The Warnaco Group, Inc. net revenues for the two-month period since it emerged from bankruptcy totaled $326.3 million and net income totaled $22.6 million and earnings per share totaled $0.50 on approximately 45 million shares outstanding.
Warnaco emerged from bankruptcy on February 4, 2003, and the reported results reflect the two-month period commencing with the Company’s emergence and ending April 5, 2003.
For the three months ended April 5, 2003, on a pro forma basis as if the Company had emerged from bankruptcy at the beginning of fiscal 2003, net revenues totaled $442.3 million, net income totaled $32.1 million and earnings per share totaled $0.71 on approximately 45 million shares outstanding.
In the first quarter, on a pro forma basis for fiscal 2003 and fiscal 2002 as if the Company had emerged from bankruptcy at the beginning of each quarter, net revenues rose by 7.9% to $442.3 million from $410.1 million in the first quarter of fiscal 2002. Gross profit improved to $167.2 million, or 37.8% of net revenues, from $121.8 million, or 29.7% of net revenues, in the first quarter of fiscal 2002.
Operating income increased to $60.9 million, or 13.8% of net revenues, from $29.5 million, or 7.2% of net revenues, in the first quarter of fiscal 2002. EBITDA for the first quarter of fiscal 2003 increased to $69.6 million from $37.6 million in the first quarter of fiscal 2002.
Net income improved to $32.1 million from $11.4 million in the first quarter of fiscal 2002.
Inventory turns increased to 2.9 times compared to 2.7 times in the first quarter of fiscal 2002 and accounts receivables day’s sales outstanding decreased by 3.3 days to 58.6 days from 61.9 days in the first quarter of 2002.
“Our strong first quarter performance demonstrates the power of our brands and operating model, as well as our focused execution strategies, with particularly strong results from our swimwear group,” noted James P. Fogarty, Chief Financial Officer. “We are proud of the turnaround we have accomplished.”
Joseph R. Gromek, President and Chief Executive Officer, stated: “I compliment the Company’s leadership team on its first quarter results. I am excited to lead Warnaco given its strengthened operating platform, strong brand portfolio, increased financial flexibility and prospects for future growth.”
The Company noted that its results for the first quarter of 2003 reflect many factors including increased sales of swimwear products, as compared to the prior year period. Also, earlier shipment of certain swimwear, Calvin Klein Underwear and Calvin Klein Jeans programs had a positive effect on first quarter 2003 results. The Company expects that these earlier shipments combined with lower-than-expected second quarter 2003 shipments of intimate apparel will cause second quarter EBITDA and operating income on a pro forma basis to be significantly below the prior year’s results. However, the Company expects first six months EBITDA and operating income on a pro forma basis to be ahead of the prior year’s results on a pro forma basis.
The Company also announced its decision to expense stock options commencing in fiscal 2003. The Company expects to incur compensation expense of approximately $6.2 million in fiscal 2003 associated with grants of stock options as well as restricted stock pursuant to the Company’s 2003 Equity Incentive Plan.
The Company evaluates its operating results based on EBITDA, which it defines as operating income (loss) before depreciation and amortization expense. The Company’s pro forma information, including pro forma EBITDA, gives effect to the reorganization as if it had occurred at the beginning of the relevant quarter and as a result has been adjusted to exclude the effects of the reorganization.
The Company has presented EBITDA to enhance the reader’s understanding of its operating results. EBITDA is provided because the Company believes it is an important measure of financial performance commonly used to determine the value of companies and to define standards for borrowing from institutional lenders. The Company’s senior secured credit agreement includes covenants that are based on and use EBITDA as a component of the calculations. During Fiscal 2001 and 2002, the Company sold assets, wrote down impaired assets, recorded an impairment charge related to the adoption of SFAS 142 and ceased amortizing goodwill and certain intangible assets that had been previously amortized. The Company also recorded adjustments to its fixed and intangible assets in connection with its emergence from bankruptcy and the adoption of fresh start accounting as of February 4, 2003. As a result, depreciation and amortization expense, which is included in operating income (loss), has decreased significantly from the amounts recorded in prior periods. Accordingly, the Company believes that an evaluation of its operating results is not complete without considering the effect of depreciation and amortization on those results.
THE WARNACO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, excluding per share data)
(Unaudited)
Successor Predecessor Company
Company
--------------------------------
For the For the
Two Three
Months For the One Months
Ended Month Ended Ended
April 5, February 4, April 6,
2003 2003 2002
--------- ----------- ----------
Net revenues $326,324 $115,960 $410,052
Cost of goods sold 204,918 70,214 291,640
--------- ----------- ----------
Gross profit 121,406 45,746 118,412
Selling, general and
administrative expenses 72,537 35,313 102,118
Reorganization items 1,383 29,922 15,531
Amortization of sales order
backlog 4,200 - -
--------- ----------- ----------
Operating income (loss) 43,286 (19,489) 763
Reorganization items:
Gain on cancellation of pre-
petition indebtedness - (1,692,696) -
Fresh start adjustments - (765,726) -
--------- ----------- ----------
Total reorganization items - (2,458,422) -
Investment loss, net 35 359 -
Interest expense 4,428 1,887 6,964
--------- ----------- ----------
Income (loss) before provision for
income taxes and 38,823 2,436,687 (6,201)
cumulative effect of change in
accounting principle
Provision for income taxes 16,184 78,150 49,929
--------- ----------- ----------
Income (loss) before cumulative
effect of change in
accounting principle 22,639 2,358,537 (56,130)
Cumulative effect of change in
accounting principle (net
of income tax benefit of $53,513
- 3 months ended April 6, 2002) - - (801,622)
--------- ----------- ----------
Net income (loss) $ 22,639 $2,358,537 $(857,752)
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, excluding per share data)
(Unaudited)
Fiscal Fiscal
2002 (a) 2003 (b)
Pro Forma Pro Forma
For the For the
Three Three
Months Months
Ended Ended
April 6, April 5,
2002 2003
---------- ---------
Net revenues $410,052 $442,284
Cost of goods sold 288,248 275,132
---------- ---------
Gross profit 121,804 167,152
Selling, general and administrative expenses 92,310 106,236
---------- ---------
Operating income 29,494 60,916
---------- ---------
Investment loss, net - 394
Interest expense 10,439 6,990
---------- ---------
Income before provision for income taxes 19,055 53,532
Provision for income taxes 7,622 21,409
---------- ---------
Net income $ 11,433 $ 32,123
