Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. WARNACO GROUP INC /DE/ (801351) 10-Q published on Nov 05, 2012 at 4:41 pm
Reporting Period: Sep 28, 2012
During July 2012, the FASB issued Accounting Standards Update 2012-02 Intangibles-Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”) which is intended to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how the Company tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. Under ASU 2012-02, the Company has the option first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The Company also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not expect the adoption of ASU 2012-02 to have a material effect on its financial position, results of operations and cash flows.
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; deterioration in global or regional or other macroeconomic conditions that affect the apparel industry, including turmoil in the financial and credit markets; the Company’s failure to anticipate, identify or promptly react to changing trends, styles, or brand preferences; the Company’s failure to use the most recent and effective advertising media to reach customers; further declines in prices in the apparel industry and other pricing pressures; declining sales resulting from increased competition in the Company’s markets; increases in the prices of raw materials or costs to produce or transport products; 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 the Company’s 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 CKI, 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 potential that the Company may be required to make substantial payments as a result of audits conducted by its licensors; 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; 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 recognizing impairment charges for its long-lived assets; uncertainty over the outcome of litigation matters and other proceedings; 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 inability to successfully implement restructuring and disposition activities; the Company’s inability to successfully transition its sourcing, design and merchandising functions related to Calvin Klein Jeans from Italy to New York; 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. In addition, risks and uncertainties related to the previously announced transaction with PVH Corp. include, among others: the risk that the conditions to the closing of the merger are not satisfied (including a failure of the Company's stockholders to approve the merger and the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated); potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; uncertainties as to the timing of the merger; competitive responses to the merger; unexpected costs, charges or expenses resulting from the merger; litigation relating to the merger; and the inability to retain key personnel.
Our pending merger with PVH has the potential to adversely impact our operations and financial results. Uncertainty in the future of our business between the execution of the Merger Agreement and the closing of the transaction may affect our ability to retain and motivate existing employees, and may adversely impact our ability to recruit new employees. Efforts to complete the merger may also divert attention from the daily activities of our existing employees, adversely impacting our operations and results thereof. Additionally, the uncertainty in the future of our business may adversely impact our business relationships with customers and vendors of the Company. Certain costs related to the proposed merger, such as legal and accounting fees, are payable by us whether or not the proposed acquisition is completed, and in certain circumstances, we could be required to pay a termination fee of $100 million if the merger does not occur. Failure to complete the merger could result in a decrease in the market price of our shares of common stock to the extent that the current market price of those shares reflects a market assumption that the proposed acquisition will be completed, which could result in damage to our reputation and business relationships. In addition, the Company may face litigation challenging the merger. Any of these events could have a material negative impact on our results of operations and financial condition and could adversely affect the price of our common stock.
At the effective time of the merger, each outstanding share of the Company's common stock, other than dissenting shares or shares held by PVH, the Company or their respective subsidiaries, will be converted into the right to receive $51.75 in cash and .1822 of a share of PVH common stock (equivalent to $20.04 based upon a closing price of PVH stock of $109.99 on October 31, 2012). The number of shares of PVH common stock included in the merger consideration will not change to reflect changes in the market price of PVH common stock. The market price of PVH common stock at the time of completion of the merger may vary significantly from the market prices of PVH common stock on the date the Merger Agreement was executed or at other later dates, including the date on which Company stockholders vote on the adoption of the Merger Agreement. Stock price changes may result from market reaction to the announcement of the merger and market assessment of the likelihood that the merger will be completed, changes in the business, operations or prospects of PVH or the Company prior to or following the merger, regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of PVH and the Company.
The terms of our agreements with the licensors of our products, including the license agreements with Speedo International Limited (the licensor of the Speedo trademark), Calvin Klein Inc. (the licensor of the Calvin Klein, Calvin Klein Jeans and CK/Calvin Klein trademarks) and Polo Ralph Lauren, Inc. (the licensor of the Chaps trademark) subject us to audits related to royalty and other contractual payments that we are required to make under those agreements. As a result of their audit findings, occasionally, our licensors may indicate that the terms or contractual payments that we have made may have been misinterpreted by us or are incorrect, respectively, and that we owe them significant additional payments. We may dispute those audit findings and enter into negotiations with the licensors during which we will vigorously defend the accuracy of our payment under the terms of our licenses and our interpretation of various contractual terms. However, although we calculate the amounts of such payments to the best of our understanding of the terms of each license agreement, we may decide to resolve such disputes through a settlement with the licensors. Such settlements may result in significant payments to the licensors, the amounts and timing of which cannot be foreseen.