Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-10857

THE WARNACO GROUP, INC.

(Exact name of registrant as specified in its charter)


Delaware		95-4032739
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

501 Seventh Avenue
New York, New York 10018
(Address of registrant’s principal executive offices)

Registrant’s telephone number, including area code: (212) 287-8000

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. þ Yes o No.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No.

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of October 28, 2011 is as follows: 40,481,065.

PART I
FINANCIAL INFORMATION


Item 1.		*Financial Statements*.

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, excluding per share data)
(Unaudited)


	October 1, 2011			January 1, 2011			October 2, 2010
ASSETS

Current assets:
Cash and cash equivalents	$	179,326		$	191,227		$	213,409
Accounts receivable, net of reserves of $89,798, $95,639 and $82,594 as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively		341,406			318,123			346,464
Inventories		392,073			310,504			324,439
Assets of discontinued operations		—			125			112
Prepaid expenses and other current assets (including deferred income taxes of $59,781, $58,270, and $53,402 as of October 1, 2011, January 1, 2011, and October 2, 2010, respectively)		174,355			158,659			147,421

Total current assets		1,087,160			978,638			1,031,845

Property, plant and equipment, net		129,205			129,252			127,157
Other assets:
Licenses, trademarks and other intangible assets, net		360,508			373,276			360,457
Goodwill		143,688			115,278			110,150
Other assets (including deferred income taxes of $24,695, $11,769, and $15,459 as of October 1, 2011, January 1, 2011, and October 2, 2010, respectively)		92,210			56,828			54,859

Total assets	$	1,812,771		$	1,653,272		$	1,684,468


LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY

Current liabilities:
Short-term debt	$	47,773		$	32,172		$	69,607
Accounts payable		182,517			152,714			165,171
Accrued liabilities		209,842			227,561			223,397
Liabilities of discontinued operations		7,048			18,800			8,365
Accrued income taxes payable (including deferred income taxes of $1,320, $262 and $1,094 as of October 1, 2011, January 1, 2011, and October 2, 2010, respectively)		34,906			38,219			43,431

Total current liabilities		482,086			469,466			509,971

Long-term debt		209,552			—			—
Other long-term liabilities (including deferred income taxes of $76,410, $74,233, and $69,478 as of October 1, 2011, January 1, 2011, and October 2, 2010, respectively)		206,529			211,200			194,880

Total liabilities		898,167			680,666			704,851

Commitments and contingencies
Redeemable non-controlling interest		15,200			—			—
Stockholders’ equity:
Preferred stock		—			—			—
Common stock: $0.01 par value, 112,500,000 shares authorized, 52,134,522, 51,712,674 and 51,255,219 issued as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively		521			517			513
Additional paid-in capital		704,741			674,508			660,362
Accumulated other comprehensive income		20,421			43,048			47,728
Retained earnings		633,776			501,394			482,219
Treasury stock, at cost 11,653,871, 7,445,166 and 6,751,793 shares as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively		(460,055	)		(246,861	)		(211,205	)

Total stockholders’ equity		899,404			972,606			979,617

Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	1,812,771		$	1,653,272		$	1,684,468

See Notes to Consolidated Condensed Financial Statements.

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands, excluding per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010

Net revenues	$	645,121		$	596,761		$	1,898,669		$	1,704,259
Cost of goods sold		365,412			327,736			1,065,552			938,374

Gross profit		279,709			269,025			833,117			765,885
Selling, general and administrative expenses		212,000			198,129			637,491			554,962
Amortization of intangible assets		3,263			3,021			9,548			8,275
Pension income		(310	)		(22	)		(931	)		(65	)

Operating income		64,756			67,897			187,009			202,713
Other loss (income)		1,357			(1,899	)		498			5,651
Interest expense		4,986			2,953			11,142			12,190
Interest income		(986	)		(699	)		(2,542	)		(2,192	)

Income from continuing operations before provision for income taxes and non-controlling interest		59,399			67,542			177,911			187,064
Provision for income taxes		10,770			26,102			39,184			67,285


Income from continuing operations before non-controlling interest		48,629			41,440			138,727			119,779
Income (Loss) from discontinued operations, net of taxes		(4,177	)		57			(4,741	)		(373	)

Net income		44,452			41,497			133,986			119,406

Less: net loss attributable to non-controlling interest		(159	)		—			(159	)		—

Net income attributable to Warnaco Group, Inc.	$	44,611		$	41,497		$	134,145		$	119,406


Amounts attributable to Warnaco Group, Inc. common shareholders:
Income from continuing operations, net of tax	$	48,788		$	41,440		$	138,886		$	119,779
Income (Loss) from discontinued operations, net of tax		(4,177	)		57			(4,741	)		(373	)

Net Income	$	44,611		$	41,497		$	134,145		$	119,406


Basic income per common share (see Note 17):
Income from continuing operations	$	1.15		$	0.92		$	3.18		$	2.64
Income (Loss) from discontinued operations		(0.10	)		—			(0.11	)		(0.01	)

Net income	$	1.05		$	0.92		$	3.07		$	2.63


Diluted income per common share (see Note 17):
Income from continuing operations	$	1.13		$	0.90		$	3.11		$	2.58
Income (Loss) from discontinued operations		(0.10	)		—			(0.11	)		(0.01	)

Net income	$	1.03		$	0.90		$	3.00		$	2.57


Weighted average number of shares outstanding used in computing income per common share (see Note 17):
Basic		41,713,958			44,553,898			43,076,120			44,813,952

Diluted		42,581,100			45,465,691			44,023,646			45,806,530

See Notes to Consolidated Condensed Financial Statements.

THE WARNACO GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY,
COMPREHENSIVE INCOME AND REDEEMABLE NON-CONTROLLING INTEREST
(Dollars in thousands)
(Unaudited)


			Stockholders’ Equity
							Accumulated
	Redeemable				Additional		Other											Total
	Non-controlling		Common		Paid-in		Comprehensive			Retained		Treasury			Comprehensive			Stockholders’
	Interest		Stock		Capital		Income			Earnings		Stock			Income			Equity
Balance at January 2, 2010	$	—	$	506	$	633,378	$	46,473		$	362,813	$	(127,060	)	$	—		$	916,110
Comprehensive income:
Net income											119,406					119,406			119,406
Other comprehensive income, net of tax:																—
Foreign currency translation adjustments								1,677								1,677			1,677
Change in post-retirement plans								(6	)							(6	)		(6	)
Change in cash flow hedges								(427	)							(427	)		(427	)
Other								11								11			11

Other comprehensive income																1,255			1,255

Comprehensive income															$	120,661			120,661

Stock issued in connection with stock compensation plans				7		8,904													8,911
Compensation expense in connection with employee stock compensation plans						18,080													18,080
Purchase of treasury stock related to stock compensation plans													(3,362	)					(3,362	)
Repurchases of common stock													(80,783	)					(80,783	)

Balance at October 2, 2010	$	—	$	513	$	660,362	$	47,728		$	482,219	$	(211,205	)				$	979,617


				Stockholders’ Equity
								Accumulated
	Redeemable					Additional		Other												Total
	Non-controlling			Common		Paid-in		Comprehensive			Retained			Treasury			Comprehensive			Stockholders’
	Interest			Stock		Capital		Income			Earnings			Stock			Income			Equity
Balance at January 1, 2011	$	—		$	517	$	674,508	$	43,048		$	501,394		$	(246,861	)	$	—		$	972,606
Comprehensive income:
Net income												134,145						134,145			134,145
Other comprehensive income, net of tax:
Foreign currency translation adjustments									(21,453	)								(21,453	)		(21,453	)
Change in cash flow hedges									(1,169	)								(1,169	)		(1,169	)
Other									(5	)								(5	)		(5	)

Other comprehensive income																		(22,627	)		(22,627	)

Comprehensive income																	$	111,518			111,518

Stock issued in connection with stock compensation plans					4		9,018														9,022
Compensation expense in connection with employee stock compensation plans							21,215														21,215
Purchase of treasury stock related to stock compensation plans															(2,406	)					(2,406	)
Repurchases of common stock															(210,788	)					(210,788	)
Acquisition date fair value of redeemable non-controlling interest in joint venture in India		15,200
Net loss attributable to redeemable non-controlling interest		(159	)
Foreign currency translation adjustments attributable to redeemable non-controling interest		(1,604	)
Adjustment to redemption value		1,763										(1,763	)								(1,763	)

Balance at October 1, 2011	$	15,200		$	521	$	704,741	$	20,421		$	633,776		$	(460,055	)				$	899,404

See Notes to Consolidated Condensed Financial Statements.

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


	Nine Months Ended
	October 1,			October 2,
	2011			2010
Cash flows from operating activities:
Net income	$	133,986		$	119,406
Adjustments to reconcile net income to net cash provided by operating activities:
Foreign exchange loss		2,185			150
Loss from discontinued operations		4,741			373
Depreciation and amortization		43,669			37,507
Stock compensation		21,215			18,080
Provision for trade and other bad debts		2,259			2,170
Inventory writedown		14,581			10,035
Loss on repurchase of Senior Notes		—			3,747
Other		(1,697	)		(467	)
Changes in operating assets and liabilities:
Accounts receivable		(32,383	)		(59,319	)
Inventories		(101,375	)		(74,625	)
Prepaid expenses and other assets		(13,125	)		(10,495	)
Accounts payable, accrued expenses and other liabilities		14,766			61,520
Accrued income taxes		(12,139	)		39,861

Net cash provided by operating activities from continuing operations		76,683			147,943
Net cash provided by (used in) operating activities from discontinued operations		(16,501	)		377

Net cash provided by operating activities		60,182			148,320


Cash flows from investing activities:
Proceeds on disposal of assets		146			189
Purchases of property, plant & equipment		(36,311	)		(29,783	)
Business acquisitions, net of cash acquired		(21,454	)		(8,404	)
Loan to non-controlling shareholder		(6,000	)		—
Disposal of businesses		2,000			1,431

Net cash (used in) investing activities from continuing operations		(61,619	)		(36,567	)
Net cash (used in) investing activities from discontinued operations		—			—

Net cash (used in) investing activities		(61,619	)		(36,567	)


Cash flows from financing activities:
Repurchase of Senior Notes due 2013		—			(164,011	)
Change in short-term notes payable		24,340			15,344
Change in revolving credit loans		—			6,985
Repayment of Italian Note		(13,370	)		—
Proceeds from 2011 Term Loan		200,000			—
Repayment of 2011 Term Loan		(500	)		—
Proceeds from the exercise of employee stock options		8,231			8,157
Payment of deferred financing costs		(5,385	)		(70	)
Purchase of treasury stock		(211,206	)		(84,145	)
Contingent payment related to acquisition of non-controlling interest in Brazilian subsidiary		(11,467	)		(3,442	)

Net cash (used in) financing activities from continuing operations		(9,357	)		(221,182	)
Net cash (used in) financing activities from discontinued operations		—			—

Net cash (used in) financing activities		(9,357	)		(221,182	)

Effect of foreign exchange rate changes on cash and cash equivalents		(1,107	)		2,084

(Decrease) in cash and cash equivalents		(11,901	)		(107,345	)
Cash and cash equivalents at beginning of period		191,227			320,754

Cash and cash equivalents at end of period	$	179,326		$	213,409

See Notes to Consolidated Condensed Financial Statements.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 1—Organization

The Warnaco Group, Inc. (“Warnaco Group” and, collectively with its subsidiaries, the “Company”) 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.

Note 2 — Basis of Consolidation and Presentation

The Consolidated Condensed Financial Statements include the accounts of Warnaco Group and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

The accompanying unaudited Consolidated Condensed Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”). In the opinion of management, these financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of results for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for Fiscal 2010 (as defined below). The year-end Consolidated Condensed Balance Sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Periods Covered: The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to December 31. As such, the period from January 2, 2011 to December 31, 2011 (“Fiscal 2011”) and the period from January 3, 2010 to January 1, 2011 (“Fiscal 2010”) each contain 52 weeks of operations. Additionally, the period from July 3, 2011 to October 1, 2011 (the “Three Months Ended October 1, 2011”) and the period from July 4, 2010 to October 2, 2010 (the “Three Months Ended October 2, 2010”) each contained thirteen weeks of operations and the period from January 2, 2011 to October 1, 2011 (the “Nine Months Ended October 1, 2011”) and the period from January 3, 2010 to October 2, 2010 (the “Nine Months Ended October 2, 2010”) each contained thirty-nine weeks of operations.

Reclassifications: Amounts related to certain corporate expenses incurred in the U.S. (previously included in Operating income (loss) — Corporate/Other) during the Three Months Ended October 2, 2010 and the Nine Months Ended October 2, 2010 have been reclassified to Operating income (loss) — Sportswear Group, Intimate Apparel Group and Swimwear Group in order to conform to the current period presentation. See Note 6 of Notes to Consolidated Condensed Financial Statements.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-29 “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”), which amends Topic 805 on business combinations. ASU 2010-29 clarifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for the Company for business combinations for which the acquisition date is on or after January 2, 2011. In the event that the Company enters into a business combination or a series of business combinations that are deemed to be material for financial reporting purposes, the Company will apply the amendments in ASU 2010-29.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

During May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 clarifies that the concept that the fair value of an asset is based on its highest and best use is only relevant when measuring the fair value of nonfinancial assets (and therefore would not apply to financial assets or any liabilities) since financial assets have no alternative use. The new guidance specifies that financial assets are measured based on the fair value of an individual security unless an entity manages its market risks and/or counterparty credit risk exposure within a group (portfolio) of financial instruments on a net basis. ASU 2011-4 requires the following new disclosures related to the Company’s assets and liabilities that are measured at and/or disclosed at fair value: (1) the categorization in the fair value hierarchy of all assets and liabilities that are not measured at fair value on the balance sheet but for which the fair value is required to be disclosed (such as the disclosure of the fair value of long-term debt that is recorded at amortized cost on the balance sheet); (2) all, not just significant, transfers between Level 1 and Level 2 fair value measurements; (3) the reason(s), if applicable, why the current use of a nonfinancial asset, that is recorded or disclosed at fair value, differs from its highest and best use; and (4) certain quantitative and qualitative disclosures related to Level 3 fair value measurements. Assets and liabilities of the Company’s defined benefit pension plans (see Note 8 of Notes to Consolidated Condensed Financial Statements) are not subject to any of these new disclosure requirements. The new requirements are effective for the Company for interim and annual periods beginning on or after January 1, 2012 and will be required prospectively upon adoption. The Company does not expect that the adoption of ASU 2011-04 will have a material effect on its financial position, results of operations or cash flows.

During June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 requires the Company to present items of net income and other comprehensive income in a Statement of Comprehensive Income; either in one continuous statement or in two separate, but consecutive, statements of equal prominence. Presentation of components of comprehensive income in the Statement of Stockholders’ Equity will no longer be allowed. The Company will be required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. Earnings-per-share computation will continue to be based on net income. Components of other comprehensive income will be required to be presented either net of the related tax effects or before the related tax effects with one amount reported for the tax effects of all other comprehensive income items. The Company will also be required to present parenthetically on the face of the statement, or to disclose in the footnotes, the tax allocated to each component of other comprehensive income. The new requirements are effective for all interim and annual periods beginning on or after January 1, 2012. Comparative financial statements of prior periods will be presented to conform to the new guidance. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its financial position, results of operations or cash flows.

During September 2011, the FASB issued ASU 2011-08 “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”), which is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to first perform a “qualitative” assessment to determine whether further quantitative impairment testing is necessary. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. An entity can choose to perform the qualitative assessment on none, some or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then resume performing the qualitative assessment in any subsequent period. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt as of the fourth quarter of 2011. The Company is in the process of determining whether to early adopt ASU 2011-08 for Fiscal 2011.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 3—Acquisitions

Redeemable Non-Controlling Interest — Joint Venture in India

On July 8, 2011, the Company acquired a controlling interest (51%) in the equity of a joint venture with a distributor of its Calvin Klein products in India for cash consideration of approximately $17,771, net of cash acquired of $2,629. The acquisition was accounted for as a business combination and its results were consolidated into the Company’s operations and financial statements from the acquisition date, with the operating results of the non-controlling interest (i.e., the interest in the joint venture not owned by the Company) reported separately (see below). In addition, on July 8, 2011, the Company loaned one of the non-controlling shareholders in the joint venture $6,000 with an interest rate of 5.0% per annum (which loan is collateralized by the non-controlling shareholder’s equity interest in the joint venture). Principal is due on July 8, 2016, the maturity date of the loan, or sooner if the Company purchases the shares of the non-controlling shareholder. Interest on the loan is payable in arrears on the last day of each calendar year.

The Company is in the process of finalizing the allocation of the purchase price attributable to the acquisition of its controlling interest in the joint venture and is also in the process of finalizing the determination of the fair values of the assets acquired and liabilities assumed.

The Shareholders’ Agreement entered into by the parties to the joint venture (the “Shareholders’ Agreement”) contains a put option under which the non-controlling shareholders can require the Company to purchase all or a portion of their shares in the joint venture (i) at any date after July 8, 2011, if the Company commits a material breach, as defined in the Shareholders’ Agreement, that is not cured or becomes insolvent; or (ii) at any date after July 8, 2013, with respect to one of the non-controlling shareholders or after July 8, 2015, with respect to the other non-controlling shareholder. The put price is the fair market value of the shares on the redemption date based upon a multiple of the joint venture’s EBITDA for the prior 12 months less its net debt as of the closing balance sheet of the 12 month period. EBITDA will be derived from the joint venture’s financial statements. The multiple of EBITDA will be based on multiples of comparable companies and specific facts and circumstances of the joint venture. Thus, the redemption value at any date after the acquisition date is the fair value of the redeemable non-controlling interest on that date.

The Shareholders’ Agreement also contains a call option under which the Company can require any of the non-controlling shareholders to sell their shares to the Company (i) at any date after July 8, 2011 in the event that any non-controlling shareholder commits a material breach, as defined in the Shareholders’ Agreement, under any of the agreements related to the joint venture, that is not cured; or (ii) at any date after July 8, 2015. The call price is determined by the same method as the put price (as described above).

Due to the inclusion of a put option in the Shareholders’ Agreement, the Company is accounting for the joint venture as a redeemable non-controlling interest in accordance with ASC 480-10-S99-3A, Distinguishing Liabilities from Equity. The redeemable non-controlling interest is classified as temporary equity and is presented in the mezzanine section of the Company’s Consolidated Condensed Balance Sheets between liabilities and equity at its redemption value. The preliminary estimate of the initial carrying value of the non-controlling interest on July 8, 2011 of $15,200 was its fair value as determined using a discounted cash flow model with a discount rate of 27% and additional discounts for lack of marketability and lack of control by the non-controlling shareholders.

Since it is probable that the non-controlling interest will become redeemable in the future, based on the passage of time, subsequent changes in the redemption value (fair value) of the redeemable non-controlling interest will be recognized immediately as they occur and the carrying amount of the redeemable non-controlling interest will be adjusted to equal the fair value at the end of each reporting period. Thus, the end of each reporting period is viewed as the redemption date. The adjustment to the carrying amount will be determined after attribution of net income or net loss of the non-controlling interest. The offset to the adjustment to the carrying amount of the redeemable non-controlling interest will be retained earnings of the Company. The adjustment to the carrying amount will not impact net income or comprehensive income in the Company’s Consolidated Condensed Financial Statements and will not impact earnings per share since the shares of the redeemable non-controlling interest are redeemable at fair value. At October 1, 2011, the preliminary estimate of the fair value of the redeemable non-controlling interest was $15,200.

As of October 1, 2011, the Company has recorded a preliminary amount of $32,747 for Goodwill in connection with the acquisition of its controlling interest in the joint venture. Goodwill represents synergies and economies of scale resulting from the business combination as well as the value of the business established by the Indian partners before formation of the joint venture, including business relationships, opening stores and hiring of an assembled workforce (see Note 13 of Notes to Consolidated Condensed Financial Statements).

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

On July 8, 2011, subsequent to the formation of the joint venture, Calvin Klein Inc. (“CKI”) agreed to amend certain licenses with the Company related to territories in Asia to include the territory of India. The amendments allow the Company to develop, manufacture, distribute and market Calvin Klein Jeans products (including Jeans apparel, Jeans accessories and Bridge merchandise) in India through 2046 (see Trademarks and Licensing Agreements in the Company’s Annual Report on Form 10-K for Fiscal 2010). The Company accounted for rights received to the territory of India as an intangible asset, which was recorded at estimated cost (see Note 13 of Notes to Consolidated Condensed Financial Statements). Changes in the estimate of the cost will be reflected as a change in the carrying amount of the intangible asset.

Acquisition of Business in Taiwan

On January 3, 2011, the Company acquired certain assets, including inventory and leasehold improvements, and leases of the retail stores of its Calvin Klein distributor in Taiwan for cash consideration of approximately $1,450. The acquisition was accounted for as a business combination and its results were consolidated into the Company’s operations and financial statements from the acquisition date.

Acquisition of Remaining Non-Controlling Interest in Brazil

During the fourth quarter of the fiscal year ended January 2, 2010 (“Fiscal 2009”), the Company acquired the remaining non-controlling interest in a Brazilian subsidiary (“WBR”) and eight retail stores in Brazil, collectively, the “Brazilian Acquisition.” As part of the consideration for the Brazilian Acquisition, the Company is required to make three payments through March 31, 2012, which are contingent on the level of operating income achieved (as specified in the acquisition agreement) by WBR during that period. The Company made the second contingent payment of 18,500 Brazilian Real (approximately $11,470 as of March 31, 2011), based on the operating results of WBR for Fiscal 2010, on March 31, 2011. As of October 1, 2011, the Company expects that the third contingent payment will be 18,500 Brazilian Real (approximately $10,100 as of October 1, 2011) based on the anticipated operating results of WBR for Fiscal 2011, which will be paid by March 31, 2012.

Note 4—Discontinued Operations

As disclosed in its Annual Report on Form 10-K for Fiscal 2010, the Company discontinued certain operations in prior periods. Summarized operating results for the discontinued operations of those prior periods are as follows:


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010

Net revenues	$	—		$	6		$	—		$	1,355

(Loss) before income tax (benefit) (a)	$	(4,214	)	$	33		$	(5,090	)	$	(683	)
Income tax (benefit)		(37	)		(24	)		(349	)		(310	)


Income (Loss) from discontinued operations	$	(4,177	)	$	57		$	(4,741	)	$	(373	)


(a)		Includes a charge of approximately $4,000 in connection with the Lejaby business (see Note 18 of Notes to Consolidated Condensed Financial Statements — Legal Matters).

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Summarized assets and liabilities of the discontinued operations are presented in the Consolidated Condensed Balance Sheets as follows:


	October 1,		January 1,		October 2,
	2011		2011		2010

Accounts receivable, net	$	—	$	18	$	1
Inventories		—		—		2
Prepaid expenses and other current assets		—		107		109


Assets of discontinued operations	$	—	$	125	$	112


Accounts payable	$	5	$	32	$	16
Accrued liabilities		7,043		18,768		8,349


Liabilities of discontinued operations	$	7,048	$	18,800	$	8,365

During February 2011, the Company and Doyle & Bossiere Fund I LLC reached a settlement agreement and mutual release related to the OP Action (see Note 18 of Notes to Consolidated Condensed Financial Statements — Legal Matters). On February 16, 2011, the Company paid $15,000 in full and final settlement of the OP Action in accordance with the terms of the settlement agreement and mutual release.

Note 5—Restructuring Expenses and Other Exit Costs

During the Three and Nine Months Ended October 1, 2011, the Company incurred restructuring charges and other exit costs of $7,547 and $18,990, respectively, primarily related to (i) the rationalization and consolidation of the Company’s international operations ($2,191 and $7,054, respectively); (ii) job eliminations in the U.S. ($840 and $2,871, respectively); (iii) impairment charges and lease contract termination costs in connection with retail store, office and warehouse closures ($4,396 and $8,748, respectively) and (iv) other exit costs ($120 and $317, respectively).

During the Three and Nine Months Ended October 2, 2010, the Company incurred restructuring charges and other exit costs of $1,697 and $3,810, respectively, primarily related to (i) costs associated with workforce reductions to align its cost structure to match current economic conditions ($0 and $1,121, respectively); (ii) the rationalization and consolidation of the Company’s European operations ($323 and $919, respectively) and (iii) other exit activities, including contract termination costs, legal and other costs ($1,374 and $1,770, respectively).

Restructuring charges and other exit costs have been recorded in the Consolidated Condensed Statements of Operations for the Three and Nine Months Ended October 1, 2011 and the Three and Nine Months Ended October 2, 2010, as follows:


	Three Months Ended				Nine Months Ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010
Cost of goods sold	$	376	$	13	$	1,842	$	287
Selling, general and administrative expenses		7,171		1,684		17,148		3,523

	$	7,547	$	1,697	$	18,990	$	3,810

Cash portion of restructuring items	$	7,547	$	1,697	$	17,823	$	3,810
Non-cash portion of restructuring items		—		—		1,167		—

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Changes in liabilities related to restructuring expenses and other exit costs for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010 are summarized below:


Balance at January 2, 2010	$	3,572
Charges for the Nine Months Ended October 2, 2010		3,810
Cash reductions for the Nine Months Ended October 2, 2010		(3,810	)
Non-cash changes and foreign currency effects		(48	)

Balance at October 2, 2010	$	3,524


Balance at January 1, 2011	$	3,582
Charges for the Nine Months Ended October 1, 2011		18,437
Cash reductions for the Nine Months Ended October 1, 2011		(11,720	)
Non-cash changes and foreign currency effects		277

Balance at October 1, 2011 (a)	$	10,576


(a)		The balance at October 1, 2011 includes approximately $7,698 recorded in accrued liabilities (part of current liabilities) which amounts are expected to be settled over the next 12 months and approximately $2,878 recorded in other long term liabilities which amounts are expected to be settled over the next two years.

Note 6—Business Segments and Geographic Information

Business Segments: The Company operates in three business segments: (i) Sportswear Group; (ii) Intimate Apparel Group; and (iii) Swimwear Group, which groupings reflect the manner in which the Company’s business is managed and the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), reviews the Company’s business.

Effective January 2, 2011, in conjunction with an evaluation of the Company’s overall group reporting and to reflect the manner in which the CODM currently evaluates the business, the Company revised its methodology for allocating certain corporate expenses (incurred in the U.S.) to the operating units in each of its business groups. The change in methodology resulted in an increase in the portion of corporate overhead allocated to the business groups for management reporting purposes as well as a change in the manner in which the corporate overhead is allocated between the domestic and international business units. Accordingly, the operating income (loss) for each group and Corporate/Other for the Three and Nine Months Ended October 2, 2010 has been revised to conform to the current period presentation. The revision of the operating income (loss) for each group and Corporate/Other did not have any effect on the Company’s Consolidated Condensed Balance Sheets, Consolidated Condensed Statements of Operations or Consolidated Condensed Statements Cash Flows for any period presented in this Form 10-Q.

The Sportswear Group designs, sources and markets moderate to premium priced men’s and women’s sportswear under the Calvin Klein and Chaps^® brands. As of October 1, 2011, the Sportswear Group operated 565 Calvin Klein retail stores worldwide (consisting of 139 full-price free-standing stores, 56 outlet free-standing stores, 369 shop-in-shop/concession stores and, in the U.S., one on-line store). As of October 1, 2011, there were also 371 retail stores operated by third parties under retail licenses or distributor agreements.

The Intimate Apparel Group designs, sources and markets moderate to premium priced intimate apparel and other products for women and better to premium priced men’s underwear, sleepwear and loungewear under the Calvin Klein, Warner’s^®, Olga^® and Body Nancy Ganz/Bodyslimmers^® brand names. As of October 1, 2011, the Intimate Apparel Group operated 878 Calvin Klein retail stores worldwide (consisting of 99 full-price free-standing stores, 61 outlet free-standing stores and 717 shop-in-shop/concession stores and, in the U.S., one on-line store). As of October 1, 2011, there were also 211 Calvin Klein retail stores operated by third parties under retail licenses or distributor agreements.

The Swimwear Group designs, licenses, sources and markets mass market to premium priced swimwear, fitness apparel, swim accessories and related products under the Speedo^®, Lifeguard^® and Calvin Klein brand names. As of October 1, 2011, the Swimwear Group operated 191 Calvin Klein retail shop-in-shop/concession stores in Europe and one on-line store in the U.S.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Information by business group is set forth below:


				Intimate
	Sportswear			Apparel			Swimwear			Group		Corporate /
	Group			Group			Group			Total		Other			Total

Three Months Ended October 1, 2011
Net revenues	$	357,935		$	247,880		$	39,306		$	645,121	$	—		$	645,121
Operating income (loss)		34,129			38,620			(3,352	)		69,397		(4,641	)		64,756
Depreciation and amortization		8,347			4,413			589			13,349		393			13,742
Restructuring expense		3,545			699			2,988			7,232		315			7,547
Capital expenditures		6,014			7,379			245			13,638		443			14,081

Three Months Ended October 2, 2010
Net revenues	$	337,020		$	223,081		$	36,660		$	596,761	$	—		$	596,761
Operating income (loss) (a)		51,309			39,939			(3,794	)		87,454		(19,557	)		67,897
Depreciation and amortization		8,057			4,294			535			12,886		416			13,302
Restructuring expense		(47	)		9			1,732			1,694		3			1,697
Capital expenditures		12,407			(644	)		86			11,849		680			12,529

Nine Months Ended October 1, 2011
Net revenues	$	983,695		$	695,317		$	219,657		$	1,898,669	$	—		$	1,898,669
Operating income (loss) (c) (d)		88,686			103,627			21,421			213,734		(26,725	)		187,009
Depreciation and amortization		27,010			13,751			1,889			42,650		1,019			43,669
Restructuring expense		7,169			3,619			7,254			18,042		948			18,990
Capital expenditures		17,687			14,863			390			32,940		1,294			34,234

Nine Months Ended October 2, 2010
Net revenues	$	887,410		$	616,139		$	200,710		$	1,704,259	$	—		$	1,704,259
Operating income (loss) (b)		123,834			106,363			17,121			247,318		(44,605	)		202,713
Depreciation and amortization		22,694			11,967			1,705			36,366		1,141			37,507
Restructuring expense		395			122			2,446			2,963		847			3,810
Capital expenditures		26,193			5,747			545			32,485		2,048			34,533

Balance Sheet
Total Assets:
October 1, 2011	$	1,068,298		$	494,482		$	117,949		$	1,680,729	$	132,042		$	1,812,771
January 1, 2011		995,475			381,371			154,831			1,531,677		121,595			1,653,272
October 2, 2010		1,050,685			408,419			112,316			1,571,420		113,048			1,684,468
Property, Plant and Equipment:
October 1, 2011	$	62,317		$	38,486		$	2,472		$	103,275	$	25,930		$	129,205
January 1, 2011		63,555			28,522			3,023			95,100		34,152			129,252
October 2, 2010		46,053			42,527			3,344			91,924		35,233			127,157


(a)		reflects the allocation of $2,467 of corporate expenses to the Sportswear Group ($1,730), the Intimate Apparel Group ($1,052) and the Swimwear Group (($315)), respectively, during the Three Months Ended October 2, 2010 to conform to the presentation for the Three Months Ended October 1, 2011.

(b)		reflects the allocation of $7,422 of corporate expenses to the Sportswear Group ($5,134), the Intimate Apparel Group ($2,809) and the Swimwear Group (($521)), respectively, during the Nine Months Ended October 2, 2010 to conform to the presentation for the Nine Months Ended October 1, 2011.

(c)		includes a gain of $2,000 in the Intimate Apparel Group related to the sale and assignment of the Company’s Nancy Ganz^® trademarks in Australia and New Zealand to the Company’s former licensee for cash consideration of $2,000.

(d)		includes a gain of $1,630 related to the recovery of an insurance claim for a fire in a warehouse in Peru, attributable partly to the Sportswear Group and partly to the Intimate Apparel Group.

All inter-company revenues and expenses are eliminated in consolidation. Management does not include inter-company sales when evaluating segment performance. Each segment’s performance is evaluated based upon operating income after restructuring charges and allocations of corporate expenses but before corporate/other expenses.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

The table below summarizes Corporate/Other expenses for each period presented:


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010

Unallocated corporate expenses (a)	$	5,273		$	17,242		$	25,338		$	43,660
Foreign exchange losses (gains)		(971	)		1,956			527			(863	)
Pension income		(369	)		(60	)		(1,107	)		(180	)
Restructuring expense		315			3			948			847
Depreciation and amortization of corporate assets		393			416			1,019			1,141

Corporate/other expenses	$	4,641		$	19,557		$	26,725		$	44,605


(a)		the decrease in unallocated corporate expenses is related primarily to a reduction in amounts accrued for performance-based employee cash compensation and other employee compensation and benefits.

A reconciliation of operating income from operating groups to income from continuing operations before provision for income taxes and non-controlling interest is as follows:


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010

Operating income by operating groups	$	69,397		$	87,454		$	213,734		$	247,318
Corporate/other expenses		(4,641	)		(19,557	)		(26,725	)		(44,605	)

Operating income		64,756			67,897			187,009			202,713
Other (income) loss		1,357			(1,899	)		498			5,651
Interest expense		4,986			2,953			11,142			12,190
Interest income		(986	)		(699	)		(2,542	)		(2,192	)

Income from continuing operations before provision for income taxes and non-controlling interest	$	59,399		$	67,542		$	177,911		$	187,064

Geographic Information: Net revenues summarized by geographic region are as follows:


	Three Months Ended
	October 1,					October 2,
	2011		%			2010		%
Net revenues:
United States	$	241,764		37.5	%	$	250,039		41.9	%
Europe		182,265		28.3	%		166,749		27.9	%
Asia		129,985		20.1	%		101,090		17.0	%
Mexico, Central and South America		62,848		9.7	%		48,216		8.1	%
Canada		28,259		4.4	%		30,667		5.1	%

	$	645,121		100.0	%	$	596,761		100.0	%

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)


	Nine Months Ended
	October 1,					October 2,
	2011		%			2010		%
Net revenues:
United States	$	777,552		41.0	%	$	782,753		45.9	%
Europe		478,827		25.2	%		423,882		25.0	%
Asia		370,546		19.5	%		281,655		16.5	%
Mexico, Central and South America		176,698		9.3	%		129,940		7.6	%
Canada		95,046		5.0	%		86,029		5.0	%

	$	1,898,669		100.0	%	$	1,704,259		100.0	%

Note 7—Income Taxes

The effective tax rates for the Three Months Ended October 1, 2011 and October 2, 2010 were 18.1% and 38.6% respectively. The lower effective tax rate for the Three Months Ended October 1, 2011 primarily reflects a tax benefit of $7,300 recorded during the Three Months Ended October 1, 2011 related to a reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions, as well as a tax benefit of approximately $1,300 recorded during the Three Months Ended October 1, 2011 relating to a change in various domestic and foreign tax provision estimates for Fiscal 2010 following the filing of certain of the Company’s tax returns during the Three Months Ended October 1, 2011. In addition, certain discrete charges to the tax provision recorded during the Three Months Ended October 2, 2010 (in total $3,600) did not reoccur in the Three Months Ended October 1, 2011.

The effective tax rates for the Nine Months Ended October 1, 2011 and October 2, 2010 were 22.0% and 36.0% respectively. The lower effective tax rate for the Nine Months Ended October 1, 2011 primarily reflects a tax benefit of approximately $11,000, recorded during the Nine Months Ended October 1, 2011, associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country’s taxing authority during the Nine Months Ended October 1, 2011, a tax benefit of $7,300 recorded during the Three Months Ended October 1, 2011 related to a reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions, as well as a tax benefit of approximately $1,300 recorded during the Three Months Ended October 1, 2011 relating to a change in various domestic and foreign tax provision estimates for Fiscal 2010 following the filing of certain of the Company’s tax returns during the Three Months Ended October 1, 2011. In addition, certain discrete charges to the tax provision recorded during the Nine Months Ended October 2, 2010 (in total $3,600) did not reoccur in the Nine Months Ended October 1, 2011.

As of October 1, 2011, the Company remains under audit in various taxing jurisdictions. It is, therefore, difficult to predict the final timing and resolution of any particular uncertain tax position. Based upon the Company’s assessment of many factors, including past experience and complex judgments about future events, it is reasonably possible that within the next twelve months the reserve for uncertain tax positions may decrease between $10,000 and $12,000 associated with tax positions expected to be taken during the next 12 months, the reevaluation of current uncertain tax positions arising from developments in examinations, the finalization of tax examinations, or from the closure of tax statutes.

Note 8—Employee Benefit and Retirement Plans

Defined Benefit Pension Plans

The Company has a defined benefit pension plan covering certain full-time non-union domestic employees and certain domestic employees covered by a collective bargaining agreement who had completed service prior to January 1, 2003 (the “Pension Plan”). Participants in the Pension Plan have not earned any additional pension benefits after December 31, 2002. The Company also sponsors defined benefit plans for certain former employees of its United Kingdom and other European entities (the “Foreign Plans”). The Foreign Plans were not considered to be material for any period presented in this Form 10-Q. These pension plans are noncontributory and benefits are based upon years of service. The Company also has health care and life insurance plans that provide post-retirement benefits to certain retired domestic employees (the “Postretirement Plans”). The Postretirement Plans are, in most cases, contributory with retiree contributions adjusted annually.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Each quarter the Company recognizes interest cost of the Pension Plan’s projected benefit obligation offset by the expected return on Pension Plan assets. The Company records pension expense (income) as the effect of actual gains and losses exceeding the expected return on Pension Plan assets (including changes in actuarial assumptions) less changes in the Pension Plan’s projected benefit obligation (including changes in actuarial assumptions) in the fourth quarter of each year. This accounting results in volatility in pension expense or income; therefore, the Company reports pension expense (income) on a separate line of its Statements of Operations in each period.

The Company made contributions of $1,650 and $7,150 to the Pension Plan during the Three and Nine Months Ended October 1, 2011, respectively. The Company’s contributions to the Pension Plan are expected to be $8,800 in total for Fiscal 2011.

The following table includes only the Pension Plan. The Foreign Plans were not considered to be material for any period presented below. The components of net periodic benefit cost are as follows:


	Pension Plans						Postretirement Plans
	Three Months Ended						Three Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Service cost	$	—		$	—		$	62		$	33
Interest cost		2,334			2,358			70			91
Expected return on plan assets		(2,703	)		(2,418	)		—			—
Amortization of actuarial (gain)		—			—			(25	)		(26	)


Net benefit (income) cost (a)	$	(369	)	$	(60	)	$	107		$	98


	Pension Plans						Postretirement Plans
	Nine Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Service cost	$	—		$	—		$	186		$	99
Interest cost		7,002			7,074			210			273
Expected return on plan assets		(8,109	)		(7,254	)		—			—
Amortization of actuarial (gain)		—			—			(75	)		(78	)


Net benefit (income) cost (a)	$	(1,107	)	$	(180	)	$	321		$	294


(a)		net benefit (income) cost does not include costs related to the Foreign Plans of $59 and $176 for the Three and Nine Months Ended October 1, 2011, respectively, and $38 and $115 for the Three and Nine Months Ended October 2, 2010, respectively.

Deferred Compensation Plans

The Company’s liability under the employee deferred compensation plan was $4,185, $4,220 and $3,987 as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively. This liability is included in other long-term liabilities. The Company’s liability under the director deferred compensation plan was $1,068, $1,015 and $834 as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively. This liability is included in other long-term liabilities.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 9—Comprehensive Income

The components of comprehensive income attributable to Warnaco Group Inc. are as follows:


	Three Months Ended						Nine Months Ended
	October 1, 2011			October 2, 2010			October 1, 2011			October 2, 2010

Net income	$	44,611		$	41,497		$	134,145		$	119,406
Other comprehensive income, net of tax:
Foreign currency translation adjustments (a)		(63,170	)		44,967			(21,453	)		1,677
Change in fair value of cash flow hedges		440			(2,958	)		(1,169	)		(427	)
Change in actuarial gains (losses), net related to post-retirement medical plans		—			(6	)		—			(6	)
Other		(3	)		(63	)		(5	)		11

Total comprehensive income (loss)	$	(18,122	)	$	83,437		$	111,518		$	120,661

The components of accumulated other comprehensive income as of October 1, 2011, January 1, 2011 and October 2, 2010 are summarized below:


	October 1,			January 1,			October 2,
	2011			2011			2010

Foreign currency translation adjustments (a)	$	24,529		$	45,982		$	50,235
Actuarial losses, net related to post retirement medical plans, net of tax of $1,232, $1,232 and $1,253, as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively		(1,099	)		(1,099	)		(1,064	)

(Loss) on cash flow hedges, net of taxes of $2,175, $871 and $803 as of October 1, 2011, January 1, 2011 and October 2, 2010, respectively		(3,016	)		(1,847	)		(1,454	)
Other		7			12			11

Total accumulated other comprehensive income	$	20,421		$	43,048		$	47,728


(a)		Foreign currency translation adjustments reflect the change in the U.S. dollar relative to functional currencies where the Company conducts certain of its operations and the fact that more than 65% of the Company’s assets are based outside of the U.S. The change in foreign currency translation adjustments at October 1, 2011 compared to January 1, 2011 and October 2, 2010 as well as for the Three and Nine Months Ended October 1, 2011 compared to the Three and Nine Months Ended October 2, 2010 reflects the fluctuation of certain foreign currencies (principally the Euro, Canadian Dollar, Korean Won, Brazilian Real and Mexican Peso) relative to the U.S. dollar.

Note 10—Fair Value Measurement

The Company utilizes the market approach to measure fair value for financial assets and liabilities, which primarily relates to derivative contracts. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company classifies its financial instruments in a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy consists of the following three levels:

Level 1 —

Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 —

Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3 —

Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Valuation Techniques

The fair value of foreign currency exchange contracts, including forward contracts and zero cost collars, was determined as the net unrealized gains or losses on those contracts, which is the net difference between (i) the U.S. dollars to be received or paid at the contracts’ settlement dates and (ii) the U.S. dollar value of the foreign currency to be sold or purchased at the current forward or spot exchange rate, as applicable. The fair value of these foreign currency exchange contracts is based on quoted prices that include the effects of U.S. and foreign interest rate yield curves and, therefore, meets the definition of Level 2 fair value, as defined above.

The fair value of interest rate caps (see Note 14 of Notes to Consolidated Condensed Financial Statements) was determined using broker quotes, which use discounted cash flows and the then-applicable forward LIBOR rates and, therefore, meets the definition of Level 2 fair value, as defined above.

The fair value of long-lived assets was based on the Company’s best estimates of future cash flows and, therefore, meets the definition of Level 3 fair value, as defined above (see Note 1 of Notes to Consolidated Financial Statements — Nature of Operations and Summary of Significant Accounting Policies — Long-Lived Assets in the Company’s Annual Report on Form 10-K for Fiscal 2010).

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis, as of October 1, 2011, January 1, 2011 and October 2, 2010:


	October 1, 2011						January 1, 2011						October 2, 2010
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)

Assets
Foreign currency exchange contracts	$	—	$	4,761	$	—	$	—	$	834	$	—	$	—	$	231	$	—
Interest rate cap		—		7,399		—		—		—		—		—		—		—

Liabilities
Foreign currency exchange contracts	$	—	$	495	$	—	$	—	$	3,282	$	—	$	—	$	4,044	$	—

Cash and cash equivalents, accounts receivable and accounts payable are recorded at carrying value, which approximates fair value. The Company’s CKJEA Notes (as defined below) and other short-term notes, amounts outstanding under the 2008 Credit Agreements (as defined below) and amounts outstanding under the 2011 Term Loan (as defined below) are also reported at carrying value.

During the Nine Months Ended October 1, 2011, the Company recorded impairment charges for the long-lived assets, consisting of leasehold improvements and furniture and fixtures, of certain retail stores in the Sportswear Group and the Intimate Apparel Group, which were scheduled to close as part of a restructuring plan. For the Nine Months Ended October 1, 2011, those assets, measured on a non-recurring basis, had a fair value of $0, based upon projected future cash flows of those retail stores through the dates of closure. The Company recorded a loss of $1,140 related to those assets. For assets measured on a non-recurring basis for Fiscal 2010 see Note 16 of Notes to Consolidated Financial Statements — Financial Instruments in the Company’s Annual Report on Form 10-K for Fiscal 2010. There were no assets or liabilities measured on a non-recurring basis for the Three Months or Nine Months Ended October 2, 2010. See Note 1 of Notes to Consolidated Financial Statements — Nature of Operations and Summary of Significant Accounting Policies — Long-Lived Assets in the Company’s Annual Report on Form 10-K for Fiscal 2010 for a description of the testing of retail stores for impairment.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 11— Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments at October 1, 2011, January 1, 2011 and October 2, 2010 are as follows:


		October 1, 2011				January 1, 2011				October 2, 2010
	Balance Sheet	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Location	Amount		Value		Amount		Value		Amount		Value
Assets:
Accounts receivable	Accounts receivable, net of reserves	$	341,406	$	341,406	$	318,123	$	318,123	$	346,464	$	346,464
Open foreign currency exchange contracts	Prepaid expenses and other current assets		4,761		4,761		834		834		231		231
Interest rate cap	Other assets		7,399		7,399		—		—		—		—

Liabilities:
Accounts payable	Accounts payable	$	182,517	$	182,517	$	152,714	$	152,714	$	165,171	$	165,171
Short-term debt	Short-term debt		43,355		43,355		32,172		32,172		69,607		69,607
Open foreign currency exchange contracts	Accrued liabilities		495		495		3,282		3,282		4,044		4,044
2011 Term loan, current portion	Short-term debt		2,000		1,950		—		—		—		—
2011 Term loan	Long-term debt		197,500		194,513		—		—		—		—

See Note 17 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2010 for the methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments. In addition, the 2011 Term Loan (see Note 14 of Notes to Consolidated Condensed Financial Statements) matures on June 17, 2018 and bears a variable rate of interest. The fair value of the 2011 Term Loan was estimated by obtaining quotes from brokers. The fair value of the interest rate cap was determined using broker quotes, which use discounted cash flows and the then-applicable forward LIBOR rates.

Derivative Financial Instruments

Foreign Currency Exchange Forward Contracts

During the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, the Company’s Korean, European, Canadian and Mexican subsidiaries continued their hedging programs, which included foreign exchange forward contracts which were designed to satisfy either up to the first 50% of U.S. dollar denominated purchases of inventory over a maximum 18-month period or payment of 100% of certain minimum royalty and advertising expenses. All of the foregoing forward contracts were designated as cash flow hedges, with gains and losses accumulated on the Consolidated Condensed Balance Sheets in Other Comprehensive Income and recognized in Cost of Goods Sold in the Consolidated Condensed Statement of Operations during the periods in which the underlying transactions occur.

During the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, the Company also continued hedging programs, which were accounted for as economic hedges, with gains and losses recorded directly in Other loss (income) or Selling, general and administrative expense in the Consolidated Condensed Statements of Operations in the period in which they are incurred. Those hedging programs included foreign currency exchange forward contracts and zero cost collars that were designed to fix the number of Euros, Korean Won, Canadian Dollars or Mexican Pesos required to satisfy either (i) the first 50% of U.S. dollar denominated purchases of inventory over a maximum 18-month period; (ii) 50% of intercompany sales of inventory by a Euro functional currency subsidiary to a British subsidiary, whose functional currency is the Pound Sterling or (iii) U.S. dollar denominated intercompany loans and payables. During the Three Months Ended October 1, 2011, the Company initiated foreign currency exchange forward contracts, which were accounted for as economic hedges, in connection with the U.S. Dollar-denominated intercompany loan made upon the formation of the Company’s joint venture in India, which is held by a Singapore Dollar functional currency subsidiary (see Note 3 of Notes to Consolidated Condensed Financial Statements).

Interest Rate Cap

On July 1, 2011, the Company entered into an Interest Rate Cap Agreement (as defined below), which will limit the interest rate payable on average over the term of the Interest Rate Cap Agreement to 5.6975% per annum with respect to the portion of the 2011 Term Loan that equals the notional amount of the interest rate cap. The interest rate cap contracts are designated as cash flow hedges of the exposure to variability in expected future cash flows attributable to a three-month LIBOR rate beyond 1.00%. See Note 14 of Notes to Consolidated Condensed Financial Statements — Interest Rate Cap.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

The following table summarizes the Company’s derivative instruments as of October 1, 2011, January 1, 2011 and October 2, 2010:


		Asset Derivatives							Liability Derivatives
			Fair Value								Fair Value
		Balance Sheet	October 1,		January 1,		October 2,		Balance Sheet		October 1,		January 1,		October 2,
	Type (a)	Location	2011		2011		2010		Location		2011		2011		2010
Derivatives designated as hedging instruments under FASB ASC 815-20

Foreign exchange contracts	CF	Prepaid expenses and other current assets	$	1,873	$	—	$	—		Accrued liabilities	$	—	$	2,290	$	2,094
Interest rate cap	CF	Other assets		7,399		—		—				—		—		—

			$	9,272	$	—	$	—			$	—	$	2,290	$	2,094


Derivatives not designated as hedging instruments under FASB ASC 815-20

Foreign exchange contracts		Prepaid expenses and other current assets	$	2,888	$	834	$	231		Accrued liabilities	$	495	$	992	$	1,950


Total derivatives			$	12,160	$	834	$	231			$	495	$	3,282	$	4,044


(a)		CF = cash flow hedge

The following tables summarize the effect of the Company’s derivative instruments on the Consolidated Condensed Statements of Operations for the Three and Nine Months Ended October 1, 2011 and the Three and Nine Months Ended October 2, 2010:


Derivatives in FASB ASC		Amount of Gain (Loss)						Location of Gain (Loss) Reclassified from Accumulated	Amount of Gain (Loss) Reclassified						Location of Gain (Loss) Recognized in Income	Amount of Gain (Loss) Recognized
815-20 Cash Flow Hedging	Nature of Hedged	Recognized in OCI on						OCI into Income	from Accumulated OCI into						on Derivative		in Income on Derivative
Relationships	Transaction	Derivatives (Effective Portion)						(Effective Portion)	Income (Effective Portion)						(Ineffective Portion) (c)		(Ineffective Portion)
		Three Months			Three Months				Three Months			Three Months				Three Months		Three Months
		Ended			Ended				Ended			Ended				Ended		Ended
		October 1,			October 2,				October 1,			October 2,				October 1,		October 2,
		2011			2010				2011			2010				2011		2010
Foreign exchange contracts	Minimum royalty and advertising costs (a)	$	900		$	(1,128	)	cost of goods sold	$	(47	)	$	289		other loss/income	$	35	$	(49	)
Foreign exchange contracts	Purchases of inventory (b)		4,216			(2,842	)	cost of goods sold		(1,069	)		(93	)	other loss/income		149		(99	)
Interest rate cap	Interest expense on 2011 Term Loan		(6,996	)		—		interest expense		—			—		other loss/income		—		—


Total		$	(1,880	)	$	(3,970	)		$	(1,116	)	$	196			$	184	$	(148	)


		Nine Months			Nine Months				Nine Months			Nine Months				Nine Months		Nine Months
		Ended			Ended				Ended			Ended				Ended		Ended
		October 1,			October 2,				October 1,			October 2,				October 1,		October 2,
			2011			2010				2011			2010				2011		2010

Foreign exchange contracts	Minimum royalty and advertising costs (a)	$	(111	)	$	387		cost of goods sold	$	(708	)	$	689		other loss/income	$	16	$	(23	)
Foreign exchange contracts	Purchases of inventory (b)		732			(1,452	)	cost of goods sold		(2,807	)		(911	)	other loss/income		121		(25	)
Interest rate cap	Interest expense on 2011 Term Loan		(6,996	)		—		interest expense		—			—		other loss/income		—		—


Total		$	(6,375	)	$	(1,065	)		$	(3,515	)	$	(222	)		$	137	$	(48	)


(a)		At October 1, 2011, the amount of minimum royalty costs hedged was $11,366; contracts expire through June 2012. At October 2, 2010, the amount of minimum royalty costs hedged was $11,433; contracts expire through September 2011.

(b)		At October 1, 2011, the amount of inventory purchases hedged was $44,700 ; contracts expire through August 2012. At October 2, 2010, the amount of inventory purchases hedged was $60,100; contracts expire through February 2012.

(c)		No amounts were excluded from effectiveness testing

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Location of

Gain (Loss)

Derivatives not designated as

Recognized in

Amount of Gain (Loss)

hedging instruments under

Nature of Hedged

Amount

Maturity

Income on

Recognized in Income on

FASB ASC 815-20

Transaction

Instrument

Hedged

Date

Derivative

October 1,

Three Months

Nine Months

2011

Ended

October 1,

2011

Foreign exchange contracts (e)

Intercompany sales of inventory

Forward contracts

6,546

July 2012

other loss/income

(313

)

103

Foreign exchange contracts (f)

Minimum royalty and advertising costs

Forward contracts

10,000

July 2012

other loss/income

723

(260

)

Foreign exchange contracts

Intercompany payables

Forward contracts

28,000

April 2012

other loss/income

556

(1,844

)

Foreign exchange contracts

Intercompany loans

Forward contracts

34,500

November 2011

other loss/income

2,460

859

Foreign exchange contracts

Intercompany loans

Forward contracts

—

other loss/income

819

156

Foreign exchange contracts

Intercompany loans

Forward contracts

6,000

July 2012

other loss/income

(495

)

(495

)

Total

3,750

(1,481

)

Location of

Gain (Loss)

Derivatives not designated as

Recognized in

Amount of Gain (Loss)

hedging instruments under

Nature of Hedged

Amount

Maturity

Income on

Recognized in Income on

FASB ASC 815-20

Transaction

Instrument

Hedged

Date

Derivative

October 2,

Three Months

Nine Months

2010

Ended

October 2,

2010

Foreign exchange contracts (d)

Purchases of inventory

Forward contracts

—

other loss/income

(32

)

(142

)

Foreign exchange contracts (e)

Intercompany sales of inventory

Forward contracts

13,936

January 2012

other loss/income

712

(80

)

Foreign exchange contracts (f)

Minimum royalty and advertising costs

Forward contracts

12,500

October 2011

other loss/income

(976

)

(73

)

Foreign exchange contracts

Intercompany loans

Forward contracts

—

other loss/income

—

(94

)

Foreign exchange contracts

Intercompany payables

Forward contracts

35,000

May 2011

other loss/income

(3,115

)

(256

)

Foreign exchange contracts

Intercompany payables

Zero-cost collars

—

other loss/income

—

1,511

Foreign exchange contracts

Intercompany payables

Forward contracts

—

selling, general and administrative

—

398

Foreign exchange contracts

Intercompany payables

Zero-cost collars

—

selling, general and administrative

—

(232

)

Total

(3,411

)

1,032


(d)		Forward contracts used to offset 50% of U.S. dollar-denominated purchases of inventory by the Company’s foreign subsidiaries whose functional currencies were the Canadian dollar and Mexican peso, entered into by Warnaco Inc. on behalf of foreign subsidiaries.

(e)		Forward contracts used to offset 50% of British Pounds-denominated intercompany sales by a subsidiary whose functional currency is the Euro.

(f)		Forward contracts used to offset payment of minimum royalty and advertising costs related to sales of inventory by the Company’s foreign subsidiary whose functional currency was the Euro, entered into by Warnaco Inc. on behalf of a foreign subsidiary.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

A reconciliation of the balance of Accumulated Other Comprehensive Income during the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010 related to cash flow hedges is as follows:


Balance January 2, 2010	$	(1,414	)
Derivative losses recognized		(1,065	)
Losses amortized to earnings		222

Balance before tax effect		(2,257	)
Tax effect		803

Balance October 2, 2010, net of tax	$	(1,454	)


Balance January 1, 2011	$	(2,331	)
Derivative losses recognized		(6,375	)
Losses amortized to earnings		3,515

Balance before tax effect		(5,191	)
Tax effect		2,175

Balance October 1, 2011, net of tax	$	(3,016	)

During the twelve months following October 1, 2011, the net amount of gains recorded in Other Comprehensive Income at October 1, 2011 that are estimated to be amortized into earnings is $1,415, on a pre-tax basis. During the Nine Months Ended October 1, 2011, the Company expected that all originally forecasted purchases of inventory or payment of minimum royalties, which were covered by cash flow hedges, would occur by the end of the respective originally specified time periods. Therefore, no amount of gains or losses was reclassified into earnings during the Nine Months Ended October 1, 2011 as a result of the discontinuance of those cash flow hedges.

Note 12—Inventories

Inventories are valued at the lower of cost to the Company (using the first-in-first-out method) or market and are summarized as follows:


	October 1,		January 1,		October 2,
	2011		2011		2010

Finished goods	$	390,205	$	310,504	$	324,430
Raw materials		1,868		—		9

	$	392,073	$	310,504	$	324,439

In addition to the amounts of inventory noted above, the Company records deposits related to advance payments to certain third-party suppliers for the future purchase of finished goods. Such deposits are recorded in Prepaid and other current assets on the Company’s Consolidated Condensed Balance Sheets. At October 1, 2011, January 1, 2011 and October 2, 2010, the amount of such deposits was $4,234, $8,841 and $4,792, respectively.

See Note 11 of Notes to Consolidated Condensed Financial Statements for details on the Company’s hedging programs related to purchases of inventory.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 13—Intangible Assets and Goodwill

The following tables set forth intangible assets as of October 1, 2011, January 1, 2011 and October 2, 2010 and the activity in the intangible asset accounts for the Nine Months Ended October 1, 2011:


	October 1, 2011						January 1, 2011						October 2, 2010
	Gross						Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net		Amount		Amortization		Net

Finite-lived intangible assets:
Licenses for a term (Company as licensee)	$	323,422	$	61,773	$	261,649	$	327,394	$	54,907	$	272,487	$	328,388	$	52,774	$	275,614
Other		35,009		13,978		21,031		34,258		11,297		22,961		17,170		10,155		7,015

		358,431		75,751		282,680		361,652		66,204		295,448		345,558		62,929		282,629

Indefinite-lived intangible assets:
Trademarks		54,715		—		54,715		54,715		—		54,715		54,715		—		54,715
Licenses in perpetuity		23,113		—		23,113		23,113		—		23,113		23,113		—		23,113

		77,828		—		77,828		77,828		—		77,828		77,828		—		77,828

Intangible Assets	$	436,259	$	75,751	$	360,508	$	439,480	$	66,204	$	373,276	$	423,386	$	62,929	$	360,457


								Other
			Licenses		Licenses			Finite-lived
			in		for a			Intangible
	Trademarks		Perpetuity		Term			Assets			Total

Balance at January 1, 2011	$	54,715	$	23,113	$	272,487		$	22,961		$	373,276
Amortization expense		—		—		(6,866	)		(2,681	)		(9,547	)
Translation adjustments		—		—		(6,472	)		(322	)		(6,794	)
Other (a)		—		—		2,500			1,073			3,573

Balance at October 1, 2011	$	54,715	$	23,113	$	261,649		$	21,031		$	360,508


(a)		relates to intangible assets totaling $3,573 for reacquired rights and amendment of a license during the Three Months Ended October 1, 2011, which will be amortized over a weighted average period of 25 years (see Note 3 of Notes to Consolidated Condensed Financial Statements).

The following table summarizes the Company’s estimated amortization expense for intangible assets for the next five years:


2012	$	11,753
2013		11,662
2014		10,284
2015		10,263
2016		10,005

The following table summarizes the changes in the carrying amount of goodwill for the Nine Months Ended October 1, 2011:


				Intimate
	Sportswear			Apparel			Swimwear
	Group			Group			Group		Total

Goodwill balance at January 1, 2011	$	113,016		$	1,620		$	642	$	115,278
Adjustment:
Translation adjustments		(4,672	)		(383	)		—		(5,055	)
Other (a)		29,442			4,023			—		33,465

Goodwill balance at October 1, 2011	$	137,786		$	5,260		$	642	$	143,688


(a)		Primarily relates to the acquisition of a controlling interest in the business of the Company’s distributor of Calvin Klein products in India during the Three Months Ended October 1, 2011 ($28,817 in Sportswear Group and $3,930 in Intimate Apparel Group) (see Note 3 of Notes to Consolidated Condensed Financial Statements).

See Note 2 of Notes to Consolidated Condensed Financial Statements — Recent Accounting Pronouncements regarding new guidelines for testing goodwill for impairment.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 14—Debt

Debt was as follows:


	October 1,		January 1,		October 2,
	2011		2011		2010
Short-term debt:

Current portion of 2011 Term Loan	$	2,000	$	—	$	—
CKJEA notes payable and Other		43,355		18,802		48,653
2008 Credit Agreements		—		—		7,174
Premium on interest rate cap - current		2,418		—		—
Italian Note		—		13,370		13,780

		47,773		32,172		69,607

Long-term debt:

2011 Term Loan		197,500		—		—
Premium on interest rate cap		12,052		—		—

		209,552		—		—

Total Debt	$	257,325	$	32,172	$	69,607

2011 Term Loan Agreement

On June 17, 2011, Warnaco Group, Warnaco, Calvin Klein Jeanswear Company (“CK Jeans”), an indirect wholly-owned subsidiary of Warnaco Group, and Warnaco Swimwear Products Inc. (“Warnaco Swimwear”), an indirect wholly-owned subsidiary of Warnaco Group, entered into a term loan agreement (the “2011 Term Loan Agreement”) with the financial institutions which are the lenders thereunder (the “Lenders”). Warnaco, CK Jeans and Warnaco Swimwear are co-borrowers on a joint and several basis under the 2011 Term Loan Agreement (the “Borrowers”).

The 2011 Term Loan Agreement provides for a $200,000 senior secured term loan facility, maturing on June 17, 2018 (the “2011 Term Loan”). In addition, during the term of the 2011 Term Loan Agreement, the Borrowers may request additional credit commitments for incremental term loan facilities in an aggregate amount not to exceed $100,000 plus the aggregate principal amount of the term loans that the Borrowers have voluntarily prepaid prior to the date of such request. The Borrowers may request a greater amount to the extent that Warnaco Group meets certain financial tests set forth in the 2011 Term Loan Agreement. At October 1, 2011, there was $199,500 in term loans outstanding under the 2011 Term Loan Agreement. During June 2011, the Company repaid the outstanding balances of the 2008 Credit Agreements and the Italian Note (as defined below) from the proceeds of the 2011 Term Loan (see below). The Company paid $4,779 in deferred financing costs in connection with the 2011 Term Loan, which are being amortized to interest expense over the term of the loan using the effective interest method. The deferred financing costs were recorded in Other assets on the Consolidated Condensed Balance Sheets.

On the last day of each of the Company’s fiscal quarters, beginning on October 1, 2011, $500 of the outstanding principal amount of the 2011 Term Loans must be repaid. Such amount will be reduced if a portion of the principal amount is prepaid. The remaining principal amount is due on June 17, 2018.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

The 2011 Term Loan Agreement provides interest rate options, at the Borrowers’ election, including a base rate, as defined in the 2011 Term Loan Agreement or at LIBOR (with a floor of 1.00%) plus a margin of 2.75%, in each case, on a per annum basis. Accrued interest will be paid in arrears on the last day of each interest period through the maturity date. Payment dates are the last calendar day (or business day if the last calendar day is not a business day) of each of January, April, July and October, beginning on October 31, 2011. Reset dates are two business days prior to a payment date, beginning on October 29, 2011 (determines the three-month LIBOR variable leg for the following three month period). From inception of the loan through July 29, 2011, the Company elected to use a combination of a base rate and a LIBOR rate of interest, each on a portion of the outstanding balance ($80,000 at 3.75% and $120,000 at a base rate of 5.0%). From July 29, 2011 through October 31, 2011, the interest rate on the entire balance of the 2011 Term Loan is 3.75% (based on three-month LIBOR (with a floor of 1.00%) plus a margin of 2.75%. At October 1, 2011, the loans under the 2011 Term Loan Agreement had a weighted average annual interest rate of 3.75%. In order to match the interest rate on the hedged portion of the 2011 Term Loan with that on the interest rate cap (see below), the Company intends to use successive interest periods of three months and adjusted three-month LIBOR rates (with a LIBOR floor of 1.00% per annum) plus 2.75% on a per annum basis from July 29, 2011 through the maturity date of the 2011 Term Loan.

In addition, the 2011 Term Loan Agreement is subject to a 1.00% prepayment fee in the event it is refinanced on or before June 17, 2012, subject to certain conditions. The Borrowers must make mandatory prepayments of the term loans with the proceeds of asset dispositions and insurance proceeds from casualty events (subject to certain limitations), with a portion of any excess cash flow (as defined in the 2011 Term Loan Agreement) generated by Warnaco Group and with the proceeds of certain issuances of debt (subject to certain exceptions).

The 2011 Term Loan Agreement does not require the Borrowers to comply with any financial maintenance covenants. The 2011 Term Loan Agreement contains customary representations, warranties and affirmative covenants. The 2011 Term Loan Agreement also contains customary negative covenants providing limitations, subject to negotiated carve-outs, with respect to (i) incurrence of indebtedness and liens, (ii) significant corporate changes including mergers and acquisitions with third parties, (iii) investments, (iv) loans, (v) advances and guarantees to or for the benefit of third parties, (vi) hedge agreements, (vii) certain restricted payments and (viii) transactions with affiliates and certain other restrictive agreements, among others.

The 2011 Term Loan Agreement contains customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a “Change of Control” (as defined in the 2011 Term Loan Agreement), or the failure to observe the certain covenants therein. Upon an event of default, the Lenders may, among other things, declare any then outstanding loans due and payable immediately.

The obligations of the Borrowers under the 2011 Term Loan Agreement are guaranteed by Warnaco Group and its indirect domestic subsidiaries (collectively, the “U.S. Guarantors”) pursuant to a Guaranty dated as of June 17, 2011 (the “Guaranty”).

The obligations under the 2011 Term Loan Agreement and the guarantees thereof, are secured by Warnaco Group, the Borrowers and each of the U.S. Guarantors, for the benefit of the Lenders, with a first priority lien on all fixed asset collateral (including, without limitation, pledges of their equity ownership in domestic subsidiaries and up to 66% of their equity ownership in first-tier foreign subsidiaries), intellectual property, and substantially all other personal property of the Borrowers and the U.S. Guarantors not constituting 2008 Credit Agreement Priority Collateral (as defined below), and, in each case, proceeds thereof. In addition, Warnaco Group, the Borrowers and each of the U.S. Guarantors have granted to the Lenders a second priority security interest in accounts receivable, inventory, deposit accounts and cash, checks and certain related assets (the “2008 Credit Agreement Priority Collateral”).

In connection with entering into the 2011 Term Loan Agreement, on June 17, 2011, (i) Warnaco Group, Warnaco and the U.S. Guarantors entered into an amendment to the 2008 Credit Agreement (the “2008 Credit Agreement Amendment”) and (ii) Warnaco Canada, Warnaco Group, Warnaco and the U.S. Guarantors entered into an amendment to the 2008 Canadian Credit Agreement (the “2008 Canadian Credit Agreement Amendment”), in each case, permitting the Borrowers to incur the indebtedness and grant the liens under the 2011 Term Loan Agreement, and providing, among other things, for modifications to the definitions of “Change of Control”, the eligibility criteria for receivables and certain covenants relating to asset sales, prepayments of debt, permitted liens and permitted indebtedness.

In addition, on June 17, 2011, Warnaco Group, the Borrowers and the U.S. Guarantors executed an Intercreditor Agreement (the “Intercreditor Agreement”), establishing certain priorities with respect to the collateral that secures the Borrowers’ obligations under the 2008 Credit Agreements and the 2011 Term Loan Agreement. Pursuant to the Intercreditor Agreement, the secured parties under the existing 2008 Credit Agreements retain a first priority security interest in all 2008 Credit Agreement Priority Collateral and a second priority security interest in all fixed asset collateral (including, without limitation, pledges of their equity ownership in domestic subsidiaries and up to 66% of their equity ownership in first-tier foreign subsidiaries), intellectual property and substantially all other personal property of Warnaco Group, the Borrowers and the U.S. Guarantors not constituting 2008 Credit Agreement Priority Collateral.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Interest Rate Cap Agreement

On July 1, 2011, the Company entered into a deferred premium interest rate cap agreement with HSBC Bank USA (the “Counterparty”), effective July 29, 2011, (notional amount $120,000) (the “Cap Agreement”). The Cap Agreement is a series of 27 individual caplets (in total, the “Cap”) that reset and settle quarterly over the period from October 31, 2011 to April 30, 2018. Under the terms of the Cap Agreement, if three-month LIBOR resets above a strike price of 1.00%, the Company will receive the net difference between the reset rate and the strike price. In addition, on the quarterly settlement dates, the Company will remit the deferred premium payment to the Counterparty. If LIBOR resets below the strike price no payment is made by the Counterparty. However, the Company would still be responsible for payment of the deferred premium. At July 1, 2011, the Company was obligated to make premium payments totaling approximately $16,015, based on an annual rate of 1.9475% on the notional amount of the Cap, over the term of the Cap Agreement. The effect of the Cap Agreement is to limit the interest rate payable on average over the term of the Cap Agreement to 5.6975% per annum with respect to the portion of the 2011 Term Loan that equals the notional amount of the Cap.

The interest rate cap contracts are designated as cash flow hedges of the exposure to variability in expected future cash flows attributable to a three-month LIBOR rate beyond 1.00%. At the inception of the hedging relationship, the fair value of the Cap of $14,395 was allocated to the respective caplets within the Cap on a fair value basis. To the extent that the interest rate cap contracts are effective in offsetting that variability, changes in the Cap’s fair value will be recorded in Accumulated other comprehensive income (AOCI”) in the Company’s Consolidated Condensed Balance Sheets and subsequently recognized in interest expense in the Consolidated Statements of Operations as the underlying interest expense is recognized on the 2011 Term Loan.

On July 1, 2011, the Company recorded the fair value of the Cap of $14,395 in Other assets and the fair value of the deferred premium payments of $14,395 as Deferred premium on interest rate cap in Short-term debt ($1,764) and Long-term debt ($12,631), on the Company’s Consolidated Condensed Balance Sheet. On October 1, 2011, the fair value of the Cap was $7,399, which was recorded in Other assets and the decrease in fair value of $6,996 from July 1, 2011 was recorded in AOCI. On October 1, 2011, Deferred premium on the interest rate cap was $14,470, of which $2,418 was recorded in Short-term debt and $12,052 was recorded in Long-term debt. The accretion of Deferred premium on the interest rate cap of $75 during the Three Months Ended October 1, 2011 was recorded as an increase in interest expense.

2008 Credit Agreements

On August 26, 2008, Warnaco, as borrower, and Warnaco Group, as guarantor, entered into a revolving credit agreement (the “2008 Credit Agreement”) and Warnaco of Canada Company, an indirect wholly-owned subsidiary of Warnaco Group, as borrower, and Warnaco Group, as guarantor, entered into a second revolving credit agreement (the “2008 Canadian Credit Agreement” and, together with the 2008 Credit Agreement, the “2008 Credit Agreements”), in each case with the financial institutions which, from time to time, will act as lenders and issuers of letters of credit. As noted above, on June 17, 2011, the 2008 Credit Agreements were amended in connection with the 2011 Term Loan Agreement.

At October 1, 2011, the 2008 Credit Agreement had interest rate options (dependent on the amount borrowed and the repayment period) of (i) 3.75%, based on a base rate plus 0.50%, or (ii) 1.87%, based on LIBOR plus 1.50%. The 2008 Canadian Credit Agreement had interest rate options of (i) 3.50%, based on the prime rate announced by Bank of America (acting through its Canada branch) plus 0.50%, or (ii) 2.67%, based on the BA Rate (as defined below), in each case, on a per annum basis. The BA Rate is defined as the annual rate of interest quoted by Bank of America (acting through its Canada branch) as its rate of interest rate for bankers’ acceptances in Canadian Dollars for a face amount similar to the amount of the loan and for a term similar to the applicable interest period.

During June 2011, the Company used a portion of the proceeds from the 2011 Term Loan to repay the outstanding balances of the 2008 Credit Agreements. As of October 1, 2011, the Company had no loans and approximately $29,074 in letters of credit outstanding under the 2008 Credit Agreement, leaving approximately $189,662 of availability. As of October 1, 2011, there were no loans and $1,970 in letters of credit outstanding under the 2008 Canadian Credit Agreement and the available line of credit was approximately $20,269. As of October 1, 2011, the Company was in compliance with all financial covenants contained in the 2008 Credit Agreements.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

CKJEA Notes and Other Short-Term Debt

Certain of the Company’s European businesses hold short-term notes payable (the “CKJEA Notes”). The total amounts of CKJEA Notes payable of $39,027 at October 1, 2011, $18,445 at January 1, 2011 and $48,653 at October 2, 2010 each consist of short-term revolving notes with a number of banks at various interest rates (primarily Euro LIBOR plus 1.0%). The weighted average effective interest rate for the outstanding CKJEA notes payable was 3.14% as of October 1, 2011, 4.29% as of January 1, 2011 and 2.45% as of October 2, 2010. All of the CKJEA notes payable are short-term and were renewed during the Nine Months Ended October 1, 2011 for additional terms of no more than 12 months.

In addition, at October 1, 2011, January 1, 2011 and October 2, 2010, the Company’s Brazilian subsidiary, WBR, had lines of credit with several banks, with total outstanding balances of $4,328, $357 and $0, respectively, recorded in Short-term debt in the Company’s Consolidated Condensed Balance Sheets or Consolidated Balance Sheets, which were secured by approximately equal amounts of WBR’s trade accounts receivable.

During September 2011, one of the Company’s Asian subsidiaries entered into a short-term $25,000 revolving credit facility with one lender (the “Asian Credit Facility”) to be used for temporary working capital and general corporate purposes. The Asian Credit Facility bears interest of 1.75% over 1-month LIBOR, which is due monthly. At the end of each month, amounts outstanding under the Asian Credit Facility may be carried forward for further 1-month periods for up to one year. The Asian Credit Facility may be renewed annually. The Asian Credit Facility is subject to certain terms and conditions customary for a credit facility of this type and may be terminated at any time at the discretion of the lender. There were no borrowings during the Three Months Ended October 1, 2011.

Italian Notes

On September 30, 2010, one of the Company’s Italian subsidiaries entered into a €10,000 loan (the “Italian Note”). At January 1, 2011, the principal balance of the Italian Note was €10,000 ($13,370) with an annual interest rate of 3.64%. On June 30, 2011, the Company repaid the full outstanding balance of €6,040 ($8,600) on the Italian Note with a portion of the proceeds of the 2011 Term Loan (see above).

Note 15—Stockholders’ Equity

Preferred Stock

The Company 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 were no shares of preferred stock issued and outstanding at October 1, 2011, January 1, 2011 and October 2, 2010.

Share Repurchase Programs

On May 12, 2010, the Company’s Board of Directors authorized a share repurchase program (the ‘‘2010 Share Repurchase Program’’) for the repurchase of up to 5,000,000 shares of the Company’s common stock. During the Nine Months Ended October 1, 2011, the Company repurchased the remaining 4,060,842 shares of its common stock under the 2010 Share Repurchase Program for an aggregate amount of $205,800 (based on an average of $50.68 per share).

During September 2011, the Company’s Board of Directors approved a new multi-year share repurchase program (the “2011 Share Repurchase Program”) for up to $200,000 of the Company’s outstanding common stock. All repurchases under the 2011 Share Repurchase Program will be made consistent with the terms of the Company’s applicable debt instruments. During the Three Months Ended October 1, 2011, the Company repurchased 104,300 shares under the 2011 Share Repurchase Program for $4,996 (based on an average of $47.90 per share), leaving $195,004 of common stock to be repurchased.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Stock Incentive Plans

The Company granted 12,050 and 360,900 stock options during the Three and Nine Months Ended October 1, 2011, respectively, and 56,096 and 434,746 stock options during the Three and Nine Months Ended October 2, 2010, respectively. The fair values of stock options granted during the Three and Nine Months Ended October 1, 2011 and the Three and Nine Months Ended October 2, 2010 were estimated at the dates of grant using the Black-Scholes-Merton option pricing model with the following assumptions:


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2011			2010			2011			2010

Weighted average risk free rate of return (a)		0.71	%		1.15	%		1.62	%		1.74	%
Dividend yield		—			—			—			—
Expected volatility of the market price of the Company’s common stock		57.7	%		56.8	%		57.7	%		56.8	%
Expected option life (years)		4.1			4.2			4.1			4.2


(a)		based on the quoted yield for U.S. five-year treasury bonds as of the date of grant.

A summary of stock-based compensation expense is as follows:


	Three Months Ended				Nine Months Ended
	October 1,		October 2,		October 1,		October 2,
	2011		2010		2011		2010

Stock-based compensation expense before income taxes:
Stock options	$	1,566	$	1,625	$	6,938	$	6,485
Restricted stock grants		3,165		2,681		14,277		11,595

Total		4,731		4,306		21,215		18,080


Income tax benefit:
Stock options		532		570		2,407		2,307
Restricted stock grants		1,121		953		4,776		3,633

Total		1,653		1,523		7,183		5,940


Stock-based compensation expense after income taxes:
Stock options		1,034		1,055		4,531		4,178
Restricted stock grants		2,044		1,728		9,501		7,962

Total	$	3,078	$	2,783	$	14,032	$	12,140

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

A summary of stock option award activity under the Company’s stock incentive plans as of and for the Nine Months Ended October 1, 2011 is presented below:


				Weighted
				Average
				Exercise
	Options			Price
Outstanding as of January 1, 2011		1,926,257		$	33.73
Granted		360,900			55.33
Exercised		(286,340	)		28.74
Forfeited / Expired		(62,726	)		41.81

Outstanding as of October 1, 2011		1,938,091		$	38.23


Options Exercisable as of October 1, 2011		1,154,007		$	33.52

A summary of the activity for unvested restricted share/unit awards under the Company’s stock incentive plans (excluding Performance Awards, defined below) as of and for the Nine Months Ended October 1, 2011 is presented below:


				Weighted Average
	Restricted			Grant Date Fair
	shares/units			Value
Unvested as of January 1, 2011		847,664		$	36.93
Granted		227,293			55.33
Vested (a)		(130,501	)		48.96
Forfeited		(58,083	)		26.27

Unvested as of October 1, 2011		886,373		$	39.73


(a)		does not include an additional 37,600 restricted units with a grant date fair value per share of $55.57 and 36,750 restricted units with a grant date fair value per share of $43.28, granted to Retirement-Eligible employees (see Note 13 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2010) during the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively, for which the requisite service period has been completed on the respective grant dates but the restrictions will not lapse until the end of the three-year vesting period.

During March 2011 and March 2010, share-based compensation awards granted to certain of the Company’s executive officers under Warnaco Group’s 2005 Stock Incentive Plan included 80,050 and 75,750 performance-based restricted stock/restricted unit awards, respectively, (“Performance Awards”) in addition to the service-based stock options and restricted stock awards, included in the preceding tables. The Performance Awards include both a performance condition and a market condition (see Note 13 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2010 for further details on the Performance Awards).

Under the performance condition, the estimated compensation expense is based on the grant date fair value (the closing price of the Company’s common stock on the date of grant) and the Company’s current expectations of the probable number of Performance Awards that will ultimately be earned. The fair value of the Performance Awards under the market condition on the respective grant dates ($3,245 at March 1, 2011 and $2,432 at March 3, 2010) is based upon a Monte Carlo simulation model, which encompasses the Company’s relative total shareholder return (“TSR”) (change in closing price of the Company’s common stock on the New York Stock Exchange compared to that of a peer group of companies (“Peer Companies”)) during the Measurement Period. The Measurement Period includes both:

(i)

the period from the beginning of Fiscal 2011 to March 1, 2011 (the grant date) for Performance Awards granted on March 1, 2011, and the period from the beginning of Fiscal 2010 to March 3, 2010 (the grant date) for Performance Awards granted on March 3, 2010, for which actual TSR’s are calculated; and

(ii)

the periods from the respective grant dates to the end of the fiscal years ending 2012 or 2013, respectively, a total of 2.83 years, (the “Remaining Measurement Period”), for which simulated TSR’s are calculated.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

The calculation of simulated TSR’s under the Monte Carlo model for the Remaining Measurement Period for Performance Awards granted on March 1, 2011 and on March 3, 2010 included the following assumptions:


	March 1, 2011	March 3, 2010

Weighted average risk free rate of return	1.07%	1.25%
Dividend yield	—	—
Expected volatility — Company (a)	61.50%	65.0%
Expected volatility — Peer Companies	38.2% - 113.4%	39.8% - 114.1%
Remaining measurement period (years)	2.83	2.83


(a)		Expected volatility — Company for Performance Awards granted on March 1, 2011 and on March 3, 2010 is based on a remaining measurement period of 2.83 years.

The Company recorded compensation expense for the Performance Awards during the Three and Nine Months Ended October 1, 2011 and the Three and Nine Months Ended October 2, 2010 based on the performance condition.

Performance Award activity for the Nine Months Ended October 1, 2011 was as follows:


				Weighted Average Grant
	Performance Shares			Date Fair Value
Unvested as of January 1, 2011		75,750		$	43.28
Granted		80,050			55.57
Vested (a)		—			—
Forfeited		(1,300	)		43.28

Unvested as of October 1, 2011 (b)		154,500		$	49.65


(a)		does not include 35,050 and 34,300 Performance Awards granted to Retirement Eligible Employees on March 1, 2011 and March 3, 2010, respectively, for which the requisite service period has been completed on the grant date; the restrictions on such awards will not lapse until the end of the three-year vesting period.

(b)		includes 18,613 shares that the Company is obligated to issue at the end of the three-year performance period based upon the Company’s performance to date.

Note 16—Supplemental Cash Flow Information


	Nine Months Ended
	October 1,			October 2,
	2011			2010

Cash paid (received) during the period for:
Interest expense	$	8,606		$	11,834
Interest income		(1,525	)		(714	)
Income taxes, net of refunds received		51,323			27,424
Supplemental non-cash investing and financing activities:
Accounts payable for purchase of fixed assets		4,930			5,851

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 17—Income per Common Share

The following table presents the calculation of both basic and diluted income per common share attributable to Warnaco Group common shareholders, giving effect to participating securities. The Company has determined that based on a review of its share-based awards, only its restricted stock awards are deemed participating securities, which participate equally with common shareholders. The weighted average restricted stock outstanding was 622,969 shares and 587,699 shares for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, respectively, and 639,980 shares and 582,190 shares for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively. Undistributed income allocated to participating securities is based on the proportion of restricted stock outstanding to the sum of weighted average number of common shares outstanding attributable to Warnaco Group common shareholders and restricted stock outstanding for each period presented below.


	Three Months Ended
	October 1, 2011			October 2, 2010
Numerator for basic and diluted income per common share:

Income from continuing operations attributable to Warnaco Group, Inc. common shareholders and participating securities	$	48,788		$	41,440
Less: allocation to participating securities		(718	)		(540	)

Income from continuing operations attributable to Warnaco Group, Inc. common shareholders	$	48,070		$	40,900


Income (Loss) from discontinued operations, net of tax, attributable to Warnaco Group, Inc. common shareholders and participating securities	$	(4,177	)	$	57
Less: allocation to participating securities		61			—

Income (Loss) from discontinued operations attributable to Warnaco Group, Inc. common shareholders	$	(4,116	)	$	57


Net income attributable to Warnaco Group, Inc. common shareholders and participating securities	$	44,611		$	41,497
Less: allocation to participating securities		(656	)		(540	)

Net income attributable to Warnaco Group, Inc. common shareholders	$	43,955		$	40,957


Basic income per common share attributable to Warnaco Group, Inc. common shareholders:
Weighted average number of common shares outstanding used in computing income per common share		41,713,958			44,553,898


Income per common share from continuing operations	$	1.15		$	0.92
Income (Loss) per common share from discontinued operations		(0.10	)		—

Net income per common share	$	1.05		$	0.92


Diluted income per share attributable to Warnaco Group, Inc. common shareholders:
Weighted average number of common shares outstanding used in computing basic income per common share		41,713,958			44,553,898
Effect of dilutive securities:
Stock options and restricted stock units		867,142			911,793

Weighted average number of shares and share equivalents used in computing income per common share		42,581,100			45,465,691


Income per common share from continuing operations	$	1.13		$	0.90
Income (Loss) per common share from discontinued operations		(0.10	)		—

Net income per common share	$	1.03		$	0.90


Number of anti-dilutive “out-of-the-money” stock options outstanding (a)		355,200			400,067

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)


	Nine Months Ended
	October 1, 2011			October 2, 2010
Numerator for basic and diluted income per common share:

Income from continuing operations attributable to Warnaco Group, Inc. common shareholders and participating securities	$	138,886		$	119,779
Less: allocation to participating securities		(2,033	)		(1,536	)

Income from continuing operations attributable to Warnaco Group, Inc. common shareholders	$	136,853		$	118,243


(Loss) from discontinued operations, net of tax, attributable to Warnaco Group, Inc. common shareholders and participating securities	$	(4,741	)	$	(373	)
Less: allocation to participating securities		69			5

(Loss) from discontinued operations attributable to Warnaco Group, Inc. common shareholders	$	(4,672	)	$	(368	)


Net income attributable to Warnaco Group, Inc. common shareholders and participating securities	$	134,145		$	119,406
Less: allocation to participating securities		(1,964	)		(1,531	)

Net income attributable to Warnaco Group, Inc. common shareholders	$	132,181		$	117,875


Basic income per common share attributable to Warnaco Group, Inc. common shareholders:
Weighted average number of common shares outstanding used in computing income per common share		43,076,120			44,813,952


Income per common share from continuing operations	$	3.18		$	2.64
(Loss) per common share from discontinued operations		(0.11	)		(0.01	)

Net income per common share	$	3.07		$	2.63


Diluted income per share attributable to Warnaco Group, Inc. common shareholders:
Weighted average number of common shares outstanding used in computing basic income per common share		43,076,120			44,813,952
Effect of dilutive securities:
Stock options and restricted stock units		947,526			992,578

Weighted average number of shares and share equivalents used in computing income per common share		44,023,646			45,806,530


Income per common share from continuing operations	$	3.11		$	2.58
(Loss) per common share from discontinued operations		(0.11	)		(0.01	)

Net income per common share	$	3.00		$	2.57


Number of anti-dilutive “out-of-the-money” stock options outstanding (a)		327,950			399,067


(a)		options to purchase shares of common stock at an exercise price greater than the average market price of the underlying shares are anti-dilutive and therefore not included in the computation of diluted income per common share from continuing operations.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Currencies in thousands, excluding per share amounts)
(Unaudited)

Note 18—Legal Matters

Lejaby Claims: On August 18, 2009, Palmers Textil AG (“Palmers”) filed an action against the Company in Le Tribunal de Commerce de Paris (The Paris Commercial Court), alleging that the Company made certain misrepresentations in the sale agreement, and seeking to declare the sale null and void, monetary damages in an unspecified amount and other relief (the “Palmers Suit”). The Company believes that the Palmers Suit is without merit. The Company is defending itself vigorously in this matter. In addition, the Company and Palmers have been unable to agree on certain post-closing adjustments to the purchase price, including adjustments for working capital. The dispute regarding the amount of post-closing adjustments is not a subject of the Palmers Suit. During the Three Months Ended October 1, 2011, the Company recorded a reserve of approximately $4,000 in connection with these matters. In addition, as of October 1, 2011, the Company had a loan receivable recorded in Other assets on the Company’s Consolidated Condensed Balance Sheets of $13,744 from Palmers related to the Company’s sale of its Lejaby business to Palmers on March 10, 2008. The Company believes that its loan receivable from Palmers is valid and collectible.

OP Litigation: On August 19, 2004, the Company acquired 100% of the outstanding common stock of Ocean Pacific Apparel Corp. (“OP”) from Doyle & Bossiere Fund I, LLC (“Doyle”) and certain minority shareholders of OP. The terms of the acquisition agreement required the Company to make certain contingent payments to the sellers of OP under certain circumstances. On November 6, 2006, the Company sold the OP business to a third party. On May 23, 2007, Doyle filed a demand against the Company for arbitration before Judicial Arbitration and Mediation Services (“JAMS”) in Orange County, California, alleging that certain contingent purchase price payments are due to them as a result of the Company’s sale of the OP business in November 2006 (the “OP Action”). On February 7, 2011, the Company and Doyle entered into a settlement agreement and mutual release to the entire action described above. As a result, the entire action was dismissed by JAMS, with prejudice.

Other: In addition, 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 such arbitration and/or legal proceeding that it expects to have a material effect on its financial condition, results of operations or business.

Note 19 — Commitments and Contingencies

The contractual obligations and commitments in existence as of October 1, 2011 did not differ materially from those disclosed as of January 1, 2011 in the Company’s Annual Report on Form 10-K for Fiscal 2010, except for the following changes, which occurred during the Nine Months Ended October 1, 2011:


	2012		2013		2014		2015		2016		Thereafter		Total
Operating leases	$	15,599	$	14,602	$	10,839	$	7,711	$	5,857	$	10,938	$	65,546
Other contractual obligations		15,198		10,535		8,789		6,945		4,603		193,155		239,225

Total	$	30,797	$	25,137	$	19,628	$	14,656	$	10,460	$	204,093	$	304,771

At October 1, 2011, in the ordinary course of business, the Company had open purchase orders with suppliers of approximately $325,428, of which $155,340 are payable in 2011 and $170,088 are payable in 2012.

As of October 1, 2011, the Company was also party to outstanding hedging instruments (see Note 11 of Notes to the Consolidated Condensed Financial Statements).

As of October 1, 2011, the Company remains under audit in various taxing jurisdictions. It is, therefore, difficult to predict the final timing and resolution of any particular uncertain tax position. Based upon the Company’s assessment of many factors, including past experience and complex judgments about future events, it is reasonably possible that within the next twelve months the reserve for uncertain tax positions may decrease between $10,000 and $12,000 associated with tax positions expected to be taken during the next twelve months, the reevaluation of current uncertain tax positions arising from developments in examinations, the finalization of tax examinations, or from the closure of tax statutes.


Item 2.		*Management’s Discussion and Analysis of Financial Condition and Results of Operations*.

The Warnaco Group, Inc. (“Warnaco Group” and, collectively with its subsidiaries, 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 that could affect the market value of the Company’s common stock. This Quarterly Report on Form 10-Q, including the following discussion, but except for the historical information contained herein, contains forward-looking statements that involve risks and uncertainties. See “Statement Regarding Forward-Looking Disclosure.”

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with: (i) the Consolidated Condensed Financial Statements and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011 (“Fiscal 2010”).

The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to December 31. As such, the period from January 2, 2011 to December 31, 2011 (“Fiscal 2011”) and the period from January 3, 2010 to January 1, 2011 (“Fiscal 2010”) each contain 52 weeks of operations. Additionally, the period from July 3, 2011 to October 1, 2011 (the “Three Months Ended October 1, 2011”) and the period from July 4, 2010 to October 2, 2010 (the “Three Months Ended October 2, 2010”) each contained thirteen weeks of operations and the period from January 2, 2011 to October 1, 2011 (the “Nine Months Ended October 1, 2011”) and the period from January 3, 2010 to October 2, 2010 (the “Nine Months Ended October 2, 2010”) each contained thirty-nine weeks of operations.

The Company has three operating segments: (i) Sportswear Group; (ii) Intimate Apparel Group; and (iii) Swimwear Group, which groupings reflect the manner in which the Company’s business is managed and the manner in which the Company’s Chief Executive Officer, who is the chief operating decision maker, reviews the Company’s business. Amounts related to certain corporate expenses incurred in the U.S. (previously included in Operating income (loss) — Corporate/Other) during the Three and Nine Months Ended October 2, 2010 have been reclassified to Operating income (loss) - Sportswear Group, Intimate Apparel Group and Swimwear Group in order to conform to the current period presentation (see Note 6 of Notes to Consolidated Condensed Financial Statements). In addition, amounts associated with certain sourcing and design related expenses incurred in the U.S. (previously included in domestic Operating income (loss) — Sportswear Group, Intimate Apparel Group and Swimwear Group) during the Three and Nine Months Ended October 2, 2010 have been reclassified to international Operating income (loss) — Sportswear Group, Intimate Apparel Group and Swimwear Group in order to conform to the current period presentation. The revision of the operating income (loss) for each Group and Corporate/Other for the Three and Nine Months Ended October 2, 2010 did not have any effect on the Company’s Consolidated Condensed Balance Sheets, Consolidated Condensed Statements of Operations or Consolidated Condensed Statements of Cash Flows for any period presented in this Form 10-Q.

References to “Calvin Klein Jeans” refer to jeans, accessories and “bridge” products. References to “Core Intimates” refer to the Intimate Apparel Group’s Warner’s^®, Olga^® and Body Nancy Ganz/Bodyslimmers^® brand names and intimate apparel private labels. References to “Retail” within each operating Group refer to the Company’s owned full-price free-standing stores, owned outlet stores, concession / “shop-in-shop” stores and on-line stores. Results related to stores operated by third parties under retail licenses or distributor agreements are included in “Wholesale” within each operating Group. References to “sales mix” refer to the channels of distribution in which the Company’s products are sold. For example, an unfavorable sales mix in a current period relative to a prior period refers to an increase in the percentage of sales of products in low margin channels of distribution (such as the off-price channel) to total sales. References to “allowances” refer to discounts given to wholesale customers based upon the expected rate of retail sales and general economic and retail forecasts.

Overview

Introduction

The Company designs, sources, markets, licenses and distributes sportswear, intimate apparel, and swimwear worldwide through highly recognized brand names. The Company’s products are distributed domestically and internationally in over 100 countries, primarily to wholesale customers through various distribution channels, including major department stores, independent retailers, chain stores, membership clubs, specialty, off-price, mass merchandisers and other stores, and to retail customers, through the Company’s retail stores and the internet.

The Company’s mission is to become the premier global, branded apparel company. To accomplish its mission, the Company has identified the following key strategic objectives, which it continued to implement across its segments during the Nine Months Ended October 1, 2011:

•

Build and maintain powerful global brands. The Company believes that one of its strengths is its portfolio of highly recognized brand names. The Company strives to enhance its brand image through superior design, product innovation, focused marketing and high quality product construction. The Company’s major brand is Calvin Klein, which generated 74.8% and 73.2% of the Company’s net revenues for the Nine Months Ended October 1, 2011 and October 2, 2010, respectively.

•

Grow the Company’s retail business through a combination of new store openings and the selective acquisition of stores operated by distributors of the Company’s products. During the Nine Months Ended October 1, 2011, the Company increased the number of Calvin Klein retail stores in Europe, Asia and South America by 275 retail stores (consisting of 48 free-standing stores (including an increase of 49 full price stores and a decline of one outlet store) and 227 shop-in-shop/concession stores). As of October 1, 2011, the Company operated (i) 1,634 Calvin Klein retail stores worldwide (consisting of 355 free-standing stores (including 238 full price and 117 outlet stores), 1,277 shop-in-shop/concession stores, one Calvin Klein Underwear on-line store and one Calvin Klein Jeans on-line store) and (ii) one Speedo^® on-line store.

•

Retail net revenues represented 27.8% of the Company’s net revenues for the Nine Months Ended October 1, 2011 compared to 23.1% of the Company’s net revenues for the Nine Months Ended October 2, 2010.

•

On July 8, 2011, the Company acquired a controlling interest (51%) in the business of a distributor of its Calvin Klein products in India for cash consideration of approximately $20.4 million (see Note 3 of Notes to Consolidated Condensed Financial Statements).

•

On January 3, 2011, the Company acquired certain assets, including inventory and leasehold improvements, and leases, of the retail stores of its Calvin Klein distributor in Taiwan for cash consideration of approximately $1.4 million.

•

The Company expects to continue to expand its retail business, particularly in Europe, Asia and South America.

•

Leverage the Company’s international platform. The Company’s global design, sourcing, sales and distribution network allows it to reach consumers around the world. The Company works to effectively utilize its international presence to enhance and expand the worldwide reach of its branded apparel products. Net revenues from international operations represented 59.0% of the Company’s net revenues for the Nine Months Ended October 1, 2011 compared to 54.1% of the Company’s net revenues for the Nine Months Ended October 2, 2010. The Company believes that there are opportunities for continued growth in Europe, Asia and South America.

•

Manage heritage businesses for profitability. The Company’s heritage businesses include Chaps^®, Warner’s, Olga (Core Intimates) and Speedo^® brands. During the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, net revenues of all heritage businesses increased. During these periods, operating income of Speedo and Core Intimates businesses increased $2.7 million and $0.4 million, respectively, while operating income of Chaps products declined $7.1 million. During the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, operating income of heritage businesses includes an increase of $6.4 million of restructuring expense.

Net Revenues

The Company’s net revenues increased $48.4 million, or 8.1%, to $645.1 million for the Three Months Ended October 1, 2011 compared to $596.8 million for the Three Months Ended October 2, 2010 and increased $194.4 million, or 11.4%, to $1.90 billion for the Nine Months Ended October 1, 2011 compared to $1.70 billion for the Nine Months Ended October 2, 2010. The increase in net revenues was primarily due to:

(i)

the favorable effect of foreign currency fluctuations, which increased net revenues by $26.3 million and $65.3 million for the Three Months and Nine Months Ended October 1, 2011, respectively compared to the same periods in the prior year;

(ii)

the launch of the ck one product line of men’s and women’s jeanswear and underwear during the first and second quarters of Fiscal 2011 and new product launches of Warner’s and Olga products during the second quarter of Fiscal 2011, which benefited both the Sportswear Group and Intimate Apparel Group;

(iii)

the addition of 262,000 square feet of retail space (including space for both the Sportswear Group and the Intimate Apparel Group) through the opening of additional Calvin Klein international retail stores during the fourth quarter of Fiscal 2010 and the Nine Months Ended October 1, 201l and the acquisition of retail stores in Taiwan during the first quarter of Fiscal 2011, in India during the Three Months Ended October 1, 2011and in Italy during the fourth quarter of Fiscal 2010; and

(iv)

an increase of 1.7% from comparable store sales during the Three Months Ended October 1, 2011 ($123.0 million) compared to the Three Months Ended October 2, 2010 ($120.9 million) and an increase of 4.3% from comparable store sales during the Nine Months Ended October 1, 2011 ($324.7 million) compared to the Nine Months Ended October 2, 2010 ($311.1 million).

Operating Income

The Company’s operating income decreased $3.1 million, or 4.6%, to $64.8 million for the Three Months Ended October 1, 2011 compared to $67.9 million for the Three Months Ended October 2, 2010, reflecting a decline in the Sportswear Group ($17.1 million) and in the Intimate Apparel Group ($1.3 million), partially offset by an increase in the Swimwear Group ($0.4 million) and a decrease in the level of operating loss from Corporate/other ($14.9 million). Operating income includes restructuring charges of $7.5 million for the Three Months Ended October 1, 2011 and $1.7 million for the Three Months Ended October 2, 2010 (see Liquidity and Capital Resources — Restructuring and Note 5 of Notes to Consolidated Condensed Financial Statements).

The Company’s operating income decreased $15.7 million, or 7.7%, to $187.0 million for the Nine Months Ended October 1, 2011 compared to $202.7 million for the Nine Months Ended October 2, 2010, reflecting a $35.2 million decline in the Sportswear Group and a $2.7 million decline in the Intimate Apparel Group, partially offset by an increase in the Swimwear Group ($4.3 million) and a decrease in the level of operating loss from Corporate/other ($17.9 million). Operating income includes restructuring charges of $19.0 million for the Nine Months Ended October 1, 2011and $3.8 million for the Nine Months Ended October 2, 2010.

During the Three and Nine Months Ended October 1, 2011, certain of the Company’s businesses, particularly in the U.S., Asia and Europe, experienced an increase in product and freight costs, which have adversely affected the operating margins of the Company’s businesses. The Company expects that the rate of product cost increases will stabilize or decline during the remainder of Fiscal 2011. The Company was able to partially mitigate the cost increases (and expects to be able to partially mitigate such increases in the future) by selectively increasing the selling prices of its goods, making early purchases of product and implementing other sourcing initiatives.

Foreign Currency Effects

The effects of fluctuations in foreign currencies are reflective of the following: (i) the translation of operating results for the current year period for entities reporting in currencies other than the U.S. dollar into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period); (ii) as relates to entities which purchase inventory in currencies other than that entity’s reporting currency, the effect on cost of goods sold for the current year period compared to the prior year period as a result of differences in the exchange rates in effect at the time the related inventory was purchased; and (iii) gains and losses recorded by the Company as a result of fluctuations in foreign currencies and related to the Company’s foreign currency hedge programs (see Note 11 of Notes to Consolidated Condensed Financial Statements).

As noted above, during the Nine Months Ended October 1, 2011 and October 2, 2010, more than 50% of the Company’s net revenues were generated from foreign operations, a majority of which are conducted in countries whose functional currencies are the Euro, Korean Won, Canadian Dollar, Brazilian Real, Mexican Peso, Chinese Yuan and British Pound.

For the Three Months Ended October 1, 2011 compared to the previous year period, net revenues were favorably affected, while operating income and income from continuing operations were each negatively affected, by fluctuations in certain foreign currencies: net revenues include an increase of $26.3 million, while operating income includes a decrease of $3.2 million and income from continuing operations includes a decrease of $3.9 million ($0.09 per diluted share) due to such fluctuations.

For the Nine Months Ended October 1, 2011 compared to the previous year period, net revenues were favorably affected, while operating income and income from continuing operations were each negatively affected, by fluctuations in certain foreign currencies: net revenues include an increase of $65.3 million, while operating income includes a decrease of $6.3 million and income from continuing operations includes a decrease of $5.5 million ($0.12 per diluted share) due to such fluctuations.

Earnings per Share

On a U.S. generally accepted accounting principles (“GAAP”) basis, for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010, income from continuing operations per diluted share increased 25.6% to $1.13 per diluted share (from $0.90 per diluted share). On a non-GAAP basis (excluding restructuring expense, pension expense and certain other items (see Non-GAAP Measures, below)), for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010, income from continuing operations per diluted share increased 2.9% to $1.07 per diluted share (from $1.04 per diluted share).

On a GAAP basis, for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, income from continuing operations per diluted share increased 20.5% to $3.11 per diluted share (from $2.58 per diluted share). On a non-GAAP basis (excluding restructuring expense, pension expense and certain other items (see Non-GAAP Measures, below)), for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, income from continuing operations per diluted share increased 7.1% to $3.03 per diluted share (from $2.83 per diluted share).

Balance Sheet

On June 17, 2011, the Company entered into a $200 million senior secured term loan facility, maturing on June 17, 2018 (see Liquidity and Capital Resources — 2011 Term Loan Agreement, below). At October 1, 2011, the Company’s balance sheet included cash and cash equivalents of $179.3 million and total debt of $257.3 million.

During the Nine Months Ended October 1, 2011, the Company repurchased the remaining 4,060,842 shares of Common Stock under the 2010 Share Repurchase Program for $205.8 million (based on an average of $50.68 per share). See Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During September 2011, the Company’s Board of Directors approved a new multi-year share repurchase program for up to $200 million of the Company’s outstanding common stock. During the Three Months Ended October 1, 2011, the Company repurchased 104,300 shares under the 2011 Share Repurchase Program for $5.0 million (based on an average of $47.90 per share).

Non-GAAP Measures

The Company’s reported financial results are presented in accordance with GAAP. The reported operating income, income from continuing operations and diluted earnings per share from continuing operations reflect certain items which affect the comparability of those reported results. Those financial results are also presented on a non-GAAP basis, as defined by Regulation S-K section 10(e) of the Securities and Exchange Commission (“SEC”), to exclude the effect of these items. The Company’s computation of these non-GAAP measures may vary from others in its industry. These non-GAAP financial measures are not intended to be, and should not be, considered separately from or as an alternative to the most directly comparable GAAP financial measure to which they are reconciled, as presented in the following table:


	Three Months Ended					Nine Months Ended
	October 1,			October 2,		October 1,			October 2,
	2011			2010		2011			2010
	(Dollars in thousands, except per share amounts)

Operating income, as reported (GAAP)	$	64,756		$	67,897	$	187,009		$	202,713
Restructuring charges and pension income (a)		7,238			1,675		18,060			3,745
Brazil acquisition adjustment (b)		—			1,521		—			1,521
State franchise taxes and other (c)		—			1,269		—			1,269

Operating income, as adjusted (non-GAAP)	$	71,994		$	72,362	$	205,069		$	209,248


Income from continuing operations attributable to Warnaco Group, Inc. common shareholders, as reported (GAAP)	$	48,788		$	41,440	$	138,886		$	119,779
Restructuring charges and pension, net of income tax (a)		5,486			1,403		12,825			2,743
Brazil acquisition adjustment, net of income tax (b)		—			1,004		—			1,004
State franchise taxes and other, net of income tax (c)		—			802		—			802
Costs related to the redemption of debt, net of income tax (d)		—			—		—			2,368
Taxation (e)		(8,202	)		3,236		(16,528	)		4,539

Income from continuing operations attributable to Warnaco Group, Inc. common shareholders, as adjusted (non-GAAP)	$	46,072		$	47,885	$	135,183		$	131,235


Diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders, as reported (GAAP)	$	1.13		$	0.90	$	3.11		$	2.58
Restructuring charges and pension , net of income tax (a)		0.13			0.03		0.30			0.06
Brazil acquisition adjustment, net of income tax (b)		—			0.02		—			0.02
State franchise taxes and other, net of income tax (c)		—			0.02		—			0.02
Costs related to the redemption of debt, net of income tax (d)		—			—		—			0.05
Taxation (e)		(0.19	)		0.07		(0.38	)		0.10

Diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders, as adjusted (non-GAAP)	$	1.07		$	1.04	$	3.03		$	2.83


a)		For all periods presented, this adjustment seeks to present operating income, income from continuing operations attributable to Warnaco Group, Inc. common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders without the effects of restructuring charges and pension income. Restructuring charges (on a pre-tax basis) were $7,548 and $18,990 for the Three and Nine Months Ended October 1, 2011, respectively and $1,697 and $3,810 for the Three and Nine Months Ended October 2, 2010, respectively. Pension income (on a pre-tax basis) was $310 and $931 for the Three and Nine Months Ended October 1, 2011, respectively, and $22 and $65 for the Three and Nine Months Ended October 2, 2010, respectively. The income tax rates used to compute the income tax effect related to this adjustment correspond to the local statutory tax rates of the reporting entities that incurred restructuring charges or recognized pension income.


b)		For the Three and Nine Months Ended October 2, 2010, this adjustment seeks to present operating income, income from continuing operations attributable to Warnaco Group, Inc. common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders without the effects of an additional charge related to an adjustment to the contingent consideration to be paid for the business acquired in Brazil in 2009 of $1,521 ($1,004 after tax). The income tax rate used to compute the income tax effect related to this adjustment corresponds to the local statutory tax rate in Brazil.

c)		For the Three and Nine Months Ended October 2, 2010, this adjustment seeks to present operating income, income from continuing operations attributable to Warnaco Group, Inc. common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders excluding a charge of $1,269 ($802 after tax) for certain franchise taxes recorded during the Three Months Ended October 2, 2010 related to the correction of amounts recorded in prior periods. The amount was not material to any prior period. The income tax rates used to compute the income tax effect related to the above mentioned charge for franchise taxes correspond to the statutory tax rates in the United States.

d)		This adjustment seeks to present income from continuing operations attributable to Warnaco Group, Inc. common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders without the effect of the charges shown in the table above related to the repurchase of a portion of the Company’s Senior Notes during the Nine Months Ended October 2, 2010. The income tax rates used to compute the income tax effect related to this adjustment correspond to the statutory tax rates in the United States.

e)		For the Three and Nine Months Ended October 1, 2011 and Three and Nine Months Ended October 2, 2010, this adjustment reflects an amount required in order to present income from continuing operations attributable to Warnaco Group, Inc. common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group, Inc. common shareholders on an adjusted (non-GAAP) basis at the Company’s forecasted normalized tax rates for Fiscal 2011 (31.1%) and Fiscal 2010 (33.5%), respectively. This adjustment excludes the effects of certain tax adjustments related to either changes in estimates in prior period tax provisions or adjustments for certain discrete tax items. Adjustments for discrete items reflect the federal, state and foreign tax effects related to: 1) income taxes associated with legal entity reorganizations and restructurings; 2) tax provision or benefit resulting from statute expirations or the finalization of income tax examinations, and 3) other adjustments not considered part of the Company’s core business activities.

For 2011, this adjustment primarily reflects the following:

	a.		The exclusion of a $10,900 tax benefit recorded during the Nine Months Ended October 1, 2011 associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as result of receiving a favorable ruling from that country’s taxing authority during the second quarter of 2011;

	b.		The exclusion of a $7,300 tax benefit recorded during the Three Months Ended October 1, 2011 related to the reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions; and

	c.		The exclusion of a $1,300 tax benefit recorded during the Three Months Ended October 1, 2011 relating to a change in various domestic and foreign tax provision estimates for Fiscal 2010 following the filing of certain of the Company’s tax returns during the Three Months Ended October 1, 2011.

For 2010, this adjustment primarily reflects the exclusion of certain tax adjustments related to errors or changes in estimates in prior period tax provisions (approximately $1,900) and adjustments for certain other discrete tax items (approximately $2,600). The adjustment related to prior period errors or estimate changes includes, among other items, a charge of approximately $1,700 recorded during the Nine Months Ended October 2, 2010 associated with the correction of an error in the 2006 through 2009 income tax provisions as a consequence of the loss of a credit related to prior year tax overpayments caused by the delayed filing of tax returns in a U.S. state taxing jurisdiction. This error was not material to any prior period.

The Company believes it is valuable for users of its financial statements to be made aware of the non-GAAP financial information, as such measures are used by management to evaluate the operating performance of the Company’s continuing businesses on a comparable basis and to make operating and strategic decisions. Such non-GAAP measures will also enhance users’ ability to analyze trends in the Company’s business. In addition, the Company uses performance targets based on non-GAAP operating income and diluted earnings per share as a component of the measurement of incentive compensation.

Furthermore, the Warnaco Group is a global company that reports financial information in U.S. dollars in accordance with GAAP. Foreign currency exchange rate fluctuations affect the amounts reported by the Company from translating its foreign revenues and operating results into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results. As a supplement to its reported operating results, the Company presents constant currency financial information, which is a non-GAAP financial measure. The Company uses constant currency information to provide a framework to assess how its businesses performed excluding the effects of changes in foreign currency translation rates. Management believes this information is useful to investors to facilitate comparisons of operating results and better identify trends in the Company’s businesses.

To calculate the increase in segment revenues on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period).

These constant currency net revenues should be viewed in addition to, and not in isolation from, or as a substitute to, the Company’s net revenues calculated in accordance with GAAP. The constant currency information presented in the following table for net revenues may not be comparable to similarly titled measures reported by other companies.


	NET REVENUES ON A CONSTANT CURRENCY BASIS
	(Dollars in thousands)
	Three Months Ended October 1, 2011							Nine Months Ended October 1, 2011
	GAAP		Impact of Foreign			Non-GAAP		GAAP		Impact of Foreign			Non-GAAP
	As Reported		Currency Exchange			Constant Currency		As Reported		Currency Exchange			Constant Currency
By Segment:
Sportswear Group	$	357,935	$	(16,375	)	$	341,560	$	983,695	$	(38,774	)	$	944,921
Intimate Apparel Group		247,880		(9,100	)		238,780		695,317		(23,289	)		672,028
Swimwear Group		39,306		(808	)		38,498		219,657		(3,251	)		216,406

Net revenues	$	645,121	$	(26,283	)	$	618,838	$	1,898,669	$	(65,314	)	$	1,833,355


By Region:
United States	$	241,764	$	—		$	241,764	$	777,552	$	—		$	777,552
Europe		182,265		(14,816	)		167,449		478,827		(29,467	)		449,360
Asia		129,985		(7,001	)		122,984		370,546		(17,523	)		353,023
Mexico, Central and South America		62,848		(2,890	)		59,958		176,698		(12,234	)		164,464
Canada		28,259		(1,576	)		26,683		95,046		(6,090	)		88,956

Total	$	645,121	$	(26,283	)	$	618,838	$	1,898,669	$	(65,314	)	$	1,833,355

Discussion of Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires the Company to use judgment in making certain estimates and 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 its consolidated condensed financial statements and accompanying notes. Critical accounting policies are those that are most important to the portrayal of the Company’s financial condition and results of operations and require difficult, subjective and complex judgments by management in order to make estimates about the effect of matters that are inherently uncertain. During the Nine Months Ended October 1, 2011, there were no significant changes to the Company’s critical accounting policies from those described in the Company’s Annual Report on Form 10-K for Fiscal 2010.

Recent Accounting Pronouncements

Results of Operations

Statement of Operations (Selected Data)

The following tables summarize the historical results of operations of the Company for the Three and Nine Months Ended October 1, 2011 compared to the Three and Nine Months Ended October 2, 2010. The results of the Company’s discontinued operations are included in “Loss from discontinued operations, net of taxes” for all periods presented.


	Three Months						Three Months						Nine Months						Nine Months
	Ended October 1,			% of Net			Ended October 2,			% of Net			Ended October			% of Net			Ended October			% of Net
	2011			Revenues			2010			Revenues			1, 2011			Revenues			2, 2010			Revenues
	(in thousands of dollars)
Net revenues	$	645,121			100.0	%	$	596,761			100.0	%	$	1,898,669			100.0	%	$	1,704,259			100.0	%
Cost of goods sold		365,412			56.6	%		327,736			54.9	%		1,065,552			56.1	%		938,374			55.1	%

Gross profit		279,709			43.4	%		269,025			45.1	%		833,117			43.9	%		765,885			44.9	%
Selling, general and administrative expenses		212,000			32.9	%		198,129			33.2	%		637,491			33.6	%		554,962			32.6	%
Amortization of intangible assets		3,263			0.5	%		3,021			0.5	%		9,548			0.5	%		8,275			0.5	%
Pension income		(310	)		0.0	%		(22	)		0.0	%		(931	)		0.0	%		(65	)		0.0	%

Operating income		64,756			10.0	%		67,897			11.4	%		187,009			9.8	%		202,713			11.9	%
Other income (loss)		1,357						(1,899	)					498						5,651
Interest expense		4,986						2,953						11,142						12,190
Interest income		(986	)					(699	)					(2,542	)					(2,192	)

Income from continuing operations before provision for income taxes and non-controlling interest		59,399						67,542						177,911						187,064
Provision for income taxes		10,770						26,102						39,184						67,285

Income from continuing operations before non-controlling interest		48,629						41,440						138,727						119,779
Income (Loss) from discontinued operations, net of taxes		(4,177	)					57						(4,741	)					(373	)

Net income		44,452						41,497						133,986						119,406
Less: net loss attributable to non-controlling interest		(159	)					—						(159	)					—

Net income attributable to Warnaco Group Inc.	$	44,611					$	41,497					$	134,145					$	119,406

Net Revenues

For the Three and Nine Months Ended October 1, 2011 compared to the Three and Nine Months Ended October 2, 2010, respectively, net revenues increased across all Groups (segments) and within each segment the amount of net revenues increased from both wholesale and retail channels of distribution, except for a decline in net revenues for the Three Months Ended October 1, 2011 in the wholesale channel of the Sportswear Group. In addition, the Company experienced an increase in net revenues in Asia, Europe and in Mexico and Central and South America for the Three and Nine Months Ended October 1, 2011, relative to prior year periods, a decline in net revenues in the U.S. for the Three and Nine Months Ended October 1, 2011, relative to prior year periods, and, in Canada, a decline in net revenues in the Three Months Ended October 1, 2011 but an increase in the Nine Months Ended October 1, 2011, relative to prior year periods. This information is presented in the following tables:

Net revenues by segment were as follows:


	Three Months		Three Months							Nine Months		Nine Months
	Ended		Ended							Ended		Ended
	October 1,		October 2,		Increase		%			October 1,		October 2,		Increase		%
	2011		2010		(Decrease)		Change			2011		2010		(Decrease)		Change
	(in thousands of dollars)
Sportswear Group	$	357,935	$	337,020	$	20,915		6.2	%	$	983,695	$	887,410	$	96,285		10.9	%
Intimate Apparel Group		247,880		223,081		24,799		11.1	%		695,317		616,139		79,178		12.9	%
Swimwear Group		39,306		36,660		2,646		7.2	%		219,657		200,710		18,947		9.4	%


Net revenues	$	645,121	$	596,761	$	48,360		8.1	%	$	1,898,669	$	1,704,259	$	194,410		11.4	%

Net revenues by channel of distribution were as follows:


	Three			Three			Nine			Nine
	Months			Months			Months			Months
	Ended			Ended			Ended			Ended
	October			October			October			October
	1, 2011			2, 2010			1, 2011			2, 2010
United States — wholesale
Department stores and independent retailers		9	%		9	%		8	%		11	%
Specialty stores		6	%		6	%		7	%		7	%
Chain stores		7	%		7	%		7	%		8	%
Mass merchandisers		1	%		1	%		2	%		2	%
Membership clubs		3	%		5	%		5	%		6	%
Off price and other		11	%		13	%		11	%		11	%

Total United States — wholesale		37	%		41	%		40	%		45	%
International — wholesale		34	%		35	%		32	%		32	%
Retail (a)		29	%		24	%		28	%		23	%

Net revenues — consolidated		100	%		100	%		100	%		100	%


(a)		for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, 98.5% and 97.6%, respectively, and for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, 98.3% and 97.4%, respectively, of retail net revenues were derived from the Company’s international operations.

Net revenues by geography were as follows:


	Net Revenues													Net Revenues
	Three Months		Three Months											Nine Months		Nine Months
	Ended October		Ended October		Increase /						Constant $ %			Ended October		Ended October		Increase /						Constant $ %
	1, 2011		2, 2010		(Decrease)			% Change			Change (a)			1, 2011		2, 2010		(Decrease)			% Change			Change (a)
	(in thousands of dollars)													(in thousands of dollars)

United States	$	241,764	$	250,039	$	(8,275	)		-3.3	%		-3.3	%	$	777,552	$	782,753	$	(5,201	)		-0.7	%		-0.7	%
Europe		182,265		166,749		15,516			9.3	%		0.4	%		478,827		423,882		54,945			13.0	%		6.0	%
Asia		129,985		101,090		28,895			28.6	%		21.7	%		370,546		281,655		88,891			31.6	%		25.3	%
Mexico, Central and South America		62,848		48,216		14,632			30.3	%		24.4	%		176,698		129,940		46,758			36.0	%		26.6	%
Canada		28,259		30,667		(2,408	)		-7.9	%		-13.0	%		95,046		86,029		9,017			10.5	%		3.4	%

	$	645,121	$	596,761	$	48,360			8.1	%		3.7	%	$	1,898,669	$	1,704,259	$	194,410			11.4	%		7.6	%


(a)		constant dollar percent change is a non-GAAP measure. See Non-GAAP Measures, above.

The number of retail stores operated by the Company at October 1, 2011, January 1, 2011 and October 2, 2010 was as follows:


	October 1, 2011								January 1, 2011								October 2, 2010
Segments / Brands	Asia		Europe		Americas		Total		Asia		Europe		Americas		Total		Asia		Europe		Americas		Total

Sportswear — Calvin Klein Jeans
Number of Owned Full Price Stores		73		47		19		139		46		41		16		103		40		20		15		75
Number of Owned Outlet Stores		11		44		1		56		10		42		1		53		10		35		1		46
Number of Concession / Shop-in-shop Stores		272		97		—		369		219		87		—		306		224		77		—		301

Total Number of Stores		356		188		20		564		275		170		17		462		274		132		16		422


Intimate Apparel — Calvin Klein Underwear
Number of Owned Full Price Stores		46		23		30		99		39		16		31		86		39		14		31		84
Number of Owned Outlet Stores		8		41		12		61		6		41		18		65		6		40		18		64
Number of Concession / Shop-in-shop Stores		256		429		32		717		176		390		—		566		170		274		—		444

Total Number of Stores		310		493		74		877		221		447		49		717		215		328		49		592


Swimwear — Calvin Klein Swimwear
Number of Owned Full Price Stores		—		—		—		—		—		—		—		—		—		1		—		1
Number of Owned Outlet Stores		—		—		—		—		—		—		—		—		—		2		—		2
Number of Concession / Shop-in-shop Stores		—		191		—		191		—		178		—		178		—		222		—		222

Total Number of Stores		—		191		—		191		—		178		—		178		—		225		—		225


Total Company*
Number of Owned Full Price Stores		119		70		49		238		85		57		47		189		79		35		46		160
Number of Owned Outlet Stores		19		85		13		117		16		83		19		118		16		77		19		112
Number of Concession / Shop-in-shop Stores		528		717		32		1,277		395		655		—		1,050		394		573		—		967

Total Number of Stores		666		872		94		1,632		496		795		66		1,357		489		685		65		1,239


Total Square Footage (thousands)		420.4		486.9		110.8		1018.1		281.4		450.8		123.1		855.2		267.7		367.8		120.5		756.0


*		In addition to the stores above, the Company operated one Calvin Klein Jeans on-line store, one Calvin Klein Underwear on-line store and one Speedo on-line store as of October 1, 2011, January 1, 2011 and October 2, 2010.

The effect of fluctuations in foreign currency exchange rates on net revenues was an increase of $26.3 million for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010 and an increase of $65.3 million for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010. See Overview, above.

During the Three and Nine Months Ended October 1, 2011, the Company’s top five customers accounted for $124.9 million (19.4% of Company net revenue) and $381.3 million (20.1% of Company net revenue), respectively, as compared to $121.3 million (20% of Company net revenue) and $367.8 million (22% of Company net revenue), respectively, for the Three and Nine Months Ended October 2, 2010. During the Three and Nine Months Ended October 1, 2011 and the Three and Nine Months Ended October 2, 2010, no one customer accounted for 10% or more of the Company’s net revenues.

Sportswear Group

Sportswear Group net revenues were as follows:


	Three Months		Three Months								Nine Months		Nine Months
	Ended		Ended								Ended		Ended
	October 1,		October 2,		Increase			%			October 1,		October 2,		Increase			%
	2011		2010		(Decrease)			Change			2011		2010		(Decrease)			Change
	(in thousands of dollars)
Calvin Klein Jeans	$	198,311	$	206,750	$	(8,439	)		-4.1	%	$	524,905	$	525,659	$	(754	)		-0.1	%
Chaps		54,842		56,455		(1,613	)		-2.9	%		155,064		152,406		2,658			1.7	%

Sportswear wholesale		253,153		263,205		(10,052	)		-3.8	%		679,969		678,065		1,904			0.3	%
Calvin Klein Jeans retail		104,782		73,815		30,967			42.0	%		303,726		209,345		94,381			45.1	%

Sportswear Group (a)	$	357,935	$	337,020	$	20,915			6.2	%	$	983,695	$	887,410	$	96,285			10.9	%


(a)		Includes net revenues of $47.6 million and $41.0 million for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, respectively, and $118.9 million and $98.6 million for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively, related to the Calvin Klein accessories business in Europe, Asia, Canada and in Mexico and Central and South America.

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Sportswear Group net revenues increased $20.9 million to $357.9 million for the Three Months Ended October 1, 2011 from $337.0 million for the Three Months Ended October 2, 2010. Sportswear Group net revenues from international operations increased $39.0 million and from domestic operations decreased $18.1 million. The increase in international net revenues includes a $16.4 million increase due to the favorable effect of fluctuations in certain foreign currency exchange rates. See Overview, above.

Net revenues from Calvin Klein Jeans increased $22.5 million overall. Wholesale sales of Calvin Klein Jeans decreased $8.4 million, primarily due to decreases of $16.0 million in the U.S. and $6.0 million in Europe, partially offset by increases of $9.5 million in Mexico, Central and South America and $4.4 million in Asia. The decreases and increases in wholesale net revenues were primarily due (in constant currency) to the following:

(i)

the decline in the U.S. was primarily due to decreased sales to department stores, which is reflective of weakness in the women’s business, and a decrease in sales to membership clubs, which reflects a weakness in both the men’s and women’s businesses. Those decreases were partially offset by an increase in sales to outlets and the off-price channel of both men’s and women’s products;

(ii)

the decline in Europe was primarily due to decreased sales to department stores, independent retailers and distributors, including the conversion of a portion of the Company’s wholesale business to retail in the fourth quarter of Fiscal 2010 when the Company acquired the business of its distributor of Calvin Klein products in Italy;

(iii)

the increase in Mexico and Central and South America, was primarily due to an increase in sales to department stores and specialty stores, including an increase in new product offerings and increased penetration within existing customers; and

(iv)

a net increase in Asia primarily due to (a) the expansion of the distribution network in the People’s Republic of China, partially offset by (b) a decrease in sales in other regions of Asia and (c) the conversion of the Company’s wholesale businesses in Taiwan (January 2011) and India (July 2011) to retail businesses as a result of the acquisition of distributors’ businesses in those regions.

Net revenues from Calvin Klein Jeans retail sales increased $30.9 million, driven primarily by increases of $13.5 million in Asia and $16.4 million in Europe. The increase in retail net revenues was primarily due (in constant currency) to a 0.4% increase in comparable store sales ($63.6 million for the Three Months Ended October 1, 2011 and $63.3 million for the Three Months Ended October 2, 2010), coupled with the addition of new stores opened by the Company and new stores acquired by the Company (including stores acquired in Taiwan during the first quarter of Fiscal 2011, in India during the third quarter of Fiscal 2011 and in Italy during the fourth quarter of Fiscal 2010).

Net revenues from Chaps decreased $1.6 million, primarily due to a $1.9 million decline in the U.S., which reflects a decrease in sales to the off-price channel and an increase in the level of customer allowances. Those decreases were partially offset by an increase in sales to chain stores in the U.S.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Sportswear Group net revenues increased $96.3 million to $983.7 million for the Nine Months Ended October 1, 2011 from $887.4 million for the Nine Months Ended October 2, 2010. Sportswear Group net revenues from international operations increased $125.2 million and from domestic operations decreased $28.9 million. The increase in international net revenues includes a $38.8 million increase due to the favorable effect of fluctuations in certain foreign currency exchange rates. See Overview, above.

Net revenues from Calvin Klein Jeans increased $93.6 million overall. Wholesale sales of Calvin Klein Jeans decreased $0.8 million (including a $27.3 million decline in the U.S., partially offset by increases of $26.5 million from international operations). The increase in international wholesale net revenues was primarily driven by increases of $26.5 million in Mexico and Central and South America and $10.3 million in Asia, partially offset by a decrease of $12.4 million in Europe and was primarily due (in constant currency) to the following:

(i)

an increase in sales in Mexico and Central and South America to department and specialty stores, including an increase in new product offerings and increased penetration within existing customers; and

(ii)

a net increase in Asia primarily due to (a) the expansion of the distribution network in the People’s Republic of China, partially offset by (b) a decline in sales in other regions of Asia and (c) the conversion of the Company’s wholesale businesses in the People’s Republic of China and Singapore (in the second quarter of Fiscal 2010), Taiwan (January 2011) and India (July 2011) to retail businesses as a result of the acquisition of distributors’ businesses in those regions.

Those increases were partially offset by:

(iii)

a decrease in Europe primarily due to decreased sales of Calvin Klein Jeans and accessories to department, specialty and independent stores and distributors, due in part to the conversion of a portion of the Company’s wholesale businesses in Italy to retail businesses, as a result of the acquisition of the Company’s Italian distributor of Calvin Klein products in the fourth quarter of Fiscal 2010. In addition, the Company believes that deteriorating macro-economic conditions in southern Europe negatively impacted net revenues; and

(iv)

a decrease in the U.S. primarily due to decreased sales to department stores and membership clubs, coupled with an increase in the level of customer allowances, both of which are reflective of weakness in the men’s and women’s businesses. Those decreases were partially offset by an increase in sales to the off-price channel of men’s products.

Net revenues from Calvin Klein Jeans retail sales increased $94.4 million (including increases of $45.1 million in Asia, $43.2 million in Europe and $6.0 million in Mexico, Central and South America). The increase in retail net revenues was primarily due (in constant currency) to a 3.7% increase in comparable store sales ($172.1 million for the Nine Months Ended October 1, 2011 and $165.9 million for the Nine Months Ended October 2, 2010), coupled with the addition of new stores opened by the Company and new stores acquired by the Company (including stores acquired in the People’s Republic of China and Singapore in the second quarter of Fiscal 2010, in Taiwan during the first quarter of Fiscal 2011, in India during the third quarter of Fiscal 2011 and in Italy during the fourth quarter of Fiscal 2010).

Net revenues from Chaps increased $2.7 million. The increase primarily reflects an increase in sales in Mexico due primarily to new product offerings and increased penetration within existing department store and membership club customers and, in Canada, increased sales to department stores. Those increases were partially offset by a decrease in net revenues in the U.S. primarily due to an increase in the level of customer allowances, partially offset by increased sales to customers in chain stores and a decrease in sales to the off-price channel.

Intimate Apparel Group

Intimate Apparel Group net revenues were as follows:


	Three Months		Three Months							Nine Months		Nine Months
	Ended		Ended							Ended		Ended
	October 1,		October 2,		Increase		%			October 1,		October 2,		Increase		%
	2011		2010		(Decrease)		Change			2011		2010		(Decrease)		Change
	(in thousands of dollars)
Calvin Klein Underwear	$	130,769	$	119,289	$	11,480		9.6	%	$	346,588	$	314,841	$	31,747		10.1	%
Core Intimates		42,220		40,488		1,732		4.3	%		139,932		131,881		8,051		6.1	%

Intimate Apparel wholesale		172,989		159,777		13,212		8.3	%		486,520		446,722		39,798		8.9	%
Calvin Klein Underwear retail		74,891		63,304		11,587		18.3	%		208,797		169,417		39,380		23.2	%

Intimate Apparel Group	$	247,880	$	223,081	$	24,799		11.1	%	$	695,317	$	616,139	$	79,178		12.9	%

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Intimate Apparel Group net revenues increased $24.8 million to $247.9 million for the Three Months Ended October 1, 2011 from $223.1 million for the Three Months Ended October 2, 2010. Intimate Apparel Group net revenues from international operations increased $15.5 million and from domestic operations increased $9.3 million. The increase in international net revenues includes a $9.1 million increase due to the favorable effect of fluctuations in foreign currency exchange rates. See Overview, above.

Net revenues from Calvin Klein Underwear increased $23.1 million overall and reflects the successful global launch of the ck one product line of Calvin Klein underwear for men and women during the first quarter of Fiscal 2011 and sales of the Calvin Klein X men’s product (which launched during the second and third quarters of Fiscal 2010). Calvin Klein Underwear wholesale sales increased $11.5 million, reflecting increases of $4.6 million from international operations and an increase of $6.9 million in the U.S. The increase in international wholesale net revenue was primarily driven by increases of $3.2 million in Asia and $2.0 million in Mexico and Central and South America, partially offset by a decline of $1.0 million in Canada and was primarily due (in constant currency) to the following:

(i)

in Asia primarily due to (a) the expansion of the distribution network in the People’s Republic of China and other regions of Asia, partially offset by (b) the conversion of the Company’s wholesale businesses in Taiwan and India to retail businesses as a result of the acquisition of distributors’ businesses in those regions in January 2011 (Taiwan) and July 2011 (India);

(ii)

in Mexico and Central and South America, primarily due to increased sales to department stores, including an increase in new product offerings and increased penetration within existing customers;

(iii)

in Canada, a decrease in sales to membership clubs.

The increase in net revenues in the U.S. primarily resulted from increased sales volume in the off-price and membership club channels of men’s products.

Net revenues from Calvin Klein Underwear retail sales increased $11.6 million (primarily related to increases of $7.7 million in Asia and $3.8 million in Europe). The increase in net revenues was primarily due (in constant currency) to the addition of new stores opened by the Company and acquired by the Company (including stores acquired in Taiwan during the first quarter of Fiscal 2011, in India during the third quarter of Fiscal 2011 and in Italy in the fourth quarters of Fiscal 2010) and to a 2.6% increase in comparable store sales ($55.6 million for the Three Months Ended October 1, 2011 and $54.2 million for the Three Months Ended October 2, 2010).

Net revenues from Core Intimates increased $1.7 million. The increase primarily reflects an increase in sales in the U.S. primarily due to larger new product launches during the Three Months Ended October 1, 2011 as well as higher sales volumes in the department store, chain store and off-price channels.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Intimate Apparel Group net revenues increased $79.2 million to $695.3 million for the Nine Months Ended October 1, 2011 from $616.1 million for the Nine Months Ended October 2, 2010. Intimate Apparel Group net revenues from international operations increased $66.2 million and from domestic operations increased $13.0 million. The increase in international net revenues includes a $23.3 million increase due to the favorable effect of fluctuations in foreign currency exchange rates. See Overview, above.

Net revenues from Calvin Klein Underwear increased $71.1 million overall and reflects the successful global launch of the ck one product line of Calvin Klein underwear for men and women during the first quarter of Fiscal 2011. Calvin Klein Underwear wholesale sales increased $31.7 million, reflecting increases of $26.7 million from international operations and an increase of $5.0 million in the U.S. The increase in international wholesale net revenue was primarily driven by increases of $9.0 million in Europe, $8.6 million in Mexico and Central and South America and $7.5 million in Asia and was primarily due (in constant currency) to the following:

(i)

in Europe, primarily due to increased sales to customers in department stores and in the off-price channel. In addition, the Company believes that deteriorating macro-economic conditions in southern Europe negatively impacted net revenues;

(ii)

in Mexico and Central and South America, primarily due to increased sales to department stores, membership clubs and specialty stores, including an increase in new product offerings and increased penetration within existing customers;

(iii)

in Asia primarily due to (a) the expansion of the distribution network in the People’s Republic of China and other regions of Asia, partially offset by (b) the conversion of the Company’s wholesale businesses in the People’s Republic of China and Singapore (in the second quarter of Fiscal 2010), Taiwan (January 2011) and India (July 2011) to retail businesses as a result of the acquisition of distributors’ businesses in those regions; and

(iv)

in the U.S. primarily resulting from increased sales volume of men’s products in the department store, off-price, specialty and outlet channels, partially offset by a decrease in sales of women’s products in membership clubs and department stores and an increase in customer allowances.

Net revenues from Calvin Klein Underwear retail sales increased $39.4 million (primarily related to increases of $25.7 million in Asia and $11.4 million in Europe). The increase in net revenues was primarily due (in constant currency) to the addition of new stores opened by the Company and acquired by the Company (including stores acquired in the People’s Republic of China and Singapore during the second quarter of Fiscal 2010, in Taiwan during the first quarter of Fiscal 2011, in India during the third quarter of Fiscal 2011 and in Italy in the fourth quarters of Fiscal 2010) and to a 5.1% increase in comparable store sales ($145.1 million for the Nine Months Ended October 1, 2011 and $138.1 million for the Nine Months Ended October 2, 2010).

Net revenues from Core Intimates increased $8.1 million. The increase primarily reflects an increase in sales in the U.S. primarily due to larger new product launches during the Nine Months Ended October 1, 2011 as well as higher sales volumes in membership clubs, chain stores and the off-price channel.

Swimwear Group

Swimwear Group net revenues were as follows:


	Three Months		Three Months							Nine Months		Nine Months
	Ended		Ended							Ended		Ended
	October 1,		October 2,		Increase		%			October 1,		October 2,		Increase		%
	2011		2010		(Decrease)		Change			2011		2010		(Decrease)		Change
	(in thousands of dollars)
Speedo	$	29,594	$	29,325	$	269		0.9	%	$	177,439	$	165,897	$	11,542		7.0	%
Calvin Klein		3,141		1,759		1,382		78.6	%		26,284		20,412		5,872		28.8	%

Swimwear wholesale		32,735		31,084		1,651		5.3	%		203,723		186,309		17,414		9.3	%
Swimwear retail (a)		6,571		5,576		995		17.8	%		15,934		14,401		1,533		10.6	%

Swimwear Group	$	39,306	$	36,660	$	2,646		7.2	%	$	219,657	$	200,710	$	18,947		9.4	%


(a)		includes $4.5 million and $3.3 million for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, respectively, and $9.4 million and $7.3 million for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively, related to Calvin Klein retail swimwear.

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Swimwear Group net revenues increased $2.7 million to $39.3 million for the Three Months Ended October 1, 2011 from $36.6 million for the Three Months Ended October 2, 2010. Swimwear Group net revenues from international operations increased $2.1 million and from domestic operations increased $0.6 million. The increase in international net revenues includes a $0.8 million increase due to the favorable effect of fluctuations in foreign currency exchange rates. See Overview, above.

Net revenues from Speedo increased $0.3 million, primarily in the U.S., related to increased sales to membership clubs and mass merchandisers, partially offset by a decrease in sales to team dealers and sporting goods stores.

Net revenues from Calvin Klein swimwear increased $2.4 million, primarily related to increases in sales to retail outlet stores, partially offset by a decrease in sales to wholesale department and specialty stores in Europe.

The increase in net revenues from Swimwear retail included a 13.6% increase in comparable store sales ($3.8 million for the Three Months Ended October 1, 2011 and $3.3 million for the Three Months Ended October 2, 2010).

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Swimwear Group net revenues increased $18.9 million to $219.6 million for the Nine Months Ended October 1, 2011 from $200.7 million for the Nine Months Ended October 2, 2010. Swimwear Group net revenues from international operations increased $8.3 million and from domestic operations increased $10.6 million. The increase in international net revenues includes a $3.3 million increase due to the favorable effect of fluctuations in foreign currency exchange rates. See Overview, above.

Net revenues from Speedo increased $11.5 million, which primarily represented an increase of $9.2 million in the U.S., primarily due to increased sales to membership clubs, mass merchandisers and specialty stores, partially offset by a decrease in sales to team dealers. In Canada, net revenues increased $1.9 million, primarily due to increased sales to membership clubs.

Net revenues from Calvin Klein swimwear increased $7.4 million, mainly in wholesale sales, primarily due, in the U.S., to increased sales to membership clubs and department stores. In Europe, net revenues increased primarily related to increases in wholesale sales to department and specialty stores and retail outlet stores.

The increase in net revenues from Swimwear retail included a 4.9% increase in comparable store sales ($7.5 million for the Nine Months Ended October 1, 2011 and $7.1 million for the Nine Months Ended October 2, 2010).

Gross Profit

Gross profit was as follows:


								% of
	Three Months		% of Brand			Three Months		Brand			Nine Months					Nine Months
	Ended October 1,		Net			Ended October 2,		Net			Ended October 1,		% of Brand			Ended October 2,		% of Brand
	2011		Revenues			2010		Revenues			2011		Net Revenues			2010		Net Revenues
											(in thousands of dollars)
Sportswear Group	$	148,677		41.5	%	$	144,892		43.0	%	$	419,639		42.7	%	$	386,458		43.5	%
Intimate Apparel Group		117,164		47.3	%		111,819		50.1	%		333,315		47.9	%		308,866		50.1	%
Swimwear Group		13,868		35.3	%		12,314		33.6	%		80,163		36.5	%		70,561		35.2	%

Total gross profit	$	279,709		43.4	%	$	269,025		45.1	%	$	833,117		43.9	%	$	765,885		44.9	%

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Gross profit was $279.7 million, or 43.4% of net revenues, for the Three Months Ended October 1, 2011 compared to $269.0 million, or 45.1% of net revenues, for the Three Months Ended October 2, 2010. The $10.7 million (4.0% ) increase in gross profit was primarily generated from the Company’s international retail businesses and is reflective of increased net revenues (see above). Gross profit for the Three Months Ended October 1, 2011 includes an increase of $9.9 million due to the favorable effects of foreign currency fluctuations.

Sportswear Group gross profit increased $3.8 million, and gross margin decreased 150 basis points, for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010, reflecting a $16.4 million increase in international operations, partially offset by a $12.6 million decrease in the domestic business. The decline in gross margin reflects a decrease in domestic gross margin (primarily related to an increase in product costs, the effect of an increase in the level of customer allowances and an unfavorable sales mix) and a decrease in international gross margins (primarily related to an unfavorable sales mix, an increase in promotional discounts and an increase in product costs in Europe, partially offset by an increase in sales volume, sales price and a favorable sales mix in Asia and in Mexico and Central and South America).

Intimate Apparel Group gross profit increased $5.4 million and gross margin decreased 280 basis points for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010 reflecting a $6.7 million increase in international operations, partially offset by a $1.3 million decrease in the domestic business. The decline in gross margin primarily reflects the effect of an increase in product costs in the U.S. and European businesses, an increase in the level of customer allowances (in Europe) and an unfavorable sales mix in the U.S. and Europe, partially offset by an increase in sales volume and a favorable sales mix in Asia and in Mexico, Central and South America.

Swimwear Group gross profit increased $1.6 million and gross margin increased 170 basis points for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010, reflecting a $0.7 million increase in international operations and a $0.9 million increase in the domestic business. The increase in gross profit and gross margin primarily reflects an increase in sales volume and lower production costs, which more than offset the unfavorable sales mix.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Gross profit was $833.1 million, or 43.9% of net revenues, for the Nine Months Ended October 1, 2011 compared to $765.9 million, or 44.9% of net revenues, for the Nine Months Ended October 2, 2010. The $67.2 million (8.8% ) increase in gross profit was primarily generated from the Company’s international retail businesses and is reflective of increased net revenues (see above), partially offset by increased production costs. Gross profit for the Nine Months Ended October 1, 2011 includes an increase of $24.7 million due to the favorable effects of foreign currency fluctuations.

Sportswear Group gross profit increased $33.2 million, and gross margin decreased 80 basis points, for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, reflecting a $63.3 million increase in international operations, partially offset by a $30.1 million decrease in the domestic business. The decline in gross margin primarily reflects a decrease in domestic gross margin (primarily related to an increase in product costs, the effect of an increase in the level of customer allowances and an unfavorable sales mix), while international gross margins overall were substantially unchanged (primarily related to an increase in sales volume, sales price and a favorable sales mix in Asia and in Mexico and Central and South America, offset by an unfavorable sales mix, an increase in promotional discounts and an increase in product costs in Europe).

Intimate Apparel Group gross profit increased $24.4 million and gross margin decreased 220 basis points for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010 reflecting a $32.1 million increase in international operations, partially offset by a $7.7 million decrease in the domestic business. The decline in gross margin primarily reflects an increase in product costs and an unfavorable sales mix in the U.S. and European businesses, the effect of an increase in the level of customer allowances in Europe and in Mexico, Central and South America, partially offset by the effect of an increase in sales volume, sales price and a favorable sales mix in Asia and in Mexico and Central and South America.

Swimwear Group gross profit increased $9.6 million and gross margin increased 130 basis points for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, reflecting a $2.9 million increase in international operations and a $6.7 million increase in the domestic business. The increase in gross profit and gross margin primarily reflects an increase in sales volume and lower production costs, which more than offset the unfavorable sales mix.

Selling, General and Administrative Expenses

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Selling, general & administrative (“SG&A”) expenses increased $13.9 million to $212.0 million (32.9% of net revenues) for the Three Months Ended October 1, 2011 compared to $198.1 million (33.2% of net revenues) for the Three Months Ended October 2, 2010. SG&A for the Three Months Ended October 1, 2011 includes an increase of $12.7 million due to the unfavorable effects of foreign currency fluctuations, including a total of $2.0 million of additional expense due to foreign exchange losses noted below in administrative expenses for the Sportswear Group and the Intimate Apparel Group, net of a reduction of administrative expense due to foreign exchange gains for Corporate activities.

Sportswear Group SG&A increased $20.6 million to $104.7 million (16.2% of net revenues) for the Three Months Ended October 1, 2011 compared to $84.1 million (14.1% of net revenues) for the Three Months Ended October 2, 2010. The increase in Sportswear Group SG&A includes:

(i)

an increase of $14.4 million in selling and distribution expenses primarily associated with the opening and acquisition of additional retail stores in Europe, Asia, Canada and in Mexico and Central and South America and new warehouses in the Netherlands and the People’s Republic of China;

(ii)

a decrease of $0.4 million in marketing expenses, primarily related to advertising expense for Calvin Klein X brand of jeans products in 2010; and

(iii)

an increase in administrative expenses of $6.6 million, primarily related to an increase in restructuring charges of $3.5 million (see Note 5 of Notes to Consolidated Condensed Financial Statements) and additional expense due to foreign exchange losses ($3.8 million), partially offset by a decrease in costs related to acquisitions ($1.5 million).

Intimate Apparel Group SG&A increased $6.6 million to $78.0 million (12.1% of net revenues) for the Three Months Ended October 1, 2011 compared to $71.4 million (12.0% of net revenues) for the Three Months Ended October 2, 2010. The increase in Intimate Apparel Group SG&A includes:

(i)

an increase of $6.7 million in selling and distribution expenses primarily associated with the opening and acquisition of additional retail stores in Europe, Asia, Canada and in Mexico and Central and South America and new warehouses in the Netherlands and the People’s Republic of China;

(ii)

a decrease of $2.9 million in marketing expenses, primarily related to the global launch of the ck one product line of men’s and women’s underwear during the first quarter of Fiscal 2011 compared to expenditures related to the Company’s Calvin Klein X product line of men’s underwear, which was launched during the second and third quarters of Fiscal 2010 and the Envy product line of women’s underwear, which was launched in the third and fourth quarters of Fiscal 2010; and

(iii)

an increase in administrative expenses of $2.8 million, primarily related to an increase in restructuring charges of $0.5 million (see Note 5 of Notes to Consolidated Condensed Financial Statements), additional expense due to foreign exchange losses ($1.1 million) and other general administrative expenses ($1.2 million).

Swimwear Group SG&A increased $1.2 million to $17.3 million (2.7% of net revenues) for the Three Months Ended October 1, 2011 compared to $16.1 million (2.7% of net revenues) for the Three Months Ended October 2, 2010. The increase in Swimwear Group SG&A primarily includes:

(i)

an increase of $0.3 million in marketing expenses, primarily related to increased advertising in the U.S.; and

(ii)

an increase in administrative expenses of $0.8 million, primarily related to an increase in restructuring charges of $1.2 million (see Note 5 of Notes to Consolidated Condensed Financial Statements), partially offset by decreases in other general administrative expenses ($0.4 million).

In addition, SG&A related to corporate activities that are not allocated to the three segments decreased $14.5 million to $5.1 million (0.8% of net revenues) for the Three Months Ended October 1, 2011 compared to $19.6 million (3.3% of net revenues) for the Three Months Ended October 2, 2010. The decrease in Corporate SG&A includes decreases in amounts accrued for performance-based employee cash compensation ($8.2 million), salaries and wages ($1.9 million), information technology expense ($1.3 million), other general administrative and legal fees ($1.1 million) and a reduction of expense due to foreign exchange gains ($2.9 million), partially offset by an increase in amounts recorded for stock-based compensation expense ($0.6 million) and restructuring charges ($0.3 million) (see Note 5 of Notes to Consolidated Condensed Financial Statements).

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

SG&A expenses increased $82.5 million to $637.5 million (33.6% of net revenues) for the Nine Months Ended October 1, 2011 compared to $555.0 million (32.6% of net revenues) for the Nine Months Ended October 2, 2010. SG&A for the Nine Months Ended October 1, 2011 includes an increase of $29.7 million due to the unfavorable effects of foreign currency fluctuations, including a total of $6.0 million of additional expense due to foreign exchange losses noted below in administrative expenses for the Sportswear Group, the Intimate Apparel Group and for Corporate activities.

Sportswear Group SG&A increased $67.2 million to $322.5 million (17.0% of net revenues) for the Nine Months Ended October 1, 2011 compared to $255.3 million (15.0% of net revenues) for the Nine Months Ended October 2, 2010. The increase in Sportswear Group SG&A includes:

(i)

an increase of $51.0 million in selling and distribution expenses primarily associated with the opening and acquisition of additional retail stores in Europe, Asia, Canada and in Mexico and Central and South America and new warehouses in the Netherlands and the People’s Republic of China, partially offset by the elimination of duplicative costs associated with consolidation of the distribution centers in Europe during Fiscal 2010;

(ii)

an increase of $3.0 million in marketing expenses, primarily related to a contractual increase in advertising costs due to increased sales; and

(iii)

an increase in administrative expenses of $13.2 million, primarily related to an increase in restructuring charges of $5.9 million (see Note 5 of Notes to Consolidated Condensed Financial Statements), additional expense due to foreign exchange losses ($4.3 million), salaries and wages ($2.0 million) and other general administrative expenses ($2.7 million), partially offset by a decrease in acquisition expense ($1.7 million).

Intimate Apparel Group SG&A increased $27.0 million to $228.5 million (12.0% of net revenues) for the Nine Months Ended October 1, 2011 compared to $201.5 million (11.8% of net revenues) for the Nine Months Ended October 2, 2010. The increase in Intimate Apparel Group SG&A includes:

(i)

an increase of $23.1 million in selling and distribution expenses primarily associated with the opening and acquisition of additional retail stores in Europe, Asia, Canada and in Mexico and Central and South America and new warehouses in the Netherlands and the People’s Republic of China, partially offset by the elimination of duplicative costs associated with consolidation of the distribution centers in Europe during Fiscal 2010;

(ii)

a decrease of $1.1 million in marketing expenses, primarily related to the global launch of the ck one product line of men’s and women’s underwear during the first quarter of Fiscal 2011 compared to expenditures related to the Company’s Calvin Klein X product line of men’s underwear, which was launched during the second and third quarters of Fiscal 2010 and the Calvin Klein Envy product line of women’s underwear, which was launched during the third and fourth quarters of Fiscal 2010; and

(iii)

an increase in administrative expenses of $5.0 million, primarily related to increases in restructuring charges of $2.8 million (see Note 5 of Notes to Consolidated Condensed Financial Statements), wages and salaries ($2.4 million) and other general administrative expenses ($2.3 million) and additional expense due to foreign exchange losses ($0.3 million), partially offset by a gain of $2.0 million on the sale of the Company’s Nancy Ganz trademarks in Australia and New Zealand during the Nine Months Ended October 1, 2011 (see Note 6 of Notes to Consolidated Condensed Financial Statements) and a decrease in amounts recorded for stock-based compensation expense ($0.8 million).

Swimwear Group SG&A increased $5.3 million to $58.7 million (3.1% of net revenues) for the Nine Months Ended October 1, 2011 compared to $53.4 million (3.2% of net revenues) for the Nine Months Ended October 2, 2010. The increase in Swimwear Group SG&A includes:

(i)

an increase of $0.6 million in selling and distribution expenses primarily associated with the opening and acquisition of additional retail stores in Europe, Asia, Canada and Mexico and Central and South America;

(ii)

an increase of $1.9 million in marketing expenses, primarily related to increased advertising in the U.S.; and

(iii)

an increase in administrative expenses of $2.8 million, primarily related to an increase in restructuring charges of $4.5 million (see Note 5 of Notes to Consolidated Condensed Financial Statements), partially offset by a decrease in other general administrative expenses ($1.7 million).

In addition, SG&A related to corporate activities that are not allocated to the three segments decreased $17.0 million to $27.8 million (1.5% of net revenues) for the Nine Months Ended October 1, 2011 compared to $44.8 million (2.6% of net revenues) for the Nine Months Ended October 2, 2010. The decrease in Corporate SG&A primarily includes decreases in amounts accrued for performance-based employee cash compensation ($16.0 million), information technology expense ($1.4 million) and other general administrative and legal fees ($2.3 million) and additional expense due to foreign exchange losses ($1.4 million), partially offset by an increase in amounts recorded for stock-based compensation expense ($4.1 million).

Amortization of Intangible Assets

Amortization of intangible assets was $3.3 million for the Three Months Ended October 1, 2011 compared to $3.0 million for the Three Months Ended October 2, 2010 and $9.5 million for the Nine Months Ended October 1, 2011 compared to $8.3 million for the Nine Months Ended October 2, 2010 (see Note 13 of Notes to Consolidated Condensed Financial Statements — Intangible Assets and Goodwill).

Pension Income

Pension income was $0.3 million for the Three Months Ended October 1, 2011 compared to pension income of $0.02 million for the Three Months Ended October 2, 2010 and $0.9 million for the Nine Months Ended October 1, 2011 compared to pension income of $0.07 million for the Nine Months Ended October 2, 2010. See Liquidity and Capital Resources — Pension Plan, below.

Operating Income

The following table presents operating income by Group (segment):


	Three Months			Three Months			Nine Months			Nine Months
	Ended October 1,			Ended October 2,			Ended October 1,			Ended October 2,
	2011			2010			2011			2010
	(in thousands of dollars)
Sportswear Group (a)	$	34,129		$	51,309		$	88,686		$	123,834
Intimate Apparel Group (a)		38,620			39,939			103,627			106,363
Swimwear Group (a)		(3,352	)		(3,794	)		21,421			17,121
Corporate/other expenses (a) (b)		(4,641	)		(19,557	)		(26,725	)		(44,605	)

Operating income (c) (d) (e)	$	64,756		$	67,897		$	187,009		$	202,713


Operating income as a percentage of net revenue		10.0	%		11.4	%		9.8	%		11.9	%


(a)		reflects the allocation of $2.5 million of corporate expenses to the Sportswear Group ($1.7 million), Intimate Apparel Group ($1.1 million) and Swimwear Group (($0.3) million), respectively, during the Three Months Ended October 2, 2010 and $7.4 million of corporate expenses to the Sportswear Group ($5.1 million), Intimate Apparel Group ($2.8 million) and Swimwear Group (($0.5) million), respectively, during the Nine Months Ended October 2, 2010 to conform to the presentation for the Three and Nine Months Ended October 1, 2011, respectively (see Overview, above).

(b)		the decrease in corporate/other expenses for the Three and Nine Months Ended October 1, 2011 compared to the Three and Nine Months Ended October 2, 2010 was primarily related to a reduction in amounts accrued for performance-based employee cash compensation and other employee compensation and benefits and fluctuations in foreign currency exchange rates.


(c)		includes approximately $7.5 million and $1.7 million for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, respectively, and approximately $19.0 million and $3.8 million for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively, related to restructuring expenses. See Note 5 of Notes to Consolidated Condensed Financial Statements.

(d)		includes a gain of $2.0 million for the Nine Months Ended October 1, 2011 related to the sale and assignment of the Company’s Nancy Ganz trademarks in Australia and New Zealand to the Company’s former licensee for cash consideration of $2.0 million.

(e)		includes a gain of $1.6 million for the Nine Months Ended October 1, 2011 related to recovery of an insurance claim related to a fire in a warehouse in Peru.

The effect of fluctuations in the U.S. dollar relative to certain functional currencies where the Company conducts certain of its operations for the Three Months Ended October 1, 2011 compared to the Three Months Ended October 2, 2010 resulted in a $3.2 million decrease in operating income and for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010 resulted in a $6.3 million decrease in operating income (see Overview, above).

Sportswear Group

Sportswear Group operating income was as follows:


	Three Months						Three Months					Nine Months					Nine Months		% of
	Ended October 1,			% of Brand Net			Ended October 2,		% of Brand Net			Ended October 1,		% of Brand			Ended October 2,		Brand Net
	2011 (b)			Revenues			2010 (b)		Revenues			2011 (b)		Net Revenues			2010 (b)		Revenues
	(in thousands of dollars)
Calvin Klein Jeans	$	31,736			16.0	%	$	40,485		19.6	%	$	67,241		12.8	%	$	92,182		17.5	%
Chaps		4,988			9.1	%		6,986		12.4	%		14,731		9.5	%		21,804		14.3	%

Sportswear wholesale		36,724			14.5	%		47,471		18.0	%		81,972		12.1	%		113,986		16.8	%
Calvin Klein Jeans retail		(2,595	)		-2.5	%		3,838		5.2	%		6,714		2.2	%		9,848		4.7	%

Sportswear Group (a)	$	34,129			9.5	%	$	51,309		15.2	%	$	88,686		9.0	%	$	123,834		14.0	%


(a)		includes restructuring charges of $3.5 million and $0 for the Three Months Ended October 1, 2011 and October 2, 2010, respectively, and $7.2 million and $0.4 million for the Nine Months Ended October 1, 2011 and October 2, 2010, respectively.

(b)		includes an allocation of shared services expenses by brand as detailed below:


	Three Months		Three Months		Nine Months		Nine Months
	Ended October		Ended October		Ended October		Ended October
	1, 2011		2, 2010		1, 2011		2, 2010
	(in thousands of dollars)
Calvin Klein Jeans	$	4,447	$	4,492	$	13,219	$	13,511
Chaps		1,982		2,054		5,906		6,077

Sportswear wholesale		6,429		6,546		19,125		19,588
Calvin Klein Jeans retail		541		389		1,688		1,151

Sportswear Group	$	6,970	$	6,935	$	20,813	$	20,739

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Sportswear Group operating income decreased $17.2 million, or 33.5%, as reflected in the table above. Sportswear Group operating income includes a decrease of $2.0 million related to fluctuations in foreign currency exchange rates. The decrease in Sportswear Group operating income reflects the changes in gross profit and SG&A described above.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Sportswear Group operating income decreased $35.2 million, or 28.4%, as reflected in the table above. Sportswear Group operating income includes a decrease of $2.1 million related to fluctuations in foreign currency exchange rates. The decrease in Sportswear Group operating income reflects the changes in gross profit and SG&A described above.

Intimate Apparel Group

Intimate Apparel Group operating income was as follows:


	Three Months					Three Months					Nine Months					Nine Months		% of
	Ended October 1,		% of Brand			Ended October 2,		% of Brand Net			Ended October 1,		% of Brand			Ended October 2,		Brand Net
	2011 (b)		Net Revenues			2010 (b)		Revenues			2011 (b)		Net Revenues			2010 (b)		Revenues
	(in thousands of dollars)
Calvin Klein Underwear	$	25,083		19.2	%	$	23,436		19.6	%	$	60,490		17.5	%	$	63,242		20.1	%
Core Intimates		2,710		6.4	%		3,758		9.3	%		17,222		12.3	%		16,852		12.8	%

Intimate Apparel wholesale		27,793		16.1	%		27,194		17.0	%		77,712		16.0	%		80,094		17.9	%
Calvin Klein Underwear retail		10,827		14.5	%		12,745		20.1	%		25,915		12.4	%		26,269		15.5	%

Intimate Apparel Group (a)	$	38,620		15.6	%	$	39,939		17.9	%	$	103,627		14.9	%	$	106,363		17.3	%


(a)		includes restructuring charges of $0.7 million and $0 for the Three Months Ended October 1, 2011 and the Three Months Ended October 2, 2010, respectively, and $3.6 million and $0.1 million for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, respectively.

(b)		includes an allocation of shared services expenses by brand as detailed below:


	Three Months		Three Months		Nine Months		Nine Months
	Ended October		Ended October		Ended October		Ended October
	1, 2011		2, 2010		1, 2011		2, 2010
	(in thousands of dollars)
Calvin Klein Underwear	$	3,175	$	3,212	$	9,113	$	9,294
Core Intimates		1,535		1,498		4,576		4,481

Intimate Apparel wholesale		4,710		4,710		13,689		13,775
Calvin Klein Underwear retail		376		275		1,098		822


Intimate Apparel Group	$	5,086	$	4,985	$	14,787	$	14,597

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Intimate Apparel Group operating income for the Three Months Ended October 1, 2011 decreased $1.3 million, or 3.3%, as reflected in the table above. Intimate Apparel Group operating income includes a decrease of $2.1 million related to fluctuations in foreign currency exchange rates. The decrease in Intimate Apparel Group operating income reflects the changes in gross profit and SG&A described above.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Intimate Apparel Group operating income for the Nine Months Ended October 1, 2011 decreased $2.7 million, or 2.6%, as reflected in the table above. Intimate Apparel Group operating income includes a decrease of $3.3 million related to fluctuations in foreign currency exchange rates. The decrease in Intimate Apparel Group operating income reflects the changes in gross profit and SG&A described above.

Swimwear Group

Swimwear Group operating income was as follows:


	Three Months						Three Months						Nine Months						Nine Months			% of
	Ended October 1,			% of Brand Net			Ended October 2,			% of Brand Net			Ended October			% of Brand			Ended October 2,			Brand Net
	2011 (c)			Revenues			2010 (c)			Revenues			1, 2011 (c)			Net Revenues			2010 (c)			Revenues
	(in thousands of dollars)
Speedo	$	(3,721	)		-12.6	%	$	(3,338	)		-11.4	%	$	19,412			10.9	%	$	16,754			10.1	%
Calvin Klein		(587	)		-18.7	%		(1,270	)		-72.2	%		(829	)		-3.2	%		(1,940	)		-9.5	%

Swimwear wholesale		(4,308	)		-13.2	%		(4,608	)		-14.8	%		18,583			9.1	%		14,814			8.0	%
Swimwear retail (a)		956			14.5	%		814			14.6	%		2,838			17.8	%		2,307			16.0	%

Swimwear Group (b)	$	(3,352	)		-8.5	%	$	(3,794	)		-10.3	%	$	21,421			9.8	%	$	17,121			8.5	%


(a)		includes $0.8 million and $0.5 million for the Three Months Ended October 1, 2011 and October 2, 2010, respectively, and $1.9 million and $1.4 million for the Nine Months Ended October 1, 2011 and October 2, 2010, respectively related to Calvin Klein retail swimwear.

(b)		includes restructuring charges of $3.0 million and $1.7 million for the Three Months Ended October 1, 2011 and October 2, 2010, respectively, and $7.3 million and $2.4 million for the Nine Months Ended October 1, 2011 and October 2, 2010, respectively.


(c)		Includes an allocation of shared services expenses by brand in the following table:


	Three Months		Three Months		Nine Months		Nine Months
	Ended October		Ended October		Ended October		Ended October
	1, 2011		2, 2010		1, 2011		2, 2010
	(in thousands of dollars)
Speedo	$	2,148	$	2,022	$	6,558	$	6,208
Calvin Klein		98		75		712		531

Swimwear wholesale		2,246		2,097		7,270		6,739
Swimwear retail		101		141		302		423

Swimwear Group	$	2,347	$	2,238	$	7,572	$	7,162

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Swimwear Group operating income for the Three Months Ended October 1, 2011 increased $0.4 million, or 11.6%, as reflected in the table above. Swimwear Group operating income includes a decrease of $0.1 million related to fluctuations in foreign currency exchange rates The increase in Swimwear Group operating income reflects the changes in gross profit and SG&A described above.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Swimwear Group operating income for the Nine Months Ended October 1, 2011 increased $4.3 million, or 25.1%, as reflected in the table above. Swimwear Group operating income includes a decrease of $0.3 million related to fluctuations in foreign currency exchange rates. The increase in Swimwear Group operating income reflects the changes in gross profit and SG&A described above.

Other Loss (Income)

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

Other loss of $1.4 million for the Three Months Ended October 1, 2011 reflects a loss on the current portion of inter-company loans denominated in currency other than that of the foreign subsidiaries’ functional currency that are not hedged with foreign exchange forward contracts, net of gains on foreign currency exchange contracts designed as economic hedges (see Note 11 of Notes to Consolidated Condensed Financial Statements). Other income of $1.9 million for the Three Months Ended October 2, 2010 primarily reflects a gain on the current portion of inter-company loans denominated in currency other than that of the foreign subsidiaries’ functional currency that are not hedged with foreign exchange forward contracts, net of losses on foreign currency exchange contracts designed as economic hedges (see Note 11 to Notes to Consolidated Condensed Financial Statements).

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

Other loss of $0.5 million for the Three Months Ended October 1, 2011 reflects a gain on the current portion of inter-company loans denominated in currency other than that of the foreign subsidiaries’ functional currency that are not hedged with foreign exchange forward contracts, net of losses on foreign currency exchange contracts designed as economic hedges (see Note 11 of Notes to Consolidated Condensed Financial Statements). Other loss of $5.7 million for the Nine Months Ended October 2, 2010 primarily reflects a loss of $3.7 million related to the redemption of $160.9 million of Senior Notes during the Nine Months Ended October 2, 2010 (see Note 14 of Notes to Consolidated Condensed Financial Statements) and a loss on the current portion of inter-company loans denominated in currency other than that of the foreign subsidiaries’ functional currency that are not hedged with foreign exchange forward contracts, partially offset by a gain on foreign currency exchange contracts designed as economic hedges (see Note 11 to Notes to Consolidated Condensed Financial Statements).

Interest Expense

Interest expense increased $2.0 million to $5.0 million for the Three Months Ended October 1, 2011 from $3.0 million for the Three Months Ended October 2, 2010 and decreased $1.1 million to $11.1 million for the Nine Months Ended October 1, 2011 from $12.2 million for the Nine Months Ended October 2, 2010. The changes for each comparative period primarily relate to fluctuations in the balances and interest rates on the Company’s debt facilities including (i) the 2011 Term Loan, which was entered into in June 2011; (ii) the CKJEA Notes payable; (iii) the 2008 Credit Agreements; (iv) the Italian Note, which was entered into in the third quarter of Fiscal 2010 and repaid in June 2011; (v) the Brazilian lines of credit, and (vi) increases in interest expense arising from maturity of caplets and accretion of the deferred premium under the interest rate cap entered into on July 1, 2011 (see Note 14 of Notes to Consolidated Condensed Financial Statements). The change for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010 also relates to the remaining balance ($160.9 million) of the Senior Notes, which were fully redeemed during the first and second quarters of Fiscal 2010 (see Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report for Fiscal 2010).

Interest Income

Interest income increased $0.3 million to $1.0 million for the Three Months Ended October 1, 2011 from $0.7 million for the Three Months Ended October 2, 2010 and increased $0.3 million to $2.5 million for the Nine Months Ended October 1, 2011 from $2.2 million for the Nine Months Ended October 2, 2010, due primarily to an increase in the average of the Company’s cash balance during the respective comparative periods.

Income Taxes

Three Months Ended October 1, 2011 compared to Three Months Ended October 2, 2010

The effective tax rates for the Three Months Ended October 1, 2011 and October 2, 2010 were 18.1% and 38.6%, respectively. The lower effective tax rate for the Three Months Ended October 1, 2011 primarily reflects a tax benefit of $7.3 million recorded during the Three Months Ended October 1, 2011 related to a reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions, as well as a tax benefit of approximately $1.3 million recorded during the Three Months Ended October 1, 2011 relating to a change in various domestic and foreign tax provision estimates for Fiscal 2010 following the filing of certain of the Company’s tax returns during the Three Months Ended October 1, 2011. In addition, certain discrete charges to the tax provision recorded during the Three Months Ended October 2, 2010 (in total $3.6 million) did not reoccur in the Three Months Ended October 1, 2011.

Nine Months Ended October 1, 2011 compared to Nine Months Ended October 2, 2010

The effective tax rates for the Nine Months Ended October 1, 2011 and October 2, 2010 were 22.0% and 36.0%, respectively. The lower effective tax rate for the Nine Months Ended October 1, 2011 primarily reflects a tax benefit of approximately $11.0 million, recorded during the Nine Months Ended October 1, 2011, associated with the recognition of pre-2004 net operating losses in a foreign jurisdiction as a result of receiving a favorable ruling from that country’s taxing authority during the Nine Months Ended October 1, 2011, a tax benefit of $7.3 million recorded during the Three Months Ended October 1, 2011 related to a reduction in the reserve for uncertain tax positions in certain foreign tax jurisdictions, as well as a tax benefit of approximately $1.3 million recorded during the Three Months Ended October 1, 2011 relating to a change in various domestic and foreign tax provision estimates for Fiscal 2010 following the filing of certain of the Company’s tax returns during the Three Months Ended October 1, 2011. In addition, certain discrete charges to the tax provision recorded during the Nine Months Ended October 2, 2010 (in total $3.6 million) did not reoccur in the Nine Months Ended October 1, 2011.

Discontinued Operations

Loss from discontinued operations, net of taxes, was $4.2 million for the Three Months Ended October 1, 2011 compared to income of $0.1 million for the Three Months Ended October 2, 2010. Loss from discontinued operations, net of taxes, was $4.7 million for the Nine Months Ended October 1, 2011 compared to a loss of $0.4 million for the Nine Months Ended October 2, 2010. The losses for the Three and Nine Months Ended October 1, 2011 were primarily associated with a reserve related to the Lejaby business (see Note 18 of Notes to Consolidated Condensed Financial Statements). Income and loss for the Three and Nine Months Ended October 2, 2010, respectively, were primarily related to the Company’s Ocean Pacific Apparel and Lejaby discontinued businesses. See Note 4 of Notes to Consolidated Condensed Financial Statements.

Liquidity and Capital Resources

Liquidity

The Company’s principal source of operating cash flows is from sales of its products to customers. In constant currencies, sales to customers increased for the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010 (see Overview, Non-GAAP Measures and Results of Operations — Net Revenues, above). The Company’s principal operating outflows of cash relate to purchases of inventory and related costs, SG&A expenses and capital expenditures, primarily related to store fixtures and retail store openings.

During the Nine Months Ended October 1, 2011, cash outflows increased primarily related to additional investments in working capital (see Accounts Receivable and Inventories and Cash Flows, below) and an increase in SG&A expenses (see Selling, General and Administrative Expenses, above) in Europe, Asia and in Mexico and Central and South America primarily related to the increase in newly opened and acquired retail stores. In addition, cash outflows resulted from an increase in costs for raw material, labor and freight, particularly in the U.S., Asian and European businesses and have adversely affected the operating margins of the Company’s businesses. The Company expects that the rate of product cost increases will stabilize or decline during the remainder of Fiscal 2011. The Company was able to partially mitigate the cost increases (and expects to be able to partially mitigate such increases in the future) by selectively increasing the selling prices of its goods, early purchases of product and by implementing other sourcing initiatives.

The Company believes that, at October 1, 2011, cash on hand, cash to be generated from future operating activities and cash available under the 2011 Term Loan Agreement, 2008 Credit Agreements, the CKJEA Notes and other short-term debt (see Note 14 of Notes to Consolidated Condensed Financial Statements) will be sufficient to fund its operations, including contractual obligations (see Note 19 of Notes to Consolidated Condensed Financial Statements, above) and capital expenditures (see below) for the next 12 months.

As of October 1, 2011, the Company had working capital (current assets less current liabilities) of $605.1 million. Included in working capital as of October 1, 2011 were (among other items) cash and cash equivalents of $179.3 million and short-term debt of $47.8 million, including $2.0 million under the 2011 Term Loan Agreement, $39.0 million under the CKJEA Notes and $6.8 million of other short-term debt.

2011 Term Loan Agreement

On June 17, 2011, Warnaco Group, Warnaco, Calvin Klein Jeanswear Company (“CK Jeans”), an indirect wholly-owned subsidiary of Warnaco Group, and Warnaco Swimwear Products Inc. (“Warnaco Swimwear”), an indirect wholly-owned subsidiary of Warnaco Group, entered into the 2011 Term Loan Agreement with the financial institutions which are the lenders thereunder (the “Lenders”). Warnaco, CK Jeans and Warnaco Swimwear are co-borrowers on a joint and several basis under the 2011 Term Loan Agreement (the “Borrowers”) (see Note 14 of Notes to Consolidated Condensed Financial Statements).

The 2011 Term Loan Agreement provides for a $200 million senior secured term loan facility, maturing on June 17, 2018. In addition, during the term of the 2011 Term Loan Agreement, the Borrowers may request additional credit commitments for incremental term loan facilities in an aggregate amount not to exceed $100 million plus the aggregate principal amount of the term loans that the Borrowers have voluntarily prepaid prior to the date of such request. The Borrowers may request a greater amount to the extent that Warnaco Group meets certain financial tests set forth in the 2011 Term Loan Agreement. At October 1, 2011, there was $199.5 million in term loans outstanding under the 2011 Term Loan Agreement. The Company paid approximately $5.0 million in financing costs related to the 2011 Term Loan.

On the last day of each of the Company’s fiscal quarters, beginning on October 1, 2011, $500,000 of the outstanding principal amount of the 2011 Term Loan must be repaid. Such amount will be reduced if a portion of the principal amount is prepaid. The remaining principal amount is due on June 17, 2018.

The 2011 Term Loan Agreement provides interest rate options, at the Borrowers’ election, including a base rate, as defined in the 2011 Term Loan Agreement, and LIBOR (with a floor of 1.00%) plus a margin of 2.75%, in each case, on a per annum basis. Accrued interest will be paid in arrears on the last day of each interest period through the maturity date. Payment dates are the last calendar day (or business day if the last calendar day is not a business day) of each of January, April, July and October, beginning on October 31, 2011. Reset dates are two business days prior to a payment date, beginning on October 29, 2011 (determines the three-month LIBOR variable leg for the following three month period). From inception of the loan through July 29, 2011, the Company elected to use a combination of a base rate and a LIBOR rate of interest, each on a portion of the outstanding balance ($80 million at 3.75% and $120 million at a base rate of 5.0%). From July 29, 2011 through October 31, 2011, the interest rate on the entire balance of the 2011 Term Loan is 3.75%, based on three-month LIBOR (with a floor of 1.00%) plus a margin of 2.75%. At October 1, 2011, the loans under the 2011 Term Loan Agreement had a weighted average annual interest rate of 3.75%. In order to match the interest rate on the hedged portion of the 2011 Term Loan with that on the interest rate cap (see below), the Company intends to use successive interest periods of three months and adjusted three-month LIBOR rates (with a LIBOR floor of 1.00%) plus 2.75% on a per annum basis from July 29, 2011 through the maturity date of the 2011 Term Loan.

The 2011 Term Loan Agreement does not require the Borrowers to comply with any financial maintenance covenants but does contain customary representations, warranties and affirmative covenants. The 2011 Term Loan Agreement also contains customary negative covenants providing limitations, subject to negotiated carve-outs, with respect to (i) incurrence of indebtedness and liens, (ii) significant corporate changes including mergers and acquisitions with third parties, (iii) investments, (iv) loans, (v) advances and guarantees to or for the benefit of third parties, (vi) hedge agreements, (vii) certain restricted payments and (viii) transactions with affiliates and certain other restrictive agreements, among others.

The proceeds of the 2011 Term Loan Agreement will be used for general corporate purposes, which include funding acquisitions and internal growth, repaying indebtedness (including, during the second quarter of Fiscal 2011, the 2008 Credit Agreements and the Italian Note, see below), and repurchasing common stock of Warnaco.

Interest Rate Cap Agreement

On July 1, 2011, the Company entered into a deferred premium interest rate cap agreement with HSBC Bank USA (the “Counterparty”), effective July 29, 2011, (notional amount $120 million) (the “Cap Agreement”). The Cap Agreement is a series of 27 individual caplets (in total, the “Cap”) that reset and settle quarterly over the period from October 31, 2011 to April 30, 2018. Under the terms of the Cap Agreement, if three-month LIBOR resets above a strike price of 1.00%, the Company will receive the net difference between the rate and the strike price. In addition, on the quarterly settlement dates, the Company will remit the deferred premium payment to the Counterparty. If LIBOR resets below the strike price no payment is made by the Counterparty. However, the Company would still be responsible for payment of the deferred premium. At July 1, 2011, the Company was obligated to make premium payments totaling approximately $16.0 million, based on an annual rate of 1.9475% on the notional amount of the Cap, over the term of the Cap Agreement. The effect of the Cap Agreement is to limit the interest rate payable on average over the term of the Cap Agreement to 5.6975% with respect to the portion of the 2011 Term Loan that equals the notional amount of the Cap.

Short-Term Borrowings

As of October 1, 2011, under the 2008 Credit Agreement, the Company had no loans and $29.1 million in letters of credit outstanding, leaving approximately $189.7 million of availability, and, under the 2008 Canadian Credit Agreement, no loans and $2.0 million of letters of credit, leaving approximately $20.3 million of availability (see Note 14 of Notes to Consolidated Condensed Financial Statements). During June 2011, the outstanding balances under the 2008 Credit Agreements were repaid with a portion of the proceeds from the 2011 Term Loan.

The revolving credit facilities under the 2008 Credit Agreements reflect funding commitments by a syndicate of banks, including Bank of America N.A., JPMorgan Chase, N.A., Deutsche Bank, HSBC, Royal Bank of Scotland and The Bank of Nova Scotia. The ability of any one or more of those banks to meet its commitment to provide the Company with funding up to the maximum of available credit is dependent on the fair value of the bank’s assets and its legal lending ratio relative to those assets (amount the bank is allowed to lend). The Company believes that, during the Nine Months Ended October 1, 2011, those banks had the ability to make loans up to their respective funding commitments under the 2008 Credit Agreements and that they will continue to be able to make such loans in the future. However, the Company continues to monitor the creditworthiness of the syndicated banks.

The 2008 Credit Agreements contain covenants limiting the Company’s ability to (i) incur additional indebtedness and liens, (ii) make significant corporate changes including mergers and acquisitions with third parties, (iii) make investments, (iv) make loans, advances and guarantees to or for the benefit of third parties, (v) enter into hedge agreements, (vi) make restricted payments (including dividends and stock repurchases), and (vii) enter into transactions with affiliates. The 2008 Credit Agreements also include certain other restrictive covenants. In addition, if Available Credit (as defined in the 2008 Credit Agreements) is less than a threshold amount (as specified in the 2008 Credit Agreements) the Company’s Fixed Charge Coverage ratio (as defined in the 2008 Credit Agreements) must be at least 1.1 to 1.0. In connection with entering into the 2011 Term Loan Agreement, the Company amended the 2008 Credit Agreements to allow the Company to incur indebtedness and grant liens. The Company was in compliance with the covenants of its 2008 Credit Agreements as of October 1, 2011, January 1, 2011 and October 2, 2010.

During the Nine Months Ended October 1, 2011, the Company was able to borrow funds, from time to time, under the 2008 Credit Agreement for seasonal and other cash flow requirements, including repurchase of Common Stock (see Note 15 of Notes to Consolidated Condensed Financial Statements), settlement of the OP litigation (see Notes 4 and 18 of Notes to Consolidated Condensed Financial Statements), funding of the Company’s pension plan, and payment of employee incentive-based compensation. As of October 1, 2011, the Company expects that it will continue to be able to obtain needed funds under the 2008 Credit Agreements when requested. However, in the event that such funds are not available, the Company may have to delay certain capital expenditures or plans to expand its business, to scale back operations and/or to raise capital through the sale of its equity or debt securities. There can be no assurance that the Company would be able to sell its equity or debt securities on terms that are satisfactory.

The CKJEA Notes consist of short-term revolving notes with a number of banks at various interest rates (primarily Euro LIBOR plus 1.0%) held by certain of the Company’s European subsidiaries. The outstanding balance under the CKJEA Notes was $39.0 million, $18.4 million, and $48.7 million at October 1, 2011, January 2, 2011 and October 2, 2010, respectively. During the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, the Company was able to borrow funds under the CKJEA Notes, as needed, to fund operations. The Company will continue to renew the CKJEA Notes for additional terms of no more than twelve months and expects that it will continue to be able to borrow funds under the CKJEA Notes in the future. The Company monitors its positions with, and the credit quality of, the counterparty financial institutions that hold the CKJEA Notes and does not currently anticipate non-performance by those counterparties. Management believes that the Company would not suffer a material loss in the event of non-performance by those counterparties.

The Company’s Brazilian subsidiary, WBR, has established lines of credit with several banks in order to improve cash flows and fund operations as needed. The lines of credit are secured by approximately equal amounts of WBR’s trade accounts receivable. At October 1, 2011, January 1, 2011 and October 2, 2010, the total outstanding balances of the lines of credit were approximately $4.3 million, $0.4 million and $0, respectively. During the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010, WBR was able to borrow funds under the lines of credit, as needed, to fund operations.

During September 2011, one of the Company’s Asian subsidiaries entered into a short-term $25 million revolving credit facility with one lender (the “Asian Credit Facility”) to be used for temporary working capital and general corporate purposes. The Asian Credit Facility bears interest of 1.75% over 1-month LIBOR, which is due monthly. At the end of each month, amounts outstanding under the Asian Credit Facility may be carried forward for further 1-month periods for up to one year. The Asian Credit Facility may be renewed annually. The Asian Credit Facility is subject to certain terms and conditions customary for a credit facility of this type and may be terminated at any time at the discretion of the lender. There were no borrowings during the Three Months Ended October 1, 2011.

The Italian Note was entered into by one of the Company’s Italian subsidiaries on September 30, 2010 in connection with the acquisition of the business of a distributor of its Calvin Klein products in Italy (see Note 2 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2010). The initial principal amount of the Italian Notes was €10.0 million ($13.4 million). On June 30, 2011, the remaining outstanding balance of €6.0 million ($8.6 million) was repaid with a portion of the proceeds from the 2011 Term Loan.

The Company’s corporate or family credit ratings and outlooks at October 1, 2011, are summarized below:


Rating	Corporate/Family
Agency	Rating (a)	Outlook

Standard & Poor’s	BBB-	stable

Moody’s	Ba1	stable


(a)		ratings on individual debt instruments can be different from the Company’s corporate or family credit ratings depending on the priority position of creditors holding such debt, collateral related to such debt and other factors. On June 27, 2011, Moody’s upgraded the rating on the Company’s 2008 Credit Agreements to Baa1 from Baa2 (both investment-grade ratings). Standard & Poor’s has assigned a rating of BBB- and Moody’s has assigned a rating of Ba1 to the 2011 Term Loan.

The Company’s credit ratings contribute to its ability to access the credit markets. Factors that can affect the Company’s credit ratings include changes in its operating performance, the economic environment, conditions in the apparel industry, the Company’s financial position, and changes in the Company’s business or financial strategy. If a downgrade of the Company’s credit ratings were to occur, it could adversely affect, among other things, the Company’s future borrowing costs and access to capital markets. Given the Company’s capital structure and its projections for future profitability and cash flow, the Company believes it is well positioned to obtain additional financing, if necessary, to refinance its debt, or, if opportunities present themselves, to make future acquisitions. However, there can be no assurance that such financing, if needed, can be obtained on terms satisfactory to the Company or at such time as a specific need may arise.

Capital Expenditures

During the Nine Months Ended October 1, 2011, the Company leased approximately 133,000 square feet of additional retail store space worldwide from newly opened stores and acquired an additional 25,000 square feet of retail space in Taiwan and an additional 45,000 square feet of retail space in India (see Note 3 of Notes to Consolidated Condensed Financial Statements), which resulted in capital expenditures (primarily related to store fixtures) of approximately $18 million. The Company has targeted an additional 50,000 square feet of new retail space for the remainder of Fiscal 2011, for which it expects to incur additional costs for capital expenditures of approximately $10 million.

Restructuring

During the Nine Months Ended October 1, 2011, the Company incurred restructuring and other exit costs of $19.0 million primarily related to the consolidation and restructuring of certain international operations, job eliminations in the U.S. and lease contract termination charges related to retail store, office and warehouse closures, and made payments of approximately $11.7 million related to those activities. During the remainder of Fiscal 2011, the Company expects to incur additional costs of approximately $5 million related to these initiatives. See Note 5 of Notes to Consolidated Condensed Financial Statements for additional information on restructuring and other exit activities.

Business Acquisitions

During the fourth quarter of the Company’s fiscal year ended January 2, 2010, the Company acquired the remaining 49% equity interest in WBR, its subsidiary in Brazil. In addition to the initial cash payment made upon acquisition, the consideration also includes three contingent payments through March 31, 2012. During the first quarter of Fiscal 2011, the Company made the second contingent payment of 18.5 million Brazilian Real (approximately $11.5 million as of March 31, 2011), based upon the operating results of WBR for Fiscal 2010. The Company expects that, based upon the operating results of WBR for Fiscal 2011, the third contingent payment will be 18.5 million Brazilian Real (approximately $10.1 million as of October 1, 2011), which will be paid on March 31, 2012. See Note 3 of Notes to Consolidated Condensed Financial Statements.

During the first quarter of Fiscal 2011, the Company acquired certain assets, including inventory and leasehold improvements and leases of the retail stores of its Calvin Klein distributor in Taiwan for cash consideration of $1.4 million. See Note 3 of Notes to Consolidated Condensed Financial Statements.

On July 8, 2011, the Company acquired a controlling interest (51%) in the equity of a joint venture with a distributor of its Calvin Klein products in India for cash consideration of approximately $17.8 million, net of cash acquired of $2.6 million. In addition, the Company loaned the non-controlling party in the joint venture $6.0 million with an interest rate of 5.0% per annum. The loan matures on July 8, 2016. Interest on the loan is payable in arrears on the last day of each calendar year (see Note 3 of Notes to Consolidated Condensed Financial Statements).

Share Repurchases

During the Nine Months Ended October 1, 2011, the Company repurchased the remaining 4,060,842 shares of its common stock under the 2010 Share Repurchase Program for a total of $205.8 million (based on an average of $50.68 per share). In addition, the Company repurchased 43,563 shares of common stock for a total of $2.4 million (based on an average of $55.24 per share) related to the surrender of shares for the payment of minimum income tax due upon vesting of certain restricted stock awarded by the Company to its employees (see Note 15 of Notes to Consolidated Condensed Financial Statements and Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, below). Repurchased shares are held in treasury pending use for general corporate purposes.

Derivative Financial Instruments

During the Nine Months Ended October 1, 2011, some of the Company’s foreign subsidiaries with functional currencies other than the U.S. dollar made purchases of inventory, paid minimum royalty and advertising costs and /or had intercompany payables, receivables or loans denominated in U.S. dollars or Pounds Sterling. In order to minimize the effects of fluctuations in foreign currency exchange rates of those transactions, the Company uses derivative financial instruments; primarily foreign currency exchange forward contracts. In addition, during July 2011, the Company entered into an interest rate cap, which is being accounted for as a cash flow hedge, to offset fluctuations in the LIBOR rate related to $120.0 million of its 2011 Term Loan (see Notes 11and 14 of Notes to Consolidated Condensed Financial Statements).

The Company carries its derivative financial instruments at fair value on the Consolidated Condensed Balance Sheets. The Company utilizes the market approach to measure fair value for financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At October 1, 2011, the Company’s foreign currency hedging programs included $51.2 million of future inventory purchases, $21.4 million of future minimum royalty and advertising payments and $68.5 million of intercompany payables and loans denominated in non-functional currencies, primarily the U.S. dollar (see Notes 10 and 11 of Notes to Consolidated Condensed Financial Statements for further information on fair value measurement of the Company’s derivative financial instruments).

Pension Plan

The Pension Protection Act of 2006 (the “PPA”) revised the basis and methodology for determining defined benefit plan minimum funding requirements as well as maximum contributions to and benefits paid from tax-qualified plans. The PPA may ultimately require the Company to make additional contributions to its domestic plan. During the Nine Months Ended October 1, 2011, the Company contributed $7.2 million to the domestic pension plan. Contributions for Fiscal 2011 are expected to total $8.8 million and for the following four years are expected to be in the range of $5.4 million and $9.5 million. Actual later year contributions could exceed the Company’s current projections, and may be influenced by future changes in government requirements. Additionally, the Company’s projections concerning timing of the PPA funding requirements are subject to change and may be influenced by factors such as general market conditions affecting trust asset performance, interest rates, and the Company’s future decisions regarding certain elective provisions of the PPA. See Note 8 of Notes to Consolidated Condensed Financial Statements for additional information on the Company’s pension plan.

The fair value of the Pension Plan’s assets, net of expenses, decreased to approximately $117.6 million at October 1, 2011 compared to $127.7 million at January 1, 2011, reflecting an actual annualized rate of return on the Pension Plan’s assets, net of expenses, of 10% (loss) for the Nine Months Ended October 1, 2011. That rate of return was less than the assumed rate of return of 8% (gain) per year on Pension Plan assets which the Company has been using to estimate pension income (expense) on an interim basis, based upon historical results. Based upon the decrease in the fair value of the investment portfolio for the Nine Months Ended October 1, 2011, the Company expects to recognize pension expense of between $9 million and $14 million in the fourth quarter of Fiscal 2011. The Company’s pension income (expense) is also affected by the discount rate used to calculate Pension Plan liabilities, by Pension Plan amendments and by Pension Plan benefit experience compared to assumed experience and other factors. These factors could increase or decrease the amount of pension income or expense ultimately recorded by the Company for Fiscal 2011. Based upon results for Fiscal 2010, a 0.1% increase (decrease) in the discount rate would decrease (increase) pension expense by approximately $1.7 million.

Accounts Receivable and Inventories

Accounts receivable increased $23.3 million to $341.4 million at October 1, 2011 from $318.1 million at January 1, 2011, and decreased $5.1 million to $341.4 million at October 1, 2011 from $346.5 million at October 2, 2010. The balance of accounts receivable at October 1, 2011 compared to the balances at January 1, 2011 and October 2, 2010 includes a decrease of $8.4 million and $9.4 million, respectively, due to fluctuations in exchange rates in the U.S. dollar relative to foreign currencies in connection with transactions in countries where the Company conducts certain of its operations (principally the Euro, Korean Won, Canadian Dollar, Brazilian Real, Chinese Yuan and Mexican Peso). Thus, on a constant currency basis, accounts receivable at October 1, 2011 increased compared to both January 1, 2011 and October 2, 2010.

Inventories increased $81.6 million to $392.1 million at October 1, 2011 from $310.5 million at January 1, 2011 and increased $67.7 million to $392.1 million at October 1, 2011 from $324.4 million at October 2, 2010. The balance of inventories at October 1, 2011 compared to the balances at January 1, 2011 and October 2, 2010 includes a decrease of $7.8 million and $8.9 million, respectively, due to fluctuations in exchange rates in the U.S. dollar relative to foreign currencies in connection with transactions in countries where the Company conducts certain of its operations (principally the Euro, Korean Won, Canadian Dollar, Brazilian Real, Chinese Yuan and Mexican Peso). The inventory increase from October 2, 2010 to October 1, 2011 primarily reflects the expansion of the Company’s retail business (including retail openings and acquisitions), and higher product costs. The Company is comfortable with the quality of its inventory and expects that inventory levels at the end of Fiscal 2011 will be better aligned with sales growth.

Cash Flows

The following table summarizes the cash flows from the Company’s operating, investing and financing activities for the Nine Months Ended October 1, 2011 and the Nine Months Ended October 2, 2010:


	Nine Months Ended
	October 1, 2011			October 2, 2010
	(in thousands of dollars)

Net cash provided by (used in) operating activities:
Continuing operations	$	76,683		$	147,943
Discontinued operations		(16,501	)		377
Net cash (used in) investing activities:
Continuing operations		(61,619	)		(36,567	)
Discontinued operations		—			—
Net cash (used in) financing activities:
Continuing operations		(9,357	)		(221,182	)
Discontinued operations		—			—
Translation adjustments		(1,107	)		2,084

(Decrease) in cash and cash equivalents	$	(11,901	)	$	(107,345	)

For the Nine Months Ended October 1, 2011, cash provided by operating activities from continuing operations was $76.7 million compared to cash provided by operating activities of $147.9 million for Nine Months Ended October 2, 2010. The $71.2 million decrease in cash provided by operating activities was due to an increase in net income, net of non-cash charges, more than offset by an increase in outflows related to changes in working capital.

Working capital changes for the Nine Months Ended October 1, 2011 included cash outflows of $32.4 million related to accounts receivable (due to increased sales in September 2011 compared to December 2010 and the timing of payments), $101.4 million related to inventory (primarily to support the Company’s growth expectations for the remainder of Fiscal 2011 and the beginning of the year ending December 29, 2012), $13.1 million related to prepaid expenses and other assets (primarily related to assets associated with the Company’s hedging activities, prepaid royalty, prepaid rent and prepaid taxes, other than income taxes), and $12.1 million related to accrued income taxes, partially offset by cash inflows of $14.8 million related to accounts payable, accrued expenses and other liabilities (due to the timing of payments for purchases of inventory).

Working capital changes for the Nine Months Ended October 2, 2010 included cash outflows of $59.3 million related to accounts receivable (due to increased sales in September 2010 compared to December 2009 and the timing of payments), $74.6 million related to inventory (to support the Company’s growth expectations for the balance of the year) and $10.5 million related to prepaid expenses and other assets (primarily related to prepaid advertising and royalty expenses), partially offset by cash inflows of $61.5 million related to accounts payable, accrued expenses and other liabilities (due to the timing of payments for purchases of inventory) and $39.9 million related to accrued income taxes.

For the Nine Months Ended October 1, 2011 compared to the Nine Months Ended October 2, 2010, cash used in operating activities from discontinued operations increased $16.9 million primarily related to settlement of the OP litigation (see Notes 4 and 18 of Notes to Consolidated Condensed Financial Statements).

For the Nine Months Ended October 1, 2011, net cash used in investing activities from continuing operations was $61.6 million, mainly attributable to purchases of property, plant and equipment associated with the Company’s retail stores and acquisition of the business of the Company’s distributor of Calvin Klein products in India. For the Nine Months Ended October 2, 2010, net cash used in investing activities from continuing operations was $36.6 million, mainly attributable to purchases of property, plant and equipment, including $29.8 million related to the Company’s new distribution center in the Netherlands and the opening of new retail stores, and $8.4 million related to acquisitions of businesses in Asia.

Net cash used in financing activities for the Nine Months Ended October 1, 2011 was $9.4 million, which primarily reflects cash used of $211.2 million related to the repurchase of treasury stock (in connection with the 2010 Share Repurchase Program, the 2011 Share Repurchase Program and the surrender of shares for the payment of minimum income tax due upon vesting of certain restricted stock awarded by the Company to its employees), repayment of the Italian Note ($13.4 million), $11.5 million related to a contingent payment made during the first quarter of Fiscal 2011 in connection with the acquisition of the equity interest in WBR, which occurred in the fourth quarter of Fiscal 2009 and was accounted for as an equity transaction and $5.3 million in payment of deferred financing costs primarily related to the 2011 Term Loan, partially offset by net cash provided of $200.0 million related to borrowings under the 2011 Term Loan, $24.3 million received from short term borrowings and $8.2 million from the exercise of employee stock options.

Net cash used in financing activities for the Nine Months Ended October 2, 2010 was $221.2 million, which primarily reflects net cash used of $164.0 million related to the repurchase of Senior Notes, $84.1 million related to the repurchase of treasury stock (in connection with the 2007 Share Repurchase Program, the 2010 Share Repurchase Program and the surrender of shares for the payment of minimum income tax due upon vesting of certain restricted stock awarded by the Company to its employees) and $3.4 million related to a contingent payment in connection with the acquisition of the equity interest in WBR in the fourth quarter of Fiscal 2009 and was accounted for as an equity transaction, partially offset by cash provided of $15.3 million related to increased balance of short-term notes, $7.0 million related to amounts borrowed under the 2008 Credit Agreements and $8.2 million from the exercise of employee stock options.

Significant Contractual Obligations and Commitments

Contractual obligations and commitments as of October 1, 2011 were not materially different from those disclosed in the Company’s Annual Report on Form 10-K for Fiscal 2010, with the exception of changes related to operating leases and other contractual obligations which occurred during the Nine Months Ended October 1, 2011 (see Note 19 of Notes to Consolidated Condensed Financial Statements).

Off-Balance Sheet Arrangements

None.

Statement Regarding Forward-Looking Disclosure

This Quarterly Report on Form 10-Q, as well as certain other written, electronic and oral disclosures made by the Company from time to time, contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties and reflect, when made, the Company’s estimates, objectives, projections, forecasts, plans, strategies, beliefs, intentions, opportunities and expectations. Actual results may differ materially from anticipated results, targets or expectations and investors are cautioned not to place undue reliance on any forward-looking statements. Statements other than statements of historical fact, including, without limitation, future financial targets, are forward-looking statements. These forward-looking statements may be identified by, among other things, the use of forward-looking language, such as the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “project,” “scheduled to,” “seek,” “should,” “will be,” “will continue,” “will likely result”, “targeted”, or the negative of those terms, or other similar words and phrases or by discussions of intentions or strategies.

The following factors, among others, including those described in this Quarterly Report on Form 10-Q under the heading Item 1A. Risk Factors (as such disclosure may be modified or supplemented from time to time), could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by it: the Company’s ability to execute its repositioning and sale initiatives (including achieving enhanced productivity and profitability) previously announced; deterioration in global or regional or other macro-economic conditions that affect the apparel industry, including turmoil in the financial and credit markets; the Company’s failure to anticipate, identify or promptly react to changing trends, styles, or brand preferences; further declines in prices in the apparel industry and other pricing pressures; declining sales resulting from increased competition in the Company’s markets; increases in the prices of raw materials or costs to produce or transport products; events which result in difficulty in procuring or producing the Company’s products on a cost-effective basis; the effect of laws and regulations, including those relating to labor, workplace and the environment; possible additional tax liabilities; changing international trade regulation, including as it relates to the imposition or elimination of quotas on imports of textiles and apparel; the Company’s ability to protect its intellectual property or the costs incurred by the Company related thereto; the risk of product safety issues, defects or other production problems associated with the Company’s products; the Company’s dependence on a limited number of customers; the effects of consolidation in the retail sector; the Company’s dependence on license agreements with third parties including, in particular, its license agreement with CKI, the licensor of the Company’s Calvin Klein brand name; the Company’s dependence on the reputation of its brand names, including, in particular, Calvin Klein; the Company’s exposure to conditions in overseas markets in connection with the Company’s foreign operations and the sourcing of products from foreign third-party vendors; the Company’s foreign currency exposure; unanticipated future internal control deficiencies or weaknesses or ineffective disclosure controls and procedures; the effects of fluctuations in the value of investments of the Company’s pension plan; the sufficiency of cash to fund operations, including capital expenditures; the Company recognizing impairment charges for its long-lived assets; uncertainty over the outcome of litigation matters and other proceedings; the Company’s ability to service its indebtedness, the effect of changes in interest rates on the Company’s indebtedness that is subject to floating interest rates and the limitations imposed on the Company’s operating and financial flexibility by the agreements governing the Company’s indebtedness; the Company’s dependence on its senior management team and other key personnel; the Company’s reliance on information technology; the limitations on purchases under the Company’s share repurchase program contained in the Company’s debt instruments, the number of shares that the Company purchases under such program and the prices paid for such shares; the Company’s inability to achieve its financial targets and strategic objectives, as a result of one or more of the factors described above, changes in the assumptions underlying the targets or goals, or otherwise; the inability to successfully implement restructuring and disposition activities; the failure of acquired businesses to generate expected levels of revenues; the failure of the Company to successfully integrate such businesses with its existing businesses (and as a result, not achieving all or a substantial portion of the anticipated benefits of such acquisitions); and such acquired businesses being adversely affected, including by one or more of the factors described above, and thereby failing to achieve anticipated revenues and earnings growth.

The Company encourages investors to read the section entitled Item 1A. Risk Factors and the discussion of the Company’s critical accounting policies in Discussion of Critical Accounting Policies included in the Company’s Annual Report on Form 10-K for Fiscal 2010, as such discussions may be modified or supplemented by subsequent reports that the Company files with the SEC. This discussion of forward-looking statements is not exhaustive but is designed to highlight important factors that may affect actual results. Forward-looking statements speak only as of the date on which they are made, and, except for the Company’s ongoing obligation under the U.S. federal securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Item 3.		*Quantitative and Qualitative Disclosures About Market Risk.*

The Company is exposed to market risk primarily related to changes in hypothetical investment values under certain of the Company’s employee benefit plans, interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculation or for trading purposes. During the Nine Months Ended October 1, 2011, there were no material changes in the qualitative or quantitative aspects of these risks from those disclosed in the Company’s Annual Report on Form 10-K for Fiscal 2010. In addition, on June 17, 2011, the Company entered into the 2011 Term Loan, which bears interest of LIBOR (with a floor of 1%) plus a margin of 2.75% per annum. Changes in LIBOR will affect $80 million of the 2011 Term Loan not subject to the interest rate cap (see Note 14 of Notes to Consolidated Condensed Financial Statements). Changes in LIBOR have been immaterial from June 17, 2011(the date the 2011 Term Loan was initiated) through October 1, 2011.


Item 4.		*Controls and Procedures*.

(a) Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Three Months Ended October 1, 2011 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 1A.		*Risk Factors*.

Please refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for Fiscal 2010, filed with the SEC on February 28, 2011 for a description of certain significant risks and uncertainties to which the Company’s business, operations and financial condition are subject. There have been no material changes to these risk factors during the Nine Months Ended October 1, 2011.


Item 2.		*Unregistered Sales of Equity Securities and Use of Proceeds*.

During May 2010, the Company’s Board of Directors authorized a share repurchase program (the “2010 Share Repurchase Program”), which allows the Company to repurchase up to 5,000,000 shares of its common stock. During the first half of Fiscal 2011, the Company purchased 1,629,651 shares of common stock for a total of $87.6 million (based on $53.75 per share) under the 2010 Share Repurchase Program. During the Three Months Ended October 1, 2011, the Company purchased the remaining 2,431,191 shares of common stock for a total of $118.2 million (based on $48.62 per share) under the 2010 Share Repurchase Program.

During September 2011, the Company’s Board of Directors authorized a new multi-year share repurchase program (the “2011 Share Repurchase Program”) for up to $200 million of the Company’s outstanding common stock. During the Three Months Ended October 1, 2011, the Company repurchased 104,300 shares of common stock for a total of $5.0 million (based on $47.90 per share) under the 2011 Share Repurchase Program. All repurchases of shares under the 2011 Share Repurchase Program will be made consistent with the terms of the Company’s applicable debt instruments.

An aggregate of 6,420 shares included below as repurchased during the Three Months Ended October 1, 2011 reflect the surrender of shares in connection with the vesting of certain restricted stock awarded by the Company to its employees. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company in satisfaction thereof. The repurchase of these shares is not a part of the 2010 Share Repurchase Program or the 2011 Share Repurchase Program.

The following table summarizes repurchases of the Company’s common stock during the Three Months Ended October 1, 2011.


					Total Number		Maximum Number (or
					of Shares		Approximate Dollar Value)
	Total Number		Average		Purchased as		of Shares that May Yet Be
	of Shares		Price Paid		Part of Publicly		Repurchased Under
Period	Repurchased		per Share		Announced Programs		the Announced Programs

July 3, 2011 – July 29, 2011		954	$	55.21		—		2,431,191

July 30, 2011 – August 27, 2011		2,432,066	$	48.62		2,431,191		—

August 28, 2011 – October 1, 2011		108,891	$	47.96		104,300	$	195,003,548

In the event that available credit under the 2008 Credit Agreements is less than 25% of the aggregate borrowing limit under the 2008 Credit Agreements, the 2008 Credit Agreements place restrictions on the Company’s ability to pay dividends on the Common Stock and to repurchase shares of the Common Stock. In addition, if an event of default, as defined in the 2011 Term Loan Agreement, has occurred and is continuing or if the consolidated interest coverage ratio, as defined in the 2011 Term Loan Agreement, for the Company’s most recent four fiscal quarters is less than 2.25 to 1.00, the 2011 Term Loan places restrictions on the payment of dividends and repurchases of shares of the Company’s Common Stock that are otherwise allowed to be paid or repurchased up to the cap set forth in the 2011 Term Loan Agreement. At October 1, 2011, the triggering events for restriction on the payment of dividends and repurchase of shares under the 2008 Credit Agreements and under the 2011 Term Loan had not been met. The Company has not paid any dividends on the Common Stock.


Item 3.		*Defaults Upon Senior Securities*.

None.


Item 4.		(Removed and Reserved).


Item 5.		*Other Information*.

None.


Item 6.		*Exhibits*.

The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and:

	•		were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

	•		may have been qualified in such agreements by disclosures that were made to the other party in connection with the negotiation of the applicable agreement;

	•		may apply contract standards of “materiality” that are different from “materiality” under the applicable security laws; and

	•		were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

The Company acknowledges that notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading.


Exhibit No.		Description of Exhibit

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

	3.2	Third Amended and Restated Bylaws of The Warnaco Group, Inc. (incorporated by reference to Exhibit 3.2 to the Form 8-K filed by The Warnaco Group, Inc. on July 13, 2010). *

	10.1	Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., CK Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended (underlying agreement filed as Exhibit 10.68 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.2	Amendment, dated as of July 8, 2011, to the Letter Agreement, dated as of January 31, 2006, by and among Calvin Klein, Inc., CK Jeanswear N.V., CK Jeanswear Europe S.p.A., CK Jeanswear Asia Limited and WF Overseas Fashion C.V. (underlying agreement filed as Exhibit 10.71 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.3	Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2008, by and among Calvin Klein, Inc., WF Overseas Fashion C.V. and CK Jeanswear Europe S.r.l. (underlying agreement filed as Exhibit 10.68 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 29, 2007, filed February 27, 2008). † #

	10.4	Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and among Calvin, Klein, Inc., CK Jeanswear Europe S.p.A and WF Overseas Fashion C.V., as amended (underlying agreement filed as Exhibit 10.69 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.5	Amendment, dated as of July 8, 2011, to the Amended and Restated License Agreement, dated as of January 1, 1997, by and between Calvin Klein, Inc. and Calvin Klein Jeanswear Asia Ltd., as amended (underlying agreement filed as Exhibit 10.62 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.6	Amendment, dated as of July 8, 2011, to the Amended and Restated Letter Agreement, dated as of March 6, 2002, by and among Calvin Klein, Inc., CK Jeanswear N.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.p.A. (underlying agreement filed as Exhibit 10.64 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.7	Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2006, by and among Calvin, Klein, Inc., CK Jeanswear Europe S.p.A, CK Jeanswear Asia Limited and WF Overseas Fashion C.V., as amended (underlying agreement filed as Exhibit 10.70 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 31, 2005, filed March 3, 2006). † #

	10.8	Amendment, dated as of July 8, 2011, to the License Agreement, dated as of January 31, 2008, by and among Calvin Klein, Inc., WF Overseas Fashion C.V., CK Jeanswear Asia Limited and CK Jeanswear Europe S.r.l. (underlying agreement filed as Exhibit 10.70 to The Warnaco Group, Inc.’s Form 10-K for the year ended December 29, 2007, filed February 27, 2008). † #

	10.9	Employment Agreement, dated as of October 31, 2011, by and between The Warnaco Group, Inc. and Martha J. Olson. †

	10.10	First Amendment, dated as of October 31, 2011, to the Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between The Warnaco Group, Inc. and Stanley P. Silverstein (underlying agreement filed as Exhibit 10.30 to The Warnaco Group, Inc.’s Form 10-K for the year ended January 3, 2009, filed March 2, 2009). †


Exhibit No.		Description of Exhibit

	10.11	First Amendment, dated as of October 31, 2011, to the Employment Agreement, dated as of August 11, 2008, by and between The Warnaco Group, Inc. and Jay L. Dubiner (underlying agreement filed as Exhibit 10.31 to The Warnaco Group, Inc.’s Form 10-K for the year ended January 3, 2009, filed March 2, 2009). †

	10.12	First Amendment, dated as of October 31, 2011, to the Amended and Restated Employment Agreement, dated as of December 31, 2008, by and between The Warnaco Group, Inc. and Elizabeth Wood (underlying agreement filed as Exhibit 10.33 to The Warnaco Group, Inc.’s Form 10-K for the year ended January 3, 2009, filed March 2, 2009). †

	31.1	Certification of Chief Executive Officer of The Warnaco Group, Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. †

	31.2	Certification of Chief Financial Officer of The Warnaco Group, Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. †

	32	Certifications of Chief Executive Officer and Chief Financial Officer of The Warnaco Group, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase. †

101.INS		XBRL Instance Document. †

101.LAB		XBRL Taxonomy Extension Label Linkbase. †

101.PRE		XBRL Taxonomy Extension Presentation Linkbase. †

101.SCH		XBRL Taxonomy Extension Schema Linkbase. †

101.DEF		XBRL Definition Linkbase Document. †


*		Previously filed.

†		Filed herewith.

#		Certain portions of this exhibit omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.


	PAGE
	NUMBER

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Consolidated Condensed Balance Sheets as of October 1, 2011, January 1, 2011 and October 2, 2010		1

Consolidated Condensed Statements of Operations for the Three Months and Nine Months Ended October 1, 2011 and for the Three Months and Nine Months Ended October 2, 2010		2

Consolidated Statements of Stockholders’ Equity, Comprehensive Income and Redeemable Non-Controlling Interest for the Nine Months Ended October 1, 2011 and for the Nine Months Ended October 2, 2010		3

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended October 1, 2011 and for the Nine Months Ended October 2, 2010		4

Notes to Consolidated Condensed Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		61

Item 4. Controls and Procedures		61

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		62

Item 1A. Risk Factors		62

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		62

Item 3. Defaults Upon Senior Securities		63

Item 4. (Removed and Reserved)		63

Item 5. Other Information		63

Item 6. Exhibits		63

SIGNATURES		64

Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 10.11
Exhibit 10.12
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


		THE WARNACO GROUP, INC.

Date: November 3, 2011		/s/ Joseph R. Gromek Joseph R. Gromek
		President and Chief Executive Officer

Date: November 3, 2011		/s/ Lawrence R. Rutkowski Lawrence R. Rutkowski
		Executive Vice President and
		Chief Financial Officer