FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 principal executive offices)
Registrants telephone number, including area code: (212) 287-8000
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered |
|
|
|
Common Stock, par value $0.01 per share
|
|
New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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. Yes þ No o
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). Yes
þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
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 Act). Yes o No þ
As of July 2, 2011 (the last business day of the Registrants most recently completed second
fiscal quarter), the aggregate market value of the Registrants Common Stock (the only common
equity of the registrant) held by non-affiliates was $1,788,026,560 based upon the last sale price
of $53.61 reported for such date on the New York Stock Exchange.
The number of shares outstanding of the registrants Common Stock, par value $.01 per share,
as of February 15, 2011: 40,394,402
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of this report is incorporated by reference from the
Proxy Statement of the registrant relating to the 2012 Annual Meeting of Stockholders, to be filed
with the Securities and Exchange Commission within 120 days of Fiscal 2011 year-end.
THE WARNACO GROUP, INC.
2011 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Introduction
The Warnaco Group, Inc. (Warnaco Group), a Delaware corporation organized in 1986
(collectively with its subsidiaries, the Company), designs, sources, markets, licenses and
distributes a broad line of intimate apparel, sportswear and swimwear products worldwide. The
Companys products are sold under several highly recognized brand names, including, but not limited
to, Calvin Klein®, Speedo®, Chaps®, Warners® and Olga®.
The Companys products are distributed domestically and internationally, primarily to
wholesale customers through various distribution channels, including major department stores,
independent retailers, chain stores, membership clubs, specialty, off-price and other stores, mass
merchandisers and the internet. In addition, the Company distributes its branded products through
dedicated retail stores, and as of December 31, 2011, the Company operated 1,759 Calvin Klein
retail stores worldwide (consisting of 263 full price free-standing stores, 118 outlet
free-standing stores, 1,376 shop-in-shop/concession stores and, in the United States of America or
U.S., two on-line stores: Calvinkleinjeans.com, and CKU.com) and one on-line swimwear store
SpeedoUSA.com. There were also 615 Calvin Klein retail stores operated by third parties under
retail licenses or franchise and distributor agreements. For the fiscal year ended December 31,
2011 (Fiscal 2011), approximately 40.3% of the Companys net revenues were generated from
domestic sales and approximately 59.7% were generated from international sales. In addition,
approximately 71.1% of net revenues were generated from sales to customers in the wholesale channel
and approximately 28.9% of net revenues were generated from customers in the direct-to-consumer
channel.
The Company owns and licenses a portfolio of highly recognized brand names. The trademarks
owned or licensed in perpetuity by the Company generated approximately 47% of the Companys net
revenues during Fiscal 2011. Brand names the Company licenses for a term generated approximately
53% of its revenues during Fiscal 2011. Owned brand names and brand names licensed for extended
periods (at least through 2044) accounted for over 90% of the Companys net revenues in Fiscal
2011. The Companys highly recognized brand names have been established in their respective markets
for extended periods and have attained a high level of consumer awareness.
The following table sets forth the Companys trademarks and licenses as of December 31,
2011:
Owned Trademarks
Calvin Klein and formatives (beneficially owned for mens/ womens/childrens underwear, loungewear
and sleepwear: see Trademarks and Licensing Agreements)
Warners
Olga
Body Nancy Ganz®/Bodyslimmers®
|
|
|
Trademarks Licensed in Perpetuity |
Trademark |
|
Territory |
|
|
|
Speedo (a)
|
|
United States, Canada, Mexico, Caribbean Islands |
Fastskin® (secondary Speedo mark)
|
|
United States, Canada, Mexico, Caribbean Islands |
|
|
|
|
|
Trademarks Licensed for a Term |
Trademark |
|
Territory |
|
Expires(h) |
|
Calvin Klein Jeans and CK/Calvin Klein Jeans
(for mens/womens/childrens/juniors/infants/toddlers jeans
and certain jeans-related products) (b)
|
|
North, South and Central America
|
|
12/31/2044 |
|
|
|
|
|
Calvin
Klein Jeans and CK/Calvin Klein Jeans
(for retail stores selling mens/womens/juniors/childrens/infants/toddlers
jeans and certain jeans-related products and
ancillary products bearing the Calvin Klein marks) (b)
|
|
Canada, Mexico and Central and South America
|
|
12/31/2044 |
|
|
|
|
|
CK/Calvin Klein (for mens and womens bridge apparel) (c)
|
|
All countries constituting European
Union, Norway, Switzerland
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, India, Central and South
America
|
|
12/31/2046 |
|
|
|
|
|
CK/Calvin Klein (for retail stores selling mens and womens bridge
Apparel and bridge accessories, together with other ancillary
Merchandise bearing the Calvin Klein marks)
|
|
All countries constituting European
Union, Norway, Switzerland
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, India, Central and South
America
|
|
12/31/2046 |
|
|
|
|
|
CK/Calvin Klein (for mens and womens bridge accessories) (c)
|
|
All countries constituting European
Union, Norway, Switzerland
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, India, Central and South
America
|
|
12/31/2046 |
|
|
|
|
|
1
|
|
|
Trademarks Licensed in Perpetuity |
Trademark |
|
Territory |
CK/Calvin
Klein (for retail stores selling bridge accessories) (c)
|
|
Central and South America
|
|
12/31/2044
|
|
|
|
|
|
And other
ancillary merchandise bearing the Calvin Klein name) (c)
|
|
All countries constituting European
Union, Norway, Switzerland
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, India
|
|
12/31/2046 |
|
|
|
|
|
Calvin Klein Jeans and CK/Calvin Klein Jeans (for mens/womens/childrens
jeans and other jeans related apparel) (d)
|
|
Western Europe including Ireland,
Great Britain, France, Monte Carlo, Germany,
Spain, Portugal, Andorra, Italy, San Marino,
Vatican City, Benelux, Denmark,Sweden, Norway,
Finland, Austria, Switzerland,Lichtenstein,
Greece, Cyprus, Turkey and Malta
and parts of Eastern Europe namely, Hungary,
Czech Republic, Poland, Bosnia Herzegovina,
Croatia, Serbia, Slovenia, Romania, Bulgaria,
Slovak Republic, Macedonia, Moldavia,
Lithuania, Latvia, Estonia, Ukraine, Belorussia,
Russia, (C.I.S.), Georgia, Armenia, Azerbaijan,
Kazakhstan, Uzbekistan, the Middle East
(including Egypt, Lebanon, Israel, Palestine,
Jordan, Syria, Saudi Arabia, Yemen, Qatar,
Kuwait, Bahrain, Oman, UAE), South Africa,
Tunisia, Botswana, Mozambique, Namibia,
Swaziland, Zimbabwe
|
|
12/31/2046 |
|
|
|
|
|
Calvin Klein Jeans and CK/Calvin Klein Jeans (for mens/womens
/childrens jeans and other jeans related apparel) (d)
|
|
Asia, including Japan,
Peoples Republic of China (or China), South
Korea and Rest of Asia (Hong Kong, Thailand,
Australia, New Zealand, Philippines, Taiwan,
Singapore, Malaysia, Indonesia, New
Guinea,Vietnam, Cambodia, Laos, Myanmar, Burma,
Macau and the Federated State of Micronesia,
Mongolia), India
|
|
12/31/2046 |
|
|
|
|
|
Calvin Klein Jeans and CK/Calvin Klein Jeans (for retail stores
Selling mens/womens/childrens jeans and jeans related
Products and ancillary products bearing the Calvin Klein marks) (d)
|
|
Western Europe including Ireland, Great Britain, France, Monte Carlo,
Germany, Spain, Portugal, Andorra, Italy, San Marino, Vatican City, Benelux,
Denmark,
Sweden, Norway, Finland, Austria, Switzerland,
Lichtenstein, Greece, Cyprus, Turkey and Malta
and parts of Eastern Europe namely, Hungary, Czech Republic, Poland, Bosnia
Herzegovina, Croatia, Serbia, Slovenia, Romania, Bulgaria, Slovak Republic,
Macedonia, Moldavia,
Lithuania, Latvia, Estonia, Ukraine, Belorussia, Russia, (C.I.S.), Georgia,
Armenia, Azerbaijan, Kazakhstan, Uzbekistan, the Middle East (including
Egypt, Lebanon, Israel, Palestine, Jordan, Syria, Saudi Arabia, Yemen, Qatar,
Kuwait, Bahrain, Oman, UAE), South Africa, Tunisia, Botswana, Mozambique,
Namibia, Swaziland, Zimbabwe; Asia, including Japan, Peoples Republic of
China (or China), South Korea and Rest of Asia (Hong Kong, Thailand,
Australia, New Zealand, Philippines, Taiwan, Singapore, Malaysia, Indonesia,
New Guinea,Vietnam, Cambodia, Laos, Myanmar, Burma, Macau and the Federated
State of Micronesia, Mongolia), India
|
|
12/31/2046 |
2
|
|
|
|
|
Trademarks Licensed for a Term |
Trademark |
|
Territory |
|
Expires(h) |
|
CK/Calvin Klein (for independent or common internet sites for the sale of jeanswear apparel and/or jeanswear accessories) (d)
|
|
Europe and Asia
|
|
12/31/2046 |
|
|
|
|
|
CK/Calvin Klein (for independent or common internet sites for the sale of jeanswear apparel)(e)
|
|
North America
Central and South America
|
|
12/31/2044 |
|
|
|
|
|
CK/Calvin Klein (for independent or common internet sites for the sale of jeanswear accessories)(d)
|
|
Central and South America (excluding Mexico)
|
|
12/31/2046 |
|
|
|
|
|
Calvin Klein Jeans for mens and womens jeans accessories (d)
|
|
All countries constituting European
Union, Norway, Switzerland,
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, Asia, India, Central
America and South America (excluding Mexico)
|
|
12/31/2046 |
|
|
|
|
|
Calvin Klein Jeans (for retail stores selling jeans
Accessories and certain ancillary products bearing
the Calvin Klein marks)(d)
|
|
All countries constituting European
Union, Norway, Switzerland,
Monte Carlo, Vatican City, Liechtenstein,
Iceland and parts of Eastern Europe, Russia,
Middle East, Africa, Asia, India, Central
America and South America (excluding Mexico)
|
|
12/31/2046 |
|
|
|
|
|
Chaps (for mens sportswear, jeanswear,
activewear, sport shirts and mens swimwear) (f)
|
|
United States, Canada, Mexico,
Puerto Rico and Caribbean Islands
|
|
12/31/2018 |
|
|
|
|
|
Calvin Klein and CK/Calvin Klein (for womens
and juniors swimwear)
|
|
Worldwide with respect to Calvin
Klein; Worldwide in approved forms with
respect to CK/Calvin Klein
|
|
12/31/2014 |
|
|
|
|
|
Calvin Klein (for mens swimwear)
|
|
Worldwide
|
|
12/31/2014 |
|
|
|
|
|
Lifeguard® (for wearing apparel excluding
underwear and loungewear) (g)
|
|
Worldwide (United States, Canada,
Mexico, Caribbean Islands and all other
countries where trademark filings are or
will be made)
|
|
6/30/2012 |
|
|
|
(a) |
|
Licensed in perpetuity from Speedo International, Ltd. (SIL). |
|
(b) |
|
Expiration date reflects a renewal option, which permits the Company to extend for an
additional ten-year term through 12/31/2044 (subject to compliance with certain terms and
conditions). |
|
(c) |
|
During Fiscal 2010 and Fiscal 2011, the Company did not achieve the minimum sales
thresholds required under its license agreement to operate the CK/Calvin Klein bridge
apparel business in Europe (the CK/Calvin Klein bridge Apparel License). As a
result, the Company and Calvin Klein Inc. (CKI) no longer intend for the Company to continue
to operate all or part of the bridge business. The Company has begun discussions with CKI
regarding the terms and conditions of the transition of all or part
of the Companys bridge
business to CKI. See Note 4 of Notes to Consolidated Financial Statements. |
|
(d) |
|
Expiration date reflects a renewal option, which permits the Company to extend for an
additional ten-year term through 12/31/2046 (subject to compliance with certain terms and
conditions). |
|
(e) |
|
Expiration date reflects a renewal option, which permits the Company to extend for an
additional ten-year term through 12/31/2044 (subject to compliance with certain terms and
conditions). |
3
|
|
|
|
(f) |
|
Expiration date reflects a renewal option, which permits the Company to extend its license
for the Chaps mark and logo for an additional five-year term beyond the current expiration
date of December 31, 2013 (subject to compliance with certain terms and conditions and meeting
certain minimum net sales and earned royalties). See Trademarks and Licensing Agreements
and Item 1A. Risk Factors for an additional discussion regarding the renewal of the Chaps
license. |
|
(g) |
|
Expiration date reflects the Companys decision not to exercise its renewal option. |
|
(h) |
|
As described in Item 1A. Risk Factors, certain of the Companys license agreements, including
the license agreements with SIL (the licensor of the Speedo trademark), CKI (the licensor of
the Calvin Klein, CK/Calvin Klein and Calvin Klein Jeans trademarks) and Polo Ralph Lauren,
Inc. (the licensor of the Chaps trademark) require the Company to make minimum royalty
payments and/or royalty payments based on a percentage of net sales, meet certain minimum
sales thresholds, comply with restrictive covenants, and provide certain services (such as
design services). Those license agreements may be terminated or the Company may lose its
ability to exercise renewal rights if certain of these requirements and obligations are not
satisfied. In addition, certain of such license agreements contain cross default
provisions, which may result in the early termination of related wholesale and retail license
agreements upon termination of such license agreements. |
The Company relies on its highly recognized brand names to appeal to a broad range of
consumers. The Companys products are sold in over 100 countries throughout the world. The Company
designs products across a wide range of price points to meet the needs and shopping preferences of
male and female consumers across a broad age spectrum. The Company believes that its ability to
service multiple domestic and international distribution channels with a diversified portfolio of
products under widely recognized brand names at varying price points distinguishes it from many of
its competitors and reduces its reliance on any single distribution channel, product, brand or
price point.
The Company operates on a fiscal year basis ending on the Saturday closest to December 31.
References in this Form 10-K to Fiscal 2011 refer to the operations for the twelve months ended
December 31, 2011. Fiscal 2010 refers to the operations for the twelve months ended January 1,
2011. References to Fiscal 2009 refer to the operations for the twelve months ended January 2,
2010. References to Fiscal 2008 refer to the operations for the twelve months ended January 3,
2009. References to Fiscal 2007 refer to the operations for the twelve months ended December 29,
2007. There were 52 weeks per year for each of Fiscal 2007, Fiscal 2009, Fiscal 2010 and Fiscal
2011 and 53 weeks in Fiscal 2008.
Acquisitions, Dispositions and Discontinued Operations
See Notes 2 and 3 of Notes to Consolidated Financial Statements for a discussion of
acquisitions, dispositions and discontinued operations.
Business Groups
The Company operates in three business groups (segments): (i) Sportswear Group, (ii) Intimate
Apparel Group, and (iii) Swimwear Group.
The following table sets forth, for each of the last three fiscal years, net revenues and
operating income for each of the Companys business groups and for the Company on a consolidated
basis. Each segments performance is evaluated based upon operating income after restructuring
charges and shared services expenses but before unallocated corporate expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
|
|
|
|
|
% of Total |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
1,305,769 |
|
|
|
52.0 |
% |
|
$ |
1,204,065 |
|
|
|
52.5 |
% |
|
$ |
1,044,892 |
|
|
|
51.7 |
% |
Intimate Apparel Group |
|
|
932,131 |
|
|
|
37.0 |
% |
|
|
834,010 |
|
|
|
36.3 |
% |
|
|
723,222 |
|
|
|
35.8 |
% |
Swimwear Group |
|
|
275,488 |
|
|
|
11.0 |
% |
|
|
257,676 |
|
|
|
11.2 |
% |
|
|
251,511 |
|
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (a), (b), (c) |
|
$ |
2,513,388 |
|
|
|
100.0 |
% |
|
$ |
2,295,751 |
|
|
|
100.0 |
% |
|
$ |
2,019,625 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
International operations accounted for 59.7%, 56.1%,and 54.6% of
net revenues in Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. |
|
(b) |
|
Direct to consumer businesses accounted for 28.9%, 24.7%, and 22.5%
of net revenues in Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. |
|
(c) |
|
Sales of products bearing the Calvin Klein brand name accounted for
75.6%, 73.9% and 73.5% of net revenues in Fiscal 2011, Fiscal 2010 and Fiscal
2009, respectively. |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Net |
|
|
|
|
|
|
% of Total Net |
|
|
|
|
|
|
% of Total Net |
|
|
|
Fiscal 2011 |
|
|
Revenues |
|
|
Fiscal 2010 |
|
|
Revenues |
|
|
Fiscal 2009 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (c) |
|
$ |
80,641 |
|
|
|
|
|
|
$ |
143,260 |
|
|
|
|
|
|
$ |
118,477 |
|
|
|
|
|
Intimate Apparel Group (c) |
|
|
133,755 |
|
|
|
|
|
|
|
134,928 |
|
|
|
|
|
|
|
116,269 |
|
|
|
|
|
Swimwear Group (c) |
|
|
28,067 |
|
|
|
|
|
|
|
18,698 |
|
|
|
|
|
|
|
16,168 |
|
|
|
|
|
Unallocated corporate expenses (a) (c) |
|
|
(60,918 |
) |
|
|
|
|
|
|
(49,075 |
) |
|
|
|
|
|
|
(57,379 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (b) |
|
$ |
181,545 |
|
|
|
7.2 |
% |
|
$ |
247,811 |
|
|
|
10.8 |
% |
|
$ |
193,535 |
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $26.1 million, $2.9 million and $20.4 million of pension expense for
Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. |
|
(b) |
|
Includes (i) $45.9 million, $6.5 million, $7.5 million and $1.0
million of restructuring expenses for Fiscal 2011 in the Sportswear Group,
Intimate Apparel Group, Swimwear Group and Unallocated corporate expenses,
respectively; (ii) $1.8 million, $3.6 million, $3.6 million and $0.8 million of
restructuring expenses for Fiscal 2010 in the Sportswear Group, Intimate Apparel
Group, Swimwear Group and Unallocated corporate expenses,
respectively; and
(iii) $3.2 million, $4.3 million, $3.0 million and $1.5 million of restructuring
expenses for Fiscal 2009 in the Sportswear Group, Intimate Apparel Group,
Swimwear Group and Unallocated corporate expenses, respectively. |
|
(c) |
|
Reflects the allocation of a total of $9.9 million of corporate
expenses to the Sportswear Group ($6.9 million), the Intimate Apparel Group ($3.8
million) and the Swimwear Group (($0.8 million)), respectively, during Fiscal
2010 and the allocation of a total of $6.7 million of corporate expenses to the
Sportswear Group ($4.7 million), the Intimate Apparel Group ($2.6 million) and
the Swimwear Group (($0.6 million)), respectively, during Fiscal 2009, in each
case, to conform to the presentation for Fiscal 2011. See Note 5 of Notes to
Consolidated Financial Statements. |
The following table sets forth, as of December 31, 2011 and January 1, 2011, total assets
for each of the Companys business groups, corporate/other and the Company on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
% of Total |
|
|
January 1, 2011 |
|
|
% of Total |
|
|
|
(in thousands of dollars) |
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
994,425 |
|
|
|
56.9 |
% |
|
$ |
995,475 |
|
|
|
60.2 |
% |
Intimate Apparel Group |
|
|
486,636 |
|
|
|
27.9 |
% |
|
|
381,371 |
|
|
|
23.0 |
% |
Swimwear Group |
|
|
148,982 |
|
|
|
8.5 |
% |
|
|
154,831 |
|
|
|
9.4 |
% |
Corporate/Other |
|
|
117,807 |
|
|
|
6.7 |
% |
|
|
121,595 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,747,850 |
|
|
|
100.0 |
% |
|
$ |
1,653,272 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group
The Sportswear Group designs, sources and markets moderate to premium priced mens, womens
and childrens jeanswear, sportswear and accessories. Net revenues of the Sportswear Group
accounted for 52.0% of the Companys net revenues in Fiscal 2011.
The following table sets forth the Sportswear Groups brand names and their apparel price
ranges and types:
|
|
|
|
|
Brand Name |
|
Price Range |
|
Type of Apparel |
Calvin Klein
|
|
Better to premium
|
|
Mens, womens and childrens (a) designer
jeanswear (bottoms and tops), bridge
apparel, jeans accessories and bridge
accessories. |
Chaps
|
|
Moderate
|
|
Mens sportswear, jeanswear, activewear, knit
and woven sports shirts and swimwear (b) |
|
|
|
(a) |
|
The Sportswear Group sub-licenses the rights to produce childrens designer jeanswear to a
third party. |
|
(b) |
|
The Sportswear Group sub-licenses the rights to produce mens leather outerwear to a third
party. |
During Fiscal 2011, the Sportswear Group had operations in North America (U.S., Canada
and Mexico), Central and South America, Europe, Asia, Australia and South Africa. The Sportswear
Groups products are entirely sourced from third-party suppliers worldwide.
The Calvin Klein business includes mens and womens jeans and jeans-related products,
including outerwear, knit and woven tops and shirts, jeans accessories in Europe and Asia and the
CK Calvin Klein bridge line of apparel and accessories in Europe. As a result of the CKJEA
Acquisition (see Trademarks and Licensing Agreements Sportswear Group, below), the Company has
been able to expand the distribution of its Calvin Klein products in Europe and Asia, primarily in
its direct-to-consumer business. Net revenues related to the Sportswear Group in Europe and Asia
were $656.3 million, $560.7 million and $509.8 million in Fiscal 2011, Fiscal 2010 and Fiscal 2009,
respectively. In addition, there has been a significant increase in sales of the Companys Calvin
Klein products in the Sportswear Group in Mexico and Central and South America with net revenues of
$166.0 million, $127.5 million and $75.3 million in Fiscal 2011, Fiscal 2010 and Fiscal 2009,
respectively.
5
Direct-to-consumer products accounted for 32.3%, 25.9% and 22.2% of the Sportswear segments
Fiscal 2011, Fiscal 2010 and Fiscal 2009 net revenues, respectively.
Chaps is a moderately priced mens sportswear line providing a more casual product offering to
the consumer. The Company negotiated an amendment and extension of the Chaps license through 2013,
which allows further renewal by the Company through 2018, subject to the Company having achieved
certain levels of minimum earned royalties and net sales during the period from January 1, 2012
through December 31, 2012. Based on current projections for the year ending December 29, 2012, the
Company believes that such minimum earned royalties and minimum net sales will be achieved, but
there can be no assurances that such projections will be met. See Statement Regarding
Forward-Looking Disclosure and Item 1A. Risk Factors.
The Sportswear Groups apparel products are distributed primarily through department stores,
independent retailers, chain stores, membership clubs, mass merchandisers, off-price stores,
Company operated retail stores, shop-in-shop/concession locations, stores operated under retail
licenses or franchise and distributor agreements, and, to a lesser extent, specialty stores and the
internet.
The following table sets forth, as of December 31, 2011, the Sportswear Groups principal
distribution channels and certain major customers:
|
|
|
|
|
Channels of Distribution |
|
Customers |
|
Brands |
United States |
|
|
|
|
Department Stores
|
|
Macys Inc.
Stage Stores /Carsons
|
|
Calvin Klein
Jeans
Calvin Klein Jeans and Chaps |
|
|
|
|
|
Independent Retailers
|
|
Lord & Taylor
Belk
|
|
Calvin Klein Jeans
Calvin Klein Jeans and Chaps |
|
|
|
|
|
Chain Stores
|
|
Kohls
|
|
Chaps |
|
|
|
|
|
Membership Clubs
|
|
Sams Club and BJs
Costco
|
|
Calvin Klein Jeans and Chaps
Calvin Klein Jeans |
|
|
|
|
|
Off-price and Other
|
|
TJ Maxx, Ross Stores, Specialty and
Military
|
|
Calvin Klein Jeans and Chaps |
|
|
|
|
|
Europe
|
|
Company operated retail stores,
stores operated under shop-in-shop
and concession agreements
El Corte Ingles
|
|
Calvin Klein Jeans |
|
|
|
|
|
Canada
|
|
Hudson Bay Company and
Sears, Costco and Winners
|
|
Calvin Klein Jeans and Chaps |
|
|
|
|
|
Mexico, Central and
South America
|
|
Company operated retail stores, stores
operated under shop-in-shop and
concession agreements
Liverpool, Palacio de Hierro and Sears
Sams Clubs, Costco, Walmart
Stores operated under
distributor agreements
|
|
Calvin Klein Jeans
Calvin Klein Jeans and Chaps
Calvin Klein Jeans and Chaps
Calvin Klein Jeans |
|
|
|
|
|
Asia
|
|
Company operated retail stores,
shop-in-shop/concession locations/stores
under retail licenses or distributor
agreements/direct wholesale distributors
|
|
Calvin Klein Jeans |
6
The Sportswear Group generally markets its products for four retail selling seasons (Spring,
Summer, Fall and Holiday). New styles, fabrics and colors are introduced based upon the Companys
expectation of consumer preferences and market trends, which coincide with the appropriate selling
season. The Sportswear Group recorded 47.9%, 45.7% and 46.0% of its net revenues in the first
halves of Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively.
The following table sets forth the domestic and international net revenues of the Sportswear
Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
|
(in thousands of dollars) |
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
426,029 |
|
|
|
32.6 |
% |
|
$ |
460,421 |
|
|
|
38.2 |
% |
|
$ |
412,087 |
|
|
|
39.4 |
% |
International |
|
|
879,744 |
|
|
|
67.4 |
% |
|
|
743,644 |
|
|
|
61.8 |
% |
|
|
632,805 |
|
|
|
60.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,305,773 |
|
|
|
100.0 |
% |
|
$ |
1,204,065 |
|
|
|
100.0 |
% |
|
$ |
1,044,892 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group
The Intimate Apparel Group designs, sources and markets upper moderate to premium priced
intimate apparel and other products for women and better to premium priced mens underwear and
loungewear. Net revenues of the Intimate Apparel Group accounted for approximately 37.1% of the
Companys net revenues in Fiscal 2011.
The Intimate Apparel Group targets a broad range of consumers and provides products across a
wide range of price points. The Companys design team strives to design products of a price,
quality, fashion and style that meet its customers demands.
The following table sets forth the Intimate Apparel Groups brand names and the apparel price
ranges and types as of December 31, 2011:
|
|
|
|
|
Brand Name |
|
Price Range |
|
Type of Apparel |
Calvin Klein Underwear
|
|
Better to premium
|
|
Womens intimate apparel and
sleepwear and mens underwear
and loungewear |
Warners
|
|
Moderate to better
|
|
Womens intimate apparel |
Olga
|
|
Moderate to better
|
|
Womens intimate apparel |
Olgas Christina
|
|
Better
|
|
Womens intimate apparel |
Body Nancy Ganz/Bodyslimmers
|
|
Better to premium
|
|
Womens intimate apparel |
The Calvin Klein Underwear womens lines consist primarily of womens underwear, bras,
panties, daywear, loungewear and sleepwear. The Calvin Klein mens lines consist primarily of mens
underwear, briefs, boxers, T-shirts, loungewear and sleepwear.
The Intimate Apparel Group has operations in North America (U.S., Canada and Mexico), Central
and South America, Europe, Asia and Australia. The Intimate Apparel Groups products are sourced
entirely from third party suppliers worldwide.
The Company has been able to expand the distribution of its international Calvin Klein
products in the Intimate Apparel Group, primarily in its direct-to-consumer business, and to
increase net revenues to $755.3 million, $669.8 million and $580.2 million in Fiscal 2011, Fiscal
2010 and Fiscal 2009, respectively. Direct-to-consumer products accounted for 30.7%, 28.5% and,
28.6% of the Intimate Apparel segments Fiscal 2011, Fiscal 2010 and Fiscal 2009 net revenues,
respectively.
The Companys Intimate Apparel brands are distributed primarily through department stores,
independent retailers, chain stores, membership clubs, mass merchandisers, off-price stores,
Company operated retail stores, shop-in-shop/concession locations, stores operated under retail
licenses or franchise and distributor agreements, the Companys CKU.com internet website and, to
a lesser extent, specialty stores.
7
The following table sets forth, as of December 31, 2011, the Intimate Apparel Groups
principal distribution channels and certain major customers:
|
|
|
|
|
Channels of Distribution |
|
Customers |
|
Brands |
United States |
|
|
|
|
Department Stores
|
|
Macys Inc.
Carsons/Bon-Ton
|
|
Warners, Olgas Christina,Olga
and Calvin Klein Underwear |
|
|
|
|
|
Independent Retailers
|
|
Nordstrom, Dillards,
Lord & Taylor and Bloomingdales
|
|
Calvin Klein Underwear and Warners |
|
|
|
|
|
Chain Stores
|
|
Kohls, JCPenney and Sears
|
|
Warners, Olga, and private label |
|
|
|
|
|
Membership Clubs
|
|
Costco and Sams Club
|
|
Warners and Calvin Klein Underwear |
|
|
|
|
|
Off-price
|
|
TJ Maxx/ Marshalls
Century 21 and Ross Stores
|
|
Warners, Olga and Calvin Klein Underwear |
|
|
|
|
|
Mass Merchandisers
|
|
Target, Kmart
|
|
Warners and Olga |
|
|
|
|
|
Canada
|
|
Hudson Bay Company,
Zellers, Sears and
Wal-Mart
Costco and Winners
Company operated retail stores
|
|
Warners, Olga, Body Nancy
Ganz/Bodyslimmers and Calvin Klein
Underwear
Calvin Klein Underwear
Calvin Klein Underwear |
|
|
|
|
|
Mexico, Central and South America
|
|
Liverpool, Palacio de
Hierro, Suburbia, Sears
|
|
Warners, Olga, Body Nancy
Ganz/Bodyslimmers and Calvin
Klein Underwear |
|
|
Sams Clubs
Costco
|
|
Warners
Calvin Klein Underwear |
|
|
Company operated retail stores,
stores operated under shop-in-shop
and concession agreements
|
|
Calvin Klein Underwear |
|
|
|
|
|
Europe
|
|
Harrods, House of Fraser,
Galeries Lafayette, Selfridges
Debenhams, Au Printemps,
Karstadt, Kaufhof and El Corte
Ingles
|
|
Calvin Klein Underwear |
|
|
Company operated retail stores,
shop-in-shop/concession locations
and stores under retail licenses or
distributor agreements
|
|
Calvin Klein Underwear |
|
|
|
|
|
Asia
|
|
Company operated retail stores,
shop-in-shop/concession locations
and stores under retail licenses or
distributor agreements/direct
wholesale distributors
|
|
Calvin Klein Underwear |
The Intimate Apparel Group generally markets its product lines for three retail-selling
seasons (Spring, Fall and Holiday). Its revenues are generally consistent throughout the year, with
48.0%, 47.1% and 47.3% of the Intimate Apparel Groups net revenues recorded in the first halves of
Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively.
8
The following table sets forth the domestic and international net revenues of the Intimate
Apparel Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
|
(in thousands of dollars) |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
366,345 |
|
|
|
39.3 |
% |
|
$ |
337,985 |
|
|
|
40.5 |
% |
|
$ |
295,285 |
|
|
|
40.8 |
% |
International |
|
|
565,783 |
|
|
|
60.7 |
% |
|
|
496,025 |
|
|
|
59.5 |
% |
|
|
427,937 |
|
|
|
59.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
932,128 |
|
|
|
100.0 |
% |
|
$ |
834,010 |
|
|
|
100.0 |
% |
|
$ |
723,222 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group
The Swimwear Group designs, sources and markets moderate to premium priced swimwear, swim
accessories and related products and sub-licenses the Speedo label to suppliers of apparel and
other products in widely diversified channels of distribution. Net revenues of the Swimwear Group
accounted for 11.0% of the Companys net revenues in Fiscal 2011.
The following table sets forth the Swimwear Groups significant brand names and their apparel
price ranges and types:
|
|
|
|
|
Brand Name |
|
Price Range |
|
Type of Apparel |
Speedo
|
|
Moderate to premium
|
|
Mens and womens competitive
swimwear, competitive and non-
competitive swim accessories,
mens swimwear and coordinating
T-shirts, womens fitness swimwear,
fashion swimwear, footwear and
childrens swimwear |
|
|
|
|
|
Calvin Klein
|
|
Better to premium
|
|
Mens and womens swimwear |
|
|
|
|
|
Lifeguard
|
|
Upper moderate to better
|
|
Mens and womens swimwear and
related products |
The Company believes that Speedo is the pre-eminent competitive swimwear brand in the world.
Innovations by the Swimwear Group and its licensor, SIL, have led and continue to lead the
competitive swimwear industry. In 2011, athletes wearing Speedo products experienced success,
including two world records, at the World Championships in Shanghai, China, with 58% of all medals
won at the event being won by swimmers wearing Speedo suits. In November 2011, Speedo unveiled the
FASTSKIN3 Racing System, which includes a cap, goggles and suit engineered to work
together as one racing system. . The system has received full FINA (Fédération Internationale de
Natation) approval, which allows swimmers to wear the system in swim competitions, including the
2012 Olympic Games.
Speedo competitive swimwear is primarily distributed through sporting goods stores, team
dealers, swim specialty shops and the Companys SpeedoUSA.com internet website. Speedo
competitive swimwear accounted for approximately 16.6% of the Swimwear Groups net revenues in
Fiscal 2011.
The Company capitalizes on the competitive Speedo image in marketing its Speedo brand fitness
and fashion swimwear by incorporating performance elements in the Companys more fashion-oriented
products. Speedo fitness and fashion swimwear and Speedo swimwear for children are distributed in
the U.S., Mexico, Canada and the Caribbean through department and specialty stores, independent
retailers, chain stores, sporting goods stores, team dealers, catalog retailers, membership clubs
off-price stores and the Companys SpeedoUSA.com internet website. Speedo fashion swimwear and
related products accounted for approximately 23.6% of the Swimwear Groups net revenues in Fiscal
2011.
9
Speedo accessories, including swim goggles, water-based fitness products, electronics and
other swim and fitness-related products for adults and children, are primarily distributed through
sporting goods stores, chain stores, swim specialty shops, membership clubs, mass merchandisers and
off-price stores. Speedo accessories accounted for approximately $87.0 million of net revenues in
Fiscal 2011, or approximately 31.6% of the Swimwear Groups net revenues. Swimwear Groups net
revenues also included $31.5 million (11.4% of the Swimwear Groups net revenues) from the sale of
Speedo footwear products. The SpeedoUSA.com internet website generated approximately $8.3
million of net revenues (3.0% of the Swimwear Groups net revenues).
The Swimwear Group has operations in the U.S., Mexico, Canada and Europe. All of the Swimwear
Groups products are sourced from third-party suppliers primarily in the U.S., Mexico, Europe and
Asia.
The Company designs, sources and sells a broad range of Calvin Klein fashion swimwear and
beachwear for men and women. Calvin Klein swimwear is distributed through department stores and
independent retailers in the U.S., Mexico, Canada and Europe. Calvin Klein swimwear accounted for
approximately 13.8% of the Swimwear Groups net revenues in Fiscal 2011.
The following table sets forth, as of December 31, 2011, the Swimwear Groups principal
distribution channels and certain major customers:
|
|
|
|
|
Channels of Distribution |
|
Customers |
|
Brands |
|
|
|
|
|
United States |
|
|
|
|
Department Stores
|
|
Macys Inc.
|
|
Speedo swimwear and accessories,
Calvin Klein swimwear |
|
|
|
|
|
Independent Retailers
|
|
Dillards and Belk
|
|
Speedo swimwear,
Calvin Klein swimwear |
|
|
|
|
|
Chain Stores
|
|
JCPenney and Kohls
|
|
Speedo swimwear and accessories, |
|
|
|
|
|
Membership Clubs
|
|
Costco and Sams Club
|
|
Speedo swimwear, active apparel
and accessories |
|
|
|
|
|
Mass Merchandisers
|
|
Target
|
|
Speedo accessories |
|
|
|
|
|
Other
|
|
Military, The Sports Authority,
Dicks Sporting Goods, Amazon
and team dealers
|
|
Speedo swimwear and accessories,
Lifeguard, Calvin Klein swimwear |
|
|
|
|
|
Off-price
|
|
TJ Maxx, Ross Stores
|
|
Speedo swimwear and accessories,
Calvin Klein swimwear |
|
|
|
|
|
Canada
|
|
Hudson Bay Company,
Sears and Winners
Costco
|
|
Speedo swimwear and accessories,
Calvin Klein
Speedo swimwear and accessories |
|
|
|
|
|
Mexico, Central and South America
|
|
Liverpool, Palacio de
Hierro, Marti, Wal-Mart and
Costco
|
|
Speedo swimwear and accessories,
Calvin Klein
Speedo swimwear and accessories |
|
|
|
|
|
Europe
|
|
El Corte Ingles, House of Fraser,
La Rinascente and Company-owned
stores/stores operated under
distributor agreements
|
|
Calvin Klein swimwear |
The Swimwear Group generally markets its products for three retail selling seasons (Cruise,
Spring and Summer). New styles, fabrics and colors are introduced based upon the Companys
expectation of consumer preferences and market trends, which coincide with the appropriate selling
season. The swimwear business is seasonal. Approximately 65.5%, 63.7% and 67.7% of the Swimwear
Groups net revenues were recorded in the first halves of Fiscal 2011, Fiscal 2010 and Fiscal 2009,
respectively.
10
The following table sets forth the domestic and international net revenues of the Swimwear
Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
Net |
|
|
% of |
|
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
Revenues |
|
|
Total |
|
|
|
(in thousands of dollars) |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
220,865 |
|
|
|
80.2 |
% |
|
$ |
209,761 |
|
|
|
81.4 |
% |
|
$ |
209,319 |
|
|
|
83.2 |
% |
International |
|
|
54,622 |
|
|
|
19.8 |
% |
|
|
47,915 |
|
|
|
18.6 |
% |
|
|
42,192 |
|
|
|
16.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
275,487 |
|
|
|
100.0 |
% |
|
$ |
257,676 |
|
|
|
100.0 |
% |
|
$ |
251,511 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
The Companys products are distributed globally in over 100 countries to both wholesale and
retail customers. Wholesale customers include department and specialty stores, independent
retailers, chain stores, membership clubs, mass merchandisers and off-price stores. No single
customer accounted for more than 10% of the Companys net revenue in Fiscal 2011, Fiscal 2010 or
Fiscal 2009. During Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Companys top five customers
accounted for $548.6 million (21.8%), $490.3 million (21.4%) and $470.9 million (23.3%),
respectively, of the Companys net revenue.
The Company offers a diversified portfolio of brands across virtually all distribution
channels to a wide range of customers. The Company utilizes focus groups, market research and
in-house and licensor design staffs to align its brands with the preferences of consumers. The
Company believes that this strategy reduces its reliance on any single distribution channel and
allows it to market products with designs and features that appeal to a wide range of consumers at
varying price points.
Advertising, Marketing and Promotion
The Company devotes significant resources to advertising and promoting its various brands to
increase awareness of its products with retail consumers and, consequently, to increase consumer
demand.
Total advertising, marketing and promotion expense (including cooperative advertising programs
whereby the Company reimburses customers for a portion of the cost incurred by the customer in
placing advertisements featuring its products) was $125.4 million (5.0% of net revenues), $126.5
million (5.5% of net revenue) and $100.2 million (5.0% of net revenue) for Fiscal 2011, Fiscal 2010
and Fiscal 2009, respectively. The Company focuses its advertising and promotional spending on
brand and/or product-specific advertising, primarily through point of sale product displays,
visuals, individual in-store promotions and magazine and other print publications. During Fiscal
2011, advertising expense primarily related to the launch of the ck one brand of mens and womens
underwear. In addition, the Swimwear Group sponsors a number of world-class swimmers and divers who
wear its products in competition and participate in various promotional activities on behalf of the
Speedo brand. The Companys Swimwear Group incurred approximately $18.7 million of marketing
expenses in Fiscal 2011 primarily related to Speedo promotional activities as well as development
of digital communications programs.
The Companys licenses for the Calvin Klein and Chaps trademarks include provisions requiring
the Company to spend a specified percentage (ranging from 1% to 6%) of revenues on advertising and
promotion related to the licensed products. The Company also benefits from general advertising
campaigns conducted by its licensors. Though some of these advertising campaigns do not focus
specifically on the Companys licensed products and often include the products of other licensees
in addition to its own, the Company believes it benefits from the general brand recognition that
these campaigns generate.
Sales
The Companys wholesale customers are served by sales representatives who are generally
assigned to specific brands and products. In addition, the Company has customer service departments
for each business unit that assist the Companys sales representatives and customers in tracking
goods available for sale, determining order and shipping lead times and tracking the status of open
orders.
Distribution
As of December 31, 2011, the Company distributed its products to its wholesale customers and
retail stores from various distribution facilities and distribution contractors located in the U.S.
(twelve facilities), Canada (one facility), Mexico (one facility), China (three facilities), Hong
Kong (one facility), Korea (one facility), Australia (one facility), Singapore (one facility),
Taiwan (one facility), the Netherlands (three facilities), South
Africa (one facility) Argentina (one facility), Brazil (two
facilities), Chile (one facility) and Peru (one facility). Several of the Companys facilities are
shared by more than one of its business units and/or operating segments. The Company owns one,
leases nine and uses third-party services for twenty-one of its distribution facilities. See Item
2. Properties.
11
Raw Materials and Sourcing
The Companys products are comprised of raw materials which consist principally of cotton,
wool, silk, synthetic and cotton-synthetic blends of fabrics and yarns. Raw materials are generally
available from multiple sources. Prior to Fiscal 2010, neither the Company, nor, to the Companys
knowledge, any of its third-party contractors, had experienced any significant shortage of raw
materials. However, beginning in Fiscal 2010 and continuing into Fiscal 2011, demand for raw
materials, including cotton and synthetics, significantly increased while supplies of those raw
materials have declined due to adverse climate and other factors. In anticipation of shortages of
these raw materials, during Fiscal 2010 and Fiscal 2011, the Company advanced funds to certain
third-party contractors to allow them to place early orders for raw materials in order to minimize
the effect of price increases. In addition, during Fiscal 2011, the Company was able to partially
mitigate the cost increases in certain geographies by selectively increasing the selling prices of
its goods, early purchases of product and by implementing other sourcing initiatives.
Substantially all of the Companys products sold in North America, Central and South America
and Europe are imported and are subject to various customs laws. See Government Regulations.
The Company seeks to maintain a balanced portfolio of sourcing countries and factories worldwide to
ensure continuity in supply of product.
The Company has many potential sources of supply and believes a disruption at any one facility
or with respect to any one supplier would not have a material adverse effect on the Company. The
Company maintains insurance policies designed to substantially mitigate the financial effects of
disruptions in its sources of supply.
All of the Companys products are produced by third party suppliers. Sourcing from third-party
manufacturers allows the Company to maximize production flexibility while avoiding significant
capital expenditures, work-in-process inventory buildups and the costs of managing a large
production work force. The Company regularly inspects products manufactured by its suppliers to
seek to ensure that they meet the Companys quality and production standards.
The Company monitors all of its contracted production facilities to seek to ensure their
continued human rights and labor compliance and adherence to all applicable laws and the Companys
own business partner manufacturing guidelines. All suppliers are required by the Company to
execute an acknowledgment confirming their obligation to comply with the Companys guidelines.
In addition, the Company has engaged third-party labor compliance auditing companies to
monitor its facilities and those of its contractors. These auditing companies periodically audit
all the Companys foreign and domestic contractors payroll records, age certificates, compliance
with local labor laws, security procedures and compliance with the Companys business partner
manufacturing guidelines. These auditing companies also conduct unannounced visits, surveillance
and random interviews with contractors, employees and supervisors.
See Item 1A. Risk Factors for a further discussion of issues relating to raw materials and
sourcing.
Trademarks and Licensing Agreements
The Company owns and licenses a portfolio of highly recognized brand names. Most of the
trademarks used by the Company are either owned, licensed in perpetuity or, in the case of Calvin
Klein Jeans, licensed for terms extending through 2044 (in the U.S.) and 2046 (in Europe and Asia).
The Companys Heritage Brands, including Speedo, Chaps, Warners and Olga, have been established in
their respective markets for extended periods and have attained a high level of consumer awareness.
The Speedo brand has been in existence for 84 years, and the Company believes Speedo is the
dominant competitive swimwear brand in the United States. The Warners and Olga brands have been in
existence for 139 and 72 years, respectively, and Calvin Klein and Chaps have each been in
existence for more than 25 years.
The Company regards its intellectual property in general and, in particular, its owned
trademarks and licenses, as its most valuable assets. The Company believes the trademarks and
licenses have substantial value in the marketing of its products. The Company has protected its
trademarks by registering them with the U.S. Patent and Trademark Office and with governmental
agencies in other countries where its products are manufactured and sold. The Company works
vigorously to enforce and protect its trademark rights by engaging in regular market reviews,
helping local law enforcement authorities detect and prosecute counterfeiters, issuing
cease-and-desist letters against third parties infringing or denigrating its trademarks and
initiating litigation as necessary. The Company also works with trade groups and industry
participants seeking to strengthen laws relating to the protection of intellectual property rights
in markets around the world.
12
Certain of the Companys license agreements, including the license agreements with SIL (the
licensor of the Speedo trademark), CKI (the licensor of the Calvin Klein and CK/Calvin Klein and
Calvin Klein Jeans trademarks) and Polo Ralph Lauren, Inc. (the licensor of the Chaps trademark)
require the Company to make minimum royalty payments and/or royalty payments based on a percentage
of net sales, meet certain minimum sales thresholds, comply with restrictive covenants, and provide
certain services (such as design services) (which typically require approval of the licensor to be
marketed by the Company). Those license agreements may be terminated or the Company may lose its
ability to exercise renewal rights if certain of these requirements and obligations are not
satisfied. In addition, certain of such license agreements contain cross default provisions,
which may result in the early termination of related license agreements upon termination of such
wholesale and retail license agreements.
Intimate Apparel Group
All of the Calvin Klein trademarks (including all variations and formatives thereof) for all
products and services in the Intimate Apparel Group are owned by the Calvin Klein Trademark Trust.
The trust is co-owned by CKI and the Company. The Class B and C Series Estates of the trust
correspond to the Calvin Klein trademarks for mens, womens and childrens underwear, intimate
apparel, loungewear and sleepwear and are owned by the Company. Accordingly, as owner of the Class
B and C Estate Shares of the trust corresponding to these product categories, the Company is the
beneficial owner of the Calvin Klein trademarks for mens, womens and childrens underwear,
intimate apparel, loungewear and sleepwear throughout the entire world.
Sportswear Group
The Company has several licenses to develop, manufacture and market designer jeanswear
products under the Calvin Klein Jeans trademarks in North, South and Central America, Europe, Asia,
the Middle East and Australia.
In July 2004, the Company acquired the license to open retail stores to sell jeanswear and
ancillary products bearing the Calvin Klein and Calvin Klein Jeans marks in Central and South
America from CKI. In connection with the CKJEA Acquisition (as described below), the Company
expanded the territory covered by the retail stores license described above to include Mexico and
Canada. The initial terms of these licenses expire on December 31, 2034 and are extendable by the
Company for a further ten-year term expiring on December 31, 2044 if the Company achieves certain
minimum sales thresholds in the U.S., Mexico and Canada. In January 2006, the Company acquired
certain Calvin Klein accessories licenses as part of the CKJEA Acquisition.
In January 2006, the Company acquired 100% of the shares of the companies that operate the
license and related wholesale and retail businesses of Calvin Klein Jeans in Europe and Asia, the
wholesale business of Calvin Klein Jeans accessories in Europe and Asia and the wholesale and
retail business of CK Calvin Klein bridge line of sportswear and accessories in Europe (the
CKJEA Acquisition). In connection with the acquisition, the Company acquired various exclusive
license agreements and entered into amendments to certain of its existing license agreements with
CKI (in its capacity as licensor). Under these agreements the Company has licenses to develop,
manufacture, distribute and market, and to open retail stores to sell, bridge apparel and
accessories under the CK/Calvin Klein trademark and service mark in Europe (countries constituting
the European Union as of May 1, 2004), Norway, Switzerland, Monte Carlo, Vatican City,
Liechtenstein, Iceland and parts of Eastern Europe, Russia, the Middle East and Africa (the 2006
Bridge Licenses). On July 8, 2011 and October 31, 2011, respectively, the 2006 Bridge Licenses
were amended to grant the Company additional rights to develop, manufacture, distribute and market,
and to open retail stores to sell, bridge apparel and accessories under the CK/Calvin Klein
trademark and service mark in India and Central and South America,
respectively. During Fiscal 2010 and Fiscal 2011, the Company did not achieve the minimum sales thresholds
required under the CK/Calvin Klein bridge Apparel License. As a result, the Company
and CKI no longer intend for the Company to continue to operate all or part of the bridge business.
The Company has begun discussions with CKI regarding the terms and conditions of the transition of
all or part of the Companys bridge business to CKI. See Note
4 of Notes to Consolidated Financial Statements.
In connection with the CKJEA Acquisition, the Company also acquired the licenses to develop,
manufacture, distribute and market, and to open retail stores to sell, jeans apparel and
accessories under the Calvin Klein and/or CK/Calvin Klein trademark and service mark in the forms
of the logos Calvin Klein Jeans and/or CK/Calvin Klein Jeans in Japan, China, South Korea and Rest
of Asia (Hong Kong, Thailand, Australia, New Zealand, Philippines, Taiwan, Singapore, Malaysia,
Indonesia, New Guinea, Vietnam, Cambodia, Laos, Myanmar, Macau and the Federated State of
Micronesia) and parts of Western Europe, the Middle East, Egypt, Eastern Europe and Southern
Africa. These licenses also extend through December 31, 2046, provided the Company achieves certain
minimum sales thresholds.
In January 2008, the Company acquired rights pursuant to the 2008 CK Licenses which include:
(i) rights to operate Calvin Klein Jeanswear accessories stores in Europe, Eastern Europe, Middle
East, Africa and Asia, as defined; (ii) rights to operate Calvin Klein Jeanswear accessories stores
in Central and South America (excluding Canada and Mexico, which are otherwise included in the
underlying grant of rights to the company to operate Calvin Klein Jeanswear retail stores in
Central and South America); (iii) rights to operate CK/Calvin Klein bridge accessories stores in
Europe, Eastern Europe, Middle East and Africa, as defined (the European Bridge Accessories Store
License); (iv) rights to operate CK/Calvin Klein bridge accessories stores in Central and South
America (excluding Canada and Mexico, which are otherwise included in the underlying grant of
rights to the Company to operate Calvin Klein bridge accessories stores in Central and South
America); and (v) e-commerce rights in the Americas, Europe and Asia for Calvin Klein Jeans and for
Calvin Klein jeans accessories. In April 2009, the Companys e-commerce rights in the Americas,
Europe and Asia were extended to include mens and womens swimwear under the Calvin Klein and
CK/Calvin Klein trademarks. Each of the 2008 CK Licenses are long-term arrangements. In addition,
in 2008, the Company had entered into negotiations with CKI with respect to a
grant of rights to sublicense and distribute Calvin Klein Golf apparel and golf related accessories
in department stores, specialty stores and other channels in Asia. During the third quarter of
Fiscal 2009, the Company decided to discontinue its Calvin Klein Golf business. In an amendment,
dated July 8, 2011, to the European Bridge Accessories Store License, the Company was granted the
right to operate CK/Calvin Klein bridge accessories stores in India. During Fiscal 2010 and Fiscal 2011, the Company did not achieve the minimum sales thresholds
required under the CK/Calvin Klein bridge Apparel License. As a result, the Company
and CKI no longer intend for the Company to continue to operate all or part of the bridge business.
The Company has begun discussions with CKI regarding the terms and conditions of the transition of
all or part of the Companys bridge business to CKI. See Note 4 of Notes to Consolidated Financial Statements.
13
The Company has the exclusive right to use the Chaps trademark for mens sportswear,
jeanswear, activewear, sports shirts, outerwear and swimwear in the U.S. and its territories and
possessions, including Puerto Rico, Mexico and Canada and has rights of first refusal with respect
to Europe. During Fiscal 2008, the Company extended its license through December 31, 2013 by
exercising the first of two five-year renewal options. Pursuant to the terms of the license, the
Company paid approximately $2.0 million associated with the renewal of this license. The Company
has the right to renew the license for an additional five-year term up to and including December
31, 2018, provided that the Company has achieved certain levels of minimum net sales and earned
royalties during the period from January 1, 2012 through December 31, 2012. Based on current
projections for fiscal 2012, the Company believes that such minimum net sales and earned royalties
will be achieved, but there can be no assurances that such projections will be met. See Statement
Regarding Forward-Looking Disclosure and Item 1A. Risk Factors.
Swimwear Group
The Company has license agreements in perpetuity with SIL which permit the Company to design,
manufacture and market certain mens, womens and childrens apparel, including swimwear,
sportswear and a wide variety of other products, using the Speedo trademark and certain other
trademarks. The Companys license to use Speedo and other trademarks was granted in perpetuity
subject to certain conditions and is exclusive in the U.S. and its territories and possessions,
Canada, Mexico and the Caribbean. The license agreements provide for minimum royalty payments to be
credited against future royalty payments based on a percentage of net sales. The license agreements
may be terminated with respect to a particular territory in the event the Company does not pay
royalties or abandons the trademark in such territory. Moreover, the license agreements may be terminated
in the event the Company manufactures, or is controlled by a company that manufactures,
racing/competitive swimwear, swimwear caps or swimwear accessories under a different trademark, as
specifically defined in the license agreements. The Company generally may sublicense the Speedo
trademark within the geographic regions covered by the licenses. SIL retains the right to use or
license the Speedo trademark in other jurisdictions and actively uses or licenses the Speedo
trademark throughout the world outside of the Companys licensed territory.
The Company also has a license to develop, manufacture and market womens and juniors
swimwear under the Calvin Klein and CK Calvin Klein trademarks in the approved forms as designated
by the licensor worldwide and mens swimwear under the Calvin Klein mark in the form designated by
the licensor worldwide. During Fiscal 2009, the Company extended these licenses for a further
five-year term expiring on December 31, 2014 by exercising its five-year renewal option for each
license. In April 2009, the Companys e-commerce rights in the Americas, Europe and Asia were
extended to include mens and womens swimwear under the Calvin Klein and CK Calvin Klein
trademarks.
In July 1995, the Company entered into a license agreement with Lifeguard Licensing Corp.
Under the license agreement, the Company has the exclusive right to manufacture, source,
sublicense, distribute, promote and advertise Lifeguard apparel worldwide. In September 2003, the
Lifeguard license was amended and extended to add other product categories, namely accessories and
sporting equipment. In 2008, the Lifeguard license was further amended and extended to add other
product categories, namely performance and athletic training equipment. The current term of the
license agreement expires on June 30, 2012. The Company has elected not to exercise its renewal
option with respect to the Lifeguard license.
ck one
In June 2010, pursuant to a consent letter agreement with Calvin Klein, Inc. and Coty Inc.,
the Company acquired certain rights to manufacture, distribute and promote certain underwear
products, jeanswear apparel products and swimwear products under the trademark ck one.
On an ongoing basis, the Company evaluates entering into distribution or license agreements
with other companies that would permit those companies to market products under the Companys
trademarks. In evaluating a potential distributor or licensee, the Company generally considers the
experience, financial stability, manufacturing performance and marketing ability of the proposed
licensee.
14
Certain of the Companys license agreements with third parties will expire by their terms over
the next several years. There can be no assurance that the Company will be able to negotiate and
conclude extensions of such agreements on similar economic terms or at all.
International Operations
In addition to its operations in the U.S., the Company has operations in Canada, Mexico and
Central and South America, Europe, Asia and Australia. The Companys products are sold in over 100
countries worldwide. Each of the Companys international operations engages in sales, sourcing,
distribution and/or marketing activities. International operations generated $1.5 billion, or 59.7%
of the Companys net revenues in Fiscal 2011, $1.3 billion, or 56.1% of the Companys net revenues
in Fiscal 2010 and $1.1 billion, or 54.6% of the Companys net revenues in Fiscal 2009.
International operations generated operating income of $124.5 million, $171.1 million and $125.1
million (representing 51.3%, 57.6%, and 49.9%, respectively, of the operating income generated by
the Companys business groups) in Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. Operating
income from international operations includes $51.6 million, $5.4 million and $5.0 million of
restructuring charges in Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. The increases in
net revenues from Fiscal 2010 to Fiscal 2011 were driven primarily by operations in Asia, Europe
and in Mexico and Central and South America. The decline in operating income from Fiscal 2010 to
Fiscal 2011 was due primarily to declines in Europe, including as a result of an impairment charge, included in
restructuring and other exit costs, of $35.2 million (see Note 4 of Notes to Consolidated Financial Statements) related to the Companys licenses
to operate the bridge business, and
Canada, partially offset by increased operating income in Asia and Mexico and Central and South
America (see Managements Discussion and Analysis of Financial Condition and Results of Operations
Comparison of Fiscal 2011 to Fiscal 2010).
The movement of foreign currency exchange rates affects the Companys results of operations.
For further discussion of certain of the risks involved in the Companys foreign operations,
including foreign currency exposure, see Item 1A. Risk Factors and Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations Overview.
Competition
The apparel industry is highly competitive. The Company competes with many domestic and
foreign apparel suppliers, some of which are larger and more diversified and have greater financial and other resources than
the Company. In addition to competition from other apparel suppliers, the Company competes in
certain product lines with department stores, mass merchandisers and specialty store private label
programs.
The Company offers a diversified portfolio of brands across a wide range of price points in
many channels of distribution in an effort to appeal to a broad range of consumers. The Company
competes on the basis of product design, quality, brand recognition, price, product
differentiation, marketing and advertising, customer service and other factors. Although some of
its competitors have greater sales, the Company does not believe that any single competitor
dominates any channel in which the Company operates. The Company believes that its ability to serve
multiple distribution channels with a diversified portfolio of products under widely recognized
brand names distinguishes it from many of its competitors. See Item 1A. Risk Factors.
Government Regulations
The Company is subject to federal, state and local laws and regulations affecting its
business, including those promulgated under the Occupational Safety and Health Act, the Consumer
Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the
rules and regulations of the Consumer Products Safety Commission and various environmental laws and
regulations. The Companys international businesses are subject to similar regulations in the
countries where they operate. The Company believes that it is in compliance in all material
respects with all applicable governmental regulations.
The Companys operations are also subject to various international trade agreements and
regulations such as the North American Free Trade Agreement, the Central American Free Trade
Agreement, the Africa Growth & Opportunity Act, the Israel & Jordan Free Trade Agreements, the
Andean Agreement, the Caribbean Basin Trade Partnership Act and the activities and regulations of
the World Trade Organization (WTO). The Company believes that these trade agreements generally
benefit the Companys business by reducing or eliminating the duties and/or quotas assessed on
products manufactured in a particular country; however, the elimination of quotas with respect to
certain countries could adversely affect the Company as a result of increased competition from such
countries. In addition, trade agreements can also impose requirements that negatively affect the
Companys business, such as limiting the countries from which it can purchase raw materials and
setting quotas on products that may be imported from a particular country. The Company monitors
trade-related matters pending with the U.S. government for potential positive or negative effects
on its operations. See Item 1A. Risk Factors.
Employees
As of December 31, 2011, the Company employed 7,136 employees, approximately 29% of whom were
either represented by labor unions or covered by collective bargaining agreements. The Company
considers labor relations with its employees to be satisfactory and has not experienced any
significant interruption of its operations due to labor disagreements.
15
Backlog
As of December 31, 2011 and January 1, 2011, the Companys total backlog of unfilled wholesale
customer orders was $580.5 million and $627.3 million, respectively. The Company expects that
substantially all of its backlog orders as of December 31, 2011 will be filled within the following
six months. The backlog at any given time is affected by various factors, including the mix of
product, seasonality (especially in the Swimwear Group), cancellations, the timing of the receipt
of orders, including the scheduling of market weeks for the Companys particular products during
which a significant percentage of the Companys orders are received, and the timing of the shipment
of orders. Accordingly, a comparison of backlogs of wholesale orders from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
Executive Officers of the Registrant
On December 13, 2011, the Company announced that Joseph R. Gromek would retire as President
and Chief Executive Officer and as a member of the Board of Directors, effective February 1, 2012
and that Mr. Gromek would continue as an employee of the Company through March 4, 2012. On
December 13, 2011, the Company also announced that Helen McCluskey would be appointed President and
Chief Executive Officer and would become a member of the Board of Directors, effective February 1,
2012.
The executive officers of the Company, their age and their position as of February 15, 2012
are set forth below:
|
|
|
|
|
Name |
|
Age |
|
Position |
|
|
|
|
|
Helen McCluskey |
|
56 |
|
Director, President and Chief Executive Officer |
Lawrence R. Rutkowski |
|
53 |
|
Executive Vice President and Chief Financial Officer |
Martha Olson |
|
56 |
|
President Intimate Apparel and Swimwear Groups |
Dwight Meyer |
|
59 |
|
President Global Sourcing, Distribution and Logistics |
Frank Tworecke |
|
65 |
|
President Sportswear Group |
Stanley P. Silverstein |
|
59 |
|
Executive Vice President International Strategy and Business Development |
Elizabeth Wood |
|
50 |
|
Executive Vice President Human Resources |
Jay L. Dubiner |
|
48 |
|
Senior Vice President, General Counsel and Secretary |
Ms. McCluskey has served as the Companys President and Chief Executive Officer since February
1, 2012, at which time she was also elected to the Board of Directors. Ms. McCluskey
joined the Company in July 2004 as Group President-Intimate Apparel and in June 2007, also assumed
global responsibility for the Companys Swimwear brands. In those roles, she was responsible for
all aspects of the Companys intimate apparel and swimwear brands including Calvin Klein underwear
and swimwear, Warners, Olga, Body Nancy Ganz and Speedo. In September 2010, Ms. McCluskey was
named Chief Operating Officer adding to her responsibilities oversight of the Calvin Klein Jeans®
and Chaps® brands as well as all of the Companys international businesses, and the Companys
global supply chain and sourcing operations. Prior to joining the Company, Ms. McCluskey served as
Group President of the Moderate Womens Sportswear division of Liz Claiborne Corporation from
August 2001 to June 2004. Previously, she spent 18 years at Sara Lee Corporations intimate apparel
units where she held executive positions in marketing, operations and general management, including
President of Playtex Apparel from 1999 to 2001.
Mr. Rutkowski currently serves as the Companys Executive Vice President and Chief Financial
Officer. From September 2003 until March 2005, Mr. Rutkowski served as the Companys Senior Vice
President and Chief Financial Officer. From December 1999 to June 2003, he served as Executive Vice
President and Chief Financial Officer at Primedia, Inc., a targeted media company. From November
1993 to December 1999, he served at National Broadcasting Company/General Electric as Senior Vice
President and Chief Financial Officer-Strategic Business Development and Controller of Corporate
Finance. Previously, Mr. Rutkowski held a senior management position at Walt Disney Studios.
Ms.Olson currently serves as the Companys Group President-Intimate Apparel and Swimwear. She
is responsible for all aspects of our intimate apparel and swimwear brands including Calvin Klein
underwear and swimwear, Warners, Olga, Body Nancy Ganz and Speedo. Ms. Olson joined the Company
in 2004 as President-Core Brands and added responsibility for Calvin Klein Underwear in 2008.
Prior to joining the Company, Ms. Olson worked for Edison Schools, Inc. from 2002 until 2004.
Previously, she worked at Sara Lee Corporation from 1992 until 2001.
Mr. Meyer currently serves as the Companys President-Global Sourcing, Distribution and
Logistics. Mr. Meyer is responsible for all aspects of the Companys worldwide sourcing,
distribution and logistics operations. From April 2005 until March 2007, Mr. Meyer served as the
Companys President-Global Sourcing. Prior to joining the Company, Mr. Meyer served as Executive
Vice President of Global Sourcing of Ann Taylor Stores Corporation, a specialty clothing retailer
of womens apparel, shoes and accessories, from 1996 until April 2005. Previously, he served as
President and Chief Operating Officer of C.A.T. (a joint venture between Ann Taylor Stores
Corporation and Cygne Design) and Vice President, Sourcing for the Abercrombie & Fitch division of
M.A.S.T. Industries.
16
Mr. Tworecke joined the Company as Group President-Sportswear in May 2004 and currently serves
in such capacity. From November 1999 to April 2004, Mr. Tworecke served at Bon-Ton Stores, a
department store operatorfrom June 2000 to April 2004 as President and Chief Operating Officer
and from November 1999 to June 2000 as Vice Chairman. Previously, he was President and Chief
Operating Officer of Jos. A. Bank. Mr. Tworecke has also held senior management positions with
other specialty and department store retailers including MGR, Inc., Richs Lazarus Goldsmith (now
known as Macys), and John Wanamaker. In addition, Mr. Tworecke is a member of the Board of
Advisors of Grafton-Fraser Inc., a private, Toronto-based mens apparel retailer, and a member of
the Business Advisory Council of the Department of Applied Economics and Management of Cornell
University.
Mr. Silverstein currently serves as the Companys Executive Vice President-International
Strategy and Business Development. From March 2005 until January 2006, Mr. Silverstein served as
our Executive Vice President-Corporate Development. From March 2003 to March 2005, Mr. Silverstein
served as our Senior Vice President-Corporate Development and served as our Chief Administrative
Officer from December 2001 until January 2006. Mr. Silverstein served as the Companys Vice
President and General Counsel from December 1990 until February 2003 and as its Secretary from
January 1987 until May 2003. In May 2004, Mr. Silverstein, without admitting or denying the
findings, entered into a settlement with the Securities and Exchange Commission (SEC) pursuant to
which the SEC found that Mr. Silverstein had willfully aided and abetted and caused certain
violations by the Company of the federal securities laws and issued an administrative order
requiring that Mr. Silverstein cease and desist from causing any violations and any future
violations of such laws.
Ms. Wood currently serves as the Companys Executive Vice President Human Resources. Ms.
Wood joined the Company in September 2005 and served as Senior Vice President Human Resources
until March 2011, at which time, she was promoted to her current position. From May 2002 to August
2005, Ms. Wood served as a consultant for Breakthrough Group, a consulting company that focuses on
executive and employee training and development. From May 1996 to February 2002, Ms. Wood served
as the
Executive Vice President of Human Resources of Brooks Brothers, Inc. Previously, Ms. Wood
served as Corporate Human Resources Director of Marks and Spencer Group, plc.
Mr. Dubiner joined the Company in September 2008 as Senior Vice President, General Counsel and
Corporate Secretary and currently serves in such capacities. Prior to joining the Company, Mr.
Dubiner served as Of Counsel for Paul, Hastings, Janofsky & Walker, LLP from April 2006 until
August 2008. Previously, he held the position of Executive Vice President, Corporate Development &
General Counsel for Martha Stewart Living Omnimedia, Inc. from February 2004 until January 2006.
Prior to this, Mr. Dubiner provided legal and corporate development consulting services to clients
primarily in the media industry. From February 2000 to March 2002, he served as Senior Vice
President, Business Development & Strategic Planning for a division of The Universal Music Group.
Mr. Dubiner was an associate in the corporate department of the New York law firm of Paul Weiss
Rifkind Wharton & Garrison from September 1993 to February 2000.
Website Access to Reports
The Companys internet website is http://www.warnaco.com. The Company makes available free of
charge on its website (under the heading SEC Filings) its SEC filings, including its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
those reports as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the SEC. The Companys website address is provided as an
inactive textual reference only. The information provided on the Companys website is not part of
this Annual Report on Form 10-K, and is not incorporated by reference.
In addition, the public may read and copy any materials that the Company files with the SEC at
the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an internet website (http://www.sec.gov) where the Companys SEC filings may be
accessed by the public.
Additional information required by this Item 1 of Part I is incorporated by reference to Note
5 of Notes to Consolidated Financial Statements.
17
Item 1A. Risk Factors
In this Item 1A, the terms we, us and our refer to The Warnaco Group, Inc. and its
consolidated subsidiaries.
Our business, operations and financial condition are subject to various risks and
uncertainties. The most significant of these risks include those described below; however, there
may be additional risks and uncertainties not presently known to us or that we currently consider
immaterial. If any of the events or circumstances described in the following risk factors occur,
our business, financial condition or results of operations may suffer, and, among other things, the
trading price of our common stock, par value $0.01 per share (Common Stock) could decline. These
risk factors should be read in conjunction with the other information in this Annual Report on Form
10-K and in the other documents that we file from time to time with the SEC.
Deterioration in global or regional economic conditions or other macro-economic factors could
adversely affect our business.
Deterioration in global or regional economic conditions or other macro-economic factors could
adversely impact our business in a number of ways. Consumer spending in the apparel industry is
highly cyclical and may decrease in response to periods of lower disposable income and lack of
confidence in future economic prospects for consumers. Our wholesale customers may reduce
inventories and cancel orders as a means of anticipating and responding to such periods.
Furthermore, a deterioration in the economy, including as a result of market disruptions or
uncertainties, a tightening of the credit markets or international turmoil, may adversely affect
the businesses and liquidity of our wholesale customers, causing such customers to reduce, delay or
discontinue orders of our products, and requiring us to assume greater credit risk with respect to
such customers receivables. Any deterioration in the economy and financial markets could also
adversely affect the suppliers from which we source our products, which could have an adverse
effect on our operations. During Fiscal 2011, deterioration in the economies of countries in
Southern Europe resulted in a decline in net revenues from the sale of our products in that region.
Any tightening of the credit markets could also make it more difficult for the Company to
enter into new financing arrangements or impair our ability to access financing under existing
arrangements. Such difficulty in borrowing sufficient funds could have a material negative impact
on our ability to conduct our business, as we may have to postpone plans to expand our business,
scale back operations and/or attempt to raise capital through the sale of equity or debt
securities, which may not be available on terms that are satisfactory to us during such periods.
We continue to monitor the creditworthiness of the lenders under our existing credit arrangements,
and we expect that we will be able to obtain needed funds when requested. During Fiscal 2011, we
entered into a $200 million Term Loan maturing on June 17,
2018 (see Note 12 of Notes to Consolidated Financial Statements).
In addition, our stock price may fluctuate as a result of many factors (many of which are
beyond our control), including recent global economic conditions and broad market fluctuations,
public perception of the prospects for the apparel industry and other factors described in this
Item 1A. For example, during the period between May 15, 2008 and February 15, 2012, the trading
price of our Common Stock as reported on the New York Stock Exchange ranged from a low of $12.22 on
November 21, 2008 to a high of $65.01 on April 28, 2011.
Increases in the prices of raw materials used to manufacture our products or increases in costs to
produce or transport our products could materially increase our costs and decrease our
profitability.
The principal fabrics used in our business are made from cotton, wool, silk, synthetic and
cotton-synthetic blends. The costs of these fabrics are dependent on the market prices for the raw
materials used to produce them, primarily cotton and chemical components of synthetic fabrics.
These raw materials are subject to price volatility caused by weather, supply conditions,
government regulations, energy costs, economic climate and other unpredictable factors.
Fluctuations in petroleum prices may also influence the prices of related items such as chemicals,
dyestuffs and polyester yarn as well as the costs we incur to transport products from our suppliers
and costs we incur to distribute products to our customers. Any raw material price increase or
increase in costs related to the transport of our products (primarily petroleum costs) could
increase our cost of sales and decrease our profitability unless we are able to pass higher prices
on to our customers. In addition, if one or more of our competitors is able to reduce its
production costs by taking greater advantage of any reductions in raw material prices, favorable
sourcing agreements or new manufacturing technologies (which enable manufacturers to produce goods
on a more cost-effective basis) we may face pricing pressures from those competitors and may be
forced to reduce our prices or face a decline in net sales, either of which could have an adverse
effect on our business, results of operations or financial condition.
During the fourth quarter of Fiscal 2010 and during Fiscal 2011, we experienced an increase in
costs, including those for raw material, labor and freight. We have been able to partially mitigate
cost increases in Fiscal 2011 and their effect on gross margins in certain geographic markets
through a combination of sourcing initiatives and selective price increases. There is no certainty
that such measures will achieve their goal in the future.
The apparel industry is subject to pricing pressures that may require us to lower the prices we
charge for our products.
In addition to the product cost pressures discussed above, we and our competitors also face
selling price pressure as a result of increases in sales through the mass and off-price retail
channels of distribution (which retailers seek to sell their products at discounted prices) as well
as consolidation in the retail industry (which could result in larger customers with greater
negotiating leverage). To remain competitive, we must adjust our prices from time to time in
response to these industry-wide pricing and cost pressures. In addition, certain of our customers
seek allowances, incentives and other forms of economic support. Our profitability may be
negatively affected by these pricing pressures if we are forced to reduce our prices but are unable
to reduce our production or other operating costs.
18
We have foreign currency exposures relating to buying, selling and financing in currencies other
than the U.S. dollar, our functional currency.
We have significant foreign currency exposure related to foreign denominated revenues and
costs, which must be translated into U.S. dollars. Fluctuations in foreign currency exchange rates
(particularly any strengthening of the U.S. dollar relative to the Euro, Canadian dollar, British
pound, Korean won, Mexican peso, Brazilian real, Indian rupee and Chinese yuan) may adversely
affect our reported earnings and the comparability of period-to-period results of operations. In
addition, while certain currencies (notably the Hong Kong dollar) are currently fixed or managed in
value in relation to the U.S. dollar by foreign central banks or governmental entities, such
conditions may change, thereby exposing us to various risks as a result.
Certain of our foreign operations purchase products from suppliers denominated in U.S. dollars
and Euros, which may expose such operations to increases in cost of goods sold (thereby lowering
profit margins) as a result of foreign currency fluctuations. Our exposures are primarily
concentrated in the Euro, Canadian dollar, British pound, Korean won Mexican peso, Brazilian real,
Chinese yuan and Indian rupee. Changes in currency exchange rates may also affect the relative
prices at which we and our foreign competitors purchase and sell products in the same market and
the cost of certain items required in our operations. In addition, certain of our foreign
operations have receivables or payables denominated in currencies other than their functional
currencies, which exposes such operations to foreign exchange losses as a result of foreign
currency fluctuations. We have instituted foreign currency hedging programs to partially mitigate
the effect of foreign currency fluctuations on our operations. However, management of our foreign
currency exposure may not sufficiently protect us from fluctuations in foreign currency exchange
rates, which fluctuations could have an adverse effect on our business, results of operations and
financial condition.
The apparel industry is subject to constantly changing fashion trends and if we misjudge consumer
preferences, the image of one or more of our brands may suffer and the demand for our products may
decrease.
The apparel industry is subject to shifting consumer demands and evolving fashion trends both
in domestic and overseas markets and our success is dependent upon our ability to anticipate and
promptly respond to these changes. Failure to anticipate, identify or promptly react to changing
trends, styles or brand preferences may result in decreased demand for our products, as well as
excess inventories and markdowns, which could have an adverse effect on our results of operations.
In addition, if we misjudge consumer preferences, the brand image of our products may be impaired,
which would adversely affect our business.
We must advertise our products to consumers through the most effective media, which may change over
time.
In order for us to inform our consumers about our products, especially our new product
launches, and to encourage them to buy those products, we must advertise our products in the most
effective manner possible so that we reach the largest number of potential customers. The media
that customers view change over time. Recently, digital media, including the use of smart-phones
and outdoor digital displays, have increased in popularity. As technology and innovation continue
to advance, we must remain aware of those changes and re-direct our advertising campaigns to focus
on those new media. Failure to remain current in that regard could significantly impair our ability
to meet our strategic business and financial goals.
The markets in which we operate are highly competitive and we may not be able to compete
effectively.
The apparel industry is extremely competitive. We compete with many domestic and foreign
apparel manufacturers and distributors, some of which are larger, more diversified and have greater
financial and other resources than us. This competition could cause reduced unit sales or prices,
or both, which could adversely affect us. We compete on the basis of a variety of factors,
including:
|
|
|
product quality; |
|
|
|
|
brand recognition; |
|
|
|
|
price; |
|
|
|
|
product differentiation (including product innovation); |
|
|
|
|
sourcing and distribution expertise and efficiency; |
|
|
|
|
marketing and advertising; and |
|
|
|
|
customer service. |
Our ability to remain competitive in these areas will, in large part, determine our future
success. Our failure to compete successfully could adversely affect our business.
19
Shortages in the supply of sourced goods, difficulties encountered by the third parties that source
certain of our products, or interruptions in production facilities owned by our third party
contractors or in our distribution operations could result in difficulty in procuring, producing
and distributing our products.
We seek to secure and maintain favorable relationships with the companies that source our
products and to ensure the proper operation of production facilities owned by third party
contractors. We generally utilize multiple sources of supply. An unexpected interruption in the
supply of our sourced products, including as a result of a disruption in operations at any of our
production facilities owned by third party contractors or distribution facilities or at the
facilities which source our products, our failure to secure or maintain favorable sourcing
relationships, shortages of sourced goods or disruptions in shipping, could adversely affect our
results of operations until alternate sources or facilities can be secured. In addition, any
issues, problems relating to equipment, systems failures or difficulties with the Companys
transition to the use of its consolidated distribution facility in the Netherlands could result in
delays of shipments to our customers and additional costs to us. Any of the events noted above
could result in difficulty in procuring or producing our products on a cost-effective basis or at
all, which could have an adverse effect on our results of operations.
In addition, although we monitor the third-party facilities that produce our products to seek
to ensure their continued human rights and labor compliance and adherence to all applicable laws
and our own business partner manufacturing guidelines, we do not control these independent
manufacturers. Accordingly, vendors may violate labor or other laws, or fail to adhere to our
business partner manufacturing guidelines, including by engaging in business or labor practices
that would generally be regarded as unethical in the U.S. In such case, our reputation may be
damaged, our supply of sourced goods may be interrupted and we may terminate our relationship with
such vendors, any of which could have an adverse effect on our business.
The failure of our suppliers or contractors to adhere to quality and production standards and the
failure of our inspections to identify and correct such quality or production problems could have a
material adverse effect on our business, financial condition and results of operations.
Concerns about the safety of our products, including but not limited to concerns about those
products manufactured in developing countries, where a significant portion of our products are
manufactured, may cause us to recall selected products, either voluntarily or at the direction of a
foreign or domestic governmental authority. Product safety concerns, recalls, defects or errors in
production could result in the rejection of our products by customers, damage to our reputation,
lost sales, product liability litigation and increased costs, any of which could harm our business.
We depend on a limited number of customers for a significant portion of our sales, and our
financial success is linked to the success of our customers, our customers commitment to our
products and our ability to satisfy and/or maintain our customers.
Net revenues from our ten largest customers represented approximately 28.7%, 31.4% and 31.6%
of our worldwide net revenues during Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. No
one customer accounted for 10% or more of our Fiscal 2011, Fiscal 2010 or Fiscal 2009 net revenues.
We do not have long-term contracts with any of our customers. Sales to customers are
generally on an order-by-order basis. If we cannot fill customers orders on time, orders may be
cancelled and relationships with customers may suffer, which could have an adverse effect on us,
especially if the relationship is with a major customer. Furthermore, if any of our customers
experiences a significant downturn in its business, or fails to remain committed to our programs or
brands, the customer may reduce or discontinue purchases from us. The loss of a major customer or a
reduction in the amount of our products purchased by our major customers could have an adverse
effect on our results of operations.
During the past several years, various retailers, including some of our customers, have
experienced significant changes and difficulties, including consolidation of ownership,
restructurings, bankruptcies and liquidations. Consolidation of retailers or other events that
eliminate our customers could result in fewer stores selling our products and could increase our
reliance on a smaller group of customers. In addition, if our retailer customers experience
significant problems in the future, including as a result of general weakness in the retail
environment, our sales may be reduced and the risk of extending credit to these retailers may
increase. A significant adverse change in a customer relationship or in a customers financial
position could cause us to limit or discontinue business with that customer, require us to assume
greater credit risk relating to that customers receivables or limit our ability to collect amounts
related to previous purchases by that customer. These or other events related to our significant
customers could have an adverse effect on our business, results of operations or financial
condition.
Our success depends upon the continued protection of our trademarks and other intellectual property
rights and we may be forced to incur substantial costs to maintain, defend, protect and enforce our
intellectual property rights.
Our registered and common law trademarks, as well as certain of our licensed trademarks, have
significant value and are instrumental to our ability to market our products. Third parties may
assert claims against any such intellectual property and we may not be able to successfully resolve
such claims. In addition, we may be required to assert legal claims or take other enforcement
actions against third parties who infringe on our intellectual property rights. We may be
required to incur substantial costs in defending such claims or in taking such actions. In
addition, the laws of some foreign countries may not allow us to protect, defend or enforce our
intellectual property rights to the same extent as the laws of the U.S. Our failure to
successfully protect our intellectual property rights, or the substantial costs that we may incur
in doing so, may have an adverse effect on our operations.
20
A significant portion of our operations is dependent upon license agreements with third parties
that allow us to design, produce, source and market our products.
As
of December 31, 2011, approximately 63% of our net revenues were derived from sales of products
which we design, source and/or market pursuant to license agreements with third parties. The
success of this portion of our business requires us to maintain favorable relationships with our
licensors; deterioration in these relationships could impair our ability to market our brands and
distribute our products.
Certain of our license agreements, including the license agreements with SIL (the licensor of
the Speedo trademark), CKI (the licensor of the Calvin Klein, Calvin Klein Jeans and CK/Calvin
Klein trademarks) and Polo Ralph Lauren, Inc. (the licensor of the Chaps trademark) require us to
make minimum royalty payments and/or royalty payments based on a percentage of net sales, meet
certain minimum sales thresholds, comply with restrictive covenants, and provide certain services
(such as design services). Those license agreements may be terminated or we may lose our ability
to exercise renewal rights if certain of these requirements and obligations are not satisfied. In
addition, certain of such license agreements contain cross default provisions, which may result
in the early termination of related license agreements upon termination of such license agreements.
During Fiscal 2010 and Fiscal 2011, the Company did not achieve the minimum sales thresholds
required under the CK/Calvin Klein bridge Apparel License. As a result, the Company
and CKI no longer intend for the Company to continue to operate all or part of the bridge business.
The Company has begun discussions with CKI regarding the terms and conditions of the transition of
all or part of the Companys bridge business to CKI. Based on the factors described above, during the finalization of its financial statements for
Fiscal 2011, the Company has recorded a non-cash impairment charge of $35.2 million related to its
bridge apparel and bridge accessories intangible assets. Depending on the outcome of
negotiations with CKI, the Company could incur additional charges related to the disposition of its
CK/Calvin Klein bridge businesses. See Note
4 of Notes to Consolidated Financial Statements.
As further described in Item 1. Trademarks and Licensing Agreements, our right to exercise the
renewal option to extend the Chaps license for an additional five year term from December 31, 2013
and up to and including December 31, 2018 is subject to us having achieved certain levels of
minimum earned royalties and net sales during the period from January 1, 2012 through December
31, 2012. Based on current projections for fiscal 2012, the Company believes that such
minimum earned royalties and minimum net sales will be achieved, but there can be no assurances
that such projections will be met. See Statement Regarding Forward-Looking Disclosure.
We may not be able to continue to meet our obligations or fulfill the conditions under our
license agreements in the future. In addition, disputes or disagreements with our licensors in
connection with the provisions of these license agreements could result in our recording additional
expenses. The termination or non-renewal of certain of these license agreements, including the
Chaps license described above, could have an adverse effect on our business, results of operations
or financial condition.
Our success depends on the reputation of our owned and licensed brand names, including, in
particular, Calvin Klein.
The success of our business depends on the reputation and value of our owned and licensed
brand names. The value of our brands could be diminished by actions taken by licensors or others
who have interests in the brands for other products and/or territories. Because we cannot control
the quality of other products produced and sold under such licensed brand names, if such products
are of poor quality, the value of the brand name could be damaged, which could have an adverse
effect on our sales. In addition, some of the brand names licensed to us reflect the names of
living individuals, whose actions are outside our control. If the reputation of one of these
individuals is significantly harmed, our products bearing such individuals name may fall into
disfavor, which could adversely affect our business. In addition, we may from time to time license
our owned and licensed brand names to third parties. The actions of these licensees may diminish
the reputation of the licensed brand, which could adversely affect our business.
The Calvin Klein brand name is significant to our business. Sales of 75.6% of our products
are in large part tied to the success of the Calvin Klein brand name. In the event that consumer
demand in the U.S. or overseas for the Calvin Klein brand declines, including as a result of
changing fashion trends or an adverse change in the perception of the Calvin Klein brand image, our
businesses which rely on the Calvin Klein brand name would be significantly harmed.
We are subject to local laws and regulations in the U.S. and abroad.
We are subject to U.S. federal, state and local laws and regulations affecting our business,
including those promulgated under the Occupational Safety and Health Act, the Consumer Product
Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission, the Department of Homeland Security and
various labor, workplace and related laws, as well as environmental laws and regulations. Our
international businesses and the companies which source our products are subject to similar
regulations in the countries where they operate. Our efforts to maintain compliance with local
laws and regulations may require us to incur significant expenses, and our failure to comply with
such laws may expose us to potential liability, which could have an adverse effect on our results
of operations. Similarly, local laws and regulations could have an adverse effect on our sourcing
vendors, which could affect our ability to procure our products.
21
We may have additional tax liabilities.
We are subject to income taxes in the U.S. and many foreign jurisdictions. Significant
judgment is required in determining our worldwide provision for income taxes. In the ordinary
course of our business, there are many transactions and calculations where the ultimate tax
determination is uncertain. We regularly are under audit by tax authorities. Although we believe
our tax estimates are reasonable, the final determination of our tax liabilities as a result of tax
audits and any related litigation could be materially different from our historical income tax
provisions and accruals. The results of an audit or litigation could have a material effect on our
financial position, results of operations, or cash flows in the period or periods for which that
determination is made.
We earn a substantial portion of our income in foreign countries, which is taxed in those
jurisdictions at rates that are lower than that in the U.S. Under current U.S. federal tax law,
U.S. multinational corporations are not taxed in the U.S. on foreign earnings unless and until
those earnings are repatriated to the U.S. We currently intend that cash and cash equivalents,
arising from undistributed foreign earnings, held by foreign subsidiaries will be indefinitely
reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment,
expansion and acquisitions), fund working capital requirements and repay debt (both third-party and
inter-company) of its foreign subsidiaries in the normal course of business. Moreover, we do not
expect to require such foreign earnings to fund our domestic business in the foreseeable future.
However, if, in the future, cash and cash equivalents held by foreign subsidiaries are needed to
fund our operations in the U.S., the repatriation of such amounts to the U.S. would result in a
significant incremental tax liability in the period in which the decision to repatriate occurs.
Payment of any incremental tax liability would reduce the cash we have available to fund our
operations by the amount of taxes paid.
Changing international trade regulation may increase our costs and limit the amount of products or
raw materials that we may import from or export to a given country.
Substantially all of our operations are subject to bilateral textile agreements. These
agreements include free trade agreements and other preference agreements with and between various
countries. Our non-compliance with, or changes associated with, such agreements and regulations
may limit the amount of products that may be imported from a particular country or may impact our
ability to obtain favorable duty rates, which could impair our ability to source our products on a
cost-effective basis.
In addition, the countries in which our products are sourced or into which they are imported,
may from time to time impose new quotas, duties, tariffs and requirements as to where raw materials
must be purchased or additional workplace regulations or other restrictions, or may adversely
modify existing restrictions. Changes in international trade regulation, including future trade
agreements, could provide our competitors an advantage over us, or increase our costs, either of
which could have an adverse effect on our business, results of operations or financial condition.
Our business outside of the U.S. exposes us to uncertain conditions in overseas markets.
Our foreign operations subject us to risks customarily associated with foreign operations. As
of December 31, 2011, we sold our products throughout the world and had warehousing and
distribution facilities in fifteen countries. We also source our products from third-party vendors
substantially all of which are based in foreign countries. For Fiscal 2011, we had net revenues
outside of the U.S. of $1.50 billion, representing 59.7% of our total net revenues, with the
majority of these sales in Europe and Asia. We are exposed to the risk of changes in social,
political and economic conditions inherent in operating in foreign countries, including:
|
|
|
currency fluctuations; |
|
|
|
|
import and export license requirements; |
|
|
|
|
trade restrictions; |
|
|
|
|
changes in quotas, tariffs, taxes and duties; |
|
|
|
|
restrictions on repatriating foreign profits back to the U.S.; |
|
|
|
|
foreign laws and regulations; |
|
|
|
|
international trade agreements; |
|
|
|
|
difficulties in staffing and managing international operations; |
|
|
|
|
economic conditions overseas; |
|
|
|
|
political or social unrest; and |
|
|
|
|
disruptions or delays in shipments. |
In addition, transactions between our foreign subsidiaries and us may be subject to U.S. and
foreign withholding taxes. Applicable tax rates in foreign jurisdictions differ from those of the
U.S., and change periodically.
22
Our business depends on our senior management team and other key personnel.
Our success is, to a significant extent, dependent on our ability to attract, retain and
motivate senior management and other key employees, including managerial, operational, design and
sales personnel. Demand and competition for qualified personnel in our industry is intense, and we
compete for personnel with companies which may have greater financial resources than we do. The
unexpected loss of our current senior management or other key employees, or our inability to
attract and retain such persons in the future, could harm our ability to operate our business,
including our ability to effectively service our customers, generate new business or formulate and
execute on our strategic initiatives.
We rely significantly on information technology. Any inadequacy, interruption, integration failure
or security failure of that technology could harm our ability to effectively operate our business.
Our ability to effectively manage and operate our business depends significantly on our
information technology systems. The failure of these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, difficulty in integrating new systems or systems
of acquired businesses or a breach in security of any of our systems could adversely impact the
operations of our business or our ability to report our financial results in a timely manner. Any
such failure, problem, difficulty or breach could also require significant expenditures to
remediate.
Fluctuations in the valuation of our pension plans investments and pension benefit obligation can
have a negative effect on our financial condition and results of operations.
We maintain, among other plans, a defined benefit pension plan for certain U.S.-based
employees, who completed service prior to January 1, 2003. The plan provides for specified payments
after retirement. Under our direction, our U.S. pension plan invests in a variety of assets
including marketable equity and debt securities, mutual funds and pooled investment accounts and
limited partnerships. The value of these pension plan investments may fluctuate due to, among
other things, changing economic conditions, interest rates and investment returns, and we cannot
predict with certainty the value that any individual asset or investment will have
in the future. Decreases in the value of U.S. pension plan investments can have a significant
effect on our results of operations in the fourth quarter of each fiscal year because they increase
our pension expense and our unfunded pension liability. Moreover, as a result of such decreases,
we may be required to make larger cash contributions to the U.S. pension plan in the future, which
could limit us from making investments in our business, reduce cash available to fund operations or
service our indebtedness, or otherwise be detrimental to our results of operations and financial
condition. In addition, a decrease in the discount rate that we use to calculate the pension
benefit obligation, as described in Note 7 of Notes to Consolidated Financial Statements -
Employee Retirement and Benefit Plans, would increase our pension expense. During Fiscal 2011, the
value of the U.S. pension plan investments and the discount rate both decreased from Fiscal 2010.
As a result, we recognized $27.5 million of pension expense in the fourth quarter of Fiscal 2011.
Businesses that we may acquire may fail to perform to expectations. In addition, we may be unable
to successfully integrate acquired businesses with our existing business.
From
time to time, we acquire companies or partial interests in companies to support and strengthen
our business. We may not be able to realize all or a substantial portion of the anticipated
benefits of acquisitions that we may consummate. Newly acquired businesses may not achieve
expected results of operations, including expected levels of revenues, and may require
unanticipated costs and expenditures. Acquired businesses may also subject us to liabilities that
we were unable to discover in the course of our due diligence, and our rights to indemnification
from the sellers of such businesses, even if obtained, may not be sufficient to offset the relevant
liabilities. In addition, acquired businesses may be adversely affected by the risks described in
this Item 1A, or other risks, including as a result of factors of which we are not currently aware.
In addition, the integration of newly acquired businesses and products may be expensive and
time-consuming and may not be entirely successful. The success of integrating acquired businesses
is dependent on our ability to, among other things, merge operational and financial systems, retain
customers of acquired businesses, realize cost reduction synergies and retain key management and
other personnel of the acquired companies. Integration of the acquired businesses may also place
additional pressures on our systems of internal control over financial reporting. If we are unable
to successfully integrate newly acquired businesses or if acquired businesses fail to produce
targeted results, it could have an adverse effect on our results of operations or financial
condition.
We are subject to certain risks as a result of our indebtedness.
As of December 31, 2011, we had total debt of approximately $256.0 million. In June 2011, we
entered into a term loan agreement (the 2011 Term Loan) for $200.0 million with a maturity date
of June 17, 2018. Under the 2011 Term Loan, we are required to repay $0.5 million of principal
quarterly through March 2018, with the remaining principal balance due on the maturity date. The
2011 Term Loan generally accrues interest at a rate equal to the three-month London Interbank
Offered Rate (LIBOR), with a floor of 1.00%, plus 2.75% (see Note 12 of Notes to Consolidated
Financial Statements). At December 31, 2011, the outstanding principal amount under the 2011 Term
Loan was $199.0 million. In order to reduce our interest rate risk on a portion of the 2011 Term
Loan, we entered into an interest rate cap agreement in July 2011, with respect to $120.0 million
of the outstanding principal (see Note 12 of Notes to Consolidated Financial Statements). The
interest rate cap limits the LIBOR portion of the interest rate to 1.00%, with respect to the
portion of the 2011 Term Loan covered by the interest rate cap. With respect to the portion of the
2011 Term Loan not covered by the interest rate cap, our results of operations and cash flows may
be adversely affected if three-month LIBOR increases beyond 1.00% through the maturity date of the
2011 Term Loan.
23
In August 2008, we entered into a revolving credit agreement (the 2008 Credit Agreement) and
Warnaco of Canada Company, an indirect wholly-owned subsidiary of Warnaco Group, entered into a
second revolving credit agreement (the 2008 Canadian Credit Agreement and, together with the 2008
Credit Agreement, the 2008 Credit Agreements), with lines of credit, initially totaling $300.0
million. During November 2011, we amended the 2008 Credit Agreements to, among other things, reduce
the interest rate on amounts borrowed and fees incurred on available and unborrowed amounts and
extend the maturity date from August 26, 2013 to November 8, 2016 (see Note 12 of Notes to
Consolidated Financial Statements). At December 31, 2011, there were no outstanding loans under the
2008 Credit Agreements, although the balance of outstanding loans may increase from time to time in
the future in order to meet our cash flow needs. Amounts borrowed under the 2008 Credit Agreements
accrue interest at floating interest rates; accordingly, our results of operations may be adversely
affected if market interest rates increase.
Our ability to service our indebtedness using cash flows from operations is dependent on our
financial and operating performance, which is subject to prevailing economic and competitive
industry conditions and to certain other factors beyond our control, including the factors
described in this Item 1A. In the event that we are unable to satisfy our debt obligations as they
come due, we may be forced to refinance our indebtedness, and there can be no assurance that we
will be able to refinance our indebtedness on terms favorable to us, or at all. Our debt service
obligations may also limit cash flow available for our operations and adversely affect our ability
to obtain additional financing, if necessary.
The terms of the agreements governing our indebtedness may also limit our operating and
financial flexibility. The 2011 Term Loan and the 2008 Credit Agreements each contain a number of
significant restrictions and other covenants, including, with respect
to the 2008 Credit Agreements, financial
covenants (see Note 12 of Notes to Consolidated Financial Statements). In addition, in the
event that we are unable to comply with these restrictions and other covenants and are not able to
obtain waivers from our lenders, we would be in default under these agreements and, among other
things, our debt may be accelerated by our lenders. In such case, we may not be able to repay our
debt or borrow sufficient funds to refinance it on commercially reasonable terms, or terms that are
acceptable to us, which could have an adverse effect on our financial condition.
The restructuring and disposition activities that we engage in may not be successfully implemented
and may have an adverse effect on our results of operations or financial condition.
The Company periodically implements restructuring and disposition initiatives including, but
not limited to, reductions in workforce, the closure, relocation or consolidation of facilities or
the disposition or wind-down of businesses, brands or product lines, in order to streamline its
operations and increase its profitability. Restructuring and disposition initiatives may be
expensive and time consuming and may not achieve desired goals. In addition, certain restructuring
and disposition initiatives, if not successfully implemented, may have an adverse effect on our
results of operations or financial condition.
We may be required to recognize impairment charges for our long-lived assets.
At December 31, 2011, the net carrying value of long-lived assets (property, plant and
equipment, goodwill and other intangible assets) totaled approximately $593.9 million. In
accordance with generally accepted accounting principles, we periodically assess these assets to
determine if they are impaired. Significant negative industry or economic trends, disruptions to
our business, unexpected significant changes or planned changes in use of the assets, divestitures
and market capitalization declines may result in impairments to goodwill and other long-lived
assets. Future impairment charges could significantly affect our results of operations in the
periods recognized. Impairment charges would also reduce our consolidated stockholders equity and
increase our debt-to-total-capitalization ratio, which could negatively impact our credit rating
and access to the public debt and equity markets. See Note 1 of Notes to Consolidated Financial
Statements Long-Lived Assets and Note 4 of Notes to Consolidated Financial Statements with
respect to a non-cash impairment charge relating to the Companys license to operate the CK/Calvin Klein bridge business.
We cannot predict with certainty the outcome of litigation matters and other contingencies and
uncertainties.
We may be subject to legal proceedings and other disputes in the future arising out of the
conduct of our business, including matters relating to commercial transactions, acquisitions and
divestitures, and employment matters. Resolution of these matters can be prolonged and costly, and
the ultimate resolutions are uncertain due to the inherent uncertainty in such proceedings.
Moreover, our potential liabilities are subject to change over time due to new developments,
changes in settlement strategy or the impact of evidentiary requirements. While we maintain
insurance for certain risks, it is not possible to obtain insurance to protect against all our
operational risks and liabilities. Accordingly, in certain instances, we may become subject to or
be required to pay damage awards or settlements that could have a material adverse effect on our
results of operations, cash flows and financial condition. Certain of these proceedings could also
have a negative impact on the Companys reputation or relations with its employees, customers or
other third parties.
24
Ineffective disclosure controls and procedures or internal controls over financial reporting could
impair our ability to provide timely and reliable financial information in the future and have a
negative effect on our business and stock price.
Management has concluded that our internal controls over financial reporting were effective as
of December 31, 2011 and January 1, 2011. However, there can be no assurance that in the future we
will not suffer from ineffective disclosure controls and procedures or internal controls over
financial reporting, which would impair our ability to provide reliable and timely financial
reports. Moreover, because of the inherent limitations of any control system, material
misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all.
If we are unable to provide reliable and timely financial reports, or if we are required to restate
our financial statements, our business may be harmed, including as a result of adverse publicity,
litigation, SEC proceedings, exchange delisting or consequences under (or the need for waivers of)
our debt covenants. Failures in internal controls and restated financial statements may also cause
investors to lose confidence in our financial reporting process, which could have a negative effect
on the price of our Common Stock.
|
|
|
Item 1B. |
|
Unresolved Staff Comments. |
None.
The Companys principal executive offices are located at 501 Seventh Avenue, New York, New
York, which the Company leases pursuant to a 13-year lease that commenced in May 2003 (expiring
August 2016) and a second lease expiring in February 2020. In addition to the Companys executive
offices, the Company leases offices in California and Connecticut pursuant to leases that expire
between 2015 and 2020.
As of December 31, 2011, the Company owned or leased five primary domestic distribution and
warehousing facilities located in California and Pennsylvania. In addition, the Company owned or
leased five international, warehousing and distribution facilities in Canada (one), Mexico (one),
the Netherlands (two), and Argentina (one). Some of the Companys warehouse facilities are also
used for administrative functions. The Company owns one of its domestic facilities. Nine of the
Companys facilities are leased with terms expiring between 2012 and 2025, except for certain
leases which operate on a month-to-month basis.
The Company leases sales offices in a number of major cities, including Los Angeles and New
York in the U.S.; Rio Piedras, Puerto Rico; Buenos Aires, Argentina; Melbourne, Australia; Sao
Paulo, Brazil; Copenhagen, Denmark; London, England; Madrid, Spain; Toronto, Canada; Paris, Aix en
Provence, and Toulouse, France; Dusseldorf, Germany; Shanghai, Guangzhou and Beijing, China; Hong
Kong; Seoul, Korea, Singapore City, Singapore; Taipei, Taiwan; Capetown, South Africa; Florence and
Milan, Italy; Santiago, Chile; Amersfoort, Netherlands; Mexico City, Mexico; Lima, Peru; and
Zurich, Switzerland. The sales office leases expire between 2012 and 2020 and are generally
renewable at the Companys option. As of December 31, 2011, the Company leased 1,757 retail store
sites in the U.S., Canada, Mexico, Central and South America, Europe, Australia and Asia. The
retail store leases expire between 2012 and 2023 and are generally renewable at the Companys
option.
All of the Companys distribution and warehouse facilities are located in appropriately
designed buildings, which are kept in good repair. All such facilities have well-maintained
equipment and sufficient capacity to handle present and expected future volumes.
|
|
|
Item 3. |
|
Legal Proceedings. |
OP Litigation: On August 19, 2004, the Company acquired 100% of the outstanding common stock
of Ocean Pacific Apparel Corp. (OP) from 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. 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.
25
Lejaby Claims: On August 18, 2009, Palmers Textil AG (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). On February
13, 2012, Le Tribunal de Commerce de Paris dismissed the Palmers Suit and awarded the Company
100,000 in costs. The judgment is not enforceable until 90 days after its entry, pending the
expiration of the appeal period. 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.
At December 31, 2011, the Company recorded a reserve of
approximately $3.9 million in connection
with these matters. In addition, as of December 31, 2011, the Company had a loan receivable
recorded in Other assets on the Companys Consolidated Balance Sheets of $13.6 million from Palmers
related to the Companys sale of its Lejaby business to Palmers on March 10, 2008. The Company
believes that its loan receivable from Palmers is valid and collectible.
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.
|
|
|
Item 4. |
|
Mine Safety Disclosures |
Not
applicable
26
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. |
The Companys Common Stock is traded on the New York Stock Exchange under the ticker symbol
WRC. The table below sets forth the high and low sales prices of the Common Stock as reported on
the New York Stock Exchange from January 3, 2010 through February 15, 2012:
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
48.63 |
|
|
$ |
37.86 |
|
Second Quarter |
|
$ |
52.11 |
|
|
$ |
34.97 |
|
Third Quarter |
|
$ |
52.11 |
|
|
$ |
34.59 |
|
Fourth Quarter |
|
$ |
58.95 |
|
|
$ |
48.76 |
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
59.15 |
|
|
$ |
48.21 |
|
Second Quarter |
|
$ |
65.01 |
|
|
$ |
47.14 |
|
Third Quarter |
|
$ |
57.91 |
|
|
$ |
44.39 |
|
Fourth Quarter |
|
$ |
53.95 |
|
|
$ |
40.08 |
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
First Quarter (through February 15, 2012) |
|
$ |
60.50 |
|
|
$ |
50.87 |
|
As of February 15, 2012, there were 15,215 holders of the Common Stock, based upon the
number of holders of record and the number of individual participants in certain security position
listings.
The last reported sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape on February 15, 2012 was $58.82 per share.
In the event that available credit under the 2008 Credit Agreements, as amended, is less than
17.5% or the available credit is less than 35% but greater than or equal to 17.5% and the fixed
charge coverage ratio is less than 1.1 to 1.0, 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. In addition, if an event of default, as defined in the 2011 Term Loan Agreement, has
occurred and is continuing or if the consolidated interest coverage ratio, as defined in the 2011
Term Loan Agreement, for the Companys most recent four fiscal quarters is less than 2.25 to 1.00,
the 2011 Term Loan Agreement places restrictions on the payment of dividends and repurchases of
shares of the Companys Common Stock that are otherwise allowed to be paid or repurchased up to the
cap set forth in the 2011 Term Loan Agreement. At December 31, 2011, the triggering events for
restriction on the payment of dividends and repurchase of shares under the 2008 Credit Agreements
and under the 2011 Term Loan had not been met. (See Note 12 of Notes to Consolidated Financial
Statements).
Repurchases of Shares
During September 2011, the Companys Board of Directors authorized a new multi-year share
repurchase program (the 2011 Share Repurchase Program) for up to $200 million of the Companys
outstanding Common Stock. During Fiscal 2011, the Company repurchased 234,900 shares of Common Stock for a total cost of $11.3 million (based on an average of
$48.22 per share) under the 2011 Share Repurchase Program. All repurchases of shares under the 2011
Share Repurchase Program will be made consistent with the terms of the Companys applicable debt
instruments. The share repurchase program may be modified or terminated by the Companys Board of
Directors at any time.
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 Fiscal 2010, the Company repurchased 939,158 shares in the
open market for a total cost of $47.4 million (based on an average of $50.45 per share) under the
2010 Share Repurchase Program. During Fiscal 2011, the Company purchased the remaining 4,060,842
shares of Common Stock available for repurchase under the 2010 Share Repurchase Program for a total
of $205.8 million (based on an average of $50.68 per share). All repurchases of shares under the
2010 Share Repurchase Program were consistent with the terms of the Companys applicable debt
instruments.
27
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 Common Stock. During
Fiscal 2010, the Company repurchased the remaining 1,490,131 shares of Common Stock allowed to be
repurchased under the 2007 Share Repurchase Program in the open market at a total cost of
approximately $69 million (an average cost of $46.31 per share). At January 1, 2011, the Company
had cumulatively purchased 3,000,000 shares of Common Stock in the open market at a total cost of
approximately $106.9 million (an average cost of $35.64 per share) under the 2007 Share Repurchase
Program.
In addition, an aggregate of 49,520 shares were repurchased during Fiscal 2011 (of which 5,957
shares were repurchased during the fourth quarter of Fiscal 2011 and are included in the table
below), which 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 2011 Share Repurchase Program, the 2010 Share Repurchase Program or the 2007 Share Repurchase
Program.
Repurchased shares are held in treasury pending use for general corporate purposes.
The following table summarizes repurchases of the Companys Common Stock during the fourth
quarter of 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Approximate Dollar Value) |
|
|
|
Total Number |
|
|
Average |
|
|
Purchased as |
|
|
of Shares that May Yet Be |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Repurchased Under |
|
Period |
|
Repurchased |
|
|
per Share |
|
|
Announced Plan |
|
|
the Announced Program |
|
|
October 2, 2011 - October 29, 2011 |
|
|
86 |
|
|
$ |
45.32 |
|
|
|
|
|
|
|
|
|
|
October 30, 2011 - November 26, 2011 |
|
|
4,917 |
|
|
$ |
49.38 |
|
|
|
|
|
|
|
|
|
|
November 27, 2011 - December 31, 2011 |
|
|
131,554 |
|
|
$ |
48.49 |
|
|
|
130,600 |
|
|
$ |
188,674,026 |
|
|
|
|
Item 6. |
|
Selected Financial Data. |
The following table sets forth the Companys selected historical consolidated financial and
operating data for Fiscal 2011, Fiscal 2010, Fiscal 2009, Fiscal 2008 and Fiscal 2007. All fiscal
years for which financial information is set forth below had 52 weeks, except Fiscal 2008, which
had 53 weeks.
For all periods presented, income from continuing operations excludes the results of the
Companys discontinued operations (i.e. Calvin Klein Golf, Calvin Klein Collection, Nautica,
Michael Kors, Private Label, Lejaby, Anne Cole, Cole of California, Catalina, OP, JLO, Lejaby Rose,
Axcelerate Activewear and its three Speedo retail outlet store businesses). The results of
operations of these business units are presented separately in the following table.
The information set forth in the following table should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations and the
Companys consolidated financial statements and related notes thereto included elsewhere in this
Annual Report on Form 10-K.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
|
|
(Dollars in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of
operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
2,513.4 |
|
|
$ |
2,295.8 |
|
|
$ |
2,019.6 |
|
|
$ |
2,062.8 |
|
|
$ |
1,819.6 |
|
Gross profit |
|
|
1,100.9 |
|
|
|
1,020.0 |
|
|
|
864.3 |
|
|
|
920.8 |
|
|
|
749.7 |
|
Selling, general
and administrative
expenses |
|
|
844.7 |
|
|
|
758.1 |
|
|
|
638.9 |
|
|
|
738.2 |
|
|
|
601.7 |
|
Amortization of
intangible assets |
|
|
48.0 |
|
|
|
11.5 |
|
|
|
11.0 |
|
|
|
9.4 |
|
|
|
13.2 |
|
Pension expense
(income) |
|
|
26.7 |
|
|
|
2.6 |
|
|
|
20.9 |
|
|
|
31.6 |
|
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
181.5 |
|
|
|
247.8 |
|
|
|
193.5 |
|
|
|
141.4 |
|
|
|
143.7 |
|
Other (income) loss |
|
|
0.6 |
|
|
|
6.2 |
|
|
|
1.9 |
|
|
|
1.9 |
|
|
|
(7.1 |
) |
Interest expense |
|
|
16.3 |
|
|
|
14.5 |
|
|
|
23.9 |
|
|
|
29.5 |
|
|
|
37.7 |
|
Interest income |
|
|
(3.4 |
) |
|
|
(2.8 |
) |
|
|
(1.2 |
) |
|
|
(3.1 |
) |
|
|
(3.8 |
) |
Income from
continuing
operations |
|
|
132.3 |
|
|
|
147.8 |
|
|
|
102.2 |
|
|
|
51.0 |
|
|
|
86.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued
operations, net of
taxes |
|
|
(4.8 |
) |
|
|
(9.2 |
) |
|
|
(6.2 |
) |
|
|
(3.8 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to
Warnaco Group
common shareholders |
|
|
127.5 |
|
|
|
138.6 |
|
|
|
96.0 |
|
|
|
47.3 |
|
|
|
79.1 |
|
Dividends on Common
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
3.07 |
|
|
$ |
3.26 |
|
|
$ |
2.22 |
|
|
$ |
1.11 |
|
|
$ |
1.90 |
|
Diluted |
|
|
3.01 |
|
|
|
3.19 |
|
|
|
2.19 |
|
|
|
1.08 |
|
|
|
1.84 |
|
Loss from
discontinued
operations, net of
taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.13 |
) |
|
|
(0.08 |
) |
|
|
(0.17 |
) |
Diluted |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.14 |
) |
|
|
(0.08 |
) |
|
|
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2.96 |
|
|
|
3.06 |
|
|
|
2.09 |
|
|
|
1.03 |
|
|
|
1.73 |
|
Diluted |
|
|
2.90 |
|
|
|
2.99 |
|
|
|
2.05 |
|
|
|
1.00 |
|
|
|
1.67 |
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computing earnings
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,425,750 |
|
|
|
44,701,643 |
|
|
|
45,433,874 |
|
|
|
45,351,336 |
|
|
|
44,908,028 |
|
Diluted |
|
|
43,299,849 |
|
|
|
45,755,935 |
|
|
|
46,196,397 |
|
|
|
46,595,038 |
|
|
|
46,618,307 |
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
|
|
(Dollars in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating
activities |
|
$ |
128.9 |
|
|
$ |
224.2 |
|
|
$ |
264.9 |
|
|
$ |
125.9 |
|
|
$ |
160.4 |
|
Cash flows from
investing
activities |
|
|
(80.4 |
) |
|
|
(72.6 |
) |
|
|
(52.6 |
) |
|
|
(44.3 |
) |
|
|
(20.8 |
) |
Cash flows from
financing
activities |
|
|
(6.2 |
) |
|
|
(283.1 |
) |
|
|
(40.9 |
) |
|
|
(120.7 |
) |
|
|
(121.7 |
) |
Depreciation and
amortization |
|
|
97.9 |
|
|
|
55.4 |
|
|
|
46.8 |
|
|
|
46.2 |
|
|
|
65.3 |
|
Capital expenditures |
|
|
55.4 |
|
|
|
50.3 |
|
|
|
42.8 |
|
|
|
41.0 |
|
|
|
41.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
January 1, |
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
|
|
(Dollars in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
612.6 |
|
|
$ |
509.2 |
|
|
$ |
560.2 |
|
|
$ |
474.6 |
|
|
$ |
588.0 |
|
Total assets |
|
|
1,747.9 |
|
|
|
1,653.3 |
|
|
|
1,659.8 |
|
|
|
1,496.1 |
|
|
|
1,606.5 |
|
Long-term debt (a) |
|
|
208.5 |
|
|
|
|
|
|
|
112.8 |
|
|
|
163.8 |
|
|
|
310.5 |
|
Stockholders equity |
|
|
897.2 |
|
|
|
972.6 |
|
|
|
916.1 |
|
|
|
787.7 |
|
|
|
772.9 |
|
|
|
|
(a) |
|
Does not include current maturities of long-term debt. See Note 12 of Notes to
Consolidated Financial Statements. |
30
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations. |
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 those expected in
the future and that could affect the market value of the Companys Common Stock. This Annual Report
on Form 10-K, including the following discussion, except for the historical information contained
herein, contains forward-looking statements that involve risks and uncertainties. See Statement
Regarding Forward-Looking Disclosure and Item 1A. Risk Factors.
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), the
period from January 3, 2010 to January 1, 2011 (Fiscal 2010) and the period from January 4, 2009
to January 2, 2010 (Fiscal 2009) each contained 52 weeks of operations.
The Company has three operating 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
Fiscal 2009 and Fiscal 2010 have been reclassified to Operating income (loss) Sportswear Group,
Intimate Apparel Group and Swimwear Group in order to conform to Fiscal 2011 presentation (see Note
5 of Notes to Consolidated 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
Fiscal 2009 and Fiscal 2010 have been reclassified to international Operating income (loss) -
Sportswear Group, Intimate Apparel Group and Swimwear Group in order to conform to Fiscal 2011
presentation. The revision of the operating income (loss) for each Group and Corporate/Other for
Fiscal 2009 and Fiscal 2010 did not have any effect on the Companys Consolidated Balance Sheets,
Consolidated Statements of Operations or Consolidated Statements of Cash Flows for any period
presented in this Annual Report on Form 10-K.
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial statements and related
notes thereto, which are included in this Annual Report on Form 10-K. 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 in a current period relative to a prior period refers
to an increase in the percentage of sales of products in low margin channels of distribution (such
as the off-price channel) to total sales. References to allowances refer to discounts given to
wholesale customers based upon the expected rate of retail sales and general economic and retail
forecasts.
Overview
Introduction
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 owned full-price free standing retail
stores, outlet stores, concession/shop-in-shop 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 across its segments during Fiscal 2011:
|
|
|
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. The Companys major brand is Calvin Klein, which
generated 75.6% and 73.9% of the Companys net revenues for Fiscal 2011 and Fiscal 2010,
respectively. |
|
|
|
|
Grow the Companys retail business through a combination of new store openings and
the selective acquisition of stores operated by distributors of the Companys products.
During Fiscal 2011, the Company increased the number of Calvin Klein retail stores in
Europe, Asia and South America by 400 retail stores (consisting of 74 free-standing full
price stores and 326 shop-in-shop/concession stores). As of December 31, 2011, the
Company operated (i) 1,759 Calvin Klein retail
stores worldwide (consisting of 381 free-standing stores (including 263 full price and
118 outlet stores), 1,376 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. |
31
|
|
|
Retail net revenues represented 28.9% of the Companys net revenues for
Fiscal 2011 compared to 24.7% of the Companys net revenues for Fiscal 2010. |
|
|
|
|
On July 8, 2011, the Company acquired a controlling interest (51%) in the
business of a distributor of its Calvin Klein products in India for cash
consideration of approximately $20.4 million (see Note 2 of Notes to
Consolidated Financial Statements). |
|
|
|
The Company expects to continue to expand its retail business,
particularly in Northern Europe, Asia and South America. |
|
|
|
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. Net revenues from
international operations represented 59.7% of the Companys net revenues for Fiscal 2011
compared to 56.1% of the Companys net revenues for Fiscal 2010. The Company believes
that there are opportunities for continued growth in Europe, Asia and South America. |
|
|
Manage heritage businesses for profitability. The Companys heritage businesses
include Chaps®, Warners, Olga (Core Intimates) and Speedo® brands. During Fiscal 2011
compared to Fiscal 2010, net revenues of heritage businesses, in total, increased $14.8
million, comprising increases in the Core Intimates ($12.6 million) and Speedo ($10.8
million) businesses and a decrease in net revenue in the Chaps business ($8.6 million).
Operating income of Speedo and Core Intimates businesses increased $7.4 million and $1.5
million from Fiscal 2010 to Fiscal 2011, respectively, while operating income of Chaps
products declined $8.8 million from Fiscal 2010 to Fiscal 2011. Operating income of
heritage businesses includes an increase of $5.6 million of restructuring expense for
Fiscal 2011 compared to Fiscal 2010. |
Net Revenues
The Companys net revenues increased $217.6 million, or 9.5%, to $2.5 billion for Fiscal 2011
compared to $2.3 billion for Fiscal 2010. The increase in net revenues was primarily due to:
|
(i) |
|
the favorable effect of foreign currency fluctuations, which resulted in
an increase in net revenues of $59.0 million for Fiscal 2011 compared to Fiscal
2010; |
|
|
(ii) |
|
the launch of the ck one product line of mens and womens jeanswear and
underwear during the first and second quarters of Fiscal 2011, which benefited both
the Sportswear Group and Intimate Apparel Group, and new product launches of
Warners and Olga products during the second quarter of Fiscal 2011, which benefited
the Intimate Apparel Group; |
|
|
(iii) |
|
the addition of 232,000 net square feet of retail space,
bringing the total of the Company's retail space to 1,087,000 square
feet worldwide (including space
for both the Sportswear Group and the Intimate Apparel Group) through the opening of
additional Calvin Klein international retail stores during Fiscal 2011 and the
acquisition of retail stores in Taiwan during the first quarter of Fiscal 2011 and
in India during the third quarter of Fiscal 2011; |
|
|
(iv) |
|
the results of operations of the business of the Companys distributor of
Calvin Klein products in Italy that was acquired during the fourth quarter of Fiscal
2010; and |
|
|
(v) |
|
an increase of 4.1% from comparable store sales during Fiscal 2011
($450.4 million) compared to Fiscal 2010 ($432.6 million). |
Operating Income
The Companys operating income decreased $66.2 million, or 26.7%, to $181.5 million for Fiscal
2011 compared to $247.8 million for Fiscal 2010, reflecting declines in the Sportswear Group ($62.6
million) and in the Intimate Apparel Group ($1.2 million), and an increase in the level of
operating loss from Corporate/other ($11.8 million), partially offset by an increase in the
Swimwear Group ($9.4 million). Operating income includes restructuring charges and other exit costs
of $60.9 million for Fiscal 2011 and $9.8 million for Fiscal 2010 (see Liquidity and Capital
Resources Restructuring and Note 4 of Notes to Consolidated Financial Statements).
32
During Fiscal 2011, certain of the Companys businesses, particularly in the U.S., Asia and
Europe, experienced an increase in product and freight costs, which have adversely affected the
operating margins of the Companys businesses. The Company expects that product costs will
stabilize or decline during the year ending December 29, 2012. During Fiscal 2011, the Company was
able to partially mitigate the cost increases in certain geographic markets by selectively
increasing the selling prices of its goods, making early purchases of product and implementing
other sourcing initiatives.
Foreign Currency Effects
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 which 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 (see Note 17 of Notes to Consolidated Financial Statements).
As noted above, during Fiscal 2011 and Fiscal 2010, 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, Indian rupee and British pound.
For Fiscal 2011 compared to Fiscal 2010, net revenues were favorably affected, while operating
income and income from continuing operations were each negatively affected, by fluctuations in
certain foreign currencies: net revenues include an increase of $59.0 million, while operating
income includes a decrease of $5.4 million (primarily reflective of an increase related to
translation of operating results more than offset by transaction-based foreign exchange net losses)
and income from continuing operations includes a decrease of
$4.7 million, $0.12 per diluted share,
due to such fluctuations.
Earnings per Share
On a U.S. generally accepted accounting principles (GAAP) basis, for Fiscal 2011 compared to
Fiscal 2010, income from continuing operations per diluted share decreased 5.6% to $3.01 per
diluted share (from $3.19 per diluted share). On a non-GAAP basis (excluding restructuring expense,
pension expense and certain other items (see Non-GAAP Measures, below)), for Fiscal 2011 compared
to Fiscal 2010, income from continuing operations per diluted share increased 10.9% to $3.96 per
diluted share (from $3.57 per diluted share).
Balance Sheet
During November 2011, the Company amended its 2008 Credit Agreements to, among other things,
reduce the interest rate on amounts borrowed and fees incurred on available and unborrowed amounts
and extend the maturity date from August 26, 2013 to November 8, 2016. See Note 12 of Notes to
Consolidated Financial Statements.
On June 17, 2011, the Company entered into a $200 million senior secured term loan facility,
maturing on June 17, 2018 (see Note 12 of Notes to Consolidated Financial Statements). At December
31, 2011, the Companys balance sheet included cash and cash equivalents of $232.5 million and
total debt of $256.0 million.
During Fiscal 2011, the Company repurchased the remaining 4,060,842 shares of Common Stock
under the 2010 Share Repurchase Program for $205.8 million (based on an average of $50.68 per
share). See Part II. Item 5. Market for Registrants Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities.
During September 2011, the Companys Board of Directors approved the 2011 Share Repurchase
Program for up to $200 million of the Companys outstanding Common Stock. During Fiscal 2011, the
Company repurchased 234,900 shares under the 2011 Share Repurchase Program for $11.3 million (based
on an average of $48.22 per share).
33
Non-GAAP Measures
The Companys reported financial results are presented in accordance with 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(Dollars in thousands, except per share amounts) |
|
Operating income, as reported (GAAP) |
|
$ |
181,545 |
|
|
$ |
247,811 |
|
|
$ |
193,535 |
|
Restructuring and other exit costs (a) |
|
|
60,939 |
|
|
|
9,809 |
|
|
|
12,126 |
|
Pension (b) |
|
|
26,744 |
|
|
|
2,550 |
|
|
|
20,873 |
|
Brazil acquisition adjustment (c) |
|
|
|
|
|
|
1,521 |
|
|
|
|
|
State franchise taxes and other (d) |
|
|
|
|
|
|
1,000 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
|
Operating income, as adjusted (non-GAAP) |
|
$ |
269,228 |
|
|
$ |
262,691 |
|
|
$ |
227,629 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco
Group common shareholders, as reported (GAAP) |
|
$ |
132,252 |
|
|
$ |
147,798 |
|
|
$ |
102,225 |
|
Restructuring and other exit costs, net of income tax (a) |
|
|
44,524 |
|
|
|
7,273 |
|
|
|
8,620 |
|
Pension, net of income tax (b) |
|
|
16,358 |
|
|
|
1,572 |
|
|
|
12,524 |
|
Brazil acquisition adjustment, net of income tax (c) |
|
|
|
|
|
|
1,004 |
|
|
|
|
|
State franchise taxes and other, net of income tax (d) |
|
|
|
|
|
|
630 |
|
|
|
657 |
|
Costs related to the redemption of debt, net of taxation (e) |
|
|
|
|
|
|
2,368 |
|
|
|
|
|
Taxation (f) |
|
|
(19,012 |
) |
|
|
4,877 |
|
|
|
7,717 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco
Group common shareholders, as adjusted (non-GAAP) |
|
$ |
174,122 |
|
|
$ |
165,522 |
|
|
$ |
131,743 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
attributable to Warnaco Group common shareholders, as
reported (GAAP) |
|
$ |
3.01 |
|
|
$ |
3.19 |
|
|
$ |
2.19 |
|
Restructuring and other exit costs, net of income tax (a) |
|
|
1.01 |
|
|
|
0.16 |
|
|
|
0.18 |
|
Pension, net of income tax (b) |
|
|
0.37 |
|
|
|
0.03 |
|
|
|
0.27 |
|
Brazil acquisition adjustment, net of income tax (c) |
|
|
|
|
|
|
0.02 |
|
|
|
|
|
State franchise taxes and other, net of income tax (d) |
|
|
|
|
|
|
0.01 |
|
|
|
0.01 |
|
Costs related to the redemption of debt, net of taxation (e) |
|
|
|
|
|
|
0.05 |
|
|
|
|
|
Taxation (f) |
|
|
(0.43 |
) |
|
|
0.11 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations
attributable to Warnaco Group common shareholders, as
adjusted (non-GAAP) |
|
$ |
3.96 |
|
|
$ |
3.57 |
|
|
$ |
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
For all periods presented, this adjustment seeks to present operating income, income from
continuing operations attributable to Warnaco Group common shareholders, and diluted
earnings per share from continuing operations attributable to Warnaco Group common
shareholders without the effects of restructuring charges and other
exit costs. Restructuring charges include, among other items,
non-cash charges of $40,020 and $1,621 for Fiscal 2011 and
Fiscal 2010, respectively. (See Note 4 of Notes to Consolidated Financial Statements). 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 restructuring charges
or other exit costs. |
|
b) |
|
For all periods presented, this adjustment seeks to present operating income, income
from continuing operations attributable to Warnaco Group common shareholders, and diluted
earnings per share from continuing operations attributable to Warnaco Group common
shareholders without the effects of pension expense. 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 pension expense. |
|
c) |
|
This adjustment seeks to present operating income, income from continuing operations
attributable to Warnaco Group common shareholders, and diluted
earnings per share from continuing operations attributable to Warnaco Group common shareholders, without the effects of an
additional charge related to an adjustment to the contingent consideration to be paid for
the business acquired in Brazil in 2009 as shown in the table above for Fiscal 2010. The
income tax rate used to compute the income tax effect related to this adjustment
corresponds to the local statutory tax rate in Brazil. |
|
d) |
|
This adjustment seeks to present operating income, income from continuing operations
attributable to Warnaco Group common shareholders, and diluted
earnings per share from continuing operations attributable to Warnaco
Group common shareholders, excluding a charge as shown in the table above for certain franchise
taxes recorded during Fiscal 2010 related to the correction of amounts recorded in
prior periods. The amount was not material to any prior period. The income tax rates
used to compute the income tax effect related to the above-mentioned charge for
franchise taxes correspond to the statutory tax rates in the United
States. |
34
e) |
|
This adjustment seeks to present income from continuing operations attributable to Warnaco Group common shareholders
and diluted earnings
per share from continuing operations attributable to Warnaco Group common shareholders without the effect of a charge of $3,747 ($2,368 after
tax) as shown in the table above related to the repurchase of a portion of its Senior Notes
during Fiscal 2010. The income tax rates used to compute the income tax effect related to
this adjustment correspond to the statutory tax rates in the United States. |
|
f) |
|
For Fiscal 2011, this adjustment seeks to present income from
continuing operations attributable to Warnaco Group common shareholders and diluted
earnings per share from continuing operations attributable to Warnaco Group common shareholders
without the effects of certain discrete items or changes in estimates in prior period tax
provisions as follows:
|
|
|
|
a $10,900 tax benefit recorded during the Fiscal 2011 associated
with the recognition of pre-2004 net operating losses in a foreign jurisdiction
as result of receiving a favorable ruling from that countrys taxing authority
during the second quarter of 2011; |
|
|
|
|
a $7,300 tax benefit recorded during Fiscal 2011 related to the
reduction in the reserve for uncertain tax positions in certain foreign tax
jurisdictions; and |
|
|
|
an $812 net tax benefit, recorded during Fiscal 2011 comprised of
changes in various domestic and foreign tax provision estimates for
Fiscal 2010 following the filing of certain of the Companys tax returns
during 2011 and adjustments for other discrete items. The adjustments for
other discrete items reflect the federal, state and foreign tax effects
related to: 1) direct and indirect 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.
|
|
|
For Fiscal 2010, this adjustment seeks to present income from continuing operations and
diluted earnings per share from continuing operations attributable to
Warnaco Group common shareholders without effects of certain tax
adjustments related to errors or changes in estimates in prior period tax provisions
(approximately $2,300) and adjustments for certain other discrete tax items (approximately
$2,600). The adjustment related to prior period errors or estimate changes includes, among
other items, a charge of approximately $2,300 recorded during Fiscal 2010 associated
with the correction of an error in the 2006 through 2009 income tax provisions as a
consequence of the loss of a credit related to prior year tax overpayments caused by the
delayed filing of tax returns in a U.S. state taxing jurisdiction. This error was not
material to any prior period. The adjustments for other discrete items reflect the federal,
state and foreign tax effects related to: 1) direct and indirect 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. |
|
|
For Fiscal 2009, this adjustment seeks to present income from continuing operations and
diluted earnings per share from continuing operations without the effects of certain tax
adjustments related to changes in estimates or errors in prior period tax provisions
(approximately $2,300), adjustments for certain other discrete tax items (approximately
$1,700) and an adjustment for the amount recorded to correct for an error in the Companys
2006 income tax provision associated with the recapture of cancellation of indebtedness
income which had been deferred in connection with the Companys bankruptcy proceedings in
2003 (approximately $3,600). The adjustments for other discrete items reflect the federal,
state and foreign tax effects related to: 1) the effect of changes in tax laws (in 2009)
related to the opening balances for deferred tax assets and liabilities; 2) direct and
indirect income taxes associated with legal entity reorganizations and restructurings; 3) tax
provision or benefit resulting from statute expirations or the finalization of income tax
examinations: and 4) other adjustments not considered part of the Companys core business
activities |
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, 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 net revenues. As a supplement to its
reported net revenues, the Company presents net revenues on a constant currency basis, which is a
non-GAAP financial measure. The Company uses constant currency information to provide a framework
to assess net revenue performance excluding the effects of changes in foreign currency translation
rates. Management believes this information is useful to investors to facilitate comparisons of
net revenues and better identify trends in the Companys businesses.
To calculate the increase in segment revenues on a constant currency basis, net revenues 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 net revenues should be viewed in addition to, and not in isolation
from, or as a substitute to, the
Companys net revenues calculated in accordance with GAAP. The constant currency information
presented in the following table for net revenues may not be comparable to similarly titled
measures reported by other companies.
35
NET REVENUES ON A CONSTANT CURRENCY BASIS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
|
GAAP |
|
|
Impact of Foreign |
|
|
Non-GAAP |
|
|
|
As Reported |
|
|
Currency Exchange |
|
|
Constant Currency |
|
By Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
1,305,769 |
|
|
$ |
34,796 |
|
|
$ |
1,270,973 |
|
Intimate Apparel Group |
|
|
932,131 |
|
|
|
21,228 |
|
|
|
910,903 |
|
Swimwear Group |
|
|
275,488 |
|
|
|
2,999 |
|
|
|
272,489 |
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
2,513,388 |
|
|
$ |
59,023 |
|
|
$ |
2,454,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Region: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,013,239 |
|
|
$ |
|
|
|
$ |
1,013,239 |
|
Europe |
|
|
628,094 |
|
|
|
28,248 |
|
|
|
599,846 |
|
Asia |
|
|
499,499 |
|
|
|
18,197 |
|
|
|
481,302 |
|
Mexico, Central and South America |
|
|
240,262 |
|
|
|
7,132 |
|
|
|
233,130 |
|
Canada |
|
|
132,294 |
|
|
|
5,446 |
|
|
|
126,848 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,513,388 |
|
|
$ |
59,023 |
|
|
$ |
2,454,365 |
|
|
|
|
|
|
|
|
|
|
|
Discussion of Critical Accounting Policies
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. The Companys most critical accounting policies pertain to revenue
recognition, accounts receivable, inventories, long-lived assets, goodwill and other intangible
assets, income taxes, pension plans and stock-based compensation. In applying such policies,
management must record income and expense amounts and assets and liabilities at the date of the
consolidated financial statements that are based upon informed judgments and best estimates. The
estimates the Company makes are based upon historical factors, current circumstances and the
experience and judgment of the Companys management. Because of the uncertainty inherent in these
estimates, including uncertainty due to current economic trends and conditions, actual results
could differ from estimates used in applying the critical accounting policies. Changes in such
estimates, based on more accurate future information, may affect amounts reported in future
periods. The Company evaluates its assumptions and estimates on an ongoing basis. Management is
not aware of any reasonably likely events or circumstances which would result in different amounts
being reported that would materially affect the Companys financial condition or results of
operations.
Revenue Recognition The Company recognizes revenue when goods are shipped to customers and
title and risk of loss have passed, net of estimated customer returns, allowances and other
discounts. The Company recognizes revenue from its retail stores when goods are sold to consumers,
net of allowances for future returns. The determination of allowances and returns involves the use
of significant judgment and estimates by the Company. The Company bases its estimates of allowance
rates on past experience by product line and account, the financial stability of its customers, the
expected rate of sales to the end customer, forecasts of demand for its products and general
economic and retail forecasts. The Company also considers its accounts receivable collection rate
and the nature and amount of customer deductions and requests for promotion assistance. The Company
believes it is likely that its accrual rates will vary over time and could change materially if the
Companys mix of customers, channels of distribution or products change. Current rates of accrual
for sales allowances, returns and discounts vary by customer. Amounts received by the Company from
the licensing or sub-licensing of certain trademarks are initially recorded as deferred revenue on
the Consolidated Balance Sheets and are recognized as revenue on a straight-line basis over the
term of the licensing or sub-licensing agreement when the underlying royalties are earned.
Accounts Receivable The Company maintains reserves for estimated amounts that the Company
does not expect to collect from its trade customers. Accounts receivable reserves include amounts
the Company expects its customers to deduct for returns, allowances, trade discounts, markdowns,
amounts for accounts that go out of business or seek the protection of the Bankruptcy Code and
amounts in dispute with customers. The Companys estimate of the allowance amounts that are
necessary includes amounts for specific deductions the Company has authorized and an amount for
other estimated losses. Estimates of accruals for specific account allowances and negotiated
settlements of customer deductions are recorded as deductions to revenue in the period the related
revenue
is recognized. The provision for accounts receivable allowances is affected by general
economic conditions, the financial condition of the Companys customers, the inventory position of
the Companys customers and many other factors. The determination of accounts receivable reserves
is subject to significant levels of judgment and estimation by the Companys management. If
circumstances change or economic conditions deteriorate, the Company may need to increase the
reserve significantly.
36
Inventories The Company records purchases of inventory when it assumes title and the risk of
loss. The Company values its inventories at the lower of cost, determined on a first-in, first-out
basis, or market. The Company evaluates its inventories to determine excess units or slow-moving
styles based upon quantities on hand, orders in house and expected future orders. For those items
for which the Company believes it has an excess supply or for styles or colors that are obsolete,
the Company estimates the net amount that it expects to realize from the sale of such items. The
Companys objective is to recognize projected inventory losses at the time the loss is evident
rather than when the goods are ultimately sold. The Companys calculation of the reduction in
carrying value necessary for the disposition of excess inventory is highly dependent on its
projections of future sales of those products and the prices it is able to obtain for such
products. The Company reviews its inventory position monthly and adjusts its carrying value for
excess or obsolete goods based on revised projections and current market conditions for the
disposition of excess and obsolete inventory.
Long-Lived Assets Intangible assets primarily consist of licenses and trademarks. The
majority of the Companys license and trademark agreements cover extended periods of time, some in
excess of forty years; others have indefinite lives. Warnaco Group, Warnaco Inc. (Warnaco), the
principal operating subsidiary of Warnaco Group and certain of Warnacos subsidiaries were
reorganized under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. Sections 101-1330, as amended,
effective February 4, 2003 (the Effective Date). Long-lived assets (including property, plant and
equipment) and intangible assets existing at the Effective Date are recorded at fair value based
upon the appraised value of such assets, net of accumulated depreciation and amortization and net
of any adjustments after the Effective Date for reductions in valuation allowances related to
deferred tax assets arising before the Effective Date. Long-lived assets, including licenses and
trademarks, acquired in business combinations after the Effective Date under the purchase method of
accounting are recorded at their fair values, net of accumulated amortization since the acquisition
date. Long-lived assets, including licenses and trademarks, acquired in the normal course of the
Companys operations are recorded at cost, net of accumulated amortization. Identifiable intangible
assets with finite lives are amortized on a straight-line basis over the estimated useful lives of
the assets. Assumptions relating to the expected future use of individual assets could affect the
fair value of such assets and the depreciation expense recorded related to such assets in the
future. Costs incurred to renew or extend the term of a recognized intangible asset are capitalized
and amortized, where appropriate, through the extension or renewal period of the asset.
The Company determines the fair value of acquired assets based upon the planned future use of
each asset or group of assets, quoted market prices where a market exists for such assets, the
expected future revenue, profitability and cash flows of the business unit utilizing such assets
and the expected future life of such assets. In the case of reacquired rights intangible assets,
the fair value is determined based on the period over which the reacquired rights would have
extended. In its determination of fair value, the Company also considers whether an asset will be
sold either individually or with other assets and the proceeds the Company expects to receive from
any such sale. Preliminary estimates of the fair value of acquired assets are based upon
managements estimates. Adjustments to the preliminary estimates of fair value that are made
within one year of an acquisition date are recorded as adjustments to goodwill. Subsequent
adjustments are recorded in earnings in the period of the adjustment.
The Company reviews its long-lived assets for possible impairment in the fourth quarter of
each fiscal year or when events or circumstances indicate that the carrying value of the assets may
not be recoverable. Such events may include (a) a significant adverse change in legal factors or
the business climate; (b) an adverse action or assessment by a regulator; (c) unanticipated
competition; (d) a loss of key personnel; (e) a more-likely-than-not expectation that a reporting
unit, or a significant part of a reporting unit, will be sold or disposed of; (f) the determination
of a lack of recoverability of a significant asset group within a reporting unit; (g) reporting a
goodwill impairment loss by a subsidiary that is a component of a reporting unit; and (h) a
significant decrease in the Companys stock price.
In evaluating long-lived assets (finite-lived intangible assets and property, plant and
equipment) for recoverability, the Company uses its best estimate of future cash flows expected to
result from the use of the asset and its eventual disposition. To the extent that estimated future
undiscounted net cash flows attributable to the asset are less than the carrying amount, an
impairment loss is recognized equal to the difference between the carrying value of such asset and
its fair value, which is determined based on discounted cash flows. Assets to be disposed of and
for which there is a committed plan of disposal are reported at the lower of carrying value or fair
value less costs to sell.
During the fourth quarters of Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company
conducted its annual evaluation of its finite-lived intangible assets and the long-lived assets of
its retail stores for impairment. For Fiscal 2011, the Company recorded an impairment charge of
$35,225 as part of its restructuring and other exit costs within amortization of intangible assets (see Note 4 Restructuring
Expense and Other Exit Costs and Note 10 Intangible Assets and Goodwill of Notes to Consolidated Financial Statements) in connection with
its CK/Calvin Klein bridge business. No impairment charges were recorded related to the Companys
finite-lived intangible assets for Fiscal 2010 or Fiscal 2009. For Fiscal 2011, Fiscal 2010 and
Fiscal 2009, the Company determined that the long-lived assets of 27, 10 and 2 retail stores,
respectively, were impaired, based on the valuation methods described above. The Company recorded
impairment charges of $6.0 million, $1.9 million and $0.2 million respectively, within selling, general and
administrative expense .The portion of those impairment charges related to stores which management
has either closed or expects to close was $5.5 million, $1.6 million
and $0.2 million for Fiscal 2011, Fiscal 2010 and
Fiscal 2009, respectively, and was recorded as restructuring and other exit costs within selling,
general and administrative expense (see Note 4 of Notes to
Consolidated Financial Statements
Restructuring Expense and Other Exit Costs). The fair values thus determined are categorized as
level 3 (significant unobservable inputs) within the fair value hierarchy (see Note 16 of Notes to
Consolidated Financial Statements).
37
Since the determination of future cash flows is an estimate of future performance, there may
be future impairments to the carrying value of long-lived and intangible assets and impairment
charges in future periods in the event that future cash flows do not meet expectations. In
addition, depreciation and amortization expense is affected by the Companys determination of the
estimated useful lives of the related assets. The estimated useful lives of fixed assets and
finite-lived intangible assets are based on their classification and expected usage, as determined
by the Company.
Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over
the fair value of net assets acquired in business combinations accounted for under the purchase
method of accounting. Goodwill is not amortized and is subject to an annual impairment test which
the Company performs in the fourth quarter of each fiscal year.
Goodwill impairment is determined using a two-step process. Goodwill is allocated to various
reporting units, which are either the operating segment or one reporting level below the operating
segment. As of December 31, 2011, the Companys reporting units for purposes of applying the
goodwill impairment test were: Core Intimate Apparel (consisting of the Warners® /Olga® /Body
Nancy Ganz®/Bodyslimmers ® business units) and Calvin Klein Underwear, both of which were one
reporting level below the Intimate Apparel Group operating segment; Calvin Klein Jeans and Chaps®,
both of which were one reporting level below the Sportswear Group operating segment and Swimwear,
comprising the Swimwear Group operating segment. In connection with a business combination,
goodwill is assigned to a reporting unit based upon the proportion of projected net sales of the
products in each reporting unit of the acquired entity.
The first step of the goodwill impairment test is to compare the fair value of each reporting
unit to its carrying amount to determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss. The second step of the goodwill impairment
test compares the implied fair value of the reporting units goodwill with the carrying amount of
that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The
implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. That is, the fair value of the reporting unit is allocated to
all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if
the reporting unit had been acquired in a business combination and the fair value was the purchase
price paid to acquire the reporting unit.
Determining the fair value of a reporting unit under the first step of the goodwill impairment
test and determining the fair value of individual assets and liabilities of a reporting unit
(including unrecognized intangible assets) under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant estimates and assumptions. These
estimates and assumptions could have a significant impact on whether or not an impairment charge is
recognized and the magnitude of any such charge. Estimates of fair value are primarily determined
using discounted cash flows, market multiples or appraised values, as appropriate.
During the fourth quarters of Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company determined
the fair value of the assets and liabilities of its reporting units in the first step of the
goodwill impairment test as the weighted average of both an income approach, based on discounted
cash flows using the Companys weighted average cost of capital of 15.0% (Fiscal 2011), 14.5%
(Fiscal 2010) or 15.0% (Fiscal 2009), and a market approach, using inputs from a group of peer
companies. The Company did not identify any reporting units that failed or were at risk of failing
the first step of the goodwill impairment test (comparing fair value to carrying amount) during
Fiscal 2011, Fiscal 2010 or Fiscal 2009.
Intangible assets with indefinite lives are not amortized and are subject to an annual
impairment test which the Company performs in the fourth quarter of each fiscal year. The Company
also reviews its indefinite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an indefinite-lived intangible asset exceeds its
fair
value, as for goodwill. If the carrying value of an indefinite-lived intangible asset exceeds
its fair value (determined based on discounted cash flows), an impairment loss is recognized. The
estimates and assumptions used in the determination of the fair value of indefinite-lived
intangible assets will not have an effect on the Companys future earnings unless a future
evaluation of trademark or license value indicates that such asset is impaired. For Fiscal 2011,
Fiscal 2010 and Fiscal 2009, no impairment charges were recorded related to the Companys
indefinite-lived intangible assets.
38
Income Taxes Deferred income taxes are determined using the asset and liability method.
Deferred tax assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates
and laws to taxable years in which such differences are expected to reverse. Realization of the
Companys deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the
timing and amount of which are uncertain. Management assesses the Companys income tax positions
and records tax benefits for all years subject to examination based upon an evaluation of the
facts, circumstances, and information available at the reporting dates. In addition, valuation
allowances are established when management determines that it is more-likely-than-not that some
portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed
periodically and adjusted as events occur, or circumstances change, that warrant adjustments to
those balances.
The Company accounts for uncertainty in income taxes by considering whether a tax position is
more-likely-than-not of being sustained upon audit, based solely on the technical merits of the
position. If so, the Company recognizes the tax benefit. The Company measures the tax benefit by
determining the largest amount that is greater than 50% likely of being realized upon settlement,
presuming that the tax position is examined by the appropriate taxing authority that has full
knowledge of all relevant information. These assessments can be complex and require significant
judgment. To the extent that the Companys estimates change or the final tax outcome of these
matters is different than the amounts recorded, such differences will impact the income tax
provision in the period in which such determinations are made. If the initial assessment fails to
result in the recognition of a tax benefit, the Company regularly monitors its position and
subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law
that sufficiently raise the likelihood of prevailing on the technical merits of the position to
more-likely-than-not, (ii) the statute of limitations expires, or (iii) there is a completion of an
audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax
positions are classified as current only when the Company expects to pay cash within the next
twelve months. Interest and penalties, if any, are recorded within the provision for income taxes
in the Companys consolidated statements of operations and are classified on the consolidated
balance sheets with the related liability for unrecognized tax benefits.
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 completed service prior to January 1, 2003 (the Pension Plan). The assumptions
used, in particular the discount rate, can have a significant effect on the amount of pension
liability recorded by the Company. The discount rate is used to estimate the present value of
projected benefit obligations at each valuation date. The Company evaluates the discount rate
annually and adjusts the rate based upon current market conditions. For the Pension Plan, the
discount rate is estimated using a portfolio of high quality corporate bond yields (rated Aa or
higher by Moodys Investors Services) or Standard & Poors which matches the projected benefit
payments and duration of obligations for participants in the Pension
Plan. The Company believes that a discount rate of 5.20% for Fiscal
2011 reasonably reflects current market conditions and the characteristics of the Pension Plan.
The discount rate for Fiscal 2011 represents a decrease from the discount rates for Fiscal 2010
(5.8%) and Fiscal 2009 (6.1%), in line with the general decline in interest rates over that period.
All other factors being equal, an increase or decrease of 1% in the discount rate would have
resulted in an increase/decrease of approximately $17.6 million in pension expense for Fiscal 2011.
The Companys estimated long-term rate of return on Pension Plan assets for Fiscal 2011 (used
to determine estimated pension expense for interim periods in the year ending December 29, 2012) is
7.0%, which is based upon (i) the actual net returns realized by the Pension Plans assets from
September 2002 to December 31, 2011 and (ii) the return expected to be earned in the future, based
on a model that incorporates long-term capital market return expectations, weighted to reflect a
managed portfolio that includes the targeted mix of Pension Plan assets. Such estimated future rate
of return is reduced to reflect administrative expenses that are associated with providing plan
benefits that are expected to be paid by the Pension Plan. All other factors being equal, a 1%
increase/decrease in the actual return earned on Pension Plan assets would have resulted in a
decrease/increase of approximately $1.2 million in pension expense for Fiscal 2011.
The investments of the Pension Plan, consisting of equity and fixed income securities, are
stated at fair value based upon quoted market prices or other observable inputs, if available. The
Pension Plan also invests in certain funds or asset pools that are managed by investment managers
for which no quoted market price is available. These investments are valued at estimated fair
value based on the net asset valuations as reported by each funds administrators to the Pension
Plan trustee. These amounts may differ significantly from the value that would have been reported
had a quoted market price been available for each underlying investment or the individual asset
pool in total (see Note 7 of Notes to Consolidated Financial Statements for more information
regarding valuation of the Pension Plans investments).
Effective January 1, 2003, the Pension Plan was amended and, as a result, no future benefits
accrue to participants in the
Pension Plan. As a result of the amendment, the Company has not recorded pension expense
related to current service for all periods presented and will not record pension expense for
current service for any future period.
39
The Company uses a method that accelerates recognition of gains or losses which are a result
of (i) changes in projected benefit obligations related to changes in actuarial assumptions and
(ii) returns on plan assets that are above or below the projected asset return rate (Accelerated
Method) to account for its defined benefit pension plans. The projected asset return rate for
Fiscal 2011 was 7%, which will be used to determine estimated pension expense for interim periods
in the year ending December 29, 2012. The Company
has recorded pension obligations equal to the difference between the plans projected benefit
obligations and the fair value of plan assets in each fiscal year since the adoption of the
Accelerated Method. The Company believes the Accelerated Method is preferable because the pension
liability using the Accelerated Method approximates fair value.
The Company recognizes one-quarter of its estimated annual pension expense (income) in each of
its first three fiscal quarters. Estimated pension expense (income) consists of the interest cost
on projected benefit obligations for the Pension Plan, offset by the expected return on pension
plan assets. The Company records the effect of any changes in actuarial assumptions (including
changes in the discount rate from one fiscal year to the next) and the difference between the
assumed rate of return on plan assets and the actual return on plan assets in the fourth quarter of
its fiscal year. The Companys use of the Accelerated Method results in increased volatility in
reported pension expense and therefore the Company reports pension income/expense on a separate
line in its consolidated statement of operations. The Company recognizes the funded status of its
pension and other post-retirement benefit plans in the statement of financial position.
The Company makes annual contributions to all of its defined benefit pension plans that are at
least equal to the minimum required contributions and any other premiums due under the Employee
Retirement Income Security Act of 1974, as amended, the U.S. Internal Revenue Code of 1986, as
amended and the Pension Protection Act of 2006 (the PPA). The Company, in consultation with its
actuary, must calculate the minimum required contribution for the current and future years based
upon costs, liabilities and participant data of the Pension Plan as well as actuarial assumptions,
including discount rates and mortality tables. The Companys cash contribution to the Pension Plan
during Fiscal 2011 was $9.4 million and is expected to be approximately $20.6 million in the fiscal
year ending December 29, 2012. See Note 7 of Notes to Consolidated Financial Statements.
Stock-Based Compensation The Company uses the Black-Scholes-Merton model to calculate the
fair value of stock option awards. The Black-Scholes-Merton model uses assumptions which involve
estimating future uncertain events. The Company is required to make significant judgments regarding
these assumptions, the most significant of which are the stock price volatility, the expected life
of the option award and the risk-free rate of return.
|
|
|
In determining the stock price volatility assumption used, the Company considers
the historical volatility of its stock price, based upon daily quoted market prices
of Common Stock on the New York Stock Exchange and, prior to May 15, 2008, on the
NASDAQ Stock Market LLC, over a period equal to the expected term of the related
equity instruments. The Company relies only on historical volatility since it
provides the most reliable indication of future volatility. Future volatility is
expected to be consistent with historical; historical volatility is calculated using
a simple average calculation method; historical data is available for the length of
the options expected term and a sufficient number of price observations are used
consistently. Since the Companys stock options are not traded on a public market,
the Company does not use implied volatility. A higher volatility input to the
Black-Scholes-Merton model increases the resulting compensation expense. |
|
|
|
|
Expected option life is the period of time from the grant date to the date on
which an option is expected to be exercised. The Company used historical data to
calculate expected option life (which yielded an expected life of 4.1 years, 4.2
years and 3.72 years for options granted in Fiscal 2011, Fiscal 2010 and Fiscal
2009, respectively). A shorter expected term would result in a lower compensation
expense. |
|
|
|
|
The Companys risk-free rate of return assumption for options granted in Fiscal
2011, Fiscal 2010 and Fiscal 2009 was equal to the quoted yield for U.S. treasury
bonds as of the date of grant. |
Compensation expense related to stock option grants is determined based on the fair value of
the stock option on the grant date and is recognized over the vesting period of the grants on a
straight-line basis. Compensation expense related to restricted stock grants is determined based on
the fair value of the underlying stock on the grant date and recognized over the vesting period of
the grants on a straight-line basis (see below for additional factors related to recognition of
compensation expense). The Company applies a forfeiture rate to the number of unvested awards in
each reporting period in order to estimate the number of awards that are expected to vest.
Estimated forfeiture rates are based upon historical data of awards that were cancelled prior to
vesting. The Company adjusts the total amount of compensation cost recognized for each award, in
the period in which each award vests, to reflect the actual forfeitures related to that award.
Changes in the Companys estimated forfeiture rate will result in changes in the rate at which
compensation cost for an award is recognized over its vesting period.
40
On an annual basis, beginning in March 2010, share-based compensation awards granted to
certain of the Companys executives under the 2005 Stock Incentive Plan included performance-based
restricted stock/restricted unit awards (Performance Awards) in addition to the service-based
stock options and restricted stock awards of the types that had been granted in previous periods.
See Note 13 of Notes to Consolidated Financial Statements. The Performance Awards cliff-vest three
years after the grant date and are subject to the same vesting provisions as awards of the
Companys regular service-based restricted stock/restricted unit awards. The final number of
Performance Awards that will be earned, if any, at the end of the three-year vesting period will be
the greatest number of shares based on the Companys achievement of certain goals relating to
cumulative earnings per share growth (a performance condition) or 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)) (a market
condition) measured from the beginning of the fiscal year of grant to the end of the fiscal year
that is three years later (the Measurement Period). The total number of Performance Awards earned
could equal up to 150% of the number of Performance Awards originally granted, depending on the
level of achievement of those goals during the Measurement Period.
The Company records stock-based compensation expense related to the Performance Awards ratably
over the requisite service period based on the greater of the estimated expense calculated under
the performance condition or the grant date fair value calculated under the market condition.
Stock-based compensation expense related to an award with a market condition is recognized over the
requisite service period regardless of whether the market condition is satisfied, provided that the
requisite service period has been completed. Under the performance condition, the estimated 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
($3.2 million for the March 2011 Performance Awards and $2.4 million for the March 2010 Performance
Awards) is based upon a Monte Carlo simulation model, which encompasses TSRs during the
Measurement Period, including both the period from the beginning of the fiscal year of grant to the
grant date for which actual TSRs are calculated, and the period from the grant date to the end of
the Measurement Period (the Remaining Measurement Period), for which simulated TSRs are
calculated.
In calculating the fair value of the award under the market condition, the Monte Carlo
simulation model utilizes multiple input variables over the Measurement Period in order to
determine the probability of satisfying the market condition stipulated in the award. The Monte
Carlo simulation model computed simulated TSRs for the Company and Peer Companies during the
Remaining Measurement Period with the following inputs: (i) stock price on the grant date (ii)
expected volatility; (iii) risk-free interest rate; (iv) dividend yield and (v) correlations of
historical common stock returns between the Company and the Peer Companies and among the Peer
Companies. Expected volatilities utilized in the Monte Carlo model are based on historical
volatility of the Companys and the Peer Companies stock prices over a period equal in length to
that of the Remaining Measurement Period. The risk-free interest rate is derived from the U.S.
Treasury yield curve in effect at the time of grant with a term equal to the Measurement Period
assumption at the time of grant.
In addition, beginning in March 2010, for certain employee stock-based compensation awards,
the Companys Compensation Committee approved the incorporation of a Retirement Eligibility feature
such that an employee who has attained the age of 60 years with at least five years of continuous
employment with the Company will be deemed to be Retirement Eligible. Awards granted to
Retirement Eligible employees will continue to vest even if the employees employment with the
Company is terminated prior to the awards vesting date (other than for cause, and provided the
employee does not engage in a competitive activity). As in previous years, awards granted to all
other employees (i.e. those who are not Retirement Eligible) will cease vesting if the employees
employment with the Company is terminated prior to the awards vesting date. Stock-based
compensation expense is recognized over the requisite service period associated with the related
equity award. For Retirement Eligible employees, the requisite service period is either the grant
date or the period from the grant date to the Retirement-Eligibility date (in the case where the
Retirement Eligibility date precedes the vesting date). For all other employees (i.e. those who are
not Retirement Eligible), as in previous years, the requisite service period is the period from the
grant date to the vesting date. The Retirement Eligibility feature was not applied to awards issued
prior to March 2010. The increase in stock-based compensation expense recorded during Fiscal 2010
of approximately $8.1 million, from Fiscal 2009, is primarily related to the Retirement Eligibility
feature described above.
Acquisitions
See Note 2 of Notes to Consolidated Financial Statements.
Dispositions and Discontinued Operations
See Note 3 of Notes to Consolidated Financial Statements
41
Results of Operations
Statement of Operations (Selected Data)
The following tables summarize the historical results of operations of the Company for Fiscal
2011, Fiscal 2010 and Fiscal 2009. The results of the Companys discontinued operations are
included in Loss from discontinued operations, net of taxes for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
% of Net |
|
|
Fiscal |
|
|
% of Net |
|
|
Fiscal |
|
|
% of Net |
|
|
|
2011 |
|
|
Revenues |
|
|
2010 |
|
|
Revenues |
|
|
2009 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Net revenues |
|
$ |
2,513,388 |
|
|
|
100.0 |
% |
|
$ |
2,295,751 |
|
|
|
100.0 |
% |
|
$ |
2,019,625 |
|
|
|
100.0 |
% |
Cost of goods sold |
|
|
1,412,446 |
|
|
|
56.2 |
% |
|
|
1,275,788 |
|
|
|
55.6 |
% |
|
|
1,155,278 |
|
|
|
57.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,100,942 |
|
|
|
43.8 |
% |
|
|
1,019,963 |
|
|
|
44.4 |
% |
|
|
864,347 |
|
|
|
42.8 |
% |
Selling, general and administrative expenses |
|
|
844,696 |
|
|
|
33.6 |
% |
|
|
758,053 |
|
|
|
33.0 |
% |
|
|
638,907 |
|
|
|
31.6 |
% |
Amortization of intangible assets |
|
|
47,957 |
|
|
|
1.9 |
% |
|
|
11,549 |
|
|
|
0.5 |
% |
|
|
11,032 |
|
|
|
0.5 |
% |
Pension expense |
|
|
26,744 |
|
|
|
1.1 |
% |
|
|
2,550 |
|
|
|
0.1 |
% |
|
|
20,873 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
181,545 |
|
|
|
7.2 |
% |
|
|
247,811 |
|
|
|
10.8 |
% |
|
|
193,535 |
|
|
|
9.6 |
% |
Other loss |
|
|
631 |
|
|
|
|
|
|
|
6,238 |
|
|
|
|
|
|
|
1,889 |
|
|
|
|
|
Interest expense |
|
|
16,274 |
|
|
|
|
|
|
|
14,483 |
|
|
|
|
|
|
|
23,897 |
|
|
|
|
|
Interest income |
|
|
(3,361 |
) |
|
|
|
|
|
|
(2,815 |
) |
|
|
|
|
|
|
(1,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes and noncontrolling interest |
|
|
168,001 |
|
|
|
|
|
|
|
229,905 |
|
|
|
|
|
|
|
168,997 |
|
|
|
|
|
Provision for income taxes |
|
|
36,006 |
|
|
|
|
|
|
|
82,107 |
|
|
|
|
|
|
|
64,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before noncontrolling
interest |
|
|
131,995 |
|
|
|
|
|
|
|
147,798 |
|
|
|
|
|
|
|
104,725 |
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
(4,802 |
) |
|
|
|
|
|
|
(9,217 |
) |
|
|
|
|
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
127,193 |
|
|
|
|
|
|
|
138,581 |
|
|
|
|
|
|
|
98,498 |
|
|
|
|
|
Less: Net income (loss) attributable to the
noncontrolling interest |
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. |
|
$ |
127,450 |
|
|
|
|
|
|
$ |
138,581 |
|
|
|
|
|
|
$ |
95,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Warnaco Group Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations, net of tax |
|
$ |
132,252 |
|
|
|
|
|
|
$ |
147,798 |
|
|
|
|
|
|
$ |
102,225 |
|
|
|
|
|
Discontinued operations, net of tax |
|
|
(4,802 |
) |
|
|
|
|
|
|
(9,217 |
) |
|
|
|
|
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
127,450 |
|
|
|
|
|
|
$ |
138,581 |
|
|
|
|
|
|
$ |
95,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Fiscal 2011 to Fiscal 2010
Net Revenues
For Fiscal 2011 compared to Fiscal 2010, respectively, 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 for a decline in net revenues for Fiscal 2011 in the
wholesale channel of the Sportswear Group. In addition, the Company experienced an increase in net
revenues in the U.S., Asia, Europe, in Mexico and Central and South America and in Canada for
Fiscal 2011 relative to Fiscal 2010. This information is presented in the following tables:
Net revenues by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
$ % |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
Change |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
1,305,769 |
|
|
$ |
1,204,065 |
|
|
$ |
101,704 |
|
|
|
8.4 |
% |
|
|
5.6 |
% |
Intimate Apparel Group |
|
|
932,131 |
|
|
|
834,010 |
|
|
|
98,121 |
|
|
|
11.8 |
% |
|
|
9.2 |
% |
Swimwear Group |
|
|
275,488 |
|
|
|
257,676 |
|
|
|
17,812 |
|
|
|
6.9 |
% |
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
2,513,388 |
|
|
$ |
2,295,751 |
|
|
$ |
217,637 |
|
|
|
9.5 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Net revenues by channel of distribution were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
United States wholesale |
|
|
|
|
|
|
|
|
Department stores and independent retailers |
|
|
8 |
% |
|
|
10 |
% |
Specialty stores |
|
|
7 |
% |
|
|
7 |
% |
Chain stores |
|
|
7 |
% |
|
|
7 |
% |
Mass merchandisers |
|
|
2 |
% |
|
|
2 |
% |
Membership clubs |
|
|
5 |
% |
|
|
6 |
% |
Off price and other |
|
|
11 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
Total United States wholesale |
|
|
40 |
% |
|
|
43 |
% |
International wholesale |
|
|
31 |
% |
|
|
32 |
% |
Retail (a) |
|
|
29 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
Net revenues consolidated |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
(a) |
|
for Fiscal 2011 and Fiscal 2010, 98.3% and 97.5%, respectively, of retail net
revenues were derived from the Companys international operations. |
Net revenues by geography were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant $ |
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
% Change |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
% Change |
|
|
(a) |
|
|
|
(in thousands of dollars) |
|
United States |
|
$ |
1,013,239 |
|
|
$ |
1,008,167 |
|
|
$ |
5,072 |
|
|
|
0.5 |
% |
|
|
0.5 |
% |
Europe |
|
|
628,094 |
|
|
|
576,644 |
|
|
|
51,450 |
|
|
|
8.9 |
% |
|
|
4.0 |
% |
Asia |
|
|
499,499 |
|
|
|
391,264 |
|
|
|
108,235 |
|
|
|
27.7 |
% |
|
|
23.0 |
% |
Mexico, Central and South America |
|
|
240,262 |
|
|
|
188,217 |
|
|
|
52,045 |
|
|
|
27.7 |
% |
|
|
23.9 |
% |
Canada |
|
|
132,294 |
|
|
|
131,459 |
|
|
|
835 |
|
|
|
0.6 |
% |
|
|
-3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,513,388 |
|
|
$ |
2,295,751 |
|
|
$ |
217,637 |
|
|
|
9.5 |
% |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
constant dollar percentage change is a non-GAAP measure. See Non-GAAP Measures, above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
% Change |
|
|
|
(in thousands of dollars) |
Wholesale |
|
$ |
1,786,942 |
|
|
$ |
1,729,077 |
|
|
$ |
57,865 |
|
|
|
3.3 |
% |
Retail |
|
|
726,446 |
|
|
|
566,674 |
|
|
|
159,772 |
|
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,513,388 |
|
|
$ |
2,295,751 |
|
|
$ |
217,637 |
|
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of retail stores operated by the Company at December 31, 2011 and January 1,
2011 was as follows:
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Segments / Brands |
|
Asia |
|
|
Europe |
|
|
Americas |
|
|
Total |
|
|
Asia |
|
|
Europe |
|
|
Americas |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear-Calvin Klein Jeans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Owned Full Price Stores |
|
|
80 |
|
|
|
54 |
|
|
|
20 |
|
|
|
154 |
|
|
|
46 |
|
|
|
41 |
|
|
|
16 |
|
|
|
103 |
|
Number of Owned Outlet Stores |
|
|
11 |
|
|
|
45 |
|
|
|
1 |
|
|
|
57 |
|
|
|
10 |
|
|
|
42 |
|
|
|
1 |
|
|
|
53 |
|
Number of Concession /
Shop-in-shop Stores |
|
|
281 |
|
|
|
117 |
|
|
|
|
|
|
|
398 |
|
|
|
219 |
|
|
|
87 |
|
|
|
|
|
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Stores |
|
|
372 |
|
|
|
216 |
|
|
|
21 |
|
|
|
609 |
|
|
|
275 |
|
|
|
170 |
|
|
|
17 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel-Calvin Klein
Underwear |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Owned Full Price Stores |
|
|
50 |
|
|
|
26 |
|
|
|
33 |
|
|
|
109 |
|
|
|
39 |
|
|
|
16 |
|
|
|
31 |
|
|
|
86 |
|
Number of Owned Outlet Stores |
|
|
8 |
|
|
|
41 |
|
|
|
12 |
|
|
|
61 |
|
|
|
6 |
|
|
|
41 |
|
|
|
18 |
|
|
|
65 |
|
Number of Concession /
Shop-in-shop Stores |
|
|
258 |
|
|
|
467 |
|
|
|
62 |
|
|
|
787 |
|
|
|
176 |
|
|
|
390 |
|
|
|
|
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Stores |
|
|
316 |
|
|
|
534 |
|
|
|
107 |
|
|
|
957 |
|
|
|
221 |
|
|
|
447 |
|
|
|
49 |
|
|
|
717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear-Calvin Klein Swimwear |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Owned Full Price Stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Owned Outlet Stores |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Concession /
Shop-in-shop Stores |
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Stores |
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Owned Full Price Stores |
|
|
130 |
|
|
|
80 |
|
|
|
53 |
|
|
|
263 |
|
|
|
85 |
|
|
|
57 |
|
|
|
47 |
|
|
|
189 |
|
Number of Owned Outlet Stores |
|
|
19 |
|
|
|
86 |
|
|
|
13 |
|
|
|
118 |
|
|
|
16 |
|
|
|
83 |
|
|
|
19 |
|
|
|
118 |
|
Number of Concession /
Shop-in-shop Stores |
|
|
539 |
|
|
|
775 |
|
|
|
62 |
|
|
|
1,376 |
|
|
|
395 |
|
|
|
655 |
|
|
|
|
|
|
|
1,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Stores |
|
|
688 |
|
|
|
941 |
|
|
|
128 |
|
|
|
1,757 |
|
|
|
496 |
|
|
|
795 |
|
|
|
66 |
|
|
|
1,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Square Footage (thousands) |
|
|
449.2 |
|
|
|
516.4 |
|
|
|
121.4 |
|
|
|
1087.0 |
|
|
|
281.4 |
|
|
|
450.8 |
|
|
|
123.1 |
|
|
|
855.3 |
|
|
|
|
* |
|
In addition to the stores above, the Company operated one Calvin Klein Jeans on-line store, one
Calvin Klein Underwear on- line store and one Speedo on-line store as of December 31, 2011 and
January 1, 2011. |
The effect of fluctuations in foreign currency exchange rates on net revenues was an increase
of $59.0 million for Fiscal 2011 compared to Fiscal 2010. See Overview, above.
During Fiscal 2011, the Companys top five customers accounted for $548.6 million (21.8% of
Company net revenue) as compared to $490.3 million (21.4% of Company net revenue) for Fiscal 2010.
During Fiscal 2011 and Fiscal 2010, no one customer accounted for 10% or more of the Companys net
revenues.
Sportswear Group
Sportswear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
684,009 |
|
|
$ |
684,036 |
|
|
$ |
(27 |
) |
|
|
0.0 |
% |
Chaps |
|
|
199,536 |
|
|
|
208,132 |
|
|
|
(8,596 |
) |
|
|
-4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
883,545 |
|
|
|
892,168 |
|
|
|
(8,623 |
) |
|
|
-1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear retail |
|
|
422,224 |
|
|
|
311,897 |
|
|
|
110,327 |
|
|
|
35.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) |
|
$ |
1,305,769 |
|
|
$ |
1,204,065 |
|
|
$ |
101,704 |
|
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes net revenues of $151.8 million and $131.5 million for Fiscal 2011 and Fiscal 2010,
respectively, related to the Calvin Klein accessories business in Europe, Asia, Canada and in
Mexico and Central and South America. Those amounts include net revenues of Calvin Klein bridge accessories in Europe of $59.1
million and $49.0 million for Fiscal 2011 and Fiscal 2010, respectively. See Note 4 of Notes
to Consolidated Financial Statements Restructuring and Other Exit Costs for a discussion
of the Companys and CKIs intention for the Company to discontinue operation of the bridge
business.
|
|
|
Fiscal 2011 compared to Fiscal 2010 |
Sportswear Group net revenues increased $101.7 million to $1.3 billion for Fiscal 2011 from
$1.2 billion for Fiscal 2010. Sportswear Group net revenues from international operations
increased $136.1 million and from domestic operations decreased $34.4 million. The increase in
international net revenues includes a $34.8 million increase due to the favorable effect of
fluctuations in certain foreign currency exchange rates. See Overview, above.
44
Net revenues from Calvin Klein Jeans increased $110.3 million overall. Wholesale sales of
Calvin Klein Jeans were substantially unchanged (including an increase of $23.3 million from
international operations, offset by a $23.3 million decline in the
U.S.). The increase in international wholesale net revenues was primarily driven by increases of
$30.0 million in Mexico and Central and South America and $12.0 million in Asia, partially offset
by a decrease of $19.4 million in Europe and was primarily due (in constant currency) to the
following:
|
(i) |
|
an increase in sales in Mexico and Central and South America to department
and specialty stores, including new customers, an increase in new product offerings
and increased sales among existing customers; and |
|
(ii) |
|
a net increase in Asia primarily due to (a) the expansion of the
distribution network in the Peoples Republic of China, partially offset by (b) a
decline in sales in other regions of Asia and (c) the conversion of the Companys
wholesale businesses in the Peoples Republic of China and Singapore (in the second
quarter of Fiscal 2010), Taiwan (January 2011) and India (July 2011) to retail
businesses as a result of the acquisition of distributors businesses in those
regions. |
|
|
|
Those increases were partially offset by: |
|
(iii) |
|
a decrease in Europe primarily due to decreased sales of Calvin Klein
Jeans and accessories to department, specialty and independent stores and
distributors and to the off-price channel, 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. In addition, the Company believes that deteriorating
macro-economic conditions, particularly in southern Europe combined with a less than
favorable reception of the Companys product offerings at retail negatively impacted
net revenues. |
The decrease in the U.S. was primarily due to decreased sales to department stores and membership
clubs, which is reflective of continuing weakness in the
Companys business. That decrease was partially offset by an
increase in sales to customers in the off-price
channel.
Net revenues from Calvin Klein Jeans retail sales increased $110.3 million (including
increases of $57.2 million in Asia, $45.9 million in Europe and $8.5 million in Mexico, Central and
South America). The increase in retail net revenues was primarily due (in constant currency) to
the addition of new stores opened by the Company and new stores acquired by the Company (including
stores acquired in Taiwan during the first quarter of Fiscal 2011, in India during the third
quarter of Fiscal 2011 and in Italy during the fourth quarter of Fiscal 2010), coupled with a 3.6%
increase in comparable store sales ($242.0 million for Fiscal 2011 and $233.7 million for Fiscal
2010).
Net revenues from Chaps decreased $8.6 million. The decrease primarily reflects (i) a decrease
of $10.3 million in the U.S. primarily due to a decrease in sales to the off-price channel and an
increase in the level of customer allowances, especially to chain stores, partially offset by (ii)
increased sales to department stores. The decrease in the U.S. was partially offset by an increase
in net revenues in Mexico of $1.9 million due primarily to increased sales among existing
department store and membership club customers.
Intimate Apparel Group
Intimate Apparel Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Underwear |
|
$ |
469,413 |
|
|
$ |
431,706 |
|
|
$ |
37,707 |
|
|
|
8.7 |
% |
Core Intimates |
|
|
176,860 |
|
|
|
164,212 |
|
|
|
12,648 |
|
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
646,273 |
|
|
|
595,918 |
|
|
|
50,355 |
|
|
|
8.4 |
% |
Calvin Klein Underwear retail |
|
|
285,858 |
|
|
|
238,092 |
|
|
|
47,766 |
|
|
|
20.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
932,131 |
|
|
$ |
834,010 |
|
|
$ |
98,121 |
|
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 compared to Fiscal 2010
Intimate Apparel Group net revenues increased $98.1 million to $932.1 million for Fiscal 2011
from $834.0 million for Fiscal 2010. Intimate Apparel Group net revenues from international
operations increased $69.8 million and from domestic
operations increased $28.3 million. The increase in international net revenues includes a
$21.2 million increase due to the favorable effect of fluctuations in foreign currency exchange
rates. See Overview, above.
45
Net revenues from Calvin Klein Underwear increased $85.5 million overall and reflects the
successful global launch of the ck
one product line of Calvin Klein underwear for men and women during the first quarter of Fiscal
2011. Calvin Klein Underwear wholesale sales increased $37.7 million, reflecting increases of $21.4
million from international operations and an increase of $16.3 million in the U.S. The increase in
international wholesale net revenue was primarily driven by increases of $7.9 million in Europe,
$6.9 million in Mexico and Central and South America and $6.3 million in Asia and was primarily due
(in constant currency) to the following:
|
(i) |
|
in Europe, primarily due to increased sales to customers in department stores and
independent stores, including new launches of womens products, partially offset by an
increase in customer allowances. In addition, the Company believes that deteriorating
macro-economic conditions in southern Europe negatively impacted net revenues; |
|
(ii) |
|
in Mexico and Central and South America, primarily due to increased sales to
department stores and specialty stores, including an increase in new product offerings
and increased sales among existing customers, and an increase in sales to distributors;
and |
|
(iii) |
|
in Asia primarily due to (a) the expansion of the distribution network in the
Peoples Republic of China and other regions of Asia, partially offset by (b) the
conversion of the Companys wholesale businesses in the Peoples Republic of China and
Singapore (in the second quarter of Fiscal 2010), Taiwan (January 2011) and India (July
2011) to retail businesses as a result of the acquisition of distributors businesses in
those regions. |
The increase in the U.S. was primarily due to increased sales volume of mens products in the
department store, off-price, specialty and outlet channels and increased sales volume of womens
products in membership clubs, partially offset by a decrease in sales volume of womens products in
department stores and by an increase in customer allowances.
Net revenues from Calvin Klein Underwear retail sales increased $47.8 million (primarily
related to increases of $32.5 million in Asia and $13.3 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 first quarter
of Fiscal 2011, in India during the third quarter of Fiscal 2011 and in Italy during the fourth
quarters of Fiscal 2010) and to a 4.6% increase in comparable store sales ($200.6 million for
Fiscal 2011 and $191.7 million for Fiscal 2010).
Net revenues from Core Intimates increased $12.6 million. The increase primarily reflects an
increase in sales in the U.S. primarily due to a larger volume of new product launches during
Fiscal 2011 than in Fiscal 2010 as well as higher sales volumes in membership clubs, chain stores
and the off-price channel. In addition, in Mexico, sales of Core Intimates increased to department
stores and membership clubs, including as a result of the introduction of new products.
Swimwear Group
Swimwear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
229,270 |
|
|
$ |
217,499 |
|
|
$ |
11,771 |
|
|
|
5.4 |
% |
Calvin Klein |
|
|
27,854 |
|
|
|
23,492 |
|
|
|
4,362 |
|
|
|
18.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
257,124 |
|
|
|
240,991 |
|
|
|
16,133 |
|
|
|
6.7 |
% |
Swimwear retail (a) |
|
|
18,364 |
|
|
|
16,685 |
|
|
|
1,679 |
|
|
|
10.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
275,488 |
|
|
$ |
257,676 |
|
|
$ |
17,812 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes $10.0 million and $7.4 million for Fiscal 2011 and Fiscal 2010, respectively,
related to Calvin Klein retail swimwear. |
Fiscal 2011 compared to Fiscal 2010
Swimwear Group net revenues increased $17.8 million to $275.5 million for Fiscal 2011 from
$257.7 million for Fiscal 2010. Swimwear Group net revenues from international operations
increased $6.7 million and from domestic operations increased $11.1
million. The increase in international net revenues includes a $3.0 million increase due to
the favorable effect of fluctuations in foreign currency exchange rates. See Overview, above.
46
Net revenues from Speedo wholesale increased $11.8 million, which primarily represented an
increase of $11.1 million in the U.S., primarily due to increased sales to membership clubs, mass
merchandisers and specialty stores and discounters, partially offset by an increase in customer
allowances.
Net revenues from Calvin Klein swimwear wholesale increased $4.4 million, primarily due to
increased sales, in Europe to the off-price channel, in Mexico and Central and South America to
specialty stores and distributors, and in the U.S., to membership clubs and department stores,
partially offset by lower sales volume to discounters.
The $1.6 million increase in net revenues from Swimwear retail included a 7.4% increase in
comparable store sales ($7.7 million for Fiscal 2011 and $7.2 million for Fiscal 2010).
Gross Profit
Gross profit was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of Brand |
|
|
|
Fiscal 2011 |
|
|
Net Revenues |
|
|
Fiscal 2010 |
|
|
Net Revenues |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
557,284 |
|
|
|
42.7 |
% |
|
$ |
516,080 |
|
|
|
42.9 |
% |
Intimate Apparel Group |
|
|
443,305 |
|
|
|
47.6 |
% |
|
|
416,700 |
|
|
|
50.0 |
% |
Swimwear Group |
|
|
100,353 |
|
|
|
36.4 |
% |
|
|
87,183 |
|
|
|
33.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
1,100,942 |
|
|
|
43.8 |
% |
|
$ |
1,019,963 |
|
|
|
44.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 compared to Fiscal 2010
Gross profit was $1.10 billion, or 43.8% of net revenues, for Fiscal 2011 compared to $1.02
billion, or 44.4% of net revenues, for Fiscal 2010. The $81.0 million (8.0%) increase in gross
profit was primarily related to growth in the Companys retail businesses and increases in the
Companys wholesale businesses in Asia and Mexico, Central and South America, partially offset by
declines in the domestic and European Sportswear and Intimate Apparel wholesale businesses. During
Fiscal 2011, certain of the Companys businesses, particularly in the U.S., Asia and Europe,
experienced an increase in product and freight costs which negatively affected gross margins. The
Company was able to partially mitigate the cost increases in certain Asian markets by selectively
increasing the selling prices of its goods. Gross profit for Fiscal 2011 includes an increase of
$22.7 million due to the favorable effects of foreign currency fluctuations.
Sportswear Group gross profit increased $41.2 million, and gross margin decreased 20 basis
points, for Fiscal 2011 compared to Fiscal 2010, reflecting a $73.0 million increase in
international operations, partially offset by a $31.8 million decrease in the domestic business.
The increase in international operations primarily reflects increases in the Companys businesses
in Asia and Mexico, Central and South America (primarily reflective of the Companys expansion
initiatives in these regions), partially offset by declines in Europe which declines are primarily
reflective of an unfavorable wholesale sales mix, an increase in promotional discounts and an
increase in product costs. The acquisition and conversion of wholesale businesses to retail
businesses in Fiscal 2010 and Fiscal 2011 also contributed to the increase in international gross
profit. The decrease in the domestic business primarily reflects a reduction in both Calvin Klein
jeans and Chaps net revenues coupled with an increase in product costs, an unfavorable sales mix
and an increase in the level of customer allowances.
Intimate Apparel Group gross profit increased $26.6 million and gross margin decreased 240
basis points for Fiscal 2011 compared to Fiscal 2010, reflecting a $28.8 million increase in
international operations, partially offset by a $2.2 million decrease in the domestic business. The
decline in gross margin primarily reflects (i) an unfavorable sales mix in the U.S. and European
businesses; (ii) an increase in product costs and an increase in customer allowances in the
Companys businesses in the U.S., Europe and Mexico, Central and South America; partially offset by
(iii) the effect of a favorable sales mix in Asia and in Mexico and Central and South America.
47
Swimwear Group gross profit increased $13.2 million and gross margin increased 260 basis
points for Fiscal 2011 compared to Fiscal 2010, reflecting a $10.1 million increase in the domestic
business and a $3.1 million increase in international operations. The
increase in gross profit and gross margin primarily reflects an increase in Speedo net
revenues, lower production costs, and a favorable product mix.
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of Brand |
|
|
|
Fiscal 2011 |
|
|
Net Revenues |
|
|
Fiscal 2010 |
|
|
Net Revenues |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
430,173 |
|
|
|
32.9 |
% |
|
$ |
362,464 |
|
|
|
30.1 |
% |
Intimate Apparel
Group |
|
|
307,394 |
|
|
|
33.0 |
% |
|
|
280,897 |
|
|
|
33.7 |
% |
Swimwear Group |
|
|
72,280 |
|
|
|
26.2 |
% |
|
|
68,483 |
|
|
|
26.6 |
% |
Corporate |
|
|
34,849 |
|
|
na |
|
|
|
46,209 |
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A |
|
$ |
844,696 |
|
|
|
33.6 |
% |
|
$ |
758,053 |
|
|
|
33.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 compared to Fiscal 2010
Selling,
General and Administrative (SG&A) expenses increased $86.6 million to $844.7
million (33.6% of net revenues) for Fiscal 2011 compared to $758.0 million (33.0% of net
revenues) for Fiscal 2010. SG&A for Fiscal 2011 includes an increase of $28.1 million due to
the unfavorable effects of foreign currency fluctuations, including a total of $7.7 million
of additional expense due to foreign exchange losses noted below in administrative expenses
for the Sportswear Group, the Intimate Apparel Group and for Corporate activities.
The
$67.7 million increase in Sportswear Group SG&A for Fiscal 2011 compared to Fiscal 2010
includes:
|
(i) |
|
an increase of $56.1 million in selling and distribution expenses primarily
associated with the opening and acquisition of additional retail stores in Europe, Asia
and in Mexico and Central and South America, partially offset by the elimination of
duplicative costs in Fiscal 2011 through the consolidation of the distribution centers
in Europe during Fiscal 2010; |
|
(ii) |
|
an increase of $2.6 million in marketing expenses, primarily related to a
contractual increase in advertising costs due to increased sales; and |
|
(iii) |
|
an increase in administrative expenses of $9.0 million, primarily related to an
increase in restructuring charges of $8.0 million (see Note 4 of Notes to Consolidated
Financial Statements), additional expense due to foreign exchange losses ($4.3 million)
and other general administrative expenses ($1.9 million), partially offset by decreases
in employee compensation ($3.3 million) and acquisition expense ($1.9 million). |
The $26.5 million increase in Intimate Apparel Group SG&A for Fiscal 2011 compared to Fiscal
2010 includes:
|
(i) |
|
an increase of $27.5 million in selling and distribution expenses primarily
associated with the opening and acquisition of additional retail stores in Europe, Asia
and in Mexico and Central and South America, partially offset by the elimination of
duplicative costs in Fiscal 2011 through the consolidation of the distribution centers
in Europe during Fiscal 2010; |
|
(ii) |
|
a decrease of $5.1 million in marketing expenses, primarily related to the global
launch of the ck one product line of mens and womens underwear during the first
quarter of Fiscal 2011, compared to higher expenditures related to the Companys Calvin
Klein X product line of mens underwear, which was launched during the second and third
quarters of Fiscal 2010, and the Calvin Klein Envy product line of womens underwear,
which was launched during the third and fourth quarters of Fiscal 2010; and |
|
(iii) |
|
an increase in administrative expenses of $4.1 million, primarily related to
increases in restructuring charges of $2.5 million (see Note 4 of Notes to Consolidated
Financial Statements) and other general administrative expenses ($2.8
million) and additional expense due to foreign exchange losses ($1.6 million),
partially offset by a gain of $2.0 million on the sale of the Companys Nancy Ganz
trademarks in Australia and New Zealand during Fiscal 2011 (see Note 5 of Notes to
Consolidated Financial Statements) and a decrease in employee compensation ($0.8
million). |
48
The $3.8 million increase in Swimwear Group SG&A for Fiscal 2011 compared to Fiscal 2010
includes:
|
(i) |
|
an increase of $0.7 million in selling and distribution expenses primarily
associated with the opening and acquisition of additional retail stores in Europe, Asia
and in Mexico and Central and South America; |
|
(ii) |
|
an increase of $1.8 million in marketing expenses, primarily related to increased
advertising in the U.S.; and |
|
(iii) |
|
an increase in administrative expenses of $1.3 million, primarily related to an
increase in restructuring charges of $3.7 million (see Note 4 of Notes to Consolidated
Financial Statements), partially offset by decreases in employee compensation ($1.6
million) and other general administrative expenses ($0.8 million). |
In addition, the $11.4 million decrease in SG&A related to corporate activities that are not
allocated to the three segments for Fiscal 2011 compared to Fiscal 2010 primarily includes net
decreases in employee compensation ($9.2 million) and other general administrative and professional
fees ($4.0 million), partially offset by an increase in expense due to foreign exchange losses
($1.8 million).
Amortization of Intangible Assets
Amortization of intangible assets was $47.9 million for Fiscal 2011 compared to $11.5 million
for Fiscal 2010, including a non-cash impairment charge, included in restructuring expense, of $35.2
million in Fiscal 2011 related to the Companys CK/Calvin Klein bridge
licenses (see Note 10 of Notes to Consolidated Financial Statements
Intangible Assets and Goodwill).
Pension Expense
Pension expense was $26.7 million for Fiscal 2011 compared to pension expense of $2.6 million
for Fiscal 2010. See Note 7 of Notes to Consolidated Financial Statements and Liquidity and Capital
Resources Pension Plan, below.
Operating Income
The following table presents operating income by Group (segment):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Group Net |
|
|
|
|
|
|
Group Net |
|
|
|
Fiscal 2011 |
|
|
Revenues |
|
|
Fiscal 2010 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Sportswear Group (a) (b) |
|
$ |
80,641 |
|
|
|
6.2 |
% |
|
$ |
143,260 |
|
|
|
11.9 |
% |
Intimate Apparel Group (b) |
|
|
133,755 |
|
|
|
14.3 |
% |
|
|
134,928 |
|
|
|
16.2 |
% |
Swimwear Group (b) |
|
|
28,067 |
|
|
|
10.2 |
% |
|
|
18,698 |
|
|
|
7.3 |
% |
Unallocated corporate expenses (b)(c) |
|
|
(60,918 |
) |
|
na |
|
|
|
(49,075 |
) |
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (d) (e) (f) |
|
$ |
181,545 |
|
|
na |
|
|
$ |
247,811 |
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income as a percentage
of net revenue |
|
|
7.2 |
% |
|
|
|
|
|
|
10.8 |
% |
|
|
|
|
|
|
|
(a) |
|
includes a non-cash impairment charge of $35.2 million related
to the Companys CK/Calvin Klein bridge
licenses (see Note 4 of
Notes to Consolidated Financial Statements). |
|
(b) |
|
reflects the allocation of $9,892 of corporate expenses to the Sportswear Group
($6,924), Intimate Apparel Group ($3,796) and Swimwear Group (($828)), respectively,
during Fiscal 2010 to conform to the presentation for Fiscal 2011 (see Overview, above). |
|
(c) |
|
includes $26.1 million and $2.9 million related to pension expense. |
|
(d) |
|
includes approximately $60.9 million and $9.8 million for Fiscal 2011 and Fiscal
2010, respectively, related to restructuring expenses. See Note.4 of Notes to
Consolidated Financial Statements. |
|
(e) |
|
includes a gain of $2.0 million for Fiscal 2011 related to the sale and assignment
of the Companys Nancy Ganz trademarks in Australia and New Zealand to the Companys
former licensee for cash consideration of $2.0 million. |
|
(f) |
|
includes a gain of $1.6 million for Fiscal 2011 related to recovery of an insurance
claim related to a fire in a warehouse in Peru. |
The effect of fluctuations in the U.S. dollar relative to certain functional currencies
where the Company conducts certain of its operations for Fiscal 2011 compared to Fiscal 2010
resulted in a $5.4 million decrease in operating income (see Overview, above).
49
Sportswear Group
Sportswear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2011 (b) |
|
|
Revenues |
|
|
Fiscal 2010 (b) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
43,169 |
|
|
|
6.3 |
% |
|
$ |
100,343 |
|
|
|
14.7 |
% |
Chaps |
|
|
15,104 |
|
|
|
7.6 |
% |
|
|
23,925 |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
58,273 |
|
|
|
6.6 |
% |
|
|
124,268 |
|
|
|
13.9 |
% |
Sportswear retail |
|
|
22,368 |
|
|
|
5.3 |
% |
|
|
18,992 |
|
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) |
|
$ |
80,641 |
|
|
|
6.2 |
% |
|
$ |
143,260 |
|
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $45.9 million and $1.8 million for Fiscal 2011 and
Fiscal 2010, respectively. |
|
(b) |
|
includes an allocation of shared services expenses by brand as detailed below: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
17,628 |
|
|
$ |
18,039 |
|
Chaps |
|
|
7,888 |
|
|
|
8,128 |
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
25,516 |
|
|
|
26,167 |
|
Sportswear retail |
|
|
2,319 |
|
|
|
1,568 |
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
27,835 |
|
|
$ |
27,735 |
|
|
|
|
|
|
|
|
Fiscal 2011 compared to Fiscal 2010
Sportswear Group operating income decreased $62.6 million, or 43.7%, as reflected in the table
above. Sportswear Group operating income includes a decrease of $0.2 million related to
fluctuations in foreign currency exchange rates. The decrease in Sportswear Group operating income
reflects the changes in gross profit and SG&A described above.
Intimate Apparel Group
Intimate Apparel Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2011 (b) |
|
|
Revenues |
|
|
Fiscal 2010 (b) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
80,242 |
|
|
|
17.1 |
% |
|
$ |
82,915 |
|
|
|
19.2 |
% |
Core Intimates |
|
|
18,729 |
|
|
|
10.6 |
% |
|
|
17,226 |
|
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
98,971 |
|
|
|
15.3 |
% |
|
|
100,141 |
|
|
|
16.8 |
% |
Calvin Klein Underwear retail |
|
|
34,784 |
|
|
|
12.2 |
% |
|
|
34,787 |
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) |
|
$ |
133,755 |
|
|
|
14.3 |
% |
|
$ |
134,928 |
|
|
|
16.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $6.5 million and $3.6 million for Fiscal 2011 and
Fiscal 2010, respectively. |
|
(b) |
|
includes an allocation of shared services expenses by brand as detailed below: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
12,294 |
|
|
$ |
12,499 |
|
Core Intimates |
|
|
6,062 |
|
|
|
5,931 |
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
18,356 |
|
|
|
18,430 |
|
Calvin Klein Underwear retail |
|
|
1,451 |
|
|
|
1,082 |
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
19,807 |
|
|
$ |
19,512 |
|
|
|
|
|
|
|
|
50
Fiscal 2011 compared to Fiscal 2010
Intimate Apparel Group operating income for Fiscal 2011 decreased $1.2 million, or 0.9%, as
reflected in the table above. Intimate Apparel Group operating income includes a decrease of $5.2
million related to fluctuations in foreign currency exchange rates. The decrease in Intimate
Apparel Group operating income reflects the changes in gross profit and SG&A described above.
Swimwear Group
Swimwear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2011 (c) |
|
|
Revenues |
|
|
Fiscal 2010 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speedo |
|
$ |
26,465 |
|
|
|
11.5 |
% |
|
$ |
19,028 |
|
|
|
8.7 |
% |
Calvin Klein |
|
|
(1,801 |
) |
|
|
-6.5 |
% |
|
|
(2,826 |
) |
|
|
-12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
24,664 |
|
|
|
9.6 |
% |
|
|
16,202 |
|
|
|
6.7 |
% |
Swimwear retail (a) |
|
|
3,403 |
|
|
|
18.5 |
% |
|
|
2,496 |
|
|
|
15.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group (b) |
|
$ |
28,067 |
|
|
|
10.2 |
% |
|
$ |
18,698 |
|
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes $2.2 million and $1.3 million for Fiscal 2011 and Fiscal 2010, respectively
related to Calvin Klein retail swimwear. |
|
(b) |
|
includes restructuring charges of $7.5 million and $3.6 million for Fiscal 2011 and Fiscal
2010, respectively. |
|
(c) |
|
Includes an allocation of shared services expenses by brand in the following table: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
8,717 |
|
|
$ |
8,241 |
|
Calvin Klein |
|
|
800 |
|
|
|
608 |
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
9,517 |
|
|
|
8,849 |
|
Swimwear retail |
|
|
401 |
|
|
|
564 |
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
9,918 |
|
|
$ |
9,413 |
|
|
|
|
|
|
|
|
Fiscal 2011 compared to Fiscal 2010
Swimwear Group operating income for Fiscal 2011 increased $9.4 million, or 50.1%, as reflected
in the table above. Swimwear Group operating income includes a decrease of $0.2 million related to
fluctuations in foreign currency exchange rates. The increase in Swimwear Group operating income
reflects the changes in gross profit and SG&A described above.
Other Loss (Income)
Fiscal 2011 compared to Fiscal 2010
Other loss of $0.6 million for Fiscal 2011 reflects a loss on the current portion of
inter-company loans denominated in currency other than that of the foreign subsidiaries functional
currency that are not hedged with foreign exchange forward contracts, net of gains on foreign
currency exchange contracts designed as economic hedges (see Note 17 of Notes to Consolidated
Financial Statements). Other loss of $6.2 million for Fiscal 2010 primarily reflects a loss of
$3.7 million related to the redemption of $160.9 million of Senior Notes during Fiscal 2010 (see
Note 12 of Notes to Consolidated Financial Statements) and a loss on the current portion of
inter-company loans denominated in a currency other than that of the foreign subsidiaries
functional currency that are not hedged with foreign exchange forward contracts, partially offset
by a gain on foreign currency exchange contracts designed as economic hedges (see Note 17 of Notes
to Consolidated Financial Statements).
Interest Expense
Interest expense increased $1.8 million to $16.3 million for Fiscal 2011 from $14.5 million
for Fiscal 2010. The change primarily relates to fluctuations in the balances and interest rates on
the Companys debt facilities including (i) the 2011 Term Loan, which was entered into in June
2011; (ii) the CKJEA Notes payable (defined below); (iii) the 2008 Credit Agreements; (iv) the
Italian Note (defined below), which was entered into in the third quarter of Fiscal 2010 and repaid
in June 2011; (v) the Brazilian lines of credit; (vi) increases in interest expense arising from
maturity of caplets and accretion of the deferred premium under the interest rate
cap entered into on July 1, 2011 and (vii) the remaining balance ($160.9 million) of the Senior
Notes, which were fully redeemed during the first and second quarters of Fiscal 2010 (see Note 12
of Notes to Consolidated Financial Statements).
51
Interest Income
Interest income increased $0.6 million to $3.4 million for Fiscal 2011 from $2.8 million for
Fiscal 2010 due primarily to an increase in the average of the Companys cash balance during the
respective comparative periods.
Income Taxes
Fiscal 2011 compared to Fiscal 2010
The effective tax rates for Fiscal 2011 and Fiscal 2010 were 21.4% and 35.7%, respectively.
The lower effective tax rate for Fiscal 2011 primarily reflects a tax benefit of approximately
$10.9 million associated with the recognition of pre-2004 net operating losses in a foreign
jurisdiction as a result of receiving a favorable ruling from that countrys taxing authority and a
tax benefit of $7.3 million related to a reduction in the reserve for uncertain tax positions in
certain foreign tax jurisdictions. In addition, certain discrete charges to the tax provision
recorded during Fiscal 2010 did not recur.
Discontinued Operations
Loss from discontinued operations, net of taxes, was $4.8 million for Fiscal 2011 compared to
a loss of $9.2 million for Fiscal 2010. The loss for Fiscal 2011 was primarily associated with a
reserve related to the Lejaby business (see Note 19 of Notes to Consolidated Financial Statements).
Loss for Fiscal 2010 was primarily related to the Companys Ocean Pacific Apparel and Lejaby
discontinued businesses. See Note 3 of Notes to Consolidated Financial Statements.
Comparison of Fiscal 2010 to Fiscal 2009
Net Revenues
For Fiscal 2010 compared to Fiscal 2009, the amount of net revenues increased from both
wholesale and retail channels of distribution. However, as a percentage of total Company net
revenues, there was a significant increase in net revenues from retail channels, while there was a
decrease in net revenues from wholesale channels from one period to the other. In addition, net
revenues increased in all geographies, especially in Asia, Canada and Mexico and Central and South
America, and in all Groups (segments), as presented in the following tables:
Net revenues by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
$ % |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
Change |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
1,204,065 |
|
|
$ |
1,044,892 |
|
|
$ |
159,173 |
|
|
|
15.2 |
% |
|
|
13.8 |
% |
Intimate Apparel Group |
|
|
834,010 |
|
|
|
723,222 |
|
|
|
110,788 |
|
|
|
15.3 |
% |
|
|
14.9 |
% |
Swimwear Group |
|
|
257,676 |
|
|
|
251,511 |
|
|
|
6,165 |
|
|
|
2.5 |
% |
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
2,295,751 |
|
|
$ |
2,019,625 |
|
|
$ |
276,126 |
|
|
|
13.7 |
% |
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
United States wholesale |
|
|
|
|
|
|
|
|
Department stores and independent retailers |
|
|
10 |
% |
|
|
10 |
% |
Specialty stores |
|
|
7 |
% |
|
|
8 |
% |
Chain stores |
|
|
7 |
% |
|
|
8 |
% |
Mass merchandisers |
|
|
2 |
% |
|
|
1 |
% |
Membership clubs |
|
|
6 |
% |
|
|
7 |
% |
Off price and other |
|
|
11 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
Total United States wholesale |
|
|
43 |
% |
|
|
44 |
% |
International wholesale |
|
|
32 |
% |
|
|
33 |
% |
Retail (a) |
|
|
25 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
Net revenues consolidated |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
(a) |
|
for Fiscal 2010 and Fiscal 2009, 97.5% and 97.0%, respectively, of retail
net revenues were derived from the Companys international operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
Constant $ % |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
% Change |
|
|
Change (a) |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,008,167 |
|
|
$ |
916,691 |
|
|
$ |
91,476 |
|
|
|
10.0 |
% |
|
|
10.0 |
% |
Europe |
|
|
576,644 |
|
|
|
551,595 |
|
|
|
25,049 |
|
|
|
4.5 |
% |
|
|
8.9 |
% |
Asia |
|
|
391,264 |
|
|
|
322,890 |
|
|
|
68,374 |
|
|
|
21.2 |
% |
|
|
15.7 |
% |
Mexico, Central and
South America |
|
|
188,217 |
|
|
|
119,149 |
|
|
|
69,068 |
|
|
|
58.0 |
% |
|
|
45.0 |
% |
Canada |
|
|
131,459 |
|
|
|
109,300 |
|
|
|
22,159 |
|
|
|
20.3 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,295,751 |
|
|
$ |
2,019,625 |
|
|
$ |
276,126 |
|
|
|
13.7 |
% |
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Constant dollar percent change is a non-GAAP measure. See Non-GAAP Measures,
above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
% Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
1,729,077 |
|
|
$ |
1,564,452 |
|
|
$ |
164,625 |
|
|
|
10.5 |
% |
Retail |
|
|
566,674 |
|
|
|
455,173 |
|
|
|
111,501 |
|
|
|
24.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,295,751 |
|
|
$ |
2,019,625 |
|
|
$ |
276,126 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of fluctuations in foreign currency exchange rates on net revenues was an
increase of $19.9 million for Fiscal 2010 compared to Fiscal 2009. See Overview, above.
During Fiscal 2010, the Companys top five customers accounted for $490.3 million (21.4%) of
the Companys net revenue as compared to $470.9 million (23.3%) for Fiscal 2009. During Fiscal 2010
and Fiscal 2009, no one customer accounted for 10% or more of the Companys net revenues.
53
Sportswear Group
Sportswear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
684,036 |
|
|
$ |
645,020 |
|
|
$ |
39,016 |
|
|
|
6.0 |
% |
Chaps |
|
|
208,132 |
|
|
|
168,083 |
|
|
|
40,049 |
|
|
|
23.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
892,168 |
|
|
|
813,103 |
|
|
|
79,065 |
|
|
|
9.7 |
% |
Sportswear retail |
|
|
311,897 |
|
|
|
231,789 |
|
|
|
80,108 |
|
|
|
34.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) (b) |
|
$ |
1,204,065 |
|
|
$ |
1,044,892 |
|
|
$ |
159,173 |
|
|
|
15.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes net revenues of $131.5 million and $104.4 million related to the Calvin Klein
accessories business in Europe, Asia, Canada and Mexico and Central and South America for
Fiscal 2010 and Fiscal 2009, respectively. |
|
(b) |
|
In order to conform to the Companys presentation for Fiscal 2010, approximately $45.9
million of Calvin Klein underwear net revenues for Fiscal 2009, which had previously been
included in the Sportswear Group, were reclassified to the Intimate Apparel Group. |
Sportswear Group net revenues increased $159.2 million to $1.20 billion for Fiscal 2010
from $1.04 billion for Fiscal 2009. Sportswear Group net revenues from international operations
increased $110.9 million and from domestic operations increased $48.3 million. The increase in
international net revenues includes a $14.7 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 $119.1 million. Wholesale sales increased
$39.0 million (including increases of $39.4 million in Mexico, Central and South America, $10.9
million in the U.S., $9.0 million in Asia and $3.6 million in Canada, partially offset by a
decrease of $23.9 million in Europe). The increase in worldwide wholesale net revenues was
primarily due (in constant currency) to the following:
|
(i) |
|
an increase in sales in Mexico and Central and South America to department
stores, membership clubs (primarily due to the introduction of new styles) and specialty
stores, including an increase in new customers and an expansion of locations of existing
customers; |
|
(ii) |
|
an increase in the U.S. primarily due to increased sales to the off-price
channel, due primarily to additional product offerings, partially offset by a decrease
in sales to department stores and clubs; |
|
(iii) |
|
an increase in Asia primarily due to (a) the expansion of the distribution
network 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 (b) a
decrease in sales to the off-price channel primarily due to lower levels of excess
inventory; |
|
(iv) |
|
in Canada, an increase in net revenues from sales to department stores and
independent retailers, which was partially offset by a decline in net revenues from
sales in the off-price channel; partially offset by |
|
(v) |
|
a decrease in wholesale net revenue in Europe primarily due to
decreased sales of Calvin Klein Jeans to department, specialty and independent stores,
due in part to 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
of accessories. |
Net revenues from Calvin Klein Jeans retail sales increased $80.1 million (including increases
of $37.2 million in Asia, $28.6 million in Europe and $12.8 million in Mexico, Central and South
America). The change in retail net revenues was primarily due (in constant currency) to a 6.5%
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 Brazil in the fourth quarter
of 2009 and stores acquired in the Peoples Republic of China, Singapore and Italy during Fiscal
2010).
Net revenues from Chaps increased $40.0 million. The increase primarily reflects an increase
in sales in the U.S. to chain stores, department stores and customers in the off-price channel due
to additional product offerings.
54
Intimate Apparel Group
Intimate Apparel Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
431,706 |
|
|
$ |
373,620 |
|
|
$ |
58,086 |
|
|
|
15.5 |
% |
Core Intimates |
|
|
164,212 |
|
|
|
143,006 |
|
|
|
21,206 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
595,918 |
|
|
|
516,626 |
|
|
|
79,292 |
|
|
|
15.3 |
% |
Calvin Klein Underwear retail |
|
|
238,092 |
|
|
|
206,596 |
|
|
|
31,496 |
|
|
|
15.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) |
|
$ |
834,010 |
|
|
$ |
723,222 |
|
|
$ |
110,788 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes approximately $45.9 million for Fiscal 2009, related to certain sales of
Calvin Klein underwear, previously included in the Sportswear
Group, in order to conform to the Fiscal 2010 presentation. |
Intimate Apparel Group net revenues increased $110.8 million to $834.0 million for Fiscal 2010
from $723.2 million for Fiscal 2009. Intimate Apparel Group net revenues from international
operations increased $68.1 million and from domestic operations increased $42.7 million. The
increase in international net revenues includes a $3.3 million increase due to the favorable effect
of fluctuations in foreign currency exchange rates. See Overview, above.
Net revenues from Calvin Klein Underwear increased $89.6 million. Wholesale sales increased
$58.1 million (including increases of $24.7 million in the U.S., $10.8 million in Mexico, Central
and South America, $11.6 million in Europe, $5.0 million in Asia and $6.0 million in Canada). The
increase in worldwide wholesale net revenue was, primarily due (in constant currency) to the
following:
|
(i) |
|
increases in all geographies in the department store channel, which benefitted
from the launch of the Calvin Klein X mens product line and the Calvin Klein Envy
womens product line, primarily in Europe and Asia; |
|
(ii) |
|
an increase in the U.S., which primarily resulted from an increase in sales to
the off-price channel due primarily to additional product offerings; |
|
(iii) |
|
an increase in Mexico, Central and South America, primarily due to increased
sales to membership clubs (primarily due to the introduction of new styles) and
specialty stores, including an increase in new customers and an expansion of locations
of existing customers; |
|
(iv) |
|
in Asia, an increase primarily due to (a) 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 (b) a decrease in sales to the off-price channel primarily due to lower levels of
excess inventory; and |
|
(v) |
|
in Canada, an increase primarily in the department store and membership club
channels of distribution. |
Net revenues from Calvin Klein Underwear retail sales increased $31.5 million (including
increases of $16.9 million in Asia, $8.0 million in Europe, $3.6 million in Mexico and Central and
South America, and $2.9 million in Canada). 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 the stores acquired in Brazil in the fourth quarter of 2009 and stores acquired in the
Peoples Republic of China, Singapore and Italy in Fiscal 2010) and to a 4.4% increase in
comparable store sales. In addition, the increase reflects the successful launch of the Calvin
Klein X mens product line in all geographies and the Calvin Klein Envy womens product line,
primarily in Europe and Asia, during Fiscal 2010.
Net revenues from Core Intimates increased $21.2 million. The increase primarily reflects an
increase in sales in the U.S. to the mass merchandisers channel primarily due to new product
launches and a new customer in Fiscal 2010, and increases in sales of Olga and Warners brand
products across other channels of distribution primarily due to new product launches. Net revenues
also increased in Mexico and Central and South America due primarily to increased sales of Warners
products to department stores and the introduction of new product lines in membership clubs.
55
Swimwear Group
Swimwear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
% |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
217,499 |
|
|
$ |
215,135 |
|
|
$ |
2,364 |
|
|
|
1.1 |
% |
Calvin Klein |
|
|
23,492 |
|
|
|
19,588 |
|
|
|
3,904 |
|
|
|
19.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
240,991 |
|
|
|
234,723 |
|
|
|
6,268 |
|
|
|
2.7 |
% |
Swimwear retail (a) |
|
|
16,685 |
|
|
|
16,788 |
|
|
|
(103 |
) |
|
|
-0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
257,676 |
|
|
$ |
251,511 |
|
|
$ |
6,165 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $7.4 million and $7.6 million for Fiscal 2010 and Fiscal 2009, respectively,
related to Calvin Klein retail swimwear. |
Swimwear Group net revenues increased $6.2 million to $257.7 million for Fiscal 2010 from
$251.5 million Fiscal 2009. Swimwear Group net revenues from international operations increased
$5.7 million and from domestic operations increased $0.5 million. The increase in international net
revenues includes a $1.9 million increase due to the favorable effect of fluctuations in foreign
currency exchange rates. See Overview, above. Comparable store sales declined 2.2% for Fiscal 2010
compared to Fiscal 2009 in the Swimwear Group.
Net revenues from Speedo increased $2.4 million, which primarily represented an increase of
$3.6 million in sales to membership clubs and sporting goods stores in Canada, partially offset by
a decrease in net revenues of $1.9 million in the U.S. primarily due to decreased sales to
membership clubs, which was partially offset by increased sales to mass merchandisers, specialty
stores and department stores in the U.S.
Net revenues from Calvin Klein swimwear increased $3.8 million, mainly in wholesale sales,
primarily due, in the U.S., to improved delivery to department and specialty stores and the
introduction of sales to membership clubs in 2010, and, in Europe, to increased sales to department
stores and independent retailers. Retail sales were substantially unchanged.
Gross Profit
Gross profit was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of Brand |
|
|
|
Fiscal 2010 |
|
|
Net Revenues |
|
|
Fiscal 2009 |
|
|
Net Revenues |
|
|
|
(in thousands of dollars) |
|
Sportswear Group (a) |
|
$ |
516,080 |
|
|
|
42.9 |
% |
|
$ |
432,714 |
|
|
|
41.4 |
% |
Intimate Apparel
Group (a) |
|
|
416,700 |
|
|
|
50.0 |
% |
|
|
350,457 |
|
|
|
48.5 |
% |
Swimwear Group (b) |
|
|
87,183 |
|
|
|
33.8 |
% |
|
|
81,176 |
|
|
|
32.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
1,019,963 |
|
|
|
44.4 |
% |
|
$ |
864,347 |
|
|
|
42.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
reflects the reclassification of approximately $27.8 million of gross profit related
to certain sales of Calvin Klein underwear, previously reported in the Sportswear Group,
to the Intimate Apparel Group for Fiscal 2009 in order to conform to the Fiscal 2010
presentation. |
|
(b) |
|
Reflects a charge of $3.6 million during Fiscal 2009 related to the write down of
inventory associated with the Companys LZR Racer and other similar racing swimsuits.
The Company recorded the write down as a result of FINAs ruling during Fiscal 2009
which banned the use of these types of suits in competitive swim events. |
Gross profit was $1.02 billion, or 44.4% of net revenues, for Fiscal 2010 compared to
$864.3 million, or 42.8% of net revenues, for Fiscal 2009. The 160 basis point increase in gross
margin and the increase in gross profit are primarily reflective of a favorable sales mix due to an
increase in retail sales compared to wholesale as a percentage of total sales, increased sales
volume and the favorable effects of fluctuations in foreign currency exchange rates. Gross profit
for Fiscal 2010 includes an increase of $22.9 million due to the favorable effects of foreign
currency fluctuations.
During the fourth quarter of Fiscal 2010, the increase in gross margin due to those factors
was partially offset by an increase in costs, including those for raw material, labor and freight,
which the Company anticipates will continue in the fiscal year ending 2011. The Company expects to
partially mitigate cost increases in 2011 and their effect on gross margins through a combination
of sourcing initiatives, price increases, and continuing shifts in its business, favoring
international and direct to consumer channels, which carry higher gross margins.
56
Sportswear Group gross profit increased $83.4 million, and gross margin increased 150 basis
points, for Fiscal 2010 compared to Fiscal 2009, reflecting a $79.9 million increase in
international operations (primarily due to an increase in sales volume and a favorable sales mix in
all geographies, and the favorable effect of fluctuations in exchange rates of foreign currencies),
and a $3.5 million increase in the domestic business (primarily reflecting increased sales,
partially offset by an increase in freight costs and customer allowances).
Intimate Apparel Group gross profit increased $66.2 million and gross margin increased 150
basis points for Fiscal 2010 compared to Fiscal 2009 reflecting a $53.7 million increase in
international operations (primarily related to the favorable effect of fluctuations in exchange
rates of foreign currencies, increased sales volume and a favorable sales mix), and a $12.5 million
increase in the domestic business. The increase in the domestic business primarily reflects
increased sales volume and a favorable product mix, partially offset by increases in freight and
raw material costs in Fiscal 2010.
Swimwear Group gross profit increased $6.0 million and gross margin increased 150 basis points
for Fiscal 2010 compared to Fiscal 2009 reflecting a $5.5 million increase in international
operations (primarily related to the favorable effect of fluctuations in exchange rates of certain
foreign currencies and a favorable sales mix) and a $0.5 million increase in the domestic business
(primarily reflecting a charge in the third quarter of 2009, not repeated in 2010, related to the
write-down of inventory associated with the Companys LZR Racer and other similar racing suits
which were banned by FINA during Fiscal 2009, partially offset by a decrease in sales volume and an
unfavorable product mix).
Selling, General and Administrative Expenses
SG&A expenses increased $119.2 million to $758.1 million (33.0% of net revenues) for Fiscal
2010 compared to $638.9 million (31.6% of net revenues) for Fiscal 2009. The increase in SG&A
expenses includes:
|
(i) |
|
an increase of $72.1 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 duplicative costs associated with
consolidation of the distribution centers in Europe, partially offset by decreases due
to cost savings resulting from restructuring activities which occurred in Fiscal 2009; |
|
|
(ii) |
|
an increase of $26.3 million in marketing expenses, including the launch of the
Calvin Klein X product line of mens underwear and the launch of Calvin Klein Envy
product line of womens underwear; and |
|
|
(iii) |
|
an increase in administrative expenses of $21.6 million, primarily
including an increase due to amounts accrued for performance-based employee compensation
as well as an increase in stock-based compensation expense primarily as a result in the
change in terms of equity awards granted to employees in March 2010 (see Discussion of
Critical Accounting Policies Stock-Based Compensation Expense and Note 13 of Notes to
Consolidated Financial Statements) and also including increases in acquisition expenses
of $2.4 million (related to the acquisition of certain of the Companys distributors of
Calvin Klein products in Italy, Singapore and the Peoples Republic of China) (see Note
2 of Notes to Consolidated Financial Statements) and franchise taxes. |
The effect of fluctuations in the U.S. dollar relative to certain functional currencies where
the Company conducts certain of its operations for Fiscal 2010 compared to Fiscal, 2009 resulted in
a $0.5 million increase in SG&A.
Amortization of Intangible Assets
Amortization of intangible assets was $11.5 million for Fiscal 2010 compared to $11.0 million
for Fiscal 2009 (see Note 10 of Notes to Consolidated Financial Statements Intangible Assets and
Goodwill).
Pension Income / Expense
Pension expense was $2.6 million for Fiscal 2010 compared to pension expense of $20.9 million
for Fiscal 2009. The decrease in pension expense is primarily related to a higher asset base in
Fiscal 2010 due to returns earned on the Plans assets during Fiscal 2010, partially offset by
interest cost on the Companys projected benefit obligation resulting from a decrease in the
discount/interest rate to 5.8% in Fiscal 2010 from 6.1% in Fiscal 2009. See Note 7 of Notes to
Consolidated Financial Statements.
57
Operating Income
The following table presents operating income by group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Group Net |
|
|
|
|
|
|
Group Net |
|
|
|
Fiscal 2010 |
|
|
Revenues |
|
|
Fiscal 2009 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Sportswear Group (a) |
|
$ |
143,260 |
|
|
|
11.9 |
% |
|
$ |
118,477 |
|
|
|
11.3 |
% |
Intimate Apparel Group (a) |
|
|
134,928 |
|
|
|
16.2 |
% |
|
|
116,269 |
|
|
|
16.1 |
% |
Swimwear Group (a) (b) |
|
|
18,698 |
|
|
|
7.3 |
% |
|
|
16,168 |
|
|
|
6.4 |
% |
Unallocated corporate expenses (a) (c) |
|
|
(49,075 |
) |
|
na |
|
|
|
(57,379 |
) |
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (d) |
|
$ |
247,811 |
|
|
na |
|
|
$ |
193,535 |
|
|
na |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income as a percentage of net revenue |
|
|
10.8 |
% |
|
|
|
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
(a) |
|
reflects the allocation of $9,892 of corporate expenses to the Sportswear Group
($6,924), the Intimate Apparel Group ($3,796) and the Swimwear Group (($828)),
respectively, during Fiscal 2010 to conform to the presentation for Fiscal 2011. Also
reflects the allocation of $6,664 of corporate expenses to the Sportswear Group ($4,698),
the Intimate Apparel Group ($2,638) and the Swimwear Group (($672)), respectively, during
Fiscal 2009 to conform to the presentation for Fiscal 2011. |
|
(b) |
|
reflects a charge of $3.6 million during Fiscal 2009 related to the write down of
inventory associated with the Companys LZR Racer and other similar racing swimsuits. The
Company recorded the write down as a result of FINAs ruling during Fiscal 2009 which
banned the use of these types of suits in competitive swim events. |
|
(c) |
|
the decrease in unallocated corporate expenses for Fiscal 2010 compared to Fiscal
2009 was primarily related to a reduction in pension expense (see Note 7 of Notes to
Consolidated Financial Statements) and foreign currency exchange-related losses,
partially offset by an increase in amounts accrued for performance-based employee
compensation and other employee compensation and benefits and an increase in share-based
compensation expense due primarily to the addition of Retirement Eligibility provisions
in the Fiscal 2010 awards (see Note13 of Notes to Consolidated Financial Statements). |
|
(d) |
|
includes approximately $9.8 million and $12.1 million for Fiscal 2010 and Fiscal
2009, respectively, related to restructuring expenses. See Note 4 of Notes to
Consolidated Financial Statements. |
The following table presents operating income by region and channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / |
|
|
% |
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
125,826 |
|
|
$ |
125,800 |
|
|
$ |
26 |
|
|
|
0.0 |
% |
International |
|
|
171,060 |
|
|
|
125,114 |
|
|
|
45,946 |
|
|
|
36.7 |
% |
Unallocated corporate expenses |
|
|
(49,075 |
) |
|
|
(57,379 |
) |
|
|
8,304 |
|
|
|
-14.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
$ |
247,811 |
|
|
$ |
193,535 |
|
|
$ |
54,276 |
|
|
|
28.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Channel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
240,611 |
|
|
$ |
202,869 |
|
|
$ |
37,742 |
|
|
|
18.6 |
% |
Retail |
|
|
56,275 |
|
|
|
48,045 |
|
|
|
8,230 |
|
|
|
17.1 |
% |
Unallocated corporate expenses |
|
|
(49,075 |
) |
|
|
(57,379 |
) |
|
|
8,304 |
|
|
|
-14.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
$ |
247,811 |
|
|
$ |
193,535 |
|
|
$ |
54,276 |
|
|
|
28.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes operating income from Calvin Klein businesses of $235.5 million and
$201.2 million for Fiscal 2010 and Fiscal 2009, respectively, (an increase of 17.0%). |
Operating income for Fiscal 2010 includes an increase of $22.3 million related to the
favorable effects of fluctuations in exchange rates of foreign currencies. See Overview, above.
58
Sportswear Group
Sportswear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2010 (c) |
|
|
Revenues |
|
|
Fiscal 2009 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvin Klein Jeans |
|
$ |
100,343 |
|
|
|
14.7 |
% |
|
$ |
85,155 |
|
|
|
12.4 |
% |
Chaps |
|
|
23,925 |
|
|
|
11.5 |
% |
|
|
19,501 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
124,268 |
|
|
|
13.9 |
% |
|
|
104,656 |
|
|
|
11.7 |
% |
Sportswear retail |
|
|
18,992 |
|
|
|
6.1 |
% |
|
|
13,821 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) (b) |
|
$ |
143,260 |
|
|
|
11.9 |
% |
|
$ |
118,477 |
|
|
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $1.8 million for Fiscal 2010 and $3.2 million for
Fiscal 2009. |
|
(b) |
|
reflects the allocation of $6,924 of corporate expenses to Calvin Klein Jeans ($5,505), Chaps
(($108)) and Sportswear retail ($1,527), respectively, during Fiscal 2010 to conform to the
presentation for Fiscal 2011. Also reflects the allocation of $4,698 of corporate expenses to
Calvin Klein Jeans ($4,040), Chaps (($321)) and Sportswear retail ($979), respectively, during
Fiscal 2009 to conform to the presentation for Fiscal 2011. |
|
(c) |
|
includes an allocation of shared services expenses by brand as detailed below: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Calvin Klein Jeans |
|
$ |
18,039 |
|
|
$ |
16,581 |
|
Chaps |
|
|
8,128 |
|
|
|
6,927 |
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
26,167 |
|
|
|
23,508 |
|
Sportswear retail |
|
|
1,568 |
|
|
|
1,419 |
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
27,735 |
|
|
$ |
24,927 |
|
|
|
|
|
|
|
|
Sportswear Group operating income increased $24.8 million, or 20.9%, reflecting increases
of $15.2 million, $5.2 million and $4.4 million in the Calvin Klein Jeans wholesale, Calvin Klein
Jeans retail and Chaps businesses, respectively. The increase in Sportswear operating income
reflects an $83.4 million increase in gross profit, partially offset by a $58.6 million increase in
SG&A (including amortization of intangible assets) expenses. The increase in SG&A expenses
primarily reflects increases in Europe, Asia and Mexico and Central and South America due to store
openings, increased distribution costs related to increased sales volume and the unfavorable
effects of foreign currency fluctuations.
Intimate Apparel Group
Intimate Apparel Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2010 (c) |
|
|
Revenues |
|
|
Fiscal 2009 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
82,915 |
|
|
|
19.2 |
% |
|
$ |
73,123 |
|
|
|
16.9 |
% |
Core Intimates |
|
|
17,226 |
|
|
|
10.5 |
% |
|
|
11,396 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
100,141 |
|
|
|
16.8 |
% |
|
|
84,519 |
|
|
|
14.2 |
% |
Calvin Klein Underwear retail |
|
|
34,787 |
|
|
|
14.6 |
% |
|
|
31,750 |
|
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) (b) |
|
$ |
134,928 |
|
|
|
16.2 |
% |
|
$ |
116,269 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes restructuring charges of $3.6 million for Fiscal 2010
and $4.3 million for Fiscal 2009. |
|
(b) |
|
reflects the allocation of $3,796 of corporate expenses to Calvin Klein Underwear
($2,955), Core Intimates ($27) and Calvin Klein Underwear retail ($814), respectively,
during Fiscal 2010 to conform to the presentation for Fiscal 2011. Also reflects the
allocation of $2,638 of corporate expenses to Calvin Klein Underwear ($1,814), Core
Intimates ($229) and Calvin Klein Underwear retail ($595), respectively, during Fiscal 2009
to conform to the presentation for Fiscal 2011. |
|
(c) |
|
includes an allocation of shared services expenses by brand as detailed below: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
12,499 |
|
|
$ |
11,050 |
|
Core Intimates |
|
|
5,931 |
|
|
|
5,748 |
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
18,430 |
|
|
|
16,798 |
|
Calvin Klein Underwear retail |
|
|
1,082 |
|
|
|
942 |
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
19,512 |
|
|
$ |
17,740 |
|
|
|
|
|
|
|
|
59
Intimate Apparel Group operating income for Fiscal 2010 increased $18.6 million, or
16.0%, reflecting increases of $9.8 million Calvin Klein Underwear wholesale, $3.0 million in
Calvin Klein Underwear retail and $5.8 million in Core Intimates. The increase in Intimate Apparel
operating income reflects a $66.2 million increase in gross profit, partially offset by a $47.6
million increase in SG&A expenses (including amortization of intangible assets). The increase in
SG&A expense primarily reflects incremental marketing investments behind the launch of the Calvin
Klein X product line of mens underwear and the launch of the Calvin Klein Envy product line of
womens underwear, an increase related to retail store openings in Europe, Asia, Canada and South
America and the unfavorable effect of fluctuations in foreign currency exchange rates.
Swimwear Group
Swimwear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Brand |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Brand Net |
|
|
|
Fiscal 2010 (e) |
|
|
Revenues |
|
|
Fiscal 2009 (e) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Speedo |
|
$ |
19,028 |
|
|
|
8.7 |
% |
|
$ |
17,784 |
|
|
|
8.3 |
% |
Calvin Klein |
|
|
(2,826 |
) |
|
|
-12.0 |
% |
|
|
(4,090 |
) |
|
|
-20.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
16,202 |
|
|
|
6.7 |
% |
|
|
13,694 |
|
|
|
5.8 |
% |
Swimwear retail (a) |
|
|
2,496 |
|
|
|
15.0 |
% |
|
|
2,474 |
|
|
|
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group (b) (c) (d) |
|
$ |
18,698 |
|
|
|
7.3 |
% |
|
$ |
16,168 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes $1.3 million and $1.4 million for Fiscal 2010 and Fiscal 2009, respectively, related
to Calvin Klein retail swimwear. |
|
(b) |
|
reflects a charge of $3.6 million during Fiscal 2009 related to the write down of
inventory associated with the Companys LZR Racer and other similar racing swimsuits. The
Company recorded the write down as a result of FINAs ruling during Fiscal 2010 which banned
the use of these types of suits in competitive swim events. |
|
(c) |
|
includes restructuring charges of $3.6 million for Fiscal 2010 and $3.0 million for Fiscal
2009. |
|
(d) |
|
reflects the allocation of ($828) of corporate expenses to Speedo (($1,139)), Calvin
Klein Swimwear wholesale ($311) and Swimwear retail ($0), respectively, during Fiscal 2010 to
conform to the presentation for Fiscal 2011. Also reflects the allocation of( $672) of
corporate expenses to Speedo (($834)), Calvin Klein Swimwear wholesale ($162) and Swimwear
retail ($0), respectively, during Fiscal 2009 to conform to the presentation for Fiscal 2011. |
|
(e) |
|
Includes an allocation of shared services expenses by brand in the following table: |
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Speedo |
|
$ |
8,241 |
|
|
$ |
8,848 |
|
Calvin Klein |
|
|
608 |
|
|
|
392 |
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
8,849 |
|
|
|
9,240 |
|
Swimwear retail |
|
|
564 |
|
|
|
600 |
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
9,413 |
|
|
$ |
9,840 |
|
|
|
|
|
|
|
|
Swimwear Group operating income for Fiscal 2010 increased $2.5 million, or 15.6%,
reflecting a $1.2 million increase in Speedo wholesale and a $1.3 million increase in Calvin Klein
wholesale. Swimwear retail operating income was substantially unchanged. The increase in Swimwear
operating income reflects a $6.0 million increase in gross profit, partially offset by a $3.5
million increase in SG&A expenses (including amortization of intangible assets).
Other Loss
Other loss of $6.2 million for Fiscal 2010 primarily reflects a loss of $3.7 million related
to the redemption of $160.9 million of Senior Notes during Fiscal 2010 (see Note 12 of Notes to
Consolidated Financial Statements), a loss of $5.1 million on the current portion of inter-company
loans denominated in currency other than that of the foreign subsidiaries functional currency,
partially
offset by a gain of $2.6 million on foreign currency exchange contracts designed as economic
hedges (see Note 17 to Notes to Consolidated Financial Statements). Other loss of $1.9 million for
Fiscal 2009 primarily reflects $3.9 million of net losses related to foreign currency exchange
contracts designed as economic hedges (see Note 17 to Notes to Consolidated Financial Statements),
partially offset by net gains of $2.0 million on the current portion of inter-company loans
denominated in currency other than that of the foreign subsidiaries functional currency.
60
Interest Expense
Interest expense decreased $9.4 million to $14.5 million for Fiscal 2010 from $23.9 million
for Fiscal 2009. The decrease primarily relates to the redemption of the full outstanding balance
of $160.9 million of the Senior Notes by June 15, 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
and the
2008 Credit Agreements, partially offset by an increase in the balance of the Italian Note,
which was entered into in Fiscal 2010 (see Note 12 of Notes to Consolidated Financial Statements).
In addition, interest expense increased due to the accretion of the liability for the contingent
payments to the Sellers in the acquisitions in Brazil in the fourth quarter of 2009 (see Note 2 of
Notes to Consolidated Financial Statements).
Interest Income
Interest income increased $1.6 million to $2.8 million for Fiscal 2010 from $1.2 million for
Fiscal 2009. The increase in interest income was due primarily to an increase in the average of
the Companys cash balance during Fiscal 2010.
Income Taxes
The effective tax rates for Fiscal 2010 and Fiscal 2009 were 35.7% and 38.0%, respectively.
The decrease in the effective tax rate reflects the effect of a reduction in the level of foreign
income subject to taxation in the U.S., a shift in earnings from higher to lower taxing
jurisdictions, as well as the net effect of certain discrete items. In addition, the tax provision
for Fiscal 2010 includes a tax charge of approximately $2.7 million associated with the correction
of an error in the 2006 through 2009 income tax provisions as a consequence of the loss of a credit
related to prior year tax overpayments caused by the delayed filing of tax returns in a U.S. state
taxing jurisdiction, while the tax provision for Fiscal 2009 includes a non-cash tax charge of
approximately $3.6 million recorded in the U.S. associated with the correction of an error in the
2006 income tax provision related to the recapture of cancellation of indebtedness income which had
been deferred in connection with the Companys bankruptcy proceedings in 2003. The abovementioned
errors were not material to any prior period.
Discontinued Operations
Loss from discontinued operations, net of taxes, was $9.2 million for Fiscal 2010 compared to
a loss of $6.2 million for Fiscal 2009, primarily related to the Companys Ocean Pacific Apparel,
Lejaby and Calvin Klein Collection discontinued businesses. See Note 3 of Notes to Consolidated
Financial Statements.
Liquidity and Capital Resources
Liquidity
The Companys principal source of operating cash flows is from sales of its products to
customers. On a consolidated basis in constant currencies, sales to customers increased for Fiscal
2011 compared to Fiscal 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 Fiscal 2010 and Fiscal 2011,
the Company did not achieve the minimum sales thresholds
required under the CK/Calvin Klein bridge Apparel License. As a result, the Company
and CKI no longer intend for the Company to continue to operate all or part of the bridge business.
The Company has begun discussions with CKI regarding the terms and conditions of the transition of
all or part of the Companys bridge businesses to CKI. Although combined net revenues of those
businesses were approximately $100 million and $82 million for Fiscal 2011 and Fiscal 2010,
respectively, those businesses incurred net operating losses for the Company during Fiscal 2011 and
Fiscal 2010. Therefore, the Company believes that the discontinuance of all or part of the bridge
businesses will not have a material effect on its future results of operations or cash flows.
During Fiscal 2011, cash outflows increased primarily due to (i) additional investments in
working capital (see Accounts Receivable and Inventories and Cash Flows, below) and (ii) an
increase in SG&A expenses (see Selling, General and Administrative Expenses, above) in Europe, Asia
and in Mexico and Central and South America primarily related to the increase in newly opened and
acquired retail stores. In addition, cash outflows resulted from an increase in costs for raw
material, labor and freight, particularly the Companys businesses in the U.S., Mexico, Asia and
Europe. These cost increases adversely affected the operating margins of the Companys businesses.
The Company expects that product costs will stabilize or decline during the year ending December
29, 2012. The Company was able to partially mitigate the cost increases during Fiscal 2011 in
certain geographic markets by selectively increasing the selling prices of its goods, making early
purchases of product and by implementing other sourcing initiatives.
At December 31, 2011, the Company had $232.5 million in cash and cash equivalents, of which
$216.3 million was held by foreign subsidiaries. The Company currently intends that cash and cash
equivalents held by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions
in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund
working
capital requirements and repay debt (both third-party and inter-company) of its foreign
subsidiaries in the normal course of business. Moreover, the Company does not currently intend to
repatriate cash and cash equivalents held by foreign subsidiaries to the United States because cash
generated from the Companys domestic businesses and credit available under its domestic financing
facilities are currently sufficient (and are expected to continue to be sufficient for the
foreseeable future) to fund the cash needs of its operations in the United States. However, if, in
the future, cash and cash equivalents held by foreign subsidiaries are needed to fund the Companys
operations in the United States, the repatriation of such amounts to the United States would result
in a significant incremental tax liability in the period in which the decision to repatriate
occurs. Payment of any incremental tax liability would reduce the cash available to the Company to
fund its operations by the amount of taxes paid.
61
The Company believes that, at December 31, 2011, cash on hand, cash expected to be generated
from future operating activities and cash available under the 2011 Term Loan Agreement, 2008 Credit
Agreements, the CKJEA Notes and other short-term
debt (see Note 12 of Notes to Consolidated Financial Statements and below) will be sufficient
to fund its operations, including contractual obligations (see Note 15 of Notes to Consolidated
Financial Statements, above) and capital expenditures (see below) for the next 12 months.
As of December 31, 2011, the Company had working capital (current assets less current
liabilities) of $612.6 million. Included in working capital as of December 31, 2011 were (among
other items) cash and cash equivalents of $232.5 million and short-term debt of $47.5 million,
including $2.0 million under the 2011 Term Loan Agreement, $36.6 million under the CKJEA Notes and
$8.9 million of other short-term debt. In addition, in connection with its 2011 Term Loan, the
Company entered into an interest rate cap agreement, the effect of which is to limit the interest
rate payable on average over the term of the agreement to 5.6975% with respect to the notional
amount of $120 million (see Note 12 of Notes to Consolidated Financial Statements).
Short-Term Borrowings
The Company considers all of its short-term borrowings to be highly important to fund seasonal
working capital needs and discretionary transactions. See Note 12 of Notes to Consolidated
Financial Statements for additional information regarding the Companys short-term borrowings. At
December 31, 2011 and for Fiscal 2011, the Companys short-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from banks |
|
|
|
December 31, 2011 |
|
|
Fiscal 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Average Amount |
|
|
Amount |
|
|
|
|
|
Amount |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Outstanding |
|
|
Average |
|
|
Outstanding |
|
|
Average |
|
|
Outstanding |
|
|
|
|
|
(U.S. Dollar |
|
|
Interest |
|
|
(U.S. Dollar |
|
|
Interest |
|
|
(U.S. Dollar |
|
Currency |
|
Instrument |
|
Equivalent) |
|
|
Rate |
|
|
Equivalent) |
|
|
Rate |
|
|
Equivalent) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars |
|
2008 Credit Agreement |
|
|
|
|
|
|
|
|
|
|
31,184 |
|
|
|
3.75 |
% |
|
|
96,707 |
|
Euro |
|
CKJEA Notes |
|
|
36,648 |
|
|
|
4.00 |
% |
|
|
27,192 |
|
|
|
2.82 |
% |
|
|
52,885 |
|
Canadian Dollars |
|
2008 Credit Agreement |
|
|
|
|
|
|
|
|
|
|
505 |
|
|
|
3.50 |
% |
|
|
3,066 |
|
Brazilian Real |
|
Lines of credit |
|
|
6,373 |
|
|
|
12.50 |
% |
|
|
5,624 |
|
|
|
12.70 |
% |
|
|
10,579 |
|
2008 Credit Agreements
The revolving credit facilities under the 2008 Credit Agreements reflect funding commitments
by a syndicate of banks. 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, during Fiscal 2011, those banks had the ability to
make loans up to their respective funding commitments under the 2008 Credit Agreements and that
they will continue to be able to make such loans in the future. However, the Company continues to
monitor the creditworthiness of the syndicated banks.
During Fiscal 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 13 of Notes to Consolidated Financial Statements), settlement of the OP litigation
(see Notes 3 and 19 of Notes to Consolidated Financial Statements), funding of the Companys
pension plan, and payment of employee incentive-based compensation. As of December 31, 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.
As of December 31, 2011, under the 2008 Credit Agreement, the Company had no loans and $33.0
million in letters of credit outstanding, leaving approximately $161.3 million of availability,
and, under the 2008 Canadian Credit Agreement, no loans and $2.7 million of letters of credit,
leaving approximately $17.5 million of availability. During Fiscal 2011, the maximum outstanding
loan balance under the 2008 Credit Agreement was $96.7 million, at which time the funds were needed
for repurchase of the Companys shares under the 2010 Share Repurchase Program. The outstanding
loan balance of the 2008 Credit Agreement was repaid during Fiscal 2011 with proceeds of the 2011
Term Loan as well as cash from operations. There were no outstanding loan balances under the 2008
Canadian Credit Agreement during Fiscal 2011, except during January and February 2011 related to
seasonal working capital requirements.
62
Other Short-Term Borrowings
The
CKJEA Notes consist of short-term revolving notes placed with a number of banks at various
interest rates (primarily Euro LIBOR plus 1.0%) issued by one of the Companys European
subsidiaries. The outstanding balance under the CKJEA Notes was $36.6 million and $18.4 million at
December 31, 2011 and January 2, 2011, respectively. During Fiscal 2011, 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 Company uses the CKJEA Notes to meet working capital needs, primarily inventory
purchases, which increase or decrease from month to month during the year. During Fiscal 2011, the
maximum outstanding balance under the CKJEA Notes of $52.9 million reflected the increased working
capital requirements during that month. Similarly, the difference between the ending balance of
$36.6 million at December 31, 2011 and the average outstanding balance of $27.2 million during
Fiscal 2011 was due to changes in working capital requirements.
The Companys Brazilian subsidiary, WBR, has established lines of credit with several banks in
order to improve cash flows and fund operations as needed. The lines
of credit, when drawn, are offset by
approximately equal amounts of WBRs trade accounts receivable. At December 31, 2011 and January 1,
2011, the total outstanding balances of the lines of credit were approximately $6.4 million and
$0.4 million, respectively. During Fiscal 2011, WBR was able to borrow funds under the lines of
credit, as needed, to fund operations. During Fiscal 2011, the maximum outstanding balance under
the Brazilian lines of credit was $10.6 million, when the funds were needed to make the second
contingent payment to the sellers of WBR (see Note 2 of Notes to Consolidated Financial Statements
Acquisitions Remaining Non-Controlling Interest and Retail Stores in Brazil). The reason for
the difference between the ending balance of $6.4 million at December 31, 2011 and the average
outstanding balance during Fiscal 2011 was due to monthly variances in operational cash
requirements.
During September 2011, one of the Companys Asian subsidiaries entered into a short-term $25
million revolving credit facility with one lender (the Asian Credit Facility) to be used for
working capital and general corporate purposes. There were no borrowings during Fiscal 2011 under
the Asian Credit Facility.
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). The initial principal
amount of the Italian Note was 10.0 million ($13.4 million). On June 30, 2011, the remaining
outstanding balance of 6.0 million ($8.6 million) on the Italian Note was repaid with a portion of
the proceeds from the 2011 Term Loan.
Corporate Credit Ratings
The Companys corporate or family credit ratings and outlooks at December 31, 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. Standard & Poors has assigned a rating
of BBB- and Moodys has assigned a rating of Ba1 to the 2011 Term Loan. |
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.
63
Capital Expenditures
During Fiscal 2011, the Company leased approximately 152,000 square feet of additional retail
store space worldwide from newly opened stores, net of store closures, and acquired an additional
25,000 square feet of retail space in Taiwan and an additional 55,000 square feet of retail space
in India (see Note 2 of Notes to Consolidated Financial Statements), which resulted in capital
expenditures (primarily related to store fixtures) of approximately $40 million. In addition, the
Company incurred costs of approximately $15 million for capital expenditures related to
distribution centers and other corporate activities. The Company has targeted an additional 155,000
square feet of new retail space for the year ending December 29, 2012,
not including acquisition of retail stores, for which it expects to incur additional costs for
capital expenditures of approximately $31 million. The Company expects to spend an additional $23
million on capital expenditures not related to retail stores for the year ending December 29, 2012.
Restructuring
During Fiscal 2011, the Company incurred restructuring and other exit costs of $60.9 million
primarily related to a non-cash impairment charge with respect to the Companys CK/Calvin Klein
bridge licenses, the consolidation and restructuring of certain international operations, job
eliminations in the U.S. and lease contract termination charges related to retail store, office and
warehouse closures. See Note 4 of Notes to Consolidated Financial Statements for additional
information on restructuring and other exit activities. During the year ending December 29, 2012,
the Company expects to incur additional costs of approximately $30 million to $40 million, on a
pre-tax basis, primarily related to the consolidation of certain international operations.
Depending on the outcome of negotiations with CKI, the Company could incur additional restructuring
charges related to the disposition of its CK/Calvin Klein bridge businesses.
Business Acquisitions
In implementing its corporate strategy to expand its retail businesses globally, during Fiscal
2011, Fiscal 2010 and Fiscal 2009, the Company acquired the following businesses, which are
expected to increase the Companys operating profits and operating margins in Europe, Asia and
South America.
On July 8, 2011, the Company acquired a controlling interest (51%) in the equity of a joint
venture with a distributor of its Calvin Klein products in India for cash consideration of
approximately $17.8 million, net of cash acquired of $2.6 million. In addition, the Company loaned
the non-controlling party in the joint venture $6.0 million with an interest rate of 5.0% per
annum. The loan matures on July 8, 2016. Interest on the loan is payable in arrears on the last day
of each calendar year.
During Fiscal 2010, the Company acquired the businesses of certain of its distributors of its
Calvin Klein Jeans products and Calvin Klein Underwear products in Singapore and the Peoples
Republic of China for total cash consideration of $8.6 million. In addition, on October 4, 2010,
the Company acquired the business of a distributor of its Calvin Klein products in Italy for cash
consideration of approximately $22.4 million.
During Fiscal 2009, the Company acquired the remaining 49% equity interest in WBR, its
subsidiary in Brazil. In addition to the initial cash payment of approximately $12.0 million made
upon acquisition, the consideration also includes three contingent payments through March 31, 2012.
During the first quarters of Fiscal 2010 and Fiscal 2011, the Company made the first and second
contingent payments of 6.0 million Brazilian real (approximately $3.5 million as of March 31, 2010)
and 18.5 million Brazilian real (approximately $11.5 million as of March 31, 2011), respectively,
based upon the operating results of WBR for the fourth quarter of Fiscal 2009 and all of Fiscal
2010, respectively. Based upon the operating results of WBR for Fiscal 2011, the Company expects to
make the third contingent payment of 18.5 million Brazilian real (approximately $9.9 million as of
December 31, 2011) on March 31, 2012. See Note 2 of Notes to Consolidated Financial Statements for
additional information regarding the Companys acquisitions.
Share Repurchases
During Fiscal 2011, the Company repurchased the remaining 4,060,842 shares of its Common Stock
under the 2010 Share Repurchase Program for a total of $205.8 million (based on an average of
$50.68 per share) and 234,900 shares under the 2011 Share Repurchase Program for $11.3 million
(based on an average of $48.22 per share). In addition, the Company repurchased 49,520 shares of
Common Stock for a total of $2.7 million (based on an average of $54.58 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 13 of Notes to Consolidated Financial
Statements and Part II. Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities). Repurchased shares are held in treasury pending use for
general corporate purposes.
64
Derivative Financial Instruments
During Fiscal 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 inter-company payables, receivables or loans
denominated in U.S. dollars or British
pounds. 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. In addition, during July 2011, the Company entered into an interest
rate cap agreement to offset fluctuations in LIBOR related to $120.0 million of its 2011 Term Loan
(see Notes 12 and 17 of Notes to Consolidated Financial Statements).
The Company carries its derivative financial instruments at fair value on the Consolidated
Balance Sheets. The Company utilizes the market approach to measure fair value for financial assets
and liabilities related to foreign currency exchange forward contracts. The market approach uses
prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities. The Company uses the income approach to measure fair value of the
interest rate cap. At December 31, 2011, the Companys foreign currency hedging programs included
$48.8 million of future inventory purchases, $20.8 million of future minimum royalty and
advertising payments and $70.5 million of inter-company payables and loans denominated in
non-functional currencies, primarily the U.S. dollar.
The Company classifies its financial instruments under a fair value hierarchy that is intended
to increase consistency and comparability in fair value measurements and related disclosures. The
fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value
that are either observable or unobservable. Observable inputs reflect assumptions market
participants would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entitys pricing based upon their
own market assumptions. 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. |
The fair value of foreign currency exchange forward contracts 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 date and (ii) the U.S. dollar value of
the foreign currency to be sold or purchased at the current forward exchange rate. The fair value
of these foreign currency exchange contracts is based on exchange-quoted prices which are adjusted
by a forward yield curve and, therefore, meets the definition of level 2 in the fair value
hierarchy, as defined above.
The fair value of interest rate caps was determined using broker quotes, which use discounted
cash flows and the then-applicable forward LIBOR rates and, therefore, meets the definition of
Level 2 fair value, as defined above.
Pension and Post-Retirement Plans
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 Pension
Plan. During Fiscal 2011, the Company contributed $9.4 million to the domestic Pension Plan.
Contributions for the year ending December 29, 2012 are expected to total $20.6 million and for the
following four years are expected to be in the range of $1.4 million and $9.5 million. The $11.2
million expected increase in contributions between Fiscal 2011 and the year ending December 29,
2012 is primarily due to the decline in the fair value of the pension plans investments in Fiscal
2011 and the decrease in the discount rate used to calculate the pension liability to 5.20% in
Fiscal 2011 from 5.80% in Fiscal 2010, which increased the pension
liability. Actual future year
contributions could exceed or fall short of 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. The Companys cash contribution to the
post-retirement plans (See Note 7 of Notes to Consolidated Financial Statements and Critical
Accounting Policies) was $0.4 million in Fiscal 2011 and is expected to be in the range of $0.3
million to $0.4 million annually for the following four years. See Note 7 of Notes to Consolidated
Financial Statements and Critical Accounting Policies, above, for additional information on the
Companys pension and post-retirement plans.
65
Accounts Receivable and Inventories
Accounts receivable increased $4.9 million to $323.0 million at December 31, 2011 from $318.1
million at January 1, 2011. The balance of accounts receivable at December 31, 2011 compared to the
balance at January 1, 2011 includes a decrease of $11.0
million 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, Indian rupee, British
pound and Mexican peso). Thus, on a constant currency
basis, accounts receivable at December 31, 2011 increased $15.9 million compared to January 1,
2011.
Inventories increased $40.3 million to $350.8 million at December 31, 2011 from $310.5 million
at January 1, 2011. The balance of inventories at December 31, 2011 compared to the balances at
January 1, 2011 includes a decrease of $9.4 million 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, Indian rupee, British
pound and Mexican peso). The inventory increase from January 1, 2011 to
December 31, 2011 primarily reflects increased production costs, the expansion of the Companys retail business (including
retail openings and acquisitions during Fiscal 2011 and those anticipated for the first quarter of
the year ending December 29, 2012). The Company is comfortable with the quality of its inventory
and expects that inventory levels during the year ending December 29, 2012 will be better aligned
with revenue growth.
Cash Flows
The following table summarizes the cash flows from the Companys operating, investing and
financing activities for Fiscal 2011, Fiscal 2010 and Fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
145,425 |
|
|
$ |
225,362 |
|
|
$ |
263,881 |
|
Discontinued operations |
|
|
(16,523 |
) |
|
|
(1,205 |
) |
|
|
1,033 |
|
Net cash used in investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(80,365 |
) |
|
|
(72,643 |
) |
|
|
(52,581 |
) |
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(6,246 |
) |
|
|
(283,051 |
) |
|
|
(40,908 |
) |
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
(987 |
) |
|
|
2,010 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
$ |
41,304 |
|
|
$ |
(129,527 |
) |
|
$ |
173,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal 2011, cash provided by operating activities from continuing operations was
$145.4 million compared to $225.4 million in Fiscal 2010 and $263.9 million in Fiscal 2009. The
$80.0 million decrease in cash provided from Fiscal 2010 to Fiscal 2011 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, as described below. The $38.5 million decrease in cash provided from Fiscal 2009
compared to Fiscal 2010 was due to an increase in net income, net of non-cash charges, offset by an
increase in outflows related to changes in working capital, as described below.
Working capital changes for Fiscal 2011 included cash outflows of $19.1 million related to
accounts receivable (due to increased sales in December 2011 compared to December 2010 and the
timing of payments), $65.7 million related to inventory (to support the Companys growth
expectations for the fiscal year ending December 29. 2012), $8.8
million related to accounts payable and accrued expenses (due to
timing of payments for purchases of inventory) and $24.5 million related to accrued income taxes.
Working capital changes for Fiscal 2010 included cash outflows of $33.1 million related to
accounts receivable (due to increased sales in December 2010 compared to December 2009 and the
timing of payments), $62.5 million related to inventory (to support the Companys growth
expectations for Fiscal 2011 and for certain early purchases of product) and $22.1 million related
to prepaid expenses and other assets (primarily related to prepaid advertising and royalty
expenses), partially offset by cash inflows of $55.2 million related to accounts payable, accrued expenses and other liabilities (due to the
timing of payments for purchases of inventory) and $20.9 million related to accrued income taxes.
Working capital changes for Fiscal 2009 included cash inflows of $67.5 million related to
inventory (due to the Companys initiative to reduce inventory balances in light of the downturn in
the economy), $17.1 million related to accrued income taxes and $9.9 million related to prepaid
expenses and other assets ), partially offset by cash outflows of $27.9 million related to accounts
receivable (due to increased sales in 2009 and the timing of payments) and $5.1 million related to
accounts payable, accrued expenses and other liabilities (due to the timing of payments for
purchases of inventory.
66
For Fiscal 2011 compared to Fiscal 2010, cash used in operating activities from discontinued
operations increased $15.3 million primarily related to settlement of the OP litigation (see Notes
3 and 19 of Notes to Consolidated Financial Statements).
For Fiscal 2011, net cash used in investing activities from continuing operations was $80.4
million, mainly attributable to purchases of property, plant and equipment associated with the
Companys retail stores and acquisition of the business of the Companys distributor of Calvin
Klein products in India. For Fiscal 2010, net cash used in investing activities from continuing
operations was $72.6 million, including $44.4 million attributable to purchases of property, plant
and equipment, primarily related to the Companys new distribution center in the Netherlands and
the opening of new retail stores, and $29.9 million related to acquisitions of businesses in Europe
and Asia. For Fiscal 2009, cash used in investing activities from continuing operations was $52.6
million, mainly attributable to purchases of property, plant and equipment of $43.4 million, the
acquisition of retail stores in Chile and Peru of $2.5 million and acquisitions in Brazil of $7.0
million (see Note 2 to Notes to Consolidated Financial Statements).
Net cash used in financing activities for Fiscal 2011 was $6.2 million, which primarily
reflects cash used of $219.8 million related to the repurchase of treasury stock (in connection
with the 2010 Share Repurchase Program, the 2011 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), repayment of the Italian Note ($13.4 million), $11.5 million
related to a contingent payment made during the first quarter of Fiscal 2011 in connection with the
acquisition of the equity interest in WBR, which occurred in the fourth quarter of Fiscal 2009 and
was accounted for as an equity transaction, $7.5 million in payment of deferred financing costs,
primarily related to the 2011 Term Loan and amendment of the 2008 Credit Agreements,and repayment
of principal under the 2011 Term Loan of $1.0 million, partially offset by net cash provided of
$200.0 million related to borrowings under the 2011 Term Loan, $25.6 million received from short
term borrowings,$9.3 million from the exercise of employee stock options and $12.1 million of tax
benefits related to the exercise of equity awards.
Net cash used in financing activities for Fiscal 2010 was $283.1 million, which primarily
reflects net cash used of $164.0 million related to the repurchase of Senior Notes, $119.8 million
related to the repurchase of treasury stock (in connection with the 2007 Share Repurchase Program,
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), $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 a decrease
of $13.3 million related to reduced balances of short-term notes payable, partially offset by cash
provided of $16.7 million related to the exercise of employee stock options.
Net cash used in financing activities for Fiscal 2009 was $40.9 million, which primarily
reflects a decrease of $24.0 million related to short-term notes payable, a decrease of $11.8
million due to repayment of amounts borrowed under the 2008 Credit Agreements, a decrease of $4.0
million related to the dividend paid in connection with the acquisitions in Brazil in Fiscal 2010,
a decrease of $5.3 million related to the acquisition of the equity interest in the Brazilian
non-controlling interest, which was accounted for as an equity transaction, and a payment of $1.5
million related to the repurchase of treasury stock (in connection with the surrender of shares
for the payment of the minimum employee withholding tax due upon vesting of certain restricted
stock awarded by the Company to its employees), partially offset by $4.0 million received from the
exercise of employee stock options and an increase of $2.2 million of cash received upon the
cancellation of the 2003 and 2004 interest rate swap agreements (see Note 12 to Notes to
Consolidated Financial Statements).
Cash in operating accounts primarily represents cash held in domestic cash collateral
accounts, lockbox receipts not yet cleared or available to the Company, cash held by foreign
subsidiaries and compensating balances required under various trade, credit and other arrangements.
67
Contractual Obligations
The following table summarizes the Companys contractual commitments as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Year |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Thereafter |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Term Loan (a) |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
189,000 |
|
|
$ |
199,000 |
|
Interest rate cap (b) |
|
|
2,376 |
|
|
|
2,370 |
|
|
|
2,370 |
|
|
|
2,363 |
|
|
|
2,382 |
|
|
|
3,544 |
|
|
|
15,405 |
|
2008 Credit Agreements (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84 |
|
CKJEA and other short term notes
payable (d) |
|
|
43,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,021 |
|
Minimum royalties (e) |
|
|
65,784 |
|
|
|
63,205 |
|
|
|
49,209 |
|
|
|
54,483 |
|
|
|
55,172 |
|
|
|
807,763 |
|
|
|
1,095,616 |
|
Operating leases (e) |
|
|
96,164 |
|
|
|
81,347 |
|
|
|
63,050 |
|
|
|
50,096 |
|
|
|
37,205 |
|
|
|
92,052 |
|
|
|
419,914 |
|
Interest payments (f) |
|
|
8,456 |
|
|
|
8,381 |
|
|
|
8,306 |
|
|
|
8,231 |
|
|
|
8,070 |
|
|
|
10,255 |
|
|
|
51,699 |
|
Pension plan funding (g) |
|
|
22,525 |
|
|
|
9,651 |
|
|
|
8,551 |
|
|
|
5,551 |
|
|
|
1,551 |
|
|
|
605 |
|
|
|
48,434 |
|
Post-retirement plan funding (g) |
|
|
380 |
|
|
|
360 |
|
|
|
330 |
|
|
|
320 |
|
|
|
320 |
|
|
|
1,590 |
|
|
|
3,300 |
|
Employment contracts |
|
|
6,853 |
|
|
|
888 |
|
|
|
393 |
|
|
|
335 |
|
|
|
33 |
|
|
|
79 |
|
|
|
8,581 |
|
Purchase obligations (h) |
|
|
1,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,217 |
|
IT license and maintenance contracts |
|
|
3,673 |
|
|
|
804 |
|
|
|
652 |
|
|
|
169 |
|
|
|
11 |
|
|
|
|
|
|
|
5,309 |
|
Liabilities for uncertain tax positions |
|
|
14,514 |
|
|
|
4,870 |
|
|
|
7,146 |
|
|
|
3,353 |
|
|
|
2,165 |
|
|
|
9,501 |
|
|
|
41,549 |
|
Other long-term obligations (i) |
|
|
16,616 |
|
|
|
4,122 |
|
|
|
1,961 |
|
|
|
1,015 |
|
|
|
196 |
|
|
|
200 |
|
|
|
24,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
283,663 |
|
|
$ |
177,998 |
|
|
$ |
143,968 |
|
|
$ |
127,916 |
|
|
$ |
109,105 |
|
|
$ |
1,114,589 |
|
|
$ |
1,957,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 2011 Term Loan matures on June 17, 2018. See Note 12 of Notes to Consolidated Financial
Statements |
|
(b) |
|
The interest rate cap limits the LIBOR portion of interest expense on $120.0 million of the
2011 Term Loan to 1.00%. Payments under the interest rate cap will be made through April 30,
2018 (see Note 12 of Notes to Consolidated Financial Statements). |
|
(c) |
|
The 2008 Credit Agreements, as amended, mature on November 8, 2016. See Note 12 of Notes to
Consolidated Financial Statements. |
|
(d) |
|
Includes the CKJEA Notes, the Brazilian lines of credit and the Asian Credit Facility. All of
the CKJEA Notes were renewed for additional terms of less than one
year during Fiscal 2011. |
|
(e) |
|
See Note 15 of Notes to Consolidated Financial Statements. |
|
(f) |
|
Reflects expected interest obligations after considering required minimum repayments of the
related debt. Interest on variable rate debt instruments is estimated based upon rates in
effect at December 31, 2011. See Item 7A. Quantitative and Qualitative Disclosures About
Market Risk Interest Rate Risk. |
|
(g) |
|
Reflects expected minimum contributions to the Companys U.S. and foreign pension plans in
accordance with the PPA and to the Companys post-retirement plan in the U.S. See Capital
Resources and Liquidity Liquidity and Note 7 of Notes to Consolidated Financial Statements. |
|
(h) |
|
Represents contractual commitments for goods or services not received or recorded on the
Companys Consolidated Balance Sheet. See Note 15 of Notes to Consolidated Financial
Statements. |
|
(i) |
|
Includes contracts with athletes and models, the final payment of approximately $9.9 million
(based on the exchange rate on December 31, 2011) related to the Brazilian Acquisitions, which
is expected to be paid by March 31, 2012 (see Note 2 of Notes to Consolidated Financial
Statements) and other miscellaneous contractual obligations. |
In addition to the above contractual obligations, in the ordinary course of business, the
Company has open purchase orders with suppliers of approximately $366.9 million as of December 31,
2011, all of which is payable in the fiscal year ending December 29, 2012.
Seasonality
The Companys Swimwear business is seasonal; approximately 65.5% of the Swimwear Groups net
revenues were generated in the first half of Fiscal 2011. The working capital requirements of the
Swimwear Group are highest during the periods when the Companys other businesses have their lowest
working capital requirements.
The following sets forth the net revenues, operating income and net cash flow from operating
activities generated for each quarter of Fiscal 2011 and Fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
April 2, |
|
|
July 2, |
|
|
October 1, |
|
|
December 31, |
|
|
April 3, |
|
|
July 3, |
|
|
October 2, |
|
|
January 1, |
|
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
|
|
(in millions of dollars) |
|
Net revenues |
|
$ |
662.2 |
|
|
$ |
591.4 |
|
|
$ |
645.1 |
|
|
$ |
614.7 |
|
|
$ |
588.2 |
|
|
$ |
519.3 |
|
|
$ |
596.8 |
|
|
$ |
591.5 |
|
Operating income |
|
|
69.7 |
|
|
|
52.6 |
|
|
|
64.8 |
|
|
$ |
(5.6 |
) |
|
|
79.5 |
|
|
|
55.3 |
|
|
|
67.9 |
|
|
$ |
45.1 |
|
Cash flow provided by
(used in) operating activities |
|
|
(83.8 |
) |
|
|
127.2 |
|
|
|
16.8 |
|
|
$ |
68.7 |
|
|
|
(30.1 |
) |
|
|
125.1 |
|
|
|
53.3 |
|
|
$ |
75.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Inflation
The Company believes that the relatively moderate levels of inflation in the U.S., Canada,
Western Europe, Asia and Latin America have not had a significant effect on its net revenues or its
profitability in any of the last three fiscal years. The Company believes that, in the past, it has
been able to offset such effects by increasing prices on certain items or instituting improvements
in productivity. However, during the fourth quarter of Fiscal 2010 and during Fiscal 2011, the
Company experienced an increase in costs, including those for raw material, labor and freight. The
Company was able to partially mitigate those cost increases and their effect on gross margins in
certain geographical markets through a combination of sourcing initiatives, selective price
increases and early purchases of product.
Off-Balance Sheet Arrangements
None.
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements- Nature of Operations and Summary of
Significant Accounting Policies Recent Accounting Pronouncements.
Statement Regarding Forward-Looking Disclosure
This Annual Report on Form 10-K, 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 Annual Report on Form
10-K 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;
the Companys failure to use the most recent and effective advertising media to reach customers;
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 the Companys 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.
69
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 this Annual Report on Form 10-K, 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 7A. |
|
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 rate risk due to
fluctuations in interest rates on its outstanding debt instruments and foreign exchange risk due to
the effect of changes in foreign currency exchange rates on purchases of inventory and payment of
royalty and advertising costs by certain of the Companys subsidiaries in currencies other than
their functional currencies. The Company does not use derivative financial instruments for
speculation or for trading purposes.
Market Risk
The Companys pension plan invests in marketable equity and debt securities, mutual funds and
limited partnerships. These investments are subject to changes in the market value of individual
securities and interest rates as well as changes in the overall economy. Investments are stated at
fair value based upon quoted market prices and other observable inputs, except for investments in
limited partnerships. Investments in limited partnerships are valued based on the net asset
valuations provided by the administrators of each underlying investment, in consultation with the
investment managers in the absence of readily ascertainable market values. Because of the inherent
uncertainty of valuation, those estimated values may differ significantly from the values that
would have been used had a ready market for the securities existed, and the differences could be
material. The limited partnerships utilize a fund of funds approach resulting in diversified
multi-strategy, multi-manager investments. The limited partnerships invest capital in a
diversified group of investment entities, generally hedge funds, private investment companies,
portfolio funds and pooled investment vehicles which engage in a variety of investment strategies,
managed by investment managers. The Companys pension plan has reduced its investment in limited
partnerships from $9.6 million at January 1, 2011 to $7.0 million at December 31, 2011.
During Fiscal 2011, the fair value of the debt and equity securities and other investments
held in the pension plans investment portfolio decreased compared to Fiscal 2010. Changes in the
fair value of the pension plans investment portfolio are directly reflected in the Companys
Consolidated Statement of Operations through pension expense or pension income and in the Companys
Consolidated Balance Sheet as a component of accrued pension liability. The Company records the
effect of any changes in actuarial assumptions (including changes in the discount rate) and the
difference between the assumed rate of return on plan assets and the actual return on plan assets
in the fourth quarter of its fiscal year.
The total value of the pension plans investment portfolio was $121.4 million at December 31,
2011 and $127.7 million at January 1, 2011. A hypothetical 10% increase/decrease in the value of
the Companys pension plan investment portfolio would have resulted in a decrease/increase in
pension expense of $12.1 million and $12.8 million for Fiscal 2011 and Fiscal 2010, respectively.
Based on historical appreciation in the Companys pension plan investment portfolio, the Company,
during the first three quarters of Fiscal 2011, estimated pension income on an interim basis
assuming a long-term rate of return on pension plan investments of 8%, net of pension plan
expenses; however, as noted above, during Fiscal 2011, pension plan net assets (including benefit
payments, contributions and expenses paid) actually decreased by approximately 5.0%. In addition,
in the fourth quarter of Fiscal 2011, the Company reduced the discount rate used to determine
benefit obligations from 5.8% in Fiscal 2010 to 5.2% in Fiscal 2011, which increased the benefit
obligation. As a result, the Company recognized approximately $27.5 million of pension expense in
the fourth quarter of Fiscal 2011. Based upon results for Fiscal 2011, and assuming no other
changes,a 0.1% increase (decrease) in the discount rate would decrease (increase) pension expense
by approximately $1.76 million. See Note 7 of Notes to Consolidated Financial
Statements and Critical Accounting Policies, above, for a further discussion of the Companys
pension plan, including the discount rate and long-term rate of return.
70
Interest Rate Risk
On June 17, 2011, the Company entered into the $200 million 2011 Term Loan, which bears
interest of LIBOR (with a floor of 1%) plus a margin of 2.75% per annum. Changes in LIBOR will
affect $80 million of the 2011 Term Loan not subject to the interest rate cap (see Note 12 of Notes
to Consolidated Financial Statements). Changes in LIBOR have been immaterial from June 17, 2011
through December 31 2011. In addition, the Company had market risk from exposure to changes in
interest rates, at December
31, 2011, on $36.6 million under the CKJEA Notes and, at January 1,
2011, on $18.4 million under the CKJEA Notes and $13.4 million under the Italian Note. In Fiscal
2011, a hypothetical 10% increase in interest rates for the 2011 Term Loan would have resulted in a
decrease of $0.3 million in the Companys income from continuing operations before provision for
income taxes or cash flows. A hypothetical 10% increase in interest rates for the loans outstanding
under the CKJEA Notes and Italian Note would have had a negligible unfavorable effect in Fiscal
2011 and in Fiscal 2010 on the Companys income from continuing operations before provision for
income taxes or cash flows. See Note 12 of Notes to Consolidated Financial Statements.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk related to foreign denominated revenues and
costs, which must be translated into U.S. dollars. Fluctuations in foreign currency exchange rates
(particularly any strengthening of the U.S. dollar relative to the Euro, Canadian dollar, British
pound, Korean won, Mexican peso, Brazilian real, Indian rupee,
Singaporean dollar and Chinese yuan)
may adversely affect the Companys reported earnings and the comparability of period-to-period
results of operations. The Companys foreign exchange risk includes its U.S. dollar-denominated
purchases of inventory, payment of minimum royalty and advertising costs and intercompany loans and
payables where the functional currencies of the subsidiaries that are party to these transactions
are the Euro, Canadian dollar, Korean won, Mexican peso, British pound or Singapore dollar. The
foreign currency derivative instruments that the Company uses to partially offset its foreign
exchange risk are foreign exchange forward contracts. See Note17 of Notes to the Consolidated
Financial Statements for further details on the derivative instruments and hedged transactions.
During Fiscal 2011, on average, the U.S. dollar weakened against those foreign currencies, which
resulted in an increase in the Companys net revenues compared to Fiscal 2010. The Companys
European, Asian, Canadian and Mexican and Central and South American operations accounted for
approximately 59.7% of the Companys total net revenues for Fiscal 2011. These foreign operations
of the Company purchase products from suppliers denominated in U.S. dollars. Total purchases of
products made by foreign subsidiaries denominated in U.S. dollars amounted to approximately $284.0
million for Fiscal 2011. A hypothetical decrease of 10% in the value of these foreign currencies
relative to the U.S. dollar would have increased cost of goods sold (which would decrease operating
income) by $28.4 million for Fiscal 2011.
The fair value of foreign currency exchange forward contracts 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 date and (ii) the U.S. dollar value of
the foreign currency to be sold or purchased at the current forward exchange rate.
The following table summarizes the effect on earnings for Fiscal 2011 of a hypothetical 10%
adverse change in foreign currency exchange rates on the Companys foreign currency exchange
forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Effect of Hypothetical |
|
|
|
|
|
|
|
|
|
Average |
|
|
10% Adverse Change in Foreign |
|
|
|
|
|
Foreign |
|
|
|
Contractual |
|
|
Currency Exchange Rates |
|
|
|
|
|
Currency (a) |
|
Amount |
|
Exchange Rate |
|
|
on Earnings |
|
Derivative Instrument |
|
Hedged Transaction |
|
Sell/Buy |
|
Hedged |
|
or Strike Price |
|
|
Gain (loss) (b) |
|
|
|
|
|
|
|
USD (thousands) |
|
|
|
|
USD (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Minimum royalty and advertising costs |
|
Euro/USD |
|
20,811 |
|
|
1.3888 |
|
|
(1,942 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
KRW/USD |
|
15,100 |
|
|
1,155 |
|
|
(1,504 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
CAD/USD |
|
18,500 |
|
|
0.9902 |
|
|
(1,830 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
MXN/USD |
|
11,900 |
|
|
13.69 |
|
|
(1,168 |
) |
Foreign exchange contracts |
|
Intercompany purchases of inventory |
|
GBP/Euro |
|
3,264 |
|
|
0.8548 |
|
|
(318 |
) |
Foreign exchange contracts |
|
Intercompany payables |
|
Euro/USD |
|
30,000 |
|
|
1.3810 |
|
|
(2,815 |
) |
Foreign exchange contracts |
|
Intercompany loan |
|
Euro/USD |
|
34,500 |
|
|
1.3683 |
|
|
(3,268 |
) |
Foreign exchange contracts |
|
Loan to non-controlling shareholder |
|
SGD/USD |
|
6,000 |
|
|
0.8933 |
|
|
(698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
USD = U.S. dollar, KRW = Korean won, CAD = Canadian dollar, MXN = Mexican peso, GBP =
British pound, SGD = Singapore Dollar |
|
(b) |
|
The Company expects that these hypothetical gains and losses would be offset by gains and
losses on the related underlying transactions. |
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data. |
The information required by this Item 8 of Part II is incorporated by reference to the
Consolidated Financial Statements filed with this Annual Report on Form 10-K. See Item 15.
Exhibits, Financial Statement Schedules.
|
|
|
Item 9. |
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
None.
|
|
|
Item 9A. |
|
Controls and Procedures. |
71
Evaluation of 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 Annual Report on Form 10-K. 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.
Managements Annual Report on Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal Control over financial reporting is defined in Rule
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process
designed by or under the supervision of, the Companys principal executive and principal financial
officers and effected by the Companys board of directors, management and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those policies and procedures that:
|
|
|
pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company; |
|
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and |
|
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect
on the financial statements. |
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2011. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based on this assessment, management concluded that, as of December 31, 2011, the Companys
internal control over financial reporting was effective.
Deloitte & Touche LLP, the Companys independent registered public accounting firm, has
audited the Companys internal control over financial reporting as of December 31, 2011, and its
report thereon is included herein.
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 fourth quarter of
2011 that materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risks that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that
the control systems objectives will be met.
72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Warnaco Group, Inc.
New York, New York
We have audited the internal control over financial reporting of The Warnaco Group, Inc. and
subsidiaries (the Company) as of December 31, 2011, based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Annual Report on Internal Control Over
Financial Reporting on page 72. Our responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2011, based on the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended December 31, 2011 of the Company and our
report dated February 29, 2012
expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 29, 2012
73
|
|
|
Item 9B. |
|
Other Information. |
None.
74
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers and Corporate Governance. |
The information required by this Item 10 of Part III is incorporated by reference from Item 1.
Business - Executive Officers of the Registrant and from the Proxy Statement of Warnaco Group,
relating to the 2012 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of
the Fiscal 2011 year end.
|
|
|
Item 11. |
|
Executive Compensation. |
The information required by this Item 11 of Part III is incorporated by reference from the
Proxy Statement of Warnaco Group, relating to the 2012 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days of the Fiscal 2011 year end.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. |
The information required by this Item 12 of Part III is incorporated by reference from the
Proxy Statement of Warnaco Group, relating to the 2012 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days of the Fiscal 2011 year end.
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions and Director Independence. |
The information required by this Item 13 of Part III is incorporated by reference from the
Proxy Statement of Warnaco Group, relating to the 2012 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days of the Fiscal 2011 year end.
|
|
|
Item 14. |
|
Principal Accountant Fees and Services. |
The information required by this Item 14 of Part III is incorporated by reference from the
Proxy Statement of Warnaco Group, relating to the 2012 Annual Meeting of Stockholders, to be filed
with the SEC within 120 days of the Fiscal 2011 year end.
75
PART IV
|
|
|
Item 15. |
|
Exhibits, Financial Statement Schedules. |
|
|
|
|
|
PAGE |
|
|
|
(a) 1. The Consolidated Financial Statements of The Warnaco Group, Inc. |
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 F-6 |
|
|
|
|
|
F-7 F-59 |
|
|
|
2. Financial Statement Schedule |
|
|
|
|
|
|
|
A-1 |
All other schedules for which provision is made in the applicable accounting regulations of
the SEC which are not included with this additional financial data have been omitted because they
are not applicable or the required information is shown in the Consolidated Financial Statements or
Notes thereto.
76
3. List of 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-K not misleading. Additional information about Warnaco Group may be found elsewhere in this
Annual Report on Form 10-K and Warnaco Groups other public filings, which are available without
charge through the SECs website at http://www.sec.gov. See Website Access to Reports under Item
1 of Part I.
|
|
|
Exhibit No. |
|
Description of Exhibit |
2.1
|
|
First Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and its Affiliated Debtors in
Possession Under Chapter 11 of the Bankruptcy Code (incorporated by reference to Exhibit 99.2 to The
Warnaco Group, Inc.s Form 10-Q filed on November 18, 2002).* |
|
|
|
2.2
|
|
Disclosure Statement with respect to the First Amended Joint Plan of Reorganization of The Warnaco
Group, Inc. and its Affiliated Debtors and Debtors in Possession Under Chapter 11 of the Bankruptcy
Code (incorporated by reference to Exhibit 99.3 to The Warnaco Group, Inc.s Form 10-Q filed
November 18, 2002).* |
|
|
|
2.3
|
|
Stock Purchase Agreement, dated as of August 3, 2004, by and among Warnaco Inc., Ocean Pacific
Apparel Corp. and Doyle & Boissiere Fund I, LLC, Anders Brag, Leo Isotolo and Richard A. Baker
(incorporated by reference to Exhibit 2.1 to The Warnaco Group, Inc.s Form 10-Q filed November 10,
2004).* ## ** |
|
|
|
2.4
|
|
Stock Purchase Agreement, dated as of December 20, 2005, by and among Warnaco Inc., Fingen Apparel
N.V., Fingen S.p.A., Euro Cormar S.p.A., and Calvin Klein, Inc. (incorporated by reference to
Exhibit 10.1 to The Warnaco Group, Inc.s Form 8-K filed December 23, 2005).* ** |
|
|
|
2.5
|
|
Amendment, dated as of January 30, 2006, to the Stock Purchase Agreement, dated as of December 20,
2005, by and among Warnaco Inc., Fingen Apparel N.V., Fingen S.p.A., Euro Cormar S.p.A., and Calvin
Klein, Inc. (incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s Form 8-K filed
February 3, 2006).* |
|
|
|
2.6
|
|
Asset Purchase Agreement, dated as of October 31, 2006, by and among The Warnaco Group, Inc., Ocean
Pacific Apparel Corp. and Iconix Brand Group, Inc. (incorporated by reference to Exhibit 2.1 to The
Warnaco Group, Inc.s Form 8-K filed November 6, 2006).* ** |
|
|
|
2.7
|
|
Stock and Asset Purchase Agreement, dated as of February 14, 2008, between Warnaco Netherlands BV
and Palmers Textil AG (incorporated by reference to Exhibit 2.1 to The Warnaco Group, Inc.s Form
8-K filed February 19, 2008).* ** |
|
|
|
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).* |
|
|
|
4.1
|
|
Registration Rights Agreement, dated as of June 12, 2003, among Warnaco Inc., the Guarantors (as
defined therein) and the Initial Purchasers (as defined therein) (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-4 (File No. 333-107788) filed by The Warnaco
Group, Inc. and certain of its subsidiaries on August 8, 2003).* |
|
|
|
4.2
|
|
Indenture, dated as of June 12, 2003, among Warnaco Inc., the Guarantors (as defined therein) and
the Trustee (as defined therein) (incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 (File No. 333-107788) filed by The Warnaco Group, Inc. and certain of its
subsidiaries on August 8, 2003).* |
|
|
|
4.3
|
|
Registration Rights Agreement, dated as of February 4, 2003, among The Warnaco Group, Inc. and
certain creditors thereof (as described in the Registration Rights Agreement) (incorporated by
reference to Exhibit 4.5 to The Warnaco Group, Inc.s Form 8-K filed February 10, 2003).* |
77
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.1
|
|
Credit Agreement, dated as of August 26, 2008, among Warnaco Inc., The Warnaco Group, Inc., the
Lenders (as defined therein) and Issuers (as defined therein) party thereto, Bank of America, N.A.,
as administrative agent for the revolving credit facility and as collateral agent for the Lenders
and the Issuers party thereto, Banc of America Securities LLC and Deutsche Bank Securities Inc., as
joint lead arrangers, Banc of America Securities LLC, Deutsche Bank Securities Inc. and J.P. Morgan
Securities Inc., as joint bookrunners, Deutsche Bank Securities Inc., as sole syndication agent for
the Lenders and the Issuers party thereto, and HSBC Business Credit (USA) Inc., JPMorgan Chase Bank,
N.A. and RBS Business Capital, a division of RBS Asset Finance Inc., each as a co-documentation
agent for the Lenders and Issuers (incorporated by reference to Exhibit 10.1 to The Warnaco Group
Inc.s Form 10-Q filed November 9, 2010).* ## |
|
|
|
10.2
|
|
Guaranty, dated as of August 26, 2008, by The Warnaco Group, Inc. and each of the other entities
listed on the signature pages thereof or that becomes a party thereto, in favor of Bank of America,
N.A., as administrative agent for the revolving credit facility and as collateral agent for the
Lenders (as defined therein) and Issuers (as defined therein) party thereto, and the Issuers and
Lenders party thereto (incorporated by reference to Exhibit 10.2 to The Warnaco Group Inc.s Form
10-Q filed August 6, 2010).* |
|
|
|
10.3
|
|
Pledge and Security Agreement, dated as of August 26, 2008, by The Warnaco Group, Inc., Warnaco
Inc., and each of the other entities listed on the signature pages thereto or that becomes a party
thereto, in favor of Bank of America, N.A., as collateral agent for the secured parties thereunder
(incorporated by reference to Exhibit 10.3 to The Warnaco Group Inc.s Form 10-Q filed November 9,
2010.* ## |
|
|
|
10.4
|
|
Canadian Credit Agreement, dated as of August 26, 2008, among Warnaco of Canada Company, The Warnaco
Group, Inc., the Lenders (as defined therein) and Issuers (as defined therein) party thereto, Bank
of America, N.A., as administrative agent for the revolving credit facility and as collateral agent
for the Lenders and the Issuers party thereto, Banc of America Securities LLC and Deutsche Bank
Securities Inc., as joint lead arrangers and joint book managers, and Deutsche Bank Securities
Inc., as sole syndication agent for the Lenders and the Issuers party thereto (incorporated by
reference to Exhibit 10.4 to The Warnaco Group Inc.s Form 10-Q filed November 9, 2010).* ## |
|
|
|
10.5
|
|
U.S. Loan Party Canadian Facility Guaranty, dated as of August 26, 2008, by The Warnaco Group, Inc.,
Warnaco Inc., and each of the other entities listed on the signature pages thereto or that becomes a
party thereto, in favor of, Bank of America, N.A. as administrative agent for the revolving credit
facility and as collateral agent for the Lenders (as defined therein) and Issuers (as defined
therein) party thereto, and the Issuers and Lenders party thereto (incorporated by reference to
Exhibit 10.5 to The Warnaco Group Inc.s Form 10-Q filed August 6, 2010).* |
|
|
|
10.6
|
|
Guaranty, dated as of August 26, 2008 by 4278941 Canada Inc., in favor of Bank of America, N.A. as
lender (acting through its Canada branch) and as collateral agent, for itself and on behalf of the
secured parties (incorporated by reference to Exhibit 10.6 to The Warnaco Group Inc.s Form 8-K
filed August 28, 2008).* |
|
|
|
10.7
|
|
General Security Agreement, dated as of August 26, 2008, granted by Warnaco of Canada Company to
Bank of America, N.A. (incorporated by reference to Exhibit 10.7 to The Warnaco Group Inc.s Form
10-Q filed November 9, 2010).* ## |
|
|
|
10.8
|
|
General Security Agreement, dated as of August 26, 2008, granted by 4278941 Canada Inc. to Bank of
America, N.A. (incorporated by reference to Exhibit 10.8 to The Warnaco Group Inc.s Form 10-Q filed
November 9, 2010).* |
|
|
|
10.9
|
|
Securities Pledge Agreement, dated as of August 26, 2008 made by Warnaco of Canada Company to and in
favour of Bank of America, N.A. as collateral agent (incorporated by reference to Exhibit 10.9 to
The Warnaco Group Inc.s Form 10-Q filed August 6, 2010).* |
|
|
|
10.10
|
|
Deed of Hypothec, dated as of August 26, 2008, between Warnaco of Canada Company and Bank of
America, N.A. (incorporated by reference to Exhibit 10.10 to The Warnaco Group Inc.s Form 10-Q
filed August 6, 2010).* |
|
|
|
10.11
|
|
Deed of Hypothec, dated as of August 26, 2008, between 4278941 Canada Inc. and Bank of America, N.A.
(incorporated by reference to Exhibit 10.11 to The Warnaco Group Inc.s Form 10-Q filed August 6,
2010).* |
|
|
|
10.12
|
|
Term Loan Agreement, dated as of June 17, 2011, among Warnaco Inc., Calvin Klein Jeanswear Company,
Warnaco Swimwear Products Inc., The Warnaco Group, Inc., the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative agent and as collateral agent (incorporated by reference to
Exhibit 10.1 to The Warnaco Group, Inc.s Form 8-K filed June 23, 2011).* ## |
|
|
|
10.13
|
|
Guaranty, dated as of June 17, 2011, by The Warnaco Group, Inc. and each of the other entities
listed on the signature pages thereto or that becomes a party thereto, in favor of JPMorgan Chase
Bank, N.A., as administrative agent and as collateral agent, each lender, and each other holder of
an obligation thereunder (incorporated by reference to Exhibit 10.2 to The Warnaco Group, Inc.s
Form 8-K filed June 23, 2011).* |
78
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.14
|
|
Pledge and Security Agreement, dated as of June 17, 2011, by Warnaco Inc., Calvin Klein Jeanswear
Company, Warnaco Swimwear Products Inc., The Warnaco Group, Inc. and each of the other entities
listed on the signature pages thereto or that from time to time becomes a party thereto, in favor of
JPMorgan Chase Bank, N.A., as collateral agent for the secured parties thereunder (incorporated by
reference to Exhibit 10.3 to The Warnaco Group, Inc.s Form 8-K filed June 23, 2011).* ## |
|
|
|
10.15
|
|
Intercreditor Agreement, dated June 17, 2011, among JPMorgan Chase Bank, N.A., as adminstrative
agent and as collateral agent under the Term Loan Agreement and Bank of America, N.A., as
administrative agent and as collateral agent under each of the ABL Credit Facilities, and
acknowledged by the borrowers, The Warnaco Group, Inc, and the other loan parties party thereto
(incorporated by reference to Exhibit 10.4 to The Warnaco Group, Inc.s Form 8-K filed June 23,
2011).* |
|
|
|
10.16
|
|
Canadian ABL Amendment, dated as of June 17, 2011, among Warnaco of Canada Company, the affiliates
of the borrower party thereto, the lenders party thereto and Bank of America, N.A., as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.5 to The Warnaco
Group, Inc.s Form 8-K filed June 23, 2011).* |
|
|
|
10.17
|
|
U.S. ABL Amendment, dated as of June 17, 2011, among Warnaco Inc., the affiliates of the borrower
party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and
collateral agent (incorporated by reference to Exhibit 10.6 to The Warnaco Group, Inc.s Form 8-K
filed June 23, 2011).* |
|
|
|
10.18
|
|
Amendment No. 2, dated as of November 8, 2011, by and among Warnaco Inc., as borrower, the
affiliates of the borrower party thereto, the lenders, issuers and swing loan lender party thereto
and Bank of America, N.A., as administrative agent and collateral agent, which amends the Credit
Agreement, dated as of August 26, 2008, by and among Warnaco Inc., The Warnaco Group, Inc., the
lenders and issuers party thereto and Bank of America, N.A., as administrative agent and collateral
agent for the lenders and the issuers party thereto, as amended by Amendment No. 1, dated June 17,
2011 (incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s Form 8-K filed November
15, 2011).* ## |
|
|
|
10.19
|
|
Amendment No. 2, dated as of November 8, 2011, by and among Warnaco of Canada Company, as borrower,
the affiliates of the borrower party thereto, the lenders, issuers and swing loan lender party
thereto and Bank of America, N.A., as administrative agent and collateral agent, which amends the
Canadian Credit Agreement, dated as of August 26, 2008, by and among Warnaco of Canada
Company, The Warnaco Group, Inc., the lenders and issuers party thereto and Bank of America, N.A.,
as administrative agent and collateral agent for the lenders and the issuers party thereto, as
amended by Amendment No. 1, dated June 17, 2011 (incorporated by reference to Exhibit 10.2 to The
Warnaco Group, Inc.s Form 8-K filed November 15, 2011).* ## |
|
|
|
10.20
|
|
Warnaco Employee Retirement Plan (incorporated by reference to Exhibit 10.11 to The Warnaco Group,
Inc.s Registration Statement on Form S-1 (File No. 33-4587)).* |
|
|
|
10.21
|
|
The Warnaco Group, Inc. 2003 Stock Incentive Plan (incorporated by reference to Appendix D to The
Warnaco Group, Inc.s Proxy Statement filed April 29, 2003).* |
|
|
|
10.22
|
|
The Warnaco Group, Inc. Incentive Compensation Plan (incorporated by reference to Appendix E to The
Warnaco Group, Inc.s Proxy Statement filed April 29, 2003).* |
|
|
|
10.23
|
|
The Warnaco Group, Inc. 2005 Stock Incentive Plan (incorporated by reference to Annex A to The
Warnaco Group, Inc.s 2005 Proxy Statement on Schedule 14A filed on April 12, 2005).* |
|
|
|
10.24
|
|
The Warnaco Group, Inc. Amended and Restated 2005 Stock Incentive Plan (incorporated by reference to
Appendix A to The Warnaco Group, Inc.s 2008 Proxy Statement on Schedule 14A filed on April 11,
2008).* |
|
|
|
10.25
|
|
The Warnaco Group, Inc. 2008 Incentive Compensation Plan (incorporated by reference to Appendix B to
The Warnaco Group, Inc.s 2008 Proxy Statement on Schedule 14A filed on April 11, 2008).* |
10.26
|
|
The Warnaco Group, Inc. Amended and Restated Deferred Compensation Plan (incorporated by reference
to Exhibit 10.18 to The Warnaco Group, Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.27
|
|
2007 Non-Employee Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.17
to The Warnaco Group, Inc.s Form 10-K filed March 7, 2007).* |
|
|
|
10.28
|
|
Amended and Restated 2007 Non-Employee Directors Deferred Compensation Plan (incorporated by
reference to Exhibit 10.20 to The Warnaco Group, Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.29
|
|
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to The Warnaco
Group, Inc.s Form 8-K filed May 25, 2005).* |
|
|
|
10.30
|
|
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to The
Warnaco Group, Inc.s Form 8-K filed May 25, 2005).* |
|
|
|
10.31
|
|
Form of Restricted Stock Unit Award Agreement for Joseph R. Gromek (incorporated by reference to
Exhibit 10.4 to The Warnaco Group, Inc.s Form 8-K filed May 25, 2005).* |
|
|
|
10.32
|
|
Form of The Warnaco Group, Inc. 2005 Stock Incentive Plan Notice of Grant of Restricted Stock
(incorporated by reference to Exhibit 10.8 to The Warnaco Group, Inc.s Form 8-K filed August 12,
2005).* |
|
|
|
10.33
|
|
Offer Letter and Employee Waiver, Release and Discharge of Claims pursuant to the Key Domestic
Employee Retention Plan for Stanley P. Silverstein, dated November 26, 2001 (incorporated by
reference to Exhibit 10.41 to The Warnaco Group, Inc.s Form 10-K filed July 31, 2002).* |
79
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.34
|
|
Amended and Restated Employment Agreement, dated as of December 19, 2007, between The Warnaco Group,
Inc. and Joseph R. Gromek (incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s
Form 8-K filed December 20, 2007).* |
|
|
|
10.35
|
|
Amended and Restated Letter Agreement, dated as of May 11, 2009, by and between The Warnaco Group,
Inc. and Lawrence R. Rutkowski (incorporated by reference to Exhibit 10.1 to The Warnaco Group,
Inc.s Form 10-Q filed May 15, 2009).* |
|
|
|
10.36
|
|
Amended and Restated Letter Agreement, dated as of December 31, 2008, by and between The Warnaco
Group, Inc. and Frank Tworecke (incorporated by reference to Exhibit 10.28 to The Warnaco Group,
Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.37
|
|
Amended and Restated Letter Agreement, dated as of December 31, 2008, by and between The Warnaco
Group, Inc. and Helen McCluskey (incorporated by reference to Exhibit 10.29 to The Warnaco Group,
Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.38
|
|
Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between The Warnaco
Group, Inc. and Stanley P. Silverstein (incorporated by reference to Exhibit 10.30 to The Warnaco
Group, Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.39
|
|
Employment Agreement, dated as of August 11, 2008, by and between The Warnaco Group, Inc. and Jay L.
Dubiner (incorporated by reference to Exhibit 10.31 to The Warnaco Group, Inc.s Form 10-K filed
March 2, 2009).* |
|
|
|
10.40
|
|
Amended and Restated Letter Agreement, dated as of December 31, 2008, by and between The Warnaco
Group, Inc. and Dwight Meyer (incorporated by reference to Exhibit 10.32 to The Warnaco Group,
Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.41
|
|
Amended and Restated Employment Agreement, dated as of December 31, 2008 by and between The Warnaco
Group, Inc. and Elizabeth Wood (incorporated by reference to Exhibit 10.33 to The Warnaco Group,
Inc.s Form 10-K filed March 2, 2009).* |
|
|
|
10.42
|
|
Employment Agreement, dated as of October 31, 2011, by and between The Warnaco Group, Inc. and
Martha J. Olson (incorporated by reference to Exhibit 10.9 to The Warnaco Group, Inc.s Form 10-Q
filed November 4, 2011).* |
|
|
|
10.43
|
|
First Amendment, dated as of October 31, 2011, to the Amended and Restated Employment Agreement,
dated as of December 31, 2008, by and between The Warnaco Group, Inc. and Stanley P. Silverstein
(incorporated by reference to Exhibit 10.10 to The Warnaco Group, Inc.s Form 10-Q filed November 4,
2011).* |
|
|
|
10.44
|
|
First Amendment, dated as of October 31, 2011, to the Employment Agreement, dated as of August 11,
2008, by and between The Warnaco Group, Inc. and Jay L. Dubiner (incorporated by reference to
Exhibit 10.11 to The Warnaco Group, Inc.s Form 10-Q filed November 4, 2011).* |
|
|
|
10.45
|
|
First Amendment, dated as of October 31, 2011, to the Amended and Restated Employment Agreement,
dated as of December 31, 2008, by and between The Warnaco Group, Inc. and Elizabeth Wood
(incorporated by reference to Exhibit 10.12 to The Warnaco Group, Inc.s Form 10-Q filed November 4,
2011).* |
|
|
|
10.46
|
|
Letter Agreement, dated as of December 13, 2011, by and between The Warnaco Group, Inc. and Helen
McCluskey (incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s Form 8-K filed
December 13, 2011).* |
|
|
|
10.47
|
|
Retirement Agreement, dated as of December 13, 2011, by and between The Warnaco Group, Inc. and
Joseph R. Gromek (incorporated by reference to Exhibit 10.2 to The Warnaco Group, Inc.s Form 8-K
filed December 13, 2011).* |
|
|
|
10.48
|
|
Employment Agreement, dated as of January 31, 2012, by and between The Warnaco Group, Inc. and Mark Whyman.
|
|
|
|
10.49
|
|
Second Amendment, dated as of February 27, 2012, to the Employment Agreement, dated as of August
11, 2008, by and between The Warnaco Group, Inc. and Jay L. Dubiner. |
|
|
|
10.50
|
|
Amended and Restated License Agreement, dated as of December 31, 1996, between Polo Ralph Lauren,
L.P. and Warnaco Inc. (incorporated by reference to Exhibit 10.4 to The Warnaco Group, Inc.s Form
10-Q filed November 14, 1997).* |
|
|
|
10.51
|
|
Amended and Restated Design Services Agreement, dated as of December 31, 1996, between Polo Ralph
Lauren Enterprises, L.P. and Warnaco Inc. (incorporated by reference to Exhibit 10.5 to The Warnaco
Group, Inc.s Form 10-Q filed November 14, 1997).* |
|
|
|
10.52
|
|
License Agreement and Design Services Agreement Amendment and Extension, dated as of September 19,
2003, by and among PRL USA, Inc., as successor to Polo Ralph Lauren L.P., The Polo/Lauren Company,
L.P., Polo Ralph Lauren Corporation, as successor to Polo Ralph Lauren L.P., and Warnaco Inc. and
Warnaco of Canada Company (incorporated by reference to Exhibit 10.2 to The Warnaco Group, Inc.s
Form 10-Q filed November 18, 2003).* ## |
80
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.53
|
|
License Agreement, dated as of August 4, 1994, between Calvin Klein, Inc. and Calvin Klein Jeanswear
Company (incorporated by reference to Exhibit 10.20 to Designer Holdings, Ltd.s Registration
Statement on Form S-1 (File No. 333-02236)).* |
|
|
|
10.54
|
|
Amendment to the Calvin Klein License Agreement, dated as of December 7, 1994 (incorporated by
reference to Exhibit 10.21 to Designer Holdings, Ltd.s Registration Statement on Form S-1 (File No.
333-02236)).* |
|
|
|
10.55
|
|
Amendment to the Calvin Klein License Agreement, dated as of January 10, 1995 (incorporated by
reference to Exhibit 10.22 to Designer Holdings, Ltd.s Registration Statement on Form S-1 (File No.
333-02236)).* |
|
|
|
10.56
|
|
Amendment to the Calvin Klein License Agreement, dated as of February 28, 1995 (incorporated by
reference to Exhibit 10.23 to Designer Holdings, Ltd.s Registration Statement on Form S-1 (File No.
333-02236)).* |
|
|
|
10.57
|
|
Amendment to the Calvin Klein License Agreement, dated as of April 22, 1996 (incorporated by
reference to Exhibit 10.38 to Designer Holdings, Ltd.s Registration Statement on Form S-1 (File No.
333-02236)).* |
|
|
|
10.58
|
|
Amendment and Agreement, dated June 5, 2003, by and among Calvin Klein, Inc., Phillips-Van Heusen
Corporation, Warnaco Inc., Calvin Klein Jeanswear Company, and CKJ Holdings Inc. (incorporated by
reference to Exhibit 10.25 to Amendment No. 2 to the Registration Statement on Form S-4/A (File No.
333-107788) filed by The Warnaco Group, Inc. and certain of its subsidiaries on December 18, 2003).*
## |
|
|
|
10.59
|
|
Consent and Amendment No. 1 to the Facility Agreement, dated as of February 5, 2002 (incorporated by
reference to Exhibit 10.49 to The Warnaco Group, Inc.s Form 10-K filed July 31, 2002).* |
|
|
|
10.60
|
|
Speedo Settlement Agreement, dated November 25, 2002, by and between Speedo International Limited
and Authentic Fitness Corporation, Authentic Fitness Products, Inc., The Warnaco Group, Inc. and
Warnaco Inc. (incorporated by reference to Exhibit 10.28 to The Warnaco Group, Inc.s Form 10-K
filed April 4, 2003).* |
|
|
|
10.61
|
|
Amendment to the Speedo Licenses, dated as of November 25, 2002, by and among Speedo International
Limited, Authentic Fitness Corporation and Authentic Fitness Products, Inc. (incorporated by
reference to Exhibit 10.29 to The Warnaco Group, Inc.s Form 10-K filed April 4, 2003).* ## |
|
|
|
10.62
|
|
Settlement Agreement, dated January 22, 2001, by and between Calvin Klein Trademark Trust, Calvin
Klein, Inc. and Calvin Klein and Linda Wachner, The Warnaco Group, Inc., Warnaco Inc., Designer
Holdings, Ltd, CKJ Holdings, Inc., Jeanswear Holdings Inc., Calvin Klein Jeanswear Company and
Outlet Holdings, Inc. (incorporated by reference to Exhibit 10.57 to The Warnaco Group, Inc.s Form
10-K filed July 31, 2002).* ## |
|
|
|
10.63
|
|
Settlement Agreement, dated November 15, 2002, by and among Linda J. Wachner, the Debtors, the Bank
of Nova Scotia and Citibank, N.A. in their capacity as Debt Coordinators for the Debtors
Prepetition Secured Lenders and the Official Committee of Unsecured Creditors of the Debtors
(incorporated by reference to Exhibit 10.38 to The Warnaco Group, Inc.s Form 10-K filed April 4,
2003).* |
|
|
|
10.64
|
|
Acquisition Agreement, dated as of March 14, 1994, by and among Calvin Klein, Inc., The Warnaco
Group, Inc. and Warnaco Inc. (incorporated by reference to Exhibit 10.6 to The Warnaco Group, Inc.s
Form 10-Q filed on May 24, 1994).* |
|
|
|
10.65
|
|
License Agreement, dated as of June 21, 2004, by and between The Warnaco Group, Inc. and Michael
Kors (USA), Inc. (incorporated by reference to Exhibit 10.3 to The Warnaco Group, Inc.s Form 10-Q
filed August 6, 2004).* ## |
|
|
|
10.66
|
|
License Agreement, dated as of July 26, 2004, by and between Calvin Klein, Inc. and Warnaco Swimwear
Inc. (incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s Form 10-Q filed
November 10, 2004).* ## |
|
|
|
10.67
|
|
License Agreement, dated as of December 1, 2004, by and between The Warnaco Group, Inc. and SAP
America, Inc. (incorporated by reference to Exhibit 10.46 to The Warnaco Group, Inc.s Form 10-K
filed March 17, 2005). * ## |
|
|
|
10.68
|
|
Amended and Restated License Agreement, dated as of December 31, 1997, by and between Calvin Klein,
Inc. and Calvin Klein Jeanswear Asia Ltd. (incorporated by reference to Exhibit 10.62 to The Warnaco
Group, Inc.s Form 10-K filed March 3, 2006).* ## |
|
|
|
10.69
|
|
Amendment and Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., WF Overseas
Fashion C.V. and the CKJ Entities (as defined therein), with respect to the Amended and Restated
License Agreement, dated as of December 31, 1997, by and between Calvin Klein, Inc. and Calvin Klein
Jeanswear Asia Ltd. (incorporated by reference to Exhibit 10.63 to The Warnaco Group, Inc.s Form
10-K filed March 3, 2006).* ## |
|
|
|
10.70
|
|
Amended and Restated Letter Agreement, dated as of March 6, 2002, by and among Calvin Klein, Inc.,
CK Jeanswear N.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.p.A. (incorporated by
reference to Exhibit 10.64 to The Warnaco Group, Inc.s Form 10-K filed March 3, 2006).* ## |
|
|
|
10.71
|
|
Letter Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., WF Overseas Fashion
C.V., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.p.A., with respect to
the Amended and Restated Letter Agreement, dated as of March 6, 2002, by and among Calvin Klein,
Inc., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.p.A. (incorporated by
reference to Exhibit 10.65 to The Warnaco Group, Inc.s
Form 10-K filed March 3, 2006).* ## |
81
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.72
|
|
Amended and Restated License Agreement. dated December 31, 1997, by and between Calvin Klein, Inc.
and CK Jeanswear Europe, S.p.A. (incorporated by reference to Exhibit 10.66 to The Warnaco Group,
Inc.s Form 10-K filed March 3, 2006).* ## |
|
|
|
10.73
|
|
Letter Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., WF Overseas Fashion
C.V. and CK Jeanswear Europe, S.p.A., with respect to the Amended and Restated License Agreement.
dated December 31, 1997, by and between Calvin Klein, Inc. and CK Jeanswear Europe, S.p.A.
(incorporated by reference to Exhibit 10.67 to The Warnaco Group, Inc.s Form 10-K filed March 3,
2006).* ## |
|
|
|
10.74
|
|
License Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., CK Jeanswear
Europe S.p.A and WF Overseas Fashion C.V. (re: Bridge Apparel) (incorporated by reference to Exhibit
10.68 to The Warnaco Group, Inc.s Form 10-K filed March 3, 2006).* ## |
|
|
|
10.75
|
|
License Agreement, dated as of January 31, 2006, by and among Calvin, Klein, Inc., CK Jeanswear
Europe S.p.A and WF Overseas Fashion C.V. (re: Bridge Accessories) (incorporated by reference to
Exhibit 10.69 to The Warnaco Group, Inc.s Form 10-K filed March 3, 2006).* ## |
|
|
|
10.76
|
|
License Agreement, dated as of January 31, 2006, by and among Calvin, Klein, Inc., CK Jeanswear
Europe S.p.A, CK Jeanswear Asia Limited and WF Overseas Fashion C.V. (re: Jean Accessories)
(incorporated by reference to Exhibit 10.70 to The Warnaco Group, Inc.s Form 10-K filed March 3,
2006).* ## |
|
|
|
10.77
|
|
Letter Agreement, dated January 31, 2006, by and among Calvin Klein, Inc., CK Jeanswear N.V., CK
Jeanswear Europe S.p.A., CK Jeanswear Asia Limited and WF Overseas Fashion C.V. (re: Bridge Store)
(incorporated by reference to Exhibit 10.71 to The Warnaco Group, Inc.s Form 10-K filed March 3,
2006).* ## |
|
|
|
10.78
|
|
License Agreement, dated as of January 31, 2008, between Calvin Klein, Inc., WF Overseas Fashion
C.V. and CK Jeanswear Europe S.r.l. (re: Bridge Accessories) (incorporated by reference to Exhibit
10.68 to The Warnaco Group, Inc.s Form 10-K filed February 27, 2008).* ## |
|
|
|
10.79
|
|
License Agreement Central and South America, dated as of January 31, 2008, between Calvin Klein,
Inc. and WF Overseas Fashion C.V. (re: Bridge Accessories) (incorporated by reference to Exhibit
10.69 to The Warnaco Group, Inc.s Form 10-K filed February 27, 2008).* ## |
|
|
|
10.80
|
|
License Agreement, dated as of January 31, 2008, between Calvin Klein, Inc., WF Overseas Fashion
C.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.r.l. (re: Jean Accessories) (incorporated
by reference to Exhibit 10.70 to The Warnaco Group, Inc.s Form 10-K filed February 27, 2008).* ## |
|
|
|
10.81
|
|
License Agreement Central and South America, dated as of January 31, 2008, between Calvin Klein,
Inc. and WF Overseas Fashion C.V. (re: Jean Accessories) (incorporated by reference to Exhibit 10.71
to The Warnaco Group, Inc.s Form 10-K filed February 27, 2008).* ## |
|
|
|
10.82
|
|
E-Commerce Agreement, dated as of January 31, 2008, Calvin Klein, Inc., WF Overseas Fashion C.V., CK
Jeanswear N.V., CK Jeanswear Asia Limited, CK Jeanswear Europe S.r.l., Calvin Klein Jeanswear
Company and CKJ Holdings, Inc. (incorporated by reference to Exhibit 10.72 to The Warnaco Group,
Inc.s Form 10-K filed February 27, 2008).* ## |
|
|
|
10.83
|
|
Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and
among Calvin Klein, Inc., CK Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended
(incorporated by reference to Exhibit 10.1 to The Warnaco Group, Inc.s Form 10-Q filed November 4,
2011).* ## |
|
|
|
10.84
|
|
Amendment, dated as of July 8, 2011, to the Letter Agreement, dated as of January 31, 2006, by and
among Calvin Klein, Inc., CK Jeanswear N.V., CK Jeanswear Europe S.p.A., CK Jeanswear Asia Limited
and WF Overseas Fashion C.V. (incorporated by reference to Exhibit 10.2 to The Warnaco Group, Inc.s
Form 10-Q filed November 4, 2011).* ## |
|
|
|
10.85
|
|
Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2008, by and
among Calvin Klein, Inc., WF Overseas Fashion C.V. and CK Jeanswear Europe S.r.l. (incorporated by
reference to Exhibit 10.3 to The Warnaco Group, Inc.s Form 10-Q filed November 4, 2011).* ## |
|
|
|
10.86
|
|
Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and
among Calvin Klein, Inc., CK Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended
(incorporated by reference to Exhibit 10.4 to The Warnaco Group, Inc.s Form 10-Q filed November 4,
2011).* ## |
|
|
|
10.87
|
|
Amendment, dated as of July 8, 2011, to the Amended and Restated License Agreement, dated as of
January 1, 1997, by and between Calvin Klein, Inc. and Calvin Klein Jeanswear Asia Ltd., as amended
(incorporated by reference to Exhibit 10.5 to The Warnaco Group, Inc.s Form 10-Q filed November 4,
2011).* ## |
|
|
|
10.88
|
|
Amendment, dated as of July 8, 2011, to the Amended and Restated Letter Agreement, dated as of March
6, 2002, by and among Calvin Klein, Inc., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK
Jeanswear Europe S.p.A. (incorporated by reference to Exhibit 10.6 to The Warnaco Group, Inc.s Form
10-Q filed November 4, 2011).* ## |
|
|
|
10.89
|
|
Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and
among Calvin Klein, Inc., CK Jeanswear Europe S.p.A, CK Jeanswear Asia Limited and WF Overseas
Fashion C.V., as amended (incorporated by reference to Exhibit 10.7 to The Warnaco Group, Inc.s
Form 10-Q filed November 4, 2011).* ## |
82
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.90
|
|
Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2008, by and
among Calvin Klein, Inc., WF Overseas Fashion C.V., CK Jeanswear Asia Limited and CK Jeanswear
Europe S.r.l. (incorporated by reference to Exhibit 10.8 to The Warnaco Group, Inc.s Form 10-Q
filed November 4, 2011).* ## |
|
|
|
10.91
|
|
Amendment, dated as of October 31, 2011, to the License Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., CK
Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended (re: |
|
|
Bridge Apparel). # |
|
|
|
10.92
|
|
License Agreement, dated as of October 31, 2011, by and among Calvin Klein,
Inc., WF Overseas Fashion C.V., Warnaco Italy s.r.l. and Warnaco
Inc. (re: Bridge Apparel Store). # |
|
|
|
10.93
|
|
Amendment, dated as of October 31, 2011, to the License Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., CK
Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended (re: |
|
|
Bridge Accessories). # |
|
|
|
10.94
|
|
Amendment, dated as of October 31, 2011, to the
License Agreement,
dated August 4, 1994, by and among Calvin Klein, Inc., CKJ Holdings,
Inc. and Calvin Klein Jeanswear Company, as amended (re: Jeans
Apparel), and to the License Agreement, dated July 26, 2004, by and among
Calvin Klein, Inc., Calvin Klein Jeanswear Company and CKJ Holdings,
Inc., as amended (re: Jeans Accessories Store). # |
|
|
|
10.95
|
|
Amendment, dated as of October 31, 2011, to the License Agreement,
dated as of January 31, 2006, by and among Calvin Klein, Inc., CK
Jeanswear Europe S.p.A, CK Jeanswear Asia Limited and WF Overseas
Fashion C.V., as amended (re: Jeans Accessories). # |
|
|
|
21.1
|
|
Subsidiaries of The Warnaco Group, Inc. |
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
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. |
|
|
|
32.1
|
|
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) |
|
|
|
* |
|
Previously filed. |
|
** |
|
The schedules to this agreement have been omitted pursuant to Item 601(b) (2) of Regulation
S-K. The Company will furnish copies of any of the schedules to the Securities and Exchange
Commission upon request. |
|
|
|
Filed herewith. |
|
# |
|
Certain portions of this exhibit omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment. |
|
## |
|
Certain portions of this exhibit omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment, which request was
granted. |
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 29th day of February 2012.
|
|
|
|
|
|
THE WARNACO GROUP, INC.
|
|
|
By: |
/s/ HELEN MCCLUSKEY
|
|
|
|
Name: |
Helen McCluskey |
|
|
|
Title: |
President and Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/ HELEN MCCLUSKEY
(Helen McCluskey)
|
|
Director, President and Chief
Executive Officer (Principal
Executive Officer)
|
|
February 29, 2012 |
|
|
|
|
|
/s/ LAWRENCE R. RUTKOWSKI
(Lawrence R. Rutkowski)
|
|
Executive Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
|
|
February 29, 2012 |
|
|
|
|
|
/s/ CHARLES R. PERRIN
(Charles R. Perrin)
|
|
Non-Executive Chairman of the
Board of Directors
|
|
February 29, 2012 |
|
|
|
|
|
/s/ DAVID A. BELL
(David A. Bell)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ ROBERT A. BOWMAN
(Robert A. Bowman)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ RICHARD KARL GOELTZ
(Richard Karl Goeltz)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ SHEILA A. HOPKINS
(Sheila A. Hopkins)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ NANCY A. REARDON
(Nancy A. Reardon)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ DONALD SEELEY
(Donald Seeley)
|
|
Director
|
|
February 29, 2012 |
|
|
|
|
|
/s/ CHERYL NIDO TURPIN
(Cheryl Nido Turpin)
|
|
Director
|
|
February 29, 2012 |
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Warnaco Group, Inc.
New York, New York
We have
audited the accompanying Consolidated Balance Sheets of The Warnaco, Group, Inc. and
subsidiaries (the Company) as of December 31, 2011 and January 1, 2011, and the related
Consolidated Statements of Operations, Stockholders Equity, and Cash Flows for each of the three
years in the period ended December 31, 2011. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of The Warnaco Group, Inc. as of December 31, 2011 and January 1, 2011, and
the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2011, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2011, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and
our report dated February 29,
2012 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
February 29, 2012
F-1
THE WARNACO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, excluding per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
232,531 |
|
|
$ |
191,227 |
|
Accounts receivable, less reserves of $94,739 and $95,639
as of December 31, 2011 and January 1, 2011, respectively |
|
|
322,976 |
|
|
|
318,123 |
|
Inventories |
|
|
350,835 |
|
|
|
310,504 |
|
Assets of discontinued operations |
|
|
|
|
|
|
125 |
|
Prepaid expenses and other current assets |
|
|
99,686 |
|
|
|
100,389 |
|
Deferred income taxes |
|
|
58,602 |
|
|
|
58,270 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,064,630 |
|
|
|
978,638 |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
133,022 |
|
|
|
129,252 |
|
Other assets: |
|
|
|
|
|
|
|
|
Licenses, trademarks and other intangible assets, net |
|
|
320,880 |
|
|
|
373,276 |
|
Deferred financing costs, net |
|
|
8,790 |
|
|
|
2,540 |
|
Deferred income taxes |
|
|
21,885 |
|
|
|
11,769 |
|
Other assets |
|
|
58,695 |
|
|
|
42,519 |
|
Goodwill |
|
|
139,948 |
|
|
|
115,278 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,747,850 |
|
|
$ |
1,653,272 |
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
47,513 |
|
|
$ |
32,172 |
|
Accounts payable |
|
|
141,797 |
|
|
|
152,714 |
|
Accrued liabilities |
|
|
212,655 |
|
|
|
227,561 |
|
Liabilities of discontinued operations |
|
|
6,797 |
|
|
|
18,800 |
|
Accrued income taxes payable |
|
|
41,762 |
|
|
|
37,957 |
|
Deferred income taxes |
|
|
1,476 |
|
|
|
262 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
452,000 |
|
|
|
469,466 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
208,477 |
|
|
|
|
|
Deferred income taxes |
|
|
37,000 |
|
|
|
74,233 |
|
Other long-term liabilities |
|
|
137,973 |
|
|
|
136,967 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Redeemable non-controlling interest |
|
|
15,200 |
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock (See Note 13) |
|
|
|
|
|
|
|
|
Common stock: $0.01 par value, 112,500,000 shares authorized,
52,184,730 and 51,712,674 issued as of December 31, 2011
and January 1, 2011, respectively |
|
|
522 |
|
|
|
517 |
|
Additional paid-in capital |
|
|
721,356 |
|
|
|
674,508 |
|
Accumulated other comprehensive income |
|
|
16,242 |
|
|
|
43,048 |
|
Retained earnings |
|
|
625,760 |
|
|
|
501,394 |
|
Treasury stock, at cost 11,790,428 and 7,445,166 shares as of December 31, 2011 and
January 1, 2011, respectively |
|
|
(466,680 |
) |
|
|
(246,861 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
897,200 |
|
|
|
972,606 |
|
|
|
|
|
|
|
|
Total liabilities, redeemable non-controlling interest and stockholders equity |
|
$ |
1,747,850 |
|
|
$ |
1,653,272 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-2
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
Net revenues |
|
$ |
2,513,388 |
|
|
$ |
2,295,751 |
|
|
$ |
2,019,625 |
|
Cost of goods sold |
|
|
1,412,446 |
|
|
|
1,275,788 |
|
|
|
1,155,278 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,100,942 |
|
|
|
1,019,963 |
|
|
|
864,347 |
|
Selling, general and administrative expenses |
|
|
844,696 |
|
|
|
758,053 |
|
|
|
638,907 |
|
Amortization of intangible assets |
|
|
47,957 |
|
|
|
11,549 |
|
|
|
11,032 |
|
Pension expense |
|
|
26,744 |
|
|
|
2,550 |
|
|
|
20,873 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
181,545 |
|
|
|
247,811 |
|
|
|
193,535 |
|
Other loss |
|
|
631 |
|
|
|
6,238 |
|
|
|
1,889 |
|
Interest expense |
|
|
16,274 |
|
|
|
14,483 |
|
|
|
23,897 |
|
Interest income |
|
|
(3,361 |
) |
|
|
(2,815 |
) |
|
|
(1,248 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision
for income taxes and non-controlling interest |
|
|
168,001 |
|
|
|
229,905 |
|
|
|
168,997 |
|
Provision for income taxes |
|
|
36,006 |
|
|
|
82,107 |
|
|
|
64,272 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before non-controlling interest |
|
|
131,995 |
|
|
|
147,798 |
|
|
|
104,725 |
|
Loss from discontinued operations, net of taxes |
|
|
(4,802 |
) |
|
|
(9,217 |
) |
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
127,193 |
|
|
|
138,581 |
|
|
|
98,498 |
|
Less: Net
income (loss) attributable to the non-controlling interest |
|
|
(257 |
) |
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group |
|
$ |
127,450 |
|
|
$ |
138,581 |
|
|
$ |
95,998 |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Warnaco Group common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
132,252 |
|
|
$ |
147,798 |
|
|
$ |
102,225 |
|
Discontinued operations, net of tax |
|
|
(4,802 |
) |
|
|
(9,217 |
) |
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
127,450 |
|
|
$ |
138,581 |
|
|
$ |
95,998 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to Warnaco Group common
shareholders (see Note 14): |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.07 |
|
|
$ |
3.26 |
|
|
$ |
2.22 |
|
Loss from discontinued operations |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.96 |
|
|
$ |
3.06 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share attributable to Warnaco Group common
shareholders (see Note 14): |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.01 |
|
|
$ |
3.19 |
|
|
$ |
2.19 |
|
Loss from discontinued operations |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.90 |
|
|
$ |
2.99 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in
computing income per common share (see Note 14): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,425,750 |
|
|
|
44,701,643 |
|
|
|
45,433,874 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43,299,849 |
|
|
|
45,755,935 |
|
|
|
46,196,397 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY,
COMPREHENSIVE INCOME AND REDEEMABLE NON-CONTROLLING INTEREST
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
Warnaco Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable |
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Non-controlling |
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Noncontrolling |
|
|
Stockholders |
|
|
Comprehensive |
|
|
|
Interest |
|
|
Stock |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Stock |
|
|
Interest |
|
|
Equity |
|
|
Income (Loss) |
|
Balance at January 3, 2009 |
|
$ |
|
|
|
$ |
501 |
|
|
$ |
631,891 |
|
|
$ |
12,841 |
|
|
$ |
268,016 |
|
|
$ |
(125,562 |
) |
|
$ |
1,054 |
|
|
$ |
788,741 |
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,998 |
|
|
|
|
|
|
|
2,500 |
|
|
|
98,498 |
|
|
$ |
98,498 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,360 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
35,573 |
|
|
|
35,573 |
|
Change in post retirement plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,029 |
) |
|
|
(1,029 |
) |
Change on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(699 |
) |
|
|
(699 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229 |
|
|
|
33,861 |
|
|
|
33,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,729 |
|
|
|
132,359 |
|
|
$ |
132,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction of adjustment to initially adopt
accounting for uncertain tax positions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,201 |
) |
|
|
|
|
|
|
|
|
|
|
(1,201 |
) |
|
|
|
|
Purchase of 49% of non-controlling interest |
|
|
|
|
|
|
|
|
|
|
(17,645 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
(17,410 |
) |
|
|
|
|
Dividend paid to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,018 |
) |
|
|
(4,018 |
) |
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
|
|
|
|
5 |
|
|
|
4,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,684 |
|
|
|
|
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
|
|
|
|
14,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,453 |
|
|
|
|
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,498 |
) |
|
|
|
|
|
|
(1,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010 |
|
|
|
|
|
|
506 |
|
|
|
633,378 |
|
|
|
46,473 |
|
|
|
362,813 |
|
|
|
(127,060 |
) |
|
|
|
|
|
|
916,110 |
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,581 |
|
|
|
|
|
|
|
|
|
|
|
138,581 |
|
|
$ |
138,581 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,576 |
) |
|
|
(2,576 |
) |
Change in post retirement plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(41 |
) |
Change in cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(820 |
) |
|
|
(820 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,425 |
) |
|
|
(3,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,156 |
|
|
$ |
135,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to exercise of equity
awards |
|
|
|
|
|
|
|
|
|
|
1,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069 |
|
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
|
|
|
|
11 |
|
|
|
17,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,486 |
|
|
|
|
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
|
|
|
|
22,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,586 |
|
|
|
|
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,415 |
) |
|
|
|
|
|
|
(3,415 |
) |
|
|
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116,386 |
) |
|
|
|
|
|
|
(116,386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
|
|
|
|
|
517 |
|
|
|
674,508 |
|
|
|
43,048 |
|
|
|
501,394 |
|
|
|
(246,861 |
) |
|
|
|
|
|
|
972,606 |
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,450 |
|
|
|
|
|
|
|
|
|
|
|
127,450 |
|
|
$ |
127,450 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,626 |
) |
|
|
(24,626 |
) |
Change in cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,090 |
) |
|
|
(2,090 |
) |
Change in post retirement plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
(200 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,806 |
) |
|
|
(26,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,644 |
|
|
$ |
100,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit related to exercise of equity
awards |
|
|
|
|
|
|
|
|
|
|
12,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,055 |
|
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
|
|
|
|
5 |
|
|
|
10,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,067 |
|
|
|
|
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
|
|
|
|
24,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,731 |
|
|
|
|
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,701 |
) |
|
|
|
|
|
|
(2,701 |
) |
|
|
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217,118 |
) |
|
|
|
|
|
|
(217,118 |
) |
|
|
|
|
Acquisition date fair value of redeemable non-
controlling interest in joint venture in India |
|
|
15,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to redeemable
non-controlling interest |
|
|
(257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
attributable to
redeemable non-controlling interest |
|
|
(2,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to redemption value |
|
|
3,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,084 |
) |
|
|
|
|
|
|
|
|
|
|
(3,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011 |
|
$ |
15,200 |
|
|
$ |
522 |
|
|
$ |
721,356 |
|
|
$ |
16,242 |
|
|
$ |
625,760 |
|
|
$ |
(466,680 |
) |
|
$ |
|
|
|
$ |
897,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
127,193 |
|
|
$ |
138,581 |
|
|
$ |
98,498 |
|
Adjustments
to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss (gain) |
|
|
4,903 |
|
|
|
410 |
|
|
|
(5,477 |
) |
Loss from discontinued operations |
|
|
4,802 |
|
|
|
9,217 |
|
|
|
6,227 |
|
Depreciation and amortization |
|
|
97,865 |
|
|
|
55,365 |
|
|
|
46,843 |
|
Stock compensation |
|
|
24,731 |
|
|
|
22,586 |
|
|
|
14,453 |
|
Provision for trade and other bad debts |
|
|
4,815 |
|
|
|
2,845 |
|
|
|
4,775 |
|
Inventory writedown |
|
|
18,181 |
|
|
|
11,512 |
|
|
|
18,623 |
|
Loss on repurchase of Senior Notes |
|
|
|
|
|
|
3,747 |
|
|
|
|
|
Provision for deferred income tax |
|
|
(17,343 |
) |
|
|
23,190 |
|
|
|
17,477 |
|
Other |
|
|
(1,745 |
) |
|
|
(450 |
) |
|
|
1,008 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(19,053 |
) |
|
|
(33,122 |
) |
|
|
(27,947 |
) |
Inventories |
|
|
(65,677 |
) |
|
|
(62,536 |
) |
|
|
67,470 |
|
Prepaid expenses and other assets |
|
|
(5 |
) |
|
|
(22,052 |
) |
|
|
9,906 |
|
Accounts payable, accrued expenses and other liabilities |
|
|
(8,784 |
) |
|
|
55,145 |
|
|
|
(5,090 |
) |
Accrued income taxes |
|
|
(24,458 |
) |
|
|
20,924 |
|
|
|
17,115 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing operations |
|
|
145,425 |
|
|
|
225,362 |
|
|
|
263,881 |
|
Net cash provided by (used in) operating activities from discontinued operations |
|
|
(16,523 |
) |
|
|
(1,205 |
) |
|
|
1,033 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
128,902 |
|
|
|
224,157 |
|
|
|
264,914 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal of assets |
|
|
465 |
|
|
|
225 |
|
|
|
373 |
|
Purchases of property, plant & equipment |
|
|
(54,706 |
) |
|
|
(44,357 |
) |
|
|
(43,443 |
) |
Business acquisitions, net of cash acquired |
|
|
(22,124 |
) |
|
|
(29,942 |
) |
|
|
(9,511 |
) |
Loan to non-controlling shareholder |
|
|
(6,000 |
) |
|
|
|
|
|
|
|
|
Disposal of businesses |
|
|
2,000 |
|
|
|
1,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities from continuing operations |
|
|
(80,365 |
) |
|
|
(72,643 |
) |
|
|
(52,581 |
) |
Net cash (used in) investing activities from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(80,365 |
) |
|
|
(72,643 |
) |
|
|
(52,581 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-5
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs |
|
|
(7,524 |
) |
|
|
(70 |
) |
|
|
(515 |
) |
Repurchase of Senior Notes due 2013 |
|
|
|
|
|
|
(164,011 |
) |
|
|
|
|
Premium on cancellation of interest rate swaps |
|
|
|
|
|
|
|
|
|
|
2,218 |
|
Change in short-term notes payable |
|
|
25,604 |
|
|
|
(13,340 |
) |
|
|
(23,985 |
) |
Change in revolving credit loans |
|
|
|
|
|
|
(189 |
) |
|
|
(11,805 |
) |
Repayment of Italian Note |
|
|
(13,370 |
) |
|
|
|
|
|
|
|
|
Proceeds from 2011 Term Loan |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
Repayment of 2011 Term Loan |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
Proceeds from the exercise of employee stock options |
|
|
9,275 |
|
|
|
16,733 |
|
|
|
4,034 |
|
Purchase of treasury stock |
|
|
(219,819 |
) |
|
|
(119,801 |
) |
|
|
(1,498 |
) |
Payment of dividend to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
(4,018 |
) |
Cost to purchase non-controlling interest in an equity transaction |
|
|
|
|
|
|
|
|
|
|
(5,339 |
) |
Contingent payment related to acquisition of non-controlling interest in
Brazilian subsidiary |
|
|
(11,467 |
) |
|
|
(3,442 |
) |
|
|
|
|
Tax benefit related to exercise of equity awards |
|
|
12,055 |
|
|
|
1,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities from continuing operations |
|
|
(6,246 |
) |
|
|
(283,051 |
) |
|
|
(40,908 |
) |
|
Net cash (used in) financing activities from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities |
|
|
(6,246 |
) |
|
|
(283,051 |
) |
|
|
(40,908 |
) |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(987 |
) |
|
|
2,010 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
41,304 |
|
|
|
(129,527 |
) |
|
|
173,127 |
|
Cash and cash equivalents at beginning of period |
|
|
191,227 |
|
|
|
320,754 |
|
|
|
147,627 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
232,531 |
|
|
$ |
191,227 |
|
|
$ |
320,754 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-6
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts
Note 1Nature of Operations and Summary of Significant Accounting Policies
Organization: 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.
Nature of Operations: The Company designs, sources, markets and licenses a broad line of (i)
sportswear for men, women and juniors (including jeanswear, knit and woven shirts, tops and
outerwear); (ii) intimate apparel (including bras, panties, sleepwear, loungewear, shapewear and
daywear for women and underwear and sleepwear for men); and (iii) swimwear for men, women, juniors
and children (including swim accessories and fitness and active apparel). The Companys products
are sold under a number of highly recognized owned and licensed brand names. The Company offers a
diversified portfolio of brands across multiple distribution channels to a wide range of customers.
The Company distributes its products to customers, both domestically and internationally, through a
variety of channels, including department and specialty stores, independent retailers, chain
stores, membership clubs, mass merchandisers, off-price stores, the Companys owned full-price free
standing stores, outlet stores and concession/shop-in-shop stores and the internet. As of December
31, 2011, the Company operated: (i) 1,757 Calvin Klein retail stores worldwide (consisting of 263
full price free-standing stores, 118 outlet free-standing stores, 1,376 shop-in-shop/concession
stores) and (ii) in the U.S., three on-line stores: SpeedoUSA.com, Calvinkleinjeans.com, and
CKU.com. As of December 31, 2011, there were also 615 Calvin Klein retail stores operated by third
parties under retail licenses or franchise and distributor agreements.
Basis of Consolidation and Presentation: The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP). The consolidated financial statements include the accounts of Warnaco
Group and its subsidiaries. Non-controlling interest represents minority shareholders
proportionate share of the equity in the Companys consolidated subsidiary WBR Industria e Comercio
de Vestuario S.A. (WBR). During the fourth quarter of Fiscal 2009, the Company purchased the
remaining 49% of the equity of WBR, increasing its ownership of the equity of WBR to 100% and,
accordingly, at December 31, 2011 and January 1, 2011, there were no minority shareholders of WBR
(see Note 2 of Notes to Consolidated Financial Statements). Redeemable non-controlling interest
represents minority shareholders proportionate share (49%) of the equity in the Companys
consolidated subsidiary Premium Garments Wholesale Trading Private, Limited, a joint venture in
India that was established during Fiscal 2011. The redeemable non-controlling interest is presented
in the mezzanine section of the Companys Consolidated Balance Sheets between liabilities and
equity (see Note 2 of Notes to Consolidated Financial Statements).
The Company operates on a fiscal year basis ending on the Saturday closest to December 31. The
period January 2, 2011 to December 31, 2011 (Fiscal 2011), January 3, 2010 to January 1, 2011
(Fiscal 2010) and January 4, 2009 to January 2, 2010 (Fiscal 2009) each contained fifty-two
weeks of operations.
All inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications: Amounts related to certain corporate expenses incurred in the U.S.
(previously included in Operating income (loss) Corporate/Other) during Fiscal 2010 and Fiscal
2009 have been reclassified to Operating income (loss) Sportswear Group, Intimate Apparel Group
and Swimwear Group in order to conform to the Fiscal 2011 presentation. See Note 5 of Notes to
Consolidated Financial Statements.
Use of Estimates: The Company uses estimates and assumptions in the preparation of its
financial
statements which affect (i) the reported amounts of assets and liabilities at the date of the
consolidated financial statements and (ii) the reported amounts of revenues and expenses. Actual
results could materially differ from these estimates. The estimates the Company makes are based
upon historical factors, current circumstances and the experience and judgment of the Companys
management. The Company evaluates its assumptions and estimates on an ongoing basis. The Company
believes that the use of estimates affects the application of all of the Companys significant
accounting policies and procedures.
Concentration of Credit Risk: Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents, receivables and derivative
financial instruments. The Company invests its excess cash in demand deposits and investments in
short-term marketable securities that are classified as cash equivalents. The Company has
established guidelines that relate to credit quality, diversification and maturity and that limit
exposure to any one issue of securities. The Company holds no collateral for these financial
instruments. The Company performs ongoing credit evaluations of its customers financial condition
and, generally, requires no collateral from its customers. During Fiscal 2011, Fiscal 2010 and
Fiscal 2009, no one customer represented more than 10% of net revenues. During Fiscal 2011, Fiscal
2010 and Fiscal 2009, the Companys top five customers accounted for $548,584 (21.8%), $490,343
(21.4%) and $470,861 (23.3%), respectively, of the Companys net revenues. During
Fiscal 2011, Fiscal 2010 and Fiscal 2009, net revenues from sales of products under the Calvin
Klein brand, the Companys major brand, accounted for $1,900,000 (75.6%), $1,700,000 (73.9%) and
$1,500,000 (73.5%), respectively, of the Companys net revenues.
F-7
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Revenue Recognition: The Company recognizes revenue when goods are shipped to customers and
title and risk of loss have passed, net of estimated customer returns, allowances and other
discounts. The Company recognizes revenue from its retail stores when goods are sold to consumers,
net of allowances for future returns. The determination of allowances and returns involves the use
of significant judgment and estimates by the Company. The Company bases its estimates of allowance
rates on past experience by product line and account, the financial stability of its customers, the
expected rate of retail sales and general economic and retail forecasts. The Company reviews and
adjusts its accrual rates each month based on its current experience. During the Companys monthly
review, the Company also considers its accounts receivable collection rate and the nature and
amount of customer deductions and requests for promotion assistance. The Company believes it is
likely that its accrual rates will vary over time and could change materially if the Companys mix
of customers, channels of distribution or products change. Current rates of accrual for sales
allowances, returns and discounts vary by customer. Amounts received by the Company from the
licensing or sub-licensing of certain trademarks are initially recorded as deferred revenue on the
Consolidated Balance Sheets and are recognized as revenue on a straight-line basis over the term of
the licensing or sub-licensing agreement when the underlying royalties are earned.
Cost of Goods Sold: Cost of goods sold consists of the cost of products purchased and certain
period costs related to the product procurement process. Product costs include: (i) cost of
finished goods; (ii) duty, quota and related tariffs; (iii) in-bound freight and traffic costs,
including inter-plant freight; (iv) procurement and material handling costs; (v) inspection,
quality control and cost accounting and (vi) in-stocking costs in the Companys warehouse
(in-stocking costs may include but are not limited to costs to receive, unpack and stock product
available for sale in its distribution centers). Period costs included in cost of goods sold
include: (a) royalty; (b) design and merchandising; (c) prototype costs; (d) loss on seconds; (e)
provisions for inventory losses (including provisions for shrinkage and losses on the disposition
of excess and obsolete inventory); and (f) direct freight charges incurred to ship finished goods
to customers. Costs incurred to store, pick, pack and ship inventory to customers (excluding direct
freight charges) are included in shipping and handling costs and are classified in selling, general
and administrative (SG&A) expenses. The Companys gross profit and gross margin may not be
directly comparable to those of its competitors, as income statement classifications of certain
expenses may vary by company.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks, demand deposits
and investments in short-term marketable securities with maturities of 90 days or less at the date
of purchase.
Accounts Receivable: The Company maintains reserves for estimated amounts that the Company
does not expect to collect from its trade customers. Accounts receivable reserves include amounts
the Company expects its customers to deduct for returns, allowances, trade discounts, markdowns,
amounts for accounts that go out of business or seek the protection of the Bankruptcy Code and
amounts in dispute with customers. The Companys estimate of the allowance amounts that are
necessary includes amounts for specific deductions the Company has authorized and an amount for
other estimated losses. Estimates of accruals for specific account allowances and negotiated
settlements of customer deductions are recorded as deductions to revenue in the period the related
revenue is recognized. The provision for accounts receivable allowances is affected by general
economic conditions, the financial condition of the Companys customers, the inventory position of
the Companys customers and many other factors. The determination of accounts receivable reserves
is subject to significant levels of judgment and estimation by the Companys management. If
circumstances change or economic conditions deteriorate, the Company may need to increase the
reserve significantly.
Inventories: The Company records purchases of inventory when it assumes title and the risk of
loss. The Company values its inventories at the lower of cost, determined on a first-in, first-out
basis, or market. The Company evaluates its inventories to determine excess units or slow-moving
styles based upon quantities on hand, orders in house and expected future orders. For those items
for which the Company believes it has an excess supply or for styles or colors that are obsolete,
the Company estimates the net amount that it expects to realize from the sale of such items. The
Companys objective is to recognize projected inventory losses at the time the loss is evident
rather than when the goods are ultimately sold. The Companys calculation of the reduction in
carrying value necessary for the disposition of excess inventory is highly dependent on its
projections of future sales of those products and the prices it is able to obtain for such
products. The Company reviews its inventory position monthly and adjusts its carrying value for
excess or obsolete goods based on revised projections and current market conditions for the
disposition of excess and obsolete inventory.
Long-Lived Assets: Intangible assets primarily consist of licenses and trademarks. The
majority of the Companys license and trademark agreements cover extended periods of time, some in
excess of forty years; others have indefinite lives. Warnaco Group, Warnaco and certain of
Warnacos subsidiaries were reorganized under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C.
Sections 101-1330, as amended, effective February 4, 2003 (the Effective Date). Long-lived assets
(including property, plant and equipment) and intangible assets existing at the Effective Date are
recorded at fair value based upon the appraised value of such assets,
F-8
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts
net of accumulated depreciation and amortization and net of any adjustments after the Effective Date
for reductions in valuation allowances related to deferred tax assets arising before the Effective
Date. Long-lived assets, including licenses and trademarks, acquired in business combinations after
the Effective Date under the purchase method of accounting are recorded at their fair values, net
of accumulated amortization since the acquisition date. Long-lived assets, including licenses and
trademarks, acquired in the normal course of the Companys operations are recorded at cost, net of
accumulated amortization. Identifiable intangible assets with finite lives are amortized on a
straight-line basis over the estimated useful lives of the assets. Assumptions relating to the
expected future use of individual assets could affect the fair value of such assets and the
depreciation expense recorded related to such assets in the future. Costs incurred to renew or
extend the term of a recognized intangible asset are capitalized and amortized, where appropriate,
through the extension or renewal period of the asset.
The Company determines the fair value of acquired assets based upon the planned future use of
each asset or group of assets, quoted market prices where a market exists for such assets, the
expected future revenue, profitability and cash flows of the business unit utilizing such assets
and the expected future life of such assets. In the case of reacquired rights intangible assets,
the fair value is determined based on the period over which the reacquired rights would have
extended. In its determination of fair value, the Company also considers whether an asset will be
sold either individually or with other assets and the proceeds the Company expects to receive from
any such sale. Preliminary estimates of the fair value of acquired assets are based upon
managements estimates. Adjustments to the preliminary estimates of fair value that are made
within one year of an acquisition date are recorded as adjustments to goodwill. Subsequent
adjustments are recorded in earnings in the period of the adjustment.
The Company reviews its long-lived assets for possible impairment in the fourth quarter of
each fiscal year or when events or circumstances indicate that the carrying value of the assets may
not be recoverable. Such events may include (a) a significant adverse change in legal factors or
the business climate; (b) an adverse action or assessment by a regulator; (c) unanticipated
competition; (d) a loss of key personnel; (e) a more-likely-than-not expectation that a reporting
unit, or a significant part of a reporting unit, will be sold or disposed of; (f) the determination
of a lack of recoverability of a significant asset group within a reporting unit; (g) reporting a
goodwill impairment loss by a subsidiary that is a component of a reporting unit; and (h) a
significant decrease in the Companys stock price.
In evaluating long-lived assets (finite-lived intangible assets and property, plant and
equipment) for recoverability, the Company uses its best estimate of future cash flows expected to
result from the use of the asset and its eventual disposition. To the extent that estimated future
undiscounted net cash flows attributable to the asset are less than the carrying amount, an
impairment loss is recognized equal to the difference between the carrying value of such asset and
its fair value, which is determined based on discounted cash flows. Assets to be disposed of and
for which there is a committed plan of disposal are reported at the lower of carrying value or fair
value less costs to sell.
During the fourth quarters of Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company
conducted its annual evaluation of its finite-lived intangible assets and the long-lived assets of
its retail stores for impairment. For Fiscal 2011, the Company recorded an impairment charge of
$35,225 as part of its restructuring and other exit costs within amortization of intangible assets (see Note 4 Restructuring Expense and Other Exit Costs and Note 10-
Intangible Assets and Goodwill of Notes to Consolidated Financial Statements) in connection with
its CK/Calvin Klein bridge business. No impairment charges were recorded related to the Companys
finite-lived intangible assets for Fiscal 2010 or Fiscal 2009. For Fiscal 2011, Fiscal 2010 and
Fiscal 2009, the Company determined that the long-lived assets of 27, 10 and 2 retail stores,
respectively, were impaired, based on the valuation methods described above. The Company recorded
impairment charges of $5,950, $1,933 and $160, respectively, within selling, general and
administrative expense .The portion of those impairment charges related to stores which management
has either closed or expects to close was $5,482, 1,621 and $160 for Fiscal 2011, Fiscal 2010 and
Fiscal 2009, respectively, and was recorded as restructuring and other exit costs within selling,
general and administrative expense (see Note 4 of Notes to Consolidated Financial Statements
Restructuring Expense and Other Exit Costs). The fair values thus determined are categorized as
level 3 (significant unobservable inputs) within the fair value hierarchy (see Note 16 of Notes to
Consolidated Financial Statements).
F-9
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Since the determination of future cash flows is an estimate of future performance, there may
be future impairments to the carrying value of long-lived and intangible assets and impairment
charges in future periods in the event that future cash flows do not
meet expectations. In addition, depreciation and amortization expense is affected by the Companys
determination of the estimated useful lives of the related assets. The estimated useful lives of
fixed assets and finite-lived intangible assets are based on their classification and expected
usage, as determined by the Company.
Goodwill and Other Intangible Assets: Goodwill represents the excess of purchase price over
the fair value of net assets acquired in business combinations accounted for under the purchase
method of accounting. Goodwill is not amortized and is subject to an annual impairment test which
the Company performs in the fourth quarter of each fiscal year.
Goodwill impairment is determined using a two-step process. Goodwill is allocated to various
reporting units, which are either the operating segment or one reporting level below the operating
segment. As of December 31, 2011, the Companys reporting units for purposes of applying the
goodwill impairment test were: Core Intimate Apparel (consisting of the Warners® /Olga® /Body
Nancy Ganz®/Bodyslimmers ® business units) and Calvin Klein Underwear, both of which were one
reporting level below the Intimate Apparel Group operating segment; Calvin Klein Jeans and Chaps®,
both of which were one reporting level below the Sportswear Group operating segment and Swimwear,
comprising the Swimwear Group operating segment. In connection with a business combination,
goodwill is assigned to a reporting unit based upon the proportion of projected net sales of the
products in each reporting unit of the acquired entity.
The first step of the goodwill impairment test is to compare the fair value of each reporting
unit to its carrying amount to determine if there is potential impairment. If the fair value of the
reporting unit is less than its carrying value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss. The second step of the goodwill impairment
test compares the implied fair value of the reporting units goodwill with the carrying amount of
that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The
implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. That is, the fair value of the reporting unit is allocated to
all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if
the reporting unit had been acquired in a business combination and the fair value was the purchase
price paid to acquire the reporting unit.
Determining the fair value of a reporting unit under the first step of the goodwill impairment
test and determining the fair value of individual assets and liabilities of a reporting unit
(including unrecognized intangible assets) under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant estimates and assumptions. These
estimates and assumptions could have a significant impact on whether or not an impairment charge is
recognized and the magnitude of any such charge. Estimates of fair value are primarily determined
using discounted cash flows, market multiples or appraised values, as appropriate.
During the fourth quarters of Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company determined
the fair value of the assets and liabilities of its reporting units in the first step of the
goodwill impairment test as the weighted average of both an income approach, based on discounted
cash flows using the Companys weighted average cost of capital of 15.0% (Fiscal 2011), 14.5%
(Fiscal 2010) or 15.0% (Fiscal 2009), and a market approach, using inputs from a group of peer
companies. The Company did not identify any reporting units that failed or were at risk of failing
the first step of the goodwill impairment test (comparing fair value to carrying amount) during
Fiscal 2011, Fiscal 2010 or Fiscal 2009.
Intangible assets with indefinite lives are not amortized and are subject to an annual
impairment test which the Company performs in the fourth quarter of each fiscal year. The Company
also reviews its indefinite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that
the carrying value of an indefinite-lived intangible asset exceeds its fair value, as for
goodwill. If the carrying value of an indefinite-lived intangible asset exceeds its fair value
(determined based on discounted cash flows), an impairment loss is recognized. The estimates and
assumptions used in the determination of the fair value of indefinite-lived intangible assets will
not have an effect on the Companys future earnings unless a future evaluation of trademark or
license value indicates that such asset is impaired. For Fiscal 2011, Fiscal 2010 and Fiscal 2009,
no impairment charges were recorded related to the Companys indefinite-lived intangible assets.
F-10
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Property, Plant and Equipment: Property, plant and equipment as of December 31, 2011 and January 1,
2011 is stated at estimated fair value, net of accumulated depreciation, for the assets in
existence at February 4, 2003 and at historical costs, net of accumulated depreciation, for
additions after February 4, 2003. The estimated useful lives of property, plant and equipment are
summarized below:
|
|
|
Buildings
|
|
40 years |
Building Improvements (including leasehold improvements)
|
|
4-15 years |
Machinery and equipment
|
|
2-10 years |
Furniture and fixtures (including store fixtures)
|
|
1-10 years |
Computer hardware
|
|
3-5 years |
Computer software
|
|
3-7 years |
Depreciation and amortization expense is based on the estimated useful lives of depreciable
assets and is provided using the straight line method. Leasehold improvements are amortized over
the lesser of the useful lives of the assets or the lease term; or the lease term plus renewal
options if renewal of the lease is reasonably assured.
Computer Software Costs: Internal and external costs incurred in developing or obtaining
computer software for internal use are capitalized in property, plant and equipment and are
amortized on a straight-line basis, over the estimated useful life of the software (3 to 7 years).
Interest costs related to developing or obtaining computer software that could have been avoided if
expenditures for the asset had not been made, if any, are capitalized to the cost of the asset.
General and administrative costs related to developing or obtaining such software are expensed as
incurred.
Income Taxes: Deferred income taxes are determined using the asset and liability method.
Deferred tax assets and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates
and laws to taxable years in which such differences are expected to reverse. Realization of the
Companys deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the
timing and amount of which are uncertain. Management assesses the Companys income tax positions
and records tax benefits for all years subject to examination based upon an evaluation of the
facts, circumstances, and information available at the reporting dates. In addition, valuation
allowances are established when management determines that it is more-likely-than-not that some
portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed
periodically and adjusted as events occur, or circumstances change, that warrant adjustments to
those balances.
The Company accounts for uncertainty in income taxes in accordance with Financial Accounting
Standards Board Accounting Standards Codification (FASB ASC) Topic 740-10. If the Company
considers that a tax position is more-likely-than-not of being sustained upon audit, based solely
on the technical merits of the position, it recognizes the tax benefit. The Company measures the
tax benefit by determining the largest amount that is greater than 50% likely of being realized
upon settlement, presuming that the tax position is examined by the appropriate taxing authority
that has full knowledge of all relevant information. These assessments can be complex and require
significant judgment. To the extent that the Companys estimates change or the final tax outcome of
these matters is different than the amounts recorded, such differences will impact the income tax
provision in the period in which such determinations are made. If the initial assessment fails to
result in the recognition of a tax benefit, the Company continues to monitor its position and
subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law
that sufficiently raise the likelihood of prevailing on the technical merits of the position to
more-likely-than-not, (ii) the statute of limitations expires, or (iii) there is a completion of an
audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax
positions are classified as current only when the Company expects to pay cash within the next
twelve months. Interest and
penalties, if any, are recorded within the provision for income taxes in the Companys
Consolidated Statements of Operations and are classified on the Consolidated Balance Sheets with
the related liability for unrecognized tax benefits.
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 that had completed service prior to January 1, 2003 (see Note 7 of Notes to Consolidated
Financial Statements). The measurement date used to determine benefit information is the Companys
fiscal year end.
The assumptions used with respect to the Pension Plan (as defined below), in particular the
discount rate, can have a significant effect on the amount of pension liability recorded by the
Company. The discount rate is used to estimate the present value of projected benefit obligations
at each valuation date. The Company evaluates the discount rate annually and adjusts the rate
based upon current market conditions. For the Pension Plan, the discount rate is estimated using a
portfolio of high quality corporate bond yields (rated Aa or higher by Moodys or Standard &
Poors Investors Services) which matches the projected benefit payments and duration of obligations
for participants in the Pension Plan. The Company believes that a discount rate of 5.20% for Fiscal 2011 reasonably reflects current
market conditions and the characteristics of the Pension Plan.
F-11
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Companys estimated long-term rate of return on Pension Plan assets for Fiscal 2011
was 7.0%, which was based upon the average of (i) the actual net returns realized by the Pension
Plans assets from September 2002 to December 31, 2011 and (ii) the return expected to be earned in
the future. Estimation of future returns are based on a model that incorporates expectations of
long-term capital market returns of a managed portfolio similar to the targeted mix of Pension Plan
assets. Such estimated future rate of return is then reduced to reflect administrative expenses
that are associated with providing plan benefits and which are expected to be paid by the Pension
Plan. The Companys estimated long-term rate of return on Pension Plan assets for Fiscal 2011 will
be used to determine estimated pension expense for interim periods in the year ending December 29,
2012.
The investments of the Pension Plan are stated at fair value based upon quoted market prices
or other observable inputs, if available. The Pension Plan invests in certain funds or asset pools
that are managed by investment managers for which no quoted market price is available. These
investments are valued at estimated fair value based on the net asset valuations as reported by
each funds administrators to the Pension Plan trustee. These amounts may differ significantly from
the value that would have been reported had a quoted market price been available for each
underlying investment or the individual asset pool in total.
Effective January 1, 2003, the Pension Plan was amended and, as a result, no future benefits
accrue to participants in the Pension Plan. As a result of the amendment, the Company has not
recorded pension expense related to current service for all periods presented and will not record
pension expense for current service for any future period.
The Company uses a method that accelerates recognition of gains or losses which are a result
of (i) changes in projected benefit obligations related to changes in actuarial assumptions and
(ii) returns on plan assets that are above or below the projected asset return rate (Accelerated
Method) to account for its defined benefit pension plans. The projected asset return rate for
Fiscal 2011 was 7%, which will be used to determine estimated pension expense for interim periods
in the year ending December 29, 2012. The Company has recorded pension obligations equal to the difference between the plans projected
benefit obligations and the fair value of plan assets in each fiscal year since the adoption of the
Accelerated Method. The Company believes the Accelerated Method is preferable because the pension
liability using the Accelerated Method approximates fair value.
The Company recognizes one-quarter of its estimated annual pension expense (income) in each of
its first three fiscal quarters. Estimated pension expense (income) consists of the interest cost
on projected benefit obligations for the Pension Plan, offset by the expected return on pension
plan assets. The Company records the effect of any changes in actuarial assumptions (including
changes in the discount rate from one fiscal year to the next) and the difference between the
assumed rate of return on plan assets and the actual return on plan assets in the fourth quarter of
its fiscal year. The Companys use of the Accelerated Method results in increased volatility in
reported pension expense and therefore the Company reports pension income/expense on a separate
line in its Consolidated Statement of Operations. The Company recognizes the funded status of its
pension and other post-retirement benefit plans in the Consolidated Balance Sheets.
The Company makes annual contributions to all of its defined benefit pension plans that are at
least equal to the minimum required contributions and any other premiums due under the Employee
Retirement Income Security Act of 1974, as amended, the Pension Protection Act of 2006 and the U.S.
Internal Revenue Code of 1986, as amended. The Companys cash contribution to the Pension Plan for
Fiscal 2011 was $9,450 and is expected to be approximately $20,555 in the fiscal year ending
December 29, 2012. See Note 7 of Notes to Consolidated Financial Statements.
Stock-Based Compensation: In accounting for equity-based compensation awards, the Company uses
the Black-Scholes-Merton model to calculate the fair value of stock option awards. The Black-
Scholes-Merton model uses assumptions which involve estimating future uncertain events. The
Company is required to make significant judgments regarding these assumptions, the most significant
of which are the stock price volatility, the expected life of the option award and the risk-free
rate of return.
|
|
|
In determining the stock price volatility assumption used, the Company
considers the historical volatility of its own stock price, based upon daily
quoted market prices of the Companys common stock (Common
Stock) on the New York Stock Exchange
and, prior to May 15, 2008, on the NASDAQ Stock Market LLC, over a period equal to
the expected term of the related equity instruments. The Company relies only on
historical volatility since it provides the most reliable indication of future
volatility. Future volatility is expected to be consistent with historical;
historical volatility is calculated using a simple average calculation method;
historical data is available for the length of the options expected term and a
sufficient number of price observations are used consistently. Since the Companys
stock options are not traded on a public market, the Company does not use implied
volatility. A higher volatility input to the Black-Scholes-Merton model increases
the resulting compensation expense. |
F-12
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
Expected option life is the period of time from the grant date to the date on
which an option is expected to be exercised. The Company used historical data to
calculate expected option life (which yielded an expected life of 4.1
years, 4.2 years and 3.72 years for Fiscal 2011, Fiscal 2010 and Fiscal 2009,
respectively). A shorter expected term would result in a lower compensation
expense. |
|
|
|
|
The Companys risk-free rate of return assumption for options granted in Fiscal
2011, Fiscal 2010 and Fiscal 2009 was equal to the quoted yield for U.S. treasury
bonds as of the dates of grant. |
Compensation expense related to stock option grants is determined based on the fair value of
the stock option on the grant date and is recognized over the vesting period of the grants on a
straight-line basis. Compensation expense related to restricted stock grants is determined based on
the fair value of the underlying stock on the grant date and recognized over the vesting period of
the grants on a straight-line basis (see below for additional factors related to recognition of
compensation expense). The Company applies a forfeiture rate to the number of unvested awards in
each reporting period in order to estimate the number of awards that are expected to vest.
Estimated forfeiture rates are based upon historical data of awards
that were cancelled prior to vesting. The
Company adjusts the total amount of compensation cost recognized for each award, in the period in
which each award vests, to reflect the actual forfeitures related to that award. Changes in the
Companys estimated forfeiture rate will result in changes in the rate at which compensation cost
for an award is recognized over its vesting period.
On an annual basis, beginning in March 2010, share-based compensation awards granted to
certain of the Companys executive officers under the 2005 Stock Incentive Plan included
performance-based restricted stock/restricted unit awards (Performance Awards) in addition to the
service-based stock options and restricted stock awards of the types that had been granted in
previous periods. See Note 13 of Notes to Consolidated Financial Statements. The Performance Awards
cliff-vest three years after the grant date and are subject to the same vesting provisions as
awards of the Companys regular service-based restricted stock/restricted unit awards. The final
number of Performance Awards that will be earned, if any, at the end of the three-year vesting
period will be the greatest number of shares based on the Companys achievement of certain goals
relating to cumulative earnings per share growth (a performance condition) or 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)) (a
market condition) measured from the beginning of the fiscal year of grant to the end of the fiscal
year that is three years later (the Measurement Period). The total number of Performance Awards
earned could equal up to 150% of the number of Performance Awards originally granted, depending on
the level of achievement of those goals during the Measurement Period.
The Company records stock-based compensation expense related to the Performance Awards ratably
over the requisite service period based on the greater of the estimated expense calculated under
the performance condition or the grant date fair value calculated under the market condition.
Stock-based compensation expense related to an award with a market condition is recognized over the
requisite service period regardless of whether the market condition is satisfied, provided that the
requisite service period has been completed. Under the performance condition, the estimated 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 for the March 2011 Performance Awards and $2,432 for the March 2010 Performance Awards) is
based upon a Monte Carlo simulation model, which encompasses TSRs during the Measurement Period,
including both the period from the beginning of the fiscal year of grant to the grant date, for
example, March 3, 2010, for which actual TSRs are calculated, and the period from the grant date
to the end of the third fiscal year from the beginning of the fiscal year of grant, for example the
end of the year ending December 29, 2012, a total of 2.83 years (the Remaining Measurement
Period), for which simulated TSRs are calculated.
In calculating the fair value of the award under the market condition, the Monte Carlo
simulation model utilizes multiple input variables over the Measurement Period in order to
determine the probability of satisfying the market condition stipulated in the award. The Monte
Carlo simulation model computed simulated TSRs for the Company and Peer Companies during the
Remaining Measurement Period with the following inputs: (i) stock price on the grant date (ii)
expected volatility; (iii) risk-free interest rate; (iv) dividend yield and (v) correlations of
historical common stock returns between the Company and the Peer Companies and among the Peer
Companies. Expected volatilities utilized in the Monte Carlo model are based on historical
volatility of the Companys and the Peer Companies stock prices over a period equal in length to
that of the Remaining Measurement Period. The risk-free interest rate is derived from the U.S.
Treasury yield curve in effect at the time of grant with a term equal to the Measurement Period
assumption at the time of grant.
Beginning in March 2010, for certain employee stock-based compensation awards, the Companys
Compensation Committee approved the incorporation of a Retirement Eligibility feature such that an
employee who has attained the age of 60 years with at least five years of continuous employment
with the Company will be deemed to be Retirement Eligible. Awards granted to Retirement Eligible
employees will continue to vest even if the employees employment with the Company is terminated
prior to the awards vesting date (other than for cause, and provided the employee does not engage
in a competitive activity). As in previous years, awards
F-13
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
granted to all other employees (i.e. those who are not Retirement Eligible) will cease vesting
if the employees employment with the Company is terminated prior to the awards vesting date.
Stock-based compensation expense is recognized over the requisite service period associated with
the related equity award. For Retirement Eligible employees, the requisite service period is either
the grant date or the period from the grant date to the Retirement Eligibility date (in the case
where the Retirement Eligibility date precedes the vesting date). For all other employees (i.e.
those who are not Retirement Eligible), as in previous years, the requisite service period is the
period from the grant date to the vesting date. The Retirement Eligibility feature was not applied
to awards issued prior to March 2010. The increase in stock-based compensation expense recorded
during Fiscal 2010 of approximately $8,100, from Fiscal 2009, primarily related to the Retirement
Eligibility feature described above.
Advertising Costs: Advertising costs are included in SG&A expenses and are expensed when the
advertising or promotion is published or presented to consumers. Cooperative advertising expenses
are charged to operations as incurred and are also included in SG&A expenses. The amounts charged
to operations for advertising, marketing and promotion expenses (including cooperative advertising,
marketing and promotion expenses) for Fiscal 2011, Fiscal 2010 and Fiscal 2009 were $125,414,
$126,465 and $100,188, respectively. Cooperative advertising expenses for Fiscal 2011, Fiscal 2010
and Fiscal 2009 were $28,705, $27,936 and $21,583, respectively. At December 31, 2011 and January
1, 2011, prepaid advertising costs recorded on the Consolidated Balance Sheets were $9,262 and
$10,736, respectively.
Shipping and Handling Costs: Costs to store, pick and pack merchandise and costs related to
warehousing and distribution activities (with the exception of freight charges incurred to ship
finished goods to customers) are expensed as incurred and are classified in SG&A expenses. Direct
freight charges incurred to ship merchandise to customers are expensed as incurred and are
classified in cost of goods sold. The amounts charged to SG&A for shipping and handling costs for
Fiscal 2011, Fiscal 2010 and Fiscal 2009 were $65,688, $61,190 and $52,260, respectively.
Leases: The Company recognizes rent expense for operating leases, where the amount of rental
payments over the term of the lease is stated in the lease agreement, on a straight-line basis
(including the effect of reduced or free rent and rent escalations) over the life of the lease
beginning on the date the Company takes possession of the property. At lease inception, the Company
determines the lease term by assuming the exercise of those renewal options that are reasonably
assured because of the significant economic penalty that exists for not exercising those options.
The exercise of renewal options is at the Companys sole discretion. The expected lease term is
used to determine whether a lease is operating or capital and is used to calculate the
straight-line rent expense. The difference between the cash paid to the landlord and the amount
recognized as rent expense on a straight-line basis is included in deferred rent and classified
within other long-term liabilities. Cash reimbursements received from landlords for leasehold
improvements and other cash payments received from landlords as lease incentives are recorded as
deferred rent and classified as other long-term liabilities. Deferred rent related to landlord
incentives is amortized using the straight-line method over the lease term as an offset to rent
expense. Penalties paid to landlords to terminate a lease before the contractual end date of the
lease are recognized on an undiscounted basis in the Consolidated Statements of Operations. The
rental payments for certain leases are contingent on a percentage of net sales during a given
month. Rent expense for those leases is recognized as incurred based on actual net sales.
Deferred Financing Costs: Deferred financing costs represent legal, other professional and
bank underwriting fees incurred in connection with the issuance of debt. Such fees are amortized
over the life of the related debt using the interest method. Amortization of deferred financing
costs is included in interest expense, net.
Derivative Financial Instruments: The Company is exposed to foreign exchange risk primarily
related to fluctuations in foreign exchange rates between the U.S. dollar and the Euro, Canadian
dollar,
Korean won, Mexican peso, Brazilian real, Indian rupee, Chinese yuan, British pound and
Singaporean dollar. The Companys foreign exchange risk includes U.S. dollar-denominated purchases
of inventory, payment of minimum royalty and advertising costs and inter-company loans and payables
by subsidiaries whose functional currencies are the Euro, Canadian
dollar, Korean won, Mexican peso
or British pound. The Company or its foreign subsidiaries enter into foreign exchange forward
contracts and zero-cost collar option contracts, to offset its foreign exchange risk. The Company
does not use derivative financial instruments for speculative or trading purposes.
The Company is exposed to interest rate risk, primarily related to changes in the London
Interbank Offered Rate (LIBOR), on the portion of the 2011 Term Loan (defined below) that is not
subject to the interest rate cap (see Note 12 of Notes to Consolidated Financial Statements). The
2011 Term Note bears interest at LIBOR (with a floor of 1.00%) plus a margin of 2.75%. The Company
has entered into an interest rate cap on $120,000 notional amount (of the total $200,000 principal
amount) of the 2011 Term Loan. The interest rate cap limits the LIBOR portion of interest expense
to 1.00%.
F-14
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Company accounts for its derivative instruments as either assets or liabilities and
carries them at fair value. The Company designates (i) foreign currency forward contracts related
to purchase of inventory or payment of minimum royalty and
advertising costs and (ii) interest rate caps, as cash flow hedges if the following
requirements are met: (i) at the inception of the hedge there is formal documentation of the
hedging relationship, the entitys risk management objective and strategy for undertaking the
hedge, the specific identification of the hedging instrument, the hedged transaction and how the
hedging instruments effectiveness in hedging exposure to the
hedged transaction's variability in
cash flows attributable to the hedged risk will be assessed; (ii) the hedge transaction is expected
to be highly effective in achieving offsetting cash flows attributable to the hedged risk and
(iii) the occurrence of the forecasted transaction is probable.
The Company designates foreign exchange forward contracts, that are entered into by the
Companys subsidiaries, related to the purchase of inventory or the payment of minimum royalties
and advertising costs as cash flow hedges, with gains and losses accumulated on the Balance Sheet
in Accumulated Other Comprehensive Income (AOCI) and recognized in Cost of Goods Sold (COGS) in
the Statement of Operations during the periods in which the underlying transactions occur. Foreign
exchange forward contracts, entered into by foreign subsidiaries that do not qualify for hedge
accounting, and those entered into by Warnaco on behalf of a subsidiary, related to inventory
purchases, payment of minimum royalties and advertising costs and zero-cost collars or forward
contracts related to inter-company loans or payables are considered to be economic hedges for
accounting purposes. Gain or loss on the underlying foreign-denominated balance or future
obligation would be offset by the loss or gain on the forward contract. Accordingly, changes in the
fair value of these economic hedges are recognized in earnings during the period of change.
Gains and losses on economic hedges that are forward contracts are recorded in Other loss
(income) in the Consolidated Statements of Operations. Gains and losses on zero cost collars that
are used to hedge changes in inter-company loans and payables are included in Other loss (income)
or selling, general and administrative expense, respectively, on the Consolidated Statements of
Operations.
The Company formally assesses, both at the inception of and on an ongoing basis, for cash flow
hedges of fluctuations in foreign currency rates, whether the derivatives used in hedging
transactions have been highly effective in offsetting changes in the cash flows of hedged items and
whether those derivatives may be expected to remain highly effective in future periods.
Effectiveness for cash flow hedges is assessed based on forward rates using the
Dollar-Offset Analysis, which compares (a) the cumulative changes since inception of the
amount of dollars maturing under that dollar forward purchase contract to (b) the cumulative
changes since inception of the contract in the amount required for hedged transaction. Changes in
the time value (difference between spot and forward rates) are not excluded from the assessment of
effectiveness.
Changes in the fair values of foreign exchange contracts that are designated as cash flow
hedges, to the extent that they are effective, are deferred and recorded as a component of other
comprehensive income until the underlying transaction being hedged is settled, at which time the
deferred gains or losses are recorded in cost of goods sold in the Statements of Operations. The
ineffective portion of a cash flow hedge, if any, is recognized in Other loss (income) in the
current period. Commissions and fees related to foreign currency exchange contracts, if any, are
expensed as incurred. Cash flows from the Companys derivative instruments are classified in the
Consolidated Statements of Cash Flows in the same category as the items being hedged.
The Company designates its deferred premium interest rate cap as a cash flow hedge of the
exposure to variability in expected future cash flows attributable to a three-month LIBOR rate
beyond 1.00% (see Note 12 of Notes to Consolidated Financial Statements). The interest rate cap is
a series of 27 individual caplets that reset and settle quarterly over the period from October 31,
2011 to April 30, 2018. If three-month LIBOR resets above a strike price of 1.00%, the Company will
receive the net difference between the reset rate and the strike price. In addition, on the
quarterly settlement dates, the Company will remit the deferred premium payment to the bank that
issued the interest rate cap. If LIBOR resets below the
strike price no payment is made by the bank that issued the interest rate cap. However, the
Company would still be responsible for payment of the deferred premium. At the inception of the
hedging relationship, the fair value of the interest rate cap of $14,395 was allocated to the
respective caplets within the interest rate cap on a fair value basis. To the extent that the
interest rate cap contracts are effective in offsetting that variability, changes in the interest
rate caps fair value will be recorded in AOCI in the Companys Consolidated Balance Sheets and
subsequently recognized in interest expense in the Consolidated Statements of Operations as the
underlying interest expense is recognized on the 2011 Term Loan.
The Company deems that the interest rate cap will be perfectly effective throughout its term
because:
|
1. |
|
The critical terms of the hedging instrument (such as notional
amount, interest rate, and maturity date, etc.) completely match the related
terms of the hedged forecasted transaction (such as, notional amount, LIBOR
interest rate and expected dates of the hedged transaction, etc.); |
F-15
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
2. |
|
The strike price of the hedging option (or combination of
options) matches the specified level beyond which the entitys exposure is
being hedged. This amount is the excess of LIBOR over 1.00% for both
the interest rate cap
and the hedged debt; |
|
|
3. |
|
The hedging instruments cash flows at its maturity date
completely offset the change in the hedged transactions cash flows for the
risk being hedged. At the maturity date of the each of the caplets in the
interest rate cap, the caplet will pay the Company the excess of LIBOR over
1.00% and, therefore, will limit the Companys interest rate exposure to 1.00%
(after the Company pays LIBOR on the hedged debt on those same dates); and |
|
|
4. |
|
The hedging instrument can be exercised only on a single
dateits contractual maturity date. (This condition is consistent with the
entitys focus on the hedging instruments terminal value). The interest rate
cap allows exercise only on the maturity date of each caplet (which matches the
dates on which interest payments are due on the hedged debt). |
The Company discontinues hedge accounting prospectively when it is determined that (i) a
derivative is not, or has ceased to be, highly effective as a hedge, (ii) when a derivative expires
or is terminated or (iii) whenever it is probable that the original forecasted transactions will
not occur by the end of the originally specified time period or within an additional two-month
period of time thereafter. When the Company discontinues hedge accounting because of reasons (i) or
(ii) or it is no longer probable that the forecasted transaction will occur in the originally
expected period but will occur with two months from that time, the gain or loss on the derivative
remains in accumulated other comprehensive income and is reclassified to net income when the
forecasted transaction affects net income. However, if it is probable that a forecasted transaction
will not occur by the end of the originally specified time period or within a two-month period of
time thereafter, the gains and losses that were accumulated in other comprehensive income will be
recognized immediately in net income.
Translation of Foreign Currencies: Cumulative translation adjustments arise primarily from
consolidating the net assets and liabilities of the Companys foreign operations at current rates
of exchange. Assets and liabilities of the Companys foreign operations are recorded at current
rates of exchange at the balance sheet date and translation adjustments are applied directly to
stockholders equity and are included as part of accumulated other comprehensive income. Gains and
losses related to the translation of current amounts due from or to foreign subsidiaries are included in
Other loss (income) or selling, general and administrative expense, as appropriate, and are
recognized in the period incurred. Translation gains and losses related to long-term and
permanently invested inter-company balances are recorded in accumulated other comprehensive income.
Income and expense items for the Companys foreign operations are translated using monthly average
exchange rates.
Litigation Reserves: The Company is involved, or may become involved in the future, in various
lawsuits, claims, investigations and proceedings that arise in the ordinary course of business.
Accruals are recorded when it is probable a liability has been incurred and the amount of the
liability can be reasonably estimated. The Company reviews these reserves at least quarterly and
adjusts these reserves to reflect current law, progress of each case, opinions and views of legal
counsel and other advisers, the Companys experience in similar matters and intended response to
the litigation. The Company expenses amounts for administering or litigating claims as incurred.
Accruals for legal proceedings are included in Accrued liabilities in the Consolidated Balance
Sheets.
Subsequent Events: The Company has evaluated events and transactions occurring after December
31, 2011 for potential recognition or disclosure in the Consolidated Financial Statements. See
Notes 4,10 and 19 of Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements:
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 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.
F-16
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
During May 2011, the FASB issued ASU 2011-04 Fair Value Measurement (Topic 820): Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU
2011-04). ASU 2011-04 clarifies that the concept that the fair value of an asset is based on its
highest and best use is only relevant when measuring the fair value of nonfinancial assets (and
therefore would not apply to financial assets or any liabilities) since financial assets have no
alternative use. The new guidance specifies that financial assets are measured based on the fair
value of an individual security unless an entity manages its market risks and/or counterparty
credit risk exposure within a group (portfolio) of financial instruments on a net basis. ASU 2011-4
requires the following new disclosures related to the Companys assets and liabilities that are
measured at and/or disclosed at fair value: (1) the categorization in the fair value hierarchy of
all assets and liabilities that are not measured at fair value on the balance sheet but for which
the fair value is required to be disclosed (such as the disclosure of the fair value of long-term
debt that is recorded at amortized cost on the balance sheet); (2) all, not just significant,
transfers between Level 1 and Level 2 fair value measurements; (3) the reason(s), if applicable,
why the current use of a nonfinancial asset, that is recorded or disclosed at fair value, differs
from its highest and best use; and (4) certain quantitative and qualitative disclosures related to
Level 3 fair value measurements. Assets and liabilities of the Companys defined benefit pension
plans (see Note 8 of Notes to Consolidated Financial Statements) are not subject to any of these
new disclosure requirements. The new requirements are effective for the Company for interim and
annual periods beginning on or after January 1, 2012 and will be required prospectively upon
adoption. The Company does not expect that the adoption of ASU 2011-04 will have a material effect
on its financial position, results of operations or cash flows.
During June 2011, the FASB issued ASU 2011-05 Comprehensive Income (Topic 220): Presentation
of Comprehensive Income (ASU 2011-05). ASU 2011-05 requires the Company to present items of net
income and other comprehensive income in a Statement of Comprehensive Income; either in one
continuous statement or in two separate, but consecutive, statements of equal prominence.
Presentation of components of comprehensive income in the Statement of Stockholders Equity will no
longer be allowed. Earnings-per-share computation will continue to be based on net income.
Components of other comprehensive income will be required to be presented either net of the related
tax effects or before the related tax effects with one amount reported for the tax effects of all
other comprehensive income items. The Company will also be required to present parenthetically on
the face of the statement, or to disclose in the footnotes, the tax allocated to each component of
other comprehensive income. ASU 2011-05, as issued, required the Company to present on the face of
the financial statements reclassification adjustments for items that are reclassified from other
comprehensive income to net income in the statement where the components of net income and the
components of other comprehensive income are presented. However, in November 2011, the FASB issued
ASU 2011-12 Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update 2011-05, which deferred the effective date of that portion of ASU
2011-05 to reinstate the requirements to present reclassification adjustments either on the face of
the financial statement where comprehensive income is reported or disclose reclassification
adjustments in the notes to the financial statements. The new requirements and the deferral are
effective for all interim and annual periods beginning on or after January 1, 2012. Comparative
financial statements of prior periods will be presented to conform to the new guidance. The Company
does not expect the adoption of ASU 2011-05 and ASU 2011-12 to have a material effect on its
financial position, results of operations or cash flows.
During September 2011, the FASB issued ASU 2011-08 Intangibles Goodwill and Other (Topic
350): Testing Goodwill for Impairment (ASU 2011-08), which is intended to reduce the cost and
complexity of the annual goodwill impairment test by providing entities an option to first perform
a qualitative assessment to determine whether further quantitative impairment testing is
necessary. If an entity believes, as a result of its qualitative assessment, that it is
more-likely-than-not (a likelihood of more than 50%) that the fair value of a reporting unit is
less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
testing is required. An entity can choose to perform the qualitative
assessment on none, some or all of its reporting units. Moreover, an entity can bypass the
qualitative assessment for any reporting unit in any period and proceed directly to step one of the
impairment test, and then resume performing the qualitative assessment in any subsequent period.
ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. However, an entity can choose to early adopt as of the
fourth quarter of 2011. The Company intends to adopt ASU 2011-08 for
the year ending December 29, 2012.
F-17
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Note 2Acquisitions
During Fiscal 2011, Fiscal 2010 and Fiscal 2009, the Company acquired the businesses described
below. The acquisitions were accounted for as business combinations and the operating results of
the acquired businesses were consolidated into the Companys operations and financial statements
from their respective acquisition dates. The following acquisitions were deemed not to be material
for accounting purposes from a financial disclosure perspective, either individually or in the
aggregate. The acquisitions
were consummated as part of the Companys strategic goal of expanding its international direct to
consumer business.
2011
Redeemable Non-Controlling Interest Joint Venture in India
On July 8, 2011, the Company acquired a controlling interest (51%) in the equity of a joint
venture with a distributor of its Calvin Klein products in India for cash consideration of
approximately $17,771, net of cash acquired of $2,629. In addition, on July 8, 2011, the Company
loaned one of the non-controlling shareholders in the joint venture $6,000 which accrues interest
at a rate of 5.0% per annum (which loan is collateralized by the non-controlling shareholders
equity interest in the joint venture). Principal is due on July 8, 2016, the maturity date of the
loan, or sooner if the Company purchases the shares of the non-controlling shareholder. Interest on
the loan is payable in arrears on the last day of each calendar year.
The Shareholders Agreement entered into by the parties to the joint venture (the
Shareholders Agreement) contains a put option under which the non-controlling shareholders can
require the Company to purchase all or a portion of their shares in the joint venture (i) at any
date after July 8, 2011, if the Company commits a material breach, as defined in the Shareholders
Agreement, that is not cured or becomes insolvent; or (ii) at any date after July 8, 2013, with
respect to one of the non-controlling shareholders or after July 8, 2015, with respect to the other
non-controlling shareholder. The put price is the fair market value of the shares on the redemption
date based upon a multiple of the joint ventures EBITDA for the prior 12 months less its net debt
as of the closing balance sheet of the 12 month period. EBITDA will be derived from the joint
ventures financial statements. The multiple of EBITDA will be based on multiples of comparable
companies and specific facts and circumstances of the joint venture. Thus, the redemption value at
any date after the acquisition date is the fair value of the redeemable non-controlling interest on
that date.
The Shareholders Agreement also contains a call option under which the Company can require
any of the non-controlling shareholders to sell their shares to the Company (i) at any date after
July 8, 2011 in the event that any non-controlling shareholder commits a material breach, as
defined in the Shareholders Agreement, under any of the agreements related to the joint venture,
that is not cured; or (ii) at any date after July 8, 2015. The call price is determined by the same
method as the put price (as described above).
Due to the inclusion of a put option in the Shareholders Agreement, the Company is accounting
for the joint venture as a redeemable non-controlling interest in accordance with ASC
480-10-S99-3A, Distinguishing Liabilities from Equity. The redeemable non-controlling interest is
classified as temporary equity and is presented in the mezzanine section of the Companys
Consolidated Balance Sheets between liabilities and equity at its redemption value. The
estimate of the initial carrying value of the non-controlling interest on July 8, 2011 of $15,200
was its fair value as determined using a discounted cash flow model with a discount rate of 27% and
additional discounts for lack of marketability and lack of control by the non-controlling
shareholders.
Since it is probable that the non-controlling interest will become redeemable in the future,
based on the passage of time, subsequent changes in the redemption value (fair value) of the
redeemable non-controlling interest will be recognized immediately as they occur and the carrying
amount of the redeemable non-controlling interest will be adjusted to equal the fair value at the
end of each reporting period. Thus, the end of each reporting period is viewed as the redemption
date. The adjustment to the carrying amount will be determined after attribution of net income or
net loss of the non-controlling
interest. The offset to the adjustment to the carrying amount of the redeemable non-controlling
interest will be retained earnings of the Company. The adjustment to the carrying amount will not
impact net income or comprehensive income in the Companys Consolidated Financial Statements and
will not impact earnings per share since the shares of the redeemable non-controlling interest are
redeemable at fair value. For accounting purposes, the redemption value at which the redeemable
non-controlling interest is recorded on the Consolidated Balance Sheets cannot be less than the
initial amount of $15,200. At December 31, 2011, the fair value (redemption value)
of the redeemable non-controlling interest was $15,200.
As of December 31, 2011, the Company has recorded an amount of $32,828 for Goodwill in
connection with the acquisition of its controlling interest in the joint venture. Goodwill
represents synergies and economies of scale resulting from the business combination as well as the
value of the business established by the Indian partners before formation of the joint venture,
including business relationships, opening stores and hiring of an assembled workforce (see Note 10
of Notes to Consolidated Financial Statements).
F-18
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
On July 8, 2011, subsequent to the formation of the joint venture, Calvin Klein Inc. (CKI)
agreed to amend certain licenses with the Company related to territories in Asia to include the
territory of India. The amendments allow the Company to develop,
manufacture, distribute and market
Calvin Klein Jeans products (including Jeans apparel, Jeans accessories and bridge merchandise)
in India through 2046 (see Trademarks and Licensing Agreements in this Annual Report on Form
10-K). The Company accounted for rights received to the territory of India as an intangible asset,
which was recorded at estimated cost (see Note 10 of Notes to Consolidated Financial Statements).
Changes in the estimate of the cost will be reflected as a change in the carrying amount of the
intangible asset.
Business in Asia
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.
2010
Businesses in Europe and Asia
On October 4, 2010, the Company acquired the business of a distributor of its Calvin Klein
products in Italy, for which total cash consideration was approximately 16,200 ($22,400 based on
currency exchange rates at the time of acquisition). On April 29, 2010 and June 1, 2010, the
Company acquired the businesses of distributors of its Calvin Klein Jeans and Calvin Klein
Underwear products in Singapore and the Peoples Republic of China, respectively, for total cash
consideration of $8,600.
2009
Remaining Non-controlling Interest and Retail Stores in Brazil
During the fourth quarter of 2009, the Company finalized agreements to acquire the remaining
49% of the equity of its Brazilian subsidiary WBR Industria e Comercio de Vestuario S.A. (WBR)
and acquired the assets and assumed the leases of eight retail stores that sell Calvin Klein
products (including jeanswear and underwear) in Brazil, effective October 1, 2009. Prior to the
consummation of the acquisition of the remaining 49% of the equity of
WBR, WBR paid a
dividend of 7,000 Brazilian real (approximately $4,000, based on the currency exchange rate at the
time of the dividend), representing the distribution of the selling partners accumulated equity in
WBR through September 30, 2009. As consideration for the acquisition of the equity of WBR and the
retail stores, the Company made an initial payment of 21,000 Brazilian real (approximately $12,000
based on the currency exchange rate on the date of acquisition). In addition, the Company is
required to make three payments, contingent on the operating activity of WBR through the fourth
quarter of Fiscal 2009, Fiscal 2010 and Fiscal 2011, respectively. Based
on the operating income achieved by WBR in the fourth quarter of 2009, the first contingent
payment of 6,000 Brazilian real (approximately $3,400) was paid by March 31, 2010. The Company made
the second contingent payment of 18,500 Brazilian real (approximately $11,470 as of March 31,
2011), based on the operating results of WBR for Fiscal 2010, on March 31, 2011 and expects to make
the third contingent payment of 18,500 Brazilian real ($9,916 as of December 31, 2011), based on
the operating results of WBR for Fiscal 2011, by March 31, 2012. During Fiscal 2010, the Company
revised its estimate of the total of such three additional contingent annual payments from the
initial estimate of 40,000 Brazilian real, as estimated on the date of acquisition, to the maximum
aggregate contingent payout of 43,000 Brazilian real (approximately $24,000 based on currency
exchange rates at October 2, 2010), which revised estimate was maintained for Fiscal 2011.
Businesses in Chile and Peru
On June 10, 2009, the Company acquired from Fashion Company S.A. (formerly Clemente Eblen
S.A.) and Battery S.A. (collectively, Eblen), for cash consideration of $2,475, businesses
relating to distribution and sale at wholesale and retail of jeanswear and underwear products
bearing the Calvin Klein trademarks in Chile and Peru, including the transfer and assignment to the
Company by Eblen of the right to operate and conduct business at three retail locations in Chile
and one retail location in Peru.
Note 3Dispositions and Discontinued Operations
Calvin Klein Golf and Calvin Klein Collection businesses: During the third quarter of Fiscal
2009, the Company discontinued its Calvin Klein Golf (Golf) business and classified as available
for sale, its Calvin Klein Collection (Collection) business, both of which operated in Korea. As
a result, those business units have been classified as discontinued operations for all periods
presented. During the third quarter of Fiscal 2009, the Company wrote off the carrying value of the
Golf license of $792. In addition, the Company reclassified, as discontinued operations, net
revenues of $155 and expenses of $353 for Fiscal 2009 in connection with the shutdown of the Golf
business. During Fiscal 2010 and Fiscal 2009, the Company reclassified, as discontinued operations,
net
revenues of $1,754 and $2,305 and expenses of $2,372 and $3,062, respectively, in connection
with the shutdown of the Collection business. The Collection business was sold to a third party
during Fiscal 2010.
F-19
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Designer Swimwear brands (except for Calvin Klein): During Fiscal 2007, pursuant to an
initiative to exit the Swimwear Groups private label and designer swimwear businesses (except
Calvin Klein swimwear), the Company disposed of its OP womens and junior swimwear businesses. As a
result, the OP womens and juniors business has been classified as discontinued operations as of
December 31, 2011 and January 1, 2011. The Company had operated the OP womens and juniors
swimwear business under a license it was granted in connection with the Companys sale of its OP
business including the associated trademarks and goodwill in 2006. During February 2011, the
Company and Doyle & Bossiere Fund I LLC (Doyle) reached a settlement agreement and mutual release
related to the OP Action (defined below) (see Note 19 of Notes to Consolidated Financial Statements
Legal Matters). As a result, the Company recorded a pre-tax charge of $8,000 in the Loss from
discontinued operations line item in its Consolidated Statement of Operations for Fiscal 2010
(bringing the Companys total accrual in relation to the OP Action to $15,000 as of January 1,
2011). On February 16, 2011, the Company paid this amount ($15,000) in full and final settlement of
the action in accordance with the terms of the settlement agreement and mutual release.
Lejaby Sale: On February 14, 2008, the Company entered into a stock and asset purchase
agreement with Palmers Textil AG (Palmers) whereby, effective March 10, 2008, Palmers acquired
the Lejaby business for a base purchase price of 32,500 (approximately $47,400) payable in cash
and 12,500 (approximately $18,200) evidenced by an interest free promissory note (payable on
December 31, 2013), subject to certain adjustments, including adjustments for working capital. As a
result, the Lejaby business has been classified as a discontinued operation for financial reporting
purposes. During Fiscal 2009, the Company recorded a charge of $3,423 related to the correction of
an error in amounts recorded in prior periods relating to the Lejaby sale. See Note 6 of Notes to
Consolidated Financial Statements. During January 2011, prior to the filing of the Companys Annual
Report on Form 10-K for Fiscal 2010, the Company received notification from Palmers of a French tax
liability of the Companys previously-owned Lejaby business associated with a pre-sale tax period.
As a result, the Company recorded a pre-tax charge of approximately $3,000 in the Loss from
discontinued operations line item in its Consolidated Statement of Operations for Fiscal 2010. See
also Note 19 of Notes to Consolidated Financial Statements regarding a dispute between the Company
and Palmers pertaining to certain receivables related to the sale of the Lejaby business.
Summarized operating results for the discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Net revenues |
|
$ |
|
|
|
$ |
1,355 |
|
|
$ |
3,083 |
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision (benefit) |
|
$ |
(5,090 |
) (a) |
|
$ |
(12,814 |
) |
|
$ |
(6,079 |
) (b) |
Income tax provision (benefit) |
|
|
(288 |
) |
|
|
(3,597 |
) |
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(4,802 |
) |
|
$ |
(9,217 |
) |
|
$ |
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes a charge of approximately $3,900 in connection with
the Lejaby business (See Note 19 of Notes to
Consolidated Financial Statements Legal Matters). |
(b) |
|
includes a charge of $3,423 related to the correction of an error in amounts
recorded in prior periods. See Note 6 of Notes to Consolidated Financial Statements. |
F-20
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The assets and liabilities of the discontinued operations at December 31, 2011 and
January 1, 2011 are presented in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
January 1, 2011 |
|
|
|
2011(a) |
|
|
(a) |
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
18 |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
|
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
5 |
|
|
$ |
32 |
|
Accrued liabilities |
|
|
6,792 |
|
|
|
18,768 |
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
6,797 |
|
|
$ |
18,800 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes assets and liabilities related to the businesses that were discontinued in
2009, 2008 and 2007. |
Note 4Restructuring Expense and Other Exit Costs
During Fiscal 2011, the Company
incurred restructuring charges and other exit costs of $60,939
primarily related to (i) an impairment charge associated with
its CK/Calvin Klein bridge business ($35,225); (ii) the
rationalization and consolidation of the Companys international operations ($8,428); (iii) job
eliminations in the U.S. ($3,074); (iv) impairment charges related to retail stores that will be
closed in the year ending December 29, 2012 ($5,482); (v) lease contract termination costs in
connection with retail store, office and warehouse closures ($8,313) and (vi) other exit costs
($417).
During Fiscal 2010, the Company incurred restructuring charges and other exit costs of $9,809,
primarily related to (i) costs associated with workforce reductions, including current year job
eliminations and the remainder of the Companys effort to align its cost structure to match
economic conditions ($2,279); (ii) the rationalization and consolidation of the Companys European
operations ($1,757); (iii) impairment charges related to retail stores that will be closed in
Fiscal 2011 ($1,621); (iv) lease contract termination costs in connection with retail store and
warehouse closings ($4,120) and (v) other exit costs ($32).
During Fiscal 2009, the Company incurred restructuring charges of $12,126, primarily related
to (i) the workforce reduction in both the Companys domestic and foreign operations in order to
align the Companys cost structure to match current economic conditions ($7,110); (ii) the
rationalization and consolidation of the Companys European operations ($1,230); and (iii) other
exit activities, including contract termination costs, legal and other costs ($3,786).
Each of the restructuring activities is described below:
Impairment charge related to the CK/Calvin Klein bridge business: The Companys license
agreement to operate the bridge apparel business in Europe (the CK/Calvin Klein bridge
Apparel License) requires the Company to, among other things, meet certain minimum sales
thresholds for the two consecutive annual periods of 2010 and 2011. During Fiscal 2010 and Fiscal
2011, the Company did not achieve the aforementioned minimum sales thresholds required under the
CK/Calvin Klein bridge Apparel License. As a result, the Company and CKI no longer
intend for the Company to continue to operate all or part of the bridge business. The Company has
begun discussions with CKI regarding the terms and conditions of the transition of all or part of
the Companys bridge business to CKI. Based on the factors described above, during the finalization
of its financial statements for Fiscal 2011, the Company has recorded a non-cash impairment charge
of $35,225 related to its licenses to operate the bridge business. See Note 10
Intangible Assets and Goodwill of Notes to Consolidated Financial Statements.
The rationalization and consolidation of the Companys international operations: Actions taken
to date include (i) the transfer of the Companys Canadian administrative operations to a shared
services center in the U.S.; (ii) the relocation of warehouse and distribution facilities from
Italy to a new site in the
Netherlands; (iii) consolidation of certain sales functions across Europe; as well as (iv) the
consolidation of certain administrative and support functions across Europe into one shared service
center located in the Netherlands. The charges are primarily associated with employee termination
costs (related to 169 employees, 20 employees and 14 employees, in Fiscal 2011, Fiscal 2010 and
Fiscal 2009, respectively) and moving, consulting and professional fees related to this initiative.
Workforce reduction: During Fiscal 2009 the Company reduced its workforce, (232 employees
in both the Companys domestic and foreign operations) at a cost of approximately $7,110 in order
to align its cost structure to match current economic conditions. During Fiscal 2010, the final
charges related to this initiative were made as well as charges related to certain current year job
eliminations and an initiative to consolidate certain front and back office operations in Mexico,
Central and South America, at a cost of $2,279. During 2011, current year job eliminations in the
U.S. (59 employees) resulted in a cost of $3,074.
Charges
related to store closings: During Fiscal 2011, the Company recorded non-cash
impairment charges totaling $5,482 related to retail stores that the
Company either closed or expects to close. During Fiscal 2010, the Company recorded
non-cash impairment charges totaling $1,621 related to store closures (see
Note 1 of Notes to Consolidated Financial Statements Long-lived Assets for a description of the
impairment testing of retail stores).
F-21
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Restructuring charges have been recorded in the Consolidated Statements of Operations for
Fiscal 2011, Fiscal 2010 and Fiscal 2009, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Cost of goods sold |
|
$ |
1,893 |
|
|
$ |
300 |
|
|
$ |
1,764 |
|
Selling, general and administrative expenses (a) |
|
|
59,046 |
|
|
|
9,509 |
|
|
|
10,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,939 |
|
|
$ |
9,809 |
|
|
$ |
12,126 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash portion of restructuring items |
|
$ |
20,919 |
|
|
$ |
8,883 |
|
|
$ |
11,921 |
|
Non-cash portion of restructuring items |
|
$ |
40,020 |
|
|
$ |
926 |
|
|
$ |
205 |
|
Changes in liabilities related to restructuring are summarized below:
|
|
|
|
|
Balance at January 3, 2009 |
|
$ |
5,925 |
|
Charges for Fiscal 2009 |
|
|
11,921 |
|
Cash reductions for Fiscal 2009 |
|
|
(14,402 |
) |
Non-cash changes and foreign currency effects |
|
|
128 |
|
|
|
|
|
Balance at January 2, 2010 |
|
|
3,572 |
|
Charges for Fiscal 2010 |
|
|
8,883 |
|
Cash reductions for Fiscal 2010 |
|
|
(8,822 |
) |
Non-cash changes and foreign currency effects |
|
|
(51 |
) |
|
|
|
|
Balance at January 1, 2011 |
|
|
3,582 |
|
Charges for Fiscal 2011 |
|
|
20,919 |
|
Cash reductions for Fiscal 2011 |
|
|
(15,454 |
) |
Non-cash changes and foreign currency effects |
|
|
113 |
|
|
|
|
|
Balance at December 31, 2011 (b) |
|
$ |
9,160 |
|
|
|
|
|
|
|
|
(a) |
|
Includes $35,225 recorded in amortization of intangible assets for Fiscal 2011. |
|
(b) |
|
Includes approximately $7,079 recorded in accrued liabilities (part of current
liabilities) which amounts are expected to be settled over the next 12 months and includes
approximately $2,081 recorded in other long term liabilities which amounts are expected to be
settled over the next two years. |
Note 5Business 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 Fiscal 2010 and Fiscal 2009 have been revised to conform to the Fiscal 2011
presentation. The revision of the operating income (loss) for each group and Corporate/Other did
not have any effect on the Companys Consolidated Balance Sheets, Consolidated Statements of
Operations or Consolidated Statements Cash Flows for any period presented in this Annual Report on
Form 10-K.
F-22
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Sportswear Group designs, sources and markets moderate to premium priced mens and womens
sportswear under the Calvin Klein and Chaps® brands. As of December 31, 2011, the Sportswear Group
operated 610 Calvin Klein retail stores worldwide (consisting of 154 full price free-standing
stores, 57 outlet free-standing stores, 398 shop-in-shop/concession stores and, in the U.S., one
on-line internet store). As of December 31, 2011, there were also 393 retail stores operated by
third parties under retail licenses or franchise and 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 and loungewear
under the Calvin Klein, Warners®, Olga® and Body Nancy Ganz/Bodyslimmers® brand names. As of
December 31, 2011, the Intimate Apparel Group operated 958 Calvin Klein retail stores worldwide
(consisting of 109 full price free-standing stores, 61 outlet free-standing stores, 787
shop-in-shop/concession stores, and, in the U.S., one on-line internet store). As of December 31,
2011, there were also 222 Calvin Klein retail stores operated by third parties under retail
licenses or franchise and distributor agreements.
The Swimwear Group designs, licenses, sources, manufactures and markets mass market to premium
priced swimwear, fitness apparel, swim accessories and related products under the Speedo®,
Lifeguard® and Calvin Klein brand names. As of December 31, 2011, the Swimwear Group operated 191
shop-in-shop/concession stores, and in the U.S., one Speedo on-line internet store.
Information by business group, excluding discontinued operations, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Apparel |
|
|
Swimwear |
|
|
|
|
|
|
|
|
|
|
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Group Total |
|
|
Corporate / Other |
|
|
Total |
|
|
Fiscal 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,305,769 |
|
|
$ |
932,131 |
|
|
$ |
275,488 |
|
|
$ |
2,513,388 |
|
|
$ |
|
|
|
$ |
2,513,388 |
|
Operating income (loss) (f) (g) |
|
|
80,641 |
|
|
|
133,755 |
|
|
|
28,067 |
|
|
|
242,463 |
|
|
|
(60,918 |
) |
|
|
181,545 |
|
Depreciation and amortization |
|
|
72,831 |
|
|
|
21,254 |
|
|
|
2,413 |
|
|
|
96,498 |
|
|
|
1,368 |
|
|
|
97,866 |
|
Restructuring expense |
|
|
45,884 |
|
|
|
6,556 |
|
|
|
7,533 |
|
|
|
59,973 |
|
|
|
966 |
|
|
|
60,939 |
|
Capital expenditures |
|
|
26,662 |
|
|
|
26,170 |
|
|
|
435 |
|
|
|
53,267 |
|
|
|
2,103 |
|
|
|
55,370 |
|
|
Fiscal 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,204,065 |
|
|
$ |
834,010 |
|
|
$ |
257,676 |
|
|
$ |
2,295,751 |
|
|
$ |
|
|
|
$ |
2,295,751 |
|
Operating income (loss) (b) |
|
|
143,260 |
|
|
|
134,928 |
|
|
|
18,698 |
|
|
|
296,886 |
|
|
|
(49,075 |
) |
|
|
247,811 |
|
Depreciation and amortization (c) |
|
|
33,489 |
|
|
|
18,158 |
|
|
|
2,330 |
|
|
|
53,977 |
|
|
|
1,388 |
|
|
|
55,365 |
|
Restructuring expense |
|
|
1,818 |
|
|
|
3,596 |
|
|
|
3,582 |
|
|
|
8,996 |
|
|
|
813 |
|
|
|
9,809 |
|
Capital expenditures |
|
|
33,640 |
|
|
|
12,789 |
|
|
|
564 |
|
|
|
46,993 |
|
|
|
3,270 |
|
|
|
50,263 |
|
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
1,044,892 |
|
|
$ |
723,222 |
|
|
$ |
251,511 |
|
|
$ |
2,019,625 |
|
|
$ |
|
|
|
$ |
2,019,625 |
|
Operating income (loss) (a)(d) |
|
|
118,477 |
|
|
|
116,269 |
|
|
|
16,168 |
|
|
|
250,914 |
|
|
|
(57,379 |
) |
|
|
193,535 |
|
Depreciation and amortization (e) |
|
|
29,849 |
|
|
|
13,162 |
|
|
|
2,415 |
|
|
|
45,426 |
|
|
|
1,417 |
|
|
|
46,843 |
|
Restructuring expense |
|
|
3,242 |
|
|
|
4,314 |
|
|
|
3,019 |
|
|
|
10,575 |
|
|
|
1,551 |
|
|
|
12,126 |
|
Capital expenditures |
|
|
15,912 |
|
|
|
22,112 |
|
|
|
616 |
|
|
|
38,640 |
|
|
|
4,116 |
|
|
|
42,756 |
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
$ |
994,425 |
|
|
$ |
486,636 |
|
|
$ |
148,982 |
|
|
$ |
1,630,043 |
|
|
$ |
117,807 |
|
|
$ |
1,747,850 |
|
Fiscal 2010 |
|
|
995,475 |
|
|
|
381,371 |
|
|
|
154,831 |
|
|
|
1,531,677 |
|
|
|
121,595 |
|
|
|
1,653,272 |
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
$ |
64,149 |
|
|
$ |
43,966 |
|
|
$ |
2,220 |
|
|
$ |
110,335 |
|
|
$ |
22,687 |
|
|
$ |
133,022 |
|
Fiscal 2010 |
|
|
63,555 |
|
|
|
28,522 |
|
|
|
3,023 |
|
|
|
95,100 |
|
|
|
34,152 |
|
|
|
129,252 |
|
|
|
|
(a) |
|
reflects a charge of $3,552 recorded during Fiscal 2009 related to the write down
of inventory associated with the Companys LZR Racer and other similar racing swimsuits.
The Company recorded the write down as a result of the Federation Internationale de
Natations ruling during Fiscal 2009 which banned the use of these types of suits in
competitive swim events. |
|
(b) |
|
reflects the allocation of $9,892 of corporate expenses to the Sportswear Group
($6,924), the Intimate Apparel Group ($3,796) and the Swimwear Group (($828)),
respectively, during Fiscal 2010 to conform to the presentation for Fiscal 2011. |
|
(c) |
|
reflects the allocation of $1,635 of corporate depreciation and amortization
expense to the Sportswear Group ($842), the Intimate Apparel Group ($615) and the
Swimwear Group ($178), respectively, during Fiscal 2010 to conform to the presentation
for Fiscal 2011. |
F-23
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
(d) |
|
reflects the allocation of $6,664 of corporate expenses to the Sportswear Group
($4,698), the Intimate Apparel Group ($2,638) and the Swimwear Group (($672)),
respectively, during Fiscal 2009 to conform to the presentation for Fiscal 2011. |
|
(e) |
|
reflects the allocation of $1,653 of corporate depreciation and amortization
expense to the Sportswear Group ($876), the Intimate Apparel Group ($562) and the
Swimwear Group ($215), respectively, during Fiscal 2009 to conform to the presentation
for Fiscal 2011. |
|
(f) |
|
includes a gain of $2,000 in the Intimate Apparel Group related to the sale and
assignment of the Companys Nancy Ganz® trademarks in Australia and New Zealand to the
Companys former licensee for cash consideration of $2,000. |
|
(g) |
|
includes a gain of $1,630 related to the recovery of an insurance claim for a
fire in a warehouse in Peru, attributable partly to the Sportswear Group and partly to
the Intimate Apparel Group, recorded in selling, general and administrative expenses on
the Consolidated Statements of Operations. |
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 shared services expenses but
before unallocated corporate expenses.
The table below summarizes corporate/other expenses for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Unallocated corporate expenses (a) |
|
$ |
32,349 |
|
|
$ |
45,213 |
|
|
$ |
31,360 |
|
Foreign exchange losses (gains) |
|
|
165 |
|
|
|
(1,206 |
) |
|
|
2,627 |
|
Pension expense |
|
|
26,069 |
|
|
|
2,867 |
|
|
|
20,424 |
|
Restructuring expense |
|
|
967 |
|
|
|
813 |
|
|
|
1,551 |
|
Depreciation and amortization of
corporate assets |
|
|
1,368 |
|
|
|
1,388 |
|
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
|
Corporate/other expenses |
|
$ |
60,918 |
|
|
$ |
49,075 |
|
|
$ |
57,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
the decrease in unallocated corporate expenses for Fiscal 2011 compared to Fiscal
2010 is related primarily to (i) a net reduction in amounts accrued for employee
compensation ($9,200) and (ii) a decline in general administrative and professional
fees ($3,700). The increase in unallocated corporate expenses for Fiscal 2010 compared
to Fiscal 2009 was primarily related to: (i) an increase in amounts accrued for
performance-based employee compensation and other employee benefits ($10,100), (ii) an
increase in share-based compensation expense due primarily to the addition of
Retirement Eligibility provisions in the Fiscal 2010 awards ($4,500) (see Note 13 of
Notes to Consolidated Financial Statements); (iii) an increase in professional fees
($1,500) and (iv) a charge for franchise taxes of $1,000, related to the correction
of amounts recorded in prior periods (the amount was not material to any prior
period). |
A reconciliation of operating income from operating groups to income from continuing
operations before provision for income taxes and non-controlling interest for Fiscal 2011, Fiscal
2010 and Fiscal 2009, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Operating income by operating groups |
|
$ |
242,463 |
|
|
$ |
296,886 |
|
|
$ |
250,914 |
|
Corporate/other expenses |
|
|
(60,918 |
) |
|
|
(49,075 |
) |
|
|
(57,379 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
181,545 |
|
|
|
247,811 |
|
|
|
193,535 |
|
Other loss |
|
|
631 |
|
|
|
6,238 |
|
|
|
1,889 |
|
Interest expense |
|
|
16,274 |
|
|
|
14,483 |
|
|
|
23,897 |
|
Interest income |
|
|
(3,361 |
) |
|
|
(2,815 |
) |
|
|
(1,248 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes and
non-controlling interest |
|
$ |
168,001 |
|
|
$ |
229,905 |
|
|
$ |
168,997 |
|
|
|
|
|
|
|
|
|
|
|
F-24
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Geographic Information: Included in the consolidated financial statements are the following
amounts relating to geographic locations where the Company has business operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
% |
|
|
Fiscal 2010 |
|
|
% |
|
|
Fiscal 2009 |
|
|
% |
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,013,239 |
|
|
|
40.3 |
% |
|
$ |
1,008,167 |
|
|
|
44.0 |
% |
|
$ |
916,691 |
|
|
|
45.4 |
% |
Europe |
|
|
628,094 |
|
|
|
25.0 |
% |
|
|
576,644 |
|
|
|
25.1 |
% |
|
|
551,595 |
|
|
|
27.3 |
% |
Asia |
|
|
499,499 |
|
|
|
19.9 |
% |
|
|
391,264 |
|
|
|
17.0 |
% |
|
|
322,890 |
|
|
|
16.0 |
% |
Mexico, Central and
South America |
|
|
240,262 |
|
|
|
9.5 |
% |
|
|
188,217 |
|
|
|
8.2 |
% |
|
|
119,149 |
|
|
|
5.9 |
% |
Canada |
|
|
132,294 |
|
|
|
5.3 |
% |
|
|
131,459 |
|
|
|
5.7 |
% |
|
|
109,300 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,513,388 |
|
|
|
100.0 |
% |
|
$ |
2,295,751 |
|
|
|
100.0 |
% |
|
$ |
2,019,625 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Property, plant and equipment, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
35,437 |
|
|
|
26.6 |
% |
|
$ |
43,738 |
|
|
|
33.8 |
% |
Europe |
|
|
56,933 |
|
|
|
42.8 |
% |
|
|
52,339 |
|
|
|
40.5 |
% |
All other |
|
|
40,652 |
|
|
|
30.6 |
% |
|
|
33,175 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
133,022 |
|
|
|
100.0 |
% |
|
$ |
129,252 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6Income Taxes
The following presents the domestic and foreign components of income from continuing
operations before provision for income taxes and non-controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Income from continuing operations before
provision for income taxes and non-controlling interest: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
53,358 |
|
|
$ |
70,997 |
|
|
$ |
53,405 |
|
Foreign |
|
|
114,643 |
|
|
|
158,908 |
|
|
|
115,592 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
168,001 |
|
|
$ |
229,905 |
|
|
$ |
168,997 |
|
|
|
|
|
|
|
|
|
|
|
The following presents the components of the Companys total income tax provision from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
2,580 |
|
|
$ |
393 |
|
|
$ |
2,784 |
|
State and local |
|
|
6,755 |
|
|
|
8,385 |
|
|
|
13,348 |
|
Foreign |
|
|
44,014 |
|
|
|
50,139 |
|
|
|
30,663 |
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision |
|
|
53,349 |
|
|
|
58,917 |
|
|
|
46,795 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
14,208 |
|
|
|
22,680 |
|
|
|
21,241 |
|
State and local |
|
|
(2,936 |
) |
|
|
2,699 |
|
|
|
(7,585 |
) |
Foreign |
|
|
(27,981 |
) |
|
|
(2,583 |
) |
|
|
(671 |
) |
Valuation allowance increase (decrease) |
|
|
(634 |
) |
|
|
394 |
|
|
|
4,492 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision |
|
|
(17,343 |
) |
|
|
23,190 |
|
|
|
17,477 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
36,006 |
|
|
$ |
82,107 |
|
|
$ |
64,272 |
|
|
|
|
|
|
|
|
|
|
|
F-25
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The following presents the reconciliation of the provision for income taxes to United
States federal income taxes computed at the statutory rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Income from continuing operations before
provision for income taxes and non-controlling interest: |
|
$ |
168,001 |
|
|
$ |
229,905 |
|
|
$ |
168,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense computed at U.S. statutory rate |
|
|
58,800 |
|
|
|
80,467 |
|
|
|
59,149 |
|
State income taxes, net of federal benefit |
|
|
2,447 |
|
|
|
8,193 |
(b) |
|
|
3,647 |
|
Foreign taxes less than the U.S. statutory rate |
|
|
(25,277 |
)(a) |
|
|
(8,386 |
) |
|
|
(10,465 |
) |
Foreign income taxed in the US |
|
|
531 |
|
|
|
508 |
|
|
|
2,428 |
|
Increase (Decrease) in valuation allowance |
|
|
(634 |
) |
|
|
394 |
|
|
|
4,492 |
|
Cancellation of indebtedness recapture |
|
|
|
|
|
|
|
|
|
|
3,606 |
|
Other, net |
|
|
139 |
|
|
|
931 |
|
|
|
1,415 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
36,006 |
|
|
$ |
82,107 |
|
|
$ |
64,272 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes an $10,900 tax benefit associated with the recognition of pre-2004 net
operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from
that countrys taxing authority and a tax benefit of $7,300 related to a reduction in the
reserve for uncertain tax positions in certain foreign tax jurisdictions. |
|
(b) |
|
Includes a tax charge of approximately $2,700 associated with the correction of an error
in the 2006 through 2009 income tax provisions as a consequence of the loss of a credit
related to prior year tax overpayments caused by the delayed filing of tax returns in a
U.S. state taxing jurisdiction. |
|
(c) |
|
Includes a charge of approximately $3,600 in order to correct an error in prior
period income tax provisions related to the recapture of cancellation of indebtedness
income, which had been deferred in connection with the Companys bankruptcy proceedings in
2003. |
F-26
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The components of deferred tax assets and liabilities as of December 31, 2011 and January
1, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Inventory |
|
$ |
7,300 |
|
|
$ |
7,010 |
|
Pension and post-retirement benefits |
|
|
16,625 |
|
|
|
11,170 |
|
Advertising credits |
|
|
1,381 |
|
|
|
|
|
Stock-based compensation |
|
|
19,062 |
|
|
|
13,536 |
|
Reserves and accruals |
|
|
50,352 |
|
|
|
47,225 |
|
Net operating losses |
|
|
24,654 |
|
|
|
12,516 |
|
Other |
|
|
22,410 |
|
|
|
18,672 |
|
|
|
|
|
|
|
|
|
|
|
141,784 |
|
|
|
110,129 |
|
Valuation allowance |
|
|
(17,975 |
) |
|
|
(18,513 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
123,809 |
|
|
|
91,616 |
|
|
|
|
|
|
|
|
Gross deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
81,798 |
|
|
|
96,072 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
81,798 |
|
|
|
96,072 |
|
|
|
|
|
|
|
|
|
Deferred tax liability net |
|
$ |
42,011 |
|
|
$ |
(4,456 |
) |
|
|
|
|
|
|
|
Realization of Deferred Tax Assets
Realization of the Companys deferred tax assets is dependent upon future earnings in specific
tax jurisdictions, the timing and amount of which are uncertain. Accordingly, the Company
evaluates all available positive and negative evidence and records a valuation allowance for those
deferred tax assets for which management does not anticipate future realization. The Company
considers income earned and losses incurred in each jurisdiction for the three most recent fiscal
years and also considers its forecast of future taxable income in assessing the need for a
valuation allowance. The underlying assumptions used in forecasting future taxable income requires
significant judgment and takes into account the Companys recent performance. A valuation allowance
is established to reduce the deferred tax assets to the amount that is more likely than not to be
realized. As of December 31, 2011, the Company determined that it is more likely than not that it
will realize a benefit from its domestic federal and certain state deferred tax assets based on the
criteria described above.
Domestically, the valuation allowance was approximately $7,200 and $6,700 as of December 31,
2011 and January 1, 2011, respectively, relating to certain of the Companys state tax loss
carryforwards, state tax credits, and deductible temporary differences. The increase in the
valuation allowance relates to an increase in deductible temporary differences during Fiscal 2011.
Internationally, the valuation allowance was approximately $10,700 and $11,800 as of December 31,
2011 and January 1, 2011, respectively. The decrease relates primarily to the release in the
valuation allowance related to net operating losses where management has determined that it is
more-likely-than-not that a tax benefit will be realized, offset by additional tax loss
carryforwards generated during Fiscal 2011.
Attribute Reduction and Limitations
In connection with the Companys emergence from bankruptcy on the Effective Date, certain of
its domestic subsidiaries realized cancellation of debt (COD) income during the period from
January 5, 2003 to February 4, 2003. Under U.S. tax law, a company that realized COD income while
in bankruptcy is entitled to exclude such income from its U.S. Federal taxable income. A company
that excludes COD income is then required to reduce certain tax attributes in an amount equal to
the excluded COD income. The tax attributes impacted by these rules included net operating loss
carry-forwards, tax credit carry-forwards and tax bases in certain assets.
There are two alternative interpretations on how the attribute reduction rule should be
applied to reduce tax attributes of a U.S. affiliated group of companies. Under one approach, the
attribute reduction would be applied on a consolidated return basis and eliminate all of the
Companys U.S. consolidated net operating loss (NOL) carryovers generated prior to the fiscal
year ended 2004 and reduce certain of its other U.S. tax attributes. Alternatively, the attribute
reduction would be applied on a separate company basis and reduce the attributes of each respective
entity based on the COD income excluded in that entity. The Company has applied the attribute
reduction rules on a separate company basis which resulted in the retention of U.S. net operating
loss carryforwards of
approximately $231,000 upon the Companys emergence from bankruptcy on the Effective Date. There
can be no assurance that the Companys position with respect to the separate company attribute
reduction approach discussed above will be sustained upon audit by the Internal Revenue Service.
F-27
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
During Fiscal 2009, in addition to the tax charge of approximately $3,600 discussed above, the
Company also corrected certain of its assets recorded upon its emergence from bankruptcy on
February 4, 2003 in accordance with fresh start accounting which resulted in the following
adjustments to the Companys Consolidated
Statement of Operations for Fiscal 2009:
A reduction in Net income of $4,147, comprised of:
|
|
|
an increase of $724 in Amortization of intangible assets (net of tax benefits of
approximately $371) |
|
|
|
a $3,423 charge to Loss from discontinued operations, net of taxes |
The Company determined that the errors were not material to any previously issued financial
statements.
The use of the NOL carryforwards is also subject to an annual limitation under Section 382 of
the Internal Revenue Code. Under this provision the Company can use its NOL carryforwards to reduce
U.S. taxable income, if any, by approximately $23,400 per year. Any portion of the annual
limitation not utilized in any given year may be carried forward and increase the annual limitation
in the subsequent year. Additionally, certain losses and expenses generated during the five-year
period after the Effective Date may be subject to the Section 382 limitation. NOL carryforwards are
also subject to the Section 382 limitation in many state jurisdictions.
At December 31, 2011, the Company had U.S. NOL carryforwards of approximately $49,000
(including approximately $15,000 that is subject to Section 382, as described above) expiring in
periods beginning in 2022 through 2027. The entire $49,000 of NOL carryforwards relates to
stock-based compensation in excess of that recognized for financial reporting purposes and the tax
benefit will be recorded as a direct addition to paid-in-capital when the utilization results in a
reduction of current taxes payable. The Company had state and local NOL carryforwards of
approximately $150,000 expiring in periods beginning in 2012 through 2030. The Company had foreign
NOL carryforwards of approximately $87,000 of which $4,000 expire between the years 2016 and 2020
and $74,000 have an indefinite life.
At December 31, 2011, the Company had alternative minimum tax credit carryforwards of $3,600
which have an indefinite carryforward period. The Company has income tax credit carryforwards in
certain foreign jurisdictions of $220 which have an indefinite carryforward period. The Company also had
state tax credit carryforwards of $2,000 of which $50 expire beginning in 2012 through 2013,
$1,550 expires beginning in 2014 through 2027, and $400 have an indefinite life.
Reinvestment of Foreign Earnings
As of December 31, 2011, the total amount of undistributed earnings of foreign subsidiaries
was approximately $533,000.
At December 31, 2011, the Company had $232,500 in cash and cash equivalents, of which $216,300
was held by foreign subsidiaries. The Company currently intends that cash and cash equivalents held
by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund
strategic initiatives (such as investment, expansion and acquisitions), fund working capital
requirements and repay debt (both third-party and inter-company) of its foreign subsidiaries in the
normal course of business. Moreover, the Company does not currently intend to repatriate cash and
cash equivalents held by foreign subsidiaries to the United States because cash generated from the
Companys domestic businesses and credit available under its domestic financing facilities are
currently sufficient (and are expected to continue to be sufficient for the foreseeable future) to
fund the cash needs of its operations in
F-28
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
the United States. However, if, in the future, cash and cash equivalents held by foreign
subsidiaries are needed to fund the Companys operations in the United States, the repatriation of
such amounts to the United States would result in a significant incremental tax liability in the
period the decision to repatriate occurs. Payment of any incremental tax liability would reduce the
cash available to the Company to fund its operations by the amount of taxes paid. Accordingly, no
domestic deferred income tax provision has been made for foreign withholding taxes or U.S. income
taxes which may become payable if undistributed earnings were paid as dividends to the Company.
Determination of the amount of unrecognized U.S. income tax liability with respect to such earnings
is not practical.
Accounting for Uncertainty in Income Taxes
At December 31, 2011 the Company had gross tax-effected unrecognized tax benefits of $79,414,
all of which if recognized, would impact the effective tax rate.
Tax Years Subject to Examination - The Company and its subsidiaries conduct business globally,
and as a result file income tax returns in the United States, including various U.S. state and
local jurisdictions, as well as in foreign jurisdictions. The Companys income tax returns are
routinely examined by the U.S. and international tax authorities including key jurisdictions such
as Canada, the Peoples Republic of China, the Netherlands,
France, Italy, Hong Kong, Korea, Mexico and
Brazil. In the U.S. the Company is no longer subject to U.S. Federal income tax examinations by tax
authorities for years before 2000. With respect to the Companys major foreign jurisdictions, the
Company is no longer subject to tax examinations by tax authorities for years before 1999. The
Company regularly assesses the potential outcomes of both ongoing and future examinations for the
current or prior years to ensure the Companys provision for income taxes is sufficient. The
Company recognizes liabilities based on estimates of whether additional taxes will be due and
believes its reserves are adequate in relation to the potential assessments.
Classification of Interest and Penalties - The Company recognizes penalties and interest
accrued on uncertain tax positions in income tax expense. As of December 31, 2011 and January 1,
2011, total accrued interest and penalties were approximately $9,300 and $11,400, respectively and
were recorded in both the current and non-current taxes payable. During Fiscal 2011, Fiscal 2010
and Fiscal 2009, the Company recognized interest and penalties for uncertain tax positions of
approximately $2,100 $4,400 and $2,500, respectively.
Tabular Reconciliation of Unrecognized Tax Benefit The following is a tabular
reconciliation of the total amount of unrecognized tax benefits at the beginning and end of Fiscal
2011, Fiscal 2010 and Fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Balance as of the beginning of the fiscal year |
|
$ |
86,556 |
|
|
$ |
88,171 |
|
|
$ |
85,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Positions Taken Current Year |
|
|
2,179 |
|
|
|
4,711 |
|
|
|
8,210 |
|
Tax Positions Taken Prior Year |
|
|
593 |
|
|
|
6,590 |
(a) |
|
|
6,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decreases: |
|
|
|
|
|
|
|
|
|
|
|
|
Tax Positions Taken Prior Year |
|
|
(6,661 |
) |
|
|
(10,409 |
)(b) |
|
|
(10,578 |
) |
Settlements During Year |
|
|
(1,821 |
) |
|
|
(1,676 |
) |
|
|
(1,909 |
) |
Lapse of Statute of Limitations |
|
|
(1,432 |
) |
|
|
(831 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at the end of the fiscal year |
|
$ |
79,414 |
|
|
$ |
86,556 |
|
|
$ |
88,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in Fiscal 2010 is an adjustment of approximately $3,500 related to
uncertain tax positions which were excluded from the tabular rollforward presentation for
uncertain tax positions in prior periods. The amounts were appropriately included in the
Other long-term liabilities line item in the Companys Consolidated Balance Sheet for
all periods presented. |
|
(b) |
|
Included in Fiscal 2010 is an adjustment of approximately $7,000 related to
cumulative accrued interest and penalties which were
historically included in the tabular rollforward for uncertain tax positions. The amounts were
appropriately included the Companys Consolidated Balance Sheets for all periods presented. |
F-29
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
These items described above affect the tabular presentation for uncertain tax position
disclosure only. The Company has determined that they are not material to any previously issued
financial statements.
Anticipated Changes within Twelve Months It is 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 change by a
net decrease of $9,000 to $12,000. The reasons for such change includes but is not limited to tax
positions expected to be taken during the year ending December 29, 2012, the reevaluation of
current uncertain tax positions arising from developments, the finalization of tax examinations,
and the closure of statutes.
Note 7Employee Benefit and Retirement 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). The Company also sponsors defined
benefit plans for certain of its United Kingdom and other European employees (the Foreign Plans).
The Foreign Plans were not considered to be material for any period presented. These pension plans
are noncontributory and benefits are based upon years of service and average earnings as of the
final year of employment. The Company also has health care and life insurance plans that provide
post-retirement benefits to retired domestic employees (the Postretirement Plans). The retiree
medical plan that is part of the Postretirement Plans is, in most cases, contributory with retiree
contributions adjusted annually.
The Company is required to recognize the funded status of a benefit plan in its Consolidated
Balance Sheets. For each of the pension plans, this is measured as the difference between plan
assets at fair value and the projected benefit obligation. For the Postretirement Plans (primarily
retiree health care plans), this is equal to the accumulated benefit obligation since these plans
are unfunded.
Effective January 1, 2003, the Pension Plan was amended such that participants in the Pension
Plan will not earn any additional pension benefits after December 31, 2002. The accumulated
benefit obligation for the Pension Plan was equal to the projected benefit obligation at December
31, 2002 due to the curtailment of plan benefits at that date.
The Company recognizes as a component of other comprehensive income, net of tax, the gains or
losses and prior service costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost. The Company uses a method of accounting for its defined
benefit plans that accelerates the recognition of gains or losses. Gains or losses represent
changes in the amount of either the projected benefit obligations or plan assets resulting from
changes in assumptions, actuarial gains/losses and actual investment returns.
A reconciliation of the balance of Pension Plan and Postretirement Plans benefit obligations
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan |
|
|
Postretirement Plans |
|
|
|
December 31, |
|
|
January 1, |
|
|
December 31, |
|
|
January 1, |
|
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
Change in projected benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period |
|
$ |
161,896 |
|
|
$ |
155,333 |
|
|
$ |
4,569 |
|
|
$ |
4,574 |
|
Service cost |
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
86 |
|
Interest cost |
|
|
9,173 |
|
|
|
9,241 |
|
|
|
236 |
|
|
|
258 |
|
Actuarial loss (a) |
|
|
12,801 |
|
|
|
8,869 |
|
|
|
9 |
|
|
|
91 |
|
Benefits paid |
|
|
(11,706 |
) |
|
|
(11,547 |
) |
|
|
(430 |
) |
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
$ |
172,164 |
|
|
$ |
161,896 |
|
|
$ |
4,465 |
|
|
$ |
4,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Pension Plans actuarial loss in Fiscal 2011 is due primarily to the loss related to
the change in the discount rate ($10,575) and other actuarial losses ($2,226) during Fiscal
2011. The Pension Plans actuarial loss in Fiscal 2010 is due primarily to the loss related
to the change in the discount rate ($5,000) and
other actuarial losses ($3,900) during Fiscal 2010. The Postretirement Plans actuarial
loss in Fiscal 2011 is primarily related to the change in the discount rate ($274) and other
actuarial losses (($265)). The Postretirement Plans actuarial loss in Fiscal 2010 is primarily
related to the change in the discount rate ($100) and other actuarial gains ($10). |
F-30
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
A reconciliation of the change in the fair value of Pension Plan and Postretirement plans
assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan |
|
|
Postretirement Plans |
|
|
|
December 31, |
|
|
January 1, |
|
|
December 31, |
|
|
January 1, |
|
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
Fair value of plan assets at beginning of
period |
|
$ |
127,694 |
|
|
$ |
118,334 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
(4,076 |
) |
|
|
15,225 |
|
|
|
|
|
|
|
|
|
Employers contributions |
|
|
9,450 |
|
|
|
5,682 |
|
|
|
430 |
|
|
|
440 |
|
Benefits paid |
|
|
(11,706 |
) |
|
|
(11,547 |
) |
|
|
(430 |
) |
|
|
(440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
$ |
121,362 |
|
|
$ |
127,694 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status |
|
$ |
(50,802 |
) |
|
$ |
(34,202 |
) |
|
$ |
(4,465 |
) |
|
$ |
(4,569 |
) |
Unrecognized net actuarial loss (gain) |
|
|
|
|
|
|
|
|
|
|
67 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized / Retirement
obligations (a) |
|
$ |
(50,802 |
) |
|
$ |
(34,202 |
) |
|
$ |
(4,398 |
) |
|
$ |
(4,630 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The net amount recognized for the Pension Plan as of December 31, 2011 is included
in the Companys Consolidated Balance Sheets in accrued pension obligations, within
Accrued liabilities and Other long-term liabilities. |
The components of net periodic cost for the Pension Plan and Postretirement Plans are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan |
|
|
Postretirement Plans |
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
81 |
|
|
$ |
86 |
|
|
$ |
78 |
|
Interest cost |
|
|
9,173 |
|
|
|
9,241 |
|
|
|
9,987 |
|
|
|
236 |
|
|
|
258 |
|
|
|
290 |
|
Expected return on plan assets |
|
|
(9,107 |
) |
|
|
(9,270 |
) |
|
|
(7,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss
on plan assets in excess of expected return |
|
|
13,202 |
|
|
|
(5,974 |
) |
|
|
(9,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (a) |
|
|
12,801 |
|
|
|
8,869 |
|
|
|
28,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service
cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237 |
) |
|
|
(166 |
) |
|
|
(166 |
) |
Amortization of loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
56 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost (b) |
|
$ |
26,069 |
|
|
$ |
2,866 |
|
|
$ |
21,689 |
|
|
$ |
127 |
|
|
$ |
234 |
|
|
$ |
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Pension Plans actuarial loss in Fiscal 2011 is due primarily to the loss related
to the change in the discount rate ($10,575) and other actuarial losses ($2,226) during
Fiscal 2011. The Pension Plans actuarial loss in Fiscal 2010 is due primarily to the
loss related to the change in the discount rate ($5,000) and other actuarial losses
($3,900) during Fiscal 2010. The Pension Plans actuarial loss in Fiscal 2009 is due
primarily to the loss related to the change in the discount rate ($26,800) and other
actuarial losses ($1,900) during Fiscal 2009. |
|
(b) |
|
The Pension Plans net benefit (income) cost does not include (income) costs related
to certain foreign defined benefit plans of $675, ($316) and ($816) in Fiscal 2011, Fiscal
2010 and Fiscal 2009, respectively. |
The following table summarizes the amounts recorded in accumulated other comprehensive
income that are expected to be recognized as a component of net benefit (income) cost in the fiscal
year ending December 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Postretirement |
|
|
|
Plan |
|
|
Plans |
|
Initial net asset (obligation) |
|
$ |
|
|
|
$ |
|
|
Prior service cost |
|
|
|
|
|
|
(166 |
) |
Net loss |
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
Total estimated amortization from Accumulated |
|
|
|
|
|
|
|
|
Other Comprehensive Income for fiscal 2012 |
|
$ |
|
|
|
$ |
(98 |
) |
|
|
|
|
|
|
|
F-31
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Companys investment strategy for the Pension Plans assets is to invest in a diversified
portfolio of assets managed by various fund and money managers. No individual manager accounts for
more than 18% of overall Pension Plan assets at December 31, 2011. Individual fund managers are
evaluated against a relevant market index and against other managers with similar investment goals.
The target allocations for Pension Plan assets are currently 45% equity securities, 20% fixed
income securities and 35% to all other types of investments. However, at December 31, 2011, the
actual allocation of Pension Plan investments was 62% equity securities, 32% fixed income
securities and 6% to all other types of investments. Equity securities primarily include
investments in large-cap and mid-cap companies primarily located in the United States. Fixed income
securities include corporate bonds of companies from diversified industries, mortgage backed
securities, U.S. government bonds and U.S. Treasuries. Other types of investments include
investments in limited partnerships that follow several different strategies. The Company reviews
the performance of each investment manager on at least an annual basis. Underperforming investments
are reallocated to other investments and fund managers. The Company is in the process of analyzing
the risks to the Pension Plan from a series of asset/liability scenarios. The analysis will allow
the Company to develop a plan to manage those risks, which may result in a change to the investment
strategies of the Pension Plan and a change to the target allocation of its investments.
Investments in equity and fixed income securities are stated at fair value based upon quoted
market prices or other observable inputs. Amounts for limited partnerships are not based on quoted
market price but represent estimated fair value (see Valuation Techniques, below). The limited
partnerships utilize a fund of funds approach resulting in diversified multi-strategy,
multi-manager investments. The limited partnerships invest capital in a diversified group of
investment entities, generally hedge funds, private investment companies, portfolio funds and
pooled investment vehicles which engage in a variety of investment strategies, managed by
investment managers. The limited partnerships allocate gains, losses and expenses to the partners
based on the ownership percentage as described in the partnership agreements. Certain limited
partnerships place limitation on withdrawals, for example by allowing only semi-annual redemptions,
as described in the partnership agreements.
The Pension Plan classifies its investments 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, which refers to securities valued using quoted prices from active markets for
identical assets;
Level 2, which refers to securities valued using 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; and
Level 3, which refers to securities valued based on significant unobservable inputs.
Assets and liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement.
Valuation Techniques
The Company uses an independent pricing service to determine the fair values of the financial
instruments held by the Pension Plan. The Company evaluates the reasonableness of these fair values
by (i) obtaining the share prices for a sample of each type of investment in the portfolio from
independent sources and comparing them to the share prices presented by the pricing service. A
difference in share price that would result in a change of more than 5% of net assets of the
Pension Plan investments is investigated to explain or correct the difference (such a difference
has not been observed in the past); (ii) obtaining a detailed analysis (deep dive) of the
methodology used by the pricing service for a sample of each category of financial instrument and
(iii) by discussions with pricing service personnel. The deep dive analysis applies to level 2
securities and consists of the experts at the pricing service providing a detailed explanation of
the exact method they used to price the specific security in the Companys sample. This explanation
includes details of similar securities observed, spreads or benchmark amounts calculated, yield
curves applied and other models used to value the security. The Company obtains a single price for
each financial instrument and does not adjust the prices obtained from the pricing service. The
Company determines the level in the fair value hierarchy to which an investment is assigned based
on the valuation technique used to obtain its fair value as well as the volume of transactions for
that security on or close to the valuation date. Only securities with a high level of trading
activity (more than 100,000 shares traded per day) are classified as level 1. The methodology used
by the pricing service to determine prices for each category of financial instrument is as follows:
F-32
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Corporate stocks and mutual funds: Securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the last reported sales price on the day
of valuation. To the extent these securities are actively traded
and valuation adjustments are not applied, including American Depositary Receipts, they are
categorized in Level 1 of the fair value hierarchy. If they are American Depositary Receipts
that are not exchange-traded, the fair value meets the definition of Level 2 in the fair value
hierarchy because their fair value is determined by multiplying the input observable prices by
the ratio of the number of shares of the underlying security to the number of shares covered by
the depositary certificate.
Corporate bonds: The fair value of corporate bonds is estimated using a discounted cash
flow approach that is applied to the following inputs: (i) recently executed transactions in
securities of the issuer or comparable issuers, (ii) market price quotations (where observable),
(iii) bond spreads and (iv) fundamental data relating to the issuer. The calculation of fair
value includes adjustments for certain risks that may not be observable, such as credit and
liquidity risks. Corporate bonds are, therefore, categorized in Level 2 of the fair value
hierarchy;
U.S. government securities: U.S. government securities are normally valued using a market
approach that incorporates market observable data such as reported sales of similar securities,
broker quotes, yields, bids, offers, and reference data. Certain securities are valued
principally using dealer quotations. U.S. government securities are therefore, categorized in
Level 2 of the fair value hierarchy;
U.S. government agencies: U.S. government agency securities are comprised of agency issued
debt securities, which are generally valued in a manner similar to U.S. government securities.
These securities are therefore, categorized in Level 2 of the fair value hierarchy;
Mortgage-backed securities: The fair value of mortgage- backed securities is estimated
based on models that consider the estimated cash flows of each tranche of the entity,
establishes a benchmark yield, and develops an estimated tranche specific spread to the
benchmark yield based on the unique attributes of the tranche. The inputs for the predicted
tranche cash flows and average life are (i) deal structure and cash flow details using the
issues prospectus and (ii) projected prepayment speed for the underlying collateral. The model
takes the average life for each tranche and matches it to the interpolated value of either a
relevant constant maturity treasury or swap curve. Tranche specific spreads are applied to the
benchmark yield. This value is then used to discount the cash flows to generate an evaluated
price. The values are categorized in Level 2 of the valuation hierarchy. Mortgage pass-throughs
include mortgage passthrough certificates, which are generally valued using dealer quotations
and are therefore, categorized in Level 2 of the fair value hierarchy;
Cash equivalents: Cash equivalents are money market funds, which are categorized as Level
1, if the fair value is based on quoted market prices in an active market;
Limited partnerships: Fair value of the limited partnerships is based on the net asset
valuations provided by the administrators of each underlying investment, in consultation with
the investment managers, in the absence of readily ascertainable market values. Because of the
inherent uncertainty of valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the securities existed, and the
differences could be material. The Pension Plan records its proportionate share of the
partnerships fair value as recorded in the partnerships financial statements.
F-33
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The fair values of the Companys Pension Plan assets at December 31, 2011, by asset category,
are as follows (see above for a description of the various levels):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Asset Category |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Cash and cash equivalents |
|
$ |
10,094 |
|
|
$ |
10,094 |
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital equipment |
|
|
15,795 |
|
|
|
11,297 |
|
|
$ |
4,498 |
|
|
|
|
|
Consumer goods |
|
|
9,884 |
|
|
|
9,211 |
|
|
|
673 |
|
|
|
|
|
Energy |
|
|
6,831 |
|
|
|
6,831 |
|
|
|
|
|
|
|
|
|
Finance |
|
|
5,203 |
|
|
|
4,895 |
|
|
|
308 |
|
|
|
|
|
Gold Mines |
|
|
1,722 |
|
|
|
1,616 |
|
|
|
106 |
|
|
|
|
|
Materials |
|
|
2,601 |
|
|
|
2,468 |
|
|
|
133 |
|
|
|
|
|
Real Estate |
|
|
8,866 |
|
|
|
8,866 |
|
|
|
|
|
|
|
|
|
Services |
|
|
7,959 |
|
|
|
7,429 |
|
|
|
530 |
|
|
|
|
|
Miscellaneous |
|
|
12,934 |
|
|
|
12,934 |
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government bonds |
|
|
10,372 |
|
|
|
|
|
|
|
10,372 |
|
|
|
|
|
Corporate bonds (a) |
|
|
13,095 |
|
|
|
|
|
|
|
13,095 |
|
|
|
|
|
Mortgage-backed securities |
|
|
11,379 |
|
|
|
|
|
|
|
11,379 |
|
|
|
|
|
Municipal Bonds |
|
|
242 |
|
|
|
|
|
|
|
242 |
|
|
|
|
|
Other types of investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships (b) |
|
|
6,973 |
|
|
|
|
|
|
|
|
|
|
$ |
6,973 |
|
Other |
|
|
457 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
124,407 |
|
|
$ |
76,098 |
|
|
$ |
41,336 |
|
|
$ |
6,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the fair values of Pension Plan assets of $124,407 and Plan net assets
of $121,362 is due to receivables and payables within the Pension Plans investment funds.
F-34
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The fair values of the Companys Pension Plan assets at January 1, 2011, by asset category,
are as follows (see above for a description of the various levels):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
Asset Category |
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Cash and cash equivalents |
|
$ |
11,882 |
|
|
$ |
11,882 |
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital equipment |
|
|
13,587 |
|
|
|
9,856 |
|
|
$ |
3,731 |
|
|
|
|
|
Consumer goods |
|
|
9,895 |
|
|
|
9,109 |
|
|
|
786 |
|
|
|
|
|
Energy |
|
|
7,637 |
|
|
|
7,468 |
|
|
|
169 |
|
|
|
|
|
Finance |
|
|
7,479 |
|
|
|
6,841 |
|
|
|
638 |
|
|
|
|
|
Gold Mines |
|
|
1,704 |
|
|
|
1,704 |
|
|
|
|
|
|
|
|
|
Materials |
|
|
2,804 |
|
|
|
2,190 |
|
|
|
614 |
|
|
|
|
|
Real Estate |
|
|
9,024 |
|
|
|
9,024 |
|
|
|
|
|
|
|
|
|
Services |
|
|
9,858 |
|
|
|
9,273 |
|
|
|
585 |
|
|
|
|
|
Miscellaneous |
|
|
13,326 |
|
|
|
13,326 |
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government bonds |
|
|
9,922 |
|
|
|
|
|
|
|
9,922 |
|
|
|
|
|
Corporate bonds (a) |
|
|
14,424 |
|
|
|
|
|
|
|
14,424 |
|
|
|
|
|
Mortgage-backed securities |
|
|
9,566 |
|
|
|
|
|
|
|
9,566 |
|
|
|
|
|
Other types of investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partnerships (b) |
|
|
9,631 |
|
|
|
|
|
|
|
|
|
|
$ |
9,631 |
|
Other |
|
|
479 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
131,218 |
|
|
$ |
81,152 |
|
|
$ |
40,435 |
|
|
$ |
9,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
this category represents investment grade bonds of U.S. issuers from diverse
industries. |
|
(b) |
|
this category represents limited partnerships that invest capital in a
diversified group of investment entities, generally hedge funds, private investment
companies, portfolio funds and pooled investment vehicles which engage in a variety of
investment strategies, managed by investment managers. |
The difference between the fair values of Pension Plan assets of $131,218 and Plan net assets
of $127,694 is due to receivables and payables within the Pension Plans investment funds.
F-35
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
A reconciliation of the balance of fair value measurements for Pension Plan assets using
significant unobservable inputs (Level 3) from January 2, 2010 to December 31, 2011, is as follows:
|
|
|
|
|
|
|
Limited |
|
|
|
Partnerships |
|
Balance January 2, 2010 |
|
$ |
12,925 |
|
Actual return on Plan assets: |
|
|
|
|
Relating to assets still held at the reporting date |
|
|
(2,851 |
) |
Relating to assets sold during the period |
|
|
|
|
Purchases, sales and settlements |
|
|
(443 |
) |
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
Ending balance January 1, 2011 |
|
|
9,631 |
|
Actual return on Plan assets: |
|
|
|
|
Relating to assets still held at the reporting date |
|
|
(384 |
) |
Relating to assets sold during the period |
|
|
342 |
|
Purchases, sales and settlements |
|
|
(2,616 |
) |
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
Ending balance December 31, 2011 |
|
$ |
6,973 |
|
|
|
|
|
The Company made contributions totaling $9,450 during Fiscal 2011, $5,682 during Fiscal 2010
and $10,526, during Fiscal 2009. The Company expects to contribute approximately $20,555 to the
Pension Plan in the fiscal year ending December 29, 2012. The amount of cash contributions the
Company is required to make to the Pension Plan could increase or decrease depending on the
performance of the Pension Plans assets and other factors which are not in the control of the
Company. The Companys expected cash contributions to the Postretirement Plans are equal to the
expected benefit payments as shown in the table below due to the nature of the Postretirement
Plans.
Future benefit payments are expected to be:
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Postretirement |
|
|
|
Plan |
|
|
Plans |
|
2012 |
|
$ |
11,700 |
|
|
$ |
380 |
|
2013 |
|
|
11,600 |
|
|
|
360 |
|
2014 |
|
|
11,600 |
|
|
|
330 |
|
2015 |
|
|
11,600 |
|
|
|
320 |
|
2016 |
|
|
11,500 |
|
|
|
320 |
|
2017-2021 |
|
|
57,600 |
|
|
|
1,590 |
|
The weighted-average assumptions used in the actuarial calculations for the Pension Plans and
Postretirement Plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Discount
rate used for determining projected benefit obligation |
|
|
5.20 |
% |
|
|
5.80 |
% |
|
|
6.10 |
% |
Discount
rate used for determining net benefit (income) cost |
|
|
5.80 |
% |
|
|
6.10 |
% |
|
|
8.00 |
% |
Long-term rate of return on plan assets |
|
|
7.00 |
% |
|
|
8.00 |
% |
|
|
8.00 |
% |
Average rate
of compensation increase for determining projected benefit obligation |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Average rate
of compensation increase for determining net benefit (income) cost |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
F-36
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Companys discount rate used for determining projected benefit obligation for both the
Pension Plan and Postretirement Plans was 5.20% for Fiscal 2011, 5.80% for Fiscal 2010 and 6.10%
for Fiscal 2009. The Company evaluates the discount rate each year at the valuation date and
adjusts the discount rate as necessary. The discount rate is selected by matching projected
benefit payments to a synthetic portfolio of high quality (rated Aa or higher by Moodys Investor
Services or Standard & Poors) corporate bond yields and the duration of obligations for
participants in the Pension Plan. The projected benefit payments are matched to spot interest
rates over the expected payment period and a single discount rate is developed. The Company
believes that a 2011 discount rate of 5.20% for the Pension Plan properly reflects the
characteristics of the Companys plan, the long-term nature of its pension benefit obligations and
current market conditions. Other companies pension plans may have different characteristics than
the Companys plans and as a result, their discount rates may be higher or lower than the rate used
by the Company. Changes in the discount rate used to determine pension benefit obligations are
reflected in pension expense in the fourth quarter of the Companys fiscal year in accordance with
the Companys use of the Accelerated Method of recognizing actuarial gains and losses. The use of
the Accelerated Method results in increased volatility in the Companys reported pension expense
compared to other companies. The Companys expected rate of return on plan assets in the table
above only applies to Pension Plan assets and reflects the Companys expectation of the long-term
rate of return on the Pension Plans assets. The Company evaluates its discount rate and long-term
rate of return assumptions annually.
The Companys estimated long-term rate of return on Pension Plan assets for Fiscal 2011 (used
to determine estimated pension expense for interim periods in the year ending December 29, 2012) is
7.0%, which is based upon (i) the actual net returns realized by the Pension Plans assets from
September 2002 to December 31, 2011 and (ii) the return expected to be earned in the future, based
on a model that incorporates long-term capital market return expectations, weighted to reflect a
managed portfolio that includes the targeted mix of Pension Plan assets. Such estimated future rate
of return is reduced to reflect administrative expenses that are associated with providing plan
benefits that are expected to be paid by the Pension Plan.
The Companys estimated long-term rate of return on Pension Plan assets for Fiscal 2009 and
Fiscal 2010 (used to determine estimated pension expense for interim periods in the respective
following fiscal years, Fiscal 2010 and Fiscal 2011) was based upon the actual net returns realized
by the Pension Plans assets for the last three years (approximately 8.0% net of Pension Plan
expenses) and upon the historical rates of return earned by the S&P 500 Index (65%) and the
Barclays Capital Aggregate Medium Duration Corporate Bond Index (35%), weighted to reflect the
targeted mix of Pension Plan assets. The rate of compensation increase is not applicable for the
Pension Plan because Pension Plan participants benefits have been frozen. The Companys defined
benefit plans measurement date is its fiscal year-end.
The fair value of the Pension Plans assets, as noted above, was approximately $121,362 at
December 31, 2011, compared to approximately $127,694 at January 1, 2011. The fair value of the
Pension Plans assets reflects an $11,948 decrease from their assumed value of approximately
$133,310 at December 31, 2011, based on an assumed rate of return of 8% per annum. In addition,
the Company decreased the discount rate used to determine the benefit obligation from 5.80% in
Fiscal 2010 to 5.20% in Fiscal 2011, which increased the benefit obligation. The Company recorded
pension expense in the fourth quarter of Fiscal 2011 of approximately $27,500 based upon the
increase in the benefit obligation and the decline in the fair value of the Pension Plan assets.
The Companys pension income/expense is also affected by Pension Plan amendments, Pension Plan
benefit experience compared to assumed experience and other factors.
For measurement purposes, the weighted average annual assumed rate of increase in the per
capita cost of covered benefits (health care trend rate) related to Postretirement Plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Health care cost trend rate assumed next year: |
|
|
|
|
|
|
|
|
Pre-65 |
|
|
7.6 |
% |
|
|
7.8 |
% |
Post-65 |
|
|
7.6 |
% |
|
|
7.8 |
% |
Rate at which the trend rate is assumed to decline
(the ultimate trend rate) |
|
|
4.5 |
% |
|
|
4.5 |
% |
Year trend rate reaches the ultimate rate |
|
|
2027 |
|
|
|
2027 |
|
F-37
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
A one-percentage point change in assumed health care cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
One |
|
|
One |
|
|
|
Percentage |
|
|
Percentage |
|
|
|
Point |
|
|
Point |
|
|
|
Increase |
|
|
Decrease |
|
Effect on total of service and interest cost components |
|
$ |
41 |
|
|
$ |
(33 |
) |
Effect on health care component of the accumulated |
|
|
|
|
|
|
|
|
post-retirement benefit obligation |
|
$ |
520 |
|
|
$ |
(428 |
) |
The Company also sponsors a defined contribution plan for substantially all of its domestic
employees. Employees can contribute to the plan, on a pre-tax basis, a percentage of their
qualifying compensation up to the legal limits allowed. The Company makes matching contributions to
the defined contribution plan. The maximum Company contribution on behalf of any individual
employee was $12.25 (including $4.90 of maximum profit sharing contribution) for each of Fiscal
2011, Fiscal 2010 and Fiscal 2009, respectively. Employees fully vest in the Company contribution
once they have attained four years of service. Company contributions to the defined contribution
plan, in the aggregate, were $3,963 (including $1,770 of profit sharing contribution for Fiscal
2010 made in Fiscal 2011, $3,869 (including $1,768 of profit sharing contribution for Fiscal 2009
made in Fiscal 2010 and $4,121 (including $1,875 of profit sharing contribution for Fiscal 2008
made in Fiscal 2009), respectively.
The Companys deferred compensation plan (the Deferred Compensation Plan) allows
participating employees to make pre-tax deferrals of up to 50% of their annual base salary and up
to 100% of their incentive pay. A bookkeeping account is established for each participant, and
each account is increased or decreased by the deemed positive or negative return based on
hypothetical investment alternatives approved by the Company and selected by the participating
employee. In the case of a change of control, the Company expects to establish a rabbi trust in
connection with the Deferred Compensation Plan and will make contributions to the rabbi trust equal
to the Deferred Compensation Plans aggregate benefit obligations. As of December 31, 2011 and
January 1, 2011, the Company had a liability with respect to the Deferred Compensation Plan of
$4,602 and $4,220, respectively, for employee contributions and investment activity to date, which
is recorded in other long-term liabilities.
The Companys non-employee directors deferred compensation plan (the Directors Deferred
Compensation Plan) was adopted for the benefit of non-employee directors. The Directors Deferred
Compensation Plan allows participating directors to make pre-tax deferrals of their annual retainer
and committee meeting fees, whether payable in the form of cash or unrestricted shares of the
Companys Common Stock. A bookkeeping account is established for each participant and each account
is increased or decreased by the deemed positive or negative return based on hypothetical
investment alternatives approved by the Company and selected by the participating non-employee
director. As of December 31, 2011 and January 1, 2011, the
Company had a cash liability with respect to
the Directors Deferred Compensation Plan of $1,237 and $1,015, respectively, for director
contributions and investment activity to date, which is recorded in other long-term liabilities.
Note 8Inventories
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2011 |
|
|
January 1, 2011 |
|
Finished goods |
|
$ |
350,010 |
|
|
$ |
310,504 |
|
Raw materials |
|
|
825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
350,835 |
|
|
$ |
310,504 |
|
|
|
|
|
|
|
|
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
Balance Sheets. At December 31, 2011 and January 1, 2011, the amount of such deposits was $4,385
and $8,841, respectively.
See Note 17 of Notes to Consolidated Financial Statements for information related to
derivative financial instruments used by the Company to mitigate foreign currency risk related to
purchases of inventory.
F-38
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Note 9Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Land and land improvements |
|
$ |
440 |
|
|
$ |
440 |
|
Building, building improvements and leasehold
improvements |
|
|
118,400 |
|
|
|
103,231 |
|
Furniture and fixtures |
|
|
88,641 |
|
|
|
86,722 |
|
Machinery and equipment |
|
|
27,935 |
|
|
|
27,490 |
|
Computer hardware and software |
|
|
122,521 |
|
|
|
117,686 |
|
Construction in progress |
|
|
8,523 |
|
|
|
4,247 |
|
|
|
|
|
|
|
|
|
|
$ |
366,460 |
|
|
$ |
339,816 |
|
Less: Accumulated depreciation and amortization |
|
|
(233,438 |
) |
|
|
(210,564 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
133,022 |
|
|
$ |
129,252 |
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property, plant and equipment was
$49,908, $43,816 and $35,811 for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively.
During Fiscal 2011 and Fiscal 2010, the Company recorded impairment charges of $5,950 and
$1,933, respectively, related to property, plant and equipment of certain of its retail stores (see
Note 1 of Notes to Consolidated Financial Statements Long-lived Assets).
Note 10Intangible Assets and Goodwill
The following tables set forth intangible assets at December 31, 2011 and January 1, 2011 and
the activity in the intangible asset accounts during Fiscal 2011 and Fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses for a term (Company as
licensee) |
|
$ |
323,950 |
|
|
$ |
99,229 |
|
|
$ |
224,721 |
|
|
$ |
327,394 |
|
|
$ |
54,907 |
|
|
$ |
272,487 |
|
Other |
|
|
34,459 |
|
|
|
14,932 |
|
|
|
19,527 |
|
|
|
34,258 |
|
|
|
11,297 |
|
|
|
22,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,409 |
|
|
|
114,161 |
|
|
|
244,248 |
|
|
|
361,652 |
|
|
|
66,204 |
|
|
|
295,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
53,519 |
|
|
|
|
|
|
|
53,519 |
|
|
|
54,715 |
|
|
|
|
|
|
|
54,715 |
|
Licenses in perpetuity |
|
|
23,113 |
|
|
|
|
|
|
|
23,113 |
|
|
|
23,113 |
|
|
|
|
|
|
|
23,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,632 |
|
|
|
|
|
|
|
76,632 |
|
|
|
77,828 |
|
|
|
|
|
|
|
77,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets |
|
$ |
435,041 |
|
|
$ |
114,161 |
|
|
$ |
320,880 |
|
|
$ |
439,480 |
|
|
$ |
66,204 |
|
|
$ |
373,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
Licenses |
|
|
Finite-lived |
|
|
|
|
|
|
|
|
|
|
in |
|
|
for a |
|
|
Intangible |
|
|
|
|
|
|
Trademarks |
|
|
Perpetuity |
|
|
Term |
|
|
Assets |
|
|
Total |
|
Balance at January 2, 2010 |
|
$ |
56,719 |
|
|
$ |
23,951 |
|
|
$ |
284,121 |
|
|
$ |
12,040 |
|
|
$ |
376,831 |
|
Amortization expense |
|
|
|
|
|
|
|
|
|
|
(8,639 |
) |
|
|
(2,910 |
) |
|
|
(11,549 |
) |
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
(1,147 |
) |
|
|
(1,189 |
) |
|
|
(2,336 |
) |
Recapture of tax basis (a) |
|
|
(2,004 |
) |
|
|
(838 |
) |
|
|
(1,848 |
) |
|
|
(420 |
) |
|
|
(5,110 |
) |
Acquisitions (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,096 |
|
|
|
15,096 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344 |
|
|
|
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
|
54,715 |
|
|
|
23,113 |
|
|
|
272,487 |
|
|
|
22,961 |
|
|
|
373,276 |
|
Amortization expense (c) |
|
|
|
|
|
|
|
|
|
|
(44,322 |
) |
|
|
(3,635 |
) |
|
|
(47,957 |
) |
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
(5,944 |
) |
|
|
(872 |
) |
|
|
(6,816 |
) |
Acquisitions (d) |
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
1,073 |
|
|
|
3,573 |
|
Tax benefit (e) |
|
|
(1,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011 |
|
$ |
53,519 |
|
|
$ |
23,113 |
|
|
$ |
224,721 |
|
|
$ |
19,527 |
|
|
$ |
320,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Relates to the correction of errors in prior period deferred tax balances associated with
the recapture of cancellation of indebtedness income which had been deferred in connection
with the Companys bankruptcy proceedings in 2003. |
|
(b) |
|
During Fiscal 2010, the Company completed the accounting for the acquisition of certain store
assets in Brazil (see Note 2 of Notes to Consolidated Financial Statements), which had been
recorded as intangible assets of $3,592 on the date of acquisition during the fourth quarter
of Fiscal 2009. During Fiscal 2010, the Company reclassified those assets as prepaid rent
(included in Other assets on the Companys Consolidated Balance Sheet). In addition, during
Fiscal 2010, the Company recorded reacquired rights of $360 related to its acquisition of
businesses in the Peoples Republic of China and amortized that intangible asset to selling,
general and administrative expense during Fiscal 2010. The Company also recorded reacquired
rights of $18,328, which is being amortized over an eight year period, in connection with the
acquisition of its Italian distributor in Fiscal 2010 (see Note 2 of Notes to Consolidated
Financial Statements). |
|
(c) |
|
Includes $35,225 related to the impairment of the
Companys licenses related to its CK/Calvin Klein
bridge businesses. See Note 1 Significant Accounting
Policies Long-lived Assets and Goodwill and Other Intangible
Assets and Note 4 Restructuring expense and Other
Exit Costs of Notes to Consolidated Financial Statements.
|
|
(d) |
|
Relates to intangible assets totaling $3,573 for reacquired rights and amendment of a license
during Fiscal 2011, which will be amortized over a weighted average period of 25 years (see
Note 2 of Notes to Consolidated Financial Statements). |
|
(e) |
|
Relates to a tax benefit realized for the excess of tax deductible goodwill over book
goodwill in certain jurisdictions that arose prior to the Effective Date. |
The following table summarizes the Companys estimated amortization expense for
intangible assets for the next five years:
|
|
|
|
|
2012 |
|
$ |
10,313 |
|
2013 |
|
|
10,224 |
|
2014 |
|
|
9,136 |
|
2015 |
|
|
9,114 |
|
2016 |
|
|
9,057 |
|
The following table summarizes the changes in the carrying amount of goodwill for Fiscal 2011
and Fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Intimate |
|
|
Swimwear |
|
|
|
|
|
|
Group |
|
|
Apparel Group |
|
|
Group |
|
|
Total |
|
Goodwill balance at January 2, 2010 |
|
$ |
108,633 |
|
|
$ |
1,446 |
|
|
$ |
642 |
|
|
$ |
110,721 |
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
(3,182 |
) |
|
|
57 |
|
|
|
|
|
|
|
(3,125 |
) |
Other (a) |
|
|
7,565 |
|
|
|
117 |
|
|
|
|
|
|
|
7,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at January 1, 2011 |
|
|
113,016 |
|
|
|
1,620 |
|
|
|
642 |
|
|
|
115,278 |
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
(8,135 |
) |
|
|
(741 |
) |
|
|
|
|
|
|
(8,876 |
) |
Other (b) |
|
|
29,514 |
|
|
|
4,032 |
|
|
|
|
|
|
|
33,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at December 31, 2011 |
|
$ |
134,395 |
|
|
$ |
4,911 |
|
|
$ |
642 |
|
|
$ |
139,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
(a) |
|
Relates to the acquisition of businesses in the Peoples Republic of China during Fiscal 2010
($683 in Sportswear Group and $117 in Intimate Apparel Group) and in Italy ($6,882 in the
Sportswear Group) (see Note 2 of Notes to Consolidated Financial Statements). |
|
(b) |
|
Primarily relates to the acquisition of a controlling interest in the business of the
Companys distributor of Calvin Klein products in India during Fiscal 2011 ($28,898 in
Sportswear Group and $3,930 in Intimate Apparel Group) (see Note 2 of Notes to Consolidated
Financial Statements). |
Note 11Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income as of December 31, 2011 and January
1, 2011 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
January 1, |
|
|
|
2011 |
|
|
2011 |
|
Foreign currency translation adjustments |
|
$ |
21,356 |
|
|
$ |
45,982 |
|
Actuarial (losses) related to post retirement medical plans,
net of tax of $1,232 and $1,232 as of December 31, 2011
and January 1, 2011 , respectively |
|
|
(1,299 |
) |
|
|
(1,099 |
) |
Loss on cash flow hedges, net of taxes of $2,930 and $871
as of December 31, 2011 and January 1, 2011,
respectively |
|
|
(3,937 |
) |
|
|
(1,847 |
) |
Other |
|
|
122 |
|
|
|
12 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
$ |
16,242 |
|
|
$ |
43,048 |
|
|
|
|
|
|
|
|
Note 12Debt
Debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
January 1, |
|
|
|
2011 |
|
|
2011 |
|
Short-term debt: |
|
|
|
|
|
|
|
|
Current portion of 2011 Term Loan |
|
$ |
2,000 |
|
|
$ |
|
|
CKJEA notes payable and other |
|
|
43,021 |
|
|
|
18,802 |
|
2008 Credit Agreements |
|
|
|
|
|
|
|
|
Premium on interest rate cap current |
|
|
2,492 |
|
|
|
|
|
Italian note |
|
|
|
|
|
|
13,370 |
|
|
|
|
|
|
|
|
|
|
|
47,513 |
|
|
|
32,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Term Loan |
|
|
197,000 |
|
|
|
|
|
Premium on interest rate cap |
|
|
11,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,477 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
|
$ |
255,990 |
|
|
$ |
32,172 |
|
|
|
|
|
|
|
|
F-41
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Financing Agreements
2011 Term Loan Agreement
On June 17, 2011, Warnaco Group, Warnaco, Calvin Klein Jeanswear Company (CK Jeans), an
indirect wholly-owned subsidiary of Warnaco Group, and Warnaco Swimwear Products Inc. (Warnaco
Swimwear), an indirect wholly-owned subsidiary of Warnaco Group, entered into a term loan
agreement (the 2011 Term Loan Agreement) with the financial institutions which are the lenders
thereunder (the Lenders). Warnaco, CK Jeans and Warnaco Swimwear are co-borrowers on a joint and
several basis under the 2011 Term Loan Agreement (the Borrowers).
The 2011 Term Loan Agreement provides for a $200,000 senior secured term loan facility,
maturing on June 17, 2018 (the 2011 Term Loan). In addition, during the term of the 2011 Term
Loan Agreement, the Borrowers may request additional credit commitments for incremental term loan
facilities in an aggregate amount not to exceed $100,000 plus the aggregate principal amount of the
term loans that the Borrowers have voluntarily prepaid prior to the date of such request. The
Borrowers may request a greater amount to the extent that Warnaco Group meets certain financial
tests set forth in the 2011 Term Loan Agreement. At December 31, 2011, there was $199,000 in term
loans outstanding under the 2011 Term Loan Agreement. During June 2011, the Company repaid the
outstanding loan balances of the 2008 Credit Agreements and the Italian Note (as defined below)
from the proceeds of the 2011 Term Loan (see below). The Company paid $4,941 in deferred financing
costs in connection with the 2011 Term Loan, which are being amortized to interest expense over the
term of the loan using the effective interest method. The deferred financing costs were recorded in
Other assets on the Consolidated Balance Sheets.
On the last day of each of the Companys fiscal quarters, beginning on October 1, 2011, $500
of the outstanding principal amount of the 2011 Term Loan must be repaid. Such amount will be
reduced if a portion of the principal amount is prepaid. The remaining principal amount is due on
June 17, 2018.
The 2011 Term Loan Agreement provides interest rate options, at the Borrowers election,
including a base rate (as defined in the 2011 Term Loan Agreement) plus a margin of 1.75% or at
LIBOR (with a floor of 1.00%) plus a margin of 2.75%, in each case, on a per annum basis. Accrued
interest will be paid in arrears on the last day of each interest period through the maturity date.
Payment dates are the last calendar day (or business day if the last calendar day is not a business
day) of each of January, April, July and October, beginning on
October 31, 2011. Reset dates, which determine the three-month
LIBOR variable leg for the following three month period occur two
business days prior to a payment date
beginning on October 29, 2011. At December 31, 2011, the
interest rate on the entire balance of the 2011 Term Loan was 3.75%, based on three-month LIBOR
(with a floor of 1.00%) plus a margin of 2.75%. In order to match the interest rate on the hedged
portion of the 2011 Term Loan with that on the interest rate cap (see below), the Company expects
to continue to use successive interest periods of three months and adjusted three-month LIBOR rates
(with a LIBOR floor of 1.00% per annum) plus 2.75% on a per annum basis through the maturity date
of the 2011 Term Loan.
In addition, the 2011 Term Loan Agreement is subject to a 1.00% prepayment fee in the event it
is refinanced with term loans with lower pricing on or before June 17, 2012, subject to certain
conditions. The Borrowers must make mandatory prepayments of the term loans with the proceeds of
asset dispositions and insurance proceeds from casualty events (subject to certain limitations),
with a portion of any excess cash flow (as defined in the 2011 Term Loan Agreement) generated by
Warnaco Group and with the proceeds of certain issuances of debt (subject to certain exceptions).
The 2011 Term Loan Agreement does not require the Borrowers to comply with any financial
maintenance covenants. The 2011 Term Loan Agreement contains customary representations, warranties
and affirmative covenants. The 2011 Term Loan Agreement also contains customary negative covenants
providing limitations, subject to negotiated carve-outs, with respect to (i) incurrence of
indebtedness and liens, (ii) significant corporate changes including mergers and acquisitions with
third parties, (iii)
investments, (iv) loans, (v) hedge agreements, (vi) certain restricted payments and (vii)
transactions with affiliates and certain other restrictive agreements, among others.
The 2011 Term Loan Agreement contains customary events of default, such as payment defaults,
cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a
Change of Control (as defined in the 2011 Term Loan Agreement), or the failure to observe the
certain covenants therein. Upon an event of default, the Lenders may, among other things,
immediately declare any then outstanding loans due and payable.
The obligations of the Borrowers under the 2011 Term Loan Agreement are guaranteed by Warnaco
Group and its indirect domestic subsidiaries (collectively, the U.S. Guarantors) pursuant to a
Guaranty dated as of June 17, 2011 (the Guaranty).
F-42
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The obligations under the 2011 Term Loan Agreement and the guarantees thereof, are secured by
Warnaco Group, the Borrowers and each of the U.S. Guarantors, for the benefit of the Lenders, with
a first priority lien on all fixed asset collateral (including, without limitation, pledges of
their equity ownership in domestic subsidiaries and up to 66% of their equity ownership in
first-tier foreign subsidiaries), intellectual property, and substantially all other personal
property of the Borrowers and the U.S. Guarantors not constituting 2008 Credit Agreement Priority
Collateral (as defined below), and, in each case, proceeds thereof. In addition, Warnaco Group, the
Borrowers and each of the U.S. Guarantors have granted to the Lenders a second priority security
interest in accounts receivable, inventory, deposit accounts and cash, checks and certain related
assets (the 2008 Credit Agreement Priority Collateral).
In
connection with entering into the 2011 Term Loan Agreement on June 17, 2011, Warnaco Group, the
Borrowers and the U.S. Guarantors executed an Intercreditor Agreement (the Intercreditor
Agreement), establishing certain priorities with respect to the collateral that secures the
Borrowers obligations under the 2008 Credit Agreements and the 2011 Term Loan Agreement. Pursuant
to the Intercreditor Agreement, the secured parties under the existing 2008 Credit Agreements
retain a first priority security interest in all 2008 Credit Agreement Priority Collateral and a
second priority security interest in all fixed asset collateral, intellectual property and
substantially all other personal property of Warnaco Group, the Borrowers and the U.S. Guarantors
not constituting 2008 Credit Agreement Priority Collateral.
Interest Rate Cap Agreement
On July 1, 2011, the Company entered into a deferred premium interest rate cap agreement with
HSBC Bank USA (the Counterparty), effective July 29, 2011, on a notional amount of $120,000. The
interest rate cap agreement is a series of 27 individual caplets that reset and settle quarterly
over the period from October 31, 2011 to April 30, 2018. Under the terms of the interest rate cap
agreement, if three-month LIBOR resets above a strike price of 1.00%, the Company will receive the
net difference between the reset rate and the strike price. In addition, on the quarterly
settlement dates, the Company will remit the deferred premium payment to the Counterparty. If LIBOR
resets below the strike price no payment is made by the Counterparty. However, the Company would
still be responsible for payment of the deferred premium. The Company is obligated to make premium
payments totaling approximately $16,015, based on an annual rate of 1.9475% on the notional amount
of the interest rate cap, over the term of the agreement. The effect of the agreement is to limit
the interest rate payable on average over the term of the interest rate cap agreement to 5.6975%
per annum with respect to the portion of the 2011 Term Loan that equals the notional amount of the
interest rate cap.
The interest rate cap contracts are designated as cash flow hedges of the exposure to
variability in expected future cash flows attributable to a three-month LIBOR rate beyond 1.00%.
At the inception of the hedging relationship, the fair value of the interest rate cap of $14,395
was allocated to the respective caplets within the interest rate cap on a fair value basis. To the
extent that the interest rate cap contracts are effective in offsetting that variability, changes
in the interest rate caps fair value will be recorded in AOCI in the Companys Consolidated Balance Sheets and subsequently recognized in
interest expense in the Consolidated Statements of Operations as the underlying interest expense is
recognized on the 2011 Term Loan.
On December 31, 2011, the fair value of the interest rate cap was $6,276, which was recorded
in Other assets on the Companys Consolidated Balance Sheet and the decrease in fair value of
$8,119 from July 1, 2011 was recorded in AOCI. On December 31, 2011, Deferred premium on the
interest rate cap was $13,969, of which $2,492 was recorded in Short-term debt and $11,477 was
recorded in Long-term debt. The accretion of Deferred premium on the interest rate cap of $184 from
July 1, 2011 to December 31, 2011 was recorded as an increase in interest expense.
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 (Warnaco
Canada), 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 (the Lenders and Issuers). The 2008 Credit Agreements are used to issue standby and
commercial letters of credit, to finance ongoing working capital and capital expenditure needs and
for other general corporate purposes.
F-43
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
In connection with entering into the 2011 Term Loan Agreement, on June 17, 2011, (i) Warnaco
Group, Warnaco and the U.S. Guarantors entered into an amendment to the 2008 Credit Agreement (the
2008 Credit Agreement Amendment) and (ii) Warnaco Canada, Warnaco Group, Warnaco and the U.S.
Guarantors entered into an amendment to the 2008 Canadian Credit Agreement (the 2008 Canadian
Credit Agreement Amendment) and, together with the 2008 Credit Agreement Amendment, the 2008
Credit Agreements Amendment, in each case, permitting the Borrowers and Guarantors to incur the
indebtedness and grant the liens under and in connection with the 2011 Term Loan Agreement, and
providing, among other things, for modifications to the definitions of Change of Control, the
eligibility criteria for receivables and certain covenants relating to asset sales, prepayments of
debt, permitted liens and permitted indebtedness.
On November 8, 2011, Warnaco Group, Warnaco and the U.S. Guarantors entered into Amendment No.
2 to the 2008 Credit Agreement (the 2008 Credit Agreement Amendment No. 2) and, Warnaco Canada,
Warnaco and the U.S. Guarantors entered into Amendment No. 2 to the 2008 Canadian Credit Agreement
(the 2008 Canadian Credit Agreement Amendment No. 2 and, together with the 2008 Credit Agreement
Amendment No. 2, the 2008 Credit Agreements Amendment No. 2).
The 2008 Credit Agreements Amendment No. 2 provide, among other things, for (i) extension of
the maturity date under each of the 2008 Credit Agreements from August 26, 2013 to November 8,
2016, (ii) reductions in interest rate margins under each of the 2008 Credit Agreements by 25 basis
points, (iii) a reduction in the current amount available under the 2008 Credit Agreement to
$250,000 from $270,000 and under the 2008 Canadian Credit Agreement, to $25,000 from $30,000; (iv)
reductions in commitment fees under each of the 2008 Credit Agreements by 12.5 basis points and (v)
reductions in the minimum fixed charge coverage ratio test from 1.1:1.0 to 1.0:1.0 under each of
the 2008 Credit Agreements (which ratio is tested only when the Available Credit (as defined in
each of the 2008 Credit Agreements) falls below certain agreed upon levels). In addition, the 2008
Credit Agreements Amendment No. 2 revise certain covenants and levels under each of the 2008 Credit
Agreements, including, without limitation, covenants relating to restricted payments, prepayments
of debt, permitted acquisitions and permitted indebtedness. During the term of the 2008 Credit
Agreement, Warnaco may also make up to three requests for additional credit commitments in an
aggregate amount not to exceed $200,000.
The Company recorded approximately $4,200 of deferred financing costs in connection with
entering into the 2008 Credit Agreements in August 2008, which is being amortized using the
straight-line method through August 26, 2013. The Company recorded approximately $2,526 of deferred
financing costs in connection with the 2008 Credit Agreements Amendment and the 2008 Credit
Agreements Amendment No. 2, which is being amortized using the straight-line method through
November 8, 2016.
At December 31, 2011, the 2008 Credit Agreement has 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)
2.08%, based on LIBOR plus 1.50%, in each case, on a per annum basis. The interest rate payable on
outstanding borrowings is subject to adjustments based on changes in the Companys credit rating
and usage of the 2008 Credit Agreements. 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) 2.66%, based on the BA Rate (defined below) plus 1.50%, in each
case, on a per annum basis and subject to adjustments based on changes in the Companys credit
rating and usage of the 2008 Credit Agreements. 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.
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, (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 1.0 to 1.0. As noted above, on June 17,
2011, the 2008 Credit Agreements were amended in connection with the 2011 Term Loan Agreement to
revise certain covenants and restrictions.
The covenants under the 2008 Credit Agreements contain negotiated exceptions and carve-outs,
including the ability to repay indebtedness, make restricted payments and make investments so long
as after giving pro forma effect to such actions the Company has a minimum level of Available
Credit (as defined in the 2008 Credit Agreements), the Companys Fixed Charge Coverage Ratio (as
defined in the 2008 Credit Agreements) for the last four quarters was at a specified level and
certain other requirements are met.
The 2008 Credit Agreements contain events of default, such as payment defaults, cross-defaults
to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change of
control, or the failure to observe the negative
covenants and other covenants related to the operation and conduct of the Companys business. Upon
an event of default, the Lenders and Issuers will not be obligated to make loans or other
extensions of credit and may, among other things, terminate their commitments and declare any then
outstanding loans due and payable immediately.
F-44
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The obligations of Warnaco under the 2008 Credit Agreement are guaranteed by Warnaco Group and
its indirect domestic subsidiaries (other than Warnaco) (collectively, the U.S. Guarantors). The
obligations of Warnaco Canada under the 2008 Canadian Credit Agreement are guaranteed by Warnaco
Group, Warnaco and the U.S. Guarantors, as well as by a Canadian subsidiary of Warnaco Canada. As
security for the obligations under the 2008 Credit Agreements and the guarantees thereof, Warnaco
Group, Warnaco and each of the U.S. Guarantors has granted pursuant to a Pledge and Security
Agreement to the collateral agent, for the benefit of the lenders and issuing banks, a first
priority lien on substantially all of their tangible and intangible assets, including, without
limitation, pledges of their equity ownership in domestic subsidiaries and up to 66% of their
equity ownership in first-tier foreign subsidiaries, as well as liens on intellectual property
rights. As security for the obligations under the 2008 Canadian Credit Agreement and the
guarantee thereof by a Warnaco Canadian subsidiary, Warnaco Canada and its subsidiary have each
granted pursuant to General Security Agreements, a Securities Pledge Agreement and Deeds of
Hypothec to the collateral agent, for the benefit of the lenders and issuing banks under the 2008
Canadian Credit Agreement, a first priority lien on substantially all of their tangible and
intangible assets, including, without limitation, pledges of their equity ownership in
subsidiaries, as well as liens on intellectual property rights. As noted above, on June 17, 2011,
in connection with the 2011 Term Loan Agreement, an Intercreditor Agreement was entered into which
establishes certain priorities with respect to the collateral that secures the borrowers
obligations under the 2008 Credit Agreements and the 2011 Term Loan Agreement.
As of December 31, 2011, the Company had no loans and approximately $32,966 in letters of
credit outstanding under the 2008 Credit Agreement, leaving approximately $161,320 of availability
under the 2008 Credit Agreement. As of December 31, 2011, there were no loans and approximately
$2,746 in letters of credit outstanding under the 2008 Canadian Credit Agreement leaving
approximately $17,525 of availability under the 2008 Canadian Credit Agreement.
Euro-Denominated CKJEA Notes and Other Short-Term Debt
One of the Companys European businesses hasshort-term notes payable (the CKJEA Notes). The
total amounts of CKJEA Notes payable of $36,648 at December 31, 2011 and $18,445 at January 1, 2011
each consist 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 4.0% as of December 31, 2011 and 4.29% as of January 1, 2011. All of the
CKJEA Notes payable are short-term and were renewed during Fiscal 2011 for additional terms of no
more than 12 months.
At December 31, 2011 and January 1, 2011, the Companys Brazilian subsidiary, WBR, had lines
of credit with several banks, with total outstanding balances of $6,373 and $357, respectively,
recorded in Short-term debt in the Companys Consolidated Balance Sheets, which were offset by
approximately equal amounts of WBRs trade accounts receivable.
During September 2011, one of the Companys Asian subsidiaries entered into a short-term
$25,000 revolving credit facility with one lender (the Asian Credit Facility) to be used for
working capital and general corporate purposes. The Asian Credit Facility bears interest at a rate
of 1.75% plus 1-month LIBOR, which is due monthly. At the end of each month, amounts outstanding
under the Asian Credit Facility may be carried forward for further 1-month periods for up to one
year. The Asian Credit Facility may be renewed annually. The Asian Credit Facility is subject to
certain terms and conditions customary for a credit facility of this type and may be terminated at any time at the
discretion of the lender. There were no borrowings during Fiscal 2011.
Italian Notes
On September 30, 2010, one of the Companys Italian subsidiaries entered into a 10,000 loan
(the Italian Note). At January 1, 2011, the principal balance of the Italian Note was 10,000
($13,370) with an annual interest rate of 3.64%. On June 30, 2011, the Company repaid the full
outstanding balance of 6,040 ($8,600) on the Italian Note with a portion of the proceeds of the
2011 Term Loan (see above).
F-45
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Senior Notes
On June 12, 2003, Warnaco completed the sale of $210,000 aggregate principal amount at par
value of Senior Notes, which notes were set to mature on June 15, 2013 and which bore interest at
87/8% per annum payable semi-annually on December 15 and June 15 of each year (the Senior Notes).
No principal payments prior to the maturity date were required. On January 5, 2010, the Company
redeemed from bondholders $50,000 aggregate principal amount of its outstanding Senior Notes for a
total consideration of
$51,479 and on June 15, 2010, the Company redeemed from bondholders the remaining $110,890
aggregate principal amount of its outstanding Senior Notes for a total consideration of $112,530.
In connection with the redemptions, the Company recognized a loss, in the Other loss (income) line
item in the Companys Consolidated Statement of Operations, of approximately $3,747 for Fiscal
2010, which included $3,119 of premium expense, the write-off of approximately $2,411 of deferred
financing costs, partially offset by $1,783 of unamortized gain from the previously terminated 2003
Swap Agreement and 2004 Swap Agreement. The 2003 Swap Agreement and 2004 Swap Agreement were
interest rate swap agreements that the Company entered into with respect to the Senior Notes for a
total notional amount of $75,000 which provided that the Company would receive interest at 87/8% and
pay variable rates of interest based upon six month LIBOR plus 4.11% and 4.34%, respectively. The
Company funded the redemption of the Senior Notes on January 5, 2010 and June 15, 2010 with
available cash on hand in the U.S and borrowings under its 2008 Credit Agreement.
Debt Covenants
The Company was in compliance with the covenants of its 2011 Term Loan and 2008 Credit
Agreements as of December 31, 2011 and January 1, 2011.
Note 13Stockholders 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 December 31,
2011 or January 1, 2011.
Share Repurchase Program
During September 2011, the Companys Board of Directors approved a new multi-year share
repurchase program (the 2011 Share Repurchase Program) for up to $200,000 of the Companys
outstanding Common Stock. During Fiscal 2011, the Company repurchased 234,900 shares under the 2011
Share Repurchase Program for $11,326 (based on an average of $48.22 per share), leaving $188,674 of
Common Stock to be repurchased. All repurchases under the 2011 Share Repurchase Program will be
made consistent with the terms of the Companys applicable debt instruments. The share repurchase
program may be modified or terminated by the Companys Board of Directors at any time.
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 Fiscal 2010, the Company repurchased 939,158 shares in the open market for a
total cost of $47,382 (based on an average of $50.45 per share) under the 2010 Share Repurchase
Program. During Fiscal 2011, the Company repurchased the remaining 4,060,842 shares of its Common
Stock under the 2010 Share Repurchase Program for an aggregate amount of $205,800 (based on an
average of $50.68 per share). All repurchases of shares under the new program were consistent with
the terms of the Companys applicable debt instruments.
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 Fiscal 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). At January 1, 2011,
the Company had cumulatively purchased 3,000,000 shares of Common Stock in the open market at a
total cost of approximately $106,916 (an average cost of $35.64 per share) under the 2007 Share
Repurchase Program.
Repurchased shares are held in treasury pending use for general corporate purposes.
2005 Stock Incentive Plan
Warnaco Groups 2005 Stock Incentive Plan (the 2005 Stock Incentive Plan), as amended,
permits the granting of incentive stock options, non-qualified stock options, restricted stock,
stock awards and other stock-based awards (including but not limited to restricted stock units),
some of which may require the satisfaction of performance-based criteria in order to become vested
or payable to participants. Under the 2005 Stock Incentive Plan, the aggregate number of shares
that may be issued is 7,150,000 shares of Common Stock; provided, however, that the aggregate
number of shares that may be subject to restricted stock awards shall not exceed 2,725,000. Those
numbers of shares are subject to adjustment for dividends, distributions, recapitalizations, stock
splits, reverse stock splits, reorganizations, mergers, consolidations, split-ups, spin-offs,
combinations, repurchases or exchanges of shares or
F-46
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
other securities of the Company, issuances of
warrants or other rights to purchase shares of Common Stock or other securities of the Company and other similar events. The Compensation Committee of the
Companys Board of Directors is responsible for administering the 2005 Stock Incentive Plan. The
Company has reserved 7,150,000 shares of its Common Stock for stock based compensation awards
granted pursuant to the 2005 Stock Incentive Plan. Substantially all awards granted under the 2005
Stock Incentive Plan have a contractual life of 10 years. Stock options, that are granted beginning
in 2005, vest annually with respect to 1/3 of the award on each anniversary of the grant
date provided that the grantee is employed by the Company on such date. Restricted stock awards,
that were granted between 2005 and 2008, vest annually with respect to 1/3 of the award on
each anniversary of the grant date, and restricted stock awards, that are granted from 2009, vest
on the third anniversary of the grant date, provided that the grantee is employed by the Company on
such date (see below regarding vesting of equity awards under the Retirement Eligibility feature
instituted beginning in Fiscal 2010). At December 31, 2011, under the 2005 Stock Incentive Plan,
there were 1,757,481 shares available for future grants, of which 826,331 shares were available for
future grants of restricted stock awards.
2003 Stock Incentive Plan
The Compensation Committee of the Companys Board of Directors is responsible for
administration of Warnaco Group 2003 Stock Incentive Plan (the 2003 Stock Incentive
Plan) and determines, subject to its provisions, the number of shares to be issued, the terms of
awards, the sale or exercise price, the number of shares awarded and the rate at which awards vest
or become exercisable. The Company has reserved 5,000,000 shares of Common Stock for stock-based
compensation awards granted pursuant to the 2003 Stock Incentive Plan. Substantially all
stock-based compensation awards granted after January 3, 2004 have a contractual life of 10 years
and vest annually with respect to 1/3 of the award on each anniversary of the grant date beginning
in 2005 provided that the grantee is employed by the Company on such date. Substantially all
stock-based compensation awards granted prior to January 3, 2004 have a contractual life of 10
years and vest, with respect to 1/4 of the award, six months after the grant date and, with respect
to an additional 1/4 of such award, each anniversary after the first vesting date for a period of
three years provided that the grantee is employed by the Company on such date. At December 31,
2011, under the 2003 Stock Incentive Plan, there were 80,496 shares available for future grants of
either stock options or restricted stock awards.
The fair values of stock options granted in Fiscal 2011, Fiscal 2010 and Fiscal 2009 were
estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Weighted average risk free rate of return (a)
|
|
|
1.61 |
% |
|
|
1.72 |
% |
|
|
1.84 |
% |
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility of the market price of
the Companys common stock
|
|
|
57.7 |
% |
|
|
56.8 |
% |
|
|
59.3 |
% |
Expected option life (years)
|
|
|
4.10 |
|
|
|
4.20 |
|
|
|
3.72 |
|
|
|
|
(a) |
|
Based on the quoted yield for U.S. five-year treasury bonds as of the date of grant. |
F-47
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
A summary of stock-based compensation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Stock-based compensation expense before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
8,654 |
|
|
$ |
8,330 |
|
|
$ |
5,721 |
|
Restricted stock grants |
|
|
16,077 |
|
|
|
14,256 |
|
|
|
8,732 |
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
|
24,731 |
|
|
|
22,586 |
|
|
|
14,453 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
2,990 |
|
|
|
2,966 |
|
|
|
2,048 |
|
Restricted stock grants |
|
|
5,145 |
|
|
|
4,650 |
|
|
|
3,126 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8,135 |
|
|
|
7,616 |
|
|
|
5,174 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense after income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
5,664 |
|
|
|
5,364 |
|
|
|
3,673 |
|
Restricted stock grants |
|
|
10,932 |
|
|
|
9,606 |
|
|
|
5,606 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,596 |
|
|
$ |
14,970 |
|
|
$ |
9,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The primary reason for the increase in stock-based compensation expense
for Fiscal 2010, compared to Fiscal 2009, related to the incorporation of a
Retirement Eligibility feature that was applied to all the equity awards issued
beginning in March 2010. See Note 1 Nature of
Operations and Significant Accounting Policies of Notes to
Consolidated Financial Statements. |
As of December 31, 2011, there was $23,090 of total unrecognized compensation cost
related to unvested stock-based compensation awards that had been granted under the Companys stock
incentive plans. That cost is expected to be recognized over a weighted average period of
approximately 22 months. The tax (benefit) realized from exercise of stock options was ($12,055),
($1,069) and $0 for Fiscal 2011, Fiscal 2010 and Fiscal 2009, respectively. Shares issued under
stock based compensation plans are issued from previously unissued but authorized Common Stock.
F-48
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
A summary of stock option award activity under the Companys stock incentive plans as of
December 31, 2011 and changes during Fiscal 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Options |
|
|
Price |
|
|
Life (years) |
|
|
Value |
|
Outstanding as of January 1, 2011 |
|
|
1,926,257 |
|
|
$ |
33.73 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
364,800 |
|
|
|
55.25 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(322,391 |
) |
|
|
28.78 |
|
|
|
|
|
|
|
|
|
Forfeited / Expired |
|
|
(81,741 |
) |
|
|
42.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2011 |
|
|
1,886,925 |
|
|
|
38.35 |
|
|
|
7.0 |
|
|
$ |
23,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable as of December 31, 2011 |
|
|
1,125,191 |
|
|
$ |
33.74 |
|
|
|
6.0 |
|
|
$ |
18,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the activity for unvested restricted share/unit awards as of December 31, 2011
and changes during Fiscal 2011 (excluding Performance Awards) is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date Fair |
|
|
|
shares/units |
|
|
Value |
|
Unvested as of January 1, 2011 |
|
|
847,664 |
|
|
$ |
36.93 |
|
Granted |
|
|
229,943 |
|
|
|
55.24 |
|
Vested (a) |
|
|
(144,658 |
) |
|
|
47.65 |
|
Forfeited (b) |
|
|
(73,183 |
) |
|
|
39.82 |
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2011 |
|
|
859,766 |
|
|
|
39.77 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include an additional 37,600 restricted units with a grant date fair value per
share of $55.57 and 36,750 restricted units with a grant date fair value per share of $43.28,
granted to Retirement-Eligible employees during Fiscal 2011 and Fiscal 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. |
|
(b) |
|
does not include 1,300 restricted stock units granted as performance shares in Fiscal 2010
with a grant date fair value of $43.28. |
During March 2011 and March 2010, share-based compensation awards granted to certain of
the Companys executive officers under Warnaco Groups 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, of the types that had been granted in previous periods. See Note 1 of Notes
to Consolidated Financial Statements Nature of Operations and Summary of Significant Accounting
Policies Stock-Based Compensation.
The calculation of simulated TSRs under the Monte Carlo model for the Remaining Measurement
Period for Performance Awards granted on March 1, 2011 and on March 3, 2010 included the following
assumptions:
|
|
|
|
|
|
|
Fiscal 2011 |
|
Fiscal 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 Performance Awards granted on
March 1, 2011 and on March 3, 2010 is based on a Remaining
Measurement Period of
2.83 years. |
F-49
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The Company recorded compensation expense for the Performance Awards during Fiscal 2011 and
Fiscal 2010 based on the performance condition.
Performance share activity for Fiscal 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Performance Shares |
|
|
Grant Date Fair 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 December 31, 2011 (b) |
|
|
154,500 |
|
|
$ |
49.65 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include 35,050 and 34,300 Performance Awards granted to Retirement Eligible
Employees on March 1, 2011 and March 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. |
|
(b) |
|
includes 18,613 shares that the Company is obligated to issue at the end of the three-year
performance period based upon the Companys performance to date. |
The weighted average grant date fair value of options granted and the intrinsic value of
options exercised and restricted shares/units vested during Fiscal 2011, Fiscal 2010 and Fiscal
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Weighted-average grant date fair value of options
granted |
|
$ |
25.50 |
|
|
$ |
20.06 |
|
|
$ |
12.37 |
|
Intrinsic value of options exercised |
|
|
26.98 |
|
|
|
31.15 |
|
|
|
26.77 |
|
Total fair value of restricted shares/units vested |
|
|
54.70 |
|
|
|
44.87 |
|
|
|
20.24 |
|
The
following represents the reconciliation of the number of shares of
Common Stock and
treasury stock issued and outstanding as of December 31, 2011 and January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
Common Stock: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
51,712,674 |
|
|
|
50,617,795 |
|
Shares issued upon exercise of stock options |
|
|
322,391 |
|
|
|
885,905 |
|
Shares issued upon vesting of restricted stock grants |
|
|
144,658 |
|
|
|
202,941 |
|
Shares issued to directors / other |
|
|
5,007 |
|
|
|
6,033 |
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
52,184,730 |
|
|
|
51,712,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
7,445,166 |
|
|
|
4,939,729 |
|
Purchases of Common Stock (a) |
|
|
4,345,262 |
|
|
|
2,505,437 |
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
11,790,428 |
|
|
|
7,445,166 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents 4,295,742 shares and 2,429,289 shares for Fiscal 2011 and Fiscal 2010,
respectively, purchased under the Companys share repurchase programs and 49,520 shares
and 76,148 for Fiscal 2011 and Fiscal 2010, respectively, surrendered by employees in
satisfaction of certain payroll tax obligations associated with the vesting of
restricted stock. |
For additional disclosures related to stock-based compensation, see Note 1 of the Notes to
Consolidated Financial Statements Stock-Based Compensation.
F-50
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Note 14Income 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 629,722 shares, 598,047 shares and 567,917 shares
for Fiscal 2011, Fiscal 2010 and Fiscal 2009, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group common
shareholders and participating securities |
|
$ |
132,252 |
|
|
$ |
147,798 |
|
|
$ |
102,225 |
|
Less: allocation to participating securities |
|
|
(1,934 |
) |
|
|
(1,951 |
) |
|
|
(1,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group common
shareholders |
|
$ |
130,318 |
|
|
$ |
145,847 |
|
|
$ |
100,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax, attributable to Warnaco Group
common shareholders and participating securities |
|
$ |
(4,802 |
) |
|
$ |
(9,217 |
) |
|
$ |
(6,227 |
) |
Less: allocation to participating securities |
|
|
70 |
|
|
|
122 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations attributable to Warnaco Group common
shareholders |
|
$ |
(4,732 |
) |
|
$ |
(9,095 |
) |
|
$ |
(6,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group common shareholders and participating |
|
$ |
127,450 |
|
|
$ |
138,581 |
|
|
$ |
95,998 |
|
Less: allocation to participating securities |
|
|
(1,864 |
) |
|
|
(1,829 |
) |
|
|
(1,185 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group common shareholders |
|
$ |
125,586 |
|
|
$ |
136,752 |
|
|
$ |
94,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to Warnaco Group common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing income
per common share |
|
|
42,425,750 |
|
|
|
44,701,643 |
|
|
|
45,433,874 |
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
3.07 |
|
|
$ |
3.26 |
|
|
$ |
2.22 |
|
Loss per common share from discontinued operations |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
2.96 |
|
|
$ |
3.06 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Warnaco Group common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing basic
income |
|
|
42,425,750 |
|
|
|
44,701,643 |
|
|
|
45,433,874 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
874,099 |
|
|
|
1,054,292 |
|
|
|
762,523 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares and share equivalents used in computing
income per common share |
|
|
43,299,849 |
|
|
|
45,755,935 |
|
|
|
46,196,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
3.01 |
|
|
$ |
3.19 |
|
|
$ |
2.19 |
|
Loss per common share from discontinued operations |
|
|
(0.11 |
) |
|
|
(0.20 |
) |
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
Net income per common share |
|
$ |
2.90 |
|
|
$ |
2.99 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of anti-dilutive out-of-the-money stock options outstanding (a) |
|
|
338,500 |
|
|
|
363,750 |
|
|
|
436,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Options to purchase shares of Common Stock at an exercise price greater than
the average market price for each period presented are anti-dilutive and, therefore
not included in the computation of diluted income per common share from continuing
operations. |
F-51
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Note 15Lease and Other Commitments
The Company is a party to various lease agreements for equipment, real estate, furniture,
fixtures and other assets, which expire on various dates through 2025. Under these agreements, the
Company is required to pay various amounts including property taxes, insurance, maintenance fees,
and other costs. See Note 1 of Notes to Consolidated Financial Statements Leases for more
information on the Companys operating leases. The following is a schedule of future minimum rental
payments required under non-cancelable operating leases with terms in excess of one year, as of
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Rental payments |
|
Year |
|
Real Estate |
|
|
Equipment |
|
|
|
|
|
|
|
|
|
|
2012 |
|
$ |
84,812 |
|
|
$ |
11,352 |
|
2013 |
|
|
72,876 |
|
|
|
8,471 |
|
2014 |
|
|
56,810 |
|
|
|
6,240 |
|
2015 |
|
|
47,121 |
|
|
|
2,975 |
|
2016 |
|
|
35,476 |
|
|
|
1,729 |
|
2017 and thereafter |
|
|
92,052 |
|
|
|
|
|
Rent expense included in the Consolidated Statements of Operations for Fiscal 2011,
Fiscal 2010 and Fiscal 2009 was $110,368, $89,026 and $73,173, respectively.
Contractual obligations for operating leases as of December 31, 2011 include approximately
$29,500 related to a 15 year lease contract for a distribution center in the Netherlands (the DC)
that was entered into by one of the Companys Netherlands subsidiaries in Fiscal 2010. In the event
of default by the Netherlands subsidiary in making rental payments under the lease, Warnaco Group
has issued a guarantee to the lessor for those payments. Warnaco Group has also issued guarantees
of the indebtedness of other of its subsidiaries from time to time in the ordinary course of
business.
Although the specific terms of each of the Companys license agreements vary, generally such
agreements provide for minimum royalty payments and/or royalty payments based upon a percentage of
net sales. Such license agreements also generally grant the licensor the right to approve any
designs marketed by the licensee. The Company has license agreements with the following minimum
guaranteed royalty payments as of December 31, 2011:
|
|
|
|
|
|
|
Minimum |
|
Year |
|
Royalty (a) |
|
|
|
|
|
|
2012 |
|
$ |
65,784 |
|
2013 |
|
|
63,205 |
|
2014 |
|
|
49,209 |
|
2015 |
|
|
54,483 |
|
2016 |
|
|
55,172 |
|
2017 and thereafter |
|
|
807,763 |
|
|
|
|
(a) |
|
Includes all minimum royalty obligations. Some of the Companys license agreements have no
expiration date or extend to 2044 or 2046. License agreements with no expiration date are
assumed to end in 2044 for purposes of this table. Variable based minimum royalty obligations
are based upon payments for the most recent fiscal year. Certain of the Companys license
agreements also require the Company to pay a specified percentage of net revenue (ranging from
1-6%) to the licensor for advertising and promotion of the licensed products (which amount is
not included in minimum royalty obligations for purposes of this item). |
The Company has entered into employment agreements with certain members of management.
Minimum obligations pursuant to such agreements total $6,853, $888, $393, $335, $33 and $79 in the
fiscal years ending 2012, 2013, 2014, 2015, 2016 and thereafter, respectively. These minimum
obligations include deferred compensation and supplemental compensation under these agreements. See
Note 7 of Notes to Consolidated Financial Statements.
As of December 31, 2011, the Company had other contractual obligations of $21,506, $4,926,
$2,613, $1,184, $207 and $200 for the fiscal years ending 2012, 2013, 2014, 2015 and 2016 and
thereafter, respectively. Amounts due include purchase obligations, payments for software
maintenance fees, software licensing fees and advertising as well as a payment in the fiscal year
ending December 29, 2012 of $9,900 related to the acquisition of WBR in Fiscal 2009 (see Note 2 of
Notes to Consolidated Financial Statements.
At December 31, 2011, in the ordinary course of business, the Company had open purchase orders
with suppliers of approximately $366,914, all of which is payable in 2012.
F-52
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
As of December 31, 2011, the Company has entered into foreign currency exchange forward
contracts to mitigate its foreign exchange risk. See Notes 1 and 17 of Notes to Consolidated
Financial Statements for further information on these contracts.
Note 16Fair Value Measurement
The Company utilizes the market approach to measure fair value for financial assets and
liabilities, which primarily relate 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 uses the income approach to measure fair value of the interest
rate cap (see Note 12 of Notes to Consolidated Financial Statements). 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. |
Valuation Techniques
The fair value of foreign currency exchange contracts 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 date and (ii) the U.S. dollar value of the foreign
currency to be sold or purchased at the current forward exchange rate. The fair value of these
foreign 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
fair value of the interest rate cap was determined using broker quotes, which use discounted
cash flows, an income approach, and the then-applicable forward LIBOR rates and, therefore, meets the definition of
Level 2 fair value, as defined above.
The fair value of long-lived assets was based on the Companys best estimates of future cash
flows and, therefore, meets the definition of Level 3 fair value, as defined above (see Note 1 of
Notes to Consolidated Financial Statements Nature of Operations and Summary of Significant
Accounting Policies Long-Lived Assets).
The following table represents the Companys assets and liabilities measured at fair value on
a recurring basis as of December 31, 2011 and January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
$ |
|
|
|
$ |
5,587 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
834 |
|
|
$ |
|
|
Interest rate cap |
|
|
|
|
|
|
6,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
$ |
|
|
|
$ |
532 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,282 |
|
|
$ |
|
|
F-53
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The following table represents the Companys assets and liabilities measured at fair value on a
non-recurring basis as of December 31, 2011 and January 1, 2011 (see Note 1 of Notes to
Consolidated Financial Statements Long-lived Assets for a description of the testing of retail
store assets and intangible assets for impairment):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains |
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains |
|
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Losses) |
|
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, retail stores |
|
$ |
665 |
|
|
|
|
|
|
|
|
|
|
$ |
665 |
|
|
$ |
(5,950 |
) |
|
$ |
249 |
|
|
|
|
|
|
|
|
|
|
$ |
249 |
|
|
$ |
(1,933 |
) |
Long-lived assets, intangible assets |
|
|
3,579 |
|
|
|
|
|
|
|
|
|
|
|
3,579 |
|
|
|
(35,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(41,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments.
Accounts Receivable: The carrying amount of the Companys accounts receivable approximates
fair value.
Accounts Payable: The carrying amount of the Companys accounts payable is approximately
equal to their fair value because accounts payable are short-term in nature and the
carrying value is equal to the settlement value.
Short-term Debt: The carrying amount of the 2008 Credit Agreements, CKJEA Notes and other
short term debt is approximately equal to their fair value because of their short-term
nature and because amounts outstanding bear interest at variable rates which fluctuate
with market rates.
Foreign Currency Exchange Forward Contracts: The fair value of the outstanding foreign
currency exchange forward contracts is based upon the cost to terminate the contracts.
The fair value of these foreign exchange contracts is based on quoted prices that
include the effects of U.S. and foreign interest rate yield curves.
2011 Term Loan: matures on June 17, 2018 and bears a variable rate of interest (see
Note 12 of Notes to Consolidated Financial Statements). The fair value of the 2011 Term
Loan was estimated by obtaining quotes from brokers.
Interest rate cap: The fair value of the interest rate cap was determined using broker
quotes, which use discounted cash flows and the then-applicable forward LIBOR rates.
The carrying amounts and fair value of the Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
January 1, 2011 |
|
|
|
Balance Sheet |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Location |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
Accounts receivable, net of reserves |
|
$ |
322,976 |
|
|
$ |
322,976 |
|
|
$ |
318,123 |
|
|
$ |
318,123 |
|
Open foreign currency exchange contracts |
|
Prepaid expenses and other current assets |
|
|
5,587 |
|
|
|
5,587 |
|
|
|
834 |
|
|
|
834 |
|
Interest rate cap |
|
Other assets |
|
|
6,276 |
|
|
|
6,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
Accounts payable |
|
$ |
141,797 |
|
|
$ |
141,797 |
|
|
$ |
152,714 |
|
|
$ |
152,714 |
|
Short-term debt |
|
Short-term debt |
|
|
43,021 |
|
|
|
43,021 |
|
|
|
32,172 |
|
|
|
32,172 |
|
Open foreign currency exchange contracts |
|
Accrued liabilities |
|
|
532 |
|
|
|
532 |
|
|
|
3,282 |
|
|
|
3,282 |
|
2011 Term Loan, current portion |
|
Short-term debt |
|
|
2,000 |
|
|
|
1,980 |
|
|
|
|
|
|
|
|
|
2011 Term Loan |
|
Long-term debt |
|
|
197,000 |
|
|
|
195,030 |
|
|
|
|
|
|
|
|
|
F-54
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Derivative Financial Instruments
Foreign Currency Exchange Forward Contracts
The
Company is exposed to foreign exchange risk related to U.S. dollar-denominated purchases
of inventory, payment of minimum royalty and advertising costs and inter-company loans and payables
by subsidiaries whose functional currencies are the Euro, Canadian dollar, Korean won, Mexican
peso, British pound or Singaporean dollar. The Company or its foreign subsidiaries enter into
foreign exchange forward contracts, including zero-cost collar option contracts, to offset certain
of its foreign exchange risk. The Company does not use derivative financial instruments for
speculative or trading purposes.
A number of international financial institutions are counterparties to the Companys
outstanding foreign exchange forward contracts. The Company monitors its positions with, and the
credit quality of, these counterparty financial institutions and does not anticipate nonperformance
by these counterparties. Management believes that the Company would not suffer a material loss in
the event of nonperformance by these counterparties.
During Fiscal 2011, the Companys Korean, European, Canadian and Mexican subsidiaries
continued their hedging programs, which included foreign exchange forward contracts which were
designed to satisfy either 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. All of the foregoing forward contracts were designated as cash flow hedges, with gains
and losses accumulated on the Consolidated Balance Sheets in Other Comprehensive Income and
recognized in Cost of Goods Sold in the Consolidated Statement of Operations during the periods in
which the underlying transactions occur.
During Fiscal 2011, 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 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 inter-company sales of inventory by a Euro
functional currency subsidiary to a British subsidiary, whose functional currency is the British
pound or (iii) U.S. dollar denominated inter-company loans and payables. During Fiscal 2011, the
Company initiated foreign currency exchange forward contracts, which were accounted for as economic
hedges, in connection with the U.S. dollar-denominated inter-company loan made upon the formation
of the Companys joint venture in India, which is held by a Singapore dollar functional currency
subsidiary (see Note 2 of Notes to Consolidated Financial Statements).
Interest Rate Cap
On July 1, 2011, the Company entered into an interest rate cap agreement, which will limit the
interest rate payable on average over the term of the interest rate cap to 5.6975% per annum with
respect to the portion of the 2011 Term Loan that equals the notional amount of the interest rate
cap ($120,000). The 27 individual caplets comprising the interest rate cap are designated as cash
flow hedges of the exposure to variability in expected future cash flows attributable to a
three-month LIBOR rate beyond 1.00%. See Note 12 of Notes to Consolidated Financial Statements -
Interest Rate Cap.
F-55
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
The following table summarizes the Companys derivative instruments as of December 31, 2011
and January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
Balance Sheet |
|
|
December 31, |
|
|
January 1, |
|
|
Balance Sheet |
|
|
December 31, |
|
|
January 1, |
|
|
|
Type (a) |
|
|
Location |
|
|
2011 |
|
|
2011 |
|
|
Location |
|
|
2011 |
|
|
2011 |
|
Derivatives designated as hedging
instruments under FASB ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
CF |
|
Prepaid expenses and other current assets |
|
$ |
1,308 |
|
|
$ |
|
|
|
Accrued liabilities |
|
$ |
|
|
|
$ |
2,290 |
|
Interest rate cap |
|
CF |
|
Other assets |
|
|
6,276 |
|
|
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,584 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
2,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments under FASB ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
Prepaid expenses and other current assets |
|
$ |
4,279 |
|
|
$ |
834 |
|
|
Accrued liabilities |
|
$ |
532 |
|
|
$ |
992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
|
|
|
|
$ |
11,863 |
|
|
$ |
834 |
|
|
|
|
|
|
$ |
532 |
|
|
$ |
3,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of the Companys derivative instruments on the
Statement of Operations for Fiscal 2011, Fiscal 2010 and Fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in |
|
|
Location of Gain |
|
Amount of Gain (Loss) Reclassified |
|
|
Recognized |
|
Amount of Gain (Loss) Recognized |
|
|
|
|
|
OCI on Derivatives |
|
|
(Loss) Reclassified |
|
from Accumulated OCI into Income |
|
|
in Income on |
|
in Income on Derivative |
|
|
|
|
|
(Effective Portion) |
|
|
from Accumulated |
|
(Effective Portion) |
|
|
Derivative |
|
(Ineffective Portion) |
|
Derivatives in FASB ASC 815-20 |
|
Nature of Hedged |
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
OCI into Income |
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
|
(Ineffective |
|
Fiscal |
|
|
Fiscal |
|
|
Fiscal |
|
Cash Flow Hedging Relationships |
|
Transaction |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
(Effective Portion) |
|
2011 |
|
|
2010 |
|
|
2009 |
|
|
Portion) (d) |
|
2011 |
|
|
2010 |
|
|
2009 |
|
Foreign exchange contracts |
|
Minimum royalty and advertising costs (a) |
|
$ |
434 |
|
|
$ |
746 |
|
|
$ |
(450 |
) |
|
cost of goods sold |
|
$ |
(572 |
) |
|
$ |
793 |
|
|
$ |
(314 |
) |
|
other loss/income |
|
$ |
15 |
|
|
$ |
(3 |
) |
|
$ |
(1 |
) |
Foreign exchange contracts |
|
Purchases of inventory (b) |
|
|
(140 |
) |
|
|
(2,517 |
) |
|
|
(1,868 |
) |
|
cost of goods sold |
|
|
(3,105 |
) |
|
|
(1,260 |
) |
|
|
(918 |
) |
|
other loss/income |
|
|
80 |
|
|
|
(45 |
) |
|
|
(23 |
) |
Interest rate cap |
|
Interest expense on 2011 Term Loan (c) |
|
|
(8,119 |
) |
|
|
|
|
|
|
|
|
|
interest expense |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
other loss/income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(7,825 |
) |
|
$ |
(1,771 |
) |
|
$ |
(2,318 |
) |
|
|
|
$ |
(3,676 |
) |
|
$ |
(467 |
) |
|
$ |
(1,232 |
) |
|
|
|
$ |
95 |
|
|
$ |
(48 |
) |
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At December 31, 2011, the amount of minimum royalty and advertising
costs hedged was $10,811; contracts expire through September 2012 .At
January 1, 2011, the amount of minimum royalty and advertising costs hedged
was $10,378; contracts expire through December 2011. At January 2, 2010, the
amount of minimum royalty and advertising costs hedged was $9,213; contracts
expire through September 2010. |
|
(b) |
|
At December 31, 2011, the amount of inventory purchases hedged was
$45,500; contracts expire through November 2012. At January 1, 2011, the
amount of inventory purchases hedged was $66,450; contracts expire through
March 2012. At January 2, 2010, the amount of inventory purchases hedged was
$26,760; contracts expire through April 2011. |
|
(c) |
|
see Note 12 of Notes to Consolidated Financial Statements Interest Rate Cap Agreement |
|
(d) |
|
No amounts were excluded from effectiveness testing. |
F-56
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain |
|
Amount of Gain (Loss) Recognized in |
|
Derivatives not designated as |
|
|
|
|
|
Amount Hedged |
|
|
Maturity Date |
|
(Loss) Recognized |
|
Income on Derivative |
|
hedging instruments under FASB |
|
Nature of Hedged |
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
|
|
|
|
|
|
|
in Income on |
|
|
|
|
|
|
|
|
|
Fiscal |
|
ASC 815-20 |
|
Transaction |
|
Instrument |
|
Fiscal 2011 |
|
|
2010 |
|
|
Fiscal 2009 |
|
|
Fiscal 2011 |
|
Fiscal 2010 |
|
Fiscal 2009 |
|
Derivative |
|
Fiscal 2011 |
|
|
Fiscal 2010 |
|
|
2009 |
|
Foreign exchange
contracts (e) |
|
Purchases of inventory |
|
Forward contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,032 |
|
|
|
|
|
|
August 2010 |
|
other loss/income |
|
$ |
|
|
|
$ |
(142 |
) |
|
$ |
(2,865 |
) |
Foreign exchange
contracts (f) |
|
Intercompany sales of inventory |
|
Forward contracts |
|
|
3,264 |
|
|
|
12,635 |
|
|
|
11,395 |
|
|
July 2012 |
|
April 2012 |
|
December 2010 |
|
other loss/income |
|
|
|
|
|
|
(232 |
) |
|
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts (g) |
|
Minimum royalty and advertising costs |
|
Forward contracts |
|
|
10,000 |
|
|
|
11,250 |
|
|
|
10,000 |
|
|
October 2012 |
|
January 2012 |
|
October 2010 |
|
other loss/income |
|
|
48 |
|
|
|
185 |
|
|
|
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
January 2010 |
|
other loss/income |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts |
|
Intercompany loans |
|
Forward contracts |
|
|
34,500 |
|
|
|
20,000 |
|
|
|
|
|
|
August 2012 |
|
November 2011 |
|
|
|
other loss/income |
|
|
2,001 |
|
|
|
1,007 |
|
|
|
|
|
Foreign exchange
contracts |
|
Intercompany loans |
|
Zero-cost collars |
|
|
|
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
June 2010 |
|
other loss/income |
|
|
|
|
|
|
|
|
|
|
258 |
|
Foreign exchange
contracts |
|
Intercompany loans |
|
Forward contracts |
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
July 2012 |
|
|
|
|
|
other loss/income |
|
|
(463 |
) |
|
|
|
|
|
|
|
|
Foreign exchange
contracts |
|
Intercompany loans |
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other loss/income |
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
|
|
|
|
|
|
|
|
26,000 |
|
|
|
|
|
|
June 2010 |
|
other loss/income |
|
|
|
|
|
|
1,511 |
|
|
|
1,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
30,000 |
|
|
|
31,000 |
|
|
|
|
|
|
August 2012 |
|
November 2011 |
|
|
|
selling, general and administrative |
|
|
(820 |
) |
|
|
534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
|
|
|
|
|
|
|
|
14,500 |
|
|
|
|
|
|
May 2010 |
|
selling, general and administrative |
|
|
|
|
|
|
(232 |
) |
|
|
2,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
921 |
|
|
$ |
2,631 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
|
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. |
|
(f) |
|
Forward contracts used to offset 50% of Euro-denominated
intercompany sales by a subsidiary whose functional currency is
the Euro. |
|
(g) |
|
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. |
A reconciliation of the balance of Accumulated Other Comprehensive Income during Fiscal
2011, Fiscal 2010 and Fiscal 2009 related to cash flow hedges of foreign exchange forward contracts
is as follows:
|
|
|
|
|
Balance January 3, 2009 |
|
$ |
(328 |
) |
Derivative losses recognized |
|
|
(2,342 |
) |
Amount amortized to earnings |
|
|
1,256 |
|
|
|
|
|
Balance before tax effect |
|
|
(1,414 |
) |
Tax effect |
|
|
387 |
|
|
|
|
|
Balance January 2, 2010, net of tax |
|
|
(1,027 |
) |
Derivative losses recognized |
|
|
(1,771 |
) |
Losses amortized to earnings |
|
|
467 |
|
|
|
|
|
Balance before tax effect |
|
|
(2,331 |
) |
Tax effect |
|
|
484 |
|
|
|
|
|
Balance January 1, 2011, net of tax |
|
|
(1,847 |
) |
Derivative losses recognized |
|
|
(7,825 |
) |
Losses amortized to earnings |
|
|
3,676 |
|
|
|
|
|
Balance before tax effect |
|
|
(5,996 |
) |
Tax effect |
|
|
2,059 |
|
|
|
|
|
Balance December 31, 2011, net of tax |
|
$ |
(3,937 |
) |
|
|
|
|
During the twelve months following December 31, 2011, the net amount of gains that were
reported in Other Comprehensive Income at that date that are estimated to be amortized into
earnings is $1,197. During Fiscal 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 or within two months
after that time. Therefore, no amount of gains or losses was reclassified into earnings during
Fiscal 2011 as a result of the discontinuance of those cash flow hedges.
F-57
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
Note 18Cash Flow Information
The following table sets forth supplemental cash flow information for Fiscal 2011, Fiscal 2010
and Fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
|
|
|
|
|
2011 |
|
|
Fiscal 2010 |
|
|
Fiscal 2009 |
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
13,278 |
|
|
$ |
13,739 |
|
|
$ |
22,792 |
|
Interest income |
|
|
(1,961 |
) |
|
|
(979 |
) |
|
|
(1,964 |
) |
Income taxes, net of refunds received |
|
|
65,750 |
|
|
|
36,924 |
|
|
|
29,680 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable for purchase of fixed assets |
|
|
7,670 |
|
|
|
7,007 |
|
|
|
3,020 |
|
Note 19Legal Matters
Lejaby Claims: On August 18, 2009, Palmers Textil AG (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). On February
13, 2012, Le Tribunal de Commerce de Paris dismissed the Palmers Suit and awarded the Company
100 in costs. The judgment is not enforceable until 90 days after its entry, pending the
expiration of the appeal period. 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.
At December 31, 2011, the Company recorded a reserve of
approximately $3,900 in connection with
these matters. In addition, as of December 31, 2011, the Company had a loan receivable recorded in
Other assets on the Companys Consolidated Balance Sheets of $13,600 from Palmers related to the
Companys sale of its Lejaby business to Palmers on March 10, 2008. The Company believes that its
loan receivable from Palmers is valid and collectible.
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.
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 20 Quarterly Results of Operations (Unaudited)
The following tables contain selected financial data for each quarter of Fiscal 2011 and
Fiscal 2010. The Company believes that the following information reflects all normal recurring
adjustments necessary for a fair presentation of the information for each quarter of Fiscal 2011
and Fiscal 2010. The operating results for any period are not necessarily indicative of results for
any future periods.
F-58
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Currencies in thousands, excluding share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
|
|
|
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
First Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
Net revenues |
|
$ |
662,161 |
|
|
$ |
591,387 |
|
|
$ |
645,121 |
|
|
$ |
614,719 |
|
Gross profit |
|
|
295,138 |
|
|
|
258,270 |
|
|
|
279,709 |
|
|
|
267,825 |
|
Income
(loss) from continuing operations before non-controlling interest |
|
|
44,532 |
|
|
|
45,566 |
|
|
|
48,629 |
|
|
|
(6,732 |
)(b) |
Loss from discontinued operations, net of taxes |
|
|
(501 |
) |
|
|
(63 |
) |
|
|
(4,177 |
) |
|
|
(61 |
) |
Net income (loss) |
|
|
44,031 |
|
|
|
45,503 |
|
|
|
44,611 |
|
|
|
(6,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
1.00 |
|
|
$ |
1.03 |
|
|
$ |
1.15 |
|
|
$ |
(0.11 |
) |
Loss from discontinued operations |
|
|
(0.01 |
) |
|
|
|
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.99 |
|
|
$ |
1.03 |
|
|
$ |
1.05 |
|
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.98 |
|
|
$ |
1.01 |
|
|
$ |
1.13 |
|
|
$ |
(0.11 |
) |
Loss from discontinued operatio ns |
|
|
(0.01 |
) |
|
|
|
|
|
|
(0.10 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.97 |
|
|
$ |
1.01 |
|
|
$ |
1.03 |
|
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
|
|
|
|
|
Second |
|
|
Third Quarter |
|
|
Fourth |
|
|
|
First Quarter |
|
|
Quarter |
|
|
(a) |
|
|
Quarter (a) |
|
Net revenues |
|
$ |
588,164 |
|
|
$ |
519,334 |
|
|
$ |
596,761 |
|
|
$ |
591,492 |
|
Gross profit |
|
|
267,118 |
|
|
|
229,742 |
|
|
|
269,025 |
|
|
|
254,078 |
|
Income from continuing operations before non-controlling interest |
|
|
48,312 |
|
|
|
30,027 |
|
|
|
41,440 |
|
|
|
28,019 |
|
Income (Loss) from discontinued operations, net of taxes |
|
|
(337 |
) |
|
|
(93 |
) |
|
|
57 |
|
|
|
(8,844 |
) |
Net income |
|
|
47,975 |
|
|
|
29,934 |
|
|
|
41,497 |
|
|
|
19,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.05 |
|
|
$ |
0.67 |
|
|
$ |
0.92 |
|
|
$ |
0.62 |
|
Loss from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.04 |
|
|
$ |
0.66 |
|
|
$ |
0.92 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.03 |
|
|
$ |
0.65 |
|
|
$ |
0.90 |
|
|
$ |
0.61 |
|
Loss from discontinued operations |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.02 |
|
|
$ |
0.65 |
|
|
$ |
0.90 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the third and fourth quarters of Fiscal 2010, the Company recorded
charges of $1,700 and $1,000, respectively, in its provision for income taxes associated
with the correction of an error in the 2006 through 2009 income tax provisions as a
consequence of the loss of a credit related to prior year tax overpayments caused by the
delayed filing of tax returns in a U.S. state taxing jurisdiction. In addition, during
the third and fourth quarters of Fiscal 2010, the Company recorded a charge of $1,269 and
a gain of $269, respectively, related to the correction of amounts recorded in prior
periods for franchise taxes. During the fourth quarter of Fiscal 2010, the Company also
recorded a charge of $8,000 related to its settlement of the OP Action (see Note 3 of
Notes to Consolidated Financial Statements Dispositions and Discontinued Operations). |
|
|
|
(b) |
|
During the fourth quarter of Fiscal 2011, the Company recorded a non-cash
impairment charge of
$35,225 related to its license to operate its bridge business. See Note 4-
Restructuring Expense and Other Exit Costs of Notes to Consolidated Financial Statements.
|
F-59
SCHEDULE II
SCHEDULE II
THE WARNACO GROUP, INC.
VALUATION & QUALIFYING ACCOUNTS & RESERVES
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Cost and |
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning of |
|
|
Expenses |
|
|
Other Additions / |
|
|
|
|
|
End of |
|
Description |
|
Period |
|
|
(1) |
|
|
Reclassification |
|
|
Deductions |
|
|
Period |
|
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable allowances |
|
$ |
87,375 |
|
|
$ |
242,755 |
|
|
$ |
|
(4) |
|
$ |
(240,148 |
)(2) |
|
$ |
89,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance |
|
$ |
15,030 |
|
|
$ |
3,552 |
|
|
$ |
(1,127 |
)(3) |
|
$ |
|
|
|
$ |
17,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable allowances |
|
$ |
89,982 |
|
|
$ |
197,388 |
|
|
$ |
|
(4) |
|
$ |
(191,731 |
)(2) |
|
$ |
95,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance |
|
$ |
17,455 |
|
|
$ |
394 |
|
|
$ |
664 |
(3) |
|
$ |
|
|
|
$ |
18,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable allowances |
|
$ |
95,639 |
|
|
$ |
218,646 |
|
|
$ |
|
(4) |
|
$ |
(219,546 |
)(2) |
|
$ |
94,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax valuation allowance |
|
$ |
18,513 |
|
|
$ |
(634 |
) |
|
$ |
96 |
(3) |
|
$ |
|
|
|
$ |
17,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
With respect to receivable allowances, includes bad debts, cash discounts, customer
allowances and sales returns. |
|
(2) |
|
Credits issued and amounts written-off, net of recoveries. |
|
(3) |
|
Relates primarily to adjustments to the Companys valuation allowance resulting from changes
in its deferred taxes due to:
(a) basis differences resulting from the filing of the Companys U.S. corporate income tax
return,(b) finalized assessments of the Companys foreign tax returns by local taxing
authorities, (c) the realization of certain deferred tax assets that existed as of the date of
the Companys emergence from bankruptcy and
(d) currency translation adjustments. |
|
(4) |
|
Amounts include reserve balances for discontinued operations. |
A-1