- The Washington Times - Tuesday, June 12, 2001

NEW YORK (AP) The Warnaco Group Inc., maker of Calvin Klein jeans, Olga bras and Speedo swimsuits, filed for Chapter 11 bankruptcy protection yesterday, citing a general economic downturn, a weak retail environment and mounting debt obligations.

The $2.25 billion apparel giant, which has been struggling with declining sales and profit losses, listed $2.37 billion in assets against $3.08 billion in liabilities in a voluntary filing yesterday in the U.S. Bankruptcy Court for the Southern District of New York.

Warnaco said that the bankruptcy filing "was the only way to secure additional operating liquidity, stabilize the company, and maintain sufficient flexibility to restructure its debt and continue its operating turnaround."

Warnaco added that the company's international subsidiaries, including operating entities in Canada, Mexico, Europe, Latin America and Asia, will be largely unaffected by the filing.

The New York-based company also announced it has secured a commitment of $600 million in financing from a consortium of banks led by Citibank, J.P. Morgan Chase & Co. and the Bank of Nova Scotia. The court's interim approval permits $375 million of financing to be made available to the company immediately, while the balance of the financing commitment is up for approval on July 9.

Warnaco emphasized that during the restructuring process, day-to-day business operations will continue uninterrupted.

The filing represents a "lucky break" for Chairman and Chief Executive Officer Linda J. Wachner, who is under intense pressure to turn the business around, according to Harry Bernard, a partner at Colton Bernard Inc., a San Francisco-based apparel consulting firm.

"Wachner's greatest strength is her ability to maneuver and manipulate in a very short period of time," Mr. Bernard added. "This Chapter 11 gives her a heck of a lot of time that she would not have had otherwise."

The feisty Miss Wachner, who has been at the company's helm since 1987 and became one of Wall Street's most powerful female executives, has recently fallen out of favor among analysts.

While a weakening economy and an increasing competitive environment hurt Warnaco's business, many critics also put blame on what they describe as Miss Wachner's ego and financial self-interest. In particular they point to a number of licensing deals they believe were not right for the strategic direction of the company.

Miss Wachner's widely known acerbic personality also has contributed to a revolving door for top managers, which critics say hurt the company.

"Unless she does something spectacular to bring the company out of bankruptcy, not even her most ardent supporters will stand up for her," Mr. Bernard added.

Warnaco's troubled situation is in sharp contrast to its glory years during most of the 1990s. Then, Warnaco was a Wall Street darling, generating consistent high-single-digit profit and revenue gains. But for the past two years, it has seen a dramatic reduction in demand for its products and seen its market share erode in a number of areas.

A high-profile dispute with Calvin Klein, settled in January, hurt its core licensed Calvin Klein jeans and intimate apparel businesses. Meanwhile, cash liquidity problems were beginning to surface.

In March, the company reported much wider than expected losses for its fourth quarter, ended Dec. 30, and said that it had hired UBS Warburg to study the sale of the company's assets and other initiatives to reduce debt.

Last month, Warnaco announced that it had received a waiver of certain financial covenants from its lenders through June 15. However, the company stated in its recent 10-Q filing with the Securities and Exchange Commission that it would require a further waiver or amendment to the covenants.

Mr. Bernard noted that many of the brands, which range from licensed sportswear under Chaps by Ralph Lauren to Anne Cole swimwear, are in a "precarious position."

"What will be left will primarily be what she started out with, and that is intimate apparel," he predicted.

For the year ended Dec. 30, the company reported a loss of $338.3 million, or $6.41 per share. That compares with a profit of $97.8 million, or $1.72 per share, in the previous year.

For the first quarter ended April 7, the company lost $62.5 million, or $1.18 per share, before a cumulative effect of an accounting charge. Net revenue for the quarter was $499.2 million, down from $607 million in the year-ago period.

The company's stock has plummeted from a high of $44 in mid-1998 to 39 cents on Friday. The New York Stock Exchange suspended trading of Warnaco shares in light of the bankruptcy filing.

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