WARNACO GROUP INC /DE/ - 10-Q Quarterly Report

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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 5, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10857
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THE WARNACO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-4032739
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

90 PARK AVENUE
NEW YORK, NEW YORK 10016
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

(212) 661-1300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

COPIES OF ALL COMMUNICATIONS TO:
THE WARNACO GROUP, INC.
90 PARK AVENUE
NEW YORK, NEW YORK 10016
ATTENTION: GENERAL COUNSEL
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2) of the Exchange Act. [x] Yes [ ] No

From June 11, 2001 to February 4, 2003, the registrant's Class A Common
Stock, par value $.01 per share, the only voting stock of the registrant then
issued and outstanding, was traded on the over-the-counter bulletin board. The
aggregate market value of such Class A Common Stock held by non-affiliates of
the registrant as of July 6, 2002 was approximately $781,582. On February 4,
2003, the registrants's Class A Common Stock, par value $.01 per share, was
cancelled and the Company issued 44,999,973 shares of new Common Stock, par
value $.01 per share (the 'New Common Stock'). As of May 15, 2003, the aggregate
market value of the New Common Stock, the only voting stock of the registrant
currently issued and outstanding, held by non-affiliates of the registrant, was
approximately $469,702,517.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [x] Yes [ ] No

The number of shares outstanding of the registrant's common stock as of May
15, 2003 is as follows: 44,999,973.
________________________________________________________________________________

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

See Notes to Consolidated Condensed Financial Statements.

2

THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCLUDING PER SHARE DATA)
(UNAUDITED)

See Notes to Consolidated Condensed Financial Statements.

3

THE WARNACO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

See Notes to Consolidated Condensed Financial Statements.

4

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 1 -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization: The Warnaco Group, Inc. ('Warnaco Group') was incorporated in
Delaware on March 14, 1986 and, on May 10, 1986, acquired substantially all of
the outstanding shares of Warnaco Inc. ('Warnaco'). Warnaco is the principal
operating subsidiary of Warnaco Group. Warnaco Group, Warnaco and certain of its
subsidiaries were reorganized under Chapter 11 of the Bankruptcy Code effective
February 4, 2003 (the 'Effective Date').

Nature of Operations: Warnaco Group and its subsidiaries (collectively, the
'Company') design, manufacture, source and market a broad line of (i) intimate
apparel (including bras, panties, sleepwear, loungewear, shapewear and daywear
for women and underwear and sleepwear for men); (ii) sportswear for men, women
and juniors (including jeanswear, khakis, knit and woven shirts, tops and
outerwear); and (iii) swimwear for men, women, juniors and children (including
swim accessories and fitness and active apparel). The Company's products are
sold under a number of internationally known owned and licensed brand names. The
Company offers a diversified portfolio of brands across multiple distribution
channels to a wide range of customers. The Company distributes its products
worldwide to wholesale customers through a variety of channels, including
department and specialty stores, independent retailers, chain stores, membership
clubs and mass merchandisers. The Company also sells its products directly to
consumers through 80 retail stores, including 45 Company-operated Speedo
Authentic Fitness full price retail stores in North America (including one
online store), four A.B.S. by Allen Schwartz full price retail stores in North
America, two Warnaco outlet retail stores in Canada, five Calvin Klein Underwear
full price retail stores in Europe, 11 Calvin Klein Underwear full price retail
stores in Asia and 13 Warnaco outlet retail stores in Europe.

Chapter 11 Cases. On June 11, 2001 (the 'Petition Date'), Warnaco Group, 36
of its 37 U.S. subsidiaries and one of its Canadian subsidiaries, Warnaco of
Canada Company (each a 'Debtor' and, collectively, the 'Debtors') each filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, 11
U.S.C. 'SS'SS'101-1330, as amended (the 'Bankruptcy Code'), in the United States
Bankruptcy Court for the Southern District of New York (the 'Bankruptcy Court')
(collectively, the 'Chapter 11 Cases'). The remainder of Warnaco's foreign
subsidiaries were not debtors in the Chapter 11 Cases, nor were they subject to
foreign bankruptcy or insolvency proceedings.

On November 9, 2002, the Debtors filed the First Amended Joint Plan of
Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and
Debtors-In-Possession Under Chapter 11 of the Bankruptcy Code (the 'Plan'). On
January 16, 2003, the Bankruptcy Court entered (i) its Findings of Fact to and
Conclusions of Law Re: Order and Judgment Confirming The First Amended Joint
Plan of Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and
Debtors-In-Possession Under Chapter 11 of Title 11 of the United States Code,
dated November 8, 2002, and (ii) an Order and Judgment Confirming The First
Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its
Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of Title 11 of the
United States Code, dated November 8, 2002, and Granting Related Relief (the
'Confirmation Order').

In accordance with the provisions of the Plan and the Confirmation Order,
the Plan became effective on the Effective Date, and the Company entered into
the $275,000 Senior Secured Revolving Credit Facility (the 'Exit Financing
Facility'). The Exit Financing Facility provides for a four-year, non-amortizing
revolving credit facility. See Note 14. In accordance with the Plan, on the
Effective Date, the Company issued $200,942 of New Warnaco Second Lien Notes due
2008 (the 'Second Lien Notes') to certain pre-petition creditors and others in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended, pursuant to Section 1145(a) of the Bankruptcy Code. See
Note 14.

Set forth below is a summary of certain material provisions of the Plan.
Among other things, as described below, the Plan resulted in the cancellation of
Warnaco Group's Class A Common Stock, par

5

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

value $0.01 per share (the 'Old Common Stock'), issued prior to the Petition
Date. The holders of Old Common Stock did not receive any distribution on
account of the Old Common Stock under the Plan. The Company, as reorganized
under the Plan, issued 44,999,973 shares of common stock, par value $0.01 per
share (the 'New Common Stock') in reliance on the exemption from registration
afforded by Section 1145 of the Bankruptcy Code, which was distributed to
pre-petition creditors as specified below. In addition, 5,000,000 shares of
New Common Stock of the Company were reserved for issuance pursuant to
management incentive stock grants. On March 12, 2003, subject to approval by
the stockholders of the Company's proposed 2003 management incentive plan, the
Company authorized the grant of 750,000 shares of restricted stock and options
to purchase 3,000,000 shares of New Common Stock at the fair market value on
the date of grant. The Plan also provided for the issuance by Warnaco of the
Second Lien Notes in the principal amount of $200,942 to pre-petition creditors
and others (as specified below), which was secured by a second priority security
interest in substantially all of the Debtors' domestic assets and guaranteed by
Warnaco Group and Warnaco's domestic subsidiaries. The Company received no
proceeds from the issuance of the New Common Stock and the Second Lien Notes;
however, approximately $2,486,000 of indebtedness was extinguished as a result
of such issuances.

The following is a summary of distributions made pursuant to the Plan:

(a) the Old Common Stock, including all stock options and restricted shares,
was extinguished and holders of the Old Common Stock received no
distribution on account of the Old Common Stock;

(b) general unsecured claimants received 2.55% (1,147,023 shares) of the New
Common Stock, which the Company distributed in April 2003;

(c) the Company's pre-petition secured lenders received their pro-rata share
of $106,112 in cash, Second Lien Notes in the principal amount of
$200,000 and 96.26% of the New Common Stock (43,318,350 shares);

(d) holders of claims arising from or related to certain preferred
securities received 0.60% of the New Common Stock (268,200 shares);

(e) pursuant to the terms of his employment agreement, as modified by the
Plan, Antonio C. Alvarez II, the former President and Chief Executive
Officer of the Company, received an incentive bonus consisting of $1,950
in cash, Second Lien Notes in the principal amount of $942 and 0.59% of
the New Common Stock (266,400 shares); and

(f) in addition to the foregoing, allowed administrative and certain
priority claims were paid in full in cash.

Basis of Consolidation and Presentation: References in these consolidated
condensed financial statements to the 'Predecessor' refer to the Company prior
to February 4, 2003. References to the 'Successor' refer to the Company on and
after February 4, 2003 after giving effect to the implementation of fresh start
reporting. All intercompany accounts have been eliminated in consolidation.

The accompanying consolidated condensed financial statements of the
Predecessor for the periods January 6, 2002 to April 6, 2002 (the 'First Quarter
of Fiscal 2002') and January 5, 2003 to February 4, 2003 (the 'Stub Period')
have been presented in accordance with American Institute of Certified Public
Accountants Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code ('SOP 90-7'). In the Chapter 11 Cases,
substantially all unsecured liabilities and under-secured liabilities as of the
Petition Date were subject to compromise or other treatment under the Plan. For
financial reporting purposes, those liabilities and obligations whose treatment
and satisfaction were dependent on the outcome of the Chapter 11 Cases have been
segregated and classified as liabilities subject to compromise in the
accompanying consolidated condensed balance sheet as of January 4, 2003.

6

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

Pursuant to SOP 90-7, professional fees and other costs associated with the
Chapter 11 Cases were expensed as incurred and reported as reorganization items.
Interest expense was reported only to the extent that it was to be paid during
the Chapter 11 Cases.

Upon its emergence from bankruptcy on February 4, 2003, the Company
implemented fresh start reporting under the provisions of SOP 90-7. Pursuant to
the provisions of SOP 90-7, (i) the Company's reorganization value of $750,000
was allocated to the fair value of the Company's assets; (ii) the Company's
accumulated deficit was eliminated; and (iii) the Old Common Stock was
cancelled. In addition, approximately $2,499,385 of the Company's outstanding
pre-petition debt and liabilities were discharged.

The accompanying unaudited consolidated condensed financial statements
include all adjustments (all of which were of a normal, recurring nature except
for (i) the adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ('SFAS 142'); (ii) adjustments related to
the Chapter 11 Cases; and (iii) adjustments related to the forgiveness of
indebtedness and adoption of fresh start accounting pursuant to the provisions
of SOP 90-7) which are, in the opinion of management, necessary for fair
presentation of the results of operations and financial position of the Company.

Periods Covered: The First Quarter of Fiscal 2002 contained 13 weeks of
operations of the Predecessor. The month ended February 4, 2003 contained 4
weeks of operations of the Predecessor. The two months ended April 5, 2003
contained 9 weeks of operations of the Successor. The one month period ended
February 4, 2003 together with the two months ended April 5, 2003 contained 13
weeks of operations (the 'First Quarter of Fiscal 2003').

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates: The Company uses estimates and assumptions in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses. Actual results could materially differ from these
estimates. The estimates the Company makes are based upon historical factors,
current circumstances and the experience and judgment of the Company's
management. The Company evaluates its assumptions and estimates on an ongoing
basis and may employ outside experts to assist in the Company' evaluations. The
Company believes that the use of estimates affects the application of all of the
Company's accounting policies and procedures.

Revenue Recognition: The Company recognizes revenue when goods are shipped
to customers and title and risk of loss has passed to the customers, net of
reserves for returns and other discounts. The Company recognizes revenue from
its retail stores when goods are sold to customers.

Accounts Receivable: The Company maintains reserves for estimated amounts
that the Company does not expect to collect from its trade customers. Accounts
receivable reserves include amounts the Company expects its customers to deduct
for trade discounts, other promotional activity, amounts for accounts that go
out of business or seek the protection of the Bankruptcy Code and amounts
related to charges in dispute with customers. The Company's estimate of the
allowance amounts that are necessary includes amounts for specific deductions
the Company has authorized and an amount for other estimated losses. The
provision for accounts receivable allowances is affected by general economic
conditions, the financial condition of the Company's customers, the inventory
position of the Company's customers, sell-through of the Company's products by
these customers and many other factors, most of which are not controlled by the
Company or its management. As of April 5, 2003 the Company had approximately
$367,292 of open trade accounts receivable and $15,898 of open debit memos.
Based

7

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

upon the Company's analysis of estimated recoveries and collections associated
with the related invoices and debit memos, the Company had $80,462 of accounts
receivable reserves at April 5, 2003. As of February 4, 2003, the Company had
approximately $281,917 of open trade invoices and other receivables and $10,836
of open debit memos. Based upon the Company's analysis of estimated recoveries
and collections associated with the related invoices and debit memos, the
Company had $79,705 of accounts receivable reserves at February 4, 2003. As of
January 4, 2003, the Company had approximately $276,889 of open trade accounts
receivable and $10,440 of open debit memos. Based upon the Company's analysis of
estimated recoveries and collections associated with the related invoices and
debit memos, the Company had $87,512 of accounts receivable reserves at
January 4, 2003. The net accounts receivable balance of $213,048 at February 4,
2003 was estimated to be the fair value of the Company's accounts receivable at
February 4, 2003. The determination of accounts receivable reserves is subject
to significant levels of judgment and estimation by the Company's management. If
circumstances change or economic conditions deteriorate, the Company may need to
increase the reserve significantly. The Company has purchased credit insurance
to help mitigate the potential losses it may incur from the bankruptcy,
reorganization or liquidation of some of its customers.

Inventories: The Company values its inventories at the lower of cost,
determined on a first-in, first-out basis, or market. The Company evaluates its
inventories to determine excess units or slow-moving styles based upon
quantities on hand, orders in house and expected future orders. For those items
for which the Company believes it has an excess supply or for styles or colors
that are obsolete, the Company estimates the net amount that the Company expects
to realize from the sale of such items. The Company's objective is to recognize
projected inventory losses at the time the loss is evident rather than when the
goods are ultimately sold. At April 5, 2003, the Company had identified
inventory with a carrying value of approximately $62,500 as potentially excess
and/or obsolete. Based upon the estimated recoveries related to such inventory,
as of April 5, 2003, the Company had approximately $31,666 of inventory reserves
for excess, obsolete and other inventory adjustments. At February 4, 2003, the
Company had identified inventory with a carrying value of approximately $57,200
as potentially excess and/or obsolete. Based upon the estimated recoveries
related to such inventory, as of February 4, 2003, the Company had approximately
$32,785 of inventory reserves for excess, obsolete and other inventory
adjustments. At January 4, 2003, the Company had identified inventory with a
carrying value of approximately $61,500 as potentially excess and/or obsolete.
Based upon the estimated recoveries related to such inventory, as of January 4,
2003, the Company had approximately $33,816 of inventory reserves for excess,
obsolete and other inventory adjustments. The Company believes that the carrying
value of its inventory, net of the reserves noted, was equal to its fair value
at February 4, 2003. As of February 4, 2003, the Company expenses certain
design, procurement, receiving, and other product related costs as incurred.
These costs were previously capitalized.

Long-lived Assets: As of February 4, 2003, property, plant and equipment was
recorded at its fair values based upon the preliminary appraised values of such
assets. See Notes 3 and 4. Intangible assets consist primarily of licenses and
trademarks. The fair value of such licenses and trademarks owned by the Company
are based upon the appraised value of such assets as determined by an
independent third party appraiser and the Company. Identifiable intangible
assets with finite useful lives are amortized on a straight-line basis over the
estimated useful lives of the assets. See Note 11.

The Company reviews its long-lived assets for possible impairment when
events or circumstances indicate that the carrying value of the assets may not
be recoverable. Assumptions and estimates used in the evaluation of impairment
may affect the carrying value of long-lived assets, which could result in
impairment charges in future periods. In addition, depreciation and amortization
expense is affected by the Company's determination of the estimated useful lives
of the related assets. For periods beginning after February 4, 2003 the
estimated remaining useful lives of the Company's fixed assets and finite lived
intangible assets are based upon the remaining useful lives as determined by
independent third party appraisers.

8

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

Income Taxes: Deferred income taxes are determined using the liability
method. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse. A valuation allowance is provided when the
Company determines that it is more likely than not that a portion of the
deferred tax asset balance will not be realized.

Pension Plan: The Company has a defined benefit pension plan (the 'Pension
Plan') covering certain full-time non-union domestic employees and certain
domestic employees covered by a collective bargaining agreement. The
determination of the total liability attributable to benefits owed to
participants covered by the Pension Plan are determined by the Pension Plan's
third party actuary using assumptions provided by the Company. The assumptions
used can have a significant effect on the amount of pension expense and pension
liability recorded by the Company. The Pension Plan actuary also determines the
annual cash contribution to the Pension Plan using the assumptions defined by
the Pension Benefit Guaranty Corporation. The Pension Plan was under-funded as
of February 4, 2003 and April 5, 2003. The Pension Plan and the Plan contemplate
that the Company will continue to fully fund its minimum required contributions
and any other premiums due under the Employee Retirement Income Security Act of
1974, as amended ('ERISA') and the United States Internal Revenue Code of 1986,
as amended (the 'Code'). Effective January 1, 2003, the Pension Plan was amended
and, as a result, no future benefits will accrue to participants in the Pension
Plan. As of February 4, 2003, the Company had recorded a Pension Plan liability
equal to the amount that the present value of accumulated benefit obligations
(discounted using an interest rate of approximately 5.3%) exceeded the fair
value of Pension Plan assets as determined by the Pension Plan trustee. The
Company's cash contributions to the Pension Plan for fiscal 2003 will be
approximately $9,320 and will be approximately $45,576 from fiscal 2004 through
fiscal 2008. The amount of estimated cash contributions that the Company will be
required to make to the Pension Plan could increase or decrease depending on the
actual return earned by the assets of the Pension Plan compared to the estimated
rate of return on Pension Plan assets. The accrued long-term Pension Plan
liability of $65,848 and accruals for other post retirement benefits of $6,006
are classified as other long-term liabilities in the consolidated condensed
balance sheet at April 5, 2003. Contributions to the Pension Plan to be paid in
fiscal 2003 of $9,320 are classified with accrued liabilities at April 5, 2003.

Stock Based Compensation: Effective February 5, 2003, the Successor adopted
the fair value method of accounting for stock options for all options granted by
the Successor after February 4, 2003 pursuant to the prospective method
provisions of SFAS No. 148, Accounting for Stock Based Compensation, Transition
and Disclosure ('SFAS 148'). The Company uses the Black-Scholes model to
calculate the fair value of stock option awards. The Black-Scholes model
requires the Company to make significant judgments regarding the assumptions
used within the Black-Scholes model, the most significant of which are the stock
price volatility assumption, the expected life of the option award and the
risk-free rate of return. The Company recently emerged from bankruptcy, and as a
result, the Company does not have a relevant stock price history upon which to
base its volatility assumption. In determining the volatility used in its model,
the Company considered the volatility of the stock prices of selected companies
in the apparel industry, the nature of those companies, the Company's recent
emergence from bankruptcy and other factors in determining its stock price
volatility assumption of 35%. The Company based its estimate of the average life
of a stock option of five years upon the vesting period of 40 months and the
option term of ten years. The Company's risk-free rate of return assumption of
2.55% is equal to the quoted yield for five-year U.S. treasury bonds at the
valuation date.

Prior to February 5, 2003, the Company followed the disclosure-only
provisions of Statement of Financial Accounting Standards ('SFAS') No. 123,
Accounting for Stock-Based Compensation,

9

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

('SFAS 123'). SFAS 123 encourages, but does not require, companies to adopt a
fair value based method for determining expense related to stock option
compensation. The Company accounted for stock based compensation for employees
using the intrinsic value method as prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ('APB 25') and related
interpretations. Under APB 25, no compensation expense was recognized for
employee share option grants because the exercise price of the options granted
has equaled the market price of the underlying shares on the date of grant (the
'intrinsic value method').

The following table illustrates the effect that stock based compensation
would have had on net income (loss) and earnings per share of the Predecessor
had such compensation been included in its net income (loss) and earnings per
share for the Stub Period and for the First Quarter of Fiscal 2002,
respectively:

Stock based compensation expense included in the consolidated condensed
statement of operations for the two months ended April 5, 2003 was $131 (net of
income tax benefit of $88). Compensation expense attributable to stock options
for the two month period ended April 5, 2003 was $77 (net of tax benefit of
$51). Stock-based compensation expense did not have a material effect on
earnings per share in the two-month period ended April 5, 2003. See Note 16.

The fair value of the stock options was determined at the date of grant
using a Black-Scholes option pricing model with the following assumptions:

- ---------

(a) the Company is restricted from paying dividends under the
terms of the Exit Financing Facility.

10

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

The Predecessor did not grant any stock based compensation or stock options
in the First Quarter of Fiscal 2002 or in the Stub Period.

Marketable Securities: Marketable securities are stated at fair value based
on quoted market prices. Marketable securities are classified as
available-for-sale.

Assets Held for Sale: The Company classifies assets to be sold as assets
held for sale. Assets held for sale are reported at the estimated fair value
less selling costs. Assets held for sale include certain property and equipment
of closed facilities which the Company has identified for disposition.

Property, Plant and Equipment: Property, plant and equipment as of
February 4, 2003 and April 5, 2003 are stated at estimated fair values based
upon a preliminary independent third party appraisal of such assets, net of
accumulated depreciation. The estimated useful lives of such assets based upon
the work of the independent third party appraiser are summarized below:

Buildings...................................... 20 - 40 years
Building improvements.......................... 2 - 20 years
Machinery and equipment........................ 3 - 10 years
Furniture and fixtures......................... 7 - 10 years
Computer hardware.............................. 3 - 5 years
Computer software.............................. 3 - 7 years

Computer Software Costs: Internal and external costs incurred in developing
or obtaining computer software for internal use are capitalized in property,
plant and equipment in accordance with SOP 98-1 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and related guidance
and are amortized on a straight-line basis over the estimated useful life of the
software (three to seven years). General and administrative costs related to
developing or obtaining such software are expensed as incurred.

Intangible Assets: Intangible assets primarily consist of licenses and
trademarks. The fair value of such licenses and trademarks owned by the Company
at February 4, 2003 are based upon the appraised values of such assets as
determined by an independent third party appraiser and the Company. Identifiable
intangible assets with finite lives are amortized on a straight-line basis over
the estimated useful lives of the assets. Pursuant to the provisions of
SFAS 142 intangible assets with indefinite lives are not amortized. See
Note 11.

Reorganization Value in Excess of Fair Value of Net Assets: Reorganization
value in excess of the fair value of net assets represents the amount by which
the Company's reorganization value exceeds the fair value of its tangible assets
and identified intangible assets minus its liabilities allocated in accordance
with the provisions of SFAS 141 as of February 4, 2003. Pursuant to the
provisions of SFAS 142 reorganization value is not amortized.

Deferred Financing Costs: Deferred financing costs represent legal, other
professional and bank underwriting fees incurred in connection with the
Company's Exit Financing Facility. Such fees are amortized over the life of the
related debt using the interest method. Amortization expense is included in
interest expense.

Other Assets: Other assets include certain barter credits and long-term rent
receivable related to certain subleases. Barter assets are recognized when
realized and deferred rent charges are recognized over the life of the related
lease.

Financial Instruments: The Company has not used derivative financial
instruments for speculation or for trading purposes since the Petition Date. The
Company had no hedging financial instruments outstanding at April 5, 2003.

A number of major international financial institutions are counterparties to
the Company's outstanding letters of credit. The Company monitors its positions
with, and the credit quality of, these

11

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

counterparty financial institutions and does not anticipate nonperformance of
these counterparties. Management believes that the Company would not suffer a
material loss in the event of nonperformance by these counterparties.

Start-Up Costs: Pre-operating costs relating to the start-up of new
manufacturing facilities, product lines and businesses are expensed as incurred.

Other Liabilities: Other long-term liabilities include long-term accrued
pension and post retirement benefit obligations.

Comprehensive Income (Loss): Comprehensive income (loss) consists of net
income (loss), unrealized gain/(loss) on marketable securities (net of tax),
unfunded pension liability (net of tax) and cumulative translation adjustments
(net of tax). Because such cumulative translation adjustments are considered a
component of permanently invested earnings of foreign subsidiaries, no income
taxes are provided on such amounts.

Translation of Foreign Currencies: Cumulative translation adjustments arise
primarily from consolidating the net assets and liabilities of the Company's
foreign operations at current rates of exchange. Assets and liabilities of the
Company's foreign operations are recorded at current rates of exchange at the
balance sheet date and are applied directly to stockholders' equity (deficiency)
and are included as part of other comprehensive income (loss). The consolidated
condensed balance sheet at February 4, 2003 represents the fair value of the
Company's assets at that date and, as a result, there is no cumulative
translation adjustment on that date. Income and expense items for the Company's
foreign operations are translated using monthly average exchange rates.

Recent Accounting Pronouncements: In April 2003, the Financial Accounting
Standards Board (the 'FASB') issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities ('SFAS 149'). FASB Statements No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133')
and No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, establish accounting and reporting standards for derivative
instruments including derivatives embedded in other contracts (collectively
referred to as 'derivatives') and for hedging activities. SFAS 149 amends
SFAS 133 for certain decisions made by the Board as part of the Derivatives
Implementation Group ('DIG') process. This Statement contains amendments
relating to FASB Concepts Statement No. 7, Using Cash Flow Information and
Present Value in Accounting Measurements, and FASB Statements No. 65, Accounting
for Certain Mortgage Banking Activities, No. 91 Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases, No. 95, Statement of Cash Flows, and No. 126, Exemption from
Certain Required Disclosures about Financial Instruments for Certain Nonpublic
Entities. The provisions of SFAS 149 are effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS 149 is not expected to have a
material effect on the Company's consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ('FIN 45'). This interpretation requires
certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods beginning after December 15, 2002. The initial
recognition and initial measurement requirements of FIN 45 are effective
prospectively for guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have an effect on the Company's consolidated
financial statements.

12

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 3 -- REORGANIZATION VALUE

In conjunction with the preparation of the Plan, the Company engaged an
independent third party appraisal and consulting firm (the 'BEV Appraiser') to
prepare a valuation analysis of the reorganized Company. In preparing its
analysis, the BEV Appraiser received certain publicly available historical
information and financial statements of the Company, reviewed and discussed with
management the Company's overall business plan, including long-term risks and
opportunities, evaluated the Company's projections and the assumptions
underlying the projections, considered the market value of publicly traded
companies that are reasonably comparable to the Company, considered the purchase
price paid in acquisitions of comparable companies and made such other analyses
as the BEV Appraiser deemed necessary or appropriate for the purposes of the
valuation. Based upon its analysis the BEV Appraiser determined that the
business enterprise value ('BEV') of the reorganized Company was between
$730,000 and $770,000. Based upon the timing of the Debtors' emergence from
bankruptcy, market conditions at the time of emergence and the net assets of the
Company at the Effective Date, the Company determined its reorganization equity
value of $503,548 by subtracting the Company's debt of $246,452 on the Effective
Date from the mid-point ($750,000) of the BEV valuation range provided by the
BEV Appraiser.

NOTE 4 -- FAIR VALUE OF CERTAIN LONG-TERM TANGIBLE AND INTANGIBLE ASSETS

Considering the provisions of SFAS 141 and the nature and complexity of the
Company's business, the Company determined that an independent third party
appraisal of its various business units and long-term tangible and intangible
assets was necessary in order to allocate the reorganization value of the
Company to its various assets and liabilities at February 4, 2003. The Company
engaged an independent third party appraisal and consulting firm separate from
the BEV Appraiser to determine the fair value of the Company's long-term
tangible assets and identifiable intangible assets (the 'Asset Appraiser').
Based upon the reorganization value of the Company as determined by the BEV
Appraiser, the Asset Appraiser provided detailed analysis of the Company's
long-term tangible and intangible assets. See Note 11.

NOTE 5 -- FRESH START ACCOUNTING

The Debtors' emergence from bankruptcy proceedings on February 4, 2003
resulted in a new reporting entity and adoption of fresh start accounting as of
that date in accordance with SOP 90-7. The consolidated condensed balance sheet
as of February 4, 2003 gives effect to adjustments in the carrying value of
assets and liabilities to fair value in accordance with the provisions of SOP
90-7 and SFAS 141.

The following table reflects the implementation of the Plan and the
adjustments recorded to the Company's assets and liabilities to reflect the
implementation of the Plan and the adjustments of such assets and liabilities to
fair value at February 4, 2003, based upon the Company's reorganization value of
$750,000 (as included in the Plan and as approved by the Bankruptcy Court).

Reorganization adjustments resulted primarily from the:

(a) adjustment of property, plant and equipment carrying values
to fair value;
(b) adjustment of the carrying value of the Company's various
trademarks and license agreements to fair value;
(c) forgiveness of the Debtors' pre-petition debt;
(d) issuance of New Common Stock and Second Lien Notes pursuant
to the Plan;
(e) payment of various administrative and other claims
associated with the Company's emergence from bankruptcy; and

13

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

(f) distribution of cash of $106,112 (including accrued interest
of $14,844) to the Company's pre-petition secured lenders.

These adjustments were based upon the work of the BEV Appraiser and Asset
Appraiser, as well as other valuation estimates to determine the relative fair
values of the Company's assets and liabilities. The table below reflects
reorganization adjustments for the discharge of indebtedness, issuance of New
Common Stock, issuance of Second Lien Notes, and the fresh start adjustments and
the resulting fresh start consolidated balance sheet.

14

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

(footnotes on next page)

15

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

(footnotes from previous page)

(a) Utilized excess cash of $75,533 and borrowed $30,579 under
the Exit Financing Facility to pay $106,112 (including
accrued interest of $14,844) to the Debtors' pre-petition
secured creditors.

(b) Reflects the discharge of pre-petition indebtedness of
$2,393,273 (not including $106,112 in cash paid to
pre-petition secured lenders) and cancellation of all
outstanding shares of Old Common Stock, including all
options and restricted stock, additional paid-in capital,
treasury stock, unearned stock compensation and other
accumulated comprehensive loss.

(c) Reflects the issuance of 44,999,973 shares of New Common
Stock and recognition of reorganization equity value of
$503,548 as determined by the BEV Appraiser pursuant to the
provisions of the Plan.

(d) Reflects the issuance of $200,942 principal amount of Second
Lien Notes pursuant to the terms of the Plan, payment of a
bonus of $5,873 to the Company's former Chief Executive
Officer pursuant to the terms of the Plan and the payment of
$4,427 of deferred financing costs. Cash payments were
funded by borrowing $6,377 under the Exit Financing
Facility.

(e) Reflects the adjustment of fixed assets to fair value of
$129,357 as determined by the Asset Appraiser, intangible
assets to fair value of $364,700 as determined by the Asset
Appraiser, the recognition of deferred income tax liability
of $82,011 and deferred tax assets of $4,427 related to the
fair value adjustments noted above.

(f) Borrowed $2,244 under the Exit Financing Facility to pay
certain administrative and priority claims of $2,015, tax
claims of $114, the translation escrow account (subsequently
released to the Company) of $100 and provide additional cash
funds at closing of $15.

(g) Reflects the recording of an unfavorable contract commitment
of $2,801 related to one of the Company's distribution
facilities.

(h) Reflects adjustments of $22,494 to adjust inventory to fair
value.

NOTE 6 -- REORGANIZATION ITEMS

In connection with the Chapter 11 Cases, the Company initiated strategic and
organizational changes to streamline the Company's operations, focus on its core
businesses and return the Company to profitability. Many of the strategic
actions are long-term in nature and, though initiated in fiscal 2001 and fiscal
2002, will not be completed until the end of fiscal 2003. The Company has
recorded reductions to the net realizable value for assets the Company believes
will not be fully realized when they are sold or abandoned.

Certain reorganization-related accruals were classified as liabilities
subject to compromise. The Plan summarized the amount of distribution that each
class of impaired creditors received. See Note 1.

As a direct result of the Chapter 11 Cases, the Company has recorded certain
liabilities, incurred certain legal and professional fees and written-down
certain assets. The transactions recorded were consistent with the provisions of
SOP 90-7. The components of reorganization items are as follows:

16

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 7 -- BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION

The Company operates in three business segments or groups: (i) Intimate
Apparel Group; (ii) Sportswear Group; and (iii) Swimwear Group. During fiscal
2002, the Company operated in four business segments or groups (i) Intimate
Apparel Group; (ii) Sportswear Group; (iii) Swimwear Group and (iv) Retail
Stores Group. Because the Company has closed over 200 retail stores in the last
three years, the retail stores no longer represent a material portion of the
Company's net revenues (retail stores accounted for 1.6% of consolidated net
revenue in the two months ended April 5, 2003). In addition, the operations of
the remaining retail stores have been combined both on a functional and on a
reporting basis with the operations of the Company's three wholesale business
groups. Beginning in fiscal 2003, the operations of the Retail Stores Group were
included with the Company's three wholesale Groups according to the type of
product sold. Certain financial information contained in this Quarterly Report
on Form 10-Q has been restated to correspond to the Company's current segment
presentation.

The Intimate Apparel Group designs, manufactures, sources and markets
moderate to premium priced intimate apparel and other products for women and
better to premium priced men's underwear and loungewear under the Warner's'r',
Olga'r', Body Nancy Ganz'TM'/Bodyslimmers'r', Calvin Klein'r', Lejaby'r' and
Rasurel'r' brand names. The Intimate Apparel Group also operates 31 retail
stores, including 11 full price Calvin Klein underwear retail stores in Asia,
five full price Calvin Klein underwear retail stores in Europe, two Warnaco
outlet stores in Canada and 13 Warnaco outlet retail stores in Europe.

The Sportswear Group designs, sources and markets mass market to premium
priced men's and women's sportswear under the Calvin Klein'r', Chaps Ralph
Lauren'r', A.B.S. by Allen Schwartz'r', Catalina'r' and White Stag'r' brand
names. The Sportswear Group also operates four full price A.B.S. by Allen
Schwartz retail stores.

The Swimwear Group designs, manufactures, sources and markets mass market to
premium priced swimwear, fitness apparel, swim accessories and related products
under the Speedo'r'/Speedo Authentic Fitness'r', Anne Cole'r', Cole of
California'r', Sunset Beach'r', Sandcastle'r', Catalina'r', White Stag'r',
Lifeguard'r' and Nautica'r' brand names. The Swimwear Group also operates 45
full price Speedo Authentic Fitness retail stores (including one online store.)

The accounting policies of the segments are the same as those described in
Note 2 -- 'Significant Accounting Policies'.

17

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

During the Company's bankruptcy, the Company sold assets, wrote down
impaired assets, recorded an impairment charge related to the adoption of
SFAS 142 and stopped amortizing goodwill and certain intangible assets that were
previously amortized. In addition, on February 4, 2003, the Company emerged from
bankruptcy and adopted fresh start accounting in accordance with the provisions
of SOP 90-7. The adoption of fresh start accounting resulted in adjustments of
the Company's assets and liabilities to fair value. As a result of these changes
and adjustments, depreciation and amortization expense has decreased by in
excess of $20,000 annually from the amounts reported in previous years. For
informational purposes, the Company has separately identified the depreciation
and amortization components of operating income (loss) in the following table.
The presentation of segment information for prior periods has been restated to
reflect the current classification of the Company's business groups. Information
by business group is set forth below:

A reconciliation of total group operating income to total consolidated
income before taxes and cumulative effect of a change in accounting principle
for the two months ended April 5, 2003, one month ended February 4, 2003 and
First Quarter of Fiscal 2002, is as follows:

18

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 8 -- COMPREHENSIVE INCOME/(LOSS)

The components of comprehensive income (loss) are as follows:

The components of accumulated other comprehensive loss are as follows:

NOTE 9 -- INCOME TAXES

PREDECESSOR COMPANY

The provision for income taxes of $78,150 for the one month ended
February 4, 2003 consists of a deferred income tax provision of $77,584 related
to the increase in the carrying value of certain assets to fair value recorded
in connection with the Company's adoption of fresh start accounting and accrued
income taxes for foreign earnings of $566.

SUCCESSOR COMPANY

As of February 4, 2003, the Company had recorded a valuation allowance
against deferred tax assets to reduce the amount of deferred tax assets created
as a result of the fresh start accounting to an amount that the Company
believes, based upon objectively verifiable evidence, is realizable. The
future recognition of such amounts will first reduce reorganization value

19

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

in excess of the fair value of net assets. Should the recognition of net
deferred tax assets result in the elimination of reorganization value in
excess of the fair value of net assets, any additional deferred tax asset
recognition will reduce other intangible assets. Deferred tax assets recognized
in excess of the carrying value of intangible assets will be treated as an
increase to additional paid-in capital.

The Company has also established a valuation allowance against certain
foreign net operating loss carryforwards to reduce them to the amount that will
more likely than not be realized.

The provision for income taxes of $16,184 for the two months ended April 5,
2003 consists of accrued income taxes of $12,454 on domestic earnings and
accrued income taxes of $3,730 on foreign earnings.

During the two months ended April 5, 2003, the Company generated sufficient
taxable income to realize a deferred tax asset of $3,302 on which a valuation
allowance was previously established. As discussed above, the realization of
this deferred tax asset for which a valuation allowance was previously
established reduced reorganization value in excess of fair value of net assets.
In addition, reorganization value in excess of fair value of net assets was
further reduced by $8,373 resulting from the use of net operating loss
carryforwards (subject to certain limitations as discussed below) for tax
reporting purposes.

The Company has also established a valuation allowance against certain
foreign net operating loss carryforwards to reduce them to the amount that will
more likely than not be realized.

BANKRUPTCY EFFECT

In connection with the Debtors' emergence from bankruptcy, the Company
realized a gain on the extinguishment of debt of $1,692,696. This gain will not
be taxable since the gain resulted from the Company's reorganization under the
Bankruptcy Code. However, for U.S. income tax reporting purposes, as of the
beginning of its 2004 taxable year, the Company will be required to reduce
certain tax attributes, including (a) net operating loss carryforwards,
(b) certain tax credit carryforwards, and (c) tax bases in assets in an amount
equal to the gain on the extinguishment of debt. The reorganization of the
Company on the Effective Date constituted an ownership change under Section 382
of the Code, and the use of any of the Company's net operating loss
carryforwards and tax credit carryforwards generated prior to the ownership
change that are not reduced pursuant to these provisions will be subject to an
overall annual limitation. The actual amount of reduction in tax attributes for
U.S. income tax reporting purposes will not be determined until 2004 and is
therefore not reflected in this note to the consolidated condensed financial
statements.

NOTE 10 -- INVENTORIES

- ---------

(a) Inventory reserves are based upon the estimated recoveries
the Company expects to receive from the disposition of
excess and obsolete inventory. As of April 5, 2003,
February 4, 2003 and January 4, 2003 the Company had
identified inventory with a carrying value of $62,500,
$57,200 and $61,500, respectively, as potentially excess
and/or obsolete.

20

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 11 -- INTANGIBLE ASSETS

Accumulated amortization related to finite lived licenses for a term at
April 5, 2003, February 4, 2003 and January 4, 2003 was $273, $0 and $2,494,
respectively. Accumulated amortization of sales orders backlog was $4,200 at
April 5, 2003. Amortization expense for the two months ended April 5, 2003
was $273.

Amortization expense will be $14,102 for fiscal 2003 and $1,639 in each
of fiscal 2004 through fiscal 2007.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets ('SFAS 142'). SFAS 142 eliminated the amortization of goodwill and
certain other intangible assets with indefinite lives effective for the
Company's 2002 fiscal year. SFAS 142 addresses financial accounting and
reporting for intangible assets and acquired goodwill. SFAS 142 requires that
indefinite lived intangible assets be tested for impairment at least annually.
Intangible assets with finite useful lives are to be amortized over their useful
lives and reviewed for impairment in accordance with SFAS No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets.

Under the provisions of SFAS No. 142, goodwill is deemed potentially
impaired if the net book value of a business reporting unit exceeds the fair
value of that business reporting unit. As of January 5, 2002, the Company had
incurred losses in each of its two previous fiscal years and had filed for
bankruptcy. As a result the Company's business enterprise value ('BEV') had
decreased. Intangible assets are deemed impaired if the carrying amount exceeds
the fair value of the assets. The Company obtained an independent appraisal of
its business enterprise value ('BEV') in connection with the preparation of the
Plan. The Company allocated the appraised BEV to its various reporting units and
determined that the value of certain of the Company's intangible assets and
goodwill were impaired. As a result, the Company recorded a charge of $801,622
(net of income tax benefit of $53,513) as a cumulative effect of a change in
accounting from the adoption of SFAS 142. The remaining value of intangible
assets with indefinite useful lives after the adoption of SFAS No. 142 was
$81,305 and the remaining value of other intangible assets with finite lives
was $6,316.

Reorganization value in excess of fair value of net assets decreased $10,076
in the two month period ended April 5, 2003, reflecting adjustments to the
Company's deferred tax asset valuation allowance of $11,675 offset by a
reclassification of certain reorganization accruals of $1,599.

NOTE 12 -- PROPERTY, PLANT AND EQUIPMENT

21

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 13 -- LIABILITIES SUBJECT TO COMPROMISE

The following liabilities subject to companies were discharged upon the
Company's emergence from bankruptcy:

- ---------

(a) Accounts payable includes $349,737 of trade drafts payable
at January 4, 2003. As a result of the Chapter 11 Cases, no
principal or interest payments were made on unsecured
pre-petition debt.

(b) See Note 14.

NOTE 14 -- DEBT

EXIT FINANCING FACILITY

On the Effective Date the Company entered into a $275,000 Senior Secured
Revolving Credit Facility (the 'Exit Financing Facility'). The Exit Financing
Facility provides for a four-year, non-amortizing revolving credit facility. The
Exit Financing Facility includes provisions that allow the Company to increase
the maximum available borrowing from $275,000 to $325,000 subject to certain
conditions (including obtaining the agreement of existing or new lenders to
commit to lend the

22

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

additional amount). Borrowings under the Exit Financing Facility bear interest
at Citibank N.A.'s base rate plus 1.50% (5.75% at April 5, 2003) or at the
London Interbank Offered Rate ('LIBOR') plus 2.50% (approximately 3.8% at
April 5, 2003). Pursuant to the terms of the Exit Financing Facility, the
interest rate the Company will pay on its outstanding loans will decrease by
as much as 0.5% in the event the Company achieves certain defined ratios. The
Exit Financing Facility contains financial covenants that, among other things,
require the Company to maintain a fixed charge coverage ratio above a minimum
level, a leverage ratio below a maximum level and to limit the amount of the
Company's capital expenditures. In addition, the Exit Financing Facility
contains certain covenants that, among other things, limit investments and
asset sales, prohibit the payment of dividends (subject to limited exceptions)
and prohibit the Company from incurring material additional indebtedness.
Initial borrowings under the Exit Financing Facility on the Effective Date
were $39,200. The Exit Financing Facility is guaranteed by most of the
Company's domestic subsidiaries and the obligations under such guarantee,
together with the Company's obligations under the Exit Financing Facility, are
secured by a lien on substantially all of the domestic assets of the Company and
its domestic subsidiaries.

SECOND LIEN NOTES

In accordance with the Plan, on the Effective Date, the Company issued
$200,942 of New Warnaco Second Lien Notes due 2008 (the 'Second Lien Notes') to
certain pre-petition creditors and others in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 1145(a) of the Bankruptcy Code. The Second Lien Notes mature on
February 4, 2008, subject to, in certain instances, earlier repayment in whole
or in part. The Second Lien Notes bear an annual interest rate (9.5% at
April 5, 2003) which is the greater of (i) 9.5% plus a margin (initially 0%, and
beginning on August 4, 2003, 0.5% is added to the margin every six months); and
(ii) LIBOR plus 5.0% plus a margin (initially 0%, and beginning on
August 4, 2003, 0.5% is added to the margin every six months). The indenture
pursuant to which the Second Lien Notes were issued contains certain covenants
that, among other things, limit investments and asset sales, prohibit the
Company from paying dividends (subject to limited exceptions) and incurring
material additional indebtedness. The Second Lien Notes are guaranteed by most
of the Company's domestic subsidiaries and the obligations under such guarantee,
together with the Company's obligations under the Second Lien Notes, are
secured by a second priority lien on substantially the same assets which
secure the Exit Financing Facility. The Second Lien Notes are payable in equal
annual installments of $40,188 beginning in April 2004 through April 2008.
Second Lien Note principal payments can only be made if the Company achieves a
defined fixed charge coverage ratio and has additional borrowing availability,
after the principal payment, of $75,000 or more under the Exit Financing
Facility.

GECC

On June 12, 2002, the Bankruptcy Court approved the Predecessor's settlement
of certain operating lease agreements with General Electric Capital Corporation
('GECC'). The leases had original terms from three to seven years and were
secured by certain equipment, machinery, furniture, fixtures and other assets.
The terms of the settlement agreement require the Company to make payments to
GECC totaling $15,200. The net present value of the remaining GECC payments of
$3,652 is classified with the current portion of long-term debt at April 5,
2003. Remaining amounts payable to GECC will be paid in monthly installments of
$750 including interest through November 2003. Obligations to GECC are secured
by first priority liens on the applicable assets.

OTHER DEBT

Certain of the Company's foreign subsidiaries are parties to capital lease
obligations related to certain facilities and equipment. The total amount of
capital lease obligations outstanding at April 5,

23

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

2003, February 4, 2003 and January 4, 2003 related to these leases were
approximately $1,351, $1,420 and $2,679, of which $105, $160 and $162 are
included with the current portion of long-term debt, respectively.

NOTE 15 -- SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 16 -- STOCKHOLDERS EQUITY (DEFICIENCY)

The Successor has authorized an aggregate of 20,000,000 shares of preferred
stock, par value $0.01 per share, of which 112,500 shares are designated as
Series A preferred stock, par value $0.01 per share. There are no shares of
preferred stock issued and outstanding. The Successor has authorized an
aggregate of 112,500,000 shares of common stock, $0.01 par value per share, of
which the Successor issued 44,999,973 shares pursuant to the terms of the Plan.

On March 12, 2003, the Company issued 498,500 shares of restricted stock to
certain of its employees. The fair market value at the date of grant was $10.45
per share. The restricted shares vest with respect to 25% of the shares on
September 12, 2003 and with respect to an additional 25% of such shares each
September 12 thereafter through 2006. In addition, the Company also
granted options for the purchase of 1,998,000 shares of New Common Stock at an
exercise price of $10.45 per share, which was equal to the closing market price
on the date of grant. The options vest with respect to 25% of the shares on
September 12, 2003 and with respect to an additional 25% of such shares each
September 12 thereafter through 2006. The options have a ten-year term.
Compensation expense related to the restricted share and option grants was $212
for the two months ended April 5, 2003. The total fair value of the options and
restricted share grants was $12,502.

The Company has reserved 5,000,000 shares of common stock for stock based
compensation awards.

The Predecessor had various stock based incentive plans in place prior to
February 4, 2003. All options to purchase shares of Old Common Stock and
restricted shares related to the Old Common Stock were cancelled on February 4,
2003 pursuant to the terms of the Plan.

At February 4, 2003, the Predecessor had options outstanding for the
purchase of 3,692,363 shares of Old Common Stock at weighted average exercise
prices from $0.67 to $42.00 per share. Pursuant to the Plan, all outstanding
options to purchase shares of Old Common Stock were cancelled effective
February 4, 2003.

24

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

NOTE 17 -- INCOME (LOSS) SHARE

NOTE 18 -- LEGAL MATTERS

SHAREHOLDER CLASS ACTIONS

Between August 22, 2000 and October 26, 2000, seven putative class action
complaints were filed in the U.S. District Court for the Southern District of
New York (the 'District Court') against the Company and certain of its officers
and directors (the 'Shareholder I Class Action'). The complaints, on behalf of a
putative class of the Company's shareholders who purchased the Old Common Stock
between September 17, 1997 and July 19, 2000 (the 'Class Period'), allege, among
other things, that the defendants violated the Securities Exchange Act of 1934,
as amended (the 'Exchange Act') by artificially inflating the price of the Old
Common Stock and failing to disclose certain information during the Class
Period.

On November 17, 2000, the District Court consolidated the complaints into a
single action, styled In Re The Warnaco Group, Inc. Securities Litigation, No.
00-Civ-6266 (LMM), and appointed a lead plaintiff and approved a lead counsel
for the putative class. A second amended consolidated complaint was filed on
May 31, 2001. On October 5, 2001, the defendants other than the Company filed a
motion to dismiss based upon, among other things, the statute of limitations,
failure to state a claim and failure to plead fraud with the requisite
particularity. On April 25, 2002, the District Court granted the motion to
dismiss this action based on the statute of limitations. On May 10, 2002, the
plaintiffs filed a motion for reconsideration in the District Court. On May 24,
2002, the plaintiffs filed a notice of appeal with respect to such dismissal. On
July 23, 2002, plaintiffs' motion for reconsideration was denied. On July 30,
2002, the plaintiffs voluntarily dismissed, without prejudice, their claims
against us. On October 2, 2002, the plaintiffs filed a notice of appeal with
respect to the District Court's entry of a final judgment in favor of the
individual defendants.

Between April 20, 2001 and May 31, 2001, five putative class action
complaints against the Company and certain of its officers and directors were
filed in the District Court (the 'Shareholder II Class Action'). The complaints,
on behalf of a putative class of 64 shareholders who purchased the Old

25

THE WARNACO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

Common Stock between September 29, 2000 and April 18, 2001 (the 'Second Class
Period'), allege, among other things, that defendants violated the Exchange
Act by artificially inflating the price of the Old Common Stock and failing to
disclose negative information during the Second Class Period.

On August 3, 2001, the District Court consolidated the actions into a single
action, styled In Re The Warnaco Group, Inc. Securities Litigation (II), No. 01
CIV 3346 (MCG), and appointed a lead plaintiff and approved a lead counsel for
the putative class. A consolidated amended complaint was filed against certain
of the Company's current and former officers and directors, which expanded the
Second Class Period to encompass August 16, 2000 to June 8, 2001. The amended
complaint also dropped the Company as a defendant, but added as defendants
certain outside directors. On April 18, 2002, the District Court dismissed the
amended complaint, but granted plaintiffs leave to replead. On June 7, 2002, the
plaintiffs filed a second amended complaint, which again expanded the Second
Class Period to encompass August 15, 2000 to June 8, 2001. On June 24, 2002, the
defendants filed motions to dismiss the second amended complaint. On August 21,
2002, the plaintiffs filed a third amended complaint adding the Company's
current independent auditors as a defendant.

Neither the Shareholder I Class Action nor Shareholder II Class Action has
had, or will have, a material adverse effect on the Company's financial
condition, results of operations or business.

SEC INVESTIGATION

The staff of the Securities and Exchange Commission ('SEC') Division of
Enforcement has been conducting an investigation to determine whether there have
been any violations of the Exchange Act, in connection with, among other things,
the preparation and publication by the Company of (i) the financial statements
included in the Company's Annual Report on Form 10-K for Fiscal 1998 and
Quarterly Report on Form 10-Q for the third quarter of Fiscal 2000 and (ii)
the Company's press release announcing its results for Fiscal 1998. In July
2002, the SEC staff informed the Company that it intends to recommend that the
SEC bring a civil injunctive action against the Company, alleging violations of
the federal securities laws, including Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13
promulgated thereunder. The SEC staff invited the Company to make a Wells
Submission describing the reasons why no action should be brought. In
September 2002, the Company filed its Wells Submission and is continuing
discussions with the SEC staff as to a settlement of this investigation. The
Company does not expect the resolution of this matter to have a material
effect on the Company's business, financial condition or results of operations.

The Company is also aware that the SEC staff has informed certain persons
who were employed by the Company at the time of the preparation of the documents
referred to above (including one current member of management) that it intends
to recommend that the SEC bring a civil injunctive action against such persons
alleging violations of the securities laws. The Company is advised that such
persons also have filed Wells Submissions.

CHAPTER 11 CASES

For a discussion of bankruptcy proceeding under the Bankruptcy Code, see the
discussion of "Chapter 11 Cases" in Note 1.

Other. In addition to the above, from time to time, the Company is involved
in arbitrations or legal proceedings that arise in the ordinary course of its
business. The Company cannot predict the timing or outcome of these claims and
proceedings. Currently, the Company is not involved in any arbitration and/or
legal proceeding that it expects to have a material effect on its business,
financial condition or results of operations.

26

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The Company is subject to certain risks and uncertainties that could cause
its future results of operations to differ materially from its historical
results of operations and those expected in the future. The Company generally is
subject to certain risks that could affect the value of the Company's New Common
Stock. Please refer to Item 1. Business included in the Company's Annual Report
on Form 10-K for the year ended January 4, 2003 (the 'Annual Report') for a
discussion of the Company's business operations. Except for the historical
information contained in this Quarterly Report on Form 10-Q (the 'Quarterly
Report'), this Quarterly Report, including the following discussion, contains
forward-looking statements that involve risks and uncertainties. See 'Statement
Regarding Forward-Looking Disclosure.'

PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AND REORGANIZATION

On June 11, 2001 (the 'Petition Date'), The Warnaco Group, Inc. ('Warnaco
Group'), 36 of its 37 U.S. subsidiaries and Warnaco of Canada Company (each a
'Debtor' and, collectively, the 'Debtors') each filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. 'SS'SS'101-1330,
as amended (the 'Bankruptcy Code'), in the United States Bankruptcy Court for
the Southern District of New York (the 'Bankruptcy Court') (collectively, the
'Chapter 11 Cases'). The remainder of the Company's foreign subsidiaries were
not debtors in the Chapter 11 Cases, nor were they subject to foreign bankruptcy
or insolvency proceedings.

On November 9, 2002, the Debtors filed the First Amended Joint Plan of
Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and
Debtors-In-Possession Under Chapter 11 of the Bankruptcy Code (the 'Plan'). On
January 16, 2003, the Bankruptcy Court entered (i) its Findings of Fact to and
Conclusions of Law Re: Order and Judgment Confirming The First Amended Joint
Plan of Reorganization of The Warnaco Group, Inc. and Its Affiliated Debtors and
Debtors-In-Possession Under Chapter 11 of Title 11 of the United States Code,
dated November 8, 2002, and (ii) an Order and Judgment Confirming The First
Amended Joint Plan of Reorganization of The Warnaco Group, Inc. and Its
Affiliated Debtors and Debtors-In-Possession Under Chapter 11 of Title 11 of the
United States Code, dated November 8, 2002, and Granting Related Relief (the
'Confirmation Order'). On February 4, 2003 (the 'Effective Date'), the Plan
became effective and the Debtors successfully emerged from their bankruptcy
proceedings.

Pursuant to the Plan, the following distributions were made:

(a) Warnaco Group's Class A, Common Stock, par value $0.01 per
share ('Old Common Stock'), including all stock options and
restricted shares, was extinguished and holders of the Old
Common Stock received no distribution on account of the Old
Common Stock;
(b) general unsecured claimants received 2.55% (1,147,023
shares) of the New Common Stock, which was distributed in
April 2003;
(c) the Company's pre-petition secured lenders received their
pro-rata share of 106.1 million in cash, Second Lien Notes
in the principal amount of $200 million and approximately
96.26% of the New Common Stock (43,318,350 shares);
(d) holders of claims arising from or related to certain
preferred securities received 0.60% of the New Common Stock
(268,200 shares);
(e) pursuant to the terms of his employment agreement, as
modified by the Plan, Antonio C. Alvarez II, the former
President and Chief Executive Officer of Warnaco Group,
received an incentive bonus consisting of $1.95 million in
cash, Second Lien Notes in the principal amount of
approximately $0.9 million and 0.59% of the New Common Stock
(266,400 shares); and
(f) in addition to the foregoing, allowed administrative and
certain priority claims were paid in full in cash.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to use judgment in making estimates and

27

assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses in the Company's consolidated financial statements and
accompanying notes. The following critical accounting policies are based on,
among other things, judgments and assumptions made by management that include
inherent risks and uncertainties.

Use of Estimates: The Company uses estimates and assumptions in the
preparation of its financial statements in conformity with accounting principles
generally accepted in the United States of America. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses. Actual results could materially differ from these
estimates. The estimates the Company makes are based upon historical factors,
current circumstances and the experience and judgment of the Company's
management. The Company evaluates its assumptions and estimates on an ongoing
basis and may employ outside experts to assist in the Company's evaluations. The
Company believes that the use of estimates affects the application of all of the
Company's accounting policies and procedures.

Revenue Recognition: The Company recognizes revenue when goods are shipped
to customers and title and risk of loss has passed to the customers, net of
reserves for returns and other discounts. The Company recognizes revenue from
its retail stores when goods are sold to customers.

Accounts Receivable: The Company maintains reserves for estimated amounts
that the Company does not expect to collect from its trade customers. Accounts
receivable reserves include amounts the Company expects its customers to deduct
for trade discounts, other promotional activity, amounts for accounts that go
out of business or seek the protection of the Bankruptcy Code and amounts
related to charges in dispute with customers. The Company's estimate of the
allowance amounts that are necessary includes amounts for specific deductions
the Company has authorized and an amount for other estimated losses. The
provision for accounts receivable allowances is affected by general economic
conditions, the financial condition of the Company's customers, the inventory
position of the Company's customers, sell-through of the Company's products by
these customers and many other factors, most of which are not controlled by the
Company or its management. As of April 5, 2003, the Company had approximately
$367.3 million of open trade invoices and other receivables and $15.9 million of
open debit memos. Based upon the Company's analysis of estimated recoveries and
collections associated with the related invoices and debit memos, the Company
had $80.5 million of accounts receivable reserves at April 5, 2003. As of
February 4, 2003 and January 4, 2003, the Company had approximately
$281.9 million and $276.9 million of open trade invoices and other receivables,
respectively, and $10.8 million and $10.4 million of open debit memos,
respectively. Based upon the Company's analysis of estimated recoveries and
collections associated with the related invoices and debit memos, the Company
had $79.7 million and $87.5 million of accounts receivable reserves at
February 4, 2003 and January 4, 2003, respectively. The determination of
accounts receivable reserves is subject to significant levels of judgment and
estimation by the Company's management. If circumstances change or economic
conditions deteriorate, the Company may need to increase the reserve
significantly. The Company has purchased credit insurance to help mitigate the
potential losses it may incur from the bankruptcy, reorganization or liquidation
of some of its customers.

Inventories: The Company values its inventories at the lower of cost,
determined on a first-in, first-out basis, or market. The Company evaluates its
inventories to determine excess units or slow-moving styles based upon
quantities on hand, orders in house and expected future orders. For those items
for which the Company believes it has an excess supply or for styles or colors
that are obsolete, the Company estimates the net amount that the Company expects
to realize from the sale of such items. The Company's objective is to recognize
projected inventory losses at the time the loss is evident rather than when the
goods are ultimately sold. At April 5, 2003, the Company had identified
inventory with a carrying value of approximately $62.5 million as potentially
excess and/or obsolete. Based upon the estimated recoveries related to such
inventory, as of April 5, 2003, the Company had approximately $31.7 million of
inventory reserves for excess, obsolete and other inventory adjustments. At
February 4, 2003 and January 4, 2003, the Company had identified inventory with
carrying values of approximately $57.2 million and $61.5 million, respectively,
as potentially excess and/or obsolete. Based upon the

28

estimated recoveries related to such inventory, as of February 4, 2003 and
January 4, 2003, the Company had approximately $32.8 million and $33.8 million,
respectively, of inventory reserves for excess, obsolete and other inventory
adjustments. The Company believes that the carrying value of its inventory, net
of the reserves noted, is equal to its fair value at February 4, 2003. As of
February 4, 2003, the Company expenses certain design, procurement, receiving,
and other product related costs as incurred. These costs were previously
capitalized.

Long-lived Assets: Property, plant and equipment at February 4, 2003 are
recorded in the consolidated condensed balance sheet at their fair values based
upon the appraised values of such assets. See Notes 3 and 4 of Notes to
Consolidated Condensed Financial Statements. Intangible assets consist primarily
of licenses and trademarks. The fair value of such licenses and trademarks owned
by the Company are based upon the appraised value of such assets as determined
by an independent third party appraiser and the Company. Identifiable intangible
assets with finite useful lives are amortized on a straight-line basis over the
estimated useful lives of the asset. See Note 11 of Notes to Consolidated
Condensed Financial Statements.

The Company reviews its long-lived assets for possible impairment when
events or circumstances indicate that the carrying value of the assets may not
be recoverable. Assumptions and estimates used in the evaluation of impairment
may affect the carrying value of long-lived assets, which could result in
impairment charges in future periods. In addition, depreciation and amortization
expense is affected by the Company's determination of the estimated useful lives
of the related assets. The estimated remaining useful lives of the Company's
fixed assets and finite lived intangible assets for periods after February 4,
2003 are based upon the remaining useful lives as determined by independent
third party appraisers and the Company.

Income Taxes: Deferred income taxes are determined using the liability
method. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse. A valuation allowance is provided when the
Company determines that it is more likely than not that a portion of the
deferred tax asset balance will not be realized.

Pension Plan: The Company has a defined benefit pension plan (the 'Pension
Plan') covering certain full time non-union domestic employees and certain
domestic employees covered by a collective bargaining agreement. The
determination of the total liability attributable to benefits owed to
participants covered by the Pension Plan are determined by the Pension Plan's
third party actuary using assumptions provided by the Company. The assumptions
used can have a significant effect on the amount of pension expense and pension
liability recorded by the Company. The Pension Plan actuary also determines the
annual cash contribution to the Pension Plan using the assumptions defined by
the Pension Benefit Guaranty Corporation. The Pension Plan was under-funded as
of April 5, 2003, February 4, 2003 and January 4, 2003. The Pension Plan and
the Company's plan of reorganization contemplate that the Company will continue
to fully fund its minimum required contributions and any other premiums due
under the Employee Retirement Income Security Act of 1974, as amended ('ERISA')
and the United States Internal Revenue Code of 1986, as amended (the 'Code').
Effective January 1, 2003, the Pension Plan was amended and, as a result, no
future benefits will accrue to participants of the Pension Plan. The Company
has recorded a Pension Plan liability equal to the amount that the present
value of accumulated benefit obligations (discounted using an interest rate of
approximately 5.3%) exceeded the fair value of Pension Plan assets at April 5,
2003 and February 4, 2003. The Company's cash contributions to the Pension Plan
for fiscal 2003 will be approximately $9.3 million and will be approximately
$45.6 million in the aggregate from fiscal 2004 through fiscal 2008. The amount
of estimated cash contributions that the Company will be required to make to the
Pension Plan could increase or decrease depending on the actual return earned by
the assets of the Pension Plan compared to the estimated rate of return on
Pension Plan assets. The accrued long-term Pension Plan liability and accruals
for other post retirement benefits are classified as other long-term liabilities
in the consolidated condensed balance sheets. Contributions to the Pension Plan
to be paid in fiscal 2003 of $9.3 million are classified with accrued
liabilities.

Stock Based Compensation: Effective February 5, 2003, the Company adopted
the fair value method of accounting for stock options for all options granted by
the Company after February 4, 2003 pursuant to the prospective method provisions
of Statement of Financial Accounting Standards

29

('SFAS') No. 148, Accounting for Stock Based Compensation, Transition and
Disclosure ('SFAS 148'). The Company uses the Black-Scholes model to calculate
the fair value of stock option awards. The Black-Scholes model requires the
Company to make significant judgments regarding the assumptions used within the
Black-Scholes model, the most significant of which are the stock price
volatility assumption, the expected life of the option award and the risk free
rate of return. The Company recently emerged from bankruptcy, and as a result,
the Company does not have a relevant stock price history upon which to base its
volatility assumption. In determining the volatility used in its model, the
Company considered the volatility of the stock prices of selected companies in
the apparel industry, the nature of those companies, the Company's recent
emergence from bankruptcy and other factors in determining its stock price
volatility assumption of 35%. The Company based its estimate of the average life
of a stock option of five years upon the vesting period of 40 months and the
option term of ten years. The Company's risk-free rate of return assumption of
2.55% is equal to the quoted yield for five-year U.S. treasury bonds at the
valuation date.

Prior to February 5, 2003, the Company followed the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ('SFAS 123'). SFAS 123 encourages, but does not
require, companies to adopt a fair value based method for determining expense
related to stock option compensation. The Company accounted for stock based
compensation for employees using the intrinsic value method as prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ('APB 25') and related interpretations. Under APB 25, no compensation
expense was recognized for employee share option grants because the exercise
price of the options granted to date has equaled the market price of the
underlying shares on the date of grant (the 'intrinsic value method').

Reorganization Value in Excess of Fair Value of Net Assets: Reorganization
value in excess of the fair value of net assets represents the amount by which
the Company's reorganization value exceeded the fair value of its tangible
assets, identified intangible assets minus its liabilities as of February 4,
2003. The Company allocated reorganization value to its various assets in
accordance with the provisions of SFAS No. 141, Business Combinations
('SFAS 141'). Reorganization value is not amortized.

Reorganization Items: Reorganization items included in the consolidated
condensed statement of operations for the periods ended April 5, 2003,
February 4, 2003 and three months ended April 6, 2002 were $1.4 million, $29.9
million and $15.5 million, respectively. Included in reorganization items are
certain non-cash asset impairment provisions and accruals for items that have
been, or will be, paid in cash. Certain accruals at January 4, 2003 were subject
to compromise under the provisions of the Bankruptcy Code. The Company had
recorded these accruals at the estimated amount the creditor would have been
entitled to claim under the provisions of the Bankruptcy Code. The ultimate
amount of and settlement terms for such liabilities are detailed in the Plan.
See Note 6 of Notes to Consolidated Condensed Financial Statements.

RESULTS OF OPERATIONS

STATEMENT OF OPERATIONS (SELECTED DATA)

The following table summarizes the historical results of operations of the
Company for the three month period ended April 6, 2002 ('the First Quarter of
Fiscal 2002'), the one month period ended February 4, 2003 (the 'Stub Period')
and for the two month period ended April 5, 2003. The Stub Period combined with
the two month period ended April 5, 2003 constitute the 'First Quarter of Fiscal
2003'. Results of operations for the First Quarter of Fiscal 2003 set forth
under the heading 'Pro Forma' in the following tables. References in the
discussion below refer to such combined results.

30

The First Quarter of Fiscal 2002 included 13 weeks of operations, the Stub
Period included four weeks of operations and the two month period ended
April 5, 2003 included nine weeks of operations. (the Stub Period together with
the two months ended April 5, 2003 are 'the First Quarter of Fiscal 2003').
References in this Item 2 to the 'Predecessor' refer to the Company prior to
February 4, 2003. References to the 'Successor' refer to the Company on and
after February 4, 2003 after giving effect to the implementation of fresh start
reporting.

The following statement of operations data compares the combined one month
period ended February 4, 2003 and two month period ended April 5, 2003 to the
First Quarter of Fiscal 2002.

31

THE WARNACO GROUP, INC.
CONNSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCLUDING PER SHARE DATA)

The Company notes that its results for the First Quarter of Fiscal 2003
reflect many factors including increased sales of swimwear products, as compared
to the prior year period. Also, earlier shipment of certain swimwear, Calvin
Klein'r' underwear and Calvin Klein jeans programs had a positive effect on the
First Quarter of Fiscal 2003. The Company expects that these earlier shipments
combined with lower-than-expected second quarter 2003 shipments of intimate
apparel will cause second quarter results to be significantly below the prior
year's results. However, the Company expects first six months' results to be
ahead of the prior year's results on a pro forma basis.

NET REVENUES

Net revenues are as follows:

- ---------

(a) Intimate Apparel net revenues for the First Quarter of
Fiscal 2002 include $18.2 million of revenues from
discontinued and sold units. Not including these revenues,
Intimate Apparel net revenues increased 7.8% and
consolidated net revenues increased 12.9%.

32

Net revenues increased $32.2 million, or 7.9%, to $442.3 million in the
First Quarter of Fiscal 2003 compared to $410.1 million in the First Quarter of
Fiscal 2002. In the same period, Sportswear Group net revenues increased
$9.9 million, or 7.7%, to $139.1 million, Swimwear Group net revenues increased
by $29.6 million, or 24.1%, to $152.1 million and Intimate Apparel Group net
revenues decreased $7.3 million, or 4.6%, to $151.1 million (excluding
sold/discontinued operations Intimate Apparel Group net revenues increased by
8.5%).

Intimate Apparel Group

Intimate Apparel Group net revenues are as follows:

Intimate Apparel net revenues decreased $7.3 million, or 4.6%, to
$151.1 million for the First Quarter of Fiscal 2003, from $158.3 million for the
First Quarter of Fiscal 2002. Excluding net revenues from sold and discontinued
business units (GJM, Fruit of the Loom, Weight Watchers and domestic outlet
retail stores), Intimate Apparel net revenues increased $11.8 million, or 8.5%,
to $151.0 million for the First Quarter of Fiscal 2003 compared to $139.2
million for the First Quarter of Fiscal 2002. Warner's/Olga/Body Nancy Ganz net
revenues decreased $10.2 million, reflecting a less favorable reception of
certain new products at retail coupled with an over stock position at several
key retailers. The Company expects that the negative trend in
Warner's'r'/Olga'r'/Body Nancy Ganz'r' net revenues will continue at least
through the Second Quarter of Fiscal 2003 as retailers sell through inventory
on hand. The increase in Calvin Klein underwear net revenues reflects increases
in all major accounts, including the international divisions, due to improved
sell-through at retail, particularly in the women's business. Lejaby'r' net
revenues increased $7.4 million, or 30.0%, primarily through favorable reception
of products at retail and a favorable Rasurel swimwear shipping season. Revenues
from sold or discontinued business units decreased $19.1 million, to $0.1
million for the First Quarter of Fiscal 2003. The decrease is primarily
attributable to the decision to close all domestic outlet retail stores in
fiscal 2002. The remaining Intimate Apparel retail business is comprised of five
full price Calvin Klein underwear stores in Europe, 13 outlet retail stores in
Europe, two outlet retail stores in Canada and 11 full price Calvin Klein
underwear stores in Asia.

Sportswear Group

Sportswear Group net revenues are as follows:

33

Sportswear net revenues increased by $9.9 million, or 7.7%, to
$139.1 million for the First Quarter of Fiscal 2003, from $129.2 million for the
First Quarter of Fiscal 2002 . The small growth rate in Chaps'r' net revenues
reflects overall softness in the men's sportswear business. The increase in
Calvin Klein jeans net revenues reflects certain programs that were shipped in
the First Quarter of Fiscal 2003. Those programs were shipped in the second and
third quarters of fiscal 2002. Net revenues for the second quarter and third
quarters of fiscal 2003 will be negatively affected by these earlier Calvin
Klein jeans orders. ABS by Allen Schwartz'r' net revenues have benefited from a
favorable reception of its new styles at retail, primarily in denim sportswear
and day dresses. Mass sportswear licensing has been affected by slower
sell-through at Wal-Mart.

Swimwear Group

Swimwear Group net revenues are as follows:

Swimwear net revenues increased $29.6 million, or 24.1%, to $152.1 million
for the First Quarter of Fiscal 2003, from $122.5 million for the First Quarter
of Fiscal 2002. Better inventory management, new product lines and an expanded
customer base contributed to the overall increase in the Swimwear Group's net
revenues. Better inventory management and production controls resulted in more
timely shipment of goods to customers than were shipped in the First Quarter of
Fiscal 2002. Consequently a portion of the overall increase relates to recurring
orders that were shipped in the First Quarter of Fiscal 2003, while the
corresponding orders were shipped in the second quarter of Fiscal 2002. Revenues
in the second quarter of Fiscal 2003 may thus be negatively impacted by these
timing differences. Speedo'r' net revenue increased $31.1 million, or 44.2%, to
$101.3 million for the First Quarter of Fiscal 2003 compared to $70.2 million
for the First Quarter of Fiscal 2002. The increase in Speedo net revenues
primarily reflects increased sales of Speedo fitness swim products and
accessories. Designer swimwear net revenues increased $3.3 million or 7.7% to
$45.6 million in the First Quarter of Fiscal 2003 compared to $42.3 million in
the First Quarter of Fiscal 2002 due to favorable reception at retail, in
particular, the Anne Cole'r' line. Speedo Authentic Fitness'r' retail net
revenues decreased $4.8 million, or 47.8%, to $5.2 million for the First Quarter
of Fiscal 2003 compared to $9.9 million for the First Quarter of Fiscal 2002 .
The decrease in Speedo Authentic Fitness retail was primarily due to the closing
of 50 stores from the beginning of fiscal 2002 through the end of the First
Quarter of Fiscal 2003.

GROSS PROFIT

Gross profit increased $48.8 million to $167.2 million or 37.8% of net
revenues for the First Quarter of Fiscal 2003 from $118.4 million or 28.9% of
net revenues for the First Quarter of Fiscal 2002. The increase in gross profit
reflects higher sales volume, an improved regular to off-price sales mix,
improved sales allowance and markdown experience, improved manufacturing
efficiencies, inventory management and more efficient product sourcing. Cost of
goods sold for the First Quarter of Fiscal 2002 includes expenses of $3.4
million related to certain design, procurement, receiving and other product
related costs. Through February 4, 2003, the Company had capitalized such costs.
Effective February 4, 2003, the Company changed its method of accounting and
expenses such costs as they are incurred.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the First Quarter of Fiscal
2003 increased $5.7 million, or 5.6%, to $107.9 million (24.4% of net revenues)
compared to $102.1 million (24.9% of

34

net revenues) for the First Quarter of Fiscal 2002. Marketing expenses in the
First Quarter of Fiscal 2003 decreased $2.0 million, or 7.0%, to $27.2 million
compared to $29.2 million in the First Quarter of Fiscal 2002. Marketing
expenses as a percentage of net revenues decreased to 6.1% of net revenues in
the First Quarter of Fiscal 2003 from 7.1% in the First Quarter of Fiscal 2002.
Depreciation and amortization expense decreased approximately $3.5 million in
the First Quarter of Fiscal 2003 compared to the First Quarter of Fiscal 2002
reflecting the adjustments in the carrying value of the Company's fixed assets
to fair value in connection with the adoption of fresh start reporting on
February 4, 2003. Selling expenses decreased as a percentage of net revenues
from 12.8% in the First Quarter of Fiscal 2002 to 9.8% in the First Quarter of
Fiscal 2003. The decrease in selling expenses as a percentage of net revenues
reflects the decrease in the number of full price and outlet retail stores the
Company operates. The First Quarter of Fiscal 2002 includes $4.1 million of
lease expense for certain operating leases that were settled in connection with
the Company's bankruptcy. There is no comparable expense in the First Quarter of
Fiscal 2003.

AMORTIZATION OF SALES ORDER BACKLOG

Amortization of sales order backlog of $4.2 million represents amortization
expense of the appraised value of the Company's existing order backlog at
February 4, 2003.

REORGANIZATION ITEMS

Reorganization items were $31.3 million in the First Quarter of Fiscal 2003
compared to $15.5 million in the First Quarter of Fiscal 2002.

Reorganization items for the First Quarter of Fiscal 2003 primarily consist
of lease termination expenses associated with the final reconciliation of
rejected leases and contracts of $10.1 million, employee contracts, bonus and
retention payments of $14.6 million (including the accrual of certain costs
associated with the consolidation of manufacturing facilities in Europe of
$6.5 million), legal and professional fees of $5.8 million and $0.8 million
other items. Reorganization items for the First Quarter of Fiscal 2002 consisted
of legal and professional fees of $7.2 million, employee related payments of
$5.2 million, loss on the sales of certain business units of $2.1 million and
other items of $1.0 million.

35

The following table presents operating income by Group, including
depreciation and amortization expense in each Group.

Operating income increased $23.0 million for the First Quarter of Fiscal
2003 compared to operating income of $0.8 million for the First Quarter of
Fiscal 2002 primarily reflecting increased operating income by the Company's
business groups, of $42.1 million and lower corporate expenses of $1.0 million.
The higher Group operating income and corporate expenses savings were offset by
higher amortization of intangibles (primarily from the amortization of sales
order backlog of $4.2 million), and higher reorganization items of
$15.8 million primarily reflecting the final settlement of certain bankruptcy
claims and rejected leases in connection with the Company's emergence from
bankruptcy. Reorganization items for the First Quarter of Fiscal 2003 also
includes accruals of $6.5 million for the consolidation of certain manufacturing
operations in Europe based on the status of various negotiations with labor
unions and employee groups. Depreciation expense for the Fiscal Quarter of
Fiscal 2003 decreased $3.6 million compared to the First Quarter of Fiscal 2002
due to the adjustments of the Company's fixed assets to fair value in connection
with the adoption of fresh start accounting provision of SOP 90-7.

36

Intimate Apparel Group

Intimate Apparel Group operating income is as follows:

The Intimate Apparel Group's operating income increased $14.2 million to
$19.1 million for the First Quarter of Fiscal 2003 compared to operating income
of $4.9 million for the First Quarter of Fiscal 2002. Excluding operating losses
from sold and discontinued business units (GJM, Fruit of the Loom, Weight
Watchers and domestic outlet retail stores), Intimate Apparel operating income
increased $11.3 million, or 127.5%, to $19.4 million for the First Quarter of
Fiscal 2003 compared to $8.1 million for the First Quarter of Fiscal 2002. The
increase is attributable to increased revenues, primarily in Calvin Klein
underwear and Lejaby. Warner's/Olga/Body Nancy Ganz reflect improved rates of
returns and allowances due to better product quality which contributed to a
higher operating income despite a decrease in net revenues.

Sportswear Group

Sportswear Group operating income is as follows:

The Sportswear Group's operating income increased $9.8 million or 97% to
$19.9 million for the First Quarter of Fiscal 2003 compared to operating income
of $10.1 million for the First Quarter of Fiscal 2002. The increase in Calvin
Klein jeans operating income primarily reflects increased gross margins as a
result of lower product costs of certain jeans which were manufactured
domestically for the first half of fiscal 2002 and which, for the second half of
Fiscal 2002 and First Quarter of Fiscal 2003, were sourced at lower costs from a
third party. The increase in Chaps Ralph Lauren operating income is a result of
increased net revenues, as noted above, and more effective product sourcing.

37

Swimwear Group

Swimwear Group operating income is as follows:

The Swimwear Group's operating income increased $18.1 million, or 89%, to
$38.4 million for the First Quarter of Fiscal 2003 compared to an operating
income of $20.3 million for the First Quarter of Fiscal 2002 The increase in the
Swimwear Group's operating income for the First Quarter of Fiscal 2003 compared
to the First Quarter of Fiscal 2002 reflects increased revenues and increased
gross margins due to better inventory management, new product lines and an
expanded customer base. In addition, the Swimwear Group experienced lower levels
of returns and allowances during the First Quarter of Fiscal 2003 compared to
the First Quarter of Fiscal 2002 which contributed to a higher gross margin and
operating income.

REORGANIZATION ITEMS -- GAIN ON CANCELLATION OF DEBT AND FRESH START ADJUSTMENTS

The First Quarter of Fiscal 2003 includes a gain of $1,692.7 million related
to the cancellation of the Company's pre-petition debt and other liabilities
subject to compromise net of the fair value of cash and securities distributed
to the pre-petition creditors. Fresh start adjustments of $765.7 million
represent adjustments to the carrying amount of the Company's assets to fair
value in accordance with the provisions of American Institute of Certified
Public Accountants Statement of Position No. 90-7 'Financial Reporting by
Entities in Reorganization under the Bankruptcy Code ('SOP 90-7'). See Note 5 of
Notes to the Consolidated Condensed Financial Statements.

INTEREST EXPENSE

Interest expense decreased $0.7 million, or 8.6%, to $6.3 million for the
First Quarter of Fiscal 2003 compared with $7.0 million for the First Quarter of
Fiscal 2002. Interest expense for the First Quarter of Fiscal 2003 included
interest on foreign debt for one month of approximately $0.9 million, interest
expense related to the settlement of certain operating leases of $0.1 million,
interest on the Second Lien Notes of $3.2 million, interest on the Exit
Financing Facility of approximately $1.0 million and other interest of
approximately $1.0 million. The decrease in interest expense primarily reflects
the reduction of borrowing under the Company's revolving credit facilities and a
corresponding decrease in interest payments. Amortization of deferred financing
costs totaled $2.4 million in the First Quarter of Fiscal 2002 related to fees
and charges on the DIP. Interest on foreign debt agreements was approximately
$2.8 million in the First Quarter of Fiscal 2002. Accrued interest related to
the foreign debt agreements included as part of liabilities subject to
compromise at February 4, 2003 was paid on the emergence date according to the
Plan. (See Note 1 of Notes to Consolidated Condensed Financial Statements).

INCOME TAXES

The provision for income taxes for the First Quarter of Fiscal 2003 of $94.3
million consists of $77.6 million of deferred income taxes related to the
increase in asset values recorded as part of the Company's adoption of fresh
start reporting. The provision also includes taxes on domestic and foreign
earnings of approximately $12.5 million and $4.3 million, respectively for the
two month period ended February 4, 2003. The Company has recorded a valuation
allowance against the deferred tax assets created in the First Quarter of Fiscal
2003 as a result of the fresh start adjustments, as well as against certain
foreign net operating losses, to the amount that will more likely than not be
realized.

38

The provision for income taxes for the First Quarter Fiscal 2002 of $49.9
million reflects an increase in the Company's valuation allowance of
approximately $46.1 million and accrued income taxes of approximately $3.9
million on foreign earnings. The increase in the valuation allowance in the
First Quarter of Fiscal 2002 reflects an offset to the income tax benefit
recorded in connection with the cumulative effect of an accounting change for
the adoption of SFAS 142. The increase in the valuation allowance during the
First Quarter of Fiscal 2002 results from an increase in the Company's deferred
tax assets that may not be realized.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

As of January 5, 2003, the Company had goodwill and other indefinite lived
intangible assets net of accumulated amortization of approximately
$940.1 million. The Company adopted SFAS 142 effective with the First Quarter of
Fiscal 2002. Under the provisions of SFAS 142, goodwill is deemed impaired if
the net book value of a business-reporting unit exceeds the fair value of that
business-reporting unit. Intangible assets may be deemed impaired if the
carrying amount exceeds the fair value of the assets. The Company obtained an
independent appraisal of its business enterprise value ('BEV') in connection
with the preparation of the Plan. The Company allocated the appraised BEV to its
various reporting units and determined that the value of certain of the
Company's indefinite lived intangible assets and goodwill was impaired. As a
result, the Company recorded a charge of $801.6 million, net of income tax
benefit of $53.5 million, as a cumulative effect of a change in accounting from
the adoption of SFAS 142 in the First Quarter of Fiscal 2002.

As required by SFAS No. 142, the Company will complete subsequent impairment
tests of its intangible and long-lived assets at least annually. On a quarterly
basis, the Company reviews changes in market conditions, among other factors,
that could have a material effect on the Company's estimates of fair value in
order to reassess the carrying value of all long-lived assets.

CAPITAL RESOURCES AND LIQUIDITY

FINANCING ARRANGEMENTS

On the Effective Date the Company entered into a $275.0 million Senior
Secured Revolving Credit Facility. The Exit Financing Facility provides for a
four-year, non-amortizing revolving credit facility. The Exit Financing Facility
includes provisions that allow the Company to increase the maximum available
borrowing from $275.0 million to $325.0 million, subject to certain conditions
(including obtaining the agreement of existing or new lenders to commit to lend
the additional amount). Borrowings under the Exit Financing Facility bear
interest at Citibank's base rate plus 1.50% (5.75% at April 5, 2003) or at the
London Interbank Offered Rate ('LIBOR') plus 2.50% (approximately 3.8% at
April 5, 2003). Pursuant to the terms of the Exit Financing Facility, the
interest rate the Company will pay on its outstanding loans will decrease by as
much as 0.5% in the event the Company achieves certain defined ratios. The Exit
Financing Facility contains financial covenants that, among other things,
require the Company to maintain a fixed charge coverage ratio above a minimum
level, a leverage ratio below a maximum level and to limit the amount of the
Company's capital expenditures. In addition, the Exit Financing Facility
contains certain covenants that, among other things, limit investments and asset
sales, prohibit the payment of dividends (subject to limited exceptions) and
prohibit the Company from incurring material additional indebtedness. Initial
borrowings under the Exit Financing Facility on the Effective Date were
$39.2 million. The Exit Financing Facility is guaranteed by most of the
Company's domestic subsidiaries and the obligations under such guarantee,
together with the Company's obligations under the Exit Financing Facility, are
secured by a lien on substantially all of the domestic assets of the Company and
its domestic subsidiaries.

As of May 15, 2003, the Company had approximately $6.4 million outstanding,
$48.6 million of letters of credit outstanding under the Exit Financing
Facility and had approximately $206.4 million of additional credit available
under the Exit Financing Facility.

SECOND LIEN NOTES

In accordance with the Plan, on the Effective Date, the Company issued
$200.9 million of New Warnaco Second Lien Notes due 2008 to certain pre-petition
creditors and others in a transaction

39

exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 1145(a) of the Bankruptcy Code. The Second Lien
Notes mature on February 4, 2008, subject to, in certain instances, earlier
repayment in whole or in part. The Second Lien Notes bear an annual interest
rate (9.5% at April 5, 2003) which is the greater of (i) 9.5% plus a margin
(initially 0%, and beginning on August 4, 2003, 0.5% is added to the margin
every six months); and (ii) LIBOR plus 5.0% plus a margin (initially 0%, and
beginning on August 4, 2003, 0.5% is added to the margin every six months). The
indenture pursuant to which the Second Lien Notes were issued contains certain
covenants that, among other things, limit investments and asset sales, prohibit
the Company from paying dividends (subject to limited exceptions) and incurring
material additional indebtedness. The Second Lien Notes are guaranteed by most
of the Company's domestic subsidiaries and the obligations under such guarantee,
together with the Company's obligations under the Second Lien Notes, are secured
by a second priority lien on substantially the same assets which secure the Exit
Financing Facility. The Second Lien Notes are payable in equal annual
installments of $40.2 million beginning in April 2004 through April 2008. Second
Lien Note principal payments can only be made if the Company achieves a defined
certain fixed charge coverage ratio and has additional borrowing availability,
after the principal payment, of $75.0 million or more under the Exit Financing
Facility.

LIQUIDITY

The Debtor emerged from bankruptcy on February 4, 2003. Initial borrowings
under the Exit Financing Facility were $39.2 million on February 4, 2003. Since
the Effective Date the Company has repaid approximately $30 million of its
initial borrowing under the Exit Financing Facility. As of May 15, 2003, the
Company had approximately $8.0 million of borrowing outstanding and
$60 million of letters of credit outstanding under the Exit Financing Facility
and had approximately $205 million of additional credit available under the
Exit Financing Facility.

At April 5, 2003, the Company had working capital of $327.7 million. The
Company believes that the credit available under its Exit Financing facility
combined with cash flows from operations will be sufficient to fund the
Company's operating and capital expenditures requirements for at least the next
two to four years. Should the Company require additional sources of capital it
will consider reducing its capital expenditures, seeking additional financing or
selling assets to meet such requirements.

CASH FLOWS

The following discussingon of cash flows includes cash flows for the stub
period and for the two month period ended April 5, 2003 added together in order
to provide comparison to the First Quarter of Fiscal 2002.

For the First Quarter of Fiscal 2003 cash used in operating activities was
$37.1 million compared to cash provided by operating activities of
$32.1 million for First Quarter of Fiscal 2002. The decrease in cash flow from
operations reflects higher usage of working capital, primarily accounts
receivable and inventory due to the higher sales, particularly of swimwear and
the related investment in inventory and accounts receivable that was required.
In addition, the First Quarter of Fiscal 2002 benefited by the Company's sale of
inventory related to retail store closures. The Company also paid administrative
and other claims related to the bankruptcy proceedings in the First Quarter of
Fiscal 2003 resulting in additional cash use. Cash interest expense for the
First Quarter of Fiscal 2003 was $0.6 million lower than the First Quarter of
Fiscal 2002. The decrease in cash interest is primarily a result of the
Company's excess cash position in the first month of fiscal 2003 compared to
borrowings of $155 million at year end 2001 under the Amended DIP.

Net cash used in investing activities was $2.7 million for the First Quarter
of Fiscal 2003 consisting primarily of capital expenditures partially offset by
proceeds from asset sales. The Company sold the Penhaligon's and GJM businesses
in the First Quarter of Fiscal 2002 which generated $20.5 million of proceeds
from asset sales. Capital expenditures were $2.8 million in the First Quarter of
Fiscal 2002 reflecting the Company's decision to limit capital investment during
the bankruptcy.

Cash used in financing activities for the First Quarter of Fiscal 2003 was
$47.3 million reflecting the payment of $106.1 million of cash to the secured
pre-petition lenders as part of the Company's bankruptcy settlement partially
offset by borrowings of approximately $60 million under the Exit

40

Financing Facility. The Company also paid approximately $4.5 million of bank
underwriting fees and legal fees associated with the closing of the Exit
Financing Facility on February 4, 2003.

There was $6.4 million outstanding under the Exit Financing Facility on
May 16, 2003. The Company had stand-by and documentary letters of credit
outstanding under the Exit Financing Facility on May 16, 2003 of approximately
$48.6 million. Cash in operating accounts primarily represents lock-box
receipts not yet cleared or available to the Company, cash held by foreign
subsidiaries and compensating balances required under various trade, credit and
other arrangements.

NEW ACCOUNTING STANDARDS

In April 2003, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 149 Amendment of Statement 133
on Derivative Instruments and Hedging Activities ('SFAS 149'). FASB Statements
No. 133 Accounting for Derivative Instruments and Hedging Activities ('SFAS
133') and No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, establish accounting and reporting standards for derivative
instruments including derivatives embedded in other contracts (collectively
referred to as 'derivatives') and for hedging activities. SFAS 149 amends SFAS
133 for certain decisions made by the Board as part of the Derivatives
Implementation Group ('DIG') process. This Statement contains amendments
relating to FASB Concepts Statement No. 7, Using Cash Flow Information and
Present Value in Accounting Measurements, and FASB Statements No. 65, Accounting
for Certain Mortgage Banking Activities, No. 91 Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases, No. 95, Statement of Cash Flows, and No. 126, Exemption from
Certain Required Disclosures about Financial Instruments for Certain Nonpublic
Entities. The provisions of SFAS 149 are effective for contracts entered into or
modified after June 30, 2003. The adoption of SFAS 149 is not expected to have a
material effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ('FIN 45'). This interpretation requires
certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods beginning after December 15, 2002. The initial
recognition and initial measurement requirements of FIN 45 are effective
prospectively for guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have an effect on the Company's consolidated
financial statements.

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This Quarterly Report may contain 'forward-looking statements' within the
meaning of Section 27A of the Securities Act of 1933, as amended, 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 changes
in the Company's senior management team, 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 Company's recent emergence from bankruptcy, the
comparability of the Company's prior periods and fresh start financial
statements, the Company's history of insufficient disclosure 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 impact of SARS, the Company's
level of debt, the restrictions on the Company's operations imposed by the
senior secured credit facility and the indenture governing the Second Lien
Notes, the Company's ability to service its debt and the Company's ability to
obtain additional financing.

41

All statements other than statements of historical facts included in this
Quarterly Report, including, without limitation, the statements under
Management's Discussion and Analysis of Financial Condition and Results of
Operations, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates. Prior to the Petition Date, the Company
selectively used financial instruments to manage these risks. The Company has
not entered any financial instruments to manage these risks since the Petition
Date and has sold or terminated all such arrangements.

INTEREST RATE RISK

The Company is subject to market risk from exposure to changes in interest
rates based primarily on its financing activities. As of April 5, 2003, the
Company had approximately $61 million of borrowings outstanding under the Exit
Financing Facility, and therefore, a hypothetical 1% adverse change in interest
rates as of April 5, 2003 (i.e an increase from the Company's actual interest
rate of 3.8% at April 5, 2003 to 4.8%) would have resulted in an increase of
approximately $0.2 million in interest expense for the First Quarter of Fiscal
2003 had the $61 million been outstanding for the entire three month period. A
1% change in interest rates would not have had any effect on interest related to
the Second Lien Notes as the minimum interest rate on the Second Lien Notes is
significantly higher than current variable interest rate plus the applicable
margin. See Note 14 of Notes to Consolidated Condensed Financial Statements.

FOREIGN EXCHANGE RISK

The Company has foreign currency exposures related to buying, selling and
financing in currencies other than the functional currency in which it operates.
These exposures are primarily concentrated in the Canadian dollar, Mexican peso,
British pound and the Euro. Prior to the Petition Date, the Company entered into
foreign currency forward and option contracts to mitigate the risk of doing
business in foreign currencies. As of April 5, 2003, the Company had no such
financial instruments outstanding.

EQUITY PRICE RISK

The Company was subject to market risk from changes in its stock price as a
result of certain equity forward purchase agreements with several banks entered
into prior to the Petition Date to purchase shares of Old Common Stock of the
Company. Prior to the Petition Date, the banks purchased the maximum of
5.2 million shares under the equity agreements. All amounts owing under the
equity agreements and related equity agreement Notes were discharged upon the
Debtors' emergence from bankruptcy. The Company does not believe that it
currently has any material exposure to a sudden increase or decline in its stock
price.

ITEM 4. CONTROLS AND PROCEDURES

In response to recent legislation and regulations, the Company has
established a Disclosure Committee comprised of certain members of the Company's
management and has reviewed its internal control structure and disclosure
controls and procedures (as such term is defined in Rules 13a-14(c) and
15d-14(c) under the Exchange Act). Within 90 days prior to the filing of this
Quarterly Report (the 'Evaluation Date'), the Company carried out an evaluation
of the effectiveness of the Company's

42

disclosure controls and procedures. Based upon that evaluation, after giving
consideration and subject to the ongoing evaluation of the Company's internal
control environment and corrective actions taken by the Company to date, as
discussed below, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in alerting them on a timely basis to
material information relating to the Company, including its consolidated
subsidiaries, required to be included in the Company's reports filed or
submitted under the Exchange Act.

There have not been any significant changes in the Company's internal
controls or in other factors that could significantly affect such controls
subsequent to the Evaluation Date.

The Company's independent auditors, Deloitte & Touche LLP ('Deloitte') had
advised the Company's management and its Audit Committee of certain matters
noted in connection with its audits of the Company's consolidated financial
statements for Fiscal 2000 and Fiscal 2001 which Deloitte considered material
weaknesses constituting reportable conditions under standards established by
the American Institute of Certified Public Accountants:

Beginning in fiscal 2001 and continuing through fiscal 2002, the Company
took corrective actions including:

replacing certain financial staff, hiring additional financial staff and
instituting monthly and quarterly reviews to ensure timely and consistent
application of accounting principles and procedures and transaction
review and approval procedures.

In connection with the audit of the Company's consolidated financial
statements for Fiscal 2002, Deloitte advised management and the Audit Committee
that no matters involving the Company's internal controls or its operations are
considered material weaknesses or reportable conditions.

43

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required by this Item 1 of Part II is incorporated herein by
reference to Part I, Item 1. Financial Statements Note 18 -- 'Legal Matters'.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The information required by this Item 2 of Part II is incorporated herein by
reference to Part I, Item 1. Financial Statements Note 1 -- 'Chapter 11 Cases'.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Amended and Restated Certificate of Incorporation of Warnaco
Group (incorporated by reference to Exhibit 1 to the
Form 8-A/A filed by Warnaco Group on February 4, 2003).*

3.2 Bylaws of Warnaco Group (incorporated by reference to the
Annual Report on Form 10-K filed by Warnaco Group on
April 4, 2003).*

4.1 Rights Agreement, dated as of February 4, 2003, between Warnaco Group
and the Rights Agent, including Form of Rights Certificate as Exhibit A,
Summary of Rights to Purchase Preferred Stock as Exhibit B and the Form
of Certificate of Designation for the Preferred Stock as Exhibit C.
Pursuant to the Rights Agreement, printed Rights Certificates will not
be mailed until after the Distribution Date (as such term is defined in
the Rights Agreement) (incorporated by reference to Exhibit 4 to the
Form 8-A/A filed by Warnaco Group on February 4, 2003).*

4.2 Indenture, dated as of February 4, 2003, among Warnaco, the
Guarantors and the Indenture Trustee (incorporated herein by
reference to Exhibit 4.2 to Warnaco Group's Form 8-K filed
February 10, 2003).*

4.3 Pledge and Security Agreement, dated as of February 4, 2003,
among Warnaco, as grantor, the Guarantors and the Collateral
Trustee (incorporated herein by reference to Exhibit 4.3 to
Warnaco Group's Form 8-K filed February 10, 2003).*

4.4 Collateral Trustee Agreement, dated as of February 4, 2003,
among Warnaco, the Company, the Guarantors, the Indenture
Trustee and the Collateral Trustee (incorporated herein by
reference to Exhibit 4.4 to Warnaco Group's Form 8-K filed
February 10, 2003).*

4.5 Registration Rights Agreement, dated as of February 4, 2003,
among Warnaco Group and certain creditors of Warnaco Group
(as described in the Registration Rights Agreement)
(incorporated herein by reference to Exhibit 4.5 to Warnaco
Group's Form 8-K filed February 10, 2003).*

10.1 Warnaco Employee Retirement Plan (incorporated herein by
reference to Exhibit 10.11 to Warnaco Group's Registration
Statement on Form S-1, No. 33-4587).*

10.2 Senior Secured Revolving Credit Agreement, dated as of
February 4, 2003, among Warnaco, the Company, the
Administrative Agent, the Lenders, the Issuing Banks, the
Syndication Agent and Salomon Smith Barney Inc. and J.P.
Morgan Securities, Inc., as joint lead arrangers and joint
lead book managers (incorporated herein by reference to
Exhibit 99.2 to Warnaco Group's Form 8-K filed
February 10, 2003).*

10.3 Pledge and Security Agreement, dated as of February 4, 2003,
among Warnaco, as a grantor, the Guarantors and Citicorp
North America, Inc., as administrative agent (incorporated
herein by reference to Exhibit 99.3 to Warnaco Group's
Form 8-K filed February 10, 2003).*

44

10.4 Intercreditor Agreement, dated as of February 4, 2003, among
the Administrative Agent, the Indenture Trustee, the
Collateral Trustee, Warnaco and the Guarantors (incorporated
herein by reference to Exhibit 99.4 to Warnaco Group's
Form 8-K filed February 10, 2003).*

10.5 Letter Agreement, dated January 29, 2003, by and between
Alvarez & Marsal, Inc. and Warnaco Group (incorporated by
reference to the Annual Report on Form 10-K filed by Warnaco
Group on April 4, 2003).*

10.6 Letter Agreement, dated March 18, 2003, by and between
Alvarez & Marsal, Inc. and Warnaco Group (incorporated by
reference to the Annual Report on Form 10-K filed by Warnaco
Group on April 4, 2003).*

10.7 Employment Agreement, dated as of April 14, 2003, by and
between Warnaco Group and Joseph R. Gromek.'D'

99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.'D'

- --------------

* Previously filed

'D' Filed herewith

(a) Reports on Form 8-K

On January 7, 2003, the Company filed a Current Report on Form 8-K dated
January 7, 2003. The Form 8-K reported at Item 5 the financial results of the
Debtors as filed with the Bankruptcy Court for period commencing November 3,
2002 and ending November 30, 2003.

On January 16, 2003, the Company filed a Current Report on Form 8-K dated
January 16, 2003. The Form 8-K reported at Item 5 that the Company issued a
press release stating that the Bankruptcy Court had confirmed the First Amended
Plan of Reorganization of the Company and certain of its subsidiaries.

On January 27, 2003, the Company filed a Current Report on Form 8-K dated
January 16, 2003. The Report on Form 8-K reported at Item 3 a summary of the
provisions of the Company's First Amended Plan of Reorganization as approved by
the Bankruptcy Court and related post filing modifications and technical
amendments to the plan.

On February 4, 2003, the Company filed a Current Report on Form 8-K dated
February 4, 2003. The Report on Form 8-K reported at Item 5 the Company's
emergence from reorganization proceedings under Chapter 11 of the United States
Bankruptcy Code.

On February 10, 2003, the Company filed a Current Report on Form 8-K dated
February 4, 2003. The Report on Form 8-K reported at Item 5 that in conjunction
with the Company's emergence from Bankruptcy, the Company filed a Form 8-A/A
registering certain securities distributed pursuant to the Company's approved
plan of reorganization. The Form 8-K also reported that the Company's New Common
Stock was approved for listing on the NASDAQ National Stock Market and that the
Company entered into certain credit, trust and other agreements related to its
emergence from bankruptcy protection. In addition, the Current Report on
Form 8-K noted the Company's filing of its Amended and Restated Certificate of
Incorporation.

On March 20, 2003, the Company filed a Current Report on Form 8-K, dated
March 20, 2003. The Form 8-K reported at Item 5 (i) the date, time and location
of the Company's 2003 Annual Meeting of Stockholders (the 'Annual Meeting'),
(ii) the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting, (iii) the deadline for stockholder proposals to be
considered at the Annual Meeting and (iv) the date on which the Company expected
to mail its Annual Report to Stockholders for the fiscal year ended January 4,
2003 along with the Notice and Proxy Statement of the Annual Meeting.

On April 7, 2003, the Company filed a Current Report on Form 8-K dated
April 7, 2003. The Report on Form 8-K reported at Item 12 that the Company
issued a press release announcing its financial results for the fiscal year
ended January 4, 2003.

On April 14, 2003, the Company filed a Current Report on Form 8-K dated
April 14, 2003. The Form 8-K reported at Item 5 the financial results of the
Debtors as filed with the Bankruptcy Court for period commencing December 1,
2002 and ending January 4, 2003.

45

On April 15, 2003, the Company filed a Current Report on Form 8-K dated
April 15, 2003. The Report on Form 8-K reported at Item 9 that the Company
issued a press release announcing that it had named Joe Gromek President and
Chief Executive Officer, effective April 15, 2003.

On April 28, 2003, the Company filed a Current Report on Form 8-K dated
April 28, 2003. The Report on Form 8-K reported at Item 5 that the Company
issued a press release announcing the election of David A. Bell and Charles R.
Perrin to its board of directors.

On May 7, 2003, the Company filed a Current Report on Form 8-K dated May 7,
2003. The Form 8-K reported at Item 5 the Company's adoption of fresh start
accounting and included the Company's consolidated balance sheet as of
February 4, 2003 and the Company's independent auditors' opinion with respect to
the Company's consolidated balance sheet.

On May 15, 2003, the Company filed a Current Report on Form 8-K dated May
15, 2003. The Report on Form 8-K reported at Item 12 that the Company issued a
press release announcing its financial results for the first quarter ended
April 5, 2003.

46

SIGNATURES

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 thereunto duly authorized.

THE WARNACO GROUP, INC.

Date: May 20, 2003 /s/ JOSEPH R. GROMEK
.............................................
JOSEPH R. GROMEK
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Date: May 20, 2003 /s/ JAMES P. FOGARTY
.............................................
JAMES P. FOGARTY
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

47

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Joseph R. Gromek, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Warnaco
Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the 'Evaluation Date'); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 20, 2003 By: /s/ JOSEPH R. GROMEK
..............................................
JOSEPH R. GROMEK
CHIEF EXECUTIVE OFFICER

48

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James P. Fogarty, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Warnaco
Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the 'Evaluation Date'); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 20, 2003 By: /s/ JAMES P. FOGARTY
..............................................
JAMES P. FOGARTY
CHIEF FINANCIAL OFFICER

49

STATEMENT OF DIFFERENCES

The trademark symbol shall be expressed as............................'TM'
The registered trademark symbol shall be expressed as.................'r'
The section symbol shall be expressed as..............................'SS'
The dagger symbol shall be expressed as...............................'D'