Byline: Karyn Monget / Vicki M. Young / Arnold J. Karr

By December, she was gone, and the company she’d led since a dramatic leveraged buyout 15 years ago was in Chapter 11. And Warnaco Group and its former chief executive, Linda Wachner, again managed to dominate the headlines in 2001.
The settlement of bitter lawsuits with Calvin Klein on Jan. 22 and Wachner’s exit from the company on Nov. 16 may have been the year’s bookends, but the climax came on June 11 when, reeling under $3.1 billion in liabilities and $20 million in monthly debt payments, the company filed for bankruptcy. Delisting on the New York Stock Exchange, and Wachner’s resignation from the NYSE board, soon followed.
Certainly, the fashion industry’s relationship with Wachner had adhered to the classic love/hate model, her legendary aggressiveness, razor-sharp intellect and biting wit alternately lauded and feared. Once the highest-paid female executive in the U.S. — with a $3 million salary and stock options worth more than $100 million in the late Nineties — her victories were seen as triumphs for women in the boardroom even if her defeats could be attributed to ego. Despite an earlier severance agreement that could have netted her $24 million or more upon her exit, Wachner left Warnaco without a payout.
“As it stands now, I do not have to worry about non-compete or whether or not I want to offer anyone a job,” Wachner told WWD on her last day at Warnaco.
Chances are she won’t stand still. She acknowledged she has specific ventures in mind and, while she declined to elaborate whether or not they’re in apparel, her personal fortune, estimated at over $150 million, puts her in a strong negotiating position, possibly even for one of the Warnaco properties now being shopped around. Wachner’s never been afraid of fighting for the big score, as she did when she and an investment group launched their hostile takeover bid for Warnaco in 1986. She and her group paid 14 times cash flow — $500 million in borrowed money and a $200 million revolver for working capital — at a time when the going rate for that type of deal was about six times cash flow. Before the burden of acquisitions — 10 in six years, beginning with the purchase of Calvin Klein men’s underwear in 1994 and the rights to Calvin Klein women’s underwear, culminating with the purchases of Izka, ABS by Allan B. Schwartz and Warnaco’s sister operation, Authentic Fitness, in 1999 — caught up with the company, she transformed a $425 million apparel firm with no corporate mission into a world-class branded apparel maker that generated sales of over $2 billion.
Wachner was succeeded as ceo last month by Antonio Alvarez, a turnaround specialist brought in as chief restructuring officer in May when Warnaco reported a $62.5 million loss for its first quarter. The loss proved to be the final vignette in a downward spiral that had lasted for the better part of a decade.
The company went public in 1991 at $20 a share, effectively $10 a share based on a 2-for-1 stock split in 1994. The company’s capitalization grew along with its fortunes, hitting a market cap of $3.5 billion in 1997 at the time it acquired Designer Holdings for $354 million in stock. The capitalization dropped below $1 billion in late 1999, and fell to $128.4 million in October 2000, six months after Calvin Klein’s breach of contract and trademark infringement lawsuit over the CK Calvin Klein Jeanswear license against the company.
The lawsuit, settled in January 2001 moments before trial was set to begin, added legal costs to the company’s highly leveraged financial structure that resulted from its acquisition binge. Linda and Calvin publicly kissed and made up, but the mudslinging and unsavory nature of the spectacle in national print and on TV — including an appearance by Klein on CNN’s “Larry King Live” — caused further erosion in investor confidence.
Meanwhile, losses mounted and the stock plunged. On March 29, the company posted a fourth-quarter loss of $194.8 million, including $157 million in charges. The yearend loss in 2000 was $338.3 million, or $6.41 a share. On June 8, three days before Warnaco filed for Chapter 11 bankruptcy court protection and the last day the stock traded on the NYSE, shares of the company closed at 39 cents, rendering a drop in market capitalization to just $20.6 million.
Along the way, there were hints that a bankruptcy was possible. Warnaco’s auditors, Deloitte & Touche, in April expressed “substantial doubt” about the company’s ability to continue as a going concern in a report filed with the Securities and Exchange Commission. In addition, the company was rocked by a series of shareholder lawsuits that are still pending. Warnaco revealed last August that it would need to take a $43 million charge to earnings in the third quarter and restate certain earnings over the past three years “to correct certain errors discovered in its recording of intercompany price policies, accounts payable and accrued liabilities.” The earnings have not been restated and an SEC probe is said to be ongoing.
Also ongoing, despite these question marks, is Warnaco’s effort to rid itself of extraneous properties not relating to its core businesses (jeanswear, innerwear and activewear/swimwear) which, logically, are the ones perceived as having the greatest value to creditors and investors. As reported, Bear Stearns & Co. is Warnaco’s exclusive financial adviser assisting in finding prospective buyers for undisclosed assets of the manufacturer. A book reportedly is now being circulated.
It’s no secret that CKI wants back its jeans license and underwear and innerwear businesses, which are Warnaco owned. Other suitors said to have lined up include Phillips-Van Heusen Corp., which already has substantial holdings in men’s wear and footwear; Warren Buffett’s Berkshire Hathaway, last seen going after bankrupt Fruit of the Loom, and VF Corp. which, according to some accounts, was close to acquiring some Warnaco assets months ago. With VF recently casting off some noncore businesses, and making public its intent to make acquisitions compatible with its surviving portfolio of jeanswear, innerwear and outdoor brands, its level of interest may have intensified.
During her tenure as ceo, Wachner basked in the notoriety of her designation by Fortune magazine as one of “America’s Toughest Seven CEOs.” Now, in Warnaco’s post-Wachner era, she may have left one of the seven toughest apparel turnarounds behind.

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