December 21, 2011
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1.
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We note in your response to comment two of our letter dated November 10, 2011 that cash and investments held by foreign subsidiaries as of January 1, 2011 and October 1, 2011 were $176.4 million and $176.7 million, respectively. We further note that your total cash and cash equivalents as of January 1, 2011 and October 1, 2011 were $191.2 million and $179.3 million, respectively. Given that a significant amount and percentage of your total cash and investments are held by foreign subsidiaries, please advise us of the following:
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a.
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Confirm to us that you will provide disclosure, in future filings, of the balance of cash and investments held by foreign subsidiaries as well as disclosure to illustrate that the large majority of such cash and investments is not available to fund domestic operations without accrual and payment of a significant amount of taxes upon repatriation. Also provide us with the text of your proposed future disclosure in your response.
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b.
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Describe to us how you satisfy the cash needs of your domestic operations.
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c.
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Describe to us your specific plans for the reinvestment of undistributed earnings of foreign subsidiaries (ASC 740-30-25-17), and tell us the factors that management considered in determining that there is sufficient evidence that the undistributed earnings of your foreign subsidiaries will continue to be indefinitely reinvested (ASC 740-30-25-19). Include your consideration of the amount and percentage of cash and investments currently held by foreign subsidiaries in your response.
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1.
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Funding of strategic initiatives, which the Company expects it will continue to implement over the next five years, including:
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i)
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Retail Expansion – The Company expects to continue to add retail store space internationally;
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ii)
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Acquisition(s) and Overseas Expansion – The Company’s plans for expansion include (i) continued acquisition of distributors outside the United States; (ii) the continued expansion of its business into underpenetrated international markets; and (iii) growth in its portfolio of product offerings through the acquisition of global/international brands (or branded companies) and acquisition of additional international Calvin Klein licenses; and
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iii)
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Continued Investment in International Infrastructure – The Company expects to continue making significant investments in its international infrastructure such as capital expenditures on existing retail stores and investments in information technology systems (including investments in financial systems, planning/supply chain systems, product development systems, and direct-to-consumer initiatives). Additionally, the Company expects to continue its initiative of consolidating and streamlining certain international operations, including the development of shared international service centers and construction of regional upgraded international distribution centers.
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2.
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Meeting the working capital needs of its rapidly growing overseas operations; and
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3.
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Repayment of debt (both third-party and inter-company) of its foreign subsidiaries in the normal course of business.
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1.
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Projections with Respect to International Growth: The Company projects that over the next several years net revenues from its international businesses will grow at a significantly higher rate than what is expected with respect to revenue growth from its domestic business. In order to achieve its international growth objectives, the Company is expecting to reinvest the cash and cash equivalents of its foreign subsidiaries back into the foreign businesses.
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2.
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Past Initiatives: The Company’s recent initiatives to grow its international businesses, including the acquisitions of businesses in Europe and Asia (2006), Brazil (2009), Italy (2010) and India (2011), and the opening or acquisition of more than 1,500 international retail stores from the period 2006 to 2011 is indicative of future cash requirements of its international businesses.
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3.
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Governmental Restrictions: Certain foreign governments impose currency controls that restrict the ability of the Company to make distributions of cash to other jurisdictions.
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4.
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Dividend Policy: Since emergence from bankruptcy in 2003, the Company has not paid dividends to shareholders and currently has no plans to start paying dividends.
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5.
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Domestic Cash Needs: For the reasons described in the response to comment 1(b) above, the Company does not foresee a need to repatriate cash and cash equivalents held by foreign subsidiaries to the United States in order to satisfy the cash needs of its domestic operations.
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Very truly yours,
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/s/ Lawrence R. Rutkowski
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Lawrence R. Rutkowski
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Executive Vice President and Chief Financial Officer
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Cc:
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Alan C. Myers, Skadden, Arps, Slate, Meagher & Flom LLP
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Joseph R. Gromek, The Warnaco Group, Inc.
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Helen E. McCluskey, The Warnaco Group, Inc
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Jay L. Dubiner, The Warnaco Group, Inc.
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Deloitte & Touche, LLP
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