-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAv02g8RBEeiFllvHib4UbwPC5g/c3tfM5uJQo/cc96pdqBRBIoZJ4PXiuI2Og+c dR2c3tI8Gh3hqvIJv7bJRw== 0000950172-03-001212.txt : 20030414 0000950172-03-001212.hdr.sgml : 20030414 20030414160732 ACCESSION NUMBER: 0000950172-03-001212 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030414 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030414 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10857 FILM NUMBER: 03648700 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 8-K 1 s481322.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): April 14, 2003 (April 4, 2003) The Warnaco Group, Inc. (Exact Name of Registrant as Specified in Charter) Delaware (State or Other Jurisdiction of Incorporation) 1-10857 95-4032739 (Commission File Number) (IRS Employer Identification No.) 90 Park Avenue New York, NY 10016 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 661-1300 Not Applicable (Former name or former address, if changed since last report) Item 5. Other Events. On April 4, 2003, The Warnaco Group, Inc. (the "Company") filed its monthly operating report for the period commencing December 1, 2002 and ended January 4, 2003 (the "Operating Report") with the United States Bankruptcy Court for the Southern District of New York, a copy of which is attached hereto as Exhibit 99.1, in connection with the Company's voluntary petition for reorganization under Chapter 11 of title 11 of the United States Bankruptcy Code in Case Nos. 01-41643 through 01-41680 (Jointly Administered). The Operating Report contains unaudited information about the Company and certain of its subsidiaries (but not all of the Company's consolidated subsidiaries), each of which was previously a debtor and debtor-in-possession in the above-captioned cases, and is in a format, prescribed by the applicable bankruptcy laws. The Operating Report also contains information for periods which may be shorter or otherwise different from those contained in the Company's reports pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such information may not be indicative of the Company's financial condition or operating results for the periods reflected in the Company's financial statements or in its reports pursuant to the Exchange Act. For these reasons, the Company cautions readers not to place undue reliance upon the information contained therein. In addition, the Operating Report, as well as other statements made by the Company, may contain forward-looking statements within the meaning of Section 27A of Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect, when made, the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including the sufficiency of the Company's credit facilities, the ability of the Company to satisfy the conditions and requirements of its credit facilities, the effect of national, international and regional economic conditions, the overall level of consumer spending, the performance of the Company's products within the prevailing retail environment, customer acceptance of both new designs and newly introduced product lines, financial difficulties encountered by customers, the ability of the Company to attract, motivate and retain key executives and employees, and the ability of the Company to attract and retain customers. All statements other than statements of historical facts included in the Operating Report are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. 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 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits Exhibit No. Description 99.1 Monthly Operating Report for the Period from December 1, 2002 to January 4, 2003 SIGNATURE 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 hereunto duly authorized. The Warnaco Group, Inc. Date: April 14, 2003 By: /s/ Jay A. Galluzzo, Esq. -------------------------------- Name: Jay A. Galluzzo, Esq. Title: Vice President and General Counsel EXHIBIT INDEX EXHIBIT NO. DOCUMENT 99.1 Monthly Operating Report for the Period from December 1, 2002 to January 4, 2003 EXHIBIT 99.1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - - - - - - - - - - - - - - - - - - - x : Chapter 11 : In re : Case Nos. 01-41643 (RLB) : through 01-41680 (RLB) THE WARNACO GROUP, INC., et al., : : (Jointly Administered) Reorganized Debtors. : x - - - - - - - - - - - - -- -- - - - - - - - - - - MONTHLY OPERATING STATEMENT FOR DEBTORS-IN-POSSESSION FOR DECEMBER 1, 2002 TO JANUARY 4, 2003 Address of Reorganized Debtors: The Warnaco Group, Inc. 90 Park Avenue New York, New York 10016 Monthly Disbursements: $111,044 Address of Bankruptcy Attorneys for Reorganized Debtors: Sidley Austin Brown & Wood LLP 787 Seventh Avenue New York, New York 10019 Monthly Operating Loss before reorganization costs $ (8,966) The undersigned, having reviewed the attached report and being familiar with the financial affairs of The Warnaco Group, Inc., ("Warnaco"), and certain of Warnaco's subsidiaries, each of which was previously a debtor and debtor-in-possession in the above-captioned cases (collectively referred to herein as the "Debtors" although they have confirmed their joint plan of reorganization, which became effective on February 4, 2003 (the "Effective Date")), verifies under the penalty of perjury that the information contained therein is complete, accurate and truthful to the best of my knowledge. The undersigned also verifies that, to the best of my knowledge, all insurance policies, including workers compensation and disability insurance, had been paid through the Effective Date. Date: February 04, 2003 By: /s/ James P. Fogarty James P. Fogarty Senior Vice President Chief Financial Officer Indicate if this is an amended statement by checking here. Amended Statement: YES THE WARNACO GROUP, INC., et al. (DEBTORS-IN-POSSESSION) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In Thousands)
Month Ended 12 Months Ended January 4, 2003 January 4, 2003 ------------- -------------- Net revenues $ 119,014 $ 1,238,301 Cost of goods sold 71,705 912,014 Selling, general and administrative expenses 56,275 316,462 ------------- -------------- Operating income (loss) before reorganization items (8,966) 9,825 Reorganization items 15,749 103,824 ------------- -------------- Operating loss (24,715) (93,999) Interest expense, net (2,706) 14,969 Other expense (income), net (393) (5,876) ------------- -------------- Income (loss) before income taxes, cumulative effect of accounting change and equity in loss of unconsolidated subsidiaries (21,616) (103,092) Provision (benefit) for income taxes (3,587) 46,844 Cumulative effect of change in accounting (Note 2) - 801,622 Equity in (income) loss of unconsolidated subsidiaries 19,304 13,305 ------------- -------------- Net loss $ (37,333) $ (964,863) ============= ============== EBITDAR (See Note 1) $ 8,026 $ 87,247 ============= ============== ------------------------------------------------------------------------------------------------------ Note: Information presented herein reflects results of operations for Debtor entities. For results of operations for all Warnaco entities, please refer to Note 7 attached hereto. In summary, such worldwide consolidated operating results were: Month Ended 12 Months Ended January 4, 2003 January 4, 2003 ------------ ---------------- Net revenues $ 141,026 $ 1,492,956 ============ ================ Net loss $ (37,333) $ (964,863) ============ ================ EBITDAR $ 8,365 $ 114,287 ============ ================
THE WARNACO GROUP, INC., et al. (DEBTORS-IN-POSSESSION) CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands)
ASSETS January 4, 2003 January 5, 2002 -------------------------- ------------------------- Current assets: Cash $ 100,933 $ 18,758 Receivables, net 147,400 220,323 Inventories, net 285,738 350,406 Prepaid expenses and other current assets 22,441 31,722 -------------------------- ------------------------- Total current assets 556,512 621,209 Property, plant and equipment, net 139,219 191,117 Trademarks, goodwill and other assets, net 64,038 873,073 Investment in affiliates 7,128 181,212 Intercompany receivables, net 100,230 43,511 Deferred income taxes 1,290 - -------------------------- ------------------------- Total Assets $ 868,417 $ 1,910,122 ========================== ========================= LIABILITIES AND SHAREHOLDERS' DEFICIENCY Liabilities not subject to compromise: Current Liabilities: Current portion of long-term debt $ 5,765 $ 1,557 Accounts payable 82,678 59,319 Other current liabilities 54,636 66,846 Deferred income taxes 12,915 4,088 -------------------------- ------------------------- Total current liabilities 155,994 131,810 -------------------------- ------------------------- Amended DIP - 155,915 Long-term debt 1,252 1,740 Other long-term liabilities 81,185 31,736 Deferred income taxes - 5,130 Liabilities subject to compromise 2,486,082 2,435,075 -------------------------- ------------------------- Total Liabilities 2,724,513 2,761,406 Shareholders' deficiency (1,856,096) (851,284) -------------------------- ------------------------- Total Liabilities and Shareholders' Deficiency $ 868,417 $ 1,910,122 ========================== =========================
THE WARNACO GROUP, INC., et al. (DEBTORS-IN-POSSESSION) CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) Month Ended 12 Months Ended January 4, 2003 January 4, 2003 ------------------- ---------------- Cash flow from operating activities: Net loss $ (37,335) $ (964,863) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 4,792 51,298 Non-cash interest expense (3,268) 10,984 Cumulative effect of change in accounting - 801,622 Non-cash reorganization costs 12,605 61,973 Change in operating assets and liabilities: Accounts receivable 8,612 78,315 Inventories 9,405 61,931 Accounts payable 4,849 18,576 Pre-petition liabilities 17 (862) Prepaid expenses, other current assets and liabilities (4,945) 22,629 Other long-term and non-operating liabilities 22,097 85,624 ------------- ------------- Net cash provided by operating activities 16,829 227,227 ------------- ------------- Cash flow from investing activities: Capital expenditures, net of disposals 523 5,076 ------------- ------------- Net cash used in investing activities 523 5,076 ------------- ------------- Cash flow from financing activities: Repayments under pre-petition credit facilities, net 20 (10,011) Repayments under Amended DIP, net - (155,915) Repayment of other debt, net (1,195) (5,351) Change in intercompany accounts, net 7,587 25,890 ------------- ------------- Net cash provided by (used in) financing activities 6,412 (145,387) ------------- ------------- Translation adjustments 1,221 5,411 ------------- ------------- Net increase in cash and cash equivalents 23,939 82,175 Cash and cash equivalents at beginning of period 76,994 18,758 ------------- ------------- Cash and cash equivalents at end of period $ 100,933 $ 100,933 ============= =============
THE WARNACO GROUP, INC. ET AL. (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 1 - BASIS OF PRESENTATION Basis of presentation and consolidation: The accompanying consolidated condensed financial statements include the accounts of The Warnaco Group, Inc. and certain subsidiaries (the "Company" or "Debtors") and have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). The unaudited consolidated condensed financial statements do not contain all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (all of which were of a normal recurring nature, except for the adoption of SFAS No. 142 as discussed in Note 2 and adjustments related to the Chapter 11 Cases) necessary to present fairly the financial position of the Debtors as of January 4, 2003, as well as its results of operations and cash flows for the period ended January 4, 2003. Chapter 11 Cases. On June 11, 2001 (the "Petition Date"), the Company, 36 of its 37 U.S. subsidiaries and one of the Company's Canadian subsidiaries, Warnaco of Canada Company ("Warnaco Canada") (each a "Debtor" and, collectively, the "Debtors") each filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. ss.ss. 101-1330, as amended (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (collectively the "Chapter 11 Cases"). The remainder of the Company's foreign subsidiaries were not debtors in the Chapter 11 Cases, nor were they subject to foreign bankruptcy or insolvency proceedings. On December 27, 2002, the Company's creditors voted to approve the Debtor's plan of reorganization. On January 16, 2003, the Bankruptcy Court entered its (i) Findings of Fact to and Conclusions of Law Re: Order and Judgment Confirming The First Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of Title 11 of the United States Code, dated November 8, 2002, and (ii) an Order and Judgment Confirming The First Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of Title 11 of the United States Code, dated November 8, 2002, and Granting Related Relief (the "Confirmation Order"). In accordance with the provisions of the Plan and the Confirmation Order, on February 4, 2003 (the "Effective Date"), the Plan became effective. On the Effective Date the Company entered into the $275.0 million revolving credit facility (the "Exit Financing Facility"). The Exit Financing Facility provides for a four-year, non-amortizing revolving credit facility. The Exit Financing Facility includes provisions that allow the Company to increase the maximum available borrowing from $275.0 million to $325.0 million, subject to certain conditions (including obtaining the agreement of existing or new lenders to commit to lend the additional amount). Borrowings under the Exit Financing Facility bear interest at Citibank's base rate plus 1% or at the London Interbank Offered Rate ("LIBOR") plus 2.50%. The Exit Financing Facility contains financial covenants that, among other things, require the Company to maintain certain levels of earnings before interest, income taxes, depreciation, amortization and restructuring items, as defined ("EBITDAR") to fixed charges, maintain a total debt to EBITDAR ratio below 2.25 and limit the amount of the Company's capital expenditures. In addition, the Exit Financing Facility contains certain covenants that, among other things, limit investments and asset sales, prohibit the payment of dividends and prohibit the Company from incurring material additional indebtedness. Initial borrowings under the Exit Financing Facility were $39.2 million. The Company's borrowing rate fluctuates as the Company's EBITDAR to debt ratio changes. The Exit Financing Facility is secured by substantially all of the domestic assets of the Company. As of March 18, 2003 the Company had $76.0 million of outstanding borrowings and $58.5 million of standby and documentary letters of credit resulting in approximately $140.5 million of additional credit available, under the Exit Financing Facility. Set forth below is a summary of certain material provisions of the Plan. Among other things, as described below, the Plan resulted in the cancellation of the Company's Class A Common Stock, par value $0.01 per share (the "Old Common Stock"), issued prior to the Petition Date. The holders of Old Common Stock did not receive any distribution on account of the Old Common Stock under the Plan. The Company, as reorganized under the Plan, issued 45,000,000 shares of common stock $0.01 par value (the "New Common Stock"), which was distributed to pre-petition creditors as specified below. In addition, 5,000,000 shares of New Common Stock of the Company were reserved for issuance pursuant to management incentive stock grants. On March 12, 2003, subject to approval by the stockholders of the Company's proposed 2003 Management Incentive Plan, the Company authorized the grant of 750,000 shares of restricted stock and options to purchase 3,000,000 of New Common Stock at the fair market value on the date of grant. The Plan also provided for the issuance by the Company of the Second Lien Notes in the principal amount of $200.942 million to pre-petition creditors and others as specified below, secured by a second priority security interest in substantially all of the Debtors' U.S. assets and guaranteed by the Company and its domestic subsidiaries. The following is a summary of distributions made pursuant to the Plan: (a) the Old Common Stock was extinguished and holders of the Old Common Stock received no distribution on account of the Old Common Stock; (b) general unsecured claimants received approximately 2.55% (1,147,050 shares) of the New Common Stock; (c) the Company's pre-petition secured lenders received their pro-rata share of approximately $106.1 in cash, Second Lien Notes in the principal amount of $200.0 million and approximately 96.26% (43,318,350 shares) of the New Common Stock; (d) holders of claims arising from or related to certain preferred securities received approximately 0.60% of the Common Stock (268,200 shares); (e) pursuant to the terms of his Employment Agreement, as modified by the Plan, Antonio C. Alvarez II, the President and Chief Executive Officer of the Company, received an incentive bonus consisting of approximately $1.950 million in cash, New Warnaco Second Lien Notes in the principal amount of approximately $0.942 million and approximately 0.59% of the New Common Stock (266,400 shares); and (f) in addition to the foregoing, allowed administrative and certain priority claims were paid in full in cash. Asset sales: During the course of the Chapter 11 Cases, the Company obtained Bankruptcy Court authorization to sell assets and settle liabilities for amounts other than those reflected in the consolidated condensed financial statements. Management evaluated the Company's operations and identified assets for potential disposition. From the Petition Date, through January 4, 2003, the Company sold certain personal property, certain owned buildings and land and other assets, generating net proceeds of approximately $35.0 million of which approximately $28.8 million was generated during fiscal 2002 (collectively the "Asset Sales"). The Asset Sales did not result in a material gain or loss since the Company had previously written-down assets identified for potential disposition to their estimated net realizable value. Substantially all of the net proceeds from the Asset Sales were used to reduce outstanding borrowings under the Amended DIP or provide collateral for outstanding trade and standby letters of credit. In fiscal 2002, the Company closed all of its domestic outlet retail stores. The closing of the outlet stores and the related sale of inventory at approximately net book value generated approximately $23.2 million of net proceeds through January 4, 2003, which were used to reduce amounts outstanding under the Amended DIP or to provide collateral for outstanding trade letters of credit. The Company has closed all domestic outlet retail stores. In addition, during the first quarter of fiscal 2002, the Company sold the business and substantially all of the assets of GJM Manufacturing Ltd. ("GJM"), a private label manufacturer of women's sleepwear, and Penhaligon's Ltd. ("Penhaligon's"), a United Kingdom based retailer of perfumes, soaps, toiletries and other products. The sales of GJM and Penhaligon's generated aggregate net proceeds of approximately $20.5 million and an aggregate net loss of approximately $2.9 million. Proceeds from the sale of GJM and Penhaligon's were used to: (i) reduce amounts outstanding under certain debt agreements of the Company's foreign subsidiaries which were not part of the Chapter 11 Cases (approximately $4.8 million); (ii) reduce amounts outstanding under the Amended DIP (approximately $4.2 million); (iii) create an escrow fund (subsequently disbursed in June 2002) for the benefit of pre-petition secured lenders (approximately $9.8 million); and (iv) create an escrow fund (subsequently returned to the Company in February 2003) for the benefit of the purchasers of GJM and Penhaligon's for potential indemnification claims and for any working capital valuation adjustments (approximately $1.7 million). In September 2002, the Company sold other assets generating approximately $0.2 million of net proceeds and a loss on the sale of approximately $1.4 million. As a result of the Chapter 11 Cases and the circumstances leading to the filing thereof, as of January 4, 2003, the Company was not in compliance with certain financial and bankruptcy covenants contained in certain of its license agreements. Under applicable provisions of the Bankruptcy Code, compliance with such terms and conditions in executory contracts generally were either excused or suspended during the Chapter 11 Cases. In connection with the Company's emergence from bankruptcy, it was in compliance with the terms and covenants of its license and other agreements. In the Chapter 11 Cases, substantially all of the Debtors' unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan or plans of reorganization which must be confirmed by the Bankruptcy Court after obtaining the requisite amount of votes from affected parties. For financial reporting purposes, those liabilities have been segregated and classified as liabilities subject to compromise in the consolidated condensed balance sheets. Management: The Company's current Chief Executive Officer, Antonio C. Alvarez II, and current Chief Financial Officer, James P. Fogarty, joined the Company from the turnaround and crisis management consulting firm, Alvarez & Marsal, Inc. ("A&M") in April 2001. The Company has formed a search committee and has engaged an executive search firm to identify internal and external candidates to succeed Messrs. Alvarez and Fogarty following their return to their practices at A&M. Messrs. Alvarez and Fogarty have committed to remain in place through the completion of the restructuring process and to provide for a smooth and orderly transition to a new Chief Executive Officer and Chief Financial Officer. Separately, the Company has engaged an executive search firm to identify candidates for the Board of Directors of the reorganized Company. Reorganization items: Reorganization and administrative expenses related to the Chapter 11 Cases have been separately identified in the consolidated condensed statement of operations as reorganization items through January 4, 2003. The Company expects to recognize additional reorganization items in fiscal 2003. Reorganization items of the Debtors consist of the following:
Month Ended 12 Months Ended January 4, 2003 January 4, 2003 -------------------------------------- --------------------------------------- Asset write-offs $ 7,410 $ 27,733 Professional fees 2,671 27,319 Retention bonuses 517 9,968 Severance 398 3,765 GECC lease settlement - 22,907 Lease terminations 4,038 9,357 Other items 715 2,775 -------------------------------------- --------------------------------------- $ 15,749 $ 103,824 ====================================== =======================================
Worldwide consolidated reorganization items for the month and twelve months ended January 4, 2003 totaled $24,988 and $116,682 respectively. In the first quarter of fiscal 2002, the Debtors have reduced consolidated stockholders' deficiency by $49,920 from its reported consolidated 2000 balances to reflect the effects of certain errors involving the recording of inter-company pricing arrangements, the recording of accounts payable primarily related to the purchase of inventory from suppliers and the accrual of certain liabilities. The correction of these errors has caused the Company to restate its previously issued financial statements for the years ended January 1, 2000 and December 30, 2000. The Company has conducted an internal investigation of the cause of the errors and hired a previously unaffiliated legal firm to assist in its investigation of certain of the errors in its Designer Holdings, Ltd. subsidiary ("Designer Holdings"). Since the discovery of the accounting errors at Designer Holdings and at certain of the Company's European subsidiaries, the Company has replaced certain financial staff and has taken several steps to improve the accounting for inter-company purchases and the reconciliation of inter-company accounts. Earnings before interest, taxes, depreciation, amortization, restructuring charges and other items ("EBITDAR") is as follows:
Month Ended 12 Months Ended January 4, 2003 January 4, 2003 ---------------------------- --------------------------- Operating income (loss) before reorganization items $ (8,966) $ 9,825 Depreciation and amortization 4,789 51,269 UNICAP associated with inventory reductions 11,762 21,662 Losses from discontinued operations (776) 1,659 Other items 1,217 2,932 ---------------------------- --------------------------- EBITDAR $ 8,026 $ 87,347 ============================ ===========================
NOTE 2 - CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING PRINCIPLE Effective January 6, 2002, Warnaco adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 eliminates the amortization of goodwill and certain other intangible assets with indefinite lives effective for the Company's 2002 fiscal year. SFAS 142 addresses financial accounting and reporting for intangible assets and acquired goodwill. SFAS 142 requires that indefinite lived intangible assets be tested for impairment upon adoption and at least annually thereafter. Under the provisions of SFAS 142, goodwill is deemed impaired if the net book value of a business reporting unit exceeds the fair value of that business reporting unit. Intangible assets are deemed impaired if the carrying value of such assets exceeds its fair value. The Company obtained an independent appraisal of its Business Enterprise Value ("BEV") in connection with the preparation of its proposed plan of reorganization. The Company allocated the BEV to its various business reporting units and determined that the value of certain of the Company's indefinite lived intangible assets and goodwill were impaired. As a result, the Company recorded a charge of $801,622 net of income tax benefit of $53,513 as a cumulative effect of a change in accounting from the adoption of SFAS No. 142. NOTE 3 - LONG-TERM DEBT DEBTOR-IN-POSSESSION FINANCING On June 11, 2001, the Company entered into a Debtor-In-Possession Financing Agreement ("DIP") with a group of banks, which was approved by the Bankruptcy Court in an interim amount of $375,000. On July 9, 2001, the Bankruptcy Court approved an increase in the amount of borrowing available to the Company to $600,000. The DIP was subsequently amended on August 27, 2001, December 27, 2001, February 5, 2002 and May 15, 2002. In addition, certain extensions were granted under the DIP on April 12, 2002, June 19, 2002, July 18, 2002, August 22, 2002 and September 30, 2002 (the DIP subsequent to such extensions and amendments the "Amended DIP"). The amendments and extensions, among other things, amended certain definitions and covenants, permitted the sale of certain of the Company's assets and businesses, extended deadlines with respect to certain asset sales and filing requirements with respect to a plan of reorganization and reduced the size of the facility to reflect the Debtor's revised business plan. The Amended DIP (when originally executed) provided for a $375,000 non-amortizing revolving credit facility (which includes a letter of credit facility of up to $200,000) ("Tranche A") and a $225,000 revolving credit facility ("Tranche B"). On December 27, 2001 the Tranche B commitment was reduced to $100,000. On April 19, 2002, the Company voluntarily elected to eliminate Tranche B based upon its determination that the Company's liquidity position had improved significantly since the Petition Date and Tranche B would not be needed to fund the Company's on-going operations. On May 28, 2002, the Company voluntarily reduced the amount of borrowing available to the Company under the Amended DIP to $325,000. On October 8, 2002, the Company voluntarily reduced the amount of borrowing available to the Company under the Amended DIP to $275,000. Borrowing under the Amended DIP bears interest at either the London Inter Bank Offering Rate (LIBOR) plus 2.75% (approximately 4.25% at January 4, 2003) or at the Citibank N.A. Base Rate plus 1.75% (6.5% at January 4, 2003). The Amended DIP contained restrictive covenants which required the Company to achieve $70,800 of earnings before interest, income taxes, depreciation, amortization and restructuring charges, as defined ("EBITDAR") and limit capital expenditures to less than $25,000 for the year ended January 4, 2003. As of January 4, 2003, the Company was in compliance with all of the covenants under the Amended DIP All outstanding borrowings under the Amended DIP had been repaid as of January 4, 2003. Loans outstanding under the Amended DIP at January 5, 2002 and January 4, 2003 were $155,915 and $0, respectively with a weighted average interest rate of 4.8% for fiscal 2001. In addition, the Company had stand-by and documentary letters of credit outstanding under the Amended DIP at January 5, 2002 and January 4, 2003 of approximately $60,031 and $60,672, respectively. The total amount of additional credit available to the Company at January 5, 2002 and January 4, 2003 was $159,054 and $160,906, respectively. In addition, at January 4, 2003, the Company had approximately $94,059 of excess cash available as collateral against outstanding stand-by and trade letters of credit. The Amended DIP was secured by substantially all of the domestic assets of the Company. The Amended DIP terminated on the Effective Date and was replaced by the Exit Financing Facility. GECC SETTLEMENT On June 12, 2002, the Bankruptcy Court approved the Company's settlement of certain operating lease agreements with General Electric Capital Corporation ("GECC"). The leases had original terms of from three to seven years and were secured by certain equipment, machinery, furniture, fixtures and other assets. GECC's total claims under the leases were approximately $51,152. Under the terms of the settlement agreement, the Company will pay GECC $15,200 of which $5,600 had been paid by the Company through June 12, 2002. The Company will pay the balance of $9,600 (net present value of $9,071 at June 12, 2002) in equal monthly installments of $550 through the date of the consummation of a confirmed plan of reorganization and $750 per month thereafter until the balance is fully paid. The net present value of the remaining GECC payments of $5,765 is classified as short-term debt not subject to compromise at January 4, 2003. All other amounts claimed by GECC under the leases of $35,952 (including $13,045 previously accrued and charged to operating expense by the Company) are classified as liabilities subject to compromise at January 4, 2003. Amounts not previously accrued by the Company but included in the GECC claim of $22,907 were charged to reorganization items in the second quarter of fiscal 2002. GECC retains a perfected security interest in the leased assets equal to the outstanding cash settlement payments due under the settlement agreement until all such amounts are paid. The assets acquired pursuant to the terms of the settlement agreement were recorded at their estimated fair value, which was estimated to be equal to the present value of payments due to GECC under the terms of the settlement agreement. Such assets are being depreciated using the straight-line method over their estimated remaining useful lives of 2 to 4 years. PRE-PETITION DEBT AGREEMENTS--SUBJECT TO COMPROMISE The Company was in default of substantially all of its U.S. pre-petition credit agreements as of January 4, 2003. All pre-petition debt of the Debtors has been classified as liabilities subject to compromise in the consolidated condensed balance sheet at January 4, 2003 and January 5, 2002. In addition, the Company stopped accruing interest on all domestic pre-petition credit facilities and outstanding balances on June 11, 2001, except for interest on certain foreign credit agreements that are subject to standstill and inter-creditor agreements. Total interest accrued on foreign debt agreements was $3,858 for the month ended January 4, 2003. Total interest accrued on foreign debt agreements since the Petition Date totaled $13,943, which is included in liabilities subject to compromise at January 4, 2003. Pursuant to the Plan, the Company paid $106,111 of interest and principle related to the foreign credit agreements. NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE The principal categories of obligations classified as liabilities subject to compromise to unrelated parties under the Chapter 11 Cases are identified below. The amounts below may vary significantly from the stated amount of proofs of claim that will be filed with the Bankruptcy Court and may be subject to adjustment pending the final settlement of such claims. Shares of New Common Stock, Second Lien Notes and cash were distributed to holders of pre-petition secured claims, holders of administrative and priority claims were distributed to pre-petition creditors on February 4, 2003. Shares of New Common Stock will be distributed to holders of unsecured pre-petition claims when all claims are fully settled and reconciled. The Debtors expect that such distributions will be made in April 2003.
January 4, 2003 ------------------------- U.S. bank debt $ 1,755,444 Canadian revolver 17,370 Post-retirement benefit obligation 3,110 Accrued pre-petition interest 45,842 Mortgages/capital lease obligations 1,265 Lease termination accrual 22,888 Equity forward note 56,506 Other debt 18,019 Accounts payable 95,105 Trade drafts payable 349,737 Deferred compensation accrual 796 Company obligated mandatorily redeemable convertible preferred securities ($120,000 par value) 120,000 ------------------------- $ 2,486,082 =========================
NOTE 5 - INTERCOMPANY RECEIVABLES Intercompany balances are eliminated, in accordance with accounting principles generally accepted in the United States of America, when the results of Warnaco (the parent company) are consolidated with all of its wholly-owned subsidiaries. Pursuant to the terms of the Plan, the Debtors have the right to retain, or effect such transfers and setoffs with respect to intercompany claims as the Company deemed appropriate for accounting, tax and commercial purposes, to the fullest extent permitted by law. As of January 4, 2003, the balance is comprised of the following: Month Ended January 4, 2003 ----------------------------- (in thousands) Intercompany accounts receivable from Non-debtor affiliates $ 100,230 ============================= NOTE 6 - SUPPLEMENTAL FINANCIAL INFORMATION During the period ended January 4, 2003, the Debtors paid gross wages of $12,666,967. All employee and employer payroll taxes are paid to the Debtors' payroll service provider. The service provider in turn remits the funds to the taxing authorities. The following summarizes the taxes paid (received) and accrued by the Debtors during the period ended January 4, 2003:
Paid Refund (Received) (Due) ---------------------------- ---------------------------- Sales and use tax $ 463,310 $ (556,355) Customs duties 3,571,461 (4,488,624) State income tax 227,230 (203,529) Federal income tax - - Canada income tax - (102,848)(a) Property tax 197,482 (106,600) GST tax 174,864 (63,060) ---------------------------- ---------------------------- $ 4,634,347 $(5,521,016) ============================ ============================ (a) 2001 refund.
NOTE 7 - CONSOLIDATED CONDENSED BALANCE SHEET AND OPERATING STATEMENT The attached Schedule I and Schedule II includes the Consolidated Condensed Balance Sheets and Consolidated Condensed Statements of Operations of The Warnaco Group, Inc. and its consolidated subsidiaries (the "Statements"). The Statements include the assets, liabilities and results of operations of all of the Company's subsidiaries including those entities not subject to the Chapter 11 Cases. The Statements are provided for information purposes only. The Statements do not include all of the information necessary to fully represent the financial position and results of operations of the Company in accordance with accounting principles generally accepted in the United States of America. SCHEDULE I THE WARNACO GROUP, INC. (DEBTORS-IN-POSSESSION) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In Thousands)
Month Ended 12 Months Ended January 4, 2003 January 4, 2003 -------------- ---------------- Net revenues $ 141,026 1,492,956 Cost of goods sold 81,994 1,052,661 Selling, general and administrative expenses 67,515 410,954 -------------- ---------------- Operating income (loss) before reorganization items (8,483) 29,341 Reorganization items 24,988 116,682 -------------- ---------------- Operating loss (33,471) (87,341) Interest expense, net 4,954 22,049 Other (income) expense, net (62) (62) -------------- ---------------- Loss before income taxes and cumulative effect of accounting change (38,363) (109,328) Provision (benefit) for income taxes (1,030) 400 Cumulative effect of accounting change - 855,135 -------------- ---------------- Net loss $ (37,333) $ (964,863) ============== ================ EBITDAR $ 8,365 $ 114,287 ============== ================
Earnings before interest, taxes, depreciation, amortization, restructuring charges and other items ("EBITDAR") is as follows:
Month Ended 12 Months Ended January 4, 2003 January 4, 2003 --------------------- ----------------------- Operating income (loss) before reorganization items $ (8,483) $ 29,341 Depreciation and amortization 5,308 57,719 UNICAP associated with inventory reductions 11,762 21,662 Losses from discontinued operations (777) 1,172 Other items 555 4,393 --------------------- ----------------------- ----------------------- EBITDAR $ 8,365 $ 114,287 ===================== =======================
SCHEDULE II THE WARNACO GROUP, INC. (DEBTORS-IN-POSSESSION) CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands) ASSETS January 4, 2003 January 5, 2002 --------------------- -------------------- Current assets: Cash (includes restricted cash of $1,700 and $ -, respectively) $ 120,125 $ 39,558 Accounts receivable, net of reserves of $87,512 and $109,320, respectively 199,817 288,304 Inventories, net of reserves of $33,816 and $50,724, respectively 345,268 428,720 Prepaid expenses and other current assets 34,410 38,412 --------------------- -------------------- Total current assets 699,620 794,994 Property, plant and equipment, net 156,712 220,588 Trademarks, goodwill and other, net, see Note 2 91,548 969,873 Investment in affiliates Intercompany Receivable, net Deferred income taxes - - --------------------- -------------------- Total Assets $ 947,880 $ 1,985,455 ===================== ==================== LIABILITIES AND SHAREHOLDERS' DEFICIENCY Liabilities not subject to compromise: Current Liabilities: Current portion of long-term debt $ 5,765 $ 2,111 Accounts payable 103,630 88,522 Other current liabilities 92,661 101,520 Deferred income taxes 28,420 14,505 --------------------- -------------------- Total current liabilities 230,476 206,658 --------------------- -------------------- Amended DIP - 155,915 Long-term debt 1,252 2,207 Other long-term liabilities 81,202 31,754 Deferred income taxes 4,964 5,130 Liabilities subject to compromise 2,486,082 2,435,075 --------------------- -------------------- Intercompany receivable, net - - Total Liabilities 2,803,976 2,836,739 Redeemable Preferred Securities - - Shareholders' deficiency: (1,856,096) (851,284) --------------------- -------------------- Total Liabilities and Shareholders' Deficiency $ 947,880 $ 1,985,455 ===================== ====================
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