Warnaco Finds Accounting Errors at Chaps

Net income from operations is affected; three non-executives leave company.
Stephen TaubAugust 9, 2006

Officials at Warnaco Group said the company will restate its results for 2005, and first fiscal quarter of 2006, due to “irregularities and errors” related to the accounting for certain returns and vendor allowances at its Chaps menswear division.

The company also said it needs to correct an error which resulted from the implementation of its new systems infrastructure at its Swimwear Group in the first quarter of fiscal 2006, and certain “immaterial errors.”

Company officials said the revisions will cause it to reduce 2005 reported net income from continuing operations per diluted share from $1.12 to between $1.05 and $1.07 per diluted share, and reduce first-quarter reported net income per diluted share from $0.34 to between $0.28 and $0.30 per diluted share.

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The irregularities and errors were discovered by the company during its second quarter closing review, according to a press release. The matters were reported to the audit committee, which hired an outside counsel, who in turn retained independent forensic accountants, to investigate and report back to the board committee. As a result of the investigation, the company said three employees in the Chaps menswear division, who are not executive officers, have either resigned or have been terminated.

“Warnaco believes that the matters causing the restatements have been identified and that management has taken appropriate corrective action,” the company said in a statement. Because the estimated restatement amounts are preliminary, the company warned that it may identify additional new issues which could also impact its previously issued financial statements and the scope of the restatements already disclosed.

“Warnaco is committed to maintaining an internal culture and external reputation for practicing the highest standards in all of our business affairs and has zero tolerance for violations of our Code of Business Conduct and Corporate Ethics,” said Joe Gromek, Warnaco’s president and chief executive officer, in a statement.