-----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, TXsoFW9l0pzYPL5+QlPnM70TLksKaFQ6rSxEt/YzpUOnrFhNLQHHNKDoOhvKdGqN +F/fp8m4I9sqjGzeSHaYyA== 0000950117-01-500429.txt : 20010523 0000950117-01-500429.hdr.sgml : 20010523 ACCESSION NUMBER: 0000950117-01-500429 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010407 FILED AS OF DATE: 20010522 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 SEC ACT: SEC FILE NUMBER: 001-10857 FILM NUMBER: 1645874 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 1 a29771.txt THE WARNACO GROUP, INC. FORM 10-Q ================================================================================ 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 7, 2001 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 May 18, 2001 is as follows: 52,873,637. ================================================================================ PART I FINANCIAL INFORMATION Item 1. Financial Statements THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands)
April 7, December 30, 2001 2000 ---------- ---------- (Unaudited) ASSETS Current assets: Cash $ 55,452 $ $11,076 Accounts receivable less reserves of $83,294 and $95,669, respectively 280,062 127,941 Inventories 502,424 483,111 Other current assets 28,561 33,150 Deferred income taxes 7,384 7,632 ---------- ---------- Total current assets 873,883 662,910 Property, plant and equipment (net of accumulated depreciation of $207,699 and $193,238, respectively) 316,276 329,175 ---------- ---------- Other assets: Other assets - net 365,424 358,898 Excess of cost over net assets acquired - net 848,192 855,150 Deferred income tax 136,929 136,929 ---------- ---------- Total other assets 1,350,545 1,350,977 ---------- ---------- $2,540,704 $2,343,062 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $1,816,745 $1,493,301 Short-term debt 87 182 Accounts payable 383,324 413,786 Accrued liabilities 64,443 87,221 Accrued interest 80,476 85,656 Accrued income tax payable 11,466 16,470 ---------- ---------- Total current liabilities 2,356,541 2,096,616 ---------- ---------- Long-term debt -- -- ---------- ---------- Other long-term liabilities 45,637 65,955 ---------- ---------- Company-Obligated Mandatorily Redeemable Convertible Preferred Securities ($120,000 - par value) of Designer Finance Trust Holding Solely Convertible Debentures 103,512 103,387 ---------- ---------- Stockholders' equity: Common stock: $.01 par value 654 654 Additional paid-in capital 912,983 912,983 Accumulated other comprehensive loss (14,372) (33,750) Deficit (545,104) (482,602) Treasury stock, at cost (313,840) (313,840) Unearned stock compensation (5,307) (6,341) ---------- ---------- Total stockholders' equity 35,014 77,104 ---------- ---------- $2,540,704 $2,343,062 ========== ==========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. - 2 - THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data)
Three Months Ended ----------------------- April 7, April 1, 2001 2000 Restated ---------- ---------- (Unaudited) Net revenues $ 499,219 607,138 Cost of goods sold 352,825 421,721 --------- -------- Gross profit 146,394 185,417 Selling, general and administrative expenses 139,070 150,998 --------- -------- Operating income 7,324 34,419 Investment (income) loss 2,964 (42,782) Interest expense 63,940 33,852 --------- -------- Income (loss) before provision for income taxes and cumulative effect of change in accounting principle (59,580) 43,349 Income tax provision 2,922 16,256 --------- -------- Income (loss) before cumulative effect of change in accounting principle $ (62,502) $ 27,093 Cumulative effect of change in accounting principle net of income tax benefits of $8,577 -- (13,110) --------- -------- Net income (loss) $ (62,502) $ 13,983 ========= ======== Basic earnings (loss) per common share: Income (loss) before accounting change $ (1.18) $ 0.51 Cumulative effect of accounting change, net of taxes -- (0.25) --------- -------- Net income (loss) $ (1.18) $ 0.26 ========= ======== Diluted earnings per common share Income (loss) before accounting change $ (1.18) $ 0.51 Cumulative effect of accounting change, net of taxes -- (0.25) --------- -------- Net income (loss) $ (1.18) $ 0.26 ========= ======== Cash dividends declared per share of common stock $ -- $ 0.09 ========= ======== Shares used in computing earnings (loss) per share: Basic 52,874 52,787 ========= ======== Diluted 52,874 53,425 ========= ========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. - 3 - THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Three Months Ended ----------------------- April 7, April 1, 2001 2000 Restated --------- --------- (Unaudited) Cash flow used in operating activities: Net income (loss) $ (62,502) $ 13,983 Adjustments to reconcile net income (loss) to net cash used in operating activities: Cumulative effect of change in accounting, net of taxes -- 13,110 Pre-tax gain on sale of investment -- (42,782) Depreciation and amortization 24,051 25,101 Market value adjustments to equity agreements 2,964 -- Amortization of unearned stock compensation 1,034 1,368 Deferred income taxes -- 13,503 Change in operating assets and liabilities: Accounts receivable (152,121) (27,096) Inventories (19,313) (5,297) Prepaid expenses and other assets 5,569 (1,081) Accounts payable, accrued expenses and other liabilities (60,017) (54,745) Accrued income taxes (5,004) 483 --------- -------- Net cash used in operating activities (265,339) (63,453) --------- -------- Cash flow from (used in) investing activities Disposals of fixed assets 1,987 367 Purchase of property, plant & equipment (13,050) (34,850) Proceeds from sale of marketable securities -- 50,357 Increase in intangible and other assets (1,085) (2,965) --------- -------- Net cash from (used in) investing activities (12,148) 12,909 --------- -------- Cash flow from financing activities: Net borrowing under credit facilities 326,102 24,748 Proceeds from termination of interest rate swaps -- 26,076 Repayments of debt (5,662) (3,913) Cash dividends paid -- (4,791) Other (171) (174) --------- -------- Net cash from financing activities 320,269 41,946 --------- -------- Effect on cash due to currency translation 1,594 1,293 --------- -------- Increase (decrease) in cash 44,376 (7,305) Cash at beginning of period 11,076 9,328 --------- -------- Cash at end of period $ 55,452 $ 2,023 ========= ========
This Statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. - 4 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) 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 7, 2001 as well as its results of operations and cash flows for the periods ended April 7, 2001 and April 1, 2000. 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 December 30, 2000. The consolidated statement of operations includes for fiscal 2001, 14 weeks compared to 13 weeks in fiscal 2000. Restatement and Reclassifications: The Company's April 1, 2000 quarterly results of operations have been restated with respect to the effects of the change in accounting principle related to the Company's valuation of its retail outlet store inventory, as well as other adjustments principally related to purchase accounting, amortization of deferred financing costs and depreciation expense. Impact of New Accounting Standards: In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125". SFAS No. 140 revised criteria for accounting for securitizations, other financial-asset transfers and collateral and introduces new disclosures, but otherwise carries forward most of the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" without amendments. The Company adopted the disclosure requirements of SFAS No. 140 on December 30, 2000, as required. All other provisions of SFAS No. 140 will be adopted after April 7, 2001, as required by the standard. The adoption of this statement in the first quarter of 2001 would not have a material impact on the Company's consolidated financial position, liquidity, cashflows and results of operations. The Company recorded a cumulative effect adjustment through Accumulated Other Comprehensive loss of $21,744. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 1999, the FASB issued SFAS 137 "Deferral of the effective date of FASB Statement No. 133" delaying the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. The adoption of this standard did not have a material effect on the Company's liquisity cash flows and results of operations. Long-term debt: As discussed in Notes 1 and 13 to the consolidated financial statements included in the Company's Form 10-K for the fiscal year ended December 30, 2000, the Company was not in compliance with certain covenants of its long-term debt agreements for which waivers have been received now through June 15, 2001. As the waivers do not extend past April 7, 2002, the Company has classified $1,804,097 of long-term debt as current maturities in the accompanying condensed consolidated balance sheet as of April 7, 2001. - 5 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) Note 2 - Equity As of April 7, 2001 and December 30, 2000, Class A common stock outstanding was 52,873,637 shares, net of 12,063,672 shares held in treasury. The Company may repurchase an additional 10.3 million shares under the existing stock repurchase program authorized by the Board of Directors. In connection with the Company's stock repurchase program, the Company entered into Equity Forward Purchase Agreements (the "Equity Agreements") with two banks that mature on August 12, 2002. The Equity Agreements are required to be settled by the Company on a net cash settlement basis at maturity. If these Equity Agreements were settled on a net cash settlement basis at April 7, 2001, the Company would be required to pay $17,664 based on the closing price of the Company's stock compared to the $4.50 per share settlement price. For the quarter ended April 7, 2001, the Company has recorded $2,964 in investment expense to account for the change in value in the Equity Agreements between December 30, 2000 and April 7, 2001. Note 3 - Special Charges The details of costs incurred and reserves remaining for costs incurred in connection with the year-end fiscal 2000 special charges are summarized below:
Facility Inventory shutdown Employee write-downs and and contract termination Legal and other asset termination and severance Retail outlet other related write-offs costs costs store closings costs Total --------------- --------------- --------------- --------------- --------------- ------------- Provisions $ 154,851 $ 53,261 $ 25,772 $ 20,037 $ 15,705 $ 269,626 Cash Reductions -- (41,456) (19,117) (75) (10,909) (71,557) Non-cash reductions (125,350) -- -- (15,251) (976) (141,577) --------- -------- -------- -------- -------- --------- Balance as of Dec. 30, 2000 29,501 11,805 6,655 4,711 3,820 56,492 Cash Reductions -- (2,318) (2,033) (458) (2,832) (7,641) Non-cash reductions (18,138) (48) -- (1,754) -- (19,940) --------- -------- -------- -------- -------- --------- Balance as of April 7, 2001 $ 11,363 $ 9,439 $ 4,622 $ 2,499 $ 988 $ 28,911 --------- -------- -------- -------- -------- --------- --------- -------- -------- -------- -------- ---------
Note 4 - Financial Instruments In the first quarter of fiscal 2000, the Company received cash proceeds of $26,076 from the termination of certain interest rate swaps. Three of these swaps had converted variable rate borrowings of $610,000 to a fixed rate of 5.99% through September 2004 while a fourth swap had converted variable rate borrowings of $75,000 to a fixed rate of 6.66% through September 2003. The $26,076 gain from the termination of these swaps is being recognized in interest income over the remaining life of the swaps. The Company entered into five new interest rate swaps during the first quarter of fiscal 2000 which convert variable rate borrowings of $637,000 to an average fixed rate of 6.65% for periods ranging from nine to twelve months, all of which matured in the first quarter of 2001. In the first quarter of 2001, the Company did not enter into any new interest rate swaps. As of April 7, 2001, the Company had outstanding interest rate swaps with a notional value of $6.5 million. Note 5 - Inventory
For the Three Months Ended --------------------------- April 7, December 30, 2001 2000 ---------- ----------- Finished goods $365,024 $370,507 Work in process 80,394 60,832 Raw materials 57,006 51,772 -------- -------- $502,424 $483,111 ======== ========
Note 6 - Summarized Financial Information - Designer Holdings Ltd. The following is summarized unaudited financial information of the Company's wholly-owned subsidiary, Designer Holdings Ltd, as of April 7, 2001 and December 30, 2000 and for the three months ended April 7, 2001 and April 1, 2000, respectively, which is presented as required by reason of the - 6 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) public preferred securities issued by Designer Holdings. The information below is not indicative of the future operating results.
Balance sheet summary: April 7, December 30, 2001 2000 ---------- ----------- Current assets $121,264 $113,266 Noncurrent assets 485,734 509,737 Current liabilities 36,193 32,878 Noncurrent liabilities 23,953 24,607 Redeemable preferred securities 103,512 103,387 Stockholders' equity 443,340 462,131 Income statement summary: Three months ended ---------------------- April 7, April 1, 2001 (a) 2000 (a) --------- ---------- Net revenues $ 80,326 $ 118,791 Cost of goods sold 59,898 82,989 Net income (loss) (18,791)(b) 8,379
(a) Excludes Retail Store Division's net revenues of $11,340 and $20,230 for the three months of fiscal 2001 and 2000 respectively. 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) Net income (loss) includes a charge of $16,954 of general corporate expenses. Note 7 - Supplemental Cash Flow Information
Three months ended -------------------- April 7, April 1, 2001 2000 --------- --------- Cash paid for: Interest, including $-0- and $365 capitalized in the first quarter of fiscal 2001 and 2000, respectively $57,983 $34,723 Income taxes, net of refunds received 5,222 2,374
- 7 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) Note 8 - Earnings (loss) per Share
Three Months Ended ---------------------- April 7, April 1, 2001 2000 Restated --------- --------- Numerator for basic and diluted earnings (loss) per share: Income (loss) before cumulative effect of change in accounting (62,502) $27,093 Cumulative effect of change in accounting -- 13,110 -------- ------- Net income (loss) (62,502) 13,983 ======== ======= Denominator for basic earnings (loss) per share -- weighted average shares 52,874 52,787 -------- ------- Effect of dilutive securities: Employee stock options 42 14 Restricted stock shares 261 430 Shares under Equity Agreements -- 194 -------- ------- Dilutive potential common shares 303(a) 638 -------- ------- Denominator for diluted earnings (loss) per share - weighted average adjusted shares 52,874 53,425 ======== ======= Basic earnings (loss) per share before cumulative effect of change in accounting $ (1.18) $ 0.51 ======== ======= Diluted earnings (loss) per share before cumulative effect of change in accounting $ (1.18) $ 0.51 ======== =======
(a) The effect of dilutive securities was not included in the computation of diluted earnings (loss) per share for the quarter ended April 7, 2001 because the effect would have been anti-dilutive. Options to purchase shares of common stock that were outstanding during the three-month periods of fiscal 2001 and 2000 but were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares are shown below.
April 7, April 1, 2001 2000 ------------ ------------- Number of shares under option 15,699,796 14,123,556 Range of exercise prices $2.88-$42.88 $13.13-$42.88
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 for any of the periods presented as the impact would have been antidilutive. Note 9 - Business Segments The Company operates in three segments: Sportswear and Accessories, Intimate Apparel, and Retail stores. The Sportswear and Accessories segment designs, manufactures, imports and markets moderate to premium priced men's, women's, junior's and children's sportswear and jeanswear, men's accessories and men's, women's, junior's and children's active apparel under the Chaps by Ralph Lauren'r', Calvin Klein'r', Catalina'r', A.B.S. by Allen Schwartz'r', Speedo'r', Oscar de la Renta'r', Anne Cole'r', Cole of - 8 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) California'r', Sandcastle'r', Sunset Beach'r', Ralph'r', Lauren'r', Polo Sport Ralph Lauren'r', Polo Sport-RLX'r' and White Stag'r' brand names. The Intimate Apparel segment designs, manufactures and markets moderate to premium priced intimate apparel for women under the Warner's'r', Olga'r', Calvin Klein'r', Lejaby'r', Van Raalte'r', Fruit of the Loom'r', Weight Watchers'r' and Bodyslimmers'r' brand names, and men's underwear under the Calvin Klein'r' brand name. The Retail Store segment which is comprised of both outlet as well as full-price retail stores, principally sells the Company's products to the general public through 126 stores under the Speedo'r' Authentic Fitness'r' name as well as 93 Company outlet stores for the disposition of excess and irregular inventory. The Company does not manufacture or source products exclusively for the outlet stores. Information by business segment is set forth below:
Sportswear and Intimate Retail Accessories Apparel Stores Total ----------- ---------- --------- ---------- Three months ended April 7, 2001: Net revenues $291,516 $166,062 $41,641 $499,219 Adjusted EBITDA 43,523 14,643 (1,614) 56,552 Depreciation and Amortization 3,351 5,046 1,654 10,051 Adjusted EBIT 40,172 9,597 (3,268) 46,501 Three months ended April 1, 2000: (Restated) Net revenues $359,299 $199,774 $48,065 $607,138 Adjusted EBITDA 68,488 28,389 (8,984) 87,893 Depreciation and Amortization 5,690 5,551 775 12,016 Adjusted EBIT 62,798 22,838 (9,759) 75,877
A reconciliation of total segment Adjusted EBIT to total consolidated income (loss) before taxes and cumulative effect of a change in accounting principle for the three months ended April 7, 2001 and April 1, 2000, respectively, is as follows: - 9 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited)
Three Months Ended ---------------------- April 7, April 1, 2001 2000 Restated --------- -------- Total adjusted EBIT for reportable segments $ 46,501 $ 75,877 General corporate expenses not allocated 24,143 26,308 Depreciation of Corporate assets and amortization 15,034 15,150 Investment (income) loss 2,964 (42,782) Interest expense 63,940 33,852 --------- -------- Income (loss) before provision for income taxes and cumulative effect of change in accounting $(59,580) $ 43,349 ========= ========
Note 10 - Comprehensive (Loss)
Three Months Ended ---------------------- April 7, April 1, 2001 2000 Restated --------- -------- Net Income (loss) $(62,502) $ 13,983 --------- -------- Other comprehensive loss: Foreign currency translation adjustments 796 1,293 Change in unfunded minimum pension liability (1,530) -- Transition adjustment for FAS 133 adoption 20,328 -- Change in fair value of cash flow hedge, interest rate swaps (202) -- Unrealized loss on marketable securities (14) (64,635) Income tax benefit -- 25,563 --------- --------- Total other comprehensive income loss 19,378 (37,779) --------- --------- Comprehensive loss $(43,124) $(23,796) ========= =========
The components of accumulated other comprehensive loss as of April 7, 2001 and December 30, 2000 are as follows: - 10 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited)
April 7, December 30, 2001 2000 ---------- ----------- Unfunded minimum pension liability $(16,178) $(14,648) Transition adjustment for FAS 133 adoption 20,328 -- Change in fair value of cash flow hedge, interest rate swaps (202) -- Foreign currency translation adjustments (17,911) (18,707) Unrealized holding losses, net (409) (395) -------- -------- Total accumulated other comprehensive loss $(14,372) $(33,750) ========= ========
Note 11 - Legal Proceedings On May 30, 2000, Calvin Klein, Inc. ('CKI') and the Calvin Klein Trademark Trust filed a complaint in the U.S. District Court in the Southern District of New York (Calvin Klein Trademark Trust, et al. v. The Warnaco Group, Inc., et al, No. 00 CIV. 4052 (JSR) (S.D.N.Y.)) against The Warnaco Group, Inc., various other Warnaco entities, and Wachner (the 'Warnaco Defendants') alleging, inter alia, claims for breach of contract and trademark violations. The complaint sought, inter alia, termination of certain licensing agreements and trademark rights, injunctive relief and damages. On June 26, 2000, the Warnaco Defendants filed an answer and certain Warnaco Defendants filed counterclaims (amended on July 31, 2000) against Calvin Klein, Inc. for, inter alia, breach of the jeanswear and men's accessories licenses and breach of fiduciary duty, and against CKI and Calvin Klein personally for tortious interference with business relations, defamation and trade libel. Warnaco sought, inter alia, damages, injunctive and declaratory relief. Thereafter, certain of the plaintiff's claims and one of the Warnaco Defendant's counterclaims were dismissed. On January 16, 2001, CKI filed a Complaint in the Supreme Court of the State of New York (County of New York) (the 'State Action') against CKJ Holdings, Inc. and Calvin Klein Jeanswear Company (collectively the 'Defendants') seeking a declaration that CKI was entitled to terminate the Jeanswear License Agreement dated August 4, 1994, as amended (the 'Jeanswear License'), claiming that the Defendants' breached certain financial covenants in the Jeanswear License because the Company's consolidated debt to consolidated net worth ratio allegedly exceeded five to one as of the quarter ending September 30, 2000. On January 22, 2001, the parties entered into a confidential settlement agreement whereby they agreed, inter alia, to the dismissal of all claims and counterclaims asserted in both actions with prejudice and without the payment of any sum of money by any party to any other party. The parties further agreed to work together for their mutual benefit under their license and other agreements as modified by the terms of the settlement agreement. The Company believes that the settlement agreement will not materially affect the manner in which it conducts its business pursuant to its existing license and other agreements with CKI and the Calvin Klein Trademark Trust. On September 14, 2000, Speedo International Limited ('SIL') filed a complaint in the U.S. District Court for the Southern District of New York, styled Speedo International Limited v. Authentic Fitness Corp., et al., No. 00 Civ. 6931 (DAB), against The Warnaco Group, Inc. and various other Warnaco - 11 - THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) entities (the 'Warnaco defendants') alleging claims, inter alia, for breach of contract and trademark violations. The complaint seeks, inter alia, termination of certain licensing agreements, injunctive relief and damages. On November 8, 2000, the Warnaco defendants filed an answer and counterclaims against SIL seeking, inter alia, a declaration that the Warnaco defendants have not engaged in trademark violations and are not in breach of the licensing agreements, and that the licensing agreements in issue may not be terminated. The Company believes the claims of SIL to be without merit and intends to vigorously defend and pursue its counterclaims. Between August 22, 2000 and October 26, 2000, seven putative class action complaints were filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers and directors. On November 17, 2000, the Court consolidated the complaints into a single action, styled In re The Warnaco Group, Inc. Securities Litigation, No. 00-Civ-6266 (LMM), and appointed Lead Plaintiffs and approved Lead Counsel for the putative class. A consolidated amended complaint has been filed. The amended complaint, on behalf of a putative class of shareholders of the Company who purchased Company stock between September 17, 1997 and July 19, 2000 (the 'Class Period'), alleges, inter alia, that defendants violated the Securities Exchange Act of 1934 by artificially inflating the price of the Company's stock by issuing false and misleading statements during the Class Period. The Company believes the claims to be without merit and intends to vigorously defend them. The staff of the Securities and Exchange Commission (the 'SEC'), has notified the Company that it is conducting an investigation to determine whether there have been any violations of the Securities Exchange Act of 1934 in connection with the preparation and publication of various financial statements and reports. The Company is cooperating in such investigation. The SEC has indicated that its investigation should not be construed as an indication by the SEC or its staff that any violation of law has occurred, nor as an adverse reflection upon any person, entity or security. On October 13, 2000, a shareholders' derivative complaint was filed on behalf of the Company in the U.S. District Court for the Southern District of New York, styled Widdicombe, derivatively on behalf of The Warnaco Group, Inc. v. Linda J. Wachner, et al., No. 00 Civ. 7816 (LMM), naming certain Company officers and directors as defendants (the 'Individual Defendants') and the Company as a nominal defendant. The complaint asserts claims on the Company's behalf for, inter alia, breach of fiduciary duty, corporate waste and unjust enrichment, and seeks, inter alia, damages, punitive damages, and the imposition of a constructive trust upon the assets of the Individual Defendants. In accordance with a stipulation, an amended complaint may be filed on or before June 8, 2001. Between April 20, 2001 and May 15, 2001, three putative class action complaints, styled Black v. Warnaco Group Inc., et.al., 01 Civ. 3346 (MGC), Kornman v. Warnaco Group, Inc., et.al., 01 Civ. 3949 (MGC) and Gove v. Warnaco Group, Inc., et.al., 01 Civ. 4084 (case referred to MGC), were filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers and directors. The complaints, on behalf of a putative class of shareholders of the Company who purchased Company stock between September 29, 2000 and April 18, 2001 (the "Class Period"), allege that defendants violated the Securities Exchange Act of 1934 by artificially inflating the price of the Company's stock through the dissemination of materially misleading statements and by failing to disclose negative information during the Class Period. Plaintiffs claims that the disclosure of the information might have prevented them from purchasing shares of the Company's stock at allegedly inflated prices. - 12- THE WARNACO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, excluding share data) (Unaudited) The actions seek damages. The Company believes the claims to be without merit and intends vigorously to defend them. Item 2. Management's Discussion and Analysis of Results of Operations And Financial Condition. Results of Operations. STATEMENT OF OPERATIONS (SELECTED DATA)
Three Months Ended ------------------------------- April 7, April 1, 2001 2000 Restated --------------- ------------- (Amounts in millions of dollars) (Unaudited) Net revenues $ 499.2 $607.1 Cost of goods sold 352.8 421.7 ------- ------ Gross profit 146.4 185.4 % of net revenues 29.3% 30.5% Selling, general and administrative expenses 139.1 151.0 ------- ------ Operating income $ 7.3 $ 34.4 % to net revenues 1.5% 5.7% Investment (income) loss 3.0 (42.7) Interest expense 63.9 33.8 Provision for income taxes 2.9 16.2 ------- ------ Income (loss) before cumulative effect of a change in accounting $ (62.5) $ 27.1 ======= ======
The Company's results for fiscal 2001 include 14 weeks of operations based on a 52/53 week fiscal year compared to 13 weeks in fiscal 2000. Net revenues decreased $107.9 million, or 17.8%, to $499.2 million in the first fiscal quarter of 2001 compared with $607.1 million in the first fiscal quarter of 2000. Sportswear and Accessories Division. Net revenues decreased $67.8 million or 18.9% to $291.5 million in the first quarter of fiscal 2001 compared with $359.3 million in the first quarter of fiscal 2000. The decrease in net revenues was attributable to the Chaps Division ($24.9) million and Calvin Klein Jeans Division ($48.5) million, partially offset by gains in Authentic Fitness which increased $14.1million. The Calvin Klein Jeans division continued to suffer from the negative publicity of the litigation. Chaps was down in part due to a significant reduction in off-price sales. Authentic Fitness was up due to increases in Catalina'r' and Speedo'r', partially offset by a decline in Anne Cole'r'. Intimate Apparel Division. Net revenues decreased $33.7 million or 16.9% to $166.1 million in the first quarter 2001 compared with $199.8 million in the first quarter 2000. The decrease was primarily related to Calvin Klein'r' underwear ($18.8) million and Warner's'r' and Olga'r' ($11.0) million. The Calvin Klein'r' underwear business was down primarily in our off-price business and it also continued - 13 - to suffer from the litigation. Warner's'r' and Olga'r' were down in part due to the soft retail market and suboptimal service levels associated with plant reconfigurations and shutdowns. Retail Store Division. Net revenues decreased $6.5 million or 13.5% to $41.6 million in the first quarter of fiscal 2001 compared with $48.1 million in fiscal 2000. The decrease was attributable to door closures and a reduction in off-price sales. Gross profit decreased $39.0 million or 21.0% to $146.4 million in the first quarter of fiscal 2001 compared with $185.4 million in the first quarter of fiscal 2000. Gross margin was 29.3% in the first quarter of fiscal 2001 compared with 30.5% in the first quarter of fiscal 2000. Sportswear and Accessories Division Gross profit decreased $28.3 million or 25.2% to $84.1 million in the first quarter of fiscal 2001 compared with $112.4 million in the first quarter 2000. Gross margins were 28.9% in the first quarter fiscal 2001 compared with 31.3% in the first quarter fiscal 2000. The gross margin decline was related to higher inventory costs associated with production variances not offset by increased pricing. Intimate Apparel Division. Gross profit decreased $12.3 million or 22.0% to $43.7 million in the first quarter of fiscal 2001 compared with $56.0 million in the first quarter 2000. Gross margins were 26.3% in the first quarter fiscal 2001 compared with 28.0% in the first quarter fiscal 2000. Retail Store Division. Gross profit increased $1.6 million or 9.4% to $18.6 million in the first quarter of fiscal 2001 compared with $17.0 million in the first quarter fiscal 2000. Gross margins were 44.6% in the first quarter fiscal 2001 compared with 35.4% in the first quarter fiscal 2000. The increase is due to less merchandise being moved through the stores at discounted prices. Selling, general and administrative expenses decreased $11.9 million or 7.9% to $139.1 million as compared to $151.0 million in first quarter fiscal 2000. Selling, administrative and general expenses as a percentage of net revenue were 27.8% in the first quarter of fiscal 2001 compared with 24.9% in the first quarter fiscal 2000. Operating Profit Sportswear and Accessories Division. Operating profit decreased $22.6 million or 36.1% to $40.2 million in the first quarter of fiscal 2001 compared with $62.8 million in the first quarter fiscal 2000. The decrease is related to the lower revenue and higher production costs partially offset by the improved sales mix of our Chaps business. Intimate Apparel Division. Operating profit decreased $13.2 million or 57.3% to $9.6 million in the first quarter of fiscal 2001 compared with $22.8 million in the first quarter fiscal 2000. The decrease is attributable to lower sales partially offset by the improved margins from the Calvin Klein'r' underwear business. Retail Store Division. Operating loss decreased $6.4 million to $3.3 million in the first quarter of fiscal 2001 compared with $9.7 million in the first quarter fiscal 2000. The decreased loss is due to better margins on merchandise sold through the stores. The Company generated a gain of $42.7 million in the first quarter fiscal 2000 from the sale of its investment in InterWorld Corporation stock compared to an investment loss of $3.0 million in 2001 due to its equity forward agreements which were marked to market. - 14 - Interest expense increased $30.1 million to $63.9 million in the first quarter of fiscal 2001 compared with $33.8 million in the first quarter of fiscal 2000. The increase reflects increased borrowings in the first quarter of 2001 and a borrowing rate increase of approximately 300 basis points. The provision for income taxes for the first quarter of fiscal 2001 reflects accrued taxes on foreign earnings. The Company has not provided any tax benefit for its domestic losses incurred in the first quarter of 2001. Fiscal 2000 reflects an effective rate of 37.5% for the quarter. Income (loss) before cumulative effect of a change in accounting principle for the first quarter fiscal 2001 was a loss of $62.5 million compared with income of $27.1 million in the first quarter of fiscal 2000. The decrease in income is due to lower operating income and decrease in investment income. Capital Resources and Liquidity. The Company's liquidity requirements arise primarily from its debt service requirements and the funding of its working capital needs, primarily inventory and accounts receivable. The Company's borrowing requirements are seasonal, with peak working capital needs generally arising during the second half 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 six months of the fiscal year. As discussed in Notes 1 and 13 to the consolidated financial statements included in the Company's Form 10-K for the fiscal year ended December 30, 2000, the Company was not in compliance with certain covenants in its long-term debt agreements for which waivers have been received now through June 15, 2001. To avoid a possible default after expiration of the waiver, Warnaco would require a further waiver or amendment to the covenants. Warnaco is currently exploring all of its alternatives which, as previously reported, include, among other things, the refinancing or restructuring of its existing debt and asset sales. There can be no assurance that the Company will be able to refinance or restructure its debt or engage in asset sales. As the waivers do not extend for twelve months through April 7, 2002, the debt has been classified as a current liability in the accompanying condensed consolidated balance sheet. Cash used for operations was $265.3 million in the first fiscal quarter of 2001 compared with cash used for operations of $63.5 million in the first fiscal quarter of 2000. The substantial increase in cash used for operating activities of $201.8 million reflects an increase in the loss for the first fiscal quarter of 2001 and a decrease of $80.6 million in sales of accounts receivables due to borrowing limits established by the banks. The Company normally uses the greatest amount of cash for purposes of funding working capital requirements in the first quarter. Cash used for investing activities was $12.1 million during the first fiscal quarter of 2001 compared with a generation of $12.9 million in the first fiscal quarter of 2000. The first fiscal quarter of 2000 includes proceeds from the sale of the Company's investment in InterWorld Corporation of $50.4 million. Capital expenditures in the first fiscal quarter of 2001 were $13.1 million compared with $34.9 million in the comparable 2000 period. The first fiscal quarter of 2001 includes amounts for information systems implementations of $5.0 million and store fixture programs of $1.4 million compared with $13.4 for information systems implementations and $12.0 million for store fixture programs in the comparable 2000 quarter. Cash provided from financing activities was $320.3 million in the first fiscal quarter of 2001 compared with $41.9 million in the first fiscal quarter of 2000. The increase in the Company's revolving credit balance during the first fiscal quarter of 2001 of $326.1 million was substantially greater than the - 15 - $24.7 million increase in the first fiscal quarter of 2000 due to lower sales of accounts receivable and the increase in the use of cash from operations noted above. In addition, the Company received $26.1 million in the first fiscal quarter of 2000 from the termination of interest rate swaps. The Company paid $4.8 million of dividends in the first fiscal quarter of 2000 compared to $-0- million in the first fiscal quarter of 2001. New Accounting Standards In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125". SFAS No. 140 revised criteria for accounting for securitizations, other financial-asset transfers and collateral and introduces new disclosures, but otherwise carries forward most of the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" without amendments. The Company adopted the disclosure requirements of SFAS No. 140 on December 30, 2000, as required. All other provisions of SFAS No. 140 will be adopted after March 31, 2001, as required by the standard. The Company is currently evaluating the impact of this standard on its financial position and results of operations. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was effective for financial statements for fiscal years beginning after June 15, 1999. However, in June 1999, the FASB issued SFAS 137 "Deferral of the effective date of FASB Statement No. 133" delaying the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. The adoption of this statement in the first quarter of 2001 did not have a material impact on the Company's consolidated liquidity, cash flows and results of operations. The company recorded a cumulative effect adjustment through Accumulated Other Comprehensive loss of $21,744. 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 the ability of the Company to satisfy the conditions and requirements of the credit facilities of the Company, 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. - 16 - Item 3. 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 for trading purposes. Interest Rate Risk The Company is subject to market risk from exposure to changes in interest rates based primarily on its financing activities. The Company enters into interest rate swap agreements, which have the effect of converting the Company's variable rate obligations to fixed rate obligations, to reduce the impact of interest rate fluctuations on cash flow and interest expense. As of April 7, 2001, approximately $6.5 million of interest-rate sensitive obligations were swapped to achieve a fixed rate of 6.6%, limiting the Company's risk to any future shift in interest rates. As of April 7, 2001, the net fair value asset of all financial instruments (primarily interest rate swap agreements) with exposure to interest rate risk was approximately $0.5 million. As of April 7, 2001, the Company had approximately $2,244 million of obligations subject to variable interest rates in excess of such obligations that had been swapped to achieve a fixed rate. A hypothetical 10% adverse change in interest rates as of April 7, 2001 would have had a $5.0 million unfavorable impact on the Company's pre-tax earnings and cash flow over the three-month period. Foreign Exchange Risk The Company has foreign currency exposures related to buying, selling and financing in currencies other than the functional currency in which it operates. These exposures are primarily concentrated in the Canadian dollar, Mexican peso, Hong Kong dollar, British pound and the Euro. When deemed necessary, the Company has entered into foreign currency forward and option contracts to mitigate the risk of doing business in foreign currencies. The Company has hedged 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. As of April 7, 2001, the Company had no such financial instruments outstanding. Equity Price Risk The Company is subject to market risk from changes in its stock price as a result of its Equity Agreements with several banks for a term of up to two years. The Equity Agreements provided for the purchase by the Company of up to 5.2 million shares of the Company's Common Stock and mature on August 12, 2002. The Equity Agreements are required to be settled by the Company on a net cash settlement basis within the duration of the Equity Agreements. As of April 7, 2001 banks have purchased the maximum of 5.2 million shares under the Equity Agreements. If these Equity Agreements were settled on a net cash settlement basis at April 7, 2001, the Company would be required to pay $17.7 million based on the closing price of the Company's Common Stock. A hypothetical 10% adverse change in the Company's stock price would have a $0.6 million unfavorable impact on the Company's pre-tax earnings and cash flow. -17 - PART II OTHER INFORMATION Item 1. Legal Proceedings On May 30, 2000, Calvin Klein, Inc. ('CKI') and the Calvin Klein Trademark Trust filed a complaint in the U.S. District Court in the Southern District of New York (Calvin Klein Trademark Trust, et al. v. The Warnaco Group, Inc., et al, No. 00 CIV. 4052 (JSR) (S.D.N.Y.)) against The Warnaco Group, Inc., various other Warnaco entities, and Wachner (the 'Warnaco Defendants') alleging, inter alia, claims for breach of contract and trademark violations. The complaint sought, inter alia, termination of certain licensing agreements and trademark rights, injunctive relief and damages. On June 26, 2000, the Warnaco Defendants filed an answer and certain Warnaco Defendants filed counterclaims (amended on July 31, 2000) against Calvin Klein, Inc. for, inter alia, breach of the jeanswear and men's accessories licenses and breach of fiduciary duty, and against CKI and Calvin Klein personally for tortious interference with business relations, defamation and trade libel. Warnaco sought, inter alia, damages, injunctive and declaratory relief. Thereafter, certain of the plaintiff's claims and one of the Warnaco Defendant's counterclaims were dismissed. On January 16, 2001, CKI filed a Complaint in the Supreme Court of the State of New York (County of New York) (the 'State Action') against CKJ Holdings, Inc. and Calvin Klein Jeanswear Company (collectively the 'Defendants') seeking a declaration that CKI was entitled to terminate the Jeanswear License Agreement dated August 4, 1994, as amended (the 'Jeanswear License'), claiming that the Defendants' breached certain financial covenants in the Jeanswear License because the Company's consolidated debt to consolidated net worth ratio allegedly exceeded five to one as of the quarter ending September 30, 2000. On January 22, 2001, the parties entered into a confidential settlement agreement whereby they agreed, inter alia, to the dismissal of all claims and counterclaims asserted in both actions with prejudice and without the payment of any sum of money by any party to any other party. The parties further agreed to work together for their mutual benefit under their license and other agreements as modified by the terms of the settlement agreement. The Company believes that the settlement agreement will not materially affect the manner in which it conducts its business pursuant to its existing license and other agreements with CKI and the Calvin Klein Trademark Trust. On September 14, 2000, Speedo International Limited ('SIL') filed a complaint in the U.S. District Court for the Southern District of New York, styled Speedo International Limited v. Authentic Fitness Corp., et al., No. 00 Civ. 6931 (DAB), against The Warnaco Group, Inc. and various other Warnaco entities (the 'Warnaco defendants') alleging claims, inter alia, for breach of contract and trademark violations. The complaint seeks, inter alia, termination of certain licensing agreements, injunctive relief and damages. On November 8, 2000, the Warnaco defendants filed an answer and counterclaims against SIL seeking, inter alia, a declaration that the Warnaco defendants have not engaged in trademark violations and are not in breach of the licensing agreements, and that the licensing agreements in issue may not be terminated. The Company believes the claims of SIL to be without merit and intends to vigorously defend and pursue its counterclaims. - 18 - Between August 22, 2000 and October 26, 2000, seven putative class action complaints were filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers and directors. On November 17, 2000, the Court consolidated the complaints into a single action, styled In re The Warnaco Group, Inc. Securities Litigation, No. 00-Civ-6266 (LMM), and appointed Lead Plaintiffs and approved Lead Counsel for the putative class. A consolidated amended complaint has been filed. The amended complaint, on behalf of a putative class of shareholders of the Company who purchased Company stock between September 17, 1997 and July 19, 2000 (the 'Class Period'), alleges, inter alia, that defendants violated the Securities Exchange Act of 1934 by artificially inflating the price of the Company's stock by issuing false and misleading statements during the Class Period. The Company believes the claims to be without merit and intends to vigorously defend them. The staff of the Securities and Exchange Commission (the 'SEC'), has notified the Company that it is conducting an investigation to determine whether there have been any violations of the Securities Exchange Act of 1934 in connection with the preparation and publication of various financial statements and reports. The Company is cooperating in such investigation. The SEC has indicated that its investigation should not be construed as an indication by the SEC or its staff that any violation of law has occurred, nor as an adverse reflection upon any person, entity or security. On October 13, 2000, a shareholders' derivative complaint was filed on behalf of the Company in the U.S. District Court for the Southern District of New York, styled Widdicombe, derivatively on behalf of The Warnaco Group, Inc. v. Linda J. Wachner, et al., No. 00 Civ. 7816 (LMM), naming certain Company officers and directors as defendants (the 'Individual Defendants') and the Company as a nominal defendant. The complaint asserts claims on the Company's behalf for, inter alia, breach of fiduciary duty, corporate waste and unjust enrichment, and seeks, inter alia, damages, punitive damages, and the imposition of a constructive trust upon the assets of the Individual Defendants. In accordance with a stipulation, an amended complaint may be filed on or before June 8, 2001. Between April 20, 2001 and May 15, 2001, three putative class action complaints, styled Black v. Warnaco Group Inc., et.al., 01 Civ. 3346 (MGC), Kornman v. Warnaco Group, Inc., et.al., 01 Civ. 3949 (MGC) and Gove v. Warnaco Group, Inc., et.al., 01 Civ. 4084 (case referred to MGC), were filed in the U.S. District Court for the Southern District of New York against the Company and certain of its officers and directors. The complaints, on behalf of a putative class of shareholders of the company who purchased Company stock between September 29, 2000 and April 18, 2001 (the "Class Period"), allege that defendants violated the Securities Exchange Act of 1934 by artificially inflating the price of the Company's stock through the dissemination of materially misleading statements and by failing to disclose negative information during the Class Period. Plaintiffs claims that the disclosure of the information might have prevented them from purchasing shares of the Company's stock at allegedly inflated prices. The actions seek damages. The Company believes the claims to be without merit and intends vigorously to defend them. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities None - 19 - Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K Exhibits 10.1 First Amendment and Waiver to the Amended and Restated Receivables Purchase Agreement and Release dated as of April 19, 2001, among Warnaco Operations Corporation, as Seller, Gregory Street, Inc., as Initial Servicer, The Bank of Nova Scotia, as a purchaser and agent, and Citibank, N.A. as a purchaser and co-agent. (b) Reports on Form 8-K A Report on Form 8-K was filed on March 30, 2001 reporting on the Company's receipt of a waiver of certain financial covenants from its lenders through April 16, 2001. - 20 - 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 22, 2001 by: /s/ PHILIP TERENZIO ------------------------------- Philip Terenzio Senior Vice President and Chief Financial Officer Principal Financial and Accounting Officer Date: May 22, 2001 By: /s/ STANLEY P. SILVERSTEIN ------------------------------ Stanley P. Silverstein Vice President, General Counsel and Secretary STATEMENT OF DIFFERENCES ------------------------ The registered trademark symbol shall be expressed as.................... 'r' - 21 - EX-10 2 ex10-1.txt EXHIBIT 10.1 FIRST AMENDMENT AND WAIVER TO THE AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT AND RELEASE THIS FIRST AMENDMENT AND WAIVER TO THE AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT AND RELEASE (this "Amendment") is made as of April 19, 2001, among; (1) WARNACO OPERATIONS CORPORATION, a Delaware corporation, as seller (the "Seller"); (2) GREGORY STREET, INC., a Delaware corporation, as initial Servicer (the "Servicer"); (3) THE BANK OF NOVA SCOTIA, a Canadian chartered bank acting through its New York agency, as a purchaser ("BNS"); (4) CITIBANK, N.A., a national banking association, as a purchaser ("CITIBANK"; and together with BNS, the "Purchasers"); (5) THE BANK OF NOVA SCOTIA, a Canadian chartered bank acting through its New York agency, as agent for the Purchasers (in such capacity, the "Agent"); and (6) CITIBANK, N.A., a national banking association, as co-agent (in such capacity, the "Co-Agent"); RECITALS WHEREAS, the Seller, the Servicer, the Purchasers, the Agent and the Co-Agent have entered into that certain Amended and Restated Restated Receivables Purchase Agreement, dated as of October 6, 2000 (as amended through the date hereof, the "Receivables Purchase Agreement"); and WHEREAS, the parties to the Receivables Purchase Agreement now desire to amend the Receivables Purchase Agreement in certain respects; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and in the Receivables Purchase Agreement, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein are used as defined in Exhibit 1 to the Receivables Purchase Agreement. SECTION 2. Amendment to Receivables Purchase Agreement. As of the Effective Date (as defined below), the Receivables Purchase Agreement is hereby amended as follows: 2.1. Section 1.1(a) of the Receivables Purchase Agreement is hereby amended to add the following sentences immediately at the end thereof: "Notwithstanding the foregoing, until the date (the "Commitment Date") on which the Seller shall deliver an executed Commitment Letter to the Agent and the Co-Agent (which Commitment Letter shall be in a form and substance reasonably satisfactory to the Agent and the Co-Agent), the Aggregate Capital shall not exceed $189,000,000. As used herein, "Commitment Letter" shall mean the letter agreement between The Warnaco Group, Inc. and General Electric Capital Corporation providing for the refinancing in full of the outstanding Aggregate Capital and accrued and unpaid Discount thereon." 2.2. The definition of "Dilution Reserve Percentage" set forth in Exhibit 1 to the Receivables Purchase Agreement is hereby amended in its entirety as follows: "Dilution Reserve Percentage" means a percentage equal to the greater of (a) 15.00%, and (b) the average of the Dilution Ratios for the twelve most recent calendar months; provided, however, that upon at least 10 Business Days notice to the Seller, the Agent may increase such Dilution Reserve Percentage to such greater percentage as may be necessary based on portfolio performance in the Agent's sole discretion, to protect the Purchasers against increased dilution risk with respect to the Pool Receivables; provided, further, that such Dilution Reserve Percentage shall only be decreased upon unanimous consent of all Purchasers." 2.3. Paragraph (n) of the definition of "Eligible Receivable" set forth in Exhibit 1 to the Receivables Purchase Agreement is hereby amended in its entirety as follows: "(n) (i) for the period commencing on (and including) the Effective Date (as defined in Section 4.1 of the First Amendment to the Receivables Purchase Agreement) and ending on (and including) May 25, 2001, (solely with respect to Obligors with the eleven (11) largest Outstanding Balances of all Pool Receivables) for which the aggregate of the Defaulted Receivables of each such Obligor and any of its Affiliated Obligors does not exceed 25% of the Outstanding Balance of all such Obligor's Receivables that are Pool Receivables and (ii) at all times thereafter, for which the aggregate of the Defaulted Receivables of the related Obligor and any of its Affiliated Obligors does not exceed 50% of the Outstanding Balance of all such Obligor's Receivables that are Pool Receivables." 2 2.4. Exhibit 1 of the Receivables Purchase Agreement is hereby amended by adding the following in the appropriate alphabetical order: 'Recovery Rate' means (a) for the period commencing on (and including) the Effective Date (as defined in Section 4.1 of the First Amendment to the Receivables Purchase Agreement) and ending on (and including) May 25, 2001, 50%, (b) for the period commencing on (and including) May 26, 2001, and ending on (and including) June 15, 2001, 37.50%, (c) for the period commencing on (and including) June 16, 2001, and ending on (and including) July 15, 2001, 12.50% and (d) and at all time thereafter 0%." 2.5. The term "Permitted Dilution Amount" as set forth in Exhibit 1 to the Receivables Purchase Agreement is hereby globally changed throughout each Transaction Document such that from and after the Effective Date of this Amendment each use of such term in any such Transaction Document shall be deemed to be a reference to the term "Permitted Charge Back Amount." Accordingly, in order to give effect to the immediately preceding sentence, from and after the Effective Date of this Amendment, the term "Permitted Dilution Amount" as set forth in Exhibit 1 to the Receivables Purchase Agreement shall be deleted therefrom and the following term (together with its corresponding definition) shall be substituted therefor in the appropriate alphabetical order: 'Permitted Charge Back Amount' means at any time the product of the Recovery Rate and the Monthly Net Charge Back Amount; provided, however, than prior to (and including) July 15, 2001, the "Permitted Charge Back Amount" shall not exceed $22,000,000; provided, further, that at all times prior to the Commitment Date (as defined in Section 1.1) the 'Permitted Charge Back Amount' shall not exceed $15,000,000." 2.6. The term "Weekly Report" as set forth in Exhibit 1 to the Receivables Purchase Agreement is hereby globally changed throughout each Transaction Document such that from and after the Effective Date of this Amendment each use of such term in any such Transaction Document shall be deemed to be a reference to the term "Biweekly Report." Accordingly, in order to give effect to the immediately preceding sentence, from and after the Effective Date of this Amendment, the term "Weekly Report" as set forth in Exhibit 1 to the Receivables Purchase Agreement shall be deleted therefrom and the following term (together with its corresponding definition) shall be substituted therefor in the appropriate alphabetical order: 'Biweekly Report' means a report, together with an officer's certified certificate attached thereto, in substantially the form of Annex D to the Agreement." 2.7. The term "Weekly Report Date" as set forth in Exhibit 1 to the Receivables Purchase Agreement is hereby globally changed throughout each Transaction Document such that from and after the Effective Date of this Amendment each use of such term in any such Transaction Document shall be deemed to be a reference to the term "Biweekly Report Date." Accordingly, in order to give effect to the immediately preceding sentence, from and after the Effective Date of this Amendment, 3 the term "Weekly Report Date" as asset forth in Exhibit 1 to the Receivables Purchase Agreement shall be deleted therefrom and the following term (together with its corresponding definition) shall be substituted therefor in the appropriate alphabetical order: 'Biweekly Report Date' means each Monday and Thursday of each week or if such day is not a Business Day, the next succeeding Business Day." 2.8. Clause (iii)(b) of Section 2(f) of Exhibit IV to the Receivables Purchase Agreement is hereby amended in its entirety as follows: "(b) on each Biweekly Report Date, for each week, a Biweekly Report reflecting information as of five Business Days prior to such Biweekly Report Date." 2.9. Paragraph (d) of Exhibit V to the Receivables Purchase Agreement is hereby amended in its entirety as follows: "(d) the Servicer shall fail to deliver any Monthly Report on the related Monthly Report Date, and such failure shall remain unremedied for five Business Days, or the Servicer shall fail to deliver any Biweekly Report on the related Biweekly Report Date." 2.10. Clause (i) of Paragraph (g) of Exhibit V to the Receivables Purchase Agreement is hereby amended by replacing the percentage "9.0%" with the percentage "10.5%" therein. 2.11. Clause (iii) of Paragraph (g) of Exhibit V to the Receivables Purchase Agreement is hereby amended by replacing the percentage "11.0%" with the percentage "11.5" therein. SECTION 3. Waiver. The Agent hereby waives the requirements of (a) Section 2(f)(i)(a)(B) of Exhibit IV of the Receivables Purchase Agreement to deliver the 1998, 1999 and 2000 fiscal quarterly financial statements within 50 days after the end of each of the first three fiscal quarters of the Servicer and (b) Section 1(i)(j) of Exhibit IV of the Receivables Purchase Agreement and Section 2(f)(ii)(a)(B) of Exhibit IV of the Receivables Purchase Agreement to deliver the 1998, 1999 and 2000 fiscal years financial statements within 95 days after the end of such fiscal years of the Seller and the Servicer, respectively; provided, however, that each of the Seller and the Servicer shall provide to the Agent and the Co-Agent its respective 2000 fiscal year financial statements within thirty days from the Effective Date. SECTION 4. Miscellaneous. 4.1. Effectiveness. This Amendment shall become effective as of the date (the "Effective Date") that the following conditions precedent shall have been satisfied: 4 (a) the Agent shall have received an original counterpart (our counterparts) of this Amendment, executed and delivered by each of the parties hereto and (b) all costs and expenses payable under the Receivables Purchase Agreement (including any field exam costs and expenses of the Agent and Co-Agent and Attorney Costs) shall have been paid to the Agent. The Seller hereby authorizes the Agent to deduct from the proceeds of the next purchase all such costs and expenses referred to in clause(b) of this Section 3.1. 4.2. Opinion of Counsel. No later than Wednesday, April 25, 2001, the Seller shall deliver to the Agent and the Co-Agent opinions of counsel regarding the authorization by, and enforceability of this Amendment against each of the Seller, the Servicer, the Originators and The Warnaco Group, Inc., in form and substance reasonably satisfactory to the Agent and the Co-Agent. Failure to so delivery such opinions shall constitute a "Termination Event" under the Receivables Purchase Agreement. 4.3. Amendment Fee. If the refinancing in full of the outstanding Aggregate Capital and accrued and unpaid Discount is not effective in accordance with the Commitment Letter by the close of business on May 25, 2001, then the Company shall pay on such day to the Agent (on behalf of the Agent and the Co-Agent) an amendment fee (the "Amendment Fee") equal to the product of the Purchase Limit and 0.50%, such amendment fee to be divided between the Agent and the Co-Agent equally. The Seller hereby authorizes the Agent to deduct from the proceeds of a future purchase the Amendment Fee, if applicable. 4.4. Release. Each of the Seller, the Servicer, each Originator and The Warnaco Group, Inc., ("Group") hereby acknowledges and agrees that it does not have any defenses, counterclaims, offsets, cross-complaints, claims or demands of any kind or nature whatsoever that can be asserted to reduce or eliminate all or any part of liability of the Seller, the Servicer, any Originator or Group to repay the Agent, the Co-Agent or any Purchaser as provided in the Receivables Purchase Agreement and the other Transaction Documents or to seek affirmative relief or damages of any kind or nature from the Agent, the Co-Agent or any Purchaser. Each of the Seller, the Servicer, each Originator and Group hereby voluntarily and knowingly releases and forever discharges the Agent, the Co-Agent and the Purchasers, and the Agent's the Co-Agent's and each Purchaser's predecessors, agents, employees, successors and assigns, from all possible claims, demands, actions, causes of action, damages, costs, or expenses, and liabilities whatsoever, known or unknown, anticipated or unanticipated, suspected or unsuspected, fixed, contingent, or conditional, at law or in equity, originating in whole or in part on or before the date of this Amendment is executed, which each of the Seller, the Servicer, each Originator and Group may now or hereafter have against any such Agent, Co-Agent or Purchasers, and the Agent's, the Co-Agent's or the Purchaser's predecessors, agents employees, successors and assigns, if any, and irrespective of whether any such claims arise out of contract, tort, violation of law or regulations, or otherwise, including, without limitation, the exercise of any rights and remedies under the Receivables Purchase Agreement or other Transaction Documents, and negotiation and execution of this Amendment. 5 4.5. References to the Agreement. Upon the effectiveness of this Amendment, each reference in the Receivables Purchase Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import shall mean and be a reference to the Receivables Purchase Agreement and each reference to the Receivables Purchase Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Receivables Purchase Agreement shall mean and be a reference to the Receivables Purchase Agreement as amended by this Amendment. 4.6. Effect on Agreements. Except as specifically amended above, the Receivables Purchase Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. 4.7. No Waiver. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any party under the Receivables Purchase Agreement or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. 4.8. Governing Law. This Amendment, including the rights and duties of the parties hereto, shall be governed by, and construed in accordance with, the internal laws of the State of New York without reference to principles of conflicts of law. 4.9. Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 4.10. Headings. The Section headings in this Amendment are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. 4.11. Counterparts. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. 6 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. WARNACO OPERATIONS CORPORATION By Carl J. Deddens ................................... Name: Carl J. Deddens Title: Treasurer and Assistant Secretary GREGORY STREET, INC., as Servicer By Carl J. Deddens ................................... Name: Carl J. Deddens Title: Treasurer (First Amendment to Amended and Restated Receivables Purchase Agreement) S-1 AUTHENTIC FITNESS PRODUCTS, INC., as an Originator By Stanley P. Silverstein ................................... Name: Stanley P. Silverstein Title: Vice President and Secretary CALVIN KLEIN JEANSWEAR COMPANY, as an Originator By Stanley P. Silverstein ................................... Name: Stanley P. Silverstein Title: Vice President and Secretary WARNACO INC., as an Originator By Stanley P. Silverstein ................................... Name: Stanley P. Silverstein Title: Vice President, General Counsel and Secretary THE WARNACO GROUP, INC., By Stanley P. Silverstein ................................... Name: Stanley P. Silverstein Title: Vice President, General Counsel and Secretary (First Amendment to Amended and Restated Receivables Purchase Agreement) S-2 THE BANK OF NOVA SCOTIA, as Agent By Todd S. Meller ................................... Name: Todd S. Meller Title: Managing Director THE BANK OF NOVA SCOTIA, as a Purchaser By Todd S. Meller ................................... Name: Todd S. Meller Title: Managing Director (First Amendment to Amended and Restated Receivables Purchase Agreement) S-3 CITIBANK, N.A., as Co-Agent By Brenda M. Cotsen ................................... Name: Brenda M. Cotsen Title: Vice President CITIBANK, N.A., as a Purchaser By Brenda M. Cotsen ................................... Name: Brenda M. Cotsen Title: Vice President (First Amendment to Amended and Restated Receivables Purchase Agreement) S-4 -----END PRIVACY-ENHANCED MESSAGE-----