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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 4, 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
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THE WARNACO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-4032739
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
90 PARK AVENUE 10016
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 661-1300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, par value $0.01 per share New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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]
The aggregate market value of the Class A Common Stock, the only voting
stock of the registrant issued and outstanding, held by non-affiliates of the
registrant as of April 1, 1997, was approximately $1,465,789,000.
The number of shares outstanding of the registrant's Class A Common Stock
as of April 1, 1997: 51,762,384.
Documents incorporated by reference: The definitive Proxy Statement of The
Warnaco Group, Inc. relating to the 1997 Annual Meeting of Stockholders is
incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS.
The Warnaco Group, Inc. (the 'Company'), a Delaware corporation, was
organized in 1986 for the purpose of acquiring the outstanding shares of Warnaco
Inc. ('Warnaco'). As a result of the Company's acquisition of Warnaco, Warnaco
became a wholly-owned subsidiary of the Company. The Company and its
subsidiaries design, manufacture and market a broad line of women's intimate
apparel, such as bras, panties and sleepwear, and men's apparel, such as
sportswear, underwear and accessories, all of which are sold under a variety of
internationally recognized owned and licensed brand names. During fiscal 1996,
the Company made three strategic acquisitions, GJM, Lejaby and Bodyslimmers,
designed to increase the breadth of the Company's product lines and increase the
worldwide distribution of the Company's products. In March 1994, the Company
acquired the worldwide trademarks, rights and business of Calvin Klein'r' men's
underwear and licensed the Calvin Klein trademark for men's accessories. In
addition, the acquisition included the worldwide trademarks and rights of Calvin
Klein women's intimate apparel. The Company's growth strategy is to continue to
capitalize on its highly recognized brand names worldwide while broadening its
channels of distribution and improving manufacturing efficiencies and cost
controls. The Company attributes the strength of its brand names to the quality,
fit and design of its products which have developed a high degree of consumer
loyalty and a high level of repeat business. The Company operates three
divisions, Intimate Apparel, Menswear and Retail Outlet Stores, which accounted
for 75.4%, 20.2% and 4.4%, respectively, of net revenues in fiscal 1996, with
the Intimate Apparel Division accounting for a larger percentage of the
Company's gross profit for the same period.
The Intimate Apparel Division designs, manufactures and markets moderate to
premium priced intimate apparel for women under the Warner's'r', Olga'r', Calvin
Klein'r', Lejaby'r', Valentino Intimo'r', Van Raalte'r', White Stag'r', Fruit of
the Loom'r', Bodyslimmers'r', Marilyn Monroe'r' and Speedo'r' brand names. In
addition, the Intimate Apparel Division designs, manufactures and markets men's
underwear under the Calvin Klein brand name. The Intimate Apparel Division is
the leading marketer of women's bras to department and specialty stores in the
United States, accounting for over 32.0% of such women's bra sales in 1996. The
Warner's and Olga brand names, which are owned by the Company, are 123 and 56
years old, respectively.
The Intimate Apparel Division's strategy is to increase its channels of
distribution and expand its highly recognized brand names worldwide. In fiscal
1996, the Company made three strategic acquisitions designed to increase the
breadth of the Company's product lines and increase the worldwide distribution
of the Company's products. In February 1996, the Company purchased the GJM Group
of Companies ('GJM') from Cygne Designs, Inc. GJM is a private label maker of
sleepwear and intimate apparel. The acquisition provided the Company with
design, marketing and manufacturing expertise in the sleepwear business,
broadening the Company's product line and contributing to the Company's base of
low cost manufacturing capacity. In June 1996, the Company purchased
Bodyslimmers. Bodyslimmers is a leading designer and manufacturer of body
slimming undergarments targeted at aging baby boomers, which also increased the
Company's presence in a growing segment of the intimate apparel market. In July
1996, the Company acquired the Lejaby/Euralis Group of Companies ('Lejaby').
Lejaby is a leading maker of intimate apparel in Europe. The Lejaby acquisition
increased the size of the Company's operations in Western Europe and provides
the Company with an opportunity to expand the distribution of its products in
the critical European market. In December 1996, the Company introduced its
Marilyn Monroe line of intimate apparel.
In 1991, the Company entered into a license agreement with Fruit of the
Loom, Inc. for the design, manufacture and marketing of moderate priced bras,
daywear and other related items to be distributed through mass merchandisers,
such as Wal-Mart and Kmart, under the Fruit of the Loom brand name and has built
its market share to over 7.0% in the mass merchandise market. This license was
renewed by the Company in 1994. In late 1994, the Company purchased the Van
Raalte trademark for $1.0 million and launched an intimate apparel line through
Sears stores in July 1995.
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The Menswear Division designs, manufactures, imports and markets moderate
to premium priced men's apparel and accessories under the Chaps by Ralph
Lauren'r', Calvin Klein and Catalina'r' brand names. Chaps by Ralph Lauren has
increased its net revenues by over 300% since 1991 from $39.0 million to $170.7
million in 1996, by refocusing its products to the age 25 to 50 consumer and
predominantly by using natural fibers in its products. In 1995, the Company
extended its Chaps by Ralph Lauren license through December 31, 2004. The
Menswear Division's strategy is to build on the strength of its owned and
licensed brand names and eliminate those businesses which generate a profit
contribution below the Company's required return. Consistent with this strategy,
the Company has eliminated several underperforming brands since 1992, including
its Hathaway business, which was sold to a group of investors in November 1996.
The Company licenses certain of its brand names throughout the world and
has been expanding the activities of its wholly-owned operating subsidiaries in
Canada, Europe and Mexico. International operations, including export sales,
generated $212.4 million, or 20.0%, of the Company's net revenues in fiscal
1996, compared to $135.5 million, or 14.8%, of the Company's net revenues in
fiscal 1995, due primarily to the acquisition of Lejaby in July 1996.
The Company's business strategy with respect to its Retail Outlet Stores
Division is to provide a channel for disposing of the Company's excess and
irregular inventory, thereby limiting its exposure to off-price retailers and to
shift to more profitable intimate apparel stores to improve its margins. The
Company had 73 stores at the end of fiscal 1996 (including two stores in Canada
and seven stores in the United Kingdom) compared to 61 stores and 54 stores at
the end of fiscal 1995 and fiscal 1994, respectively.
The Company's products are distributed to over 16,000 customers operating
more than 26,000 department, specialty and mass merchandise stores, including
such leading retailers in the United States as Dayton-Hudson, Macy's and other
units of Federated Department Stores, J.C. Penney, Victoria's Secret, The May
Department Stores, Sears, Kmart and Wal-Mart and such leading retailers in
Canada as The Hudson Bay Company and Zeller's. The Company's products are also
distributed to such leading European retailers as Marks & Spencer, House of
Fraser, British Home Stores, Harrods, Galeries Lafayette and Au Printemps. The
Company has a joint venture with News Corp. Limited to further expand its
channels of distribution and market the products of the Company and others
directly to consumers in Asia and the Middle East through the Satellite
Television Asian Region Network ('STAR').
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates within one industry segment, the manufacture and
distribution of apparel. No customer accounted for 10.0% or more of the
Company's net revenues in the three years ended in fiscal 1996. See Note 7 of
Notes to Consolidated Financial Statements on pages F-1 to F-24.
(C) NARRATIVE DESCRIPTION OF BUSINESS.
The Company designs, manufactures and markets a broad line of women's
intimate apparel, and men's apparel and accessories sold under a variety of
internationally recognized brand names owned or licensed by the Company. The
Company operates three divisions, Intimate Apparel, Menswear and Retail Outlet
Stores, which accounted for 75.4%, 20.2% and 4.4%, respectively, of net revenues
in fiscal 1996.
INTIMATE APPAREL
The Company's Intimate Apparel Division designs, manufactures and markets
women's intimate apparel, which includes bras, panties, sleepwear and daywear.
The Company also designs and markets men's underwear. The Company's bra brands
accounted for over 32.0% of women's bra sales in the 1996 calendar year in
department and specialty stores in the United States. Management considers the
Intimate Apparel Division's primary strengths to include its strong brand
recognition, product quality and design innovation, low cost production, strong
relationships with department and specialty stores and its ability to deliver
its merchandise rapidly. Building on the strength of its brand names and
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reputation for quality, the Company has historically focused its intimate
apparel products on the upper moderate to premium priced range distributed
through leading department and specialty stores. In order to expand its market
penetration in recent years, the Company (i) entered into a license agreement
with Fruit of the Loom, Inc., and in June 1992, began to distribute moderate
priced bras, daywear and other related items under this license through mass
merchandise stores, (ii) in March 1994, acquired the worldwide trademarks,
rights and businesses of Calvin Klein men's underwear and the worldwide
trademarks, rights and businesses of Calvin Klein women's intimate apparel upon
the expiration of an existing license on December 31, 1994, (iii) in late 1994,
purchased the Van Raalte trademark for $1 million and launched an intimate
apparel line through Sears stores in July 1995, (iv) in June 1995, entered an
agreement to manufacture and distribute intimate apparel products under the
Speedo brand name, (v) in February 1996, acquired substantially all of the
assets of GJM, a private label manufacturer of women's sleepwear and lingerie,
(vi) in fiscal 1996, acquired the stock and assets of the Lejaby/Euralis Group
of Companies, a leading European manufacturer and marketer of intimate apparel,
(vii) in June 1996, acquired the business of Bodyslimmers, a marketer of body
slimming undergarments targeted at aging baby boomers, and (viii) in December
1996, launched the Marilyn Monroe brand of intimate apparel and sleepwear.
The intimate apparel division markets its lines under the following brand
names:
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BRAND NAME PRICE RANGE TYPE OF APPAREL
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Warner's........................... upper moderate to better intimate apparel
Olga............................... better intimate apparel
Lejaby(1).......................... better to premium intimate apparel
Bodyslimmers(1).................... better to premium intimate apparel
Valentino Intimo................... premium intimate apparel
Calvin Klein....................... better to premium intimate apparel/men's underwear
Van Raalte......................... moderate intimate apparel
Fruit of the Loom.................. moderate intimate apparel
White Stag......................... moderate intimate apparel
Speedo sports bras................. better intimate apparel
Marilyn Monroe(2).................. upper moderate to better intimate apparel
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(1) Business acquired in fiscal 1996.
(2) New product line introduced in December 1996.
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The Company owns the Warner's, Olga, Calvin Klein (underwear and intimate
apparel), Lejaby, Bodyslimmers and Van Raalte brand names and trademarks. The
Company has exclusive licenses in perpetuity for the White Stag trademark for
women's sportswear and intimate apparel and the Speedo trademark for women's
sports bras. The Company licenses the other brand names under which it markets
its product lines, primarily on an exclusive basis. The Company also
manufactures intimate apparel on a private and exclusive label basis for certain
leading specialty and department stores. The Intimate Apparel Division's
revenues are primarily generated by sales of the Company's owned brand names.
The Warner's brand is 123 years old and the Olga brand is 56 years old.
In August 1991, the Company entered into an exclusive license agreement
with Fruit of the Loom, Inc. for the design, manufacture and marketing of
moderate priced bras which are distributed through mass merchandisers, such as
Wal-Mart and Kmart, under the Fruit of the Loom brand name. The license
agreement has since been extended to include daywear, full slips, half slips,
culottes and petticoats as well as coordinated fashion sets (bras and panties)
and certain control bottoms and sleepwear. The Company began shipping Fruit of
the Loom products in June 1992 and has built its current market share to over
7.0% in the mass merchandise market. The agreement with Fruit of the Loom, Inc.
has allowed the Company to enter the mass merchandise market, which is growing
faster than the department and specialty store market.
In March 1994, the Company acquired the worldwide trademarks, rights and
business of Calvin Klein men's underwear, and effective January 1, 1995, the
worldwide trademark and rights for Calvin
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Klein women's intimate apparel. The purchase price was approximately $60.9
million and consisted of cash payments of $33.1 million in fiscal 1994, $5.0
million in fiscal 1995 and the issuance of 1,699,492 shares of the Company's
Common Stock valued at fair market value ($22.8 million) for such shares. Since
that time the Company has acquired the business of several of its international
licensees and distributors of Calvin Klein products including Canada, Germany,
Italy, Portugal and Spain. In addition, the Company entered into an exclusive
license agreement to produce men's accessories and small leather goods under the
Calvin Klein label. The growth potential of the Calvin Klein brand is evidenced
in the Company's financial results for fiscal 1996. The Calvin Klein brand
accounted for net revenues of $255.4 million in fiscal 1996, an increase of
56.1% over the $163.6 million recorded in fiscal 1995. If current sales trends
continue, and the Company's objectives for the Calvin Klein brand are met,
revenues for that brand could reach $500 million within the next three years.
In fiscal 1996, the Company made three strategic acquisitions designed to
increase the breadth of the Company's product lines and expand the distribution
of its products. In February 1996, the Company purchased GJM. GJM is a private
label maker of sleepwear and intimate apparel. The acquisition provided the
Company with design, marketing and manufacturing expertise in the sleepwear
business, broadening the Company's product line and contributing to the
Company's base of low cost manufacturing capacity. In June 1996, the Company
purchased Bodyslimmers, a leading designer and manufacturer of body slimming
undergarments targeted at aging baby boomers. The purchase of Bodyslimmers
increased the Company's presence in a growing segment of the intimate apparel
market. In July 1996, the Company acquired Lejaby. Lejaby is a leading maker of
intimate apparel in Europe. The Lejaby acquisition increased the size of the
Company's operations in Western Europe and provides the Company with an
opportunity to expand the distribution of its products, including Calvin Klein,
in the critical European market.
In December 1996, the Company introduced its Marilyn Monroe line of
intimate apparel designed to expand the Company's product offerings.
The Company attributes the strength of its brands to the quality, fit and
design of its intimate apparel, which has developed a high degree of customer
loyalty and a high level of repeat business. The Company believes that it has
maintained its leadership position, in part, through product innovation with
accomplishments such as introducing the alphabet bra (A, B, C and D cup sizes),
the first all-stretch bra, the body stocking, the use of two way stretch
fabrics, seamless molded cups for smooth look bras, the cotton-Lycra bra and the
sports bra. The Company also introduced the use of hangers and certain
point-of-sale hang tags for in-store display of bras, which was a significant
change from marketing bras in boxes, and enabled women, for the first time, to
see the product in the store. The Company's product innovations have become
standards in the industry.
The Company believes that a shift in consumer attitudes is stimulating
growth in the intimate apparel industry. Women increasingly view intimate
apparel as a fashion-oriented purchase rather than as a purchase of a basic
necessity. The shift has been driven by the expansion of intimate apparel
specialty stores and catalogs, such as Victoria's Secret, and an increase in
space allocated to intimate apparel by department stores. The Company believes
that it is well-positioned to benefit from increased demand for intimate apparel
due to its reputation for forward-looking design, quality, fit and fashion and
to the breadth of its product lines at a range of price points. Over the past
five years, the Company has further improved its position by obtaining the
licenses to produce intimate apparel under the Valentino Intimo name in the
premium end of the market and the Marilyn Monroe name in the better end of the
market and by continuing to introduce new products under the Warner's and Olga
brands in the better end of the market, by obtaining the license from Fruit of
the Loom, Inc. to produce bras, daywear and other related items, by producing
White Stag bras for the mass merchandise segment of the market, by acquiring the
Calvin Klein trademarks for premium priced women's intimate apparel and better
priced men's underwear, by purchasing the Van Raalte trademark and introducing
an intimate apparel line through Sears stores in July 1995, by entering an
agreement to manufacture and distribute intimate apparel products under the
Speedo brand name and by making strategic acquisitions to expand product lines
and distribution channels such as the GJM acquisition in February 1996, the
Lejaby acquisition in fiscal 1996, the Bodyslimmers acquisition in June 1996 and
by introducing the Marilyn Monroe line in the better end of the intimate apparel
market in December 1996. The Company has
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further improved its position by continuing to strengthen its relationships with
its department store, specialty store and mass merchandise customers.
The Intimate Apparel Division's net revenues have increased at a compounded
annual growth rate of 18.7% since 1991, to $802.0 million in fiscal 1996, as the
Company has increased its penetration with existing accounts, expanded sales to
new customers such as Van Raalte to Sears and sales of Fruit of the Loom to mass
merchandisers such as Wal-Mart and Kmart and broadened its product lines to
include men's underwear. The Intimate Apparel Division has reduced operating
expenses as a percentage of net revenue by narrowing its product assortment,
controlling selling, administrative and general expenses and improving
manufacturing efficiency. The Company believes that it is one of the lowest-cost
producers of intimate apparel in the United States, producing approximately
eight million dozen garments per year.
The Company's bras are sold primarily in the department and specialty
stores that have been the Company's traditional customer base for intimate
apparel. In June 1992, the Company expanded into a new channel of distribution,
mass merchandisers, with its Fruit of the Loom product line, which offers a
range of styles designed to meet the needs of the consumer profile of this
market. The Company also sees opportunities for continued growth in the Intimate
Apparel Division for bras specifically designed for the 'full figure' market, as
well as in its panty and daywear product lines, and acquired Bodyslimmers in
June 1996 to provide important brand name recognition in this growing segment of
the intimate apparel market.
The Intimate Apparel Division has subsidiaries in Canada and Mexico in
North America and in the United Kingdom, France, Belgium, Ireland, Spain, Italy,
Austria, Switzerland and Germany in Europe and in the Philippines, Sri Lanka,
the People's Republic of China and Hong Kong in Asia. International sales
accounted for approximately 25.4% of the Intimate Apparel Division's net
revenues in fiscal 1996 compared to 18.4% in fiscal 1995. The increase in
international net revenues is primarily attributable to the acquisition of
Lejaby in July 1996. The Company has acquired the businesses of several former
distributors and licensees of its Calvin Klein products in the past two years,
including those in Canada, Germany, Italy, Portugal and Spain. The Company's
objective in acquiring its former licensees and distributors is to expand its
business in foreign markets through a coordinated set of product offerings,
marketing and pricing strategies and by consolidating distribution to obtain
economies of scale. Net revenues attributable to the international divisions of
the Intimate Apparel Division were $84.1 million, $126.7 million and $204.1
million in fiscal years 1994, 1995 and 1996, respectively. International net
revenues for the fiscal 1997 are expected to increase substantially as the
Company will record revenues from Lejaby and several of the acquired Calvin
Klein licensees for the full fiscal year. Management's strategy is to increase
its market penetration in Europe and to open additional channels of
distribution. In 1994, the Company entered into a joint venture with News Corp.
Limited to market, on an exclusive basis, the products of the Company and others
over the STAR network, serving Asia and the Middle East. The STAR network
reaches over 60 million households in 53 countries in an area that includes
two-thirds of the world's population. Initial shipments of merchandise to STAR
were made in the fourth quarter of fiscal 1995.
The Company's intimate apparel products are manufactured principally in the
Company's facilities in North America, Central America, the Caribbean Basin, the
United Kingdom, France, Ireland, Morocco (joint venture), the Phillipines, Sri
Lanka and the People's Republic of China. Over the last three years the Company
has opened five new manufacturing facilities in response to increased demand.
Certain direct and incremental plant start-up costs associated with the
establishment of new manufacturing facilities in countries where special efforts
are needed to recruit and train entire work forces are capitalized and amortized
over five years. Capitalized costs represent direct and incremental costs
associated with the new facility and include site selection and site
development, worker training costs, rent and other operating costs incurred
prior to achieving full production in the facility. This amortization, together
with the initial inefficiencies associated with the new facilities, resulted in
a lower gross profit margin (gross profit as a percentage of net revenues)
during the 1993 and 1994 fiscal years. The Company has achieved a portion of the
expected future benefits associated with these plants in fiscal 1995 and fiscal
1996 with Intimate Apparel Division gross profit margin increasing 150 basis
points since fiscal 1994. See Management's Discussion and Analysis of Financial
Condition and Results of
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Operations on pages 14 to 21. The Company believes it will be approximately five
years before new facilities achieve the manufacturing efficiencies of
established plants.
Although the Intimate Apparel Division generally markets its product lines
for three retail selling seasons (spring, fall and holiday), its sales and
revenues are somewhat seasonal. Approximately 60.0% of the Intimate Apparel
Division's net revenues and operating income were generated during the second
half of the 1996 fiscal year.
MENSWEAR
The Menswear Division designs, manufactures, imports and markets moderate
to better priced sportswear, better to premium priced men's accessories and
moderate to better priced dress shirts and neckwear. Management considers the
Menswear Division's primary strengths to include its strong brand recognition,
product quality, reputation for fashion styling, strong relationships with
department and specialty stores and its ability to deliver merchandise rapidly.
In November 1996, the Company sold its underperforming men's Hathaway dress
shirt business to an investor group. In fiscal 1996, the Company recorded losses
associated with exiting the Hathaway business of approximately $46.0 million,
consisting of operating losses incurred prior to the disposition and losses
related to the write-down of the Hathaway assets, including intangible assets.
The Menswear Division markets its lines under the following brand names:
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BRAND NAME PRICE RANGE TYPE OF APPAREL
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Calvin Klein........................ better/premium men's underwear (a) and
accessories
Chaps by Ralph Lauren............... upper moderate dress shirts, neckwear, knit and
woven sportshirts, sweaters,
sportswear and bottoms
Catalina............................ moderate men's and women's sportswear and
dress shirts and furnishings
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(a) See Intimate Apparel Division.
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The Chaps by Ralph Lauren, Catalina and Calvin Klein accessories brand
names are licensed on an exclusive basis by the Company.
The Menswear Division's strategy is to build on the strength of its brand
names, strengthen its position as a global apparel company and eliminate those
businesses which generate a profit contribution below the Company's required
return. Since 1993, to improve profitability in this division, the Company (i)
discontinued its manufactured dress shirt, neckwear and accessories business
segment under the Christian Dior'r' label, (ii) sold the Puritan'r' label in the
United States to Wal-Mart in December 1993, (iii) did not renew its Golden Bear
by Jack Nicklaus'r' license, which expired in June 1994, and (iv) sold its
Hathaway dress shirt business in November 1996.
Despite the strategic decision to discontinue approximately $140.0 million
of annualized net revenues in underperforming brands, the Menswear Division's
net revenues have increased from $180.8 million in fiscal 1991 to $214.4 million
in fiscal 1996. The reduction in net revenues from discontinued brands has been
offset by the success of the Chaps by Ralph Lauren brand which has increased its
net revenues by over 300% since fiscal 1991 to $170.7 million in fiscal 1996.
Sportswear. In 1989, the Company began repositioning its Chaps by Ralph
Lauren product lines by changing to the use of all natural fibers and updating
its styling, which has generated significant net revenue increases, as mentioned
above. The Company sold, for $7.7 million, its Puritan label in the United
States to Wal-Mart in 1993, due to the difficult price points for men's
sportswear in the mass merchandise market. During 1992 and 1994, the Company
sold or terminated its licenses for Christian Dior sportswear, neckwear, dress
shirts and accessories. In addition, the Company did not renew its Golden Bear
by Jack Nicklaus license which expired in June 1994. In 1993, the Company
entered into a
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license agreement to design men's and women's sportswear and men's dress shirts
and furnishings bearing the Catalina trademark. Catalina products are sold to
the mass merchandise segment of the market. The Company recorded approximately
$1.5 million of royalty income associated with Catalina products in fiscal 1996.
Accessories. The Menswear Division markets men's small leather goods, men's
jewelry and belts and soft side luggage under the Calvin Klein brand name
pursuant to a worldwide license. The first shipments of Calvin Klein accessories
were made in the third quarter of fiscal 1995 to United States customers. The
line has already grown significantly, accounting for approximately $11.1 million
of net revenues in fiscal 1996. Management believes that one of the strengths of
its accessories lines is the high level of international consumer recognition
associated with the Calvin Klein label. The Company's strategy is to expand the
accessories business, which has consistently generated higher margins than other
menswear products.
International sales accounted for approximately 4.0% of net revenues of the
Menswear Division in fiscal l996. Net revenues attributable to international
operations of the Menswear Division were $10.2 million, $8.8 million and $8.3
million in fiscal years l994, 1995 and 1996, respectively. The decrease in
international sales over the last three years reflects the Company's strategic
decision to terminate the Christian Dior licenses, as previously mentioned. The
Company expects to generate future revenue from international sales of Calvin
Klein accessories.
The Menswear Division's sportswear, consisting of knit shirts and sweaters
and other apparel, is sourced principally from the Far East. The Menswear
Division sources dress shirts in the Far East and in the Caribbean Basin.
Accessories are sourced in the United States, Europe and the Far East. Neckwear
is sourced primarily in the United States.
The Menswear Division, similar to the Intimate Apparel Division, generally
markets its apparel products for three retail selling seasons (spring, fall and
holiday). The Menswear Division introduces new styles, fabrics and colors based
upon consumer preferences, market trends and to coincide with the appropriate
retail selling season. The sales of the Menswear Division's product lines follow
individual seasonal shipping patterns ranging from one season to three seasons,
with multiple releases in some of the division's more fashion-oriented lines.
Consistent with industry and consumer buying patterns, approximately 59.0% of
the Menswear Division's net revenues and 62.0% of the Menswear Division's
operating profit are generated in the second half of the calendar year,
reflecting the strength of the fall and holiday shopping seasons.
RETAIL OUTLET STORES DIVISION
The Retail Outlet Stores Division primarily sells the Company's products to
the general public. The Company's business strategy with respect to its retail
outlet stores is to provide a channel for disposing of the Company's excess and
irregular inventory, thereby limiting its exposure to off-price retailers. The
Company's retail outlet stores are situated in areas where they generally do not
conflict with the Company's principal channels of distribution. The Company has
found that it has improved margins by operating retail outlet stores that sell
products of only one of the Company's divisions, and has converted most of its
outlets to the exclusive sale of intimate apparel. The Company's newer retail
outlet stores are principally intimate apparel stores located in outlet shopping
malls. EBITDA for the Retail Outlet Stores Division in fiscal 1996 improved
82.0% over fiscal 1995 to $6.2 million. As of January 4, 1997, the Company
operated 73 stores, of which 67 carried intimate apparel only and six carried
both intimate apparel and menswear.
INTERNATIONAL OPERATIONS
The Company has subsidiaries in Canada and Mexico in North America and in
the United Kingdom, France, Belgium, Ireland, Spain, Italy, Austria, Switzerland
and Germany in Europe, which engage in sales, manufacturing and marketing
activities. The results of the Company's operations in these countries are
influenced by the movement of foreign currency exchange rates. With the
exception of the fluctuation in the rates of exchange of the local currencies in
which these subsidiaries conduct their business, the Company does not believe
that the operations in Canada and Western Europe are
7
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<PAGE>
subject to risks which are significantly different from those to which domestic
operations are subjected. Mexico has historically been subject to high rates of
inflation and currency restrictions which may, from time to time, impact the
Mexican operation. The Company also sells directly to customers in Mexico. Net
revenues from these shipments represent less than 1.0% of the Company's net
revenues.
The Company maintains manufacturing facilities in Mexico, Honduras, Costa
Rica, the Dominican Republic, Canada, Ireland, the United Kingdom, France,
Morocco (joint venture), Sri Lanka, the People's Republic of China and the
Philippines. The Company maintains warehousing facilities in Canada, Mexico, the
United Kingdom, Spain, Belgium, Italy, Austria, Switzerland, France and Germany
and contracts for warehousing in the Netherlands. The Intimate Apparel Division
operates manufacturing facilities in Mexico and in the Caribbean Basin pursuant
to duty-advantaged (commonly referred to as 'Item 807') programs. The Company's
manufacturing policy is to have many potential sources of manufacturing so that
a disruption of production at any one facility will not significantly impact the
Company.
The majority of the Company's purchases which are imported into the United
States are invoiced in United States dollars and, therefore, are not subject to
currency fluctuations.
SALES AND MARKETING
The Intimate Apparel and Menswear Divisions sell to over 16,000 customers
operating more than 26,000 department, mass merchandise and men's and women's
specialty stores throughout North America and Europe. None of the Company's
customers accounted for more than 10.0% of the Company's net revenues during any
of the three years in the period ended January 4, 1997.
The Company's retail customers are served by approximately 300 sales
representatives. The Company also employs marketing coordinators who work with
the Company's customers in designing in-store displays and planning the
placement of merchandise. The Company has implemented Electronic Data
Interchange (commonly referred to as 'EDI') programs with most of its retailing
customers which permit the Company to receive purchase orders electronically
from these customers and, in some cases, to transmit invoices electronically.
These innovations assist the Company in getting products to customers on a
timely basis.
The Company utilizes various forms of advertising media. In fiscal l996,
the Company spent approximately $59.5 million, or 5.6%, of net revenues for
advertising and promotion of its various product lines. This compares to $41.0
million, or 4.5%, of net revenues in fiscal 1995. The statement of income for
fiscal 1995 includes a special charge for advertising costs, previously
deferrable, of $11.7 million ($7.3 million after giving effect to income tax
benefits of $4.4 million) related to the change in accounting for certain
advertising costs in accordance with Statement of Position 93-7 ('SOP 93-7')
issued by the American Institute of Certified Public Accountants ('AICPA') in
December 1993, for years beginning after July 1994. The increase in advertising
costs in fiscal 1996, compared to fiscal 1995, reflects the Company's desire to
maintain its strong market position in Calvin Klein underwear and Warner's,
Olga, and Fruit of the Loom intimate apparel. The Company participates in
advertising on a cooperative basis with retailers, principally through newspaper
advertisements.
COMPETITION
The apparel industry is highly competitive. The Company's competitors
include apparel manufacturers of all sizes, some of which have greater resources
than the Company.
The Company also competes with foreign producers, but, to date, such
foreign competition has not materially affected the Intimate Apparel or Menswear
Divisions. In addition to competition from other branded apparel manufacturers,
the Company competes in certain product lines with department store private
label programs. The Company believes that its manufacturing skills, coupled with
its existing Central American and Caribbean Basin manufacturing facilities and
selective use of off-shore sourcing, enable the Company to maintain a cost
structure competitive with other major apparel manufacturers.
8
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<PAGE>
The Company believes that it has a significant competitive advantage
because of high consumer recognition and acceptance of its owned and licensed
brand names and its strong presence and strong market share in the major
department, specialty and mass merchandise store chains.
A substantial portion of the Company's sales are of products, such as
intimate apparel and men's underwear, that are not very susceptible to rapid
design changes. This relatively stable base of business is a significant
contributing factor to the Company's favorable competitive and cost position in
the apparel industry.
RAW MATERIALS
The Company's raw materials are principally cotton, wool, silk, synthetic
and cotton-synthetic blends of fabrics and yarns. Raw materials used by the
Intimate Apparel and Menswear Division are available from multiple sources.
IMPORT QUOTAS
Substantially all of the Company's Menswear Division's sportswear products
are manufactured by contractors located outside the United States. These
products are imported and are subject to federal customs laws, which impose
tariffs as well as import quota restrictions established by the Department of
Commerce. While importation of goods from certain countries may be subject to
embargo by United States Customs authorities if shipments exceed quota limits,
the Company closely monitors import quotas through its Washington, D.C. office
and can, in most cases, shift production to contractors located in countries
with available quotas or to domestic manufacturing facilities. The existence of
import quotas has, therefore, not had a material effect on the Company's
business. Substantially all of the Company's Intimate Apparel Division's
products are manufactured in the Company's facilities located in Mexico, the
Caribbean Basin, Europe and Asia. The Company's policy is to have many potential
manufacturing sources so that a disruption of production at any one facility
will not significantly impact the Company.
EMPLOYEES
The Company and its subsidiaries employ approximately 17,323 employees.
Approximately 27.0% of the Company's employees, all of whom are engaged in the
manufacture and distribution of its products, are represented by labor unions.
The Company considers labor relations with employees to be satisfactory and has
not experienced any significant interruption of its operations due to labor
disagreements.
TRADEMARKS AND LICENSING AGREEMENTS
The Company has license agreements permitting it to manufacture and market
specific products using the trademarks of others. The Company's exclusive
license and design agreements for the Chaps by Ralph Lauren trademark expire on
December 31, 2004. These licenses grant the Company an exclusive right to use
the Chaps by Ralph Lauren trademark in the United States. The Company's license
to use the Valentino Intimo trademark for intimate apparel in the United States,
its territories and possessions, Puerto Rico and Canada, expires on December 31,
2002, and is extendable subject to the mutual agreement of the parties. In
October 1995, the Company entered into a worldwide licensing arrangement
granting the Company exclusive, worldwide rights to use the Valentino Intimo
trademark for intimate apparel for a period coterminous with the Company's
United States license, through December 31, 2002, subject to extension by mutual
agreement of the parties. The Company has negotiated an exclusive license
agreement to use the Fruit of the Loom trademark in the United States of
America, its territories and possessions, Canada and Mexico through December 31,
1998.
The Company's exclusive license agreement with Calvin Klein, Inc. to
produce Calvin Klein men's accessories is for a period of five years through
March 14, 1999 and is renewable for a five year period through March 14, 2004,
solely at the option of the Company. The Company has entered into license
agreements with Authentic Fitness Corporation to produce and sell men's and
women's sportswear and
9
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<PAGE>
men's dress shirts and furnishings under the Catalina label and certain intimate
apparel under the Speedo label. The Company's exclusive license to use the
Catalina trademark for these products worldwide expires in December 2003 and the
Company's exclusive license to use the Speedo name for intimate apparel products
continues in perpetuity.
The Company is the exclusive worldwide licensee of the Estate of Marilyn
Monroe for use of the name, voice, image and likeness of Marilyn Monroe on
men's, boys', women's and girls' underwear, sleepwear, bodywear and certain
activewear products, for a five year period expiring December 31, 2000, with two
sucessive five year renewal periods through December 31, 2005 and December 31,
2010, respectively, each at the Company's option. Under a separate license
arrangement with Twentieth Century Fox Licensing and Merchandising, the Company
has been granted the right to use artwork, film titles, and other creative
elements of films owned or controlled by Fox, Inc., in which Marilyn Monroe
appeared, on and in connection with the products produced by the Company under
its license agreement with the Estate of Marilyn Monroe, for a period
coterminous with that license agreement, including subsequent renewals of that
agreement.
Although the specific terms of each of the Company's license agreements
vary, generally such agreements provide for minimum royalty payments and/or
royalty payments based on a percentage of net sales. Such license agreements
also generally grant the licensor the right to approve any designs marketed by
the licensee.
The Company owns other trademarks, the most important of which are
Warner's, Olga, Calvin Klein men's underwear and sleepwear, Calvin Klein women's
intimate apparel and sleepwear, Van Raalte, Lejaby, Rasurel'r' and Bodyslimmers.
The Company has a license in perpetuity for White Stag women's sportswear and
intimate apparel as well as Speedo sports bras.
The Company licenses the Warner's, White Stag, Catalina and Calvin Klein
brand names to domestic and international licensees for a variety of products.
These agreements generally require the licensee to pay royalties and fees to the
Company based on a percentage of the licensee's net sales. The Company regularly
monitors product design, development, quality, merchandising and marketing and
schedules meetings throughout the year with licensees to assure compliance with
the Company's overall marketing, merchandising and design strategies, and to
ensure uniformity and quality control. The Company, on an ongoing basis,
evaluates entering into license agreements with other companies that would
permit such companies to market products under the Warner's, White Stag,
Catalina, Calvin Klein and other trademarks. Generally, in evaluating a
potential licensee, the Company considers the experience, financial stability,
manufacturing performance and marketing ability of the proposed licensee.
Royalty income derived from such licensing was approximately $11.5 million
(including the sale of certain trademarks to Authentic Fitness Corporation for
$6.6 million), $10.8 million and $10.3 million in fiscal years 1994, 1995 and
1996, respectively.
The Company believes that only the trademarks mentioned herein are material
to the business of the Company.
BACKLOG
A substantial portion of net revenues is based on orders for immediate
delivery and, therefore, backlog is not necessarily indicative of future net
revenues.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The information required by this portion of Item 1 is incorporated herein
by reference to Note 7 of Notes to Consolidated Financial Statements on pages
F-1 to F-24.
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located at 90 Park
Avenue, New York, New York 10016 and are occupied pursuant to a lease that
expires in 2004. In addition to its executive offices,
10
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<PAGE>
the Company leases offices in Connecticut and California, pursuant to leases
that expire in 1999 and 2000, respectively.
The Company has four domestic manufacturing and warehouse facilities
located in Connecticut, Georgia, Pennsylvania and Tennessee and 29 international
manufacturing and warehouse facilities located in Canada, Costa Rica, the
Dominican Republic, France, Germany, Honduras, Mexico, the People's Republic of
China, the Philippines, Sri Lanka, the United Kingdom, Ireland and Spain.
Certain of the Company's manufacturing and warehouse facilities are also used
for administrative and retail functions. The Company owns four of its domestic
and three of its international facilities. The balance of the facilities are
leased. Lease terms, except for four month-to-month leases, expire from 1997 to
2011. No facility is underutilized, except for three facilities located in
Sylvania, Georgia, Barbourville, Kentucky and Dothan, Alabama, each of which has
discontinued operations and which the Company has listed for sale.
The Company leases sales offices in a number of major cities, including
Dallas and New York in the United States; Brussels, Belgium; Dusseldorf and
Frankfurt, Germany; Toronto, Canada; Madrid, Spain; Lausanne, Switzerland;
Vienna, Austria; Milan, Italy; Paris, France; and Hong Kong. The sales office
leases expire between 1997 and 2009 and are generally renewable at the Company's
option. The Company also occupies offices in London, England subject to a
freehold lease which expires in 2114. The Company leases 73 retail outlet store
locations. Outlet store leases, except for two month-to-month leases, expire
from 1997 to 2007 and are generally renewable at the Company's option.
All of the Company's production and warehouse facilities are located in
appropriately designed buildings, which are kept in good repair. All such
facilities have well maintained equipment and sufficient capacity to handle
present volumes. The Company has expanded its production capacity in Mexico and
the Caribbean Basin during the last three years.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation, other than routine litigation
incidental to the business of the Company that individually or in the aggregate
is not material to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, their ages and their positions are
set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Linda J. Wachner................................... 51 Director, Chairman of the Board, President and
Chief Executive Officer
William S. Finkelstein............................. 48 Director, Senior Vice President and Chief Financial
Officer
Stanley P. Silverstein............................. 44 Vice President, General Counsel and Secretary
Carl J. Deddens.................................... 44 Vice President and Treasurer
</TABLE>
Mrs. Wachner has been a Director, President and Chief Executive Officer of
the Company since August 1987, and the Chairman of the Board since August 1991.
Mrs. Wachner was a Director and President of the Company from March 1986 to
August 1987. Mrs. Wachner held various positions, including President and Chief
Executive Officer, with Max Factor and Company from December 1978 to October
1984. Mrs. Wachner also serves as a Director of Travelers Group Inc., Applied
Graphics Technologies, Inc. and Authentic Fitness Corporation.
11
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<PAGE>
Mr. Finkelstein has been Senior Vice President of the Company since May
1992 and Chief Financial Officer and Director of the Company since May 1995. Mr.
Finkelstein served as Vice President and Controller of the Company from November
1988 until his appointment as Senior Vice President. Mr. Finkelstein served as
Vice President of Finance of the Company's Activewear and Olga Divisions from
March 1988 until his appointment as Controller of the Company. Mr. Finkelstein
served as Vice President and Controller of SPI Pharmaceuticals Inc. from
February 1986 to March 1988 and held various financial positions, including
Assistant Corporate Controller with Max Factor and Company, between 1977 and
1985. Mr. Finkelstein also serves as a Director of Authentic Fitness
Corporation.
Mr. Silverstein has been Vice President, General Counsel and Secretary of
the Company since December 1990. Mr. Silverstein served as Assistant Secretary
of the Company from June 1986 until his appointment as Secretary in January
1987.
Mr. Deddens has been Vice President and Treasurer of the Company since
March 1996. Prior to joining the Company, Mr. Deddens served as Vice President
and Treasurer of Revlon, Inc. from 1991 to 1996 and as Assistant Treasurer from
1987 to 1991. Mr. Deddens held various financial positions with Allied-Signal
Corporation and Union Texas Petroleum Corporation from 1981 to 1987.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Class A Common Stock, $0.01 par value per share (the 'Common
Stock'), is listed on the New York Stock Exchange under the symbol 'WAC'. The
table below sets forth, for the periods indicated, the high and low sales prices
of the Company's Common Stock, as reported on the New York Stock Exchange
Composite Tape.
<TABLE>
<CAPTION>
PERIOD HIGH LOW DIVIDEND
- ------------------------------------------------------------------ --------------- --------------- --------
<S> <C> <C> <C>
1995:
First Quarter................................................ $18 $14 7/8 $.00
Second Quarter............................................... $21 1/4 $16 1/2 $.07
Third Quarter................................................ $24 3/8 $20 $.07
Fourth Quarter............................................... $26 7/8 $21 7/8 $.07
1996:
First Quarter................................................ $27 1/2 $21 1/2 $.07
Second Quarter............................................... $31 1/4 $24 1/4 $.07
Third Quarter................................................ $25 3/4 $21 5/8 $.07
Fourth Quarter............................................... $29 5/8 $22 3/4 $.07
1997:
First Quarter (through April 1, 1997)........................ $33 3/8 $22 5/8 $.08(1)
</TABLE>
- ------------
(1) On February 20, 1997, the Company declared its regular quarterly cash
dividend of $.08 per share payable on April 8, 1997 to stockholders of
record as of March 31, 1997.
------------------------
As of March 31, 1997, there were 165 holders of the Common Stock, based
upon the number of holders of record and the number of individual participants
in certain security position listings.
In fiscal 1995, the Company initiated a regular cash dividend of $0.28 per
share per annum. The initial cash dividend was paid on June 30, 1995. On
February 20, 1997, the Company's Board of Directors approved an increase in the
Company's quarterly cash dividend to $0.08 per share. Total dividends paid or
accrued on the Common Stock were $9.2 million and $14.5 million in the fiscal
years ended January 6, 1996 and January 4, 1997 (none in the year ended January
7, 1995), respectively.
12
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ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is consolidated statement of income data with respect to
the fiscal years ended January 7, 1995, January 6, 1996 and January 4, 1997, and
consolidated balance sheet data at January 6, 1996 and January 4, 1997, all of
which are derived from, and qualified by reference to, the audited consolidated
financial statements included herein and such data should be read in conjunction
with those financial statements and notes thereto. The consolidated statement of
income data for the fiscal years ended January 2, 1993 and January 8, 1994 and
the consolidated balance sheet data at January 2, 1993, January 8, 1994 and
January 7, 1995 are derived from audited consolidated financial statements not
included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------
JANUARY 2, JANUARY 8, JANUARY 7, JANUARY 6, JANUARY 4,
1993 1994(a)(b) 1995(a)(c) 1996(a)(c)(e) 1997(f)
---------------------------------------------------------------------
(IN MILLIONS, EXCEPT RATIOS AND SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues........................ $ 625.1 $ 703.8 $ 788.8 $ 916.2 $ 1,063.8
Gross profit........................ 219.3 236.4 255.8 309.7 327.7
Income before non-recurring items,
special items, interest and income
taxes............................. 89.8 92.2 99.2 125.6 164.5
Interest expense.................... 48.8 38.9 32.5 33.9 32.4
Pre-tax income before non-recurring
and special items................. 41.0 53.3 66.7 91.7 132.1
Income before non-recurring and
special items..................... 47.6 53.3 66.3 56.9 80.6
Income (loss) from continuing
operations........................ 47.6 53.3 63.3 49.6 (8.2 )
Preferred stock dividends paid...... 2.7 -- -- -- --
Income (loss) from continuing
operations applicable to Common
Stock............................. 44.9 53.3 63.3 49.6 (8.2 )
Net income (loss) applicable to
Common Stock(d)................... (20.2 ) 24.1 63.3 46.5 (8.2 )
Dividends on Common Stock........... -- -- -- 9.5 14.5
Per Share Data:(d)
Income (loss) before non-recurring
and special items................. $ 1.25 $ 1.34 $ 1.61 $ 1.26 $ 1.51
Income (loss) from continuing
operations........................ $ 1.18 $ 1.34 $ 1.53 $ 1.10 $ (0.16 )
Net income (loss)................... (0.53 ) 0.61 1.53 1.03 (0.16 )
Weighted average number of shares of
Common Stock outstanding(d)....... 38,109,450 39,770,482 41,285,355 45,278,117 51,707,392
Divisional Summary Data:
Net revenues:
Intimate Apparel................ $ 384.8 $ 423.2 $ 565.3 $ 689.2 $ 802.0
Menswear........................ 200.0 243.2 183.8 185.7 214.4
Retail Outlet Stores............ 40.3 37.4 39.7 41.3 47.4
---------- ---------- ---------- ---------- ----------
$ 625.1 $ 703.8 $ 788.8 $ 916.2 $ 1,063.8
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Percentage of net revenues:
Intimate Apparel................ 61.6 % 60.1 % 71.7 % 75.2 % 75.4 %
Menswear........................ 32.0 34.6 23.3 20.3 20.2
Retail Outlet Stores............ 6.4 5.3 5.0 4.5 4.4
---------- ---------- ---------- ---------- ----------
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital................. $ 141.5 $ 122.0 $ 104.5 $ 307.5 $ 210.6
Total assets.................... 629.6 688.6 780.6 941.1 1,142.9
Long term debt (excluding
current maturities)........... 277.6 245.5 206.8 194.3 215.8
Stockholders' equity............ 135.8 159.1 240.5 500.3 475.7
</TABLE>
- ------------------
(a) On September 4, 1991, the Company's Board of Directors determined that the
Company should restructure its knitwear operations. The restructuring
resulted in a non-recurring charge of $13.0 million (or $0.68 per share) in
fiscal 1991. Such charge was associated with the closing of the Company's
knitwear manufacturing facilities and the liquidation of the related
inventory. In
(footnote continued on next page)
13
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<PAGE>
(footnote continued from previous page)
October 1993, the Company decided to discontinue a portion of its men's
manufactured dress shirt and neckwear business segment. This resulted in a
non-recurring charge of $19.9 million. Additionally, the Company incurred a
$2.6 million non-recurring charge associated with a previously discontinued
business. The total non-recurring charge recorded in fiscal 1993 was $22.5
million (or $0.56 per share). In fiscal 1994, the Company incurred a $3.0
million (or $0.07 per share) charge related to the California earthquake.
(b) Fiscal 1993 includes a $10.5 million charge (or $0.26 per share) for the
cumulative effect of the Company changing its method of accounting for
postretirement benefits other than pensions.
(c) Income reflects the benefits of utilizing the Company's net operating loss
carryforward to offset the Company's federal income tax provision. Income
before non-recurring items, after giving effect to a full tax provision at
the Company's effective income tax rate of 38.0%, was $41.1 million (or
$1.00 per share).
(d) All share and per share amounts have been adjusted to reflect the
two-for-one stock split effective October 3, 1994 and includes all Common
Stock and Common Stock equivalents when the effect on earnings per share is
dilutive.
(e) Effective with the 1995 fiscal year, the Company adopted SOP 93-7, which
relates to the accounting for certain types of advertising and promotion
costs. SOP 93-7 requires, among other things, that certain costs, which had
previously been deferred for amortization against future revenues, be
currently expensed. The Company incurred a special charge for advertising
costs, previously deferrable, of $11.7 million ($7.3 million net of income
tax benefits or $0.16 per share) in the fourth quarter of fiscal 1995
related to SOP 93-7.
(f) Fiscal 1996 includes non-recurring charges related to the sale of the
Company's Hathaway dress shirt operations of $46.0 million, consolidation
and realignment of the Company's Intimate Apparel Division of $72.1 million
and other items of $20.4 million. Total non-recurring items were $138.5
million ($88.8 million net of income tax benefits of $49.7 million, or
$1.66 per share).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
STRATEGIC ACTIONS (See Note 4 of Notes to Consolidated Financial Statements)
Following the acquisition of the GJM business in February 1996, which
significantly added to the Company's low cost sleepwear manufacturing capacity,
in addition to an immediate expansion of the Company's product lines, the
Company undertook a strategic review of its businesses and manufacturing
facilities. The further acquisitions of Bodyslimmers and Lejaby were also
considered. As a result of this review, the Company has, to date, taken the
following steps which have resulted in a non-recurring charge in fiscal 1996 as
summarized below (in millions):
<TABLE>
<S> <C>
Loss related to the sale of the Hathaway business................................ $ 46.0
Charge for the consolidation and realignment of the Intimate Apparel Division.... 72.1
Other items including merger termination costs................................... 20.4
------
138.5
Less: income tax benefits................................................... (49.7)
------
$ 88.8
------
------
</TABLE>
14
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<PAGE>
EXIT FROM THE HATHAWAY BUSINESS
In May 1996, following a comprehensive evaluation of the Company's men's
dress shirt business, the Company decided to cease manufacturing and marketing
the Hathaway brand. In recent years the dress shirt business had become
increasingly price driven and, as a result, the Company's dress shirt business
had returned profit margins considerably below those of the Company's core
intimate apparel business. In addition, the dress shirt business required
continuous investment, particularly of working capital, disproportionate to its
return. Accordingly, the Company elected to withdraw from the Hathaway dress
shirt business, freeing up funds for reinvestment in brands and businesses with
higher growth potential and greater returns.
On November 12, 1996, the Company completed the sale of certain assets of
its Hathaway dress shirt business, including its Waterville, Maine and Prescott,
Ontario manufacturing facilities ('Hathaway Assets'). The loss from the
write-down of the Hathaway Assets to fair value and losses incurred in the
operation of the Hathaway business since the Company announced its intent to
exit this business of approximately $29.5 million net of income tax benefits of
$16.5 million are included in the Statement of Operations for fiscal 1996. The
pre-tax loss includes the write off of $13.8 million of Hathaway intangible
assets, including goodwill.
INTIMATE APPAREL CONSOLIDATION AND REALIGNMENT
In April 1996, the Company announced the consolidation of certain intimate
apparel and other manufacturing, distribution and administrative operations in
the United States and Europe. The consolidation and realignment of the Intimate
Apparel Division is designed to reduce costs and improve the efficiency of the
Company's operations and is expected to result in annual cost savings in excess
of $15 million per year. The consolidation and realignment has resulted in a
non-recurring charge of approximately $46.2 million after income tax benefits of
$25.9 million, comprised primarily of a write-down of asset values, accruals of
lease and other contractual obligations, and employee termination and severance
costs. In order to maximize the cost savings and efficiencies made available
through the consolidation of facilities and the additional volumes contemplated
as a result of the Lejaby, GJM and Bodyslimmers acquisitions, the Company has
reevaluated the viability of all product assortments and styles. As a result,
certain products and styles have been discontinued to permit the investment of
working capital in products and styles with greater returns. In addition, the
Company incurred certain costs and expenses associated with the realignment of
manufacturing plants, consolidation of the Company's intimate apparel sales
forces and other costs during the second and third quarters of fiscal 1996,
which are also included in the non-recurring charge.
OTHER ITEMS
The non-recurring charge also includes $11.3 million, net of income tax
benefits of $6.1 million, related to the cancellation of certain contracts,
realignment of its European organization and the write-off of insurance and
other receivables.
In June 1996, the Company announced its intent to merge with Authentic
Fitness Corporation. On July 25, 1996, the Company announced the termination of
the merger. The Company has incurred legal, accounting and investment advisory
fees in connection with the proposed merger, of approximately $3.0 million, $1.9
million net of income tax benefits ($0.03 per share), all of which were charged
to the results of operations in fiscal 1996.
The non-recurring charge for the Hathaway disposition, the Intimate Apparel
Division consolidation and realignment and certain other items total
approximately $87.0 million, after income tax benefits of $48.5 million, or
$1.63 per share for the year ended January 4, 1997.
RESULTS OF OPERATIONS
The consolidated statements of income for the Company are summarized below.
The Divisional Summary includes the Retail Outlet Stores Division for reporting
purposes; however, since the
15
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<PAGE>
Company's business strategy is to use its Retail Outlet Stores Division as a
channel for its excess inventory and the Company does not consider the results
of such division to be material, the Retail Outlet Stores Division is not
discussed further.
STATEMENT OF INCOME
(SELECTED DATA, IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
JANUARY 7, % OF NET JANUARY 6, % OF NET JANUARY 4, % OF NET
1995 REVENUES 1996 REVENUES 1997 REVENUES
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... $788.8 100.0% $916.2 100.0% $1,063.8 100.0%
Cost of goods sold......................... 533.0 67.6% 606.5 66.2% 698.2 65.6%
Non-recurring items........................ -- -- -- -- 37.9 3.6%
---------- -------- ---------- -------- ---------- --------
Gross profit............................... 255.8 32.4% 309.7 33.8% 327.7 30.8%
Selling, administrative and general
expenses................................. 156.6 19.9% 184.0 20.1% 201.1 18.9%
---------- -------- ---------- -------- ---------- --------
Income before interest, income taxes and
non-recurring items...................... 99.2 12.5% 125.6 13.7% 164.5 15.5%
Interest expense........................... 32.5 33.9 32.4
Income from operations..................... 63.3 49.6 80.6
Income before non-recurring and special
items, adjusted for a normalized income
tax provision............................ 41.4 56.9 80.6
</TABLE>
DIVISIONAL SUMMARY
(IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
% OF % OF % OF
JANUARY 7, GROSS JANUARY 6, GROSS JANUARY 4, GROSS
1995 PROFIT 1996 PROFIT 1997 PROFIT
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Intimate Apparel...................... $565.3 $689.2 $ 802.0
Menswear.............................. 183.8 185.7 214.4
Retail Outlet Stores.................. 39.7 41.3 47.4
---------- ---------- ----------
$788.8 $916.2 $1,063.8
---------- ---------- ----------
---------- ---------- ----------
Gross profit(1):
Intimate Apparel...................... $203.5 79.6% $259.2 83.7% $ 302.4 82.7%
Menswear.............................. 38.2 14.9% 35.5 11.5% 44.7 12.2%
Retail Outlet Stores.................. 14.1 5.5% 15.0 4.8% 18.5 5.1%
---------- -------- ---------- -------- ---------- --------
$255.8 100.0% $309.7 100.0% $ 365.6 100.0%
---------- -------- ---------- -------- ---------- --------
---------- -------- ---------- -------- ---------- --------
</TABLE>
- ------------
(1) Does not include non-recurring expenses of $37.9 million related to the
decision to exit the Hathaway business and the restructuring and realignment
of the Intimate Apparel Division in fiscal 1996.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net revenues increased 16.1% to $1,063.8 million from the $916.2 million
recorded in fiscal 1995 with double-digit increases across all divisions.
INTIMATE APPAREL DIVISION. Net revenues increased 16.4% to $802.0 million
in fiscal 1996 from $689.2 million in fiscal 1995. The increase in net
revenues is attributable to a 53.0% increase in Calvin Klein net revenues
to $244.3 million in fiscal 1996, an increase in sleepwear net revenues of
16
<PAGE>
<PAGE>
$55 million reflecting the acquisition of GJM in February 1996 and Lejaby
net revenues of $47.5 million reflecting the acquisition in July 1996. This
was partially offset by a decrease in shipments to Avon and Victoria's
Secret of over $75 million.
MENSWEAR DIVISION. Menswear Division net revenues increased 15.5% to $214.4
million in fiscal 1996 compared to $185.7 million in fiscal 1995. The
increase in net revenues is attributable to an increase of 24.0% in Chaps
by Ralph Lauren net revenues and the start-up of Calvin Klein accessories.
The increases in Chaps by Ralph Lauren and Calvin Klein accessories were
partially offset by a decrease in Hathaway net revenues due to the
disposition of the Hathaway dress shirt operations in November 1996.
Gross profit increased 5.8% to $327.7 million in fiscal 1996 from $309.7
million in fiscal 1995. Gross profit for fiscal 1996 includes $37.9 million of
non-recurring expenses related to the Company's decision to exit its Hathaway
dress shirt operations and the realignment and restructuring of the Company's
intimate apparel division. Excluding these items, gross profit increased 18.0%
to $365.6 million in fiscal 1996, compared to $309.7 million in fiscal 1995.
Gross profit as a percentage of net revenues (before non-recurring items) was
34.4% in fiscal 1996, higher than the 33.8% recorded in fiscal 1995.
INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit
(excluding the effect of the realignment and restructuring charges)
increased 16.7% to $302.4 million (37.7% of net revenues) in fiscal 1996
from $259.2 (37.6% of net revenues) in fiscal 1995. The increase in gross
profit reflects the higher sales volume noted above. The increase in gross
profit as a percentage of net revenues reflects manufacturing efficiencies
in the Company's manufacturing facilities and a higher mix of Calvin Klein
sales partially offset by the slightly lower margins on the GJM private
label business, which was acquired in February 1996.
MENSWEAR DIVISION. Menswear Division gross profit increased 25.9% to $44.7
million (20.8% of net revenues) in fiscal 1996 from $35.5 million (19.1% of
net revenues) in fiscal 1995. The increase in gross profit reflects the
higher sales volume noted above. The increase in gross profit as a
percentage of net revenues reflects the more favorable mix of Chaps by
Ralph Lauren and Calvin Klein accessories business and the sale of the
Company's Hathaway dress shirt operations in November 1996.
Selling, administrative and general expenses before non-recurring and
restructuring charges increased 9.2% to $201.0 million (18.9% of net revenues)
in fiscal 1996 compared to $184.0 million (20.1% of net revenues) in fiscal
1995. The increase in selling, administrative and general expenses reflects an
increase in marketing and promotion expenses to $59.5 million (5.6% of net
revenues) in fiscal 1996 compared to $41.0 million (4.5% of net revenues) in
fiscal 1995 and higher sales volume as noted above. Despite the increase in
marketing and promotion expense and the increased sales volume noted above,
selling, administrative and general expenses decreased as a percentage of net
revenues reflecting the cost savings realized from the realignment and
restructuring of the Company's Intimate Apparel Division, as noted above.
Non-recurring expenses in fiscal 1996 were $138.5 million ($88.8 million,
net of income tax benefits of $49.7 million), including $37.9 million classified
in cost of goods sold. The non-recurring expense reflects the restructuring of
the Company's Intimate Apparel Division, the loss associated with the Company's
decision to exit the Hathaway dress shirt operations and other items, including
terminated merger costs, as noted above.
Interest expense decreased slightly to $32.4 million in fiscal 1996 from
$33.9 million in fiscal 1995. The decrease in interest expense reflects the
benefit from the proceeds of the Company's stock offering, completed in October
1995, which was partially offset by interest on the funds borrowed to complete
the GJM, Lejaby and Bodyslimmers acquisitions.
Income tax expense for fiscal 1996 was $1.8 million primarily reflecting
foreign and state income taxes. For income tax purposes, the Company has net
operating loss carryforwards available to offset future taxable income amounting
to approximately $53.5 million at January 4, 1997. These carryforwards, which
the Company expects to fully utilize, should result in a future tax savings of
17
<PAGE>
<PAGE>
approximately $19.3 million at current United States corporate income tax rates.
The net operating loss carryforwards expire beginning in 2001 and fully expire
in 2008.
As a result of the Company's Common Stock offerings in 1991 and 1992 and
other changes in the ownership of the Company's Common Stock, certain provisions
of the Internal Revenue Code could limit the rate at which the Company will be
able to utilize its net operating loss carryforwards. The Company believes that
it will realize all of the benefits attributable to its net operating loss
carryforwards; however, the amount of such benefits that the Company will
realize and the period in which any benefit is realized are subject to several
factors, including the general level of economic activity, the level of earnings
and future changes in United States corporate income tax laws and regulations.
See Note 8 of Notes to Consolidated Financial Statements on pages F-1 to F-24.
The net loss of $8.2 million in fiscal 1996 reflects the impact of the
non-recurring charges noted above. Income before non-recurring charges for
fiscal 1996 was $80.6 million compared to income before the adoption of SOP 93-7
of $56.9 million in fiscal 1995. The increase in income before non-recurring
charges reflects the higher operating income, as noted above.
COMPARISON OF FISCAL 1995 WITH FISCAL 1994.
Net revenues increased 16.2% to $916.2 million in fiscal 1995 from the
$788.8 million recorded in fiscal 1994, due primarily to a 21.9% increase in
intimate apparel net revenues.
INTIMATE APPAREL DIVISION. Net revenues increased 21.9% to $689.2 million
in fiscal 1995 from $565.3 million in fiscal 1994. Warner's and Olga
domestic net revenues increased 12.6% (including Victoria's Secret and
Avon). Calvin Klein net revenues increased 162% to $159.7 million in fiscal
1995 compared to $61.0 million in fiscal 1994 (nine months of operations in
fiscal 1994). The increase in Calvin Klein is a result of the launch of
Calvin Klein women's intimate apparel and an over 70.0% increase in the
Calvin Klein men's underwear business. Fruit of the Loom net revenues
decreased 17.3% in fiscal 1995 compared to fiscal 1994 primarily as a
result of a decrease of approximately $27.0 million in Avon shipments.
Fruit of the Loom net revenues in the mass merchandise market (without
Avon) increased 30.7% in fiscal 1995 compared to fiscal 1994. International
sales increased 18.9% to $100.0 million in fiscal 1995 compared to $84.1
million in fiscal 1994, which represents a significant turnaround compared
to prior years.
MENSWEAR DIVISION. Net revenues increased 1.1% to $185.7 million in fiscal
1995 from $183.8 million in fiscal 1994. Excluding discontinued brands
(Dior, Puritan and Nicklaus), net revenues increased 13.6% in fiscal 1995
compared to fiscal 1994, primarily attributable to continued growth in
Chaps by Ralph Lauren, where net revenues increased 14.3% in fiscal 1995
compared to fiscal 1994, and to the launch of Calvin Klein accessories
which generated net revenues of $3.9 million in its first four months of
shipping. Hathaway net revenues decreased 6.0% in fiscal 1995 compared to
fiscal 1994 reflecting continued softness in the men's dress shirt market.
Gross profit increased 21.1% to $309.7 million in fiscal 1995 compared to
$255.8 million in fiscal 1994. Gross profit as a percentage of net revenues
increased to 33.8% in fiscal 1995 compared to 32.4% in fiscal 1994. The increase
in gross profit as a percentage of net revenues of 140 basis points primarily
reflects manufacturing efficiencies achieved in the Intimate Apparel Division
and a more favorable mix due to growth in the Calvin Klein business.
INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit increased
27.4% to $259.2 million (37.6% of net revenues) in fiscal 1995 from $203.5
million (36.0% of net revenues) in fiscal 1994. Gross profit as a
percentage of net revenues increased to 37.6% of net revenues in fiscal
1995 from 36.0% in fiscal 1994 due primarily to manufacturing efficiencies
associated with the Company's new manufacturing facilities and a better mix
of sales reflecting, the sales increase in the Calvin Klein business.
MENSWEAR DIVISION. Gross profit in the Menswear Division decreased slightly
to $35.5 million (19.1% of net revenues) in fiscal 1995 from $38.2 million
(20.7% of net revenues) in fiscal 1994. The
18
<PAGE>
<PAGE>
decrease in net revenues and gross profit as a percentage of net revenues
reflects softness in the men's dress shirt business and the final
liquidation of merchandise related to discontinued brands.
Selling, administrative and general expenses increased 17.5% to $184.0
million (20.1% of net revenues) in fiscal 1995 from $156.6 million (19.9% of net
revenues) in fiscal 1994. The increase in selling, administrative and general
expenses reflects higher sales volume and an increase in marketing and
advertising expenses (not including the special charge for advertising costs
previously deferrable in accordance with SOP 93-7) of approximately $4.0 million
in fiscal 1995 compared to fiscal 1994. The increase in advertising and
promotion expenses is primarily related to the launch of Calvin Klein women's
intimate apparel. Selling, administrative and general expenses as a percentage
of net revenues for fiscal 1995 were essentially equal to fiscal 1994,
reflecting continuing efforts to control operating expenses.
Interest expense increased slightly to $33.9 million in fiscal 1995 from
$32.5 million in fiscal 1994. The increase in interest expenses reflects
increased interest costs supporting the increased working capital required for
the 16.2% sales growth achieved in fiscal 1995 offset by the favorable impact
from the proceeds from the Company's offering of Common Stock which was
completed in October 1995.
The Company's treatment of certain advertising costs changed in fiscal 1995
reflecting the SOP 93-7. SOP 93-7 requires, among other things, that certain
advertising costs, previously deferred and amortized over the period benefitted,
be expensed in the period the advertising is first run. As a result of adopting
SOP 93-7, the Company incurred a special charge for advertising costs,
previously deferrable, of $11.7 million ($7.3 million net of income tax
benefits) in the fourth quarter of fiscal 1995.
Income tax expense for fiscal 1995 was $30.4 million corresponding to an
effective income tax rate of 38.0%. Income tax expense for fiscal 1994 was $0.4
million. Income tax expense for fiscal 1994 reflects $22.5 million of tax
benefits associated with the Company's net operating loss carryforwards. The
Company had utilized substantially all of its net operating loss carryforward
benefits for financial reporting purposes at the end of fiscal 1994 and, as a
result, had approximately $38.5 million of deferred tax assets at 1994 fiscal
year end.
The difference between the United States federal statutory income tax rate
of 35.0% and the Company's effective income tax rate of 38.0% for fiscal 1995
primarily reflects the impact of state income taxes and the effect of
non-deductible intangible amortization partially offset by certain benefits
associated with state income tax net operating loss carryforwards.
Income before non-recurring and special items, adjusted to reflect a
normalized income tax rate of 38.0%, increased 37.4% to $56.9 million in fiscal
1995 compared to $41.4 million in fiscal 1994. The increase reflects higher
operating income and lower interest expense, as noted above.
In October 1995, the Company entered into new bank credit agreements. The
Company wrote off deferred financing costs related to the prior bank credit
agreement. The write-off resulted in an extraordinary item of $3.1 million (net
of income tax benefits of $1.9 million) due to the early extinguishment of debt.
Net income, after non-recurring, special and extraordinary charges, was
$46.5 million in fiscal 1995, compared to $63.3 million in fiscal 1994. The
decrease in net income in fiscal 1995 compared to fiscal 1994 reflects the
impact of the full income tax provision in fiscal 1995 and the special charge
for SOP 93-7, partially offset by higher operating income, as noted above.
CAPITAL RESOURCES AND LIQUIDITY
On May 11, 1995, consistent with the Company's goal of increasing
stockholder value, the Company declared a quarterly cash dividend of $0.07 per
share. The Company has since declared eight successive quarterly cash dividends.
On February 20, 1997, the Company increased its quarterly cash dividend to $0.08
per share.
19
<PAGE>
<PAGE>
On February 9, 1996, the Company acquired substantially all of the assets
(including certain subsidiaries) of GJM. GJM is a private label manufacturer of
women's lingerie and sleepwear. The purchase price consisted of a cash payment
of $12.5 million plus assumed liabilities.
In the third and fourth quarters of fiscal 1996, the Company acquired
Lejaby, a leading European intimate apparel manufacturer, for approximately $79
million, including certain fees and expenses and assumed liabilities. Funds to
consummate the transaction were provided by members of the Company's bank credit
group. The terms of the bank loans are substantially the same as the terms of
the Company's existing credit agreements and include a term loan totalling 370
million French Francs and a revolving loan facility totalling 150 million French
Francs.
On July 19, 1996, the Company acquired Bodyslimmers, for approximately $6.5
million and assumed liabilities. The acquisition of Bodyslimmers expanded the
Company's product line to include body slimming undergarments, a fast growing
segment of the intimate apparel market targeting aging baby boomers. This
acquisition enhances the Company's leading position in the domestic intimate
apparel market.
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 a substantial amount 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 provided from (used in) operations in fiscal 1996 was $27.0 million,
compared to $(13.6) million in fiscal 1995 and $77.8 million in fiscal 1994.
Cash flow from operating activities for fiscal 1996 includes $67.7 million of
cash expenses related to the decision to exit the Hathaway business and
restructuring and realignment of the Intimate Apparel Division. Cash provided
from operating activities before the non-recurring charges was $94.8 million in
fiscal 1996. The improvement in cash flow from operating activities in fiscal
1996 compared to fiscal 1995 primarily reflects the decreased use of working
capital, primarily inventory, reflecting the Company's efforts to control
inventory investment. Cash flow from operating activities decreased $90 million
in fiscal 1995 compared to fiscal 1994, primarily as a result of increased
working capital usage to support the rapid growth of the Company's Intimate
Apparel Division and the Calvin Klein business. Depreciation and amortization
expense was $27.6 million, $22.1 million and $18.8 million in fiscal 1996, 1995
and 1994, respectively. The increase in depreciation and amortization expense
primarily reflects amortization of intangible assets related to the acquisitions
completed in fiscal 1995 and fiscal 1996.
Cash used in investing activities was $156.5 million in fiscal 1996,
compared to $84.0 million in fiscal 1995 and $59.8 million in fiscal 1994.
Fiscal 1996 includes $85.6 million, net of cash acquired, related to the
purchase of Lejaby, GJM and Bodyslimmers and $30.1 million related to the
payment of acquired liabilities and acquisition accruals. Capital expenditures
for new facilities, improvements to existing facilities and for machinery and
equipment were approximately $33.8 million, $39.1 million and $17.5 million in
the 1996, 1995 and 1994 fiscal years, respectively. Capital expenditures for
fiscal 1995 includes approximately $15 million of investment in store fixtures
for the Calvin Klein and Chaps by Ralph Lauren businesses.
Cash provided from (used in) financing activities was $135.2 million, $99.9
million and $(18.9) million in fiscal 1996, 1995 and 1994, respectively. During
fiscal 1996, the Company entered into a bank credit agreement with several
members of its bank credit group which provided the Company with a term loan of
370 million French Francs and a revolving credit agreement of 150 million French
Francs (the 'Lejaby Credit Agreements'). Proceeds from the Lejaby Credit
Agreements of approximately $79.2 million were used to purchase Lejaby in fiscal
1996. In addition, the Company increased the outstanding balance on its
revolving lines of credit by approximately $105.5 million in fiscal 1996. In
fiscal 1995, the Company sold 9,717,000 shares of Common Stock which resulted in
net proceeds to the Company of $224.3 million. Proceeds from the sale of Common
Stock were primarily used to repay
20
<PAGE>
<PAGE>
outstanding debt. Debt repayments were $27.8 million, $46.8 million and $41.8
million in fiscal 1996, 1995 and 1994, respectively.
At January 4, 1997, the Company had approximately $197.0 million of
additional borrowing available under the revolving loan portions of its United
States bank facilities. The Company also has bank credit agreements in Canada,
Europe and Asia. At January 4, 1997, the Company had approximately $55.0 million
of additional credit available under these agreements. The Company believes that
funds available under its various bank facilities, together with cash flow to be
generated from future operations, will be sufficient to meet the capital
expenditure requirements and working capital needs of the Company, including
interest and debt principal payments for the next twelve months and for the next
several years.
SEASONALITY
The operations of the Company are somewhat seasonal, with approximately
59.0% of net revenues, 62.0% of operating income before non-recurring items and
substantially all of the Company's net cash flow from operating activities
generated in the second half of fiscal 1996. The second half of fiscal 1996
includes the results of operations of Lejaby, which was acquired in the third
and fourth quarters of fiscal 1996. Excluding the impact of Lejaby,
approximately 58.0% of the Company's net revenue and operating income before
operating items was generated in the second half of the fiscal year. Generally,
the Company's operations during the first half of the year are financed by
increased borrowing. The following sets forth the net revenues, operating income
before non-recurring items and net cash flow from operating activities generated
for each quarter of fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
(IN MILLIONS)
APR 8, JUL 8, OCT 7, JAN 6, APR 6, JUL 6, OCT 5, JAN 4,
1995 1995 1995 1996 1996 1996 1996 1997
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....................... $195.2 $210.4 $239.5 $271.1 $206.5 $222.8 $292.0 $342.5
Operating income(1)................ $ 25.5 $ 24.4 $ 39.2 $ 36.5 $ 32.3 $ 31.0 $ 49.6 $ 51.6
Cash flow from operating
activities(1).................... $(43.0) $ 0.4 $(70.4) $ 99.4 $(71.3) $ (8.2) $ 12.7 $164.6
</TABLE>
- ------------
(1) Before non-recurring items.
INFLATION
The Company does not believe that the relatively moderate levels of
inflation which have been recently experienced in the United States, Canada and
Western Europe have had a significant effect on its net revenues or its
profitability. Management believes that, in the past, the Company has been able
to offset such effects by increasing prices or by instituting improvements in
efficiency. Mexico historically has been subject to high rates of inflation;
however, the effects of high rates of inflation on the operation of the
Company's Mexican subsidiaries have not had a material impact on the results of
operations of the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ('FAS 123'), which establishes market value accounting and
reporting standards for stock-based employee compensation plans. Companies may
elect to continue to account for stock-based compensation using the intrinsic
value approach under APB Opinion No. 25. The Company was required to adopt FAS
123 for its 1996 fiscal year. The Company's accounting for its stock-based
compensation plans will continue to follow APB Opinion 25. Pro forma disclosure
required by FAS 123 is included in Note 12 of Notes to Consolidated Financial
Statements. See Pages F-1 to F-24.
21
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report. See
Item 14 of Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 is incorporated by reference from page
11 of Item 4 of Part I included herein and from the Proxy Statement of The
Warnaco Group, Inc., relating to the 1997 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
22
<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is hereby incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. The Consolidated Financial Statements of The Warnaco Group, Inc.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.............................................................. F-1
Report of Independent Auditors................................................................. F-2
Consolidated Balance Sheets as of January 6, 1996 and January 4, 1997.......................... F-3
Consolidated Statements of Income for the Years Ended January 7, 1995,
January 6, 1996 and January 4, 1997.......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended January 7, 1995, January 6,
1996 and January 4, 1997..................................................................... F-5
Consolidated Statements of Cash Flow for the Years Ended January 7, 1995, January 6, 1996 and
January 4, 1997.............................................................................. F-6
Notes to Consolidated Financial Statements ................................................ F-7-F-24
</TABLE>
2. Financial Statement Schedule:
<TABLE>
<C> <S> <C>
Report of Independent Accountants............................................................... S-1
II. Valuation and Qualifying Accounts and Reserves............................................. S-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission which
are not included with this additional financial data have been omitted
because they are not applicable or the required information is shown in
the Consolidated Financial Statements or Notes thereto.
23
<PAGE>
<PAGE>
(a) 3. LIST OF EXHIBITS:
<TABLE>
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 3.1 to the Company's Form 10-Q filed May 16, 1995).
3.2 Amended Bylaws of the Company.
4.1 Registration Rights Agreement dated March 14, 1994 between the Company and Calvin Klein,
Inc. ('CKI') (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q
filed May 24, 1994).
10.1 Credit Agreement, dated as of October 12, 1995 (the 'U.S. $450,000,000 Credit
Agreement'), among the Company, Warnaco Inc.; The Bank of Nova Scotia and Citibank, N.A.,
as Managing Agents; Citibank, N.A., as Documentation Agent; The Bank of Nova Scotia as
Paying Agent, Competitive Bid Agent, Swing Line Lender and an Issuing Bank and certain
other lenders named therein (incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q filed November 21, 1995).
10.2 Credit Agreement, dated as of October 12, 1995 (the 'U.S. $100,000,000 364-day Revolving
Credit Agreement'), among Warnaco Inc. and The Bank of Nova Scotia and Citibank, N.A. as
Managing Agents; Citibank, N.A. as Documentation Agent; The Bank of Nova Scotia as Paying
Agent, Competitive Bid Agent, Swing Line Lender and an Issuing Bank and certain other
lenders named therein (incorporated herein by reference to Exhibit 10.1 to the Company's
Form 10-Q filed November 21, 1995).
10.3 Credit Agreement, dated as of December 4, 1995 (the 'U.S. $200,000,000 Credit
Agreement'), among Warnaco Inc., the Company and The Bank of Nova Scotia, as agent for
the Lenders and certain other lenders named therein (incorporated herein by reference to
Exhibit 10.3 to the Company's Form 10-K filed April 5, 1996).
10.4 Employment Agreement, dated as of 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, No. 33-42641).
10.5 Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the
Company's Registration on Form S-1, No. 33-45877).
10.6 1991 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, No. 33-45877).
10.7 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, No.
33-45877).
10.8 Warnaco Employee Retirement Plan (incorporated herein by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1, No. 33-45877).
10.9 Executive Management Agreement, dated as of May 9, 1991, as extended, between the
Company, Warnaco Inc. and The Spectrum Group, Inc. (incorporated herein by reference to
Exhibit 10.13 to the Company's Registration Statement on Form S-1, No. 33-45877).
10.10 1993 Non-Employee Director Stock Plan (incorporated herein by reference to the Company's
Proxy Statement for its 1994 Annual Meeting of Stockholders).
10.11 Amended and Restated 1993 Stock Plan (incorporated herein by reference to the Company's
Proxy Statement for its 1994 Annual Meeting of Stockholders).
10.12 The Warnaco Group, Inc. Supplemental Incentive Compensation Plan (incorporated herein by
reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders).
11.1 Calculation of Net Income (Loss) per common share.
21.1 Subsidiaries of the Company.
23.1(a) Consent of Independent Accountants.
23.1(b) Consent of Independent Auditors.
23.1(c) Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the registrant in the last quarter of
the 1996 fiscal year.
24
<PAGE>
<PAGE>
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 in the City of New
York, State of New York, on the 4th day of April, 1997.
THE WARNACO GROUP, INC.
By: /S/ LINDA J. WACHNER
_______________________________
Linda J. Wachner
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ LINDA J. WACHNER Chairman of the Board; Director; April 4, 1997
- ------------------------------------------ President and Chief Executive
LINDA J. WACHNER Officer (Principal Executive Officer)
/s/ WILLIAM S. FINKELSTEIN Director; Senior Vice President and Chief April 4, 1997
- ------------------------------------------ Financial Officer (Principal Financial and
WILLIAM S. FINKELSTEIN Accounting Officer)
/s/ JOSEPH A. CALIFANO, JR. Director April 4, 1997
- ------------------------------------------
JOSEPH A. CALIFANO, JR.
/s/ WILLIAM R. FIELDS Director April 4, 1997
- ------------------------------------------
WILLIAM R. FIELDS
/s/ JOSEPH H. FLOM Director April 4, 1997
- ------------------------------------------
JOSEPH H. FLOM
/s/ ANDREW G. GALEF Director April 4, 1997
- ------------------------------------------
ANDREW G. GALEF
/s/ WALTER F. LOEB Director April 4, 1997
- ------------------------------------------
WALTER F. LOEB
/s/ STEWART A. RESNICK Director April 4, 1997
- ------------------------------------------
STEWART A. RESNICK
</TABLE>
25
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of The Warnaco Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of The Warnaco Group,
Inc. and its subsidiaries at January 4, 1997 and January 6, 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3 to the consolidated financial statements, the Company
adopted the provisions of the American Institute of Certified Public
Accountants' Statement of Position 93-7, 'Reporting on Advertising Costs' during
the year ended January 6, 1996.
PRICE WATERHOUSE LLP
New York, New York
February 18, 1997
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Warnaco Group, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flow of The Warnaco Group, Inc. for the year ended
January 7, 1995. Our audit also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audit 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of The Warnaco Group, Inc. for the year ended January 7, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 23, 1995
F-2
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash, restricted $3,939 -- 1995 and $134 -- 1996.................................. $ 6,162 $ 11,840
Accounts receivable, less allowance for doubtful accounts of $1,960 -- 1995 and
$2,475 -- 1996................................................................... 156,607 211,038
Inventories....................................................................... 356,466 387,318
Prepaid expenses.................................................................. 23,148 40,313
----------- -----------
Total current assets......................................................... 542,383 650,509
----------- -----------
Property, plant and equipment, at cost:
Land and land improvements........................................................ 5,741 5,690
Buildings and building improvements............................................... 67,667 67,868
Machinery and equipment........................................................... 113,968 133,223
----------- -----------
187,376 206,781
Less: Accumulated depreciation.................................................... 81,051 85,244
----------- -----------
Net property, plant and equipment............................................ 106,325 121,537
----------- -----------
Other assets:
Deferred financing costs, less accumulated amortization of $139 -- 1995 and
$553 -- 1996..................................................................... 1,522 3,536
Licenses, trademarks, intangible and other assets, at cost, less accumulated
amortization of $57,596 -- 1995 and $61,801 -- 1996.............................. 159,230 164,402
Excess of cost over net assets acquired, less accumulated amortization of
$37,066 -- 1995 and $36,005 -- 1996.............................................. 112,805 180,495
Deferred income tax asset......................................................... 18,822 22,465
----------- -----------
Total other assets........................................................... 292,379 370,898
----------- -----------
$ 941,087 $ 1,142,944
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under revolving credit facility......................................... $ 51,033 $ 146,960
Borrowing under foreign credit facilities......................................... -- 19,185
Current portion of long-term debt................................................. 26,700 49,281
Accounts payable.................................................................. 123,447 174,149
Accrued liabilities............................................................... 28,461 50,123
Federal and other income taxes.................................................... 5,231 195
----------- -----------
Total current liabilities.................................................... 234,872 439,893
----------- -----------
Long-term debt......................................................................... 194,301 215,805
----------- -----------
Other long-term liabilities............................................................ 11,613 11,532
----------- -----------
Stockholders' equity:
Preferred Stock; $.01 par value 10,000,000 shares authorized, none issued in 1995
and 1996, respectively........................................................... -- --
Class A Common Stock, $.01 par value, 130,000,000 shares authorized, 51,745,512
and 51,861,512 outstanding in 1995 and 1996, respectively........................ 521 524
Capital in excess of par value.................................................... 567,965 575,691
Cumulative translation adjustment................................................. (3,745) (3,307)
Accumulated deficit............................................................... (46,896) (69,667)
Treasury stock, at cost........................................................... (5,000) (12,030)
Notes receivable for common stock issued and unearned stock compensation.......... (12,544) (15,497)
----------- -----------
Total stockholders' equity................................................... 500,301 475,714
----------- -----------
$ 941,087 $ 1,142,944
----------- -----------
----------- -----------
</TABLE>
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-3
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues............................................................... $ 788,758 $ 916,179 $1,063,823
Cost of goods sold(a)...................................................... 532,998 606,498 736,116
Selling, administrative and general expenses(b)............................ 159,573 195,793 301,732
---------- ---------- ----------
Income before interest and income taxes.................................... 96,187 113,888 25,975
Interest expense........................................................... 32,459 33,867 32,435
---------- ---------- ----------
Income (loss) before income taxes.......................................... 63,728 80,021 (6,460)
Provision for income taxes................................................. 400 30,408 1,779
---------- ---------- ----------
Income (loss) before extraordinary items................................... 63,328 49,613 (8,239)
Extraordinary items, net of income tax benefits of $1,913 -- 1995.......... -- (3,120) --
---------- ---------- ----------
Net income................................................................. $ 63,328 $ 46,493 $ (8,239)
---------- ---------- ----------
---------- ---------- ----------
Income per common share:
Income (loss) before extraordinary items.............................. $ 1.53 $ 1.10 $ (0.16)
Extraordinary items................................................... -- (0.07) --
---------- ---------- ----------
Net income per common share................................................ $ 1.53 $ 1.03 $ (0.16)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares of common stock outstanding.............. 41,285 45,278 51,707
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
(a) Includes $37,868,000 of non-recurring items in the year ended January 4,
1997. See Note 4 of Notes to Consolidated Financial Statements.
(b) Includes $3,000,000, $11,745,000 and $100,672,000 of non-recurring and
special items in the years ended January 7, 1995, January 6, 1996 and
January 4, 1997, respectively. See Notes 3 and 4 of Notes to Consolidated
Financial Statements.
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-4
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
CAPITAL FOR COMMON
CLASS A IN CUMULATIVE STOCK AND
COMMON EXCESS OF TRANSLATION ACCUMULATED TREASURY UNEARNED STOCK
STOCK PAR VALUE ADJUSTMENT DEFICIT STOCK COMPENSATION
------- ---------- ----------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 8, 1994.................... $ 404 $315,068 $ 279 ($ 147,225) $ -- ($ 9,391)
Issued 1,699,492 shares of Class A Common
Stock in connection with the Calvin Klein
business.................................... 17 22,804
Payments of employee notes receivable......... 2,199
Net income.................................... 63,328
Change in cumulative translation adjustment... (2,011)
Purchase of 286,600 shares of Treasury
Stock....................................... -- (5,000)
------- ---------- ----------- ------------ --------- --------------
Balance at January 7, 1995.................... 421 337,872 (1,732) (83,897) (5,000) (7,192)
Sold 9,717,000 shares of Class A Common Stock
net of expenses of $10,180.................. 97 222,931
Payments of employee notes receivable......... 1,028
Issued 320,000 shares of restricted stock..... 3 6,957 (6,960)
Dividends..................................... (9,492)
Employee stock options exercised.............. -- 205
Amortization of unearned stock compensation... 580
Net income.................................... 46,493
Change in cumulative translation adjustment... (2,013)
------- ---------- ----------- ------------ --------- --------------
Balance at January 6, 1996.................... 521 567,965 (3,745) (46,896) (5,000) (12,544)
Issued 190,700 shares of restricted stock..... 2 5,576 (5,578)
Dividends..................................... (14,532)
Employee stock options exercised and payment
of employee notes receivable................ 1 2,150 123
Amortization of unearned stock compensation... 2,502
Net loss...................................... (8,239)
Change in cumulative translation adjustment... 438
Purchase of 250,000 shares of Treasury
Stock....................................... -- (7,030)
------- ---------- ----------- ------------ --------- --------------
Balance at January 4, 1997.................... $ 524 $575,691 ($3,307) ($ 69,667) ($ 12,030) ($15,497)
------- ---------- ----------- ------------ --------- --------------
------- ---------- ----------- ------------ --------- --------------
<CAPTION>
TOTAL
--------
<S> <<C>
Balance at January 8, 1994.................... $159,135
Issued 1,699,492 shares of Class A Common
Stock in connection with the Calvin Klein
business.................................... 22,821
Payments of employee notes receivable......... 2,199
Net income.................................... 63,328
Change in cumulative translation adjustment... (2,011)
Purchase of 286,600 shares of Treasury
Stock....................................... (5,000)
--------
Balance at January 7, 1995.................... 240,472
Sold 9,717,000 shares of Class A Common Stock
net of expenses of $10,180.................. 223,028
Payments of employee notes receivable......... 1,028
Issued 320,000 shares of restricted stock..... --
Dividends..................................... (9,492)
Employee stock options exercised.............. 205
Amortization of unearned stock compensation... 580
Net income.................................... 46,493
Change in cumulative translation adjustment... (2,013)
--------
Balance at January 6, 1996.................... 500,301
Issued 190,700 shares of restricted stock..... --
Dividends..................................... (14,532)
Employee stock options exercised and payment
of employee notes receivable................ 2,274
Amortization of unearned stock compensation... 2,502
Net loss...................................... (8,239)
Change in cumulative translation adjustment... 438
Purchase of 250,000 shares of Treasury
Stock....................................... (7,030)
--------
Balance at January 4, 1997.................... $475,714
--------
--------
</TABLE>
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-5
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
<S> <C> <C> <C>
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
Cash flow from operations:
Net income (loss)............................................................... $ 63,328 $ 46,493 ($ 8,239)
Non-cash items included in net income:
Depreciation and amortization................................................ 18,798 22,058 27,576
Extraordinary item........................................................... -- 3,120 --
Amortization of unearned stock compensation.................................. -- 580 2,502
Charge related to exiting the Hathaway business, restructuring and realigning
the intimate apparel division and other items............................... -- -- 138,540
(Increase) decrease in deferred income tax assets............................ (2,467) 21,641 (3,643)
Other changes in operating accounts............................................. (519) (103,305) (53,312)
Income taxes paid............................................................... (1,314) (4,168) (8,672)
---------- ---------- ----------
Net cash provided from (used in) operations before non-recurring items............ 77,826 (13,581) 94,752
Cash expenses related to exiting the Hathaway business and restructuring and
realigning the intimate apparel division and other items........................ -- -- (67,747)
---------- ---------- ----------
Net cash provided from (used in) operations....................................... 77,826 (13,581) 27,005
---------- ---------- ----------
Cash flow from investing activities:
Proceeds from the sale of fixed assets.......................................... 773 616 1,135
Increase in intangibles and other assets........................................ (9,936) (34,320) (8,178)
Purchase of property, plant and equipment....................................... (17,534) (39,122) (33,765)
Acquisition of businesses, net of cash acquired................................. (33,103) (11,200) (85,648)
Payment of assumed liabilities and acquisition accruals......................... -- -- (30,052)
---------- ---------- ----------
Net cash used in investing activities............................................. (59,800) (84,026) (156,508)
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from sale of Class A Common Stock and payment of notes receivable from
employees.................................................................... 2,199 224,261 2,274
Borrowing under credit facilities............................................... 14,835 (64,646) 105,500
Proceeds from other debt........................................................ 8,582 872 79,249
Repayments of debt.............................................................. (41,841) (46,800) (27,839)
Increase in deferred financing cost............................................. (1,767) (1,599) (2,441)
Cash dividends paid............................................................. -- (5,868) (14,532)
Purchase of treasury shares..................................................... (5,000) -- (7,030)
Other........................................................................... 4,106 (6,242) --
---------- ---------- ----------
Cash provided from (used for) financing activities................................ (18,886) 99,978 135,181
---------- ---------- ----------
Increase (decrease) in cash....................................................... (860) 2,371 5,678
Cash at beginning of year......................................................... 4,651 3,791 6,162
---------- ---------- ----------
Cash at end of year............................................................... $ 3,791 $ 6,162 $ 11,840
---------- ---------- ----------
---------- ---------- ----------
Other changes in operating accounts:
Accounts receivable............................................................. ($14,328) ($ 7,948) ($ 29,690)
Inventories..................................................................... (4,646) (104,283) (36,526)
Prepaid expenses................................................................ 6,256 (7,256) (16,985)
Accounts payable and accrued expenses........................................... 13,810 8,702 23,411
Federal and other income taxes.................................................. 400 9,493 5,880
Other........................................................................... (2,011) (2,013) 598
---------- ---------- ----------
($ 519) ($103,305) ($ 53,312)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
This Statement should be read in conjunction with the accompanying Notes to
Consolidated Financial Statements.
F-6
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: The Warnaco Group, Inc. (the 'Company') was incorporated in
Delaware on March 14, 1986 and on May 10, 1986 acquired substantially all of the
outstanding shares of Warnaco Inc. ('Warnaco'). Warnaco is the principal
operating subsidiary of the Company.
Nature of Operations: The Company designs, manufactures and markets a broad
line of women's intimate apparel, men's underwear and men's sportswear,
accessories and dress furnishings under a number of owned and licensed brand
names. The Company's products are sold to department and specialty stores, mass
merchandise stores and catalog and other retailers throughout the United States,
Canada, Mexico and Western Europe.
Basis of Consolidation and Presentation: The accompanying Consolidated
Financial Statements include the accounts of The Warnaco Group, Inc. and all
subsidiary companies for the years ended January 7, 1995 ('Fiscal 1994'),
January 6, 1996 ('Fiscal 1995') and January 4, 1997 ('Fiscal 1996').
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts have been reclassified to conform to the current year
presentation.
Translation of Foreign Currencies: Cumulative translation adjustments arise
primarily from consolidating the net assets and liabilities of the Company's
foreign operations at current rates of exchange as of the respective balance
sheet date and are applied directly to stockholders' equity. Income and expense
items for the Company's foreign operations are translated using monthly average
exchange rates.
Inventories: Inventories are stated at the lower of cost, determined on a
first-in-first-out basis, or market.
Depreciation and Amortization: Provision is made for depreciation of
property, plant and equipment computed over the estimated useful lives of the
assets using the straight-line method, as summarized below:
<TABLE>
<S> <C>
Buildings...................................................................... 20-40 years
Building improvements.......................................................... 2-20 years
Machinery and equipment........................................................ 3-10 years
</TABLE>
Licenses, trademarks and other intangible assets are amortized over the
estimated economic life of the assets which range from 7 to 40 years. The excess
of cost over net assets acquired is amortized over 40 years. The carrying value
of the excess of cost over net assets acquired is reviewed regularly to assess
recoverability. The Company will reduce the carrying value of this asset if the
value is impaired. Deferred financing costs are amortized over the life of the
related debt, using the debt outstanding method.
Start-Up Costs: The Company defers certain costs associated with the
start-up of new manufacturing facilities and certain new businesses. Deferred
costs are amortized using the straight-line method, principally over five years.
Start-up costs, net of accumulated amortization, were $34,673,000 and
$38,637,000 at January 6, 1996 and January 4, 1997, respectively, and are
included in other assets.
Employee Retirement Plans: The Company has a non-contributory pension plan
and a defined contribution retirement plan for the benefit of qualifying
employees. Contributions are deposited with fund managers who invest the assets
of the plans.
Income Taxes: The provision for income taxes and income taxes payable are
determined in accordance with Statement of Financial Accounting Standards No.
109.
F-7
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized Leases: The asset values and related amortization of
capitalized leases are included with property, plant and equipment and
accumulated depreciation and the associated debt is included with long-term
debt.
Revenue Recognition: The Company recognizes revenue when goods are shipped
to customers.
Income Per Common Share: Income per common share is based on the weighted
average number of shares of common stock outstanding taking into account
potential dilution from common stock equivalents.
Concentration of Credit Risk: The Company sells its products to department
stores, specialty outlets, catalogs, direct sellers and mass merchandisers. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have been
within management's expectations. No customer accounted for more than 10.0% of
the Company's net revenues in any of the three years in the period ended January
4, 1997.
NOTE 2 - ACQUISITIONS
On March 14, 1994, the Company acquired certain assets and the worldwide
trademarks, rights and businesses of Calvin Klein men's underwear, licensed the
Calvin Klein trademark for men's accessories and acquired the worldwide
trademarks, rights and businesses of Calvin Klein women's intimate apparel upon
the expiration of an existing license on December 31, 1994. The purchase price
was approximately $60,924,000 and consisted of cash payments of $33,103,000 in
fiscal 1994 and $5,000,000 in fiscal 1995 and the issuance of 1,699,492 shares
of the Company's Common Stock valued at the fair market value ($13.43 per share
or $22,824,000) for such shares. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the accompanying financial
statements include the results of the Calvin Klein businesses commencing March
15, 1994.
The purchase price was allocated to the fair value of assets acquired as
summarized below:
<TABLE>
<CAPTION>
(IN MILLIONS OF DOLLARS)
<S> <C>
Accounts receivable....................................... $ 7.4
Inventories............................................... 7.9
Property and equipment.................................... 0.2
Intangible and other assets............................... 45.4
------
Total purchase price...................................... $ 60.9
------
------
</TABLE>
In February 1995, the Company terminated the license agreement for the
production of men's underwear and women's intimate apparel bearing the Calvin
Klein name in Canada. The Company designs, produces and markets Calvin Klein
men's underwear and women's intimate apparel in Canada. The cost of terminating
the license agreement before its expiration in the year 2000 was $6,200,000. In
August 1996, the Company terminated a production agreement with the original
seller of the Calvin Klein license in Canada prior to its expiration date. The
cost to terminate the production agreement was approximately $1,793,000.
On February 9, 1996, the Company acquired substantially all of the assets
(including certain subsidiaries) comprising the GJM Group of Companies ('GJM')
from Cygne Designs, 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
plus assumed liabilities.
In the third and fourth quarters of fiscal 1996 the Company acquired the
assets and stock in the companies comprising the Lejaby/Euralis group of
companies ('Lejaby'), a leading European intimate apparel manufacturer, for
approximately $79,249,000 plus assumed liabilities and certain fees and
expenses. Funds to consummate the transaction were provided by members of the
Company's bank credit group. The terms of the bank loans are substantially the
same as the terms of the Company's
F-8
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
existing credit agreements and include a term loan facility of 370 million
French Francs and revolving loan facilities of 150 million French Francs. The
term and revolving loans mature on December 31, 2001. On July 19, 1996, the
Company acquired Bodyslimmers, for approximately $6,500,000 million plus assumed
liabilities. Bodyslimmers designs and markets body slimming undergarments for
women.
The GJM, Lejaby and Bodyslimmers acquisitions were accounted for using the
purchase method of accounting. The results of operations of GJM, Lejaby and
Bodyslimmers have been included in the consolidated results of operations since
the respective dates of acquisition. The purchase price of the respective
acquisitions was allocated to the fair value of the assets acquired, including
certain trademarks and intangible assets. In addition, the Company incurred
certain costs to consolidate the acquired businesses into the Company's
operations and terminate certain contracts and agreements. The preliminary
allocation of acquisition costs to the fair value of the assets acquired and
liabilities assumed is summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accounts receivable.................................................. $ 34,772
Inventories.......................................................... 30,514
Other current assets................................................. 1,180
Fixed assets......................................................... 6,932
Intangible and other assets.......................................... 90,478
Notes payable........................................................ (2,287)
Accounts payable..................................................... (29,115)
Accrued liabilities.................................................. (46,826)
--------------
Purchase price -- net of cash balances of acquired entities.......... $ 85,648
--------------
--------------
</TABLE>
These acquisitions did not have a material pro-forma impact on consolidated
earnings.
NOTE 3 - SPECIAL CHARGE FOR ADVERTISING COSTS PREVIOUSLY DEFERRABLE
In December 1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-7 -- Reporting on Advertising Costs ('SOP
93-7'). SOP 93-7 requires, among other things, that certain advertising and
promotion costs that the Company had previously deferred and amortized over the
period the advertising benefitted be expensed when the advertisement first runs.
As a result, the Company recorded a special charge for advertising costs,
previously deferrable, of $11,745,000 ($7,282,000 net of income tax benefits of
$4,463,000) primarily in the fourth quarter of fiscal 1995 related to SOP 93-7.
Advertising and promotion expense before the special charge for advertising
costs, previously deferrable, was $37,192,000, $40,988,000 and $59,544,000 in
the years ended January 7, 1995, January 6, 1996 and January 4, 1997,
respectively.
NOTE 4 - NON-RECURRING EXPENSE
In January 1994, the Company's leased warehouse located in Sylmar,
California suffered significant structural damage due to the California
earthquake and was permanently closed. The Company was able to recover
substantially all of its inventory, transfer the inventory to other locations,
and begin shipping at normal levels in March 1994. The Company recorded a
non-recurring expense of approximately $3 million in fiscal 1994 related to the
insurance deductible.
The acquisition of the GJM businesses in February 1996, significantly added
to the Company's low cost manufacturing capacity and resulted in an immediate
expansion of product lines. The Company undertook a strategic review of its
businesses and manufacturing facilities. The acquisitions of
F-9
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bodyslimmers and Lejaby were also considered. As a result of this review, the
Company has taken the actions described below which resulted in a non-recurring
charge in fiscal 1996 summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Loss related to the sale of the Hathaway business........................................ $ 46,058
Charge for the consolidation and realignment of the Intimate Apparel Division............ 72,073
Other items, including merger termination costs.......................................... 20,409
--------------
138,540
Less: income tax benefits................................................................ (49,736)
--------------
$ 88,804
--------------
--------------
</TABLE>
The losses reported above include inventory markdowns directly attributable
to the decision to exit the Hathaway business as well as the consolidation and
realignment of the intimate apparel division. It is difficult to distinguish
inventory markdowns attributable to the decision to exit or realign these
activities from external market conditions. Accordingly, inventory markdowns, as
well as gross margin losses of Hathaway incurred during fiscal 1996 and
settlement of insurance claims receivable relating to the 1994 California
earthquake and other claims receivable aggregating $37,868,000, are reflected in
the consolidated statement of operations within cost of goods sold. All other
charges totaling $100,672,000 are reflected within selling, administrative and
general expenses. The Company estimated certain expenses and charges during
interim periods of fiscal 1996. The actual expenses as reflected below differ in
some cases from the Company's original estimates. A description of the
non-recurring items follows.
EXIT FROM THE HATHAWAY BUSINESS
On May 6, 1996, after a careful evaluation of the Company's Hathaway men's
dress shirt operations, the Company announced that it had decided to cease
manufacturing and marketing this brand. On November 12, 1996 the Company sold,
to an investor group, certain assets comprising the Hathaway dress shirt
manufacturing operations in Waterville, Maine and Prescott, Ontario including
certain inventory, property and equipment and other assets (the 'Hathaway
Assets'). The Company's Puerto Rico facility (not included in the sale) ended
production of Hathaway products in 1995 and necessary legal filings to cease
operations in the leased Puerto Rico plant were made in May 1996.
Net revenues of the Hathaway business were $42,432,000, $37,754,000 and
$27,800,000, for the years ended January 7, 1995, January 6, 1996 and January 4,
1997, respectively. Results of operations for the years ended January 7, 1995,
January 6, 1996 and January 4, 1997 generated a pre-tax loss of approximately
$1,298,000, $4,641,000 and $8,669,000, respectively.
Losses recorded in fiscal 1996 related to the Hathaway business are
summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Write-down of assets to fair value (including $13.8 million of intangible assets and
$1.0 million in cost of goods sold)................................................... $ 32,420
Severance and other employee costs...................................................... 4,760
Legal and professional fees............................................................. 209
Losses incurred during fiscal 1996...................................................... 8,669
--------------
Total charges........................................................................... 46,058
Less: income tax benefits............................................................... (16,535)
--------------
Total net loss related to exit from the Hathaway business -- fiscal 1996........... $ 29,523
--------------
--------------
</TABLE>
Through January 4, 1997, the Company had expended approximately $13,200,000
of net cash related to the Hathaway disposition. In addition, the Company's
income tax payments will be reduced in future periods resulting in additional
positive cash flows. The Company does not expect to recognize any additional
charges related to exiting the Hathaway business or to incur any additional cash
expenses.
F-10
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTIMATE APPAREL DIVISION CONSOLIDATION AND REALIGNMENT
In April 1996, the Company announced the consolidation and realignment of
certain of its intimate apparel manufacturing, distribution, selling and
administrative functions and facilities in the United States and Europe. The
consolidation and realignment has resulted in a non-recurring charge in fiscal
1996 of $46,198,000, net of income tax benefits of $25,875,000. The closing of
several manufacturing facilities and consolidation of certain distribution
operations has resulted in the Company incurring certain integration costs in
its remaining manufacturing facilities to reconfigure product assortments and
retrain existing personnel. The costs attendant to the realignment and
retraining incurred in fiscal 1996 amounted to approximately $16,100,000.
In order to maximize the cost savings and efficiencies made available
through the consolidation of facilities and the additional volumes contemplated
as a result of the Lejaby, GJM and Bodyslimmers acquisitions, the Company has
re-evaluated the viability of all product lines and styles. As a result, certain
products and styles have been discontinued to permit the investment of working
capital in products and styles with greater returns. The liquidation of these
products, completed in fiscal 1996, resulted in mark down losses of
approximately $18,070,000 in fiscal 1996.
A summary of the total intimate apparel division consolidation and
realignment charge follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fees and other expenses.................................................................. $ 2,840
Lease termination costs.................................................................. 6,042
Severance and other employee costs, net of pension curtailment gains..................... 21,861
Realignment of manufacturing facilities and retraining costs............................. 16,100
Disposition and write-down of discontinued inventory..................................... 18,070
Manufacturing variances.................................................................. 7,160
--------------
Total charges....................................................................... 72,073
Less: Income tax benefits................................................................ (25,875)
--------------
Net intimate apparel consolidation and realignment charge........................... $ 46,198
--------------
--------------
</TABLE>
Total cash expense incurred through January 4, 1997 related to this charge
was approximately $43,600,000 partially offset by proceeds from the sales of
certain assets of approximately $12 million. The Company expects to expend
approximately $3,000,000 of additional cash over the next several years,
primarily for lease termination costs. Future cash outlays will be more than
offset by tax benefits realized, resulting in a future cash savings to the
Company.
OTHER
Other non-recurring items of $13,083,000, net of income tax benefits of
$7,326,000, were incurred in fiscal 1996.
The addition of the GJM manufacturing and administrative organization has
enabled the Company to begin manufacturing and direct sourcing certain products
which had been previously outsourced through a buying agent. This will result in
significant ongoing cost savings to the Company. The cost of terminating the
existing agency contract was $2,693,000.
The Company has recognized other opportunities for further cost savings by
consolidating certain administrative and sales functions in Europe following the
Lejaby acquisition. Actions taken in fiscal 1996, primarily reductions in
existing staff, resulted in a non-recurring charge of $6,066,000 in fiscal 1996.
In order to achieve an early resolution of the insurance claims related to
the destruction of one of the Company's distribution centers as a result of the
1994 California earthquake, the Company accepted a cash settlement offer of
approximately $19,000,000 and wrote-off the remaining receivable of $6,082,000
in fiscal 1996. The Company also settled certain other claims for approximately
$2,568,000 in fiscal 1996.
F-11
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1996, the Company announced its intent to merge with Authentic
Fitness Corporation. On July 25, 1996, the Company announced the termination of
the merger. The Company incurred legal, accounting and investment advisory fees
in connection with the proposed merger of $3,000,000.
All of the above costs were paid in fiscal 1996. The Company does not
expect any future significant cash outlays related to these items.
NOTE 5 - EXTRAORDINARY ITEM
In October 1995, in conjunction with a refinancing of the Company's credit
agreements, as more fully described in Note 11, the Company recorded a non-cash
extraordinary charge of $3,120,000 (net of income tax benefits of $1,913,000)
related to the write-off of deferred financing costs under the Company's
previous credit agreement.
NOTE 6 - RELATED PARTY TRANSACTIONS
In 1990, the Company sold its Activewear Division to a newly formed
company, Authentic Fitness Corporation ('Authentic Fitness'). Certain directors
and officers of the Company are also directors and officers of Authentic
Fitness. The Company maintained an equity interest in Authentic Fitness equal to
approximately 3.0% of the outstanding equity of Authentic Fitness. The equity
interest was sold in March 1995 pursuant to an option granted at the time of the
sale. From time to time, the Company and Authentic Fitness jointly negotiate
contracts and agreements with vendors and suppliers. Authentic Fitness purchases
certain occupancy services related to leased facilities, computer service,
laboratory testing, transportation and contract production services from the
Company, all of which are charged at the Company's cost. Total charges to
Authentic Fitness for these services were approximately $6,292,000, $5,335,000
and $5,446,000 in the years ended January 7, 1995, January 6, 1996 and January
4, 1997, respectively.
In 1994, the Company sold certain trademarks and trade names to Authentic
Fitness for $6,550,000 (net book value of $0), a purchase price determined at
arms-length based on an independent third party appraisal. The Company sold
certain inventory to Authentic Fitness for sale in its outlet stores; such sales
totaled $2,400,000, $2,668,000 and $350,000 in the years ended January 7, 1995,
January 6, 1996 and January 4, 1997, respectively. The Company purchases certain
design and occupancy services from Authentic Fitness. All services are charged
at Authentic Fitness' cost. Charges for design and occupancy services were
approximately $1,600,000, $2,206,000 and $1,244,000 in the years ended January
7, 1995, January 6, 1996 and January 4, 1997, respectively. The Company
purchases inventory from Authentic Fitness for sale in the Company's outlet
stores. Inventory purchases from Authentic Fitness were $2,547,000, $7,562,000
and $15,531,000 in the years ended January 7, 1995, January 6, 1996 and January
4, 1997, respectively. The Company purchased certain machinery and equipment
from Authentic Fitness in fiscal 1994 for a total purchase price of $1,400,000.
In July 1996, Authentic Fitness announced that it was exiting the outlet store
business. Pursuant to an agreement, leases relating to four outlet stores were
assigned to the Company and the Company purchased the existing Authentic Fitness
outlet store inventory for its net book value of $2,000,000, included above.
In June 1995, the Company and Authentic Fitness entered into a sub-license
agreement whereby the Company secured rights to design, manufacture and
distribute certain intimate apparel using the Speedo brand name. The Company
pays a royalty to Authentic Fitness for garments sold under the Speedo label.
The Company paid Authentic Fitness $1,000,000 for this sub-license. Royalty
expense under this agreement was approximately $78,000 and $469,000 in the years
ended January 6, 1996 and January 4, 1997, respectively (none in the fiscal year
ended January 7, 1995).
A director and a stockholder of the Company is the sole stockholder,
President and a director of The Spectrum Group, Inc. ('Spectrum'). Spectrum and
the Company are parties to an agreement under which Spectrum provides consulting
services to the Company. The Spectrum consulting agreement was amended on May 9,
1991 to provide for annual fees of $350,000 or such higher amount,
F-12
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
including expenses, not to exceed $500,000 (plus cost of living increases) for a
period of five years. The contract was renewed through May 9, 1998. Amounts
charged to expense pursuant to these agreements were $500,000 in each of the
three fiscal years ended January 4, 1997.
NOTE 7 - SEGMENT REPORTING
The Company operates within one industry segment -- the marketing and
manufacturing of apparel. The Company has no customer which accounted for more
than 10.0% of the Company's net revenues for any of the three years in the
period ended January 4, 1997. The Company operates in several geographic areas.
<TABLE>
<CAPTION>
CANADA AND
FOR THE YEAR ENDED JANUARY 7, 1995 UNITED STATES LATIN AMERICA EUROPE CONSOLIDATED
- ---------------------------------------------------- ------------- ------------- -------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues........................................ $ 696,174 $47,668 $ 44,916 $ 788,758
------------- ------------- -------- ------------
------------- ------------- -------- ------------
Operating profit.................................... $ 113,752 $ 5,937 $ 2,561 122,250
------------- ------------- --------
------------- ------------- --------
General corporate expense -- net.................... (26,063)
Interest expense.................................... (32,459)
------------
Income before income taxes.......................... $ 63,728
------------
------------
<CAPTION>
FOR THE YEAR ENDED JANUARY 6, 1996
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues........................................ $ 807,491 $57,820 $ 50,868 $ 916,179
------------- ------------- -------- ------------
------------- ------------- -------- ------------
Operating profit.................................... $ 142,673 $ 9,948 $ 2,449 $ 155,070
------------- ------------- --------
------------- ------------- --------
General corporate expense -- net.................... (41,182)
Interest expense.................................... (33,867)
------------
Income before extraordinary items and income
taxes............................................. $ 80,021
------------
------------
Identifiable assets at January 6, 1996.............. $ 707,258 $43,093 $ 39,329 $ 789,680
------------- ------------- --------
------------- ------------- --------
Corporate assets.................................... 151,407
------------
Total Assets at January 6, 1996................ $ 941,087
------------
------------
<CAPTION>
FOR THE YEAR ENDED JANUARY 4, 1997
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues........................................ $ 902,572 $66,297 $ 94,954 $1,063,823
------------- ------------- -------- ------------
------------- ------------- -------- ------------
Operating profit.................................... $ 149,632 $ 9,444 $ 15,375 $ 175,451
------------- ------------- --------
------------- ------------- --------
General corporate expense -- net.................... (148,476)
Interest expense.................................... (32,435)
------------
Income (loss) before income taxes................... $ (6,460)
------------
------------
Identifiable assets at January 4, 1997.............. $ 859,971 $32,810 $102,730 995,511
------------- ------------- --------
------------- ------------- --------
Corporate assets.................................... 147,433
------------
Total Assets at January 4, 1997................ $1,142,944
------------
------------
</TABLE>
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added or deducted:
general corporate expense -- net, interest expense and income taxes.
Non-recurring expense of $3,000,000 in fiscal 1994 is included in general
corporate expense -- net. Special charges related to SOP 93-7 of $11,745,000 in
fiscal 1995 are included in general corporate expense -- net. Restructuring and
other non-recurring charges related to the sale of the Hathaway dress shirt
operations, the restructuring and re-alignment of the intimate apparel division
and other items totalling $138,540,000 are included in general corporate
expense -- net in fiscal 1996.
Identifiable assets are those assets of the Company that are associated
with the operations in each geographic area. Corporate assets are principally
accounts receivable, prepaid expenses, property and equipment, deferred
financing costs, deferred income tax assets and other assets.
F-13
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The following presents the United States and foreign components of income
from operations before income taxes and the related provision (benefit) for
United States federal and other income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
United States income (loss) from operations before income taxes..... $ 63,574 $ 75,542 $ (24,659)
Foreign income before taxes......................................... 154 4,479 18,199
---------- ---------- ----------
Income (loss) before income taxes, and extraordinary items.......... $ 63,728 $ 80,021 $ (6,460)
---------- ---------- ----------
---------- ---------- ----------
Current Provision:
United States federal............................................... $ 18,295 $ 1,790 $ --
State and Puerto Rico............................................... 4,253 6,013 60
Foreign............................................................. 487 1,923 1,161
---------- ---------- ----------
23,035 9,726 1,221
Deferred Provision (Benefit):
United States federal............................................... (22,635) 23,792 (2,767)
State and Puerto Rico............................................... -- (3,110) 102
Foreign............................................................. -- -- 3,223
---------- ---------- ----------
(22,635) 20,682 558
---------- ---------- ----------
Total............................................................... $ 400 $ 30,408 $ 1,779
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company re-evaluated its deferred tax asset in fiscal 1994 and reversed
a portion of its valuation allowance amounting to $22,635,000.
At January 6, 1996 and January 4, 1997, the Company had net deferred income
tax assets of $16,864,000 and $16,381,000, respectively. Future tax benefits of
$3,000,000 were realized in fiscal 1994 from the treatment of acquisition
related liabilities and were credited against goodwill.
The following presents the reconciliation of the provision for income taxes
to United States federal income taxes computed at the statutory rate:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) from continuing operations before income taxes........ $ 63,728 $ 80,021 $ (6,460)
---------- ---------- ----------
---------- ---------- ----------
Provision for income taxes @ the statutory rate..................... 22,304 28,007 (2,261)
Foreign income taxes @ rates in excess of (lower than) the statutory
rate.............................................................. 433 300 (2,108)
State income taxes (benefit) -- net of federal benefit.............. 2,764 3,908 105
Non-deductible intangible amortization and disposals................ 1,321 1,256 4,736
Other -- net........................................................ -- 234 1,307
Current benefit of capital loss carryforward........................ (3,787) (1,275) --
Current benefit for United States NOL carryforward.................. (22,635) (2,022) --
---------- ---------- ----------
Provision (benefit) for income taxes................................ $ 400 $ 30,408 $ 1,779
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
For tax purposes, the Company has estimated United States net operating
loss carryforwards of approximately $53,530,000 which expire from 2001 through
2007.
F-14
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of certain sales of the Company's Common Stock in 1991 and 1992
and other ownership changes occurring during the prior three-year period, a
change of ownership occurred under Internal Revenue Code Section 382, which
effectively limits the rate at which the Company may utilize its net operating
loss carryforwards. Nevertheless, the Company expects that it will be able to
utilize substantially all of the net operating loss carryforwards it would have
used, absent any Section 382 limitation.
The components of deferred tax assets and liabilities as of January 6, 1996
and January 4, 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Discounts and sales allowances................................................. $ 1,502 $ 1,841
Postretirement benefits........................................................ 3,675 3,675
State and local taxes.......................................................... 620 584
Amortization of intangibles.................................................... 4,635 7,674
Alternative minimum tax credit carryforwards................................... 1,832 1,907
Net operating loss carryforwards............................................... 13,935 18,736
---------- ----------
$ 26,199 $ 34,417
---------- ----------
---------- ----------
Deferred tax liabilities:
Inventory...................................................................... $ 462 $ 3,372
Prepaid advertising............................................................ 1,453 2,388
Deferred expenses.............................................................. 2,165 2,165
Foreign acquisition adjustments................................................ -- 3,223
Depreciation................................................................... 1,678 2,587
Retirement plans............................................................... 485 485
Other.......................................................................... 3,092 3,816
---------- ----------
$ 9,335 $ 18,036
---------- ----------
---------- ----------
</TABLE>
NOTE 9 - EMPLOYEE RETIREMENT PLANS
Pensions
The Company has a defined benefit pension plan which covers substantially
all non-union domestic employees (the 'Plan'). The Plan is noncontributory and
benefits are based upon years of service and average earnings for the eight
highest consecutive calendar years of compensation (increasing to ten years in
1999 and fifteen years in 2004) during the years immediately preceding
retirement. Pension contributions are also made to foreign plans and directly to
union-sponsored plans.
The funding policy for the Plan is to make, as a minimum contribution, the
equivalent of the minimum required by the Employee Retirement Income Security
Act of 1974 (ERISA).
F-15
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension costs were:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Benefits earned..................................................... $ 2,372 $ 1,676 $ 1,552
Interest cost on projected benefits................................. 7,630 7,801 7,728
Actual (return) loss on investments................................. 5,085 (20,976) (9,326)
Net amortization/deferral........................................... (13,981) 13,271 (91)
---------- ---------- ----------
Net periodic pension cost (income) -- Company plan.................. 1,106 1,772 (137)
Cost of other plans................................................. 519 539 1,054
Curtailment gain and other -- net................................... -- -- (2,048)
---------- ---------- ----------
Net pension cost (income)........................................... $ 1,625 $ 2,311 $ (1,131)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Plan had projected benefit obligations in excess of Plan assets at
January 6, 1996 and assets in excess of projected benefit obligations at January
4, 1997. Plan investments include fixed income securities and marketable equity
securities, including 71,800, 71,800 and 81,800 shares of the Company's Class A
Common Stock, which had a fair market value of $1,239,000, $1,795,000 and
$2,423,000 at January 7, 1995, January 6, 1996 and January 4, 1997,
respectively. The Plan also owned 101,300, 101,300 and 112,500 shares of
Authentic Fitness' common stock, which had a fair market value of $1,406,000,
$2,102,000 and $1,350,000 at January 7, 1995, January 6, 1996 and January 4,
1997, respectively.
The following table presents a reconciliation of the funded status of the
Plan at January 6, 1996 and January 4, 1997.
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Plan assets at fair value........................................................... $ 101,905 104,267
---------- ----------
---------- ----------
Actuarial present value of benefit obligation:
Vested......................................................................... 98,379 94,452
Non-vested..................................................................... 2,403 1,542
---------- ----------
Accumulated benefit obligation...................................................... 100,782 95,994
Effect of projected future salary increases......................................... 7,471 4,785
---------- ----------
Projected benefit obligation........................................................ 108,253 100,779
---------- ----------
Plan assets less than (in excess of) projected benefit obligation................... 6,348 (3,488)
Unrecognized prior service cost..................................................... 794 422
Unrecognized net gain (loss)........................................................ (2,122) 4,426
---------- ----------
Amounts accrued for employee retirement plans....................................... $ 5,020 $ 1,360
---------- ----------
---------- ----------
Assumptions used for Company pension plans:
Discount rate (through July 1, 1996)........................................... 7.50% 7.50-8.25%
Discount rate (after July 1, 1996)............................................. -- 8.00%
</TABLE>
The discount rate was 7.50% at January 1, 1996, 8.25% at July 1, 1996 and
8.00% at December 31, 1996.
The actuarial assumption for long-term rate of return on plan assets is
9.0% for all periods presented. The actuarial assumption for increases in salary
levels are based on employee's attained age and years of service and range from
4.8% to 12.0% per annum.
F-16
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company has defined benefit
health care and life insurance plans that provide postretirement benefits to
retired employees and former directors. The plans are contributory, with retiree
contributions adjusted annually, and contain cost-sharing features, including
deductibles and co-insurance. The Company does not fund postretirement benefits.
Net periodic postretirement benefit cost is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $ 83 $ 109 $ 68
Interest cost................................... 655 599 601
Net amortization/deferral....................... (57) (220) (187)
Curtailment gain................................ -- -- (171)
---------- ---------- ----------
Net periodic postretirement benefit cost........ $681 $ 488 $ 311
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table presents a reconciliation of the funded status of the
plans at January 6, 1996 and January 4, 1997:
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................... $6,438 $6,979
Actives, fully eligible.................................... 222 129
Actives, not fully eligible................................ 900 551
Unrecognized net gain from experience differences and changes in
assumptions................................................... 2,045 1,667
---------- ----------
Amount accrued for postretirement benefit costs................. $9,605 $9,326
---------- ----------
---------- ----------
</TABLE>
The weighted average annual assumed rate of increase in the per capita
costs of covered benefits (health care cost trend rate) for the year ended
January 7, 1995 was 11.0% for years 1-3, 9.0% for years 4-8, and 5.0% for years
thereafter. The weighted average annual assumed rate of increase in the per
capita costs of covered benefits (health care cost trend rate) for the year
ended January 6, 1996 was 11.0% for years 1-3, 9.0% for years 4-8, and 5.0% for
years thereafter. The weighted average annual assumed rate of increase in the
per capita costs of covered benefits (health care cost trend rate) for the year
ended January 4, 1997 was 9.0% for years 1-4, and 5.0% thereafter. A 1.0%
increase in the trend rate assumption would have increased the periodic
postretirement benefit cost by approximately $34,000, $34,000 and $47,000 for
the years ended January 7, 1995, January 6, 1996, and January 4, 1997,
respectively. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation is 7.50% at January 1, 1996. To
reflect the curtailment under FAS 106 resulting primarily from the restructuring
and realignment of the Intimate Apparel Division, a discount rate of 8.25% was
used at a measurement date of July 1, 1996. As of the end of the measurement
period, the discount rate was decreased to 8.0%. The rate is consistent with the
discount rates used in valuing the Company's pension plans.
The Company also sponsors a defined contribution plan for substantially all
of its domestic employees. Employees can contribute to the plan, on a pre-tax
and after-tax basis, a percentage of their qualifying compensation up to the
legal limits allowed. Beginning July 1, 1995, the Company contributes amounts
equal to 15.0% of the first 6.0% of employee contributions to the defined
contribution plan. The maximum Company contribution on behalf of any employee is
$1,350 in one year. Employees vest in the Company contribution over four years.
Company contributions to the defined contribution plan
F-17
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
totalled $125,000 and $300,000 for the years ended January 6, 1996 and January
4, 1997 (none in the year ended January 7, 1995).
NOTE 10 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods...................................................................... $ 214,252 $ 227,929
Work in process..................................................................... 77,940 76,445
Raw materials....................................................................... 64,274 82,944
---------- ----------
$ 356,466 $ 387,318
---------- ----------
---------- ----------
</TABLE>
NOTE 11 - DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 6, JANUARY 4,
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Term Note due 1995-1999............................................................. $ 200,000 $ 175,000
Term Note due 1997-2001............................................................. -- 70,560
Capital lease obligations........................................................... 4,975 3,265
Other............................................................................... 16,026 16,261
---------- ----------
221,001 265,086
Less: amounts due within one year................................................... 26,700 49,281
---------- ----------
$ 194,301 $ 215,805
---------- ----------
---------- ----------
</TABLE>
Approximate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
- ----------------------------------------------------------------------------
<S> <C>
1997.......................................................... $ 49,281
1998.......................................................... 45,729
1999.......................................................... 60,575
2000.......................................................... 60,144
2001.......................................................... 47,126
2002 and thereafter........................................... 2,231
</TABLE>
On October 12, 1995, the Company entered into Bank Credit Agreements (the
'1995 Bank Credit Agreements') with substantially the same lenders as those in
the Company's previous bank credit agreement. The 1995 Bank Credit Agreements
provide for a term loan of $200 million, a five year revolving loan in the
amount of $250 million and a 364 day revolving loan in the amount of $100
million ('Revolving Credit Facilities'). The 364 day revolving loan was extended
for an additional 364 days in fiscal 1996 and is extendable for additional 364
day periods. Amounts outstanding under the 1995 Bank Credit Agreements bear
interest at the Bank's base lending rate, or at LIBOR plus 0.4250%. In addition,
the 1995 Bank Credit Agreements allow the Company to place amounts borrowed
under the revolving credit portion of the $250 million Credit Agreement for bid
with participating credit institutions. The Company has the right to accept or
reject any bids offered by the participating institutions. Amounts drawn under
the Revolving Credit Facilities are not limited to any borrowing base.
Borrowings under the 1995 Bank Credit Agreements are essentially unsecured. The
Company is required to pay a commitment fee (included in interest expense) on
unused portions of the Revolving Credit Facilities equal to 0.1750% per annum.
Unused commitments under the Revolving Credit
F-18
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Facilities at January 4, 1997 amounted to approximately $197 million. The rate
of interest payable on amounts outstanding under the 1995 Bank Credit Agreements
and the commitment fee payable on the unused portion of the Revolving Credit
Facilities decreases as the Company's implied senior debt rating, from certain
credit rating agencies, improves.
The 1995 Bank Credit Agreements contain various covenants involving
additional debt, liens on Company property, mergers, investments in other
entities, asset sales and other items. The 1995 Bank Credit Agreements also
require the Company to meet certain financial tests, which as of January 4,
1997, were as follows: (1) Adjusted minimum net worth -- $511,559,000, (2)
Leverage ratio of .500 to 1, and (3) Fixed charge coverage ratio of 1.20 to 1.
As of January 4, 1997, the Company was in compliance with all of the covenants
under the 1995 Bank Credit Agreements.
In July and August 1996, the Company entered into credit agreements related
to the purchase of Lejaby with several of the members of its existing bank group
(the 'Lejaby Bank Credit Agreements'). The terms of the Lejaby Bank Credit
Agreements are substantially the same as those of the 1995 Bank Credit Agreement
and include a term loan facility of 370 million French Francs and revolving loan
facilities of 150 million French Francs. The term and revolving loans mature on
December 31, 2001. Borrowings under the term loan and revolving loan facility
bear interest at LIBOR plus .45%. The term loan will be repaid in annual
installments beginning on July 1, 1997, with a final installment due on December
31, 2001. As of January 4, 1997, the Company had approximately $20 million of
additional credit available under the revolving loan portion of the Lejaby Bank
Credit Agreement.
In October 1995, in conjunction with entering into the 1995 Bank Credit
Agreements, the Company entered into an agreement with a bank whereby the
interest rate on $150,000,000 of the Company's variable rate debt was fixed for
a term of three years at an interest rate of 5.99%. During 1996 the Company and
the bank agreed to amend the agreement such that the interest rate on
$150,000,000 of the Company's variable rate debt will be fixed at an interest
rate of 5.67% for the term of the agreement. In addition, the agreement allows
the bank to renew the agreement for an additional term, expiring in October
2000, for up to $200,000,000 of the Company's variable rate debt. Differences
between the fixed interest rate and the three month LIBOR interest rate are
settled quarterly between the Company and the bank and are included in interest
expense. The Company made a payment under this agreement amounting to $20,000 in
the year ended January 6, 1996 and total payments under this agreement of
approximately $490,000 in the year ended January 4, 1997. In June 1996, the
Company entered into an agreement with a bank whereby the interest rate on
$6,500,000 of the Company's variable rate debt was fixed for a term of three
years at an interest rate of 6.60%. Differences between the fixed interest rate
and the three month LIBOR interest rate are settled quarterly between the
Company and the bank. The Company made payments under this agreement of
approximately $34,000 in the year ended January 4, 1997. The Company estimates
that if these agreements had been terminated at January 4, 1997, the Company
would have received a cash payment of $261,000.
The Company believes that the fair market value of its outstanding variable
rate debt is approximately equal to the outstanding principal amount thereof as
(i) substantially all of the Company's debt bears interest at floating rates
(market) and (ii) there are no prepayment premiums required by any of the
Company's material debt agreements.
Cash interest paid amounted to $30,680,000, $32,667,000 and $32,008,000 in
the years ended January 7, 1995, January 6, 1996 and January 4, 1997,
respectively.
The Company's average interest rate on all its outstanding debt was
approximately 6.19% and 6.06% at January 6, 1996 and January 4, 1997,
respectively.
In December 1995, the Company entered into a $200,000,000 credit agreement
with its banks which provides the Company with a credit facility for the
issuance of commercial letters of credit (the 'L/C Facility'). The L/C Facility
replaced a previous facility with the same lenders in an aggregate amount of
$80,000,000 (subsequently increased to $100,000,000). In addition to providing
for the issue of trade letters of credit, the L/C Facility provides that the
Company may borrow, for a period of 90 days
F-19
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(subsequently increased to 120 days), the amounts due under maturing trade
letters of credit ('120 Day Loans'). Total amounts outstanding under the L/C
Facility, including the face amount of trade letters of credit and 120 Day
Loans, may not exceed $200,000,000 in the aggregate. The total amount of 120 Day
Loans outstanding may not exceed $100,000,000 at any time. Amounts outstanding
under 120 Day Loans accrue interest at the bank's base rate or at LIBOR plus
0.4250%. The interest rate payable on outstanding 120 Day Loans decreases as the
Company's implied senior debt rating improves. The L/C Facility had an initial
maturity of December 1, 1996 and was extended for an additional 364 days in
1996. The L/C Facility is extendable for additional 364 day periods. The Company
is required to pay a commitment fee on the unused portion of the L/C Facility
equal to 0.125% per annum of the average unused portion of the L/C Facility. The
Company classifies 120 Day Loans with trade accounts payable. The amount of 120
Day Loans outstanding at January 6, 1996 and January 4, 1997 was $41,369,000 and
$64,902,000, respectively.
The Company issues stand-by and commercial letters of credit guaranteeing
the Company's performance under certain purchase agreements. The letters of
credit are issued under the terms of the 1995 Bank Credit Agreement and the L/C
Facility. Certain obligations for letters of credit reduce amounts available
under the Revolving Credit Facilities. At January 6, 1996 and January 4, 1997,
the Company had outstanding letters of credit totalling approximately
$49,785,000 and $42,590,000, respectively, of which $6,490,000 and $5,031,000,
respectively, reduced amounts available under the Revolving Credit Facility.
The Company and certain of its foreign subsidiaries have entered into
credit agreements that provide for revolving lines of credit ('Foreign Credit
Facilities'). The terms of the Foreign Credit Facilities are substantially
similar to the 1995 Bank Credit Agreements. At January 4, 1997, the total amount
of credit available under the Foreign Credit Facilities was approximately $57
million, of which approximately $35 million was available.
The Company is required to maintain compensating balances securing certain
credit arrangements. Such balances amounted to $100,000 and $134,000 at January
6, 1996 and January 4, 1997, respectively. In addition, the Company classifies
lock box receipts not available until the next business day as restricted cash.
Such balances amounted to $3,839,000 at January 6, 1996 (none at January 4,
1997).
NOTE 12 - CAPITAL STOCK
On August 25, 1994, the Company's Board of Directors authorized a
two-for-one stock split for stockholders of record on September 8, 1994 and
effective October 3, 1994. The split increased the number of outstanding shares
of Class A Common Stock and outstanding options by 100%. Exercise prices for
outstanding options were adjusted to reflect the split. All outstanding shares
and per share information has been restated to reflect the split as if it had
occurred at the beginning of each period presented.
On May 14, 1993, the stockholders of the Company approved amendments to the
Company's Amended and Restated Certificate of Incorporation which authorized the
issuance of up to 10,000,000 shares of preferred stock with a par value of $.01
and increased the authorized number of shares of Common Stock from 40,000,000 to
65,000,000. On May 11, 1995 the Company approved amendments to the Company's
Amended and Restated Certificate of Incorporation increasing the authorized
number of shares of Common Stock from 65,000,000 to 130,000,000.
Prior to May 1994, dividends to common stockholders were restricted under
certain covenants of the debt agreements. The provision of the debt agreements
restricting the Company's ability to pay dividends were automatically modified
upon the Company's achievement of an investment grade senior debt rating of BBB-
from Standard & Poor's and, as a result, the Company may declare and pay
dividends. On June 30, 1995 the Company paid its first quarterly dividend on its
Common Stock equal to $.07 per common share. Total dividends paid during the
years ended January 6, 1996 and January 4, 1997 were $5,868,000 and $14,532,000,
respectively (none in the year ended January 7, 1995). The 1995
F-20
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank Credit Agreements include certain restrictions on the amount of dividends
the Company may declare in any period.
In 1988, the Company adopted the 1988 Employee Stock Purchase Plan ('Stock
Purchase Plan'). The Stock Purchase Plan provides for sales of up to 4,800,000
shares of Class A Common Stock of the Company to certain key employees. At
January 6, 1996 and January 4, 1997, 4,521,300 shares were issued and
outstanding pursuant to grants under the Stock Purchase Plan. The Stock Purchase
Plan is administered by the Employee Stock Purchase Plan Administrative
Committee of the Board of Directors which has full authority to determine the
number of shares granted or sold, vesting requirements, voting requirements and
conditions of any stock purchase agreement between the Company and a key
employee.
All shares were sold at amounts determined to be equal to the fair market
value of the shares. The shares are subject to vesting requirements and
restrictions on the transfer of ownership. In addition, certain employees
elected to pay for the shares granted by executing a promissory note payable to
the Company. Notes totalling $5,971,000 at January 6, 1996 and January 4, 1997,
are non-interest bearing, while the balance earn interest at approximately 8.0%.
The note maturities range from five to ten years.
Notes receivable from employees are deducted from stockholders' equity and
are principally owed by officers and directors of the Company.
In 1991, the Company established The Warnaco Group, Inc. 1991 Stock Option
Plan ('Option Plan') and authorized the issuance of up to 1,500,000 shares of
Class A Common Stock to cover grants to be made under the plan. The Option Plan
is administered by a committee of the Board of Directors of the Company which
determines the number of stock options to be granted under the Option Plan, and
the terms and conditions of such grants. The Option Plan provides for the
granting of qualified stock options within the meaning of Internal Revenue Code
Section 422 and non-qualified stock options. In addition, the Option Plan limits
the amount of qualified stock options that may become exercisable by any
individual during a calendar year and limits the vesting period for options
awarded under the Option Plan.
On May 14, 1993, the stockholders approved the adoption of The Warnaco
Group, Inc. 1993 Stock Plan ('Stock Plan'). The Stock Plan provided for the
issuance of up to 2,000,000 shares of common stock of the Company through awards
of stock options, stock appreciation rights, performance awards, restricted
stock units and stock unit awards. On May 12, 1994, the stockholders approved an
amendment to the Stock Plan whereby the number of shares issuable under the
Stock Plan is automatically increased each year by 3.0% of the outstanding
number of shares of Class A Common Stock of the Company as of the beginning of
each fiscal year. The total number of shares available for issuance under the
Stock Plan as of January 4, 1997, was 5,882,793. The Compensation Committee of
the Board of Directors has the sole and complete authority to make awards under
the Stock Plan and to determine the specific terms and conditions of such
awards, except that the exercise price of any award may not be less than the
fair market value of the Company's Common Stock at the date of the grant.
In May 1994, the Company's stockholders approved the adoption of the 1993
Non-Employee Director Stock Plan ('Director Plan'). The Director Plan provides
for awards of non-qualified stock options to directors of the Company who are
not employees of the Company. Options granted under the Director Plan are
exercisable in whole or in part until the earlier of ten years from the date of
the grant or one year from the date on which an optionee ceases to be a Director
eligible for grants. Options are granted at the fair market value of the
Company's Common Stock at the date of the grant. The Director Plan provides for
the automatic grant of options to purchase (i) 30,000 shares of Common Stock
upon a Director's election to the Company's Board of Directors and (ii) 10,000
shares of Common Stock immediately following each annual shareholders' meeting
as of the date of such meeting.
F-21
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options issued, exercised, cancelled and outstanding under the Stock Plan,
the Option Plan and the Director Plan at January 4, 1997 are summarized below:
<TABLE>
<CAPTION>
PRICE RANGE SHARES
----------- ---------
<S> <C> <C>
Outstanding January 8, 1994................................................. 15.81-18.31 2,979,000
Options granted............................................................. 13.13-17.38 680,000
Options cancelled........................................................... 13.38-17.38 (162,000)
---------
Outstanding January 7, 1995................................................. 13.13-18.31 3,497,000
Options granted............................................................. 15.75-18.50 2,255,000
Options exercised........................................................... 15.81-18.31 (100,500)
Options cancelled........................................................... 15.81-18.31 (369,000)
---------
Outstanding January 6, 1996................................................. 13.13-18.50 5,282,500
Options granted............................................................. 22.38-29.25 1,962,000
Options exercised........................................................... 13.25-17.32 (417,500)
Options cancelled........................................................... 13.25-24.38 (136,000)
---------
Outstanding January 4, 1997................................................. 13.13-29.25 6,691,000
---------
---------
</TABLE>
Under the above plans, options to purchase a total of 6,691,000 shares of
common stock were outstanding, 4,850,250 of which were exercisable at a weighted
average exercise price of $18.28 per share. Options are exercisable for a period
of ten years from date of the grant and vest when granted in the case of the
Director Plan and from the grant date to four years for the Stock Plan and
Option Plan. Options expire from February 14, 2002 to July 16, 2006.
The Company has reserved 7,145,293 shares of Class A Common Stock for
issuance under the above plans as of January 4, 1997.
In accordance with the provisions of the Stock Plan, the Company granted
320,000 and 190,700 shares of restricted stock to certain employees, including
certain officers of the Company during the years ending January 6, 1996 and
January 4, 1997, respectively. The restricted shares vest over four years. The
fair market value of the restricted shares was $6,960,000 and $5,578,000 at the
dates of grant, respectively. The Company will recognize compensation expense
equal to the fair value of the restricted shares over the vesting period.
Compensation expense for the years ended January 6, 1996 and January 4, 1997 was
$580,000 and $2,502,000, respectively (none in the year ended January 7, 1995).
The outstanding amount of unearned stock compensation at January 6, 1996 and
January 4, 1997 was $6,380,000 and $9,456,000, respectively, and is deducted
from stockholders' equity.
For options outstanding as of the end of fiscal 1996, the range of exercise
prices was $13.13-$29.25 and the weighted average life was 10 years. The
weighted average fair values of the options granted during fiscal 1995 and
fiscal 1996 were $5.71 and $8.23, respectively. Fair value was determined using
the Black Scholes options pricing formula. For options granted in fiscal 1995,
the risk free interest rate was 7.14%, the expected life was 5 years, the
expected volatility was 31.43% and the expected dividend yield was 1.70%, all
calculated on a weighted average basis. For options granted in fiscal 1996, the
risk free interest rate was 5.47%, the expected life was 5 years, the expected
volatility was 31.89% and the expected dividend yield was 1.15%, all calculated
on a weighted average basis.
On a pro forma basis under the provisions of SFAS 123, net income and net
income per share for the year ended January 6, 1996 would have decreased
$4,348,000 and $0.10, respectively and the net loss and net loss per share for
the year ended January 4, 1997 would have increased $6,708,000 and $0.13,
respectively.
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 $5,000,000 and was funded by increasing amounts
outstanding under the Company's revolving line of credit. In the fourth quarter
of fiscal 1996, the Company purchased 250,000 shares of its outstanding Common
Stock at an average price of $28.12 per share. The total cost of the purchase
was $7,030,000 and was funded by increasing amounts outstanding under the
Company's revolving line of credit.
F-22
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - LEASES
Rental expense was $15,100,000, $16,545,000 and $19,923,000 for the years
ended January 7, 1995, January 6, 1996 and January 4, 1997, respectively.
The following is a schedule of future minimum rental payments required
under operating leases with terms in excess of one year, as of January 4, 1997:
<TABLE>
<CAPTION>
RENTAL PAYMENTS
------------------------
(IN THOUSANDS)
REAL ESTATE EQUIPMENT
----------- ---------
<S> <C> <C>
1997................................................................ $13,408 $ 4,093
1998................................................................ $12,002 $ 3,755
1999................................................................ $ 9,693 $ 2,819
2000................................................................ $ 8,351 $ 2,735
2001................................................................ $ 7,275 $ 2,726
2002 and thereafter................................................. $ 9,990 $13,592
</TABLE>
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS
The following summarizes the unaudited quarterly results of operations of
the Company for the 1995 and 1996 fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 6, 1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues..................................................... $195,156 $210,395 $239,569 $271,059
Gross profit..................................................... 66,824 68,219 84,628 90,010
Income before extraordinary items................................ 10,620 9,265 18,091 11,637
Extraordinary items.............................................. -- -- -- 3,120
Net income....................................................... $ 10,620 $ 9,265 $ 18,091 $ 8,517
-------- -------- -------- --------
-------- -------- -------- --------
Income before extraordinary items per common share............... $ 0.26 $ 0.22 $ 0.41 $ 0.22
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common share...................................... $ 0.26 $ 0.22 $ 0.41 $ 0.16
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 4, 1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues..................................................... $206,480 $222,805 $292,010 $342,528
Gross profit..................................................... 72,909 47,237 90,374 117,604
Net income (loss)................................................ $ 15,218 $(55,482) $ 5,811 $ 26,216
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per common share............................... $ 0.29 $ (1.03) $ 0.11 $ 0.49
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Revolving and term loans. The carrying amounts of the Company's outstanding
balances under its 1995 Credit Agreements and other outstanding debt approximate
the fair value because the interest rate on the outstanding borrowings is
variable and there are no prepayment penalties.
Interest rate swap agreement. The Company has entered into interest rate
swap agreements which have the effect of converting a portion of the Company's
outstanding variable rate debt into fixed rate
F-23
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
debt. The fair value of the Company's agreements to fix the interest rate on
$156,500,000 of its outstanding debt is based upon quoted market prices.
Letters of credit. Letters of credit collateralize the Company's obligation
to third parties and have terms ranging from 30 days to one year. The face
amount of the letters of credit are a reasonable estimate of the fair value
since the value for each is fixed over its relatively short maturity.
The carrying amounts and fair value of the Company's financial instruments
as of January 6, 1996 and January 4, 1997, are as follows:
<TABLE>
<CAPTION>
JANUARY 6, 1996 JANUARY 4, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revolving loans........................................ $ 51,033 $ 51,033 $166,145 $166,145
Term Loans............................................. 200,000 200,000 245,560 245,560
Interest rate swaps.................................... -- (3,214) -- 261
Letters of credit...................................... 49,785 49,785 42,590 42,590
</TABLE>
F-24
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
The Warnaco Group, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 18, 1997 appearing on page F-1 of this Form 10-K also included an
audit of the Financial Statement Schedule listed in Item 14(a)2 of this Form
10-K as of and for the two years ended January 4, 1997. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
New York, New York
February 18, 1997
S-1
<PAGE>
<PAGE>
SCHEDULE II
THE WARNACO GROUP, INC
VALUATION & QUALIFYING ACCOUNTS & RESERVES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO
OF COSTS AND BALANCE AT
DESCRIPTION YEAR EXPENSES DEDUCTIONS(1) OTHER(2) END OF YEAR
- --------------------------------------------- ---------- ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 7, 1995
Allowance for doubtful accounts............ $1,413 $1,965 $ 520 $ $ 2,858
---------- ---------- ------------- -------- -----------
---------- ---------- ------------- -------- -----------
Year Ended January 6, 1996
Allowance for doubtful accounts............ $2,858 $ 827 $ 1,725 $ $ 1,960
---------- ---------- ------------- -------- -----------
---------- ---------- ------------- -------- -----------
Year Ended January 4, 1997
Allowance for doubtful accounts............ $1,960 $ 713 $ 649 $451 $ 2,475
---------- ---------- ------------- -------- -----------
---------- ---------- ------------- -------- -----------
</TABLE>
- ------------------
(1) Uncollectible accounts written-off, net of recoveries.
(2) Uncollectible accounts related to assets acquired in fiscal 1996.
The above reserves are deducted from the related assets in the consolidated
balance sheets.
S-2
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------- ---------------------------------------------------------------------------------------------- ------
<C> <S> <C>
(a) 3. LIST OF EXHIBITS:
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 3.1 to the Company's Form 10-Q filed May 16, 1995). .....................
3.2 Amended Bylaws of the Company. ...............................................................
4.1 Registration Rights Agreement dated March 14, 1994 between the Company and Calvin Klein, Inc.
('CKI') (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q filed May
24, 1994). ...................................................................................
10.1 Credit Agreement, dated as of October 12, 1995 (the 'U.S. $450,000,000 Credit Agreement'),
among the Company, Warnaco Inc.; The Bank of Nova Scotia and Citibank, N.A., as Managing
Agents; Citibank, N.A., as Documentation Agent; The Bank of Nova Scotia as Paying Agent,
Competitive Bid Agent, Swing Line Lender and an Issuing Bank and certain other lenders named
therein (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q filed
November 21, 1995). ..........................................................................
10.2 Credit Agreement, dated as of October 12, 1995 (the 'U.S. $100,000,000 364-day Revolving
Credit Agreement'), among Warnaco Inc. and The Bank of Nova Scotia and Citibank, N.A. as
Managing Agents; Citibank, N.A. as Documentation Agent; The Bank of Nova Scotia as Paying
Agent, Competitive Bid Agent, Swing Line Lender and an Issuing Bank and certain other lenders
named therein (incorporated herein by reference to Exhibit 10.1 to the Company's Form 10-Q
filed November 21, 1995). ....................................................................
10.3 Credit Agreement, dated as of December 4, 1995 (the 'U.S. $200,000,000 Credit Agreement'),
among Warnaco Inc., the Company and The Bank of Nova Scotia, as agent for the Lenders and
certain other lenders named therein (incorporated herein by reference to Exhibit 10.3 to the
Company's Form 10-K filed April 5, 1996). ....................................................
10.4 Employment Agreement, dated as of 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, No. 33-42641). .....................................................................
10.5 Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Company's
Registration on Form S-1, No. 33-45877). .....................................................
10.6 1991 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1, No. 33-45877). ...........................................
10.7 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, No.
33-45877). ...................................................................................
10.8 Warnaco Employee Retirement Plan (incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, No. 33-45877). .................................
10.9 Executive Management Agreement, as extended, dated as of May 9, 1991 between the Company,
Warnaco Inc. and The Spectrum Group, Inc. (incorporated herein by reference to Exhibit 10.13
to the Company's Registration Statement on Form S-1, No. 33-45877). ..........................
10.10 1993 Non-Employee Director Stock Plan (incorporated herein by reference to the Company's Proxy
Statement for its 1994 Annual Meeting of Stockholders). ......................................
10.11 Amended and Restated 1993 Stock Plan (incorporated herein by reference to the Company's Proxy
Statement for its 1994 Annual Meeting of Stockholders). ......................................
10.12 The Warnaco Group, Inc. Supplemental Incentive Compensation Plan (incorporated herein by
reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders). .....
11.1 Calculation of Net Income (Loss) per common share. ...........................................
21.1 Subsidiaries of the Company. .................................................................
23.1(a) Consent of Independent Accountants. ..........................................................
23.1(b) Consent of Independent Auditors. .............................................................
23.1(c) Consent of Independent Auditors. .............................................................
27 Financial Data Schedule. .....................................................................
</TABLE>
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the registrant in the last quarter of
the 1996 fiscal year.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as............. 'r'
<PAGE>
<PAGE>
BY-LAWS
OF
THE WARNACO GROUP, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held
on such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meetings
the stockholders shall elect by a plurality vote a Board of Directors, and
transact such other business as may properly be brought before the meeting in
accordance with these By-laws. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
<PAGE>
<PAGE>
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, may be called by the Board of Directors, the Chairman of
the Board of Directors, or the President. Special meetings of stockholders may
not be called by any other person or persons. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting, and only such business as is stated in such notice
shall be acted upon thereat.
SECTION 4. BUSINESS AT ANNUAL MEETINGS. No business may be transacted at an
annual meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly brought before the annual meeting by or at the direction
of the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 4 and on the record date for the
determination of stockholders entitled to vote at such annual meeting, and (ii)
who complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (x)
in the case of the 1992 annual meeting of Stockholders, March 2, 1992; and (y)
in the case of the 1993 annual meeting of Stockholders and any annual meeting
thereafter not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in
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order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such stockholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 4, provided, however, that, once business has been
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 4 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
SECTION 5. QUORUM. Except as otherwise provided by law or by the Restated
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the
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stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
SECTION 6 . VOTING. Unless otherwise required by law, the Restated Certificate
of Incorporation or these By-laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Unless otherwise provided in the
Restated Certificate of Incorporation, each stockholder represented at a meeting
of stockholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such stockholder. The Board of Directors,
in its discretion, or the officer of the Corporation presiding at a meeting
of stockholders, in his discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
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SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 9. PROXIES. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing subscribed
by such stockholder and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period. All proxies must
be filed with the Secretary of the corporation at the beginning of each meeting
in order to be counted in any vote at the meeting.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Subject to the rights, if any,
of holders of preferred stock of the Corporation, the Board of Directors shall
consist of not less than three nor more than seven members, the exact number of
which shall be fixed from time to time by the Board of Directors. Except as
provided in Section 3 of this Article III, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders, and each
director so elected shall hold office as provided by Article EIGHTH of the
Restated Certificate of Incorporation. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
SECTION 2. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Restated Certificate of Incorporation of the Corporation with respect to the
right of holders of preferred stock of the Corporation to nominate and elect a
specified number of directors in certain circumstances. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for
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the purpose of electing directors, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 2 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 2.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
(i) in the case of the 1992 annual meeting of Stockholders, March 2, 1992; and
(ii) in the case of the 1993 annual meeting of Stockholders and any annual
meeting thereafter, not less than sixty (60) days nor more than ninety (90) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs; and (b) in the case of a special meeting of stockholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record
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by the person and (iv) any other information relating to the person that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 2. If the
Chairman of the meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the meeting that
the nomination was defective and such defective nomination shall be disregarded.
SECTION 3. VACANCIES. Vacancies and newly created directorships resulting from
an increase in the authorized number of directors, may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy shall hold office for
a term that shall coincide with the term of the class to which such director
shall have been elected.
SECTION 4. DUTIES AND POWERS. The business and affairs of the Corporation shall
be managed by or
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under the direction of the Board of Directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Restated Certificate of Incorporation or by these By-laws directed or
required to be exercised or done by the stockholders.
SECTION 5. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the President or by a majority of the
Board of Directors. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, or personally or by telephone,
telegram, telex, cable, facsimile transmission or similar means of communication
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 6. QUORUM; ACTION OF THE BOARD OF DIRECTORS. Except as may be otherwise
specifically provided by law, the Restated Certificate of Incorporation or these
By-laws, at all meetings of the Board of Directors, a majority of the entire
Board of Directors shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 7. ACTION BY WRITTEN CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
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SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the Board
of Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors of such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.
SECTION 9. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Unless the Board of Directors or such committee
shall otherwise provide, regular and special meetings and other actions of any
shall be governed by the provisions of this Article III applicable to meetings
and actions of the Board of Directors. Each committee shall keep regular minutes
and report to the Board of Directors when required.
SECTION 10. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
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SECTION 11. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purposes if (a) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (b) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (c) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may also
choose a Chairman of the Board of Directors (who must be a director) and
Assistant Secretaries, Assistant Treasurers and such other officers as it shall
deem necessary. Such officers as the Board of Directors may choose shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors. The Board of Directors may
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delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Restated Certificate of Incorporation or these By-laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting held after
each Annual Meeting of Stockholders shall elect the officers of the Corporation,
who shall be subject to the control of the Board of Directors and shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors, and
all officers of the Corporation shall hold office until their successors are
chosen and qualified, or until their earlier resignation or removal. Any officer
elected by the Board of Directors may be removed at any time by the Board of
Directors with or without cause. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall posssess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall,
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if present, preside at all meetings of the Board of Directors and exercise and
perform such other powers and duties as may be from time to time assigned to
such officer by the Board of Directors or prescribed by these By-laws. If there
is no president, the Chairman of the Board shall in addition be the Chief
Executive Officer of the Corporation and shall have the powers and duties
prescribed in Section 5 of this Article IV.
SECTION 5. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. The President shall preside at all meetings of the stockholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. The President shall have the general powers
and duties of management usually vested in the office of President and Chief
Executive Officer of corporations, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these By-laws.
SECTION 6. VICE PRESIDENTS. At the request, or in the absence or disability
of the President, the Vice Presidents in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
SECTION 7. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall attend
all meetings of the Board of Directors and all meetings of the stockholders and
record all votes and the minutes of all proceedings in a book to be kept for
that purpose; and shall perform like duties for the standing committees when
required by the Board of Directors. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or these By-laws. The Secretary shall keep in safe custody
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the seal of the Corporation, and when authorized by the Board of Directors,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by such officer's signature.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors, or if there be no
such determination, the Assistant Secretary designated by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from
time to time prescribe.
SECTION 8. TREASURER AND ASSISTANT TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys, and other valuable effects in the name and to the
credit of the Corporation, in such depositories as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond, in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors, for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board of Directors, or if there be no
such determination, the Assistant Treasurer designated by the Board of
Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the
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powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(a) by the Chairman of the Board of Directors, the President or a Vice President
and (b) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (a) a
transfer agent other than the Corporation or its employee or (b) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these By-laws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
SECTION 7. LEGEND. If the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Cor-
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poration Law of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Restated Certificate of Incorporation or these By-laws, to be given to any
director or stockholder, such notice may be given by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Written notice may also be given personally or by telegram, telex, cable or
facsimile transmission.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the
Restated Certificate of Incorporation or these By-laws, to be given to any
director or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Restated Certificate of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting
pursuant to law. Dividends may be paid in cash, in property or in shares of
capital
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stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
'Corporate Seal, Delaware'. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify to the fullest extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or witness to any action, suit or proceeding (whether
civil or criminal or otherwise) by reason of the fact that he, his testator or
intestate, is or was a director, officer, employee or agent of the Corporation
or by reason of the fact that such director, officer, employee or agent, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, in
any capacity. Notwithstanding anything contained in this Article VIII to the
contrary, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such pro-
17
<PAGE>
<PAGE>
ceeding (or part thereof) was authorized or consented to by the Board of
Directors. Any repeal or modification of this Article VIII shall not adversely
affect any rights to indemnification existing pursuant to this Article VIII with
respect to any acts or omissions occurring prior to such repeal or modification.
ARTICLE IX
AMENDMENTS
These By-laws may be altered, amended or repealed, in whole or in part, or
new By-laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. All such amendments must be approved by
either the holders of a majority of the outstanding capital stock entitled to
vote thereon or by the Board of Directors.
18
<PAGE>
<PAGE>
AMENDMENT TO THE
BY-LAWS
OF
THE WARNACO GROUP, INC.
At a duly called meeting of the Board of Directors (the 'Board') of The
Warnaco Group, Inc. (the 'Corporation') held on January 9, 1997, the following
amendment to the By-laws of the Corporation was approved and adopted by the
Board:
RESOLVED, that the first sentence of Article III, Section 1 of the
Corporation's By-laws be, and hereby is, amended to read in its entirety as set
forth below:
'Subject to the rights, if any, of holders of preferred stock of the
Corporation, the Board of Directors shall consist of not less than
five nor more than twelve members, the exact number of which shall
be fixed from time to time by the Board of Directors.'
/s/ STANLEY P. SILVERSTEIN
.....................................
STANLEY P. SILVERSTEIN
Secretary
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------
JANUARY 7, JANUARY 6, JANUARY 4,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before extraordinary items......................... $63,328,000 $49,613,000 $(8,239,000)
Extraordinary item............................................... -- (3,120,000)(1) --
----------- ----------- -----------
Net income (loss)................................................ $63,328,000 $46,493,000 $(8,239,000)
----------- ----------- -----------
----------- ----------- -----------
Per share amounts:
Income (loss) before extraordinary items.................... $ 1.53 $ 1.10 $ (0.16)
Extraordinary item.......................................... -- (0.07) --
----------- ----------- -----------
Net income (loss) per share...................................... $ 1.53 $ 1.03 $ (0.16)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of shares of Common Stock outstanding:
Class A Common Stock issued................................. 35,800,000 37,499,492 51,814,120
Shares issued in underwritten public offering............... -- 2,562,637 --
Shares of restricted stock issued........................... -- 130,989 113,687
Shares issued for purchase of assets........................ 1,391,342 -- --
Shares issued on exercise of options........................ -- 4,129 90,213
Common Stock equivalents -- using the Treasury Stock
method.................................................... 4,205,031 5,367,470 --
Less:
Shares of Treasury Stock.................................... 111,018 286,600 310,628
----------- ----------- -----------
Weighted average number of shares of Common Stock outstanding.... 41,285,355 45,278,117 51,707,392
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
(1) Extraordinary item net of income tax benefit of $1,913,000.
<PAGE>
<PAGE>
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
STATE OR JURISDICTION
ENTITY OF INCORPORATION
- -------------------------------------------------------------------------------------- ---------------------
<S> <C>
Warnaco Inc........................................................................... Delaware
184 Benton Street Inc................................................................. Delaware
Juarmex, S.A. de C.V.................................................................. Mexico
Linda Vista de Tlaxcala, S.A. de C.V.................................................. Mexico
Olga de Villanueva, S.A............................................................... Honduras
Olguita de Mexico, S.A................................................................ Mexicali B.C., Mexico
Warmana Limited....................................................................... Delaware
Warnaco of Canada Limited............................................................. Canada
Warnaco Limited....................................................................... England
Warnaco Sourcing Inc.................................................................. Delaware
Warner's Aiglon, S.A.................................................................. France
Warner's Company (Belgium) S.A........................................................ Belgium
Warner's de Costa Rica Inc............................................................ Delaware
Warner's de Honduras, S.A............................................................. Honduras
Warner's de Mexico, S.A. de C.V....................................................... Mexico
Warner's (Eire) Teoranta.............................................................. Ireland
Warner's Lenceria Femenina, S.A....................................................... Spain
Warner's (United Kingdom) Limited..................................................... Northern Ireland
Warnaco (Hong Kong) Ltd............................................................... Barbados
Rochomo Holdings, B.V................................................................. Netherlands
Adiro Investments, B.V................................................................ Netherlands
Regor, B.V............................................................................ Netherlands
Lejaby, S.A........................................................................... France
Euralis, S.A.......................................................................... France
SCHF, S.A............................................................................. France
Sidonia GmbH.......................................................................... Germany
Sigrun GmbH........................................................................... Germany
Sigrun GmbH & Co. KG.................................................................. Germany
Warnaco GmbH.......................................................................... Germany
Eratex GmbH........................................................................... Germany
Warnaco LAC GmbH...................................................................... Austria
Lenitex GmbH & Co. KG................................................................. Austria
Lintex (Switzerland) S.A.............................................................. Switzerland
Leratex Distributors Limited (UK)..................................................... United Kingdom
S.P.R.L. Donatex...................................................................... Belgium
Warnaco SRL........................................................................... Italy
</TABLE>
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-8 (No. 33-58146 and No. 33-58148) of The Warnaco Group,
Inc. of our report dated February 18, 1997 appearing on page F-1 of this Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page S-1 of this Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
April 4, 1997
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement and
related Reoffer Prospectus (Form S-8 No. 33-58146) pertaining to the Amended and
Restated 1988 Employee Stock Purchase Plan of The Warnaco Group, Inc. of our
report dated February 23, 1995, with respect to the consolidated financial
statements and schedule of The Warnaco Group, Inc. included in its Annual Report
(Form 10-K) for the year ended January 4, 1997, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 1, 1997
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement and
related Reoffer Prospectus (Form S-8 No. 33-58148) pertaining to the 1991 Stock
Option Plan of The Warnaco Group, Inc. of our report dated February 23, 1995,
with respect to the consolidated financial statements and schedule of The
Warnaco Group, Inc. included in its Annual Report (Form 10-K) for the year ended
January 4, 1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 1, 1997
<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 YEAR ENDED JANUARY 4,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-START> JAN-07-1996
<PERIOD-END> JAN-04-1997
<CASH> 11,840
<SECURITIES> 0
<RECEIVABLES> 213,513
<ALLOWANCES> 2,475
<INVENTORY> 387,318
<CURRENT-ASSETS> 650,509
<PP&E> 206,781
<DEPRECIATION> 85,244
<TOTAL-ASSETS> 1,142,944
<CURRENT-LIABILITIES> 439,893
<BONDS> 215,805
0
0
<COMMON> 524
<OTHER-SE> 475,714
<TOTAL-LIABILITY-AND-EQUITY> 1,142,944
<SALES> 1,063,823
<TOTAL-REVENUES> 1,063,823
<CGS> 736,116
<TOTAL-COSTS> 301,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 713
<INTEREST-EXPENSE> 32,435
<INCOME-PRETAX> (6,460)
<INCOME-TAX> 1,779
<INCOME-CONTINUING> (8,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,239)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
