=========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT NO. 1) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 9, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission File Number: 1-4715 The Warnaco Group, Inc. (Exact name of registrant as specified in its charter) Delaware 95-4032739 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 Park Avenue New York, New York 10016 (Address of registrant's principal executive offices) (212) 661-1300 (Registrant's telephone number, including area code) Copies of all communications to: The Warnaco Group, Inc. 90 Park Avenue New York, New York 10016 Attention: Vice President and General Counsel Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the registrant's Class A Common Stock as of November 18, 1994 is as follows: 42,044,192. =========================================================================== PART I -- FINANCIAL INFORMATION Item 1. Financial Statements THE WARNACO GROUP, INC. Consolidated Condensed Balance Sheets (in thousands of dollars) April 9, January 8, 1994 1994 -------- -------- (unaudited) Assets Current assets: Cash (restricted $386 and $886, respectively)................................ $ 4,652 $ 4,651 Accounts receivable -- net(1)................................................ 146,643 126,507 Inventories: Finished goods............................................................. 148,168 120,203 Work in process............................................................ 56,047 65,285 Raw materials.............................................................. 52,803 54,015 -------- -------- Total inventories(2)...................................................... 257,018 239,503 Other current assets........................................................... 30,390 22,148 -------- -------- Total current assets...................................................... 438,703 392,809 -------- -------- Property, plant and equipment, (net of accumulated depreciation of $66,911 and $65,257, respectively)................................................... 76,842 73,636 Other assets: Intangibles and other assets -- net.......................................... 276,283 222,188 -------- -------- $791,828 $688,633 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Notes payable................................................................ $ 5,142 $ 5,819 Borrowing under revolving credit facility.................................... 175,133 100,523 Current portion of long-term debt............................................ 47,059 49,171 Accounts payable and accrued liabilities..................................... 99,561 112,557 Federal and other income taxes............................................... 2,607 2,778 -------- -------- Total current liabilities................................................. 329,502 270,848 -------- -------- Long-term debt................................................................. 252,865 245,518 Other long-term liabilities.................................................... 18,168 13,132 Stockholders' equity: Preferred Stock; $.01 par value.............................................. -- -- Common Stock; $.01 par value(3).............................................. 420 404 Capital in excess of par value(3)............................................ 337,889 315,068 Cumulative translation adjustment............................................ (154) 279 Accumulated deficit............................................................ (138,264) (147,225) Notes receivable for common stock issued....................................... (8,598) (9,391) -------- -------- Total stockholders' equity................................................ 191,293 159,135 -------- -------- $791,828 $688,633 ======== ======== (1) Includes $7.3 million acquired from Calvin Klein, Inc. on March 14, 1994. (2) Includes $7.8 million acquired from Calvin Klein, Inc. on March 14, 1994. (3) Adjusted to reflect the two-for-one stock split for shareholders of record on September 8, 1994 and effective October 3, 1994. This statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. THE WARNACO GROUP, INC. Consolidated Condensed Statements of Operations (unaudited) (in thousands of dollars except share data) Quarter ended ---------------------------------- April 9, 1994 April 3, 1993 ------------- ------------- Net revenues(1)............................................................. $ 147,731 $ 156,750 Cost of goods sold.......................................................... 97,355 101,953 ----------- ----------- Gross profit................................................................ 50,376 54,797 Selling, administrative and general expenses................................ 30,260 32,790 Loss on California earthquake............................................... 3,000 -- ----------- ----------- Income before interest and income taxes..................................... 17,116 22,007 Interest expense............................................................ 7,405 9,905 Provision for income taxes.................................................. 750 1,350 ----------- ----------- Income from continuing operations(2)........................................ 8,961 10,752 Cumulative effect of change in method of accounting for postretirement benefits................................................... -- (10,500) ----------- ----------- Net income.................................................................. $ 8,961 $ 252 =========== =========== Net income applicable to common stockholders................................ $ 8,961 $ 252 =========== =========== Income (loss) per common share:(3) Income from continuing operations(2)...................................... $ 0.22 $ 0.27 Cumulative effect of change in method of accounting for postretirement benefits................................................. -- (0.26) ----------- ----------- Net income per common share(3).............................................. $ 0.22 $ 0.01 ----------- ----------- Weighted average number of common shares outstanding(3)..................... 40,151,954 39,763,458 =========== =========== (1) Menswear sales on discontinued brands (Dior, Nicklaus and Puritan) were lower by $15 million. Olga sales were lower by $14 million, due to earthquake interruption, partially offset by an anticipated recovery of approximately $8 million. Excluding these two items, net revenues would have been $168.7 million, up 8% over last year. (2) Income from continuing operations, before the loss on California earthquake was $12.0 million ($.30 per share), an increase of 11.2% over the $10.8 million ($0.27 per share) recorded last year. (3) Adjusted to reflect the two-for-one stock split for shareholders of record on September 8, 1994 and effective October 3, 1994. This statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. THE WARNACO GROUP, INC. Consolidated Condensed Statements of Cash Flow (unaudited) Increase (Decrease) in Cash (in thousands of dollars) Quarter ended ---------------------------- April 9, 1994 April 3, 1993 ----------- ----------- Cash flow from operations: Net income................................................................... $ 8,961 $ 252 Non cash items included in net income: Depreciation and amortization.............................................. 4,698 5,303 Interest................................................................... 274 976 Loss on California earthquake.............................................. 3,000 -- Cumulative effect of change in method of accounting for postretirement benefits................................................... -- 10,500 Income taxes paid............................................................ (921) (784) Other changes in operating accounts.......................................... (53,623) (33,200) Other........................................................................ (3,434) (6,503) -------- -------- Cash used in operations........................................................ (41,045) (23,456) -------- -------- Cash flow from investing activities: Net proceeds from sale of fixed assets....................................... 115 -- Purchase of property, plant & equipment...................................... (5,520) (4,261) Payment for purchase of Calvin Klein underwear businesses and trademarks..... (33,500) -- -------- -------- Cash used in investing activities.............................................. (38,905) (4,261) -------- -------- Cash flow from financing activities: Borrowings under revolving credit facilities................................. 71,723 21,524 Net proceeds from the sale of Class A common stock and repayment of notes receivable from employees......................................... 793 101 Repayments of debt........................................................... -- (223) Proceeds from other financings............................................... 7,445 2,587 Increase in deferred financing costs......................................... (10) -- -------- -------- Cash provided from financing activities........................................ 79,951 23,989 -------- -------- Increase (decrease) in cash.................................................... 1 (3,728) Cash at beginning of period.................................................... 4,651 3,763 -------- -------- Cash at end of period.......................................................... $ 4,652 $ 35 ======== ======== Other changes in operating accounts: Accounts receivable.......................................................... $(12,312) $(16,178) Inventories.................................................................. (12,572) (7,121) Other current assets......................................................... (8,242) (5,665) Accounts payable and accrued liabilities..................................... (21,247) (5,586) Income taxes payable......................................................... 750 1,350 -------- -------- $(53,623) $(33,200) ======== ======== Supplemental disclosure of cash flow information: In the month of March, Warnaco completed the acquisition of Calvin Klein underwear businesses and trademarks Fair value of assets acquired............................................. $ 69,588 Cash paid................................................................. (33,500) Issuance of common stock.................................................. (22,836) -------- Liabilities assumed.......................................................... $ 13,252 ======== This statement should be read in conjunction with the accompanying Notes to Consolidated Condensed Financial Statements. THE WARNACO GROUP, INC. Notes to Consolidated Condensed Financial Statements 1. In the opinion of the Company, the accompanying consolidated condensed financial statements contained all the adjustments (all of which were of a normal recurring nature) necessary to present fairly the financial position of the Company as of April 9, 1994 as well as its results of operations and cash flows for the periods ended April 9, 1994 and April 3, 1993. Operating results for interim periods may not be indicative of results for the full fiscal year. 2. Certain amounts for prior periods have been reclassified to be comparable with the current period presentation. 3. In the first quarter of 1994, there is a $3.0 million non-recurring charge related to the January 1994 California earthquake. 4. On March 14, 1994, the Company acquired the Calvin Klein worldwide businesses and trademarks for men's underwear, a worldwide license for Calvin Klein men's accessories and the Calvin Klein worldwide businesses and trademarks for women's intimate apparel upon the expiration of an existing license on December 31, 1994. 5. On August 25, 1994, the Company's Board of Directors authorized a two-for-one stock split for shareholders of record on September 8, 1994 and effective October 3, 1994. The split increased the number of outstanding shares of common stock and outstanding options by 100%. Exercise prices for outstanding options were adjusted to reflect the split. All outstanding share and per share information has been adjusted to reflect the split as if it had occurred at the beginning of each period presented. 6. In August 1994, the Company purchased 286,600 shares of its outstanding common stock on the open market at an average price of $17.45 per share. Total cost of the purchase was approximately $5 million and is included in stockholders' equity as treasury stock. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations STATEMENT OF OPERATIONS (selected data) (amounts in millions of dollars) First Quarter 1994 First Quarter 1993 ---------------- ---------------- Net revenues(1)....................................... $147.7 $156.8 Cost of goods sold.................................... 97.3 102.0 ------ ------ Gross profit.......................................... 50.4 54.8 % to net revenues................................... 34.1% 35.0% Selling, administrative and general................... 30.3 32.8 ------ ------ Income before earthquake, interest and income taxes... 20.1 22.0 % to net revenues................................... 13.6% 14.0% Loss on California earthquake......................... 3.0 -- Income before interest and income taxes............... 17.1 22.0 Interest expense...................................... 7.4 9.9 Provision for income taxes............................ 0.7 1.3 ------ ------ Income from continuing operations(2).................. $ 9.0 $ 10.8 ====== ====== (1) Menswear sales on discontinued brands (Dior, Nicklaus and Puritan) were lower by $15 million. Olga sales were lower by $14 million due to earthquake interruption, partially offset by an anticipated recovery of approximately $8 million. Excluding these two items, net revenues would have been $168.7 million, up 8% over last year. (2) Income from continuing operations before the impact of the Loss on the California earthquake was $12.0 million ($0.30 per share), an increase of 11.2% compared to the $10.8 million ($0.27 per share) recorded last year. All share and per share data have been adjusted to reflect the two-for-one stock split for shareholders of record on September 8, 1994 and effective October 3, 1994. Due to the California earthquake in January and the discontinued menswear brands of Dior, Nicklaus and Puritan, net revenues decreased 5.8% from $156.8 million in the first quarter of 1993 to $147.7 million in the first quarter of 1994. Excluding these two items, net revenues would have been $168.7 million, up 8% over last year. Intimate apparel division net revenues increased 3.2% in the first quarter of 1994 to $99.1 million from $96.0 million in the first quarter of 1993. On January 17, 1994 the California earthquake caused a shutdown of Olga's distribution center for six weeks. The Company successfully relocated the distribution center to other facilities and began shipping normally in March 1994. Excluding the impact of the earthquake, intimate apparel net revenues would have been up nearly 10%. On March 14, 1994, the Company acquired the Calvin Klein men's underwear worldwide businesses and trademarks, a worldwide license for Calvin Klein men's accessories, and the Calvin Klein worldwide businesses and trademarks for women's intimate apparel upon the expiration of an existing license on December 31, 1994. Included in the intimate apparel net revenues are approximately $3 million of Calvin Klein men's underwear, which represents three weeks of shipments in March. Menswear division net revenues decreased 21.8% from $53.0 million in the first quarter of 1993 to $41.4 million in the first quarter of 1994 due to the discontinued brands of Dior, Nicklaus and Puritan. This was partially offset by a 24.7% increase in the Chaps brand. Excluding the discontinued brands, Menswear net revenues would have been up 9.0% over the previous year. Gross profit decreased 8.1% from $54.8 million in the first quarter of 1993 to $50.4 million in the first quarter of 1994. The decrease in gross profit is primarily a result of the decreased net revenues noted above. Gross profit as a percentage of net revenues decreased from 35.0% in the first quarter of 1993 to 34.1% in the first quarter of 1994, due to a higher mix of Fruit of the Loom and Calvin Klein sales in the quarter which have lower gross margins than the lost Olga sales resulting from the earthquake. Selling, administrative and general expenses decreased from $32.8 million (20.9% of net revenues) in the first quarter of 1993 to $30.3 million (20.5% of net revenues) in the first quarter of 1994. The decrease in selling, administrative and general expenses as a percentage of net revenues reflects the reduction in Menswear division operating costs. The first quarter of 1994 includes a non-recurring loss on the California earthquake of $3.0 million, related to the deductible portion of the Company's insurance policy on the January 17th California earthquake which temporarily shut down the Olga distribution center. Interest expense decreased 25.2% from $9.9 million in the first quarter of 1993 to $7.4 million in the first quarter of 1994. The decrease in interest expense reflects the refinancing of the Company's debt in September 1993. The Company's debt is substantially all bank debt at a rate of LIBOR plus 1.25%, and in January 1994, the Company negotiated a $100 million two-year interest rate swap at a fixed LIBOR rate of 4.290%. The provision for income taxes for both periods primarily reflects accruals for taxes of foreign subsidiaries. Income from continuing operations, before the impact of the California earthquake, increased 11.1% from $10.8 million ($0.27 per share) in the first quarter of 1993 to $12.0 million ($0.30 per share) in the first quarter of 1994 reflecting the increased operating income and decreased interest expense noted above. The first quarter of 1993 includes a one-time non-cash expense of $10.5 million for the cumulative effect of a change in the method of accounting for employee postretirement benefits, which was recorded in accordance with the provisions of Statement of Financial Accounting Standards No. 106 ("FAS No. 106"). The adoption of FAS No. 106 is not expected to have a material impact on the results of operations in any future period. Net income for the first quarter of 1994, after the $3.0 million one-time charge mentioned above, was $9.0 million compared to a net income of $300,000 for the first quarter of 1993 which reflects the FAS No. 106 one-time charge noted above. Capital Resources and Liquidity The Company's liquidity requirements arise primarily from its debt service requirements and the funding of the Company's working capital needs, primarily inventory and accounts receivable. The Company's borrowing requirements are seasonal, with peak working capital needs generally arising at the end of the second quarter and during the third quarter of the fiscal year. The Company typically generates nearly all of its operating cash flow in the fourth quarter of the fiscal year reflecting third and fourth quarter shipments and the sale of inventory built during the first half of the fiscal year. Cash used by operating activities in the first quarter of 1994 was $41.0 million compared to a use of $23.5 million in the comparable 1993 period, primarily due to a decrease in accrued liabilities and accounts payable. The use of cash is attributable to a seasonal increase in working capital, primarily accounts receivable and inventories. The Company believes that funds available under its existing credit arrangements and cash flow to be generated from future operations will be sufficient to meet working capital and capital expenditure needs of the Company, including interest and principal payments on outstanding debt obligations, for the foreseeable future. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 3.1 Restated Certificate of Incorporation of the Company. (Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 3.2 By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 4.1 Registration Rights Agreement, dated March 14, 1994, between the Company and Calvin Klein, Inc. ("CKI").* 10.1 Credit Agreement dated July 16, 1993 (the "U.S. $55,000,000 Credit Agreement") among Warnaco Inc., The Bank of Nova Scotia, as agent, and certain other lenders named therein.* 10.2 Amendment No. 1 to the U.S. $55,000,000 Credit Agreement dated October 14, 1993.* 10.3 Amendment No. 2 to the U.S. $55,000,000 Credit Agreement dated November 5, 1993.* 10.4 Amendment No. 3 to the U.S. $55,000,000 Credit Agreement dated January 7, 1994.* 10.5 Amendment No. 4 to the U.S. $55,000,000 Credit Agreement dated April 25, 1994.* 10.6 Acquisition Agreement dated March 14, 1994 by and among CKI, the Company and Warnaco Inc.* 10.7 U.S. $500,000,000 Credit Agreement dated October 14, 1993 among the Company, Warnaco Inc., The Bank of Nova Scotia, as co-managing agent and paying agent, Citicorp U.S.A., as co-managing agent and documentation and collateral agent, and certain other lenders named therein. (Incorporated herein by reference to Exhibit 10-1 to the Company's Form 10-Q filed November 16, 1993.) 10.8 Employment Agreement, dated January 6, 1991, between the Company and Linda J. Wachner. (Incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.9 Incentive Compensation Plan (Incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.10 1991 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.11 Amended and Restated 1988 Employee Stock Purchase Plan, as amended. (Incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.12 Warnaco Employee Retirement Plan. (Incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.13 Executive Management Agreement dated as of May 9, 1991 between the Company, Warnaco and The Spectrum Group, Inc. (Incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, File No. 33-45877.) 10.14 1993 Stock Plan for non-employee directors. (Incorporated herein by reference to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders.) 10.15 Amended and Restated 1993 Stock Plan. (Incorporated herein by reference to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders.) 10.16 The Warnaco Group, Inc. Supplemental Incentive Compensation Plan. (Incorporated herein by reference to the Company's Proxy Statement for its 1994 Annual Meeting of Shareholders.) 11.1 Earnings per share. - - - ------------- * Previously filed. (b) A Current Report on Form 8-K, dated January 18, 1994, was filed with the Securities and Exchange Commission in connection wth the announcement of the acquisition by the Company of certain businesses and trademarks of Calvin Klein. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WARNACO GROUP, INC. Date: November 22, 1994 By: /s/ DARIUSH ASHRAFI ---------------------------- Dariush Ashrafi Director, Senior Vice President and Chief Financial Officer Principal Financial Officer Date: November 22, 1994 By: /s/ WILLIAM S. FINKELSTEIN ---------------------------- William S. Finkelstein Senior Vice President and Corporate Controller Principal Accounting Officer