NEW YORK — The Warnaco Group said Tuesday that its unsecured creditors won’t end up empty-handed when the company exits bankruptcy proceedings.
This story first appeared in the September 18, 2002 issue of WWD. Subscribe Today.
According to disclosures in a bankruptcy court hearing Tuesday, the firm’s reorganization plan includes an unspecified distribution to its unsecured creditors. WWD also learned from a source close to Warnaco that the company on Sept. 3 filed its Wells Submission to the Securities and Exchange Commission in connection with the SEC’s ongoing probe of the company.
A Wells Submission is a document submitted by a potential defendant or respondent in an SEC potential action. It is initially read by the SEC staff, who will then decide whether to proceed with the recommendation that further action be undertaken by the commission. The Warnaco source, who said the Wells Submission is a confidential filing, didn’t know how long it would take for the SEC staff to conduct its review of the document.
An SEC staff attorney with no connection to the Warnaco matter explained there was no set time frame regarding the SEC staff review and resolution. “After the staff review, there could be further dialogue [between the staff and Warnaco] or a staff request for more information. Based upon that review, there might be a feeling that certain other factual items should be added to the documentation,” he said.
As reported, Warnaco in its annual report, or Form 10-K, filed with the SEC in July, said it was informed by the SEC staff that they intend to “recommend that the SEC authorize an enforcement action against the company and certain persons who have been employed by or affiliated with the company since prior to Jan. 3, 1999, alleging violations of the federal securities laws.” SEC enforcement actions are civil in nature.
In the same annual report, Warnaco named its Designer Holdings Ltd. subsidiary as the source of some of the accounting errors that necessitated a $43 million charge announced in August 2001, along with the restatement of financial results for three years beginning with fiscal 1999. The unit, which held the Calvin Klein jeanswear license, was acquired by Warnaco in September 1997, and Warnaco retains the license.
The errors, the SEC filing said, involved the recording of inter-company pricing arrangements, the recording of accounts payable primarily related to the purchase of inventory from suppliers and the accrual of certain liabilities. The company attributed some of these errors to the company’s European subsidiaries.
At Wednesday’s hearing regarding interim fee applications for the professionals in the Warnaco bankruptcy, Kelley A. Cornish of Sidley Austin Brown & Wood, the manufacturer’s bankruptcy counsel, told the court Warnaco was on track to file its plan of reorganization “on or before Sept. 30.” She also indicated the company expected to file its disclosure statement by the end of October.
A plan of reorganization and the separate disclosure statement are typically filed with a bankruptcy court within days or weeks of each other. The disclosure statement is often considered by bankruptcy and credit professionals as the more important document since it is the one that provides detailed financial information such as valuations of the enterprise on a liquidated basis and as a going-forward concern, as well as earnings projections for the future.
Cornish told the court that Warnaco hopes to have the reorganization plan confirmed by mid-December. The company is hoping for an effective date in January. Cornish indicated to the court that Warnaco would prefer to be out of bankruptcy proceedings next year for tax reasons.
She told the court that while the company has “explored” the possibility of selling core assets, a determination was made that it was in Warnaco’s “best interests to file a stand-alone plan.” She said the company has made considerable progress in resolving claims against the estate.
A Warnaco executive declined comment on whether the firm was still entertaining discussions about possible acquisitions of operating assets as it was getting ready to file its reorganization plan.
As reported, VF Corp. has expressed interest in acquiring Warnaco’s intimate apparel division and its Calvin Klein jeanswear operation, but Warnaco’s asking price for these assets has proven to be a stumbling block.
The Warnaco executive said the goal was to file a plan of reorganization within two weeks, but he didn’t rule out the possibility that a deal could still materialize after the plan is filed and before its confirmation date.