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WRC
The Warnaco Group, Inc. - NYSE

4/16/2014, 3:35 PM ET
Quote & Analysis Breaking News StockTalk Description

The Warnaco Group, Inc., a Delaware corporation organized in 1986, designs, sources, markets, licenses and distributes a broad line of intimate apparel, sportswear and swimwear worldwide. The Company’s products are sold under several highly recognized brand names, including, but not limited to, Calvin Klein®, Speedo®, Chaps®, Warner’s® and Olga®.

The Company’s products are distributed domestically and internationally, 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. In addition, the Company distributes its Calvin Klein branded products through dedicated Calvin Klein retail stores, and as of January 2, 2010, the Company operated 1,097 Calvin Klein retail stores worldwide (consisting of 131 full price free-standing stores, 109 outlet free-standing stores, 857 shop-in-shop/concession stores) and three on-line stores: SpeedoUSA.com, Calvinkleinjeans.com, and CKU.com. There were also 624 Calvin Klein retail stores operated by third parties under retail licenses or franchise and distributor agreements. For the fiscal year ended January 2, 2010, approximately 45% of the Company’s net revenues were generated from domestic sales and approximately 55% were generated from international sales. In addition, approximately 77% of net revenues were generated from sales to customers in the wholesale channel and approximately 23% of net revenues were generated from customers in the direct-to-consumer channel.

The Company owns and licenses a portfolio of highly recognized brand names. The trademarks owned or licensed in perpetuity by the Company generated approximately 45% of the Company’s revenues during Fiscal 2009. Brand names the Company licenses for a term generated approximately 55% of its revenues during Fiscal 2009. Owned brand names and brand names licensed for extended periods (at least through 2044) accounted for over 89% of the Company’s net revenues in Fiscal 2009. The Company’s highly recognized brand names have been established in their respective markets for extended periods and have attained a high level of consumer awareness.

Acquisition of Remaining Non-controlling Interest and Retail Stores in Brazil

During the fourth quarter of 2009, the Company finalized agreements to acquire the remaining 49% of the equity of its Brazilian subsidiary and acquired the assets and assumed the leases of eight retail stores that sell Calvin Klein products (including jeanswear and underwear) in Brazil, effective October 1, 2009. Prior to the consummation of the acquisition of the remaining 49% of the equity of the Brazilian subsidiary, the subsidiary paid a dividend of 7 million Brazilian Real (approximately $4 million), representing the distribution of the Brazilian partners’ accumulated equity in the subsidiary through September 30, 2009. The Company made an initial payment of 21 million Brazilian Real (approximately $12 million based on the currency exchange rate on the date of acquisition) to acquire the equity of the Brazilian subsidiary and the retail stores. The Company may be required to make three future annual payments totaling up to 43 million Brazilian Real (approximately $24 million) through March 31, 2012, which are contingent on the operating activity of the subsidiary through December 31, 2011. Based on the operating income achieved by the Brazilian subsidiary in the fourth quarter of 2009, the first payment of 6 million Brazilian Real (approximately $3.5 million) will be paid by March 31, 2010. The consummation of the Brazilian acquisitions continues the Company’s strategy of expansion of its operations in South America.

The Company is in the process of finalizing the allocation of the purchase price and is also in the process of finalizing the determination of the fair values of the assets acquired and liabilities assumed in the purchase of the retail stores.

Businesses in Chile and Peru

On June 10, 2009, the Company acquired from Fashion Company S.A. (formerly Clemente Eblen S.A.) and Battery S.A. (collectively, “Eblen”), for cash consideration of $2.5 million, businesses relating to distribution and sale at wholesale and retail of jeanswear and underwear products bearing the Calvin Klein trademarks in Chile and Peru, including the transfer and assignment to the Company by Eblen of the right to operate and conduct business at three retail locations in Chile and one retail location in Peru. The Company acquired these businesses in order to increase its presence in South America.