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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 8, 1995
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 May 12, 1995 is as follows: 41,734,192
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
THE WARNACO GROUP, INC.
Consolidated Condensed Balance Sheets
(in thousands of dollars)
April 8, January 7,
1995 1995
-------- --------
(unaudited)
Assets
Current assets:
Cash......................................................................... $ 4,313 $ 3,791
Accounts receivable -- net................................................... 148,099 148,659
Inventories:
Finished goods............................................................. 174,874 131,450
Work in process............................................................ 54,945 60,513
Raw materials.............................................................. 53,945 60,220
-------- --------
Total inventories......................................................... 283,764 252,183
Other current assets......................................................... 26,507 15,892
-------- --------
Total current assets...................................................... 462,683 420,525
-------- --------
Property, plant and equipment (net of accumulated depreciation of $70,642
and $68,203, respectively)................................................... 83,734 80,932
Other assets:
Intangibles and other assets -- net.......................................... 277,690 279,096
-------- --------
$824,107 $780,553
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Borrowing under revolving credit facility.................................... $180,323 $115,679
Current portion of long-term debt............................................ 46,676 50,315
Borrowing under foreign credit facilities.................................... 3,999 9,822
Accounts payable and accrued liabilities..................................... 120,924 137,624
Federal and other income taxes............................................... 2,644 2,611
-------- --------
Total current liabilities................................................. 354,566 316,051
-------- --------
Long-term debt................................................................. 206,680 206,792
Other long-term liabilities.................................................... 12,172 17,238
Stockholders' equity:
Preferred Stock; $.01 par value.............................................. -- --
Common Stock; $.01 par value................................................. 421 421
Capital in excess of par value............................................... 337,872 337,872
Cumulative translation adjustment............................................ (2,440) (1,732)
Accumulated deficit............................................................ (73,277) (83,897)
Treasury stock, at cost........................................................ (5,000) (5,000)
Notes receivable for common stock issued....................................... (6,887) (7,192)
-------- --------
Total stockholders' equity................................................ 250,689 240,472
-------- --------
$824,107 $780,553
======== ========
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 8, April 9,
1995 1994
-------- --------
Net revenues.................................................................. $195,156 $147,731
Cost of goods sold............................................................. 128,332 97,355
-------- --------
Gross profit................................................................... 66,824 50,376
Selling, administrative and general expenses................................... 41,335 30,260
Loss on California earthquake.................................................. -- 3,000
-------- --------
Income before interest and income taxes........................................ 25,489 17,116
Interest expense............................................................... 8,360 7,405
-------- --------
Income before income taxes..................................................... 17,129 9,711
Provision for income taxes..................................................... 6,509(1) 750(1)
-------- --------
Net income..................................................................... $ 10,620 $ 8,961(2)
======== ========
Net income per share........................................................... $ 0.26 $ 0.22(2)
======== ========
Weighted average number of common shares outstanding........................... 41,395,979 40,151,954
========== ===========
(1) For the first fiscal quarter of 1995, income is fully taxed at an
effective rate of 38% versus the first fiscal quarter of 1994, when the
tax rate (before the impact of the loss on California Earthquake) was for
state taxes only at 6%.
(2) Net income and net income per share before the loss on California
earthquake and after a pro forma provision for income taxes at an
effective income tax rate of 38% was $7,881 or $0.20 per share for the
first quarter of fiscal year 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 8, April 9,
1995 1994
-------- --------
Cash flow from operations:
Net income................................................................... $ 10,620 $ 8,961
Non cash items included in net income:
Depreciation and amortization.............................................. 5,061 4,698
Interest................................................................... 421 274
Income taxes paid............................................................ (912) (921)
Net change in other operating accounts....................................... (57,391) (53,623)
Other........................................................................ (819) (444)
-------- --------
Cash used in operations........................................................ (43,020) (41,055)
-------- --------
Cash flow from investing activities:
Proceeds from the sale of fixed and other assets............................. 5,319 115
Purchase of property, plant & equipment...................................... (5,952) (5,520)
Payment for purchase of Calvin Klein underwear
businesses and trademarks.................................................. (5,000) (33,500)
Repurchase of Calvin Klein license -- Canada................................. (6,200) --
-------- --------
Cash used in investing activities.............................................. (11,833) (38,905)
-------- --------
Cash flow from financing activities:
Borrowing under revolving credit facilities.................................. 58,140 71,723
Net proceeds from the sale of common stock and repayment of notes
receivable for common stock issued......................................... 305 793
Proceeds from other financing................................................ 681 7,445
Repayments of debt........................................................... (3,751) --
-------- --------
Cash provided from financing activities........................................ 55,375 79,961
-------- --------
Increase (decrease) in cash.................................................... 522 1
Cash at beginning of period.................................................... 3,791 4,651
-------- --------
Cash at end of period.......................................................... $ 4,313 $ 4,652
======== ========
Net change in other operating accounts:
Accounts receivable.......................................................... $ 560 $(12,312)
Inventories.................................................................. (31,581) (12,572)
Other current assets......................................................... (10,615) (8,242)
Accounts payable and accrued liabilities..................................... (16,700) (21,247)
Income taxes payable......................................................... 945 750
-------- --------
$(57,391) $(53,623)
======== ========
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 contain 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 8, 1995 as well as its results of
operations and cash flows for the periods ended April 8, 1995 and April 9,
1994. 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 February 1995, the Company terminated its license agreement for the
production of men's underwear and women's intimate apparel bearing the
Calvin Klein name in Canada. As a result, the Company assumed
responsibility for the design, production and marketing of Calvin Klein
underwear in Canada. The cost of terminating the license agreement before
its expiration in the year 2000 was $6.2 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
STATEMENTS OF OPERATIONS (selected data)
(in millions of dollars)
First Quarter First Quarter
1995 1994
------------ ------------
Net revenues............................................................... $195.2 $147.7
Cost of goods sold......................................................... 128.3 97.4
------ ------
Gross profit............................................................... 66.8 50.4
% to net revenues........................................................ 34.2% 34.1%
Selling, administrative and general expenses............................... 41.3 30.3
------ ------
Income before interest and income taxes (and, for first quarter of 1994,
California Earthquake)................................................... 25.5 20.1
% to net revenues........................................................ 13.1% 13.6%
Loss on California earthquake.............................................. -- 3.0
Interest expense........................................................... 8.4 7.4
Provision for income taxes................................................. 6.5 0.7
------ ------
Net income................................................................. $ 10.6 $ 9.0
====== ======
Net revenues in the first quarter of fiscal 1995 were $195.2 million,
32.1% higher than the $147.7 million recorded in the first quarter of fiscal
1994.
Intimate apparel division net revenues increased 47.7% in the first
quarter of 1995 to $146.4 million from $99.1 million in the first quarter of
1994. The net revenues for the first quarter of fiscal 1995 include Calvin
Klein which was acquired on March 14, 1994. Intimate apparel division net
revenues before the impact of Calvin Klein increased by over 24% compared to
the first quarter of fiscal 1994, the fourth quarter in a row that these
businesses are up over 20% compared to the corresponding quarter in the prior
year. This reflects increases across all brands including increases in Fruit
of the Loom of 29.6%, domestic Warner's and Olga of 26.1% and international
net revenues of 19.0%.
Menswear division net revenues increased 1% to $41.8 million from $41.4
million in the first quarter of fiscal 1994. Included in 1994 are brands that
have been discontinued of Puritan, Dior and Nicklaus. Excluding the
discontinued brands from the prior year's net revenues, menswear division net
revenues in the first quarter of fiscal 1995 increased 22.3% over the first
quarter of fiscal 1994 primarily due to an increase of 28.8% in Chaps.
Gross profit increased 32.7% to $66.8 million in the first quarter of
fiscal 1995 from the $50.4 million recorded in the first quarter of fiscal
1994. The increase in gross profit is primarily a result of the higher sales
volume noted above. Gross profit as a percentage of net revenues increased to
34.2% in the first quarter of fiscal 1995 compared to 34.1% in the first
quarter of last year. The increase in gross profit margin reflects
manufacturing efficiencies that are starting to improve the margin line.
Selling, administrative and general expenses increased to $41.3 million
(21.2% of net revenues) from $30.3 million (20.5% of net revenues) in the
first quarter of fiscal 1994. The increase in selling, administrative and
general expense reflects the increased sales volume noted above and an
increase in marketing expenses of 1% of net revenues to support the launch of
Calvin Klein women's underwear. This was partially offset by a 40 basis point
improvement in selling and administrative expenses.
Interest expense increased 12.9% in the first quarter of fiscal 1995 to
$8.4 million from $7.4 million in the first quarter of fiscal 1994. The
increase in interest expense is due primarily to an increase in interest rates
of over 200 basis points since the end of the first quarter of fiscal 1994.
The Company has purchased interest rate swap agreements which effectively fix
the interest rate on $275 million of the Company's approximately $400 million
of debt at an all-in interest rate of 6.25% through 1996.
The provision for income taxes for the first quarter of fiscal 1995 was
$6.5 million compared to $0.8 million in the first quarter of fiscal 1994. The
Company's effective tax rate for the first quarter of fiscal 1995 was 38%
compared to 6% for the first quarter of fiscal 1994. The increase in
effective tax rate in 1995 compared to 1994 reflects the utilization of the
Company's net operating loss carryforwards in the first quarter of fiscal
1994, which offset the Company's 1994 federal income tax provision, leaving
only a 6% state tax provision.
The first quarter of fiscal 1994 includes a non-recurring loss 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
Division's distribution center.
Net income for the first quarter of 1995 was $10.6 million, an increase
of 18.5% over the $9.0 million reported last year. Income for the first
quarter of fiscal 1994 before the loss on the California earthquake, and on a
fully taxed basis, was $7.8 million. Net income for the first quarter of
fiscal 1995 of $10.6 million is 34.8% higher than the fully taxed income,
before the loss on the California earthquake, of $7.8 million reported in the
first quarter of fiscal 1994.
Capital Resources and Liquidity
On May 11, 1995, consistent with the Company's goal of providing
increased shareholder value, the Company declared a quarterly cash dividend of
$0.07 per share payable on June 30, 1995 to shareholders of record as of May
30, 1995. The total dividend payment is expected to be approximately $2.9
million per quarter.
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 operations in the first quarter of fiscal 1995 was $43.0
million compared to a use of $41.1 million in the comparable 1994 period. The
use of cash in the first quarter of the Company's fiscal year is a result of
seasonal increases in working capital, primarily inventory. The slight
increase in cash used in operations in the first quarter of fiscal 1995
compared to fiscal 1994 reflects higher investment in working capital,
primarily inventory, to support the increased volume in fiscal 1995. The
increased investment in inventory was partially offset by increased net income
and an improvement in accounts receivable where days sales outstanding was
reduced by 11 days to 54 days.
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 dividend, 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.
11.1 Earnings per share.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of
fiscal 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WARNACO GROUP, INC.
Date: May 22, 1995
By: /s/ WILLIAM S. FINKELSTEIN
--------------------------------
William S. Finkelstein
Director, Senior Vice President
and Chief Financial Officer
Principal Financial and
Accounting Officer
Date: May 22, 1995
By: /s/ WALLIS H. BROOKS
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Wallis H. Brooks
Vice President and
Corporate Controller