-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NTYF2AV+7/7c/ROUiGXGpNM6Z8x2b0MyIbFysoVRt2a5h5/CDaWvqj6Uw9SDVyF/ rbq7UJMnfr58b+SQtlsZsg== 0000950117-00-001296.txt : 20000517 0000950117-00-001296.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950117-00-001296 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 20000516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARNACO GROUP INC /DE/ CENTRAL INDEX KEY: 0000801351 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', CHILDREN'S & INFANTS' UNDERGARMENTS [2340] IRS NUMBER: 954032739 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-10857 FILM NUMBER: 638133 BUSINESS ADDRESS: STREET 1: 90 PARK AVE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126611300 MAIL ADDRESS: STREET 1: 90 PARK AVENUE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: W ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19861117 10-Q/A 1 THE WARNACO GROUP, INC. 10-Q/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 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) DELAWARE 95-4032739 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 90 PARK AVENUE NEW YORK, NEW YORK 10016 (ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (212) 661-1300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) COPIES OF ALL COMMUNICATIONS TO: THE WARNACO GROUP, INC. 90 PARK AVENUE NEW YORK, NEW YORK 10016 ATTENTION: VICE PRESIDENT AND GENERAL COUNSEL Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the registrant's Class A Common Stock as of August 14, 1998 is as follows: 63,323,706. ================================================================================ THE WARNACO GROUP, INC. I N D E X
Page No. PART I. FINANCIAL INFORMATION Item 1 - Financial Statements: Consolidated Condensed Balance Sheets - July 4, 1998 and January 3, 1998......... 3 Consolidated Condensed Statements of Income - Three and Six Months Ended July 4, 1998 and July 5, 1997.......................................... 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended July 4, 1998 and July 5, 1997.......................................... 5 Notes to Consolidated Condensed Financial Statements............................. 6 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition.......................................................... 11 PART II. OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders......................... 15 Item 6 - Exhibits and Reports on Form 8-K............................................ 15
- 2 - PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
JULY 4, JANUARY 3, 1998 1998 RESTATED RESTATED ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash ......................................................... $ 16,540 $ 12,009 Accounts receivable - net .................................... 367,667 296,378 Inventories: Finished goods ............................................. 367,552 298,161 Work in process ............................................ 66,257 54,580 Raw materials .............................................. 69,612 78,444 ----------- ----------- Total inventories ............................................ 503,421 431,185 Other current assets ......................................... 46,733 45,228 ----------- ----------- Total current assets ............................................ 934,361 784,800 Property, plant and equipment (net of accumulated depreciation of $114,766 and $101,982, respectively) ......................... 189,609 130,400 Other assets: Excess of cost over net assets acquired - net ................ 360,991 349,235 Other assets - net ........................................... 482,529 386,683 ----------- ----------- Total other assets .............................................. 843,520 735,918 ----------- ----------- $ 1,967,490 $ 1,651,118 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowing under foreign credit facilities .................... $ 26,485 $ 12,751 Current portion of long-term debt ............................ 8,877 7,850 Accounts payable ............................................. 264,163 289,817 Accrued liabilities .......................................... 92,626 116,892 Income taxes payable ......................................... 3,806 5,203 ----------- ----------- Total current liabilities ....................................... 395,957 432,513 ----------- ----------- Long-term debt .................................................. 684,708 354,263 Other long-term liabilities ..................................... 30,109 14,022 Deferred income taxes ........................................... 5,739 -- Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Designer Finance Trust Holding Solely Convertible Debentures ....................................... 101,292 100,758 Stockholders' equity: Preferred Stock; $.01 par value .............................. -- -- Common Stock; $.01 par value ................................. 691 633 Additional paid-in capital ................................... 952,321 940,461 Cumulative translation adjustment ............................ (10,602) (14,838) Accumulated deficit .......................................... (114,738) (122,421) Treasury stock, at cost ...................................... (56,688) (38,567) Notes receivable for common stock issued and unearned stock compensation ............................ (21,299) (15,706) ----------- ----------- Total stockholders' equity ...................................... 749,685 749,562 ----------- ----------- $ 1,967,490 $ 1,651,118 =========== ===========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. -3- THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- ---------------------- JULY 4, JULY 5, JULY 4, JULY 5, 1998 1997 1998 1997 RESTATED RESTATED RESTATED RESTATED -------- -------- -------- -------- (UNAUDITED) Net revenue .................................................. $438,874 $290,204 $858,082 $541,730 Cost of goods sold ........................................... 307,378 205,908 607,036 375,643 -------- -------- -------- -------- Gross profit ................................................. 131,496 84,296 251,046 166,087 Selling, administrative and general expenses ................. 95,975 60,480 192,138 113,694 -------- -------- -------- -------- Income before interest and income taxes ...................... 35,521 23,816 58,908 52,393 Interest expense ............................................. 15,146 10,702 28,779 20,515 -------- -------- -------- -------- Income before income taxes ................................... 20,375 13,114 30,129 31,878 Provision for income taxes ................................... 7,435 5,265 11,101 12,693 -------- -------- -------- -------- Income before cumulative effect of accounting change ......... 12,940 7,849 19,028 19,185 Cumulative effect of accounting change........................ -- -- (46,250) -- -------- -------- -------- -------- Net income (loss)............................................. $ 12,940 $ 7,849 $(27,222) $ 19,185 ======== ======== ======== ======== Basic earnings (loss) per common share: Income before cumulative effect of change in accounting principle ................................. $ 0.21 $ 0.15 $ 0.31 $ 0.37 Cumulative effect of accounting change .................... -- -- (0.75) -- -------- -------- -------- -------- Net income (loss) ......................................... $ 0.21 $ 0.15 $ (0.44) $ 0.37 ======== ======== ======== ======== Diluted earnings (loss) per common share: Income before cumulative effect of change in accounting principle ................................. $ 0.20 $ 0.15 $ 0.30 $ 0.36 Cumulative effect of accounting change .................... -- -- (0.72) -- -------- -------- -------- -------- Net income (loss) ......................................... $ 0.20 $ 0.15 $ (0.42) $ 0.36 ======== ======== ======== ======== Cash dividends per share of common stock ..................... $ 0.09 $ 0.08 $ 0.18 $ 0.16 ======== ======== ======== ======== Weighted average number of shares of common stock outstanding: Basic ................................................... 62,603 51,274 62,358 51,269 ======== ======== ======== ======== Diluted ................................................. 64,440 53,365 64,092 53,281 ======== ======== ======== ========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. -4- THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED ----------------------------- JULY 4, JULY 5, 1998 1997 -------- -------- (UNAUDITED) Cash flow from operations: Net income ...................................................... $ (27,222) $ 19,185 Non-cash items included in net income: Depreciation and amortization .............................. 27,783 15,260 Amortization of unearned stock compensation ................ 2,089 1,500 Change in deferred income taxes ................................. (18,887) (9,864) Other changes in operating accounts ............................. (102,470) (124,074) Cash expenses related to non-recurring charges .................. (4,220) (3,462) --------- --------- Net cash used in operations ..................................... (122,927) (101,455) --------- --------- Cash flow from investing activities: Proceeds from sale of fixed assets ......................... 304 437 Purchase of property, plant & equipment .................... (72,121) (20,309) Payment of assumed liabilities and acquisition accruals .... -- (10,768) Acquisition of assets and licenses ......................... (40,986) -- Increase in intangible and other assets .................... (47,018) (7,073) --------- --------- Net cash used in investing activities ........................... (159,821) (37,713) --------- --------- Cash flow from financing activities: Borrowing under revolving credit facilities ................ 328,956 164,211 Borrowing under term loan agreement ........................ 21,500 -- Proceeds from the exercise of options and payment of notes receivable from employees ........................ 36,436 3,329 Purchase of treasury shares ................................ (15,671) (4,782) Payment of withholding taxes on option exercises ........... (38,095) (575) Repayment of debt .......................................... (4,724) (18,713) Increase in other assets and deferred financing costs ...... (33,057) (131) Dividends paid ............................................. (10,378) (7,805) --------- --------- Net cash provided from financing activities ..................... 284,967 135,534 --------- --------- Effect of exchange rate changes on cash ......................... 2,312 2,185 --------- --------- Increase (decrease) in cash ..................................... 4,531 (1,449) Cash at beginning of period ................................ 12,009 11,840 --------- --------- Cash at end of period ...................................... $ 16,540 $ 10,391 ========= ========= Other changes in operating accounts: Accounts receivable ........................................ $ (71,998) $ (25,774) Inventories ................................................ (66,471) (52,325) Other current assets ....................................... (1,128) (6,823) Accounts payable and accrued liabilities ................... (55,583) (41,268) Income taxes payable ....................................... (1,359) 384 Other ...................................................... 94,069 1,732 --------- --------- $(102,470) $(124,074) ========= =========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Financial Statements. -5- 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 notes 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 July 4, 1998 as well as its results of operations and cash flows for the periods ended July 4, 1998 and July 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 notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998. Reclassifications and Restatement: Prior to fiscal 1998, the Company rapidly expanded its manufacturing capacity, hiring and training over 15,000 new employees. This resulted in the Company's incurring plant inefficiencies and higher than anticipated manufacturing costs characteristic of new manufacturing operations resulting from high labor turnover and related training and other costs. The Company's infrastructure, personnel and systems were overburdened by the size and scope of this rapid expansion and by the increased manufacturing volume. Manufacturing related costs, which were significantly higher than anticipated, were added to inventories when incurred. In connection with the implementation of a new inventory costing process during the fiscal 1998 year-end closing, the Company determined that in fiscal 1996, 1997 and the first three quarters of 1998, as merchandise was sold, inventories were relieved at less than actual cost per unit, leaving an accumulation of inventory costs. As a result, prior period consolidated financial statements have been restated to reflect additional costs of goods sold. The amount of the restatement affecting the fiscal 1998 and 1997 earnings for the three- and six-month periods ended July 4, 1998 and July 5, 1997 were $11,171 and $25,652 and $15,009 and $25,960, respectively. This restatement resulted from flaws in the Company's Intimate Apparel Division inventory costing control system that have since been addressed. Actions taken and procedures implemented by the Company to address these issues included the development of a new inventory costing process to supplement the manufacturing costing process and effecting improvements in inventory costing monitoring systems and controls, including increasing the frequency of physical inventory counts and the verification of actual costs. The fiscal 1998 second quarter and six month results were also restated to reflect the early adoption of SOP 98-5 regarding the write-off of deferred start-up costs. The amount of the restatement in the three and six month periods ended July 4, 1998 was $8,263 and $22,585, respectively. Certain amounts for prior periods have been reclassified to be comparable with the current period presentation. NOTE 2 - ACQUISITION - -------------------- In June 1998, the Company acquired certain inventory and other assets as well as the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America from Commerce Clothing Company LLC ("Commerce") for approximately $36.9 million. A preliminary allocation of the purchase price to the fair value of the assets acquired is summarized below: (in millions) Inventories...................................... $ 5.3 Other current assets............................. 0.3 Fixed assets..................................... 0.3 Intangible and other assets...................... 39.0 Accrued liabilities.............................. (8.0) ------ Purchase price................................... $ 36.9 ====== In addition, the Company entered into a supply agreement with a subsidiary of Commerce whereby the Company will purchase, at a specified price, certain products for a period of eighteen months. In June 1998, the Company also acquired certain assets as well as the sub-license to distribute Calvin Klein jeans, jeans-related products and khakis for men and women in Mexico and Central Mexico from Macro Jeans S.A. de C.V. for approximately $4.0 million. -6- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- RESTRUCTURING During the fourth quarter of 1997, the Company recorded restructuring and restructuring related pre-tax charges of $118,819, related to the integration of Designer Holdings of $44,620 following its acquisition, the Intimate Apparel (including GJM) consolidation and realignment program of $63,699 and the disposition of certain retained Hathaway assets of $10,500. Additionally, in the fourth quarter, the Company wrote off approximately $6,300 of accounts receivable, related to customer bankruptcies of $3,400 and other accounts receivable write-offs of $2,900 (see Note 5) and incurred $546 of other non-recurring expenses. Of the total $125,665 of 1997 charges, $76,645 is reflected in cost of goods sold and $49,020 is reflected in selling, administrative and general expenses. MERGER RELATED INTEGRATION COSTS ($44,620) Designer Holdings (which was acquired in fiscal 1997) and the Company previously operated retail outlets in several common locations, which the Company elected to consolidate. As a result, the Company recorded a charge of $18,420 as follows: $3,300 for anticipated lease termination costs related to sixteen of its Warner's outlet stores, $1,200 for the write-off of related leasehold improvements and $13,920 for the close-out of store inventories and surplus stocks not considered suitable for redirected marketing efforts in the new store format. In addition, following the merger in December 1997, the Company consolidated the credit and collection functions of the companies. In an effort to accelerate cash collections from common customers following the Designer Holdings acquisition, the Company initiated a program of consolidating receivables from common customers, offering favorable settlement of prior balances to accelerate collection efforts. This program resulted in a charge of $21,700, which was charged to expense as incurred. The Company also charged to expense as incurred $3,600 of special bonuses to Warnaco management and severance and employee termination costs of $900, which were charged to expense at the date the employees were terminated. The detail of the charges recorded in fiscal 1998, including costs incurred and reserves remaining for costs estimated to be incurred through completion of the aforementioned program are as follows:
LEASE CONSOLIDATION TERMINATIONS TERMINATION INVENTORY OF CREDIT AND COST WRITE-DOWNS FUNCTIONS SEVERANCE TOTAL ----------- ----------- ------------- ------------ ----- Balance as of January 4, 1998. $ 2,190 $ 4,802 $ -- $ 55 $ 7,047 1998 Provision................ -- 800 2,500 -- 3,300 Cash reductions............... (1,931) -- -- (55) (1,986) Non-cash reductions........... -- (5,469) (2,500) -- (7,969) ------- ------- ------- ---- ------- Balance as of July 4, 1998.... $ 259 $ 133 $ -- $ -- $ 392 ======= ======= ======= ==== =======
-7- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) INTIMATE APPAREL CONSOLIDATION AND REALIGNMENT ($59,499) Following the successful Intimate Apparel consolidation and realignment program initiated in 1996, the Company initiated a new program to re-examine all of its existing products in an effort to streamline its number of product offerings. Accordingly, products and styles were discontinued and slower moving inventory liquidated, incurring markdown losses of $32,600 to accommodate the increased volumes of higher margin merchandise and $2,246 of receivable write-offs related to these merchandising decisions. Further reconfiguration of manufacturing facilities and the merger of Warner's Europe with Lejaby operations achieved a workforce reduction greater than originally anticipated but delayed realization of anticipated efficiencies and resulted in severance and termination costs of $7,380, which were charged to expense at the date approximately 150 employees were terminated. The cost for facility realignment of $17,273 all of which was incurred in 1997, includes charges for the increased costs related to the reconfiguration of the manufacturing facilities. The detail of the charges recorded in fiscal 1998, including costs incurred and reserves remaining for costs estimated to be incurred through completion of the aforementioned program, are as follows:
EMPLOYEE INVENTORY TERMINATION WRITE-DOWNS AND SEVERANCE TOTAL ----------- ------------- ----- Balance as of January 4, 1998....... $ 21,015 $ 1,464 $ 22,479 Cash reductions..................... -- (1,464) (1,464) Non-cash reductions................. (20,639) -- (20,639) -------- ------- -------- Balance as of July 4, 1998.......... $ 376 $ -- $ 376 ======== ======= ========
GJM ($4,200) The Company also restructured a portion of its GJM manufacturing business, which was acquired in 1996, resulting in charges of $4,200, $700 of which was for severance of five employees, $2,400 for accounts receivable write-offs, which were expensed as incurred and $1,100 for asset write-offs. GJM incurred other non-recurring losses of $1,139 related to these operations in fiscal 1997. As of January 4, 1998, $674 of such severance costs remained to be incurred, with all $674 incurred in the quarter ended April 4, 1998. INTIMATE APPAREL DIVISION CONSOLIDATION AND REALIGNMENT ($78,139) 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 resulted in restructuring and restructuring related charges of $78,139. As of January 4, 1998, $828 of such reserve remained to be incurred relating to lease termination costs, with $559 incurred in the first six months of fiscal 1998. The remaining $269 is expected to be incurred by the end of fiscal 1998. -8- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) NOTE 4 - CAPITAL STOCK - ---------------------- On May 8, 1998, the Company's Board of Director's declared a quarterly cash dividend of $0.09 per share to be paid on July 7, 1998 to shareholders of record as of June 5, 1998. During the first half of fiscal 1998, the Company repurchased approximately 583,000 shares under equity option arrangements at a cost of approximately $20.5 million. A total of approximately 1.6 million shares have been repurchased under the current authorization of 12.42 million shares leaving approximately 10.8 million shares available to repurchase. In addition, the Company has options outstanding on approximately 1.8 million shares at an average forward price of approximately $38.00 per share. These option arrangements expire between August 1998 and March 1999. After accounting for these options, the Company has approximately 9.0 million shares available to repurchase. As of July 4, 1998, treasury stock includes approximately 1.9 million shares at a cost of $56.7 million. The change in additional paid-in capital during the first half of fiscal 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 5 - RESTRICTED STOCK - ------------------------- In May 1998, the Company's Board of Directors authorized the issuance of 182,903 shares of restricted stock to certain employees, including certain officers and directors of the Company. The restricted shares vest ratably over four years and will be fully vested in May 2002. The fair market value of the restricted shares was approximately $7.7 million at the date of grant. The Company will recognize compensation expense equal to the fair value of the restricted shares over the vesting period. NOTE 6 - NEW ACCOUNTING STANDARDS - --------------------------------- 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 $25.4 million and $18.7 million for the three month periods ended July 4, 1998 and July 5, 1997 and $52.9 million and $35.8 million for the six month periods ending July 4, 1998 and July 5, 1997, respectively. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). In December 1997, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS No. 132), which revises disclosure requirements for employers' pension and other retiree benefits. These statements are effective for the Company for fiscal 1998. The Company is studying the application of these new statements to evaluate the disclosure requirements. The adoption of these statements will have no impact on the Company's consolidated financial position, liquidity, cash flows or results of operations. -9- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). This statement, which is effective for the fiscal year beginning January 3, 2000, establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires the recognition of all derivatives as either assets or liabilities in the statement of financial position along with the measurement of such instruments at fair value. Management is evaluating the impact that this statement will have on the Company's financial statements. NOTE 7 - DEBT - ------------- In April 1998, the Company amended a 1996 bank credit agreement (the "Agreement") to increase a revolving loan facility to 480 million French Francs from 120 million French Francs. Borrowings under the Agreement bear interest at LIBOR plus .40% and mature on December 31, 2001. In July 1998, the Company amended its $300 million Trade Letter of Credit Facility (the "L/C Facility") to increase the size of the facility to $450 million, to extend the borrowing period for amounts due under the maturing letters of credit from 120 days to 180 days, to extend the maturity of the L/C Facility to July 29, 1999 and to eliminate certain restrictions relating to debt and investments. In conjunction with the amendment of the L/C Facility, the Company also amended its $600 million revolving credit facility and its $200 million 364-day credit facility to allow for the increase in the L/C Facility and the elimination of certain restrictions relating to debt and investments. 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 first half of fiscal 1998, the Company entered into new interest rate swap agreements and amended certain existing interest rate swap agreements with several of its lenders to convert variable rate borrowings of $450.0 million to fixed rate borrowings at 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. -10- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL SATEMENTS - (Continued) NOTE 8 - SUMMARIZED FINANCIAL AND PRO-FORMA INFORMATION - ------------------------------------------------------- The following is summarized unaudited financial information of the Company's wholly-owned subsidiary, Designer Holdings as of July 4, 1998 and January 3, 1998 and for the six month periods ended July 4, 1998 and June 30, 1997, respectively, which is presented as required by reason of the public preferred securities issued by Designer Holdings. Designer Holdings, acquired by the Company in the fourth quarter of 1997, develops, manufactures and markets designer jeanswear and jeans-related 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/Khakis('r') labels.
(DOLLARS IN THOUSANDS) BALANCE SHEET SUMMARY: JULY 4, JANUARY 3, 1998 1998 ---------- ---------- Current assets...................................................... $ 132,922 $ 129,285 Noncurrent assets................................................... 478,287 497,557 Current liabilities................................................. 70,314 104,458 Noncurrent liabilities.............................................. 58,934 59,800 Redeemable preferred securities..................................... 101,292 100,758 Stockholders' equity................................................ 380,669 361,826
INCOME STATEMENT SUMMARY: SIX MONTHS ENDED ----------------------------- JULY 4, JUNE 30, 1998(a) 1997(b) ---------- ---------- Net revenues........................................................ $ 203,230 $ 226,855 Cost of good sold................................................... 137,243 158,869 Net income.......................................................... 18,843 11,018
(a) Excludes net revenues of $35.7 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 six months ended June 30, 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. Prior to its acquisition by the Company, Designer Holdings experienced substantial sales growth. A significant portion of this sales growth was achieved through distribution to jobbers and off-price retailers. Additionally, Designer Holdings had also announced a significant increase in the number of its outlet stores. The Company viewed this growth and expansion as detrimental to the long-term integrity and value of the brand. To sustain its growth strategy, Designer Holdings committed to large quantities of inventories. When the primary department store distribution channel was unable to absorb all of Designer Holdings' committed production, it increased sales to the secondary and tertiary distribution channels, including sales to jobbers, off-price retailers and Designer Holdings' own outlet stores, which were expanded to serve as an additional channel of distribution. The Company's post-acquisition strategy did not embrace the outlet store expansion or expansion of secondary channels of distribution, thereby significantly eliminating product distribution, resulting in excess inventory. The Company had a different plan from that of Designer Holdings for realization of inventories and accounts receivable, as follows: Based upon its strategy for the business, it had to quickly dispose of significantly higher than desirable levels of inventory. It had to stabilize relationships with its core department store customers. It had to collect receivable balances from customers with whom the Company would no longer do business, and had to respond to challenges from the core department store customers who were adversely impacted by channel conflict and brand image issues. Finally, the Company began a complete redesign of the product, the impact of which would not be immediately felt at retail due to the fact that Designer Holdings had already committed to inventory that was in production to be delivered for the ensuing seasons. The consequences related not only to the receivables and inventory acquired, but also to the design, fabric and inventory purchases to which Designer Holdings had previously committed. Immediately following the acquisition, the Company began quickly liquidating excess inventories. Most of these sales were below original cost. Not only did the Company fail to recover cost (including royalties payable to the licensor), it was deprived of the 'reasonable gross profit' contemplated by APB Opinion 16 in valuing acquired inventory. Accordingly, the Company reduced the historical carrying value of inventory by $18 million. The $18 million fair value adjustment recorded addressed all of these issues and represented the fair value of inventory pursuant to APB Opinion 16. The Company offered significant discounts (by negotiating settlements on a customer by customer basis) to collect outstanding receivable balances in light of product related issues raised, as well as the decision to discontinue certain channels of distribution, realizing that these balances would become increasingly more difficult to collect with the passage of time. In addition, the core retail customers took substantial deductions against current invoices for the Designer Holdings inventory in the stores, unilaterally revising the economics of the initial sale transaction entered into by Designer Holdings. Although these deductions relate to both the inventory acquired and pre-acquisition accounts receivable, the decrease in asset value manifested itself through accounts receivable as a result of these deductions. Accordingly, the Company reduced the historical carrying value of accounts receivable by $31 million. The $31 million fair value adjustment, which was recorded pursuant to APB Opinion 16, addresses these issues. The Company believes that these strategies should enhance future results of operations and cash flows, however, these fair value adjustments will result in additional annual goodwill amortization of approximately $1.2 million. In conjunction with the allocation of purchase price of Designer Holdings to assets acquired and liabilities assumed, the Company recorded accruals of approximately $48,313. These charges relate generally to employee termination and severance benefits, facility exit costs, including lease termination costs (representing future lease payments on abandoned facilities) and contract termination costs. The detail of the charges recorded in fiscal 1998, including costs incurred and reserves remaining for costs estimated to be incurred through completion of the aforementioned programs, anticipated by the end of fiscal 1999, are summarized below:
SEVERANCE AND FACILITY OTHER EMPLOYEE EXIT RELATED COSTS COSTS TOTAL ------------------ --------------- -------- Balance as of January 4, 1998 $9,831 $ 170 $10,001 Total provisions 200 1,800 2,000 Cash Reductions (2,720) (216) (2,936) ---------------- ---------------- ------- Balance as of July 4, 1998 $7,311 $ 1,754 $ 9,065 =============== ================ =======
The $9,065 reserve at July 4, 1998 relates principally to certain facility exit costs and employee severance costs, representing the remaining severance costs for terminated employees, anticipated to be utilized by the end of fiscal 1999. The following summarized unaudited pro forma information combines the historical results of operations of the Company with Designer Holdings, after the effects of estimated purchase accounting adjustments, assuming the acquisition had occurred at the beginning of fiscal 1997. The pro forma information does not reflect any cost savings or other benefits anticipated as a result of the acquisition. The pro forma information does not purport to be indicative of the results that would have been obtained if the operations had actually been combined during the period presented nor are they indicative of future results for the combined companies.
(dollars in thousands) SIX MONTHS ENDED JULY 5, 1997 -------------------- Statement of Income Data: Net revenues.................................................... $768,600 Net income...................................................... $ 44,900 Income per common share: Basic...................................................... $0.73 ===== Diluted.................................................... $0.70 =====
The final assessment of the purchase accounting estimates have not yet been completed. During the six months ended July 4, 1998, adjustments to these estimates increased the excess of cost over net assets acquired by $15.8 million. -11- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL SATEMENTS - (Continued) NOTE 9 - CASH FLOW INFORMATION - ------------------------------
SIX MONTHS ENDED ---------------------------- JULY 4, JULY 5, 1998 1997 ----------- ---------- Cash paid for: Interest............................................................... $26,992 $20,061 Income taxes, net of refunds received................................... (1,740) 3,688
NOTE 10 - EARNINGS PER SHARE - --------------------------- The following table sets forth the computation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ------------------------------ JULY 4, JULY 5, JULY 4, JULY 5, 1998 1997 1998 1997 --------- --------- ---------- ----------- (IN THOUSANDS EXCEPT PER SHARE DATA) Numerator for basic and diluted earnings per share: Income before cumulative effect of accounting change..................... $12,940 $ 7,849 $19,028 $19,185 ======= ======= ======= ======= Denominator for basic earnings per share-- weighted average shares ................. 62,603 51,274 62,358 51,269 ------- ------- ------- ------- Effect of dilutive securities: Employee stock options .................. 1,335 1,583 1,267 1,597 Restricted stock shares ................. 502 508 467 415 ------- ------- ------- ------- Dilutive potential common shares ........... 1,837 2,091 1,734 2,012 ------- ------- ------- ------- Denominator for diluted earnings per share-- weighted average adjusted shares ........ 64,440 53,365 64,092 53,281 ======= ======= ======= ======= Basic earnings per share ................... $ 0.21 $ 0.15 $ 0.31 $ 0.37 ======= ======= ======= ======= Diluted earnings per share ................. $ 0.20 $ 0.15 $ 0.30 $ 0.36 ======= ======= ======= =======
Options to purchase 255,000 shares of common stock at prices ranging from $39.25 to $42.00 per share were outstanding during the first half 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 from March 2008 through June 2008 were still outstanding as of July 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. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. RESULTS OF OPERATIONS STATEMENTS OF INCOME (SELECTED DATA) (AMOUNTS IN MILLIONS OF DOLLARS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ---------------------------- JULY 4, JULY 5, JULY 4, JULY 5, 1998 1997 1998 1997 ------------- ---------- ----------- ---------- Net revenues ............................... $ 438.9 $ 290.2 $ 858.1 $ 541.7 Cost of goods sold ......................... 307.4 205.9 607.1 375.6 -------- -------- -------- -------- Gross profit ............................... 131.5 84.3 251.0 166.1 % of net revenues ....................... 30.0% 29.0% 29.3% 30.7% Selling, administrative and general expenses 96.0 60.5 192.1 113.7 -------- -------- -------- -------- Income before interest, income taxes and cumulative effect of accounting change .. 35.5 23.8 58.9 52.4 % of net revenues ....................... 8.1% 8.2% 6.9% 9.7% Interest expense ........................... 15.1 10.7 28.8 20.5 Provision for income taxes ................. 7.5 5.3 11.1 12.7 -------- -------- -------- -------- Income before cumulative effect of accounting change ....................... $ 12.9 $ 7.8 $ 19.0 $ 19.2 ======== ======== ======== ========
Net revenues in the second quarter of fiscal 1998 were $438.9 million, $148.7 million or 51.2% higher than the $290.2 million recorded in the second quarter of fiscal 1997. Net revenues for 1998 includes $110.5 million associated with the acquisition of Designer Holdings, completed in the fourth quarter of 1997. During the second quarter of fiscal 1998, the Company acquired the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America, as well as the sub-license to distribute Calvin Klein jeans, jeans- related products and khakis for men and women in Mexico and Central America. These acquisitions contributed $8.9 million to net revenues during the current quarter. Excluding the impact of the above acquisitions, net revenues increased $29.3 million or 10.1%. Net revenues for the six months ended July 4, 1998 were $858.1 million, an increase of $316.4 million or 58.4 % over the $541.7 million in the first half of fiscal 1997. Acquisitions contributed $239.3 million to net revenues for the six month period ended July 4, 1998. Excluding net revenues attributable to the Calvin Klein acquisitions, net revenues increased $77.1 million or 14.2%. Intimate apparel division net revenues increased $6.5 million or 3.0% to $220.5 million from $214.0 million in the second quarter of fiscal 1997. The increase in net revenues in the second quarter of fiscal 1998 compared with fiscal 1997 was generated by a strong increase in core domestic branded products, the result of the continued success of Olga's Simply Perfect and Warner's Naked Truth lines. Partially offsetting these increases were declines in private label net revenues, reflecting the Company's objective to reduce private label business. International results were impacted by changes in foreign currency exchange rates. Net revenues for the six months ended July 4, 1998 increased $29.7 million or 7.3% to $438.5 million compared with $408.8 million in the first six months of 1997. The increase was due to stronger shipments of core domestic branded products. Sportswear division net revenues increased $122.4 million or 196.2% to $184.8 million in the second quarter of fiscal 1998. The acquisition of Designer Holdings in the fourth quarter of 1997 added $94.1 million to the Sportswear division's net revenues. Additionally, the acquisition of the Calvin Klein jeanswear children's sub-license and Mexico sub-license contributed $8.9 million to net revenues. Excluding these acquisitions, net revenues increased by $19.4 million or 31.1%. This increase is attributable to a 33.7% increase in Chaps by Ralph Lauren domestic and international -13- shipments. Net revenues for the six months ended July 4, 1998 increased $251.7 million or 229.0% to $361.6 million compared with $109.9 million in the first six months of fiscal 1997. Excluding the Calvin Klein jeanswear and kidswear acquisitions for the six-month period, net revenues increased by $39.5 million or 35.9%. The increase for the six months primarily reflects an increase in net revenues of 37.1% in Chaps by Ralph Lauren and an 18.9% increase for Calvin Klein accessories. Gross profit increased $47.2 million or 56.0% to $131.5 million in the second quarter of fiscal 1998 compared with $84.3 million in the second quarter of fiscal 1997. Gross profit as a percentage of net revenues increased 10 basis points to 30.0% in the second quarter of fiscal 1998 compared with 29.0% in the second quarter of fiscal 1997. Gross profit for the first six months of fiscal 1998 increased $84.9 million or 51.2% to $251.0 million from $166.1 million in the first six months of fiscal 1997. Gross profit as a percentage of net revenues was 29.3% for the six months of fiscal 1998 compared with 30.7% in 1997. The year-to-date gross margin decrease reflects the inclusion of the jeanswear business, which carries a lower gross margin, as well as $22.6 million in fiscal 1998 related to the early adoption of SOP 98-5, the write-off of deferred start-up costs. The restatement described in Note 1 resulted from flaws in the Company's Intimate Apparel Division inventory costing control system that have since been corrected. As discussed in Note 1, the Company had rapidly expanded its manufacturing capacity over a period prior to fiscal 1998, hiring and training over 15,000 people in Mexico and the Caribbean Basin. The Company's infrastructure, personnel and systems were overburdened by the size and scope of this rapid expansion and by the increased manufacturing volume to meet consumer demand. At the same time, as reported in the Company's fiscal 1996 Form 10-K, commencing in fiscal 1996, the Company determined to consolidate and integrate its two intimate apparel divisions -- Warner's and Olga. These two intimate apparel units had separate manufacturing facilities, separate financial and administrative personnel and separate cost systems. The integration of these two independent operations and systems further burdened already extended personnel and systems. The Company anticipated that it would address any shortcomings in its inventory costing system as part of the implementation of new and enhanced hardware and software applications in connection with the Company's year 2000 compliance program. During the relevant period, substantially all of the Company's financial and information systems personnel were committed to the Company's SAP implementation and Year 2000 compliance efforts, which consumed a significant portion of their time. When the Company's SAP implementation was delayed in 1998 and ultimately replaced with the ACS system, the Company developed a new inventory costing process as an interim measure pending the selection and implementation of the Company's new software which incorporated an integrated cost accounting package. The Company now has a new inventory costing system and new monitoring procedures for its Intimate Apparel Division that are designed to ensure that the problems that led to the restatement of inventory accounts will not be repeated and will function to reduce to a low level the risk that errors may occur and not be detected within a timely period. Selling, administrative and general expenses increased $35.5 million or 58.7% to $96.0 million (21.9% of net revenues) in the second quarter of fiscal 1998 compared with $60.5 million (20.8% of net revenues) in the second quarter of fiscal 1997. Selling, administrative and general expenses for the first six months of fiscal 1998 increased $78.4 million or 69.0% to $192.1 million (22.4% of net revenues) compared with $113.7 million (21.0% of net revenues) in fiscal 1997. The increase in selling, administrative and general expenses is due primarily to higher marketing and corporate expenses reflecting additional headcount and costs associated with information services related to new systems and the year 2000 implementation. Interest expense increased $4.4 million in the second quarter of fiscal 1998 to $15.1 million. Interest expense for the six months ended July 4, 1998 increased $8.3 million to $28.8 million from $20.5 million in the first six months of fiscal 1997. The increase in 1998 interest expense reflects the funding of the Company's recent acquisitions and stock buyback program. The provision for income taxes for the second quarter of fiscal 1998 and for the first six months of fiscal 1998 reflects an estimated full year effective tax rate of approximately 36.0%. Net income for the second quarter of fiscal 1998 was $12.9 million, an increase of $5.1 million or 64.9% compared with $7.8 million in the second quarter of fiscal 1997. Income before cumulative effect of accounting change for the first six months of fiscal 1998 decreased $0.2 million or 0.8% to $19.0 million compared with $19.2 million in the first six months of fiscal 1997. The increase for the quarter reflects higher net revenues and associated gross profit mentioned above. The slight decrease for the six months reflects the early adoption of SOP 98-5 as mentioned above. CAPITAL RESOURCES AND LIQUIDITY The Company's liquidity requirements arise primarily from its debt service requirements, capital expenditures related to the Company's year 2000 compliance program and the funding of the Company's working capital needs, primarily inventory and accounts receivable. The Company's borrowing requirements are seasonal, with peak 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. -14- Cash used in operations before non-recurring items was $118.7 million in the first half of fiscal 1998 compared with $98.0 million in the first half of fiscal 1997. The increase in cash used in operating activities reflects higher working capital usage primarily due to higher sales and seasonal increases in working capital, primarily inventory. Cash used in investing activities was $159.8 million for the first half of fiscal 1998 compared with $37.7 million in the first half of fiscal 1997. Capital expenditures were $72.1 million in the first half of fiscal 1998, compared with $20.3 million in the first half of fiscal 1997 and included amounts for information systems related to year 2000 compliance and store fixture programs for Calvin Klein Jeans "shop in shops". During the second quarter of 1998, the Company acquired certain inventory and other assets as well as the sub-license to produce Calvin Klein jeans and jeans-related products for children in the United States, Mexico and Central and South America. In addition, the Company acquired certain assets as well as the sub-license to distribute Calvin Klein jeans and jeans-related products and khakis for men and women in Mexico and Central America. The purchase price of these acquisitions was approximately $40.9 million. Cash provided from financing activities was $285.0 million in the first half of fiscal 1998 compared with $135.5 million in the first half of fiscal 1997. The increase in the Company's revolving credit balance during the first half of fiscal 1998 was $329.0 million compared with $164.2 million in the first half of fiscal 1997 due to increased working capital requirements on higher sales, the funding of the most recent acquisitions and stock repurchase program and capital expenditures for the Company's year 2000 compliance program. The Company paid approximately $53.8 million for the repurchase of shares and withholding taxes on option exercises in the first half of fiscal 1998. The Company repurchased approximately 583,000 shares of its common stock in the first half of fiscal 1998 at an average cost of approximately $35.12 per share or approximately $20.5 million. The Company has purchased approximately 1.6 million shares of its common stock under the current repurchase authorization of 12.42 million shares, leaving approximately 10.8 million shares available to repurchase. The Company has options outstanding on approximately 1.8 million shares at an average forward price of $38.00 per share, expiring between August 1998 and March 1999. In April 1998, the Company amended its 1996 Bank Credit Agreements (the "Agreement") to increase its revolving loan facilities to 480 million French Francs from 120 million French Francs. Borrowings under the Agreement bear interest at LIBOR plus .40% and mature on December 31, 2001. In July 1998, the Company amended its $300 million Trade Letter of Credit Facility (the "L/C Facility") to increase the size of the facility to $450 million, to extend the borrowing period for amounts due under the maturing letters of credit from 120 days to 180 days, to extend the maturity of the L/C Facility to July 29, 1999 and to eliminate certain restrictions relating to debt and investments. The amount of borrowings available under both the 1996 Bank Credit Agreements and the L/C Facility was increased to accommodate the internal growth of the Company's business as well as the increased demand for finished product purchases stemming from the acquisition of Designer Holdings in the fourth quarter of 1997 and the acquisition of the CK Kids business in the second quarter of 1998. In conjunction with the amendment of the L/C Facility, the Company also amended its $600 million revolving credit facility and its $200 million 364-day credit facility to allow for the increase in the L/C Facility and the elimination of certain restrictions relating to debt and investments. 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 -15- 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, primarily for year 2000 compliance. 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 $35.2 million has been incurred through July 4, 1998 and such amounts are included in property and equipment. 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 speculative 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 impacts on earnings. The Company's currency exposures vary, but are primarily concentrated in the Canadian dollar, Mexican peso, British pound, German mark, French franc and Hong Kong dollar. 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. -16- PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual Meeting of Shareholders of the Company held on May 8, 1998, the three nominees to the Board of Directors were elected as follows:
For Against Withheld ---------- ---------- ----------- William S. Finkelstein.................. 51,925,509 -- 949,101 Walter F. Loeb.......................... 52,177,255 -- 697,355 Stewart A. Resnick...................... 52,211,669 -- 662,941
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 27.1 -- Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the second quarter of fiscal 1998. -17- 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 16, 2000 By: /s/ WILLIAM S. FINKELSTEIN ---------------------------- William S. Finkelstein Director, Senior Vice President and Chief Financial Officer Principal Financial and Accounting Officer Date: May 16, 2000 By: /s/ STANLEY P. SILVERSTEIN ---------------------------- Stanley P. Silverstein Vice President, General Counsel and Secretary EX-27 2 ARTICLE 5 FDS 2ND QTR 1998 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE WARNACO GROUP, INC. FOR THE QUARTER ENDED JULY 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 6-MOS JAN-02-1999 JAN-04-1998 JUL-04-1998 16,540 0 392,794 25,127 503,421 934,361 304,375 114,766 1,967,490 395,957 684,708 101,292 0 691 748,994 1,967,490 858,082 858,082 607,036 192,138 0 0 28,779 30,129 11,101 19,028 0 0 (46,250) (27,222) (0.44) (0.42)
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