Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2011
OR
|
|
|
o |
|
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 of
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Identification No.) |
501 Seventh Avenue
New York, New York 10018
(Address of registrants principal executive offices)
Registrants telephone number, including area code: (212) 287-8000
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. þ Yes o No.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). þ
Yes o No.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No.
The number of outstanding shares of the registrants common stock, par value $0.01 per share,
as of April 28, 2011 is as follows: 43,996,683.
THE WARNACO GROUP, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2011
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, excluding per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
174,095 |
|
|
$ |
191,227 |
|
|
$ |
157,454 |
|
Accounts receivable, net of reserves of $87,648, $95,639 and $79,003
as of April 2, 2011, January 1, 2011 and April 3, 2010, respectively |
|
|
396,035 |
|
|
|
318,123 |
|
|
|
379,971 |
|
Inventories |
|
|
364,320 |
|
|
|
310,504 |
|
|
|
267,205 |
|
Assets of discontinued operations |
|
|
108 |
|
|
|
125 |
|
|
|
2,013 |
|
Prepaid expenses and other current assets (including deferred income
taxes of $62,362, $58,270, and $52,998 as of April 2, 2011,
January 1, 2011, and April 3, 2010, respectively) |
|
|
161,115 |
|
|
|
158,659 |
|
|
|
148,129 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,095,673 |
|
|
|
978,638 |
|
|
|
954,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
132,829 |
|
|
|
129,252 |
|
|
|
122,329 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Licenses, trademarks and other intangible assets, net |
|
|
380,708 |
|
|
|
373,276 |
|
|
|
373,800 |
|
Goodwill |
|
|
120,880 |
|
|
|
115,278 |
|
|
|
108,417 |
|
Other assets (including deferred income taxes of $14,792, $11,769, and $15,051
as of April 2, 2011, January 1, 2011, and April 3, 2010, respectively) |
|
|
61,480 |
|
|
|
56,828 |
|
|
|
49,826 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,791,570 |
|
|
$ |
1,653,272 |
|
|
$ |
1,609,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of Senior Notes |
|
$ |
146,423 |
|
|
$ |
32,172 |
|
|
$ |
162,011 |
|
Accounts payable |
|
|
164,721 |
|
|
|
152,714 |
|
|
|
134,447 |
|
Accrued liabilities |
|
|
193,675 |
|
|
|
227,561 |
|
|
|
170,392 |
|
Liabilities of discontinued operations |
|
|
3,660 |
|
|
|
18,800 |
|
|
|
8,297 |
|
Accrued income taxes payable (including deferred income taxes of $1,105,
$262 and $1,101 as of April 2, 2011, January 1, 2011, and
April 3, 2010, respectively) |
|
|
31,975 |
|
|
|
38,219 |
|
|
|
33,659 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
540,454 |
|
|
|
469,466 |
|
|
|
508,806 |
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities (including deferred income taxes of $79,694, $74,233, and $67,361 as of
April 2, 2011, January 1, 2011, and April 3, 2010, respectively) |
|
|
221,890 |
|
|
|
211,200 |
|
|
|
201,336 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock: $0.01 par value, 112,500,000 shares authorized,
52,038,223, 51,712,674 and 50,903,208 issued as of April 2, 2011,
January 1, 2011 and April 3, 2010, respectively |
|
|
520 |
|
|
|
517 |
|
|
|
509 |
|
Additional paid-in capital |
|
|
691,670 |
|
|
|
674,508 |
|
|
|
645,275 |
|
Accumulated other comprehensive income |
|
|
69,618 |
|
|
|
43,048 |
|
|
|
41,708 |
|
Retained earnings |
|
|
545,425 |
|
|
|
501,394 |
|
|
|
410,788 |
|
Treasury stock, at cost 8,041,540, 7,445,166 and 6,501,793 shares
as of April 2, 2011, January 1, 2011 and April 3, 2010, respectively |
|
|
(278,007 |
) |
|
|
(246,861 |
) |
|
|
(199,278 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,029,226 |
|
|
|
972,606 |
|
|
|
899,002 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,791,570 |
|
|
$ |
1,653,272 |
|
|
$ |
1,609,144 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
1
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
662,161 |
|
|
$ |
588,164 |
|
Cost of goods sold |
|
|
367,023 |
|
|
|
321,046 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
295,138 |
|
|
|
267,118 |
|
Selling, general and administrative expenses |
|
|
222,637 |
|
|
|
184,973 |
|
Amortization of intangible assets |
|
|
3,159 |
|
|
|
2,668 |
|
Pension income |
|
|
(312 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
Operating income |
|
|
69,654 |
|
|
|
79,498 |
|
Other loss (income) |
|
|
(644 |
) |
|
|
1,820 |
|
Interest expense |
|
|
2,696 |
|
|
|
4,978 |
|
Interest income |
|
|
(746 |
) |
|
|
(1,006 |
) |
|
|
|
|
|
|
|
Income from continuing operations before provision
for income taxes |
|
|
68,348 |
|
|
|
73,706 |
|
Provision for income taxes |
|
|
23,816 |
|
|
|
25,394 |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
44,532 |
|
|
|
48,312 |
|
(Loss) from discontinued operations, net of taxes |
|
|
(501 |
) |
|
|
(337 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
44,031 |
|
|
$ |
47,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share (see Note 17): |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.00 |
|
|
$ |
1.05 |
|
(Loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.99 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share (see Note 17): |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.98 |
|
|
$ |
1.03 |
|
(Loss) from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
0.97 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in
computing income per common share (see Note 17): |
|
|
|
|
|
|
|
|
Basic |
|
|
43,891,868 |
|
|
|
45,418,865 |
|
|
|
|
|
|
|
|
Diluted |
|
|
44,790,731 |
|
|
|
46,417,053 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
2
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Stock |
|
|
Income |
|
|
Total |
|
|
Balance at January 2, 2010 |
|
$ |
506 |
|
|
$ |
633,378 |
|
|
$ |
46,473 |
|
|
$ |
362,813 |
|
|
$ |
(127,060 |
) |
|
$ |
|
|
|
$ |
916,110 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,975 |
|
|
|
|
|
|
|
47,975 |
|
|
|
47,975 |
|
Other comprehensive income, net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
(4,810 |
) |
|
|
|
|
|
|
|
|
|
|
(4,810 |
) |
|
|
(4,810 |
) |
Loss on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
41 |
|
Other |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,765 |
) |
|
|
(4,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,210 |
|
|
|
43,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
3 |
|
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,373 |
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
9,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,527 |
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,214 |
) |
|
|
|
|
|
|
(3,214 |
) |
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,004 |
) |
|
|
|
|
|
|
(69,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2010 |
|
$ |
509 |
|
|
$ |
645,275 |
|
|
$ |
41,708 |
|
|
$ |
410,788 |
|
|
$ |
(199,278 |
) |
|
|
|
|
|
$ |
899,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Stock |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
$ |
517 |
|
|
$ |
674,508 |
|
|
$ |
43,048 |
|
|
$ |
501,394 |
|
|
$ |
(246,861 |
) |
|
$ |
|
|
|
$ |
972,606 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,031 |
|
|
|
|
|
|
|
44,031 |
|
|
|
44,031 |
|
Other comprehensive income, net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
28,254 |
|
|
|
|
|
|
|
|
|
|
|
28,254 |
|
|
|
28,254 |
|
Loss on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
(1,683 |
) |
|
|
|
|
|
|
|
|
|
|
(1,683 |
) |
|
|
(1,683 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,570 |
|
|
|
26,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
70,601 |
|
|
|
70,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
3 |
|
|
|
5,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,818 |
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
11,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,347 |
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,996 |
) |
|
|
|
|
|
|
(1,996 |
) |
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,150 |
) |
|
|
|
|
|
|
(29,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2011 |
|
$ |
520 |
|
|
$ |
691,670 |
|
|
$ |
69,618 |
|
|
$ |
545,425 |
|
|
$ |
(278,007 |
) |
|
|
|
|
|
$ |
1,029,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
3
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,031 |
|
|
$ |
47,975 |
|
Adjustments to reconcile net income to net cash
(used in) operating activities: |
|
|
|
|
|
|
|
|
Foreign exchange (gain) loss |
|
|
(3,400 |
) |
|
|
1,328 |
|
Loss from discontinued operations |
|
|
501 |
|
|
|
337 |
|
Depreciation and amortization |
|
|
14,447 |
|
|
|
11,954 |
|
Stock compensation |
|
|
11,347 |
|
|
|
9,527 |
|
Provision for trade and other bad debts |
|
|
1,377 |
|
|
|
266 |
|
Inventory writedown |
|
|
3,157 |
|
|
|
2,438 |
|
Loss on repurchase of Senior Notes |
|
|
|
|
|
|
1,692 |
|
Other |
|
|
(39 |
) |
|
|
(525 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(70,428 |
) |
|
|
(92,373 |
) |
Inventories |
|
|
(46,574 |
) |
|
|
(18,187 |
) |
Prepaid expenses and other assets |
|
|
3,296 |
|
|
|
(13,956 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
(28,409 |
) |
|
|
2,643 |
|
Accrued income taxes |
|
|
3,197 |
|
|
|
16,614 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities from continuing operations |
|
|
(67,497 |
) |
|
|
(30,267 |
) |
Net cash provided by (used in) operating activities from discontinued operations |
|
|
(16,284 |
) |
|
|
146 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities |
|
|
(83,781 |
) |
|
|
(30,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds on disposal of assets |
|
|
56 |
|
|
|
29 |
|
Purchases of property, plant & equipment |
|
|
(12,258 |
) |
|
|
(9,596 |
) |
Business acquisitions, net of cash acquired |
|
|
(1,083 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities from continuing operations |
|
|
(13,285 |
) |
|
|
(9,567 |
) |
Net cash (used in) investing activities from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(13,285 |
) |
|
|
(9,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchase of Senior Notes due 2013 |
|
|
|
|
|
|
(51,479 |
) |
Change in short-term notes payable |
|
|
15,340 |
|
|
|
4,180 |
|
Change in revolving credit facility |
|
|
96,707 |
|
|
|
(189 |
) |
Proceeds from the exercise of employee stock options |
|
|
5,818 |
|
|
|
2,373 |
|
Purchase of treasury stock |
|
|
(31,146 |
) |
|
|
(72,218 |
) |
Contingent payment related to acquisition of non-controlling interest in
Brazilian subsidiary |
|
|
(11,467 |
) |
|
|
(3,442 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities from continuing operations |
|
|
75,252 |
|
|
|
(120,775 |
) |
Net cash provided by (used in) financing activities from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
75,252 |
|
|
|
(120,775 |
) |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
4,682 |
|
|
|
(2,837 |
) |
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents |
|
|
(17,132 |
) |
|
|
(163,300 |
) |
Cash and cash equivalents at beginning of period |
|
|
191,227 |
|
|
|
320,754 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
174,095 |
|
|
$ |
157,454 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
4
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 1Organization
The Warnaco Group, Inc. (Warnaco Group and, collectively with its subsidiaries, the
Company) was incorporated in Delaware on March 14, 1986 and, on May 10, 1986, acquired
substantially all of the outstanding shares of Warnaco Inc. (Warnaco). Warnaco is the principal
operating subsidiary of Warnaco Group.
Note 2 Basis of Consolidation and Presentation
The Consolidated Condensed Financial Statements include the accounts of Warnaco Group and its
subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
The accompanying unaudited Consolidated Condensed Financial Statements included herein have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Accordingly, they do not include all information and disclosures necessary for a
presentation of the Companys financial position, results of operations and cash flows in
conformity with generally accepted accounting principles in the United States of America (GAAP).
In the opinion of management, these financial statements reflect all adjustments, consisting
primarily of normal recurring accruals, necessary for a fair presentation of results for the
periods presented. The results of operations for interim periods are not necessarily indicative of
the results for the full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been condensed or omitted from this
report, as is permitted by such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. These Consolidated
Condensed Financial Statements should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in the Companys Annual Report on Form 10-K for Fiscal 2010
(defined below). The year-end Consolidated Condensed Balance Sheet data were derived from audited
financial statements, but do not include all disclosures required by GAAP.
The preparation of financial statements in conformity with GAAP requires the Company to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Periods Covered: The Company operates on a 52/53 week fiscal year basis ending on the
Saturday closest to December 31. As such, the period from January 2, 2011 to December 31, 2011
(Fiscal 2011) and the period from January 3, 2010 to January 1, 2011 (Fiscal 2010) each contain
52 weeks of operations. Additionally, the period from January 2, 2011 to April 2, 2011 (the Three
Months Ended April 2, 2011) and the period from January 3, 2010 to April 3, 2010 (the Three
Months Ended April 3, 2010) each contained thirteen weeks of operations.
Reclassifications: Amounts related to certain corporate expenses incurred in the U.S.
(previously included in Operating income (loss) Corporate/Other) during the Three Months Ended
April 3, 2010 have been reclassified to Operating income (loss) Sportswear Group, Intimate
Apparel Group and Swimwear Group in order to conform to the current period presentation. See Note 6
of Notes to Consolidated Condensed Financial Statements.
Recent Accounting Pronouncement
In December 2010, the Financial Accounting Standards Board issued Accounting Standards Update
2010-29 Disclosure of Supplementary Pro Forma Information for Business
Combinations (ASU 2010-29), which amends Topic 805 on business combinations. ASU 2010-29 clarifies that if a
public entity presents comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
ASU 2010-29 also expands the supplemental pro forma disclosures under Topic 805 to include a
description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings.
ASU 2010-29 is effective prospectively for the Company for business combinations for which the
acquisition date is on or after January 2, 2011. In the event that the Company enters into a
business combination or a series of business combinations that are deemed to be material for
financial reporting purposes, the Company will apply the amendments in ASU 2010-29.
5
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 3Acquisitions
Acquisition of Business in Taiwan
On January 3, 2011, the Company acquired certain assets, including inventory and leasehold
improvements, and acquired the leases, of the retail stores from its Calvin Klein distributor in
Taiwan for cash consideration of approximately $1,450. The acquisition was accounted for as a
business combination and its results were consolidated into the Companys operations and financial
statements from the acquisition date.
Acquisition of Remaining Non-controlling Interest and Retail Stores in Brazil
During the fourth quarter of the fiscal year ended January 2, 2010 (Fiscal 2009), the Company
acquired the remaining non-controlling interest in a Brazilian subsidiary (WBR) and eight retail
stores in Brazil, collectively, the Brazilian Acquisition. As part of the consideration for the
Brazilian Acquisition, the Company is required to make three payments through March 31, 2012, which
are contingent on the level of operating income achieved, as specified in the acquisition agreement,
of WBR during that period. Based upon the operating results achieved by WBR during the fourth
quarter of Fiscal 2009, a payment of 6,000 Brazilian Real ($3,400) was paid on or prior to March
31, 2010. The Company made the second contingent payment of 18,500 Brazilian Real (approximately
$11,470), based on the operating results of WBR for Fiscal 2010, on March 31, 2011. The Company
expects that the third contingent payment will be 18,500 Brazilian Real (approximately $11,470),
based on the anticipated operating results of WBR for Fiscal 2011, which will be paid by March 31,
2012.
Note 4Discontinued Operations
As disclosed in its Annual Report on Form 10-K for Fiscal 2010, the Company discontinued
certain operations in prior periods. Summarized operating results for the discontinued operations
of those prior periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, |
|
|
April 3, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
611 |
|
|
|
|
|
|
|
|
(Loss) before income tax (benefit) |
|
$ |
(776 |
) |
|
$ |
(528 |
) |
Income tax (benefit) |
|
|
(275 |
) |
|
|
(191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations |
|
$ |
(501 |
) |
|
$ |
(337 |
) |
|
|
|
|
|
|
|
6
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Summarized assets and liabilities of the discontinued operations are presented in the
Consolidated Condensed Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
18 |
|
|
$ |
319 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
1,582 |
|
Prepaid expenses and other current assets |
|
|
108 |
|
|
|
107 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
108 |
|
|
$ |
125 |
|
|
$ |
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
15 |
|
|
$ |
32 |
|
|
$ |
202 |
|
Accrued liabilities |
|
|
3,645 |
|
|
|
18,768 |
|
|
|
8,083 |
|
Other |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
3,660 |
|
|
$ |
18,800 |
|
|
$ |
8,297 |
|
|
|
|
|
|
|
|
|
|
|
During February 2011, the Company and Doyle & Bossiere Fund I LLC reached a settlement
agreement and mutual release related to the OP Action (see Note 18 of Notes to Consolidated
Condensed Financial Statements Legal Matters). On February 16, 2011, the Company paid $15,000 in
full and final settlement of the OP Action in accordance with the terms of the settlement agreement
and mutual release.
Note 5Restructuring Expenses and Other Exit Costs
During the Three Months Ended April 2, 2011, the Company incurred restructuring charges and
other exit costs of $6,489 primarily related to (i) the rationalization and consolidation of the
Companys international operations ($3,065); (ii) job eliminations in the U.S. ($1,167); (iii)
lease contract termination costs in connection with retail store, office and warehouse closures
($2,224) and (iv) other exit costs ($33).
During the Three Months Ended April 3, 2010, the Company incurred restructuring charges and
other exit costs of $959 primarily related to (i) the continuation of the workforce reduction,
which commenced during the fourth quarter of the fiscal year ended January 3, 2009 (Fiscal 2008)
($962); (ii) the ongoing rationalization and consolidation of the Companys European operations
($291) and (iii) other exit activities, including contract termination costs, legal and other costs
($114). The charges described in (i) to (iii) were partially offset by the reversal of accruals of
expense, totaling $408, that were no longer needed upon conclusion of the related restructuring
events.
Restructuring charges and other exit costs have been recorded in the Consolidated Condensed
Statements of Operations for the Three Months Ended April 2, 2011 and Three Months Ended April 3,
2010, as follows:
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
Cost of goods sold |
|
$ |
667 |
|
|
$ |
91 |
|
Selling, general and administrative expenses |
|
|
5,822 |
|
|
|
868 |
|
|
|
|
|
|
|
|
|
|
$ |
6,489 |
|
|
$ |
959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash portion of restructuring items |
|
$ |
6,463 |
|
|
$ |
959 |
|
Non-cash portion of restructuring items |
|
|
26 |
|
|
|
|
|
7
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Changes in liabilities related to restructuring expenses and other exit costs for the
Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010 are summarized below:
|
|
|
|
|
Balance at January 2, 2010 |
|
$ |
3,572 |
|
Charges for the Three Months Ended April 3, 2010 |
|
|
959 |
|
Cash reductions for the Three Months Ended April 3, 2010 |
|
|
(2,309 |
) |
Non-cash changes and foreign currency effects |
|
|
(51 |
) |
|
|
|
|
Balance at April 3, 2010 |
|
$ |
2,171 |
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
$ |
3,582 |
|
Charges for the Three Months Ended April 2, 2011 |
|
|
6,463 |
|
Cash reductions for the Three Months Ended April 2, 2011 |
|
|
(1,665 |
) |
Non-cash changes and foreign currency effects |
|
|
88 |
|
|
|
|
|
Balance at April 2, 2011 (a) |
|
$ |
8,468 |
|
|
|
|
|
|
|
|
(a) |
|
The balance at April 2, 2011 includes approximately $4,520 recorded in accrued liabilities
(part of current liabilities) which amounts are expected to be settled over the next 12 months
and approximately $3,948 recorded in other long term liabilities which amounts are expected to
be settled over the next two years. |
Note 6Business Segments and Geographic Information
Business Segments: The Company operates in three business segments: (i) Sportswear Group; (ii)
Intimate Apparel Group; and (iii) Swimwear Group, which groupings reflect the manner in which the
Companys business is managed and the manner in which the Companys Chief Executive Officer, who is
the chief operating decision maker (CODM), reviews the Companys business.
Effective January 2, 2011, in conjunction with an evaluation of the Companys overall group
reporting and to reflect the manner in which the CODM currently evaluates the business, the Company
revised its methodology for allocating certain corporate expenses (incurred in the U.S.) to the
operating units in each of its business groups. The change in methodology resulted in an increase
in the portion of corporate overhead allocated to the business groups for management reporting
purposes as well as a change in the manner in which the corporate overhead is allocated between the
domestic and international business units. Accordingly, the operating income (loss) for each group
and Corporate/Other for the Three Months Ended April 3, 2010 has been revised to conform to the
current period presentation. The revision of the operating income (loss) for each group and
Corporate/Other did not have any effect on
the Companys Consolidated Condensed Balance Sheets, Consolidated Condensed Statements of
Operations or Consolidated Condensed Statements Cash Flows for any period presented in this Form
10-Q.
The Sportswear Group designs, sources and markets moderate to premium priced mens and womens
sportswear under the Calvin Klein and Chaps® brands. As of April 2, 2011, the Sportswear Group
operated 512 Calvin Klein retail stores worldwide (consisting of 108 full price free-standing
stores, 54 outlet free standing stores, 349 shop-in-shop/concession stores and, in the U.S., one
on-line store). As of April 2, 2011, there were also 372 retail stores operated by third parties
under retail licenses or distributor agreements.
The Intimate Apparel Group designs, sources and markets moderate to premium priced intimate
apparel and other products for women and better to premium priced mens underwear, sleepwear and
loungewear under the Calvin Klein, Warners®, Olga® and Body Nancy Ganz/Bodyslimmers® brand
names. As of April 2, 2011, the Intimate Apparel Group operated: 931 Calvin Klein retail stores
worldwide (consisting of 91 full-price free-standing stores, 65 outlet free-standing stores and 774
shop-in-shop/concession stores and, in the U.S., one on-line store). As of April 2, 2011, there
were also 198 Calvin Klein retail stores operated by third parties under retail licenses or
distributor agreements.
The Swimwear Group designs, licenses, sources and markets mass market to premium priced
swimwear, fitness apparel, swim accessories and related products under the Speedo®, Lifeguard® and
Calvin Klein brand names. The Swimwear Group operates one on-line store in the U.S.
8
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Information by business group is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Apparel |
|
|
Swimwear |
|
|
Group |
|
|
Corporate / |
|
|
|
|
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Total |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 2, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
339,471 |
|
|
$ |
220,994 |
|
|
$ |
101,696 |
|
|
$ |
662,161 |
|
|
$ |
|
|
|
$ |
662,161 |
|
Operating income (loss) |
|
|
38,600 |
|
|
|
30,537 |
|
|
|
14,068 |
|
|
|
83,205 |
|
|
|
(13,551 |
) |
|
|
69,654 |
|
Depreciation and amortization |
|
|
9,080 |
|
|
|
4,439 |
|
|
|
617 |
|
|
|
14,136 |
|
|
|
311 |
|
|
|
14,447 |
|
Restructuring expense |
|
|
1,650 |
|
|
|
1,443 |
|
|
|
3,078 |
|
|
|
6,170 |
|
|
|
318 |
|
|
|
6,489 |
|
Capital expenditures |
|
|
4,891 |
|
|
|
6,131 |
|
|
|
56 |
|
|
|
11,078 |
|
|
|
304 |
|
|
|
11,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
306,346 |
|
|
$ |
193,942 |
|
|
$ |
87,876 |
|
|
$ |
588,164 |
|
|
$ |
|
|
|
$ |
588,164 |
|
Operating income (loss) (a) |
|
|
49,246 |
|
|
|
32,756 |
|
|
|
11,961 |
|
|
|
93,963 |
|
|
|
(14,465 |
) |
|
|
79,498 |
|
Depreciation and amortization |
|
|
7,463 |
|
|
|
3,514 |
|
|
|
556 |
|
|
|
11,533 |
|
|
|
421 |
|
|
|
11,954 |
|
Restructuring expense (gain) |
|
|
(107 |
) |
|
|
(47 |
) |
|
|
269 |
|
|
|
115 |
|
|
|
844 |
|
|
|
959 |
|
Capital expenditures |
|
|
3,357 |
|
|
|
8,353 |
|
|
|
383 |
|
|
|
12,093 |
|
|
|
305 |
|
|
|
12,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
$ |
1,072,131 |
|
|
$ |
410,607 |
|
|
$ |
190,672 |
|
|
$ |
1,673,410 |
|
|
$ |
118,160 |
|
|
$ |
1,791,570 |
|
January 1, 2011 |
|
|
995,475 |
|
|
|
381,371 |
|
|
|
154,831 |
|
|
|
1,531,677 |
|
|
|
121,595 |
|
|
|
1,653,272 |
|
April 3, 2010 |
|
|
932,253 |
|
|
|
374,591 |
|
|
|
173,523 |
|
|
|
1,480,367 |
|
|
|
128,777 |
|
|
|
1,609,144 |
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
$ |
64,446 |
|
|
$ |
33,380 |
|
|
$ |
2,739 |
|
|
$ |
100,565 |
|
|
$ |
32,264 |
|
|
$ |
132,829 |
|
January 1, 2011 |
|
|
63,555 |
|
|
|
28,522 |
|
|
|
3,023 |
|
|
|
95,100 |
|
|
|
34,152 |
|
|
|
129,252 |
|
April 3, 2010 |
|
|
34,834 |
|
|
|
45,578 |
|
|
|
3,739 |
|
|
|
84,151 |
|
|
|
38,178 |
|
|
|
122,329 |
|
|
|
|
(a) |
|
reflects the allocation of $2,482 of corporate expenses to the Sportswear Group
($1,696), the Intimate Apparel Group ($862) and the Swimwear Group ($(76)),
respectively, during the Three Months Ended April 3, 2010 to conform to the presentation
for the Three Months Ended April 2, 2011. |
All inter-company revenues and expenses are eliminated in consolidation. Management does
not include inter-company sales when evaluating segment performance. Each segments performance is
evaluated based upon operating income after restructuring charges and allocations of corporate
expenses but before corporate/other expenses.
The table below summarizes Corporate/Other expenses for each period presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
Unallocated corporate expenses (a) |
|
$ |
12,119 |
|
|
$ |
14,254 |
|
Foreign exchange losses (gains) |
|
|
1,115 |
|
|
|
(1,033 |
) |
Pension income |
|
|
(312 |
) |
|
|
(21 |
) |
Restructuring expense |
|
|
318 |
|
|
|
844 |
|
Depreciation and amortization of corporate assets |
|
|
311 |
|
|
|
421 |
|
|
|
|
|
|
|
|
Corporate/other expenses |
|
$ |
13,551 |
|
|
$ |
14,465 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
the decrease in unallocated corporate expenses is related primarily to (i) a
reduction in amounts accrued for performance-based employee cash compensation
and other employee compensation and benefits, partially offset by an increase in stock-based
compensation expense. |
9
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
A reconciliation of operating income from operating groups to income from continuing
operations before provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Operating income by operating groups |
|
$ |
83,205 |
|
|
$ |
93,963 |
|
Corporate/other expenses |
|
|
(13,551 |
) |
|
|
(14,465 |
) |
|
|
|
|
|
|
|
Operating income |
|
|
69,654 |
|
|
|
79,498 |
|
Other (income) loss |
|
|
(644 |
) |
|
|
1,820 |
|
Interest expense |
|
|
2,696 |
|
|
|
4,978 |
|
Interest income |
|
|
(746 |
) |
|
|
(1,006 |
) |
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes |
|
$ |
68,348 |
|
|
$ |
73,706 |
|
|
|
|
|
|
|
|
Geographic Information: Net revenues summarized by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
% |
|
|
April 3, 2010 |
|
|
% |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
285,143 |
|
|
|
43.1 |
% |
|
$ |
270,750 |
|
|
|
46.0 |
% |
Europe |
|
|
168,469 |
|
|
|
25.5 |
% |
|
|
157,302 |
|
|
|
26.8 |
% |
Asia |
|
|
126,776 |
|
|
|
19.1 |
% |
|
|
97,073 |
|
|
|
16.5 |
% |
Mexico, Central and South America |
|
|
51,718 |
|
|
|
7.8 |
% |
|
|
37,543 |
|
|
|
6.4 |
% |
Canada |
|
|
30,055 |
|
|
|
4.5 |
% |
|
|
25,496 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
662,161 |
|
|
|
100.0 |
% |
|
$ |
588,164 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7Income Taxes
The effective tax rates for the Three Months Ended April 2, 2011 and April 3, 2010 were 34.8%
and 34.5% respectively. The higher effective tax rate for the Three Months Ended April 2, 2011
primarily reflects a shift in earnings from lower to higher taxing jurisdictions, as well as
increased interest and penalties associated with uncertain tax positions in certain of the
Companys foreign subsidiaries recorded during the Three Months Ended April 2, 2011.
As of April 2, 2011, the Company remains under audit in various taxing jurisdictions. It is,
therefore, difficult to predict the final timing and resolution of any particular uncertain tax
position. Based upon the Companys assessment of many factors, including past experience and
complex judgments about future events, it is reasonably possible that within the next twelve months
the reserve for uncertain tax positions may increase between $2,300 and $4,200 associated with tax
positions expected to be taken during the next 12 months, the reevaluation of current uncertain tax
positions arising from developments in examinations, the finalization of tax examinations, or from
the closure of tax statutes.
10
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 8Employee Benefit and Retirement Plans
Defined Benefit Pension Plans
The Company has a defined benefit pension plan covering certain full-time non-union domestic
employees and certain domestic employees covered by a collective bargaining agreement who had
completed service prior to January 1, 2003 (the Pension Plan). Participants in the Pension Plan
have not earned any additional pension benefits after December 31, 2002. The Company also sponsors
defined benefit plans for certain former employees of its United Kingdom and other European
entities (the Foreign Plans). The Foreign Plans were not considered to be material for any
period presented in this Form 10-Q. These pension plans are noncontributory and benefits are based
upon years of service. The Company also has health care and life insurance plans that provide
post-retirement benefits to certain retired domestic employees (the Postretirement Plans). The
Postretirement Plans are, in most cases, contributory with retiree contributions adjusted annually.
Each quarter the Company recognizes interest cost of the Pension Plans projected benefit
obligation offset by the expected return on Pension Plan assets. The Company records pension
expense (income) as the effect of actual gains and losses exceeding the expected return on Pension
Plan assets (including changes in actuarial assumptions) less changes in the Pension Plans
projected benefit obligation (including changes in actuarial assumptions) in the fourth quarter of
each year. This accounting results in volatility in pension expense or income; therefore, the
Company reports pension expense (income) on a separate line of its Statements of Operations in each
period.
During the Three Months Ended April 2, 2011, the Company made contributions of $3,850 to the
Pension Plan. The Companys contributions to the Pension Plan are expected to be $8,800 in total
for Fiscal 2011.
The following table includes only the Pension Plan. The Foreign Plans were not considered to
be material for any period presented below. The components of net periodic benefit cost are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Plans |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
62 |
|
|
$ |
33 |
|
Interest cost |
|
|
2,334 |
|
|
|
2,358 |
|
|
|
70 |
|
|
|
91 |
|
Expected return on plan assets |
|
|
(2,703 |
) |
|
|
(2,418 |
) |
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit (income) cost (a) |
|
$ |
(369 |
) |
|
$ |
(60 |
) |
|
$ |
107 |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
net benefit (income) cost does not include costs related to the Foreign Plans of $57 and
$39 for the Three Months Ended April 2, 2011 and April 3, 2010, respectively. |
Deferred Compensation Plans
The Companys liability for employee contributions and investment activity was $4,828, $4,220,
$3,781 as of April 2, 2011, January 1, 2011 April 3, 2010, respectively. This liability is
included in other long-term liabilities. The Companys liability for director contributions and
investment activity was $1,132, $1,015 and $796 as of April 2, 2011, January 1, 2011 April 3, 2010,
respectively. This liability is included in other long-term liabilities.
11
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 9Comprehensive Income
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,031 |
|
|
$ |
47,975 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
Foreign currency
translation
adjustments |
|
|
28,254 |
|
|
|
(4,810 |
) |
Change in fair
value of cash flow
hedges |
|
|
(1,683 |
) |
|
|
41 |
|
Other |
|
|
(1 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
Total Comprehensive income |
|
$ |
70,601 |
|
|
$ |
43,210 |
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income as of April 2, 2011, January 1, 2011
and April 3, 2010 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, |
|
|
January 1, |
|
|
April 3, |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
Foreign currency translation adjustments (a) |
|
$ |
74,236 |
|
|
$ |
45,982 |
|
|
$ |
43,748 |
|
Actuarial losses, net related to post
retirement medical plans, net of tax of
$1,232, $1,232 and $607, as of April 2,
2011, January 1, 2011 and April 3, 2010,
respectively |
|
|
(1,099 |
) |
|
|
(1,099 |
) |
|
|
(1,058 |
) |
Loss on cash flow hedges, net of taxes of
$1,340, $871 and $482 as of April 2, 2011,
January 1, 2011 and April 3, 2010,
respectively |
|
|
(3,530 |
) |
|
|
(1,847 |
) |
|
|
(986 |
) |
Other |
|
|
11 |
|
|
|
12 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
$ |
69,618 |
|
|
$ |
43,048 |
|
|
$ |
41,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Foreign currency translation adjustments reflect the change in the U.S. dollar relative
to functional currencies where the Company conducts certain of its operations and the fact
that more than 65% of the Companys assets are based outside of the U.S. The increase of
$30,488 in foreign currency translation adjustments at April 2, 2011 compared to April 3,
2010 reflects the increase in the strength of certain foreign currencies (principally the
Euro, Canadian Dollar, Korean Won, Brazilian Real and Mexican Peso) relative to the U.S.
dollar. |
Note 10Fair Value Measurement
The Company utilizes the market approach to measure fair value for financial assets and
liabilities, which primarily relates to derivative contracts. The market approach uses prices and
other relevant information generated by market transactions involving identical or comparable
assets or liabilities. The Company classifies its financial instruments in a fair value hierarchy
that is intended to increase consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy consists of the following three levels:
|
Level 1 |
|
Inputs are quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 |
|
Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable and market-corroborated inputs which are
derived principally from or corroborated by observable market data. |
|
|
Level 3 |
|
Inputs are derived from valuation techniques in which one or more significant inputs
or value drivers are unobservable. |
12
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Valuation Techniques
The fair value of foreign currency exchange contracts, including forward contracts and zero
cost collars, was determined as the net unrealized gains or losses on those contracts, which is the
net difference between (i) the U.S. dollars to be received or paid at the contracts settlement
dates and (ii) the U.S. dollar value of the foreign currency to be sold or purchased at the current
forward or spot exchange rate, as applicable. The fair value of these foreign currency exchange
contracts is based on quoted prices that include the effects of U.S. and foreign interest rate
yield curves and, therefore, meets the definition of Level 2 fair value, as defined above.
The following table represents the Companys assets and liabilities measured at fair value on
a recurring basis, as of April 2, 2011, January 1, 2011 and April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
exchange contracts |
|
$ |
|
|
|
$ |
376 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
834 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,921 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
exchange contracts |
|
$ |
|
|
|
$ |
7,133 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,282 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,827 |
|
|
$ |
|
|
Cash and cash equivalents, accounts receivable and accounts payable are recorded at
carrying value, which approximates fair value. The Companys CKJEA Notes and other short-term notes
and amounts outstanding under the 2008 Credit Agreements (each as defined below) are also reported at
carrying value.
Note 11 Financial Instruments
The carrying amounts and fair values of the Companys financial instruments at April 2, 2011,
January 1, 2011 and April 3, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
|
Balance Sheet |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Location |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
Accounts receivable, net of reserves |
|
$ |
396,035 |
|
|
$ |
396,035 |
|
|
$ |
318,123 |
|
|
$ |
318,123 |
|
|
$ |
379,971 |
|
|
$ |
379,971 |
|
Open foreign currency
exchange contracts |
|
Prepaid expenses and other current assets |
|
|
376 |
|
|
|
376 |
|
|
|
834 |
|
|
|
834 |
|
|
|
1,921 |
|
|
|
1,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
Accounts payable |
|
$ |
164,721 |
|
|
$ |
164,721 |
|
|
$ |
152,714 |
|
|
$ |
152,714 |
|
|
$ |
134,447 |
|
|
$ |
134,447 |
|
Short-term debt |
|
Short-term debt |
|
|
146,423 |
|
|
|
146,423 |
|
|
|
32,172 |
|
|
|
32,172 |
|
|
|
49,877 |
|
|
|
49,877 |
|
Senior Notes, current
portion (including
debt premium on swaps) |
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,134 |
|
|
|
113,774 |
|
Open foreign currency
exchange contracts |
|
Accrued liabilities |
|
|
7,133 |
|
|
|
7,133 |
|
|
|
3,282 |
|
|
|
3,282 |
|
|
|
2,827 |
|
|
|
2,827 |
|
See Note 17 of Notes to Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for Fiscal 2010 for the methods and assumptions used by the Company in estimating its
fair value disclosures for financial instruments.
13
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Derivative Financial Instruments
During the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, the
Companys Korean, European and Canadian subsidiaries continued their hedging programs, which
included foreign exchange forward contracts which were designed either to satisfy up to the first
50% of U.S. dollar denominated purchases of inventory over a maximum 18-month period or payment of
100% of certain minimum royalty and advertising expenses. In addition, during the Three Months
Ended April 2, 2011, one of the Companys Mexican subsidiaries entered into foreign exchange
forward contracts, which were designed to satisfy receipt of up to the first 50% of U.S. dollar
denominated inventory over a maximum 18-month period. All of the foregoing forward contracts were
designated as cash flow hedges, with gains and losses accumulated on the Consolidated
Condensed Balance Sheets in Other Comprehensive Income and recognized in Cost of Goods Sold in the
Consolidated Condensed Statement of Operations during the periods in which the underlying
transactions occur.
During the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, the
Company also continued hedging programs, which were accounted for as economic hedges, with gains
and losses recorded directly in Other loss (income) or Selling, general and administrative expense
in the Consolidated Condensed Statements of Operations in the period in which they are incurred.
Those hedging programs included foreign currency exchange forward contracts and zero cost collars
that were designed to fix the number of Euros, Korean won, Canadian dollars or Mexican pesos
required to satisfy either (i) the first 50% of U.S. dollar denominated purchases of inventory over
a maximum 18-month period; (ii) 50% of intercompany sales of inventory by a Euro functional
currency subsidiary to a British subsidiary or (iii) U.S. dollar denominated intercompany loans and
payables.
The following table summarizes the Companys derivative instruments as of April 2, 2011,
January 1, 2011 and April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
|
|
|
April 2, |
|
|
January 1, |
|
|
April 3, |
|
|
|
|
April 2, |
|
|
January 1, |
|
|
April 3, |
|
|
|
|
|
Balance Sheet |
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
Balance Sheet |
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
|
Type (a) |
|
Location |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
Location |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments under FASB ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
CF |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
394 |
|
|
Accrued liabilities |
|
$ |
4,191 |
|
|
$ |
2,290 |
|
|
$ |
1,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under FASB ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
CF |
|
Prepaid expenses and other current assets |
|
$ |
376 |
|
|
$ |
834 |
|
|
$ |
1,527 |
|
|
Accrued liabilities |
|
$ |
2,942 |
|
|
$ |
992 |
|
|
$ |
1,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
376 |
|
|
$ |
834 |
|
|
$ |
1,921 |
|
|
|
|
$ |
7,133 |
|
|
$ |
3,282 |
|
|
$ |
2,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
The following tables summarize the effect of the Companys derivative instruments on the
Consolidated Condensed Statements of Operations for the Three Months Ended April 2, 2011 and the
Three Months Ended April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Reclassified |
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
Amount of Gain (Loss) |
|
|
|
|
|
Recognized in OCI on |
|
|
from |
|
Amount of Gain (Loss) Reclassified |
|
|
Recognized |
|
Recognized in Income on |
|
|
|
|
|
Derivatives |
|
|
Accumulated |
|
from Accumulated OCI into Income |
|
|
in Income |
|
Derivative |
|
|
|
|
|
(Effective Portion) |
|
|
OCI into |
|
(Effective Portion) |
|
|
on |
|
(Ineffective Portion) |
|
Derivatives in FASB ASC |
|
|
|
Three Months |
|
|
Three Months |
|
|
Income |
|
Three Months |
|
|
Three Months |
|
|
Derivative |
|
Three Months |
|
|
Three Months |
|
815-20 Cash Flow Hedging |
|
Nature of Hedged |
|
Ended |
|
|
Ended |
|
|
(Effective |
|
Ended |
|
|
Ended |
|
|
(Ineffective |
|
Ended |
|
|
Ended |
|
Relationships |
|
Transaction |
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
Portion) |
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
Portion) (c) |
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Minimum royalty and advertising costs (a) |
|
$ |
(700 |
) |
|
$ |
638 |
|
|
cost of goods sold |
|
$ |
(337 |
) |
|
$ |
59 |
|
|
other loss/income |
|
$ |
(22 |
) |
|
$ |
17 |
|
Foreign exchange contracts |
|
Purchases of inventory (b) |
|
|
(2,538 |
) |
|
|
(1,139 |
) |
|
cost of goods sold |
|
|
(749 |
) |
|
|
(506 |
) |
|
other loss/income |
|
|
(58 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(3,238 |
) |
|
$ |
(501 |
) |
|
|
|
$ |
(1,086 |
) |
|
$ |
(447 |
) |
|
|
|
$ |
(80 |
) |
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At April 2, 2011, the amount of minimum royalty costs hedged was $13,366; contracts
expire through March 2012. At April 3, 2010, the amount of minimum royalty costs hedged was
$9,823; contracts expire through December 2010. |
|
(b) |
|
At April 2, 2011, the amount of inventory purchases hedged was $66,800; contracts expire
through August 2012. At April 3, 2010, the amount of inventory purchases hedged was $37,000;
contracts expire through August 2011. |
|
(c) |
|
No amounts were excluded from effectiveness testing. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
Amount Hedged |
|
|
Maturity Date |
|
Gain (Loss) |
|
Recognized in Income on Derivative |
|
Derivatives not designated as |
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Three Months |
|
Three Months |
|
Recognized |
|
Three Months |
|
|
Three Months |
|
hedging instruments under |
|
Nature of Hedged |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
Ended |
|
in Income on |
|
Ended |
|
|
Ended |
|
FASB ASC 815-20 |
|
Transaction |
|
Instrument |
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
April 2, 2011 |
|
April 3, 2010 |
|
Derivative |
|
April 2, 2011 |
|
|
April 3, 2010 |
|
Foreign exchange contracts (d) |
|
Purchases of inventory |
|
Forward contracts |
|
$ |
|
|
|
$ |
2,699 |
|
|
|
|
August 2010 |
|
other loss/income |
|
$ |
|
|
|
$ |
(201 |
) |
Foreign exchange contracts (e) |
|
Intercompany sales of inventory |
|
Forward contracts |
|
|
10,152 |
|
|
|
10,015 |
|
|
April 2012 |
|
December 2010 |
|
other loss/income |
|
|
268 |
|
|
|
82 |
|
Foreign exchange contracts (f) |
|
Minimum royalty and advertising costs |
|
Forward contracts |
|
|
10,000 |
|
|
|
7,500 |
|
|
January 2012 |
|
October 2010 |
|
other loss/income |
|
|
(671 |
) |
|
|
518 |
|
Foreign exchange contracts |
|
Intercompany loans |
|
Forward contracts |
|
|
20,000 |
|
|
|
5,800 |
|
|
November 2011 |
|
March 2010 |
|
other loss/income |
|
|
(1,156 |
) |
|
|
(94 |
) |
Foreign exchange contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
26,000 |
|
|
|
28,000 |
|
|
November 2011 |
|
January 2011 |
|
other loss/income |
|
|
(1,798 |
) |
|
|
1,096 |
|
Foreign exchange contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
|
|
|
|
12,000 |
|
|
|
|
April 2010 - June 2010 |
|
other loss/income |
|
|
|
|
|
|
1,128 |
|
Foreign exchange contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
|
|
|
|
4,000 |
|
|
|
|
April 2010 |
|
selling, general and administrative |
|
|
|
|
|
|
(107 |
) |
Foreign exchange contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
|
|
|
|
4,000 |
|
|
|
|
May 2010 |
|
selling, general and administrative |
|
|
|
|
|
|
(277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,357 |
) |
|
$ |
2,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
Forward contracts used to offset 50% of U.S. dollar-denominated purchases of inventory by
the Companys foreign subsidiaries whose functional currencies were the Canadian dollar and
Mexican peso, entered into by Warnaco Inc. on behalf of foreign subsidiaries. |
|
(e) |
|
Forward contracts used to offset 50% of British Pounds-denominated intercompany sales by a
subsidiary whose functional currency is the Euro. |
|
(f) |
|
Forward contracts used to offset payment of minimum royalty and advertising costs related to
sales of inventory by the Companys foreign subsidiary whose functional currency was the Euro,
entered into by Warnaco Inc. on behalf of a foreign subsidiary. |
15
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
A reconciliation of the balance of Accumulated Other Comprehensive Income during the
Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010 related to cash flow
hedges of foreign exchange forward contracts is as follows:
|
|
|
|
|
Balance January 2, 2010 |
|
$ |
(1,414 |
) |
Derivative losses recognized |
|
|
(516 |
) |
Losses amortized to earnings |
|
|
462 |
|
|
|
|
|
Balance before tax effect |
|
|
(1,468 |
) |
Tax effect |
|
|
482 |
|
|
|
|
|
Balance April 3, 2010, net of tax |
|
$ |
(986 |
) |
|
|
|
|
|
|
|
|
|
Balance January 1, 2011 |
|
$ |
(2,331 |
) |
Derivative losses recognized |
|
|
(3,238 |
) |
Losses amortized to earnings |
|
|
1,086 |
|
|
|
|
|
Balance before tax effect |
|
|
(4,483 |
) |
Tax effect |
|
|
953 |
|
|
|
|
|
Balance April 2, 2011, net of tax |
|
$ |
(3,530 |
) |
|
|
|
|
During the twelve months following April 2, 2011, the net amount of losses that are
recorded in Other Comprehensive Income at April 2, 2011 that are estimated to be amortized into
earnings is $4,271. During the Three Months Ended April 2, 2011, the Company expected that all
originally forecasted purchases of inventory or payment of minimum royalties, which were covered by
cash flow hedges, would occur by the end of the respective originally specified time periods.
Therefore, no amount of gains or losses was reclassified into earnings during the Three Months
Ended April 2, 2011 as a result of the discontinuance of those cash flow hedges.
Note 12Inventories
Inventories are valued at the lower of cost to the Company (using the first-in-first-out
method) or market and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
Finished goods |
|
$ |
362,924 |
|
|
$ |
310,504 |
|
|
$ |
266,761 |
|
Raw materials |
|
|
1,396 |
|
|
|
|
|
|
|
444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
364,320 |
|
|
$ |
310,504 |
|
|
$ |
267,205 |
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts of inventory noted above, the Company records deposits related
to advance payments to certain third-party suppliers for the future purchase of finished goods.
Such deposits are recorded in Prepaid and other current assets on the Companys Consolidated
Condensed Balance Sheets. At April 2, 2011, January 1, 2011 and April 3, 2010, the amount of such
deposits was $5,660, $8,841 and $6,772, respectively.
See Note 11 of Notes to Consolidated Condensed Financial Statements for details on the
Companys hedging programs related to purchases of inventory.
16
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 13Intangible Assets and Goodwill
The following tables set forth intangible assets as of April 2, 2011, January 2, 2010 and
April 3, 2010 and the activity in the intangible asset accounts for the Three Months Ended April 2,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses for a term (Company as licensee) |
|
$ |
336,652 |
|
|
$ |
57,213 |
|
|
$ |
279,439 |
|
|
$ |
327,394 |
|
|
$ |
54,907 |
|
|
$ |
272,487 |
|
|
$ |
329,653 |
|
|
$ |
48,453 |
|
|
$ |
281,200 |
|
Other |
|
|
35,591 |
|
|
|
12,150 |
|
|
|
23,441 |
|
|
|
34,258 |
|
|
|
11,297 |
|
|
|
22,961 |
|
|
|
20,800 |
|
|
|
8,870 |
|
|
|
11,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,243 |
|
|
|
69,363 |
|
|
|
302,880 |
|
|
|
361,652 |
|
|
|
66,204 |
|
|
|
295,448 |
|
|
|
350,453 |
|
|
|
57,323 |
|
|
|
293,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
54,715 |
|
|
|
|
|
|
|
54,715 |
|
|
|
54,715 |
|
|
|
|
|
|
|
54,715 |
|
|
|
56,719 |
|
|
|
|
|
|
|
56,719 |
|
Licenses in perpetuity |
|
|
23,113 |
|
|
|
|
|
|
|
23,113 |
|
|
|
23,113 |
|
|
|
|
|
|
|
23,113 |
|
|
|
23,951 |
|
|
|
|
|
|
|
23,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,828 |
|
|
|
|
|
|
|
77,828 |
|
|
|
77,828 |
|
|
|
|
|
|
|
77,828 |
|
|
|
80,670 |
|
|
|
|
|
|
|
80,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets |
|
$ |
450,071 |
|
|
$ |
69,363 |
|
|
$ |
380,708 |
|
|
$ |
439,480 |
|
|
$ |
66,204 |
|
|
$ |
373,276 |
|
|
$ |
431,123 |
|
|
$ |
57,323 |
|
|
$ |
373,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
Licenses |
|
|
Finite-lived |
|
|
|
|
|
|
|
|
|
|
in |
|
|
for a |
|
|
Intangible |
|
|
|
|
|
|
Trademarks |
|
|
Perpetuity |
|
|
Term |
|
|
Assets |
|
|
Total |
|
|
Balance at January 1, 2011 |
|
$ |
54,715 |
|
|
$ |
23,113 |
|
|
$ |
272,487 |
|
|
$ |
22,961 |
|
|
$ |
373,276 |
|
Amortization expense |
|
|
|
|
|
|
|
|
|
|
(2,306 |
) |
|
|
(853 |
) |
|
|
(3,159 |
) |
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
9,258 |
|
|
|
1,333 |
|
|
|
10,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2011 |
|
$ |
54,715 |
|
|
$ |
23,113 |
|
|
$ |
279,439 |
|
|
$ |
23,441 |
|
|
$ |
380,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys estimated amortization expense for intangible
assets for the next five years:
|
|
|
|
|
2012 |
|
$ |
12,042 |
|
2013 |
|
|
11,944 |
|
2014 |
|
|
10,549 |
|
2015 |
|
|
10,527 |
|
2016 |
|
|
10,257 |
|
The following table summarizes the changes in the carrying amount of goodwill for the Three
Months Ended April 2, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Intimate |
|
|
Swimwear |
|
|
|
|
|
|
Group |
|
|
Apparel Group |
|
|
Group |
|
|
Total |
|
|
Goodwill balance at January 1, 2011 |
|
$ |
113,016 |
|
|
$ |
1,620 |
|
|
$ |
642 |
|
|
$ |
115,278 |
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
5,572 |
|
|
|
30 |
|
|
|
|
|
|
$ |
5,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at April 2, 2011 |
|
$ |
118,588 |
|
|
$ |
1,650 |
|
|
$ |
642 |
|
|
$ |
120,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 14Debt
Debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt: |
|
April 2, 2011 |
|
|
January 1, 2011 |
|
|
April 3, 2010 |
|
|
CKJEA notes payable and Other |
|
$ |
38,309 |
|
|
$ |
18,802 |
|
|
$ |
49,877 |
|
2008 Credit Agreements |
|
|
96,707 |
|
|
|
|
|
|
|
|
|
Italian Note |
|
|
11,407 |
|
|
|
13,370 |
|
|
|
|
|
8 7/8% Senior Notes due 2013 (a) |
|
|
|
|
|
|
|
|
|
|
110,890 |
|
Debt premium on 2003 and 2004 swaps |
|
|
|
|
|
|
|
|
|
|
1,244 |
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
|
$ |
146,423 |
|
|
$ |
32,172 |
|
|
$ |
162,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
reflects the portion of the Senior Notes that were redeemed from bondholders on June 15,
2010 (see Senior Notes below). |
2008 Credit Agreements
On August 26, 2008, Warnaco, as borrower, and Warnaco Group, as guarantor, entered into a
revolving credit agreement (the 2008 Credit Agreement) and Warnaco of Canada Company, an indirect
wholly-owned subsidiary of Warnaco Group, as borrower, and Warnaco Group, as guarantor, entered
into a second revolving credit agreement (the 2008 Canadian Credit Agreement and, together with
the 2008 Credit Agreement, the 2008 Credit Agreements), in each case with the financial
institutions which, from time to time, will act as lenders and issuers of letters of credit.
At April 2, 2011, the 2008 Credit Agreement had interest rate options (dependent on the amount
borrowed and the repayment period) of (i) 3.75%, based on a base rate plus 0.50%, or (ii) 1.80%,
based on LIBOR plus 1.50%. The 2008 Canadian Credit Agreement had interest rate options of (i)
3.50%, based on the prime rate announced by Bank of America (acting through its Canada branch) plus
0.50%, or (ii) 2.71%, based on the BA Rate, in each case, on a per annum basis. The BA Rate is
defined as the annual rate of interest quoted by Bank of America (acting through its Canada branch)
as its rate of interest rate for bankers acceptances in Canadian dollars for a face amount similar
to the amount of the loan and for a term similar to the applicable interest period.
As of April 2, 2011, the Company had $96,707 in loans and approximately $38,706 in letters of
credit outstanding under the 2008 Credit Agreement, leaving approximately $111,213 of availability.
As of April 2, 2011, there were no loans and $1,923 in letters of credit outstanding under the 2008
Canadian Credit Agreement and the available line of credit was approximately $26,744. As of April
2, 2011, the Company was in compliance with all financial covenants contained in the 2008 Credit
Agreements.
CKJEA Notes and Other Short-Term Debt
Certain of the Companys European businesses hold short-term notes payable (the CKJEA
Notes). The total CKJEA notes payable of $29,236 at April 2, 2011, $18,445 at January 1, 2011 and
$47,125 at April 3, 2010 consists of short-term revolving notes with a number of banks at various
interest rates (primarily Euro LIBOR plus 1.0%). The weighted average effective interest rate for
the outstanding CKJEA notes payable was 2.24% as of April 2, 2011, 4.29% as of January 1, 2011 and
1.86% as of April 3, 2010. All of the CKJEA notes payable are short-term and were renewed during
the Three Months Ended April 2, 2011 for additional terms of no more than 12 months.
In addition, at April 2, 2011, January 1, 2011 and April 3, 2010, the Companys Brazilian
subsidiary, WBR, had lines of credit with several banks, with total outstanding balances of $9,073,
$357 and $2,752, respectively, recorded in Short-term debt in the Companys Consolidated Condensed Balance Sheets or Consolidated Balance Sheets, which were
secured by approximately equal amounts of WBRs trade accounts receivable. On March 31, 2011, WBR
used a portion of its lines of credit to make the contingent payment of $11,470 to the Sellers in
the Brazilian Acquisition (see Note 3 of Notes to Consolidated Condensed Financial Statements),
which primarily accounts for the increase in the balance of WBRs short-term debt at April 2, 2011.
18
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Italian Notes
On September 30, 2010, one of the Companys Italian subsidiaries entered into a 10,000 loan
(the Italian Note). The Italian Note has a term of 18 months, through March 12, 2012, and bears
interest of Euro LIBOR plus 2.75%. Repayments are due monthly beginning in January 2011. At April
2, 2011 and January 1, 2011, the principal balance of the Italian Note was 8,020 ($11,407) and
10,000 ($13,370), respectively, with an annual interest rate of 3.72% and 3.64%, respectively. At
April 2, 2011 and January 1, 2011, the Company had the intent and ability to repay the Italian Note
within one year and, accordingly, has classified the Italian Note as short-term debt.
Senior Notes
On May 7, 2010, the Company notified the bondholders of the Senior Notes that it would redeem
from them the remaining $110,890 aggregate principal amount of its outstanding 8 7/8% Senior Notes
due 2013 (Senior Notes) for a total consideration of $112,530. In connection with the
redemption, which occurred on June 15, 2010, the Company recognized a loss, in the Other loss
(income) line item in the Companys Consolidated Condensed Statement of Operations for the second
fiscal quarter of 2010, of approximately $2,078, which included $1,640 of premium expense, the
write-off of approximately $1,682 of deferred financing costs and $1,244 of unamortized gain from
the previously terminated swap agreements (See Note 12 of Notes to Consolidated Financial
Statements in the Companys Annual Report on Form 10-K for Fiscal 2010).
Note 15Stockholders Equity
Preferred Stock
The Company has authorized an aggregate of 20,000,000 shares of preferred stock, par value
$0.01 per share, of which 112,500 shares are designated as Series A preferred stock, par value
$0.01 per share. There were no shares of preferred stock issued and outstanding at April 2, 2011,
January 1, 2011 and April 3, 2010.
Share Repurchase Programs
On May 12, 2010, the Companys Board of Directors authorized a share repurchase program (the
2010 Share Repurchase Program) for the repurchase of up to 5,000,000 shares of the Companys
common stock. During the Three Months Ended April 2, 2011, the Company repurchased 560,842 shares
of its common stock under the 2010 Share Repurchase Program for $29,150 (based on an average of
$51.97 per share), leaving a balance of 3,500,000 shares to be repurchased.
In May 2007, the Companys Board of Directors authorized a share repurchase program (the
2007 Share Repurchase Program) for the repurchase of up to 3,000,000 shares of the Companys
common stock. During the Three Months Ended April 3, 2010, the Company repurchased the remaining
1,490,131 shares of its common stock allowed to be repurchased under the 2007 Share Repurchase
Program in the open market at a total cost of approximately $69,004 (an average cost of $46.31 per
share).
19
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Stock Incentive Plans
During the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, 342,600
and 358,300 stock options were granted, respectively. The fair values of stock options granted
during the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010 were estimated
at the dates of grant using the Black-Scholes-Merton option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Weighted average risk free rate of return (a) |
|
|
1.66 |
% |
|
|
1.84 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
Expected volatility of the market price of
the Companys common stock |
|
|
57.7 |
% |
|
|
57.3 |
% |
Expected option life (years) |
|
|
4.1 |
|
|
|
4.2 |
|
|
|
|
(a) |
|
based on the quoted yield for U.S. five-year treasury bonds as of the date of grant. |
A summary of stock-based compensation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes: |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
3,821 |
|
|
$ |
3,259 |
|
Restricted stock grants |
|
|
7,526 |
|
|
|
6,268 |
|
|
|
|
|
|
|
|
Total |
|
|
11,347 |
|
|
|
9,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit: |
|
|
|
|
|
|
|
|
Stock options |
|
|
1,366 |
|
|
|
1,174 |
|
Restricted stock grants |
|
|
2,263 |
|
|
|
1,805 |
|
|
|
|
|
|
|
|
Total |
|
|
3,629 |
|
|
|
2,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense after income taxes: |
|
|
|
|
|
|
|
|
Stock options |
|
|
2,455 |
|
|
|
2,085 |
|
Restricted stock grants |
|
|
5,263 |
|
|
|
4,463 |
|
|
|
|
|
|
|
|
Total |
|
$ |
7,718 |
|
|
$ |
6,548 |
|
|
|
|
|
|
|
|
20
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
A summary of stock option award activity under the Companys stock incentive plans as of and
for the Three Months Ended April 2, 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding as of January 1, 2011 |
|
|
1,926,257 |
|
|
$ |
33.73 |
|
Granted |
|
|
342,600 |
|
|
|
55.49 |
|
Exercised |
|
|
(218,486 |
) |
|
|
26.63 |
|
Forfeited / Expired |
|
|
(30,297 |
) |
|
|
39.26 |
|
|
|
|
|
|
|
|
Outstanding as of April 2, 2011 |
|
|
2,020,074 |
|
|
$ |
38.11 |
|
|
|
|
|
|
|
|
Options Exercisable as of April 2, 2011 |
|
|
1,178,437 |
|
|
$ |
33.22 |
|
|
|
|
|
|
|
|
A summary of the activity for unvested restricted share/unit awards under the Companys stock
incentive plans (excluding Performance Awards, defined below) as of and for the Three Months Ended
April 2, 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date Fair |
|
|
|
shares/units |
|
|
Value |
|
Unvested as of January 1, 2011 |
|
|
847,664 |
|
|
$ |
36.93 |
|
Granted |
|
|
213,743 |
|
|
|
55.50 |
|
Vested (a) |
|
|
(107,063 |
) |
|
|
49.21 |
|
Forfeited |
|
|
(25,433 |
) |
|
|
38.09 |
|
|
|
|
|
|
|
|
|
Unvested as of April 2, 2011 |
|
|
928,911 |
|
|
$ |
39.76 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include an additional 37,600 restricted units with a grant date fair value of
$55.57 and 36,750 restricted units with a grant date fair value of $43.28, granted to
Retirement-Eligible employees during the Three Months Ended April 2, 2011 and the Three
Months Ended April 3, 2010, respectively, for which the requisite service period has been
completed on the respective grant dates but the restrictions will not lapse until the end of
the three-year vesting period. |
During the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010,
share-based compensation awards granted to certain of the Companys executive officers under the
2005 Stock Incentive Plan included 80,050 and 75,750 performance-based restricted stock/restricted
unit awards, respectively, (Performance Awards) in addition to the service-based stock options
and restricted stock awards, included in the preceding tables. The Performance Awards include both
a performance condition and a market condition (see Note 13 of Notes to Consolidated Financial
Statements in the Companys Annual Report on Form 10-K for Fiscal 2010 for further details on the
Performance Awards).
Under the performance condition, the estimated compensation expense is based on the grant date
fair value (the closing price of the Companys common stock on the date of grant) and the Companys
current expectations of the probable number of Performance Awards that will ultimately be earned.
The fair value of the Performance Awards under the market condition ($3,245 at April 2, 2011 and
$2,432 at April 3, 2010) is based upon a Monte Carlo simulation model, which encompasses the
Companys relative total shareholder return (TSR) (change in closing price of the Companys
common stock on the New York Stock Exchange compared to that of a peer group of companies (Peer
Companies)) during the Measurement Period. The Measurement Period includes both:
|
(i) |
|
the period from the beginning of Fiscal 2011 to March 1, 2011 (the grant date)
for Performance Awards granted during the Three Months Ended April 2, 2011, and the
period from the beginning of Fiscal 2010 to March 3, 2010 (the grant date) for
Performance Awards granted during the Three Months Ended April 3, 2010, for which actual
TSRs are calculated; and |
|
(ii) |
|
the periods from the respective grant dates to the end of the fiscal years ending
2012 or 2013, respectively, a total of 2.83 years, (the Remaining Measurement Period),
for which simulated TSRs are calculated. |
21
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
The calculation of simulated TSRs under the Monte Carlo model for the Remaining Measurement
Period included the following assumptions:
|
|
|
|
|
|
|
Three Months Ended |
|
|
April 2, 2011 |
|
April 3, 2010 |
|
Weighted average risk free rate of return |
|
1.07% |
|
1.25% |
Dividend yield |
|
|
|
|
Expected volatility Company (a) |
|
61.50% |
|
65.0% |
Expected volatility Peer Companies |
|
38.2% 113.4% |
|
39.8% 114.1% |
Remaining measurement period (years) |
|
2.83 |
|
2.83 |
|
|
|
(a) |
|
Expected volatility Company for the Three Months Ended April 2, 2011 and the
Three Months Ended April 3, 2010 is based on a remaining measurement period of 2.83
years. |
The Company recorded compensation expense for the Performance Awards during the Three Months
Ended April 2, 2011 and the Three Months Ended April 3, 2010 based on the performance condition.
Performance Award activity for the Three Months Ended April 2, 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Performance |
|
|
Grant Date Fair |
|
|
|
Shares |
|
|
Value |
|
Unvested as of January 1, 2011 |
|
|
75,750 |
|
|
$ |
43.28 |
|
Granted |
|
|
80,050 |
|
|
|
55.57 |
|
Vested (a) |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,300 |
) |
|
|
43.28 |
|
|
|
|
|
|
|
|
|
Unvested as of April 2, 2011 |
|
|
154,500 |
|
|
$ |
49.65 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include 35,050 and 34,300 Performance Awards granted to Retirement Eligible
employees during the Three Months Ended April 2, 2011 and the Three Months Ended April 3,
2010, respectively, for which the requisite service period has been completed on the grant
date; the restrictions on such awards will not lapse until the end of the three-year vesting
period. |
Note 16Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
2,034 |
|
|
$ |
3,689 |
|
Interest income |
|
|
(455 |
) |
|
|
(171 |
) |
Income taxes, net of refunds received |
|
|
20,619 |
|
|
|
8,780 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accounts payable for purchase of fixed assets |
|
|
6,130 |
|
|
|
3,903 |
|
22
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 17Income per Common Share
The following table presents the calculation of both basic and diluted income per common share
attributable to Warnaco Group common shareholders, giving effect to participating securities. The
Company has determined that based on a review of its share-based awards, only its restricted stock
awards are deemed participating securities, which participate equally with common shareholders. The
weighted average restricted stock outstanding was 651,791 shares and 597,819 shares for the Three
Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, respectively. Undistributed
income allocated to participating securities is based on the proportion of restricted stock
outstanding to the sum of weighted average number of common shares outstanding attributable to
Warnaco Group common shareholders and restricted stock outstanding for each period presented
below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
Numerator for basic and diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group, Inc. common
shareholders and participating securities |
|
$ |
44,532 |
|
|
$ |
48,312 |
|
Less: allocation to participating securities |
|
|
(652 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group, Inc. common
shareholders |
|
$ |
43,880 |
|
|
$ |
47,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations, net of tax, attributable to Warnaco Group, Inc.
common shareholders and participating securities |
|
$ |
(501 |
) |
|
$ |
(337 |
) |
Less: allocation to participating securities |
|
|
7 |
|
|
|
4 |
|
|
|
|
|
|
|
|
(Loss) from discontinued operations attributable to Warnaco Group, Inc. common
shareholders |
|
$ |
(494 |
) |
|
$ |
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. common shareholders and participating
securities |
|
$ |
44,031 |
|
|
$ |
47,975 |
|
Less: allocation to participating securities |
|
|
(645 |
) |
|
|
(624 |
) |
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. common shareholders |
|
$ |
43,386 |
|
|
$ |
47,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to Warnaco Group, Inc. common shareholders: |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing income per
common share |
|
|
43,891,868 |
|
|
|
45,418,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
1.00 |
|
|
$ |
1.05 |
|
(Loss) per common share from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income per common share |
|
$ |
0.99 |
|
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Warnaco Group, Inc. common shareholders: |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing basic income
per common share |
|
|
43,891,868 |
|
|
|
45,418,865 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
898,863 |
|
|
|
998,188 |
|
|
|
|
|
|
|
|
Weighted average number of shares and share equivalents used in computing income per
common share |
|
|
44,790,731 |
|
|
|
46,417,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
0.98 |
|
|
$ |
1.03 |
|
(Loss) per common share from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Net income per common share |
|
$ |
0.97 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of anti-dilutive out-of-the-money stock options outstanding (a) |
|
|
331,150 |
|
|
|
395,500 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
options to purchase shares of common stock at an exercise price greater than the average
market price of the underlying shares are anti-dilutive and therefore not included in the
computation of diluted income per common share from continuing operations. |
23
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)
Note 18Legal Matters
OP Litigation: On August 19, 2004, the Company acquired 100% of the outstanding common stock
of Ocean Pacific Apparel Corp. (OP) from Doyle & Bossiere Fund I, LLC (Doyle) and certain
minority shareholders of OP. The terms of the acquisition agreement required the Company to make
certain contingent payments to the sellers of OP under certain circumstances. On November 6, 2006,
the Company sold the OP business to a third party. On May 23, 2007, Doyle filed a demand against
the Company for arbitration before Judicial Arbitration and Mediation Services (JAMS) in Orange
County, California, alleging that certain contingent purchase price payments are due to them as a
result of the Companys sale of the OP business in November 2006 (the OP Action). On February 7,
2011, the Company and Doyle entered into a settlement agreement and mutual release to the entire
action described above. As a result, the entire action was dismissed by JAMS, with prejudice.
Lejaby Claims: As of April 2, 2011, the Company had receivables (comprised of a loan
receivable and a receivable for working capital, recorded in Other assets on the Companys
Consolidated Condensed Balance Sheets) totaling $18,209 from Palmers Textil AG (Palmers) related
to the Companys sale of its Lejaby business to Palmers on March 10, 2008. On August 18, 2009,
Palmers filed an action against the Company in Le Tribunal de Commerce de Paris (The Paris
Commercial Court), alleging that the Company made certain misrepresentations in the sale agreement,
and seeking to declare the sale null and void, monetary damages in an unspecified amount and other
relief (the Palmers Suit). In addition, the Company and Palmers have been unable to agree on
certain post-closing adjustments to the purchase price, including adjustments for working capital.
The dispute regarding the amount of post-closing adjustments is not a subject of the Palmers Suit.
The Company believes that its receivables from Palmers are valid and collectible and that the
Palmers Suit is without merit. The Company is defending itself vigorously in this matter.
Other: In addition, from time to time, the Company is involved in arbitrations or legal
proceedings that arise in the ordinary course of its business. The Company cannot predict the
timing or outcome of these claims and proceedings. Currently, the Company is not involved in any
such arbitration and/or legal proceeding that it expects to have a material effect on its financial
condition, results
of operations or business.
Note 19 Commitments
Except as set forth below, the contractual obligations and commitments in existence as of
April 2, 2011 did not differ materially from those disclosed as of January 1, 2011 in the Companys
Annual Report on Form 10-K for Fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
entered into during
the Three Months
Ended April 2, 2011 |
|
$ |
7,427 |
|
|
$ |
6,728 |
|
|
$ |
4,688 |
|
|
$ |
1,691 |
|
|
$ |
1,065 |
|
|
$ |
2,827 |
|
|
$ |
24,426 |
|
Other contractual
obligations
pursuant to
agreements entered
into during the
Three Months Ended
April 2, 2011 |
|
|
2,307 |
|
|
|
247 |
|
|
|
127 |
|
|
|
130 |
|
|
|
33 |
|
|
|
55 |
|
|
$ |
2,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,734 |
|
|
$ |
6,975 |
|
|
$ |
4,815 |
|
|
$ |
1,821 |
|
|
$ |
1,098 |
|
|
$ |
2,882 |
|
|
$ |
27,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 2, 2011, in the ordinary course of business, the Company had open purchase orders
with suppliers of approximately $365,396, all of which are payable in 2011.
As of April 2, 2011, the Company was also party to outstanding hedging instruments (see Note
11 of Notes to the Consolidated Condensed Financial Statements).
As of April 2, 2011, the Company remains under audit in various taxing jurisdictions. It is,
therefore, difficult to predict the final timing and resolution of any particular uncertain tax
position. Based upon the Companys assessment of many factors, including past experience and
complex judgments about future events, it is reasonably possible that within the next twelve months
its accrual for uncertain tax positions may increase between $2,300 and $4,200 (net of decreases
that are reasonably possible), as a result of additional uncertain tax positions, the reevaluation
of current uncertain tax positions arising from developments in examinations, the finalization of
tax examinations, or from the closure of tax statutes.
24
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The Warnaco Group, Inc. (Warnaco Group and, collectively with its subsidiaries, the
Company) is subject to certain risks and uncertainties that could cause its future results of
operations to differ materially from its historical results of operations and that could affect the
market value of the Companys common stock. This Quarterly Report on Form 10-Q, including the
following discussion, but except for the historical information contained herein, contains
forward-looking statements that involve risks and uncertainties. See Statement Regarding
Forward-Looking Disclosure.
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with: (i) the Consolidated Condensed Financial Statements
and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) the
Companys Annual Report on Form 10-K for the fiscal year ended January 1, 2011 (Fiscal 2010).
The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to
December 31. As such, the period from January 2, 2011 to December 31, 2011 (Fiscal 2011) and the
period from January 3, 2010 to January 1, 2011 (Fiscal 2010) each contain 52 weeks of operations.
Additionally, the period from January 2, 2011 to April 2, 2011 (the Three Months Ended April 2,
2011) and the period from January 3, 2010 to April 3, 2010 (the Three Months Ended April 3,
2010) each contained thirteen weeks of operations.
The Company operates in three business segments: (i) Sportswear Group; (ii) Intimate Apparel
Group; and (iii) Swimwear Group, which groupings reflect the manner in which the Companys business
is managed and the manner in which the Companys Chief Executive Officer, who is the chief
operating decision maker reviews the Companys business. Amounts related to certain corporate
expenses incurred in the U.S. (previously included in Operating income (loss) Corporate/Other)
during the Three Months Ended April 3, 2010 have been reclassified to Operating income (loss) -
Sportswear Group, Intimate Apparel Group and Swimwear Group in order to conform to the current
period presentation (see Note 6 of Notes to Consolidated Condensed Financial Statements). In
addition amounts associated with certain sourcing and design related expenses incurred in the U.S.
(previously included in domestic Operating income (loss) Sportswear Group, Intimate Apparel Group
and Swimwear Group) during the Three Months Ended April 3, 2010 have been reclassified to
international Operating income (loss) Sportswear Group, Intimate Apparel Group and Swimwear Group
in order to conform to the current period presentation. The revision of the operating income (loss)
for each Group and Corporate/Other for the Three Months Ended April 3, 2010 did not have any effect
on the Companys Consolidated Condensed Balance Sheets, Consolidated Condensed Statements of
Operations or Consolidated Condensed Statements Cash Flows for any period presented in this Form
10-Q.
References to Calvin Klein Jeans refer to jeans, accessories and bridge products.
References to Core Intimates refer to the Intimate Apparel Groups Warners®, Olga® and Body
Nancy Ganz/Bodyslimmers® brand names and intimate apparel private labels. References to Retail
within each operating Group refer to the Companys owned full price free standing stores, owned
outlet stores, concession / shop-in-shop stores and on-line stores. Results related to stores
operated by third parties under retail licenses or distributor agreements are included in
Wholesale within each operating Group. References to sales mix refer to the channels of
distribution in which the Companys products are sold. For example, an unfavorable sales mix refers
to sales of products in low margin channels of distribution, such as the off-price channel.
Overview
The Company designs, sources, markets, licenses and distributes sportswear, intimate apparel,
and swimwear worldwide through highly recognized brand names. The Companys products are
distributed domestically and internationally in over 100 countries, primarily to wholesale
customers through various distribution channels, including major department stores, independent
retailers, chain stores, membership clubs, specialty, off-price, mass merchandisers and other
stores, and to retail customers, through the Companys retail stores and the internet.
The Companys mission is to become the premier global, branded apparel company. To accomplish
its mission, the Company has identified the following key strategic objectives, which it continued
to implement during the Three Months Ended April 2, 2011, as follows:
|
|
|
Build and maintain powerful global brands. The Company believes that one of its
strengths is its portfolio of highly recognized brand names. The Company strives to
enhance its brand image through superior design, product innovation, focused marketing
and high quality product construction. For the Three Months Ended April 2, 2011, net
revenues of businesses selling Calvin Klein products, the Companys major brand,
increased 13.2% to $476.5 million (72.0% of Company net revenues) compared to $420.8
million (71.6% of Company net revenues) for the Three Months Ended April 3, 2010. The
launch of the ck one product line of mens and womens jeanswear and underwear during
the Three Months Ended April 2, 2011, and the expansion of the Companys Calvin Klein
international retail store network during the Three Months Ended April 2, 2011 contributed significantly to the increases in net
revenues of Calvin Klein branded products worldwide. However, operating income of Calvin
Klein branded products decreased 16.7% to $58.0 million (83.3% of Company operating
income) compared to $69.6 million (87.6% of Company operating income) for the Three
Months Ended April 3, 2010 primarily related to a decline in the Calvin Klein Sportswear
business. The decline in the Sportswear Groups Calvin Klein operating income is
primarily reflective of decreases in Europe (primarily related to an unfavorable sales
mix, an increase in selling, general and administrative expenses (SG&A) associated with
newly-opened and acquired retail stores and, to a lesser extent, an increase in product
costs) and the U.S. (primarily related to an increase in the level of customer allowances
coupled with an unfavorable sales mix and, to a lesser extent, an increase in product
costs), partially offset by increases in Asia and in Mexico, Central and South America. |
25
|
|
|
Grow the Companys direct- to- consumer business. During the Three Months Ended
April 2, 2011, the Company opened new retail stores in Europe, Asia and South America,
including 84 Calvin Klein retail stores worldwide (consisting of 11 free-standing stores
(including 10 full price and 1 outlet stores), and 73 shop-in-shop/concession stores).
As of April 2, 2011, the Company operated (i) 1,443 Calvin Klein retail stores
worldwide (consisting of 318 free-standing stores (including 199 full price and 119
outlet stores), 1,123 shop-in-shop/concession stores, one Calvin Klein Underwear on-line
store and one Calvin Klein Jeans on-line store) and (ii) one Speedo® on-line store.
Direct-to-consumer (retail) net revenues increased 35.5% to $168.1 million (25.4% of
Company net revenues) for the Three Months Ended April 2, 2011 compared to $124.1
million for the Three Months Ended April 3, 2010 (21.1% of Company net revenues). The
increase in retail net revenues was primarily due to: |
|
(i) |
|
the opening of retail stores during the second through fourth quarters of
Fiscal 2010 and the Three Months Ended April 2, 2011, which store openings added
127,500 square feet of retail space; |
|
(ii) |
|
an increase of 7.7% from comparable store sales during the Three Months
Ended April 2, 2011 compared to the Three Months Ended April 3, 2010; and |
|
(iii) |
|
the acquisition of retail stores in Taiwan (see below) during the Three
Months Ended April 2, 2011 and in Singapore, the Peoples Republic of China and
Italy during the second and fourth quarters of Fiscal 2010. The increase in retail
net revenues during the Three Months Ended April 2, 2011 compared to the Three
Months Ended April 2, 2010 as a result of those acquisitions in 2011 and 2010 was
approximately $18.6 million. The Company expects to continue to expand its retail
business, particularly in Europe and Asia; |
Operating income from retail sales decreased 6.5% to $7.5 million (10.8% of Company
operating income) for the Three Months Ended April 2, 2011 compared to $8.1 million
(10.1% of Company operating income) for the Three Months Ended April 3, 2010. The decline
in operating income is primarily reflective of additional SG&A expenses related to the
opening and acquisition of new retail stores.
|
|
|
Leverage the Companys international platform. The Companys global design,
sourcing, sales and distribution network allows it to reach consumers around the world.
The Company works to effectively utilize its international presence to enhance and
expand the worldwide reach of its branded apparel products. The Company believes that
there are opportunities for continued growth in Europe, Asia and South America. For the
Three Months Ended April 2, 2011, net revenues from international operations increased
18.8%, to $377.0 million (representing 56.9% of Company net revenues) compared to $317.4
million (representing 54.0% of Company net revenues) for the Three Months Ended April 3,
2010. However, operating income from international operations decreased 12.8% to $41.1
million (59.0% of Company operating income) for the Three Months Ended April 2, 2011
compared to $47.1 million (59.3% of Company operating income) for the Three Months Ended
April 3, 2010. The decrease in operating income from international operations is
primarily due to declines in Europe, partially offset by increases in Asia, Mexico and
Brazil. |
|
|
|
Manage heritage businesses for profitability. Net revenues of the Companys heritage
businesses, which businesses includes Chaps®, Warners, Olga and Speedo®, increased
10.9% to $185.6 million (28.0% of Company net revenues) compared to $167.3 million
(28.4% of Company net revenues) for the Three Months Ended April 3, 2010. Operating
income increased 3.4% to $25.2 million (36.2% of Company operating income) compared to
$24.4 million (30.6% of Company operating income) for the Three Months Ended April 3,
2010. The increase in net revenues was primarily driven by increased sales of Chaps and
Speedo products, while the increase in operating income was primarily generated by
Speedo products. |
26
Overall, the Companys net revenues increased $74.0 million, or 12.6%, to $662.2 million for
the Three Months Ended April 2, 2011 compared to $588.2 million for the Three Months Ended April 3,
2010, reflecting increases of $33.2 million in the Sportswear Group, $27.0 million in the Intimate
Apparel Group, and $13.8 million in the Swimwear Group compared to the Three Months Ended April 3, 2010. The Companys operating income decreased $9.8 million, or 12.4%, to $69.7
million for the Three Months Ended April 2, 2011 compared to $79.5 million for the Three Months
Ended April 3, 2010, reflecting decreases of $10.6 million in the Sportswear Group and $2.2 million
in the Intimate Apparel Group, partially offset by an increase of $2.1 million in the Swimwear
Group and the positive effect of a $0.9 million reduction in corporate/other expenses
compared to the Three Months Ended April 3, 2010. Operating income includes restructuring charges
of $6.5 million and $1.0 million for the Three Months Ended April 2, 2011 and the Three Months
Ended April 3, 2010, respectively (see Liquidity and Capital Resources Restructuring and Note 5
of Notes to Consolidated Condensed Financial Statements).
During the Three Months Ended April 2, 2011, certain of the Companys businesses, particularly in the U.S. and Europe, began to experience an increase
in costs, including those for raw material, labor and freight. The cost increases are expected to
continue during the remainder of Fiscal 2011 and are expected to adversely affect operating margins
of the Companys worldwide businesses. The Company was able to partially mitigate the cost
increases (and expects to be able to partially mitigate such increases in the future) by increasing
the selling prices of its goods, early purchases of product and by implementing other sourcing initiatives.
As noted above, more than 50% of the Companys net revenues were generated from foreign
operations, a majority of which are conducted in countries whose functional currencies are the
Euro, Korean Won, Canadian Dollar, Brazilian Real, Mexican Peso, Chinese Yuan and British Pound.
For the Three Months Ended April 2, 2011 compared to the previous year period, net revenues were
favorably affected, while operating income was negatively affected, by fluctuations in certain
foreign currencies: net revenues include an increase of $9.8 million, while operating income
includes a decrease of $1.3 million. The effects of fluctuations in foreign currencies are
reflective of the following: (i) the translation of operating results for the current year period
for entities reporting in currencies other than the U.S. dollar into U.S. dollars at the average
exchange rates in effect during the comparable period of the prior year (rather than the actual
exchange rates in effect during the current year period); (ii) as relates to entities who purchase
inventory in currencies other than that entitys reporting currency, the effect on cost of goods
sold for the current year period compared to the prior year period as a result of differences in
the exchange rates in effect at the time the related inventory was purchased; and (iii) gains and
losses recorded by the Company as a result of fluctuations in foreign currencies and related to the
Companys foreign currency hedge programs.
On a GAAP (defined below) basis, for the Three Months Ended April 2, 2011 compared to the
Three Months Ended April 3, 2010, income from continuing operations per diluted share decreased 5%
to $0.98 per diluted share (from $1.03 per diluted share). On a non-GAAP basis (excluding
restructuring expense, pension expense and certain other items (see Non-GAAP Measures, below),
income from continuing operations per diluted share increased 0.9% to $1.10 per diluted share (from
$1.09 per diluted share).
On January 3, 2011, the Company acquired certain assets, including inventory and leasehold
improvements, and acquired the leases, of the retail stores from its Calvin Klein distributor in
Taiwan for cash consideration of approximately $1.4 million.
At April 2, 2011, the Companys balance sheet included cash and cash equivalents of $174.1
million and total debt of $146.4 million.
During The Three Months Ended April 2, 2011, the Company repurchased 560,842 shares of Common
Stock under the 2010 Share Repurchase Program for $29.1 million (based on an average of $51.97 per
share).
27
Non-GAAP Measures
The Companys reported financial results are presented in accordance with U.S. generally
accepted accounting principles (GAAP). The reported operating income, income from continuing
operations and diluted earnings per share from continuing operations reflect certain items which
affect the comparability of those reported results. Those financial results are also presented on a
non-GAAP basis, as defined by Regulation S-K section 10(e) of the Securities and Exchange
Commission (SEC), to exclude the effect of these items. The Companys computation of these
non-GAAP measures may vary from others in its industry. These non-GAAP financial measures are not
intended to be, and should not be, considered separately from or as an alternative to the most
directly comparable GAAP financial measure to which they are reconciled, as presented in the
following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
(Dollars in thousands, except per share amounts) |
|
|
Operating income, as reported (GAAP) |
|
$ |
69,654 |
|
|
$ |
79,498 |
|
Restructuring charges and pension (a) |
|
|
6,177 |
|
|
|
938 |
|
|
|
|
|
|
|
|
Operating income, as adjusted (non-GAAP) |
|
$ |
75,831 |
|
|
$ |
80,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, as reported (GAAP) |
|
$ |
44,532 |
|
|
$ |
48,312 |
|
Restructuring charges and pension, net of income tax (a) |
|
|
4,121 |
|
|
|
481 |
|
Costs related to the redemption of debt, net of income
tax (b) |
|
|
|
|
|
|
1,015 |
|
Taxation (c) |
|
|
1,130 |
|
|
|
1,337 |
|
|
|
|
|
|
|
|
Income from continuing operations, as adjusted (non-GAAP) |
|
$ |
49,783 |
|
|
$ |
51,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations,
as reported (GAAP) |
|
$ |
0.98 |
|
|
$ |
1.03 |
|
Restructuring charges and pension, net of income tax (a) |
|
|
0.09 |
|
|
|
0.01 |
|
Costs related to the redemption of debt, net of income
tax (b) |
|
|
|
|
|
|
0.02 |
|
Taxation (c) |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations,
as adjusted (non-GAAP) |
|
$ |
1.10 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This adjustment seeks to present operating income, income from continuing operations
and diluted earnings per share from continuing operations for the Three Months Ended April
2, 2011 and April 3, 2010, respectively, without the effects of restructuring charges and
other exit costs ($6,489 and $959, on a pre-tax basis, for the Three Months Ended April 2,
2011 and the Three Months Ended April 3, 2010, respectively) and pension income ($312 and
$21, on a pre-tax basis, for the Three Months Ended April 2, 2011 and the Three Months
Ended April 3, 2010, respectively). The income tax rates used to compute the income tax
effect related to this adjustment correspond to the local statutory tax rates of the
reporting entities that incurred the restructuring and other exit costs and recognized
pension income. |
|
(b) |
|
This adjustment seeks to present income from continuing operations and diluted
earnings per share from continuing operations without the effect of a charge as shown in
the table above related to the repurchase of a portion of its Senior Notes during the Three
Months Ended April 3, 2010. The income tax rates used to compute the income tax effect
related to this adjustment correspond to the statutory tax rates in the U.S. |
|
(c) |
|
For the Three Months Ended April 2, 2011 and Three Months Ended April 3, 2010, this
adjustment reflects an additional amount that is required in order to present adjusted (non-GAAP) income from continuing operations and diluted earnings per share from
continuing operations at the Companys forecasted normalized tax rates for Fiscal
2011 (33.2%) and Fiscal 2010 (33.0%), respectively. The Companys forecasted normalized tax
rates for both Fiscal 2011 and Fiscal 2010 excludes the effects of restructuring charges,
pension income and certain tax adjustments related to either changes in estimates in prior
period tax provisions or adjustments for certain discrete tax items. Adjustments for discrete items reflect the federal,
state and foreign tax effects related to: 1) income taxes associated with legal entity
reorganizations and restructurings; 2) tax provision or benefit resulting from statute
expirations or the finalization of income tax examinations; and 3) other adjustments not
considered part of the Companys core business activities. In addition the
Companys estimate of its normalized tax rate for Fiscal 2010 excludes the effect of costs
related to the redemption of debt.
|
The Company believes it is valuable for users of its financial statements to be made aware of
the non-GAAP financial information, as such measures are used by management to evaluate the
operating performance of the Companys continuing businesses on a comparable basis and to make
operating and strategic decisions. Such non-GAAP measures will also enhance users ability to
analyze trends in the Companys business. In addition, the Company uses performance targets based
on non-GAAP operating income and diluted earnings per share as a component of the measurement of
incentive compensation.
Furthermore, the Warnaco Group is a global company that reports financial information in U.S.
dollars in accordance with GAAP. Foreign currency exchange rate fluctuations affect the amounts
reported by the Company from translating its foreign revenues into U.S. dollars. These rate
fluctuations can have a significant effect on reported operating results. As a supplement to its
reported operating results, the Company presents constant currency financial information, which is
a non-GAAP financial measure. The Company uses constant currency information to provide a
framework to assess how its businesses performed excluding the effects of changes in foreign currency translation rates. Management believes this information is useful
to investors to facilitate comparisons of operating results and better identify trends in the
Companys businesses.
28
To calculate the increase in segment revenues on a constant currency basis, operating results
for the current year period for entities reporting in currencies other than the U.S. dollar are
translated into U.S. dollars at the average exchange rates in effect during the comparable period
of the prior year (rather than the actual exchange rates in effect during the current year period).
These constant currency performance measures should be viewed in addition to, and not in
isolation from, or as a substitute to, the Companys operating performance measures calculated in
accordance with GAAP. The constant currency information presented in the following table may not
be comparable to similarly titled measures reported by other companies.
NET REVENUES ON A CONSTANT CURRENCY BASIS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 2, 2011 |
|
|
|
GAAP |
|
|
Impact of Foreign |
|
|
Non-GAAP |
|
|
|
As Reported |
|
|
Currency Exchange |
|
|
Constant Currency |
|
By Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
339,471 |
|
|
$ |
5,772 |
|
|
$ |
333,699 |
|
Intimate Apparel Group |
|
|
220,994 |
|
|
|
3,179 |
|
|
|
217,815 |
|
Swimwear Group |
|
|
101,696 |
|
|
|
882 |
|
|
|
100,814 |
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
662,161 |
|
|
$ |
9,833 |
|
|
$ |
652,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Region: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
285,143 |
|
|
$ |
|
|
|
$ |
285,143 |
|
Europe |
|
|
168,469 |
|
|
|
438 |
|
|
|
168,031 |
|
Asia |
|
|
126,776 |
|
|
|
4,023 |
|
|
|
122,753 |
|
Mexico, Central and South America |
|
|
51,718 |
|
|
|
3,562 |
|
|
|
48,156 |
|
Canada |
|
|
30,055 |
|
|
|
1,810 |
|
|
|
28,245 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
662,161 |
|
|
$ |
9,833 |
|
|
$ |
652,328 |
|
|
|
|
|
|
|
|
|
|
|
Discussion of Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires the Company to use
judgment in making certain estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses in its consolidated condensed financial statements and accompanying notes.
Critical accounting policies are those that are most important to the portrayal of the Companys
financial condition and results of operations and require difficult, subjective and complex
judgments by management in order to make estimates about the effect of matters that are inherently
uncertain. During the Three Months Ended April 2, 2011, there were no significant changes to the
Companys critical accounting policies from those described in the Companys Annual Report on Form
10-K for Fiscal 2010.
Recent Accounting Pronouncement
In December 2010, the Financial Accounting Standards Board issued Accounting Standards Update
2010-29 Disclosure of Supplementary Pro Forma Information for Business
Combinations (ASU 2010-29), which amends Topic 805 on business combinations. ASU 2010-29 clarifies that if a
public entity presents comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
ASU 2010-29 also expands the supplemental pro forma disclosures under Topic 805 to include a
description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings.
ASU 2010-29 is effective prospectively for the Company for business combinations for which the
acquisition date is on or after January 2, 2011. In the event that the Company enters into a
business combination or a series of business combinations that are deemed to be material for
financial reporting purposes, the Company will apply the amendments in ASU 2010-29.
29
Results of Operations
Statement of Operations (Selected Data)
The following tables summarize the historical results of operations of the Company for the
Three Months Ended April 2, 2011 compared to the Three Months Ended April 3, 2010. The results of
the Companys discontinued operations are included in Loss from discontinued operations, net of
taxes for all periods presented. Results of operations contained 13 weeks of activity for the
Three Months Ended April 2, 2011 and for the Three Months Ended April 3, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended April 2, |
|
|
% of Net |
|
|
Ended April 3, |
|
|
% of Net |
|
|
|
2011 |
|
|
Revenues |
|
|
2010 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Net revenues |
|
$ |
662,161 |
|
|
|
100.0 |
% |
|
$ |
588,164 |
|
|
|
100.0 |
% |
Cost of goods sold |
|
|
367,023 |
|
|
|
55.4 |
% |
|
|
321,046 |
|
|
|
54.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
295,138 |
|
|
|
44.6 |
% |
|
|
267,118 |
|
|
|
45.4 |
% |
Selling, general and administrative expenses |
|
|
222,637 |
|
|
|
33.6 |
% |
|
|
184,973 |
|
|
|
31.4 |
% |
Amortization of intangible assets |
|
|
3,159 |
|
|
|
0.5 |
% |
|
|
2,668 |
|
|
|
0.5 |
% |
Pension income |
|
|
(312 |
) |
|
|
0.0 |
% |
|
|
(21 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
69,654 |
|
|
|
10.5 |
% |
|
|
79,498 |
|
|
|
13.5 |
% |
Other income (loss) |
|
|
(644 |
) |
|
|
|
|
|
|
1,820 |
|
|
|
|
|
Interest expense |
|
|
2,696 |
|
|
|
|
|
|
|
4,978 |
|
|
|
|
|
Interest income |
|
|
(746 |
) |
|
|
|
|
|
|
(1,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes |
|
|
68,348 |
|
|
|
|
|
|
|
73,706 |
|
|
|
|
|
Provision for income taxes |
|
|
23,816 |
|
|
|
|
|
|
|
25,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
44,532 |
|
|
|
|
|
|
|
48,312 |
|
|
|
|
|
(Loss) from discontinued operations, net of taxes |
|
|
(501 |
) |
|
|
|
|
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
44,031 |
|
|
|
|
|
|
$ |
47,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
For the Three Months Ended April 2, 2011 compared to the Three Months Ended April 3, 2010, net
revenues increased across all Groups (segments) and within each segment the amount of net revenues
increased from both wholesale and retail channels of distribution, except that Swimwear Group
retail net revenues were substantially unchanged. In line with its strategy of growing its
direct-to-consumer business, the percentage of Company retail net revenues to total net revenues
increased. In addition, the Company experienced an increase in net revenues across all geographies
(most notably in Asia and in Mexico and Central and South America) as presented in the following
tables:
Net revenues by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
Increase |
|
|
% |
|
|
Constant $ |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
Change |
|
|
% Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
Sportswear Group |
|
$ |
339,471 |
|
|
$ |
306,346 |
|
|
$ |
33,125 |
|
|
|
10.8 |
% |
|
|
8.9 |
% |
Intimate Apparel Group |
|
|
220,994 |
|
|
|
193,942 |
|
|
|
27,052 |
|
|
|
13.9 |
% |
|
|
12.3 |
% |
Swimwear Group |
|
|
101,696 |
|
|
|
87,876 |
|
|
|
13,820 |
|
|
|
15.7 |
% |
|
|
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
662,161 |
|
|
$ |
588,164 |
|
|
$ |
73,997 |
|
|
|
12.6 |
% |
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
|
2011 |
|
|
2010 |
|
United States wholesale |
|
|
|
|
|
|
|
|
Department stores and independent retailers |
|
|
9% |
|
|
|
12% |
|
Specialty stores |
|
|
8% |
|
|
|
8% |
|
Chain stores |
|
|
7% |
|
|
|
8% |
|
Mass merchandisers |
|
|
1% |
|
|
|
1% |
|
Membership clubs |
|
|
8% |
|
|
|
8% |
|
Off price and other |
|
|
10% |
|
|
|
9% |
|
|
|
|
|
|
|
|
Total United States wholesale |
|
|
43% |
|
|
|
46% |
|
International wholesale |
|
|
32% |
|
|
|
33% |
|
Retail (a) |
|
|
25% |
|
|
|
21% |
|
|
|
|
|
|
|
|
Net revenues consolidated |
|
|
100% |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
for the Three Months Ended April 2, 2011 and the Three Months
Ended April 3, 2010, 98.2% and 97.4%, respectively, of retail net revenues were
derived from the Companys international operations. |
Net revenues by geography were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
Increase / |
|
|
|
|
|
|
Constant $ |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
% Change |
|
|
% Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
285,143 |
|
|
$ |
270,750 |
|
|
$ |
14,393 |
|
|
|
5.3 |
% |
|
|
5.3 |
% |
Europe |
|
|
168,469 |
|
|
|
157,302 |
|
|
|
11,167 |
|
|
|
7.1 |
% |
|
|
6.8 |
% |
Asia |
|
|
126,776 |
|
|
|
97,073 |
|
|
|
29,703 |
|
|
|
30.6 |
% |
|
|
26.5 |
% |
Mexico, Central and South America |
|
|
51,718 |
|
|
|
37,543 |
|
|
|
14,175 |
|
|
|
37.8 |
% |
|
|
28.3 |
% |
Canada |
|
|
30,055 |
|
|
|
25,496 |
|
|
|
4,559 |
|
|
|
17.9 |
% |
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
662,161 |
|
|
$ |
588,164 |
|
|
$ |
73,997 |
|
|
|
12.6 |
% |
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of fluctuations in foreign currency exchange rates on net revenues was an increase
of $9.8 million for the Three Months Ended April 2, 2011 compared to the Three Months Ended April
3, 2010. See Overview, above.
During the Three Months Ended April 2, 2011, the Companys top five customers accounted for
$136.1 million (20.5% of Company net revenue as compared to $120.1 million (20.4% of Company net
revenue) for the Three Months Ended April 3, 2010. During the Three Months Ended April 2, 2011 and
the Three Months Ended April 3, 2010, no one customer accounted for 10% or more of the Companys
net revenues.
31
Sportswear Group
Sportswear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
Increase |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
184,146 |
|
|
$ |
191,201 |
|
|
$ |
(7,055 |
) |
|
|
-3.7 |
% |
Chaps |
|
|
54,879 |
|
|
|
46,224 |
|
|
|
8,655 |
|
|
|
18.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
239,025 |
|
|
|
237,425 |
|
|
|
1,600 |
|
|
|
0.7 |
% |
Calvin Klein Jeans retail |
|
|
100,446 |
|
|
|
68,921 |
|
|
|
31,525 |
|
|
|
45.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) |
|
$ |
339,471 |
|
|
$ |
306,346 |
|
|
$ |
33,125 |
|
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes net revenues of $42.0 million and $38.8 million related to the Calvin Klein
accessories business in Europe, Asia, Canada and Mexico and Central and South America for the
Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, respectively. |
Sportswear Group net revenues increased $33.1 million to $339.4 million for the Three Months
Ended April 2, 2011 from $306.3 million for the Three Months Ended April 3, 2010. Sportswear Group
net revenues from international operations increased $33.0 million and from domestic operations
increased $0.1 million. The increase in international net revenues includes a $5.8 million increase
due to the favorable effect of fluctuations in certain foreign currency exchange rates. See
Overview, above.
Net revenues from Calvin Klein Jeans increased $24.5 million overall. Wholesale sales of
Calvin Klein Jeans decreased $7.1 million (including decreases of $7.8 million in the U.S. and $8.6
million in Europe, partially offset by increases of $6.6 million in Mexico, Central and South
America and $2.4 million in Asia). The decrease in worldwide wholesale net revenues was primarily
due (in constant currency) to the following:
|
(i) |
|
a decrease in the U.S. primarily due to decreased sales to department, off-price
and outlet stores coupled with an increase in the level of customer allowances, both of
which are reflective of weakness in the womens business, partially offset by a slight
increase in the mens business; and |
|
(ii) |
|
a decrease in Europe primarily due to decreased sales of Calvin Klein Jeans and
accessories to specialty and independent stores and distributors, due in part to the
conversion of a portion of the Companys wholesale businesses in Italy to retail
businesses, as a result of the acquisition of the Companys Italian distributor of
Calvin Klein products in the fourth quarter of Fiscal 2010, partially offset by an
increase in sales in the off-price channel. |
Those decreases were partially offset by:
|
(iii) |
|
an increase in sales in Mexico and Central and South America to department
stores, membership clubs and specialty stores, including an increase in new customers
and increased penetration within existing customers; and |
|
(iv) |
|
a net increase in Asia primarily due to the expansion of the distribution network
in the Peoples Republic of China and other regions of Asia, partially offset by (a) the
conversion of a portion of the Companys wholesale businesses in Taiwan, the Peoples
Republic of China and Singapore to retail businesses as a result of the acquisition of
distributors businesses in those regions in January 2011 (Taiwan) and the second
quarter of 2010, and (b) a decrease in sales to the off-price channel primarily due to
lower levels of excess inventory. |
Net revenues from Calvin Klein Jeans retail sales increased $31.5 million (including increases
of $16.1 million in Asia, $13.2 million in Europe and $2.0 million in Mexico, Central and South
America). The increase in retail net revenues was primarily due (in constant currency) to a 7.4%
increase in comparable store sales, coupled with the addition of new stores opened by the Company
and new stores acquired by the Company (including stores acquired in Taiwan during the Three Months
Ended April 2, 2011 and in Italy, the Peoples Republic of China and Singapore during the second
and fourth quarters of Fiscal 2010).
Net revenues from Chaps increased $8.7 million. The increase primarily reflects an increase in
sales in the U.S. to chain stores and customers in the off-price channel (due to higher demand and
additional product offerings), partially offset by an increase in the level of customer allowances.
32
Intimate Apparel Group
Intimate Apparel Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
Increase |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
|
Calvin Klein Underwear |
|
$ |
110,457 |
|
|
$ |
95,692 |
|
|
$ |
14,765 |
|
|
|
15.4% |
|
Core Intimates |
|
|
45,220 |
|
|
|
45,535 |
|
|
|
(315 |
) |
|
|
-0.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
155,677 |
|
|
|
141,227 |
|
|
|
14,450 |
|
|
|
10.2% |
|
Calvin Klein Underwear retail |
|
|
65,317 |
|
|
|
52,715 |
|
|
|
12,602 |
|
|
|
23.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
220,994 |
|
|
$ |
193,942 |
|
|
$ |
27,052 |
|
|
|
13.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group net revenues increased $27.1 million to $221.0 million for the Three
Months Ended April 2, 2011 from $193.9 million for the Three Months Ended April 3, 2010. Intimate
Apparel Group net revenues from international operations increased $23.7 million and from domestic
operations increased $3.4 million. The increase in international net revenues includes a $3.2
million increase due to the favorable effect of fluctuations in foreign currency exchange rates.
See Overview, above.
Net revenues from Calvin Klein Underwear increased $27.4 million overall. Wholesale sales
increased $14.8 million (including increases of $4.0 million in the U.S., $4.3 million in Mexico,
Central and South America, $3.5 million in Europe, $2.1 million in Asia and $0.9 million in
Canada). The increase in worldwide wholesale net revenue was primarily due (in constant currency)
to the following:
|
(i) |
|
increases in all geographies, that benefitted from the launch of the ck one
product line of Calvin Klein underwear for men and women; |
|
(ii) |
|
an increase in the U.S., which primarily resulted from an increase in sales to
the off-price channel due primarily to deliveries in the first quarter of Fiscal 2011,
where comparable deliveries occurred in the second quarter of Fiscal 2010; |
|
(iii) |
|
an increase in Mexico, Central and South America, primarily due to increased
sales to department stores and specialty stores, including an increase in new customers
and increased penetration within existing customers; |
|
(iv) |
|
in Asia, an increase primarily due to the expansion of the Companys distribution
networks in the Peoples Republic of China and other regions of Asia, partially offset
by the conversion of a portion of the Companys wholesale businesses in the Peoples
Republic of China and Singapore to retail businesses, as a result of the acquisition of
distributors businesses in those regions in the second quarter of 2010; and |
|
(v) |
|
in Europe, increases in sales to customers in the off-price channel. |
Net revenues from Calvin Klein Underwear retail sales increased $12.6 million (primarily
related to increases of $9.1 million in Asia and $2.8 million in Europe). The increase in net
revenues was primarily due (in constant currency) to the addition of new stores opened by the
Company and acquired by the Company (including stores acquired in Taiwan during the Three Months
Ended April 2, 2011 and in Italy, the Peoples Republic of China and Singapore in the second and
fourth quarters of Fiscal 2010) and to an 8.2% increase in comparable store sales. In addition, the
increase reflects the successful global launch of the ck one product line of Calvin Klein underwear
for men and women during the Three Months Ended April 2, 2011, sales of the Calvin Klein X mens
product line in all geographies (which launched during the second and third quarters of Fiscal
2010) and sales of the Calvin Klein Envy womens product line (which launched primarily in Europe
and Asia during the second and third quarters of Fiscal 2010).
Net revenues from Core Intimates decreased $0.3 million. The decrease primarily reflects a
decrease in sales in the U.S. primarily due to new product launches scheduled for the second
quarter of Fiscal 2011, where new product launches occurred in the first quarter of Fiscal 2010.
Those decreases were partially offset by higher sales volume in the off-price channel.
33
Swimwear Group
Swimwear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
Increase |
|
|
% |
|
|
|
2011 |
|
|
2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
83,520 |
|
|
$ |
73,490 |
|
|
$ |
10,030 |
|
|
|
13.6 |
% |
Calvin Klein |
|
|
15,862 |
|
|
|
11,970 |
|
|
|
3,892 |
|
|
|
32.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
99,382 |
|
|
|
85,460 |
|
|
|
13,922 |
|
|
|
16.3 |
% |
Swimwear retail (a) |
|
|
2,314 |
|
|
|
2,416 |
|
|
|
(102 |
) |
|
|
-4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
101,696 |
|
|
$ |
87,876 |
|
|
$ |
13,820 |
|
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes $0.3 million and $0.3 million for the Three Months Ended April 2, 2011 and the
Three Months Ended April 3, 2010, respectively, related to Calvin Klein retail swimwear. |
Swimwear Group net revenues increased $13.8 million to $101.7 million for the Three Months
Ended April 2, 2011 from $87.9 million for the Three Months Ended April 3, 2010. Swimwear Group
net revenues from international operations increased $2.9 million and from domestic operations
increased $10.9 million. The increase in international net revenues includes a $0.9 million
increase due to the favorable effect of fluctuations in foreign currency exchange rates. See
Overview, above. Comparable store sales declined 16.2% for the Three Months Ended April 2, 2011
compared to the Three Months Ended April 3, 2010 in the Swimwear Group.
Net revenues from Speedo increased $10.0 million, which primarily represented an increase of
$7.9 million in the U.S., primarily due to increased sales to membership clubs, mass merchandisers,
specialty stores and off-price stores. In Canada, net revenues increased $1.7 million, primarily
due to shipments to membership clubs in the first quarter of Fiscal 2011, where comparable
shipments occurred in the second quarter of Fiscal 2010.
Net revenues from Calvin Klein swimwear increased $3.8 million, mainly in wholesale sales,
primarily due, in the U.S., to increased sales to department stores and the introduction of sales
to membership clubs in 2011. In Europe, net revenues increased primarily due to sales of special
products in the off-price channel. Retail sales were substantially unchanged.
Gross Profit
Gross profit was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended April 2, |
|
|
% of Brand |
|
|
Ended April 3, |
|
|
% of Brand |
|
|
|
2011 |
|
|
Net Revenues |
|
|
2010 |
|
|
Net Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
151,400 |
|
|
|
44.6 |
% |
|
$ |
138,147 |
|
|
|
45.1 |
% |
Intimate Apparel Group |
|
|
107,789 |
|
|
|
48.8 |
% |
|
|
97,472 |
|
|
|
50.3 |
% |
Swimwear Group |
|
|
35,949 |
|
|
|
35.3 |
% |
|
|
31,499 |
|
|
|
35.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
295,138 |
|
|
|
44.6 |
% |
|
$ |
267,118 |
|
|
|
45.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit was $295.1 million, or 44.6% of net revenues, for the Three Months Ended April 2,
2011 compared to $267.1 million, or 45.4% of net revenues, for the Three Months Ended April 3,
2010. The $28.0 million (10.5%) increase in gross profit was primarily generated from the
Companys international retail businesses and is reflective of increased net revenues (see above).
Gross profit for the Three Months Ended April 2, 2011 includes an increase of $3.2 million due to
the favorable effects of foreign currency fluctuations.
Sportswear Group gross profit increased $13.2 million, and gross margin decreased 50 basis
points, for the Three Months Ended April 2, 2011 compared to the Three Months Ended April 3, 2010,
reflecting a $20.1 million increase in international operations, partially offset by a $6.9 million
decrease in the domestic business. The 50 basis point decline in gross margin reflects a decline
in domestic gross margin (primarily related to the effect of an increase in the level of customer
allowances, an unfavorable sales mix and to a lesser extent, an increase in product costs ),
partially offset by an increase in international gross margins ( primarily related to a favorable
sales mix in Asia and in Mexico, Central and South America, partially offset by the effect of an
unfavorable sales mix and, to a lesser extent, an increase in product costs in Europe).
34
Intimate Apparel Group gross profit increased $10.3 million and gross margin decreased 150
basis points for the Three Months Ended April 2, 2011 compared to the Three Months Ended April 3,
2010 reflecting a $12.7 million increase in international operations, partially offset by a $2.4
million decrease in the domestic business. The decline in gross margin primarily reflects the
effect of an increase in the level of customer allowances (in the U.S.), an unfavorable sales mix
in and, to a lesser extent, an increase in product costs, in the U.S. and European businesses,
partially offset by the effect of a favorable sales mix in Asia and in Mexico, Central and South
America
Swimwear Group gross profit increased $4.4 million and gross margin decreased 50 basis points
for the Three Months Ended April 2, 2011 compared to the Three Months Ended April 3, 2010,
reflecting a $0.8 million increase in international operations and a $3.6 million increase in the
domestic business, primarily reflecting an increase in net revenues (see above).
Selling, General and Administrative Expenses
Selling, general & administrative (SG&A) expenses increased $37.6 million to $222.6 million
(33.6% of net revenues) for the Three Months Ended April 2, 2011 compared to $185.0 million (31.4%
of net revenues) for the Three Months Ended April 3, 2010. The increase in SG&A expenses includes:
|
(i) |
|
an increase of $28.1 million in selling and distribution expenses
primarily associated with the opening and acquisition of additional retail stores in
Europe, Asia, Canada and Mexico and Central and South America and new warehouses in the
Netherlands, the Peoples Republic of China and Singapore, partially offset by the
elimination of duplicative costs associated with consolidation of the distribution
centers in Europe during Fiscal 2010; |
|
(ii) |
|
an increase of $3.1 million in marketing expenses, primarily related to the
global launch of the ck one product line of mens and womens jeanswear and underwear
during the Three Months Ended April 2, 2011 and expenditures related to the Companys
Calvin Klein X product line of mens underwear and Calvin Klein Envy product line of
womens underwear, which lines were launched during the second half of Fiscal 2010; and |
|
(iii) |
|
an increase in administrative expenses of $6.4 million, primarily related to
an increase in restructuring charges of $5.0 million (see Note 5 of Notes to
Consolidated Condensed Financial Statements), amounts recorded for stock-based
compensation expense ($1.8 million) (see below) and additional expense due to
fluctuations in foreign currency exchange rates ($2.1 million), partially offset by a
decrease in amounts accrued for performance-based employee cash compensation ($2.2
million). |
The Company granted share-based compensation awards (stock options and restricted
shares/units) to officers and certain employees during the Three Months Ended April 2, 2011 and the
Three Months Ended April 3, 2010, for which the Company recorded $11.3 million and $9.5 million of
stock-based compensation expense, respectively. Due to the retirement-eligibility feature of those
share-based awards, $4.1 million and $4.5 million of that compensation expense was recognized
during the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010, respectively,
that would otherwise have been recognized evenly over the three-year vesting periods, from the
respective grant dates, of those awards.
The effect of fluctuations in the U.S. dollar relative to certain functional currencies where
the Company conducts certain of its operations for the Three Months Ended April 2, 2011 compared to
the Three Months Ended April 3, 2010 resulted in a $4.5 million increase in SG&A.
Amortization of Intangible Assets
Amortization of intangible assets was $3.2 million for the Three Months Ended April 2, 2011
compared to $2.7 million for the Three Months Ended April 3, 2010 (see Note 13 of Notes to
Consolidated Condensed Financial Statements Intangible Assets and Goodwill).
Pension Income
Pension income was $0.3 million for the Three Months Ended April 2, 2011 compared to pension
income of $0.02 million for the Three Months Ended April 3, 2010. The increase in pension income is
primarily related to the anticipation of a higher asset base for Fiscal 2011 than for Fiscal 2010
due to higher returns earned on the Pension Plans assets and lower interest charges due to a
decrease in the discount rate used to determine the projected benefit obligation to 5.8% for Fiscal
2011 from 6.1% in Fiscal 2010. See Note 8 of Notes to Consolidated Condensed Financial Statements.
35
Operating Income
The following table presents operating income by Group (segment):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands of dollars) |
|
Sportswear Group (a) |
|
$ |
38,600 |
|
|
$ |
49,246 |
|
Intimate Apparel Group (a) |
|
|
30,537 |
|
|
|
32,756 |
|
Swimwear Group (a) |
|
|
14,068 |
|
|
|
11,961 |
|
Corporate/other expenses (a) (b) |
|
|
(13,551 |
) |
|
|
(14,465 |
) |
|
|
|
|
|
|
|
Operating income (c) |
|
$ |
69,654 |
|
|
$ |
79,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income as a percentage of net revenue |
|
|
10.5 |
% |
|
|
13.5 |
% |
|
|
|
(a) |
|
reflects the allocation of $2.5 million of corporate expenses to the Sportswear
Group $1.7 million, Intimate Apparel Group $0.9 million and Swimwear Group ($0.08)
million, respectively, during the Three Months Ended April 3, 2010 to conform to the
presentation for the Three Months Ended April 2, 2011 (see Overview, above). |
|
(b) |
|
the decrease in corporate/other expenses for the Three Months Ended April 2,
2011 compared to the Three Months Ended April 3, 2010 was primarily related to a
reduction in amounts accrued for performance-based employee cash compensation and other
employee compensation and benefits, partially offset by an increase in stock-based
compensation expense and foreign currency exchange-related losses. |
|
(c) |
|
includes approximately $6.5 million and $1.0 million for the Three Months Ended
April 2, 2011 and the Three Months Ended April 3, 2010, respectively, related to
restructuring expenses. See Note 5 of Notes to Consolidated Condensed Financial
Statements. |
The effect of fluctuations in the U.S. dollar relative to certain functional currencies where
the Company conducts certain of its operations for the Three Months Ended April 2, 2011 compared to
the Three Months Ended April 3, 2010 resulted in a $1.3 million decrease in operating income (see
Overview, above).
Sportswear Group
Sportswear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 2, |
|
|
% of Brand |
|
|
Ended April 3, |
|
|
Brand Net |
|
|
|
2011 (b) |
|
|
Net Revenues |
|
|
2010 (b) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
30,181 |
|
|
|
16.4 |
% |
|
$ |
41,208 |
|
|
|
21.6 |
% |
Chaps |
|
|
7,370 |
|
|
|
13.4 |
% |
|
|
6,600 |
|
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
37,551 |
|
|
|
15.7 |
% |
|
|
47,808 |
|
|
|
20.1 |
% |
Calvin Klein Jeans retail |
|
|
1,049 |
|
|
|
1.0 |
% |
|
|
1,438 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) |
|
$ |
38,600 |
|
|
|
11.4 |
% |
|
$ |
49,246 |
|
|
|
16.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $1.6 million for the Three Months Ended April 2, 2011 and
gains of $0.1 million for the Three Months Ended April 3, 2010. |
|
(b) |
|
includes an allocation of shared services expenses by brand as detailed below: |
36
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
4,381 |
|
|
$ |
4,526 |
|
Chaps |
|
|
1,959 |
|
|
|
2,006 |
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
6,340 |
|
|
|
6,532 |
|
Calvin Klein Jeans retail |
|
|
533 |
|
|
|
359 |
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
6,873 |
|
|
$ |
6,891 |
|
|
|
|
|
|
|
|
Sportswear Group operating income decreased $10.7 million, or 21.6%, reflecting decreases of
$11.0 million and $0.4 million in the Calvin Klein Jeans wholesale and Calvin Klein Jeans retail
businesses, respectively, and an increase of $0.7 million in the Chaps business. Sportswear Group
operating income includes an increase of $0.9 million related to fluctuations in foreign currency
exchange rates. The decrease in Sportswear Group operating income reflects a $13.2 million increase
in gross profit, more than offset by a $23.9 million increase in SG&A (including amortization of
intangible assets) expenses. The increase in Sportswear Group gross profit includes a $5.7 million
decrease in the gross profit of the Calvin Klein Jeans wholesale businesses mainly related to an
unfavorable sales mix, an increase in customer allowances and, to a lesser extent, increased
product costs. The increase in SG&A expenses is primarily related to the addition of new retail
stores opened or acquired by the Company (including stores acquired in Taiwan during the Three
Months Ended April 2, 2011 and in Italy, the Peoples Republic of China and Singapore in the second
and fourth quarters of Fiscal 2010), an increase in restructuring related charges and an increase
due to the effects of foreign currency fluctuations.
Intimate Apparel Group
Intimate Apparel Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 2, |
|
|
% of Brand |
|
|
Ended April 3, |
|
|
Brand Net |
|
|
|
2011 (b) |
|
|
Net Revenues |
|
|
2010 (b) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Underwear |
|
$ |
19,418 |
|
|
|
17.6 |
% |
|
$ |
19,230 |
|
|
|
20.1 |
% |
Core Intimates |
|
|
4,878 |
|
|
|
10.8 |
% |
|
|
7,112 |
|
|
|
15.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
24,296 |
|
|
|
15.6 |
% |
|
|
26,342 |
|
|
|
18.7 |
% |
Calvin Klein Underwear retail |
|
|
6,241 |
|
|
|
9.6 |
% |
|
|
6,414 |
|
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) |
|
$ |
30,537 |
|
|
|
13.8 |
% |
|
$ |
32,756 |
|
|
|
16.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $1.4 million for the Three Months Ended April 2, 2011
and $0 for the Three Months Ended April 3, 2010. |
|
(b) |
|
includes an allocation of shared services expenses by brand as detailed below: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Underwear |
|
$ |
2,835 |
|
|
$ |
3,036 |
|
Core Intimates |
|
|
1,528 |
|
|
|
1,493 |
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
4,363 |
|
|
|
4,529 |
|
Calvin Klein Underwear retail |
|
|
346 |
|
|
|
258 |
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
4,709 |
|
|
$ |
4,787 |
|
|
|
|
|
|
|
|
Intimate Apparel Group operating income for the Three Months Ended April 2, 2011 decreased
$2.2 million, or 6.8%, reflecting decreases of $2.2 million in Core Intimates and $0.2 million in
Calvin Klein Underwear retail, partially offset by an increase of $0.2 million in Calvin Klein
Underwear wholesale. Intimate Apparel Group operating income includes a decrease of $1.1 million
related to fluctuations in foreign currency exchange rates. The decrease in Intimate Apparel Group
operating income reflects a $10.3 million increase in gross profit, more than offset by a $12.5
million increase in SG&A expenses (including amortization of intangible assets). The increase in
Intimate Apparel Group gross profit includes a $2.0 million decrease in the gross profit of the
Core Intimates business mainly related to an unfavorable sales mix, an increase in customer
allowances and, to a lesser extent, increased product costs. The increase in SG&A expense primarily
reflects incremental marketing investments behind the launch of the ck one product line of mens
and womens underwear, an increase in selling expenses related to retail store openings in Europe,
Asia, Canada and South America, an increase in restructuring related expenses and an increase due
to the effects of fluctuations in foreign currency exchange rates.
37
Swimwear Group
Swimwear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 2, |
|
|
% of Brand |
|
|
Ended April 3, |
|
|
Brand Net |
|
|
|
2011 (c) |
|
|
Net Revenues |
|
|
2010 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
12,696 |
|
|
|
15.2 |
% |
|
$ |
10,380 |
|
|
|
14.1 |
% |
Calvin Klein |
|
|
1,128 |
|
|
|
7.1 |
% |
|
|
1,373 |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
13,824 |
|
|
|
13.9 |
% |
|
|
11,753 |
|
|
|
13.8 |
% |
Swimwear retail (a) |
|
|
244 |
|
|
|
10.5 |
% |
|
|
208 |
|
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group (b) |
|
$ |
14,068 |
|
|
|
13.8 |
% |
|
$ |
11,961 |
|
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes losses of $0 and $0.1 million for the Three Months Ended April 2, 2011 and April
3, 2010, respectively, related to Calvin Klein retail swimwear. |
|
(b) |
|
includes restructuring charges of $3.1 million for the Three Months Ended April 2, 2011 and
$0.3 million for the Three Months Ended April 3, 2010. |
|
(c) |
|
Includes an allocation of shared services expenses by brand in the following table: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 2, |
|
|
Ended April 3, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
2,224 |
|
|
$ |
2,112 |
|
Calvin Klein |
|
|
468 |
|
|
|
243 |
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
2,692 |
|
|
|
2,355 |
|
Swimwear retail |
|
|
98 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
2,790 |
|
|
$ |
2,496 |
|
|
|
|
|
|
|
|
Swimwear Group operating income for the Three Months Ended April 2, 2011 increased $2.1
million, or 17.6%, reflecting a $2.3 million increase in Speedo wholesale and a $0.2 million
decrease in Calvin Klein wholesale. Swimwear retail operating income was substantially unchanged.
The effect on Swimwear Group operating income related to fluctuations in foreign currency
exchange rates was negligible. The increase in Swimwear Group operating income was primarily related to the U.S.
businesses ($2.5 million). The increase in Swimwear operating income reflects a $4.4 million
increase in gross profit, partially offset by a $2.3 million increase in SG&A expenses primarily
related to an increase in restructuring costs.
Other Loss (Income)
Other income of $0.6 million for the Three Months Ended April 2, 2011 reflects a gain on the
current portion of inter-company loans denominated in currency other than that of the foreign
subsidiaries functional currency, net of losses on foreign currency exchange contracts designed as
economic hedges (see Note 11 of Notes to Consolidated Condensed Financial Statements). Other loss
of $1.8 million for the Three Months Ended April 3, 2010 primarily reflects a loss of $1.7 million
related to the extinguishment of $50 million of Senior Notes in the first quarter of 2010 (see Note
14 of Notes to Consolidated Condensed Financial Statements).
Interest Expense
Interest expense decreased $2.3 million to $2.7 million for the Three Months Ended April 2,
2011 from $5.0 million for the Three Months Ended April 3, 2010. The decrease primarily relates to
the redemption of the remaining outstanding balance of $110.9 million of the Senior Notes during
the second quarter of Fiscal 2010, which were repaid prior to their date of maturity in June 2013,
a decrease in the outstanding balances related to the CKJEA Notes payable, partially offset by an
increase in the balance of the 2008 Credit Agreements and the balance of the Italian Note, which was entered into in the third
quarter of Fiscal 2010 (see Note 14 of Notes to Consolidated Condensed Financial Statements).
38
Interest Income
Interest income decreased $0.3 million to $0.7 million for the Three Months Ended April 2,
2011 from $1.0 million for the Three Months Ended April 3, 2010, due primarily to a decrease in the
average of the Companys cash balance during the Three Months Ended April 2, 2011.
Income Taxes
The effective tax rates for the Three Months Ended April 2, 2011 and April 3, 2010 were 34.8%
and 34.5% respectively. The higher effective tax rate for the Three Months Ended April 2, 2011
primarily reflects a shift in earnings from lower to higher taxing jurisdictions, as well as
increased interest and penalties associated with uncertain tax positions in certain of the
Companys foreign subsidiaries recorded discretely during the Three Months Ended April 2, 2011.
Discontinued Operations
Loss from discontinued operations, net of taxes, was $0.5 million for the Three Months Ended
April 2, 2011 compared to a loss of $0.3 million for the Three Months Ended April 3, 2010,
primarily related to the Companys Ocean Pacific Apparel and Lejaby discontinued businesses. See
Note 4 of Notes to Consolidated Condensed Financial Statements.
Liquidity and Capital Resources
Liquidity
The Companys principal source of operating cash flows is from sales of its product to
customers. In constant currencies, sales to customers increased for the Three Months Ended April 2,
2011 compared to the Three Months Ended April 3, 2010 (see Overview, Non-GAAP Measures and Results
of Operations Net Revenues, above). The Companys principal operating outflows of cash relate to
purchases of inventory and related costs, SG&A expenses and capital expenditures (primarily related
to store fixtures and retail store openings).
During the Three Months Ended April 2, 2011, the cash inflows from product sales were more
than offset by operating cash outflows which resulted in the Company increasing its borrowings
under its debt facilities. The increase in cash outflows primarily related to additional
investments in working capital (see Accounts Receivable and Inventories and Cash Flows, below) and
an increase in SG&A expenses (see Selling, General and Administrative Expenses, above) in Europe,
Asia and Mexico and Central and South America primarily related to the increase in newly opened and
acquired retail stores. In addition, to a lesser extent, cash outflows resulted from an increase in
costs for raw material, labor and freight, particularly in the U.S. and European businesses. The
product cost increases are expected to continue during the remainder of Fiscal 2011 and to
adversely affect operating margins of the Companys worldwide businesses. The Company was
able to partially mitigate the cost increases (and expects to be able to partially mitigate such
increases in the future) by increasing the selling prices of its goods, early purchases of product
and by implementing other sourcing initiatives.
The Company believes that, at April 2, 2011, cash on hand, cash to be generated from future
operating activities and cash available under the 2008 Credit Agreements, the CKJEA Notes and other
short-term debt (see Note 14 of Notes to Consolidated Condensed Financial Statements) will be
sufficient to fund its operations, including contractual obligations (see Note 19 of Notes to
Consolidated Condensed Financial Statements, above) and capital expenditures (see below) for the
next 12 months.
As of April 2, 2011, the Company had working capital (current assets less current liabilities)
of $555.2 million. Included in working capital as of April 2, 2011 were (among other items) cash
and cash equivalents of $174.1 million and short-term debt of $146.4 million, including $96.7
million under the 2008 Credit Agreements, $29.2 million under the CKJEA Notes, $11.4 million under
the Italian Note and $9.1 million of other short-term debt.
39
Short-Term Borrowings
As of April 2, 2011, under the 2008 Credit Agreement, the Company had $96.7 million in loans
and $38.7 million in letters of credit outstanding, leaving approximately $111.2 million of
availability, and, under the 2008 Canadian Credit Agreement, no loans and $1.9 million of letters of credit, leaving approximately $26.7 million of availability (see
Note 14 of Notes to Consolidated Condensed Financial Statements).
The revolving credit facilities under the 2008 Credit Agreements reflect funding commitments
by a syndicate of banks, including Bank of America N.A., JPMorgan Chase, N.A., Deutsche Bank, HSBC,
Royal Bank of Scotland and The Bank of Nova Scotia. The ability of any one or more of those banks
to meet its commitment to provide the Company with funding up to the maximum of available credit is
dependent on the fair value of the banks assets and its legal lending ratio relative to those
assets (amount the bank is allowed to lend). The Company believes that the ability of those banks
to make loans during the Three Months Ended April 2, 2011 has increased relative to the Three
Months Ended April 3, 2010. However, the Company continues to monitor the creditworthiness of the
syndicated banks.
The 2008 Credit Agreements contain covenants limiting the Companys ability to (i) incur
additional indebtedness and liens, (ii) make significant corporate changes including mergers and
acquisitions with third parties, (iii) make investments, (iv) make loans, advances and guarantees
to or for the benefit of third parties, (v) enter into hedge agreements, (vi) make restricted
payments (including dividends and stock repurchases), and (vii) enter into transactions with
affiliates. The 2008 Credit Agreements also include certain other restrictive covenants. In
addition, if Available Credit (as defined in the 2008 Credit Agreements) is less than a threshold
amount (as specified in the 2008 Credit Agreements) the Companys Fixed Charge Coverage ratio (as
defined in the 2008 Credit Agreements) must be at least 1.1 to 1.0. The Company was in compliance
with the covenants of its 2008 Credit Agreements as of April 2, 2011, January 1, 2011 and April 3,
2010, and of its Senior Notes as of April 3, 2010.
During the Three Months Ended April 2, 2011, the Company was able to borrow funds, from time
to time, under the 2008 Credit Agreement for seasonal and other cash flow requirements, including
repurchase of Common Stock (see Note 15 of Notes to Consolidated Condensed Financial Statements),
settlement of the OP litigation (see Note 18 of Notes to Consolidated Condensed Financial
Statements), funding of the Companys pension plan, and payment of incentive compensation. As of
April 2, 2011, the Company expects that it will continue to be able to obtain needed funds under
the 2008 Credit Agreements when requested. However, in the event that such funds are not available,
the Company may have to delay certain capital expenditures or plans to expand its business, to
scale back operations and/or to raise capital through the sale of its equity or debt securities.
There can be no assurance that the Company would be able to sell its equity or debt securities on
terms that are satisfactory.
The CKJEA Notes consist of short-term revolving notes with a number of banks at various
interest rates (primarily Euro LIBOR plus 1.0%) held by certain of the Companys European
subsidiaries. During the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010,
the Company was able to borrow funds under the CKJEA Notes, as needed, to fund operations. The
Company will continue to renew the CKJEA Notes for additional terms of no more than twelve months
and expects that it will continue to be able to borrow funds under the CKJEA Notes in the future.
The Company monitors its positions with, and the credit quality of, the counterparty financial
institutions that hold the CKJEA Notes and does not currently anticipate non-performance by those
counterparties. Management believes that the Company would not suffer a material loss in the event
of non-performance by those counterparties.
The Italian Note was entered into by one of the Companys Italian subsidiaries on September
30, 2010 in connection with the acquisition of the business of a distributor of its Calvin Klein
products in Italy (see Note 2 of Notes to Consolidated Financial Statements in the Companys Annual
Report on Form 10-K for Fiscal 2010). The initial principal amount of the Italian Notes was 10.0
million ($13.4 million) and was 8.0 million ($11.4 million) at April 2, 2011. Although the
maturity date of the Italian Note is March 12, 2012, the Company has the ability and intent to
repay the Italian Note in full by the end of Fiscal 2011, and has, therefore, classified the
Italian Note as a current liability.
The Companys corporate or family credit ratings and outlooks at April 2, 2011, are summarized
below:
|
|
|
|
|
Rating |
|
Corporate/Family |
|
|
Agency |
|
Rating (a) |
|
Outlook |
|
|
|
|
|
Standard & Poors |
|
BBB- |
|
stable |
|
|
|
|
|
Moodys |
|
Ba1 |
|
stable |
|
|
|
(a) |
|
ratings on individual debt instruments can be different from the Companys corporate or
family credit ratings depending on the priority position of creditors holding such debt,
collateral related to such debt and other factors. The Companys 2008 Credit Agreements are
rated Baa2 (an investment-grade rating) by Moodys. |
40
The Companys credit ratings contribute to its ability to access the credit markets. Factors
that can affect the Companys credit ratings include changes in its operating performance, the
economic environment, conditions in the apparel industry, the Companys financial position, and
changes in the Companys business or financial strategy. If a downgrade of the Companys credit
ratings were to occur, it could adversely affect, among other things, the Companys future
borrowing costs and access to capital markets. Given the Companys capital structure and its
projections for future profitability and cash flow, the Company believes it is well positioned to
obtain additional financing, if necessary, to refinance its debt, or, if opportunities present
themselves, to make future acquisitions. However, there can be no assurance that such financing,
if needed, can be obtained on terms satisfactory to the Company or at such time as a specific
need may arise.
Capital Expenditures
During the Three Months Ended April 2, 2011, the Company leased approximately 25,000 square
feet of additional retail store space worldwide from newly opened stores and acquired an additional
25,000 square feet of retail space in Taiwan (see Note 3 of Notes to Consolidated Condensed
Financial Statements), which resulted in capital expenditures of approximately $11 million. The
Company has targeted an additional 115,000 square feet of new retail space for the remainder of
Fiscal 2011, for which it expects to incur additional costs for capital expenditures of
approximately $13 million.
Restructuring
During the Three Months Ended April 2, 2011, the Company incurred restructuring and other exit
costs of $6.5 million related to the consolidation and restructuring of certain international
operations and job eliminations in the U.S. and made payments of approximately $1.7 million related
to those activities. During the remainder of Fiscal 2011, the Company expects to incur additional
costs of between $15 million and $19 million related to these initiatives. See Note 5 of Notes to
Consolidated Condensed Financial Statements for additional information on restructuring and other
exit activities.
Business Acquisitions
During the fourth quarter of Fiscal 2009, the Company acquired the remaining 49% equity
interest in WBR, its subsidiary in Brazil. In addition to the initial cash payment made upon
acquisition, the consideration also includes three contingent payments through March 31, 2012.
During the Three Months Ended April 3, 2010, the Company made the first such payment, amounting to
approximately $3.4 million, based upon the operating results achieved by WBR in the fourth quarter
of Fiscal 2009. During the Three Months Ended April 2, 2011, the Company made the second contingent
payment of approximately $11.5 million, based upon the operating results of WBR for Fiscal 2010.
The Company expects, based on the operating results of WBR, that the third such payment will be
approximately $11.5 million and will be paid by March 31, 2012. See Note 3 of Notes to Consolidated
Condensed Financial Statements.
During the Three Months Ended April 2, 2011, the Company acquired certain assets, including
inventory and leasehold improvements, and acquired the leases, of the retail stores from its Calvin
Klein distributor in Taiwan for cash consideration of $1.4 million. See Note 3 of Notes to
Consolidated Condensed Financial Statements.
Share Repurchases
During the Three Months Ended April 2, 2011, the Company repurchased 560,842 shares of its
common stock under the 2010 Share Repurchase Program (defined below) for a total of $29.1 million
(based on an average of $51.97 per share). In addition, the Company repurchased 35,532 shares of
common stock for a total of $2.0 million (based on an average of $56.18 per share) related to the
surrender of shares for the payment of minimum income tax due upon vesting of certain restricted
stock awarded by the Company to its employees (see Note 15 of Notes to Consolidated Condensed
Financial Statements and Part II. Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds, below). Repurchased shares are held in treasury pending use for general corporate
purposes.
Derivative Financial Instruments
During the Three Months Ended April 2, 2011, some of the Companys foreign subsidiaries with
functional currencies other than the U.S. dollar made purchases of inventory, paid minimum royalty
and advertising costs and /or had intercompany payables, receivables or loans denominated in U.S.
dollars or Pounds Sterling. During the Three Months Ended April 2, 2011 compared to the Three
Months Ended April 3, 2010, the U.S. Dollar was weaker relative to the foreign currencies noted
above. The cash flows of those subsidiaries were, therefore, favorably affected by the fluctuations
of those foreign currencies relative to the U.S. dollar. In order to minimize the effects of
fluctuations in foreign currency exchange rates of those transactions, the Company uses derivative
financial instruments, primarily foreign currency exchange forward contracts (see Note 11 of Notes to
Consolidated Condensed Financial Statements).
41
The Company carries its derivative financial instruments at fair value on the Consolidated
Condensed Balance Sheets. The Company utilizes the market approach to measure fair value for
financial assets and liabilities. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or liabilities. At April
2, 2011, the Companys hedging programs included $77.0 million of future inventory purchases, $23.3
million of future minimum royalty and advertising payments and $46.0 million of intercompany
payables and loans denominated in non-functional currencies, primarily the U.S. dollar (see Notes
10 and 11 of Notes to Consolidated Condensed Financial Statements for further information on fair
value measurement of the Companys derivative financial instruments).
Pension Plan
The Pension Protection Act of 2006 (the PPA) revised the basis and methodology for
determining defined benefit plan minimum funding requirements as well as maximum contributions to
and benefits paid from tax-qualified plans. The PPA may ultimately require the Company to make
additional contributions to its domestic plan. During the Three Months Ended April 2, 2011, the
Company contributed $3.9 million to the domestic pension plan. Contributions for Fiscal 2011 are
expected to total $8.8 million and for the following four years are expected to be in the range of
$5.7 million and $9.6 million. Actual later year contributions could exceed the Companys current
projections, and may be influenced by future changes in government requirements. Additionally, the
Companys projections concerning timing of the PPA funding requirements are subject to change and
may be influenced by factors such as general market conditions affecting trust asset performance,
interest rates, and the Companys future decisions regarding certain elective provisions of the
PPA. See Note 8 of Notes to Consolidated Condensed Financial Statements for additional information
on the Companys pension plan.
The fair value of the Pension Plans assets, net of expenses, increased to approximately
$132.2 million at April 2, 2011 compared to $127.7 million at January 1, 2011, reflecting an actual
annualized rate of return on the Pension Plans assets, net of expenses, of 14% for the Three
Months Ended April 2, 2011. That rate of return was in excess of the assumed rate of return of 8%
(gain) per year on Pension Plan assets which the Company has been using to estimate pension income
(expense) on an interim basis, based upon historical results. Assuming that the fair value of the
investment portfolio increases at the assumed rate of 8% per annum for the remainder of Fiscal
2011, the Company could recognize additional pension income for the year ending December 31, 2011.
The Companys pension income (expense) is also affected by the discount rate used to calculate
Pension Plan liabilities, by Pension Plan amendments and by Pension Plan benefit experience
compared to assumed experience and other factors. These factors could increase or decrease the
amount of pension income or expense ultimately recorded by the Company for Fiscal 2011. Based upon
results for Fiscal 2010, a 0.1% increase (decrease) in the discount rate would decrease (increase)
pension expense by approximately $1.7 million.
Accounts Receivable and Inventories
Accounts receivable increased $77.9 million to $396.0 million at April 2, 2011 from $318.1
million at January 1, 2011, and increased $16.0 million to $396.0 million at April 2, 2011 from
$380.0 million at April 3, 2010. The balance of accounts receivable at April 2, 2011 compared to the
balances at January 1, 2011 and April 3, 2010 includes an increase of $9.5 million and $10.7
million, respectively, due to fluctuations in exchange rates in the U.S. dollar relative to foreign
currencies in connection with transactions in countries where the Company conducts certain of its
operations (principally the Euro, Korean won, Canadian dollar, Brazilian real, Chinese yuan and
Mexican peso). The increases were due primarily to increased sales volume in March 2011 compared to
December 2010 and March 2011 compared to March 2010, respectively.
Inventories increased $53.8 million to $364.3 million at April 2, 2011 from $310.5 million at
January 1, 2011 and increased $97.1 million to $364.3 million at April 2, 2011 from $267.2 million
at April 3, 2010. The balance of inventories at April 2, 2011 compared to the balances at January
1, 2011 and April 3, 2010 includes an increase of $9.8 million and $11.2 million, respectively, due
to fluctuations in exchange rates in the U.S. dollar relative to foreign currencies in connection
with transactions in countries where the Company conducts certain of its operations (principally
the Euro, Korean won, Canadian dollar, Brazilian real, Chinese yuan and Mexican peso). The inventory increase from April 3, 2010 to April 2, 2011 primarily reflects the significant expansion of the
Companys direct to consumer business (including retail openings for the second quarter) ($47 million), growth
in its overall wholesale business ($35 million), and inventory in-transit (intended to partially
mitigate cost increases) ($15 million).
42
Cash Flows
The following table summarizes the cash flows from the Companys operating, investing and
financing activities for the Three Months Ended April 2, 2011 and the Three Months Ended April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 2, 2011 |
|
|
April 3, 2010 |
|
|
|
(in thousands of dollars) |
|
|
Net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(67,497 |
) |
|
$ |
(30,267 |
) |
Discontinued operations |
|
|
(16,284 |
) |
|
|
146 |
|
Net cash (used in) investing activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(13,285 |
) |
|
|
(9,567 |
) |
Discontinued operations |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
75,252 |
|
|
|
(120,775 |
) |
Discontinued operations |
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
4,682 |
|
|
|
(2,837 |
) |
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents |
|
$ |
(17,132 |
) |
|
$ |
(163,300 |
) |
|
|
|
|
|
|
|
For the Three Months Ended April 2, 2011, cash used in operating activities from continuing
operations was $67.5 million compared to cash used in operating activities of $30.3 million for
Three Months Ended April 3, 2010. The $37.2 million increase in cash used in operating activities
was due to a decrease in net income, net of non-cash charges, coupled with an increase in outflows
related to changes in working capital.
Working capital changes for the Three Months Ended April 2, 2011 included cash outflows of
$70.4 million related to accounts receivable (due to increased sales in March 2011 than in December
2010 and the timing of payments), $46.6 million related to inventory (primarily to support the
Companys growth expectations for the remainder of Fiscal 2011 and for certain early purchases of
product) and $28.4 million related to accounts payable, accrued expenses and other liabilities (due
to the timing of payments for purchases of inventory), partially offset by cash inflows of $3.3
million related to prepaid expenses and other assets (primarily related to prepaid advertising,
prepaid rent and prepaid taxes, other than income taxes) and $3.2 million related to accrued income
taxes.
Working capital changes for the Three Months Ended April 3, 2010 included cash outflows of
$92.4 million related to accounts receivable (due to increased sales in March 2010 than in December
2009 and the timing of payments), $18.2 million related to inventory (due to expected sales) and
$14.0 million related to prepaid expenses and other assets (primarily related to prepaid
advertising and royalty expenses), partially offset by cash inflows of $2.6 million related to
accounts payable, accrued expenses and other liabilities (due to the timing of payments for
purchases of inventory) and $16.6 million related to accrued income taxes.
For the Three Months Ended April 2, 2011 compared to the Three Months Ended April 3, 2010,
cash used in operating activities from discontinued operations increased $16.4 million primarily
related to settlement of the OP litigation (see Note 18 of Notes to Consolidated Condensed
Financial Statements).
For the Three Months Ended April 2, 2011, net cash used in investing activities from
continuing operations was $13.3 million, mainly attributable to purchases of property, plant and
equipment associated with the Companys retail stores. For the Three Months Ended April 3, 2010,
net cash used in investing activities from continuing operations was $9.6 million, mainly
attributable to purchases of property, plant and equipment, including $6.1 million related to the
Companys new distribution center in the Netherlands.
Net cash provided by financing activities for the Three Months Ended April 2, 2011 was $75.3
million, which primarily reflects net cash provided of $96.7 million related to borrowings under
the New Credit Agreements, $15.3 million related to short-term notes payable and $5.8 million from
the exercise of employee stock options, partially offset by cash used of $31.1 million related to
the repurchase of treasury stock (in connection with the 2010 Share Repurchase Program and the
surrender of shares for the payment of minimum income tax due upon vesting of certain restricted
stock awarded by the Company to its employees) and $11.5 million related to a contingent payment
made during the Three Months Ended April 2, 2011 in connection with the acquisition of the equity
interest in WBR, which occurred in the fourth quarter of Fiscal 2009, which was accounted for as an
equity transaction.
43
Net cash used in financing activities for the Three Months Ended April 3, 2010 was $120.8
million, which primarily reflects net cash used of $51.5 million related to the repurchase of
Senior Notes, $72.2 million related to the repurchase of treasury stock (in connection with the 2007 Share Repurchase Program and the surrender of shares for the payment
of minimum income tax due upon vesting of certain restricted stock awarded by the Company to its
employees), $3.4 million related to a contingent payment in connection with the acquisition of the
equity interest in WBR in the fourth quarter of Fiscal 2009, which was accounted for as an equity
transaction and $0.2 million related to repayment of amounts borrowed under the New Credit
Agreements, partially offset by cash provided of $4.2 million related to short-term notes payable
and $2.4 million from the exercise of employee stock options.
Significant Contractual Obligations and Commitments
Contractual obligations and commitments as of April 2, 2011 were not materially different from
those disclosed in the Companys Annual Report on Form 10-K for Fiscal 2010, with the exception of
certain operating leases and other contractual obligations entered into during the Three Months
Ended April 2, 2011 (see Note 19 of Notes to Consolidated Condensed Financial Statements).
Off-Balance Sheet Arrangements
None.
Statement Regarding Forward-Looking Disclosure
This Quarterly Report on Form 10-Q, as well as certain other written, electronic and oral
disclosures made by the Company from time to time, contains forward-looking statements that are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements involve risks and uncertainties and reflect, when made, the
Companys estimates, objectives, projections, forecasts, plans, strategies, beliefs, intentions,
opportunities and expectations. Actual results may differ materially from anticipated results,
targets or expectations and investors are cautioned not to place undue reliance on any
forward-looking statements. Statements other than statements of historical fact, including, without
limitation, future financial targets, are forward-looking statements. These forward-looking
statements may be identified by, among other things, the use of forward-looking language, such as
the words believe, anticipate, estimate, expect, intend, may, project, scheduled
to, seek, should, will be, will continue, will likely result, targeted, or the
negative of those terms, or other similar words and phrases or by discussions of intentions or
strategies.
The following factors, among others, including those described in this Quarterly Report on
Form 10-Q under the heading Item 1A. Risk Factors (as such disclosure may be modified or
supplemented from time to time), could cause the Companys actual results to differ materially from
those expressed in any forward-looking statements made by it: the Companys ability to execute its
repositioning and sale initiatives (including achieving enhanced productivity and profitability)
previously announced; deterioration in global or regional or other macro-economic conditions that
affect the apparel industry, including turmoil in the financial and credit markets; the Companys
failure to anticipate, identify or promptly react to changing trends, styles, or brand preferences;
further declines in prices in the apparel industry and other pricing pressures; declining sales
resulting from increased competition in the Companys markets; increases in the prices of raw
materials or costs to produce or transport products; events which result in difficulty in procuring
or producing the Companys products on a cost-effective basis; the effect of laws and regulations,
including those relating to labor, workplace and the environment; possible additional tax
liabilities; changing international trade regulation, including as it relates to the imposition or
elimination of quotas on imports of textiles and apparel; the Companys ability to protect its
intellectual property or the costs incurred by the Company related thereto; the risk of product
safety issues, defects or other production problems associated with our products; the Companys
dependence on a limited number of customers; the effects of consolidation in the retail sector; the
Companys dependence on license agreements with third parties including, in particular, its license
agreement with CKI, the licensor of the Companys Calvin Klein brand name; the Companys dependence
on the reputation of its brand names, including, in particular, Calvin Klein; the Companys
exposure to conditions in overseas markets in connection with the Companys foreign operations and
the sourcing of products from foreign third-party vendors; the Companys foreign currency exposure;
unanticipated future internal control deficiencies or weaknesses or ineffective disclosure controls
and procedures; the effects of fluctuations in the value of investments of the Companys pension
plan; the sufficiency of cash to fund operations, including capital expenditures; the Company
recognizing impairment charges for its long-lived assets; uncertainty over the outcome of
litigation matters and other proceedings; the Companys ability to service its indebtedness, the
effect of changes in interest rates on the Companys indebtedness that is subject to floating
interest rates and the limitations imposed on the Companys operating and financial flexibility by
the agreements governing the Companys indebtedness; the Companys dependence on its senior
management team and other key personnel; the Companys reliance on information technology; the
limitations on purchases under the Companys share repurchase program contained in the Companys
debt instruments, the number of shares that the Company purchases under such program and the prices
paid for such shares; the Companys inability to achieve its financial targets and strategic
objectives, as a result of one or more of the factors described above, changes in the assumptions
underlying the targets or goals, or otherwise; the inability to successfully implement
restructuring and disposition activities; the failure of acquired businesses to generate expected
levels of revenues; the failure of the Company to successfully integrate such businesses with its
existing businesses (and as a result, not achieving all or a substantial portion of the anticipated benefits of such acquisitions); and such acquired
businesses being adversely affected, including by one or more of the factors described above, and
thereby failing to achieve anticipated revenues and earnings growth.
44
The Company encourages investors to read the section entitled Item 1A. Risk Factors and the
discussion of the Companys critical accounting policies in Discussion of Critical Accounting
Policies included in the Companys Annual Report on Form 10-K for Fiscal 2010, as such discussions
may be modified or supplemented by subsequent reports that the Company files with the SEC. This
discussion of forward-looking statements is not exhaustive but is designed to highlight important
factors that may affect actual results. Forward-looking statements speak only as of the date on
which they are made, and, except for the Companys ongoing obligation under the U.S. federal
securities laws, the Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk primarily related to changes in hypothetical investment
values under certain of the Companys employee benefit plans, interest rates and foreign currency
exchange rates. The Company does not use derivative financial instruments for speculation or for
trading purposes. During the Three Months Ended April 2, 2011, there were no material changes in
the qualitative or quantitative aspects of these risks from those disclosed in the Companys Annual
Report on Form 10-K for Fiscal 2010.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures.
The Companys management, with the participation of the Companys Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of
the period covered by this report, the Companys disclosure controls and procedures were effective.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Three Months Ended
April 2, 2011 that materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
45
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item 1 of Part II is incorporated herein by reference to Part
I, Item 1. Financial Statements, Note 18 Legal Matters.
Item 1A. Risk Factors.
Please refer to Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for Fiscal
2010, filed with the SEC on February 28, 2011 for a description of certain significant risks and
uncertainties to which the Companys business, operations and financial condition are subject.
There have been no material changes to these risk factors during the Three Months Ended April 2,
2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During May 2010, the Companys Board of Directors authorized a share repurchase program (the
2010 Share Repurchase Program), which allows the Company to repurchase up to 5,000,000 shares of
its common stock. The share repurchase program may be modified or terminated by the Companys Board
of Directors at any time. During the Three Months Ended April 2, 2011, the Company purchased
560,842 shares of common stock for a total of $29.1 million (based on $51.97 per share) under the
2010 Share Repurchase Program.
An aggregate of 35,532 shares included below as repurchased during the Three Months Ended
April 2, 2011 reflect the surrender of shares in connection with the vesting of certain restricted
stock awarded by the Company to its employees. At the election of an employee, shares having an
aggregate value on the vesting date equal to the employees withholding tax obligation may be
surrendered to the Company in satisfaction thereof. The repurchase of these shares is not a part of
the 2010 Share Repurchase Program.
The following table summarizes repurchases of the Companys common stock during the Three
Months Ended April 2, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of Shares |
|
|
|
Total Number |
|
|
Average |
|
|
Purchased as |
|
|
that May Yet Be |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Repurchased Under |
|
Period |
|
Repurchased |
|
|
per Share |
|
|
Announced Plan |
|
|
the Announced Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2011 January 29, 2011 |
|
|
560,932 |
|
|
$ |
51.97 |
|
|
|
560,842 |
|
|
|
3,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2011 February 26, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
3,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 27, 2011 April 2, 2011 |
|
|
35,442 |
|
|
$ |
56.19 |
|
|
|
|
|
|
|
3,500,000 |
|
In the event that available credit under the 2008 Credit Agreements ($138.0 million at April
2, 2011) is less than 25% of the aggregate borrowing limit under the 2008 Credit Agreements ($68.8
million at April 2, 2011), the 2008 Credit Agreements place restrictions on the Companys ability
to pay dividends on the Common Stock and to repurchase shares of the Common Stock. The Company has
not paid any dividends on the Common Stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
46
Item 6. Exhibits.
The agreements contain representations and warranties by each of the parties to the applicable
agreement. These representations and warranties were made solely for the benefit of the other
parties to the applicable agreement and:
|
|
|
were not intended to be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate; |
|
|
|
|
may have been qualified in such agreements by disclosures that were
made to the other party in connection with the negotiation of the
applicable agreement; |
|
|
|
may apply contract standards of materiality that are different from
materiality under the applicable security laws; and |
|
|
|
|
were made only as of the date of the applicable agreement or such
other date or dates as may be specified in the agreement. |
The Company acknowledges that notwithstanding the inclusion of the foregoing cautionary
statements, it is responsible for considering whether additional specific disclosures of material
information regarding material contractual provisions are required to make the statements in this
Form 10-Q not misleading.
|
|
|
|
|
Exhibit No. |
|
Description of Exhibit |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation of The Warnaco
Group, Inc. (incorporated by reference to Exhibit 1 to the Form
8-A/A filed by The Warnaco Group, Inc. on February 4, 2003).* |
|
|
|
|
|
|
3.2 |
|
|
Third Amended and Restated Bylaws of The Warnaco Group, Inc.
(incorporated by reference to Exhibit 3.2 to the Form 8-K filed by
The Warnaco Group, Inc. on July 13, 2010).* |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer of The Warnaco Group,
Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934. |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer of The Warnaco Group,
Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934. |
|
|
|
|
|
|
32 |
|
|
Certifications of Chief Executive Officer and Chief Financial
Officer of The Warnaco Group, Inc. pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (furnished herewith) |
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
|
101.INS
|
|
XBRL Instance Document |
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Linkbase |
|
|
|
|
|
101.DEF
|
|
XBRL Definition Linkbase Document |
|
|
|
* |
|
Previously filed. |
|
|
|
Filed herewith. |
47
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 5, 2011 |
/s/ Joseph R. Gromek
|
|
|
Joseph R. Gromek |
|
|
President and Chief Executive Officer |
|
|
Date: May 5, 2011 |
/s/ Lawrence R. Rutkowski
|
|
|
Lawrence R. Rutkowski |
|
|
Executive Vice President and
Chief Financial Officer |
|
48