EX-99.1 2 exhibit99-1.htm EARNINGS RELEASE exhibit99-1.htm
Exhibit 99.1
 



 
Investor Relations:
Deborah Abraham
   
Vice President, Investor Relations
   
(212) 287-8289
     

FOR IMMEDIATE RELEASE

 
WARNACO REPORTS SECOND QUARTER 2008 RESULTS
Company Raises Adjusted Fiscal 2008 Guidance
______________________________________________________________________

NEW YORK --August 7, 2008 -- The Warnaco Group, Inc. (NYSE: WRC) today reported results for the second quarter ended July 5, 2008.

For the second quarter on a GAAP basis:

 
●
Net revenues rose 22% compared to the prior year quarter
 
●
Gross margin increased 290 basis points to 45% of net revenues
 
●
Operating margin increased 290 basis points to 10% of net revenues
 
●
Income from continuing operations increased 23% to $0.57 per diluted share

For the second quarter on an adjusted basis (non-GAAP) (excluding certain tax items, restructuring expenses and pension income/expense):

 
●
Operating margin increased 330 basis points to 11% of net revenues
 
●
Income from continuing operations increased 56% to $0.71 per diluted share

The accompanying tables provide a reconciliation of actual results to the as adjusted results.

The Company believes it is valuable for users of the Company’s financial statements to be made aware of the as adjusted financial information, as such measures are used by management to evaluate the operating performance of the Company's continuing businesses on a comparable basis.

“We are pleased to report another strong quarter for Warnaco,” stated Joe Gromek, Warnaco’s President and Chief Executive Officer.  “Our second quarter results included broad based strength with all operating segments and geographies recording increased revenue and profitability.  Our key expansion initiatives, including international, direct-to-consumer and our Calvin Klein businesses, continued to fuel our growth.  During the quarter, international revenues accounted for 50% of the Company’s total, led by 51%
 
 
 
 
growth in Europe.   With powerful brands and an integrated global platform, we are excited about our opportunities both in the near and long term.”

Mr. Gromek concluded, “While we are mindful of macro economic challenges, we believe our strategies will continue to produce positive results and underscores our decision to again increase guidance.  Longer term, we see ample opportunity for organic growth as we continue to execute our strategic plan.”
 
Fiscal 2008 Outlook

Based on a strong first half performance, for fiscal 2008, the Company now expects net revenues to grow 13% - 15% over comparable fiscal 2007 levels and, on an adjusted basis (excluding restructuring expense and a non-recurring repatriation tax charge, and assuming minimal pension income/expense), diluted earnings per share from continuing operations in the range of $2.80 - $2.90.

The accompanying tables provide a reconciliation of expected diluted earnings per share from continuing operations on a GAAP basis ($1.70 - $1.76 per diluted share (assuming minimal pension income/expense) to the adjusted fiscal 2008 outlook above.


Second Quarter Highlights

Total Company

Net revenues rose 22% to $503.8 million compared to $412.5 million in the prior year period and gross margin increased to 45% compared to 42% in the prior year quarter.  Operating income was $48.9 million, or 10% of net revenues, compared to $28.2 million, or 7% of net revenues, in the second quarter of fiscal 2007.

Income from continuing operations was $26.5 million, or $0.57 per diluted share, compared to $21.6 million, or $0.46 per diluted share, in the prior year quarter.  Income from continuing operations for the second quarter of 2008 and 2007 includes approximately $6.0 million and $3.2 million, respectively, of pre-tax restructuring expense (the second quarter of 2007 also benefited from $6.3 million of other income related primarily to net gains on intercompany loans denominated in currency other than that of the foreign subsidiaries’ functional currency).  Net income was $19.4 million, or $0.41 per diluted share, compared to $13.8 million, or $0.30 per diluted share, in the prior year quarter.

On an adjusted, non-GAAP basis (excluding certain tax items, restructuring expenses and pension income), income from continuing operations was $33.4 million, or $0.71 per diluted share, compared to $21.4 million, or $0.46 per diluted share, in the prior year period.  Net income was $26.3 million, or $0.56 per diluted share, compared to $13.6 million, or $0.29 per diluted share, in the prior year quarter.

The translation of foreign currencies, primarily as a result of a stronger euro and Canadian dollar, increased second quarter 2008 net revenues, gross margin and
 
 
 
 
operating income by approximately $17.0 million, $8.1 million and $2.0 million, respectively, compared to the second quarter of fiscal 2007.

The Company’s adjusted non-GAAP effective tax rate (excluding certain non-recurring items, the non-cash tax charge associated with the repatriation of the proceeds from the sale of Lejaby®, and certain restructuring expenses for which there was no tax benefit) in the quarter was 32% compared to an adjusted rate of 26% in the first quarter.  The increased rate reflects additional tax expense to attain the Company’s anticipated annualized non-GAAP effective tax rate of 29% (compared to an annualized non-GAAP effective tax rate of 25% in fiscal 2007).

Segment Results
Sportswear

Revenues for the Sportswear Group increased 29% to $249.4 million and operating income increased to $23.0 million, or 9% of net revenues.  Calvin Klein Jeans revenue growth remained strong and included double digit increases in all geographies.  Operating income reflects sharp improvements in Chaps operating profit, resulting from improved product offerings and lower dilution, combined with continued strength in the Calvin Klein Jeans businesses.

Intimate Apparel

Intimate Apparel Group revenues rose 24% to $172.7 million and operating income increased to $31.8 million, or 18% of Intimate Apparel Group net revenues.  All brands and businesses within the Intimate Apparel Group contributed to the strong results.  While international expansion remains a key contributor to the growth of Calvin Klein Underwear, the U.S. Calvin Klein Underwear business increased revenues by 9% despite a challenging environment.  Expanded distribution and strong response to new product offerings contributed to both top and bottom line improvement for the Group’s core brands, Warner’s® and Olga®.

Swimwear

Swimwear Group revenues rose 2% to $81.7 million and operating income increased to $7.7 million, or 9% of net revenues.  Strong European demand, driven by fashion right design, continued to drive Calvin Klein swim revenues higher.  While Speedo® revenues decreased $1.5 million, Speedo operating income was up significantly to $6.9 million, or 10% of Speedo net revenues.  Group results benefited from a lower restructuring expense as well as a reduction in SG&A expense, as compared to the prior year period.

Balance Sheet

Cash and cash equivalents at July 5, 2008 were $154.5 million compared to $163.1 million at June 30, 2007.  Since June 30, 2007, the Company has repurchased approximately $24.7 million of its common stock, repaid approximately $83.6 million of debt and received cash proceeds of approximately $47.4 million from the sale of its Lejaby, Catalina®, Anne Cole® and Cole of California® businesses.
 
 
 
 
Accounts receivable, net, increased to $310.9 million at July 5, 2008 from $278.6 million at June 30, 2007, primarily due to increased sales toward the end of the quarter and growth in our European business.

Net inventories were $316.3 million at July 5, 2008, down from $357.1 million at June 30, 2007, primarily as a result of discontinued operations, and in line with the Company’s needs to service its ongoing business.

“Our business continues to generate positive cash flow, which we are investing in those areas of the Company that are expected to produce long-term sustainable growth.  We begin the second half of the year well positioned, with increased cash and reduced debt and operating with less inventory, as compared to a year ago,” stated Larry Rutkowski, Warnaco’s Executive Vice President and Chief Financial Officer.  

Subsequent Events

The Company expects to enter into a new $300 million Asset Based Revolving Credit facility, which is expected to close during the third quarter.  As part of this refinancing, the Company expects to retire the outstanding balance of its Term B loans.

Conference Call Information

Stockholders and other persons are invited to listen to the first quarter earnings conference call scheduled for today, Thursday, August 7, 2008, at 9:00 a.m. EDT.  To participate in Warnaco’s conference call, dial (877) 692-2592 approximately five to ten minutes prior to the 9:00 a.m. start time.  The call will also be broadcast live over the Internet at www.warnaco.com.  An online archive will be available following the call.

This press release was furnished to the SEC (www.sec.gov) and may also be accessed through the Company’s internet website: www.warnaco.com.


 ABOUT WARNACO
The Warnaco Group, Inc., headquartered in New York, is a leading apparel company engaged in the business of designing, sourcing, marketing and selling intimate apparel, menswear, jeanswear, swimwear, men's and women's sportswear and accessories under such owned and licensed brands as Warner's®, Olga®,  and Speedo®, as well as Chaps® sportswear and denim, and Calvin Klein® men's and women's underwear, men’s and women’s bridge apparel and accessories, men's and women's  jeans and jeans accessories, junior women's and children's jeans and men’s and women's swimwear.

FORWARD-LOOKING STATEMENTS

The Warnaco Group, Inc. notes that this press release, the conference call scheduled for August 7, 2008 and certain other written, electronic and oral disclosure made by the Company from time to time, may contain forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The forward-looking statements involve risks and uncertainties and reflect, when made, the Company's
 
 
 
 
estimates, objectives, projections, forecasts, plans, strategies, beliefs, intentions, opportunities and expectations. Actual results may differ materially from anticipated results, targets or expectations and investors are cautioned not to place undue reliance on any forward-looking statements. Statements other than statements of historical fact, including, without limitation, future financial targets, are forward-looking statements. These forward-looking statements may be identified by, among other things, the use of forward-looking language, such as the words "believe," "anticipate," "estimate," "expect," "intend," "may," "project," "scheduled to," "seek," "should," "will be," "will continue," "will likely result, " "targeted", or the negative of those terms, or other similar words and phrases or by discussions of intentions or strategies.
 
The following factors, among others and in addition to those described in the Company's reports filed with the SEC (including, without limitation, those described under the headings "Risk Factors" and "Statement Regarding Forward-Looking Disclosure," as such disclosure may be modified or supplemented from time to time), could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by it: the Company's ability to execute its repositioning and sale initiatives (including achieving enhanced productivity and profitability) previously announced; economic conditions that affect the apparel industry; the Company's failure to anticipate, identify or promptly react to changing trends, styles, or brand preferences; further declines in prices in the apparel industry; declining sales resulting from increased competition in the Company’s markets; increases in the prices of raw materials; events which result in difficulty in procuring or producing the Company's products on a cost-effective basis; the effect of laws and regulations, including those relating to labor, workplace and the environment; changing international trade regulation, including as it relates to the imposition or elimination of quotas on imports of textiles and apparel; the Company’s ability to protect its intellectual property or the costs incurred by the Company related thereto; the risk of product safety issues, defects or other production problems associated with our products; the Company’s dependence on a limited number of customers; the effects of consolidation in the retail sector; the Company’s dependence on license agreements with third parties; the Company’s dependence on the reputation of its brand names, including, in particular, Calvin Klein; the Company’s exposure to conditions in overseas markets in connection with the Company’s foreign operations and the sourcing of products from foreign third-party vendors; the Company's foreign currency exposure; the Company’s history of insufficient disclosure controls and procedures and internal controls and restated financial statements; unanticipated future internal control deficiencies or weaknesses or ineffective disclosure controls and procedures; the effects of fluctuations in the value of investments of the Company’s pension plan; the sufficiency of cash to fund operations, including capital expenditures; the Company's ability to service its indebtedness, the effect of changes in interest rates on the Company's indebtedness that is subject to floating interest rates and the limitations imposed on the Company's operating and financial flexibility by the agreements governing the Company's indebtedness; the Company’s dependence on its senior management team and other key personnel; the Company’s reliance on information technology; the limitations on purchases under the Company's share repurchase program contained in the Company's debt instruments, the number of shares that the Company purchases under such program and the prices paid for such shares; the Company’s inability to achieve its financial targets and strategic objectives, as a result of one or more of the factors described above, changes in the assumptions underlying the targets or goals,  or otherwise; the failure of acquired businesses to generate expected levels of revenues; the failure of the Company to successfully integrate such businesses with its existing businesses (and as a result, not achieving all or a substantial portion of the anticipated benefits of such acquisitions); and such acquired businesses being adversely affected, including by one or more of the factors described above and thereby failing to achieve anticipated revenues and earnings growth.
 
The Company encourages investors to read the section entitled "Risk Factors" and the discussion of the Company's critical accounting policies under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Discussion of Critical Accounting Policies" included in the Company's Annual Report on Form 10-K, as such discussions may be modified or supplemented by subsequent reports that the Company files with the SEC. The discussion in this press release is not exhaustive but is designed to highlight important factors that may affect actual results. Forward-looking statements speak only as of the date on which they are made, and, except for the Company's ongoing obligation under the U.S. federal securities laws, 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.
 
 
 
 
 
                 
Schedule 1
  
 
THE WARNACO GROUP, INC.
  
                     
 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  
 
(Dollars in thousands, excluding per share amounts)
  
 
(Unaudited)
  
 
                 
       
As Reported
  
Restructuring
  
As Adjusted
       
Second Quarter
  
Charges and
Taxation (c)
Second Quarter
       
of Fiscal 2008
  
Pension (b)
  
of Fiscal 2008 (d)
                 
                 
                 
 
Net revenues
  
 $                     503,835
    
 $                           -
  
 $                               -
  
 $                        503,835
 
Cost of goods sold
                      278,924
  
                          (104)
  
                            278,820
 
Gross profit
                      224,911
  
                           104
                           -
                            225,015
 
Selling, general and administrative expenses
                      173,682
  
                       (5,871)
  
                            167,811
 
Amortization of intangible assets
                          2,588
  
 
 
                                2,588
 
Pension income
                           (291)
  
                           291
  
                                        -
 
Operating income
                        48,932
  
                        5,684
                           -
                              54,616
 
Other expense
                        (1,203)
      
                               (1,203)
 
Interest expense
                          7,086
      
                                7,086
 
Interest income
                           (671)
      
                                  (671)
 
Income from continuing operations before
 
     
 
   
provision for income taxes and minority interest
                        43,720
  
                        5,684
                           -
                              49,404
 
Provision for income taxes
                        17,078
    
                  (1,236)
                              15,842
 
Income from continuing operations before minority interest
                        26,642
  
                        5,684
                   1,236
                              33,562
 
Minority Interest
                           (148)
      
                                  (148)
 
Income from continuing operations
                        26,494
  
                        5,684
                   1,236
                              33,414
 
Loss from discontinued operations, net of taxes
                        (7,130)
 (a)
    
                                (7,130)
 
Net income
  
 $                       19,364
    
 $                   5,684
  
 $                       1,236
  
 $                             26,284
                 
                 
                 
 
Basic income per common share:
          
   
Income from continuing operations
  
 $                           0.58
    
 $                     0.13
  
 $                         0.03
  
 $                                 0.74
   
Loss from discontinued operations
                                                    (0.15)
  
                              -
                         -
                                                                (0.16)
   
Net income
  
 $                           0.43
    
 $                     0.13
  
 $                         0.03
  
 $                                 0.58
                 
                 
 
Diluted income per common share:
          
   
Income from continuing operations
  
 $                           0.57
    
 $                     0.12
  
 $                         0.03
  
 $                                 0.71
   
Loss from discontinued operations
                                                    (0.16)
  
                              -
                         -
                                                                (0.15)
   
Net income
  
 $                           0.41
    
 $                     0.12
  
 $                         0.03
  
 $                                 0.56
                 
 
Weighted average number of shares outstanding used in
computing income per common share:
          
     
Basic
                  45,340,695
  
               45,340,695
          45,340,695
                       45,340,695
           
 
 
 
     
Diluted
                 46,780,639
  
               46,780,639
          46,780,639
                       46,780,639
                 
                 
                 
 
(a)
Includes operations related to the Company's designer swimwear (excluding Calvin Klein) and Lejaby businesses which have been classified as
   
as discontinued operations.
          
                 
 
(b)
This adjustment seeks to present the Company's consolidated condensed statement of operations on a continuing basis without the effects
   
of restructuring charges or pension income. See note (d) below.
        
                 
 
(c)
Adjustment based on the the Company's expected tax rate of 28.7% for Fiscal 2008, which rate excludes the effects of restructuring charges,
   
pension income and certain tax related items. See note (d) below.
        
                 
 
(d)
The "As Adjusted" statement of operations is used by management to evaluate the operating performance of the Company's continuing
   
operations on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial measures in isolation
   
from, or as a substitution for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in
   
reporting its results to provide investors with an additional tool to evaluate the Company's operating results.
  
                 

 
 
 
 
                       
Schedule 1a
  
THE WARNACO GROUP, INC.
  
                           
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  
(Dollars in thousands, excluding per share amounts)
  
(Unaudited)
  
                           
     
As Reported
Second Quarter
of Fiscal 2007
    
Restructuring
Charges and
Pension (b)
    
Taxation (c)
    
As Adjusted
Second Quarter
of Fiscal 2007 (d)
  
   
   
                           
Net revenues
   $ 412,501     $ -     $ -     $ 412,501  
Cost of goods sold
     240,413       (2,401 )             238,012  
Gross profit
     172,088       2,401       -       174,489  
Selling, general and administrative expenses
     140,770       (845 )             139,925  
Amortization of intangible assets
     3,617                       3,617  
Pension income
     (509 )     509               -  
Operating income
     28,210       2,737       -       30,947  
Other income
     (6,280 )                     (6,280 )
Interest expense
     9,494                       9,494  
Interest income
     (753 )                     (753 )
Income from continuing operations before
                                
 
provision for income taxes
     25,749       2,737       -       28,486  
Provision for income taxes
     4,181       -       2,912       7,093  
Income from continuing operations
     21,568       2,737       (2,912 )     21,393  
Loss from discontinued operations, net of taxes
     (7,791 )(a)                     (7,791 )
Net income
   $ 13,777     $ 2,737     $ (2,912 )   $ 13,602  
                                   
Basic income per common share:
                                
 
Income from continuing operations
   $ 0.48     $ 0.06     $ (0.06 )   $ 0.47  
 
Loss from discontinued operations
     (0.17 )     -       -       (0.17 )
 
Net income
   $ 0.31     $ 0.06     $ (0.06 )   $ 0.30  
                                   
                                   
Diluted income per common share:
                                
 
Income from continuing operations
   $ 0.46     $ 0.06     $ (0.06 )   $ 0.46  
 
Loss from discontinued operations
     (0.16 )     -       -       (0.17 )
 
Net income
   $ 0.30     $ 0.06     $ (0.06 )   $ 0.29  
                                   
Weighted average number of shares outstanding used in
                                
 
computing income per common share:
                                
 
Basic
     45,146,246       45,146,246       45,146,246       45,146,246  
                                   
 
Diluted
     46,534,530       46,534,530       46,534,530       46,534,530  
                                   
                                   
 
(a)
Includes operations related to the Company's designer swimwear (excluding Calvin Klein) and Lejaby businesses which have been classified as
  
 
as discontinued operations.
                                
                                   
(b)
This adjustment seeks to present the Company's consolidated condensed statement of operation on a continuing basis without the effects
  
 
of restructuring charges or pension income. See note (d) below.
                          
                                   
(c)
Adjustment to reflect the Company's income from continuing operations at a normalized tax rate of 24.9% which reflects the Company's
  
 
tax rate for Fiscal 2007 excluding the effects of restructuring charges, pension income and certain tax related items. See note (d) below.
  
                                   
(d)
The "As Adjusted" statement of operations is used by management to evaluate the operating performance of the Company's continuing
  
 
operations on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial measures in isolation
from, or as a substitution for, financial information prepared in accordance with GAAP.  The Company presents such non-GAAP financial
measures in reporting its results to provide investors with an additional tool to evaluate the Company's operating results.
  
                                   
           
 
 
 
 
 
Schedule 2  
 
  
THE WARNACO GROUP, INC.
  
                           
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  
(Dollars in thousands, excluding per share amounts)
  
(Unaudited)
  
                           
     
As Reported
    
Restructuring
          
As Adjusted
  
     
Six Months Ended
    
Charges and
    
Taxation (d)
    
Six Months Ended
  
     
July 5, 2008
    
Pension (c)
          
July 5, 2008 (e)
  
                           
                           
                           
Net revenues
   $ 1,072,063           $ -     $ 1,072,063  
Cost of goods sold
     592,781       (840 )             591,941  
Gross profit
     479,282       840       -       480,122  
Selling, general and administrative expenses
     369,988       (25,477 )             344,511  
Amortization of intangible assets
     5,062                       5,062  
Pension income
     (582 )     582               -  
Operating income
     104,814       25,735       -       130,549  
Other expense
     4,258                       4,258  
Interest expense
     16,476                       16,476  
Interest income
     (1,604 )                     (1,604 )
Income from continuing operations before
                                
 
provision for income taxes  and minority interest
     85,684       25,735       -       111,419  
Provision for income taxes
     51,765  (a)             (19,788 )     31,977  
Income from continuing operations  before minority interest
     33,919       25,735       19,788       79,442  
Minority Interest
     (359 )                     (359 )
Income from continuing operations
     33,560       25,735       19,788       79,083  
Income from discontinued operations, net of taxes
     3,513  (b)                     3,513  
Net income
   $ 37,073     $ 25,735     $ 19,788     $ 82,596  
                                   
                                   
                                   
Basic income per common share:
                                
 
Income from continuing operations
   $ 0.75     $ 0.57     $ 0.44     $ 1.76  
 
Income from discontinued operations
     0.07       -       -       0.08  
 
Net income
   $ 0.82     $ 0.57     $ 0.44     $ 1.84  
                                   
                                   
Diluted income per common share:
                                
 
Income from continuing operations
   $ 0.72     $ 0.55     $ 0.42     $ 1.70  
 
Income from discontinued operations
     0.08       -       -       0.07  
 
Net income
   $ 0.80     $ 0.55     $ 0.42     $ 1.77  
                                   
Weighted average number of shares outstanding used in
                                
 
computing income per common share:
                                
 
Basic
     44,953,200       44,953,200       44,953,200       44,953,200  
                                   
 
Diluted
     46,590,322       46,590,322       46,590,322       46,590,322  
                                   
                                   
(a)
Includes, among other items, a non-recurring tax charge of approximately $19,000 related to the repatriation, to the United States, of the net proceeds received in connection with the sale of the Lejaby business.
  
                             
                                   
(b)
Includes operations related to the Company's designer swimwear (excluding Calvin Klein) and Lejaby businesses which have been classified as as discontinued operations.
  
                                   
                                   
(c)
This adjustment seeks to present the Company's consolidated condensed statement of operations on a continuing basis without the effects of restructuring charges or pension income. See note (e) below.
  
                             
                                   
(d)
Adjustment to reflect the Company's income from continuing operations at a normalized tax rate of 28.7% which reflects the Company's estimated tax rate for fiscal 2008 excluding the effects of restructuring charges, pension income and certain tax related items (including a non-recurring tax charge of approximately $19,000 related to the repatriation, to the United States of the net proceeds received in connection with the sale of the Lejaby business). See note (e) below.
  
     
                                   
(e)
The "As Adjusted" statement of operations is used by management to evaluate the operating performance of the Company's continuing operations on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial measures in isolation from, or as a substitution for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its results to provide investors with an additional tool to evaluate the Company's operating results.
  
 
 
 
                       
Schedule 2a
  
THE WARNACO GROUP, INC.
  
                           
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  
(Dollars in thousands, excluding per share amounts)
  
(Unaudited)
  
                           
                           
     
As Reported
    
Restructuring
          
As Adjusted
  
     
Six Months Ended
    
Charges and
    
Taxation (c)
    
Six Months Ended
  
     
June 30, 2007
    
Pension (b)
          
June 30, 2007 (d)
  
                           
                           
                           
Net revenues
   $ 881,741     $ -     $ -     $ 881,741  
Cost of goods sold
     512,295       (3,001 )             509,294  
Gross profit
     369,446       3,001       -       372,447  
Selling, general and administrative expenses
     283,567       (1,087 )             282,480  
Amortization of intangible assets
     7,051                       7,051  
Pension income
     (693 )     693               -  
Operating income
     79,521       3,395       -       82,916  
Other income
     (6,882 )                     (6,882 )
Interest expense
     18,806                       18,806  
Interest income
     (1,036 )                     (1,036 )
Income from continuing operations before
                                
 
provision for income taxes
     68,633       3,395       -       72,028  
Provision for income taxes
     18,817       -       (882 )     17,935  
Income from continuing operations
     49,816       3,395       882       54,093  
Income from discontinued operations, net of taxes
     1,936  (a)                     1,936  
Net income
   $ 51,752     $ 3,395     $ 882     $ 56,029  
                                   
                                   
Basic income per common share:
                                
 
Income from continuing operations
   $ 1.11     $ 0.08     $ 0.02     $ 1.20  
 
Income from discontinued operations
     0.04       -       -       0.04  
 
Net income
   $ 1.15     $ 0.08     $ 0.02     $ 1.24  
                                   
                                   
Diluted income per common share:
                                
 
Income from continuing operations
   $ 1.07     $ 0.07     $ 0.02     $ 1.16  
 
Income from discontinued operations
     0.04       -       -       0.05  
 
Net income
   $ 1.11     $ 0.07     $ 0.02     $ 1.21  
                                   
Weighted average number of shares outstanding used in
                                
 
computing income per common share:
                                
 
Basic
     45,058,976       45,058,976       45,058,976       45,058,976  
                                   
 
Diluted
     46,482,664       46,482,664       46,482,664       46,482,664  
                                   
                                   
(a)
Includes operations related to the Company's designer swimwear (excluding Calvin Klein) and Lejaby businesses which have been classified as as discontinued operations.
  
                                   
                                   
(b)
This adjustment seeks to present the Company's consolidated condensed statement of operations on a continuing basis without the effects of restructuring charges or pension income. See note (d) below.
  
                             
                                   
(c)
Adjustment to reflect the Company's income from continuing operations at a normalized tax rate of 24.9% which reflects the Company's tax rate for Fiscal 2007 excluding the effects of restructuring charges, pension income and certain tax related items. See note (d) below.
  
     
                                   
(d)
The "As Adjusted" statement of operations is used by management to evaluate the operating performance of the Company's continuing operations on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial measures in isolation from, or as a substitution for, financial information prepared in accordance with GAAP. The Company presents such non-GAAP financial measures in reporting its results to provide investors with an additional tool to evaluate the Company's operating results.
  
 
 
 
                 Schedule 3
THE WARNACO GROUP, INC.
  
CONSOLIDATED CONDENSED BALANCE SHEETS
  
(Dollars in thousands)
  
(Unaudited)
  
                   
   
July 5, 2008
    
December 29, 2007
    
June 30, 2007
  
                   
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   $ 154,516     $ 191,918     $ 163,054  
Accounts receivable, net
     310,883       267,450       278,570  
Inventories
     316,350       332,652       357,073  
Assets of discontinued operations (a)
     10,520       67,931       4,532  
Other current assets
     168,032       133,211       57,830  
Total current assets
     960,301       993,162       861,059  
                         
Property, plant and equipment, net
     112,627       111,916       118,317  
Intangible and other assets
     536,724       501,425       604,058  
TOTAL ASSETS
   $ 1,609,652     $ 1,606,503     $ 1,583,434  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                        
 Current liabilities:
                        
Short-term debt
   $ 35,562     $ 56,115     $ 45,360  
Accounts payable and accrued liabilities
     286,513       294,271       275,279  
Accrued income taxes payable
     25,109       12,199       15,892  
Liabilities of discontinued operations  (b)
     17,141       42,566       1,678  
Total current liabilities
     364,325       405,151       338,209  
Long-term debt
     265,291       310,500       331,402  
Other long-term liabilities
     121,778       117,956       189,977  
Total stockholders' equity
     858,258       772,896       723,846  
                         
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
   $ 1,609,652     $ 1,606,503     $ 1,583,434  
                         
                         
(a) Assets of discontinued operations include the following:
                        
   
July 5, 2008
    
December 29, 2007
    
June 30, 2007
  
                         
Accounts receivable, net
   $ 8,931     $ 21,487     $ 3,103  
Inventories
     192       28,167       745  
Other current assets
     1,024       6,741       555  
Property, plant and equipment, net
     373       3,001       -  
Intangible and other assets
     -       8,535       129  
  Assets of discontinued operations
   $ 10,520     $ 67,931     $ 4,532  
                         
(b) Liabilities of discontinued operations include the following:
                        
   
July 5, 2008
    
December 29, 2007
    
June 30, 2007
  
                         
Accounts payable
   $ 5,017     $ 14,867     $ 614  
Accrued liabilities
     9,563       21,700       1,064  
Other long-term liabilities
     2,561       5,999       -  
  Liabilities of discontinued operations
   $ 17,141     $ 42,566     $ 1,678  
                         
                         
 
 
 
 
 
                         
Schedule 4 
                           
    THE WARNACO GROUP, INC.
  NET REVENUES AND OPERATING INCOME BY BUSINESS GROUP
  (Dollars in thousands)
  (Unaudited)
                           
                           
                           
 Net revenues:
  
Second Quarter
    
Second Quarter
    
Increase /
    
%
    
   
of Fiscal 2008
    
of Fiscal 2007
    
(Decrease)
    
Change
    
 Sportswear Group
   $ 249,395     $ 192,890     $ 56,505       29.3 %  
 Intimate Apparel Group
     172,746       139,453       33,293       23.9 %  
 Swimwear Group
     81,694       80,158       1,536       1.9 %  
 Net revenues
   $ 503,835     $ 412,501     $ 91,334       22.1 %  
                                   
   
Second Quarter
    
% of Group
    
Second Quarter
    
% of Group
    
   
of Fiscal 2008
    
Net Revenues
    
of Fiscal 2007
    
Net Revenues
    
Operating income (loss):
                                  
 Sportswear Group (a)
   $ 23,040       9.2 %   $ 18,300       9.5 %  
 Intimate Apparel Group (a), (b)
     31,826       18.4 %     22,016       15.8 %  
 Swimwear Group (a), (b)
     7,658       9.4 %     937       1.2 %  
 Unallocated corporate expenses  (b)
     (13,592 )  
na
       (13,043 )  
na
    
 Operating income
   $ 48,932    
na
     $ 28,210    
na
    
                                   
 Operating income as a percentage of
                                  
      total net revenues
     9.7 %             6.8 %          
                                   
                                   
                                   
(a) Includes an allocation of shared services expenses as follows:
                            
 
 
   
Second Quarter
    
Second Quarter
  
   
of Fiscal 2008
    
of Fiscal 2007
  
 Sportswear Group
   $ 5,453     $ 5,584  
 Intimate Apparel Group
   $ 4,430     $ 4,289  
 Swimwear Group
   $  3,824     $  4,980  
 
                
 
(b) Includes restructuring charges as follows:            
   
Second Quarter
    
Second Quarter
  
   
of Fiscal 2008
    
of Fiscal 2007
  
 Sportswear Group
   $ 4,401     $ 21  
 Intimate Apparel Group
     18       19  
 Swimwear Group
     144       3,206  
 Unallocated corporate expenses
     1,412       -  
    $ 5,975     $ 3,246  
 
 
 
 
 
 Schedule 4a
 
THE WARNACO GROUP, INC.
NET REVENUES AND OPERATING INCOME BY BUSINESS GROUP
(Dollars in thousands)
(Unaudited)
 
 
                   
 
 Net revenues:
Six Months Ended
  
Six Months Ended
  
Increase /
  
%
  
   
July 5, 2008
  
June 30, 2007
  
 (Decrease)
  
Change
  
 
 Sportswear Group
 $                                    549,514
  
 $                                            428,321
  
 $                                            121,193
  
28.3%
  
 
 Intimate Apparel Group
                                       340,345
  
                                               276,823
  
                                                 63,522
  
22.9%
  
 
 Swimwear Group
                                       182,204
  
                                               176,597
  
                                                   5,607
  
3.2%
  
 
 Net revenues
 $                                 1,072,063
  
 $                                            881,741
  
 $                                            190,322
  
21.6%
  
                   
   
Six Months Ended
  
% of Group
  
Six Months Ended
  
% of Group
  
   
July 5, 2008
  
Net Revenues
  
June 30, 2007
  
Net Revenues
  
 
Operating income (loss):
                
 
 Sportswear Group (a)
 $                                     45,119
  
8.2%
  
 $                                               45,226
  
10.6%
  
 
 Intimate Apparel Group (a), (b)
                                        64,250
  
18.9%
  
                        45,734
  
16.5%
  
 
 Swimwear Group (a), (b)
                                        22,476
  
12.3%
  
                        14,415
  
8.2%
  
 
 Unallocated corporate expenses  (b)
                                      (27,031)
  
na
  
                      (25,854)
  
na
  
 
 Operating income
 $                                   104,814
  
na
  
 $                                               79,521
  
na
  
                   
 
 Operating income as a percentage of total net revenues   
9.8%
      
9.0%
      
                   
                   
                   
 
(a) Includes an allocation of shared services expenses as follows:
   
Six Months Ended
    
Six Months Ended
  
   
July 5, 2008
    
June 30, 2007
  
 Sportswear Group
   $ 10,910     $  11,165  
 Intimate Apparel Group
   $  8,861     $  8,581  
 Swimwear Group
   $  7,648     $  9,960  
                 
                 
(b) Includes restructuring charges as follows:
   
Six Months Ended
    
Six Months Ended
  
   
July 5, 2008
    
June 30, 2007
  
 Sportswear Group
   $  23,096     $  119  
 Intimate Apparel Group
     695       120  
 Swimwear Group
     1,114       3,872  
 Unallocated corporate expenses
     1,412       (23 )
    $  26,317     $ 4,088  
                 
                 
 
 
 
 
 
                     
                 
 Schedule 5
  
                     
  THE WARNACO GROUP, INC.
  NET REVENUES AND OPERATING INCOME BY REGION & CHANNEL
  (Dollars in thousands)
  (Unaudited)
 
                   
 
 By Region:
  
Net Revenues
 
   
Second Quarter of Fiscal 2008
    
Second Quarter of Fiscal 2007
    
Increase
    
% Change
 United States
   $ 254,484     $ 241,921     $ 12,563      
5.2%
 Europe
     119,790       79,304       40,486      
51.1%
 Asia
     71,790       50,426       21,364      
42.4%
 Canada
     31,349       26,109       5,240      
20.1%
 Mexico, Central and South America
     26,422       14,741       11,681      
79.2%
    Total
   $ 503,835     $ 412,501     $ 91,334    
 
22.1%
                               
                               
   
Operating Income
     
   
Second Quarter of Fiscal 2008
    
Second Quarter of Fiscal 2007
    
Increase / (Decrease)
    
% Change
 United States
   $ 33,452     $ 22,271     $ 11,181      
50.2%
 Europe
     8,000       6,275       1,725      
27.5%
 Asia
     10,548       6,880       3,668      
53.3%
 Canada
     7,898       3,852       4,046      
105.0%
 Mexico, Central and South America
     2,627       1,975       652      
33.0%
 Unallocated corporate expenses
     (13,592 )     (13,043 )     (549 )    
4.2%
    Total
   $ 48,933     $ 28,210     $ 20,723      
73.5%
                               
                               
                               
 By Channel:
  
Net Revenues
     
   
Second Quarter of Fiscal 2008
    
Second Quarter of Fiscal 2007
    
Increase
    
% Change
 Wholesale
   $ 396,964     $ 335,521     $ 61,443      
18.3%
 Retail
     106,871       76,980       29,891      
38.8%
    Total
   $ 503,835     $ 412,501     $ 91,334      
22.1%
                               
                               
    Operating Income
   
Second Quarter of Fiscal 2008
    
Second Quarter of Fiscal 2007
    
Increase / (Decrease)
    
% Change
 Wholesale
   $ 47,633     $ 26,569     $ 21,064      
79.3%
 Retail
     14,892       14,684       208      
1.4%
 Unallocated corporate expenses
     (13,592 )     (13,043 )     (549 )    
4.2%
    Total
   $ 48,933     $ 28,210     $ 20,723      
73.5%
                               
                               
 
 
 
             
         
 Schedule 5a
             
THE WARNACO GROUP, INC.
NET REVENUES AND OPERATING INCOME BY REGION & CHANNEL
(Dollars in thousands)
(Unaudited)
             
 
 By Region:
     Net Revenues
   
Six Months Ended July 5,
2008
  
Six Months Ended June 30,
2007
  
Increase
    
% Change
 United States
   $ 511,498     $ 487,726     $ 23,772      
4.9%
 Europe
     291,956       200,976       90,980      
45.3%
 Asia
     158,373       112,821       45,552      
40.4%
 Canada
     58,850       49,512       9,338      
18.9%
 Mexico, Central and South America
     51,386       30,706       20,680      
67.3%
    Total
   $ 1,072,063     $ 881,741     $ 190,322      
21.6%
                               
                               
     
      Operating Income
   
Six Months Ended July 5,
2008
  
Six Months Ended June 30,
2007
  
Increase / (Decrease)
  
% Change
 United States
   $ 61,822     $ 46,869     $ 14,953      
31.9%
 Europe
     23,366       28,389       (5,023 )    
-17.7%
 Asia
     26,306       16,766       9,540      
56.9%
 Canada
     14,184       8,370       5,814      
69.5%
 Mexico, Central and South America
     6,167       4,981       1,186      
23.8%
 Unallocated corporate expenses
     (27,031 )     (25,854 )     (1,177 )    
4.6%
    Total
   $ 104,814      $ 79,521     $ 25,293      
31.8%
                               
                               
                               
     
 By Channel:
      Net Revenues
   
Six Months Ended July 5,
2008
  
Six Months Ended June 30,
2007
  
Increase
    
% Change
 Wholesale
   $ 859,851     $ 728,935     $ 130,916      
18.0%
 Retail
     212,212       152,806       59,406      
38.9%
    Total
   $ 1,072,063     $ 881,741     $ 190,322      
21.6%
                               
                               
       
     
  Operating Income
   
Six Months Ended July 5,
2008
  
Six Months Ended June 30,
2007
  
Increase / (Decrease)
  
% Change
 Wholesale
   $ 102,780     $ 79,796     $ 22,984      
28.8%
 Retail
     29,065       25,579       3,486      
13.6%
 Unallocated corporate expenses
     (27,031 )     (25,854 )     (1,177 )    
4.6%
    Total
   $ 104,814     $ 79,521     $ 25,293      
31.8%
                               
                               
 
 
 
 
 
                 
           
 Schedule 6
    
                 
THE WARNACO GROUP, INC.
  
SUPPLEMENTAL SCHEDULE - FISCAL 2008 OUTLOOK
  
(Dollars in thousands, excluding per share amounts)
  
(Unaudited)
  
                 
 
                 
NET REVENUE GUIDANCE
    
Percentages
  
         
(Unaudited)
  
Estimated growth in net revenues in Fiscal 2008 over comparable Fiscal 2007 levels.
13.00%
to
15.00%
  
                 
                 
                 
EARNINGS PER SHARE GUIDANCE
  
U.S. Dollars
  
Diluted Income per common share from continuing operations
(Unaudited)
  
 
GAAP basis
    
 $                           1.70
 to
 $                       1.76
  
 
Restructuring charges (a)
  
            0.60
 to
            0.64
  
 
Taxation related items (b)
  
            0.50
  
            0.50
  
 
As adjusted (Non-GAAP basis)  (c)
  
$                           2.80
 to
 $                       2.90
  
                 
                 
(a)
Reflects between $27,000 to $30,000 of restructuring charges (net of an income tax benefit of between $2,000 and $3,000)
 
for Fiscal 2008 primarily related to the transfer of the Calvin Klein Collection Business.
        
                 
(b)
Reflects certain tax related items including, among other items, a non-recurring tax charge of approximately $19,000
  
 
related to the repatriation, to the United States of the net proceeds received in connection with the sale of the Lejaby business.
                 
(c)
The Company believes it is useful for users of the Company's financial statements to be made aware of the "adjusted"
 
net revenue growth and per share amounts related to the Company's income from continuing operations as such
  
 
measures are used by management to evaluate the operating performance of the Company's continuing
    
 
businesses on a comparable basis. Management does not, nor should investors, consider such non-GAAP financial
  
 
measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The
  
 
Company presents such non-GAAP financial measures in reporting its projected results to provide investors
  
 
with an additional tool to evaluate the Company's operating results.
        
                 

 
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