Warnaco Reports Fourth Quarter and Fiscal 2006 Results

The Warnaco Group, Inc. (NASDAQ: WRNC) today reported results for the fourth quarter and full year ended December 30, 2006. During the fourth quarter of fiscal 2006: Net revenues increased 35.6% to $480.6 million compared to $354.5 million in the fourth quarter of fiscal 2005. Gross profit margin was 38.3% of net revenues compared to 34.7% in the prior year quarter. Operating income increased to $41.1 million, from $19.1 million in the prior year quarter. Pension income was $1.8 million for the fourth quarter of fiscal 2006 compared to pension expense of $0.9 million in the prior year quarter. Net income was $18.9 million, or $0.41 per diluted share, compared to $6.9 million, or $0.15 per diluted share, in the prior year quarter. Losses from discontinued operations (net of taxes) were $6.3 million, or $0.14 per diluted share, compared to $2.3 million, or $0.05 per diluted share, in the fourth quarter of fiscal 2005. Income from continuing operations was $25.1 million, or $0.55 per diluted share, compared to $9.2 million, or $0.20 per diluted share, for the fourth quarter of fiscal 2005. In fiscal 2006: Net revenues increased 23.8% to $1.83 billion from $1.48 billion in fiscal 2005. Gross profit margin increased 400 basis points to 37.9% of net revenues. Operating income increased to $130.3 million, from $107.4 million in the prior year. Pension income was $1.8 million in fiscal 2006 compared to pension expense of $1.6 million in the prior year. Provision for income taxes was $23.9 million, or an effective tax rate of 24.5% compared to $32.8 million, or an effective tax rate of 37.2%, in the prior year. Net income was $50.8 million, or $1.08 per diluted share, compared to $49.5 million, or $1.06 per diluted share, in fiscal 2005. Losses from discontinued operations (net of taxes) were $22.9 million, or $0.49 per diluted share, compared to $6.0 million, or $0.13 per diluted share, in the prior year. Income from continuing operations totaled $73.6 million, or $1.57 per diluted share, compared to $55.5 million, or $1.19 per diluted share, for fiscal 2005. Fiscal 2007 outlook: Net revenues are expected to grow in the mid-single digits over fiscal 2006 levels. Earnings per diluted share are expected to be between $1.70 - $1.79 (assuming minimal pension expense and a tax rate of approximately 29%). The Company notes that certain fiscal 2005 information in this release (and in the attached schedules) reflects the reclassification of certain operations which were discontinued in fiscal 2006. The Company also notes that the fourth quarter and fiscal 2006 results include the operations of the acquired Calvin Klein® Jeans and related businesses in Europe and Asia ("CKJEA”). Excluding CKJEA, net revenues for the quarter and year increased 11.9% and 2.5% to $396.7 million and $1.5 billion, respectively. Excluding CKJEA, operating income for the quarter and year was $42.0 million and $108.3 million, compared to $19.1 million and $107.4 million, respectively. "We finished the year on a high note led by the performance of our Calvin Klein businesses which collectively surpassed one billion dollars in revenues for fiscal 2006,” said Joe Gromek, Warnaco’s President and Chief Executive Officer. "During the year, we focused on executing our strategic business initiatives, namely innovative product extensions, geographic expansion and direct to consumer development. We successfully integrated the acquisition of the Calvin Klein Jeans and related businesses in Europe and Asia, expanded our regional and country platforms, and continued to develop a world class sourcing operation. At the same time, we remained disciplined in the assessment of Warnaco’s portfolio of brands and focused on - and continue to focus on - the opportunities that we believe present our shareholders the greatest revenue and profit potential.” Mr. Gromek concluded, "I would also like to thank our more than 10,000 associates worldwide for their efforts and support. As we look toward fiscal 2007 and beyond, we believe we are well positioned for continued profitable growth." Financial data as of December 30, 2006 and December 31, 2005 and for the three and twelve month periods ended December 30, 2006 and December 31, 2005 can be found on the schedules attached to this release. Fourth Quarter Results For the fourth quarter, net revenues increased 35.6% to $480.6 million from $354.5 million in the prior year quarter, due primarily to the acquisition of CKJEA, as well as growth in both Calvin Klein Underwear and the North American Calvin Klein Jeans business. Net revenues for the fourth quarter benefited by approximately $6.0 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian Dollar relative to the fourth quarter of fiscal 2005. Gross profit was $184.3 million, or 38.3% of net revenues, compared to $122.9 million, or 34.7% of net revenues, for the fourth quarter of fiscal 2005. Gross profit margin was driven by strong consumer demand and a shift in mix favoring higher margin channels of distribution, including international and direct to consumer. In particular, the Company’s Calvin Klein Underwear division recorded a 320 basis point improvement in gross profit margin and the North American Calvin Klein Jeans business reported a 1500 basis point improvement. Gross profit benefited by approximately $3.1 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005. Selling, general and administrative ("SG&A”) expenses were $142.3 million compared to $101.6 million in the fourth quarter of fiscal 2005. As a percentage of net revenues SG&A was up 90 basis points to 29.6%. Excluding the $36.8 million of SG&A expense related to CKJEA, SG&A as a percentage of net revenues was down more than 200 basis points, driven by disciplined expense control. SG&A was negatively affected by approximately $2.2 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005. Operating income in the fourth quarter was $41.1 million compared to $19.1 million in the fourth quarter of fiscal 2005. Operating income for the fourth quarter of fiscal 2006 includes $1.8 million of pension income compared to $0.9 million of pension expense for the fourth quarter of fiscal 2005. Operating income benefited by approximately $0.8 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to the fourth quarter of fiscal 2005. For the quarter, the provision for income taxes was $6.4 million, or an effective tax rate of 20.3%, compared to $5.2 million, or an effective tax rate of 36.3%, in the prior year period. The effective tax rate for the quarter reflects full year adjustments to the Company's tax rate recorded in the fourth quarter related to the previously announced foreign tax ruling, the increased mix of profits derived from the Company's international operations in fiscal 2006 compared to fiscal 2005 and certain favorable adjustments related to, among other things, valuation allowances that had been established against foreign net operating losses. Income from continuing operations was $25.1 million, or $0.55 per diluted share, compared to $9.2 million, or $0.20 per diluted share, for the fourth quarter of fiscal 2005. For the quarter, losses from discontinued operations (net of taxes) were $6.3 million, or $0.14 per diluted share, compared to $2.3 million, or $0.05 per diluted share, in the prior year quarter. As previously announced, during the fourth quarter the Company discontinued several smaller less profitable businesses. Net income was $18.9 million, or $0.41 per diluted share, compared to $6.9 million, or $0.15 per diluted share, in the prior year quarter. Fiscal Year Results Net revenues grew 23.8% to $1.83 billion in fiscal 2006 from $1.48 billion in fiscal 2005. The CKJEA businesses contributed $314.2 million to revenue and Calvin Klein Underwear revenues grew in excess of 18%. The gains were partially offset by revenue declines in Chaps® and the North American Calvin Klein Jeans business. Net revenues for the year benefited by approximately $9.0 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to fiscal 2005. Gross profit was $692.2 million, or 37.9% of net revenues, for fiscal 2006 versus $500.9 million, or 33.9% of net revenues, for fiscal 2005. The 400 basis point improvement in gross profit margin was primarily driven by an increase in higher margin international and direct to consumer sales and the ongoing benefits of the Company’s sourcing initiatives. Gross profit benefited by approximately $4.0 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to fiscal 2005. SG&A expenses were $551.1 million, or 30.2% of net revenues, for fiscal 2006 compared to $388.4 million, or 26.3% of net revenues, for fiscal 2005. Excluding CKJEA, SG&A expenses were $418.7 million, or 27.7% of net revenues. SG&A expenses were affected by an incremental $10.2 million of SG&A expenses in swimwear related to increased distribution and administrative expenses incurred primarily as a result of the new systems infrastructure implementation in the first quarter and approximately $3.4 million of corporate expense related to legal fees related to the Chaps restatement. Additionally Calvin Klein Underwear recorded an incremental $14.0 million of SG&A expense related to revenue growth and the support of the Company’s direct to consumer initiative in Europe and Asia. SG&A was negatively affected by approximately $2.2 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to fiscal 2005. Amortization of intangible assets increased to $12.3 million in fiscal 2006 compared to $4.0 million in the prior year, due primarily to $7.4 million in intangible assets associated with the acquisition of CKJEA. Operating income was $130.3 million for fiscal 2006 compared to $107.4 million for fiscal 2005. Operating income as a percentage of net revenues was 7.1% in fiscal 2006 as compared to 7.3% in fiscal 2005. Operating income includes $1.8 million of pension income for fiscal 2006 compared to $1.6 million of pension expense for fiscal 2005. Operating income benefited by approximately $1.8 million related to the translation of foreign currencies into U.S. dollars, primarily as a result of a stronger Euro and Canadian dollar relative to fiscal 2005. Net interest expense increased $17.6 million to $35.7 million compared to the prior year, due primarily to incremental indebtedness incurred in connection with the acquisition of the CKJEA business. Other income was $2.9 million, compared to a $1.0 million expense in the prior year related primarily to foreign exchange rate gains on the current portion of inter company loans denominated in foreign currencies. The provision for income taxes was $23.9 million, or an effective tax rate of 24.5%, compared to $32.8 million, or an effective tax rate of 37.2%, in the prior year. The effective tax rate for the year reflects the retroactive effect of the previously announced foreign tax ruling, the increased mix of profits derived from the Company’s international operations in fiscal 2006 compared to fiscal 2005 and certain favorable adjustments related to, among other things, valuation allowances that had been established against foreign net operating losses. The Company expects its effective tax rate for fiscal 2007 to be approximately 29%. Income from continuing operations was $73.6 million, or $1.57 per diluted share, a 32.6% increase over $55.5 million, or $1.19 per diluted share, for fiscal 2005. For the year, losses from discontinued operations (net of taxes) were $22.9 million, or $0.49 per diluted share, compared to $6.0 million, or $0.13 per diluted share, in fiscal 2005. During fiscal 2006, the Company sold certain assets of its Ocean Pacific business and discontinued several smaller non-core businesses. Net income was $50.8 million, or $1.08 per diluted share, compared to $49.5 million, or $1.06 per diluted share, in the prior year. The Company noted the following balance sheet highlights as of December 30, 2006: Cash and cash equivalents were $167.0 million at December 30, 2006 compared to $164.2 million of cash and cash equivalents at December 31, 2005 notwithstanding approximately $70.8 million of cash (net of cash acquired) used in connection with the closing of the CKJEA acquisition. During the fourth quarter the Company also used approximately $20.7 million in cash to repurchase 812,000 shares of common stock. To date, the Company has repurchased approximately two million shares of common stock, leaving just under one million shares remaining under the original Board authorized share repurchase plan. The share repurchase program may be modified or terminated by the Company’s Board of Directors at any time and is subject to certain limitations on repurchases under applicable debt instruments. Net Inventories were $407.6 million, up from $326.0 million at December 31, 2005, and includes $59.5 million of inventory related to CKJEA. The remainder of the increase primarily reflects increased inventory levels to support the growth of the Company’s direct to consumer initiatives and customer service levels in other businesses. Commenting on the results, Larry Rutkowski, Warnaco’s Chief Financial Officer, stated, "Our business showed consistent improvement in the second half of the year. From a balance sheet perspective we enter 2007 in a solid position and we anticipate another year of strong cash flow.” Fiscal 2007 Outlook Mr. Rutkowski concluded, "We are optimistic about the outlook for fiscal 2007 driven by our strong portfolio of brands and initiatives in place to advance our growth while improving the profitability of our underperforming businesses. We are currently expecting 2007 net revenues to grow mid-single digits over 2006 levels. Additionally, for fiscal 2007, we currently expect earnings per share to be in the range of $1.70 to $1.79 per diluted share (assuming minimal pension expense and a tax rate of approximately 29%).” Stockholders and other persons are invited to listen to the fourth quarter and fiscal 2006 earnings conference call scheduled for today, Monday, February 26, 2007 at 4:30 p.m. EST. To participate in Warnaco’s conference call, dial (877) 692-2592, approximately five minutes prior to the 4:30 p.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, 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®, Lejaby®, Body Nancy Ganz®, Speedo®, Anne Cole®, Cole of California® and Catalina® as well as Chaps® sportswear and denim, Ocean Pacific® swimwear, Nautica® swimwear, Michael Kors® swimwear 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 and the conference call scheduled for February 26, 2007, as well as certain other written, electronic and oral disclosure made by the Company from time to time, may contain "forward-looking statements" within the meaning of Rule 3b-6 under the Securities Exchange Act of 1934, as amended, Rule 175 under the Securities Act of 1933, as amended, and relevant legal decisions. 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 or expectations and investors are cautioned not to place undue reliance on any forward-looking statements. Statements other than statements of historical fact 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," 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: 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 Company’s dependence on a limited number of customers; the effects of the consolidation of 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 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; disruptions in the Company's operations caused by difficulties with the new systems infrastructure; 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 failure of newly 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 newly 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)   Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 (Unaudited) (Unaudited)       Net revenues (a) $ 480,567  $ 354,490  Cost of goods sold   296,295    231,604    Gross profit (b) 184,272  122,886  Selling, general and administrative expenses (c) (d) 142,267  101,623  Amortization of intangible assets (e) 2,531  1,221  Pension expense (income) (d) (1,774) 892  Restructuring expense   191    21    Operating income (f) 41,057  19,129  Other income 431  288  Interest expense, net (g)   9,069    4,382    Income from continuing operations before provision for income taxes 31,557  14,459  Provision for income taxes   6,412    5,248  Income from continuing operations 25,145  9,211  Loss from discontinued operations, net of taxes (h) 6,260  2,346      Net income $ 18,885  $ 6,865        Basic income per common share: Income from continuing operations $ 0.56  $ 0.20  Loss from discontinued operations   (0.14)   (0.05) Net income $ 0.42  $ 0.15      Diluted income per common share: Income from continuing operations $ 0.55  $ 0.20  Loss from discontinued operations   (0.14)   (0.05) Net income $ 0.41  $ 0.15    Weighted average number of shares outstanding used in computing income per common share:   Basic   45,044,744    46,072,545    Diluted   46,055,486    46,965,613      (a) For the Fourth Quarter of Fiscal 2006, includes net revenues of $83,854 related to CKJEA. (b) For the Fourth Quarter of Fiscal 2006, includes gross profit of $37,160 related to CKJEA. (c) For the Fourth Quarter of Fiscal 2006, includes selling, general and administrative expenses of $36,778 related to CKJEA. (d) Pension income related to foreign operations of $71 has been reclassified from selling, general and administrative expenses to pension expense in the fourth quarter of Fiscal 2005 to conform to current period presentation. (e) For the Fourth Quarter of Fiscal 2006, includes amortization of intangible assets of $1,309 related to CKJEA. (f) For the Fourth Quarter of Fiscal 2006, includes operating loss of $928 related to CKJEA. (g) For the Fourth Quarter of Fiscal 2006, includes interest expense, net of $3,294 related to CKJEA. (h) During the fourth quarter of Fiscal 2006, the Company sold its Ocean Pacific businesses for a total consideration of $54,000. In addition, during the fourth quarter of Fiscal 2006, the Company discontinued the businesses associated with it its JLO, Lejaby Rose and Axcelerate Activewear brands and also closed certain Speedo retail outlet stores in the United States. The results of these operations have been reflected in "Loss from discontinued operations, net of taxes" for all periods presented. Pursuant to a new license agreement, the Company will continue to design, source, manufacture, market and distribute Ocean Pacific women's and junior swimwear for a period of three years and therefore this portion of the business is reflected in continuing operations. Schedule 2 THE WARNACO GROUP, INC.   CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in thousands, excluding per share amounts)       Fiscal Year EndedDecember 30, 2006 Fiscal Year EndedDecember 31, 2005 (Unaudited) (Unaudited)       Net revenues (a) $ 1,827,486  $ 1,475,735  Cost of goods sold   1,135,314    974,867    Gross profit (b) 692,172  500,868  Selling, general and administrative expenses (c) 551,064  388,366  Amortization of intangible assets (d) 12,269  4,020  Pension expense (income) (1,764) 1,563  Restructuring expense (income)   291    (503)   Operating income (e) 130,312  107,422  Other loss (income) (2,919) 1,019  Interest expense, net (f)   35,690    18,082    Income from continuing operations before provision for income taxes 97,541  88,321  Provision for income taxes   23,930    32,820  Income from continuing operations 73,611  55,501  Loss from discontinued operations, net of taxes (g) 22,861  6,009      Net income $ 50,750  $ 49,492        Basic income per common share: Income from continuing operations $ 1.61  $ 1.21  Loss from discontinued operations   (0.50)   (0.13) Net income $ 1.11  $ 1.08      Diluted income per common share: Income from continuing operations $ 1.57  $ 1.19  Loss from discontinued operations   (0.49)   (0.13) Net income $ 1.08  $ 1.06    Weighted average number of shares outstanding used in computing income per common share:   Basic   45,719,910    45,872,308    Diluted   46,882,399    46,804,053      (a) For the Fiscal Year Ended December 30, 2006, includes net revenues of $314,214 related to CKJEA. (b) For the Fiscal Year Ended December 30, 2006, includes gross profit of $161,744 related to CKJEA. (c) For the Fiscal Year Ended December 30, 2006, includes selling, general and administrative expenses of $132,388 related to the CKJEA Business. (d) For the Fiscal Year Ended December 30, 2006, includes amortization of intangible assets of $7,383 related to CKJEA. (e) For the Fiscal Year Ended December 30, 2006, includes operating income of $21,972 related to CKJEA. (f) For the Fiscal Year Ended December 30, 2006, includes interest expense, net of $13,372 related to CKJEA. (g) During the fourth quarter of Fiscal 2006, the Company sold its Ocean Pacific businesses for a total consideration of $54,000. In addition, during the fourth quarter of Fiscal 2006, the Company discontinued the businesses associated with it its JLO, Lejaby Rose and Axcelerate Activewear brands and also closed certain Speedo retail outlet stores in the United States. The results of these operations have been reflected in "Loss from discontinued operations, net of taxes" for all periods presented. Pursuant to a new license agreement, the Company will continue to design, source, manufacture, market and distribute Ocean Pacific women's and junior swimwear for a period of three years and therefore this portion of the business is reflected in continuing operations. Schedule 3 THE WARNACO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands)     December 30, 2006 (a) December 31, 2005 (Unaudited) (Unaudited)   ASSETS Current assets: Cash and cash equivalents $ 166,990  $ 164,201  Accounts receivable 294,993  210,204  Assets held for sale 669  1,112  Inventories 407,617  325,988  Assets of discontinued operations (b) 5,657  -  Other current assets   72,274    46,463  Total current assets   948,200    747,968    Property, plant and equipment, net 122,628  116,995  Intangible and other assets 600,763  355,088    TOTAL ASSETS $ 1,671,591  $ 1,220,051    LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 108,739  $ -  Accounts payable and accrued liabilities 336,883  229,647  Accrued income tax payable 41,174  23,557  Liabilities of discontinued operations (b)   7,527    -  Total current liabilities   494,323    253,204  Long-term debt 332,458  210,000  Other long-term liabilities 161,896  127,360  Total stockholders' equity   682,914    629,487    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,671,591  $ 1,220,051    (a) Selected balances as of December 30, 2006 related to CKJEA are presented below: Accounts receivable $ 78,774  Inventories 59,504  Intangible and other assets 312,287  Accounts payable and accrued liabilities 88,100    (b) During the fourth quarter of Fiscal 2006, the Company sold its Ocean Pacific businesses for a total consideration of $54,000. In addition, during the fourth quarter of Fiscal 2006, the Company discontinued the businesses associated with it its JLO, Lejaby Rose and Axcelerate Activewear brands and also closed certain Speedo retail stores in the United States. Assets and liabilities as of December 30, 2006, related to these businesses have been reflected in "Assets of discontinued operations" and "Liabilities of discontinued operations", respectively, on the Company's consolidated condensed balance sheet. Schedule 4   THE WARNACO GROUP, INC. NET REVENUES AND OPERATING INCOME (LOSS) BY BUSINESS UNIT (Dollars in thousands) (Unaudited)       Net revenues: Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 Increase % Change  Sportswear Group $ 223,328  (a) $ 130,152  $ 93,176  71.6% Intimate Apparel Group 173,233  141,382  31,851  22.5% Swimwear Group 84,006  82,956  1,050  1.3%       Net revenues $ 480,567  $ 354,490  $ 126,077    35.6%     Net revenues: Fiscal Year Ended December 30, 2006 Fiscal Year Ended December 31, 2005 Increase % Change  Sportswear Group $ 791,634  (a) $ 514,239  $ 277,395  53.9% Intimate Apparel Group 646,952  581,295  65,657  11.3% Swimwear Group 388,900  380,201  8,699  2.3%       Net revenues $ 1,827,486  $ 1,475,735  $ 351,751    23.8%       Fourth Quarter of Fiscal 2006 % of Total Net Revenues Fourth Quarter of Fiscal 2005 % of Total Net Revenues Operating income (loss): Sportswear Group (b) $ 18,581  (c) $ 5,457  Intimate Apparel Group (b) 26,224  (d) 14,647  (d) Swimwear Group (b) 8,369  12,517  Unallocated corporate expenses (11,926) -2.5% (13,471) -3.8% Restructuring income (expense)   (191)   0.0%   (21)   0.0% Operating income $ 41,057    8.5% $ 19,129    5.4%     Fiscal Year Ended December 30, 2006 % of Total Net Revenues Fiscal Year Ended December 31, 2005 % of Total Net Revenues Operating income: Sportswear Group (b) $ 61,604  (c) $ 50,061  Intimate Apparel Group (b) 87,607  (e) 56,698  (e) Swimwear Group (b) 18,716  35,565  Unallocated corporate expenses (37,324) -2.0% (35,405) -2.4% Restructuring income (expense)   (291)   0.0%   503    0.0% Operating income $ 130,312    7.1% $ 107,422    7.3%     (a) Includes net revenues of $83,854 and $314,214 for the Fourth Quarter and Fiscal Year Ended December 30, 2006, respectively, related to CKJEA. (b) Includes an allocation of shared services expenses as follows: Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 Fiscal Year Ended December 30, 2006 Fiscal Year Ended December 31, 2005 Sportswear Group $ 4,852  $ 4,561  $ 19,807  $ 18,245  Intimate Apparel Group $ 3,057  $ 2,802  $ 12,476  $ 11,207  Swimwear Group $ 4,577  $ 3,738  $ 18,591  $ 14,952    (c) Includes operating income (loss) of $(928) and $21,972 for the Fourth Quarter and Fiscal Year Ended December 30, 2006, respectively, related to CKJEA. (d) Includes pension expense of $797 and $332 related to foreign operations for the Fourth Quarter of Fiscal 2006 and Fourth Quarter of Fiscal 2005, respectively. (e) Includes pension expense of $1,056 and $403 related to foreign operations for Fiscal 2006 and Fiscal 2005, respectively.   Schedule 5   THE WARNACO GROUP, INC. NET REVENUES AND OPERATING INCOME BY REGION & CHANNEL (Fourth Quarter) (Dollars in thousands) (Unaudited)   By Region: Net Revenues Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 Increase / (Decrease) % Change  United States $ 271,598  $ 251,709  $ 19,889  7.9% Europe 112,755  (a) 57,937  54,818  94.6% Canada 24,605  20,790  3,815  18.4% Asia 52,869  (b) 8,891  43,978  494.6% Mexico   18,740    15,163    3,577  23.6% Total $ 480,567  $ 354,490  $ 126,077  35.6%     Operating Income Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 (c) Increase / (Decrease) % Change  United States $ 30,116  $ 19,834  $ 10,282  51.8% Europe 6,046  (a) 3,324  2,722  81.9% Canada 6,190  4,867  1,323  27.2% Asia 8,304  (b) 2,209  6,095  275.9% Mexico 2,518  2,387  131  5.5% Unallocated corporate expenses (11,926) (13,471) 1,545  -11.5% Restructuring income (expense)   (191)   (21)   (170) 809.5% Total $ 41,057  $ 19,129  $ 21,928  114.6%   (a) Includes net revenue of $41,529 and operating loss of $5,930 related to CKJEA. (b) Includes net revenue of $42,325 and operating income of $5,002 related to CKJEA. (c) Operating income for each of the regions and unallocated corporate expenses have been restated to conform to the current period presentation.     By Channel: Net Revenues Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 Increase / (Decrease) % Change  Wholesale 402,843  (a) $ 333,576  69,267  20.8% Retail   77,724  (b)   20,914    56,810  271.6% Total $ 480,567  $ 354,490  $ 126,077  35.6%     Operating Income Fourth Quarter of Fiscal 2006 Fourth Quarter of Fiscal 2005 (c) Increase / (Decrease) % Change  Wholesale $ 42,657  (a) $ 29,593  13,064  44.1% Retail 10,517  (b) 3,028  7,489  247.3% Unallocated corporate expenses (11,926) (13,471) 1,545  -11.5% Restructuring income (expense)   (191)   (21)   (170) 809.5% Total $ 41,057  $ 19,129  $ 21,928  114.6%   (a) Includes net revenue of $37,846 and operating loss of $3,566 related to CKJEA. (b) Includes net revenue of $46,008 and operating income of $2,638 related to CKJEA. (c) Operating income for each of the channels and unallocated corporate expenses have been restated to conform to the current period presentation. Schedule 6   THE WARNACO GROUP, INC. NET REVENUES AND OPERATING INCOME BY REGION & CHANNEL (Full Fiscal Year) (Dollars in thousands) (Unaudited)   By Region: Net Revenues Fiscal Year Ended December 30, 2006   Fiscal Year Ended December 1,2005 Increase/ (Decrease) % Change  United States $ 1,038,812  $ 1,047,390  $ (8,578) -0.8% Europe 430,666  (a) 248,242  182,424  73.5% Canada 98,514  90,928  7,586  8.3% Asia 193,332  (b) 37,460  155,872  416.1% Mexico 66,162  51,715  14,447  27.9%       Total $ 1,827,486  $ 1,475,735  $ 351,751  23.8%     Operating Income Fiscal Year Ended December 30,2006   Fiscal Year EndedDecember 31,2005 (c) Increase / (Decrease) % Change  United States $ 62,015  $ 70,819  $ (8,804) -12.4% Europe 41,457  (a) 31,698  9,759  30.8% Canada 23,714  20,571  3,143  15.3% Asia 30,825  (b) 10,814  20,011  185.0% Mexico 9,916  8,422  1,494  17.7% Unallocated corporate expenses (37,324) (35,405) (1,919) 5.4% Restructuring income (expense) (291) 503  (794) -157.9% Total $ 130,312  $ 107,422  $ 22,890  21.3%   (a) Includes net revenue of $159,269 and operating income of $2,626 related to CKJEA. (b) Includes net revenue of $154,944 and operating income of $19,346 related to CKJEA. (c) Operating income for each of the regions and unallocated corporate expenses have been restated to conform to the current period presentation.     By Channel: Net Revenues Fiscal Year EndedDecember 30,2006   Fiscal Year EndedDecember 31,2005 Increase / (Decrease) % Change  Wholesale $ 1,570,656  (a) $ 1,396,272  174,384  12.5% Retail 256,830  (b) 79,463  177,367  223.2%       Total $ 1,827,486  $ 1,475,735  $ 351,751  23.8%     Operating Income Fiscal Year EndedDecember 30, 2006 Fiscal Year Ended December 31, 2005 (c) Increase / (Decrease) % Change  Wholesale $ 132,574  (a) $ 128,901  3,673  2.8% Retail 35,353  (b) 13,423  21,930  163.4% Unallocated corporate expenses (37,324) (35,405) (1,919) 5.4% Restructuring income (expense) (291) 503  (794) -157.9%       Total $ 130,312  $ 107,422  $ 22,890  21.3%   (a) Includes net revenue of $167,063 and operating income of $10,592 related to CKJEA. (b) Includes net revenue of $147,151 and operating income of $11,380 related to CKJEA. (c) Operating income for each of the channels and unallocated corporate expenses have been restated to conform to the current period presentation. THE WARNACO GROUP, INC.   QUARTERLY RESULTS OF OPERATIONS (Dollars in thousands, excluding per share amounts) (Unaudited)   Fiscal 2006 First Quarter*   Second Quarter* Third Quarter* Fourth Quarter     Net revenues $ 453,180  $ 445,565  $ 448,174  $ 480,567  Cost of goods sold   280,900    288,383    269,736    296,295    Gross profit 172,280  157,182  178,438  184,272  Selling, general and administrative expenses 132,188  136,573  140,036  142,267  Amortization of intangible assets 3,218  3,825  2,695  2,531  Pension expense (income) (28) 33  5  (1,774) Restructuring expense (income)   -    -    100    191  -  -  -  -  Operating income 36,902  16,751  35,602  41,057  Other (income) loss 1,850  (766) (4,434) 431  Interest expense, net   7,944    9,417    9,260    9,069    Income from continuing operations before provision for income taxes 27,108  8,100  30,776  31,557  Provision for income taxes   8,914    2,599    6,005    6,412  Income from continuing operations 18,194  5,501  24,771  25,145  Loss from discontinued operations, net of taxes 4,313  2,078  10,210  6,260          Net income $ 13,881  $ 3,423  $ 14,561  $ 18,885      Basic income per common share: Income from continuing operations $ 0.39  $ 0.12  $ 0.54  $ 0.56  Loss from discontinued operations   (0.09)   (0.05)   (0.22)   (0.14) Net income $ 0.30  $ 0.07  $ 0.32  $ 0.42    Diluted income per common share: Income from continuing operations $ 0.39  $ 0.12  $ 0.53  $ 0.55  Loss from discontinued operations   (0.09)   (0.05)   (0.22)   (0.14) Net income $ 0.30  $ 0.07  $ 0.31  $ 0.41    Weighted average number of shares outstanding used in computing income per common share:   Basic   46,147,169    46,082,333    45,623,044    45,044,744    Diluted   46,734,984    46,935,529    46,465,593    46,055,486    * Previously reported quarterly results have been revised to reflect the effects of the operations that were classified as discontinued in the fourth quarter of Fiscal 2006.