Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2010
OR
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o |
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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
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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. þ Yes o No.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). o Yes o No. *
* |
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Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time. |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No.
The number of outstanding shares of the registrant’s common stock, par value $0.01 per share,
as of May 1, 2010 is as follows: 44,407,619
THE WARNACO GROUP, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2010
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, excluding share and per share data)
(Unaudited)
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April 3, 2010 |
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January 2, 2010 |
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April 4, 2009 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
157,454 |
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$ |
320,754 |
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$ |
122,051 |
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Accounts receivable, net of reserves of $79,003, $89,982 and $77,812
as of April 3, 2010, January 2, 2010 and April 4, 2009, respectively |
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379,971 |
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290,737 |
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362,518 |
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Inventories |
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267,205 |
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253,362 |
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316,212 |
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Assets of discontinued operations |
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2,013 |
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2,172 |
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2,093 |
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Prepaid expenses and other current assets (including deferred income
taxes of $52,998, $51,605, and $65,404 as of April 3, 2010,
January 2, 2010, and April 4, 2009, respectively) |
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148,129 |
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135,832 |
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155,175 |
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Total current assets |
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954,772 |
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1,002,857 |
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958,049 |
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Property, plant and equipment, net |
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122,329 |
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120,491 |
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107,061 |
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Other assets: |
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Licenses, trademarks and other intangible assets, net |
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373,800 |
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376,831 |
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274,885 |
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Goodwill |
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108,417 |
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110,721 |
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97,960 |
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Other assets (including deferred income taxes of $15,051, $12,957, and $63,500
as of April 3, 2010, January 2, 2010, and April 4, 2009, respectively) |
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49,826 |
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48,894 |
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100,473 |
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Total assets |
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$ |
1,609,144 |
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$ |
1,659,794 |
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$ |
1,538,428 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Short-term debt and current portion of Senior Notes |
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$ |
162,011 |
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$ |
97,873 |
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$ |
124,136 |
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Accounts payable |
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134,447 |
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127,636 |
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127,983 |
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Accrued liabilities |
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170,392 |
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184,438 |
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160,464 |
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Liabilities of discontinued operations |
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8,297 |
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8,018 |
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10,514 |
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Accrued
income taxes payable (including deferred income taxes of $1,101,
$146 and $1,320 as of April 3, 2010, January 2, 2010, and
April 4, 2009, respectively) |
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33,659 |
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24,723 |
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10,250 |
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Total current liabilities |
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508,806 |
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442,688 |
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433,347 |
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Long-term debt |
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— |
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112,835 |
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164,013 |
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Other long-term liabilities (including deferred income taxes of $67,361, $65,219, and $49,492 as of
April 3, 2010, January 2, 2010, and April 4, 2009, respectively) |
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201,336 |
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188,161 |
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122,504 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Warnaco Group, Inc. stockholders’ equity: |
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Preferred stock |
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— |
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— |
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— |
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Common stock: $0.01 par value, 112,500,000 shares authorized,
50,903,208, 50,617,795 and 50,328,616 issued as of April 3, 2010,
January 2, 2010 and April 4, 2009, respectively |
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509 |
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506 |
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503 |
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Additional paid-in capital |
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645,275 |
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633,378 |
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635,174 |
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Accumulated other comprehensive income |
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41,708 |
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46,473 |
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2,751 |
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Retained earnings |
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410,788 |
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362,813 |
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305,587 |
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Treasury stock, at cost 6,501,793, 4,939,729 and 4,933,656 shares
as of April 3, 2010, January 2, 2010 and April 4, 2009, respectively |
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(199,278 |
) |
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(127,060 |
) |
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(126,854 |
) |
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Total Warnaco Group, Inc. stockholders’ equity |
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899,002 |
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916,110 |
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817,161 |
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Noncontrolling interest |
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— |
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— |
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1,403 |
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Total stockholders’ equity |
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899,002 |
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916,110 |
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818,564 |
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Total liabilities and stockholders’ equity |
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$ |
1,609,144 |
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$ |
1,659,794 |
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$ |
1,538,428 |
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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 share and per share amounts)
(Unaudited)
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Three Months Ended |
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April 3, 2010 |
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April 4, 2009 |
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Net revenues |
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$ |
588,164 |
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$ |
537,843 |
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Cost of goods sold |
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321,046 |
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312,558 |
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Gross profit |
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267,118 |
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225,285 |
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Selling, general and administrative expenses |
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184,973 |
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158,347 |
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Amortization of intangible assets |
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2,668 |
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2,127 |
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Pension expense (income) |
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(21 |
) |
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537 |
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Operating income |
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79,498 |
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64,274 |
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Other loss (income) |
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1,820 |
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(404 |
) |
Interest expense |
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4,978 |
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6,069 |
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Interest income |
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(1,006 |
) |
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(408 |
) |
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Income from continuing operations before provision
for income taxes and noncontrolling interest |
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73,706 |
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59,017 |
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Provision for income taxes |
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25,394 |
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20,167 |
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Income from continuing operations before noncontrolling interest |
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48,312 |
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38,850 |
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(Loss) from discontinued operations, net of taxes |
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(337 |
) |
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(1,021 |
) |
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Net income |
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47,975 |
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37,829 |
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Less: Net income attributable to the noncontrolling interest |
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— |
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(258 |
) |
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Net income attributable to Warnaco Group, Inc. |
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$ |
47,975 |
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$ |
37,571 |
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Amounts attributable to Warnaco Group, Inc. common shareholders: |
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Income from continuing operations, net of tax |
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$ |
48,312 |
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$ |
38,592 |
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Discontinued operations, net of tax |
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|
(337 |
) |
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(1,021 |
) |
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Net income |
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$ |
47,975 |
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$ |
37,571 |
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Basic income per common share attributable to Warnaco Group, Inc. common shareholders (see Note 17): |
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Income from continuing operations |
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$ |
1.05 |
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$ |
0.84 |
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(Loss) from discontinued operations |
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(0.01 |
) |
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(0.02 |
) |
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Net income |
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$ |
1.04 |
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$ |
0.82 |
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Diluted income per common share attributable to Warnaco Group, Inc. common shareholders (see Note 17): |
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Income from continuing operations |
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$ |
1.03 |
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$ |
0.84 |
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(Loss) from discontinued operations |
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(0.01 |
) |
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(0.03 |
) |
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Net income |
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$ |
1.02 |
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$ |
0.81 |
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Weighted average number of shares outstanding used in
computing income per common share (see Note 17): |
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Basic |
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45,418,865 |
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45,304,591 |
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Diluted |
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|
46,417,053 |
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45,651,170 |
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See Notes to Consolidated Condensed Financial Statements.
2
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
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Warnaco Group Inc. |
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Accumulated |
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Additional |
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Other |
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Common |
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Paid-in |
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Comprehensive |
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Retained |
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Treasury |
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Noncontrolling |
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Comprehensive |
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Stock |
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Capital |
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Income |
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Earnings |
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Stock |
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Interest |
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Income |
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Total |
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Balance at January 3, 2009 |
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$ |
501 |
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|
$ |
631,891 |
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|
$ |
12,841 |
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$ |
268,016 |
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|
$ |
(125,562 |
) |
|
$ |
1,054 |
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|
$ |
— |
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$ |
788,741 |
|
Comprehensive income: |
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|
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|
|
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Net income |
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|
|
|
|
|
|
|
|
|
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|
37,571 |
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|
|
|
|
|
|
258 |
|
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|
37,829 |
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|
|
37,829 |
|
Other comprehensive income, net of tax: |
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Foreign currency translation adjustments |
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|
(10,427 |
) |
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|
91 |
|
|
|
(10,336 |
) |
|
|
(10,336 |
) |
Change in post retirement plans |
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|
(1 |
) |
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|
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|
— |
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|
(1 |
) |
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|
(1 |
) |
Loss on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
338 |
|
|
|
338 |
|
|
|
|
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|
|
|
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Other comprehensive income |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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(9,999 |
) |
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|
(9,999 |
) |
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive income |
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
349 |
|
|
$ |
27,830 |
|
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|
27,830 |
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Stock issued in connection with
stock compensation plans |
|
|
2 |
|
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|
94 |
|
|
|
|
|
|
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|
|
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|
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|
96 |
|
Compensation expense in connection with
employee stock compensation plans |
|
|
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|
|
3,189 |
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|
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|
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3,189 |
|
Purchase of treasury stock related to
stock compensation plans |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,292 |
) |
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|
|
|
|
|
|
|
|
|
(1,292 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 4, 2009 |
|
$ |
503 |
|
|
$ |
635,174 |
|
|
$ |
2,751 |
|
|
$ |
305,587 |
|
|
$ |
(126,854 |
) |
|
$ |
1,403 |
|
|
|
|
|
|
$ |
818,564 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warnaco Group Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Treasury |
|
|
Noncontrolling |
|
|
Comprehensive |
|
|
|
|
|
|
Stock |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Stock |
|
|
Interest |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010 |
|
$ |
506 |
|
|
$ |
633,378 |
|
|
$ |
46,473 |
|
|
$ |
362,813 |
|
|
$ |
(127,060 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
916,110 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,975 |
|
|
|
|
|
|
|
|
|
|
|
47,975 |
|
|
|
47,975 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
(4,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,810 |
) |
|
|
(4,810 |
) |
Loss on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
41 |
|
Other |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(4,765 |
) |
|
|
(4,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
$ |
43,210 |
|
|
|
43,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with
stock compensation plans |
|
|
3 |
|
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,373 |
|
Compensation expense in connection with
employee stock compensation plans |
|
|
|
|
|
|
9,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,527 |
|
Purchase of treasury stock related to
stock compensation plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,214 |
) |
|
|
|
|
|
|
|
|
|
|
(3,214 |
) |
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,004 |
) |
|
|
|
|
|
|
|
|
|
|
(69,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2010 |
|
$ |
509 |
|
|
$ |
645,275 |
|
|
$ |
41,708 |
|
|
$ |
410,788 |
|
|
$ |
(199,278 |
) |
|
$ |
— |
|
|
|
|
|
|
$ |
899,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
3
THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
47,975 |
|
|
$ |
37,829 |
|
Adjustments to reconcile net income to net cash
(used in) operating activities: |
|
|
|
|
|
|
|
|
Foreign exchange (gain) loss |
|
|
1,328 |
|
|
|
(533 |
) |
Loss from discontinued operations |
|
|
337 |
|
|
|
1,021 |
|
Depreciation and amortization |
|
|
11,954 |
|
|
|
10,037 |
|
Stock compensation |
|
|
9,527 |
|
|
|
3,189 |
|
Amortization of deferred financing costs |
|
|
366 |
|
|
|
427 |
|
Provision for trade and other bad debts |
|
|
266 |
|
|
|
1,874 |
|
Inventory writedown |
|
|
2,438 |
|
|
|
3,934 |
|
Loss on repurchase of Senior Notes/refinancing of debt facilities |
|
|
1,692 |
|
|
|
— |
|
Other |
|
|
(891 |
) |
|
|
(236 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(92,373 |
) |
|
|
(113,193 |
) |
Inventories |
|
|
(18,187 |
) |
|
|
3,683 |
|
Prepaid expenses and other assets |
|
|
(13,956 |
) |
|
|
(1,052 |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
2,643 |
|
|
|
(24,239 |
) |
Accrued income taxes |
|
|
16,614 |
|
|
|
14,861 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities from continuing operations |
|
|
(30,267 |
) |
|
|
(62,398 |
) |
Net cash provided by operating activities from discontinued operations |
|
|
146 |
|
|
|
1,217 |
|
|
|
|
|
|
|
|
Net cash (used in) operating activities |
|
|
(30,121 |
) |
|
|
(61,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds on disposal of assets and collection of notes receivable |
|
|
29 |
|
|
|
10 |
|
Purchases of property, plant & equipment |
|
|
(9,596 |
) |
|
|
(7,361 |
) |
|
|
|
|
|
|
|
Net cash (used in) investing activities from continuing operations |
|
|
(9,567 |
) |
|
|
(7,351 |
) |
Net cash (used in) investing activities from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
|
(9,567 |
) |
|
|
(7,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchase of Senior Notes due 2013 |
|
|
(51,479 |
) |
|
|
— |
|
Change in short-term notes payable |
|
|
4,180 |
|
|
|
(6,502 |
) |
Change in revolving credit facility |
|
|
(189 |
) |
|
|
52,836 |
|
Proceeds from the exercise of employee stock options |
|
|
2,373 |
|
|
|
96 |
|
Purchase of treasury stock |
|
|
(72,218 |
) |
|
|
(1,292 |
) |
Contingent payment related to acquisition of non-controlling interest in |
|
|
|
|
|
|
|
|
Brazilian subsidiary |
|
|
(3,442 |
) |
|
|
— |
|
Other |
|
|
— |
|
|
|
(502 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities from continuing operations |
|
|
(120,775 |
) |
|
|
44,636 |
|
Net cash provided by (used in) financing activities from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(120,775 |
) |
|
|
44,636 |
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(2,837 |
) |
|
|
(1,680 |
) |
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents |
|
|
(163,300 |
) |
|
|
(25,576 |
) |
Cash and cash equivalents at beginning of period |
|
|
320,754 |
|
|
|
147,627 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
157,454 |
|
|
$ |
122,051 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Condensed Financial Statements.
4
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 1—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.
Note 2—Basis of Consolidation and Presentation
The Consolidated Condensed Financial Statements include the accounts of Warnaco Group and its
subsidiaries. Non-controlling interest represents minority shareholders’ proportionate share of the
equity in the Company’s consolidated subsidiary WBR Industria e Comercio de Vestuario S.A (“WBR”).
In the fourth quarter of the year ended January 2, 2010 (“Fiscal 2009”), the Company increased its
ownership interest in WBR to 100% and, accordingly, at April 3, 2010, there were no minority
shareholders of WBR. All inter-company accounts and transactions have been eliminated in
consolidation.
The accompanying unaudited Consolidated Condensed Financial Statements included herein have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all information and disclosures necessary for a
presentation of the Company’s financial position, results of operations and cash flows in
conformity with generally accepted accounting principles in the United States of America (“GAAP”).
In the opinion of management, these financial statements reflect all adjustments, consisting
primarily of normal recurring accruals, necessary for a fair presentation of results for the
periods presented. The results of operations for interim periods are not necessarily indicative of
the results for the full year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been condensed or omitted from this
report, as is permitted by such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information presented not misleading. These Consolidated
Condensed Financial Statements should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in the Company’s Annual Report on Form 10-K for Fiscal 2009.
The year end Consolidated Condensed Balance Sheet data were derived from audited financial
statements, but do not include all disclosures required by GAAP.
The preparation of financial statements in conformity with GAAP requires the Company to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Periods Covered: The Company operates on a 52/53 week fiscal year basis ending on the
Saturday closest to December 31. As such, the period January 3, 2010 to January 1, 2011 (“Fiscal
2010”) will contain 52 weeks of operations and the period January 4, 2009 to January 2, 2010
(“Fiscal 2009”) contained 52 weeks of operations. Additionally, the period from January 3, 2010 to
April 3, 2010 (the “Three Months Ended April 3, 2010”) and the period from January 4, 2009 to April
4, 2009 (the “Three Months Ended April 4, 2009”) each contained thirteen weeks of operations.
Reclassifications: Prior period items on the Company’s Consolidated Condensed Statements of
Operations and Consolidated Condensed Statements of Cash Flows have been reclassified to give
effect to the Company’s discontinued operations. In addition, amounts related to certain sales of
Calvin Klein underwear in regions managed by the Sportswear Group, previously included in net
revenues and operating income of the Sportswear Group, have been reclassified to the Intimate
Apparel Group for the Three Months Ended April 4, 2009 to conform to the presentation for the Three
Months Ended April 3, 2010. See Note 6 of Notes to Consolidated Condensed Financial Statements.
5
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Stock-Based Compensation: 358,300 stock options were granted during the Three Months Ended
April 3, 2010 and 12,500 stock options were granted during the Three Months Ended April 4, 2009.
The fair values of stock options granted during the Three Months Ended April 3, 2010 and the Three
Months Ended April 4, 2009 were estimated at the date of grant using the Black-Scholes-Merton
option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Weighted average risk free rate of return
(a) |
|
|
1.84 |
% |
|
|
2.35 |
% |
Dividend yield (b) |
|
|
— |
|
|
|
— |
|
Expected volatility of the market price of
the Company’s common stock |
|
|
57.3 |
% |
|
|
37.7 |
% |
Expected option life (c) |
|
|
4.2 years |
|
|
|
6 years |
|
|
|
|
(a) |
|
Based on the quoted yield for U.S. five-year treasury bonds as of the date of
grant. |
|
(b) |
|
The terms of the Company’s New Credit Agreements and the terms
of the indenture governing its Senior Notes (each as defined below) 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 six fiscal years. |
|
(c) |
|
During Fiscal 2009, the Company had accumulated sufficient
historical data (more than six years’ worth) regarding stock option exercises
and forfeitures to be able to rely on that data for the calculation of expected
option life. Expected option life is an assumption that is used in the
Black-Scholes-Merton option pricing model, which the Company uses to obtain a
fair value of stock options granted. Accordingly, for stock options granted
during the Three Months Ended April 3, 2010, the Company used the revised
method of calculating expected option life based on historical data (which
yielded an expected life of 4.2 years). The simplified method as described in
the SEC’s Staff Accounting Bulletin No. 110 (which yielded an expected term of
6 years) was used for stock options granted during the Three Months Ended April
4, 2009. Historical data will be used for stock options granted in all future
periods. |
A summary of stock-based compensation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income
taxes: |
|
|
|
|
|
|
|
|
Stock options |
|
$ |
3,259 |
|
|
$ |
1,090 |
|
Restricted stock grants |
|
|
6,268 |
|
|
|
2,099 |
|
|
|
|
|
|
|
|
Total (a) |
|
|
9,527 |
|
|
|
3,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit: |
|
|
|
|
|
|
|
|
Stock options |
|
|
1,174 |
|
|
|
381 |
|
Restricted stock grants |
|
|
1,805 |
|
|
|
546 |
|
|
|
|
|
|
|
|
Total |
|
|
2,979 |
|
|
|
927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense after income taxes: |
|
|
|
|
|
|
|
|
Stock options |
|
|
2,085 |
|
|
|
709 |
|
Restricted stock grants |
|
|
4,463 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
Total |
|
$ |
6,548 |
|
|
$ |
2,262 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The primary reason for the increase in stock-based
compensation expense for the Three Months Ended April 3, 2010 compared to the
Three Months Ended April 4, 2009 related to the incorporation of a
“Retirement Eligibility” feature that was applied to all the equity awards
issued in March 2010. For employee stock-based compensation awards issued in
March 2010 (and for similar types of future awards), the Company’s
Compensation Committee approved the incorporation of a Retirement Eligibility
feature such that an employee who has attained the age of 60 years with at
least five years of continuous employment with the Company will be deemed to
be “Retirement Eligible”. Awards granted to Retirement Eligible employees
will continue to vest even if the employee’s employment with the Company is
terminated prior to the award’s vesting date (other than for cause, and
provided the employee does not engage in a competitive activity). As in
previous years, awards granted to all other employees (i.e. those who are not
Retirement Eligible) will cease vesting if the employee’s employment with the
Company is terminated prior to the award’s vesting date. Stock-based
compensation expense is recognized over the requisite service period
associated with the related equity award. For Retirement Eligible employees,
the requisite service period is either the grant date or the period from the
grant date to the Retirement-Eligibility date (in the case where the
Retirement Eligibility date precedes the vesting date). For all other
employees (i.e. those who are not Retirement Eligible), as in previous years,
the requisite service period is the period from the grant date to the vesting
date. The Retirement Eligibility feature was not applied to awards issued
prior to March 2010. |
6
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Subsequent Events: The Company has evaluated events and transactions subsequent to April 3,
2010 for potential recognition or disclosure in the Consolidated Condensed Financial Statements.
See Note 3 of Notes to Consolidated Condensed Financial
Statements regarding acquisitions in Southern Asia. See Note 14 of Notes to Consolidated
Condensed Financial Statements related to the Company’s notification of the redemption of its
remaining outstanding Senior Notes.
Recent Accounting Pronouncements
There were no new accounting pronouncements issued or effective during the Three Months Ended
April 3, 2010 that had or are expected to have a material impact on the Company’s Consolidated
Condensed Financial Statements.
Note 3—Acquisitions
Acquisition of Remaining Non-controlling Interest and Retail Stores in Brazil
During the fourth quarter of Fiscal 2009, the Company acquired the remaining non-controlling
interest in WBR (“Equity Purchase”) and eight retail stores in Brazil (“Asset Purchase”),
collectively, the “Brazilian Acquisition”. In connection with the Brazilian Acquisition, the
Company is required to make three future annual payments to the Sellers through March 31, 2010
which are contingent on the operating income, as defined, of WBR during that period. During the
Three Months Ended April 3, 2010, the Company paid 6 million Brazilian real (approximately $3,400)
to the Sellers, representing the first of the three contingent payments.
On April 29, 2010, the Company entered into agreements for the purchase of a distributor’s
business in Southern Asia for total consideration of approximately $3,000.
Note 4—Discontinued Operations
As disclosed in its Annual Report on Form 10-K for Fiscal 2009, the Company discontinued
certain operations, in prior periods. Summarized operating results for the discontinued operations
of those prior periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
611 |
|
|
$ |
572 |
|
|
|
|
|
|
|
|
(Loss) before income tax provision
(benefit) |
|
$ |
(528 |
) |
|
$ |
(835 |
) |
Income tax provision (benefit) |
|
|
(191 |
) |
|
|
186 |
|
|
|
|
|
|
|
|
(Loss) from discontinued operations |
|
$ |
(337 |
) |
|
$ |
(1,021 |
) |
|
|
|
|
|
|
|
7
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Summarized assets and liabilities of the discontinued operations are presented in the
Consolidated Condensed Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
319 |
|
|
$ |
366 |
|
|
$ |
1,873 |
|
Inventories |
|
|
1,582 |
|
|
|
1,684 |
|
|
|
35 |
|
Prepaid expenses and other current
assets |
|
|
112 |
|
|
|
122 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
2,013 |
|
|
$ |
2,172 |
|
|
$ |
2,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
202 |
|
|
$ |
104 |
|
|
$ |
113 |
|
Accrued liabilities |
|
|
8,083 |
|
|
|
7,902 |
|
|
|
8,591 |
|
Other |
|
|
12 |
|
|
|
12 |
|
|
|
1,810 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
8,297 |
|
|
$ |
8,018 |
|
|
$ |
10,514 |
|
|
|
|
|
|
|
|
|
|
|
Note 5—Restructuring Expenses and Other Exit Costs
During the Three Months Ended April 3, 2010, the Company incurred restructuring charges and
other exit costs of $959 primarily related to (i) the continuation of the workforce reduction,
which commenced during the fourth quarter of Fiscal 2008, in order to align the Company’s cost
structure to match current economic conditions ($962); (ii) the rationalization and consolidation
of the Company’s European operations, which had begun in Fiscal 2007 ($291) and (iii) other exit
activities, including contract termination costs, legal and other costs ($114). The charges
described in (i) to (iii) were partially offset by the reversal of accruals of expense, totaling
$408, that were no longer needed upon conclusion of the related restructuring events.
During the Three Months Ended April 4, 2009, the Company incurred restructuring charges and
other exit costs of $8,571 primarily related to (i) the continuation of the workforce reduction,
which commenced during the fourth quarter of Fiscal 2008, in order to align the Company’s cost
structure to match current economic conditions ($5,906); (ii) the rationalization and consolidation
of the Company’s European operations, which had begun in Fiscal 2007 ($203); (iii) activities
associated with management’s initiatives to increase productivity and profitability in the Swimwear
Group, which had also begun in Fiscal 2007 ($443) and (iv) other exit activities, including
contract termination costs, legal and other costs ($2,019).
Restructuring charges and other exit costs have been recorded in the Consolidated Condensed
Statements of Operations for the Three Months Ended April 3, 2010 and Three Months Ended April 4,
2009, as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
Cost of goods sold |
|
$ |
91 |
|
|
$ |
1,483 |
|
Selling, general and administrative
expenses |
|
|
868 |
|
|
|
7,088 |
|
|
|
|
|
|
|
|
|
|
$ |
959 |
|
|
$ |
8,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash portion of restructuring items |
|
$ |
959 |
|
|
$ |
8,571 |
|
Non-cash portion of restructuring items |
|
|
— |
|
|
|
— |
|
8
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Changes in liabilities related to restructuring expenses and other exit costs for the Three
Months Ended April 3, 2010 and the Three Months Ended April 4, 2009 are summarized below:
|
|
|
|
|
Balance at January 3, 2009 |
|
$ |
5,925 |
|
Charges for the Three Months Ended April 4, 2009 |
|
|
8,571 |
|
Cash reductions for the Three Months Ended April 4, 2009 |
|
|
(5,730 |
) |
Non-cash changes and foreign currency effects |
|
|
(95 |
) |
|
|
|
|
Balance at April 4, 2009 |
|
$ |
8,671 |
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010 |
|
$ |
3,572 |
|
Charges for the Three Months Ended April 3, 2010 |
|
|
959 |
|
Cash reductions for the Three Months Ended April 3, 2010 |
|
|
(2,309 |
) |
Non-cash changes and foreign currency effects |
|
|
(51 |
) |
|
|
|
|
Balance at April 3, 2010 (a) |
|
$ |
2,171 |
|
|
|
|
|
|
|
|
(a) |
|
At April 3, 2010, includes approximately $766 recorded in accrued liabilities (part of
current liabilities) which amounts are expected to be settled over the next 12 months and
approximately $1,405 recorded in other long term liabilities which amounts are expected to be
settled over the next four years. |
Note 6—Business Segments and Geographic Information
Business Segments: The Company operates in three business segments: (i) Sportswear Group; (ii)
Intimate Apparel Group; and (iii) Swimwear Group.
The Sportswear Group designs, sources and markets moderate to premium priced men’s and women’s
sportswear under the Calvin Klein and Chaps® brands. As of April 3, 2010, the Sportswear Group
operated 495 Calvin Klein retail stores worldwide (consisting of 60 full price free-standing
stores, 42 outlet free standing stores, 392 shop-in-shop/concession stores and one on-line
store). As of April 3, 2010, there were also 371 retail stores operated by third parties under
retail licenses or distributor agreements.
The Intimate Apparel Group designs, sources and markets moderate to premium priced intimate
apparel and other products for women and better to premium priced men’s underwear, sleepwear and
loungewear under the Calvin Klein , Warner’s®, Olga® and Body Nancy Ganz/Bodyslimmers® brand
names. As of April 3, 2010, the Intimate Apparel Group operated: 656 Calvin Klein retail stores
worldwide (consisting of 75 free-standing stores, 65 outlet free-standing stores and 515
shop-in-shop/concession stores and one on-line store). As of April 3, 2010, there were also 250
Calvin Klein retail stores operated by third parties under retail licenses or distributor
agreements.
The Swimwear Group designs, licenses, sources and markets mass market to premium priced
swimwear, fitness apparel, swim accessories and related products under the Speedo®, Lifeguard® and
Calvin Klein brand names. The Swimwear Group operates one on-line store.
9
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Information by business group is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Apparel |
|
|
Swimwear |
|
|
Group |
|
|
Corporate / |
|
|
|
|
|
|
Group |
|
|
Group |
|
|
Group |
|
|
Total |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
306,346 |
|
|
$ |
193,942 |
|
|
$ |
87,876 |
|
|
$ |
588,164 |
|
|
$ |
— |
|
|
$ |
588,164 |
|
Operating income (loss) |
|
|
50,942 |
|
|
|
33,618 |
|
|
|
11,885 |
|
|
|
96,445 |
|
|
|
(16,947 |
) |
|
|
79,498 |
|
Depreciation and amortization |
|
|
7,253 |
|
|
|
3,361 |
|
|
|
512 |
|
|
|
11,126 |
|
|
|
828 |
|
|
|
11,954 |
|
Restructuring expense (gain) |
|
|
(107 |
) |
|
|
(47 |
) |
|
|
269 |
|
|
|
115 |
|
|
|
844 |
|
|
|
959 |
|
Capital expenditures |
|
|
3,357 |
|
|
|
8,353 |
|
|
|
383 |
|
|
|
12,093 |
|
|
|
305 |
|
|
|
12,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (a) |
|
$ |
269,057 |
|
|
$ |
172,823 |
|
|
$ |
95,963 |
|
|
$ |
537,843 |
|
|
$ |
— |
|
|
$ |
537,843 |
|
Operating income (loss) (a) |
|
|
37,469 |
|
|
|
30,398 |
|
|
|
12,545 |
|
|
|
80,412 |
|
|
|
(16,138 |
) |
|
|
64,274 |
|
Depreciation and amortization |
|
|
5,878 |
|
|
|
2,845 |
|
|
|
597 |
|
|
|
9,320 |
|
|
|
717 |
|
|
|
10,037 |
|
Restructuring expense |
|
|
3,036 |
|
|
|
2,601 |
|
|
|
1,581 |
|
|
|
7,218 |
|
|
|
1,353 |
|
|
|
8,571 |
|
Capital expenditures |
|
|
2,368 |
|
|
|
2,494 |
|
|
|
322 |
|
|
|
5,184 |
|
|
|
870 |
|
|
|
6,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
$ |
932,253 |
|
|
$ |
374,591 |
|
|
$ |
173,523 |
|
|
$ |
1,480,367 |
|
|
$ |
128,777 |
|
|
$ |
1,609,144 |
|
January 2, 2010 |
|
|
875,304 |
|
|
|
390,610 |
|
|
|
144,198 |
|
|
|
1,410,112 |
|
|
|
249,682 |
|
|
|
1,659,794 |
|
April 4, 2009 |
|
|
825,620 |
|
|
|
325,104 |
|
|
|
183,239 |
|
|
|
1,333,963 |
|
|
|
204,465 |
|
|
|
1,538,428 |
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
$ |
34,834 |
|
|
$ |
45,578 |
|
|
$ |
3,739 |
|
|
$ |
84,151 |
|
|
$ |
38,178 |
|
|
$ |
122,329 |
|
January 2, 2010 |
|
|
30,909 |
|
|
|
45,882 |
|
|
|
3,555 |
|
|
|
80,346 |
|
|
|
40,145 |
|
|
|
120,491 |
|
April 4, 2009 |
|
|
25,702 |
|
|
|
34,374 |
|
|
|
4,145 |
|
|
|
64,221 |
|
|
|
42,840 |
|
|
|
107,061 |
|
|
|
|
(a) |
|
net revenues of $10,455 and operating income of $996 for the Three Months Ended April 4,
2009 related to certain sales of Calvin Klein underwear in regions managed by the Sportswear
Group, previously included in net revenues and operating income of the Sportswear Group, have
been reclassified to the Intimate Apparel Group to conform to the presentation for the Three
Months Ended April 3, 2010. |
All inter-company revenues and expenses are eliminated in consolidation. Management does not
include inter-company sales when evaluating segment performance. Each segment’s performance is
evaluated based upon operating income after restructuring charges and shared services expenses but
before unallocated corporate expenses.
The table below summarizes corporate/other expenses for each period presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Unallocated corporate expenses (a) |
|
$ |
16,329 |
|
|
$ |
11,700 |
|
Foreign exchange losses (gains) |
|
|
(1,033 |
) |
|
|
1,831 |
|
Pension expense (income) |
|
|
(21 |
) |
|
|
537 |
|
Restructuring expense |
|
|
844 |
|
|
|
1,353 |
|
Depreciation and amortization of
corporate assets |
|
|
828 |
|
|
|
717 |
|
|
|
|
|
|
|
|
Corporate/other expenses |
|
$ |
16,947 |
|
|
$ |
16,138 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
the increase in unallocated corporate expenses is related
primarily to share-based compensation expense due to the addition of Retirement
Eligibility provisions in the Fiscal 2010 awards (see Note 2 of Notes to
Consolidated Condensed Financial Statements). |
10
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
A reconciliation of operating income from operating groups to income from continuing
operations before provision for income taxes and non-controlling interest is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Operating income by operating groups |
|
$ |
96,445 |
|
|
$ |
80,412 |
|
Corporate/other expenses |
|
|
(16,947 |
) |
|
|
(16,138 |
) |
|
|
|
|
|
|
|
Operating income |
|
|
79,498 |
|
|
|
64,274 |
|
Other (income) loss |
|
|
1,820 |
|
|
|
(404 |
) |
Interest expense |
|
|
4,978 |
|
|
|
6,069 |
|
Interest income |
|
|
(1,006 |
) |
|
|
(408 |
) |
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes and
noncontrolling interest |
|
$ |
73,706 |
|
|
$ |
59,017 |
|
|
|
|
|
|
|
|
Geographic Information: Net revenues summarized by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
% |
|
|
April 4, 2009 |
|
|
% |
|
|
|
in thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
270,750 |
|
|
|
46.0 |
% |
|
$ |
269,744 |
|
|
|
50.1 |
% |
Europe |
|
|
157,302 |
|
|
|
26.8 |
% |
|
|
142,715 |
|
|
|
26.5 |
% |
Asia |
|
|
97,073 |
|
|
|
16.5 |
% |
|
|
82,179 |
|
|
|
15.4 |
% |
Canada |
|
|
25,496 |
|
|
|
4.3 |
% |
|
|
20,697 |
|
|
|
3.8 |
% |
Mexico, Central and
South America |
|
|
37,543 |
|
|
|
6.4 |
% |
|
|
22,508 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
588,164 |
|
|
|
100.0 |
% |
|
$ |
537,843 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Information about Major Customers: For the Three Months Ended April 3, 2010 and April 4,
2009, no one customer accounted for 10% or more of the Company’s net revenues.
Note 7—Income Taxes
The effective tax rates for the Three Months Ended April 3, 2010 and April 4, 2009 were 34.5%
and 34.2%, respectively. The higher effective tax rate for the Three Months Ended April 3, 2010
primarily reflects a shift in earnings from lower to higher taxing jurisdictions included in the
effective tax rate for the Three Months Ended April 3, 2010.
The Company applies the applicable provisions of U.S.GAAP to determine whether tax benefits
associated with uncertain tax positions may be recognized in the financial statements. During the
Three Months Ended April 3, 2010 the Company has not had a material change to its liability for
unrecognized tax benefits. Additionally, the Company believes that its accruals for uncertain tax
positions are adequate and that the ultimate resolution of these uncertainties will not have a
material impact on its results of operations, financial position, or statement of cash flows.
The Company remains under audit in various taxing jurisdictions. It is, therefore, difficult
to predict the final timing and resolution of any particular uncertain tax position. Based upon
the Company’s assessment of many factors, it is reasonably possible that within the next twelve
months the amount of unrecognized tax benefits may increase between $1,000 and $5,000 (net of
decreases that are reasonably possible), as a result of additional uncertain tax positions, the
reevaluation of current uncertain tax positions arising from developments in examinations, the
finalization of tax examinations, or from the closure of tax statutes.
11
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 8—Employee Benefit and Retirement Plans
Defined Benefit Pension Plans
The Company has a defined benefit pension plan covering certain full-time non-union domestic
employees and certain domestic employees covered by a collective bargaining agreement who had
completed service prior to January 1, 2003 (the “Pension Plan”). Participants in the Pension Plan
have not earned any additional pension benefits after December 31, 2002. The Company also sponsors
defined benefit plans for certain of its United Kingdom and other European employees (the “Foreign
Plans”). The Foreign Plans were not considered to be material for any period presented. These
pension plans are noncontributory and benefits are based upon years of service. The Company also
has health care and life insurance plans that provide post-retirement benefits to certain retired
domestic employees (the “Postretirement Plans”). The Postretirement Plans are, in most cases,
contributory with retiree contributions adjusted annually.
Each quarter the Company recognizes interest cost of the Pension Plan’s projected benefit
obligation offset by the expected return on Pension Plan assets. The Company records pension
expense as the effect of actual gains and losses exceeding the expected return on Pension Plan
assets (including changes in actuarial assumptions) less changes in the Pension Plan’s projected
benefit obligation (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 Statements of Operations in each period.
During the Three Months Ended April 3, 2010, the Company made contributions of $842 to the
Pension Plan. The Company’s contributions to the Pension Plan are expected to be $6,300 in total
for Fiscal 2010. The fair value of the Pension Plan’s assets fluctuates with market conditions and
is subject to uncertainties that are difficult to predict. During the Three Months Ended April 3,
2010, the fair value of the Pension Plan’s assets increased to $120,389, representing an annualized
rate of return of approximately 13.6%.
The following table includes only the Pension Plan. The Foreign Plans were not considered to
be material for any period presented. The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Postretirement Plans |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
33 |
|
|
$ |
39 |
|
Interest cost |
|
|
2,358 |
|
|
|
2,549 |
|
|
|
91 |
|
|
|
52 |
|
Expected return on plan assets |
|
|
(2,418 |
) |
|
|
(2,012 |
) |
|
|
— |
|
|
|
— |
|
Amortization of actuarial
loss (gain) |
|
|
— |
|
|
|
— |
|
|
|
(26 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit (income) cost (a) |
|
$ |
(60 |
) |
|
$ |
537 |
|
|
$ |
98 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Pension Plan net benefit (income) cost does not include costs related to the Foreign Plans of
$39 for the Three Months Ended April 3, 2010. |
Deferred Compensation Plans
The Company’s liability for employee contributions and investment activity was $3,781, $2,838
and $2,211 as of April 3, 2010, January 2, 2010 and April 4, 2009, respectively. This liability is
included in other long-term liabilities. The Company’s liability for director contributions and
investment activity was $796, $703 and $452 as of April 3, 2010, January 2, 2010 and April 4, 2009,
respectively. This liability is included in other long-term liabilities.
12
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 9—Comprehensive Income
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
47,975 |
|
|
$ |
37,829 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(4,810 |
) |
|
|
(10,336 |
) |
Change in fair value of cash flow hedges |
|
|
41 |
|
|
|
338 |
|
Change in actuarial gains (losses), net related to post
retirement medical plans |
|
|
— |
|
|
|
(1 |
) |
Other |
|
|
4 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total Comprehensive income |
|
|
43,210 |
|
|
|
27,830 |
|
Less: Comprehensive income attributable to noncontrolling interest |
|
|
— |
|
|
|
(349 |
) |
|
|
|
|
|
|
|
Comprehensive income attributable to Warnaco Group Inc. |
|
$ |
43,210 |
|
|
$ |
27,481 |
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income as of April 3, 2010, January 2, 2010
and April 4, 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (a) |
|
$ |
43,748 |
|
|
$ |
48,558 |
|
|
$ |
2,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (losses), net related to post
retirement medical plans, net of tax of
$607, $607 and $16 as of April 3, 2010,
January 2, 2010 and April 4, 2009,
respectively |
|
|
(1,058 |
) |
|
|
(1,058 |
) |
|
|
(30 |
) |
Gain (loss) on cash flow hedges, net of
taxes of $482, $387, and $0 as of April 3,
2010, January 2, 2010 and April 4, 2009,
respectively |
|
|
(986 |
) |
|
|
(1,027 |
) |
|
|
10 |
|
Other |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
|
$ |
41,708 |
|
|
$ |
46,473 |
|
|
$ |
2,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The foreign currency translation adjustments reflect the change in the U.S. dollar
relative to functional currencies where the Company conducts certain of its operations and
the fact that more than 65% of the Company’s assets are based outside of the U.S. The
increase of $40,977 in foreign currency translation adjustments at April 3, 2010 compared
to April 4, 2009 reflects the increase in the strength of certain foreign currencies
(principally the Euro, Canadian Dollar, Korean Won, Brazilian Real and Mexican Peso)
relative to the U.S. dollar. |
13
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 10—Fair Value Measurement
The Company utilizes the market approach to measure fair value for financial assets and
liabilities, which primarily relate to derivative contracts and interest rate swaps. The market
approach uses prices and other relevant information generated by market transactions involving
identical or comparable assets or liabilities. The Company classifies its financial instruments in
a fair value hierarchy that is intended to increase consistency and comparability in fair value
measurements and related disclosures. The fair value hierarchy consists of the following three
levels:
|
|
|
Level 1 — |
|
Inputs are quoted prices in active markets for identical assets or liabilities. |
|
|
|
Level 2 — |
|
Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable and market-corroborated inputs which are
derived principally from or corroborated by observable market data. |
|
|
|
Level 3 — |
|
Inputs are derived from valuation techniques in which one or more significant inputs
or value drivers are unobservable. |
Valuation Techniques
The fair value of foreign currency exchange contracts and zero cost collars was determined as
the net unrealized gains or losses on those contracts, which is the net difference between (i) the
U.S. dollars to be received or paid at the contracts’ settlement date and (ii) the U.S. dollar
value of the foreign currency to be sold or purchased at the current forward or spot exchange rate,
as applicable. The fair value of these foreign currency exchange contracts is based on quoted
prices that include the effects of U.S. and foreign interest rate yield curves and, therefore,
meets the definition of level 2 fair value, as defined above.
The fair value of interest rate swaps was estimated based on the amount that the Company would
receive or pay to terminate the swaps on the valuation date. Those amounts are based on receipt of
interest at a fixed interest rate of 87/8% and a payment of a variable rate based on a fixed interest
rate above the six month LIBOR rate. As such, the fair value of the interest rate swaps meets the
definition of level 2, as defined above. As of April 3, 2010 and January 2, 2010, the Company had
no outstanding interest rate swaps.
The following table represents the Company’s assets and liabilities measured at fair value on
a recurring basis, as of April 3, 2010, January 2, 2010 and April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (a) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,123 |
|
|
$ |
— |
|
Foreign currency exchange contracts |
|
$ |
— |
|
|
$ |
1,921 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
79 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,203 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts |
|
$ |
— |
|
|
$ |
(2,827 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(3,400 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(4,828 |
) |
|
$ |
— |
|
|
|
|
(a) |
|
the 2004 and 2003 Swap Agreements (as defined in Note 14, below) were called by
the issuer in June and July 2009, respectively. The Company received a total debt premium
of $2,219, which is being amortized as a reduction to interest expense through June 15,
2013 (the date on which the Senior Notes mature), subject to acceleration due to
redemption of the Senior Notes. See Note 14 to Notes to Consolidated Condensed Financial
Statements. |
Cash and cash equivalents, accounts receivable and accounts payable are recorded at carrying
value, which approximates fair value. The Company’s Senior Notes, CKJEA Notes and amounts
outstanding under the New Credit Agreements are also reported at carrying value.
14
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 11— Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments.
Accounts Receivable: The carrying amount of the Company’s accounts receivable approximates
fair value.
Accounts Payable: The carrying amount of the Company’s accounts payable is approximately
equal to their fair value because accounts payable are short-term in nature and the carrying value
is equal to the settlement value.
Short-term Revolving Credit Facilities: The carrying amount of the New Credit Agreements,
CKJEA Notes and other short-term debt is approximately equal to their fair value because of their
short-term nature and because amounts outstanding bear interest at variable rates which fluctuate
with market rates.
Senior
Notes: The Senior Notes mature on June 15, 2013 and bear
interest at 87/8% payable
semi-annually beginning December 15, 2003. At April 3, 2010 and January 2, 2010, the fair value of
the Senior Notes is based on their redemption price, including the related debt premium on the Swap
Agreements, since a portion of the Senior Notes was redeemed within 90 days of those dates (see
Note 14 of Notes to Consolidated Condensed Financial Statements). The fair value of the Senior
Notes at April 4, 2009 is based upon quoted market prices for the Senior Notes.
Foreign Currency Exchange Contracts: The fair value of the outstanding foreign currency
exchange forward contracts is based upon the cost to terminate the contracts, as described above in
Note 10 of Notes to Consolidated Condensed Financial Statements.
Interest Rate Swaps: The fair value of the Swap Agreements as of April 4, 2009 was based upon
the costs to terminate the contracts. As of April 3, 2010 and January 2, 2010, the Company had no
outstanding interest rate swaps.
The carrying amounts and fair values of the Company’s financial instruments at April 3, 2010,
January 2, 2010 and April 4, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
Balance Sheet |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Location |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
Accounts receivable, net of reserves |
|
$ |
379,971 |
|
|
$ |
379,971 |
|
|
$ |
290,737 |
|
|
$ |
290,737 |
|
|
$ |
362,518 |
|
|
$ |
362,518 |
|
Open foreign currency exchange contracts |
|
Prepaid expenses and other current assets |
|
|
1,921 |
|
|
|
1,921 |
|
|
|
79 |
|
|
|
79 |
|
|
|
2,203 |
|
|
|
2,203 |
|
Interest rate swaps — net gain |
|
Other assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,123 |
|
|
|
3,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
Accounts payable |
|
$ |
134,447 |
|
|
$ |
134,447 |
|
|
$ |
127,636 |
|
|
$ |
127,636 |
|
|
$ |
127,983 |
|
|
$ |
127,983 |
|
Short-term revolving credit facilities |
|
Short-term debt |
|
|
49,877 |
|
|
|
49,877 |
|
|
|
47,873 |
|
|
|
47,873 |
|
|
|
124,136 |
|
|
|
124,136 |
|
Senior Notes, current portion |
|
Short-term debt |
|
|
112,134 |
|
|
|
113,774 |
|
|
|
50,000 |
|
|
|
51,479 |
|
|
|
— |
|
|
|
— |
|
Open foreign currency exchange contracts |
|
Accrued liabilities |
|
|
2,827 |
|
|
|
2,827 |
|
|
|
3,400 |
|
|
|
3,400 |
|
|
|
4,828 |
|
|
|
4,828 |
|
Senior Notes |
|
Long-term debt |
|
|
— |
|
|
|
— |
|
|
|
112,835 |
|
|
|
116,115 |
|
|
|
164,013 |
|
|
|
164,817 |
|
Derivative Financial Instruments
The Company is exposed to foreign exchange risk related to U.S. dollar-denominated purchases
of inventory, payment of minimum royalty and advertising costs and intercompany loans and payables
by subsidiaries whose functional currencies are the Euro, Canadian Dollar, Korean Won, Mexican Peso
or British Pound. The Company or its foreign subsidiaries enter into foreign exchange forward
contracts, including zero-cost collar option contracts, to offset certain of its foreign exchange
risk. During the Three Months Ended April 4, 2009, the Company also utilized 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 14 of Notes to Consolidated Condensed Financial Statements. The Company
does not use derivative financial instruments for speculative or trading purposes.
15
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
A number of international financial institutions are counterparties to the Company’s
outstanding letters of credit, zero cost collars 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.
During the Three Months Ended April 3, 2010, the Company’s Korean, European and Canadian
subsidiaries continued their hedging programs from Fiscal 2009. During the Three Months Ended April
4, 2009, the Company’s Korean and European subsidiaries also continued their hedging programs from
Fiscal 2008. Those hedging programs included foreign exchange forward contracts which were designed
to satisfy the first 50% of U.S. dollar denominated purchases of inventory over an 18-month period
or payment of 100% of the minimum royalty and advertising expenses. In addition, during the Three
Months Ended April 4, 2009, one of the Company’s European subsidiaries entered into a foreign
exchange forward contract which was designed to satisfy certain U.S. dollar denominated purchases
of inventory. All of the foregoing forward contracts were designated as cash flow hedges, with
gains and losses accumulated on the Balance Sheet in Other Comprehensive Income and recognized in
Cost of Goods Sold in the Statement of Operations during the periods in which the underlying
transactions occur.
During the Three Months Ended April 3, 2010 and the Three Months Ended April 4, 2009, the
Company also continued hedging programs from Fiscal 2009 and Fiscal 2008, which were accounted for
as economic hedges, with gains and losses recorded directly in Other loss (income) or Selling,
general and administrative expense in the Statements of Operations in the period in which they are
incurred. Those hedging programs included foreign currency exchange contracts, including, zero-cost
collars, that were designed to fix the number of Euros, Korean won, Canadian dollars or Mexican
pesos required to satisfy either (i) the first 50% of U.S. dollar denominated purchases of
inventory over an 18-month period; or (ii) 50% of intercompany purchases from a British subsidiary
or (iii) U.S. dollar denominated intercompany loans and payables. See also Item 3. Quantitative and
Qualitative Disclosures About Market Risk — Foreign Exchange Risk in this Quarterly Report on Form
10-Q for further details.
The following table summarizes the Company’s derivative instruments as of April 3, 2010,
January 2, 2010 and April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
|
|
|
|
April 3, |
|
|
January 2, |
|
|
April 4, |
|
|
|
|
|
|
April 3, |
|
|
January 2, |
|
|
April 4, |
|
|
|
|
|
Balance Sheet |
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
Balance Sheet |
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
Type (a) |
|
Location |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
Location |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as
hedging instruments under
FASB ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
CF |
|
Prepaid expenses and other current assets |
|
$ |
394 |
|
|
$ |
— |
|
|
$ |
302 |
|
|
Accrued liabilities |
|
$ |
(1,498 |
) |
|
$ |
(1,119 |
) |
|
$ |
(288 |
) |
Interest rate swaps |
|
FV |
|
Other assets |
|
|
— |
|
|
|
— |
|
|
|
3,123 |
|
|
Long-term debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
designated as hedging
instruments under FASB
ASC 815-20 |
|
|
|
|
|
$ |
394 |
|
|
$ |
— |
|
|
$ |
3,425 |
|
|
|
|
|
|
$ |
(1,498 |
) |
|
$ |
(1,119 |
) |
|
$ |
(288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated as hedging
instruments under FASB
ASC 815-20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
CF |
|
Prepaid expenses and other current assets |
|
$ |
1,527 |
|
|
$ |
79 |
|
|
$ |
1,901 |
|
|
Accrued liabilities |
|
$ |
(1,329 |
) |
|
$ |
(2,281 |
) |
|
$ |
(4,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not
designated as hedging
instruments under FASB
ASC 815-20 |
|
|
|
|
|
$ |
1,527 |
|
|
$ |
79 |
|
|
$ |
1,901 |
|
|
|
|
|
|
$ |
(1,329 |
) |
|
$ |
(2,281 |
) |
|
$ |
(4,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
1,921 |
|
|
$ |
79 |
|
|
$ |
5,326 |
|
|
|
|
|
|
$ |
(2,827 |
) |
|
$ |
(3,400 |
) |
|
$ |
(4,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
CF = cash flow hedge; FV = fair value hedge |
16
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
The following tables summarize the effect of the Company’s derivative instruments on the
Consolidated Condensed Statements of Operations for the Three Months Ended April 3, 2010 and the
Three Months Ended April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
Gain (Loss) |
|
|
|
|
Location of |
|
Amount of Gain (Loss) |
|
|
|
|
|
Recognized in OCI on |
|
|
Reclassified |
|
Amount of Gain (Loss) Reclassified |
|
|
Gain (Loss) |
|
Recognized in Income on |
|
|
|
|
|
Derivatives |
|
|
from |
|
from Accumulated OCI into Income |
|
|
Recognized |
|
Derivative |
|
|
|
|
|
(Effective Portion) |
|
|
Accumulated |
|
(Effective Portion) |
|
|
in Income |
|
(Ineffective Portion) |
|
|
|
|
|
Three |
|
|
Three |
|
|
OCI into |
|
Three |
|
|
Three |
|
|
on |
|
Three |
|
|
Three |
|
Derivatives in FASB ASC |
|
|
|
Months |
|
|
Months |
|
|
Income |
|
Months |
|
|
Months |
|
|
Derivative |
|
Months |
|
|
Months |
|
815-20 Cash Flow Hedging |
|
Nature of Hedged |
|
Ended |
|
|
Ended |
|
|
(Effective |
|
Ended |
|
|
Ended |
|
|
(Ineffective |
|
Ended |
|
|
Ended |
|
Relationships |
|
Transaction |
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
Portion) |
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
Portion) (c) |
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Minimum royalty and advertising costs (a) |
|
$ |
638 |
|
|
$ |
448 |
|
|
cost of goods sold |
|
$ |
59 |
|
|
$ |
97 |
|
|
other loss/income |
|
$ |
17 |
|
|
$ |
15 |
|
Foreign exchange contracts |
|
Purchases of inventory (b) |
|
|
(1,139 |
) |
|
|
(5 |
) |
|
cost of goods sold |
|
|
(506 |
) |
|
|
10 |
|
|
other loss/income |
|
|
(32 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(501 |
) |
|
$ |
443 |
|
|
|
|
|
|
$ |
(447 |
) |
|
$ |
107 |
|
|
|
|
|
|
$ |
(15 |
) |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
At April 3, 2010, the amount of minimum royalty costs hedged was $9,823; contracts expire
December 2010. At April 4, 2009, the amount of
minimum royalty costs hedged was $12,607; contracts expire March 2010. |
|
(b) |
|
At April 3, 2010, the amount of inventory purchases hedged was $37,000; contracts expire
August 2011. At April 4, 2009, amount of
inventory purchases hedged was $11,890; contracts expire February 2010. |
|
(c) |
|
No amounts were excluded from effectiveness testing. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
Recognized in Income on |
|
|
|
|
|
|
|
Amount Hedged |
|
|
Maturity Date |
|
Gain (Loss) |
|
|
Derivative |
|
|
|
|
|
|
|
Three |
|
|
Three |
|
|
Three |
|
Three |
|
Recognized |
|
|
Three |
|
|
Three |
|
Derivatives not designated |
|
|
|
|
|
Months |
|
|
Months |
|
|
Months |
|
Months |
|
in Income |
|
|
Months |
|
|
Months |
|
as hedging instruments |
|
Nature of Hedged |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
Ended |
|
on |
|
|
Ended |
|
|
Ended |
|
under FASB ASC 815-20 |
|
Transaction |
|
Instrument |
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
April 3, 2010 |
|
April 4, 2009 |
|
Derivative |
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (d) |
|
Purchases of inventory |
|
Forward contracts |
|
$ |
2,699 |
|
|
$ |
34,258 |
|
|
August 2010 |
|
August 2009 – August 2010 |
|
other loss/income |
|
|
$ |
(201 |
) |
|
$ |
(708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (e) |
|
Intercompany purchases of inventory |
|
Forward contracts |
|
|
10,015 |
|
|
|
10,326 |
|
|
December 2010 |
|
December 2009 |
|
other loss/income |
|
|
|
82 |
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (f) |
|
Minimum royalty and advertising costs |
|
Forward contracts |
|
|
7,500 |
|
|
|
10,000 |
|
|
October 2010 |
|
January 2010 |
|
other loss/income |
|
|
|
518 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany loans |
|
Forward contracts |
|
|
5,800 |
|
|
|
— |
|
|
March 2010 |
|
— |
|
other loss/income |
|
|
|
(94 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany loans |
|
Zero-cost collars |
|
|
— |
|
|
|
16,260 |
|
|
— |
|
November 2009 – April 2010 |
|
other loss/income |
|
|
|
— |
|
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
28,000 |
|
|
|
— |
|
|
January 2011 |
|
— |
|
other loss/income |
|
|
|
1,096 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
12,000 |
|
|
|
32,000 |
|
|
April 2010 – June 2010 |
|
May 2009 – October 2009 |
|
other loss/income |
|
|
|
1,128 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Forward contracts |
|
|
4,000 |
|
|
|
— |
|
|
April 2010 |
|
— |
|
selling, general and administrative |
|
|
|
(107 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Intercompany payables |
|
Zero-cost collars |
|
|
4,000 |
|
|
|
24,250 |
|
|
May 2010 |
|
May 2009 – September 2009 |
|
selling, general and administrative |
|
|
|
(277 |
) |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,145 |
|
|
$ |
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
Forward contracts used to offset 50% of U.S. dollar-denominated purchases of inventory by the
Company’s foreign subsidiaries
whose functional currencies were the Canadian dollar and Mexican peso, entered into by Warnaco
Inc. on behalf of foreign
subsidiaries. |
|
(e) |
|
Forward contracts used to offset 50% of Euro-denominated intercompany purchases by a
subsidiary whose functional currency
is the British pound. |
|
(f) |
|
Forward contracts used to offset payment of minimum royalty and advertising costs related to
sales of inventory by the
Company’s foreign subsidiary whose functional currency was the Euro, entered into by Warnaco Inc.
on behalf of a
foreign subsidiary. |
17
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
A reconciliation of the balance of Accumulated Other Comprehensive Income during the Three
Months Ended April 3, 2010 and the Three Months Ended April 4, 2009 related to cash flow hedges of
foreign exchange forward contracts is as follows:
|
|
|
|
|
Balance January 3, 2009 |
|
$ |
(328 |
) |
Derivative gains recognized |
|
|
450 |
|
Gains amortized to earnings |
|
|
(112 |
) |
|
|
|
|
Balance April 4, 2009, net of tax |
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
Balance January 2, 2010 |
|
$ |
(1,414 |
) |
Derivative losses recognized |
|
|
(516 |
) |
Losses amortized to earnings |
|
|
462 |
|
|
|
|
|
Balance before tax effect |
|
|
(1,468 |
) |
Tax effect |
|
|
482 |
|
|
|
|
|
Balance April 3, 2010, net of tax |
|
$ |
(986 |
) |
|
|
|
|
During the twelve months following April 3, 2010, the net amount of losses that were reported
in Other Comprehensive Income (“OCI”) at that date that are estimated to be amortized into earnings
is $1,201. During the Three Months Ended April 3, 2010, no amount of gains or losses was
reclassified into earnings as a result of the discontinuance of cash flow hedges because it was
probable that the original forecasted transactions would not occur by the end of the originally
specified time period or within an additional two-month period of time thereafter.
Note 12—Inventories
Inventories are valued at the lower of cost to the Company (using the first-in-first-out
method) or market and are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
266,761 |
|
|
$ |
251,540 |
|
|
$ |
315,268 |
|
Raw materials |
|
|
444 |
|
|
|
1,822 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267,205 |
|
|
$ |
253,362 |
|
|
$ |
316,212 |
|
|
|
|
|
|
|
|
|
|
|
See Note 11 to Notes to Consolidated Condensed Financial Statements for details on the
Company’s hedging programs related to purchases of inventory.
18
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 13—Intangible Assets and Goodwill
The following tables set forth intangible assets as of April 3, 2010, January 2, 2010 and
April 4, 2009 and the activity in the intangible asset accounts for the Three Months Ended April 3,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses for a term (Company as licensee) |
|
$ |
329,653 |
|
|
$ |
48,453 |
|
|
$ |
281,200 |
|
|
$ |
330,389 |
|
|
$ |
46,268 |
|
|
$ |
284,121 |
|
|
$ |
276,399 |
|
|
$ |
38,606 |
|
|
$ |
237,793 |
|
Other |
|
|
20,800 |
|
|
|
8,870 |
|
|
|
11,930 |
|
|
|
20,427 |
|
|
|
8,387 |
|
|
|
12,040 |
|
|
|
15,961 |
|
|
|
7,144 |
|
|
|
8,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,453 |
|
|
|
57,323 |
|
|
|
293,130 |
|
|
|
350,816 |
|
|
|
54,655 |
|
|
|
296,161 |
|
|
|
292,360 |
|
|
|
45,750 |
|
|
|
246,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
56,719 |
|
|
|
— |
|
|
|
56,719 |
|
|
|
56,719 |
|
|
|
— |
|
|
|
56,719 |
|
|
|
19,366 |
|
|
|
— |
|
|
|
19,366 |
|
Licenses in perpetuity |
|
|
23,951 |
|
|
|
— |
|
|
|
23,951 |
|
|
|
23,951 |
|
|
|
— |
|
|
|
23,951 |
|
|
|
8,909 |
|
|
|
— |
|
|
|
8,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,670 |
|
|
|
— |
|
|
|
80,670 |
|
|
|
80,670 |
|
|
|
— |
|
|
|
80,670 |
|
|
|
28,275 |
|
|
|
— |
|
|
|
28,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets (a) |
|
$ |
431,123 |
|
|
$ |
57,323 |
|
|
$ |
373,800 |
|
|
$ |
431,486 |
|
|
$ |
54,655 |
|
|
$ |
376,831 |
|
|
$ |
320,635 |
|
|
$ |
45,750 |
|
|
$ |
274,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
the increase in the balance of intangible assets from April 4, 2009 to April
3, 2010 primarily relates to correction of errors in prior period deferred tax balances
associated with the recapture of cancellation of indebtedness income which had been
deferred in connection with the Company’s bankruptcy proceedings in 2003 (see Note 10
of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form
10-K for Fiscal 2009). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
Finite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
in |
|
|
Intangible |
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
Perpetuity |
|
|
Assets |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010 |
|
$ |
56,719 |
|
|
$ |
23,951 |
|
|
$ |
284,121 |
|
|
$ |
12,040 |
|
|
$ |
376,831 |
|
Amortization expense |
|
|
— |
|
|
|
— |
|
|
|
(2,185 |
) |
|
|
(483 |
) |
|
|
(2,668 |
) |
Translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
(736 |
) |
|
|
(79 |
) |
|
|
(815 |
) |
Other (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
452 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2010 |
|
$ |
56,719 |
|
|
$ |
23,951 |
|
|
$ |
281,200 |
|
|
$ |
11,930 |
|
|
$ |
373,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Relates to the assumption of a retail store lease in Brazil. |
The following table summarizes the Company’s estimated amortization expense for intangible
assets for the next five years:
|
|
|
|
|
2011 |
|
$ |
9,450 |
|
2012 |
|
|
9,269 |
|
2013 |
|
|
9,176 |
|
2014 |
|
|
7,759 |
|
2015 |
|
|
7,759 |
|
The following table summarizes the changes in the carrying amount of goodwill for the Three
Months Ended April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear |
|
|
Intimate |
|
|
Swimwear |
|
|
|
|
|
|
Group |
|
|
Apparel Group |
|
|
Group |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at January 2, 2010 |
|
$ |
108,633 |
|
|
$ |
1,446 |
|
|
$ |
642 |
|
|
$ |
110,721 |
|
Adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments |
|
|
(2,262 |
) |
|
|
(42 |
) |
|
|
— |
|
|
$ |
(2,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at April 3, 2010 |
|
$ |
106,371 |
|
|
$ |
1,404 |
|
|
$ |
642 |
|
|
$ |
108,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 14—Debt
Debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
January 2, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CKJEA notes payable and other |
|
$ |
49,877 |
|
|
$ |
47,684 |
|
|
$ |
59,429 |
|
New Credit Agreements |
|
|
— |
|
|
|
189 |
|
|
|
64,707 |
|
8 7/8% Senior Notes due 2013 (a) |
|
|
110,890 |
|
|
|
50,000 |
|
|
|
— |
|
Debt premium on 2003 and 2004 swaps |
|
|
1,244 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,011 |
|
|
|
97,873 |
|
|
|
124,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 7/8% Senior Notes due 2013 |
|
|
— |
|
|
|
110,890 |
|
|
|
160,890 |
|
Unrealized gain on swap agreements |
|
|
— |
|
|
|
— |
|
|
|
3,123 |
|
Debt premium on 2003 and 2004 swaps |
|
|
— |
|
|
|
1,945 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
112,835 |
|
|
|
164,013 |
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
|
$ |
162,011 |
|
|
$ |
210,708 |
|
|
$ |
288,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
reflects the portion of the Senior Notes that will be redeemed from bondholders within 90
days (see below). |
Senior Notes
On May 7, 2010, the Company notified the bondholders of the Senior Notes that it would redeem
from them the remaining $110,890 aggregate principal amount of its outstanding 8 7/8% Senior Notes
due 2013 (“Senior Notes”) for a total consideration of $112,530. Thus, as of April 3, 2010,
$110,890 principal amount of Senior Notes and $1,244 of unamortized gain from the Swap Agreements
have been reclassified from long-term debt to short-term debt on the Company’s Consolidated
Condensed Balance Sheet. In connection with the redemption, the Company will recognize a loss, in
the Other loss (income) line item in the Company’s Consolidated Condensed Statement of Operations
for the second fiscal quarter of 2010, of approximately $2,078, which includes $1,640 of premium
expense, the write-off of approximately $1,682 of deferred financing costs and $1,244 of
unamortized gain from the previously terminated 2003 Swap Agreement and 2004 Swap Agreement (both
defined below). The Company expects to fund the redemption of the Senior Notes on June 15, 2010
with available cash on hand in the U.S and borrowings under its New Credit Agreement (defined
below). On May 7, 2010 the Company had approximately $24,000 of cash on hand in the U.S.
On January 5, 2010, the Company redeemed from bondholders $50,000 aggregate principal amount
of the outstanding Senior Notes for a total consideration of $51,479. In connection with the
redemption, the Company recognized a loss, in the Other loss (income) line item in the Company’s
Consolidated Statement of Operations for the Three Months Ended April 3, 2010, of approximately
$1,692 which includes $1,479 of premium expense, the write-off of approximately $817 of deferred
financing costs and $604 of unamortized gain from the previously terminated 2003 Swap Agreement and
2004 Swap Agreement (both defined below).
The aggregate principal amount outstanding under the Senior Notes was $110,890 as of April 3,
2010 and January 2, 2010 and $160,890 as of April 4, 2009.
20
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Interest Rate Swap Agreements
The Company entered into interest rate swap agreements on September 18, 2003 (the “2003 Swap
Agreement”) and November 5, 2004 (the “2004 Swap Agreement” and, together with the 2003 Swap
Agreement, the “Swap Agreements”) with respect to the Senior Notes for a total notional amount of
$75,000. In June 2009, the 2004 Swap Agreement was called by the issuer and the Company received a
debt premium of $740. On July 15, 2009, the 2003 Swap Agreement was called by the issuer and the
Company received a debt premium of $1,479. Both debt premiums are being amortized as reductions to
interest expense through June 15, 2013 (the date on which the Senior Notes mature), subject to
acceleration for redemption of the Senior Notes. During the Three Months Ended April 3, 2010, $698
was amortized, including $604 related to the redemption of the Senior Notes on January 5, 2010 (see
above). The 2003 Swap Agreement and the 2004 Swap Agreement provided that the Company would receive
interest at 87/8% and pay variable rates of interest based upon six month LIBOR plus 4.11% and 4.34%,
respectively. As a result of the Swap Agreements and the amortization of the debt premiums, the
weighted average effective interest rate of the Senior Notes was 8.53% as of April 3, 2010, 8.53%
as of January 2, 2010 and 7.77% as of April 4, 2009.
As of April 3, 2010 and January 2, 2010, the Company had no outstanding interest rate swap
agreements. The fair values of the Company’s Swap Agreements at April 4, 2009 reflect the
termination premium or termination discount that the Company would have realized if such Swap
Agreements had been terminated on that date. Since the provisions of the Company’s Swap Agreements
matched the provisions of the Company’s outstanding Senior Notes (the “Hedged Debt”), changes in
the fair values of the Swap Agreements did not have any effect on the Company’s results of
operations for the Three Months Ended April 4, 2009 but were recorded in the Company’s Consolidated
Balance Sheets as of that date in Other assets with a corresponding increase in the Hedged Debt.
New Credit Agreements
On August 26, 2008, Warnaco, as borrower, and Warnaco Group, as guarantor, entered into a
revolving credit agreement (the “New Credit Agreement”) and Warnaco of Canada Company, an indirect
wholly-owned subsidiary of Warnaco Group, as borrower, and Warnaco Group, as guarantor, entered
into a second revolving credit agreement (the “New Canadian Credit Agreement” and, together with
the New Credit Agreement, the “New Credit Agreements”), in each case with the financial
institutions which, from time to time, will act as lenders and issuers of letters of credit.
At April 3, 2010, the New Credit Agreement had interest rate options (dependent on the amount
borrowed and the repayment period) that are based on: (i) a Base Rate (as defined in the New Credit
Agreement) plus 0.75% (4.0% at April 3, 2010) or (ii) LIBOR (as defined in the New Credit
Agreement) plus 1.75% (2.04% at April 3, 2010) in each case, on a per annum basis. The interest
rate payable on outstanding borrowing is subject to adjustments based on changes in the Company’s
leverage ratio. At April 3, 2010, the New Canadian Credit Agreement had interest rate options
(dependent on the amount borrowed and the repayment period) that are based on: (i) the prime rate
announced by Bank of America (acting through its Canada branch) plus 0.75% (3.0% at April 3, 2010)
or (ii) a BA Rate (as defined in the New Canadian Credit Agreement) plus 1.75% (2.22% at April 3,
2010), in each case, on a per annum basis and subject to adjustments based on changes in the
Company’s leverage ratio. The BA Rate is defined as the annual rate of interest quoted by Bank of
America (acting through its Canada branch) as its rate of interest for bankers’ acceptances in
Canadian dollars for a face amount similar to the amount of the loan and for a term similar to the
applicable interest period.
As of April 3, 2010, the Company had no loans and approximately $60,846 in letters of
credit outstanding under the New Credit Agreement, leaving approximately $166,141 of availability.
As of April 3, 2010, there were no loans and no letters of credit outstanding under the New
Canadian Credit Agreement and the available line of credit was approximately $23,914. As of April
3, 2010, the Company was in compliance with all financial covenants contained in the New Credit
Agreements.
Euro-Denominated CKJEA Notes Payable and Other
In connection with the Company’s 2006 acquisition of certain parts of its Calvin Klein
businesses, the Company assumed certain short-term notes payable (the “CKJEA Notes”). The total
CKJEA notes payable of $47,125 at April 3, 2010 consists of short-term revolving notes with a
number of banks at various interest rates (primarily Euro LIBOR plus 1.0%). The weighted average
effective interest rate for the outstanding CKJEA notes payable was 1.86% as of April 3, 2010,
2.18% as of January 2, 2010 and 2.49% as of April 4, 2009. All of the CKJEA notes payable are
short-term and were renewed during the Three Months Ended April 3, 2010 for additional terms of no
more than 12 months. At April 3, 2010, the Company’s Brazilian subsidiary, WBR, had lines of credit
with several banks, with a total outstanding balance of $2,752, recorded in Short-term debt in the
Company’s Consolidated Condensed Balance Sheet, which was secured by $2,809 of WBR’s trade accounts
receivable. In addition, one of the Company’s Korean subsidiaries had an outstanding note payable
of $3,740 with an interest rate of 5.88% per annum at April 4, 2009, all of which had been repaid
as of January 2, 2010 and April 3, 2010.
21
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 15—Stockholders’ Equity
Preferred Stock
The Company has authorized an aggregate of 20,000,000 shares of preferred stock, par value
$0.01 per share, of which 112,500 shares are designated as Series A preferred stock, par value
$0.01 per share. There were no shares of preferred stock issued and outstanding at April 3, 2010,
January 2, 2010 and April 4, 2009.
Share Repurchase Program
In May 2007, the Company’s Board of Directors authorized a share repurchase program (the
“2007 Share Repurchase Program”) for the repurchase of up to 3,000,000 shares of the Company’s
common stock. During the Three Months Ended April 3, 2010, the Company repurchased the remaining
1,490,131 shares of its common stock allowed to be repurchased under the 2007 Share Repurchase
Program in the open market at a total cost of approximately $69,004 (an average cost of $46.31 per
share). As of April 3, 2010, the Company had cumulatively purchased 3,000,000 shares of common
stock in the open market at a total cost of approximately $106,916 (an average cost of $35.64 per
share) under the 2007 Share Repurchase Program. Repurchased shares are held in treasury pending use
for general corporate purposes.
Stock Incentive Plans
A summary of stock option award activity under the Company’s stock incentive plans as of and
for the Three Months Ended April 3, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
Options |
|
|
Price |
|
Outstanding as of January 2, 2010 |
|
|
2,462,346 |
|
|
$ |
26.79 |
|
Granted |
|
|
358,300 |
|
|
|
43.28 |
|
Exercised |
|
|
(96,024 |
) |
|
|
24.74 |
|
Forfeited / Expired |
|
|
(40,317 |
) |
|
|
34.10 |
|
|
|
|
|
|
|
|
|
Outstanding as of April 3, 2010 |
|
|
2,684,305 |
|
|
$ |
28.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable as of April 3, 2010 |
|
|
1,775,893 |
|
|
$ |
24.64 |
|
|
|
|
|
|
|
|
A summary of the activity for unvested restricted share/unit awards under the Company’s stock
incentive plans (excluding Performance Awards, defined below) as of and for the Three Months Ended
April 3, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Restricted |
|
|
Average Grant |
|
|
|
shares/units |
|
|
Date Fair Value |
|
Unvested as of January 2, 2010 |
|
|
751,108 |
|
|
$ |
32.78 |
|
Granted |
|
|
225,585 |
|
|
|
43.35 |
|
Vested (a) |
|
|
(189,389 |
) |
|
|
34.32 |
|
Forfeited |
|
|
(18,166 |
) |
|
|
35.30 |
|
|
|
|
|
|
|
|
Unvested as of April 3, 2010 |
|
|
769,138 |
|
|
$ |
35.44 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include an additional 36,750 restricted units with a grant date fair value of
$43.28, granted to Retirement-Eligible employees, for which the requisite service period has
been completed on the grant date but the restrictions will not lapse until the end of the
three-year vesting period. |
22
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
In March 2010, share-based compensation awards granted to certain of the Company’s
executive officers under the 2005 Stock Incentive Plan included 75,750 performance-based restricted
stock/restricted unit awards (“Performance Awards”) in addition to the service-based stock options
and restricted stock awards, included in the preceding tables, of the types that had been granted
in previous periods. The Performance Awards cliff-vest three years after the grant date and are
subject to the same vesting provisions as awards of the Company’s regular service-based restricted
stock/restricted unit awards granted in March 2010. The final number of Performance Awards that
will be earned, if any, at the end of the three-year vesting period will be the greatest number of
shares based on the Company’s achievement of certain goals relating to cumulative earnings per
share growth (a performance condition) or the Company’s relative total shareholder return (“TSR”)
(change in closing price of the Company’s common stock on the New York Stock Exchange compared to
that of a peer group of companies (“Peer Companies”)) (a market condition) measured from the
beginning of Fiscal 2010 to the end of Fiscal 2012 (the “Measurement Period”). The total number of
Performance Awards earned could equal up to 150% of the number of Performance Awards originally
granted, depending on the level of achievement of those goals during the Measurement Period.
The Company records stock-based compensation expense related to the Performance Awards ratably
over the requisite service period based on the greater of the estimated expense calculated under
the performance condition or the grant date fair value calculated under the market condition.
Stock-based compensation expense related to an award with a market condition is recognized over the
requisite service period regardless of whether the market condition is satisfied, provided that the
requisite service period has been completed. Under the performance condition, the estimated expense
is based on the grant date fair value (the closing price of the Company’s common stock on the date
of grant) and the Company’s current expectations of the probable number of Performance Awards that
will ultimately be earned. The fair value of the Performance Awards under the market condition
($2,432) is based upon a Monte Carlo simulation model, which encompasses TSR’s during the
Measurement Period, including both the period from the beginning of Fiscal 2010 to March 3, 2010
(the grant date), for which actual TSR’s are calculated, and the period from the grant date to the
end of Fiscal 2012, a total of 2.83 years (the “Remaining Measurement Period”), for which simulated
TSR’s are calculated.
In calculating the fair value of the award under the market condition, the Monte Carlo
simulation model utilizes multiple input variables over the Measurement Period in order to
determine the probability of satisfying the market condition stipulated in the award. The Monte
Carlo simulation model computed simulated TSR’s for the Company and Peer Companies during the
Remaining Period with the following inputs: (i) stock price on the grant date (ii)
expected volatility; (iii) risk-free interest rate; (iv) dividend yield and (v) correlations of
historical common stock returns between the Company and the Peer Companies and among the Peer
Companies. Expected volatilities utilized in the Monte Carlo model are based on historical
volatility of the Company’s and the Peer Companies’ stock prices over a period equal in length to
that of the Remaining Period. The risk-free interest rate is derived from the U.S. Treasury yield
curve in effect at the time of grant with a term equal to the Measurement Period assumption at the
time of grant.
The calculation of simulated TSR’s under the Monte Carlo model for the Remaining Period
included the following assumptions:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
April 3, 2010 |
|
Weighted average risk free rate of return |
|
|
1.25% |
|
Dividend yield |
|
|
— |
|
Expected volatility — Company |
|
|
65.0% |
|
Expected volatility — Peer Companies |
|
|
39.8% – 114.1% |
|
Remaining measurement period |
|
2.83 years |
|
The Company recorded compensation expense for the Performance Awards during the Three
Months Ended April 3, 2010 based on the performance condition.
23
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Performance share activity for the Three Months Ended April 3, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Performance |
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested as of January 2, 2010 |
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
75,750 |
|
|
|
43.28 |
|
Vested (a) |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Unvested as of April 3, 2010 |
|
|
75,750 |
|
|
$ |
43.28 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
does not include 34,300 Performance Awards granted to Retirement Eligible
employees, for which the requisite service period has been completed on the grant date; the
restrictions on such awards will not lapse until the end of the three-year vesting period. |
Note 16—Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
|
|
|
|
|
|
|
Cash paid (received) during the period for: |
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
3,689 |
|
|
$ |
2,208 |
|
Interest income |
|
|
(171 |
) |
|
|
(167 |
) |
Income taxes, net of refunds received |
|
|
8,780 |
|
|
|
5,273 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accounts payable for purchase of fixed assets |
|
|
3,903 |
|
|
|
2,399 |
|
Note 17—Income per Common Share
The following table presents the calculation of both basic and diluted income per common share
attributable to Warnaco Group, Inc. common shareholders, giving effect to participating securities.
The Company has determined that based on a review of its share-based awards, only its restricted
stock awards are deemed participating securities, which participate equally with common
shareholders. The weighted average restricted stock outstanding was 597,819 shares and 497,778
shares for the Three Months Ended April 3, 2010 and the Three Months Ended April 4, 2009,
respectively. Undistributed income allocated to participating securities is based on the
proportion of restricted stock outstanding to the sum of weighted average number of common shares
outstanding attributable to Warnaco Group, Inc. common shareholders and restricted stock
outstanding for each period presented.
24
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
Numerator for basic and diluted income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group, Inc. common
shareholders and participating securities |
|
$ |
48,312 |
|
|
$ |
38,592 |
|
Less: allocation to participating securities |
|
|
(628 |
) |
|
|
(419 |
) |
|
|
|
|
|
|
|
Income from continuing operations attributable to Warnaco Group, Inc. common
shareholders |
|
$ |
47,684 |
|
|
$ |
38,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations, net of tax, attributable to Warnaco Group, Inc.
common shareholders and participating securities |
|
$ |
(337 |
) |
|
$ |
(1,021 |
) |
Less: allocation to participating securities |
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
(Loss) from discontinued operations attributable to Warnaco Group, Inc. common
shareholders |
|
$ |
(333 |
) |
|
$ |
(1,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. common shareholders and participating
securities |
|
$ |
47,975 |
|
|
$ |
37,571 |
|
Less: allocation to participating securities |
|
|
(623 |
) |
|
|
(408 |
) |
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. common shareholders |
|
$ |
47,352 |
|
|
$ |
37,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common share attributable to Warnaco Group, Inc. common shareholders: |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing income per
common share |
|
|
45,418,865 |
|
|
|
45,304,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
1.05 |
|
|
$ |
0.84 |
|
(Loss) per common share from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
Net income per common share |
|
$ |
1.04 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to Warnaco Group, Inc. common shareholders: |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding used in computing basic income
per common share |
|
|
45,418,865 |
|
|
|
45,304,591 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
998,188 |
|
|
|
346,579 |
|
|
|
|
|
|
|
|
Weighted average number of shares and share equivalents used in computing income per
common share |
|
|
46,417,053 |
|
|
|
45,651,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share from continuing operations |
|
$ |
1.03 |
|
|
$ |
0.84 |
|
(Loss) per common share from discontinued operations |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net income per common share |
|
$ |
1.02 |
|
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of anti-dilutive “out-of-the-money” stock options outstanding (a) |
|
|
395,500 |
|
|
|
1,409,096 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. |
25
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 18—Legal Matters
SEC Inquiry: As disclosed in its Annual Report on Form 10-K for Fiscal 2009, the Company
announced, on August 8, 2006, that it would restate its previously reported financial statements
for the fourth quarter of 2005, fiscal 2005 and the first quarter of 2006. The restatements were
required as a result of certain irregularities discovered by the Company during the Company’s 2006
second quarter closing review and certain other errors. The irregularities primarily related to the
accounting for certain returns and customer
allowances at the Company’s Chaps menswear division. These matters were reported to the
Company’s Audit Committee, which engaged outside counsel, who in turn retained independent forensic accountants, to investigate
and report to the Audit Committee. Based on information obtained in that investigation, and also to
correct for an error which resulted from the implementation of the Company’s new systems
infrastructure at its Swimwear Group during the first quarter of 2006, and certain immaterial
errors, the Audit Committee accepted management’s recommendation that the Company restate its
financial statements.
In connection with the restatements, the Company contacted the SEC staff to inform them of the
restatements and the Company’s related investigation. Thereafter, the SEC staff initiated an
informal inquiry, and on February 22, 2008, informed the Company that in September 2007 the SEC had
issued a formal order of investigation, with respect to these matters. The Company is cooperating
fully with the SEC.
OP Litigation: On August 19, 2004, the Company acquired 100% of the outstanding common stock
of Ocean Pacific Apparel Corp. (“OP”). The terms of the acquisition agreement required the Company
to make certain contingent payments to the sellers (the “Sellers”) under certain circumstances. On
November 6, 2006, the Company sold the OP business. The Sellers of OP have filed an action against
the Company alleging that certain contingent purchase price payments are due to them as a result of
the Company’s sale of the OP business in November 2006. The Company believes that the Sellers’
lawsuit is without merit and intends to defend itself vigorously. The Company believes that it is
adequately reserved for any potential settlements.
Lejaby
Claims: On March 10, 2008, the Company sold its Lejaby business to Palmers. The
purchase price paid by Palmers for the Lejaby business was subject to certain post-closing
adjustments, including adjustments for working capital. The Company and Palmers have been unable to
agree on the amount of these adjustments to the purchase price. Palmers also has filed an action
against the Company alleging that, as a result of the Company making certain misrepresentations,
the sale agreement is null and void. The Company believes that the Palmers’ lawsuit is without
merit and intends to defend itself vigorously. The Company believes that it is adequately reserved
for these claims.
Tyr Litigation: On May 12, 2008, Tyr Sport, Inc. (“Tyr”) filed an action against the Company
and certain third party co-defendants alleging false advertising, unfair competition, violation of
federal and state antitrust laws and interference with contract. Certain of Tyr’s claims for false
advertising and unfair competition were initially dismissed by the Court pursuant to a Motion to
Dismiss, filed by the Company and other co-defendants. On December 30, 2009, the Company and other
co-defendants filed a comprehensive motion for summary judgment on remaining claims in the case. On
March 3, 2010, the Court granted, in part, the Company’s motion for summary judgment and dismissed
all of the false advertising allegations, the interference with contract claims and certain of the
antitrust claims. On March 22, 2010, the Company and its co-defendants filed a further motion for
summary judgment, seeking dismissal of the remaining antitrust claims. Tyr also filed a motion,
asking the Court to reconsider its dismissal of the false advertising claims. On April 26, 2010,
the Court granted the Company’s motion for summary judgment and dismissed all of the remaining
claims in the case and denied Tyr’s motion for reconsideration. On May 3, 2010, the Court entered
its Order dismissing all claims asserted against the Company.
Other:
In addition, from time to time, the Company is involved in arbitrations or legal
proceedings that arise in the ordinary course of its business. The Company cannot predict the
timing or outcome of these claims and proceedings. Currently, the Company is not involved in any
such arbitration and/or legal proceeding that it expects to have a material effect on its financial
condition, results of operations or business.
26
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note 19—Supplemental Consolidating Condensed Financial Information
The following tables set forth supplemental consolidating condensed financial information as
of April 3, 2010, January 2, 2010 and April 4, 2009 and for the Three Months Ended April 3, 2010
and the Three Months Ended April 4, 2009 for: (i) The Warnaco Group, Inc.; (ii) Warnaco Inc.; (iii)
the subsidiaries that guarantee the Senior Notes (the “Guarantor Subsidiaries”); (iv) the
subsidiaries other than the Guarantor Subsidiaries (the “Non-Guarantor Subsidiaries”); and (v) The
Warnaco Group, Inc. on a consolidated basis. The Senior Notes are guaranteed by substantially all
of Warnaco Inc.’s domestic subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010 |
|
|
|
The Warnaco |
|
|
Warnaco |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
12,012 |
|
|
$ |
2 |
|
|
$ |
145,440 |
|
|
$ |
— |
|
|
$ |
157,454 |
|
Accounts receivable, net |
|
|
— |
|
|
|
54,269 |
|
|
|
111,061 |
|
|
|
214,641 |
|
|
|
— |
|
|
|
379,971 |
|
Inventories |
|
|
— |
|
|
|
61,793 |
|
|
|
60,932 |
|
|
|
144,480 |
|
|
|
— |
|
|
|
267,205 |
|
Prepaid expenses and other current assets |
|
|
— |
|
|
|
49,973 |
|
|
|
13,437 |
|
|
|
84,719 |
|
|
|
— |
|
|
|
148,129 |
|
Assets of discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
126 |
|
|
|
1,887 |
|
|
|
— |
|
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
— |
|
|
|
178,047 |
|
|
|
185,558 |
|
|
|
591,167 |
|
|
|
— |
|
|
|
954,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
42,729 |
|
|
|
5,063 |
|
|
|
74,537 |
|
|
|
— |
|
|
|
122,329 |
|
Investment in subsidiaries |
|
|
1,208,985 |
|
|
|
551,617 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,760,602 |
) |
|
|
— |
|
Other assets |
|
|
— |
|
|
|
50,898 |
|
|
|
89,519 |
|
|
|
391,626 |
|
|
|
— |
|
|
|
532,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,208,985 |
|
|
$ |
823,291 |
|
|
$ |
280,140 |
|
|
$ |
1,057,330 |
|
|
$ |
(1,760,602 |
) |
|
$ |
1,609,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
— |
|
|
$ |
3 |
|
|
$ |
7,741 |
|
|
$ |
553 |
|
|
$ |
— |
|
|
$ |
8,297 |
|
Accounts payable, accrued liabilities, short-term debt and accrued taxes |
|
|
— |
|
|
|
198,183 |
|
|
|
44,703 |
|
|
|
257,623 |
|
|
|
— |
|
|
|
500,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
— |
|
|
|
198,186 |
|
|
|
52,444 |
|
|
|
258,176 |
|
|
|
— |
|
|
|
508,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany accounts |
|
|
309,983 |
|
|
|
72,048 |
|
|
|
(482,114 |
) |
|
|
100,083 |
|
|
|
— |
|
|
|
— |
|
Long-term debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other long-term liabilities |
|
|
— |
|
|
|
88,218 |
|
|
|
2,266 |
|
|
|
110,852 |
|
|
|
— |
|
|
|
201,336 |
|
Stockholders’ equity |
|
|
899,002 |
|
|
|
464,839 |
|
|
|
707,544 |
|
|
|
588,219 |
|
|
|
(1,760,602 |
) |
|
|
899,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
$ |
1,208,985 |
|
|
$ |
823,291 |
|
|
$ |
280,140 |
|
|
$ |
1,057,330 |
|
|
$ |
(1,760,602 |
) |
|
$ |
1,609,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2010 |
|
|
|
The Warnaco |
|
|
Warnaco |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
123,243 |
|
|
$ |
(2 |
) |
|
$ |
197,513 |
|
|
$ |
— |
|
|
$ |
320,754 |
|
Accounts receivable, net |
|
|
— |
|
|
|
24,283 |
|
|
|
69,377 |
|
|
|
197,077 |
|
|
|
— |
|
|
|
290,737 |
|
Inventories |
|
|
— |
|
|
|
54,097 |
|
|
|
60,646 |
|
|
|
138,619 |
|
|
|
— |
|
|
|
253,362 |
|
Prepaid expenses and other current assets |
|
|
— |
|
|
|
49,857 |
|
|
|
15,881 |
|
|
|
70,094 |
|
|
|
— |
|
|
|
135,832 |
|
Assets of discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
126 |
|
|
|
2,046 |
|
|
|
— |
|
|
|
2,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
— |
|
|
|
251,480 |
|
|
|
146,028 |
|
|
|
605,349 |
|
|
|
— |
|
|
|
1,002,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
44,783 |
|
|
|
5,093 |
|
|
|
70,615 |
|
|
|
— |
|
|
|
120,491 |
|
Investment in subsidiaries |
|
|
1,165,775 |
|
|
|
551,617 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,717,392 |
) |
|
|
— |
|
Other assets |
|
|
— |
|
|
|
47,709 |
|
|
|
92,269 |
|
|
|
396,468 |
|
|
|
— |
|
|
|
536,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,165,775 |
|
|
$ |
895,589 |
|
|
$ |
243,390 |
|
|
$ |
1,072,432 |
|
|
$ |
(1,717,392 |
) |
|
$ |
1,659,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
— |
|
|
$ |
4 |
|
|
$ |
7,490 |
|
|
$ |
524 |
|
|
$ |
— |
|
|
$ |
8,018 |
|
Accounts payable, accrued liabilities, short-term debt and accrued taxes |
|
|
— |
|
|
|
145,968 |
|
|
|
35,116 |
|
|
|
253,586 |
|
|
|
— |
|
|
|
434,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
— |
|
|
|
145,972 |
|
|
|
42,606 |
|
|
|
254,110 |
|
|
|
— |
|
|
|
442,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany accounts |
|
|
249,665 |
|
|
|
98,512 |
|
|
|
(492,069 |
) |
|
|
143,892 |
|
|
|
— |
|
|
|
— |
|
Long-term debt |
|
|
— |
|
|
|
112,835 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
112,835 |
|
Other long-term liabilities |
|
|
— |
|
|
|
75,593 |
|
|
|
2,309 |
|
|
|
110,259 |
|
|
|
— |
|
|
|
188,161 |
|
Stockholders’ equity |
|
|
916,110 |
|
|
|
462,677 |
|
|
|
690,544 |
|
|
|
564,171 |
|
|
|
(1,717,392 |
) |
|
|
916,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
1,165,775 |
|
|
$ |
895,589 |
|
|
$ |
243,390 |
|
|
$ |
1,072,432 |
|
|
$ |
(1,717,392 |
) |
|
$ |
1,659,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4, 2009 |
|
|
|
The Warnaco |
|
|
Warnaco |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
13,859 |
|
|
$ |
(3 |
) |
|
$ |
108,195 |
|
|
$ |
— |
|
|
$ |
122,051 |
|
Accounts receivable, net |
|
|
— |
|
|
|
49,989 |
|
|
|
118,604 |
|
|
|
193,925 |
|
|
|
— |
|
|
|
362,518 |
|
Inventories |
|
|
— |
|
|
|
68,760 |
|
|
|
73,892 |
|
|
|
173,560 |
|
|
|
— |
|
|
|
316,212 |
|
Prepaid expenses and other current assets |
|
|
— |
|
|
|
59,251 |
|
|
|
19,741 |
|
|
|
76,183 |
|
|
|
— |
|
|
|
155,175 |
|
Assets of discontinued operations |
|
|
— |
|
|
|
(4 |
) |
|
|
1,908 |
|
|
|
189 |
|
|
|
— |
|
|
|
2,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
— |
|
|
|
191,855 |
|
|
|
214,142 |
|
|
|
552,052 |
|
|
|
— |
|
|
|
958,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
— |
|
|
|
49,128 |
|
|
|
6,248 |
|
|
|
51,685 |
|
|
|
— |
|
|
|
107,061 |
|
Investment in subsidiaries |
|
|
1,083,799 |
|
|
|
551,617 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,635,416 |
) |
|
|
— |
|
Other assets |
|
|
— |
|
|
|
73,403 |
|
|
|
46,576 |
|
|
|
353,339 |
|
|
|
— |
|
|
|
473,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,083,799 |
|
|
$ |
866,003 |
|
|
$ |
266,966 |
|
|
$ |
957,076 |
|
|
$ |
(1,635,416 |
) |
|
$ |
1,538,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
— |
|
|
$ |
12 |
|
|
$ |
7,407 |
|
|
$ |
3,095 |
|
|
$ |
— |
|
|
$ |
10,514 |
|
Accounts payable, accrued liabilities, short-term debt and accrued taxes |
|
$ |
— |
|
|
$ |
120,584 |
|
|
$ |
37,364 |
|
|
$ |
264,885 |
|
|
$ |
— |
|
|
$ |
422,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
— |
|
|
|
120,596 |
|
|
|
44,771 |
|
|
|
267,980 |
|
|
|
— |
|
|
|
433,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany accounts |
|
|
265,235 |
|
|
|
65,879 |
|
|
|
(446,761 |
) |
|
|
115,647 |
|
|
|
— |
|
|
|
— |
|
Long-term debt |
|
|
— |
|
|
|
164,013 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
164,013 |
|
Other long-term liabilities |
|
|
— |
|
|
|
41,342 |
|
|
|
2,784 |
|
|
|
78,378 |
|
|
|
— |
|
|
|
122,504 |
|
Stockholders’ equity |
|
|
818,564 |
|
|
|
474,173 |
|
|
|
666,172 |
|
|
|
495,071 |
|
|
|
(1,635,416 |
) |
|
|
818,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
1,083,799 |
|
|
$ |
866,003 |
|
|
$ |
266,966 |
|
|
$ |
957,076 |
|
|
$ |
(1,635,416 |
) |
|
$ |
1,538,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 |
|
|
|
The Warnaco |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Warnaco Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
— |
|
|
$ |
128,169 |
|
|
$ |
142,581 |
|
|
$ |
317,414 |
|
|
$ |
— |
|
|
$ |
588,164 |
|
Cost of goods sold |
|
|
— |
|
|
|
81,976 |
|
|
|
92,512 |
|
|
|
146,558 |
|
|
|
— |
|
|
|
321,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
— |
|
|
|
46,193 |
|
|
|
50,069 |
|
|
|
170,856 |
|
|
|
— |
|
|
|
267,118 |
|
SG&A expenses (including amortization of intangible assets) |
|
|
— |
|
|
|
43,005 |
|
|
|
26,234 |
|
|
|
118,402 |
|
|
|
— |
|
|
|
187,641 |
|
Pension expense (income) |
|
|
— |
|
|
|
(60 |
) |
|
|
— |
|
|
|
39 |
|
|
|
— |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
— |
|
|
|
3,248 |
|
|
|
23,835 |
|
|
|
52,415 |
|
|
|
— |
|
|
|
79,498 |
|
Equity in income of subsidiaries |
|
|
(47,975 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,975 |
|
|
|
— |
|
Intercompany |
|
|
— |
|
|
|
(2,279 |
) |
|
|
(2,481 |
) |
|
|
4,760 |
|
|
|
— |
|
|
|
— |
|
Other (income) loss |
|
|
— |
|
|
|
(1,173 |
) |
|
|
— |
|
|
|
2,993 |
|
|
|
— |
|
|
|
1,820 |
|
Interest (income) expense, net |
|
|
— |
|
|
|
3,410 |
|
|
|
(15 |
) |
|
|
577 |
|
|
|
— |
|
|
|
3,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
for income taxes and noncontrolling interest |
|
|
47,975 |
|
|
|
3,290 |
|
|
|
26,331 |
|
|
|
44,085 |
|
|
|
(47,975 |
) |
|
|
73,706 |
|
Provision (benefit) for income taxes |
|
|
— |
|
|
|
1,133 |
|
|
|
9,072 |
|
|
|
15,189 |
|
|
|
— |
|
|
|
25,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before noncontrolling interest |
|
|
47,975 |
|
|
|
2,157 |
|
|
|
17,259 |
|
|
|
28,896 |
|
|
|
(47,975 |
) |
|
|
48,312 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
(259 |
) |
|
|
(78 |
) |
|
|
— |
|
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
|
47,975 |
|
|
|
2,157 |
|
|
|
17,000 |
|
|
|
28,818 |
|
|
|
(47,975 |
) |
|
|
47,975 |
|
Less: Net Income (loss) attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Warnaco Group, Inc. |
|
$ |
47,975 |
|
|
$ |
2,157 |
|
|
$ |
17,000 |
|
|
$ |
28,818 |
|
|
$ |
(47,975 |
) |
|
$ |
47,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Warnaco Group Inc. common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
47,975 |
|
|
$ |
2,157 |
|
|
$ |
17,259 |
|
|
$ |
28,896 |
|
|
$ |
(47,975 |
) |
|
$ |
48,312 |
|
Discontinued operations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
(259 |
) |
|
|
(78 |
) |
|
|
— |
|
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
47,975 |
|
|
$ |
2,157 |
|
|
$ |
17,000 |
|
|
$ |
28,818 |
|
|
$ |
(47,975 |
) |
|
$ |
47,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 4, 2009 |
|
|
|
The Warnaco |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Warnaco Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
— |
|
|
$ |
117,733 |
|
|
$ |
152,012 |
|
|
$ |
268,098 |
|
|
$ |
— |
|
|
$ |
537,843 |
|
Cost of goods sold |
|
|
— |
|
|
|
78,111 |
|
|
|
100,591 |
|
|
|
133,856 |
|
|
|
— |
|
|
|
312,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
— |
|
|
|
39,622 |
|
|
|
51,421 |
|
|
|
134,242 |
|
|
|
— |
|
|
|
225,285 |
|
SG&A expenses (including amortization of intangible assets) |
|
|
— |
|
|
|
35,392 |
|
|
|
26,671 |
|
|
|
98,411 |
|
|
|
— |
|
|
|
160,474 |
|
Pension expense (income) |
|
|
— |
|
|
|
537 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
— |
|
|
|
3,693 |
|
|
|
24,750 |
|
|
|
35,831 |
|
|
|
— |
|
|
|
64,274 |
|
Equity in income of subsidiaries |
|
|
(37,571 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37,571 |
|
|
|
— |
|
Intercompany |
|
|
— |
|
|
|
(5,030 |
) |
|
|
(566 |
) |
|
|
5,596 |
|
|
|
— |
|
|
|
— |
|
Other (income) loss |
|
|
— |
|
|
|
1,724 |
|
|
|
— |
|
|
|
(2,128 |
) |
|
|
— |
|
|
|
(404 |
) |
Interest (income) expense, net |
|
|
— |
|
|
|
4,315 |
|
|
|
— |
|
|
|
1,346 |
|
|
|
— |
|
|
|
5,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
for income taxes and noncontrolling interest |
|
|
37,571 |
|
|
|
2,684 |
|
|
|
25,316 |
|
|
|
31,017 |
|
|
|
(37,571 |
) |
|
|
59,017 |
|
Provision (benefit) for income taxes |
|
|
— |
|
|
|
917 |
|
|
|
8,657 |
|
|
|
10,593 |
|
|
|
— |
|
|
|
20,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before noncontrolling interest |
|
|
37,571 |
|
|
|
1,767 |
|
|
|
16,659 |
|
|
|
20,424 |
|
|
|
(37,571 |
) |
|
|
38,850 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
(797 |
) |
|
|
(224 |
) |
|
|
— |
|
|
|
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
37,571 |
|
|
|
1,767 |
|
|
|
15,862 |
|
|
|
20,200 |
|
|
|
(37,571 |
) |
|
|
37,829 |
|
Less: Net income attributable to the noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(258 |
) |
|
|
— |
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Warnaco Group, Inc. |
|
$ |
37,571 |
|
|
$ |
1,767 |
|
|
$ |
15,862 |
|
|
$ |
19,942 |
|
|
$ |
(37,571 |
) |
|
$ |
37,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Warnaco Group Inc. common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax |
|
$ |
37,571 |
|
|
$ |
1,767 |
|
|
$ |
16,659 |
|
|
$ |
20,166 |
|
|
$ |
(37,571 |
) |
|
$ |
38,592 |
|
Discontinued operations, net of tax |
|
|
— |
|
|
|
— |
|
|
|
(797 |
) |
|
|
(224 |
) |
|
|
— |
|
|
|
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
37,571 |
|
|
$ |
1,767 |
|
|
$ |
15,862 |
|
|
$ |
19,942 |
|
|
$ |
(37,571 |
) |
|
$ |
37,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 |
|
|
|
The Warnaco |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Warnaco Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
from continuing operations |
|
$ |
69,845 |
|
|
$ |
(58,791 |
) |
|
$ |
426 |
|
|
$ |
(41,747 |
) |
|
$ |
— |
|
|
$ |
(30,267 |
) |
Net cash provided by (used in) operating activities
from discontinued operations |
|
|
— |
|
|
|
(1 |
) |
|
|
(8 |
) |
|
|
155 |
|
|
|
— |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
69,845 |
|
|
|
(58,792 |
) |
|
|
418 |
|
|
|
(41,592 |
) |
|
|
— |
|
|
|
(30,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal of assets and collection of notes receivable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29 |
|
|
|
— |
|
|
|
29 |
|
Purchase of property, plant and equipment |
|
|
— |
|
|
|
(771 |
) |
|
|
(414 |
) |
|
|
(8,411 |
) |
|
|
— |
|
|
|
(9,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities from
continuing operations |
|
|
— |
|
|
|
(771 |
) |
|
|
(414 |
) |
|
|
(8,382 |
) |
|
|
— |
|
|
|
(9,567 |
) |
Net cash provided by (used in) investing activities from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
(771 |
) |
|
|
(414 |
) |
|
|
(8,382 |
) |
|
|
— |
|
|
|
(9,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term notes payable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,180 |
|
|
|
— |
|
|
|
4,180 |
|
Change in revolving credit facility |
|
|
— |
|
|
|
(189 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(189 |
) |
Repurchase of Senior Notes due 2013 |
|
|
— |
|
|
|
(51,479 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(51,479 |
) |
Proceeds from the exercise of employee stock options |
|
|
2,373 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,373 |
|
Purchase of treasury stock |
|
|
(72,218 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(72,218 |
) |
Contingent payment related to acquisition of non-controlling interest
in Brazilian subsidiary |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,442 |
) |
|
|
— |
|
|
|
(3,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(69,845 |
) |
|
|
(51,668 |
) |
|
|
— |
|
|
|
738 |
|
|
|
— |
|
|
|
(120,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,837 |
) |
|
|
— |
|
|
|
(2,837 |
) |
Decrease in cash and cash equivalents |
|
|
— |
|
|
|
(111,231 |
) |
|
|
4 |
|
|
|
(52,073 |
) |
|
|
— |
|
|
|
(163,300 |
) |
Cash and cash equivalents at beginning of period |
|
|
— |
|
|
|
123,243 |
|
|
|
(2 |
) |
|
|
197,513 |
|
|
|
— |
|
|
|
320,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
— |
|
|
$ |
12,012 |
|
|
$ |
2 |
|
|
$ |
145,440 |
|
|
$ |
— |
|
|
$ |
157,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 4, 2009 |
|
|
|
The Warnaco |
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Elimination |
|
|
|
|
|
|
Group, Inc. |
|
|
Warnaco Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
from continuing operations |
|
$ |
1,196 |
|
|
$ |
(67,447 |
) |
|
$ |
(1,699 |
) |
|
$ |
5,552 |
|
|
$ |
— |
|
|
$ |
(62,398 |
) |
Net cash provided by (used in) operating activities
from discontinued operations |
|
|
— |
|
|
|
15 |
|
|
|
2,411 |
|
|
|
(1,209 |
) |
|
|
— |
|
|
|
1,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
1,196 |
|
|
|
(67,432 |
) |
|
|
712 |
|
|
|
4,343 |
|
|
|
— |
|
|
|
(61,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal of assets and collection of notes receivable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
10 |
|
Purchase of property, plant and equipment |
|
|
— |
|
|
|
(1,181 |
) |
|
|
(713 |
) |
|
|
(5,467 |
) |
|
|
— |
|
|
|
(7,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities from
continuing operations |
|
|
— |
|
|
|
(1,181 |
) |
|
|
(713 |
) |
|
|
(5,457 |
) |
|
|
— |
|
|
|
(7,351 |
) |
Net cash provided by (used in) investing activities from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
— |
|
|
|
(1,181 |
) |
|
|
(713 |
) |
|
|
(5,457 |
) |
|
|
— |
|
|
|
(7,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
|
— |
|
|
|
52,203 |
|
|
|
— |
|
|
|
633 |
|
|
|
— |
|
|
|
52,836 |
|
Decrease in short-term notes payable |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,502 |
) |
|
|
— |
|
|
|
(6,502 |
) |
Proceeds from the exercise of employee stock options |
|
|
96 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
96 |
|
Purchase of treasury stock |
|
|
(1,292 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,292 |
) |
Other |
|
|
— |
|
|
|
(502 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(1,196 |
) |
|
|
51,701 |
|
|
|
— |
|
|
|
(5,869 |
) |
|
|
— |
|
|
|
44,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,680 |
) |
|
|
— |
|
|
|
(1,680 |
) |
Decrease in cash and cash equivalents |
|
|
— |
|
|
|
(16,912 |
) |
|
|
(1 |
) |
|
|
(8,663 |
) |
|
|
— |
|
|
|
(25,576 |
) |
Cash and cash equivalents at beginning of period |
|
|
— |
|
|
|
30,771 |
|
|
|
(2 |
) |
|
|
116,858 |
|
|
|
— |
|
|
|
147,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
— |
|
|
$ |
13,859 |
|
|
$ |
(3 |
) |
|
$ |
108,195 |
|
|
$ |
— |
|
|
$ |
122,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding share and per share amounts)
(Unaudited)
Note
20—Commitments
Except as set forth below, the contractual obligations and commitments in existence as of
April 3, 2010 did not differ materially from those disclosed as of January 2, 2010 in the Company’s
Annual Report on Form 10-K for Fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year |
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
Operating leases entered into during the Three
Months Ended April 3, 2010 |
|
$ |
3,527 |
|
|
$ |
2,805 |
|
|
$ |
2,250 |
|
|
$ |
1,828 |
|
|
$ |
824 |
|
|
$ |
1,695 |
|
|
$ |
12,929 |
|
Other contractual obligations pursuant to agreements entered into during the Three
Months Ended April 3, 2010 |
|
|
2,952 |
|
|
|
935 |
|
|
|
726 |
|
|
|
259 |
|
|
|
281 |
|
|
|
219 |
|
|
$ |
5,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,479 |
|
|
$ |
3,740 |
|
|
$ |
2,976 |
|
|
$ |
2,087 |
|
|
$ |
1,105 |
|
|
$ |
1,914 |
|
|
$ |
18,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual obligations as of January 2, 2010 (as reported in the Company’s Form 10-K for
Fiscal 2009) included approximately $37,000 related to a 15 year lease contract for a new
distribution center in the Netherlands that was entered into by the Company’s Netherlands
subsidiary. In the event of default by the Netherlands subsidiary in making rental payments under
the lease, the Warnaco Group Inc. has issued a guarantee to the lessor for those payments.
As of April 3, 2010, the Company was also party to outstanding hedging instruments (see Note
11 of Notes to the
Consolidated Condensed Financial Statements and Item 3
— Qualitative and Quantitative
Disclosures About Market Risk —Foreign Exchange Risk).
As of April 3, 2010, the Company remains under audit in various taxing jurisdictions. It is,
therefore, difficult to predict the final timing and resolution of any particular uncertain tax
position. Based upon the Company’s assessment of many factors, including past experience and
complex judgments about future events, it is reasonably possible that within the next twelve months
its accrual for uncertain tax positions may increase between $1,000 and $5,000 (net of decreases
that are reasonably possible), as a result of additional uncertain tax positions, the reevaluation
of current uncertain tax positions arising from developments in examinations, the finalization of
tax examinations, or from the closure of tax statutes.
31
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 that could affect the
market value of the Company’s 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 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 2, 2010 (“Fiscal 2009”).
The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to
December 31. As such, the periods January 3, 2010 to January 1, 2011 (“Fiscal 2010”) and January 4,
2009 to January 2, 2010 (“Fiscal 2009”) each contain 52 weeks of operations. Additionally, the
period from January 3, 2010 to April 3, 2010 (the “Three Months Ended April 3, 2010”) and the
period from January 4, 2009 to April 4, 2009 (the “Three Months Ended April 4, 2009”) each contain
thirteen weeks of operations.
References to “Calvin Klein Jeans” refer to jeans, accessories and “bridge” products. “Core
Intimates” refer to the Intimate Apparel Group’s Warner’s®, Olga® and Body Nancy
Ganz/Bodyslimmers®
brand names and intimate apparel private labels. References to “Retail” within each operating Group
refer to the Company’s owned full price free standing stores, owned outlet stores, concession /
“shop-in-shop” stores and on-line stores. Results related to stores operated by third parties under
retail licenses or distributor agreements are included in “Wholesale” within each operating Group.
Overview
The Company designs, sources, markets, licenses and distributes intimate apparel, sportswear
and swimwear worldwide through a line of highly recognized brand names. The Company’s products are
distributed domestically and internationally in over 100 countries, primarily to wholesale
customers through various distribution channels, including major department stores, independent
retailers, chain stores, membership clubs, specialty and other stores, mass merchandisers and the
internet. As of April 3, 2010, the Company operated: (i) 1,151 Calvin Klein retail stores worldwide
(consisting of 242 free-standing stores (including 135 full price and 107 outlet stores), 907
shop-in-shop/concession stores, one Calvin Klein Underwear on-line store and one Calvin Klein Jeans
on-line store and (ii) one Speedo® on-line store. As of April 3, 2010, there were also 621 Calvin
Klein retail stores operated by third parties under retail licenses or distributor agreements.
Highlights for the Three Months Ended April 3, 2010 included:
|
• |
|
Net revenue increased $50.3 million, or 9.4%, to $588.1 million for the Three
Months Ended April 3, 2010, reflecting increases of $37.3 million in the Sportswear
Group and $21.1 million in the Intimate Apparel Group, partially offset by a
decrease of $8.1 million in the Swimwear Group. Net revenue includes an increase of
$27.7 million due to the favorable effect of fluctuations in foreign currency
exchange rates (see below). |
|
|
• |
|
Operating income increased $15.2 million, or 23.7%, to $79.5 million for the
Three Months Ended April 3, 2010 from $64.3 million for the Three Months Ended April
4, 2009. Operating income includes an increase of $7.2 million due to the favorable
effect of fluctuations in foreign currency exchange rates (see below). Operating
income includes restructuring charges of $1.0 million for the Three Months Ended
April 3, 2010 and $8.6 million for the Three Months Ended April 4, 2009. |
|
|
• |
|
Both net revenues and operating income for the Three Months Ended April 3, 2010
were favorably affected by fluctuations in foreign currencies. On average, for the
Three Months Ended April 3, 2010 compared to the Three Months Ended April 4, 2009,
the U.S. dollar weakened relative to the functional currencies of countries where
the Company conducts a majority of its operations overseas (primarily the Euro,
Korean Won, Canadian Dollar, Brazilian Real and Mexican Peso), as follows: the U.S.
dollar weakened relative to the Euro by 6%, the Korean Won by 22%, the Canadian
Dollar by 18%, the Brazilian Real by 28% and the Mexican Peso by 12%. (see Item 3.
Quantitative and Qualitative Disclosure About Market Risk – Foreign Exchange Risk,
below). |
32
|
|
• |
|
Income from continuing operations for the Three Months Ended April 3, 2010 was
$1.03 per diluted share, a 23% increase compared to the $0.84 per diluted share for
the Three Months Ended April 4, 2009. Included in income from continuing operations
for the Three Months Ended April 3, 2010 are restructuring charges of $0.5 million
(net of income tax benefits of $0.5 million), or $0.01 per diluted share. Income
from continuing operations for the Three
Months Ended April 4, 2009 included restructuring charges of $5.7 million (net of
income tax benefit of $2.9 million), or $0.12 per diluted share. |
|
|
• |
|
The Company repurchased 1,490,131 shares of common stock for a total of $69.0
million (based on an average of $46.31 per share) under the 2007 Share Repurchase
Program, which had been authorized in May 2007 by the Company’s Board of Directors. |
|
|
• |
|
At April 3, 2010, the Company had cash and cash equivalents of $157.4 million.
Inventories at April 3, 2010 were down $49.0 million, or 15.5%, from the balance at
April 3, 2009, reflecting the continuance of the Company’s initiative to reduce
inventories, which was begun in 2009 in light of the downturn in the global economy
at that time. |
|
|
• |
|
The Company’s total debt at April 3, 2010 was $162.0 million after redemption
from bondholders, on January 5, 2010, of $50.0 million aggregate principal amount of
its outstanding Senior Notes for a total consideration of $51.5 million. |
In addition
|
• |
|
On April 29, 2010, the Company entered into agreements for the purchase of a
distributor’s business in Southern Asia for total consideration of approximately
$3.0 million. |
|
• |
|
On May 7, 2010, the Company notified bondholders that it would redeem from them
the remaining $110.9 million aggregate principal amount of outstanding Senior Notes
for a total consideration of $112.5 million. The Company expects to fund the
redemption of the Senior Notes on June 15, 2010 with available cash on hand in the
U.S and borrowings under its New Credit Agreement (defined below). On May 7, 2010
the Company had approximately $24.0 million of cash on hand in the U.S. |
33
Non-GAAP Measures
The Company’s reported financial results are presented in accordance with U.S. generally
accepted accounting principles (“GAAP”). The reported operating income, income from continuing
operations and diluted earnings per share from continuing operations reflect certain items which
affect the comparability of those reported results. Those financial results are also presented on a
non-GAAP basis, as defined by Regulation S-K section 10(e) of the Securities and Exchange
Commission (“SEC”), to exclude the effect of these items. The Company’s computation of these
non-GAAP measures may vary from others in its industry. These non-GAAP financial measures are not
intended to be, and should not be, considered separately from or as an alternative to the most
directly comparable GAAP financial measure to which they are reconciled, as presented in the
following table:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
Operating income, as reported |
|
$ |
79,498 |
|
|
$ |
64,274 |
|
Restructuring charges and pension (a) |
|
|
938 |
|
|
|
9,108 |
|
Other (b) |
|
|
— |
|
|
|
(260 |
) |
|
|
|
|
|
|
|
Operating income, as adjusted |
|
$ |
80,436 |
|
|
$ |
73,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, as reported |
|
$ |
48,312 |
|
|
$ |
38,592 |
|
Restructuring charges and pension (c) |
|
|
481 |
|
|
|
6,492 |
|
Other (d) |
|
|
1,015 |
|
|
|
(156 |
) |
Taxation (e) |
|
|
1,337 |
|
|
|
(328 |
) |
|
|
|
|
|
|
|
Income from continuing operations, as adjusted |
|
$ |
51,145 |
|
|
$ |
44,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations, as reported |
|
$ |
1.03 |
|
|
$ |
0.84 |
|
Restructuring charges and pension |
|
|
0.01 |
|
|
|
0.14 |
|
Other |
|
|
0.02 |
|
|
|
— |
|
Taxation |
|
|
0.03 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations, as adjusted |
|
$ |
1.09 |
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This adjustment seeks to present the Company’s Consolidated Condensed Statements of
Operations on a continuing basis without the effects of restructuring charges of $959 and $8,571
for the Three Months Ended April 3, 2010 and April 4, 2009,
respectively, and pension income of $21 for the Three Months Ended April 3, 2010 and pension expense of $537 for
the Three Months Ended April 4, 2009, respectively. |
|
(b) |
|
This adjustment seeks to present the Company’s Consolidated Condensed Statements of Operations
on a continuing basis with an additional charge for amortization expense related to the correction
of amounts recorded in prior periods. |
|
(c) |
|
Adjustment to reflect the items in (a), above, net of income tax effects of $457 and $2,616
for the Three Months Ended April 3, 2010 and the Three Months Ended April 4, 2009, respectively. |
|
(d) |
|
This adjustment seeks to present the Company’s Consolidated Condensed Statements of
Operations on a continuing basis without the effects of charges of $1,692, net of income tax
effects of $677, related to the repurchase of a portion of its Senior Notes during the Three
Months Ended April 3, 2010 and to reflect the items in (b), above, for the Three Months Ended
April 4, 2009, net of income tax effects of ($104). |
|
(e) |
|
Adjustment to reflect the Company’s income from continuing operations at tax rates of 33.0%
and 33.9%, which reflect the Company’s normalized tax rates for the Fiscal 2010 and Fiscal 2009,
respectively, excluding the effect of restructuring charges, pension income (expense), charges
related to the repurchase of Senior Notes during the Three Months Ended April 3, 2010 and
amortization expense during the Three Months Ended April 4, 2009, and certain other
tax-related items. |
The Company believes it is valuable for users of its financial statements to be made aware of
the non-GAAP financial information, as such measures are used by management to evaluate the
operating performance of the Company’s continuing businesses on a comparable basis and to make
operating and strategic decisions. Such non-GAAP measures will also enhance users’ ability to
analyze trends in the Company’s business. In addition, the Company uses performance targets based
on non-GAAP operating income and diluted earnings per share as a component of the measurement of
incentive compensation.
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. See the Company’s Annual
Report on Form 10-K for Fiscal 2009 for a discussion of the Company’s critical accounting policies.
34
Stock-Based Compensation
During Fiscal 2009, the Company had accumulated sufficient historical data (more than six
years’ worth) regarding stock option exercises and forfeitures to be able to rely on that data for
the calculation of expected option life. Expected option life is an assumption that is used in the
Black-Scholes-Merton option pricing model, which the Company uses to obtain a fair value of stock
options granted. Accordingly, for stock options granted during the Three Months Ended April 3,
2010, the Company used its revised method of calculating expected option life based on historical
data (which yielded an expected life of 4.2 years). For stock options granted during the Three
Months ended April 4, 2009, the Company used the simplified method as described in the SEC’s Staff
Accounting Bulletin No. 110 (which yielded an expected term of 6 years). For the stock options
granted during the Three Months Ended April 3, 2010, the Company estimates that the change from the
simplified to the current method for calculating the expected option life will result in lower
stock-based compensation expense of approximately $0.4 million over the three year vesting period.
Historical data will be used for stock options granted in all future periods.
In March 2010, share-based compensation awards granted to certain of the Company’s executive
officers under the 2005 Stock Incentive Plan included 75,750 performance-based restricted
stock/restricted unit awards (“Performance Awards”) in addition to the service-based stock options
and restricted stock awards of the types that had been granted in previous periods. See Note 15 of
Notes to Consolidated Condensed Financial Statements. The Performance Awards cliff-vest three years
after the grant date and are subject to the same vesting provisions as awards of the Company’s
regular service-based restricted stock/restricted unit awards granted in March 2010. The final
number of Performance Awards that will be earned, if any, at the end of the three-year vesting
period will be the greatest number of shares based on the Company’s achievement of certain goals
relating to cumulative earnings per share growth (a performance condition) or the Company’s
relative total shareholder return (“TSR”) (change in closing price of the Company’s common stock on
the New York Stock Exchange compared to that of a peer group of companies (“Peer Companies”)) (a
market condition) measured from the beginning of Fiscal 2010 to the end of Fiscal 2012 (the
“Measurement Period”). The total number of Performance Awards earned could equal up to 150% of the
number of Performance Awards originally granted, depending on the level of achievement of those
goals during the Measurement Period.
The Company records stock-based compensation expense related to the Performance Awards ratably
over the requisite service period based on the greater of the estimated expense calculated under
the performance condition or the grant date fair value calculated under the market condition.
Stock-based compensation expense related to an award with a market condition is recognized over the
requisite service period regardless of whether the market condition is satisfied, provided that the
requisite service period has been completed. Under the performance condition, the estimated expense
is based on the grant date fair value (the closing price of the Company’s common stock on the date
of grant) and the Company’s current expectations of the probable number of Performance Awards that
will ultimately be earned. The fair value of the Performance Awards under the market condition
($2.4 million for the March 2010 Performance Awards) is based upon a Monte Carlo simulation model,
which encompasses TSR’s during the Measurement Period, including both the period from the beginning
of Fiscal 2010 to March 3, 2010 (the grant date), for which actual TSR’s are calculated, and the
period from the grant date to the end of Fiscal 2012, a total of 2.83 years (the “Remaining
Measurement Period”), for which simulated TSR’s are calculated.
In calculating the fair value of the award under the market condition, the Monte Carlo
simulation model utilizes multiple input variables over the Measurement Period in order to
determine the probability of satisfying the market condition stipulated in the award. The Monte
Carlo simulation model computed simulated TSR’s for the Company and Peer Companies during the
Remaining Period with the following inputs: (i) stock price on the grant date (ii)
expected volatility; (iii) risk-free interest rate; (iv) dividend yield and (v) correlations of
historical common stock returns between the Company and the Peer Companies and among the Peer
Companies. Expected volatilities utilized in the Monte Carlo model are based on historical
volatility of the Company’s and the Peer Companies’ stock prices over a period equal in length to
that of the Remaining Period. The risk-free interest rate is derived from the U.S. Treasury yield
curve in effect at the time of grant with a term equal to the Measurement Period assumption at the
time of grant.
For all employee stock-based compensation awards issued in March 2010 (and for similar types
of future awards), the Company’s Compensation Committee approved the incorporation of a Retirement
Eligibility feature such that an employee who has attained the age of 60 years with at least five
years of continuous employment with the Company will be deemed to be “Retirement Eligible”. Awards
granted to Retirement Eligible employees will continue to vest even if the employee’s employment
with the Company is terminated prior to the award’s vesting date (other than for cause, and
provided the employee does not engage in a competitive activity). As in previous years, awards
granted to all other employees (i.e. those who are not Retirement Eligible) will cease vesting if
the employee’s employment with the Company is terminated prior to the award’s vesting date.
Stock-based compensation expense is recognized over the requisite service period associated with
the related equity award. For Retirement Eligible employees, the requisite service period is either
the grant date or the period from the grant date to the Retirement-Eligibility date (in the case
where the Retirement Eligibility date precedes the vesting date). For all other employees (i.e.
those who are not Retirement Eligible), as in previous years, the requisite service period is the
period from the grant date to the vesting date. The Retirement Eligibility feature was not applied
to awards issued prior to March 2010. As a result of the changes described above, stock-based
compensation expense recorded during the Three Months Ended April 3, 2010 included approximately
$4.5 million that, absent the Retirement Eligibility feature describe above, would have been
recognized in future periods.
35
Recent Accounting Pronouncements
There were no new accounting pronouncements issued or effective during the Three Months Ended
April 3, 2010 that had or are expected to have a material impact on the Company’s Consolidated
Condensed Financial Statements.
Results of Operations
Statement of Operations (Selected Data)
The following tables summarize the historical results of operations of the Company for the
Three Months Ended April 3, 2010 compared to the Three Months Ended April 4, 2009. The results of
the Company’s discontinued operations are included in “Loss from discontinued operations, net of
taxes” for all periods presented. Results of operations contained 13 weeks of activity for the
Three Months Ended April 3, 2010 and for the Three Months Ended April 4, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended April 3, |
|
|
% of Net |
|
|
Ended April 4, |
|
|
% of Net |
|
|
|
2010 |
|
|
Revenues |
|
|
2009 |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Net revenues |
|
$ |
588,164 |
|
|
|
100.0 |
% |
|
$ |
537,843 |
|
|
|
100.0 |
% |
Cost of goods sold |
|
|
321,046 |
|
|
|
54.6 |
% |
|
|
312,558 |
|
|
|
58.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
267,118 |
|
|
|
45.4 |
% |
|
|
225,285 |
|
|
|
41.9 |
% |
Selling, general and administrative expenses |
|
|
184,973 |
|
|
|
31.4 |
% |
|
|
158,347 |
|
|
|
29.4 |
% |
Amortization of intangible assets |
|
|
2,668 |
|
|
|
0.5 |
% |
|
|
2,127 |
|
|
|
0.4 |
% |
Pension expense (income) |
|
|
(21 |
) |
|
|
0.0 |
% |
|
|
537 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
79,498 |
|
|
|
13.5 |
% |
|
|
64,274 |
|
|
|
12.0 |
% |
Other income (loss) |
|
|
1,820 |
|
|
|
|
|
|
|
(404 |
) |
|
|
|
|
Interest expense |
|
|
4,978 |
|
|
|
|
|
|
|
6,069 |
|
|
|
|
|
Interest income |
|
|
(1,006 |
) |
|
|
|
|
|
|
(408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes and noncontrolling interest |
|
|
73,706 |
|
|
|
|
|
|
|
59,017 |
|
|
|
|
|
Provision for income taxes |
|
|
25,394 |
|
|
|
|
|
|
|
20,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before noncontrolling interest |
|
|
48,312 |
|
|
|
|
|
|
|
38,850 |
|
|
|
|
|
(Loss) from discontinued operations, net of taxes |
|
|
(337 |
) |
|
|
|
|
|
|
(1,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
47,975 |
|
|
|
|
|
|
|
37,829 |
|
|
|
|
|
Less: Net Income attributable to the noncontrolling interest |
|
|
— |
|
|
|
|
|
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Warnaco Group, Inc. |
|
$ |
47,975 |
|
|
|
|
|
|
$ |
37,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
Net revenues by group were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
306,346 |
|
|
$ |
269,057 |
|
|
$ |
37,289 |
|
|
|
13.9 |
% |
Intimate Apparel Group |
|
|
193,942 |
|
|
|
172,823 |
|
|
|
21,119 |
|
|
|
12.2 |
% |
Swimwear Group |
|
|
87,876 |
|
|
|
95,963 |
|
|
|
(8,087 |
) |
|
|
-8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (a) |
|
$ |
588,164 |
|
|
$ |
537,843 |
|
|
$ |
50,321 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes net revenues of Calvin Klein merchandise of $420,846 and $380,834 for the
Three Months Ended April 3, 2010 and the Three Months Ended April 4, 2009,
respectively, an increase of 10.5%. |
36
The changes in net revenues for the Sportswear, Intimate Apparel and Swimwear Groups for
the Three Months Ended April 3, 2010 relative to the Three Months Ended April 4, 2009 reflect:
|
• |
|
an increase in domestic net revenues of $1.0 million and an increase in
international net revenues of $49.3 million; the increase in international net
revenues includes an $27.7 million increase due to the favorable effect of
fluctuations in foreign currency exchange rates in countries where the Company
conducts certain of its operations (primarily the Euro, Korean Won, Canadian Dollar,
Brazilian Real and Mexican Peso). |
Total Company net revenues from comparable store sales increased 5.8% for the Three
Months Ended April 3, 2010.
The following tables summarize the Company’s net revenues by channel of distribution and
region for the Three Months Ended April 3, 2010 and the Three Months Ended April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
|
2010 |
|
|
2009 |
|
United States — wholesale |
|
|
|
|
|
|
|
|
Department stores and independent retailers |
|
|
12 |
% |
|
|
10 |
% |
Specialty stores |
|
|
8 |
% |
|
|
9 |
% |
Chain stores |
|
|
8 |
% |
|
|
7 |
% |
Mass merchandisers |
|
|
1 |
% |
|
|
1 |
% |
Membership clubs |
|
|
8 |
% |
|
|
13 |
% |
Off price and other |
|
|
9 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
Total United States — wholesale |
|
|
46 |
% |
|
|
49 |
% |
International — wholesale |
|
|
33 |
% |
|
|
33 |
% |
Retail |
|
|
21 |
% |
|
|
18 |
% |
|
|
|
|
|
|
|
Net revenues — consolidated |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
By Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase / |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
in thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
270,750 |
|
|
$ |
269,744 |
|
|
$ |
1,006 |
|
|
|
0.4 |
% |
Europe |
|
|
157,302 |
|
|
|
142,715 |
|
|
|
14,587 |
|
|
|
10.2 |
% |
Asia |
|
|
97,073 |
|
|
|
82,179 |
|
|
|
14,894 |
|
|
|
18.1 |
% |
Canada |
|
|
25,496 |
|
|
|
20,697 |
|
|
|
4,799 |
|
|
|
23.2 |
% |
Mexico, Central and South America |
|
|
37,543 |
|
|
|
22,508 |
|
|
|
15,035 |
|
|
|
66.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
588,164 |
|
|
$ |
537,843 |
|
|
$ |
50,321 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
By Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase / |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
in thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
464,112 |
|
|
$ |
443,666 |
|
|
$ |
20,446 |
|
|
|
4.6 |
% |
Retail |
|
|
124,052 |
|
|
|
94,177 |
|
|
|
29,875 |
|
|
|
31.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
588,164 |
|
|
$ |
537,843 |
|
|
$ |
50,321 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Sportswear Group
Sportswear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
191,201 |
|
|
$ |
182,289 |
|
|
$ |
8,912 |
|
|
|
4.9 |
% |
Chaps |
|
|
46,224 |
|
|
|
37,080 |
|
|
|
9,144 |
|
|
|
24.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
237,425 |
|
|
|
219,369 |
|
|
|
18,056 |
|
|
|
8.2 |
% |
Sportswear retail |
|
|
68,921 |
|
|
|
49,688 |
|
|
|
19,233 |
|
|
|
38.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) (b) |
|
$ |
306,346 |
|
|
$ |
269,057 |
|
|
$ |
37,289 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes net revenues of $36.5 million and $26.7 million for the Three Months Ended April
3, 2010 and April 4, 2009, respectively, related to the Calvin Klein accessories business in
Europe and Asia. |
|
(b) |
|
In order to conform to the Company’s current presentation, approximately $10.5 million of
Calvin Klein underwear net revenues for the Three Months Ended April 4, 2009, which had
previously been included in the Sportswear Group, were reclassified to the Intimate Apparel
Group. |
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Sportswear Group net revenues increased $37.3 million to $306.3 million for the Three Months
Ended April 3, 2010 from $269.0 million for the Three Months Ended April 4, 2009, reflecting an
increase of $18.1 million in Sportswear wholesale and an increase of $19.2 million in Sportswear
retail. Sportswear Group net revenues include a $16.9 million increase due to the favorable effect
of fluctuations in foreign currency exchange rates. Sportswear Group net revenues from
international operations increased $27.1 million and from domestic operations increased $10.2
million. Sportswear Group net revenues from comparable store sales increased 6.6% for the Three
Months Ended April 3, 2010.
The increase in Sportswear wholesale net revenues (in local currency) primarily reflects:
Calvin Klein Jeans:
Increases in sales:
|
• |
|
of accessories in Europe; |
|
|
• |
|
to department stores, specialty stores and the off-price channel in the U.S. |
|
|
• |
|
to department and specialty stores and membership clubs in Mexico, Central and South America; and |
|
|
• |
|
in Asia, primarily due to the sale of off-season merchandise and
promotional events and discounts and an increase in the number of distributors; |
|
|
|
|
partially offset by decreases in sales: |
|
|
• |
|
to membership clubs in the U.S., primarily related to timing of shipments
(shipments occurred in the fourth quarter of Fiscal 2009 where comparable shipments
occurred in the first quarter of Fiscal 2009); |
|
|
• |
|
to independent retailers and specialty stores in Europe and Canada; and |
|
|
• |
|
in Europe to the off-price channel. |
Chaps:
Increases in sales:
|
• |
|
in the U.S. in the department store channel primarily due to a new customer in 2010; |
|
|
• |
|
in the chain store channel in the U.S. primarily due to timing of
shipments (certain shipments occurred in the first quarter of 2010 while comparable
shipments occurred in the fourth quarter of 2008); |
|
|
• |
|
in the U.S. to the off-price channel; and |
|
|
• |
|
to department stores, membership clubs and independent retailers in Canada. |
38
The increase in Sportswear retail net revenue (in local currency) primarily reflects:
Increases in sales:
|
• |
|
in Europe, primarily related to increases in comparable store sales and
the effect of the opening of new outlet, full price and concession stores between
April 5, 2009 and April 3, 2010; |
|
|
• |
|
in Central and South America, due to an increase in comparable store sales and the addition of new stores; and |
|
|
• |
|
in Asia, in comparable store sales and new store openings. |
Intimate Apparel Group
Intimate Apparel Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
95,692 |
|
|
$ |
96,729 |
|
|
$ |
(1,037 |
) |
|
|
-1.1 |
% |
Core Intimates |
|
|
45,535 |
|
|
|
33,974 |
|
|
|
11,561 |
|
|
|
34.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
141,227 |
|
|
|
130,703 |
|
|
|
10,524 |
|
|
|
8.1 |
% |
Calvin Klein Underwear retail |
|
|
52,715 |
|
|
|
42,120 |
|
|
|
10,595 |
|
|
|
25.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) |
|
$ |
193,942 |
|
|
$ |
172,823 |
|
|
$ |
21,119 |
|
|
|
12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes approximately $10.5 million for the Three Months Ended April 4, 2009 related to
certain sales of Calvin Klein underwear, previously included in the Sportswear Group, in order
to conform to the current period presentation. |
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Intimate Apparel Group net revenues increased $21.1 million to $193.9 million for the Three
Months Ended April 3, 2010 from $172.8 million for the Three Months Ended April 4, 2009, reflecting
an increase of $10.5 million in Intimate Apparel wholesale and an increase of $10.6 million in
Calvin Klein Underwear retail. Intimate Apparel Group net revenues include a $9.2 million increase
due to the favorable effect of fluctuations in foreign currency exchange rates. Intimate Apparel
Group net revenues from international operations increased $19.2 million and from domestic
operations increased $1.9 million. Intimate Apparel Group net revenues from comparable store sales
increased 4.8% for the Three Months Ended April 3, 2010.
The increase in Intimate Apparel wholesale net revenue (in local currency) primarily reflects:
Calvin Klein Underwear:
|
|
|
Decreases in sales: |
|
|
• |
|
in membership clubs in the U.S. primarily due to timing of certain
shipments which are expected to take place in the second, third and fourth quarters
of 2010, while comparable shipments occurred during the first quarter of 2009; and |
|
|
• |
|
to the off-price channel in Europe primarily due to lower levels of
excess inventory; |
|
|
|
|
partially offset by increases in sales: |
|
|
• |
|
in all geographies in the department store channel, which benefitted from
the launch of the Calvin Klein X men’s product line; |
|
|
• |
|
in the off-price channel in the U.S. due to additional off-price
offerings, partially offset by timing of shipments to the second quarter of 2010; |
|
|
• |
|
in Canada and Mexico, Central and South America to membership clubs and
specialty stores; and |
|
|
• |
|
in Asia primarily related to the expansion of the Company’s distribution
networks and the sale of off-season merchandise and promotional events and
discounts. |
39
Core Intimates:
|
|
|
Increases in sales: |
|
|
• |
|
in the U.S. and Canada in the department store channel; |
|
|
• |
|
in the U.S. in the chain store channel; |
|
|
• |
|
in the U.S. of Warner’s products, primarily related to higher
replenishment of successful styles and higher sales volume in 2010 than in 2009,
associated with new product launches, in the department store and chain store
channels and the launch of the Simply Perfect product line into the mass market
channel; and |
|
|
• |
|
in the U.S. of the Olga line, primarily related to higher replenishment
of new styles and additional customers in the chain store and department store
channels; |
|
|
|
|
partially offset by a decline in sales: |
|
|
• |
|
in the off-price channel in the U.S. due to lower levels of excess inventory; and |
|
|
• |
|
to mass merchandisers in Canada. |
The increase in Calvin Klein Underwear retail net revenue (in local currency) primarily
reflects:
|
• |
|
the opening of new retail stores in Canada, Asia, Europe, and Central and
South America and an increase in comparable store sales in Europe, Asia and Central
and South America. |
Swimwear Group
Swimwear Group net revenues were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
73,490 |
|
|
$ |
83,773 |
|
|
$ |
(10,283 |
) |
|
|
-12.3 |
% |
Calvin Klein |
|
|
11,970 |
|
|
|
9,821 |
|
|
|
2,149 |
|
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
85,460 |
|
|
|
93,594 |
|
|
|
(8,134 |
) |
|
|
-8.7 |
% |
Swimwear retail (a) |
|
|
2,416 |
|
|
|
2,369 |
|
|
|
47 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
87,876 |
|
|
$ |
95,963 |
|
|
$ |
(8,087 |
) |
|
|
-8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $0.3 million and $0.2 million for the Three Months Ended April 3, 2010 and
April 4, 2009, respectively, related to Calvin Klein retail swimwear. |
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Swimwear Group net revenues decreased $8.1 million to $87.9 million for the Three Months Ended
April 3, 2010 from $96.0 million for the Three Months Ended April 4, 2009, reflecting a decrease of
$8.1 million in Swimwear wholesale. Swimwear retail net revenues were unchanged. Swimwear Group net
revenues include a $1.6 million increase due to the favorable effect of fluctuations in foreign
currency exchange rates. Swimwear Group net revenues from international operations increased $3.1
million and from domestic operations declined $11.2 million. Swimwear Group net revenues from
comparable store sales increased 9.1% for the Three Months Ended April 3, 2010.
40
The decrease in Swimwear wholesale net revenues (in local currency) reflects:
Speedo:
Decreases in sales:
|
• |
|
in the U.S., primarily in membership clubs, and also in specialty and sporting goods stores and discounters; |
|
|
|
|
partially offset by increases in sales: |
|
|
• |
|
to department stores in the U.S.; and |
|
|
• |
|
in Canada to chain stores and specialty stores. |
Calvin Klein:
|
• |
|
an increase in sales in the U.S. due to increased volume in department
stores and an increase in Europe due primarily to improved delivery during the first
quarter of 2010 relative to that during the first quarter of 2009. |
Swimwear retail net revenue (in local currency) reflects:
|
• |
|
volume decreases and price decreases (due to promotional sales) at the online Speedo store in the U.S.; |
|
|
|
|
partially offset by: |
|
|
• |
|
an increase in sales volume of Calvin Klein swimwear at outlet stores in Europe. |
Gross Profit
Gross profit was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended April 3, |
|
|
% of Brand |
|
|
Ended April 4, |
|
|
% of Brand |
|
|
|
2010 |
|
|
Net Revenues |
|
|
2009 |
|
|
Net Revenues |
|
Sportswear Group (a) |
|
$ |
138,147 |
|
|
|
45.1 |
% |
|
$ |
112,455 |
|
|
|
41.8 |
% |
Intimate Apparel Group (a) |
|
|
97,472 |
|
|
|
50.3 |
% |
|
|
80,514 |
|
|
|
46.6 |
% |
Swimwear Group |
|
|
31,499 |
|
|
|
35.8 |
% |
|
|
32,316 |
|
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit (b) |
|
$ |
267,118 |
|
|
|
45.4 |
% |
|
$ |
225,285 |
|
|
|
41.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects the reclassification of approximately $6.7 million of gross profit
related to certain sales of Calvin Klein underwear, previously reported in the
Sportswear Group, to the Intimate Apparel Group for the Three Months Ended April 4, 2009
in order to conform to the current presentation. |
|
(b) |
|
Includes $0.1 million of restructuring expenses related to the Swimwear Group for
the Three Months Ended April 3, 2010 and $0.1 million, $0.8 million and $0.6 million
related to the Sportswear Group, the Intimate Apparel Group and the Swimwear Group,
respectively, for the Three Months Ended April 4, 2009. |
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Gross profit was $267.1 million, or 45.4% of net revenues, for the Three Months Ended April 3,
2010 compared to $225.3 million, or 41.9% of net revenues, for the Three Months Ended April 4,
2009. The $41.8 million increase in gross profit was due to increases in the Sportswear Group
($25.7 million) and the Intimate Apparel Group ($16.9 million), partially offset by a decrease in
the Swimwear Group ($0.8 million). The 350 basis point increase in gross margin is primarily
reflective of a favorable sales mix as the Company experienced an increase in full-price (and other
more profitable channels) net revenues as a proportion of total net revenues, and the favorable
effects of fluctuations in foreign currency exchange rates. Gross profit for the Three Months Ended
April 3, 2010 includes an increase of $16.5 million due to foreign currency fluctuations.
Sportswear Group gross profit increased $25.7 million, and gross margin increased 330 basis
points, for the Three Months Ended April 3, 2010 compared to the Three Months Ended April 4, 2009,
reflecting a $20.7 million increase in the international business (primarily related to the
favorable effect of fluctuations in exchange rates of foreign currencies, an increase in net sales
in all geographies and a favorable sales mix in Europe, particularly Calvin Klein accessories, and
Asia), and a $5.0 million increase in the domestic business (primarily reflecting an increase in
net revenues and a favorable sales mix).
41
Intimate Apparel Group gross profit increased $16.9 million and gross margin increased 370
basis points for the Three Months Ended April 3, 2010 compared to the Three Months Ended April 4,
2009 reflecting a $14.4 million increase in the international business (primarily related to the
favorable effect of fluctuations in exchange rates of foreign currencies, increased net revenues
and a favorable sales mix), and a $2.5 million increase in the domestic business. The increase in
the domestic business primarily reflects increased net revenues (increases in Core Intimates,
partially offset by declines in Calvin Klein underwear) and a favorable product and channel mix.
Swimwear Group gross profit decreased $0.8 million and gross margin increased 210 basis points
for the Three Months Ended April 3, 2010 compared to the Three Months Ended April 4, 2009. The
decrease in gross profit and increase in gross margin primarily reflect a decrease in sales volume
and a better sales mix.
Selling, General and Administrative Expenses
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Selling, general & administrative (“SG&A”) expenses increased $26.7 million to $185.0 million
(31.4% of net revenues) for the Three Months Ended April 3, 2010 compared to $158.3 million (29.4%
of net revenues) for the Three Months Ended April 4, 2009. The increase in SG&A expenses includes
(i) an increase of $18.4 million in selling expenses primarily associated with the opening of
additional retail stores in Europe, Asia, Canada and Brazil, partially offset by decreases due to
cost savings resulting from restructuring activities during Fiscal 2009 and (ii) an increase of
$7.8 million in marketing expenses, including the launch of the Calvin Klein X product line of
men’s underwear, partially offset by lower restructuring charges in the Three Months Ended April 3,
2010. Restructuring charges, included in SG&A, declined from $7.1 million in the Three Months Ended
April 4, 2009 to $0.9 million in the Three Months Ended April 3, 2010. Charges for both the Three
Months Ended April 3, 2010 and for the Three Months Ended April 4, 2009 related primarily to a
reduction in the Company’s workforce and consolidation of the Company’s European operations (see
Note 5 of Notes to Consolidated Condensed Financial Statements). In addition, the Company
experienced a $5.9 million increase in stock-based compensation expense primarily as a result in
the change in terms of equity awards granted to employees in March 2010. Compensation expense
related to those awards granted to employees who were deemed to be Retirement Eligible on the date
of grant would be recognized on the date of grant, or, in the case of employees who may become
Retirement Eligible within 36 months of the date of grant, on a straight-line basis through the
period from the date of grant to the date such employee may become Retirement Eligible, instead of
being recognized on a straight-line basis over 36 months as such equity awards were accounted for
in prior periods (see Note 2 of Notes to Consolidated Condensed Financial Statements). The U.S.
dollar weakened during the Three Months Ended April 3, 2010 relative to the functional currencies
where the Company conducts certain of its operations compared to the Three Months Ended April 4,
2009, resulting in a $9.3 million increase in SG&A.
Amortization of Intangible Assets
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Amortization of intangible assets was $2.7 million for the Three Months Ended April 3, 2010
compared to $2.1 million for the Three Months Ended April 4, 2009. The increase primarily relates
to (i) the correction in the second and fourth quarters of Fiscal 2009 of certain intangible assets
recorded at February 4, 2003, the date that Warnaco Group, Warnaco Inc. (“Warnaco”) and certain of
Warnaco’s subsidiaries were reorganized under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C.
Sections 101-1330, as amended; (ii) the acquisition of favorable retail store leases in Brazil in
the fourth quarter of 2009 and (iii) the favorable effect of foreign currency fluctuations on the
Euro-denominated and Korean Won-denominated carrying amounts of Calvin Klein licenses acquired in
January 2006 and January 2008, partially offset by the write-off of the Calvin Klein Golf license
in the third quarter of Fiscal 2009.
Pension Income / Expense
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Pension income was $0.02 million in the Three Months Ended April 3, 2010 compared to pension
expense of $0.5 million in the Three Months Ended April 4, 2009. The decrease in pension expense is
primarily related to a higher asset base in Fiscal 2010 due to positive returns earned on the
Plan’s assets during Fiscal 2010, partially offset by an increase in pension liability resulting
from application of a discount rate of 6.1% in the Three Months Ended April 3, 2010 compared to
8.0% in the Three Months Ended April 4, 2009. See Note 8 of Notes to the Consolidated Condensed
Financial Statements.
42
Operating Income
The following table presents operating income by group:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands of dollars) |
|
Sportswear Group |
|
$ |
50,942 |
|
|
$ |
37,469 |
|
Intimate Apparel Group |
|
|
33,618 |
|
|
|
30,398 |
|
Swimwear Group |
|
|
11,885 |
|
|
|
12,545 |
|
Unallocated corporate expenses |
|
|
(16,947 |
) |
|
|
(16,138 |
) |
|
|
|
|
|
|
|
Operating income (a) |
|
$ |
79,498 |
|
|
$ |
64,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income as a
percentage of net revenue |
|
|
13.5 |
% |
|
|
12.0 |
% |
|
|
|
(a) |
|
Includes approximately $1.0 million and $8.6 million for the Three Months Ended April 3, 2010
and April 4, 2009, respectively, related to restructuring expenses. See Note 5 of Notes to
Consolidated Condensed Financial Statements. |
The following table summarizes key measures of the Company’s operating income for the Three
Months Ended April 3, 2010 and the Three Months Ended April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
Increase / |
|
|
% |
|
|
|
2010 |
|
|
2009 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
By Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
44,693 |
|
|
$ |
42,566 |
|
|
$ |
2,127 |
|
|
|
5.0 |
% |
International |
|
|
51,752 |
|
|
|
37,846 |
|
|
|
13,906 |
|
|
|
36.7 |
% |
Unallocated corporate expenses |
|
|
(16,947 |
) |
|
|
(16,138 |
) |
|
|
(809 |
) |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
$ |
79,498 |
|
|
$ |
64,274 |
|
|
$ |
15,224 |
|
|
|
23.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Channel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
87,856 |
|
|
$ |
74,943 |
|
|
$ |
12,913 |
|
|
|
17.2 |
% |
Retail |
|
|
8,589 |
|
|
|
5,469 |
|
|
|
3,120 |
|
|
|
57.0 |
% |
Unallocated corporate expenses |
|
|
(16,947 |
) |
|
|
(16,138 |
) |
|
|
(809 |
) |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a) |
|
$ |
79,498 |
|
|
$ |
64,274 |
|
|
$ |
15,224 |
|
|
|
23.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
includes operating income from the sale of Calvin Klein merchandise of $72,361
and $61,607 for the Three Months Ended April 3, 2010 and the Three Months Ended April 4,
2009, respectively, an increase of 17.5%. |
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Operating income was $79.5 million (13.5% of net revenues) for the Three Months Ended April 3,
2010 compared to $64.3 million (12.0% of net revenues) for the Three Months Ended April 4, 2009.
Operating income for the Three Months Ended April 3, 2010 includes an increase of $7.2 million
related to the favorable effects of fluctuations in exchange rates of foreign currencies.
43
Sportswear Group
Sportswear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 3, |
|
|
Brand Net |
|
|
Ended April 4, |
|
|
Brand Net |
|
|
|
2010 (c) |
|
|
Revenues |
|
|
2009 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
42,618 |
|
|
|
22.3 |
% |
|
$ |
31,790 |
|
|
|
17.4 |
% |
Chaps |
|
|
6,549 |
|
|
|
14.2 |
% |
|
|
4,620 |
|
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
49,167 |
|
|
|
20.7 |
% |
|
|
36,410 |
|
|
|
16.6 |
% |
Sportswear retail |
|
|
1,775 |
|
|
|
2.6 |
% |
|
|
1,059 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sportswear Group (a) (b) |
|
$ |
50,942 |
|
|
|
16.6 |
% |
|
$ |
37,469 |
|
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes restructuring gains of $0.1 million for the Three Months Ended April 3, 2010,
primarily related to reversal of accruals no longer needed related to the reduction in the
Company’s workforce and a $3.0 million charge for the Three Months Ended April 4, 2009,
primarily related to the reduction in the Company’s workforce. |
|
(b) |
|
Reflects the reclassification of approximately $1.0 million of operating income related to
certain sales of Calvin Klein underwear previously reported in the Sportswear Group to the
Intimate Apparel Group for the Three Months Ended April 4, 2009 in order to conform to the
current period presentation. |
|
(c) |
|
Includes an allocation of shared services expenses by brand in the following table: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Jeans |
|
$ |
3,116 |
|
|
$ |
3,219 |
|
Chaps |
|
|
2,057 |
|
|
|
1,806 |
|
|
|
|
|
|
|
|
Sportswear wholesale |
|
|
5,173 |
|
|
|
5,025 |
|
Sportswear retail |
|
|
22 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Sportswear Group |
|
$ |
5,195 |
|
|
$ |
5,027 |
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Sportswear Group operating income increased $13.4 million, or 36.0%, primarily reflecting
increases of $10.8 million, $0.7 million and $1.9 million in the Calvin Klein Jeans wholesale,
Calvin Klein Jeans retail and Chaps businesses, respectively. The increase in Sportswear operating
income primarily reflects a $25.7 million increase in gross profit, partially offset by a $12.3
million increase in SG&A (including amortization of intangible assets) expenses. SG&A expenses as a
percentage of net sales increased 0.6 percentage points. The increase in SG&A expenses primarily
reflects increases in Europe, Asia and Central and South America due to store openings and the
effects of foreign currency fluctuations, partially offset by a $2.9 million decrease in
restructuring charges (see Note 5 of Notes to Consolidated Condensed Financial Statements).
Intimate Apparel Group
Intimate Apparel Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 3, |
|
|
Brand Net |
|
|
Ended April 4, |
|
|
Brand Net |
|
|
|
2010 (c) |
|
|
Revenues |
|
|
2009 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Calvin Klein Underwear |
|
$ |
19,884 |
|
|
|
20.8 |
% |
|
$ |
23,913 |
|
|
|
24.7 |
% |
Core Intimates |
|
|
7,128 |
|
|
|
15.7 |
% |
|
|
2,184 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
27,012 |
|
|
|
19.1 |
% |
|
|
26,097 |
|
|
|
20.0 |
% |
Calvin Klein Underwear retail |
|
|
6,606 |
|
|
|
12.5 |
% |
|
|
4,301 |
|
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intimate Apparel Group (a) (b) |
|
$ |
33,618 |
|
|
|
17.3 |
% |
|
$ |
30,398 |
|
|
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes restructuring charges of $2.6 million for the Three Months Ended April 4,
2009, primarily related to the reduction in workforce. |
|
(b) |
|
Reflects the reclassification of approximately $1.0 million of operating income
related to certain sales of Calvin Klein underwear previously reported in the Sportswear
Group to the Intimate Apparel Group for the Three Months Ended April 4, 2009 in order to
conform to the current period presentation. |
44
|
|
|
(c) |
|
Includes an allocation of shared services/other expenses by brand in the following
table: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Calvin Klein Underwear |
|
$ |
2,382 |
|
|
$ |
2,296 |
|
Core Intimates |
|
|
1,477 |
|
|
|
1,361 |
|
|
|
|
|
|
|
|
Intimate Apparel wholesale |
|
|
3,859 |
|
|
|
3,657 |
|
Calvin Klein Underwear retail |
|
|
66 |
|
|
|
86 |
|
|
|
|
|
|
|
|
Intimate Apparel Group |
|
$ |
3,925 |
|
|
$ |
3,743 |
|
|
|
|
|
|
|
|
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Intimate Apparel Group operating income for the Three Months Ended April 3, 2010 increased
$3.2 million, or 10.6%, over the prior year reflecting a $2.3 million increase in Calvin Klein
Underwear retail and an increase of $4.9 million in Core Intimates, partially offset by a decrease
of $4.0 million in Calvin Klein Underwear wholesale. The increase in Intimate Apparel operating
income primarily reflects a $16.9 million increase in gross profit, partially offset by a $13.7
million increase in SG&A (including amortization of intangible assets) expenses. SG&A expenses as a
percentage of net sales increased 3.7 percentage points. The increase in SG&A expense reflects
incremental marketing investment behind the launch of the Calvin Klein X product line of men’s
underwear, an increase related to retail store openings in Europe, Asia and Canada and the effect
of fluctuations in foreign currency exchange rates, partially offset by a reduction of $2.6 million
in restructuring charges.
Swimwear Group
Swimwear Group operating income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
% of |
|
|
Three Months |
|
|
% of |
|
|
|
Ended April 3, |
|
|
Brand Net |
|
|
Ended April 4, |
|
|
Brand Net |
|
|
|
2010 (c) |
|
|
Revenues |
|
|
2009 (c) |
|
|
Revenues |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
10,137 |
|
|
|
13.8 |
% |
|
$ |
11,767 |
|
|
|
14.0 |
% |
Calvin Klein |
|
|
1,540 |
|
|
|
12.9 |
% |
|
|
669 |
|
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
11,677 |
|
|
|
13.7 |
% |
|
|
12,436 |
|
|
|
13.3 |
% |
Swimwear retail (a) |
|
|
208 |
|
|
|
8.6 |
% |
|
|
109 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swimwear Group (b) |
|
$ |
11,885 |
|
|
|
13.5 |
% |
|
$ |
12,545 |
|
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes losses of $(0.1) million and $(0.1) million for the Three Months Ended April 3, 2010
and April 4, 2009 respectively, related to Calvin Klein retail swimwear. |
|
(b) |
|
Includes restructuring charges of $0.3 million for the Three Months Ended April 3, 2010,
primarily related to a reduction in the Company’s workforce and $1.6 million for the Three
Months Ended April 4, 2009, primarily related to the reduction in the Company’s workforce in
response to the downturn in the economy. |
|
(c) |
|
Includes an allocation of shared services expenses by brand in the following table: |
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
|
Ended April 3, |
|
|
Ended April 4, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(in thousands of dollars) |
|
Speedo |
|
$ |
2,355 |
|
|
$ |
2,409 |
|
Calvin Klein |
|
|
76 |
|
|
|
56 |
|
|
|
|
|
|
|
|
Swimwear wholesale |
|
|
2,431 |
|
|
|
2,465 |
|
Swimwear retail |
|
|
141 |
|
|
|
150 |
|
|
|
|
|
|
|
|
Swimwear Group |
|
$ |
2,572 |
|
|
$ |
2,615 |
|
|
|
|
|
|
|
|
45
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Swimwear Group operating income for the Three Months Ended April 3, 2010 decreased $0.7
million, or 5.3%, reflecting a $1.6 million decrease in Speedo wholesale, partially offset by a
$0.8 million increase in Calvin Klein wholesale and an increase of $0.1 million in Swimwear retail.
The decrease in Swimwear operating income primarily reflects a $0.8 million decrease in gross
profit, partially offset by a $0.1 million decrease in SG&A (including amortization of intangible
assets) expenses. SG&A expenses as a percentage of net sales decreased 1.7 percentage points.
Other Loss (Income)
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Loss of $1.8 million for the Three Months Ended April 3, 2010 primarily reflects a loss of
$1.7 million related to the extinguishment of $50 million of Senior Notes in the first quarter of
2010 (see Note 14 of Notes to Consolidated Condensed Financial Statements) and a loss of $0.1
million due to losses on the current portion of inter-company loans denominated in currency other
than that of the foreign subsidiaries’ functional currency, net of gains on foreign currency
exchange contracts designed as economic hedges (see Note 11 to Notes to Consolidated Condensed
Financial Statements). Income of $0.4 million for the Three Months Ended April 4, 2009 primarily
reflects net gains of $1.3 million on the current portion of inter-company loans denominated in
currency other than that of the foreign subsidiaries’ functional currency, partially offset by $0.9
million of net losses related to foreign currency exchange contracts designed as economic hedges
(see Note 11 to Notes to Consolidated Condensed Financial Statements).
Interest Expense
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Interest expense decreased $1.1 million to $5.0 million for the Three Months Ended April 3,
2010 from $6.1 million for the Three Months Ended April 4, 2009. The decrease primarily relates to
the decrease of $50 million of the outstanding balance of the Senior Notes in the U.S., which were
repaid on January 5, 2010, decreases in the outstanding balances and interest rates related to the
CKJEA short term notes payable and the New Credit Agreements, and the amortization of the premium
on the Swap Agreements, defined below, which were terminated in the second and third quarters of
Fiscal 2009, partially offset by an increase related to the accretion of the contingent payments to
the Sellers in the acquisitions in Brazil in the fourth quarter of 2009 (see Note 3 of Notes to
Consolidated Condensed Financial Statements).
Interest Income
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Interest income increased $0.6 million to $1.0 million for the Three Months Ended April 3,
2010 from $0.4 million for the Three Months Ended April 4, 2009. The increase in interest income
was due primarily to an increase of $0.8 million related to a third-party note receivable,
partially offset by a decrease of $0.2 million due to lower cash balances in 2010 than in 2009.
Income Taxes
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
The effective tax rates for the Three Months Ended April 3, 2010 and April 4, 2009 were 34.5%
and 34.2%, respectively. The higher effective tax rate for the Three Months Ended April 3, 2010
primarily reflects a shift in earnings from lower to higher taxing jurisdictions included in the
effective tax rate for the Three Months Ended April 3, 2010.
Discontinued Operations
Three Months Ended April 3, 2010 compared to Three Months Ended April 4, 2009
Loss from discontinued operations, net of taxes, was $0.3 million for the Three Months Ended
April 3, 2010 compared to a loss of $1.0 million for the Three Months Ended April 4, 2009, in both
periods primarily related to the Company’s Ocean Pacific and Calvin Klein Collection discontinued
businesses. See Note 4 of Notes to Consolidated Condensed Financial Statements.
46
Capital Resources and Liquidity
Financing Arrangements
Senior Notes
On May 7, 2010, the Company notified the bondholders of the Senior Notes that it would redeem
from them the remaining $110.9 million aggregate principal amount of its outstanding 8 7/8% Senior
Notes due 2013 (“Senior Notes”) for a total consideration of $112.5 million. Thus, as of April 3,
2010, $110.9 million principal amount of Senior Notes and $1.2 million of unamortized gain from the
Swap Agreements have been reclassified from long-term debt to short-term debt on the Company’s
Consolidated Condensed Balance Sheet. In connection with the redemption, the Company will
recognize a loss, in the Other loss (income) line item in the Company’s Consolidated Condensed
Statement of Operations for the second fiscal quarter of 2010, of approximately $2.1 million which
includes $1.6 million of premium expense, the write-off of approximately $1.7 million of deferred
financing costs and $1.2 million of unamortized gain from the previously terminated Swap
Agreements. The Company expects to fund the redemption of the Senior Notes on June 15, 2010 with
available cash on hand in the U.S and borrowings under its New Credit Agreement (defined below). On
May 7, 2010 the Company had approximately $24.0 million of cash on hand in the U.S.
On January 5, 2010, the Company redeemed from bondholders $50.0 million aggregate principal
amount of the outstanding Senior Notes for a total consideration of $51.5 million. In connection
with the redemption, the Company recognized a loss, in the Other loss (income) line item in the
Company’s Consolidated Condensed Statement of Operations for the Three Months Ended April 3, 2010,
of approximately $1.7 million which includes $1.5 million of premium expense, the write-off of
approximately $0.8 million of deferred financing costs and $0.6 million of unamortized gain from
the previously terminated Swap Agreements.
The aggregate principal amount outstanding under the Senior Notes was $110.9 million as of
April 3, 2010 and $160.9 million as of January 3, 2009 and April 4, 2009.
Interest Rate Swap Agreements
The Company entered into interest rate swap agreements on September 18, 2003 (the “2003 Swap
Agreement”) and November 5, 2004 (the “2004 Swap Agreement” and, collectively with the 2003 Swap
Agreement, the “Swap Agreements”) with respect to the Senior Notes for a total notional amount of
$75 million. In June 2009, the 2004 Swap Agreement was called by the issuer and the Company
received a debt premium of $0.7 million. On July 15, 2009, the 2003 Swap Agreement was called by
the issuer and the Company received a debt premium of $1.5 million. Both debt premiums are being
amortized as reductions to interest expense through June 15, 2013 (the date on which the Senior
Notes mature), subject to acceleration upon redemption of the Senior Notes. During the Three Months
Ended April 3, 2010, $0.7 million was amortized, including $0.6 million related to the redemption
of the Senior Notes on January 5, 2010 (see above). The 2003 Swap Agreement and the 2004 Swap
Agreement provided that the Company would receive interest at 87/8% and pay variable rates of
interest based upon six month LIBOR plus 4.11% and 4.34%, respectively. As a result of the 2003
Swap Agreement, the 2004 Swap Agreement and the amortization of the debt premiums, the weighted
average effective interest rate of the Senior Notes was 8.53% as of April 3, 2010, 8.53% as of
January 2, 2010 and 7.77% as of April 4, 2009.
As of April 3, 2010 and January 2, 2010, the Company had no outstanding interest rate swap
agreements. The fair values of the Company’s Swap Agreements at April 4, 2009 reflect the
termination premium or termination discount that the Company would have realized if such Swap
Agreements had been terminated on that date. Since the provisions of the Company’s Swap Agreements
matched the provisions of the Company’s outstanding Senior Notes (the “Hedged Debt”), changes in
the fair values of the Swap Agreements did not have any effect on the Company’s results of
operations for the Three Months Ended April 4, 2009 but were recorded in the Company’s Consolidated
Balance Sheets as of that date in Other assets with a corresponding increase in the Hedged Debt.
New Credit Agreements
On August 26, 2008, Warnaco, as borrower, and Warnaco Group, as guarantor, entered into a
revolving credit agreement (the “New Credit Agreement”) and Warnaco of Canada Company, an indirect
wholly-owned subsidiary of Warnaco Group, as borrower, and Warnaco Group, as guarantor, entered
into a second revolving credit agreement (the “New Canadian Credit Agreement” and, together with
the New Credit Agreement, the “New Credit Agreements”), in each case with the financial
institutions which, from time to time, will act as lenders and issuers of letters of credit.
47
At April 3, 2010, the New Credit Agreement had interest rate options (dependent on the amount
borrowed and the repayment period) that are based on: (i) a Base Rate (as defined in the New Credit
Agreement) plus 0.75% (4.0% at April 3, 2010) or (ii) LIBOR (as defined in the New Credit
Agreement) plus 1.75% (2.04% at April 3, 2010) in each case, on a per annum basis. The interest
rate payable on outstanding borrowing is subject to adjustments based on changes in the Company’s
leverage ratio. At April 3, 2010, the New Canadian Credit Agreement had interest rate options
(dependent on the amount borrowed and the repayment period) that are based on: (i) the prime rate
announced by Bank of America (acting through its Canada branch) plus 0.75% (3.0% at April 3, 2010)
or (ii) a BA Rate (as defined in the New Canadian Credit Agreement) plus 1.75% (2.22% at April 3,
2010), in each case, on a per annum basis and subject to adjustments based on changes in the
Company’s leverage ratio. The BA Rate is defined as the annual rate of interest quoted by Bank of
America (acting through its Canada branch) as its rate of interest for bankers’ acceptances in
Canadian dollars for a face amount similar to the amount of the loan and for a term similar to the
applicable interest period.
As of April 3, 2010, the Company had no loans and approximately $60.8 million in letters
of credit outstanding under the New Credit Agreement, leaving approximately $166.1 million of
availability. As of April 3, 2010, there were no loans and no letters of credit outstanding under
the New Canadian Credit Agreement and the available line of credit was approximately $23.9 million.
As of April 3, 2010, the Company was in compliance with all financial covenants contained in the
New Credit Agreements.
Euro-Denominated CKJEA Notes Payable and Other
In connection with the Company’s 2006 acquisition of certain parts of its Calvin Klein
businesses, the Company assumed certain short-term notes payable (the “CKJEA Notes”). The total
CKJEA notes payable of $47.1 million at April 3, 2010 consists of short-term revolving notes with a
number of banks at various interest rates (primarily Euro LIBOR plus 1.0%). The weighted average
effective interest rate for the outstanding CKJEA notes payable was 1.86% as of April 3, 2010,
2.18% as of January 2, 2010 and 2.49% as of April 4, 2009. All of the CKJEA notes payable are
short-term and were renewed during the Three Months Ended April 3, 2010 for additional terms of no
more than 12 months. At April 3, 2010, the Company’s Brazilian subsidiary, WBR Industria e Comercio
de Vestuario S.A (“WBR”) had lines of credit with several banks, with a total outstanding balance
of $2.75 million, recorded in Short-term debt in the Company’s Consolidated Condensed Balance
Sheet, which was secured by $2.81 million of WBR’s trade accounts receivable. In addition, one of
the Company’s Korean subsidiaries had an outstanding note payable of $3.7 million with an interest
rate of 5.88% per annum at April 4, 2009, all of which had been repaid as of January 2, 2010 and
April 3, 2010.
Liquidity
The Company’s principal source of cash is from sales of its merchandise to both wholesale and
retail customers. During the Three Months Ended April 3, 2010, sales of the Company’s products
increased in local currencies compared to the same period in the prior year. Since more than 50% of
those sales arose from the Company’s operations outside the U.S., fluctuations in foreign
currencies (principally the Euro, Korean Won, Canadian Dollar, Brazilian Real and Mexican Peso)
relative to the U.S. Dollar have a significant effect on the Company’s cash inflows, expressed in
U.S. Dollars. During the Three Months Ended April 3, 2010, the U.S. Dollar was weaker relative to
the foreign currencies noted above than during the same period in the prior year. As a result, the
increase in sales in local currencies was further increased by the favorable effect of fluctuations
in foreign currencies, which was reflected in an increase in net revenues of 9.4% during the Three
Months Ended April 3, 2010 compared to the Three Months Ended April 4, 2009 (see Results of
Operations — Net Revenues, above).
The Company believes that, at April 3, 2010, cash on hand, cash available under its New Credit
Agreements (see Capital Resources and Liquidity — Financing Arrangements, above) and cash to be
generated from future operating activities will be sufficient to fund its operations, including
redemption of its outstanding Senior Notes (see Note 14 of Notes to Consolidated Condensed
Financial Statements), contractual obligations (see Note 20 to Notes to Consolidated Condensed
Financial Statements, above) and capital expenditures, for the next 12 months.
As of April 3, 2010, the Company had working capital (current assets less current liabilities)
of $446.0 million. Included in working capital as of April 3, 2010 was (among other items) cash
and cash equivalents of $157.4 million, and short-term debt of $162.0 million, including $112.1
million of the Senior Notes (including unamortized debt premium of $1.2 million on the sale of the
Swap Agreements) and $49.9 million of the CKJEA Notes and other short-term debt.
On January 5, 2010, the Company redeemed from bondholders $50.0 million aggregate principal
amount of the outstanding Senior Notes for a total consideration of $51.5 million. On May 7, 2010,
the Company notified the bondholders of the Senior Notes that it would redeem from them the
remaining $110.9 million aggregate principal amount of outstanding Senior Notes for a total
consideration of $112.5 million. The Company expects to fund the redemption of the Senior Notes on
June 15, 2010 with available cash on hand in the U.S and borrowings under its New Credit Agreement.
On May 7, 2010 the Company had approximately $24.0 million of cash on hand in the U.S. See
Financing Arrangements — Senior Notes, above.
As of April 3, 2010, under the New Credit Agreement, the Company had no loans and
approximately $60.8 million in letters of credit outstanding, leaving approximately $166.1 million
of availability, and, under the New Canadian Credit Agreement, no loans and no letters of credit,
leaving approximately $23.9 million of availability. The Company is required to make principal
payments under its short-term notes payable.
48
The revolving credit facilities under the New Credit Agreements reflect funding commitments by
a syndicate of 14 U.S. and Canadian banks, including Bank of America N.A., JPMorgan Chase, N.A.,
Deutsche Bank, HSBC, Royal Bank of Scotland and The Bank of Nova Scotia. The ability of any one or
more of those banks to meet its commitment to provide the Company with funding up to the maximum of
available credit is dependent on the fair value of the bank’s assets and its legal lending ratio
relative to those assets (amount the bank is allowed to lend). The turmoil in the credit markets in
early Fiscal 2009 may have limited the ability of those banks to make loans. That turmoil had
diminished by the end of the first quarter of Fiscal 2010. However, the Company continues to
monitor the creditworthiness of the syndicated banks.
During Fiscal 2009, the Company was able to borrow funds, from time to time, under the New
Credit Agreements for seasonal and other cash flow requirements. The Company repaid those
borrowings by the end of Fiscal 2009. As of April 3, 2010, the Company expects that it will
continue to be able to obtain needed funds under the New Credit Agreements when requested. However,
in the event that such funds are not available, the Company may have to delay certain capital
expenditures or plans to expand its business, to scale back operations and/or raise capital through
the sale of its equity or debt securities. There can be no assurance that the Company would be able
to sell its equity or debt securities on terms that are satisfactory.
The Company’s corporate credit ratings and outlooks at April 3, 2010, are summarized below:
|
|
|
|
|
Rating |
|
Corporate |
|
|
Agency |
|
Rating (a) |
|
Outlook |
|
|
|
|
|
Moody’s
|
|
Ba1
|
|
stable |
|
|
|
|
|
Standard & Poor’s
|
|
BB+
|
|
positive |
|
|
|
(a) |
|
ratings on individual debt issuances can be different from the Company’s composite credit
ratings depending on the priority position of creditors holding such debt, collateral related
to such debt and other factors. The Company’s secured debt is rated BBB by Standard & Poor’s
and Baa2 by Moody’s. |
The Company’s credit ratings contribute to its ability to access the credit markets. Factors
that can affect the Company’s credit ratings include changes in its operating performance, the
economic environment, conditions in the apparel industry, the Company’s financial position, and
changes in the Company’s business or financial strategy. The Company is not currently aware of any
circumstances that would likely result in a downgrade of its credit ratings. If a downgrade were to
occur, it could adversely impact, among other things, the Company’s future borrowing costs and
access to capital markets. The current state of the economy creates greater uncertainty than in the
past with regard to financing opportunities and the cost of such financing. Given the Company’s
capital structure and its projections for future profitability and cash flow, the Company believes
it is well positioned to obtain additional financing, if necessary, to refinance its debt, or, if
opportunities present themselves, to make future acquisitions. However, there can be no assurance
that such financing, if needed, can be obtained on terms satisfactory to the Company or at such
time as a specific need may arise.
During Fiscal 2010, the Company has targeted the leasing of 100,000 square feet of new retail
store space worldwide, which the Company expects will result in capital expenditures of
approximately $21 million. During the Three Months Ended April 3, 2010, capital expenditures
related to material handling equipment and other leasehold improvements at the Company’s new
distribution center in the Netherlands was approximately $6.1 million. The distribution center is
expected to begin operations during May 2010. Capital expenditures for the remainder of Fiscal 2010
related to the distribution center are expected to be $4.5 million.
During the Three Months Ended April 3, 2010, the Company made $1.7 million in cash severance
payments to employees and expects to pay an additional $0.7 million during the remainder of Fiscal
2010 in connection with reduction of its workforce, that began at the end of Fiscal 2008, to align
its cost structure to match the downturn in the economy and consolidation of its European
operations. The Company also paid $0.6 million related to other restructuring and exit activities,
including contract termination costs. The Company expects to incur further restructuring expenses
of approximately $0.8 million in connection with the consolidation of its European operations
through 2010.
During the fourth quarter of Fiscal 2009, the Company acquired the remaining 49% equity
interest in WBR, its subsidiary in Brazil. In addition to the initial cash payment made upon
acquisition, the Company may be required to make up to three annual contingent payments through
March 31, 2012. During the Three Months Ended April 3, 2010, the Company made the first such
payment, amounting to 6 million Brazilian Real (approximately $3.4 million), based upon the
operating results achieved by WBR in the fourth quarter of Fiscal 2009.
49
During the Three Months Ended April 3, 2010, the Company repurchased 1,490,131 shares of
common stock for a total of $69.0 million (based on an average of $46.31 per share) under the 2007
Share Repurchase Program, which had been authorized in May 2007 by the Company’s Board of
Directors. In addition, the Company repurchased 71,933 shares of common stock for a total of $3.2
million (based on an average of $44.68 per share) related to the surrender of shares for the
payment of minimum income tax due upon vesting of certain restricted stock awarded by the Company
to its employees (see Note 15 of Notes to Consolidated Condensed Financial Statements and Part II.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds). Repurchased shares are held
in treasury pending use for general corporate purposes.
During the Three Months Ended April 3, 2010, some of the Company’s foreign subsidiaries with
functional currencies other than the U.S. dollar made purchases of inventory, paid minimum royalty
and advertising costs and /or had intercompany loans and payables denominated in U.S. dollars. The
cash flows of those subsidiaries were, therefore, favorably impacted by the weakening of the U.S.
dollar in relation to those foreign currencies. In order to minimize the effects of fluctuations in
foreign currency exchange rates of those transactions, the Company uses derivative financial
instruments, including foreign currency exchange forward contracts and zero cost collars (option
contracts) (see Item 3. Quantitative and Qualitative Disclosures About Market Risk — Foreign
Exchange Risk and Note 11 of Notes to Consolidated Condensed Financial Statements).
The Company carries its derivative financial instruments at fair value on the Consolidated
Condensed Balance Sheets. The Company utilizes the market approach to measure fair value for
financial assets and liabilities. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets or liabilities. At April
3, 2010, the Company’s hedging programs included $49.7 million of future inventory purchases, $17.3
million of future minimum royalty and advertising payments and $48.0 million of intercompany loans
and amounts denominated in non-functional currencies, primarily the U.S. dollar.
The Company classifies its financial instruments under a fair value hierarchy that is intended
to increase consistency and comparability in fair value measurements and related disclosures. The
fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value
that are either observable or unobservable. Observable inputs reflect assumptions market
participants would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their
own market assumptions. The fair value hierarchy consists of the following three levels:
|
|
|
|
|
Level 1 —
|
|
Inputs are quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
|
Level 2 —
|
|
Inputs are quoted prices for similar assets or liabilities in an active market,
quoted prices for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable and market-corroborated inputs which are
derived principally from or corroborated by observable market data. |
|
|
|
|
|
Level 3 —
|
|
Inputs are derived from valuation techniques in which one or more significant inputs
or value drivers are unobservable. |
The fair value of foreign currency exchange contracts was determined as the net unrealized
gains or losses on those contracts, which is the net difference between (i) the U.S. dollars to be
received or paid at the contracts’ settlement date and (ii) the U.S. dollar value of the foreign
currency to be sold or purchased at the current forward exchange rate. The fair value of these
foreign currency exchange contracts is based on exchange-quoted prices which are adjusted by a
forward yield curve and, therefore, meets the definition of level 2 fair value, as defined above.
The fair value of zero-cost collars was determined as the net unrealized gains or losses on
the option contracts comprising each collar, which is the net difference between (i) the U.S.
dollars to be received or paid at the contracts’ settlement date and (ii) the U.S. dollar value of
the foreign currency to be sold or purchased at the current spot exchange rate. The fair value of
these zero-cost collars is based on exchange-quoted prices and, therefore, meets the definition of
level 2 fair value, as defined above.
The Pension Protection Act of 2006 (the “PPA”) revised the basis and methodology for
determining defined benefit plan minimum funding requirements as well as maximum contributions to
and benefits paid from tax-qualified plans. The PPA may
ultimately require the Company to make additional contributions to its domestic plans. During
the Three Months Ended April 3, 2010, the Company contributed $0.8 million to the domestic pension
plan. Fiscal 2010 domestic plan contributions of $6.3 million are currently expected and annual
contributions for the following four years are expected to be similar. Actual Fiscal 2010 and later
year contributions could exceed the Company’s current projections, and may be influenced by future
changes in government requirements. Additionally, the Company’s projections concerning timing of
the PPA funding requirements are subject to change and may be influenced by factors such as general
market conditions affecting trust asset performance, interest rates, and the Company’s future
decisions regarding certain elective provisions of the PPA. See Note 8 of Notes to Consolidated
Financial Statements for additional information on the Company’s pension plan.
50
Accounts receivable increased $89.3 million to $380.0 million at April 3, 2010 from $290.7
million at January 2, 2010, due primarily to increased sales volume in March 2010 compared to
December 2009. The balance of accounts receivable at April 3, 2010 includes a decrease of $4.2
million, due to the stronger U.S. dollar relative to foreign currencies in connection with
transactions in countries where the Company conducts certain of its operations (principally the
Euro, Korean won, Canadian dollar, Brazilian real and Mexican peso), at that date compared to
January 2, 2010.
Accounts receivable increased $17.5 million to $380.0 million at April 3, 2010 from $362.5
million at April 4, 2009. The balance of accounts receivable at April 3, 2010 includes an increase
of $14.2 million, due to the weaker U.S. dollar relative to foreign currencies in connection with
transactions in countries where the Company conducts certain of its operations, at that date
compared to April 4, 2009.
Inventories increased $13.8 million to $267.2 million at April 3, 2010 from $253.4 million at
January 2, 2010 to support expected sales. The balance of inventories at April 3, 2010 includes a
decrease of $1.7 million, due to the stronger U.S. dollar relative to foreign currencies in
connection with transactions in countries where the Company conducts certain of its operations, at
that date compared to January 2, 2010.
Inventories decreased $49.0 million to $267.2 million at April 3, 2010 from $316.2 million at
April 4, 2009, reflecting primarily the Company’s initiative throughout 2009 to reduce inventory in
light of the downturn in the global economy. The balance of inventories at April 3, 2010 includes
an increase of $10.7 million, due to the weaker U.S. dollar relative to foreign currencies in
connection with transactions in countries where the Company conducts certain of its operations, at
that date compared to April 4, 2009.
Cash Flows
The following table summarizes the cash flows from the Company’s operating, investing and
financing activities for the Three Months Ended April 3, 2010 and April 4, 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 3, 2010 |
|
|
April 4, 2009 |
|
|
|
(in thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(30,267 |
) |
|
$ |
(62,398 |
) |
Discontinued operations |
|
|
146 |
|
|
|
1,217 |
|
Net cash (used in) investing activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(9,567 |
) |
|
|
(7,351 |
) |
Discontinued operations |
|
|
— |
|
|
|
— |
|
Net cash (used in) financing activities: |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(120,775 |
) |
|
|
44,636 |
|
Discontinued operations |
|
|
— |
|
|
|
— |
|
Translation adjustments |
|
|
(2,837 |
) |
|
|
(1,680 |
) |
|
|
|
|
|
|
|
(Decrease) in cash and cash equivalents |
|
$ |
(163,300 |
) |
|
$ |
(25,576 |
) |
|
|
|
|
|
|
|
For the Three Months Ended April 3, 2010, cash used in operating activities from continuing
operations was $30.3 million compared to cash used in operating activities of $62.4 million in the
Three Months Ended April 4, 2009. The $32.1 million decrease in cash used in operating activities
was due to an increase in net income, net of non-cash charges, and reductions in outflows related
to changes in working capital.
Working capital changes for the Three Months Ended April 3, 2010 included cash outflows of
$92.4 million related to accounts receivable (due to increased sales in March 2010 than in December
2009 and the timing of payments), $18.2 million related to inventory (due to expected sales) and
$14.0 million related to prepaid expenses and other assets (primarily related to prepaid
advertising and royalty expenses), partially offset by cash inflows of $2.6 million related to
accounts payable, accrued expenses and other liabilities (due to the timing of payments for
purchases of inventory) and $16.6 million related to accrued income taxes.
51
Working capital changes for the Three Months Ended April 4, 2009 included cash outflows of
$113.2 million related to accounts receivable (due to an increase in volume and timing of sales),
$24.2 million related to accounts payable and accrued expenses (due to the timing of payments for
purchases of inventory) and $1.1 million related to prepaid expenses and other assets, partially
offset by cash inflows of $14.9 million related to accrued income taxes and $3.7 million related to
inventory (due to the Company’s initiative to reduce inventory balances in light of the downturn in
the economy).
The Company experienced a $7.3 million increase in non-cash charges in the Three Months Ended
April 3, 2010, compared to the Three Months Ended April 4, 2009 primarily reflecting increases in
foreign exchange losses, depreciation and amortization and compensation expense related to
share-based awards, partially offset by decreases in provision for bad debts, inventory write-down
(primarily related to the Company’s Swimwear group) and loss from discontinued operations.
For the Three Months Ended April 3, 2010, net cash used in investing activities from
continuing operations was $9.6 million, mainly attributable to purchases of property, plant and
equipment, including $6.1 million related to the Company’s new distribution center in the
Netherlands. For the Three Months Ended April 4, 2009, net cash used in investing activities from
continuing operations was $7.4 million, mainly attributable to purchases of property, plant and
equipment.
Net cash used in financing activities for the Three Months Ended April 3, 2010 was $120.8
million, which primarily reflects net cash used of $51.5 million related to the repurchase of
Senior Notes, $72.2 million related to the repurchase of treasury stock (in connection with the
2007 Share Repurchase Program and the surrender of shares for the payment of minimum income tax due
upon vesting of certain restricted stock awarded by the Company to its employees), $3.4 million
related to a contingent payment in connection with the acquisition of the equity interest in WBR in
the fourth quarter of Fiscal 2009, which was accounted for as an equity transaction and $0.2
million related to repayment of amounts borrowed under the New Credit Agreements, partially offset
by cash provided of $4.2 million related to short-term notes payable and $2.4 million from the
exercise of employee stock options. For the Three Months Ended April 4, 2009, net cash provided by
financing activities was $44.6 million, which primarily reflects $52.8 million borrowed under the
New Credit Agreements, partially offset by a decrease of $6.5 million attributable to short-term
notes payable and the repurchase of treasury stock of $1.3 million.
Significant Contractual Obligations and Commitments
Contractual obligations and commitments as of April 3, 2010 were not materially different from
those disclosed in the Company’s Annual Report on Form 10-K for Fiscal 2009, with the exception of
certain operating leases and other contractual obligations pursuant to agreements entered into
during the Three Months Ended April 3, 2010 (see Note 20 of Notes to Consolidated Condensed
Financial Statements).
Off-Balance Sheet Arrangements
None.
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” that are
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements involve risks and uncertainties and reflect, when made, the
Company’s estimates, objectives, projections, forecasts, plans, strategies, beliefs, intentions,
opportunities and expectations. Actual results may differ materially from anticipated results,
targets or expectations and investors are cautioned not to place undue reliance on any
forward-looking statements. Statements other than statements of historical fact, including, without
limitation, future financial targets, are forward-looking statements. These forward-looking
statements may be identified by, among other things, the use of forward-looking language, such as
the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “project,” “scheduled
to,” “seek,” “should,” “will be,” “will continue,” “will likely result”, “targeted”, or the
negative of those terms, or other similar words and phrases or by discussions of intentions or
strategies.
52
The following factors, among others, including those described in this Quarterly Report on
Form 10-Q under the heading Item 1A. Risk Factors (as such disclosure may be modified or
supplemented from time to time), could cause the Company’s actual results to differ materially from
those expressed in any forward-looking statements made by it: the Company’s ability to execute its
repositioning and sale initiatives (including achieving enhanced productivity and profitability)
previously announced; economic conditions that affect the apparel industry, including the recent
turmoil in the financial and credit markets; the Company’s failure to anticipate, identify or
promptly react to changing trends, styles, or brand preferences; further declines in prices in the
apparel industry; declining sales resulting from increased competition in the Company’s markets;
increases in the prices of raw materials; events which result in difficulty in procuring or
producing the Company’s products on a cost-effective basis; the effect of laws and regulations,
including those relating to labor, workplace and the environment; possible additional tax
liabilities; changing international trade regulation, including as it relates to the imposition or
elimination of quotas on imports of textiles and apparel; the Company’s ability
to protect its intellectual property or the costs incurred by the Company related thereto; the
risk of product safety issues, defects or other production problems associated with our products;
the Company’s dependence on a limited number of customers; the effects of consolidation in the
retail sector; the Company’s dependence on license agreements with third parties including, in
particular, its license agreement with Calvin Klein Inc., the licensor of the Company’s Calvin
Klein brand name; the Company’s dependence on the reputation of its brand names, including, in
particular, Calvin Klein; the Company’s exposure to conditions in overseas markets in connection
with the Company’s foreign operations and the sourcing of products from foreign third-party
vendors; the Company’s foreign currency exposure; the Company’s history of insufficient disclosure
controls and procedures and internal controls and restated financial statements; unanticipated
future internal control deficiencies or weaknesses or ineffective disclosure controls and
procedures; the effects of fluctuations in the value of investments of the Company’s pension plan;
the sufficiency of cash to fund operations, including capital expenditures; the Company’s ability
to service its indebtedness, the effect of changes in interest rates on the Company’s indebtedness
that is subject to floating interest rates and the limitations imposed on the Company’s operating
and financial flexibility by the agreements governing the Company’s indebtedness; the Company’s
dependence on its senior management team and other key personnel; the Company’s reliance on
information technology; the limitations on purchases 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; the Company’s inability to achieve its financial
targets and strategic objectives, as a result of one or more of the factors described above,
changes in the assumptions underlying the targets or goals, or otherwise; the failure of acquired
businesses to generate expected levels of revenues; the failure of the Company to successfully
integrate such businesses with its existing businesses (and as a result, not achieving all or a
substantial portion of the anticipated benefits of such acquisitions); and such acquired businesses
being adversely affected, including by one or more of the factors described above, and thereby
failing to achieve anticipated revenues and earnings growth.
The Company encourages investors to read the section entitled Item 1A. Risk Factors and the
discussion of the Company’s critical accounting policies in Discussion of Critical Accounting
Policies included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2,
2010, as such discussions may be modified or supplemented by subsequent reports that the Company
files with the SEC. This discussion of forward-looking statements is not exhaustive but is
designed to highlight important factors that may affect actual results. Forward-looking statements
speak only as of the date on which they are made, and, except for the Company’s ongoing obligation
under the U.S. federal securities laws, the Company disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
Item 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. The Company does not use derivative financial instruments for speculation or for
trading purposes.
Market Risk
The Company’s pension plan invests in marketable equity and debt securities, mutual funds,
limited partnerships and cash accounts. These investments are subject to changes in the market
value of individual securities and interest rates as well as changes in the overall economy.
Investments are stated at fair value, except as disclosed below, based upon quoted market prices.
Investments in limited partnerships are valued based on estimated fair value by the management of
the limited partnerships in the absence of readily ascertainable market values. These estimated
fair values are based upon the underlying investments of the limited partnerships. Because of the
inherent uncertainty of valuation, those estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed, and the differences could
be material. The limited partnerships utilize a “fund of funds” approach resulting in diversified
multi-strategy, multi-manager investments. The limited partnerships invest capital in a
diversified group of investment entities, generally hedge funds, private investment companies,
portfolio funds and pooled investment vehicles which engage in a variety of investment strategies,
managed by investment managers. Fair value is determined by the administrators of each underlying
investment, in consultation with the investment managers. Investments in common collective trusts
are valued at the net asset value, as determined by the trust manager, of the shares held by the
pension plan at year end, which is based on the fair value of the underlying assets.
53
Changes in the fair value of the pension plan’s investment portfolio are directly reflected in
the Company’s Consolidated Condensed Statements of Operations through pension expense and in the
Company’s Consolidated Condensed Balance Sheets as a component of accrued pension liability,
included in Other liabilities. The Company records the effect of any changes in actuarial
assumptions (including changes in the discount rate) and the difference between the assumed rate of
return on plan assets and the actual return on plan assets in the fourth quarter of its fiscal
year. The total value of the pension plan’s investment portfolio was $118.3 million at January 2,
2010. A hypothetical 10% increase/decrease in the value of the Company’s pension plan investment
portfolio would have resulted in a decrease/increase in pension expense of $11.8 million for Fiscal
2009. Based on historical appreciation in the Company’s pension plan investment portfolio, the Company, during the first quarter of Fiscal
2010, estimated pension expense on an interim basis assuming a long-term rate of return on pension
plan investments of 8%, net of pension plan expenses. A 1% decrease/increase in the actual return
earned on pension plan assets (a decrease in the return on plan assets from 8% to 7% or an increase
in the return on plan assets from 8% to 9%) would result in an increase/decrease of approximately
$1.2 million in pension expense (decrease/increase in pension income) for Fiscal 2010.
During the Three Months Ended April 3, 2010, the actual annualized rate of return on the
Pension Plan’s assets has been a gain of approximately 13.6%. However, based upon historical
results, the Company has been using an assumed rate of return of 8% (gain) per year on Pension Plan
assets to estimate pension income/expense on an interim basis. The fair value of the Pension Plan’s
assets, before contributions, was approximately $119.5 million at April 3, 2010 compared to $118.3
million at January 2, 2010. The fair value of the Pension Plan’s assets reflects a $1.7 million
increase from their assumed value of approximately $117.8 million, net of benefits paid but before
contributions, at April 3, 2010. During the Three Months Ended April 3, 2010, the Company made
contributions of $0.8 million to the Pension Plan, which increased the fair value of the Pension
Plan’s assets, net of benefits paid, to approximately $120.3 million at April 3, 2010. Assuming
that the fair value of the investment portfolio continues to maintain its increase in value,
similar to that at April 3, 2010, in light of the actual 13.6% increase in the fair value of the
Company’s pension plan investment portfolio to $120.3 million at April 3, 2010, the Company could
recognize $2.0 million of pension income for the year ending January 1, 2011. The Company’s pension
income/expense is also affected by the discount rate used to calculate Pension Plan liabilities,
Pension Plan amendments, Pension Plan benefit experience compared to assumed experience and other
factors. These factors could increase or decrease the amount of pension income/expense ultimately
recorded by the Company for Fiscal 2010. Based upon results for Fiscal 2009, a 0.1% increase
(decrease) in the discount rate would decrease (increase) pension expense by approximately $1
million.
Interest Rate Risk
The Company has market risk from exposure to changes in interest rates, at April 3, 2010, on
$47.1 million under the CKJEA Notes, and, at April 4, 2009, on its Swap Agreements with notional
amounts totaling $75.0 million, on $59.4 million under the CKJEA Notes and other short-term debt
and on $64.7 million under the New Credit Agreements. The Company is not exposed to interest rate
risk on its Senior Notes because the interest rate on the Senior Notes is fixed at 87/8% per annum.
With respect to the 2003 and 2004 Swap Agreements (which were called by the issuer in July 2009 and
June 2009, respectively), a hypothetical 10% increase in interest rates would have had an
unfavorable impact of $0.1 million for the Three Months Ended April 4, 2009 on the Company’s income
from continuing operations before provision for income taxes. A hypothetical 10% increase in
interest rates for the loans outstanding under the New Credit Agreements would have had a
negligible unfavorable effect in the Three Months Ended April 4, 2009 on the Company’s income from
continuing operations before provision for income taxes. A hypothetical 10% increase in interest
rates for the CKJEA Notes would have had a negligible unfavorable effect in the Three Months Ended
April 3, 2010 and in the Three Months Ended April 4, 2009 on the Company’s income from continuing
operations before provision for income taxes. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Capital Resources and Liquidity – Financing
Arrangements and Note 14 of Notes to Consolidated Condensed Financial Statements.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk related to its U.S. dollar-denominated
purchases of inventory, payment of minimum royalty and advertising costs and intercompany loans and
payables where the functional currencies of the subsidiaries that are party to these transactions
are the Euro, Canadian Dollar, Korean Won, Mexican Peso or British Pound. The foreign currency
derivative instruments that the Company uses to offset its foreign exchange risk are forward
purchase contracts and zero-cost collars. See Note11 of Notes to the Consolidated Condensed
Financial Statements for further details on the derivative instruments and hedged transactions.
These exposures have created significant foreign currency fluctuation risk and have had a
significant favorable impact on the Company’s earnings during the first quarter of Fiscal 2010,
compared to the same period in Fiscal 2009, due to the weakening of the U.S. dollar against those
foreign currencies. The Company’s European, Asian, Canadian and Mexican operations accounted for
approximately 54% of the Company’s total net revenues for the Three Months Ended April 3, 2010.
These foreign operations of the Company purchase products from suppliers denominated in U.S.
dollars. Total purchases of products made by foreign subsidiaries denominated in U.S. dollars
amounted to approximately $64.3 million for Three Months Ended April 3, 2010. A hypothetical
decrease of 10% in the value of these foreign currencies relative to the U.S. dollar would have
increased cost of goods sold (which would decrease operating income) by $6.4 million for Three
Months Ended April 3, 2010.
54
The fair value of foreign currency exchange contracts and zero cost collars was determined as
the net unrealized gains or losses on those contracts, which is the net difference between (i) the
U.S. dollars to be received or paid at the contracts’ settlement date and (ii) the U.S. dollar
value of the foreign currency to be sold or purchased at the current forward or spot (for zero cost
collars) exchange rate.
The following table summarizes the effect on earnings for the Three Months Ended April 3, 2010
of a hypothetical 10% increase in the contractual exchange rate or strike price of the Company’s
foreign currency exchange contracts and zero-cost collar option contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Effect of Hypothetical |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
10% Increase in Contractual |
|
|
|
|
|
Foreign |
|
|
|
|
|
Contractual |
|
|
Exchange Rate or Strike Price |
|
|
|
|
|
Currency (a) |
|
Amount |
|
|
Exchange Rate |
|
|
on Earnings |
|
Derivative Instrument |
|
Hedged Transaction |
|
Sell/Buy |
|
Hedged |
|
|
or Strike Price |
|
|
Gain (loss) (b) |
|
|
|
|
|
|
|
USD (thousands) |
|
|
|
|
|
USD (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Minimum royalty and advertising costs |
|
Euro/USD |
|
|
17,323 |
|
|
|
1.4070 |
|
|
|
(1,732 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
KRW/USD |
|
|
7,550 |
|
|
|
1,186 |
|
|
|
(755 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
CAD/USD |
|
|
31,250 |
|
|
|
0.9394 |
|
|
|
(3,125 |
) |
Foreign exchange contracts |
|
Purchases of inventory |
|
MXN/USD |
|
|
899 |
|
|
|
16.69 |
|
|
|
(90 |
) |
Foreign exchange contracts |
|
Intercompany purchases of inventory |
|
Euro/GBP |
|
|
10,015 |
|
|
|
0.8769 |
|
|
|
(1,001 |
) |
Foreign exchange contracts |
|
Intercompany payables |
|
Euro/USD |
|
|
28,000 |
|
|
|
1.3753 |
|
|
|
(2,800 |
) |
Zero-cost collars |
|
Intercompany payables |
|
Euro/USD |
|
|
12,000 |
|
|
|
1.4167 |
|
|
|
(1,200 |
) |
Foreign exchange contracts |
|
Intercompany payables |
|
KRW/USD |
|
|
4,000 |
|
|
|
1,157 |
|
|
|
(400 |
) |
Zero-cost collars |
|
Intercompany payables |
|
KRW/USD |
|
|
4,000 |
|
|
|
1,323 |
|
|
|
(400 |
) |
|
|
|
(a) |
|
USD = U.S. dollar, KRW = Korean won, CAD = Canadian dollar, MXN = Mexican peso, GBP =
British pound |
|
(b) |
|
The Company expects that these hypothetical gains and losses would be offset by gains and
losses on the related underlying transactions. |
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 Quarterly Report on Form 10-Q. Based on such 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 were effective.
(b) Changes
in Internal Control Over Financial Reporting.
There were no 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 Three Months Ended
April 3, 2010 that materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
55
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 18 Legal Matters.
Item 1A. Risk Factors.
Please refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for Fiscal
2009, filed with the SEC on March 2, 2010 for a description of certain significant risks and
uncertainties to which the Company’s business, operations and financial condition are subject.
There have been no material changes to these risk factors during the Three Months Ended April 3,
2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In May 2007, the Company’s Board of Directors authorized a share repurchase program (the “2007
Share Repurchase Program”) for the repurchase of up to 3,000,000 shares of the Company’s common
stock. During the Three Months Ended April 3, 2010, the Company repurchased the remaining 1,490,131
shares of common stock allowed to be repurchased under the 2007 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.
In addition, an aggregate of 71,933 shares included below as repurchased during the Three
Months Ended April 3, 2010 reflect the surrender of shares in connection with the vesting of
certain restricted stock awarded by the Company to its employees. At the election of an employee,
shares having an aggregate value on the vesting date equal to the employee’s withholding tax
obligation may be surrendered to the Company in satisfaction thereof. The repurchase of these
shares is not a part of the 2007 Share Repurchase Program.
The following table summarizes repurchases of the Company’s common stock during the Three
Months Ended April 3, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Number of Shares |
|
|
|
Total Number |
|
|
Average |
|
|
Purchased as |
|
|
that May Yet Be |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
Repurchased Under |
|
Period |
|
Repurchased |
|
|
per Share |
|
|
Announced Plan |
|
|
the Announced Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2010 – January 30, 2010 |
|
|
1,259 |
|
|
$ |
39.18 |
|
|
|
— |
|
|
|
1,490,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2010 – February 27, 2010 |
|
|
213 |
|
|
$ |
38.62 |
|
|
|
— |
|
|
|
1,490,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2010 – April 3, 2010 |
|
|
1,560,592 |
|
|
$ |
46.24 |
|
|
|
1,490,131 |
|
|
|
— |
|
The New Credit Agreements and the indenture governing the Senior Notes place restrictions on
the Company’s ability to pay dividends on the Common Stock, and the Company has not paid any
dividends on the Common Stock.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Reserved.
Item 5. Other Information.
None.
56
Item 6. Exhibits.
|
|
|
|
Exhibit No. |
|
Description of Exhibit |
|
|
|
|
3.1
|
|
|
Amended and Restated Certificate of Incorporation of The Warnaco
Group, Inc. (incorporated by reference to Exhibit 1 to the Form 8-A/A
filed by The Warnaco Group, Inc. on February 4, 2003).* |
|
|
|
|
3.2
|
|
|
Second Amended and Restated Bylaws of The Warnaco Group, Inc.
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed by
The Warnaco Group, Inc. on January 11, 2008).* |
|
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer of The Warnaco Group, Inc.
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934.† |
|
|
|
|
31.2
|
|
|
Certification of Chief Financial Officer of The Warnaco Group, Inc.
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act
of 1934.† |
|
|
|
|
32
|
|
|
Certifications of Chief Executive Officer and Chief Financial Officer
of The Warnaco Group, Inc. pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(furnished herewith) |
|
|
|
* |
|
Previously filed. |
|
† |
|
Filed herewith. |
57
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 10, 2010 |
/s/ Joseph R. Gromek
|
|
|
Joseph R. Gromek |
|
|
President and Chief Executive Officer |
|
|
|
|
Date: May 10, 2010 |
/s/ Lawrence R. Rutkowski
|
|
|
Lawrence R. Rutkowski |
|
|
Executive Vice President and
Chief Financial Officer |
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