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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 5, 1997
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 (I.R.S. Employer
of 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.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Class A Common Stock as of
May 20, 1997 is as follows: 51,765,384.
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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 5, 1997 January 4, 1997
------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 9,582 $ 11,840
Accounts receivable - net 238,873 211,038
Inventories:
Finished goods 250,560 227,929
Work in process 81,638 76,445
Raw materials 100,276 82,944
---------- ----------
Total inventories 432,474 387,318
Other current assets 35,523 40,313
---------- ----------
Total current assets 716,452 650,509
Property, plant and equipment,
(net of accumulated depreciation of
$91,577 and $85,244, respectively) 125,054 121,537
Other assets:
Intangibles and other assets - net 383,289 370,898
---------- ----------
$1,224,795 $1,142,944
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility $ 259,822 $ 146,960
Borrowing under foreign credit facilities 22,729 19,185
Current portion of long-term debt 47,220 49,281
Accounts payable and accrued liabilities 188,439 224,272
Accrued income taxes 1,143 195
---------- ----------
Total current liabilities 519,353 439,893
---------- ----------
Long-term debt 209,702 215,805
Other long-term liabilities 11,524 11,532
Stockholders' equity:
Preferred Stock; $.01 par value - -
Common Stock; $.01 par value 524 524
Capital in excess of par value 576,416 575,691
Cumulative translation adjustment (5,002) (3,307)
Accumulated deficit (55,681) (69,667)
Treasury stock, at cost (17,367) (12,030)
Notes receivable for common stock
issued and unearned stock compensation (14,674) (15,497)
---------- ----------
Total stockholders' equity 484,216 475,714
---------- ----------
$1,224,795 $1,142,944
========== ==========
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Condensed Financial Statements.
2
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THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
April 5, 1997 April 6, 1996
------------- -------------
<S> <C> <C>
Net revenues $ 251,526 $ 206,480
Cost of goods sold 158,784 133,571
----------- ------------
Gross profit 92,742 72,909
Selling, general and administrative
expenses 53,214 40,561
---------- -----------
Income before interest and income taxes 39,528 32,348
Interest expense 9,813 7,195
----------- ------------
Income before income taxes 29,715 25,153
Provision for income taxes 11,589 9,935
----------- ------------
Net income $ 18,126 $ 15,218
============ ============
Net income per share $ 0.34 $ 0.29
============ ============
Weighted average number of shares
of common stock outstanding 54,085,433 53,240,235
============ ============
</TABLE>
This statement should be read in conjunction with the accompanying Notes to
Consolidated Condensed Financial Statements.
3
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THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 5, 1997 April 6, 1996
------------- --------------
<S> <C> <C>
Cash flow from operations:
Net income $ 18,126 $ 15,218
Non-cash items included in net income:
Depreciation and amortization 8,044 4,336
Amortization of unearned stock compensation 750 --
Income taxes paid (3,089) (434)
Other changes in operating accounts (99,367) (90,418)
--------- ---------
Net cash used in operations before
non-recurring items (75,536) (71,298)
Payment of accruals related to exiting the
Hathaway business, consolidating and
realigning the intimate apparel division
and other items (1,640) --
--------- ---------
Net cash used in operations (77,176) (71,298)
Cash flow from investing activities:
Net proceeds from sale of fixed assets 51 148
Purchase of property, plant & equipment (9,891) (8,048)
Payment for purchase of acquired assets
and acquisition accruals (6,215) (14,000)
Increase in intangible and other assets (8,931) --
--------- ---------
Net cash used in investing activities
activities (24,986) (21,900)
Cash flow from financing activities:
Borrowing under revolving credit facilities 116,503 96,308
Net proceeds from the exercise of options
and repayment of notes receivable
from employees 798 540
Repayments of debt (8,261) (321)
Dividends paid (3,668) (3,624)
Purchase of Treasury shares (5,337) --
Increase in deferred financing costs (131) (611)
--------- ---------
Net cash provided from financing activities 99,904 92,292
--------- ---------
Increase (decrease) in cash (2,258) (906)
Cash at beginning of period 11,840 6,162
--------- ---------
Cash at end of period $ 9,582 $ 5,256
========= =========
Other changes in operating accounts:
Accounts receivable $ (27,835) $ (21,087)
Inventories (45,156) (40,953)
Other current assets 4,790 (6,280)
Accounts payable and accrued liabilities (34,665) (24,244)
Accrued income taxes 4,037 874
Other (538) 1,272
--------- ---------
$ (99,367) $ (90,418)
========= =========
</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 consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles and
Securities and Exchange Commission rules and regulations 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 5, 1997 as
well as its results of operations and cash flows for the periods ended April
5, 1997 and April 6, 1996. 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
4, 1997.
2. Certain amounts for prior periods have been reclassified to be comparable
with the current period presentation.
3. On May 14, 1997, the Company's Board of Directors authorized the repurchase
of an additional 420,000 shares to supplement its previously authorized two
million share stock repurchase program.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
requires the dual presentation of Basic and Diluted Earnings per share. Pro
Forma Basic and Diluted Earnings per share calculated in accordance with this
standard would have been income of $0.35 and $0.34, respectively, for the three
months ended April 5, 1997 and income of $0.30 and $0.29, respectively, for the
three months ended April 6, 1996. The Company will adopt this standard as of
January 3, 1998 as required. Early adoption is not permitted.
5
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THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
April 5, April 6,
1997 1996
---- ----
<S> <C> <C>
Net revenues $ 251.5 $ 206.5
Cost of goods sold 158.8 133.6
-------- --------
Gross profit 92.7 72.9
% of net revenues 36.9% 35.3%
Selling, general and
administrative expenses 53.2 40.6
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Income before interest and
income taxes 39.5 32.3
% to net revenues 15.7% 15.7%
Interest expense 9.8 7.2
Provision for income taxes 11.6 9.9
------- --------
Net income $ 18.1 $ 15.2
======= =======
</TABLE>
Net revenues in the first quarter of fiscal 1997 were $251.5 million, 21.8%
higher than the $206.5 million recorded in the first quarter of fiscal 1996.
Intimate apparel division net revenues increased 24.2% to $194.8 million in the
first quarter of fiscal 1997 from $156.8 million in the first quarter of fiscal
1996. The increase in net revenues in the first quarter of fiscal 1997 compared
to fiscal 1996 reflects $32.5 million related to the acquisitions of Lejaby, GJM
and Bodyslimmers and an increase in Calvin Klein net revenues. International
shipments in the first quarter of fiscal 1997, including Calvin Klein and
Lejaby, increased 63.9% to $65.4 million from $39.9 million in the first quarter
of fiscal 1996.
6
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International sales accounted for 33.6% of total Divisional Net sales in the
first quarter of fiscal 1997 compared to 25.4% of total Divisional Net sales in
the first quarter of fiscal 1996, reflecting the Company's continuing expansion
outside the United States.
Menswear division net revenues increased 11.2% to $47.5 million in the first
quarter of fiscal 1997 from $42.7 million in the first quarter of fiscal 1996.
Excluding discontinued operations, net revenues increased 36.1% in fiscal 1997
compared to fiscal 1996, primarily due to an increase of 41% in Chaps.
Gross profit increased 27.2% to $92.7 million in the first quarter of fiscal
1997 from $72.9 million in the first quarter of fiscal 1996. Gross margin was
36.9% in the first quarter of fiscal 1997, 160 basis points higher than
the 35.3% recorded in the first quarter of fiscal 1996. The increase in gross
profit reflects the higher net revenues, as noted above. The increase in
gross profit as a percentage of net revenues reflects a higher mix of regular
price sales, manufacturing efficiencies and the positive impact of discontinuing
the Hathaway brand.
Selling, general and administrative expenses increased to $53.2 million (21.1%
of net revenues) in the first quarter of fiscal 1997 from $40.6 million (19.6%
of net revenues) in the first quarter of fiscal 1996. The increase in selling,
general and administrative expenses primarily reflects the higher sales volume,
as noted above. The increase in selling, general and administrative expenses as
a percentage of net revenues reflects higher advertising to support the Marilyn
Monroe and Calvin Klein businesses (increasing from 3.7% to 4.8% of net
revenues) and higher amortization expense related to intangible assets from the
acquisitions completed in fiscal 1996, partially offset by cost savings from the
consolidation implemented in 1996.
Interest expense increased $2.6 million to $9.8 million in the first quarter of
fiscal 1997 compared to $7.2 million in the first quarter of fiscal 1996. The
increase reflects interest costs attributable to the three acquisitions
completed in fiscal 1996.
7
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The provision for income taxes for the first quarter of fiscal 1997 reflects an
estimated effective income tax rate of 39.0% for the 1997 fiscal year.
Net income for the first quarter of fiscal 1997 was $18.1 million, an increase
of 19.1% compared to net income of $15.2 million in the first quarter of fiscal
1996. The increase in net income reflects the increased operating income noted
above partially offset by higher interest expense.
CAPITAL RESOURCES AND LIQUIDITY.
On May 11, 1995, consistent with the Company's goal of providing increased
shareholder value, the Company declared a quarterly cash dividend of $0.07 per
share. The Company has since declared nine successive quarterly cash dividends.
In fiscal 1997, the Company increased its quarterly cash dividend from $0.07
per share to $0.08 per share.
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 before the payment of accruals related to exiting the
Hathaway business, consolidation and realignment of the intimate apparel
division and other items was $75.5 million in the first quarter of fiscal 1997
compared to $71.3 million in the first quarter of fiscal 1996. The increase in
cash used in operating activities reflects higher seasonal working capital usage
primarily due to higher sales. Net cash used in operations for the first
quarter of fiscal 1997 also includes $1.6 million of the payment of accruals
related to exiting the Hathaway business, consolidating and realigning the
intimate apparel division and other items which were completed in fiscal 1996.
8
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Cash used in investing activities was $25.0 million for the first quarter of
fiscal 1997 compared to $21.9 million in the first quarter of fiscal 1996.
Capital expenditures were $9.9 million in the first quarter of fiscal 1997
compared to $8.0 million in the first quarter of fiscal 1996. Payment for the
purchase of acquired assets and acquisition accruals includes $14.0 million
related to the purchase of GJM in fiscal 1996 and $6.2 million related to the
payment of acquisition accruals, primarily Lejaby, in fiscal 1997. In addition,
$8.9 million was paid related to intangibles and other assets in the first
quarter of fiscal 1997.
Cash provided from financing activities was $99.9 million in the first quarter
of fiscal 1997 compared to $92.3 million in the first quarter of fiscal 1996.
The balance under the Company's revolving credit agreements which normally
increases during the first quarter of the fiscal year was $116.5 million in the
first quarter of fiscal 1997 compared to $96.3 million in the first quarter of
fiscal 1996. The Company repaid $8.3 million of long term debt in the first
quarter of fiscal 1997 compared to $0.3 million in the first quarter of fiscal
1996. The Company repurchased 162,800 shares of its common stock in the first
quarter of fiscal 1997 at a total purchase price of approximately $5.3 million.
The Company has purchased approximately $12.4 million of its common stock under
the current repurchase program, representing 412,800 shares of its common stock.
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.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11.1 Earnings per share.
27.1 Financial Data Schedule
(b) Reports of Form 8-K.
No reports on Form 8-K were filed during the first quarter of
fiscal 1997.
10
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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 20, 1997 By: /s/ WILLIAM S. FINKELSTEIN
--------------------------
William S. Finkelstein
Director, Senior Vice President
and Chief Financial Officer
Principal Financial and Accounting
Officer
Date: May 20, 1997 By: /s/ Stanley P. Silverstein
--------------------------
Stanley P. Silverstein
Vice President, General Counsel
and Secretary
11
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EXHIBIT 11.1
THE WARNACO GROUP, INC.
Calculation of Income per Common Share
(in thousands except share data)
<TABLE>
<CAPTION>
For the First Quarter Ended
---------------------------
April 5, April 6,
1997 1996
-------- --------
<S> <C> <C>
Net income (loss) $ 18,126 $ 15,218
=========== ===========
Weighted average number of shares
outstanding during the period:
Shares outstanding during the period 49,813,712 49,442,262
Shares issued due to exercise of
options 48,118 19,115
Add: common equivalent shares using
the treasury stock method 4,822,818 4,065,458
Less: treasury stock (599,215) (286,600)
----------- -----------
Weighted average number of shares 54,085,433 53,240,235
=========== ===========
Net income per share $ 0.34 $ 0.29
=========== ===========
</TABLE>
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<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 5,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-05-1997
<PERIOD-END> APR-05-1997
<CASH> 9,582
<SECURITIES> 0
<RECEIVABLES> 243,502
<ALLOWANCES> 4,629
<INVENTORY> 432,474
<CURRENT-ASSETS> 716,452
<PP&E> 216,631
<DEPRECIATION> 91,577
<TOTAL-ASSETS> 1,224,795
<CURRENT-LIABILITIES> 519,353
<BONDS> 209,702
0
0
<COMMON> 524
<OTHER-SE> 483,692
<TOTAL-LIABILITY-AND-EQUITY> 1,224,795
<SALES> 251,526
<TOTAL-REVENUES> 251,526
<CGS> 158,784
<TOTAL-COSTS> 158,784
<OTHER-EXPENSES> 53,032
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 9,813
<INCOME-PRETAX> 29,715
<INCOME-TAX> 11,589
<INCOME-CONTINUING> 18,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,126
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
