0000950117-95-000270.txt : 19950810 0000950117-95-000270.hdr.sgml : 19950810 ACCESSION NUMBER: 0000950117-95-000270 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950708 FILED AS OF DATE: 19950809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARNACO GROUP INC /DE/ CENTRAL INDEX KEY: 0000801351 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 954032739 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10857 FILM NUMBER: 95560053 BUSINESS ADDRESS: STREET 1: 90 PARK AVE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126611300 FORMER COMPANY: FORMER CONFORMED NAME: W ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19861117 10-Q 1 WARNACO 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 JULY 8, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER 1-4715 ------------------------ THE WARNACO GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 95-4032739 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION)
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 7, 1995 is as follows: 42,026,912 ________________________________________________________________________________ PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 8, JANUARY 7, 1995 1995 ----------- ----------- (UNAUDITED) (IN THOUSANDS) ASSETS Current assets: Cash............................................................................... $ 2,147 $ 3,791 Accounts receivable -- net......................................................... 143,724 148,659 Inventories: Finished goods..................................................................... 181,645 131,450 Work in process.................................................................... 64,289 60,513 Raw materials...................................................................... 67,696 60,220 ----------- ----------- Total inventories............................................................. 313,630 252,183 Other current assets.................................................................... 27,644 15,892 ----------- ----------- Total current assets.......................................................... 487,145 420,525 Property, plant and equipment -- net of accumulated depreciation of $73,308 and $68,203............................................................................... 84,766 80,932 Intangible and other assets -- net...................................................... 277,075 279,096 ----------- ----------- $ 848,986 $ 780,553 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Borrowing under revolving credit facility.......................................... $ 184,620 $ 115,679 Current portion of long term debt.................................................. 46,681 50,315 Borrowing under foreign credit facilities.......................................... 12,434 9,822 Accounts payable and accrued liabilities........................................... 136,538 137,624 Federal and other income taxes..................................................... 1,883 2,611 ----------- ----------- Total current liabilities..................................................... 382,156 316,051 Long-term debt.......................................................................... 197,309 206,792 Other long-term liabilities............................................................. 12,176 17,238 Stockholders' equity: Preferred stock; $.01 par value.................................................... -- -- Common stock; $.01 par value....................................................... 421 421 Capital in excess of par value..................................................... 337,752 337,872 Cumulative translation adjustment.................................................. (2,449) (1,732) Accumulated deficit................................................................ (66,952) (83,897) Treasury stock, at cost............................................................ (5,000) (5,000) Notes receivable for common stock issued........................................... (6,427) (7,192) ----------- ----------- Total stockholders' equity.................................................... 257,345 240,472 ----------- ----------- $ 848,986 $ 780,553 ----------- ----------- ----------- -----------
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
SECOND QUARTER ENDED SIX MONTHS ENDED ---------------------- ---------------------- JULY 8, JULY 9, JULY 8, JULY 9, 1995 1994 1995 1994 -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) Net revenues......................................... $210,395 $190,302 $405,551 $338,033 Cost of goods sold................................... 142,176 133,312 270,508 230,667 -------- -------- -------- -------- Gross profit......................................... 68,219 56,990 135,043 107,366 Selling, administrative and general expenses......... 43,800 38,846 85,135 69,106 -------- -------- -------- -------- Income before loss on California earthquake.......... 24,419 18,144 49,908 38,260 Loss on California earthquake........................ -- -- -- 3,000 -------- -------- -------- -------- Income before interest and income taxes.............. 24,419 18,144 49,908 35,260 Interest expense..................................... 9,475 8,308 17,835 15,713 -------- -------- -------- -------- Income before income taxes........................... 14,944 9,836 32,073 19,547 Provision for income taxes........................... 5,679 750 12,188 1,500 -------- -------- -------- -------- Net income........................................... $ 9,265 $ 9,086(1) $ 19,885 $ 18,047(1) -------- -------- -------- -------- -------- -------- -------- -------- Net income per share................................. $ 0.22 $ 0.22(1) $ 0.48 $ 0.44(1) -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of common shares outstanding........................................ 42,003 41,671 41,699 40,715 -------- -------- -------- -------- -------- -------- -------- --------
------------ (1) Net income and net income per share before the loss on the California earthquake and after a normalized provision for income taxes at an effective income tax rate of 38% was $6,098 or $0.15 per share for the second quarter of fiscal 1994 and $13,979 or $0.34 per share for the first six months of fiscal 1994. 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 FLOW
SIX MONTHS ENDED -------------------- JULY 8, JULY 9, 1995 1994 -------- -------- (UNAUDITED) (IN THOUSANDS) Cash flow from operations: Net income........................................................................... $ 19,885 $ 18,047 Non-cash items included in net income: Depreciation and amortization................................................... 9,400 9,365 Interest........................................................................ 831 545 Income taxes paid.................................................................... (1,758) (2,605) Net change in other operating accounts............................................... (68,337) (59,655) Other................................................................................ (2,615) (3,889) -------- -------- Cash used in operations......................................................... (42,594) (38,192) Cash flow from investing activities: Proceeds from the sale of fixed and other assets..................................... 5,942 115 Purchase of property, plant and equipment............................................ (9,858) (9,882) Payment for purchase of Calvin Klein underwear businesses and trademarks............. (5,000) (33,103) Repurchase of Calvin Klein license -- Canada......................................... (6,200) -- -------- -------- Cash used in investing activities............................................... (15,116) (42,870) Cash flow from financing activities: Borrowings under revolving credit facility........................................... 65,598 81,056 Net proceeds from sale of common stock and repayment of notes receivable from stockholders........................................................................ 644 988 Proceeds from other financing........................................................ 5,955 8,626 Cash dividends paid.................................................................. (2,922) -- Increase in deferred financing costs................................................. (92) (405) Repayments of debt................................................................... (13,117) (9,111) -------- -------- Cash provided from financing activities......................................... 56,066 81,154 -------- -------- Increase (decrease) in cash............................................................... (1,644) 92 Cash at beginning of period............................................................... 3,791 4,651 -------- -------- Cash at end of period..................................................................... $ 2,147 $ 4,743 -------- -------- -------- -------- Net change in other operating accounts: Accounts receivable.................................................................. $ 4,935 $(18,001) Inventories.......................................................................... (61,447) (3,898) Other current assets................................................................. (11,752) (6,025) Accounts payable and accrued liabilities............................................. (1,103) (33,231) Income taxes payable................................................................. 1,030 1,500 -------- -------- $(68,269) $(59,655) -------- -------- -------- --------
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 1. In the opinion of the Company, the accompanying consolidated condensed financial statements contain all the adjustments (all of which were of a normal recurring nature) necessary to present fairly the financial position of the Company as of July 8, 1995 as well as its results of operations and cash flows for the periods ended July 8, 1995 and July 9, 1994. Operating results for interim periods may not be indicative of results for the full fiscal year. 2. Certain amounts for prior periods have been reclassified to be comparable with the current period presentation. 3. In February 1995, the Company terminated the license agreement for the production of men's underwear and women's intimate apparel bearing the Calvin Klein name in Canada. The Company will directly design, produce and market Calvin Klein men's underwear and women's intimate apparel in Canada. The cost of terminating the license agreement before its expiration in the year 2000 was $6.2 million. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS STATEMENT OF OPERATIONS (SELECTED DATA)
QUARTER ENDED SIX MONTHS ENDED ------------------ ------------------ JULY 8, JULY 9, JULY 8, JULY 9, 1995 1994 1995 1994 ------- ------- ------- ------- (IN MILLIONS, EXCEPT RATIOS) Net revenues............................................................... $ 210.4 $ 190.3 $ 405.6 $ 338.0 Cost of goods sold......................................................... 142.2 133.3 270.5 230.7 ------- ------- ------- ------- Gross profit............................................................... 68.2 57.0 135.0 107.4 % of net revenues..................................................... 32.4% 29.9% 33.2% 31.8% Selling, administrative and general expenses............................... 43.8 38.8 85.1 69.2 Loss on California earthquake.............................................. -- -- -- 3.0 ------- ------- ------- ------- Income before interest and income taxes.................................... 24.4 18.1 49.9 35.2 % of net revenues..................................................... 11.6% 9.5% 12.3% 10.4% Interest expense........................................................... 9.5 8.3 17.8 15.7 Provision for income taxes................................................. 5.7 0.7 12.2 1.5 ------- ------- ------- ------- Net income................................................................. $9.3 $9.1 $19.9 $18.0 ------- ------- ------- ------- ------- ------- ------- ------- Income before loss on California earthquake and after giving effect to a normalized tax provision of 38%.......................................... $9.3 $6.1 $19.9 $14.0 ------- ------- ------- ------- ------- ------- ------- -------
Net revenues in the second quarter of fiscal 1995 were $210.4 million, 10.6% higher than the $190.3 million recorded in the second quarter of fiscal 1994. Net revenues for the first six months of fiscal 1995 were $405.6 million, 20.0% higher than the $338.0 million recorded in the first six months of fiscal 1994. Intimate Apparel Division net revenues increased 12.4% in the second quarter of fiscal 1995 to $159.0 million from $141.4 million in the second quarter of fiscal 1994. The increase was achieved despite the comparison to the launch of Avon in the second quarter of fiscal of 1994 where Avon sales were $15.3 million higher. Excluding the Avon launch, Intimate Apparel Division net revenues increased 27.9% in the second quarter of fiscal 1995 compared to fiscal 1994. Calvin Klein net revenues are up 121% due to the successful launch of the women's intimate apparel business on January 1, 1995 and improved market penetration in the men's underwear business. Fruit of the Loom net revenues increased 54.9% and international net revenues increased 12.8% over the prior year period. Intimate Apparel Division net revenues in the first six months of fiscal 1995 increased 27% to $305.4 million from the $240.5 recorded in the first six months of fiscal 1994. The higher net revenues reflect increases in all brands including an increase of 227% in Calvin Klein net revenues, which compares a full six months in fiscal 1995 to 3 1/2 months in fiscal 1994, increases in domestic Warner's and Olga net revenues of 10.6%, international net revenues of 11.5% and Fruit of the Loom of 28.7%. Menswear Division net revenues increased 3.6% to $40.8 million from the $39.4 million in the second quarter of fiscal 1994. Included in 1994 are brands that have been discontinued of Puritan, Dior and Nicklaus. Excluding the discontinued brands from the prior year's net revenues, Menswear Division net revenues in the second quarter of fiscal 1995 increased 11.8% over the second quarter of fiscal 1994 primarily due to an increase of 16.5% in Chaps. Menswear Division net revenues for the first six months of fiscal 1995 increased 2.2% to $82.6 million compared to $80.8 million. Excluding the discontinued brands, Menswear Division net revenues increased 16.9% compared to the first six months of fiscal 1994 due primarily to an increase in Chaps by Ralph Lauren of 22.5%. 6 Gross profit in the second quarter of fiscal 1995 increased 19.7% to $68.2 million from the $57.0 million recorded in the second quarter of fiscal 1994. Gross profit as a percentage of net revenues improved 250 basis points to 32.4% in the second quarter of fiscal 1995 from 29.9% in the comparable fiscal 1994 period. The increase in gross profit as a percentage of net revenues reflects increased manufacturing efficiencies and a more favorable mix of regular price sales. Gross profit for the first six months of fiscal 1995 increased 25.8% to $135.0 million compared to the $107.4 million in the first six months of fiscal 1994. Gross profit as a percentage of net revenues increased to 33.3% in the first six months of fiscal 1995 compared to 31.8% in the first six months of the prior year. The increase in gross profit reflects manufacturing efficiencies and the more favorable mix as noted above. Selling, administrative and general expenses increased to $43.8 million (20.8% of net revenues) from the $38.8 million (20.4% of net revenues) recorded in the second quarter of fiscal 1994. The increase in selling, administrative and general expenses reflect the increased sales volume noted above and an increase in marketing expenses of 50 basis points to support the launch of Calvin Klein women's intimate apparel. This was partially offset by an improvement in selling and administrative expenses. Selling, administrative and general expenses for the first six months of fiscal 1995 increased to $85.1 million (21.0% of net revenues) from $69.1 million (20.4% of net revenues) recorded in the first six months of fiscal 1994. The increase in selling, administrative and general expenses in the first six months of fiscal 1995 compared to fiscal 1994 reflects higher sales volume and the increase in marketing expenses noted above. Interest expense increased to $9.5 million in the second quarter of fiscal 1995 from $8.3 million recorded in the second quarter of fiscal 1994. Interest expense increased to $17.8 million in the first six months of fiscal 1995 from $15.7 million recorded in the first half of fiscal 1994. The increase in interest expense is due primarily to an increase in interest rates of over 200 basis points since the end of the first half of fiscal 1994. The Company has purchased interest rate swap agreements which effectively fix the interest rate on $275 million of the Company's approximately $400 million of debt at an all-in interest rate of 6.25% through 1996 which limits the impact of future increases in interest rates. The provision for income taxes for the second quarter of fiscal 1995 was $5.7 million compared to $0.7 million in the second quarter of fiscal 1994. The Company's effective tax rate for the first six months of fiscal 1995 was 38% compared to 7% for the first six months of fiscal 1994. The increase in effective tax rate in 1995 compared to 1994 reflects the utilization of the Company's net operating loss carryforwards in the first six months of fiscal 1994, which offset the Company's 1994 federal income tax provision, leaving only a 7% state tax provision. The first quarter of fiscal 1994 includes a non-recurring loss of $3.0 million, related to the deductible portion of the Company's insurance policy on the January 17th California earthquake which temporarily shut down the Olga Division's distribution center. Net income for the second quarter of 1995 was $9.3 million compared to $9.1 million in the second quarter of fiscal 1994. Income for the second quarter of fiscal 1994, adjusted to reflect a normalized tax provision of 38%, was $6.1 million. Net income for the second quarter of fiscal 1995 of $10.6 million is 51.9% higher than the fully taxed income of $6.1 million recorded in the second quarter of fiscal 1994. Net income for the first six months of fiscal 1995 of $19.9 million was 42.2% higher than the fully taxed income before the loss on the California earthquake of $14.0 million recorded in the first six months of fiscal 1994. CAPITAL RESOURCES AND LIQUIDITY Consistent with the Company's goal of providing increased shareholder value, on May 11, 1995, the Company declared a quarterly cash dividend of $0.07 per share. The dividend of $2.9 million was paid on June 30, 1995 to shareholders of record as of May 30, 1995. The Company's liquidity requirements arise primarily from its debt service requirements and the funding of the Company's working capital needs, primarily inventory and accounts receivable. The Company's borrowing requirements are seasonal, with peak working capital needs generally arising at the end of the second quarter and during the third quarter of the fiscal year. The Company typically 7 generates nearly all of its operating cash flow in the fourth quarter of the fiscal year reflecting third and fourth quarter shipments and the sale of inventory built during the first half of the fiscal year. Cash used by operations in the first six months of fiscal 1995 was $42.6 million compared to a use of $38.2 million in the comparable 1994 period. The use of cash in the first six months of the Company's fiscal year is a result of seasonal increases in working capital, primarily inventory. The slight increase in cash used in operations in the first six months of fiscal 1995 compared to fiscal 1994 reflects higher investment in working capital, primarily inventory, to support the increased sales volume in the second half of fiscal 1995, as well as the strong growth of the Calvin Klein business. The increased investment in inventory was partially offset by increased net income and an improvement in accounts receivable where days sales outstanding was reduced by 6 days to 51 days. The Company anticipates filing a Registration Statement with the Securities and Exchange Commission to sell 7,500,000 shares of its common stock in an underwritten public offering on August 9, 1995. The estimated net proceeds from the proposed offering are expected to be approximately $150 million which will be used to repay certain amounts outstanding under the Company's Bank Credit Agreement. Additional funds available under the Company's revolving facility may be used for strategic acquisitions as well as for working capital and other corporate purposes. The Company believes that the funds available under its existing credit arrangements and cash flow to be generated from future operations will be sufficient to meet working capital and capital expenditure needs of the Company, including dividend, interest and principal payments on outstanding debt obligations, for the foreseeable future. 8 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of shareholders was held on May 11, 1995. The following matters were voted upon by the shareholders: (1) Election of Directors (a) Mr. William S. Finkelstein was elected to the Board of Directors to serve a three year term expiring at the 1998 Annual Meeting of Stockholders. 35,836,891 votes were cast for the election of Mr. Finkelstein, none against and 165,290 withheld, abstained and broker non votes. (b) Mr. Stewart A. Resnick was re-elected to the Board of Directors to serve a three year term expiring at the 1998 Annual Meeting of Stockholders. 35,867,561 votes were cast for the election of Mr. Resnick, none against and 103,690 withheld, abstained and broker non votes. (2) The shareholders approved a proposed amendment to the Company's Restated Certificate of Incorporation which increased the number of authorized shares of common stock of the Company from 65,000,000 to 130,000,000. 34,315,509 votes were cast for the amendment, 1,641,010 shares were cast against the amendment, 14,862 votes were withheld, abstained and broker non votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 11.1 -- Earnings per share. (b) Reports on Form 8-K. The Company's current report on Form 8-K was filed with the Securities and Exchange Commission on May 18, 1995. The report discussed the Board of Directors decision to replace Ernst & Young LLP as the Company's independent auditors with Price Waterhouse LLP. 9 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: August 9, 1995 By /s/ WILLIAM S. FINKELSTEIN ................................... (WILLIAM S. FINKELSTEIN) DIRECTOR, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER Date: August 9, 1995 By /s/ WALLIS H. BROOKS ................................... (WALLIS H. BROOKS) VICE PRESIDENT AND CORPORATE CONTROLLER 10 EX-11 2 EXHIBIT 11.1 EXHIBIT 11.1 THE WARNACO GROUP INC. CALCULATION OF INCOME PER COMMON SHARE
FOR THE FOR THE QUARTER ENDED SIX MONTHS ENDED ------------------- --------------------- JULY 8, JULY 9, JULY 8, JULY 9, 1995 1994 1995 1994 ------ ------ ------- ------- (IN THOUSANDS EXCEPT SHARE DATA) Net income.......................................... $9,265 $9,086(1) $19,885 $18,047(1) ------ ------ ------- ------- ------ ------ ------- ------- Weighted average number of shares outstanding during the period........................................ 37,499,492 38,435,644 37,499,492 37,609,920 Add: common equivalent shares using the treasury stock method...................................... 4,789,822 3,235,476 4,486,455 3,104,824 Less: treasury stock................................ (286,600) -- (286,600) -- ---------- ---------- ---------- ---------- Weighted average number of shares................... 42,002,714 41,671,120 41,699,347 40,714,744 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income per share................................ $0.22 $0.22(1) $0.48 $0.44(1) ----- ----- ----- ----- ----- ----- ----- -----
------------ (1) Net income and net income per share before the loss on the California earthquake and after a pro forma provision for income taxes at an effective income tax rate of 38% was $6.098 or $0.15 per share for the second quarter of fiscal 1994 and $13,979 or $0.34 per share for the first six months of fiscal 1994. EX-27 3 EXHIBIT 27
5 1000 Jan-6-1996 Apr-9-1995 Jul-8-1995 6-MOS 2,147 0 146,271 2,547 313,630 487,145 158,074 73,308 848,986 382,156 0 421 0 0 256,924 848,986 210,395 210,395 142,176 43,800 0 496 9,475 14,944 5,679 9,265 0 0 0 9,265 .22 .22