<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10857
----------------------------
THE WARNACO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------------
<TABLE>
<S> <C>
DELAWARE 95-4032739
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
90 PARK AVENUE
NEW YORK, NEW YORK 10016
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
(212) 661-1300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------------
COPIES OF ALL COMMUNICATIONS TO:
THE WARNACO GROUP, INC.
90 PARK AVENUE
NEW YORK, NEW YORK 10016
ATTENTION: VICE PRESIDENT AND GENERAL COUNSEL
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
The number of shares outstanding of the registrant's Class A Common Stock
as of May 15, 1998 is as follows: 63,201,082
________________________________________________________________________________
<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 13,905 $ 12,009
Accounts receivable -- net....................................................... 360,415 296,378
Inventories:
Finished goods.............................................................. 412,757 340,246
Work in process............................................................. 115,433 107,495
Raw materials............................................................... 78,091 78,444
---------- ----------
Total inventories................................................................ 606,281 526,185
Other current assets............................................................. 40,692 45,228
---------- ----------
Total current assets........................................................ 1,021,293 879,800
Property, plant and equipment (net of accumulated depreciation of $108,492 and
$101,982, respectively)............................................................. 153,499 130,400
Other assets:
Excess of cost over net assets acquired -- net................................... 348,443 349,235
Other assets -- net.............................................................. 382,857 368,213
---------- ----------
Total other assets.......................................................... 731,300 717,448
---------- ----------
$1,906,092 $1,727,648
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowing under foreign credit facilities........................................ $ 29,477 $ 12,751
Current portion of long-term debt................................................ 10,437 7,850
Accounts payable................................................................. 264,175 289,817
Accrued liabilities.............................................................. 85,729 116,892
Income taxes payable............................................................. 6,116 5,203
---------- ----------
Total current liabilities................................................... 395,934 432,513
---------- ----------
Long-term debt........................................................................ 578,417 354,263
Other long-term liabilities........................................................... 12,855 14,022
Deferred income taxes -- 18,009
Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Designer
Finance Trust Holding Solely Convertible Debentures................................. 101,016 100,758
Stockholders' equity:
Preferred Stock; $.01 par value.................................................. -- --
Common Stock; $.01 par value..................................................... 685 633
Additional paid-in capital....................................................... 937,666 940,461
Cumulative translation adjustment................................................ (10,498) (14,838)
Accumulated deficit.............................................................. (44,867) (63,900)
Treasury stock, at cost.......................................................... (50,374) (38,567)
Notes receivable for common stock issued and unearned stock compensation......... (14,742) (15,706)
---------- ----------
Total stockholders' equity.................................................. 817,870 808,083
---------- ----------
$1,906,092 $1,727,648
---------- ----------
---------- ----------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenue............................................................................... $419,208 $251,526
Cost of goods sold........................................................................ 270,855 158,784
-------- --------
Gross profit.............................................................................. 148,353 92,742
Selling, general and administrative expenses.............................................. 96,163 53,214
-------- --------
Income before interest and income taxes................................................... 52,190 39,528
Interest expense.......................................................................... 13,633 9,813
-------- --------
Income before income taxes................................................................ 38,557 29,715
Provision for income taxes................................................................ 13,834 11,589
-------- --------
Net income................................................................................ $ 24,723 $ 18,126
-------- --------
-------- --------
Earnings per share:
Basic................................................................................ $0.40 $0.35
-------- --------
-------- --------
Diluted.............................................................................. $0.39 $0.34
-------- --------
-------- --------
Cash dividends per share of common stock.................................................. $0.09 $0.08
-------- --------
-------- --------
Weighted average number of shares of common stock outstanding:
Basic................................................................................ 62,112 51,218
-------- -------
-------- -------
Diluted.............................................................................. 63,743 53,201
-------- -------
-------- -------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 4, APRIL 5,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flow from operations:
Net income......................................................................... $ 24,723 $ 18,126
Non-cash items included in net income:
Depreciation and amortization...................................................... 13,888 8,044
Amortization of unearned stock compensation........................................ 964 750
Increase in deferred income taxes.................................................. 11,725 7,552
Other changes in operating accounts................................................ (194,202) (102,456)
--------- ---------
Net cash used in operations before non-recurring items.................................. (142,902) (67,984)
Cash expenses related to non-recurring charges.......................................... (2,467) (1,640)
--------- ---------
Net cash used in operations............................................................. (145,369) (69,624)
--------- ---------
Cash flow from investing activities:
Proceeds from sale of fixed assets................................................. 1,781 51
Purchase of property, plant & equipment............................................ (31,611) (9,891)
Payment of assumed liabilities and acquisition accruals............................ -- (6,215)
Increase in intangible and other assets............................................ (18,306) (16,483)
--------- ---------
Net cash used in investing activities................................................... (48,136) (32,538)
--------- ---------
Cash flow from financing activities:
Borrowing under revolving credit facilities........................................ 245,893 116,503
Proceeds from the exercise of stock options and repayment of notes receivable from
employees......................................................................... 32,902 798
Purchase of treasury shares and payment of withholding tax on option exercises..... (47,452) (5,337)
Increase in other assets and deferred financing costs.............................. (32,200) (131)
Repayments of debt................................................................. (1,432) (8,261)
Dividends paid..................................................................... (4,690) (3,668)
--------- ---------
Net cash provided from financing activities............................................. 193,021 99,904
--------- ---------
Effect on cash due to currency translation.............................................. 2,380 --
--------- ---------
Increase (decrease) in cash............................................................. 1,896 (2,258)
Cash at beginning of period............................................................. 12,009 11,840
--------- ---------
Cash at end of period................................................................... $ 13,905 $ 9,582
--------- ---------
--------- ---------
Other changes in operating accounts:
Accounts receivable................................................................ $ (63,333) $ (27,835)
Inventories........................................................................ (79,579) (45,156)
Other current assets............................................................... 4,478 4,790
Accounts payable and accrued liabilities........................................... (56,752) (34,665)
Accrued income taxes............................................................... 984 948
Other.............................................................................. -- (538)
--------- ---------
$(194,202) $(102,456)
--------- ---------
--------- ---------
</TABLE>
This Statement should be read in conjunction with the accompanying
Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles and
Securities and Exchange Commission rules and regulations for interim financial
information. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, the accompanying
consolidated condensed financial statements contain all adjustments (all of
which were of a normal recurring nature) necessary to present fairly the
financial position of the Company as of April 4, 1998 as well as its results of
operations and cash flows for the periods ended April 4, 1998 and April 5, 1997.
Operating results for interim periods may not be indicative of results for the
full fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 3, 1998. Certain amounts for prior
periods have been reclassified to be comparable with the current period
presentation.
NOTE 2 -- CAPITAL STOCK
On February 19, 1998, the Company's Board of Director's declared a
quarterly cash dividend of $0.09 per share to be paid on April 9, 1998 to
shareholders of record as of March 12, 1998. In addition, the Board of Directors
authorized the repurchase of an additional 10.0 million shares to supplement its
previously authorized 2.42 million share stock repurchase program. During the
three months ended April 4, 1998, the Company repurchased approximately 349,000
shares under equity option arrangements at a cost of approximately $11.8
million. A total of approximately 1.4 million shares have been repurchased under
the current authorization of 12.42 million shares leaving approximately 11.0
million shares available to repurchase. In addition, the Company has options
outstanding on approximately 1.9 million shares at an average forward price of
$36.25 per share at April 4, 1998. These option arrangements expire between May
1998 and December 1998. After accounting for these options, the Company has
approximately 9.1 million shares available to repurchase. As of April 4, 1998,
treasury stock includes approximately 1,725,000 shares at a cost of $50.4
million. The change in additional paid-in capital during the three months ended
April 4, 1998 primarily relates to stock options exercised in which shares were
tendered for payment of the exercise price of the options and the related
employee withholding taxes, net of related tax benefits to the Company.
NOTE 3 -- NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, 'Earnings per Share,' (SFAS No. 128)
which requires the dual presentation of basic and diluted earnings per share.
The Company adopted SFAS No. 128 in the fourth quarter of 1997. All share and
earnings per share amounts for all prior periods have been restated to conform
to the SFAS No. 128 requirements.
The Company adopted Statement of Financial Accounting Standards No. 130,
'Reporting Comprehensive Income' (SFAS No. 130) effective with the beginning of
fiscal 1998. SFAS No. 130 establishes standards for reporting and display of
changes in equity from nonowner sources in the financial statements; however,
the adoption of SFAS No. 130 has no impact on the Company's net earnings or
stockholders equity. SFAS No. 130 requires, among other things, foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income.
Total comprehensive income was $27.5 million and $17.1 million for the
quarters ending April 4, 1998 and April 5, 1997, respectively.
5
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- DEBT
The Company uses derivative financial instruments in the management of
interest rate and foreign currency exposures. The Company does not use
derivative financial instruments for trading or speculative purposes. During the
fiscal quarter ended April 4, 1998, the Company entered into an amended interest
rate swap agreement with certain of its lenders to convert variable rate
borrowings of $450.0 million to a fixed rate of 4.99%. The agreements mature in
March 2001 with regard to borrowings of $250.0 million and September 2002 with
regard to borrowings of $200.0 million. The agreements are extendable at the
option of the lenders expiring from March 2006 through September 2009 at fixed
rates ranging from 5.87% to 6.28% on borrowings of $575.0 million.
NOTE 5 -- SUMMARIZED FINANCIAL INFORMATION
The following is summarized unaudited financial information of the
Company's wholly-owned subsidiary, Designer Holdings as of April 4, 1998 and
January 3, 1998 and for the fiscal quarters ended April 4, 1998 and March 31,
1997, respectively. Designer Holdings, acquired by the Company in the fourth
quarter of 1997, develops, manufactures and markets designer jeanswear and
sportswear for men, women and juniors and holds a 40-year extendable license
from Calvin Klein, Inc. to develop, manufacture and market designer jeanswear
and jeans related sportswear collections in North, South and Central America
under the Calvin Klein Jeans'r', CK Calvin Klein Jeans'r', and CK/Calvin
Klein/Khaki'r' labels.
BALANCE SHEET SUMMARY:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
APRIL 4, JANUARY 3,
1998 1998
-------- ----------
<S> <C> <C>
Current assets................................................................. $137,565 $129,285
Noncurrent assets.............................................................. 460,030 497,557
Current liabilities............................................................ 64,057 104,458
Noncurrent liabilities......................................................... 59,800 59,800
Redeemable preferred securities................................................ 101,016 100,758
Stockholders' equity........................................................... 372,722 361,826
</TABLE>
INCOME STATEMENT SUMMARY:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 4, MARCH 31,
1998(a) 1997(b)
-------- ----------
<S> <C> <C>
Net revenues................................................................... $109,153 $122,508
Cost of goods sold............................................................. 74,318 85,902
Net income..................................................................... 10,896 7,440
</TABLE>
-----------------
(a) Excludes net revenues of $10.7 million now reported as Retail division net
revenues. As a result of the continuing integration of Designer Holdings
into the operations of the Company, cost of goods sold and net income
associated with these net revenues cannot be separately identified.
(b) The summarized income statement information for the three months ended
March 31, 1997 is presented on a historical basis and does not reflect the
effect of the acquisition by the Company. Certain amounts have been
reclassified to cost of goods sold to conform to the current year
presentation.
6
<PAGE>
<PAGE>
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- CASH FLOW INFORMATION
INCOME STATEMENT SUMMARY:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
<S> <C> <C>
Cash paid for:
Interest................................................................... $ 13,653 $8,696
Income taxes, net of refunds received...................................... 3,308 3,089
</TABLE>
NOTE 7 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
(IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net income....................................................................... $ 24,723 $ 18,126
-------- --------
-------- --------
Denominator for basic earnings per share -- weighted average shares.............. 62,112 51,218
-------- --------
Effect of dilutive securities:
Employee stock options........................................................... 1,199 1,560
Restricted stock shares.......................................................... 432 423
-------- --------
Dilutive potential common shares...................................................... 1,631 1,983
-------- --------
Denominator for diluted earnings per share -- weighted average adjusted shares........ 63,743 53,201
-------- --------
-------- --------
Basic earnings per share.............................................................. $0.40 $0.35
-------- --------
-------- --------
Diluted earnings per share............................................................ $0.39 $0.34
-------- --------
-------- --------
</TABLE>
Options to purchase 6,229,102 shares of common stock at prices ranging from
$35.50 to $36.44 per share were outstanding during the first quarter of fiscal
1998 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares. The options, which expire in February 2008, were still
outstanding as of April 4, 1998.
Incremental shares issuable on the assumed conversion of the preferred
securities (1,653,177 shares) were not included in the computation of diluted
earnings per share as the impact would have been antidilutive.
NOTE 8 -- SUBSEQUENT EVENT
In May 1998, the Company entered into an agreement to reacquire its Calvin
Klein Jeanswear childrens sub-license and purchase certain inventory and other
assets from Commerce Clothing Company LLC for approximately $41.0 million. In
addition, in May 1998 the Company agreed to reacquire the Calvin Klein Jeanswear
sub-license in Mexico and purchase certain assets from Macro Jeans S.A. de C.V.
for approximately $4.0 million.
7
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS (SELECTED DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
APRIL 4, APRIL 5,
1998 1997
-------- --------
(AMOUNTS IN MILLIONS OF
DOLLARS)
(UNAUDITED)
<S> <C> <C>
Net revenues................................................................. $419.2 $251.5
Cost of goods sold........................................................... 270.8 158.8
-------- --------
Gross profit................................................................. 148.4 92.7
% of net revenues......................................................... 35.4% 36.9%
Selling, general and administrative expenses................................. 96.2 53.2
-------- --------
Income before interest and income taxes...................................... 52.2 39.5
% to net revenues......................................................... 12.4% 15.7%
Interest expense............................................................. 13.6 9.8
Provision for income taxes................................................... 13.9 11.6
-------- --------
Net income................................................................... $ 24.7 $ 18.1
-------- --------
-------- --------
</TABLE>
Net revenues in the first quarter of fiscal 1998 were $419.2 million,
$167.7 million or 66.7% higher than the $251.5 million recorded in the first
quarter of fiscal 1997. 1998 net revenue includes $119.9 million associated with
the acquisition of Designer Holdings, completed in the fourth quarter of 1997.
Net revenues increased $47.8 million or 19.0% excluding the Designer Holdings
acquisition, with year over year improvements across all divisions.
Intimate apparel division net revenues increased $23.2 million or 11.9% to
$218.0 million in the first quarter of fiscal 1998 from $194.8 million in the
first quarter of fiscal 1997. The increase in net revenues compared with fiscal
1997 reflects the success of the recently introduced Naked Truth and Simply
Perfect lines of intimate apparel. Net revenues in the Company's core Warner and
Olga brands increased $22.4 million or 34.5% in the fiscal 1998 first quarter
compared with 1997. International shipments in the first quarter of fiscal 1998
for the intimate apparel division increased $4.8 million or 7.5% to $69.2
million from $64.4 million in the first quarter of fiscal 1997. Partially
offsetting the increase in net revenues was a $4.0 million impact of foreign
currency translation. Excluding the foreign exchange impact, international sales
increased 13.7% in the first quarter. International sales accounted for 31.7% of
total divisional net sales in the first quarter of fiscal 1998 compared with
33.1% of total divisional net sales in the first quarter of fiscal 1997.
Sportswear division (formerly Menswear division) net revenues increased
$129.3 million or 272.2% to $176.8 million in the first quarter of fiscal 1998
from $47.5 million in the first quarter of fiscal 1997. The Designer Holdings
acquisition added $109.2 million to net revenues in the current fiscal quarter.
Excluding those revenues, the increase was $20.1 million or 42.3%. Chaps net
revenues increased $18.2 million or 41.6% in the current fiscal quarter compared
with 1997 due to its continued strong sell-thrus and the introduction in 1998 of
golf apparel.
Gross profit increased $55.7 million or 60.0% to $148.4 million in the
first quarter of fiscal 1998 from $92.7 million in the first quarter of fiscal
1997. Gross margin was 35.4% in the first quarter of fiscal 1998 compared with
36.9% in the first quarter of fiscal 1997. The decline in gross margin is a
result of the inclusion of Calvin Klein jeans sales, which carry a lower gross
margin.
Selling, general and administrative expenses increased $43.0 million or
80.7% to $96.2 million (22.9% of net revenues) in the first quarter of fiscal
1998 compared with $53.2 million (21.1% of net revenues) in the first quarter of
fiscal 1997. The increase in selling, general and administrative expenses
8
<PAGE>
<PAGE>
primarily reflects an increase in marketing expenses for the intimate apparel
division and higher corporate expenses related to information systems and year
2000 implementations.
Interest expense increased $3.8 million to $13.6 million in the first
quarter of fiscal 1998 compared with $9.8 million in the first quarter of fiscal
1997. The increase reflects the funding of the Company's recent acquisitions and
stock buyback program.
The provision for income taxes for the first quarter of fiscal 1998
reflects an estimated effective income tax rate of approximately 36.3% for the
1998 fiscal year.
Net income for the first quarter of fiscal 1998 was $24.7 million, an
increase of 36.4% compared with net income of $18.1 million in the first quarter
of fiscal 1997. The increase in net income reflects the higher net revenues and
associated gross profit mentioned above.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its debt service
requirements and the funding of the Company's working capital needs, primarily
inventory and accounts receivable. The Company's borrowing requirements are
seasonal, with peak working capital needs generally arising at the end of the
second quarter and during the third quarter of the fiscal year. The Company
typically generates nearly all of its operating cash flow in the fourth quarter
of the fiscal year reflecting third and fourth quarter shipments and the sale of
inventory built during the first half of the fiscal year.
Cash used in operations before the payment of accruals related to the
non-recurring charges was $142.9 million in the first quarter of fiscal 1998
compared with $68.0 million in the first quarter of fiscal 1997. The increase in
cash used in operating activities reflects higher seasonal working capital usage
primarily due to the 66.7% higher sales.
Cash used in investing activities was $48.1 million for the first quarter
of fiscal 1998 compared with $32.5 million in the first quarter of fiscal 1997.
Capital expenditures were $31.6 million in the first quarter of fiscal 1998 and
included amounts for information systems related to year 2000 compliance and
store fixture programs for Calvin Klein Jeans 'shop in shops' compared to $9.9
million in the first quarter of fiscal 1997.
Cash provided from financing activities was $193.0 million in the first
quarter of fiscal 1998 compared with $99.9 million in the first quarter of
fiscal 1997. The increase in the Company's revolving credit balance during the
first quarter of the fiscal year was $245.9 million compared with $116.5 million
in the first quarter of fiscal 1997 due to the increased working capital
requirements on the higher sales and the Company's stock repurchase program. The
Company paid approximately $47.5 million for the repurchase of shares and
withholding taxes on option exercises in the first quarter of fiscal 1998. The
Company repaid $1.4 million of long term debt in the first quarter of fiscal
1998 compared with $8.3 million in the first quarter of fiscal 1997.
The Company believes that funds available under its existing credit
arrangements and cash flow to be generated from future operations will be
sufficient to meet working capital and capital expenditure needs of the Company,
including dividends and interest and principal payments on outstanding debt
obligations for the next twelve months and for the next several years.
YEAR 2000 AND ECONOMIC AND MONETARY UNION ('EMU') COMPLIANCE
Following a comprehensive review of current systems and future requirements
to support international growth, the Company initiated a program to replace
existing capabilities with enhanced hardware and software applications. The
objectives of the program are to achieve competitive benefits for the Company,
as well as assuring that all information systems will meet 'year 2000' and EMU
compliance. Full implementation of this program is expected to require
expenditures, primarily capital, of approximately $60.0 million over the next
three years. Funding requirements have been incorporated into the Company's
capital expenditure planning and are not expected to have a material adverse
impact on financial condition, results of operations or liquidity. Approximately
$13.0 million has been incurred through April 4, 1998 and such amounts are
included in property and equipment.
9
<PAGE>
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Report includes 'forward-looking statements' within the meaning of
Section 27A of Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations or beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements other than
statements of historical facts included in this quarterly report, including,
without limitation, the statements under Management's Discussion and Analysis
of Financial Condition, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates, and selectively uses financial instruments
to manage these risks. The Company does not enter into financial instruments for
speculation or trading purposes. The Company has interest rate agreements with
several financial institutions to limit exposure to interest rate volatility.
Additionally, the Company enters into foreign currency forward and option
contracts to mitigate the risks of doing business in foreign currencies. The
Company hedges currency exposures of firm commitments and anticipated
transactions denominated in non-functional currencies to protect against the
possibility of diminished cash flow and adverse impact on earnings. The
Company's currency exposures vary, but are primarily concentrated in the
Canadian dollar, Mexican peso, British pound, German mark and French franc.
The value of market risk sensitive instruments is subject to change as a
result of movement in market rates and prices. Based on a hypothetical
(one-percentage point) increase in interest rates, the potential losses in
future earnings, fair value and cash flows are immaterial.
10
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<S> <C>
27.1 -- Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of fiscal 1998.
11
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WARNACO GROUP, INC.
Date: May 19, 1998 By: /S/ WILLIAM S. FINKELSTEIN
...................................
WILLIAM S. FINKELSTEIN
DIRECTOR, SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER
Date: May 19, 1998 By: /S/ STANLEY P. SILVERSTEIN
...................................
STANLEY P. SILVERSTEIN
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
STATEMENT OF DIFFERENCE
The registered trademark symbol shall be expressed as......................'r'
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE WARNACO GROUP, INC. FOR THE QUARTER ENDED
APRIL 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 13,905
<SECURITIES> 0
<RECEIVABLES> 392,833
<ALLOWANCES> 32,418
<INVENTORY> 606,281
<CURRENT-ASSETS> 1,021,293
<PP&E> 261,991
<DEPRECIATION> 108,492
<TOTAL-ASSETS> 1,906,092
<CURRENT-LIABILITIES> 395,934
<BONDS> 578,417
101,016
0
<COMMON> 685
<OTHER-SE> 817,185
<TOTAL-LIABILITY-AND-EQUITY> 1,906,092
<SALES> 419,208
<TOTAL-REVENUES> 419,208
<CGS> 270,855
<TOTAL-COSTS> 270,855
<OTHER-EXPENSES> 93,363
<LOSS-PROVISION> 2,800
<INTEREST-EXPENSE> 13,633
<INCOME-PRETAX> 38,557
<INCOME-TAX> 13,834
<INCOME-CONTINUING> 24,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,723
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
