-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SSKW7HKrlyAAZWuu6Oa1WuaXjxD7/wmlOLNoa2sdaSIhd4zmr/Q3GXlqvjIj3hg0 WvyJtcLzxO3Ls2jxCnPcPg== 0000950136-04-000665.txt : 20040308 0000950136-04-000665.hdr.sgml : 20040308 20040308072918 ACCESSION NUMBER: 0000950136-04-000665 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040308 ITEM INFORMATION: FILED AS OF DATE: 20040308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARNACO GROUP INC /DE/ CENTRAL INDEX KEY: 0000801351 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', CHILDREN'S & INFANTS' UNDERGARMENTS [2340] IRS NUMBER: 954032739 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10857 FILM NUMBER: 04653539 BUSINESS ADDRESS: STREET 1: 90 PARK AVE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126611300 MAIL ADDRESS: STREET 1: 90 PARK AVENUE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: W ACQUISITION CORP /DE/ DATE OF NAME CHANGE: 19861117 8-K 1 file001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): March 8, 2004 The Warnaco Group, Inc. ----------------------- (Exact name of Registrant as specified in its charter) Delaware 001-10857 95-4032739 - ---------------------------- ------------------------ ------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 501 Seventh Avenue, New York, New York 10018 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 287-8000 ---------------- - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Item 12. Results of Operations and Financial Condition. On March 8, 2004, The Warnaco Group, Inc. issued a press release announcing fourth quarter and fiscal year 2003 results. A copy of the press release is attached to this report as Exhibit 99.1 and is being furnished pursuant to Item 12 of Form 8-K. The information contained in the press release is incorporated herein by reference. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE WARNACO GROUP, INC. Date: March 8, 2004 By: /s/ Lawrence R. Rutkowski ------------------------- Name: Lawrence R. Rutkowski Title: Senior Vice President - Finance and Chief Financial Officer EXHIBIT INDEX EXHIBIT NO. DOCUMENT - ----------- -------- 99.1 Press Release, dated March 8, 2004 EX-99.1 3 file002.txt PRESS RELEASE Exhibit 99.1 [WARNACO LOGO] FOR IMMEDIATE RELEASE Company Contact: Deborah Abraham Director, Investor Relations (212) 287-8289 WARNACO REPORTS FOURTH QUARTER AND FISCAL 2003 RESULTS - -------------------------------------------------------------------------------- New York, N.Y. March 8, 2004 - The Warnaco Group, Inc. (NASDAQ: WRNC) today announced fourth quarter and fiscal year 2003 results. For the fourth quarter of fiscal 2003 net revenues were $337.4 million compared to $339.1 million for the prior year fourth quarter. Income from continuing operations for the fourth quarter of fiscal 2003 was $10.7 million, or $0.23 per diluted share, a $65.5 million improvement over the fourth quarter of fiscal 2002 loss from continuing operations of $54.8 million, or $1.03 per diluted share. The net loss for the fourth quarter of fiscal 2003 was $4.1 million, or $0.09 per diluted share, compared to a net loss of $59.5 million, or $1.12 per diluted share, for the prior year period (see Schedule 1). The Company notes that reduced selling, general and administrative ("SG&A") expense was a principal contributor to the improved results. The Company emerged from bankruptcy on February 4, 2003, and therefore the reported fiscal year 2003 results are for the eleven-month period commencing on February 5, 2003 and ending on January 3, 2004. For that eleven-month period, net revenues were $1.26 billion, income from continuing operations was $20.3 million, or $0.45 per diluted share, and net income was $1.9 million, or $0.04 per diluted share (see Schedule 1). These results include the effects of the restatement of operating results for the first three quarters of fiscal 2003 to reflect a non-cash charge of approximately $0.01 per diluted share per quarter for the amortization of the intangible asset associated with the Company's Calvin Klein jeans license over its remaining license period of 42 years. For further information concerning the restatement, please refer to "Restatement of Prior Results" and Schedule 10 in this press release. The Company notes that, due to this restatement, its previously filed Quarterly Reports on Form 10-Q for the first, second and third quarters of fiscal 2003 should not be relied upon by investors and should be read in conjunction with the restated results appearing in Schedule 10 of this press release and the Notes to the Consolidated Financial Statements section of the Company's Annual Report on Form 10-K which the Company expects to file on or before March 18, 2004. During the fourth quarter of fiscal 2003 the Company: o Signed an exclusive worldwide license with Sweetface Fashion Company to market and produce JLO by Jennifer Lopez(R) lingerie; o Undertook several initiatives to further the growth of its brands, including the introduction of a Chaps(R) denim line, a junior underwear line under the Choice Calvin Klein(R) label, Lejaby Rose(R), a new Lejaby(R) introduction, and the extension of the Speedo(R) brand through a sub-license agreement for performance water; and 1 o Further rationalized its sourcing and distribution infrastructures through the sale of its Honduran and Mexican intimate apparel manufacturing operations and the move to a Company-owned distribution center for its Calvin Klein jeans business. Earlier in the year, the Company: o Continued to execute its plan to exit certain non-core businesses through the sale of the ABS by Allen Schwartz(R) business unit; o Entered into a sub-licensing agreement for Calvin Klein kids jeanswear; o Strengthened its partnerships by extending its license with Polo Ralph Lauren for Chaps men's sportswear for an additional ten years through 2018, fostered improved relationships with Calvin Klein, Inc. and Speedo International Ltd. and signed a new license agreement for Nautica(R)swimwear and beachwear; o Built on the momentum of the Speedo brand through the introduction of Beach, a fashion line, the expansion of the Lifeguard line to include contemporary fashion swimwear and cover-ups and the growth of the Speedo footwear and accessories business; and o Elected to expense stock options beginning in the first quarter of fiscal 2003. In addition to the financial information presented in accordance with generally accepted accounting principles ("GAAP"), this press release includes financial information on a pro forma basis as if the Company had emerged from bankruptcy at the beginning of fiscal 2002 and which reflects (i) the elimination of bankruptcy-related fees and expenses; (ii) the elimination of expenses and income related to the Company's bankruptcy reorganization (i.e., the cancellation of indebtedness and other fresh start accounting adjustments); (iii) the elimination of restructuring charges related to actions initiated prior to the Company's emergence from bankruptcy which continued through the end of fiscal 2003; (iv) adjustments to depreciation and amortization expense to reflect the fair value of the Company's assets as determined as of February 4, 2003; (v) adjustments to interest expense to reflect the Company's new debt structure; and (vi) adjustments to the Company's income tax expense to reflect the Company's post-emergence tax status. See Schedules 2, 4, 5, 6, 7 and 9 for a summary of pro forma information for each period presented. The pro forma results for fiscal year 2003 combine the eleven-month period beginning February 5, 2003 and ending January 3, 2004 with the one-month period beginning January 5, 2003 and ending February 4, 2003. For all periods of fiscal 2002, the pro forma financials include adjustments to reflect the reclassifications of certain expenses between cost of goods sold and SG&A expense (see Schedule 9). The Company believes the pro forma information is useful to investors in comparing the Company's results with prior periods. 2 FOURTH QUARTER RESULTS On a pro forma basis, as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, for the three months ended January 3, 2004: o Net revenues were $337.4 million, down slightly from $339.1 million in the fourth quarter of fiscal 2002. Net revenues for the fourth quarter of fiscal 2002 included $2.6 million of net revenues associated with business units that were sold or discontinued during fiscal 2002 (primarily the Company's domestic outlet retail stores). Excluding net revenues from these sold or discontinued business units, net revenues for the fourth quarter of fiscal 2003 increased by approximately 0.3% compared to the fourth quarter of fiscal 2002. However, foreign currency translation gains accounted for $13.7 million of net revenue in 2003; o Gross profit was $109.1 million, or 32.3% of net revenues, compared to $93.7 million, or 27.6% of net revenues, in the fourth quarter of fiscal 2002. The 470 basis point improvement in gross margin was due primarily to reduced product costs from improved sourcing; o SG&A expenses were $86.2 million, or 25.5% of net revenues, compared to $85.9 million, or 25.3% of net revenues, in the fourth quarter of fiscal 2002. SG&A expenses for the fourth quarter of fiscal 2003 include $1.1 million of non-cash stock based compensation expense related to restricted stock awards and stock options granted during fiscal 2003 and a $3.6 million charge related to the Company's incentive compensation plan, which were not included in fourth quarter fiscal 2002 results; o Pension income was $6.5 million as a result of the actual return on plan assets exceeding the increase in pension plan liabilities for the Company's frozen pension plan; o Operating income was $29.5 million, or 8.7% of net revenues, compared to $6.4 million, or 1.9% of net revenues, in fiscal 2002; o Interest expense decreased by $2.6 million to $5.0 million, compared to $7.6 million in fiscal 2002, due to a reduction in debt and lower interest rates; o Income from continuing operations was $15.1 million, or $0.33 per diluted share, compared to a loss from continuing operations of $0.7 million, or $0.01 per diluted share, in the fourth quarter of fiscal 2002. This $15.8 million improvement includes approximately $1.0 million from foreign currency translation gains; and o EBITDA was $38.7 million, or 11.5% of net revenues, compared to $15.4 million, or 4.5% of net revenues, in the fourth quarter of fiscal 2002. Fourth quarter EBITDA includes $6.5 million of pension-related income which the Company excludes from its analysis of operations. The Company utilizes the measure EBITDA in addition to operating income to assess its business results. For a discussion of EBITDA, see "Use of EBITDA and Pro Forma Financial Information" in this press release. For a reconciliation of income from continuing operations to EBITDA, see Schedule 2. Joe Gromek, President and Chief Executive Officer, stated: "Fiscal 2003 marked an important milestone for our Company. We positioned Warnaco for growth and realized the initial benefits of our strategic plan. Our team executed on programs aimed at reducing expenses while capitalizing on the strength of our brands and market position. We have also fostered improved relations with our key retail accounts. We look forward to fully realizing the benefit of our restructuring initiatives, with expected operational improvements in our Calvin Klein jeans and intimate apparel businesses, while we continue to execute on our strategic growth initiatives in Chaps, Calvin Klein underwear and Speedo." 3 FULL YEAR FISCAL 2003 RESULTS On a pro forma basis, as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, for the fiscal year 2003: o Net revenues were $1.37 billion, down 2.4% from $1.41 billion in fiscal 2002. Net revenues for fiscal 2002 included $46.2 million of net revenues associated with business units that were sold or discontinued during fiscal 2002 (sold or discontinued business units include the Company's domestic outlet retail stores, GJM, Penhaligon's, IZKA, Weight Watchers, Fruit of the Loom and Ubertech). Excluding net revenues from these sold or discontinued business units, fiscal 2003 net revenues increased by approximately 0.9% compared to fiscal 2002. However, foreign currency translation gains accounted for $34.0 million of net revenue in fiscal 2003; o Gross profit was $447.5 million, or 32.6% of net revenues, compared to $442.6 million, or 31.4% of net revenues, in fiscal 2002. The improvement in gross profit was due primarily to reduced product costs from improved sourcing and a reduction in sales allowances compared to fiscal 2002; o SG&A expenses were $353.9 million, or 25.8% of net revenues, compared to $358.9 million, or 25.5% of net revenues, in fiscal 2002. SG&A expenses for fiscal 2003 declined by $5.0 million compared to fiscal 2002 due to expense management initiatives. In addition, SG&A for fiscal 2003 included $5.5 million of non-cash stock based compensation expense related to restricted stock awards and stock options granted during fiscal 2003 and an $8.8 million charge related to the Company's incentive compensation plan, which were not included in fiscal 2002 results; o Pension income was $6.5 million as a result of the actual return on plan assets exceeding the increase in pension plan liabilities for the Company's frozen pension plan; o Operating income was $100.1 million, or 7.3% of net revenues, compared to $78.3 million, or 5.6% of net revenues, in fiscal 2002; o Interest expense decreased by $8.3 million to $23.2 million, compared to $31.5 million in fiscal 2002, due to a reduction in debt and lower interest rates; o Income from continuing operations increased 69% to $47.6 million compared to $28.2 million in fiscal 2002. This $19.4 million improvement includes approximately $1.8 million from foreign currency translation gains; o Diluted income per share from continuing operations increased by approximately 69% to $1.05, compared to $0.62 in fiscal 2002; and o EBITDA was $137.2 million, or 10.0% of net revenues, compared to $112.6 million, or 8.0% of net revenues, in fiscal 2002. Fiscal 2003 EBITDA includes $6.5 million of pension-related income which the Company excludes from the analysis of its operations. Excluding this benefit, EBITDA was $130.7 million. For a discussion of EBITDA, see "Use of EBITDA and Pro Forma Financial Information" in this press release. For a reconciliation of income from continuing operations to EBITDA, see Schedule 2. The Company noted the following balance sheet highlights (on an actual basis) as of January 3, 2004: o Inventory declined by $68.2 million, or 19.6%, to $279.8 million, compared to $348.0 million at February 4, 2003. The decrease in inventory primarily reflects improved inventory management and, to a lesser extent, the closing of the Company's remaining U.S. outlet retail stores in the fourth quarter of fiscal 2002; and 4 o Cash increased by $26.6 million, or 98.9%, to $53.5 million at January 3, 2004, compared to cash (including restricted cash) of $26.9 million at February 4, 2003. Debt decreased by $35.4 million from $246.5 million at February 4, 2003 to $211.1 million at January 3, 2004. For the eleven months ended January 3, 2004, the combined increase in cash and reduction of debt totaled $62.0 million. Larry Rutkowski, Senior Vice President - Finance and Chief Financial Officer, commented: "We achieved the key financial and operational objectives we set for 2003. To this end, we advanced the integration of our shared services platform and further rationalized our sourcing and distribution infrastructures while continuing to divest our non-core assets. These moves are expected to reduce costs and improve gross margins and asset utilization going forward. We also ended the year with a strong balance sheet, including $53.5 million in cash and no outstanding balances under our revolving credit facility. This places us in a solid position to pursue the many opportunities that exist for our Company, and importantly, create added value for our shareholders." FUTURE GUIDANCE Over the next three years the Company is targeting: o Modest near term revenue growth, increasing in future years; o Gross margin percentage increasing on average over 1 percentage point per year; o Maintaining a competitive SG&A level; and o Double-digit percentage operating margin growth annually. As previously reported, the Company's first quarter fiscal 2003 results were positively affected by many factors including increased sales of certain 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 does not expect a recurrence of these events in the first quarter of fiscal 2004. Beyond the first quarter of fiscal 2004, the Company anticipates improved results compared to the corresponding periods of fiscal 2003. In addition, to effectively capitalize on an Olympic year and new product launches, the Company plans to increase marketing expenses. This is expected to result in a modest increase in SG&A expense as a percent of net revenues over fiscal 2003 levels. RESTATEMENT OF PRIOR RESULTS In the course of finalizing the Company's 2003 financial statements, the Company, after consultation with its auditors, has determined that its Calvin Klein jeans license, which had been classified as an indefinite lived asset and thus not amortized, should be classified as a finite lived asset and amortized over the remaining license period of 42 years commencing February 5, 2003. As a result, fiscal 2003 results reflect a non-cash amortization charge of $2.1 million related to this license. The Company has restated operating results for the first three quarters of fiscal 2003 to reflect the non-cash amortization charge of approximately $0.6 million, or $0.01 per diluted share, per quarter. The restatement had no impact on EBITDA or cash flows from operations and will not affect these measures in the future. During fiscal 2002 and through February 4, 2003, the carrying value of this license was zero. Therefore, the restatement does not affect the Company's financial results for periods prior to February 4, 2003. The Calvin Klein jeans license was revalued upon the adoption of fresh start accounting. The Company has also adjusted its February 4, 2003 fresh start balance sheet to reflect the tax impact of this restatement. The Company notes that, due to this 5 restatement, its previously filed Quarterly Reports on Form 10-Q for the first, second and third quarters of fiscal 2003 should not be relied upon by investors and should be read in conjunction with the restated results appearing in Schedule 10 of this press release and the Notes to the Consolidated Financial Statements section of the Company's Annual Report on Form 10-K which the Company expects to file on or before March 18, 2004. PENSION ACCOUNTING In fiscal 2003, the Company changed its method of accounting for defined benefit pension plans to a method that accelerates the recognition of gains and losses on pension plan assets and the liability for pension plan obligations. The Company will record net pension expense or income in the fourth quarter of each fiscal year in accordance with Statement of Financial Accounting Standards ("SFAS") No. 87. This change will result in additional volatility in pension expense or income in future periods. Therefore, the Company has disclosed pension expense or income in its consolidated financial statements. The Company will file a preferability letter with its Annual Report on Form 10-K. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES Pro forma results exclude the losses from discontinued operations and restructuring charges. The loss from discontinued operations for the fourth quarter of fiscal 2003 was $14.8 million, including $9.8 million of restructuring charges. Discontinued operations for the fourth quarter include: (i) the remaining 44 Speedo Authentic Fitness retail stores that will be closed during the first half of fiscal 2004; (ii) the ABS by Allen Schwartz business unit sold on January 31, 2004, including a $3.0 million impairment charge related to the loss on the sale; and (iii) the Warner's brand and business in Europe. For the fourth quarter of fiscal 2003, restructuring charges related to continuing operations of $10.0 million were primarily related to the sale of the Company's Honduras manufacturing facility, the closure of distribution facilities in Canada, the termination of the Company's third party distribution agreement for the Secaucus, New Jersey operation, and the consolidation of certain manufacturing operations in France. For fiscal 2003, the loss from discontinued operations was $18.9 million, including $9.8 million of restructuring charges. The fiscal 2003 discontinued operations include the items in (i) through (iii) listed above. For fiscal 2003, restructuring charges related to continuing operations of $21.2 million were primarily related to the sale of the Company's Honduras manufacturing facility, the closure of the Company's facilities in Thomasville, Georgia and distribution facilities in Canada, the termination of the Company's third party distribution agreement for the Secaucus, New Jersey operation, and the consolidation of certain manufacturing operations in France. 6 Below is a summary of the total restructuring charges included in the Company's financial statements (for periods ending January 3, 2004):
Fourth Eleven Quarter Months ------- ------ (in millions of dollars) Restructuring charges included in: Continuing operations: Cost of goods sold $ 2.1 $ 2.1 SG&A 7.9 19.1 ------ ------ Continuing operations 10.0 21.2 Discontinued operations 9.8 9.8 ------ ------ Total $ 19.8 $ 31.0 ====== ======
During the fourth quarter, the Company announced the sale of its White Stag(R) trademark to Wal-Mart. Proceeds from the sale of the trademark were a $10.0 million payment received in December 2003 and a note receivable for an aggregate of $18.7 million (plus interest) payable over the next three years. The Company will continue to design the White Stag women's sportswear line through at least 2006. SUBSEQUENT EVENTS During the first quarter of fiscal 2004, the Company: o Completed the sale of its Honduras manufacturing facility; o Completed the sale of its San Luis, Mexico intimate apparel manufacturing operation, completing the move to a 100% sourced business model for the Company's North American intimate apparel businesses; and o Signed a preliminary agreement to license its Warner's brand in Europe. USE OF EBITDA AND PRO FORMA FINANCIAL INFORMATION The Company evaluates its operating results based on EBITDA, which it defines as net income before interest expense, income taxes, 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 fiscal 2002 and, as a result, has been adjusted to exclude the effects of the Company's reorganization. Additionally, pro forma EBITDA excludes the results of discontinued operations. The Company is presenting 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. 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 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, 7 depreciation and amortization expense, which is included in net income (loss), has decreased significantly from the amounts recorded in prior periods. Accordingly, the Company believes that providing EBITDA makes it easier for investors and others to evaluate the Company's results and to compare its operating results from period to period. Disclosure of EBITDA also provides investors and others with additional criteria used by the Company in assessing its operating performance. EBITDA is used by the Company (i) as a performance measure by which management evaluates its operating performance and the operating performance of its operating divisions, (ii) as a performance measure in presentations to its Board of Directors and (iii) as a component used in determining annual incentive bonus payments to certain of its employees who participate in the Company's Incentive Compensation Plan. In addition, the Company's senior secured credit agreement and the indenture governing the Senior Notes includes covenants that are based on and use EBITDA as a component of the calculations. Accordingly, the Company believes that information regarding EBITDA also provides useful information to investors in evaluating its liquidity and long-term and short-term debt. EBITDA is a non-GAAP performance and liquidity measure and readers should not construe EBITDA either as an alternative to net income (loss), an indicator of the Company's operating performance, or an alternative to cash flows from operating activities as a measure of the Company's liquidity. The use of EBITDA has certain limitations which readers should consider if using EBITDA to evaluate the Company's financial performance or liquidity. EBITDA does not include income tax or interest expense. Interest and income tax expense have required significant uses of the Company's cash in the past and will require the Company to expend significant cash resources in the future. EBITDA also does not include depreciation or amortization expense. Investors may require an understanding of the Company's depreciation and amortization expense to evaluate its operating results and liquidity requirements. The Company compensates for these limitations by evaluating its debt and interest service and its capital expenditure requirements separately from its evaluation of its operating performance and by using this non-GAAP financial measure as a supplement to its GAAP results to provide a more complete understanding of the factors and trends affecting its business. The Company may calculate EBITDA differently than other companies. The Company has presented financial information on a pro forma basis. The Company believes that the consummation of the Company's plan of reorganization, the adoption of fresh start reporting and the offering of Senior Notes are significant events and, therefore, the presentation of pro forma financial information giving effect to these events provides material information that is useful to investors in comparing the Company's results with prior and future periods. Stockholders and other persons are invited to listen to the fourth quarter earnings conference call scheduled for today, Monday, March 8, 2004 at 9:00 a.m. Eastern Time. To participate in Warnaco's conference call, dial (888) 262-9189 approximately five minutes prior to the 9:00 a.m. Eastern start time. The call will also be broadcast live over the Internet at www.warnaco.com. An online archive will be available immediately following the call. This press release was furnished to the Securities and Exchange Commission and may be accessed at the following Internet location: www.sec.gov, as well as through the Company's website: www.warnaco.com. About The Warnaco Group, Inc. The Warnaco Group, Inc., headquartered in New York, is a leading apparel company engaged in the business of designing, marketing and selling intimate apparel, menswear, jeanswear, 8 swimwear, men's and women's sportswear and accessories under such owned and licensed brands as Warner's(R), Olga(R), Lejaby(R), Body Nancy Ganz(TM), JLO by Jennifer Lopez(R) lingerie, Chaps(R), Calvin Klein(R) men's and women's underwear, men's accessories, men's, women's, junior women's and children's jeans and women's and juniors swimwear, Speedo(R) men's, women's and children's swimwear, sportswear and swimwear accessories, Anne Cole Collection(R), Cole of California(R), Catalina(R) and Nautica(R) swimwear. FORWARD-LOOKING STATEMENTS This press release may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect, when made, the Company's expectations or beliefs concerning future events that involve risks and uncertainties, including general economic conditions affecting the apparel industry, changing fashion trends, pricing pressures which may cause the Company to lower its prices, increases in the prices of raw materials the Company uses, changing international trade regulation and elimination of quotas on imports of textiles and apparel, the Company's history of losses, the Company's ability to protect its intellectual property rights, the Company's dependency on a limited number of customers, the Company's dependency on the reputation of its brand names, the Company's exposure to conditions in overseas markets, the competition in the Company's markets, the comparability of financial statements for periods before and after the Company's adoption of fresh start accounting, the Company's history of insufficient disclosure controls and procedures and internal controls and restated financial statements, the Company's future plans concerning guidance regarding its results of operations, the effect of the SEC's investigation, the effect of local laws and regulations, shortages of supply of sourced goods or interruptions in the Company's manufacturing, the Company's level of debt, the Company's ability to obtain additional financing, the restrictions on the Company's operations imposed by its revolving credit facility and the indenture governing the senior notes and the Company's ability to service its debt. All statements other than statements of historical fact included in this press release are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements may contain the words "believe," "anticipate," "expect," "estimate," "project," "will be," "will continue," "will likely result," or other similar words and phrases. Forward-looking statements and the Company's plans and expectations are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, and the Company's business in general is subject to certain risks that could affect the value of its stock. Investor Relations: Allison Malkin Integrated Corporate Relations (203) 222-9013 Media: Doug Morris Gavin Anderson & Company (212) 515-1960/(212) 515-1964 9 SCHEDULE 1 THE WARNACO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
QUARTER PERIOD-TO-DATE ------------------------------------------------- ---------------------- Successor Company Predecessor Company Successor Company ----------------------- ----------------------- ---------------------- For the Three For the Three For the Eleven Months Ended Months Ended Months Ended January 3, 2004 January 4, 2003 January 3, 2004 ----------------------- ----------------------- ---------------------- Net revenues $ 337,424 $ 339,100 $ 1,264,249 Cost of goods sold 230,403 236,654 862,401 ----------------------- ----------------------- ---------------------- Gross profit 107,021 102,446 401,848 Selling, general and administrative expenses 86,967 112,998 327,248 Pension (income) expense (6,488) 1,350 (6,488) Restructuring items 7,835 - 19,101 Reorganization items - 37,395 - Amortization of sales order backlog - - 11,800 ----------------------- ----------------------- ---------------------- Operating income (loss) 18,707 (49,297) 50,187 Gain on cancellation of pre-petition indebtedness - - - Fresh start adjustments - - - Other (income) expense, net (586) (58) (2,817) Interest expense 4,966 5,785 20,641 ----------------------- ----------------------- ---------------------- Income (loss) from continuing operations before provision (benefit) for income taxes and change in accounting principle 14,327 (55,024) 32,363 Provision (benefit) for income taxes 3,632 (188) 12,084 ----------------------- ----------------------- ---------------------- Income (loss) from continuing operations before change in accounting principle 10,695 (54,836) 20,279 Discontinued operations (14,810) (4,654) (18,393) Cumulative effect of change in accounting principle (net of income tax benefit of $53,513) - - - ----------------------- ----------------------- ---------------------- Net income (loss) $ (4,115) $ (59,490) $ 1,886 ======================= ======================= ====================== Basic income (loss) per common share: (a) Income (loss) from continuing operations before accounting change $ 0.24 $ (1.03) $ 0.45 Discontinued operations (0.33) (0.09) (0.41) Cumulative effect of accounting change - - - ----------------------- ----------------------- ---------------------- Net income (loss) $ (0.09) $ (1.12) $ 0.04 ======================= ======================= ====================== Diluted income (loss) per common share: (a) Income (loss) from continuing operations before accounting change $ 0.23 $ (1.03) $ 0.45 Discontinued operations (0.32) (0.09) (0.41) Cumulative effect of accounting change - - - ----------------------- ----------------------- ---------------------- Net income (loss) $ (0.09) $ (1.12) $ 0.04 ======================= ======================= ====================== Weighted average number of shares outstanding used in computing income (loss) per common share: (a) Basic 45,157 52,990 45,061 ======================= ======================= ====================== Diluted 46,072 52,990 45,463 ======================= ======================= ======================
PERIOD-TO-DATE ----------------------------------------------- Predecessor Company ----------------------------------------------- For the One For the Fiscal Month Ended Year Ended February 4, 2003 January 4, 2003 ---------------------- ---------------------- Net revenues $ 110,172 $ 1,408,242 Cost of goods sold 66,593 998,454 ---------------------- ---------------------- Gross profit 43,579 409,788 Selling, general and administrative expenses 32,898 374,320 Pension (income) expense - 5,399 Restructuring items - - Reorganization items 29,805 114,495 Amortization of sales order backlog - - ---------------------- ---------------------- Operating income (loss) (19,124) (84,426) Gain on cancellation of pre-petition indebtedness (1,692,696) - Fresh start adjustments (765,726) - Other (income) expense, net 359 (62) Interest expense 1,751 19,972 ---------------------- ---------------------- Income (loss) from continuing operations before provision (benefit) for income taxes and change in accounting principle 2,437,188 (104,336) Provision (benefit) for income taxes 78,150 49,648 ---------------------- ---------------------- Income (loss) from continuing operations before change in accounting principle 2,359,038 (153,984) Discontinued operations (501) (9,257) Cumulative effect of change in accounting principle (net of income tax benefit of $53,513) - (801,622) ---------------------- ---------------------- Net income (loss) $ 2,358,537 $ (964,863) ====================== ====================== Basic income (loss) per common share: (a) Income (loss) from continuing operations before accounting change $ 44.52 $ (2.91) Discontinued operations (0.01) (0.17) Cumulative effect of accounting change - (15.13) ---------------------- ---------------------- Net income (loss) $ 44.51 $ (18.21) ====================== ====================== Diluted income (loss) per common share: (a) Income (loss) from continuing operations before accounting change $ 44.52 $ (2.91) Discontinued operations (0.01) (0.17) Cumulative effect of accounting change - (15.13) ---------------------- ---------------------- Net income (loss) $ 44.51 $ (18.21) ====================== ====================== Weighted average number of shares outstanding used in computing income (loss) per common share: (a) Basic 52,990 52,990 ====================== ====================== Diluted 52,990 52,990 ====================== ======================
(a) Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 2 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
For the Three Months Ended ---------------------------------------- January 3, 2004 (a) January 4, 2003 (b) ------------------- ------------------- Net revenues $ 337,424 $ 339,100 Cost of goods sold 228,283 245,400 ------------------- ------------------- Gross profit 109,141 93,700 Selling, general and administrative expenses 86,154 85,901 Pension expense (income) (6,488) 1,350 ------------------- ------------------- Operating income 29,475 6,449 Other (income) expense, net (586) (58) Interest expense 4,966 7,612 ------------------- ------------------- Income (loss) from continuing operations before provision (benefit) for income taxes 25,095 (1,105) Provision (benefit) for income taxes 10,038 (442) ------------------- ------------------- Income (loss) from continuing operations $ 15,057 $ (663) =================== =================== Basic income per common share: (e) Income (loss) from continuing operations $ 0.33 $ (0.01) =================== =================== Diluted income per common share: (e) Income (loss) from continuing operations $ 0.33 $ (0.01) =================== =================== Weighted average number of shares outstanding used in computing income (loss) per common share: (e) Basic 45,157 45,157 =================== =================== Diluted 46,072 45,157 =================== =================== - ------------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA INCOME (LOSS) FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: INCOME (LOSS) FROM CONTINUING OPERATIONS $ 15,057 $ (663) Provision (benefit) for income taxes 10,038 (442) Interest expense 4,966 7,612 Depreciation and amortization expense 8,664 8,867 ------------------- ------------------- Pro forma EBITDA $ S38,725 $ 15,374 =================== ===================
For the Fiscal Year Ended ---------------------------------------- January 3, 2004 (c) January 4, 2003 (d) ------------------- ------------------- Net revenues $ 1,374,421 $ 1,408,242 Cost of goods sold 926,874 965,593 ------------------- ------------------- Gross profit 447,547 442,649 Selling, general and administrative expenses 353,937 358,917 Pension expense (income) (6,488) 5,399 ------------------- ------------------- Operating income 100,098 78,333 Other (income) expense, net (2,458) (62) Interest expense 23,204 31,476 ------------------- ------------------- Income (loss) from continuing operations before provision (benefit) for income taxes 79,352 46,919 Provision (benefit) for income taxes 31,741 18,768 ------------------- ------------------- Income (loss) from continuing operations $ 47,611 $ 28,151 =================== =================== Basic income per common share: (e) Income (loss) from continuing operations $ 1.06 $ 0.62 =================== =================== Diluted income per common share: (e) Income (loss) from continuing operations $ 1.05 $ 0.62 =================== =================== Weighted average number of shares outstanding used in computing income (loss) per common share: (e) Basic 45,061 45,061 =================== =================== Diluted 45,463 45,463 =================== =================== - ------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA INCOME (LOSS) FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: INCOME (LOSS) FROM CONTINUING OPERATIONS $ 47,611 $ 28,151 Provision (benefit) for income taxes 31,741 18,768 Interest expense 23,204 31,476 Depreciation and amortization expense 34,614 34,243 ------------------- ------------------- Pro forma EBITDA $ 137,170 $ 112,638 =================== ===================
To present the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, the Company has made pro forma adjustments: (a) See Schedule 4 for pro forma adjustments for the fourth quarter of fiscal 2003. (b) See Schedule 5 for pro forma adjustments for the fourth quarter of fiscal 2002. (c) See Schedule 6 for pro forma adjustments for fiscal 2003. (d) See Schedule 7 for pro forma adjustments for fiscal 2002. (e) Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 3 THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
SUCCESSOR SUCCESSOR PREDECESSOR ---------------- ---------------- ---------------- JANUARY 3, 2004 FEBRUARY 4, 2003 JANUARY 4, 2003 ---------------- ---------------- ---------------- ASSETS (RESTATED) (a) Current assets: Cash $ 53,457 $ 20,706 $ 114,025 Restricted cash - 6,200 6,100 Accounts receivable 209,491 196,622 188,358 Inventories, net 279,838 348,033 345,269 Other current assets 65,801 56,200 44,354 Current assets of discontinued operations 27,125 - 2,972 ---------------- ---------------- ---------------- Total current assets 635,712 627,761 701,078 ---------------- ---------------- ---------------- Property, plant and equipment - net 96,867 129,357 156,712 Intangible and other assets 356,483 369,496 90,090 ---------------- ---------------- ---------------- TOTAL ASSETS $ 1,089,062 $ 1,126,614 $ 947,880 ================ ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities not subject to compromise: Current liabilities: Current portion of long-term debt $ - $ 5,050 $ 5,765 Revolving credit facility - 39,200 - Other current liabilities 235,455 255,818 234,076 Current liabilities of discontinued operations 7,441 - - ---------------- ---------------- ---------------- Total current liabilities 242,896 300,068 239,841 ---------------- ---------------- ---------------- Long-term debt: Second Lien Notes due 2008 - 200,942 - Senior Notes due 2013 210,000 - - Other 1,132 1,260 1,252 Other long-term liabilities 112,374 120,796 76,801 Liabilities subject to compromise - - 2,486,082 Total stockholders' equity (deficiency) 522,660 503,548 (1,856,096) ---------------- ---------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,089,062 $ 1,126,614 $ 947,880 ================ ================ ================ SUPPLEMENTAL INFORMATION: Debt $ 211,132 $ 246,452 Cash (including restricted cash) 53,457 26,906
(a) Restated to reflect the reclassification of deferred tax assets and deferred tax liabilities with a corresponding reduction in goodwill as a result of the change in classification of the Calvin Klein jeans license from an indefinite lived intangible asset to a finite lived intangible asset. SCHEDULE 4 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
As Reported Pro Forma For the Three Pro For the Three Months Ended Forma Months Ended January 3, 2004 Adjustments January 3, 2004 --------------- ----------- --------------- Net revenues $ 337,424 $ - $ 337,424 Cost of goods sold 230,403 (2,120)(a) 228,283 --------------- ----------- --------------- Gross profit 107,021 2,120 109,141 Selling, general and administrative expenses 86,967 (813)(b) 86,154 Pension income (6,488) - (6,488) Restructuring items 7,835 (7,835)(c) - --------------- ----------- --------------- Operating income 18,707 10,768 29,475 Other income (586) - (586) Interest expense 4,966 - 4,966 --------------- ----------- --------------- Income from continuing operations before provision for income taxes 14,327 10,768 25,095 Provision for income taxes 3,632 6,406 (d) 10,038 --------------- ----------- --------------- Income from continuing operations $ 10,695 $ 4,362 $ 15,057 =============== =========== =============== Basic income per common share: (e) Income from continuing operations $ 0.24 $ 0.33 =============== =============== Diluted income per common share: (e) Income from continuing operations $ 0.23 $ 0.33 =============== =============== Weighted average number of shares outstanding used in computing income per common share: (e) Basic 45,157 45,157 =============== =============== Diluted 46,072 46,072 =============== =============== - --------------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA INCOME FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: PRO FORMA INCOME FROM CONTINUING OPERATIONS $ 15,057 Provision for income taxes 10,038 Interest expense 4,966 Depreciation and amortization expense 8,664 --------------- Pro forma EBITDA $ 38,725 ===============
To present the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, the Company has made pro forma adjustments to: (a) Eliminate inventory markdowns of $2.1 million related to the sale of Company's intimate apparel manufacturing facility in Honduras. (b) Eliminate bankruptcy and reorganization related expenses of $0.8 million incurred in the fourth quarter and included in selling, general and administrative expenses. (c) Eliminate restructuring items of $7.8 million. (d) Adjust income tax provision to reflect the Company's estimated income tax rate of 40%. (e) Pro forma income per common share and weighted average number of shares outstanding reflect the 45 million shares of new common stock issued upon the Company's emergence from bankruptcy on February 4, 2003. Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 5 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
As Reported Pro Forma For the Three Pro For the Three Months Ended Forma Months Ended January 4, 2003 Adjustments January 4, 2003 --------------- ----------- --------------- Net revenues $ 339,100 $ - $ 339,100 Cost of goods sold 236,654 8,746 (a) 245,400 --------------- ----------- --------------- Gross profit 102,446 (8,746) 93,700 Selling, general and administrative expenses 112,998 (27,097)(b) 85,901 Pension expense 1,350 - 1,350 Reorganization items 37,395 (37,395)(c) - --------------- ----------- --------------- Operating income (loss) (49,297) 55,746 6,449 Other income (58) (58) Interest expense 5,785 1,827 (d) 7,612 --------------- ----------- --------------- Loss from continuing operations before provision (benefit) for income taxes (55,024) 53,919 (1,105) Provision (benefit) for income taxes (188) (254)(e) (442) --------------- ----------- --------------- Loss from continuing operations $ (54,836) $ 54,173 $ (663) =============== =========== =============== Basic loss per common share: (f) Loss from continuing operations $ (1.03) $ (0.01) =============== =============== Diluted loss per common share: (f) Loss from continuing operations $ (1.03) $ (0.01) =============== =============== Weighted average number of shares outstanding used in computing loss per common share: (f) Basic 52,990 45,157 =============== =============== Diluted 52,990 45,157 =============== =============== - ----------------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA LOSS FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: PRO FORMA LOSS FROM CONTINUING OPERATIONS $ (663) Provision (benefit) for income taxes (442) Interest expense 7,612 Depreciation and amortization expense 8,867 --------------- Pro forma EBITDA $ 15,374 ===============
To present the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, the Company has made pro-forma adjustments to: (a) Reflect the adoption of fresh start accounting and the change in the Company's inventory accounting policies to expense certain design, merchandising and other product related cost as incurred. As a result of this change, the pro forma adjustment eliminates $13.3 million of design, merchandising and other product related costs previously capitalized that were reflected in cost of goods sold during fiscal 2002, offset by a reclassification of $22.0 million to cost of goods sold from selling, general and administrative expenses, to conform to the Company's accounting policy subsequent to the adoption of fresh start accounting. (b) Eliminate historical depreciation and amortization expense of $14.0 million and the reclassification to cost of goods sold of $22.0 million, offset by fresh start depreciation and amortization expense of $8.9 million based upon the valuation of the Company's fixed and intangible assets at fair value on February 4, 2003. (c) Eliminate reorganization items of $37.4 million. (d) Record interest expense on the Senior Notes at 8 7/8% for three months of $4.7 million and interest expense of $0.1 million on certain leases settled in connection with the Company's bankruptcy, partially offset by the elimination of interest expense of $3.0 million related to certain foreign debt repaid in connection with the Company's emergence from bankruptcy. (e) Adjust income tax provision to reflect the Company's estimated income tax rate of 40%. (f) Pro forma income (loss) per common share and weighted average number of shares outstanding reflect the 45 million shares of new common stock issued upon the Company's emergence from bankruptcy on February 4, 2003. Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 6 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
FISCAL 2003 ------------------------------------------ Successor Company Predecessor Company ------------------- --------------------- As Reported As Reported Pro Forma For the Eleven For the One Pro Fiscal Year Months Ended Month Ended Forma Ended January 3, 2004 February 4, 2003 Adjustments January 3, 2004 ------------------- --------------------- ------------- ----------------- Net revenues $ 1,264,249 $ 110,172 $ - $ 1,374,421 Cost of goods sold 862,401 66,593 (2,120)(a) 926,874 ------------------- --------------------- ------------- ----------------- Gross profit 401,848 43,579 2,120 447,547 Selling, general and administrative expenses 327,248 32,898 (6,209)(b) 353,937 Pension income (6,488) - - (6,488) Restructuring items 19,101 - (19,101)(c) - Reorganization items - 29,805 (29,805)(c) - Amortization of sales order backlog 11,800 - (11,800)(d) - ------------------- --------------------- ------------- ----------------- Operating income (loss) 50,187 (19,124) 69,035 100,098 Gain on cancellation of pre-petition indebtedness - (1,692,696) 1,692,696 (e) - Fresh start adjustments - (765,726) 765,726 (e) - Other (income) expense, net (2,817) 359 - (2,458) Interest expense 20,641 1,751 812 (f) 23,204 ------------------- --------------------- ------------- ----------------- Income from continuing operations before provision for income taxes 32,363 2,437,188 (2,390,199) 79,352 Provision for income taxes 12,084 78,150 (58,493)(g) 31,741 ------------------- --------------------- ------------- ----------------- Income from continuing operations $ 20,279 $ 2,359,038 $ (2,331,706) $ 47,611 =================== ===================== ============= ================= Basic income per common share: (h) Income from continuing operations $ 0.45 $ 44.52 $ 1.06 =================== ===================== ================= Diluted income per common share : (h) Income from continuing operations $ 0.45 $ 44.52 $ 1.05 =================== ===================== ================= Weighted average number of shares outstanding used in computing income per common share: (h) Basic 45,061 52,990 45,061 =================== ===================== ================= Diluted 45,463 52,990 45,463 =================== ===================== ================= - ---------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA INCOME FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: PRO FORMA INCOME FROM CONTINUING OPERATIONS $ 47,611 Provision for income taxes 31,741 Interest expense 23,204 Depreciation and amortization expense 34,614 ----------------- Pro forma EBITDA $ 137,170 =================
To present the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, the Company has made pro forma adjustments to: (a) Eliminate inventory markdowns of $2.1 million related to the sale of Company's intimate apparel manufacturing facility in Honduras. (b) Eliminate historical depreciation and amortization expense of $4.3 million for January 2003, record depreciation and amortization expense of $3.1 million based upon the fair value of the Company's assets and eliminate bankruptcy and reorganization related expenses of $5.0 million included in selling, general and administrative expenses. (c) Eliminate restructuring and reorganization items of $19.1 million and $29.8 million, respectively. (d) Eliminate the amortization of sales order backlog of $11.8 million. The amortization of sales order backlog results from the Company's adoption of fresh start accounting as of February 4, 2003. The amortization of sales order backlog is a non-recurring charge and is not expected to have a continuing effect on the Company's results of operations after it was fully amortized in fiscal 2003. (e) Eliminate cancellation of debt of $1,692.7 million and fresh start adjustments of $765.7 million. (f) Record interest expense on the Senior Notes at 8 7/8% for the month of January 2003 of $1.6 million, partially offset by the elimination of interest expense on certain foreign debt agreements subject to standstill agreements paid as part of the Company's plan of reorganization of $0.8 million. (g) Adjust the income tax provision using the Company's estimated rate of 40%. (h) Pro forma income (loss) per common share and weighted average number of shares outstanding reflect the 45 million shares of new common stock issued upon the Company's emergence from bankruptcy on February 4, 2003. Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 7 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCLUDING PER SHARE DATA) (UNAUDITED)
As Reported Pro Forma Fiscal Year Pro Fiscal Year Ended Forma Ended January 4, 2003 Adjustments January 4, 2003 ----------------------- ------------------- --------------------- Net revenues $ 1,408,242 $ - $ 1,408,242 Cost of goods sold 998,454 (32,861)(a) 965,593 ----------------------- --------------- --------------------- Gross profit 409,788 32,861 442,649 Selling, general and administrative expenses 374,320 (15,403)(b) 358,917 Pension expense 5,399 - 5,399 Reorganization items 114,495 (114,495)(c) - ----------------------- --------------- --------------------- Operating income (loss) (84,426) 162,759 78,333 Other income (62) - (62) Interest expense 19,972 11,504 (d) 31,476 ----------------------- --------------- --------------------- Income (loss) from continuing operations before provision for income taxes (104,336) 151,255 46,919 Provision for income taxes 49,648 (30,880)(e) 18,768 ----------------------- --------------- --------------------- Income (loss) from continuing operations $ (153,984) $ 182,135 $ 28,151 ======================= =============== ===================== Basic income (loss) per common share: (f) Income (loss) from continuing operations $ (2.91) $ 0.62 ======================= ===================== Diluted income (loss) per common share: (f) Income (loss) before accounting change $ (2.91) $ 0.62 ======================= ===================== Weighted average number of shares outstanding used in computing income (loss) per common share: (f) Basic 52,990 45,061 ======================= ===================== Diluted 52,990 45,463 ======================= ===================== - ---------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF PRO FORMA INCOME FROM CONTINUING OPERATIONS TO PRO FORMA EBITDA: PRO FORMA INCOME FROM CONTINUING OPERATIONS $ 28,151 Provision for income taxes 18,768 Interest expense 31,476 Depreciation and amortization expense 34,243 --------------------- Pro forma EBITDA $ 112,638 =====================
To present the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002, the Company has made pro forma adjustments to: (a) Reflect the adoption of fresh start accounting and the change in the Company's inventory accounting policies to expense certain design, merchandising and other product related costs as incurred. As a result of this change, the pro forma adjustment eliminates $32.9 million of design, merchandising and other product related costs previously capitalized that were reflected in cost of goods sold for fiscal 2002. (b) Eliminate historical depreciation and amortization expense of $53.2 million and eliminate lease expense of $8.2 million related to certain leases settled as part of the Company's bankruptcy, partially offset by fresh start depreciation and amortization expense of $34.2 million based on the valuation of the Company's fixed and intangible assets at fair value on February 4, 2003 and the reclassification of $11.8 million of design, merchandising and other product related costs from cost of goods sold to selling, general and administrative expenses to conform to the Company's accounting policy subsequent to fresh start accounting. (c) Eliminate reorganization items of $114.5 million. (d) Record interest expense on the Senior Notes at 8 7/8% of $18.6 million and interest of $0.8 million on certain leases settled in connection with the Company's bankruptcy, partially offset by the elimination of interest expense of $7.9 million related to certain foreign debt repaid in connection with the Company's emergence from bankruptcy. (e) Adjust income tax provision to reflect the Company's estimated income tax rate of 40%. (f) Pro forma income (loss) per common share and weighted average number of shares outstanding reflect the 45 million shares of new common stock issued upon the Company's emergence from bankruptcy on February 4, 2003. Income (loss) per common share and the weighted average number of shares outstanding of the Predecessor Company are based on historical shares outstanding and do not reflect the effect of the cancellation of the Company's Class A common stock and issuance of 45 million shares of new common stock in connection with the Company's emergence from bankruptcy on February 4, 2003. Due to the cancellation of the Predecessor's Class A common stock and the issuance of 45 million shares of new common stock by the Successor in connection with the Company's emergence from bankruptcy on February 4, 2003, income (loss) per common share for periods beginning after February 5, 2003 will not be comparable to income (loss) per common share for periods beginning before February 5, 2003. SCHEDULE 8 THE WARNACO GROUP, INC. NET REVENUES AND OPERATING INCOME (LOSS) BY BUSINESS UNIT
THREE MONTHS ENDED ------------------------------------------------------------------------------- JANUARY 3, JANUARY 4, INCREASE % NET REVENUES: 2004 2003 (DECREASE) CHANGE ----------------- ----------------- -------------------- --------------- Intimate Apparel Group $ 146,017 $ 150,676 $ (4,659) -3.1% Sportswear Group 117,333 127,457 (10,124) -7.9% Swimwear Group 74,074 60,967 13,107 21.5% ----------------- ----------------- -------------------- --------------- Net Revenues $ 337,424 $ 339,100 $ (1,676) -0.5% ================= ================= ==================== =============== THREE MONTHS ENDED -------------------------------------------------------------------------------- JANUARY 3, % OF JANUARY 4, % OF 2004 NET REVENUE 2003 NET REVENUE ----------------- ----------------- -------------------- --------------- OPERATING INCOME: Intimate Apparel Group $ 11,163 3.3% $ 5,642 1.7% Sportswear Group 11,914 3.5% (3,088) -0.9% Swimwear Group 15,657 4.6% 39 0.0% ----------------- ----------------- -------------------- --------------- Group operating income 38,734 11.5% 2,593 0.8% Unallocated corporate expenses (11,389) -3.4% (14,265) -4.2% Amortization of intangibles (803) -0.2% (230) -0.1% Restructuring items (7,835) -2.3% - 0.0% Reorganization items - 0.0% (37,395) -11.0% ----------------- ----------------- -------------------- --------------- Operating income (loss) $ 18,707 5.5% $ (49,297) -14.5% ================= ================= ==================== =============== RECONCILIATION OF OPERATING INCOME (LOSS) TO PRO FORMA OPERATING INCOME (LOSS): THREE MONTHS ENDED -------------------------------------------------------------------------------- JANUARY 3, % OF JANUARY 4, % OF 2004 NET REVENUE 2003 NET REVENUE ----------------- ----------------- -------------------- --------------- AS REPORTED OPERATING INCOME (LOSS): $ 18,707 5.5% $ (49,297) -14.5% Reorganization items - 0.0% 37,395 11.0% Reorganization items in SG&A 813 0.2% - 0.0% Restructuring items 7,835 2.3% - 0.0% Amortization of sales order backlog - 0.0% - 0.0% Fresh start adjustments - product costs 2,120 0.6% 13,257 3.9% Fresh start adjustments - depreciation and amortization - 0.0% 5,094 1.5% GECC lease adjustments - 0.0% - 0.0% ----------------- ----------------- -------------------- --------------- PRO FORMA OPERATING INCOME (LOSS) $ 29,475 8.7% $ 6,449 1.9% ================= ================= ==================== ===============
FISCAL YEAR ENDED ----------------------------------------------------------------------------------- JANUARY 3, JANUARY 4, INCREASE % NET REVENUES: 2004 (a) 2003 (DECREASE) CHANGE -------------------- -------------------- ------------------- ------------- Intimate Apparel Group $ 572,813 $ 614,155 $ (41,342) -6.7% Sportswear Group 440,516 483,461 (42,945) -8.9% Swimwear Group 361,092 310,626 50,466 16.2% -------------------- -------------------- ------------------- ------------- Net Revenues $ 1,374,421 $ 1,408,242 $ (33,821) -2.4% ==================== ==================== =================== ============= FISCAL YEAR ENDED ----------------------------------------------------------------------------------- JANUARY 3, % OF JANUARY 4, % OF 2004 (a) NET REVENUE 2003 NET REVENUE -------------------- -------------------- ------------------- ------------- OPERATING INCOME: Intimate Apparel Group $ 61,233 4.5% $ 47,078 3.3% Sportswear Group 37,882 2.8% 20,185 1.4% Swimwear Group 61,039 4.4% 30,036 2.1% -------------------- -------------------- ------------------- ------------- Group operating income 160,154 11.7% 97,299 6.9% Unallocated corporate expenses (64,310) -4.7% (66,308) -4.7% Amortization of intangibles (15,875) -1.2% (922) -0.1% Restructuring items (19,101) -1.4% - 0.0% Reorganization items (29,805) -2.2% (114,495) -8.1% -------------------- -------------------- ------------------- ------------- Operating income (loss) $ 31,063 2.3% $ (84,426) -6.0% ==================== ==================== =================== ============= RECONCILIATION OF OPERATING INCOME (LOSS) TO PRO FORMA OPERATING INCOME (LOSS): FISCAL YEAR ENDED ----------------------------------------------------------------------------------- JANUARY 3, % OF JANUARY 4, % OF 2004 (a) NET REVENUE 2003 NET REVENUE -------------------- -------------------- ------------------- ------------- AS REPORTED OPERATING INCOME (LOSS): $ 31,063 2.3% $ (84,426) -6.0% Reorganization items 29,805 2.2% 114,495 8.1% Reorganization items in SG&A 5,012 0.4% - 0.0% Restructuring items 19,101 1.4% - 0.0% Amortization of sales order backlog 11,800 0.9% - 0.0% Fresh start adjustments - product costs 2,120 0.2% 21,061 1.5% Fresh start adjustments - depreciation and amortization 1,197 0.1% 19,003 1.3% GECC lease adjustments - 0.0% 8,200 0.6% -------------------- -------------------- ------------------- ------------- PRO FORMA OPERATING INCOME (LOSS) $ 100,098 7.3% $ 78,333 5.6% ==================== ==================== =================== =============
(a) The fiscal year ended January 3, 2004 is comprised of the one month ended February 4, 2003 combined with the eleven months ended January 3, 2004. SCHEDULE 9 THE WARNACO GROUP, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
For the Year Ended January 4, 2003 (a) (b) ------------------------------------------------------------------------------------ First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- Net revenues $ 388,855 $ 360,000 $ 320,287 $ 339,100 $ 1,408,242 Cost of goods sold 261,424 239,831 218,938 245,400 965,593 --------------- --------------- --------------- --------------- ---------------- Gross profit 127,431 120,169 101,349 93,700 442,649 Selling, general and administrative expenses 96,056 91,810 85,150 85,901 358,917 Pension expense 1,349 1,350 1,350 1,350 5,399 --------------- --------------- --------------- --------------- ---------------- Operating income 30,026 27,009 14,849 6,449 78,333 Other income (1) (3) - (58) (62) Interest expense 10,227 6,290 7,347 7,612 31,476 --------------- --------------- --------------- --------------- ---------------- Income (loss) from continuing operations before provision (benefit) for income taxes 19,800 20,722 7,502 (1,105) 46,919 Provision (benefit) for income taxes 7,920 8,289 3,001 (442) 18,768 --------------- --------------- --------------- --------------- ---------------- Income (loss) from continuing operations $ 11,880 $ 12,433 $ 4,501 $ (663) $ 28,151 =============== =============== =============== =============== ================ For the Year Ended January 3, 2004 (a) ------------------------------------------------------------------------------------ First Second Third Fourth Fiscal Quarter (c) Quarter (c) Quarter (c) Quarter Year ----------- ----------- ----------- ------- ---- Net revenues $ 422,845 $ 320,309 $ 293,843 $ 337,424 $ 1,374,421 Cost of goods sold 263,479 230,312 204,800 228,283 926,874 --------------- --------------- --------------- --------------- ---------------- Gross profit 159,366 89,997 89,043 109,141 447,547 Selling, general and administrative expenses (c) 99,259 85,270 83,254 86,154 353,937 Pension income - - - (6,488) (6,488) --------------- --------------- --------------- --------------- ---------------- Operating income 60,107 4,727 5,789 29,475 100,098 Other (income) expense, net 395 (1,363) (904) (586) (2,458) Interest expense 6,950 5,392 5,896 4,966 23,204 --------------- --------------- --------------- --------------- ---------------- Income from continuing operations before provision for income taxes 52,762 698 797 25,095 79,352 Provision for income taxes 21,105 279 319 10,038 31,741 --------------- --------------- --------------- --------------- ---------------- Income from continuing operations $ 31,657 $ 419 $ 478 $ 15,057 $ 47,611 =============== =============== =============== =============== ================
(a) Excludes discontinued operations and presents the statements of operations as if the Company had emerged from bankruptcy at the beginning of fiscal 2002. (b) Reflects the reclassification of certain design, merchandising and other product related costs previously included in cost of goods sold that have been reclassified to selling, general and administrative expenses to conform to the Company's accounting policy subsequent to fresh start accounting. The effect of this reclassification, on a pro forma basis, has resulted in a decrease in cost of goods sold of $12.7 million, $10.2 million and $10.9 million in the first, second and third quarters of fiscal 2003, respectively, and an increase in cost of goods sold of $22.0 million in the fourth quarter of fiscal 2002. (c) Reflects restatement for the recognition of $0.6 million of amortization expense, included in selling, general and administrative expenses for each of the first three quarters of fiscal 2003 related to the change in classification of the Calvin Klein jeans license from an indefinite lived intangible asset to a finite lived intangible asset. SCHEDULE 10 THE WARNACO GROUP, INC. RESTATED QUARTERLY DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
As Reported ------------------------------------------------------------------ For the Period From For the Three For the Three February 5, 2003 Months Ended Months Ended to April 5, 2003 July 5, 2003 October 4, 2003 ---------------------- -------------------- ------------------- Selling, general and administrative expenses (a) $ 67,183 $ 84,703 $ 86,886 Operating income (loss) (a) 43,291 (9,263) (1,036) Income (loss) from continuing operations (a) 22,753 (6,964) (4,693) Net income (loss) $ 22,639 $ (8,464) $ (6,660) ---------------------- -------------------- ------------------- Basic income (loss) per common share: Income (loss) from continuing operations $ 0.51 $ (0.15) $ (0.10) ====================== ==================== =================== Net income (loss) $ 0.50 $ (0.19) $ (0.15) ====================== ==================== =================== Diluted income (loss) per common share: Income (loss) from continuing operations $ 0.50 $ (0.15) $ (0.10) ====================== ==================== =================== Net income (loss) $ 0.50 $ (0.19) $ (0.15) ====================== ==================== =================== Weighted average number of shares outstanding used in computing income (loss) per common share: Basic 45,000 45,010 45,065 ====================== ==================== =================== Diluted 45,200 45,010 45,065 ====================== ==================== =================== As Restated (b) ------------------------------------------------------------------ For the Period From For the Three For the Three February 5, 2003 Months Ended Months Ended to April 5, 2003 July 5, 2003 October 4, 2003 ---------------------- -------------------- ------------------- Selling, general and administrative expenses (a) $ 67,561 $ 85,270 $ 87,453 Operating income (loss) (a) 42,913 (9,830) (1,603) Income (loss) from continuing operations (a) 22,375 (7,531) (5,260) Net income (loss) $ 22,261 $ (9,031) $ (7,227) ---------------------- -------------------- ------------------- Basic income (loss) per common share: Income (loss) from continuing operations $ 0.50 $ (0.17) $ (0.12) ====================== ==================== =================== Net income (loss) $ 0.49 $ (0.20) $ (0.16) ====================== ==================== =================== Diluted income (loss) per common share: Income (loss) from continuing operations $ 0.50 $ (0.17) $ (0.12) ====================== ==================== =================== Net income (loss) $ 0.49 $ (0.20) $ (0.16) ====================== ==================== =================== Weighted average number of shares outstanding used in computing income (loss) per common share: Basic 45,000 45,010 45,065 ====================== ==================== =================== Diluted 45,200 45,010 45,065 ====================== ==================== ===================
(a) Excludes the results of discontinued operations. (b) Reflects restatement for the recognition of amortization expense of $0.4 million for the period February 5, 2003 to April 5, 2003 and $0.6 million for each of the second and third quarters of fiscal 2003 related to the Company's Calvin Klein jeans license due to the change in classification of the license from an indefinite lived intangible asset to a finite lived intangible asset. -----END PRIVACY-ENHANCED MESSAGE-----