<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 6, 1996
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 May 6, 1996 is as follows: 51,823,062.
________________________________________________________________________________
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 6, JANUARY 6,
1996 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash (restricted $100 and $886, respectively)..................................... $ 5,256 $ 6,162
Accounts receivable -- net...................................................... 183,694 156,607
Inventories:
Finished goods.................................................................... 244,567 214,252
Work in process................................................................... 82,295 77,940
Raw materials..................................................................... 70,557 64,274
---------- -----------
Total inventories............................................................ 397,419 356,466
Other current assets................................................................... 29,649 23,148
---------- -----------
Total current assets......................................................... 616,018 542,383
Property, plant and equipment, (net of accumulated depreciation of $85,223 and $81,051,
respectively)........................................................................ 112,387 106,325
Intangibles and other assets -- net.................................................. 292,767 290,421
---------- -----------
$1,021,172 $ 939,129
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility......................................... $ 140,807 $ 51,033
Borrowing under foreign credit facilities......................................... 6,534 --
Current portion of long-term debt................................................. 31,469 26,700
Accounts payable and accrued liabilities.......................................... 123,384 149,950
Accrued income taxes.............................................................. 5,671 5,231
---------- -----------
Total current liabilities.................................................... 307,865 232,914
---------- -----------
Long-term debt......................................................................... 189,211 194,301
Other long-term liabilities............................................................ 11,648 11,613
Stockholders' equity:
Preferred Stock; $.01 par value................................................... -- --
Common Stock; $.01 par value...................................................... 521 521
Capital in excess of par value.................................................... 568,505 567,965
Cumulative translation adjustment................................................. (4,257) (3,745)
Accumulated deficit............................................................... (35,302) (46,896)
Treasury stock, at cost........................................................... (5,000) (5,000)
Notes receivable for common stock issued and unearned stock compensation.......... (12,019) (12,544)
---------- -----------
Total stockholders' equity................................................... 512,448 500,301
---------- -----------
$1,021,172 $ 939,129
---------- -----------
---------- -----------
</TABLE>
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
2
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<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
APRIL 6, APRIL 8,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net revenues....................................................................... $ 206,480 $ 195,156
Cost of goods sold................................................................. 133,571 128,332
----------- -----------
Gross profit....................................................................... 72,909 66,824
Selling, administrative and general expenses....................................... 40,561 41,335
----------- -----------
Income before interest and income taxes............................................ 32,348 25,489
Interest expense................................................................... 7,195 8,360
----------- -----------
Income before income taxes......................................................... 25,153 17,129
Provision for income taxes......................................................... 9,935 6,509
----------- -----------
Net income......................................................................... $ 15,218 $ 10,620
----------- -----------
----------- -----------
Net income per common share........................................................ $ 0.29 $ 0.26
----------- -----------
----------- -----------
Weighted average number of common shares outstanding............................... 53,240,235 41,395,979
----------- -----------
----------- -----------
</TABLE>
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
APRIL 6, APRIL 8,
1996 1995
-------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flow from operations:
Net income............................................................................. $ 15,218 $ 10,620
Non-cash item included in net income:
Depreciation and amortization..................................................... 4,336 5,061
Income taxes paid...................................................................... (434) (912)
Other changes in operating accounts.................................................... (91,690) (57,391)
Other.................................................................................. 1,272 (398)
-------- -----------
Cash used in operations.................................................................. (71,298) (43,020)
-------- -----------
Cash flow from investing activities:
Net proceeds from sale of fixed assets................................................. 148 5,319
Purchase of property, plant & equipment................................................ (8,048) (5,952)
Payment for purchase of acquired assets................................................ (14,000) (5,000)
Repurchase of Calvin Klein license -- Canada......................................... -- (6,200)
-------- -----------
Cash used in investing activities........................................................ (21,900) (11,833)
-------- -----------
Cash flow from financing activities:
Borrowing under revolving credit facilities............................................ 96,308 58,140
Net proceeds from the sale of Class A common stock, exercise of stock options and
repayment of notes receivable from employees........................................ 540 305
Repayments of debt..................................................................... (321) (3,070)
Dividends paid......................................................................... (3,624) --
Increase in deferred financing costs................................................... (611) --
-------- -----------
Cash provided from financing activities.................................................. 92,292 55,375
-------- -----------
Increase (decrease) in cash.............................................................. (906) 522
Cash at beginning of period.............................................................. 6,162 3,791
-------- -----------
Cash at end of period.................................................................... $ 5,256 $ 4,313
-------- -----------
-------- -----------
Other changes in operating accounts:
Accounts receivable.................................................................... $(21,087) $ 560
Inventories............................................................................ (40,953) (31,581)
Other current assets................................................................... (6,280) (10,615)
Accounts payable and accrued liabilities............................................... (24,244) (16,700)
Accrued income taxes................................................................... 874 945
-------- -----------
$(91,690) $ (57,391)
-------- -----------
-------- -----------
</TABLE>
This statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
4
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THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company,
the accompanying consolidated condensed financial statements contain 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 6, 1996 as
well as its results of operations and cash flows for the periods ended April
6, 1996 and April 8, 1995. Operating results for interim periods may not be
indicative of results for the full fiscal year. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended January
6, 1996.
2. Certain amounts for prior periods have been reclassified to be comparable
with the current period presentation.
3. On February 9 1996, the Company acquired substantially all of the assets
(including certain subsidiaries) comprising the GJM Group of Companies
('GJM') from Cygne Design Inc. GJM is a private label manufacturer of women's
lingerie and sleepwear. The purchase price consisted of a cash payment of
$12,500,000 and a cash payment of $1,500,000 due upon the satisfactory
completion of an audit of the net assets acquired. The purchase price is
subject to adjustment as determined by the audit of the balance sheet of the
acquired assets. The preliminary allocation of purchase price to the
estimated fair value of the assets acquired is summarized below (in millions
of dollars):
<TABLE>
<S> <C>
Accounts receivable............................................... $10.7
Inventories....................................................... 7.7
Prepaid expenses.................................................. 1.4
Property, plant and equipment..................................... 2.9
Goodwill and other................................................ 7.5
-----
30.2
Accounts payable and liabilities assumed.......................... (16.2)
-----
Total purchase price......................................... $14.0
-----
-----
</TABLE>
4. On May 3, 1996 the Company entered into an agreement in principle to buy
Lejaby S.A./Euralis S.A. ('Lejaby'), a leading European intimate apparel
manufacturer. The terms of the transaction and the allocation of purchase
price to the net assets acquired are subject to the completion of a
definitive purchase agreement.
5. On May 6, 1996, after a careful evaluation of the Company's men's dress shirt
operations, the Company announced that it decided to cease manufacturing and
marketing the Hathaway brand. The Company expects to record a loss on the
shutdown of the Hathaway operations of approximately $55 million ($37 million
after income tax benefits) in the second quarter of fiscal 1996, comprising
primarily a write-down of assets, liquidation of inventory and accounts
receivable and severance costs.
In addition, the Company will consolidate certain intimate apparel
manufacturing, distribution and administrative operations in the United
States and Europe. The consolidations are expected to result in a charge of
approximately $38 million ($25 million after income tax benefits) in the
second quarter of fiscal 1996, comprising primarily a write-down of asset
values, accruals of lease and other contractual obligations and severance
costs.
5
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<PAGE>
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>
THREE MONTHS ENDED
----------------------
APRIL 6, APRIL 8,
1996 1995
-------- --------
<S> <C> <C>
Net revenues................................................................................ $206.5 $195.2
Cost of goods sold.......................................................................... 133.6 128.3
-------- --------
Gross profit................................................................................ 72.9 66.8
% to net revenues......................................................................... 35.3% 34.2%
Selling, administrative and general......................................................... 40.6 41.3
-------- --------
Income before interest and income taxes..................................................... 32.3 25.5
% to net revenues......................................................................... 15.7% 13.1%
Interest expense............................................................................ 7.2 8.4
Provision for income taxes.................................................................. 9.9 6.5
-------- --------
Net income.................................................................................. $ 15.2 $ 10.6
-------- --------
-------- --------
</TABLE>
Following a comprehensive evaluation the Company's men's dress shirt
business, the Company decided to cease manufacturing and marketing the Hathaway
brand. The decision will result in the sale of the business or the cessation of
operations at those facilities where Hathaway is produced. As a result, the
Company will record a loss on the shutdown of the Hathaway operations of
approximately $55 million ($37 million after income tax benefits) in the second
quarter of fiscal 1996, comprising primarily a write-down of assets, liquidation
of inventory and accounts receivable and severance costs.
In addition, the Company will consolidate certain intimate apparel
manufacturing, distribution and administrative operations in the United States
and Europe. The consolidations are expected to result in a charge of
approximately $38 million ($25 million after income tax benefits) in the second
quarter of fiscal 1996, comprising primarily a write-down of asset values,
accruals of lease and other contractual obligations and severance costs.
Net revenues in the first quarter of fiscal 1996 were $206.5 million, 5.8%
higher than the $195.2 million recorded in the first quarter of fiscal 1995.
Intimate apparel division net revenues increased 7.1% in the first quarter
of fiscal 1996 to $156.8 million from $146.4 million in the first quarter of
fiscal 1995. Net revenues for the first quarter of fiscal 1995 include $24.4
million more sales for Victoria Secret and Avon, excluding these items intimate
apparel net revenues increased 30.7% in the first quarter of fisal 1996 compared
to fiscal 1995. The increase is a result of a 101% increase in Calvin Klein, a
13.2% increase in Warner's and Olga domestic sales due to successful launch of
Van Raalte and the Speedo sports bra and an increase of 22.7% in international
net revenues. In addition, the company acquired GJM in February 1996, which
generated $8.5 million in net revenues in the first quarter of fiscal 1996.
Menswear division net revenues increased 2.2% to $42.7 million from the
$41.8 million in the first quarter of fiscal 1995 attributable to an increase in
Calvin Klein accessories net revenues.
Gross profit increased 9.1% to $72.9 million in the first quarter of fiscal
1996 from $66.8 million recorded in the first quarter of fiscal 1995. Gross
profit as a percentage of net revenues increased to 35.3% in the first quarter
of fiscal 1996 from 34.2% in the first quarter of fiscal 1995. The increase in
gross profit and gross profit as a percentage of net revenues reflects the
higher mix of Calvin Klein sales and manufacturing efficiencies in the intimate
apparel division.
Selling, administrative and general expenses decreased to $40.6 million
(19.6% of net revenues) from the $41.3 million (21.2% of net revenues) recorded
in the first quarter of fiscal 1995. The decrease
6
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<PAGE>
in selling, administrative and general expense in dollars and as a percentage of
net revenues is due primarily to the continued efforts to control costs and the
leverage of the higher Calvin Klein sales.
Interest expense decreased 13.9% in the first quarter of fiscal 1996 to
$7.2 million from $8.4 million recorded in the first quarter of fiscal 1995
reflecting the use of the proceeds from the Company's October 1995 public
offering to reduce outstanding debt.
The provision for income taxes for the first quarter of fiscal 1996 was
$9.9 million compared to $6.5 million in the first quarter of fiscal 1995. The
Company's effective tax rate for the first quarter of fiscal 1996 was 39.5%
compared to 38% for the first quarter of fiscal 1995. The increase in effective
tax rate in 1996 compared to 1995 reflects the realization of tax benefits in
1995 of certain state net operating loss carryforwards.
Net income for the first quarter of 1996 was $15.2 million an increase of
43.3% over the $10.6 million reported last year. The increased net income
reflects the improved operating income and lower interest expense partially
offset by higher income taxes, as noted above.
CAPITAL RESOURCES AND LIQUIDITY
On May 11, 1995, consistent with the Company's goal of providing increased
shareholder value, the Company declared its initial quarterly cash dividend of
$0.07 per share. The Company has since declared five successive quarterly cash
dividends of $0.07 per share.
On February 9, 1996 the Company purchased substantially all of the assets,
including certain subsidiaries, of the GJM Group of Companies ('GJM'), from
Cygne Design Inc. GJM is a private label manufacturer of women's lingerie and
sleepwear. The purchase price consisted of a cash payment of $12,500,000 and a
cash payment of $1,500,000 due upon the satisfactory completion of an audit of
the net assets acquired. The purchase price is subject to adjustment as
determined by the audit of the balance sheet of the acquired assets.
On May 3, 1996 the Company entered into an agreement in principle to
purchase Lejaby S.A./Euralis S.A. ('Lejaby'), a leading European intimate
apparel manufacturer. The terms of the acquisition are subject to the completion
of a definitive purchase agreement. The Company expects to close this
transaction by June 30, 1996.
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 in operations in the first quarter of fiscal 1996 was $71.3
million compared to a use of $43.0 million in the comparable 1995 period. The
use of cash in the first quarter of the Company's fiscal year is a result of
seasonal increases in working capital, primarily inventory and accounts
receivable. The increase in inventory is primarily in intimate apparel with
increases in Calvin Klein inventory to support sales increases, Warner's basic
goods inventory which has contributed to an improvement in service levels to our
customers and GJM, a newly acquired division, which the Company acquired in
1996.
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 dividends and interest and principal payments on outstanding debt
obligations for the next twelve months and for the next several years.
7
<PAGE>
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a) Exhibits.
11.1 -- Earnings per share.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of fiscal 1996.
</TABLE>
8
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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: May 21, 1996 By: /s/ WILLIAM S. FINKELSTEIN
-----------------------------
William S. Finkelstein
Director, Senior Vice President
and Chief Financial Officer
Principal Financial and
Accounting Officer
Date: May 21, 1996 By: /s/ WALLIS H. BROOKS
-----------------------------
Wallis H. Brooks
Vice President and
Corporate Controller
9
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THE WARNACO GROUP, INC.
Calculation of Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 6, April 8,
1996 1995
----------- -----------
<S> <C> <C>
Net income $15,218,000 $10,620,000
=========== ===========
Net income per share $0.29 $0.26
=========== ===========
Weighted average number of shares
of common stock outstanding:
Class A common stock issued 49,122,262 37,499,492
Shares issued in underwritten public
offering -- --
Shares of restricted stock issued 320,000 --
Shares issued upon exercise of options 19,115 --
Common stock equivalents - using the
Treasury stock method 4,065,458 4,183,087
Less:
Treasury stock held (286,600) (286,600)
----------- -----------
Weighted average number of shares of
common stock outstanding 53,240,235 41,395,979
=========== ===========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF THE WARNACO GROUP, INC. FOR THE
QUARTER ENDED APRIL 6, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> JAN-07-1996
<PERIOD-END> APR-06-1996
<CASH> 5,256
<SECURITIES> 0
<RECEIVABLES> 185,595
<ALLOWANCES> 1,901
<INVENTORY> 397,419
<CURRENT-ASSETS> 616,018
<PP&E> 197,610
<DEPRECIATION> 85,223
<TOTAL-ASSETS> 1,021,172
<CURRENT-LIABILITIES> 307,865
<BONDS> 189,211
0
0
<COMMON> 521
<OTHER-SE> 511,927
<TOTAL-LIABILITY-AND-EQUITY> 1,021,172
<SALES> 206,480
<TOTAL-REVENUES> 206,480
<CGS> 133,571
<TOTAL-COSTS> 133,571
<OTHER-EXPENSES> 40,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,195
<INCOME-PRETAX> 25,153
<INCOME-TAX> 9,935
<INCOME-CONTINUING> 15,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,218
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
