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0000950136-05-007019.txt : 20051108
0000950136-05-007019.hdr.sgml : 20051108
20051108145623
ACCESSION NUMBER: 0000950136-05-007019
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20051001
FILED AS OF DATE: 20051108
DATE AS OF CHANGE: 20051108
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: WARNACO GROUP INC /DE/
CENTRAL INDEX KEY: 0000801351
STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', CHILDREN'S & INFANTS' UNDERGARMENTS [2340]
IRS NUMBER: 954032739
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0103
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-10857
FILM NUMBER: 051185996
BUSINESS ADDRESS:
STREET 1: 90 PARK AVE
STREET 2: 26TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10016
BUSINESS PHONE: 2126611300
MAIL ADDRESS:
STREET 1: 90 PARK AVENUE
STREET 2: 26TH FLOOR
CITY: NEW YORK
STATE: NY
ZIP: 10016
FORMER COMPANY:
FORMER CONFORMED NAME: W ACQUISITION CORP /DE/
DATE OF NAME CHANGE: 19861117
10-Q
1
file001.htm
FORM 10-Q
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE
QUARTERLY PERIOD ENDED OCTOBER 1, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10857
THE WARNACO GROUP,
INC.
(Exact name of registrant as specified in its
charter)
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Delaware |
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95-4032739 |
(State or other jurisdiction
of incorporation or
organization) |
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(I.R.S.
Employer Identification No.) |
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501 Seventh
Avenue
New York, New York 10018
(Address of
registrant's principal executive offices)
Registrant's telephone number, including area code: (212)
287-8000
Indicate by check
mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.
Yes
No.
Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange
Act).
Yes
No.
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act).
Yes
No.
Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes
No.
The number of outstanding shares of
the registrant's common stock, par value $0.01 per share, as of
October 28, 2005 is as follows:
46,638,799.
THE WARNACO
GROUP, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
OCTOBER 1, 2005
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PAGE
NUMBER |
PART I — FINANCIAL
INFORMATION |
|
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|
|
Item
1. |
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Financial
Statements: |
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|
|
|
|
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Consolidated Condensed
Balance Sheets as of October 1, 2005, January 1, 2005 and October 2,
2004 (as restated) |
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|
1 |
|
|
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Consolidated
Condensed Statements of Operations for the Three Months Ended October
1, 2005, for the Three Months Ended October 2, 2004, for the Nine
Months Ended October 1, 2005 and for the Nine Months Ended October 2,
2004 |
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|
2 |
|
|
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Consolidated Condensed
Statements of Cash Flows for the Nine Months Ended October 1, 2005 and
for the Nine Months Ended October 2, 2004 (as
restated) |
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|
4 |
|
|
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Notes to Consolidated
Condensed Financial Statements |
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|
5 |
|
Item
2. |
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Management's Discussion and Analysis of Financial
Condition and Results of Operations |
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|
33 |
|
Item
3. |
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Quantitative and Qualitative Disclosures About Market
Risk |
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|
55 |
|
Item 4. |
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Controls and
Procedures |
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|
56 |
|
|
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|
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|
PART II — OTHER
INFORMATION |
|
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|
Item
1. |
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Legal Proceedings |
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|
57 |
|
Item
2. |
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Unregistered Sales of Equity Securities and Use of
Proceeds |
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|
57 |
|
Item 3. |
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Defaults Upon
Senior Securities |
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|
57 |
|
Item
4. |
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Submission of Matters to a Vote of Security
Holders |
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|
57 |
|
Item 5. |
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Other
Information |
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|
57 |
|
Item
6. |
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Exhibits |
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|
57 |
|
SIGNATURES |
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|
60 |
|
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PART I
FINANCIAL
INFORMATION
Item 1. Financial Statements.
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED
BALANCE SHEETS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
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|
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October
1, 2005 |
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January 1, 2005 |
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October 2,
2004 |
|
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|
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|
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(As
Restated) |
ASSETS |
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|
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|
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(See Note
18) |
Current
assets: |
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|
|
|
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|
|
|
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|
|
|
Cash
and cash
equivalents |
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$ |
152,011 |
|
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$ |
65,588 |
|
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$ |
75,957 |
|
Accounts
receivable, less reserves of $52,671, $54,943 and $50,940 as of October
1, 2005, January 1, 2005 and October 2, 2004,
respectively |
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|
212,331 |
|
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|
219,805 |
|
![](spacer.gif) |
|
212,268 |
|
Inventories |
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|
312,637 |
|
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|
335,651 |
|
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|
304,560 |
|
Assets
of discontinued
operations |
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|
— |
|
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|
2,618 |
|
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|
2,902 |
|
Prepaid
expenses and other current assets (including deferred income taxes of
$1,076, $727 and $9,011 as of October 1, 2005, January 1, 2005 and
October 2, 2004,
respectively) |
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|
44,364 |
|
![](spacer.gif) |
|
45,411 |
|
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|
62,347 |
|
Total
current
assets |
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|
721,343 |
|
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|
669,073 |
|
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|
658,034 |
|
|
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|
|
|
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|
|
|
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|
|
|
Property,
plant and equipment,
net |
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|
114,037 |
|
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|
106,937 |
|
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|
99,517 |
|
|
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|
|
|
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|
|
|
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|
|
|
Other
assets: |
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|
|
|
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|
|
|
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|
|
|
Licenses,
trademarks and other intangible assets,
net |
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|
303,844 |
|
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|
305,505 |
|
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|
300,043 |
|
Goodwill |
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|
38,946 |
|
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|
43,671 |
|
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|
69,009 |
|
Other
assets (including deferred income taxes of $5,508, $5,568 and $1,516 as
of October 1, 2005, January 1, 2005 and October 2, 2004,
respectively) |
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|
21,875 |
|
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|
28,718 |
|
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|
28,177 |
|
Total
other
assets |
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|
364,665 |
|
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|
377,894 |
|
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|
397,229 |
|
Total
assets |
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$ |
1,200,045 |
|
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$ |
1,153,904 |
|
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$ |
1,154,780 |
|
|
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|
|
|
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|
|
|
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|
|
|
LIABILITIES
AND STOCKHOLDERS'
EQUITY |
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|
|
|
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|
|
|
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|
|
|
Current
liabilities: |
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|
|
|
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|
|
|
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|
|
|
Accounts
payable |
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$ |
106,563 |
|
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$ |
122,418 |
|
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$ |
131,166 |
|
Accrued
liabilities |
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|
99,427 |
|
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|
88,644 |
|
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|
91,470 |
|
Accrued
income taxes payable (including deferred income taxes of $2,141, $1,746
and $232 as of October 1, 2005, January 1, 2005 and October 2, 2004,
respectively) |
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|
24,274 |
|
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|
22,336 |
|
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|
17,948 |
|
Liabilities
of discontinued
operations |
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|
— |
|
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|
1,450 |
|
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|
1,565 |
|
Total
current
liabilities |
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|
230,264 |
|
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|
234,848 |
|
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|
242,149 |
|
Long-term
debt |
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|
210,503 |
|
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|
210,799 |
|
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|
211,355 |
|
Other
long-term liabilities (including deferred income taxes of $81,121,
$67,744 and $86,628 as of October 1, 2005, January 1, 2005 and
October 2, 2004,
respectively) |
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|
139,490 |
|
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|
131,308 |
|
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|
151,952 |
|
Commitments
and contingencies (See Notes 3, 4, 6, 7, 10, 11, 12, 16 and
19) |
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|
|
|
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|
|
|
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|
|
|
Stockholders'
equity: |
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|
|
|
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|
|
|
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|
|
|
Preferred
stock (See Note
13) |
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|
— |
|
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|
— |
|
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|
— |
|
Common
stock: $0.01 par value, 112,500,000 shares authorized, 46,080,038,
45,655,515 and 45,630,515 issued as of October 1, 2005, January 1,
2005, and October 2, 2004,
respectively |
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|
461 |
|
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|
456 |
|
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|
456 |
|
Additional
paid-in
capital |
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|
529,661 |
|
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|
518,591 |
|
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|
517,232 |
|
Accumulated
other comprehensive
income |
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|
5,608 |
|
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|
15,561 |
|
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|
6,259 |
|
Retained
earnings |
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|
84,981 |
|
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|
42,354 |
|
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|
26,108 |
|
Treasury
stock, at cost, 37,034, 638 and 34,955 shares as of October 1, 2005,
January 1, 2005 and October 2, 2004,
respectively |
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|
(923 |
) |
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|
(13 |
) |
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|
(731 |
) |
Total
stockholders'
equity |
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|
619,788 |
|
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|
576,949 |
|
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|
549,324 |
|
Total
liabilities and stockholders'
equity |
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$ |
1,200,045 |
|
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$ |
1,153,904 |
|
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$ |
1,154,780 |
|
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See
Notes to Consolidated Condensed Financial Statements.
1
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in
thousands, excluding per share amounts)
(Unaudited)
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|
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For
the Three Months
Ended |
|
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October 1,
2005 |
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October 2, 2004 |
Net
revenues |
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$ |
327,651 |
|
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$ |
324,434 |
|
Cost of
goods
sold |
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|
214,986 |
|
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|
221,761 |
|
Gross
profit |
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|
112,665 |
|
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|
102,673 |
|
Selling,
general and administrative
expenses |
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|
99,985 |
|
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|
94,134 |
|
Pension
expense |
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|
200 |
|
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|
330 |
|
Restructuring
expense
(income) |
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|
(1,251 |
) |
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|
403 |
|
Operating
income |
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|
13,731 |
|
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|
7,806 |
|
Other
income |
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|
(60 |
) |
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|
(66 |
) |
Interest expense,
net |
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|
4,145 |
|
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|
5,018 |
|
Income
from continuing operations before provision for income
taxes |
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|
9,646 |
|
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|
2,854 |
|
Provision for
income
taxes |
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|
2,669 |
|
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|
988 |
|
|
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|
|
|
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|
|
|
Income
from continuing
operations |
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|
6,977 |
|
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|
1,866 |
|
Loss from
discontinued operations, net of income
taxes |
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|
(29 |
) |
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|
(262 |
) |
Net
income |
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$ |
6,948 |
|
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$ |
1,604 |
|
|
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|
|
|
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|
|
|
Basic
and diluted income per common
share: |
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|
|
|
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|
|
|
Income
from continuing
operations |
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$ |
0.15 |
|
![](spacer.gif) |
$ |
0.04 |
|
Loss from
discontinued
operations |
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|
— |
|
![](spacer.gif) |
|
(0.01 |
) |
Net
income |
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$ |
0.15 |
|
![](spacer.gif) |
$ |
0.03 |
|
Weighted
average number of shares outstanding used in computing income per
common
share: |
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|
|
|
![](spacer.gif) |
|
|
|
Basic |
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|
45,913,635 |
|
![](spacer.gif) |
|
45,465,525 |
|
Diluted |
![](spacer.gif) |
|
46,835,235 |
|
![](spacer.gif) |
|
46,156,573 |
|
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See
Notes to Consolidated Condensed Financial Statements.
2
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in
thousands, excluding per share amounts)
(Unaudited)
![](spacer.gif)
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|
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For
the Nine Months
Ended |
|
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October 1,
2005 |
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October 2, 2004 |
Net
revenues |
![](spacer.gif) |
$ |
1,141,871 |
|
![](spacer.gif) |
$ |
1,049,764 |
|
Cost
of goods
sold |
![](spacer.gif) |
|
759,227 |
|
![](spacer.gif) |
|
702,162 |
|
Gross
profit |
![](spacer.gif) |
|
382,644 |
|
![](spacer.gif) |
|
347,602 |
|
Selling,
general and administrative
expenses |
![](spacer.gif) |
|
300,352 |
|
![](spacer.gif) |
|
278,974 |
|
Pension
expense |
![](spacer.gif) |
|
600 |
|
![](spacer.gif) |
|
990 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
(524 |
) |
![](spacer.gif) |
|
3,866 |
|
Operating
income |
![](spacer.gif) |
|
82,216 |
|
![](spacer.gif) |
|
63,772 |
|
Other (income)
loss |
![](spacer.gif) |
|
731 |
|
![](spacer.gif) |
|
(2,027 |
) |
Interest expense,
net |
![](spacer.gif) |
|
13,703 |
|
![](spacer.gif) |
|
15,168 |
|
Income
from continuing operations before provision for income
taxes |
![](spacer.gif) |
|
67,782 |
|
![](spacer.gif) |
|
50,631 |
|
Provision for
income
taxes |
![](spacer.gif) |
|
24,998 |
|
![](spacer.gif) |
|
20,633 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
from continuing
operations |
![](spacer.gif) |
|
42,784 |
|
![](spacer.gif) |
|
29,998 |
|
Loss from
discontinued operations, net of income
taxes |
![](spacer.gif) |
|
(157 |
) |
![](spacer.gif) |
|
(3,728 |
) |
Net
income |
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
$ |
26,270 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Basic
income per common
share: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
from continuing
operations |
![](spacer.gif) |
$ |
0.93 |
|
![](spacer.gif) |
$ |
0.66 |
|
Loss from
discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(0.08 |
) |
Net
income |
![](spacer.gif) |
$ |
0.93 |
|
![](spacer.gif) |
$ |
0.58 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Diluted
income per common share: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
from continuing
operations |
![](spacer.gif) |
$ |
0.92 |
|
![](spacer.gif) |
$ |
0.65 |
|
Loss from
discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(0.08 |
) |
Net
income |
![](spacer.gif) |
$ |
0.92 |
|
![](spacer.gif) |
$ |
0.57 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Weighted
average number of shares outstanding used in computing income per
common
share: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Basic |
![](spacer.gif) |
|
45,805,562 |
|
![](spacer.gif) |
|
45,351,922 |
|
Diluted |
![](spacer.gif) |
|
46,562,167 |
|
![](spacer.gif) |
|
45,976,251 |
|
![](spacer.gif) |
See
Notes to Consolidated Condensed Financial Statements.
3
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in
thousands)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
|
![](spacer.gif) |
|
![](spacer.gif) |
(As
Restated) |
|
![](spacer.gif) |
|
![](spacer.gif) |
(See Note
18) |
Cash flows from operating
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
income |
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
$ |
26,270 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Loss
from discontinued
operations |
![](spacer.gif) |
|
157 |
|
![](spacer.gif) |
|
3,728 |
|
Depreciation
and
amortization |
![](spacer.gif) |
|
24,144 |
|
![](spacer.gif) |
|
23,068 |
|
Provision
for uncollectible non-trade
receivable |
![](spacer.gif) |
|
1,230 |
|
![](spacer.gif) |
|
— |
|
Stock
compensation |
![](spacer.gif) |
|
8,366 |
|
![](spacer.gif) |
|
5,175 |
|
Amortization
of deferred financing
costs |
![](spacer.gif) |
|
1,705 |
|
![](spacer.gif) |
|
1,701 |
|
Provision for
receivable
allowances |
![](spacer.gif) |
|
121,655 |
|
![](spacer.gif) |
|
105,000 |
|
Provision
for inventory
writedowns |
![](spacer.gif) |
|
23,089 |
|
![](spacer.gif) |
|
21,097 |
|
Provision
for deferred income
taxes |
![](spacer.gif) |
|
13,809 |
|
![](spacer.gif) |
|
13,059 |
|
Foreign
exchange |
![](spacer.gif) |
|
(5,344 |
) |
![](spacer.gif) |
|
(1,661 |
) |
Other |
![](spacer.gif) |
|
974 |
|
![](spacer.gif) |
|
507 |
|
Landlord
reimbursements |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
5,283 |
|
Change
in operating assets and
liabilities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Accounts
receivable |
![](spacer.gif) |
|
(114,153 |
) |
![](spacer.gif) |
|
(106,136 |
) |
Inventories |
![](spacer.gif) |
|
(75 |
) |
![](spacer.gif) |
|
(45,818 |
) |
Prepaid
expenses and other
assets |
![](spacer.gif) |
|
2,238 |
|
![](spacer.gif) |
|
(7,018 |
) |
Accounts
payable, accrued expenses and other
liabilities |
![](spacer.gif) |
|
(14,053 |
) |
![](spacer.gif) |
|
12,935 |
|
Accrued
income
taxes |
![](spacer.gif) |
|
7,371 |
|
![](spacer.gif) |
|
3,214 |
|
Net
cash provided by operating activities from continuing
operations |
![](spacer.gif) |
|
113,740 |
|
![](spacer.gif) |
|
60,404 |
|
Net
cash provided by (used in) operating activities from discontinued
operations |
![](spacer.gif) |
|
1,069 |
|
![](spacer.gif) |
|
(4,036 |
) |
Net
cash provided by operating
activities |
![](spacer.gif) |
|
114,809 |
|
![](spacer.gif) |
|
56,368 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash
flows from investing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Proceeds from disposal
of assets and collection of notes
receivable |
![](spacer.gif) |
|
4,711 |
|
![](spacer.gif) |
|
5,710 |
|
Purchase of
property, plant &
equipment |
![](spacer.gif) |
|
(25,584 |
) |
![](spacer.gif) |
|
(15,327 |
) |
Purchase
of intangible
asset |
![](spacer.gif) |
|
(4,333 |
) |
![](spacer.gif) |
|
— |
|
Proceeds from
sale of business unit, net of cash
balances |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
15,179 |
|
Business
acquisitions |
![](spacer.gif) |
|
(745 |
) |
![](spacer.gif) |
|
(40,018 |
) |
Net
cash used in investing activities from continuing
operations |
![](spacer.gif) |
|
(25,951 |
) |
![](spacer.gif) |
|
(34,456 |
) |
Net
cash provided by investing activities from discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,137 |
|
Net
cash used in investing
activities |
![](spacer.gif) |
|
(25,951 |
) |
![](spacer.gif) |
|
(33,319 |
) |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash
flows from financing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Payment of debt
assumed on business
acquisition |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,000 |
) |
Payment
of deferred financing
costs |
![](spacer.gif) |
|
(1,467 |
) |
![](spacer.gif) |
|
(705 |
) |
Proceeds
from the exercise of employee stock
options |
![](spacer.gif) |
|
2,299 |
|
![](spacer.gif) |
|
2,429 |
|
Other |
![](spacer.gif) |
|
(1,206 |
) |
![](spacer.gif) |
|
(274 |
) |
Net
cash provided by (used in) financing activities from continuing
operations |
![](spacer.gif) |
|
(374 |
) |
![](spacer.gif) |
|
450 |
|
Net cash used
in financing activities from discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Net
cash provided by (used in) financing
activities |
![](spacer.gif) |
|
(374 |
) |
![](spacer.gif) |
|
450 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Translation
adjustments |
![](spacer.gif) |
|
(2,061 |
) |
![](spacer.gif) |
|
(999 |
) |
Increase
in cash and cash
equivalents |
![](spacer.gif) |
|
86,423 |
|
![](spacer.gif) |
|
22,500 |
|
Cash and
cash equivalents at beginning of
period |
![](spacer.gif) |
|
65,588 |
|
![](spacer.gif) |
|
53,457 |
|
Cash
and cash equivalents at end of
period |
![](spacer.gif) |
$ |
152,011 |
|
![](spacer.gif) |
$ |
75,957 |
|
![](spacer.gif) |
See
Notes to Consolidated Condensed Financial
Statements.
4
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Note
1—Nature of Operations and Basis of Presentation
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.
Basis of Consolidation
and Presentation: The accompanying unaudited consolidated
condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America for interim financial statements. In the opinion of management,
all adjustments (all of which were of a normal recurring nature)
considered necessary for a fair presentation have been included. The
results for interim periods are not necessarily indicative of results
which may be expected for any other interim period or for the full
year. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended January 1, 2005, as filed
with the Securities and Exchange Commission (the
"SEC") on March 17, 2005.
All
inter-company accounts have been eliminated in consolidation.
Periods Covered: The period from July 3, 2005 to October
1, 2005 (the "Three Months Ended October 1,
2005") and the period July 4, 2004 to October 2, 2004 (the
"Three Months Ended October 2, 2004") each
contained thirteen weeks of operations. The period from January 2, 2005
to October 1, 2005 (the "Nine Months Ended October 1,
2005") and the period January 4, 2004 to October 2, 2004
(the "Nine Months Ended October 2, 2004")
each contained thirty-nine weeks of operations.
Reclassifications: Certain prior period balance sheet
items have been reclassified to conform to the current period
presentation.
Financial Instruments: During the Nine
Months Ended October 1, 2005, the Company entered into foreign currency
exchange contracts which mature through March 2006 and are designed to
fix the number of euros required to satisfy the first one-third of
dollar denominated purchases of inventory by certain of the
Company's European subsidiaries. See Note 10. The foreign
currency exchange contracts are designated as cash flow hedges. Changes
in the fair values of the aforementioned cash flow hedges are deferred
and recorded as a component of other comprehensive income until the
associated inventory is sold, at which time the deferred gains or
losses are recorded in cost of goods sold. The Company also utilizes
interest rate swaps to convert a portion of the interest obligation
related to its long-term debt from a fixed rate to floating rates. See
Note 12. A number of international financial institutions are
counterparties to the Company's outstanding letters of credit,
interest rate swap agreements and foreign exchange 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. The Company does not use derivative financial
instruments for speculative or trading purposes.
Recent
Accounting Pronouncements: In December 2004, the Financial
Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004),
Share-Based Payment ("SFAS 123R").
SFAS 123R requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based on
the grant-date fair value of the equity or liability instruments
issued. In addition, liability awards will be remeasured each reporting
period. Compensation cost will be recognized ratably over the period
that an employee provides service in exchange for the award. SFAS 123R
replaces SFAS No. 123, Accounting for
5
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Stock-Based Compensation, and supersedes
Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees. Among other
matters, SFAS 123R requires companies to estimate the forfeiture rate
of stock-based compensation awards. On April 14, 2005, the SEC
announced the adoption of a rule that defers the required effective
date of SFAS 123R. The SEC rule provides that SFAS 123R is now
effective for registrants as of the beginning of the first fiscal year
beginning after June 15, 2005. Effective February 5, 2003, the Company
adopted the fair value method of accounting for stock options for all
options granted by the Company after February 4, 2003 pursuant to the
prospective method provisions of SFAS No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. Since February
5, 2003, the Company has recorded stock-based compensation expense
based on actual forfeitures of stock-based compensation awards. The
Company is in the process of evaluating the effect of SFAS 123R on its
consolidated financial statements.
In June 2005, the FASB issued
SFAS No. 154, Accounting Changes and Error Corrections
("SFAS 154"). SFAS 154 replaces APB Opinion
No. 20, Accounting Changes and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS 154
requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented
reflecting the new accounting principle as if it had been adopted at
the beginning of the earliest period presented. SFAS 154 also requires
that a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for prospectively as a change in
estimate and that the correction of errors in previously issued
financial statements be termed a restatement. SFAS 154 is effective for
accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005.
In June 2005, the FASB issued
Emerging Issue Task Force Abstract No. 05-6, Determining the
Amortization Period for Leasehold Improvements Purchased after Lease
Inception or Acquired in a Business Combination ("EITF
05-6"). EITF 05-6 requires that leasehold improvements
acquired in a business combination or purchased subsequent to the
inception of a lease be amortized over the shorter of the useful life
of the assets or a term that includes the remaining lease term and
renewals that are deemed to be reasonably assured at the date of
acquisition or purchase. EITF 05-6 is effective for leasehold
improvements that are purchased or acquired in reporting periods
beginning after June 29, 2005. Adoption of EITF 05-6 did not have an
effect on the Company's consolidated financial statements.
Note 2—Stock-Based Compensation
At the annual meeting
of stockholders of the Company held on May 23, 2005, the
Company's stockholders approved The Warnaco Group, Inc. 2005
Stock Incentive Plan (the "2005 Stock Incentive
Plan") for directors, executive officers and other key
employees and consultants of the Company and its affiliates.
The
2005 Stock Incentive Plan 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. 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 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
aggregate number of shares that may be issued under the 2005 Stock
Incentive Plan is 3,000,000 shares of common stock; provided, however,
that the aggregate number of shares that may be subject to restricted
stock awards and other stock-based awards shall be
6
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
750,000. The Compensation Committee of the
Company's Board of Directors is responsible for administering the
2005 Stock Incentive Plan. The Company has reserved 3,000,000 shares of
its common stock for stock-based compensation awards granted pursuant
to the 2005 Stock Incentive Plan.
Pursuant to the 2005 Stock
Incentive Plan, during the Nine Months Ended October 1, 2005, the
Company granted 952,100 stock options to employees and 12,100 stock
options were cancelled. In addition, the Company granted 169,736 shares
of restricted stock to employees. Substantially all of these equity
awards will vest annually with respect to one-third of the shares or
options, as applicable, on each anniversary of the grant date beginning
in 2006 provided that the grantee is employed by the Company on each
such anniversary date.
Pursuant to The Warnaco Group, Inc. 2003
Stock Incentive Plan (the "2003 Stock Incentive
Plan"), during the Nine Months Ended October 1, 2005, the
Company granted 14,400 stock options to employees and 113,900 stock
options were cancelled. In addition, the Company granted 163,100 shares
of restricted stock to employees and 28,796 shares of restricted stock
were cancelled. Each of these equity awards will vest annually with
respect to one-third of the shares or options, as applicable, on each
anniversary of the grant date beginning in 2006 provided that the
grantee is employed by the Company on each such anniversary.
The
fair values of the stock options were estimated at the date of grant
using a Black-Scholes-Merton option pricing model with the following
assumptions:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
Weighted
average risk free rate of
return |
![](spacer.gif) |
3.99% |
![](spacer.gif) |
3.41% |
![](spacer.gif) |
3.84% |
![](spacer.gif) |
3.38% |
Dividend
yield
(a) |
![](spacer.gif) |
— |
![](spacer.gif) |
— |
![](spacer.gif) |
— |
![](spacer.gif) |
— |
Expected
volatility of the market price of the Company's common
stock |
![](spacer.gif) |
30.0% |
![](spacer.gif) |
35.0% |
![](spacer.gif) |
30.0% |
![](spacer.gif) |
35.0% |
Expected
option life |
![](spacer.gif) |
6 years |
![](spacer.gif) |
5 years |
![](spacer.gif) |
6 years |
![](spacer.gif) |
5
years |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
terms of the Company's $175,000 Senior Secured Revolving Credit
Facility, as amended (the "Revolving Credit
Facility") and the terms of the indenture governing its
8 7/8% Senior Notes due 2013 (the
"Senior Notes") limit the Company's
ability to make certain payments, including dividends, and require the
Company to meet certain financial covenants. The Company has not paid
dividends on its common stock in any of the last three fiscal years.
See Note 12. |
7
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
A summary of stock-based compensation
expense is as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October
2, 2004 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Stock-based
compensation expense before income
taxes: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Stock
options |
![](spacer.gif) |
$ |
2,164 |
|
![](spacer.gif) |
$ |
1,267 |
|
![](spacer.gif) |
$ |
5,106 |
|
![](spacer.gif) |
$ |
3,222 |
|
Restricted
stock
grants |
![](spacer.gif) |
|
1,273 |
|
![](spacer.gif) |
|
774 |
|
![](spacer.gif) |
|
3,260 |
|
![](spacer.gif) |
|
1,953 |
|
Total |
![](spacer.gif) |
|
3,437 |
|
![](spacer.gif) |
|
2,041 |
|
![](spacer.gif) |
|
8,366 |
|
![](spacer.gif) |
|
5,175 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
tax
benefit: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Stock
options |
![](spacer.gif) |
|
809 |
|
![](spacer.gif) |
|
519 |
|
![](spacer.gif) |
|
1,860 |
|
![](spacer.gif) |
|
1,321 |
|
Restricted
stock
grants |
![](spacer.gif) |
|
477 |
|
![](spacer.gif) |
|
318 |
|
![](spacer.gif) |
|
1,187 |
|
![](spacer.gif) |
|
801 |
|
Total |
![](spacer.gif) |
|
1,286 |
|
![](spacer.gif) |
|
837 |
|
![](spacer.gif) |
|
3,047 |
|
![](spacer.gif) |
|
2,122 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Stock-based
compensation expense after income
taxes: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Stock
options |
![](spacer.gif) |
|
1,355 |
|
![](spacer.gif) |
|
748 |
|
![](spacer.gif) |
|
3,246 |
|
![](spacer.gif) |
|
1,901 |
|
Restricted
stock
grants |
![](spacer.gif) |
|
796 |
|
![](spacer.gif) |
|
456 |
|
![](spacer.gif) |
|
2,073 |
|
![](spacer.gif) |
|
1,152 |
|
Total |
![](spacer.gif) |
$ |
2,151 |
|
![](spacer.gif) |
$ |
1,204 |
|
![](spacer.gif) |
$ |
5,319 |
|
![](spacer.gif) |
$ |
3,053 |
|
![](spacer.gif) |
Note
3—Discontinued Operations
As disclosed in its Annual
Report on Form 10-K for the fiscal year ended January 1, 2005, the
Company discontinued certain operations in prior periods. Summarized
operating results for the discontinued operations are as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October
2, 2004 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
revenues |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
897 |
|
![](spacer.gif) |
$ |
222 |
|
![](spacer.gif) |
$ |
14,125 |
|
Loss
before benefit for income
taxes |
![](spacer.gif) |
|
(26 |
) |
![](spacer.gif) |
|
(473 |
) |
![](spacer.gif) |
|
(261 |
) |
![](spacer.gif) |
|
(6,256 |
) |
Provision
(benefit) for income
taxes |
![](spacer.gif) |
|
3 |
|
![](spacer.gif) |
|
(211 |
) |
![](spacer.gif) |
|
(104 |
) |
![](spacer.gif) |
|
(2,528 |
) |
Loss
from discontinued
operations |
![](spacer.gif) |
$ |
(29 |
) |
![](spacer.gif) |
$ |
(262 |
) |
![](spacer.gif) |
$ |
(157 |
) |
![](spacer.gif) |
$ |
(3,728 |
) |
![](spacer.gif) |
8
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Summarized assets and liabilities of the
discontinued operations are presented in the consolidated condensed
balance sheets as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 (a) |
![](spacer.gif) |
October 2, 2004
(b) |
Accounts receivable,
net |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,735 |
|
![](spacer.gif) |
$ |
173 |
|
Inventories |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
40 |
|
![](spacer.gif) |
|
1,008 |
|
Prepaid
expenses and other current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
504 |
|
![](spacer.gif) |
|
903 |
|
Property,
plant and equipment,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
280 |
|
![](spacer.gif) |
|
764 |
|
Intangible
and other
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
59 |
|
![](spacer.gif) |
|
54 |
|
Assets
of discontinued
operations |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
2,618 |
|
![](spacer.gif) |
$ |
2,902 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Accounts
payable |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
130 |
|
![](spacer.gif) |
$ |
92 |
|
Accrued
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,320 |
|
![](spacer.gif) |
|
1,473 |
|
Liabilities
of discontinued
operations |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,450 |
|
![](spacer.gif) |
$ |
1,565 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
Assets
at January 1, 2005 relate to the Warner's® business in
Europe and liabilities at January 1, 2005 relate to the
Warner's business in Europe and the Speedo Authentic
Fitness® retail stores. |
![](spacer.gif) |
![](spacer.gif) |
(b) |
Assets at October 2,
2004 relate to the Warner's business in Europe and
liabilities at October 2, 2004 relate to the Warner's
business in Europe and the Speedo Authentic Fitness retail
stores. |
Note 4—Restructuring Expense (Income)
During the Three Months Ended October 1, 2005 and the Nine Months
Ended October 1, 2005, the Company recorded net gains related to
restructuring items of $1,251 and $524, respectively, related primarily
to the reversal of accruals due to reductions in the estimated amounts
required for employee terminations, partially offset by expenses
incurred in connection with the continuation of activities commenced in
prior periods associated with the closure, consolidation or sale of
certain facilities. During the Three Months Ended October 2, 2004 and
the Nine Months Ended October 2, 2004, the Company incurred
restructuring expense of $403 and $3,866, respectively, primarily
related to the continuation of activities commenced in prior periods
associated with the closure, consolidation or sale of certain
facilities.
9
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
A summary of restructuring expense
(income) is as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
Employee
termination costs and related items
(a) |
![](spacer.gif) |
$ |
(1,397 |
) |
![](spacer.gif) |
$ |
(488 |
) |
![](spacer.gif) |
$ |
(1,322 |
) |
![](spacer.gif) |
$ |
2,042 |
|
Facility
shutdown costs, loss on disposal/write-down of property, plant and
equipment
(b) |
![](spacer.gif) |
|
124 |
|
![](spacer.gif) |
|
891 |
|
![](spacer.gif) |
|
903 |
|
![](spacer.gif) |
|
1,677 |
|
Lease
and contract termination costs
(c) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(130 |
) |
![](spacer.gif) |
|
119 |
|
Legal
and professional
fees |
![](spacer.gif) |
|
22 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
25 |
|
![](spacer.gif) |
|
28 |
|
|
![](spacer.gif) |
$ |
(1,251 |
) |
![](spacer.gif) |
$ |
403 |
|
![](spacer.gif) |
$ |
(524 |
) |
![](spacer.gif) |
$ |
3,866 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash
portion of restructuring
items |
![](spacer.gif) |
$ |
(1,185 |
) |
![](spacer.gif) |
$ |
46 |
|
![](spacer.gif) |
$ |
(1,174 |
) |
![](spacer.gif) |
$ |
3,271 |
|
Non-cash
portion of restructuring
items |
![](spacer.gif) |
$ |
(66 |
) |
![](spacer.gif) |
$ |
357 |
|
![](spacer.gif) |
$ |
650 |
|
![](spacer.gif) |
$ |
595 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
For
the Nine Months Ended October 1, 2005, includes a gain of $1,509
related to the reversal of accruals due to reductions in the estimated
amounts required for employee terminations, partially offset by
severance and other benefits of $187 payable to 38 employees. During
the Three Months Ended October 1, 2005, the Company determined that
certain employee termination accruals of $1,415 related to the
Company's formalized plan, initiated in the fourth quarter of the
2002 fiscal year, to consolidate its European manufacturing operations
(the "Social Plan"), were no longer required.
Total costs related to the Social Plan were approximately $16,000. The
Nine Months Ended October 2, 2004 includes severance and other benefits
of approximately $1,050 payable to approximately 587 employees whose
jobs were eliminated as part of the Company's restructuring
initiatives and includes severance and other benefits of approximately
$992 payable to employees at the Company's San Luis, Mexico
manufacturing facility (which was sold during the first quarter of
fiscal 2004). |
![](spacer.gif) |
![](spacer.gif) |
(b) |
For the
Nine Months Ended October 1, 2005 and the Nine Months Ended October 2,
2004, amounts include $641 and $392, respectively, of net losses on
disposal / writedowns of assets related to facilities that had been
either closed or sold in prior
periods. |
![](spacer.gif) |
![](spacer.gif) |
(c) |
For the Nine
Months Ended October 1, 2005, amount includes the reversal of an
accrual no longer required related to the closure of a technical
production support center located in Van Nuys, California. The accrual
was no longer required because the Company settled the lease with the
landlord earlier than anticipated. |
10
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Changes in liabilities related to
restructuring expense (income) for the Nine Months Ended October 1,
2005 are summarized below:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Employee Termination Costs |
![](spacer.gif) |
Facility Shutdown Costs |
![](spacer.gif) |
Legal
and Professional Fees |
![](spacer.gif) |
Lease
and Contract Termination Costs |
![](spacer.gif) |
Total |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Balance
at January 1,
2005 |
![](spacer.gif) |
$ |
2,619 |
|
![](spacer.gif) |
$ |
4 |
|
![](spacer.gif) |
$ |
25 |
|
![](spacer.gif) |
$ |
573 |
|
![](spacer.gif) |
$ |
3,221 |
|
Charges
(gains) for the Nine Months Ended October 1,
2005 |
![](spacer.gif) |
|
(1,322 |
) |
![](spacer.gif) |
|
262 |
|
![](spacer.gif) |
|
25 |
|
![](spacer.gif) |
|
(130 |
) |
![](spacer.gif) |
|
(1,165 |
) |
Cash
reductions for the Nine Months Ended October 1,
2005 |
![](spacer.gif) |
|
(1,292 |
) |
![](spacer.gif) |
|
(270 |
) |
![](spacer.gif) |
|
(30 |
) |
![](spacer.gif) |
|
(438 |
) |
![](spacer.gif) |
|
(2,030 |
) |
Non-cash
reductions and foreign currency
effects |
![](spacer.gif) |
|
387 |
|
![](spacer.gif) |
|
4 |
|
![](spacer.gif) |
|
(12 |
) |
![](spacer.gif) |
|
(5 |
) |
![](spacer.gif) |
|
374 |
|
Balance
at October 1, 2005
(a) |
![](spacer.gif) |
$ |
392 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
8 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
400 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
Company expects that substantially all of the liabilities related to
these restructuring items will be paid by the end of the 2005 fiscal
year. |
Note 5—Business Segments and Geographic
Information
Business Segments: The Company operates
in three business segments: (i) Intimate Apparel Group; (ii) Sportswear
Group; and (iii) Swimwear Group.
The Intimate Apparel Group
designs, manufactures, sources and markets moderate to premium priced
intimate apparel and other products for women and better to premium
priced men's underwear and loungewear under brand names including
Warner's, Olga®, Body Nancy
GanzTM/Bodyslimmers®, J.
Lo by Jennifer Lopez®, Calvin
Klein®, Lejaby®, Axcelerate
engineered by Speedo® and
Rasurel®.
The Sportswear Group designs,
sources and markets moderate to premium priced men's,
women's and junior's sportswear under brand names including
Calvin Klein and Chaps®.
The
Swimwear Group designs, manufactures, sources and markets mass market
to premium priced swimwear, fitness apparel, swim accessories and
related products and licenses its owned brand names to suppliers of
apparel and other products in widely diversified channels of
distribution. The Swimwear Group's significant brand names
include Speedo, Anne Cole®, Cole of
California®, Catalina®,
Lifeguard®, Nautica®,
Michael Kors®, Ocean
Pacific®, Op® and Calvin
Klein.
11
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Information by business group, excluding
discontinued operations, is set forth below.
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Intimate Apparel Group |
![](spacer.gif) |
Sportswear Group |
![](spacer.gif) |
Swimwear Group |
![](spacer.gif) |
Group Total |
![](spacer.gif) |
Corporate
/ Other Items |
![](spacer.gif) |
Total |
For the
Three Months Ended October 1,
2005 |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
revenues |
![](spacer.gif) |
$ |
156,488 |
|
![](spacer.gif) |
$ |
133,651 |
|
![](spacer.gif) |
$ |
37,512 |
|
![](spacer.gif) |
$ |
327,651 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
327,651 |
|
Operating income
(loss) |
![](spacer.gif) |
|
22,347 |
|
![](spacer.gif) |
|
22,444 |
|
![](spacer.gif) |
|
(13,019 |
) |
![](spacer.gif) |
|
31,772 |
|
![](spacer.gif) |
|
(18,041 |
) |
![](spacer.gif) |
|
13,731 |
|
Depreciation
and
amortization |
![](spacer.gif) |
|
1,326 |
|
![](spacer.gif) |
|
1,456 |
|
![](spacer.gif) |
|
1,560 |
|
![](spacer.gif) |
|
4,342 |
|
![](spacer.gif) |
|
3,395 |
|
![](spacer.gif) |
|
7,737 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,251 |
) |
![](spacer.gif) |
|
(1,251 |
) |
Capital
expenditures |
![](spacer.gif) |
|
2,150 |
|
![](spacer.gif) |
|
2,983 |
|
![](spacer.gif) |
|
2,275 |
|
![](spacer.gif) |
|
7,408 |
|
![](spacer.gif) |
|
6,610 |
|
![](spacer.gif) |
|
14,018 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
For
the Nine Months Ended October 1,
2005 |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
revenues |
![](spacer.gif) |
$ |
451,591 |
|
![](spacer.gif) |
$ |
384,087 |
|
![](spacer.gif) |
$ |
306,193 |
|
![](spacer.gif) |
$ |
1,141,871 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,141,871 |
|
Operating income
(loss) |
![](spacer.gif) |
|
48,621 |
|
![](spacer.gif) |
|
58,613 |
|
![](spacer.gif) |
|
30,846 |
|
![](spacer.gif) |
|
138,080 |
|
![](spacer.gif) |
|
(55,864 |
) |
![](spacer.gif) |
|
82,216 |
|
Depreciation
and
amortization |
![](spacer.gif) |
|
5,161 |
|
![](spacer.gif) |
|
4,637 |
|
![](spacer.gif) |
|
4,181 |
|
![](spacer.gif) |
|
13,979 |
|
![](spacer.gif) |
|
10,165 |
|
![](spacer.gif) |
|
24,144 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(524 |
) |
![](spacer.gif) |
|
(524 |
) |
Capital
expenditures |
![](spacer.gif) |
|
5,727 |
|
![](spacer.gif) |
|
3,451 |
|
![](spacer.gif) |
|
3,999 |
|
![](spacer.gif) |
|
13,177 |
|
![](spacer.gif) |
|
14,767 |
|
![](spacer.gif) |
|
27,944 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
For
the Three Months Ended October 2,
2004 |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
revenues |
![](spacer.gif) |
$ |
158,164 |
|
![](spacer.gif) |
$ |
135,408 |
|
![](spacer.gif) |
$ |
30,862 |
|
![](spacer.gif) |
$ |
324,434 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
324,434 |
|
Operating income
(loss) |
![](spacer.gif) |
|
17,181 |
|
![](spacer.gif) |
|
19,047 |
|
![](spacer.gif) |
|
(9,678 |
) |
![](spacer.gif) |
|
26,550 |
|
![](spacer.gif) |
|
(18,744 |
) |
![](spacer.gif) |
|
7,806 |
|
Depreciation
and
amortization |
![](spacer.gif) |
|
1,936 |
|
![](spacer.gif) |
|
1,350 |
|
![](spacer.gif) |
|
1,038 |
|
![](spacer.gif) |
|
4,324 |
|
![](spacer.gif) |
|
3,701 |
|
![](spacer.gif) |
|
8,025 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
403 |
|
![](spacer.gif) |
|
403 |
|
Capital
expenditures |
![](spacer.gif) |
|
2,582 |
|
![](spacer.gif) |
|
2,461 |
|
![](spacer.gif) |
|
611 |
|
![](spacer.gif) |
|
5,654 |
|
![](spacer.gif) |
|
1,786 |
|
![](spacer.gif) |
|
7,440 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
For
the Nine Months Ended October 2,
2004 |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Net
revenues |
![](spacer.gif) |
$ |
427,713 |
|
![](spacer.gif) |
$ |
323,775 |
|
![](spacer.gif) |
$ |
298,276 |
|
![](spacer.gif) |
$ |
1,049,764 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,049,764 |
|
Operating income
(loss) |
![](spacer.gif) |
|
38,660 |
|
![](spacer.gif) |
|
39,555 |
|
![](spacer.gif) |
|
42,393 |
|
![](spacer.gif) |
|
120,608 |
|
![](spacer.gif) |
|
(56,836 |
) |
![](spacer.gif) |
|
63,772 |
|
Depreciation
and
amortization |
![](spacer.gif) |
|
5,573 |
|
![](spacer.gif) |
|
4,105 |
|
![](spacer.gif) |
|
2,899 |
|
![](spacer.gif) |
|
12,577 |
|
![](spacer.gif) |
|
10,491 |
|
![](spacer.gif) |
|
23,068 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
3,866 |
|
![](spacer.gif) |
|
3,866 |
|
Capital
expenditures |
![](spacer.gif) |
|
5,556 |
|
![](spacer.gif) |
|
3,715 |
|
![](spacer.gif) |
|
1,265 |
|
![](spacer.gif) |
|
10,536 |
|
![](spacer.gif) |
|
6,313 |
|
![](spacer.gif) |
|
16,849 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Balance
Sheet |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Total
Assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
October
1,
2005 |
![](spacer.gif) |
$ |
297,858 |
|
![](spacer.gif) |
$ |
286,192 |
|
![](spacer.gif) |
$ |
282,314 |
|
![](spacer.gif) |
$ |
866,364 |
|
![](spacer.gif) |
$ |
333,682 |
|
![](spacer.gif) |
$ |
1,200,045 |
|
January
1,
2005 |
![](spacer.gif) |
|
303,484 |
|
![](spacer.gif) |
|
254,728 |
|
![](spacer.gif) |
|
356,288 |
|
![](spacer.gif) |
|
914,500 |
|
![](spacer.gif) |
|
239,404 |
|
![](spacer.gif) |
|
1,153,904 |
|
October
2, 2004 (As restated. See Note
18) |
![](spacer.gif) |
|
324,857 |
|
![](spacer.gif) |
|
291,408 |
|
![](spacer.gif) |
|
247,859 |
|
![](spacer.gif) |
|
864,124 |
|
![](spacer.gif) |
|
290,656 |
|
![](spacer.gif) |
|
1,154,780 |
|
Property,
Plant and Equipment,
net: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
October
1,
2005 |
![](spacer.gif) |
$ |
17,569 |
|
![](spacer.gif) |
$ |
9,825 |
|
![](spacer.gif) |
$ |
17,493 |
|
![](spacer.gif) |
$ |
44,887 |
|
![](spacer.gif) |
$ |
69,150 |
|
![](spacer.gif) |
$ |
114,037 |
|
January
1,
2005 |
![](spacer.gif) |
|
17,545 |
|
![](spacer.gif) |
|
8,875 |
|
![](spacer.gif) |
|
15,917 |
|
![](spacer.gif) |
|
42,337 |
|
![](spacer.gif) |
|
64,600 |
|
![](spacer.gif) |
|
106,937 |
|
October
2, 2004 (As restated. See Note
18) |
![](spacer.gif) |
|
14,283 |
|
![](spacer.gif) |
|
15,135 |
|
![](spacer.gif) |
|
15,712 |
|
![](spacer.gif) |
|
45,130 |
|
![](spacer.gif) |
|
54,387 |
|
![](spacer.gif) |
|
99,517 |
|
![](spacer.gif) |
12
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
The Company does not include unallocated
corporate expenses, restructuring expense (income) or depreciation and
amortization of corporate assets in its determination of segment
operating income. Unallocated corporate expenses include general
corporate overhead and certain shared corporate services. The Company
evaluates the business groups' results without allocating these
corporate/other items. Other companies may allocate these costs to
their operating divisions and, as a result, the operating results of
the Company's operating groups may not be directly comparable to
the results of other companies. The table below summarizes
corporate/other expenses for each period presented:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October
2, 2004 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Corporate
departmental
expenses |
![](spacer.gif) |
$ |
15,897 |
|
![](spacer.gif) |
$ |
14,640 |
|
![](spacer.gif) |
$ |
46,223 |
|
![](spacer.gif) |
$ |
42,479 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
(1,251 |
) |
![](spacer.gif) |
|
403 |
|
![](spacer.gif) |
|
(524 |
) |
![](spacer.gif) |
|
3,866 |
|
Depreciation
and amortization of corporate
assets |
![](spacer.gif) |
|
3,395 |
|
![](spacer.gif) |
|
3,701 |
|
![](spacer.gif) |
|
10,165 |
|
![](spacer.gif) |
|
10,491 |
|
Corporate/other
items |
![](spacer.gif) |
$ |
18,041 |
|
![](spacer.gif) |
$ |
18,744 |
|
![](spacer.gif) |
$ |
55,864 |
|
![](spacer.gif) |
$ |
56,836 |
|
![](spacer.gif) |
A
reconciliation of group operating income to income from continuing
operations before provision for income taxes is as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
Group
operating
income |
![](spacer.gif) |
$ |
31,772 |
|
![](spacer.gif) |
$ |
26,550 |
|
![](spacer.gif) |
$ |
138,080 |
|
![](spacer.gif) |
$ |
120,608 |
|
Corporate/other
items |
![](spacer.gif) |
|
(18,041 |
) |
![](spacer.gif) |
|
(18,744 |
) |
![](spacer.gif) |
|
(55,864 |
) |
![](spacer.gif) |
|
(56,836 |
) |
Operating
income |
![](spacer.gif) |
|
13,731 |
|
![](spacer.gif) |
|
7,806 |
|
![](spacer.gif) |
|
82,216 |
|
![](spacer.gif) |
|
63,772 |
|
Other
(income)
loss |
![](spacer.gif) |
|
(60 |
) |
![](spacer.gif) |
|
(66 |
) |
![](spacer.gif) |
|
731 |
|
![](spacer.gif) |
|
(2,027 |
) |
Interest
expense,
net |
![](spacer.gif) |
|
4,145 |
|
![](spacer.gif) |
|
5,018 |
|
![](spacer.gif) |
|
13,703 |
|
![](spacer.gif) |
|
15,168 |
|
Income
from continuing operations before provision for income
taxes |
![](spacer.gif) |
$ |
9,646 |
|
![](spacer.gif) |
$ |
2,854 |
|
![](spacer.gif) |
$ |
67,782 |
|
![](spacer.gif) |
$ |
50,631 |
|
![](spacer.gif) |
13
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Geographic
Information: Net revenues summarized by geographic location
are as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
Net
revenues: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
United
States |
![](spacer.gif) |
$ |
222,437 |
|
![](spacer.gif) |
|
67.9 |
% |
![](spacer.gif) |
$ |
231,152 |
|
![](spacer.gif) |
|
71.2 |
% |
Europe |
![](spacer.gif) |
|
63,003 |
|
![](spacer.gif) |
|
19.2 |
% |
![](spacer.gif) |
|
54,050 |
|
![](spacer.gif) |
|
16.7 |
% |
Canada |
![](spacer.gif) |
|
21,421 |
|
![](spacer.gif) |
|
6.5 |
% |
![](spacer.gif) |
|
21,714 |
|
![](spacer.gif) |
|
6.7 |
% |
Mexico |
![](spacer.gif) |
|
8,828 |
|
![](spacer.gif) |
|
2.7 |
% |
![](spacer.gif) |
|
8,910 |
|
![](spacer.gif) |
|
2.7 |
% |
Asia |
![](spacer.gif) |
|
11,962 |
|
![](spacer.gif) |
|
3.7 |
% |
![](spacer.gif) |
|
8,608 |
|
![](spacer.gif) |
|
2.7 |
% |
|
![](spacer.gif) |
$ |
327,651 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
$ |
324,434 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months
Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
Net
revenues: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
United
States |
![](spacer.gif) |
$ |
817,024 |
|
![](spacer.gif) |
|
71.6 |
% |
![](spacer.gif) |
$ |
766,004 |
|
![](spacer.gif) |
|
73.0 |
% |
Europe |
![](spacer.gif) |
|
193,541 |
|
![](spacer.gif) |
|
16.9 |
% |
![](spacer.gif) |
|
172,685 |
|
![](spacer.gif) |
|
16.4 |
% |
Canada |
![](spacer.gif) |
|
71,018 |
|
![](spacer.gif) |
|
6.2 |
% |
![](spacer.gif) |
|
66,462 |
|
![](spacer.gif) |
|
6.3 |
% |
Mexico |
![](spacer.gif) |
|
31,720 |
|
![](spacer.gif) |
|
2.8 |
% |
![](spacer.gif) |
|
23,822 |
|
![](spacer.gif) |
|
2.3 |
% |
Asia |
![](spacer.gif) |
|
28,568 |
|
![](spacer.gif) |
|
2.5 |
% |
![](spacer.gif) |
|
20,791 |
|
![](spacer.gif) |
|
2.0 |
% |
|
![](spacer.gif) |
$ |
1,141,871 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
$ |
1,049,764 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
Information
about Major Customers: For the Three Months Ended October 1,
2005, one customer, Federated-May Company, accounted for 14.6%
of the Company's net revenues and for the Three Months Ended
October 2, 2004, no customer accounted for 10% or more of the
Company's net revenues. For the Nine Months Ended October 1,
2005, one customer, Federated-May Company accounted for 11.3% of
the Company's net revenues and for the Nine Months Ended October
2, 2004, no customer accounted for 10% or more of the
Company's net revenues.
Note 6—Income
Taxes
The following presents the domestic and foreign components
of the Company's provision (benefit) for income taxes included in
income from continuing operations:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October 1, 2005 |
![](spacer.gif) |
October
2,
2004 |
Domestic |
![](spacer.gif) |
$ |
(4,281 |
) |
![](spacer.gif) |
$ |
(4,390 |
) |
![](spacer.gif) |
$ |
5,823 |
|
![](spacer.gif) |
$ |
4,949 |
|
Foreign |
![](spacer.gif) |
|
6,950 |
|
![](spacer.gif) |
|
5,378 |
|
![](spacer.gif) |
|
19,175 |
|
![](spacer.gif) |
|
15,684 |
|
Total |
![](spacer.gif) |
$ |
2,669 |
|
![](spacer.gif) |
$ |
988 |
|
![](spacer.gif) |
$ |
24,998 |
|
![](spacer.gif) |
$ |
20,633 |
|
![](spacer.gif) |
The
effective tax rate for the Three Months Ended October 1, 2005 was
approximately 28% compared to approximately 35% for the
Three Months Ended October 2, 2004. The Company's tax provision
for the quarter reflects a reduction of approximately $800 as a result
of the filing of its 2004 tax return. The effective tax rate for the
Nine Months Ended October 1, 2005 was approximately 37% compared
to approximately 41% for the Nine Months Ended October 2, 2004.
The decrease in the effective tax rate is the result of a change in the
mix of U.S. and international profits as the Company's U.S. tax
rate is generally higher than that of the Company's international
locations.
14
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
During the Three Months Ended October 1,
2005, the Company increased its valuation allowance by $1,892 to
$154,928. The change primarily reflects the utilization of foreign net
operating loss carryforwards of $1,713 (which has been recorded against
goodwill), offset by other valuation allowance increases of $3,605. Of
the $3,605 increase in the Company's valuation allowance, $3,404
has been recorded as an increase in goodwill consistent with changes in
estimates for interim periods and $201 has been recorded to the tax
provision.
During the Nine Months Ended October 1, 2005, the
Company decreased its valuation allowance by $10,907 to $154,928. The
decrease reflects the utilization of domestic net operating loss
carryforwards of $5,676 and the utilization of foreign net operating
loss carryforwards of $5,589 (both of which have been recorded against
goodwill), partially offset by other increases in foreign valuation
allowances of $358 (which has been recorded to the tax provision).
On February 4, 2003, the Company emerged from bankruptcy and
realized a gain on the cancellation of pre-petition indebtedness of
$1,693,000 for the 2003 tax year. Under U.S. tax law, a company that
realized cancellation of debt income ("COD")
while in bankruptcy is entitled to exclude such income from taxable
income for U.S. tax reporting purposes. A company that excludes COD
will be required to reduce certain tax attributes in an amount equal to
the COD excluded from taxable income. If the attribute reduction is
applied on a consolidated basis, all of the Company's U.S.
consolidated net operating loss carryovers would be eliminated and
certain of its other U.S. tax attributes will be substantially reduced
or eliminated. However, by applying the attribute reduction rules on a
separate company basis, the Company retained U.S. net operating loss
carryforwards of $246,235, which can be used to reduce U.S. taxable
income, if any, by approximately $23,415 per year. There can be no
assurance that the Company's position with respect to separate
company attribute reduction will be sustained upon review by the
Internal Revenue Service. Therefore, in accordance with SFAS No. 5,
Accounting for Contingencies, the Company has recorded a tax
reserve of $5,676 against goodwill for the portion of the U.S. net
operating loss carryforwards utilized in the Nine Months Ended October
1, 2005.
Any tax benefit from the utilization of consolidated
U.S. net operating losses that existed as of February 4, 2003 will
reduce goodwill when realized and will not affect the Company's
future results of operations.
On October 22, 2004, the American
Jobs Creation Act of 2004 (the "AJC Act") was
signed into law. The AJC Act provides for a special one-time dividends
received tax deduction of 85 percent of certain foreign earnings that
are repatriated in either a company's last tax year that began
before the enactment date, or the first tax year that begins during the
one-year period beginning on the date of enactment. The AJC Act would
require the payment of U.S. tax on the portion of the dividend not
subject to the dividends received deduction, even though the Company
has U.S. net operating loss carryforwards. All of the Company's
foreign earnings are permanently reinvested for the Nine Months Ended
October 1, 2005. The Company does not expect to utilize the benefits
available under the AJC Act; however, it will continue to evaluate the
opportunity to utilize the 85 percent dividends received deduction
during the remainder of the 2005 fiscal year. The Company will evaluate
any income tax effect should circumstances result in a change in the
Company's plans.
Note 7—Employee Benefit and
Retirement Plans
Defined Benefit Pension Plan
The Company has a defined benefit pension plan, which covers
substantially all full-time domestic employees (the
"Pension Plan"). Effective January 1, 2003,
the Pension Plan was amended such that
15
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
participants in the Pension Plan will not
earn any additional pension benefits after December 31, 2002. The
Pension Plan is noncontributory and benefits are based upon years of
service. The Company also has defined benefit health care, life
insurance and other plans that provide post-retirement benefits to
retired employees ("Other Benefit Plans").
The Other Benefit Plans are, in most cases, contributory with retiree
contributions adjusted annually.
The Company follows SFAS No.
87, Employers' Accounting for Pensions ("SFAS
87"), in regard to accounting for the Pension Plan.
Pursuant to SFAS 87, each quarter the Company recognizes interest cost
offset by the expected return on Pension Plan assets. In addition, the
Company obtains a report from the Pension Plan actuary to measure
Pension Plan assets and liabilities at year-end. The Company records
the effect of actual gains and losses exceeding the expected return on
Pension Plan assets and any other changes determined by the actuary
(including changes in actuarial assumptions) in the fourth quarter of
each year. This accounting results in volatility in pension expense or
income; therefore, the Company reports pension expense/income on a
separate line of its statement of operations in each period.
The
Company's contributions to the Pension Plan were $3,183 through
October 1, 2005 and are expected to be $4,978 in total through December
31, 2005.
The components of net periodic benefit cost were as
follows:
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|
![](spacer.gif) |
Pension
Benefit Plans |
![](spacer.gif) |
Other Benefit
Plans |
|
![](spacer.gif) |
For the
Three Months Ended |
![](spacer.gif) |
For the Three Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Service
cost |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
89 |
|
![](spacer.gif) |
$ |
80 |
|
Interest
cost |
![](spacer.gif) |
|
2,140 |
|
![](spacer.gif) |
|
2,136 |
|
![](spacer.gif) |
|
67 |
|
![](spacer.gif) |
|
78 |
|
Expected
return on plan
assets |
![](spacer.gif) |
|
(1,940 |
) |
![](spacer.gif) |
|
(1,806 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Net
actuarial
gain |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(8 |
) |
Net
periodic benefit
cost |
![](spacer.gif) |
$ |
200 |
|
![](spacer.gif) |
$ |
330 |
|
![](spacer.gif) |
$ |
156 |
|
![](spacer.gif) |
$ |
150 |
|
![](spacer.gif) |
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Pension
Benefit Plans |
![](spacer.gif) |
Other Benefit
Plans |
|
![](spacer.gif) |
For the
Nine Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Service
cost |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
346 |
|
![](spacer.gif) |
$ |
240 |
|
Interest
cost |
![](spacer.gif) |
|
6,420 |
|
![](spacer.gif) |
|
6,408 |
|
![](spacer.gif) |
|
201 |
|
![](spacer.gif) |
|
234 |
|
Expected
return on plan
assets |
![](spacer.gif) |
|
(5,820 |
) |
![](spacer.gif) |
|
(5,418 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Net
actuarial
gain |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(24 |
) |
Net
periodic benefit
cost |
![](spacer.gif) |
$ |
600 |
|
![](spacer.gif) |
$ |
990 |
|
![](spacer.gif) |
$ |
547 |
|
![](spacer.gif) |
$ |
450 |
|
![](spacer.gif) |
Deferred
Compensation Plan
On April 25, 2005, the Company adopted a
deferred compensation plan (the "Deferred Compensation
Plan") for the benefit of certain employees eligible to
participate in the Company's Incentive 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% (but no less than 10%) of their annual bonus.
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 will establish a
"rabbi" trust in connection with the
16
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Deferred Compensation Plan and will make
contributions to the rabbi trust equal to the Deferred Compensation
Plan's aggregate benefit obligations. As of October 1, 2005, the
Company has a liability of $112 for employee contributions and
investment activity to date, which is recorded in other long-term
liabilities.
Note 8—Comprehensive Income
The
components of comprehensive income were as follows:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months Ended |
![](spacer.gif) |
For the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
![](spacer.gif) |
October 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Net
income |
![](spacer.gif) |
$ |
6,948 |
|
![](spacer.gif) |
$ |
1,604 |
|
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
$ |
26,270 |
|
Other
comprehensive income
(loss): |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Foreign
currency translation
adjustments |
![](spacer.gif) |
|
1,536 |
|
![](spacer.gif) |
|
1,621 |
|
![](spacer.gif) |
|
(10,070 |
) |
![](spacer.gif) |
|
(5,305 |
) |
Other |
![](spacer.gif) |
|
44 |
|
![](spacer.gif) |
|
(1 |
) |
![](spacer.gif) |
|
117 |
|
![](spacer.gif) |
|
(27 |
) |
Total
comprehensive
income |
![](spacer.gif) |
$ |
8,528 |
|
![](spacer.gif) |
$ |
3,224 |
|
![](spacer.gif) |
$ |
32,674 |
|
![](spacer.gif) |
$ |
20,938 |
|
![](spacer.gif) |
The
components of accumulated other comprehensive income were as
follows:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
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![](spacer.gif) |
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![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Foreign currency translation adjustments
(a) |
![](spacer.gif) |
$ |
5,474 |
|
![](spacer.gif) |
$ |
15,544 |
|
![](spacer.gif) |
$ |
6,251 |
|
Other |
![](spacer.gif) |
|
134 |
|
![](spacer.gif) |
|
17 |
|
![](spacer.gif) |
|
8 |
|
Total
accumulated other comprehensive
income |
![](spacer.gif) |
$ |
5,608 |
|
![](spacer.gif) |
$ |
15,561 |
|
![](spacer.gif) |
$ |
6,259 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
decrease in foreign currency translation adjustments from January 1,
2005 to October 1, 2005 primarily reflects the strengthening of the
United States dollar compared to the euro. |
Note
9—Accounts Receivable
As of October 1, 2005, January 1,
2005 and October 2, 2004, the Company had $260,457, $271,920 and
$255,228 of open trade invoices and other receivables and $4,545,
$2,828 and $7,980 of open debit memos, net of credit memos,
respectively. Based upon the Company's analysis of estimated
recoveries and collections associated with the related invoices and
debit memos, as of October 1, 2005, January 1, 2005 and October 2,
2004, the Company recorded $52,671, $54,943 and $50,940 of accounts
receivable reserves, respectively.
17
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Note 10—Inventories
Inventories are valued at the lower of cost (using the first-in
first-out method) or market and are summarized as follows:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Finished
goods |
![](spacer.gif) |
$ |
230,239 |
|
![](spacer.gif) |
$ |
259,451 |
|
![](spacer.gif) |
$ |
219,062 |
|
Work
in process/in
transit |
![](spacer.gif) |
|
54,808 |
|
![](spacer.gif) |
|
45,384 |
|
![](spacer.gif) |
|
53,438 |
|
Raw
materials |
![](spacer.gif) |
|
27,590 |
|
![](spacer.gif) |
|
30,816 |
|
![](spacer.gif) |
|
32,060 |
|
|
![](spacer.gif) |
$ |
312,637 |
|
![](spacer.gif) |
$ |
335,651 |
|
![](spacer.gif) |
$ |
304,560 |
|
![](spacer.gif) |
At
October 1, 2005, January 1, 2005 and October 2, 2004, the Company had
inventory with a carrying value of approximately $63,300, $53,500 and
$43,100, respectively, which was potentially excess. Based upon the
estimated recoveries related to such inventory, as of October 1, 2005,
January 1, 2005 and October 2, 2004, the Company reduced the carrying
value of such inventory by approximately $24,300, $22,400 and $23,200,
respectively, for excess and other inventory adjustments.
As of
October 1, 2005, the Company was party to outstanding foreign currency
exchange contracts to purchase approximately $5,195 for a total of
approximately €4,271 at a weighted-average exchange rate
of 1.216. The foreign currency exchange contracts mature through March
2006 and are designed to fix the number of euros required to satisfy
the first one-third of dollar denominated purchases of inventory by
certain of the Company's European subsidiaries.
Note
11—Goodwill and Intangible Assets
The following table
sets forth intangible assets at October 1, 2005, January 1, 2005 and
October 2, 2004:
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![](spacer.gif) |
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![](spacer.gif) |
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
|
![](spacer.gif) |
Gross
Carrying Amount |
![](spacer.gif) |
Accumulated
Amortization |
![](spacer.gif) |
Net |
![](spacer.gif) |
Gross Carrying
Amount |
![](spacer.gif) |
Accumulated
Amortization |
![](spacer.gif) |
Net |
![](spacer.gif) |
Gross Carrying
Amount |
![](spacer.gif) |
Accumulated
Amortization |
![](spacer.gif) |
Net |
Finite lived
intangible assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Licenses for a
term: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Company as licensee
(a) |
![](spacer.gif) |
$ |
108,363 |
|
![](spacer.gif) |
$ |
8,938 |
|
![](spacer.gif) |
$ |
99,425 |
|
![](spacer.gif) |
$ |
104,030 |
|
![](spacer.gif) |
$ |
6,140 |
|
![](spacer.gif) |
$ |
97,890 |
|
![](spacer.gif) |
$ |
104,030 |
|
![](spacer.gif) |
$ |
5,587 |
|
![](spacer.gif) |
$ |
98,443 |
|
Company
as
licensor |
![](spacer.gif) |
|
5,861 |
|
![](spacer.gif) |
|
1,558 |
|
![](spacer.gif) |
|
4,303 |
|
![](spacer.gif) |
|
5,861 |
|
![](spacer.gif) |
|
425 |
|
![](spacer.gif) |
|
5,436 |
|
![](spacer.gif) |
|
5,861 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
5,861 |
|
Sales
order
backlog |
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
11,800 |
|
![](spacer.gif) |
|
— |
|
Other |
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
662 |
|
![](spacer.gif) |
|
— |
|
Total
finite lived intangible
assets |
![](spacer.gif) |
|
126,686 |
|
![](spacer.gif) |
|
22,958 |
|
![](spacer.gif) |
|
103,728 |
|
![](spacer.gif) |
|
122,353 |
|
![](spacer.gif) |
|
19,027 |
|
![](spacer.gif) |
|
103,326 |
|
![](spacer.gif) |
|
122,353 |
|
![](spacer.gif) |
|
18,049 |
|
![](spacer.gif) |
|
104,304 |
|
Indefinite
lived intangible
assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Trademarks |
![](spacer.gif) |
|
154,616 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
154,616 |
|
![](spacer.gif) |
|
156,679 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
156,679 |
|
![](spacer.gif) |
|
150,239 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
150,239 |
|
Licenses
in
perpetuity |
![](spacer.gif) |
|
45,500 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
45,500 |
|
![](spacer.gif) |
|
45,500 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
45,500 |
|
![](spacer.gif) |
|
45,500 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
45,500 |
|
Total
indefinite lived intangible
assets |
![](spacer.gif) |
|
200,116 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
200,116 |
|
![](spacer.gif) |
|
202,179 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
202,179 |
|
![](spacer.gif) |
|
195,739 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
195,739 |
|
Intangible
assets |
![](spacer.gif) |
$ |
326,802 |
|
![](spacer.gif) |
$ |
22,958 |
|
![](spacer.gif) |
$ |
303,844 |
|
![](spacer.gif) |
$ |
324,532 |
|
![](spacer.gif) |
$ |
19,027 |
|
![](spacer.gif) |
$ |
305,505 |
|
![](spacer.gif) |
$ |
318,092 |
|
![](spacer.gif) |
$ |
18,049 |
|
![](spacer.gif) |
$ |
300,043 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
In
July 2004, the Company entered into a license agreement granting the
Company the exclusive worldwide rights to sell Calvin Klein
women's swimwear. The license was subject to the rights of a
predecessor licensee in certain territories through June 2007. On May
23, 2005, the Company acquired the remaining rights under the Calvin
Klein swimwear license for $4,333, which is being amortized through
June 2007 using the straight-line method. In connection with the
acquisition of the remaining license rights, the Company's
minimum royalties under the license were increased by $1,410, $1,545,
$1,195, $465, and $252 for fiscal 2005, fiscal 2006, fiscal 2007,
fiscal 2008 and fiscal 2009, respectively. The Company is entitled to
up to $1,150 in reimbursement from the predecessor licensee against the
2005 minimum royalties. |
18
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
The following table summarizes the
Company's estimated amortization expense related to intangible
assets for the next five years:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
2006 |
![](spacer.gif) |
$ |
5,712 |
|
2007 |
![](spacer.gif) |
|
4,680 |
|
2008 |
![](spacer.gif) |
|
3,415 |
|
2009 |
![](spacer.gif) |
|
3,283 |
|
2010 |
![](spacer.gif) |
|
2,995 |
|
![](spacer.gif) |
The
following table summarizes the changes in the carrying amount of
goodwill for the Nine Months Ended October 1, 2005:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Intimate
Apparel Group |
![](spacer.gif) |
Sportswear Group |
![](spacer.gif) |
Swimwear
Group |
![](spacer.gif) |
Total |
Goodwill balance at January 1,
2005 |
![](spacer.gif) |
$ |
13,180 |
|
![](spacer.gif) |
$ |
6,076 |
|
![](spacer.gif) |
$ |
24,415 |
|
![](spacer.gif) |
$ |
43,671 |
|
Adjustments: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
taxes |
![](spacer.gif) |
|
(2,705 |
) |
![](spacer.gif) |
|
(1,592 |
) |
![](spacer.gif) |
|
(1,832 |
) |
![](spacer.gif) |
|
(6,129 |
) |
Other
(a) |
![](spacer.gif) |
|
(44 |
) |
![](spacer.gif) |
|
1,225 |
|
![](spacer.gif) |
|
223 |
|
![](spacer.gif) |
|
1,404 |
|
Goodwill
balance at October 1,
2005 |
![](spacer.gif) |
$ |
10,431 |
|
![](spacer.gif) |
$ |
5,709 |
|
![](spacer.gif) |
$ |
22,806 |
|
![](spacer.gif) |
$ |
38,946 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
Reflects,
among other items, amounts accrued during the Nine Months Ended October
1, 2005 for the acquisition by the Company of a business located in
Asia that had provided sourcing and buying agent services to the
Company. The consideration for the acquisition is based on the cost of
inventory sourced by the acquired entity from the date of acquisition
through February 25, 2006. The Company expects that the total purchase
price for the acquisition will approximate $2,000. |
Note
12—Debt
Debt was as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
8 7/8% Senior Notes due
2013 |
![](spacer.gif) |
$ |
210,000 |
|
![](spacer.gif) |
$ |
210,000 |
|
![](spacer.gif) |
$ |
210,000 |
|
Unrealized
gain on swap
agreement |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
497 |
|
Capital
lease
obligations |
![](spacer.gif) |
|
503 |
|
![](spacer.gif) |
|
799 |
|
![](spacer.gif) |
|
858 |
|
|
![](spacer.gif) |
$ |
210,503 |
|
![](spacer.gif) |
$ |
210,799 |
|
![](spacer.gif) |
$ |
211,355 |
|
![](spacer.gif) |
Swap
Agreements
As a result of the interest rate swap
agreements entered into on September 18, 2003 (the "2003
Swap Agreement") and November 5, 2004 (the
"2004 Swap Agreement"), the weighted average
effective interest rate of the Senior Notes was reduced to 8.49%
as of October 1, 2005, 8.16% as of January 1, 2005 and
8.18% as of October 2, 2004.
The fair value of the
Company's outstanding interest rate swap agreements reflect the
termination premium (unrealized loss) or termination discount
(unrealized gain) that the Company would realize if such swaps were
terminated on the valuation date. Since the provisions of the
Company's 2003 Swap Agreement and 2004 Swap Agreement match the
provisions of the Company's outstanding Senior Notes (the
"hedged debt"), changes in the fair value of
the outstanding swaps do not have any effect
19
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
on the Company's results of operations
but are recorded in the Company's consolidated condensed balance
sheets. Unrealized gains on the outstanding interest rate swap
agreements are included in other assets with a corresponding increase
in the hedged debt. Unrealized losses on the outstanding interest rate
swap agreements are included as a component of long-term debt with a
corresponding decrease in the hedged debt. The table below summarizes
the fair value (unrealized gains/(losses)) of the Company's
outstanding swap agreements:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
Unrealized gain
(loss) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
2003 Swap
Agreement |
![](spacer.gif) |
$ |
(676 |
) |
![](spacer.gif) |
$ |
81 |
|
![](spacer.gif) |
$ |
497 |
|
2004
Swap
Agreement |
![](spacer.gif) |
|
(668 |
) |
![](spacer.gif) |
|
(310 |
) |
![](spacer.gif) |
|
— |
|
Net
unrealized gain
(loss) |
![](spacer.gif) |
$ |
(1,344 |
) |
![](spacer.gif) |
$ |
(229 |
) |
![](spacer.gif) |
$ |
497 |
|
![](spacer.gif) |
Revolving
Credit Facility
On September 15, 2005, the Company entered
into a third amendment to its Revolving Credit Facility to, among other
things, (i) extend the maturity date from February 3, 2007 to February
3, 2009; (ii) reduce the applicable margins used to determine interest
rates for both base rate and LIBOR borrowings (such that borrowings
bear interest at Citibank N.A.'s base rate plus 0.5%
(7.25% at October 1, 2005) or LIBOR plus 1.5%
(approximately 5.57% at October 1, 2005) although the Revolving
Credit Facility provides that the interest rate the Company will pay on
outstanding loans may change based on certain defined ratios); (iii)
revise financial covenants relating to minimum fixed charge coverage
ratios, maximum leverage ratios and limits on capital expenditures so
that such covenants are tested only when available credit (as defined
in the amendment) falls below $50,000; (iv) replace the previously
fixed unused commitment fee with a commitment fee structure that varies
based upon the Company's leverage ratio; (v) eliminate dollar
limitations on certain acquisitions of entities and assets and
repurchases of the Company's common stock so long as available
credit is at least $50,000 after giving effect to such acquisition or
repurchase and provided certain other terms and conditions are met;
(vi) permit payment of cash dividends on the Company's common
stock in amounts up to 25% of the Company's net income for
the most recent completed fiscal year; (vii) allow for additional
indebtedness of up to $30,000, provided such indebtedness is incurred
solely to finance the construction of a new distribution facility; and
(viii) reduce the pricing of certain letters of credit that are cash
collateralized. The Company's ability to take certain of the
foregoing actions under the Revolving Credit Facility, as amended, is
limited by certain provisions of the indenture governing the Senior
Notes.
The Revolving Credit Facility, as amended, and the terms
of the indenture governing the Senior Notes contain certain
restrictions and require the Company to meet certain financial and
other covenants. The Company was in compliance with the covenants of
both the Revolving Credit Facility and the Senior Notes at October 1,
2005, January 1, 2005 and October 2, 2004.
As of October 1,
2005, the Company had approximately $118,899 of cash and cash
equivalents available as collateral against outstanding letters of
credit of $51,179 and approximately $33,112 of other cash and cash
equivalents held by foreign subsidiaries. As of October 1, 2005, the
Company had $242,720 of credit available under its Revolving Credit
Facility which included available borrowings of $175,000 and cash and
cash equivalents, net of outstanding letters of credits, of $67,720. At
October 1, 2005, the Company had no borrowings outstanding under the
Revolving Credit Facility.
The Company earned interest income of
$1,284 and $558 for the Three Months Ended October 1, 2005 and the
Three Months Ended October 2, 2004, respectively, and $2,346 and $1,530
for the Nine
20
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Months Ended October 1, 2005 and Nine Months
ended October 2, 2004, respectively. Interest income is recorded as
part of interest expense, net, on the Company's statement of
operations.
During the Three Months Ended October 1, 2005 and
the Nine Months Ended October 1, 2005, the Company included $330 and
$699, respectively, of capitalized interest expense in fixed
assets.
Note 13—Capital Stock
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 as of October 1, 2005, January 1, 2005 and October 2,
2004.
Common Stock
Share Repurchase
Program
In July 2005, the Company's Board of Directors
authorized the Company to enter into a share repurchase program of up
to 3,000,000 shares of common stock. In order to comply with the terms
of applicable debt instruments (which contain certain limitations on
share repurchases), the Company expects that purchases under the share
repurchase program will be made over the course of the next three
years.
During the Three Months Ended October 1, 2005, the
Company purchased 9,151 shares of its common stock in the open market
at a total cost of approximately $222 ($24.25 per share) under the
share repurchase program.
The share repurchase program may be
modified or terminated by the Company's Board of Directors at any
time. Repurchased shares are held in treasury pending use for general
corporate purposes, including issuances under the Company's
employee stock plans.
Note 14—Supplemental Cash Flow
Information
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
Cash
paid (received) during the period
for: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Interest
expense |
![](spacer.gif) |
$ |
11,762 |
|
![](spacer.gif) |
$ |
11,485 |
|
Interest
income |
![](spacer.gif) |
|
(2,412 |
) |
![](spacer.gif) |
|
(1,297 |
) |
Income
taxes refunded,
net |
![](spacer.gif) |
|
(198 |
) |
![](spacer.gif) |
|
(393 |
) |
Supplemental
non-cash investing and financing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Change in accounts
payable for purchase of fixed
assets |
![](spacer.gif) |
|
2,360 |
|
![](spacer.gif) |
|
1,662 |
|
Note receivable
(reserved for) on asset
sales |
![](spacer.gif) |
|
(298 |
) |
![](spacer.gif) |
|
670 |
|
![](spacer.gif) |
21
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Note
15—Income Per Common Share
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Three Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2,
2004 |
Numerator for basic and diluted
income per common share: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income from
continuing
operations |
![](spacer.gif) |
$ |
6,977 |
|
![](spacer.gif) |
$ |
1,866 |
|
Basic: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Weighted
average number of shares outstanding used in computing income per
common
share |
![](spacer.gif) |
|
45,913,635 |
|
![](spacer.gif) |
|
45,465,525 |
|
Income
per common share from continuing
operations |
![](spacer.gif) |
$ |
0.15 |
|
![](spacer.gif) |
$ |
0.04 |
|
Diluted: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Weighted
average number of shares
outstanding |
![](spacer.gif) |
|
45,913,635 |
|
![](spacer.gif) |
|
45,465,525 |
|
Effect
of dilutive securities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Employee stock
options |
![](spacer.gif) |
|
687,554 |
|
![](spacer.gif) |
|
446,737 |
|
Unvested
employees' restricted
stock |
![](spacer.gif) |
|
234,046 |
|
![](spacer.gif) |
|
244,311 |
|
Weighted
average number of shares and share equivalents
outstanding |
![](spacer.gif) |
|
46,835,235 |
|
![](spacer.gif) |
|
46,156,573 |
|
Income
per common share from continuing
operations |
![](spacer.gif) |
$ |
0.15 |
|
![](spacer.gif) |
$ |
0.04 |
|
Number
of anti-dilutive "out-of-the-money" stock
options
outstanding |
![](spacer.gif) |
|
47,400 |
|
![](spacer.gif) |
|
237,600 |
|
![](spacer.gif) |
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2,
2004 |
Numerator for basic and diluted
income per common
share: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income from continuing
operations |
![](spacer.gif) |
$ |
42,784 |
|
![](spacer.gif) |
$ |
29,998 |
|
Basic: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Weighted
average number of shares outstanding used in computing income per
common
share |
![](spacer.gif) |
|
45,805,562 |
|
![](spacer.gif) |
|
45,351,922 |
|
Income
per common share from continuing
operations |
![](spacer.gif) |
$ |
0.93 |
|
![](spacer.gif) |
$ |
0.66 |
|
Diluted: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Weighted
average number of shares
outstanding |
![](spacer.gif) |
|
45,805,562 |
|
![](spacer.gif) |
|
45,351,922 |
|
Effect
of dilutive securities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Employee stock
options |
![](spacer.gif) |
|
596,750 |
|
![](spacer.gif) |
|
423,318 |
|
Unvested
employees' restricted
stock |
![](spacer.gif) |
|
159,855 |
|
![](spacer.gif) |
|
201,011 |
|
Weighted
average number of shares and share equivalents
outstanding |
![](spacer.gif) |
|
46,562,167 |
|
![](spacer.gif) |
|
45,976,251 |
|
Income
per common share from continuing
operations |
![](spacer.gif) |
$ |
0.92 |
|
![](spacer.gif) |
$ |
0.65 |
|
Number
of anti-dilutive "out-of-the-money" stock
options
outstanding |
![](spacer.gif) |
|
69,600 |
|
![](spacer.gif) |
|
364,800 |
|
![](spacer.gif) |
22
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Options to purchase shares of common stock
at an exercise price greater than the average market price of the
underlying shares are anti-dilutive and therefore not included in the
computation of diluted income per common share from continuing
operations.
Note 16—Legal Matters
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 arbitration and/or legal
proceeding that it expects to have a material effect on its financial
condition, results of operations or business.
23
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
Note 17—Supplemental Consolidating
Condensed Financial Information
Certain subsidiaries of the
Company guarantee Warnaco's obligations under the Senior Notes.
The following tables set forth supplemental consolidating condensed
financial information as of October 1, 2005, January 1, 2005 and
October 2, 2004 and for the Nine Months Ended October 1, 2005 and the
Nine Months Ended October 2, 2004 for: (i) Warnaco Group; (ii) Warnaco;
(iii) the subsidiaries of Warnaco that guarantee the Senior Notes (the
"Guarantor Subsidiaries"); (iv) the
subsidiaries of Warnaco other than the Guarantor Subsidiaries (the
"Non-Guarantor Subsidiaries"); and (v) the
Company on a consolidated basis.
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
|
![](spacer.gif) |
The
Warnaco Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
ASSETS |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash
and cash
equivalents |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
114,994 |
|
![](spacer.gif) |
$ |
146 |
|
![](spacer.gif) |
$ |
36,871 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
152,011 |
|
Accounts receivable,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
143,162 |
|
![](spacer.gif) |
|
69,169 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
212,331 |
|
Inventories |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
89,287 |
|
![](spacer.gif) |
|
139,327 |
|
![](spacer.gif) |
|
84,023 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
312,637 |
|
Assets
of discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(24 |
) |
![](spacer.gif) |
|
24 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Prepaid
expenses and other current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
16,152 |
|
![](spacer.gif) |
|
12,666 |
|
![](spacer.gif) |
|
15,546 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
44,364 |
|
Total
current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
220,409 |
|
![](spacer.gif) |
|
295,325 |
|
![](spacer.gif) |
|
205,609 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
721,343 |
|
Property,
plant and equipment,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
45,788 |
|
![](spacer.gif) |
|
44,754 |
|
![](spacer.gif) |
|
23,495 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
114,037 |
|
Investment
in
subsidiaries |
![](spacer.gif) |
|
844,818 |
|
![](spacer.gif) |
|
551,498 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,396,316 |
) |
![](spacer.gif) |
|
— |
|
Other
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
46,214 |
|
![](spacer.gif) |
|
301,479 |
|
![](spacer.gif) |
|
16,972 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
364,665 |
|
Total
assets |
![](spacer.gif) |
$ |
844,818 |
|
![](spacer.gif) |
$ |
863,909 |
|
![](spacer.gif) |
$ |
641,558 |
|
![](spacer.gif) |
$ |
246,076 |
|
![](spacer.gif) |
$ |
(1,396,316 |
) |
![](spacer.gif) |
$ |
1,200,045 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
LIABILITIES
AND STOCKHOLDERS'
EQUITY |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
liabilities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Accounts payable, accrued liabilities
and accrued
taxes |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
105,206 |
|
![](spacer.gif) |
$ |
41,470 |
|
![](spacer.gif) |
$ |
83,588 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
230,264 |
|
Total current
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
105,206 |
|
![](spacer.gif) |
|
41,470 |
|
![](spacer.gif) |
|
83,588 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
230,264 |
|
Intercompany
accounts |
![](spacer.gif) |
|
225,030 |
|
![](spacer.gif) |
|
(171,315 |
) |
![](spacer.gif) |
|
24,392 |
|
![](spacer.gif) |
|
(78,107 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Long-term
debt |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
210,000 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
503 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
210,503 |
|
Other
long-term
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
123,255 |
|
![](spacer.gif) |
|
12,866 |
|
![](spacer.gif) |
|
3,369 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
139,490 |
|
Stockholders'
equity |
![](spacer.gif) |
|
619,788 |
|
![](spacer.gif) |
|
596,763 |
|
![](spacer.gif) |
|
562,830 |
|
![](spacer.gif) |
|
236,723 |
|
![](spacer.gif) |
|
(1,396,316 |
) |
![](spacer.gif) |
|
619,788 |
|
Total
liabilities and stockholders'
equity |
![](spacer.gif) |
$ |
844,818 |
|
![](spacer.gif) |
$ |
863,909 |
|
![](spacer.gif) |
$ |
641,558 |
|
![](spacer.gif) |
$ |
246,076 |
|
![](spacer.gif) |
$ |
(1,396,316 |
) |
![](spacer.gif) |
$ |
1,200,045 |
|
![](spacer.gif) |
24
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
January
1, 2005 |
|
![](spacer.gif) |
The
Warnaco Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
ASSETS |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash and cash
equivalents |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
44,155 |
|
![](spacer.gif) |
$ |
122 |
|
![](spacer.gif) |
$ |
21,311 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
65,588 |
|
Accounts receivable,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
160,030 |
|
![](spacer.gif) |
|
59,775 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
219,805 |
|
Inventories |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
93,284 |
|
![](spacer.gif) |
|
153,462 |
|
![](spacer.gif) |
|
88,905 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
335,651 |
|
Assets
of discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
39 |
|
![](spacer.gif) |
|
2,579 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
2,618 |
|
Prepaid
expenses and other current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
19,252 |
|
![](spacer.gif) |
|
9,961 |
|
![](spacer.gif) |
|
16,198 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
45,411 |
|
Total
current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
156,691 |
|
![](spacer.gif) |
|
323,614 |
|
![](spacer.gif) |
|
188,768 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
669,073 |
|
Property,
plant and equipment,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
30,323 |
|
![](spacer.gif) |
|
54,373 |
|
![](spacer.gif) |
|
22,241 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
106,937 |
|
Investment
in
subsidiaries |
![](spacer.gif) |
|
812,144 |
|
![](spacer.gif) |
|
551,616 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,363,760 |
) |
![](spacer.gif) |
|
— |
|
Other
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
47,830 |
|
![](spacer.gif) |
|
312,255 |
|
![](spacer.gif) |
|
17,809 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
377,894 |
|
Total
assets |
![](spacer.gif) |
$ |
812,144 |
|
![](spacer.gif) |
$ |
786,460 |
|
![](spacer.gif) |
$ |
690,242 |
|
![](spacer.gif) |
$ |
228,818 |
|
![](spacer.gif) |
$ |
(1,363,760 |
) |
![](spacer.gif) |
$ |
1,153,904 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
LIABILITIES
AND STOCKHOLDERS'
EQUITY |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
liabilities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Accounts payable, accrued liabilities
and accrued
taxes |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
106,235 |
|
![](spacer.gif) |
$ |
49,944 |
|
![](spacer.gif) |
$ |
77,219 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
233,398 |
|
Liabilities of discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
480 |
|
![](spacer.gif) |
|
970 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,450 |
|
Total
current
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
106,235 |
|
![](spacer.gif) |
|
50,424 |
|
![](spacer.gif) |
|
78,189 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
234,848 |
|
Intercompany
accounts |
![](spacer.gif) |
|
235,195 |
|
![](spacer.gif) |
|
(270,597 |
) |
![](spacer.gif) |
|
113,943 |
|
![](spacer.gif) |
|
(78,541 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Long-term
debt |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
210,000 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
799 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
210,799 |
|
Other
long-term
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
109,118 |
|
![](spacer.gif) |
|
10,891 |
|
![](spacer.gif) |
|
11,299 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
131,308 |
|
Stockholders'
equity |
![](spacer.gif) |
|
576,949 |
|
![](spacer.gif) |
|
631,704 |
|
![](spacer.gif) |
|
514,984 |
|
![](spacer.gif) |
|
217,072 |
|
![](spacer.gif) |
|
(1,363,760 |
) |
![](spacer.gif) |
|
576,949 |
|
Total
liabilities and stockholders'
equity |
![](spacer.gif) |
$ |
812,144 |
|
![](spacer.gif) |
$ |
786,460 |
|
![](spacer.gif) |
$ |
690,242 |
|
![](spacer.gif) |
$ |
228,818 |
|
![](spacer.gif) |
$ |
(1,363,760 |
) |
![](spacer.gif) |
$ |
1,153,904 |
|
![](spacer.gif) |
25
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
2, 2004 (As Restated—See Note
18) |
|
![](spacer.gif) |
The Warnaco
Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
ASSETS |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
assets: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Cash
and cash
equivalents |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
52,952 |
|
![](spacer.gif) |
$ |
237 |
|
![](spacer.gif) |
$ |
22,768 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
75,957 |
|
Accounts receivable,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
154,436 |
|
![](spacer.gif) |
|
57,832 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
212,268 |
|
Inventories |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
100,152 |
|
![](spacer.gif) |
|
125,289 |
|
![](spacer.gif) |
|
79,119 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
304,560 |
|
Assets
of discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
2,902 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
2,902 |
|
Prepaid
expenses and other current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
30,099 |
|
![](spacer.gif) |
|
11,769 |
|
![](spacer.gif) |
|
20,479 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
62,347 |
|
Total
current
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
183,203 |
|
![](spacer.gif) |
|
291,731 |
|
![](spacer.gif) |
|
183,100 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
658,034 |
|
Property,
plant and equipment,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
21,259 |
|
![](spacer.gif) |
|
57,950 |
|
![](spacer.gif) |
|
20,308 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
99,517 |
|
Investment
in
subsidiaries |
![](spacer.gif) |
|
786,595 |
|
![](spacer.gif) |
|
557,998 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,344,593 |
) |
![](spacer.gif) |
|
— |
|
Other
assets |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
125,714 |
|
![](spacer.gif) |
|
254,899 |
|
![](spacer.gif) |
|
16,616 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
397,229 |
|
Total
assets |
![](spacer.gif) |
$ |
786,595 |
|
![](spacer.gif) |
$ |
888,174 |
|
![](spacer.gif) |
$ |
604,580 |
|
![](spacer.gif) |
$ |
220,024 |
|
![](spacer.gif) |
$ |
(1,344,593 |
) |
![](spacer.gif) |
$ |
1,154,780 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Current
liabilities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Accounts
payable, accrued liabilities and accrued
taxes |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
121,175 |
|
![](spacer.gif) |
$ |
45,199 |
|
![](spacer.gif) |
$ |
74,210 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
240,584 |
|
Liabilities of
discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
444 |
|
![](spacer.gif) |
|
1,121 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,565 |
|
Total
current
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
121,175 |
|
![](spacer.gif) |
|
45,643 |
|
![](spacer.gif) |
|
75,331 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
242,149 |
|
Intercompany
accounts |
![](spacer.gif) |
|
237,271 |
|
![](spacer.gif) |
|
(223,882 |
) |
![](spacer.gif) |
|
63,205 |
|
![](spacer.gif) |
|
(76,594 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Long-term
debt |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
210,497 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
858 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
211,355 |
|
Other
long-term
liabilities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
140,897 |
|
![](spacer.gif) |
|
281 |
|
![](spacer.gif) |
|
10,774 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
151,952 |
|
Stockholders'
equity |
![](spacer.gif) |
|
549,324 |
|
![](spacer.gif) |
|
639,487 |
|
![](spacer.gif) |
|
495,451 |
|
![](spacer.gif) |
|
209,655 |
|
![](spacer.gif) |
|
(1,344,593 |
) |
![](spacer.gif) |
|
549,324 |
|
Total
liabilities and stockholders'
equity |
![](spacer.gif) |
$ |
786,595 |
|
![](spacer.gif) |
$ |
888,174 |
|
![](spacer.gif) |
$ |
604,580 |
|
![](spacer.gif) |
$ |
220,024 |
|
![](spacer.gif) |
$ |
(1,344,593 |
) |
![](spacer.gif) |
$ |
1,154,780 |
|
![](spacer.gif) |
26
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months Ended October 1,
2005 |
|
![](spacer.gif) |
The Warnaco
Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
Net
revenues |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
340,852 |
|
![](spacer.gif) |
$ |
476,577 |
|
![](spacer.gif) |
$ |
324,442 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,141,871 |
|
Cost of goods
sold |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
259,269 |
|
![](spacer.gif) |
|
326,957 |
|
![](spacer.gif) |
|
173,001 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
759,227 |
|
Gross
profit |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
81,583 |
|
![](spacer.gif) |
|
149,620 |
|
![](spacer.gif) |
|
151,441 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
382,644 |
|
Selling,
general and administrative
expenses |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
101,419 |
|
![](spacer.gif) |
|
106,280 |
|
![](spacer.gif) |
|
92,653 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
300,352 |
|
Pension
expense |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
600 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
600 |
|
Restructuring
expense
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
686 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,210 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(524 |
) |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Operating
income
(loss) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(21,122 |
) |
![](spacer.gif) |
|
43,340 |
|
![](spacer.gif) |
|
59,998 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
82,216 |
|
Equity
in income of
subsidiaries |
![](spacer.gif) |
|
(42,627 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
42,627 |
|
![](spacer.gif) |
|
— |
|
Intercompany
royalty and management
fees |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(2,099 |
) |
![](spacer.gif) |
|
(5,147 |
) |
![](spacer.gif) |
|
7,246 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Other
(income)
loss |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(6,019 |
) |
![](spacer.gif) |
|
6,019 |
|
![](spacer.gif) |
|
731 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
731 |
|
Interest
(income) expense,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
46,317 |
|
![](spacer.gif) |
|
(33,567 |
) |
![](spacer.gif) |
|
953 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
13,703 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
(loss) from continuing operations before provision (benefit) for income
taxes |
![](spacer.gif) |
|
42,627 |
|
![](spacer.gif) |
|
(59,321 |
) |
![](spacer.gif) |
|
76,035 |
|
![](spacer.gif) |
|
51,068 |
|
![](spacer.gif) |
|
(42,627 |
) |
![](spacer.gif) |
|
67,782 |
|
Provision
(benefit) for income
taxes |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(21,878 |
) |
![](spacer.gif) |
|
28,042 |
|
![](spacer.gif) |
|
18,834 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
24,998 |
|
Income
(loss) from continuing
operations |
![](spacer.gif) |
|
42,627 |
|
![](spacer.gif) |
|
(37,443 |
) |
![](spacer.gif) |
|
47,993 |
|
![](spacer.gif) |
|
32,234 |
|
![](spacer.gif) |
|
(42,627 |
) |
![](spacer.gif) |
|
42,784 |
|
Loss
from discontinued operations, net of
taxes |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(137 |
) |
![](spacer.gif) |
|
(20 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(157 |
) |
Net
income
(loss) |
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
$ |
(37,443 |
) |
![](spacer.gif) |
$ |
47,856 |
|
![](spacer.gif) |
$ |
32,214 |
|
![](spacer.gif) |
$ |
(42,627 |
) |
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
27
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months Ended October 2,
2004 |
|
![](spacer.gif) |
The Warnaco
Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
Net
revenues |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
303,876 |
|
![](spacer.gif) |
$ |
462,535 |
|
![](spacer.gif) |
$ |
283,353 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
1,049,764 |
|
Cost of goods
sold |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
230,403 |
|
![](spacer.gif) |
|
313,792 |
|
![](spacer.gif) |
|
157,967 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
702,162 |
|
Gross
profit |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
73,473 |
|
![](spacer.gif) |
|
148,743 |
|
![](spacer.gif) |
|
125,386 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
347,602 |
|
Selling,
general and administrative
expenses |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
101,429 |
|
![](spacer.gif) |
|
95,214 |
|
![](spacer.gif) |
|
82,331 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
278,974 |
|
Pension
expense |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
990 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
990 |
|
Restructuring
items
(income) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
3,508 |
|
![](spacer.gif) |
|
38 |
|
![](spacer.gif) |
|
320 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
3,866 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Operating
income
(loss) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(32,454 |
) |
![](spacer.gif) |
|
53,491 |
|
![](spacer.gif) |
|
42,735 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
63,772 |
|
Equity
in income of
subsidiaries |
![](spacer.gif) |
|
(26,270 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
26,270 |
|
![](spacer.gif) |
|
— |
|
Intercompany
royalty and management
fees |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,630 |
) |
![](spacer.gif) |
|
(4,500 |
) |
![](spacer.gif) |
|
6,130 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
Other
(income)
loss |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(15,448 |
) |
![](spacer.gif) |
|
14,980 |
|
![](spacer.gif) |
|
(1,559 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(2,027 |
) |
Interest
(income) expense,
net |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
33,294 |
|
![](spacer.gif) |
|
(18,999 |
) |
![](spacer.gif) |
|
873 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
15,168 |
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Income
(loss) from continuing operations before provision (benefit) for income
taxes |
![](spacer.gif) |
|
26,270 |
|
![](spacer.gif) |
|
(48,670 |
) |
![](spacer.gif) |
|
62,010 |
|
![](spacer.gif) |
|
37,291 |
|
![](spacer.gif) |
|
(26,270 |
) |
![](spacer.gif) |
|
50,631 |
|
Provision
(benefit) for income
taxes |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(19,832 |
) |
![](spacer.gif) |
|
25,269 |
|
![](spacer.gif) |
|
15,196 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
20,633 |
|
Income
(loss) from continuing
operations |
![](spacer.gif) |
|
26,270 |
|
![](spacer.gif) |
|
(28,838 |
) |
![](spacer.gif) |
|
36,741 |
|
![](spacer.gif) |
|
22,095 |
|
![](spacer.gif) |
|
(26,270 |
) |
![](spacer.gif) |
|
29,998 |
|
Income
(loss) from discontinued operations, net of
taxes |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(3,854 |
) |
![](spacer.gif) |
|
126 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(3,728 |
) |
Net
income
(loss) |
![](spacer.gif) |
$ |
26,270 |
|
![](spacer.gif) |
$ |
(28,838 |
) |
![](spacer.gif) |
$ |
32,887 |
|
![](spacer.gif) |
$ |
22,221 |
|
![](spacer.gif) |
$ |
(26,270 |
) |
![](spacer.gif) |
$ |
26,270 |
|
![](spacer.gif) |
28
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months Ended October 1,
2005 |
|
![](spacer.gif) |
The Warnaco
Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
Net cash provided by
(used in) operating activities from continuing
operations |
![](spacer.gif) |
$ |
(1,389 |
) |
![](spacer.gif) |
$ |
83,226 |
|
![](spacer.gif) |
$ |
8,289 |
|
![](spacer.gif) |
$ |
23,614 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
113,740 |
|
Net
cash provided by (used in) operating activities from discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(229 |
) |
![](spacer.gif) |
|
1,298 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,069 |
|
Net
cash provided by (used in) operating
activities |
![](spacer.gif) |
|
(1,389 |
) |
![](spacer.gif) |
|
83,226 |
|
![](spacer.gif) |
|
8,060 |
|
![](spacer.gif) |
|
24,912 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
114,809 |
|
Cash
flows from investing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Proceeds
on disposal of assets and collection of notes
receivable |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
4,676 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
35 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
4,711 |
|
Purchase
of property, plant and
equipment |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(16,781 |
) |
![](spacer.gif) |
|
(3,236 |
) |
![](spacer.gif) |
|
(5,567 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(25,584 |
) |
Purchase
of intangible
asset |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(4,333 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(4,333 |
) |
Other |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(467 |
) |
![](spacer.gif) |
|
(278 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(745 |
) |
Net
cash used in investing
activities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(12,105 |
) |
![](spacer.gif) |
|
(8,036 |
) |
![](spacer.gif) |
|
(5,810 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(25,951 |
) |
Cash
flows from financing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Proceeds
from exercise of stock
options |
![](spacer.gif) |
|
2,299 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
2,299 |
|
Payment
of deferred financing
costs |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(282 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,185 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,467 |
) |
Other |
![](spacer.gif) |
|
(910 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(296 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,206 |
) |
Net
cash provided by (used in) financing
activities |
![](spacer.gif) |
|
1,389 |
|
![](spacer.gif) |
|
(282 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,481 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(374 |
) |
Translation
adjustments |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(2,061 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(2,061 |
) |
Increase
(decrease) in cash and cash
equivalents |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
70,839 |
|
![](spacer.gif) |
|
24 |
|
![](spacer.gif) |
|
15,560 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
86,423 |
|
Cash
and cash equivalents, at beginning of
period |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
44,155 |
|
![](spacer.gif) |
|
122 |
|
![](spacer.gif) |
|
21,311 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
65,588 |
|
Cash
and cash equivalents, at end of period |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
114,994 |
|
![](spacer.gif) |
$ |
146 |
|
![](spacer.gif) |
$ |
36,871 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
152,011 |
|
![](spacer.gif) |
29
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months Ended October 2, 2004 (As Restated—See Note
18) |
|
![](spacer.gif) |
The Warnaco
Group, Inc. |
![](spacer.gif) |
Warnaco Inc. |
![](spacer.gif) |
Guarantor
Subsidiaries |
![](spacer.gif) |
Non-Guarantor
Subsidiaries |
![](spacer.gif) |
Elimination
Entries |
![](spacer.gif) |
Consolidated |
Net cash provided by
(used in) operating activities from continuing
operations |
![](spacer.gif) |
$ |
(2,429 |
) |
![](spacer.gif) |
$ |
24,024 |
|
![](spacer.gif) |
$ |
32,209 |
|
![](spacer.gif) |
$ |
6,600 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
60,404 |
|
Net
cash provided by (used in) operating activities from discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(5,057 |
) |
![](spacer.gif) |
|
1,021 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(4,036 |
) |
Net
cash provided by (used in) operating
activities |
![](spacer.gif) |
|
(2,429 |
) |
![](spacer.gif) |
|
24,024 |
|
![](spacer.gif) |
|
27,152 |
|
![](spacer.gif) |
|
7,621 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
56,368 |
|
Cash
flows from investing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Proceeds
on disposal of assets and collection of notes
receivables |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
5,467 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
243 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
5,710 |
|
Purchase
of property, plant and
equipment |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(9,706 |
) |
![](spacer.gif) |
|
(1,577 |
) |
![](spacer.gif) |
|
(4,044 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(15,327 |
) |
Business
acquisitions |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(40,018 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(40,018 |
) |
Proceeds
from sale of business
units |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
15,179 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
15,179 |
|
Net
cash provided by (used in) investing activities from continuing
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(4,239 |
) |
![](spacer.gif) |
|
(26,416 |
) |
![](spacer.gif) |
|
(3,801 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(34,456 |
) |
Net
cash provided by (used in) investing activities from discontinued
operations |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,137 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
1,137 |
|
Net
cash provided by (used in) investing
activities |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(4,239 |
) |
![](spacer.gif) |
|
(26,416 |
) |
![](spacer.gif) |
|
(2,664 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(33,319 |
) |
Cash
flows from financing
activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Proceeds
from exercise of stock
options |
![](spacer.gif) |
|
2,429 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
2,429 |
|
Other |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(705 |
) |
![](spacer.gif) |
|
(1,000 |
) |
![](spacer.gif) |
|
(274 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(1,979 |
) |
Net
cash provided by (used in) financing
activities |
![](spacer.gif) |
|
2,429 |
|
![](spacer.gif) |
|
(705 |
) |
![](spacer.gif) |
|
(1,000 |
) |
![](spacer.gif) |
|
(274 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
450 |
|
Translation
adjustments |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(999 |
) |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
(999 |
) |
Increase
(decrease) in cash and cash
equivalents |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
19,080 |
|
![](spacer.gif) |
|
(264 |
) |
![](spacer.gif) |
|
3,684 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
22,500 |
|
Cash
and cash equivalents, at beginning of
period |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
33,872 |
|
![](spacer.gif) |
|
501 |
|
![](spacer.gif) |
|
19,084 |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
53,457 |
|
Cash
and cash equivalents, at end of
period |
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
52,952 |
|
![](spacer.gif) |
$ |
237 |
|
![](spacer.gif) |
$ |
22,768 |
|
![](spacer.gif) |
$ |
— |
|
![](spacer.gif) |
$ |
75,957 |
|
![](spacer.gif) |
30
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
![](spacer.gif) |
![](spacer.gif) |
Note
18— |
Restatement of Consolidated Condensed
Balance Sheet at October 2, 2004 and Consolidated Condensed Statement
of Cash Flows for the Nine Months Ended October 2, 2004 |
As
previously disclosed in the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 2005, the Company restated its
consolidated balance sheet at January 3, 2004 and its consolidated
statement of cash flows for the period February 5, 2003 to January 3,
2004. The Company reviewed its accounting for operating leases and
determined that its method of accounting for rent that was deferred
during the pre-occupancy renovation period and its netting of cash
received from the landlord against the cost of leasehold improvements,
in each case, related to the lease for the Company's New York
headquarters, did not conform to accounting principles generally
accepted in the United States of America. The consolidated condensed
balance sheet as of October 2, 2004 and the consolidated condensed
statement of cash flows for the Nine Months Ended October 2, 2004 have
been restated accordingly. A summary of the effects of the restatement
is presented below:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Consolidated
Condensed Balance Sheet at October 2,
2004 |
|
![](spacer.gif) |
As
Previously Reported |
![](spacer.gif) |
As Restated |
Prepaid
expenses and other current
assets |
![](spacer.gif) |
|
64,847 |
|
![](spacer.gif) |
|
62,347 |
|
Total current
assets |
![](spacer.gif) |
|
660,534 |
|
![](spacer.gif) |
|
658,034 |
|
Property,
plant and equipment,
net |
![](spacer.gif) |
|
89,848 |
|
![](spacer.gif) |
|
99,517 |
|
Total
assets |
![](spacer.gif) |
|
1,147,611 |
|
![](spacer.gif) |
|
1,154,780 |
|
Other
long-term
liabilities |
![](spacer.gif) |
|
142,735 |
|
![](spacer.gif) |
|
151,952 |
|
Retained
earnings |
![](spacer.gif) |
|
28,156 |
|
![](spacer.gif) |
|
26,108 |
|
Total
stockholders'
equity |
![](spacer.gif) |
|
551,372 |
|
![](spacer.gif) |
|
549,324 |
|
Total
liabilities and stockholders'
equity |
![](spacer.gif) |
|
1,147,611 |
|
![](spacer.gif) |
|
1,154,780 |
|
![](spacer.gif) |
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Consolidated
Condensed Statement of Cash Flows For the Nine Months
Ended October 2, 2004 |
|
![](spacer.gif) |
As
Previously Reported |
![](spacer.gif) |
As Restated |
Net cash
provided by operating activities from continuing
operations |
![](spacer.gif) |
|
55,121 |
|
![](spacer.gif) |
|
60,404 |
|
Net cash
provided by operating
activities |
![](spacer.gif) |
|
51,085 |
|
![](spacer.gif) |
|
56,368 |
|
Net cash
used in investing activities from continuing
operations |
![](spacer.gif) |
|
(29,173 |
) |
![](spacer.gif) |
|
(34,456 |
) |
Net
cash used in investing
activities |
![](spacer.gif) |
|
(28,036 |
) |
![](spacer.gif) |
|
(33,319 |
) |
![](spacer.gif) |
Note
19—Commitments
Pursuant to an agreement entered into
during the Three Months Ended October 1, 2005, the Company agreed to
purchase approximately $1,000 of store fixtures in the first quarter of
fiscal 2006.
During the Three Months Ended October 1, 2005, the
Company entered into agreements to guarantee certain purchase orders by
one of its finished goods contractors with vendors of raw materials up
to a maximum of $3,717. As of October 28, 2005, the Company had made
payments of $2,432 (recorded in inventory) related to these guarantees
and approximately $1,285 of the guarantees were still outstanding. The
guarantees expire at various times through December 2005. The estimated
fair value of the guarantees was not material to the Company's
consolidated financial statements at October 1, 2005.
31
THE
WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share
amounts)
(Unaudited)
During the Nine Months Ended October 1,
2005, the Company entered into certain (and amended certain other)
employment agreements with its executive officers. The agreements
provide for the payment of base salary and bonus and the granting of
long-term incentive and supplemental awards to the executives. Minimum
guaranteed compensation payable to the executives under the agreements
is $4,693, $5,627, $3,863 and $1,305 with respect to fiscal 2005, 2006,
2007 and 2008, respectively.
32
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Warnaco Group,
Inc. ("Warnaco Group" and, collectively with
its subsidiaries, the "Company") is subject
to certain risks and uncertainties that could cause its future results
of operations to differ materially from its historical results of
operations and those expected in the future or that could affect the
value of the Company's common stock, par value $0.01 per share
(the "Common Stock"). Except for the
historical information contained herein, this Quarterly Report on Form
10-Q, including the following discussion, contains forward-looking
statements that involve risks and uncertainties. See
"Statement Regarding Forward-Looking
Disclosure."
The following Management's
Discussion and Analysis of Financial Condition and Results of
Operations is a summary and should be read in conjunction with: (i) the
consolidated condensed financial statements and related notes thereto
which are included in this Quarterly Report on Form 10-Q; and (ii) the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 2005. The period July 3, 2005 to October 1, 2005 (the
"Third Quarter of Fiscal 2005"), the period
January 2, 2005 to October 1, 2005 (the "Nine Months Ended
October 1, 2005"), the period July 4, 2004 to October 2,
2004 (the "Third Quarter of Fiscal 2004") and
the period January 4, 2004 to October 2, 2004 (the "Nine
Months Ended October 2, 2004") contained thirteen weeks,
thirty-nine weeks, thirteen weeks, and thirty-nine weeks, respectively,
of operations. References to "Core Brands" in
the context of the Company's Intimate Apparel Group refer to the
Company's Warner's®,
Olga®, and Body Nancy
Ganz/Bodyslimmers®
brand names. References to "Fashion Brands"
in the context of the Company's Intimate Apparel Group refer to
the Company's Lejaby®, Axcelerate
engineered by Speedo®
("Axcelerate") and J. Lo by
Jennifer Lopez®
("JLO") brand names. References to
"Designer" in the context of the Swimwear
Group refer to the Company's Cole of
California®,
Catalina®, Anne
Cole®,
Lifeguard®,
Nautica®, Calvin
Klein® and Michael
Kors® brand names.
Overview
The Company designs, sources, manufactures, markets, licenses and
distributes intimate apparel, sportswear and swimwear worldwide through
a broad line of highly recognized brand names. The Company's
products are distributed primarily to wholesale customers through
multiple distribution channels, including major department stores,
independent retailers, membership clubs, chain stores, specialty and
other stores and mass merchandisers. There are also 92 Calvin
Klein retail stores worldwide (consisting of 51 stores directly
operated by the Company, including one on-line store, and 41 stores
operated under retail licenses or distributorship agreements). The
Company's Swimwear Group also operates two
Speedo® outlet stores which opened in July 2005 and
one on-line store.
During the Nine Months Ended October 1, 2005,
the Company saw improvements in its operations and results which the
Company believes were driven in part by the effectiveness of its
merchandising and brand strategies. Strength in the Sportswear Group
resulted in an 18.6% increase in Sportswear Group net revenues
for Nine Months Ended October 1, 2005 compared to the Nine Months Ended
October 2, 2004, which the Company believes demonstrates the successful
execution of its expanded product and distribution strategies. In the
Intimate Apparel Group, Calvin Klein underwear net revenues
increased 10.1% for the Nine Months Ended October 1, 2005
compared to the Nine Months Ended October 2, 2004. In addition, Core
Brands net revenues increased 1.7% for the Nine Months Ended
October 1, 2005 compared to the Nine Months Ended October 2, 2004.
The Company continues to plan for its long-term growth and
profitability by investing in its operating platform and
infrastructure. During the Nine Months Ended October 1, 2005, the
Company continued the implementation of SAP's Apparel and
Footwear Solution (an enterprise-wide computer software platform
encompassing finance, sales and distribution and materials management)
("SAP") in both its Swimwear Group and
certain corporate shared services departments. The Company expects to
complete implementation of SAP in its Swimwear Group and certain
corporate shared services departments in the first quarter of 2006. The
Company believes that this enterprise software solution will enable
management to better and more efficiently gather, analyze and assess
information worldwide.
The Company has identified many near-term
opportunities for growth and operational improvement, as well as
challenges and uncertainties relating to certain of its businesses. In
particular,
33
management believes that there are many
factors influencing the manufacturing and procurement business cycle of
the apparel industry, including but not limited to uncertainty
surrounding ongoing import restrictions (including recently established
limits on imports of certain intimate apparel products from Asia),
overall deflation in the selling prices of apparel products and
consolidation of its retail customers. See "Statement
Regarding Forward-Looking Disclosure." The Company
will continue to address these and other challenges by, among other
things, seeking to: (i) improve its procurement process and identify
and utilize lower cost, high quality reliable sourcing partners; (ii)
focus on operational controls and efficiency by continuing its
investment in its infrastructure; (iii) continue to develop and invest
in its portfolio of desirable brands while maintaining a diverse
product offering at competitive price points across multiple channels
of distribution; (iv) expand its product offerings with existing
customers; (v) introduce new products in new channels of distribution;
and (vi) identify strategic acquisition opportunities.
On July
12, 2005, the Company announced the election of Donald L. Seeley to the
Board of Directors. With the addition of Mr. Seeley, seven of the eight
directors of the Company are independent.
Financial and Operating Highlights
Third Quarter
Net revenues increased $3.2
million, or 1.0%, to $327.7 million for the Third Quarter of
Fiscal 2005 as compared to $324.4 million for the Third Quarter of
Fiscal 2004, reflecting an increase of $6.7 million in the Swimwear
Group, partially offset by declines of $1.7 million and $1.8 million in
the Intimate Apparel Group and Sportswear Group, respectively. The
decline in Sportswear Group net revenues reflects the timing of certain
shipments of Calvin Klein jeans products to membership clubs
which occurred in the first half of fiscal 2005 while comparable sales
occurred in the second half of fiscal 2004, partially offset by
increases in Chaps® net revenues. Calvin Klein
underwear revenues were up 9.9% while revenues in the remainder
of the Intimate Apparel Group's businesses declined due in part
to challenging comparisons as a result of the 2004 JLO launch. In
translating foreign currencies into the United States dollar, the net
weakness of the United States dollar relative to the functional
currencies where the Company conducts certain of its operations
(primarily the euro in Europe and Canadian dollar in Canada) resulted
in a $1.6 million increase in net revenues for the Third Quarter of
Fiscal 2005 compared to the Third Quarter of Fiscal 2004.
Gross
profit increased $10.0 million, or 9.7%, to $112.7 million for
the Third Quarter of Fiscal 2005 compared to $102.7 million for the
Third Quarter of Fiscal 2004, attributable to increases in the
Company's Sportswear and Intimate Apparel Groups, partially
offset by a slight decrease in the Swimwear Group. Gross profit as a
percentage of net revenues ("gross margin")
increased from 31.6% for the Third Quarter of Fiscal 2004 to
34.4% for the Third Quarter of Fiscal 2005 primarily reflecting
cost savings resulting from sourcing initiatives implemented in the
2004 fiscal year coupled with an improved regular to off-price sales
mix. In translating foreign currencies into the United States dollar,
the net weakness of the United States dollar relative to the functional
currencies where the Company conducts certain of its operations
(primarily the euro in Europe and Canadian dollar in Canada) resulted
in a $0.7 million increase in gross profit for the Third Quarter of
Fiscal 2005 compared to the Third Quarter of Fiscal 2004.
Selling, general and administrative
("SG&A") expenses increased $5.9 million,
or 6.2%, to $100.0 million (30.5% of net revenues) for
the Third Quarter of Fiscal 2005 from $94.1 million (29.0% of
net revenues) for the Third Quarter of Fiscal 2004. Selling and
marketing expenses (including distribution expenses) increased $2.3
million, primarily reflecting the full period effect and vertical
integration of the Ocean Pacific® business (acquired in
August 2004) coupled with expenses associated with the launches of
Michael Kors and Calvin Klein swimwear. Administrative
expenses increased $3.5 million reflecting an increase in
administrative expenses related to operating groups of $2.5 million
coupled with an increase in unallocated corporate expenses of $1.0
million. The increase in operating group administrative expenses
primarily reflects increases related to a full period of operations of
the
34
Company's Ocean Pacific business
coupled with increases related to the Company's expansion of its
retail business, partially offset by net cost savings across other
groups. The increase in unallocated corporate expenses includes an
increase in employee benefits ($0.8 million) as a result of planned
enhancements to employee benefit programs, charges related to the
Company's SAP implementation (which commenced in the fourth
quarter of the 2004 fiscal year) ($0.7 million) and other net increases
($0.6 million), partially offset by a reduction in professional fees of
$1.1 million associated with Sarbanes-Oxley Act of 2002
("SOX") compliance and an internal control
review conducted in connection with the Company's previously
disclosed settlement with the United States Securities and Exchange
Commission ("SEC") on May 11, 2004. In
translating foreign currencies into the United States dollar, the net
weakness of the United States dollar relative to the functional
currencies where the Company conducts certain of its operations
(primarily the euro in Europe and Canadian dollar in Canada) resulted
in a $0.2 million increase in SG&A expenses for the Third Quarter
of Fiscal 2005 compared to the Third Quarter of Fiscal 2004.
Operating income increased to $13.7 million (4.2% of net
revenues) for the Third Quarter of Fiscal 2005 compared to $7.8 million
(2.4% of net revenues) for the Third Quarter of Fiscal 2004
primarily reflecting an increase in group operating income combined
with a reversal of restructuring accruals, partially offset by an
increase in unallocated corporate expenses. The improvement in
operating margin reflects the reversal of certain restructuring
accruals and a 280 basis point increase in gross margin, partially
offset by a 150 basis point increase in SG&A expenses as a
percentage of net revenues. In translating foreign currencies into the
United States dollar, the net weakness of the United States dollar
relative to the functional currencies where the Company conducts
certain of its operations (primarily the euro in Europe and Canadian
dollar in Canada) resulted in a $0.5 million increase in operating
income for the Third Quarter of Fiscal 2005 compared to the Third
Quarter of Fiscal 2004.
Net income increased to $6.9 million, or
$0.15 per diluted share, for the Third Quarter of Fiscal 2005 compared
to $1.6 million, or $0.03 per diluted share, for the Third Quarter of
Fiscal 2004. The improvement in net income resulted primarily from the
increase in gross profit, the increase in restructuring income, lower
interest expense and lower tax expense. The Company's tax
provision for the quarter benefited from the reconciliation of its tax
accounts related to the filing of the Company's 2004 tax
returns.
Nine Months
Net revenues
increased $92.1 million, or 8.8%, to $1,141.9 million for the
Nine Months Ended October 1, 2005 as compared to $1,049.8 million for
the Nine Months Ended October 2, 2004. The majority of the increase was
attributable to expanded distribution of the Sportswear Group's
Chaps brand and the continued strength of the Calvin
Klein jeans brand. Net revenues for the Nine Months Ended October
1, 2005 benefited from the timing of certain sales of Calvin
Klein jeans products to membership clubs. The increase in sales to
membership clubs reflects the timing of certain shipments which
occurred in the Nine Months Ended October 1, 2005 while comparable
sales occurred in the fourth quarter of fiscal 2004. The increase in
net revenues also reflects increases in the Intimate Apparel Group,
primarily in the Company's Warner's brand and
Calvin Klein underwear brand. In addition, net revenues
increased in the Swimwear Group reflecting revenues of $7.7 million for
Ocean Pacific (acquired on August 19, 2004) for the full Nine
Months Ended October 1, 2005 and revenues of Calvin Klein
swimwear in Europe and the United States, partially offset by a
decrease in Speedo. In translating foreign currencies into the
United States dollar, the weakness of the United States dollar relative
to the functional currencies where the Company conducts certain of its
operations (primarily the euro in Europe and Canadian dollar in Canada)
resulted in an $11.4 million increase in net revenues for the Nine
Months Ended October 1, 2005 compared to the Nine Months Ended October
2, 2004.
Gross profit increased $35.0 million, or 10.1%,
to $382.6 million for the Nine Months Ended October 1, 2005 compared to
$347.6 million for the Nine Months Ended October 2, 2004, attributable
to increases in the Sportswear and Intimate Apparel Groups, partially
offset by a decrease in the Swimwear Group. Gross margin increased from
33.1% for the Nine Months Ended October 2, 2004 to
35
33.5% for the Nine Months Ended
October 1, 2005 primarily reflecting an improved regular to off-price
sales mix, partially offset by less favorable markdown and allowance
experience. Gross profit also includes the effect of design and
merchandising expenses related to the introduction of new products,
primarily Op®, Calvin Klein swimwear,
Michael Kors and Axcelerate. In translating foreign
currencies into the United States dollar, the weakness of the United
States dollar relative to the functional currencies where the Company
conducts certain of its operations (primarily the euro in Europe and
Canadian dollar in Canada) resulted in a $4.7 million increase in gross
profit for the Nine Months Ended October 1, 2005 compared to the Nine
Months Ended October 2, 2004.
SG&A expenses increased $21.4
million, or 7.7%, to $300.4 million (26.3% of net
revenues) for the Nine Months Ended October 1, 2005 from $279.0 million
(26.6% of net revenues) for the Nine Months Ended October 2,
2004. Selling and marketing expenses (including distribution expenses)
increased $14.1 million, primarily as a result of the associated
increase in net revenues, a full period of operations in the
Company's Ocean Pacific business which was acquired in
August 2004 and expenses associated with the launches of Michael
Kors and Calvin Klein swimwear. Administrative expenses
increased $7.3 million reflecting an increase in expenses related to
operating groups of $4.5 million coupled with an increase in
unallocated corporate expenses of $2.8 million. The increase in
administrative expenses related to the operating groups reflects the
full period effect and vertical integration of the Ocean Pacific
business (acquired in August 2004), increases related to the
Company's expansion of its retail business and the provision for
an uncollectible non-trade receivable balance (totaling $1.5 million,
$0.3 million of which is included in restructuring items) in the
Intimate Apparel segment, partially offset by net cost savings across
other groups. The increase in unallocated corporate expenses includes
an increase in employee benefits ($1.6 million) as a result of planned
enhancements to employee benefit programs, charges related to the
Company's SAP implementation (which commenced in the fourth
quarter of the 2004 fiscal year) ($2.0 million) and other items, net,
of $0.7 million, partially offset by a reduction in professional fees
of $1.5 million primarily associated with SOX compliance and an
internal control review conducted in connection with the
Company's previously disclosed settlement with the SEC on May 11,
2004. In translating foreign currencies into the United States dollar,
the weakness of the United States dollar relative to the functional
currencies where the Company conducts certain of its operations
(primarily the euro in Europe and Canadian dollar in Canada) resulted
in a $2.8 million increase in SG&A expenses for the Nine Months
Ended October 1, 2005 compared to the Nine Months Ended October 2,
2004.
Operating income increased to $82.2 million (7.2%
of net revenues) for the Nine Months Ended October 1, 2005 compared to
$63.8 million (6.1% of net revenues) for the Nine Months Ended
October 2, 2004, primarily reflecting an increase in gross profit
combined with a decrease in restructuring expenses, partially offset by
an increase in SG&A expenses. The improvement in operating margin
reflects the decrease in restructuring costs coupled with a 40 basis
point increase in gross margin and a 30 basis point decline in SG&A
expenses as a percentage of net revenues. In translating foreign
currencies into the United States dollar, the weakness of the United
States dollar relative to the functional currencies where the Company
conducts certain of its operations (primarily the euro in Europe and
Canadian dollar in Canada) resulted in a $1.9 million increase in
operating income for the Nine Months Ended October 1, 2005 compared to
the Nine Months Ended October 2, 2004.
Net income increased to
$42.6 million, or $0.92 per diluted share, for the Nine Months Ended
October 1, 2005 compared to $26.3 million, or $0.57 per diluted share,
for the Nine Months Ended October 2, 2004. The improvement in net
income resulted primarily from the increase in gross profit, the
increase in restructuring income, lower interest expense and lower tax
expense.
Accounts receivable decreased $7.5 million from $219.8
million at January 1, 2005 to $212.3 million at October 2, 2005. The
decrease primarily reflects initial shipments of Chaps into the
mid-tier channel of distribution at the end of December 2004 which
resulted in an unusually high level of accounts receivable for the
Chaps division at the end of fiscal 2004. In addition, the
Company has improved its rate of collections, improving its nine month
average days sales outstanding from 57 days at October 2, 2004 to 55
days at October 1, 2005. Accounts receivable were flat at $212.3
million as of October 1, 2005 compared to $212.3 million as of October
2, 2004.
36
Inventories decreased $23.0 million from
$335.6 million at January 1, 2005 to $312.6 million at October 1, 2005,
primarily related to a $17.8 million decrease in Swimwear Group
inventory reflecting the seasonal shipment of swimwear products,
combined with a $15.3 million decrease in Intimate Apparel inventory
due primarily to a decrease in the Intimate Apparel Group's level
of excess and obsolete inventory, partially offset by a $10.1 million
increase in Sportswear Group inventory due primarily to the expansion
of the Chaps brand into the mid-tier channel of distribution.
Inventories at October 1, 2005 increased $8.0 million to $312.6 million
from $304.6 million at October 2, 2004, primarily related to a $10.6
million increase in Sportswear Group inventory reflecting the expansion
of the Chaps brand into the mid-tier channel of distribution,
combined with a $9.3 million increase in Swimwear Group inventory due
primarily to a challenging swimwear season, partially offset by a $11.9
million decrease in Intimate Apparel inventory due primarily to a
decrease in the Intimate Apparel Group's level of excess and
obsolete inventory. The Company has identified inventory having a
carrying value of $63.3 million as potentially excess at October 1,
2005 compared to inventory having a carrying value of $53.5 million as
potentially excess at January 1, 2005. The increase in excess inventory
reflects increases in Swimwear ($9.8 million), Chaps ($4.9
million), Calvin Klein underwear in Europe ($5.8 million) and
other divisions, net ($0.9 million), partially offset by decreases in
Intimate Apparel (exclusive of Calvin Klein underwear in Europe)
of $11.6 million. Reductions to reduce the carrying value of excess
inventory to estimated net realizable value totaled $24.3 million
(38.3% of carrying value) at October 1, 2005 compared to $22.4
million (41.9% of cost) at January 1, 2005. The decrease in
inventory carrying value as a percentage of potentially excess
inventory reflects the mix of inventory and historical realization
rates for the sales of goods by type and location.
Discussion
of Critical Accounting Policies
The preparation of financial
statements in conformity with accounting principles generally accepted
in the United States of America requires the Company to use judgment in
making certain estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities and the reported amounts of revenues and expenses in
its consolidated condensed financial statements and accompanying
notes.
Critical accounting policies are those that are most
important to the portrayal of the Company's 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. As previously reported in the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 2005, the Company's most critical accounting policies
pertain to revenue recognition, cost of goods sold, accounts
receivable, inventories, long-lived assets, income taxes, pension plan,
stock-based compensation, advertising costs, goodwill, and
restructuring items. In applying such policies, management must record
income and expense amounts that are based upon informed judgments and
best estimates. Because of the uncertainty inherent in these estimates,
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. Management is not aware of any reasonably likely events or
circumstances which would result in different amounts being reported
that would materially affect the Company's financial condition or
results of operations.
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 related to charges in dispute with
customers. The Company's estimates of the allowance amounts that
are necessary are updated on a monthly basis and include amounts for
specific deductions the Company has authorized and an amount for other
estimated losses. Adjustments to accounts receivable reserves for
specific account allowances and negotiated settlements of customer
deductions are recorded in the period the specific adjustment is
identified. The provision for accounts receivable allowances is
affected by general economic conditions, the financial condition of the
Company's customers, the inventory
37
position of the Company's customers and
many other factors. The determination of accounts receivable reserves
is subject to significant levels of judgment and estimation by the
Company's management. If circumstances change or economic
conditions deteriorate, the Company may need to increase the reserve
significantly. The Company has purchased credit insurance to help
mitigate the potential losses it may incur from the bankruptcy,
reorganization or liquidation of some of its customers.
As of
October 1, 2005, January 1, 2005 and October 2, 2004, the Company had
$260.5 million, $271.9 million and $255.2 million of open trade
invoices and other receivables and $4.5 million, $2.8 million and $8.0
million of open debit memos, net of credit memos, respectively. Based
upon the Company's analysis of estimated recoveries and
collections associated with the related invoices and debit memos, as of
October 1, 2005, January 1, 2005 and October 2, 2004, the Company
recorded $52.7 million, $54.9 million and $50.9 million of accounts
receivable reserves, respectively.
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 Company's
objective is to recognize projected inventory losses at the time the
loss is evident rather than when the goods are ultimately sold. The
Company's 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 goods based
on revised projections and current market conditions for the
disposition of excess inventory. If economic conditions worsen, the
Company may have to decrease its carrying value of excess goods
substantially.
The Company has identified inventory with a
carrying value of $63.3 million as potentially excess at October 1,
2005 compared to $53.5 million at January 1, 2005 and $43.1 million at
October 2, 2004. Reductions to reduce the carrying value of excess
inventory to estimated net realizable value totaled $24.3 million
(38.3% of carrying value) at October 1, 2005 compared to $22.4
million (41.9% of carrying value) at January 1, 2005 and $23.2
million (53.8% of carrying value) at October 2, 2004. The
decrease in inventory carrying value as a percentage of potentially
excess inventory reflects the mix of inventory and historical
realization rates for the sales of excess goods by type and
location.
Results of Operations
STATEMENT OF
OPERATIONS (SELECTED DATA)
The following tables and discussion
summarize the historical results of operations of the Company for the
Third Quarter of Fiscal 2005 compared to the Third Quarter of Fiscal
2004 and the Nine Months Ended October 1, 2005 compared to the Nine
Months Ended October 2, 2004.
38
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|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
% of
Net Revenues |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
% of Net Revenues |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
% of
Net Revenues |
![](spacer.gif) |
Nine Months Ended October
2, 2004 |
![](spacer.gif) |
% of
Net Revenues |
|
![](spacer.gif) |
(in
thousands of dollars) |
Net
revenues |
![](spacer.gif) |
$ |
327,651 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
$ |
324,434 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
$ |
1,141,871 |
|
![](spacer.gif) |
|
100.0 |
% |
![](spacer.gif) |
$ |
1,049,764 |
|
![](spacer.gif) |
|
100.0 |
% |
Cost
of goods
sold |
![](spacer.gif) |
|
214,986 |
|
![](spacer.gif) |
|
65.6 |
% |
![](spacer.gif) |
|
221,761 |
|
![](spacer.gif) |
|
68.4 |
% |
![](spacer.gif) |
|
759,227 |
|
![](spacer.gif) |
|
66.5 |
% |
![](spacer.gif) |
|
702,162 |
|
![](spacer.gif) |
|
66.9 |
% |
Gross
profit |
![](spacer.gif) |
|
112,665 |
|
![](spacer.gif) |
|
34.4 |
% |
![](spacer.gif) |
|
102,673 |
|
![](spacer.gif) |
|
31.6 |
% |
![](spacer.gif) |
|
382,644 |
|
![](spacer.gif) |
|
33.5 |
% |
![](spacer.gif) |
|
347,602 |
|
![](spacer.gif) |
|
33.1 |
% |
Selling,
general and administrative
expenses |
![](spacer.gif) |
|
99,985 |
|
![](spacer.gif) |
|
30.5 |
% |
![](spacer.gif) |
|
94,134 |
|
![](spacer.gif) |
|
29.0 |
% |
![](spacer.gif) |
|
300,352 |
|
![](spacer.gif) |
|
26.3 |
% |
![](spacer.gif) |
|
278,974 |
|
![](spacer.gif) |
|
26.6 |
% |
Pension
expense |
![](spacer.gif) |
|
200 |
|
![](spacer.gif) |
|
0.1 |
% |
![](spacer.gif) |
|
330 |
|
![](spacer.gif) |
|
0.1 |
% |
![](spacer.gif) |
|
600 |
|
![](spacer.gif) |
|
0.2 |
% |
![](spacer.gif) |
|
990 |
|
![](spacer.gif) |
|
0.1 |
% |
Restructuring
expense
(income) |
![](spacer.gif) |
|
(1,251 |
) |
![](spacer.gif) |
|
–0.4 |
% |
![](spacer.gif) |
|
403 |
|
![](spacer.gif) |
|
0.1 |
% |
![](spacer.gif) |
|
(524 |
) |
![](spacer.gif) |
|
0.0 |
% |
![](spacer.gif) |
|
3,866 |
|
![](spacer.gif) |
|
0.4 |
% |
Operating
income |
![](spacer.gif) |
|
13,731 |
|
![](spacer.gif) |
|
4.2 |
% |
![](spacer.gif) |
|
7,806 |
|
![](spacer.gif) |
|
2.4 |
% |
![](spacer.gif) |
|
82,216 |
|
![](spacer.gif) |
|
7.2 |
% |
![](spacer.gif) |
|
63,772 |
|
![](spacer.gif) |
|
6.1 |
% |
Other
(income)
loss |
![](spacer.gif) |
|
(60 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(66 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
731 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(2,027 |
) |
![](spacer.gif) |
|
|
|
Interest
expense,
net |
![](spacer.gif) |
|
4,145 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
5,018 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
13,703 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
15,168 |
|
![](spacer.gif) |
|
|
|
Income
from continuing operations before provision for income
taxes |
![](spacer.gif) |
|
9,646 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
2,854 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
67,782 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
50,631 |
|
![](spacer.gif) |
|
|
|
Provision
for income
taxes |
![](spacer.gif) |
|
2,669 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
988 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
24,998 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
20,633 |
|
![](spacer.gif) |
|
|
|
Income
from continuing
operations |
![](spacer.gif) |
|
6,977 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
1,866 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
42,784 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
29,998 |
|
![](spacer.gif) |
|
|
|
Loss
from discontinued operations, net of
taxes |
![](spacer.gif) |
|
(29 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(262 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(157 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(3,728 |
) |
![](spacer.gif) |
|
|
|
Net
income |
![](spacer.gif) |
$ |
6,948 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
1,604 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
42,627 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
26,270 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
Net
Revenues
Net revenues by segment were as follows:
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![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
Nine Months Ended October
2,
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
|
![](spacer.gif) |
(in
thousands of dollars) |
Intimate Apparel
Group |
![](spacer.gif) |
$ |
156,488 |
|
![](spacer.gif) |
$ |
158,164 |
|
![](spacer.gif) |
$ |
(1,676 |
) |
![](spacer.gif) |
|
–1.1 |
% |
![](spacer.gif) |
$ |
451,591 |
|
![](spacer.gif) |
$ |
427,713 |
|
![](spacer.gif) |
$ |
23,878 |
|
![](spacer.gif) |
|
5.6 |
% |
Sportswear
Group |
![](spacer.gif) |
|
133,651 |
|
![](spacer.gif) |
|
135,408 |
|
![](spacer.gif) |
|
(1,757 |
) |
![](spacer.gif) |
|
–1.3 |
% |
![](spacer.gif) |
|
384,087 |
|
![](spacer.gif) |
|
323,775 |
|
![](spacer.gif) |
|
60,312 |
|
![](spacer.gif) |
|
18.6 |
% |
Swimwear
Group |
![](spacer.gif) |
|
37,512 |
|
![](spacer.gif) |
|
30,862 |
|
![](spacer.gif) |
|
6,650 |
|
![](spacer.gif) |
|
21.5 |
% |
![](spacer.gif) |
|
306,193 |
|
![](spacer.gif) |
|
298,276 |
|
![](spacer.gif) |
|
7,917 |
|
![](spacer.gif) |
|
2.7 |
% |
Net
revenues |
![](spacer.gif) |
$ |
327,651 |
|
![](spacer.gif) |
$ |
324,434 |
|
![](spacer.gif) |
$ |
3,217 |
|
![](spacer.gif) |
|
1.0 |
% |
![](spacer.gif) |
$ |
1,141,871 |
|
![](spacer.gif) |
$ |
1,049,764 |
|
![](spacer.gif) |
$ |
92,107 |
|
![](spacer.gif) |
|
8.8 |
% |
![](spacer.gif) |
The
Company's products are widely distributed through most major
channels of distribution. The following table summarizes the
Company's percentage of net revenues by channel of distribution
for the Nine Months Ended October 1, 2005 and the Nine Months Ended
October 2, 2004:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Nine
Months Ended |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
October 2, 2004 |
United
States –
wholesale |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Department
stores and independent
retailers |
![](spacer.gif) |
|
20 |
% |
![](spacer.gif) |
|
24 |
% |
Specialty
stores |
![](spacer.gif) |
|
10 |
% |
![](spacer.gif) |
|
10 |
% |
Chain
stores |
![](spacer.gif) |
|
9 |
% |
![](spacer.gif) |
|
5 |
% |
Mass
merchandisers |
![](spacer.gif) |
|
7 |
% |
![](spacer.gif) |
|
9 |
% |
Membership
clubs and
other |
![](spacer.gif) |
|
25 |
% |
![](spacer.gif) |
|
24 |
% |
Total
United States –
wholesale |
![](spacer.gif) |
|
71 |
% |
![](spacer.gif) |
|
72 |
% |
International
–
wholesale |
![](spacer.gif) |
|
27 |
% |
![](spacer.gif) |
|
26 |
% |
Retail
/
other |
![](spacer.gif) |
|
2 |
% |
![](spacer.gif) |
|
2 |
% |
Net
revenues –
consolidated |
![](spacer.gif) |
|
100 |
% |
![](spacer.gif) |
|
100 |
% |
![](spacer.gif) |
39
Intimate Apparel Group
Intimate
Apparel Group net revenues were as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
Nine Months Ended October
2,
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
|
![](spacer.gif) |
(in
thousands of dollars) |
Calvin Klein underwear
(a) |
![](spacer.gif) |
$ |
94,981 |
|
![](spacer.gif) |
$ |
86,390 |
|
![](spacer.gif) |
$ |
8,591 |
|
![](spacer.gif) |
|
9.9 |
% |
![](spacer.gif) |
$ |
253,169 |
|
![](spacer.gif) |
$ |
229,972 |
|
![](spacer.gif) |
$ |
23,197 |
|
![](spacer.gif) |
|
10.1 |
% |
Core
Brands |
![](spacer.gif) |
|
33,144 |
|
![](spacer.gif) |
|
37,675 |
|
![](spacer.gif) |
|
(4,531 |
) |
![](spacer.gif) |
|
–12.0 |
% |
![](spacer.gif) |
|
105,587 |
|
![](spacer.gif) |
|
103,816 |
|
![](spacer.gif) |
|
1,771 |
|
![](spacer.gif) |
|
1.7 |
% |
Fashion
Brands |
![](spacer.gif) |
|
28,363 |
|
![](spacer.gif) |
|
34,099 |
|
![](spacer.gif) |
|
(5,736 |
) |
![](spacer.gif) |
|
–16.8 |
% |
![](spacer.gif) |
|
92,835 |
|
![](spacer.gif) |
|
93,925 |
|
![](spacer.gif) |
|
(1,090 |
) |
![](spacer.gif) |
|
–1.2 |
% |
Intimate
Apparel
Group |
![](spacer.gif) |
$ |
156,488 |
|
![](spacer.gif) |
$ |
158,164 |
|
![](spacer.gif) |
$ |
(1,676 |
) |
![](spacer.gif) |
|
–1.1 |
% |
![](spacer.gif) |
$ |
451,591 |
|
![](spacer.gif) |
$ |
427,713 |
|
![](spacer.gif) |
$ |
23,878 |
|
![](spacer.gif) |
|
5.6 |
% |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
Includes
net revenues from Intimate Apparel Group operated retail and on-line
stores of approximately $7.5 million, $5.6 million, $20.3 million and
$14.2 million in the Third Quarter of Fiscal 2005, Third Quarter of
Fiscal 2004, Nine Months Ended October 1, 2005 and Nine Months Ended
October 2, 2004, respectively. |
Third
Quarter
The increase in Calvin Klein underwear net
revenues reflects increases of $5.4 million in Europe, $3.1 million in
Asia and $0.3 million in Mexico, partially offset by a combined
decrease of $0.2 million in the United States and Canada. The increase
in Europe primarily reflects increases in the men's and
women's business and increased sales in the Company's
retail stores. The increase in Asia reflects the effects of the
Company's expansion initiatives in China, Korea, Taiwan and Japan
combined with increases in existing distribution channels. Net revenues
in the United States declined $0.1 million; however, the sales mix
improved, as evidenced by a $2.0 million increase in regular price
sales and a $2.1 million decrease in sales through off-price
channels.
The decrease in Core Brands net revenues reflects a
$4.7 million decrease in the United States, partially offset by a
combined net increase of $0.2 million in foreign countries. The
decrease in the United States reflects volume related decreases,
primarily in the off-price and club channels of distribution. Despite
the decrease in volumes, sales mix improved as evidenced by the
reduction in the ratio of off-price sales to total sales.
The
decrease in Fashion Brands net revenues primarily reflects a $7.2
million decrease in the United States, partially offset by a combined
net increase of $1.5 million in foreign countries. The decrease in net
revenues in the United States primarily reflects a comparison to the
initial launch period of JLO in the Third Quarter of Fiscal 2004. The
increase in foreign net revenues primarily reflects an increase in
Lejaby net revenues related primarily to volume and price
increases in Europe.
Nine Months
The
increase in Calvin Klein underwear net revenues reflects
increases of $10.5 million in Europe, $7.6 million in Asia, $3.1
million in the United States, $1.6 million in Mexico and $0.4 million
in Canada. The increase in Europe reflects volume increases in the
men's and women's business and increased sales in the
Company's retail stores combined with the positive translation
impact of a stronger euro relative to the United States dollar. The
increase in Asia reflects the effects of the Company's expansion
initiatives in China, Korea, Taiwan and Japan combined with increases
in existing distribution channels. The increase in the United States
primarily reflects continued strength in the men's business
(increase of $9.5 million) combined with increases in other lines, net,
of $2.8 million, partially offset by continued declines in the
women's business (decrease of $9.2 million). The increase in the
men's business reflects increases in sales to retail stores
operated by Calvin Klein Inc. and increases in sales to customers in
the off-price channel, partially offset by a decrease in department
store sales. In an effort to address the weakness in the women's
business, the Company launched its Perfectly Fit line of
women's intimate apparel. The increase in Mexico primarily
reflects volume increases related to improved customer service
levels.
40
The increase in Core Brands net revenues
primarily reflects increases of $1.6 million and $1.3 million in Canada
and Mexico, respectively, partially offset by decreases of $0.8 million
and $0.3 million in the United States and Asia, respectively. The
increase in revenues in Canada primarily reflects the positive
translation impact of a stronger Canadian dollar relative to the United
States dollar. The increase in revenues in Mexico primarily reflects
volume increases related to improved customer service levels. The
decrease in the United States primarily reflects an increase in
Warner's net revenues and an increase in sales to
membership clubs as a result of the Company's expansion into the
clubs distribution channel, more than offset by declines in the
Olga and Body Nancy
Ganz/Bodyslimmers brands and the
private label business. Management believes the improved performance of
the Warner's brand is the result of its ongoing efforts to
reinvigorate this brand. The declines in the Olga and Body
Nancy Ganz/Bodyslimmers brands were
due to the limited success of new product introductions in fiscal 2004
and fewer new product launches in 2005.
The decrease in Fashion
Brands net revenues primarily reflects a $4.2 million decrease in the
United States, partially offset by a $3.1 million increase in foreign
countries. The decline in the United States reflects declines in JLO
($2.4 million) and in Lejaby Rose ($2.2 million). Declines in
JLO reflect a comparison to the initial launch period of the JLO brand
in the Third Quarter of Fiscal 2004. Declines in Lejaby Rose
reflect the repositioning of that brand to a limited, upscale
department store distribution. The increase in foreign countries
primarily relates to the introduction of JLO in Europe in the first
quarter of the 2005 fiscal year.
Sportswear Group
Sportswear Group net revenues were as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
Nine Months Ended October
2,
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
|
![](spacer.gif) |
(in
thousands of dollars) |
Calvin Klein
jeans |
![](spacer.gif) |
$ |
73,787 |
|
![](spacer.gif) |
$ |
84,110 |
|
![](spacer.gif) |
$ |
(10,323 |
) |
![](spacer.gif) |
−12.3% |
![](spacer.gif) |
$ |
219,253 |
|
![](spacer.gif) |
$ |
200,335 |
|
![](spacer.gif) |
$ |
18,918 |
|
![](spacer.gif) |
|
9.4 |
% |
Chaps |
![](spacer.gif) |
|
54,649 |
|
![](spacer.gif) |
|
46,234 |
|
![](spacer.gif) |
|
8,415 |
|
![](spacer.gif) |
18.2% |
![](spacer.gif) |
|
148,666 |
|
![](spacer.gif) |
|
107,548 |
|
![](spacer.gif) |
|
41,118 |
|
![](spacer.gif) |
|
38.2 |
% |
Calvin
Klein accessories
(a) |
![](spacer.gif) |
|
4,070 |
|
![](spacer.gif) |
|
3,809 |
|
![](spacer.gif) |
|
261 |
|
![](spacer.gif) |
6.9% |
![](spacer.gif) |
|
11,391 |
|
![](spacer.gif) |
|
10,370 |
|
![](spacer.gif) |
|
1,021 |
|
![](spacer.gif) |
|
9.8 |
% |
Mass
sportswear
licensing |
![](spacer.gif) |
|
1,145 |
|
![](spacer.gif) |
|
1,255 |
|
![](spacer.gif) |
|
(110 |
) |
![](spacer.gif) |
–8.8% |
![](spacer.gif) |
|
4,777 |
|
![](spacer.gif) |
|
5,522 |
|
![](spacer.gif) |
|
(745 |
) |
![](spacer.gif) |
|
–13.5 |
% |
Sportswear
Group |
![](spacer.gif) |
$ |
133,651 |
|
![](spacer.gif) |
$ |
135,408 |
|
![](spacer.gif) |
$ |
(1,757 |
) |
![](spacer.gif) |
–1.3% |
![](spacer.gif) |
$ |
384,087 |
|
![](spacer.gif) |
$ |
323,775 |
|
![](spacer.gif) |
$ |
60,312 |
|
![](spacer.gif) |
|
18.6 |
% |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
Calvin Klein accessories license will expire on December 31,
2005; the Company does not anticipate renewing this license. |
Third Quarter
Calvin Klein jeans net
revenues decreased $10.2 million and $0.1 million in United States and
foreign operations, respectively. The decrease in net revenues in the
United States primarily reflects a decrease in sales to membership
clubs ($12.8 million) coupled with a planned reduction of sales to
customers in the off-price channel ($3.9 million), partially offset by
increases in department store sales ($6.0 million) and net increases
across all other channels of distribution ($0.5 million). The decrease
in sales to membership clubs reflects the timing of certain shipments
which occurred in the second quarter of the 2005 fiscal year while
comparable shipments occurred in the Third Quarter of Fiscal 2004.
The increase in Chaps net revenues reflects an increase of
$8.1 million in the United States coupled with a $0.3 million net
increase in foreign countries. The increase in Chaps net
revenues in the United States primarily reflects the Company's
expansion into the mid-tier channel of distribution (increase of $16.4
million), partially offset by declines of $6.4 million and $1.9
million, respectively, in department store sales and all other channels
of distribution. The decrease in department store sales reflects
Chaps' planned exit from certain department store accounts
in 2005.
41
Nine Months
Calvin Klein jeans net revenues increased $18.9 million
reflecting increases of $14.5 million, $3.1 million and $1.3 million in
the United States, Mexico and Canada, respectively. The increase in net
revenues in the United States primarily reflects an increase in sales
to membership clubs ($7.2 million), increases in sales to department
stores ($8.0 million) and increases in sales to stores operated by the
Calvin Klein jeans licensor ($3.9 million), partially offset by
a planned decrease of sales to customers in the off-price channel ($2.9
million) and net decreases across all other channels of distribution
($1.7 million). The increase in sales to membership clubs reflects the
Company's expansion into the clubs distribution channel coupled
with the effects of timing related to certain shipments which occurred
in the Nine Months Ended October 1, 2005 while comparable sales
occurred in the fourth quarter of fiscal 2004.
The increase in
Chaps net revenues reflects an increase of $39.6 million in the
United States coupled with a $1.5 million net increase in foreign
countries. The increase in Chaps net revenues in the United
States primarily reflects the Company's expansion into the
mid-tier channel of distribution (increase of $43.7 million) coupled
with an increase in sales to off-price customers ($12.2 million),
partially offset by declines of $13.5 million and $2.8 million,
respectively, in department store sales and all other channels of
distribution. Sales to mid-tier customers included sales of
Chaps denim products which were introduced in June 2004 and
which generated incremental net revenues of $16.4 million for the Nine
Months Ended October 1, 2005 compared to the Nine Months Ended October
2, 2004. The decrease in department store sales reflects
Chaps' planned exit from certain department store accounts
in 2005.
Swimwear Group
Swimwear Group net revenues
were as follows:
![](spacer.gif)
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
Nine Months Ended October
2,
2004 |
![](spacer.gif) |
Increase (Decrease) |
![](spacer.gif) |
% Change |
|
![](spacer.gif) |
(in
thousands of
dollars) |
Speedo |
![](spacer.gif) |
$ |
29,211 |
|
![](spacer.gif) |
$ |
26,717 |
|
![](spacer.gif) |
$ |
2,494 |
|
![](spacer.gif) |
|
9.3 |
% |
![](spacer.gif) |
$ |
191,967 |
|
![](spacer.gif) |
$ |
196,844 |
|
![](spacer.gif) |
$ |
(4,877 |
) |
![](spacer.gif) |
|
–2.5 |
% |
Designer |
![](spacer.gif) |
|
5,104 |
|
![](spacer.gif) |
|
2,053 |
|
![](spacer.gif) |
|
3,051 |
|
![](spacer.gif) |
|
148.6 |
% |
![](spacer.gif) |
|
101,322 |
|
![](spacer.gif) |
|
96,784 |
|
![](spacer.gif) |
|
4,538 |
|
![](spacer.gif) |
|
4.7 |
% |
Ocean
Pacific
(a) |
![](spacer.gif) |
|
1,375 |
|
![](spacer.gif) |
|
657 |
|
![](spacer.gif) |
|
718 |
|
![](spacer.gif) |
|
109.3 |
% |
![](spacer.gif) |
|
7,741 |
|
![](spacer.gif) |
|
657 |
|
![](spacer.gif) |
|
7,084 |
|
![](spacer.gif) |
|
1078.2 |
% |
Online
retail
store |
![](spacer.gif) |
|
1,822 |
|
![](spacer.gif) |
|
1,435 |
|
![](spacer.gif) |
|
387 |
|
![](spacer.gif) |
|
27.0 |
% |
![](spacer.gif) |
|
5,163 |
|
![](spacer.gif) |
|
3,991 |
|
![](spacer.gif) |
|
1,172 |
|
![](spacer.gif) |
|
29.4 |
% |
Swimwear
Group |
![](spacer.gif) |
$ |
37,512 |
|
![](spacer.gif) |
$ |
30,862 |
|
![](spacer.gif) |
$ |
6,650 |
|
![](spacer.gif) |
|
21.5 |
% |
![](spacer.gif) |
$ |
306,193 |
|
![](spacer.gif) |
$ |
298,276 |
|
![](spacer.gif) |
$ |
7,917 |
|
![](spacer.gif) |
|
2.7 |
% |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
Consists
of licensing revenues. |
Third Quarter
The increase in Speedo net revenues primarily reflects the
timing of certain shipments of girls' products to membership
clubs ($4.5 million) and a $0.6 million volume related increase
attributable to sales of Speedo activewear, partially offset by
a reduction in off price sales. The increase in Designer net revenues
reflects higher early seasonal shipments of Nautica and Anne
Cole swimwear, and timing of deliveries to mass merchandisers. The
increase in Ocean Pacific net revenues relates to the
acquisition of Ocean Pacific in August 2004 and represents royalty
revenues.
Nine Months
The decrease in
Speedo net revenues reflects a $12.1 million increase in sales
to membership clubs and team dealers, more than offset by a $17.0
million decrease across all other channels of distribution reflecting
lower order levels which the Company believes is due to poor weather in
the first half of the 2005 fiscal year. The increase in Designer net
revenues reflects approximately $6.8 million related to the
introduction of CK Choice™ swimwear in Europe and the
United States and $9.2 million of additional revenues related to
private label brands in the U.S, partially offset by a decrease of
$11.5 million across all other Designer brands. The Company believes
that the decrease in other Designer brands is related to poor weather
conditions experienced in the first half of the 2005 fiscal year. The
increase in Ocean Pacific net revenues relates to the
acquisition of Ocean Pacific in August 2004 and represents royalty
revenues.
42
Gross Profit
Gross
profit was as follows:
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|
![](spacer.gif) |
Third Quarter
of Fiscal 2005 |
![](spacer.gif) |
%
of Segment Net Revenues |
![](spacer.gif) |
Third Quarter
of Fiscal 2004 |
![](spacer.gif) |
%
of Segment Net Revenues |
![](spacer.gif) |
Nine Months Ended October
1, 2005 |
![](spacer.gif) |
%
of Segment Net Revenues |
![](spacer.gif) |
Nine Months Ended October
2, 2004 |
![](spacer.gif) |
%
of Segment Net Revenues |
|
![](spacer.gif) |
(in
thousands of dollars) |
Intimate Apparel
Group |
![](spacer.gif) |
$ |
63,993 |
|
![](spacer.gif) |
|
40.9 |
% |
![](spacer.gif) |
$ |
55,276 |
|
![](spacer.gif) |
|
34.9 |
% |
![](spacer.gif) |
$ |
170,316 |
|
![](spacer.gif) |
|
37.7 |
% |
![](spacer.gif) |
$ |
152,794 |
|
![](spacer.gif) |
|
35.7 |
% |
Sportswear
Group |
![](spacer.gif) |
|
40,377 |
|
![](spacer.gif) |
|
30.2 |
% |
![](spacer.gif) |
|
39,026 |
|
![](spacer.gif) |
|
28.8 |
% |
![](spacer.gif) |
|
113,756 |
|
![](spacer.gif) |
|
29.6 |
% |
![](spacer.gif) |
|
92,796 |
|
![](spacer.gif) |
|
28.7 |
% |
Swimwear
Group |
![](spacer.gif) |
|
8,295 |
|
![](spacer.gif) |
|
22.1 |
% |
![](spacer.gif) |
|
8,371 |
|
![](spacer.gif) |
|
27.1 |
% |
![](spacer.gif) |
|
98,572 |
|
![](spacer.gif) |
|
32.2 |
% |
![](spacer.gif) |
|
102,012 |
|
![](spacer.gif) |
|
34.2 |
% |
Total
gross
profit |
![](spacer.gif) |
$ |
112,665 |
|
![](spacer.gif) |
|
34.4 |
% |
![](spacer.gif) |
$ |
102,673 |
|
![](spacer.gif) |
|
31.6 |
% |
![](spacer.gif) |
$ |
382,644 |
|
![](spacer.gif) |
|
33.5 |
% |
![](spacer.gif) |
$ |
347,602 |
|
![](spacer.gif) |
|
33.1 |
% |
![](spacer.gif) |
Third
Quarter
Intimate Apparel Group gross profit increased $8.7
million, or 15.8%, and gross margin increased 600 basis points.
The increase in gross profit and gross margin reflects strength in the
Company's Calvin Klein underwear business (increased gross
profit of $7.9 million) and strength in the Core Brands business
(increased gross profit of $3.5 million), partially offset by a
decrease in Fashion Brands (decreased gross profit of $2.7 million).
The increase in gross margin in the Company's Calvin Klein
underwear business and Core Brands business primarily reflects an
improved sales mix as a result of a reduction in off-price sales
coupled with more favorable markdowns and allowances experience and a
reduction in other costs due to sourcing initiatives and improved
inventory control. The Company believes that the improved sales mix
reflects a more favorable reception of the Intimate Apparel
Group's Core Brands products at retail, primarily
Warner's. The decrease in Fashion Brands gross profit
reflects a comparison to the initial launch period of JLO in the Third
Quarter of Fiscal 2004.
Sportswear Group gross profit increased
$1.4 million, or 3.5%, for the Third Quarter of Fiscal 2005
compared to the Third Quarter of Fiscal 2004. Calvin Klein jeans
gross profit decreased $1.4 million; however, Calvin Klein jeans
gross margin increased 240 basis points, primarily reflecting an
improved regular to off-price sales mix. Chaps gross profit
increased $2.6 million and Chaps gross margin increased 100
basis points reflecting the increase in net revenues described
previously and an improved sales mix.
Swimwear Group gross
profit decreased $0.1 million, or 1.0% for the Third Quarter of
Fiscal 2005 compared to the Third Quarter of Fiscal 2004. The decrease
primarily reflects increases in manufacturing costs and design and
development costs related to the development of new lines such as
Op, Michael Kors and Calvin Klein, partially
offset by increased gross profit on higher net revenues as described
above.
Nine Months
Intimate Apparel
Group gross profit increased $17.5 million, or 11.5%, and gross
margin increased 200 basis points. The increase in gross profit
reflects strength in the Company's Calvin Klein underwear
business (increased gross profit of $15.6 million) and strength in the
Core Brands business (increased gross profit of $6.4 million),
partially offset by a decrease in Fashion Brands (decreased gross
profit of $4.5 million). The increase in gross margin primarily
reflects an improved regular to off-price sales mix, coupled with more
favorable markdowns and allowances experience in the Company's
Core Brands business and a reduction in other costs due to the
transition to an outsourced model and improved product procurement and
inventory control. The Company believes that the improved sales mix
reflects a more favorable reception of the Intimate Apparel
Group's products at retail. The decrease in gross profit in
Fashion Brands reflects a comparison to the initial launch period of
the JLO brand in the Third Quarter of Fiscal 2004.
Sportswear
Group gross profit increased $21.0 million, or 22.6%, for the
Nine Months Ended October 1, 2005 compared to the Nine Months Ended
October 2, 2004. The increase in gross profit
43
primarily reflects strength in Calvin
Klein jeans ($9.4 million increase in gross profit) and
Chaps ($11.3 million increase in gross profit). Sportswear Group
gross margin increased 100 basis points, primarily reflecting an
improved regular to off-price sales mix in the Calvin Klein
jeans business.
Swimwear Group gross profit decreased $3.4
million, or 3.4%, for the Nine Months Ended October 1, 2005
compared to the Nine Months Ended October 2, 2004. The decrease
primarily reflects increases in manufacturing costs and design and
development costs related to the development of new lines such as
Op, Michael Kors, Calvin Klein and CK
Choice, partially offset by increased gross profit on higher net
revenues described above.
Selling, General and
Administrative Expenses
Third Quarter
SG&A expenses increased $5.9 million, or 6.2%, to $100.0
million (30.5% of net revenues) for the Third Quarter of Fiscal
2005 from $94.1 million (29.0% of net revenues) for the Third
Quarter of Fiscal 2004. Selling and marketing expenses (including
distribution expenses) increased $2.3 million primarily reflecting the
full period effect and vertical integration of the Ocean Pacific
business (acquired in August 2004) coupled with expenses associated
with the launches of Michael Kors and Calvin Klein
swimwear. Administrative expenses increased $3.5 million reflecting an
increase in administrative expenses related to operating groups of $2.5
million coupled with an increase in unallocated corporate expenses of a
$1.0 million. The increase in operating group administrative expenses
primarily reflects increases related to the full period of operations
in the Company's Ocean Pacific business coupled with
increases related to the Company's expansion of its retail
business, partially offset by net cost savings across other groups. The
increase in unallocated corporate expenses includes an increase in
employee benefits ($0.8 million) as a result of planned enhancements to
employee benefit programs, charges related to the Company's SAP
implementation (which commenced in the fourth quarter of the 2004
fiscal year) ($0.7 million) and other net increases ($0.6 million),
partially offset by a reduction in professional fees of $1.1 million
associated with SOX compliance and an internal control review conducted
in connection with the Company's previously disclosed settlement
with the SEC on May 11, 2004. In translating foreign currencies into
the United States dollar, the net weakness of the United States dollar
relative to the functional currencies where the Company conducts
certain of its operations (primarily the euro in Europe and Canadian
dollar in Canada) resulted in a $0.2 million increase in SG&A
expenses for the Third Quarter of Fiscal 2005 compared to the Third
Quarter of Fiscal 2004.
Nine Months
SG&A expenses increased $21.4 million, or 7.7%, to $300.4
million (26.3% of net revenues) for the Nine Months Ended
October 1, 2005 from $279.0 million (26.6% of net revenues) for
the Nine Months Ended October 2, 2004. Selling and marketing expenses
(including distribution expenses) increased $14.1 million, primarily as
a result of the increase in net revenues, a full period of operations
in the Company's Ocean Pacific business which was acquired
in August 2004 and new product introductions. Administrative expenses
increased $7.3 million reflecting an increase in expenses related to
operating groups of $4.5 million coupled with an increase in
unallocated corporate expenses of $2.8 million. The increase in
administrative expenses related to the operating groups reflects the
full period effect and vertical integration of the Ocean Pacific
business (acquired in August 2004), increases related to the
Company's expansion of its retail business and the provision for
an uncollectible non-trade receivable balance (totaling $1.5 million,
$0.3 million of which is included in restructuring items) in the
Intimate Apparel segment, partially offset by net cost savings across
other groups. The increase in unallocated corporate expenses includes
an increase in employee benefits ($1.6 million) as a result of planned
enhancements to employee benefit programs, charges related to the
Company's SAP implementation (which commenced in the fourth
quarter of the 2004 fiscal year) ($2.0 million) and other items, net,
of $0.7 million, partially offset by a reduction in professional fees
of $1.5 million primarily associated with SOX compliance and an
internal control review conducted in connection with the
Company's previously disclosed settlement with the SEC on May 11,
2004. In
44
translating foreign currencies into the
United States dollar, the weakness of the United States dollar relative
to the functional currencies where the Company conducts certain of its
operations (primarily the euro in Europe and Canadian dollar in Canada)
resulted in a $2.8 million increase in SG&A expenses for the Nine
Months Ended October 1, 2005 compared to the Nine Months Ended October
2, 2004.
Restructuring Expense (Income)
During the Third Quarter of Fiscal 2005 and Nine Months Ended
October 1, 2005, the Company recorded restructuring income of $1.3
million and $0.5 million, respectively, related primarily to a reversal
of accruals due to a reduction in the estimated amounts required for
employee terminations, partially offset by expenses incurred in
connection with the continuation of activities commenced in prior
periods associated with the closure, consolidation or sale of certain
facilities. During the Third Quarter of Fiscal 2004 and Nine Months
Ended October 2, 2004, the Company recorded restructuring expense of
$0.4 million and $3.9 million, respectively. See Note 4 of Notes to
Consolidated Condensed Financial Statements.
Operating Income
The following table presents
operating income by group:
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|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
% of
Net Revenues |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
% of Net Revenues |
![](spacer.gif) |
Nine Months Ended
October 1, 2005 |
![](spacer.gif) |
% of Net Revenues |
![](spacer.gif) |
Nine
Months Ended October 2, 2004 |
![](spacer.gif) |
% of
Net Revenues |
|
![](spacer.gif) |
(in
thousands of dollars) |
Intimate Apparel
Group |
![](spacer.gif) |
$ |
22,347 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
17,181 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
48,621 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
$ |
38,660 |
|
![](spacer.gif) |
|
|
|
Sportswear
Group |
![](spacer.gif) |
|
22,444 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
19,047 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
58,613 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
39,555 |
|
![](spacer.gif) |
|
|
|
Swimwear
Group |
![](spacer.gif) |
|
(13,019 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
(9,678 |
) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
30,846 |
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
42,393 |
|
![](spacer.gif) |
|
|
|
Group
operating
income |
![](spacer.gif) |
|
31,772 |
|
![](spacer.gif) |
|
9.7 |
% |
![](spacer.gif) |
|
26,550 |
|
![](spacer.gif) |
|
8.2 |
% |
![](spacer.gif) |
|
138,080 |
|
![](spacer.gif) |
|
12.1 |
% |
![](spacer.gif) |
|
120,608 |
|
![](spacer.gif) |
|
11.5 |
% |
Unallocated
corporate
expenses |
![](spacer.gif) |
|
(19,292 |
) |
![](spacer.gif) |
|
–5.9 |
% |
![](spacer.gif) |
|
(18,341 |
) |
![](spacer.gif) |
|
–5.7 |
% |
![](spacer.gif) |
|
(56,388 |
) |
![](spacer.gif) |
|
–4.9 |
% |
![](spacer.gif) |
|
(52,970 |
) |
![](spacer.gif) |
|
–5.0 |
% |
Restructuring
expense
(income) |
![](spacer.gif) |
|
(1,251 |
) |
![](spacer.gif) |
|
-0.4 |
% |
![](spacer.gif) |
|
403 |
|
![](spacer.gif) |
|
0.1 |
% |
![](spacer.gif) |
|
(524 |
) |
![](spacer.gif) |
|
0.0 |
% |
![](spacer.gif) |
|
3,866 |
|
![](spacer.gif) |
|
0.4 |
% |
Operating
income |
![](spacer.gif) |
$ |
13,731 |
|
![](spacer.gif) |
|
4.2 |
% |
![](spacer.gif) |
$ |
7,806 |
|
![](spacer.gif) |
|
2.4 |
% |
![](spacer.gif) |
$ |
82,216 |
|
![](spacer.gif) |
|
7.2 |
% |
![](spacer.gif) |
$ |
63,772 |
|
![](spacer.gif) |
|
6.1 |
% |
![](spacer.gif) |
Intimate
Apparel Group
Intimate Apparel Group operating income was as
follows:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
% of Brand Net Revenues |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Nine Months Ended October
2, 2004 |
![](spacer.gif) |
% of Brand
Net Revenues |
|
![](spacer.gif) |
(in
thousands of dollars) |
Calvin Klein
underwear |
![](spacer.gif) |
$ |
17,828 |
|
![](spacer.gif) |
|
18.8 |
% |
![](spacer.gif) |
$ |
11,933 |
|
![](spacer.gif) |
|
13.8 |
% |
![](spacer.gif) |
$ |
41,747 |
|
![](spacer.gif) |
|
16.5 |
% |
![](spacer.gif) |
$ |
33,575 |
|
![](spacer.gif) |
|
14.6 |
% |
Core
Brands |
![](spacer.gif) |
|
3,955 |
|
![](spacer.gif) |
|
11.9 |
% |
![](spacer.gif) |
|
1,164 |
|
![](spacer.gif) |
|
3.1 |
% |
![](spacer.gif) |
|
5,794 |
|
![](spacer.gif) |
|
5.5 |
% |
![](spacer.gif) |
|
(1,693 |
) |
![](spacer.gif) |
|
–1.6 |
% |
Fashion
Brands |
![](spacer.gif) |
|
564 |
|
![](spacer.gif) |
|
2.0 |
% |
![](spacer.gif) |
|
4,084 |
|
![](spacer.gif) |
|
12.0 |
% |
![](spacer.gif) |
|
1,080 |
|
![](spacer.gif) |
|
1.2 |
% |
![](spacer.gif) |
|
6,778 |
|
![](spacer.gif) |
|
7.2 |
% |
Intimate
Apparel
Group |
![](spacer.gif) |
$ |
22,347 |
|
![](spacer.gif) |
|
14.3 |
% |
![](spacer.gif) |
$ |
17,181 |
|
![](spacer.gif) |
|
10.9 |
% |
![](spacer.gif) |
$ |
48,621 |
|
![](spacer.gif) |
|
10.8 |
% |
![](spacer.gif) |
$ |
38,660 |
|
![](spacer.gif) |
|
9.0 |
% |
![](spacer.gif) |
Third
Quarter
Intimate Apparel Group operating income increased $5.2
million, or 30.1%, reflecting increases in Calvin Klein
underwear and Core Brands, partially offset by decreases in Fashion
Brands. The $5.9 million increase in Calvin Klein
underwear operating income reflects a $7.9 million increase in gross
profit (as described above), partially offset by a $2.0 million
increase in SG&A expenses. The increase
45
in SG&A expenses primarily reflects
increases in variable selling expenses as a result of the increase in
net revenues ($3.2 million) coupled with an increase in administrative
costs, partially offset by a decrease in marketing expenses as a result
of the timing of certain advertising programs. The $2.8 million
increase in Core Brands operating income reflects an increase in gross
profit of $3.5 million (as described above), partially offset by an
increase in SG&A expenses of $0.7 million. The increase in SG&A
expenses primarily reflects an increase in marketing expenses. Fashion
Brands operating income decreased $3.5 million primarily reflecting a
$2.7 million decrease in gross profit (as described above) coupled with
a $0.8 million increase in SG&A expenses. The increase in SG&A
expenses reflects an increase of $1.6 million and $0.2 million related
to Lejaby and Axcelerate, respectively, partially offset
by a reduction of $1.0 million related to JLO. The increase in
Lejaby SG&A expenses reflects an increase in marketing
expenses coupled with an increase in selling and administrative
expenses, primarily associated with increased net revenues in Europe
and timing of advertising. The decrease in JLO SG&A expenses
reflects increased marketing expense in the Third Quarter of Fiscal
2004 associated with the launch of this brand in July 2004.
Nine
Months
Intimate Apparel Group operating income increased $10.0
million, or 25.7%, reflecting increases in Calvin Klein
underwear and Core Brands, partially offset by decreases in Fashion
Brands. The $8.2 million increase in Calvin Klein
underwear operating income reflects a $15.6 million increase in gross
profit (as described above), partially offset by a $7.4 million
increase in SG&A expenses (primarily reflecting an increase in
variable selling expenses as a result of the increase in net revenues
described above and SG&A increases in Europe primarily related to
the unfavorable effect of currency translation coupled with a $1.2
million provision for an uncollectible non-trade receivable). The $7.5
million increase in Core Brands operating income reflects an increase
in gross profit of $6.4 million coupled with a $1.0 million decrease in
SG&A expenses, primarily as a result of cost cutting initiatives
undertaken by management. Management believes the improved performance
of the Core Brands in the United States is the result of its ongoing
efforts to reinvigorate these brands coupled with expansion of these
brands into the membership clubs distribution channel. The $5.7 million
decrease in Fashion Brands operating income reflects the decrease in
gross profit of $4.5 million described previously, coupled with a $1.2
million increase in SG&A expenses. The increase in SG&A
expenses reflects a reduction in marketing expenses of $2.1 million
primarily related to the launches, in the 2004 fiscal year, of JLO and
Lejaby Rose in the United States, more than offset by an
increase in variable selling and distribution expenses of $2.8 million
as a result of the increase in net revenues in Europe.
Sportswear Group
Sportswear Group operating income was as
follows:
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|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
% of Brand Net Revenues |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Nine Months Ended October
2, 2004 |
![](spacer.gif) |
% of Brand
Net Revenues |
|
![](spacer.gif) |
(in
thousands of dollars) |
Calvin Klein
jeans |
![](spacer.gif) |
$ |
13,464 |
|
![](spacer.gif) |
|
18.2 |
% |
![](spacer.gif) |
$ |
13,540 |
|
![](spacer.gif) |
|
16.1 |
% |
![](spacer.gif) |
$ |
36,175 |
|
![](spacer.gif) |
|
16.5 |
% |
![](spacer.gif) |
$ |
24,330 |
|
![](spacer.gif) |
|
12.1 |
% |
Chaps |
![](spacer.gif) |
|
6,833 |
|
![](spacer.gif) |
|
12.5 |
% |
![](spacer.gif) |
|
4,771 |
|
![](spacer.gif) |
|
10.3 |
% |
![](spacer.gif) |
|
17,241 |
|
![](spacer.gif) |
|
11.6 |
% |
![](spacer.gif) |
|
11,219 |
|
![](spacer.gif) |
|
10.4 |
% |
Calvin
Klein accessories
(a) |
![](spacer.gif) |
|
2,090 |
|
![](spacer.gif) |
|
51.4 |
% |
![](spacer.gif) |
|
432 |
|
![](spacer.gif) |
|
11.3 |
% |
![](spacer.gif) |
|
3,987 |
|
![](spacer.gif) |
|
35.0 |
% |
![](spacer.gif) |
|
1,856 |
|
![](spacer.gif) |
|
17.9 |
% |
Mass
sportswear
licensing |
![](spacer.gif) |
|
57 |
|
![](spacer.gif) |
|
5.0 |
% |
![](spacer.gif) |
|
304 |
|
![](spacer.gif) |
|
24.2 |
% |
![](spacer.gif) |
|
1,210 |
|
![](spacer.gif) |
|
25.3 |
% |
![](spacer.gif) |
|
2,150 |
|
![](spacer.gif) |
|
38.9 |
% |
Sportswear
Group |
![](spacer.gif) |
$ |
22,444 |
|
![](spacer.gif) |
|
16.8 |
% |
![](spacer.gif) |
$ |
19,047 |
|
![](spacer.gif) |
|
14.1 |
% |
![](spacer.gif) |
$ |
58,613 |
|
![](spacer.gif) |
|
15.3 |
% |
![](spacer.gif) |
$ |
39,555 |
|
![](spacer.gif) |
|
12.2 |
% |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
Calvin Klein accessories license will expire on December 31,
2005. |
Third Quarter
Sportswear Group operating
income increased $3.4 million, or 17.8%. Operating income for
Calvin Klein jeans remained relatively flat. The $2.1 million
increase in Chaps operating income reflects an increase in gross
profit of $2.6 million, partially offset by a $0.5 million increase in
SG&A
46
expenses. The increase in SG&A expenses
reflects a $0.2 million decline in marketing expenses (marketing
expenses in the Third Quarter of Fiscal 2004 included incremental
advertising expenses related to the launch of the denim line) and a
$0.2 million decrease in administrative expenses, more than offset by a
$0.9 increase in variable selling expenses due to increased sales
volumes. The $1.7 million increase in Calvin Klein accessories
operating income reflects an increase of $0.4 million in gross profit
combined with a $1.3 million decrease in SG&A expenses.
Nine
Months
Sportswear Group operating income increased $19.1
million, or 48.2%, primarily due to increases in operating
income in Calvin Klein jeans and Chaps. The $11.8 million
increase in Calvin Klein jeans operating income reflects a $9.4
million increase in gross profit described previously combined with a
$2.4 million reduction in SG&A expenses, primarily related to the
timing of certain advertising programs and a reduction in selling and
distribution costs reflecting operating efficiency improvements. The
$6.0 million increase in Chaps operating income is attributable
to an $11.3 million increase in gross profit, partially offset by a
$5.3 million increase in SG&A expenses. The increase in
Chaps SG&A expenses primarily reflects a $2.9 million
increase in marketing expenses coupled with an increase in variable
selling expenses as a result of the increase in net revenues.
Swimwear Group
Swimwear Group operating income (loss) was
as follows:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
Third
Quarter of Fiscal 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Third Quarter of Fiscal
2004 |
![](spacer.gif) |
% of Brand Net Revenues |
![](spacer.gif) |
Nine
Months Ended October 1, 2005 |
![](spacer.gif) |
% of Brand
Net Revenues |
![](spacer.gif) |
Nine Months Ended October
2, 2004 |
![](spacer.gif) |
% of Brand
Net Revenues |
|
![](spacer.gif) |
(in
thousands of
dollars) |
Speedo |
![](spacer.gif) |
$ |
(1,804 |
) |
![](spacer.gif) |
|
–6.2 |
% |
![](spacer.gif) |
$ |
(3,730 |
) |
![](spacer.gif) |
|
–14.0 |
% |
![](spacer.gif) |
$ |
27,087 |
|
![](spacer.gif) |
|
14.1 |
% |
![](spacer.gif) |
$ |
30,094 |
|
![](spacer.gif) |
|
15.3 |
% |
Designer |
![](spacer.gif) |
|
(8,063 |
) |
![](spacer.gif) |
|
–158.0 |
% |
![](spacer.gif) |
|
(6,143 |
) |
![](spacer.gif) |
|
–299.2 |
% |
![](spacer.gif) |
|
4,477 |
|
![](spacer.gif) |
|
4.4 |
% |
![](spacer.gif) |
|
10,881 |
|
![](spacer.gif) |
|
11.2 |
% |
Ocean
Pacific |
![](spacer.gif) |
|
(3,663 |
) |
![](spacer.gif) |
|
–266.4 |
% |
![](spacer.gif) |
|
(360 |
) |
![](spacer.gif) |
|
(0.55 |
) |
![](spacer.gif) |
|
(2,720 |
) |
![](spacer.gif) |
|
–35.1 |
% |
![](spacer.gif) |
|
(360 |
) |
![](spacer.gif) |
|
(0.55 |
) |
Online
retail
store |
![](spacer.gif) |
|
511 |
|
![](spacer.gif) |
|
28.0 |
% |
![](spacer.gif) |
|
555 |
|
![](spacer.gif) |
|
38.7 |
% |
![](spacer.gif) |
|
2,002 |
|
![](spacer.gif) |
|
38.8 |
% |
![](spacer.gif) |
|
1,778 |
|
![](spacer.gif) |
|
44.6 |
% |
Swimwear
Group |
![](spacer.gif) |
$ |
(13,019 |
) |
![](spacer.gif) |
|
–34.7 |
% |
![](spacer.gif) |
$ |
(9,678 |
) |
![](spacer.gif) |
|
–31.4 |
% |
![](spacer.gif) |
$ |
30,846 |
|
![](spacer.gif) |
|
10.1 |
% |
![](spacer.gif) |
$ |
42,393 |
|
![](spacer.gif) |
|
14.2 |
% |
![](spacer.gif) |
Third
Quarter
Due to the seasonality of the swimwear business, the
Swimwear Group is generally not profitable in the third quarter of the
fiscal year. Swimwear Group operating loss increased $3.3 million, or
34.6%. The higher loss reflects a decrease of $0.1 million in
gross profit (described above) combined with a $3.2 million increase in
SG&A expenses. The increase in SG&A expenses reflects a $1.0
million decrease in marketing expenses (the Third Quarter of Fiscal
2004 included increased marketing costs related to the Olympics), more
than offset by a $4.2 increase in selling and administrative expenses.
The increase in selling and administrative expenses was due primarily
to a full period of operations in the Company's Ocean
Pacific business (acquired in August of 2004) combined with
expenses associated with the launches of Michael Kors and
Calvin Klein swimwear.
Nine Months
Swimwear Group
operating income decreased $11.5 million, or 27.2%. The decrease
reflects a $3.4 million decrease in gross profit (described above)
combined with an $8.1 million increase in SG&A expenses. The
increase in SG&A expenses reflects a $1.5 million decrease in
marketing expenses (the Nine Months Ended October 2, 2004 included
increased marketing costs related to the Olympics), more than offset by
a $9.6 million increase in selling and administrative expenses. The
increase in selling and administrative expenses was due primarily to a
full period of operations in the Company's Ocean Pacific
business (acquired in August of 2004) combined with expenses associated
with the launches of Michael Kors and Calvin Klein
swimwear.
Other (Income) Loss
Other
(income) loss for the Third Quarter of Fiscal 2005 and Nine Months
Ended October 1, 2005 primarily reflects a gain of $0.1 million and a
net loss of $0.7 million, respectively, on the current
47
portion of inter-company loans to foreign
subsidiaries that are denominated in United States dollars. Other
(income) loss for the Third Quarter of Fiscal 2004 and Nine Months
Ended October 2, 2004 primarily reflects gains of $0.1 million and $2.0
million, respectively, on the current portion of inter-company loans to
foreign subsidiaries that are denominated in United States dollars,
offset by realized gains and losses on sales of marketable securities
obtained by the Company as part of certain bankruptcy settlements and
distributions.
Interest Expense, Net
Third Quarter
Interest expense decreased $0.9 million to $4.1
million for the Third Quarter of Fiscal 2005 from $5.0 million for the
Third Quarter of Fiscal 2004. Interest expense in the Third Quarter of
Fiscal 2005 included interest on the Company's
8 7/8% Senior Notes due 2013
("Senior Notes") of $4.5 million (net of
benefit related to the 2003 and 2004 Swap Agreements of approximately
$0.2 million (as described below)), unused commitment fees and letter
of credit charges of $0.4 million related to the $175.0 million Senior
Secured Revolving Credit Facility, as amended (the
"Revolving Credit Facility"), amortization of
deferred financing fees of $0.5 million and other items of $0.3
million, partially offset by interest income of $0.2 million related to
interest earned on the note receivable associated with the sale of the
White Stag trademark and $1.1 million of interest earned on cash
investments and cash collateral accounts. In addition, during the Third
Quarter of Fiscal 2005, $0.3 million of interest expense was
capitalized to fixed assets. Interest expense in the Third Quarter of
Fiscal 2004 included interest on the Company's Senior Notes of
$4.3 million (net of benefit of approximately $0.3 million related to
the 2003 Swap Agreement), unused commitment fees and letters of credit
charges of $0.6 million related to the Revolving Credit Facility,
amortization of deferred financing fees of $0.6 million and other items
of $0.2 million, offset by interest income of $0.5 million primarily
related to interest earned on the note receivable associated with the
sale of the White Stag trademark and income related to cash balances on
collateral accounts.
Nine Months
Interest expense
decreased $1.5 million to $13.7 million for the Nine Months Ended
October 1, 2005 from $15.2 million for the Nine Months Ended October 2,
2004. Interest expense in the Nine Months Ended October 1, 2005
included interest on the Company's Senior Notes of $13.1 million
(net of benefit related to the 2003 and 2004 Swap Agreements of
approximately $0.9 million), unused commitment fees and letter of
credit charges of $1.4 million related to the Revolving Credit
Facility, amortization of deferred financing fees of $1.7 million and
other items of $0.5 million, partially offset by interest income of
$2.3 million related to interest earned on the note receivable
associated with the sale of the White Stag trademark, income related to
cash investments and cash collateral accounts and other miscellaneous
interest income. In addition, during the Nine Months Ended October 1,
2005, $0.7 million of interest expense was capitalized to fixed assets.
Interest expense in the Nine Months Ended October 2, 2004 included
interest on the Company's Senior Notes of $12.7 million (net of
benefit of approximately $1.2 million on the 2003 Swap Agreement),
unused commitment fees and letters of credit charges of $1.8 million
related to the Revolving Credit Facility, amortization of deferred
financing fees of $1.7 million and other items of $0.7 million, offset
by interest income of $1.5 million primarily related to interest earned
on the note receivable associated with the sale of the White Stag
trademark and income related to cash investment and cash collateral
accounts.
Income Taxes
Third Quarter
The provision for income taxes of $2.7 million for the Third Quarter
of Fiscal 2005 consists of an income tax benefit of $4.3 million on
domestic earnings and a $7.0 million income tax expense on foreign
earnings. The provision for income taxes of $1.0 million for the Third
Quarter of Fiscal 2004 consists of an income tax benefit of $4.4
million on domestic losses and a $5.4 million income tax expense on
foreign earnings.
48
During the Third Quarter of Fiscal 2005,
the Company increased its valuation allowance by $1.9 million to $154.9
million. The change primarily reflects the utilization of foreign net
operating loss carryforwards of $1.7 million (which has been recorded
against goodwill) offset by other valuation allowance increases of $3.6
million. Of the $3.6 million increase in the Company's valuation
allowance, $3.4 million has been recorded as an increase in goodwill
consistent with changes in estimates for interim periods, and $0.2
million has been recorded to the tax provision. See Note 6 of Notes
to Consolidated Condensed Financial Statements.
The
effective tax rate for the Third Quarter of Fiscal 2005 was
approximately 28% compared to approximately 35% for the
Third Quarter of Fiscal 2004. The effective tax rate for the Third
Quarter of Fiscal 2005 reflects a benefit of approximately $0.8 million
in the Company's income tax provision as a result of the filing
of its 2004 tax returns.
Nine Months
The provision for
income taxes of $24.9 million for the Nine Months Ended October 1, 2005
consists of an income tax expense of $5.8 million on domestic earnings
and a $19.1 million income tax expense on foreign earnings. The
provision for income taxes of $20.6 million for the Nine Months Ended
October 2, 2004 consists of an income tax expense of $4.9 million on
domestic earnings and $15.7 million on foreign earnings.
During
the Nine Months Ended October 1, 2005, the Company decreased its
valuation allowance by $10.9 million to $154.9 million. The decrease
reflects the utilization of domestic net operating loss carryforwards
of $5.7 million and the utilization of foreign net operating loss
carryforwards of $5.6 million (both of which have been recorded against
goodwill) partially offset by other increases in valuation allowances
of $0.4 million (which has been recorded to the tax provision). See
Note 6 of Notes to Consolidated Condensed Financial Statements.
The effective tax rate for the Nine Months Ended October 1, 2005 was
approximately 37% compared to approximately 41% for the
Nine Months Ended October 2, 2004. The decrease in the effective tax
rate is the result of a change in the mix of U.S. and international
profits, as the Company's U.S. tax rate is generally higher than
that of the Company's international locations.
Discontinued Operations
Third Quarter
The Company recorded a loss from discontinued operations of less
than $0.1 million for the Third Quarter of Fiscal 2005 and $0.3 million
for the Third Quarter of Fiscal 2004. See Note 3 of Notes to
Consolidated Condensed Financial Statements.
Nine Months
The Company recorded a loss from discontinued operations of $0.2
million for the Nine Months Ended October 1, 2005 and $3.7 million for
the Nine Months Ended October 2, 2004. See Note 3 of Notes to
Consolidated Condensed Financial Statements.
Financial
Position, Capital Resources and Liquidity
Financing Arrangements
Senior Notes
On June 12, 2003, Warnaco Inc.
("Warnaco"), the principal operating
subsidiary of Warnaco Group, completed the sale of $210.0 million
aggregate principal amount of Senior Notes at par value, which notes
mature on June 15, 2013 and bear interest at a rate of
8 7/8% payable semi-annually on December 15 and
June 15 of each year. No principal payments prior to the maturity date
are required. The Senior Notes are unconditionally guaranteed, jointly
and severally, by Warnaco Group and substantially all of
Warnaco's domestic subsidiaries (all of which are 100%
owned, either directly or indirectly, by Warnaco). The amount
outstanding under the Senior Notes was $210.0 million as of October 1,
2005, January 1, 2005 and October 2, 2004, respectively.
49
Interest Rate Swap Agreements
On
September 18, 2003, the Company entered into an Interest Rate Swap
Agreement (the "2003 Swap Agreement") with
respect to the Senior Notes for a total notional amount of $50 million.
The 2003 Swap Agreement provides that the Company will receive interest
at 8 7/8% and pay a variable rate of interest
based upon six month London Interbank Offered Rate
("LIBOR") plus 4.11% (7.73% at
October 1, 2005 and 6.80% at January 1, 2005). The 2003 Swap
Agreement expires on June 15, 2013 (the date on which the Senior Notes
mature).
On November 5, 2004, the Company entered into a second
Interest Rate Swap Agreement (the "2004 Swap
Agreement") with respect to the Company's Senior
Notes for a total notional amount of $25 million. The 2004 Swap
Agreement provides that the Company will receive interest at
8 7/8% and pay a variable rate of interest based
upon six months LIBOR plus 4.34% (7.96% at October 1,
2005 and 7.03% at January 1, 2005). The 2004 Swap Agreement
expires on June 15, 2013 (the date on which the Senior Notes
mature).
As a result of the 2003 and 2004 Swap Agreements, the
weighted average effective interest rate of the Senior Notes was
reduced to 8.49% as of October 1, 2005.
The fair value of
the Company's outstanding interest rate swap agreements reflect
the termination premium (unrealized loss) or termination discount
(unrealized gain) that the Company would realize if such swaps were
terminated on the valuation date. Since the provisions of the 2003 Swap
Agreement and the 2004 Swap Agreement match the provisions of the
Company's outstanding Senior Notes (the "hedged
debt"), changes in the fair value of the outstanding swaps
do not have any effect on the Company's results of operations but
are recorded in the Company's consolidated condensed balance
sheets. Unrealized gains on the outstanding interest rate swap
agreements are included in other assets with a corresponding increase
in the hedged debt. Unrealized losses on the outstanding interest rate
swap agreements are included as a component of long-term debt with a
corresponding decrease in the hedged debt. The table below summarizes
the fair value (unrealized gains (losses)) of the Company's
outstanding swap agreements:
![](spacer.gif)
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
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![](spacer.gif) |
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
October
1, 2005 |
![](spacer.gif) |
January 1, 2005 |
![](spacer.gif) |
October 2,
2004 |
|
![](spacer.gif) |
(in thousands of
dollars) |
Unrealized gain
(loss) |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
2003 Swap
Agreement |
![](spacer.gif) |
$ |
(676 |
) |
![](spacer.gif) |
$ |
81 |
|
![](spacer.gif) |
$ |
497 |
|
2004
Swap
Agreement |
![](spacer.gif) |
|
(668 |
) |
![](spacer.gif) |
|
(310 |
) |
![](spacer.gif) |
|
— |
|
Net
Unrealized gain
(loss) |
![](spacer.gif) |
$ |
(1,344 |
) |
![](spacer.gif) |
$ |
(229 |
) |
![](spacer.gif) |
$ |
497 |
|
![](spacer.gif) |
Revolving
Credit Facility
On February 4, 2003, the date the Company
emerged from bankruptcy, the Company entered into the Revolving Credit
Facility. The Revolving Credit Facility provides for a non-amortizing
revolving credit facility that matures on February 3, 2009. The
Revolving Credit Facility includes provisions that allow the Company to
increase the maximum available borrowings from $175.0 million to $325.0
million. Borrowings under the Revolving Credit Facility bear interest
at Citibank N.A.'s base rate plus 0.5% (7.25% at
October 1, 2005) or at LIBOR plus 1.5% (approximately
5.57% at October 1, 2005). The rates of interest payable on
outstanding borrowings under the Revolving Credit Facility vary
pursuant to a variable fee structure based upon certain defined ratios.
The Company enters into contracts to elect the LIBOR option when it
expects borrowings to be outstanding for more than 30 days. The
remaining balances bear interest based upon Citibank N.A.'s base
rate.
The Company had paid down all outstanding borrowings under
the Revolving Credit Facility as of January 3, 2004 and did not borrow
under the Revolving Credit Facility during the Nine Months Ended
October 1, 2005 or the Nine Months Ended October 2, 2004.
On
September 15, 2005, the Company entered into a third amendment to its
Revolving Credit Facility to, among other things, (i) extend the
maturity date from February 3, 2007 to February 3, 2009; (ii) reduce
the applicable margins used to determine interest rates for both base
rate and
50
LIBOR borrowings (such that borrowings bear
interest at Citibank N.A.'s base rate plus 0.5% or LIBOR
plus 1.5%, although the Revolving Credit Facility provides that
the interest rate the Company will pay on outstanding loans may change
based on certain defined ratios); (iii) revise financial covenants
relating to minimum fixed charge coverage ratios, maximum leverage
ratios and limits on capital expenditures so that such covenants are
tested only when available credit (as defined in the amendment) falls
below $50.0 million; (iv) replace the previously fixed unused
commitment fee with a commitment fee structure that varies based upon
the Company's leverage ratio; (v) eliminate dollar limitations on
certain acquisitions of entities and assets and repurchases of the
Company's common stock so long as available credit is at least
$50.0 million after giving effect to such acquisition or repurchase and
provided certain other terms and conditions are met; (vi) permit
payment of cash dividends on the Company's common stock in
amounts up to 25% of the Company's net income for the most
recent completed fiscal year; (vii) allow for additional indebtedness
of up to $30.0 million, provided such indebtedness is incurred solely
to finance the construction of a new distribution facility; and (viii)
reduce the pricing of certain letters of credit that are cash
collateralized. The Company's ability to take certain of the
foregoing actions under the Revolving Credit Facility, as amended, is
limited by certain provisions of the indenture governing the Senior
Notes.
The Revolving Credit Facility, as amended, and the terms
of the indenture governing the Senior Notes contain certain
restrictions and require the Company to meet certain financial and
other covenants. The Company was in compliance with the covenants of
both the Revolving Credit Facility and Senior Notes as of October 1,
2005, January 1, 2005 and October 2, 2004.
Liquidity
As of October 1, 2005, the Company
had approximately $118.9 million of cash and cash equivalents available
as collateral against outstanding letters of credit of $51.2 million
and approximately $33.1 million of other cash and cash equivalents held
by foreign subsidiaries. As of October 1, 2005, the Company has $242.7
million of credit available under its Revolving Credit Facility which
included available borrowings of $175.0 million and cash and cash
equivalents, net of outstanding letters of credit, of $67.7 million. At
October 1, 2005, the Company had no borrowings outstanding under the
Revolving Credit Facility.
At October 1, 2005, January 1, 2005
and October 2, 2004, the Company had working capital of $491.1 million,
$434.2 million and $415.9 million, including $152.0 million, $65.6
million and $75.9 million of cash and cash equivalents,
respectively.
The Company's total debt as of October 1,
2005, January 1, 2005 and October 2, 2004 was $210.5 million, $210.8
million and $211.4 million, respectively, consisting primarily of the
Senior Notes.
The Company believes that cash available under the
Revolving Credit Facility and cash to be generated from future
operating activities will be sufficient to fund its operations,
including capital expenditures, for the next three years. If the
Company requires additional sources of capital, it will consider
reducing capital expenditures, seeking additional financing or selling
assets to meet such requirements.
Share
Repurchase Program
In July 2005, the Company's Board of
Directors authorized the Company to enter into a share repurchase
program of up to 3,000,000 shares of common stock. In order to comply
with the terms of applicable debt instruments (which contain certain
limitations on share repurchases), the Company expects that purchases
under the share repurchase program will be made over the course of the
next three years. During the Third Quarter of Fiscal 2005, the Company
repurchased 9,151 shares of its common stock in the open market at a
total cost of $0.2 million (an average cost of $24.25 per share) under
the share repurchase program. The share repurchase program may be
modified or terminated by the Company's Board of Directors at any
time. See Part II – Item 2 – Unregistered Sales of
Equity Securities and Use of Proceeds.
51
Cash Flows
The
following table summarizes the cash flows from the Company's
operating, investing and financing activities for Nine Months Ended
October 1, 2005 and the Nine Months Ended October 2, 2004:
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
|
![](spacer.gif) |
For
the Nine Months
Ended |
|
![](spacer.gif) |
October 1,
2005 |
![](spacer.gif) |
October 2, 2004 |
|
![](spacer.gif) |
|
![](spacer.gif) |
(AsRestated)(a) |
|
![](spacer.gif) |
(in thousands of
dollars) |
Net cash provided by (used in)
operating activities: |
![](spacer.gif) |
|
|
|
![](spacer.gif) |
|
|
|
Continuing
operations |
![](spacer.gif) |
$ |
113,740 |
|
![](spacer.gif) |
$ |
60,404 |
|
Discontinued
operations |
![](spacer.gif) |
|
1,069 |
|
![](spacer.gif) |
|
(4,036 |
) |
Net cash
used in investing
activities |
![](spacer.gif) |
|
(25,951 |
) |
![](spacer.gif) |
|
(33,319 |
) |
Net
cash provided by (used in) financing
activities |
![](spacer.gif) |
|
(374 |
) |
![](spacer.gif) |
|
450 |
|
Translation
adjustments |
![](spacer.gif) |
|
(2,061 |
) |
![](spacer.gif) |
|
(999 |
) |
Increase
in cash and cash
equivalents |
![](spacer.gif) |
$ |
86,423 |
|
![](spacer.gif) |
$ |
22,500 |
|
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
(a) |
The
amounts include the effects of the restatement described in Note 18 of
Notes to Consolidated Condensed Financial Statements. The effect of the
restatement was to reflect $5.3 million received from a landlord as a
component of net cash provided by (used in) operating activities rather
than as a component of net cash provided by (used in) investing
activities. |
Cash provided by operating
activities from continuing operations was $113.7 million in the Nine
Months Ended October 1, 2005 compared to $60.4 million in the Nine
Months Ended October 2, 2004. The $53.3 million increase in cash
provided by operating activities from continuing operations was due
primarily to a $42.8 million improvement in cash required for net
working capital (primarily inventory, accounts receivable, accounts
payable and accrued liabilities). Net working capital improvements
resulted in $26.1 million of net operating cash flows in the Nine
Months Ended October 1, 2005 compared to $16.7 million of net operating
cash outflows in the Nine Months Ended October 2, 2004. Net inventory
decreased by $23.0 million in the Nine Months Ended October 1, 2005 as
compared to an increase of $24.7 million in the Nine Months Ended
October 2, 2004. The improvement in inventory reflects the
Company's efforts to improve the timing of inventory receipts to
match shipping requirements more closely. Accounts receivable decreased
$7.5 million reflecting initial shipments of Chaps into the
mid-tier channel of distribution at the end of December 2004 which
resulted in an unusually high level of accounts receivable for the
Chaps business unit at the end of fiscal 2004.
Cash used
in investing activities was $26.0 million in the Nine Months Ended
October 1, 2005 compared to $33.3 million in the Nine Months Ended
October 2, 2004. This $7.3 million decrease was due primarily to a
decrease in cash used for business acquisitions. During the Nine Months
Ended October 2, 2004, the Company used $40.0 million for the purchase
of Ocean Pacific. During the Nine Months Ended October 1, 2005, the
Company used $0.8 million for business acquisitions. The decrease in
cash used was partially offset by the sale of the assets of the
A.B.S. by Allen Schwartz® business unit in
January 2004 for $15.2 million (the Company did not sell any business
units during the Nine Months Ended October 1, 2005). Cash used in
investing activities for the Nine Months Ended October 1, 2005 included
the $4.3 million purchase of the Calvin Klein swimwear license
(See Note 11 of Notes to Consolidated Condensed Financial
Statements). In addition, purchases of property, plant and
equipment increased $10.3 million for the Nine Months Ended October 1,
2005 as compared to the Nine Months Ended October 2, 2004, due
primarily to capitalized costs associated with the implementation of
the SAP system.
Cash used in financing activities was $0.4
million in the Nine Months Ended October 1, 2005 compared to cash
provided by financing activities of $0.5 million in the Nine Months
Ended October 2, 2004. The $0.9 million increase was due primarily to
an increase in payments of deferred financing costs related to the
amendments to the Company's Revolving Credit Facility.
Significant Contractual Obligations and
Commitments
Contractual obligations and commitments as of
October 1, 2005 were not materially different from those disclosed in
the Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 2005, except as follows:
52
In May 2005, the Company acquired a
Calvin Klein swimwear license (See Note 11 of Notes to
Consolidated Condensed Financial Statements).
During the
Third Quarter of Fiscal 2005, the Company committed to purchase
approximately $1.0 million of store fixtures in the first quarter of
the 2006 fiscal year.
During the Third Quarter of Fiscal 2005,
the Company entered into agreements to guarantee certain purchase
orders by one of its finished goods contractors with vendors of raw
materials (to a maximum of $3.7 million). As of October 28, 2005, the
Company had made payments of $2.4 million (recorded in inventory)
related to these guarantees and approximately $1.3 million of the
guarantees was still outstanding. The guarantees expire at various
times through December 2005. The estimated fair value of the guarantees
was not material to the Company's consolidated financial
statements as of October 1, 2005.
During the Nine Months Ended
October 1, 2005, the Company entered into certain (and amended certain
other) employment agreements with its executive officers. The
agreements provide for the payment of base salary and bonus and the
granting of long-term incentive and supplemental awards to the
executives. Minimum guaranteed compensation payable to the executives
under the agreements is $4.7 million, $5.6 million, $3.9 million and
$1.3 million with respect to fiscal 2005, 2006, 2007 and 2008,
respectively.
Please refer to the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 2005 for a
description of those obligations and commitments outstanding as of
January 1, 2005.
Off-Balance Sheet
Arrangements
The Company is not engaged in any off-balance
sheet arrangements through unconsolidated limited purpose entities.
Statement Regarding Forward-Looking Disclosure
This Quarterly Report on Form 10-Q, as well as certain other
written, electronic and oral disclosures made by the Company from time
to time, contains "forward-looking
statements" within the meaning of Rule 3b-6 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Rule 175 of the Securities Act of 1933, as amended,
and relevant legal decisions. The forward-looking statements involve
risks and uncertainties and reflect, when made, the Company's
estimates, objectives, projections, forecasts, plans, strategies,
beliefs, intentions, opportunities and expectations. Actual results may
differ materially from anticipated results or expectations and
investors are cautioned not to place undue reliance on any
forward-looking statements. Statements other than statements of
historical fact 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,"
"expect,"
"estimate,"
"intend," "may,"
"project," "scheduled
to," "seek,"
"should," "will
be," "will continue,"
"will likely result," or the negative of
those terms, or other similar words and phrases or by discussions of
intentions or strategies.
The following factors, among others,
could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by it:
![](spacer.gif) |
![](spacer.gif) |
• |
The impact of general economic
conditions that affect the apparel industry, the highly cyclical nature
of the apparel industry and the apparel industry's dependence
upon the overall level of consumer spending; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's failure to
anticipate, identify or promptly react to changing trends, styles or
brand preferences, which may reduce demand for the Company's
products and/or result in excess inventories and markdowns; |
![](spacer.gif) |
![](spacer.gif) |
• |
Further declines in prices in the
apparel industry resulting from, among others, the trend to move
manufacturing operations offshore, the elimination of trade quotas for
certain products originating in China, the introduction of new
manufacturing technologies, growth of the mass retail channel of
distribution, increased competition and consolidation in the retail
industry; |
53
![](spacer.gif) |
![](spacer.gif) |
• |
Declining
sales resulting from competition in the Company's markets and the
ability of the Company to effectively compete with domestic and foreign
apparel manufacturers and distributors, some of which are larger, more
diversified and have greater financial and other resources than it; |
![](spacer.gif) |
![](spacer.gif) |
• |
Increases in the prices of raw materials
used in the manufacture of the Company's products (which consist
primarily of cotton and chemical components of synthetic fabrics)
resulting from general changes in market prices for raw materials,
price volatility caused by weather, supply conditions, government
regulations, energy costs, economic climate or other unpredictable
factors, coupled with the Company's inability to correspondingly
increase the prices it charges its customers; |
![](spacer.gif) |
![](spacer.gif) |
• |
Shortages of sourced goods or the
Company's inability to secure and/or sustain favorable sourcing
relationships, and interruptions in the Company's manufacturing
or distribution or other events resulting in difficulty in procuring or
producing the Company's products on a cost-effective basis; |
![](spacer.gif) |
![](spacer.gif) |
• |
The effect on the Company's
domestic and foreign operations and sourcing arrangements of federal,
state and local laws and regulations, including, without limitation,
labor, workplace and environmental laws and regulations; |
![](spacer.gif) |
![](spacer.gif) |
• |
Changing international trade regulation,
including the imposition of quotas on imports of textiles and apparel
from countries from which the Company procures raw materials, such as
yarn, or where the Company's sourcing arrangements or
manufacturing facilities are located, or the elimination of quotas on
certain products from countries which historically have had lower labor
costs, including China and Taiwan, resulting in increased competition
from such countries; |
![](spacer.gif) |
![](spacer.gif) |
• |
The
Company's ability to protect its registered and common law owned
trademarks, as well as certain of its licensed trademarks, or the costs
incurred by the Company in bringing claims against, or defending
challenges by, third parties with respect to such intellectual
property; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's
dependence on a limited number of customers, the loss of a significant
customer or group of customers which, in the aggregate, would be
considered significant, or the potential loss of customers resulting
from additional consolidation in the retail industry; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's ability to maintain
favorable relationships with its licensors and licensees, including the
risk that the deterioration in these relationships could impair the
Company's ability to market its brands and distribute its
products; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's
dependence on the reputation of its brand names, including the
possibility that the value of the Company's brands could be
diminished by actions taken by licensors or by others who have rights
to use the brands for other products and/or in other territories; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's exposure to
conditions in overseas markets in connection with the Company's
foreign operations and the sourcing of many of its products from
foreign third-party vendors, including the effects of social, political
and economic conditions in or affecting such foreign countries; |
![](spacer.gif) |
![](spacer.gif) |
• |
The Company's foreign currency
exposure relating to buying, selling and financing in currencies other
than the United States dollar; |
![](spacer.gif) |
![](spacer.gif) |
• |
Unanticipated internal control
deficiencies or weaknesses, or the Company's inability to
maintain effective disclosure controls and procedures, in each case,
which could impair the Company's ability to provide timely and
reliable financial information; |
![](spacer.gif) |
![](spacer.gif) |
• |
The
sufficiency of cash generated from the Company's future operating
activities, together with cash available under the Revolving Credit
Facility, to fund operations, including capital expenditures, or, if
such sources of capital are not sufficient, the Company's ability
to secure additional financing, sell assets or reduce capital
expenditures; |
![](spacer.gif) |
![](spacer.gif) |
• |
The limitations on
purchases of shares under the Company's share repurchase program
contained in the Company's debt instruments, the number of shares
that the Company purchases under such program and the prices paid for
such shares. |
54
In addition, the Company encourages
investors to read the discussion of the Company's critical
accounting policies under "Management's Discussion
and Analysis of Financial Condition and Results of
Operations—Discussion of Critical Accounting
Policies" contained in the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 2005, as such
discussion may be modified or supplemented by subsequent reports that
the Company files with the SEC, including this Quarterly Report on Form
10-Q. 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 Company's ongoing obligation
under the United States federal securities laws, the Company disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
The Company is exposed to
market risk primarily related to changes in hypothetical investment
values under certain of the Company's employee benefit plans,
interest rates and foreign currency exchange rates.
Market
Risk
During 2005, the Company adopted a non-qualified deferred
compensation plan. Liabilities accrued for the plan's
participants are based on the participants' contributions and the
market values of hypothetical investments approved by the Company that
are selected by the participants. Increases and decreases in
liabilities attributable to changes in the market values of the
participants, hypothetical investments are reflected in the
Company's statement of operations. As of October 1, 2005, the
total liability accrued attributable to participants' accounts
was less than $0.1 million. A hypothetical increase of 10% in
the value of participants' hypothetical investment accounts
(which would increase the accrued liability related to the deferred
compensation plan) would not have had a material effect on the
Company's balance sheet or statement of operations for the Nine
Months Ended October 1, 2005.
Interest Rate Risk
The
Company's market risk from exposure to changes in interest rates
is limited because the Company does not have any borrowings outstanding
under its Revolving Credit Facility and the interest rate on the
Company's Senior Notes is fixed at 8 7/8%
per annum. However, as of October 1, 2005, the Company was exposed to
interest rate risk on its 2003 and 2004 Swap Agreements with notional
amounts totaling $75 million. The variable interest rate portion of the
Company's outstanding swap agreements is determined semi-annually
on December 15 and June 15 for the ensuing six-month period. A
hypothetical adverse change in interest rates of 100 basis points as of
January 2, 2005 (i.e., an increase from the Company's actual
interest rate of 6.8% for the 2003 Swap Agreement and
7.03% for the 2004 Swap Agreement at January 1, 2005 to
7.8% and 8.03%, respectively) would have resulted in an
increase in interest expense related to the 2003 and 2004 Swap
Agreements of approximately $0.6 million for the Nine Months Ended
October 1, 2005.
Foreign Exchange Risk
The Company has
foreign currency exposures related to buying, selling and financing in
currencies other than the functional currency in which it operates.
These exposures are primarily concentrated in the Company's
Canadian, Mexican and European operations (which accounted for
approximately 26% of the Company's total net revenues for
the Nine Months Ended October 1, 2005) to the extent such operations
purchase products denominated in United States dollars. Total purchases
of products by foreign subsidiaries denominated in United States
dollars amounted to approximately $84.0 million for the Nine Months
Ended October 1, 2005. A hypothetical decrease of 10% in the
value of these foreign currencies relative to the United States dollar
would have increased cost of goods sold (which would decrease operating
income) by $8.4 million for the Nine Months Ended October 1, 2005.
55
As of October 1, 2005, the Company had
foreign currency exchange contracts outstanding to purchase, through
March 2006, approximately $5.2 million for a total of approximately
€4.3 million at a weighted-average exchange rate of 1.216.
The foreign currency exchange contracts mature through March 2006 and
are designed to fix the number of euros required to satisfy the first
one-third of dollar denominated purchases of inventory by certain of
the Company's European subsidiaries. A hypothetical 10%
adverse change in the foreign currency exchange rate between the euro
and the United States dollar (i.e., an increase in the euro/dollar
exchange rate from 1.21 to 1.33) would have decreased the unrealized
gain on outstanding foreign exchange contracts by approximately $0.5
million at October 1, 2005. The change would not have had any effect on
the Company's results of operations because such unrealized gains
are recorded in other comprehensive income until the related inventory
is sold.
The Company does not use derivative financial
instruments for speculation or for trading purposes.
Item
4. Controls and Procedures.
(a) Disclosure
Controls and Procedures. The Company's management, with
the participation of the Company's Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the
Company's 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 report. Based on
management's evaluation, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end
of the period covered by this report, the Company's disclosure
controls and procedures are effective.
(b) Changes in
Internal Control Over Financial Reporting. There have not been
any changes in the Company's 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 fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
56
PART II
OTHER INFORMATION
Item 1. Legal
Proceedings.
The information required by this Item 1 of
Part II is incorporated herein by reference to Part I, Item 1.
Financial Statements, Note 16 Legal Matters.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
The Company's repurchases of its
outstanding common stock for the Third Quarter of Fiscal 2005 were as
follows:
![](spacer.gif)
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
Period |
![](spacer.gif) |
Total
Number of Shares Purchased |
![](spacer.gif) |
Average Price
Paid per Share |
![](spacer.gif) |
Total Number
of Shares Purchased as Part
of Publicly Announced Plan |
![](spacer.gif) |
Maximum Number
of Shares that May Yet Be Purchased Under
the Announced Plans |
July 3, 2005 –
July 30,
2005 |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
3,000,000 |
|
July
31, 2005 – September 3,
2005 |
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
— |
|
![](spacer.gif) |
|
3,000,000 |
|
September
4, 2005 – October 1,
2005 |
![](spacer.gif) |
|
9,151 |
|
![](spacer.gif) |
$ |
24.25 |
|
![](spacer.gif) |
|
9,151 |
|
![](spacer.gif) |
|
2,990,849 |
|
![](spacer.gif) |
In
July 2005, the Company's Board of Directors authorized the
Company to enter into a share repurchase program of up to three million
shares of common stock. The share repurchase program does not have an
expiration date. In order to comply with the terms of applicable debt
instruments (which contain certain limitations on share repurchases),
the Company expects that purchases under the share repurchase program
will be made over the course of the next three years. All shares
repurchased during the period covered by this report were purchased in
the open market under a publicly announced plan. The share repurchase
program may be modified or terminated by the Company's Board of
Directors at any time.
Item 3. Defaults Upon Senior
Securities.
None.
Item 4. Submission of
Matters to a Vote of Security Holders.
None.
Item
5. Other Information.
None.
Item
6. Exhibits.
![](spacer.gif)
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Exhibit
No. |
![](spacer.gif) |
Description of Exhibit |
3.1 |
![](spacer.gif) |
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 |
![](spacer.gif) |
Bylaws of The Warnaco Group, Inc. (incorporated by
reference to the Annual Report on Form 10-K filed by The Warnaco Group,
Inc. on April 4, 2003).* |
![](spacer.gif) |
57
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![](spacer.gif) |
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![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
![](spacer.gif) |
Exhibit
No. |
![](spacer.gif) |
Description of Exhibit |
4.1 |
![](spacer.gif) |
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 |
![](spacer.gif) |
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 |
![](spacer.gif) |
Rights Agreement, dated as of
February 4, 2003, between The Warnaco Group, Inc. and the Rights Agent,
including Form of Rights Certificate as Exhibit A, Summary of Rights to
Purchase Preferred Stock as Exhibit B and the Form of Certificate of
Designation for the Preferred Stock as Exhibit C (incorporated by
reference to Exhibit 4 to the Form 8-A/A filed by The Warnaco Group,
Inc. on February 4, 2003).* |
4.4 |
![](spacer.gif) |
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).* |
10.1 |
![](spacer.gif) |
Employment Agreement, dated as of August 11,
2005, by and between The Warnaco Group, Inc. and Roger A. Williams
(incorporated by reference to Exhibit 10.1 to The Warnaco Group,
Inc.'s Form 8-K filed August 12, 2005).* |
10.2 |
![](spacer.gif) |
Employment Agreement, dated as of August 11,
2005, by and between The Warnaco Group, Inc. and Stanley P. Silverstein
(incorporated by reference to Exhibit 10.2 to The Warnaco Group,
Inc.'s Form 8-K filed August 12, 2005).* |
10.3 |
![](spacer.gif) |
Employment Agreement, dated as of August 11,
2005, by and between The Warnaco Group, Inc. and Jay A. Galluzzo
(incorporated by reference to Exhibit 10.3 to The Warnaco Group,
Inc.'s Form 8-K filed August 12, 2005).* |
10.4 |
![](spacer.gif) |
Amendment to Employment Agreement, dated as of
August 11, 2005, by and between The Warnaco Group, Inc. and Lawrence
Rutkowski (incorporated by reference to Exhibit 10.4 to The Warnaco
Group, Inc.'s Form 8-K filed August 12, 2005).* |
10.5 |
![](spacer.gif) |
Amendment to Employment Agreement, dated as of
August 11, 2005, by and between The Warnaco Group, Inc. and Frank
Tworecke (incorporated by reference to Exhibit 10.5 to The Warnaco
Group, Inc.'s Form 8-K filed August 12, 2005).* |
10.6 |
![](spacer.gif) |
Amendment to Employment Agreement, dated as of
August 11, 2005, by and between The Warnaco Group, Inc. and Dwight
Meyer (incorporated by reference to Exhibit 10.6 to The Warnaco Group,
Inc.'s Form 8-K filed August 12, 2005).* |
10.7 |
![](spacer.gif) |
Amendment to Employment Agreement, dated as of
August 11, 2005, by and between The Warnaco Group, Inc. and Helen
McCluskey (incorporated by reference to Exhibit 10.7 to The Warnaco
Group, Inc.'s Form 8-K filed August 12, 2005).* |
10.8 |
![](spacer.gif) |
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).* |
10.9 |
![](spacer.gif) |
Employment
Agreement, dated as of September 12, 2005, by and between The Warnaco
Group, Inc. and Elizabeth Wood (incorporated by reference to Exhibit
10.1 to The Warnaco Group, Inc.'s Form 8-K filed September 14,
2005).* |
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58
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![](spacer.gif) |
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Exhibit
No. |
![](spacer.gif) |
Description of Exhibit |
10.10 |
![](spacer.gif) |
Amendment No. 3, dated
as of September 15, 2005, to the Credit Agreement, dated as of February
4, 2003 (as amended by Amendment No. 1, Consent and Waiver dated as of
November 12, 2003 and as further amended by Amendment No. 2 dated as of
August 1, 2004), among Warnaco Inc., The Warnaco Group, Inc., the
Lenders, the Issuers (each as defined therein), Citigroup North
America, Inc., as administrative agent and collateral agent for the
Lenders and the Issuers, JPMorgan Chase Bank, N.A., as syndication
agent for the Lenders and the Issuers, and Bank of America, NA, The CIT
Group/Commercial Services, Inc. and Wachovia Capital Finance
Corporation (Central), 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 8-K filed September 20, 2005).* |
31.1 |
![](spacer.gif) |
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 |
![](spacer.gif) |
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 |
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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) |
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* |
Previously
filed. |
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† |
Filed
herewith. |
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
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THE
WARNACO GROUP, INC. |
Date: November 8,
2005 |
/s/ Joseph R.
Gromek |
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Joseph R. Gromek
President and Chief Executive Officer |
Date:
November 8, 2005 |
/s/ Lawrence R.
Rutkowski |
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Lawrence R.
Rutkowski Executive Vice
President and
Chief Financial
Officer |
60
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EX-31.1
5
file002.htm
SECTION 302 CERTIFICATION
EXHIBIT
31.1
CERTIFICATION OF CHIEF EXECUTIVE
OFFICER
I, Joseph R. Gromek, certify
that:
1. I have reviewed this Quarterly Report on Form 10-Q of
The Warnaco Group, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I
are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
c) Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other
certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 8, 2005 |
/s/ Joseph R.
Gromek |
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By: Joseph R. Gromek
Chief Executive
Officer |
EX-31.2
6
file003.htm
SECTION 302 CERTIFICATION
EXHIBIT
31.2
CERTIFICATION OF CHIEF FINANCIAL
OFFICER
I, Lawrence R. Rutkowski,
certify that:
1. I have reviewed this Quarterly Report on Form
10-Q of The Warnaco Group, Inc.;
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I
are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to
be designed under our supervision, 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;
c) Evaluated the
effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other
certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) All significant
deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 8, 2005 |
/s/ Lawrence R.
Rutkowski |
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By: Lawrence R. Rutkowski
Chief Financial
Officer |
EX-32
7
file004.htm
CERTIFICATION
EXHIBIT
32
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER
OF THE WARNACO GROUP, INC.
PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
In connection with
the Quarterly Report on Form 10-Q of The Warnaco Group, Inc. (the
"Company") for the quarterly period ended
October 1, 2005, as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), Joseph R.
Gromek, as Chief Executive Officer of the Company, and Lawrence R.
Rutkowski, as Chief Financial Officer of the Company, each hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his
knowledge, based upon a review of the Report:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
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/s/
Joseph R. Gromek |
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/s/ Lawrence
R.
Rutkowski |
|
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|
Name:
Joseph R. Gromek |
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Name: Lawrence R. Rutkowski |
Title: Chief Executive Officer |
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Title: Chief Financial
Officer |
Date: November 8, 2005 |
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Date:
November 8, 2005 |
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