NEW YORK — It’s a fraction of what Linda J. Wachner was looking for, but it’s a payment nonetheless. And it will keep Wachner involved in Warnaco, at least as an investor, for the foreseeable future.
This story first appeared in the November 19, 2002 issue of WWD. Subscribe Today.
Warnaco’s former chief executive and continuing board member will get a settlement from the bankrupt sportswear and underwear maker attempting to work its way out of bankruptcy, but the amount will be equal to only about 1.8 percent of the $25.1 million severance she sought.The terms of the agreement provide Wachner an allowed unsecured claim of $3.5 million to be satisfied in newly issued common stock of a reorganized Warnaco, as well as an administrative claim in the amount of $200,000. The deal was made two days after the one-year anniversary of Wachner’s exit from Warnaco. She left the company on Nov. 16, 2001, but has remained a director.In a Form 10-Q quarterly filing with the Securities and Exchange Commission, Warnaco said a settlement was reached between the company, Wachner, the company’s pre-petition bank lenders and the official committee of unsecured creditors. As reported, unsecured creditors will get 7.2 cents on the dollar for their claims on a pro rata share. Since Wachner’s unsecured claim will be satisfied on the same pro rata basis, the amount of new company stock she will receive will be worth only $252,000. The administrative claim, which receives top priority on the bankruptcy creditor food chain, does not get reduced and is payable in cash. In total, Wachner will receive $452,000, or 1.8 percent of her $25 million claim.Warnaco declined comment on the settlement.Wachner, who could not be reached for comment, has decided that she personally doesn’t need the $200,000 and that there are better uses for the cash. Her press representative, Howard Rubenstein, said, “Linda felt that it was time to settle and do other things. She is donating the $200,000 to cancer research.”A source noted that cancer charities are a favorite of Wachner’s, who lost a sister to the disease. In addition, Wachner at one point served on the board of Sloan-Kettering Memorial Hospital, noted for its specialty in cancer research and treatment.There’s been speculation on what new opportunities Warnaco’s former ceo might be exploring, but so far both Wachner and Rubenstein have indicated that she’s not ready to discuss them yet.The Wachner settlement is still subject to Manhattan bankruptcy court approval. Confirmation of Warnaco’s plan of reorganization — a date has been set for Jan. 16 — and its effective date are not conditioned on resolution of Wachner’s claim.And Wachner’s problems over Warnaco still might not be over. Still outstanding is the Securities and Exchange Commission investigation concerning securities law violations by the company in connection with the issuance of certain financial statements. As reported, the SEC staff said it will recommend that the SEC authorize a civil enforcement action against the company and certain still-unnamed former officers and directors of the company during the Wachner era. It is still uncertain whether Wachner is among them. Warnaco filed a so-called Wells Submission describing why the action should not be brought. The apparel firm is still in discussions with the SEC, the filing said.Wachner’s term as a director ends when Warnaco exits from Chapter 11, which should occur some time in January. A new board for the reorganized firm will then be constituted. Although the dollar value of the settlement is a far drop from the $25.1 million opening request, she still comes out ahead of her fellow Warnaco shareholders, whose stock will be extinguished.However, with shares of the reorganized company’s stock, Wachner could derive financial benefits in the firm’s post-Linda era.The settlement ended what could have been a long evidence-gathering procedure to prepare for trial. The parties had bickered over the extent of discovery, with Warnaco seeking a comprehensive expense report from Wachner. In earlier court hearings and documentation, Wachner was asked to provide information on what her attorneys termed “virtually every aspect of [her] daily personal financial affairs after her termination without cause.” Nothing was spared. Even Wachner’s female Yorkshire terrier EBIT — the acronym for earnings before interest and taxes — failed to escape scrutiny: The banks wanted to know how much the former ceo spent on “animal care.”During her 15 years at the helm of Warnaco, Wachner built a reputation as the iron lady of underwear, and Fortune magazine included her as one of “America’s Seven Toughest CEOs” in the Nineties. She commanded the cheers and jeers of Wall Street pundits, charming diplomats and politicians, inciting mutiny among angry shareholders and invoking the fear and envy of corporate chieftains who were forced to compete with her hard-nosed style. She also stirred envy with her paychecks — in the pre-Internet boom, she became the highest-paid female executive in America, pulling down $3 million a year plus stock options worth close to $100 million.In other legal news, Warnaco in its SEC filing said it has been negotiating to assume the American licenses for Speedo. The negotiations arose from settlement talks in the Speedo International Ltd. lawsuit against Warnaco Group, which charged the apparel firm with breach of contract and trademark violations. Financially, the company narrowed its loss in the third quarter ended Oct. 5 to $15.6 million, or 30 cents a share, from $64.2 million, or $1.21 a share, in the year-ago period. Revenues were down 13.1 percent to $345.5 million from $397.7 million. The company has business operations in three segments: sportswear and swimwear, intimate apparel and company-owned retail stores.Although sportswear and swimwear sales in the latest quarter dipped slightly — 1.8 percent — to $176.9 million from $180.2 million, the segment’s fortunes turned for the better as it posted operating income of $7.3 million against an operating loss of $8.1 million last year. Sales of the division’s Authentic Fitness brand rose by 83 percent to $28.1 million from $15.4 million. Chaps by Ralph Lauren posted a drop of 27 percent to $41.7 million from $57.3 million, reflecting mostly the elimination of sales to warehouse clubs. Sales of Calvin Klein Jeans/Kids fell by 9 percent to $88.9 million from $96.1 million, while CK Accessories rose 6.2 percent to $4 million from $3.7 million. ABS sales surged 84 percent to $14.2 million from $7.7 million.Intimate apparel revenues fell 13.7 percent to $145.4 million from $168.6 million, but operating income for the segment skyrocketed to 279.5 percent to $21.2 million from $5.6 million. Of the major brands in the intimates division, Warner’s/Olga sales dropped 16.5 percent to $56.8 million from $68 million. However, sales of CK underwear were up 8.6 percent to $65.3 million from $60.1 million, while sales of Lejaby increased 15.6 percent to $19.8 million from $17.1 million. Sales of mass sportswear licensing declined 13 percent to $3.4 million from $3.9 million.Revenues at retail stores plummeted by 52.6 percent to $23.1 million from $48.9 million, largely because of outlet store closures, but improvements in the division reflected the segment’s contribution of $415,000 in operating income against a $3,000 operating loss a year ago.In the nine months, the loss widened to $905.4 million, or $17.10 a share, from $466.2 million, or $8.81, in the year ago period. Revenues fell 9.7 percent to $1.14 billion from $1.26 billion.