The Warnaco Group, Inc. announced second quarter pro forma
net revenues were $335.8 million, net income was $0.2 million and earnings per share was $0.00, compared to prior year's net revenues of $381.8 million, net income of $14.0 million and earnings per share of $0.31.


Warnaco emerged from bankruptcy on February 4, 2003, and therefore the Company's reported first half results reflect the five-month period commencing with the Company's emergence on February 4, 2003 and ending July 5, 2003. For this five-month period ended July 5, 2003, net revenues were $662.2 million, net income was $14.2 million and earnings per share was $0.31. For the second quarter of fiscal 2003, net revenues were $335.8 million, net loss was $8.5 million and net loss per share was $0.19.

For the six months ended July 5, 2003, on a pro forma basis as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, net revenues were $778.1 million, net income was $32.1 million and earnings per share was $0.71, compared to prior year's net revenues of $791.8 million, net income of $25.5 million and earnings per share of $0.57.

On a pro forma basis, comparing the first half of fiscal 2003 with fiscal 2002, as if the Company had emerged from bankruptcy at the beginning of fiscal 2002:

  • Net revenues in the first half of fiscal 2003 were $778.1 million compared to $791.8 million (including $32.8 million of net revenues from sold and discontinued business units) in the first half of fiscal 2002;
  • Gross profit in the first half of fiscal 2003 was $263.6 million, or 33.9% of net revenues, compared to $241.5 million, or 30.5% of net revenues, in the first half of fiscal 2002. Gross profit for the first half of fiscal 2002 was reduced by $23.3 million (3.0% of net revenues) of product related expenses, which items are expensed in selling, general and administrative expenses commencing with the adoption of fresh start accounting on February 4, 2003;
  • Selling, general and administrative expenses for the first half of fiscal 2003 were $198.6 million, or 25.5% of net revenues compared to $182.3 million, or 23.0% of net revenues, in the first half of fiscal 2002. Selling, general and administrative expenses for the first half of fiscal 2002 did not include $23.3 million (3.0% of net revenues) of product related expenses, which items are expensed in selling, general and administrative expenses commencing with the adoption of fresh start accounting on February 5, 2003.
  • Operating income in the first half of fiscal 2003 increased to $65.0 million, or 8.4% of net revenues, from $59.2 million, or 7.5% of net revenues, in the first half of fiscal 2002;

  • Net income in the first half of fiscal 2003 improved to $32.1 million from $25.5 million in the first half of fiscal 2002; and
  • Earnings per share in the first half of fiscal 2003 increased approximately 25% to $0.71 from $0.57 in the first half of fiscal 2002.

Joseph R. Gromek, President and Chief Executive Officer, stated: “Our impressive portfolio of brands is resonating well with consumers. This, combined with the progress we made toward realizing the strategic financial and operational objectives we set at the beginning of the year, enabled us to record improved first half 2003 results in a challenging retail environment.”

Mr. Gromek continued, “We also enhanced the foundation for future growth including an amendment to our Calvin Klein(R) licensing agreement with Phillips-Van Heusen, which solidified our ongoing relationship and expanded our product offering to include Calvin Klein(R) swimwear.”

In addition, the Company strengthened its balance sheet at July 5, 2003 as follows:

  • Inventory declined by $47.5 million, or 14.1%, to $288.7 million, as compared to $336.2 million at July 6, 2002;
  • Accounts receivable declined by $7.3 million, or 3.5%, to $204.9 million compared to $212.2 million at July 6, 2002;
  • Cash increased $39.0 million to $65.9 million at July 5, 2003 compared to $26.9 million at February 4, 2003 (the date the Company emerged from bankruptcy); and debt decreased $33.7 million to $212.8 million at July 5, 2003 compared to $246.5 million at February 4, 2003. Improvements in cash and debt thus totaled $72.7 million since our emergence from bankruptcy; and
  • Completed a $210.0 million senior notes offering, refinancing its five-year amortizing second lien notes with ten-year fixed rate notes at 8 7/8%.

“Our revitalized business model is realizing tangible results,” added James P. Fogarty, Senior Vice President and Chief Financial Officer. “As indicated in our first quarter release, we expected our second quarter to be significantly below prior year results, in part reflecting the earlier shipment of certain programs in the first quarter of 2003. However, on a pro forma basis, our first half net income increased by 26% and our operating margin rose by nearly 90 basis points to 8.4%. We benefited from initiatives aimed at increasing our operating margin; including reductions in our product costs and improvements in our inventory flow at retail. To further our objective of improving our operating flexibility and margins we are closing our remaining domestic manufacturing facilities. Furthermore, we strengthened our balance sheet with year over year reductions in inventory and accounts receivable and the successful completion of our senior notes refinancing. In a difficult environment, we also experienced substantial increases in our cash balances coupled with reductions in our debt.”

Mr. Gromek concluded, “I am even more excited today to be associated with Warnaco than I was when I joined the Company in April. With the strength of our brands and our people, Warnaco is a dynamic organization with enormous opportunities. I believe we are poised to regain our position as a preeminent apparel company.”

                                                           Schedule 1
                        THE WARNACO GROUP, INC.
                 CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, excluding per share data)
                              (Unaudited)

                        Quarter                  Year-to-Date
              ---------------------- ---------------------------------
              Successor  Predecessor  Successor        Predecessor
                Company    Company     Company           Company
              ---------------------- ---------------------------------
               For the      For the   For the      For the    For the
                Three        Three     Five         One        Six
               Months        Months   Months       Month      Months
                Ended        Ended     Ended        Ended      Ended
               July 5,       July 6,  July 5,    February 4,  July 6,
                2003          2002     2003         2003        2002
              ---------    --------- ---------    ---------  ---------

 Net revenues $335,844     $381,767  $662,168     $115,960   $791,819
 Cost of goods
  sold         239,440      265,919   444,358       70,214    557,559
              ---------    --------- ---------    ---------  ---------
 Gross profit   96,404      115,848   217,810       45,746    234,260
 Selling,
  general and
  administrative
  expenses      94,829      100,579   168,680       35,313    202,697
 Restructuring
  items          6,071            -     6,140            -          -
 Reorganization
  items              -       42,554         -       29,922     58,085
 Amortization
  of sales
  order backlog  6,300            -    10,500            -          -
              ---------    --------- ---------    ---------  ---------
 Operating
  income
  (loss)       (10,796)     (27,285)   32,490      (19,489)   (26,522)
 Gain on
  cancellation
  of pre-
  petition
  indebtedness       -            -         -   (1,692,696)         -
 Fresh start
  adjustments        -            -         -     (765,726)         -
 Other (income)
  loss, net     (1,363)           -    (1,328)         359          -
 Interest
  expense        5,423        3,095     9,851        1,887     10,059
              ---------    --------- ---------    ---------  ---------

 Income (loss)
  before
  provision for
  income taxes
  and          
  cumulative
  effect of
  change in
  accounting
  principle    (14,856)     (30,380)   23,967    2,436,687    (36,581)
 Provision
  (benefit) for
  income taxes  (6,392)       1,609     9,792       78,150     51,538
              ---------    --------- ---------    ---------  ---------
 Income (loss)
  before
  cumulative
  effect of 
  change in
  accounting
  principle     (8,464)     (31,989)   14,175    2,358,537    (88,119)
 Cumulative
  effect of
  change in
  accounting
  principle (net
  of income tax
  benefit of
  $53,513 - 6
  months ended
  July 6, 2002)      -            -         -            -   (801,622)
              ---------    --------- ---------    ---------  ---------

 Net income
  (loss)      $ (8,464)    $(31,989) $ 14,175    $2,358,537 $(889,741)
              =========    ========= =========   ========== ==========

 Basic income
 (loss) per
 common share: (a)
   Income (loss)
    before
    accounting
    change    $  (0.19)    $  (0.60) $   0.31     $  44.51   $  (1.66)
   Cumulative
    effect of
    accounting
    change           -            -         -            -     (15.14)
              ---------    --------- ---------    ---------  ---------
   Net income
    (loss)    $  (0.19)    $  (0.60) $   0.31     $  44.51   $ (16.81)
              =========    ========= =========    =========  =========

 Diluted income
  (loss) per
  common share: (a)
   Income (loss)
    before
    accounting
    change    $  (0.19)    $  (0.60) $   0.31     $  44.51   $  (1.66)
   Cumulative
    effect of
    accounting
    change           -            -         -            -     (15.14)
              ---------    --------- ---------    ---------  ---------
   Net income
    (loss)    $  (0.19)    $  (0.60) $   0.31     $  44.51   $ (16.81)