
earthquake interruption, partially offset by an anticipated recovery of
approximately $8 million. Excluding these two items, net revenues would
have been $168.7 million, up 8% over last year.
(2) Income from continuing operations before the impact of the Loss on the
California earthquake was $12.0 million ($0.30 per share), an increase of
11.2% compared to the $10.8 million ($0.27 per share) recorded last year.
All share and per share data have been adjusted to reflect the two-for-one
stock split for shareholders of record on September 8, 1994 and effective
October 3, 1994.
Due to the California earthquake in January and the discontinued menswear
brands of Dior, Nicklaus and Puritan, net revenues decreased 5.8% from $156.8
million in the first quarter of 1993 to $147.7 million in the first quarter of
1994. Excluding these two items, net revenues would have been $168.7 million,
up 8% over last year.
Intimate apparel division net revenues increased 3.2% in the first
quarter of 1994 to $99.1 million from $96.0 million in the first quarter of
1993. On January 17, 1994 the California earthquake caused a shutdown of
Olga's distribution center for six weeks. The Company successfully relocated
the distribution center to other facilities and began shipping normally in
March 1994. Excluding the impact of the earthquake, intimate apparel net
revenues would have been up nearly 10%. On March 14, 1994, the Company
acquired the Calvin Klein men's underwear worldwide businesses and trademarks,
a worldwide license for Calvin Klein men's accessories, and the Calvin Klein
worldwide businesses and trademarks for women's intimate apparel upon the
expiration of an existing license on December 31, 1994. Included in the
intimate apparel net revenues are approximately $3 million of Calvin Klein
men's underwear, which represents three weeks of shipments in March.
Menswear division net revenues decreased 21.8% from $53.0 million in the
first quarter of 1993 to $41.4 million in the first quarter of 1994 due to the
discontinued brands of Dior, Nicklaus and Puritan. This was partially offset
by a 24.7% increase in the Chaps brand. Excluding the discontinued brands,
Menswear net revenues would have been up 9.0% over the previous year.
Gross profit decreased 8.1% from $54.8 million in the first quarter of
1993 to $50.4 million in the first quarter of 1994. The decrease in gross
profit is primarily a result of the decreased net revenues noted above. Gross
profit as a percentage of net revenues decreased from 35.0% in the first
quarter of 1993 to 34.1% in the first quarter of 1994, due to a higher mix of
Fruit of the Loom and Calvin Klein sales in the quarter which have lower gross
margins than the lost Olga sales resulting from the earthquake.
Selling, administrative and general expenses decreased from $32.8 million
(20.9% of net revenues) in the first quarter of 1993 to $30.3 million (20.5%
of net revenues) in the first quarter of 1994. The decrease in selling,
administrative and general expenses as a percentage of net revenues reflects
the reduction in Menswear division operating costs.
The first quarter of 1994 includes a non-recurring loss on the California
earthquake of $3.0 million, related to the deductible portion of the Company's
insurance policy on the January 17th California earthquake which temporarily
shut down the Olga distribution center.
Interest expense decreased 25.2% from $9.9 million in the first quarter
of 1993 to $7.4 million in the first quarter of 1994. The decrease in
interest expense reflects the refinancing of the Company's debt in September
1993. The Company's debt is substantially all bank debt at a rate of LIBOR
plus 1.25%, and in January 1994, the Company negotiated a $100 million
two-year interest rate swap at a fixed LIBOR rate of 4.290%.
The provision for income taxes for both periods primarily reflects
accruals for taxes of foreign subsidiaries.
Income from continuing operations, before the impact of the California
earthquake, increased 11.1% from $10.8 million ($0.27 per share) in the first
quarter of 1993 to $12.0 million ($0.30 per share) in the first quarter of
1994 reflecting the increased operating income and decreased interest expense
noted above.
The first quarter of 1993 includes a one-time non-cash expense of $10.5
million for the cumulative effect of a change in the method of accounting for
employee postretirement benefits, which was recorded in accordance with the
provisions of Statement of Financial Accounting Standards No. 106 ("FAS No.
106"). The adoption of FAS No. 106 is not expected to have a material impact
on the results of operations in any future period.
Net income for the first quarter of 1994, after the $3.0 million one-time
charge mentioned above, was $9.0 million compared to a net income of $300,000
for the first quarter of 1993 which reflects the FAS No. 106 one-time charge
noted above.
Capital Resources and Liquidity
The Company's liquidity requirements arise primarily from its debt
service requirements and the funding of the Company's working capital needs,
primarily inventory and accounts receivable. The Company's borrowing
requirements are seasonal, with peak working capital needs generally arising
at the end of the second quarter and during the third quarter of the fiscal
year. The Company typically generates nearly all of its operating cash flow
in the fourth quarter of the fiscal year reflecting third and fourth quarter
shipments and the sale of inventory built during the first half of the fiscal
year.
Cash used by operating activities in the first quarter of 1994 was $41.0
million compared to a use of $23.5 million in the comparable 1993 period,
primarily due to a decrease in accrued liabilities and accounts payable. The
use of cash is attributable to a seasonal increase in working capital,
primarily accounts receivable and inventories.
The Company believes that funds available under its existing credit
arrangements and cash flow to be generated from future operations will be
sufficient to meet working capital and capital expenditure needs of the
Company, including interest and principal payments on outstanding debt
obligations, for the foreseeable future.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, File No.
33-45877.)
3.2 By-Laws of the Company. (Incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1, File No. 33-45877.)
4.1 Registration Rights Agreement, dated March 14, 1994, between
the Company and Calvin Klein, Inc. ("CKI").*
10.1 Credit Agreement dated July 16, 1993 (the "U.S. $55,000,000
Credit Agreement") among Warnaco Inc., The Bank of Nova Scotia,
as agent, and certain other lenders named therein.*
10.2 Amendment No. 1 to the U.S. $55,000,000 Credit Agreement dated
October 14, 1993.*
10.3 Amendment No. 2 to the U.S. $55,000,000 Credit Agreement dated
November 5, 1993.*
10.4 Amendment No. 3 to the U.S. $55,000,000 Credit Agreement dated
January 7, 1994.*
10.5 Amendment No. 4 to the U.S. $55,000,000 Credit Agreement dated
April 25, 1994.*
10.6 Acquisition Agreement dated March 14, 1994 by and among CKI,
the Company and Warnaco Inc.*
10.7 U.S. $500,000,000 Credit Agreement dated October 14, 1993 among
the Company, Warnaco Inc., The Bank of Nova Scotia, as
co-managing agent and paying agent, Citicorp U.S.A., as
co-managing agent and documentation and collateral agent, and
certain other lenders named therein. (Incorporated herein by
reference to Exhibit 10-1 to the Company's Form 10-Q filed
November 16, 1993.)
10.8 Employment Agreement, dated January 6, 1991, between the
Company and Linda J. Wachner. (Incorporated herein by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, File No. 33-45877.)
10.9 Incentive Compensation Plan (Incorporated herein by reference
to Exhibit 10.8 to the Company's Registration Statement on Form
S-1, File No. 33-45877.)
10.10 1991 Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.9 to the Company's Registration Statement on Form
S-1, File No. 33-45877.)
10.11 Amended and Restated 1988 Employee Stock Purchase Plan, as
amended. (Incorporated herein by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1, File No.
33-45877.)
10.12 Warnaco Employee Retirement Plan. (Incorporated herein by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1, File No. 33-45877.)
10.13 Executive Management Agreement dated as of May 9, 1991 between
the Company, Warnaco and The Spectrum Group, Inc. (Incorporated
herein by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1, File No. 33-45877.)
10.14 1993 Stock Plan for non-employee directors. (Incorporated
herein by reference to the Company's Proxy Statement for its
1994 Annual Meeting of Shareholders.)
10.15 Amended and Restated 1993 Stock Plan. (Incorporated herein by
reference to the Company's Proxy Statement for its 1994 Annual
Meeting of Shareholders.)
10.16 The Warnaco Group, Inc. Supplemental Incentive Compensation
Plan. (Incorporated herein by reference to the Company's Proxy
Statement for its 1994 Annual Meeting of Shareholders.)
11.1 Earnings per share.
- - - -------------
* Previously filed.
(b) A Current Report on Form 8-K, dated January 18, 1994, was filed
with the Securities and Exchange Commission in connection wth
the announcement of the acquisition by the Company of certain
businesses and trademarks of Calvin Klein.
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.
THE WARNACO GROUP, INC.
Date: November 22, 1994
By: /s/ DARIUSH ASHRAFI
----------------------------
Dariush Ashrafi
Director, Senior Vice President
and Chief Financial Officer
Principal Financial Officer
Date: November 22, 1994
By: /s/ WILLIAM S. FINKELSTEIN
----------------------------
William S. Finkelstein
Senior Vice President and
Corporate Controller
Principal Accounting Officer
EXHIBIT 11.1
THE WARNACO GROUP, INC.
Calculation of Income per Common Share
(in thousands except share data)
<TABLE>
<CAPTION>
For the quarter ended
---------------------------
April 9, 1994 April 3, 1993
------------- -------------
<S> <C> <C>
Income from continuing operations applicable to common shareholders(1)............ $ 8,961 $ 10,752
Cumulative effect of change in the method of accounting for
postretirement benefits......................................................... (10,500)
----------- -----------
Net income........................................................................ $ 8,961 $ 252
=========== ===========
Weighted average number of shares actually outstanding during the period(3)....... 36,541,894 36,075,000
Add: common equivalent shares(2)(3)............................................... 3,610,060 3,688,458
----------- -----------
Weighted average number of shares used in calculation of primary income
per share....................................................................... 40,151,954 39,763,458
=========== ===========
Income per common share:(3)
Income from continuing operations applicable to common shareholders............... $ 0.22 $ 0.27
Cumulative effect of change in the method of accounting for
postretirement benefits....................................................... -- (0.26)
----------- -----------
Net income per common share....................................................... $ 0.22 $ 0.01
=========== ===========
</TABLE>
(1) Includes loss on California earthquake of $3.0 million ($0.07 per share)
in the first quarter of 1994.
(2) Represents additional shares under the Employee Stock Plan and Company
Option Plan for which portions of the exercise price are below average
price during the quarter.
(3) All share and per share amounts have been adjusted for the two-for-one
stock split for shareholders of record on September 8, 1994 and effective
October 3, 1994.
