UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~JUNE 30~~SEPTEMBER 29, 2012

[ ] 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. [X] Yes [ ] 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). [X] Yes [ ] 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 [X]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company[ ]

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

The number of outstanding shares of the registrant's common stock, par value $0.01 per share, as of ~~August~~November 1, 2012 is as follows: 40,~~871~~966,~~501~~440.

Table of Contents

THE WARNACO GROUP, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~JUNE 30~~SEPTEMBER 29, 2012

PART I –FINANCIAL INFORMATION

		PAGE
		NUMBER
Item 1.	Financial Statements:
	Consolidated Condensed Balance Sheets as of June 30, 2012, December 31, 2011and July 2, 2011	1
	Consolidated Condensed Balance Sheets as of September 29, 2012, December 31, 2011 and October 1, 2011	1
	Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2012 and for the Three and Six Months Ended July 2, 2011	2
	Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 29, 2012 and for the Three and Nine Months Ended October 1, 2011	2
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and for the Three and Six Months Ended July 2, 2011	3
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 29, 2012 and for the Three and Nine Months Ended October 1, 2011	3
	Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity for the Six Months Ended June 30, 2012 and for the Six Months Ended July 2, 2011	4
	Consolidated Statements of Redeemable Non-Controlling Interest and Stockholders’ Equity for the Nine Months Ended September 29, 2012 and for the Nine Months Ended October 1, 2011	4
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2012 and for the Six Months Ended July 2, 2011	5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 29, 2012 and for the Nine Months Ended October 1, 2011	5
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3733
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7169
Item 4.	Controls and Procedures	7269
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	7370
Item 1A.	Risk Factors	7370
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7371
Item 3.	Defaults Upon Senior Securities	7472
Item 4.	Mine Safety Disclosures	7472
Item 5.	Other Information	7472
Item 6.	Exhibits	7473
SIGNATURES		7674

Table of Contents

PART I

FINANCIAL INFORMATION \

Item 1. Financial Statements.

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands, excluding per share data)

(Unaudited)

		June 30, 2012		December 31, 2011		July 2, 2011
	September 29, 2012				December 31, 2011			October 1, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	~~295~~311,~~346~~011	$	~~232,531~~	$	~~294~~232,~~802~~531		$	179,326
Accounts receivable, net of reserves of $99,193, $94,739 and $94,887
Accounts receivable, net of reserves of $91,386, $94,739 and $89,798 as of September 29, 2012, December 31, 2011 and October 1, 2011, respectively	323,719				322,976			341,406
as of June 30, 2012, December 31, 2011 and July 2, 2011, respectively		283,370		322,976		320,416
Inventories	388,827				350,835			392,073
Inventories		330,571		350,835		355,384
Prepaid expenses and other current assets	106,693				99,686			114,574
Prepaid expenses and other current assets		99,550		99,686		103,396
Deferred income taxes	60,124				58,602			59,781
Deferred income taxes		59,568		58,602		62,937
Total current assets	1,190,374				1,064,630			1,087,160
Total current assets		1,068,405		1,064,630		1,136,935
Property, plant and equipment, net	135,054				133,022			129,205
Property, plant and equipment, net		127,950		133,022		130,566
Other assets:
Other assets:
Licenses, trademarks and other intangible assets, net	311,960				320,880			360,508
Licenses, trademarks and other intangible assets, net		310,724		320,880		382,686
Goodwill	141,103				139,948			143,688
Goodwill		137,584		139,948		123,309
Deferred income taxes	25,043				21,885			24,695
Deferred income taxes		23,831		21,885		23,759
Other assets	48,959				67,485			67,515
Other assets		50,034		67,485		67,033
Total assets	$	1,852,493			$	1,747,850		$	1,812,771
Total assets	$	1,718,528	$	1,747,850	$	1,864,288
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
LIABILITIES, REDEEMABLE NON-CONTROLLING
Current liabilities:
INTEREST AND STOCKHOLDERS' EQUITY
Short-term debt	$	49,393			$	47,513		$	47,773
Current liabilities:
Accounts payable	173,616				141,797			182,517
Short-term debt	$	46,399	$	47,513	$	12,673
Accrued liabilities	192,099				212,655			209,842
Accounts payable		139,096		141,797		149,665
Liabilities of discontinued operations	—				6,797			7,048
Accrued liabilities		165,197		212,655		194,926
Accrued income taxes payable	15,290				41,762			33,586
Liabilities of discontinued operations		-		6,797		3,433
Deferred income taxes	1,589				1,476			1,320
Accrued income taxes payable		12,843		41,762		22,465
Total current liabilities	431,987				452,000			482,086
Deferred income taxes		1,363		1,476		1,124
Long-term debt	205,299				208,477			209,552
Total current liabilities		364,898		452,000		384,286
Deferred income taxes	38,246				37,000			76,410
Long-term debt		206,360		208,477		210,631
Other long-term liabilities	133,003				137,973			130,119
Deferred income taxes		37,886		37,000		81,025
Total liabilities	808,535				835,450			898,167
Other long-term liabilities		134,088		137,973		151,423
Commitments and contingencies
Total liabilities		743,232		835,450		827,365
Redeemable non-controlling interest	15,275				15,200			15,200
Commitments and contingencies
Stockholders' equity:
Redeemable non-controlling interest		15,200		15,200		-
Preferred stock	—				—			—
Stockholders' equity:
Common stock: $0.01 par value, 112,500,000 shares authorized, 53,057,174, 52,184,730 and 52,134,522 shares issued as of September 29, 2012, December 31, 2011 and October 1, 2011, respectively	531				522			521
Preferred stock		-		-		-
Additional paid-in capital	773,821				721,356			704,741
Common stock: $0.01 par value, 112,500,000 shares authorized,
Accumulated other comprehensive income	23,200				16,242			20,421
52,959,159, 52,184,730 and 52,089,870 shares issued as of June 30, 2012,
Retained earnings	712,420				625,760			633,776
December 31, 2011 and July 2, 2011, respectively		530		522		521
Treasury stock, at cost 12,090,834, 11,790,428 and 11,653,871 shares as of September 29, 2012, December 31, 2011 and October 1, 2011, respectively	(481,289		)		(466,680		)	(460,055		)
Additional paid-in capital		759,317		721,356		698,855
Total stockholders' equity	1,028,683				897,200			899,404
Accumulated other comprehensive income		10,880		16,242		83,154
Total liabilities, redeemable non-controlling interest and stockholders' equity	$	1,852,493			$	1,747,850		$	1,812,771
Retained earnings		670,500		625,760		590,928
Treasury stock, at cost 12,087,658, 11,790,428 and 9,111,960 shares
as of June 30, 2012, December 31, 2011 and July 2, 2011, respectively		(481,131)		(466,680)		(336,535)
Total stockholders' equity		960,096		897,200		1,036,923
Total liabilities, redeemable non-controlling interest and stockholders' equity	$	1,718,528	$	1,747,850	$	1,864,288

See Notes to Consolidated Condensed Financial Statements.

Table of Contents

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands, excluding per share amounts)

(Unaudited)

	Three Months Ended		~~Three Months Ended~~					~~Six Months Ended~~	Nine Months Ended
			June 30, 2012		July 2, 2011			June 30, 2012		July 2, 2011
	September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
Net revenues	$	$611,538	~~563,911~~	$	~~591,387~~$	645,121	$	~~1,179,452~~	$	1,~~253~~790,~~548~~990		$	1,898,669
Cost of goods sold	344,581		~~324,972~~		~~333~~365,~~117~~412			~~673,028~~	1,017,609	~~700,140~~		1,065,552
Gross profit	266,957		~~238,939~~		~~258~~279,~~270~~709			~~506,424~~	773,381	~~553,408~~		833,117
Selling, general and administrative expenses	197,773		~~199,344~~		~~202~~212,~~854~~000			~~411,965~~	609,738	~~425,491~~		637,491
Amortization of intangible assets	2,537		~~6,850~~		3,~~126~~263			~~9,549~~	12,086	~~6,285~~		9,548
Pension income	(55		~~(55~~)		(~~309)~~310		)	~~(109)~~	(164	~~(621)~~	)	(931		)
Operating income	66,702		~~32,800~~		5264,~~599~~756			~~85,019~~	151,721	~~122,253~~		187,009
Other loss (income)			12,894		(215)			12,625		(859)
Other loss	13				1,357				12,638			498
Interest expense	4,614		~~4,645~~		34,~~460~~986			~~9,094~~	13,708	~~6,156~~		11,142
Interest income	(831		~~(1,001~~)		(~~810)~~986		)	~~(1,874)~~	(2,705	~~(1,556)~~	)	(2,542		)
Income from continuing operations before provision
Income from continuing operations before provisionfor income taxes and redeemable non-controlling interest	62,906				59,399				128,080			177,911
for income taxes and redeemable non-controlling interest			16,262		50,164			65,174		118,512
Provision for income taxes	21,676				10,770				44,489			39,184
Provision for income taxes			6,822		4,598			22,813		28,414
Income from continuing operations beforeredeemable non-controlling interest	41,230				48,629				83,591			138,727
Income from continuing operations before
Income (loss) from discontinued operations, net of taxes	(2		)		(4,177		)		3,023			(4,741		)
redeemable non-controlling interest			9,440		45,566			42,361		90,098
Net income	41,228				44,452				86,614			133,986
Income (loss) from discontinued operations, net of taxes			(9)		(63)			3,025		(564)
Less: income (loss) attributable to redeemablenon-controlling interest	100				(159		)		(46		)	(159		)
Net income			9,431		45,503			45,386		89,534
Net income attributable to Warnaco Group	$	41,128			$	44,611			$	86,660		$	134,145
Less: loss attributable to redeemable
Amounts attributable to Warnaco Groupcommon shareholders:
non-controlling interest			(185)		-			(146)		-
Income from continuing operations, net of tax	$	41,130			$	48,788			$	83,637		$	138,886
Net income attributable to Warnaco Group		$	9,616	$	45,503		$	45,532	$	89,534
Income (loss) from discontinued operations, net of taxes	(2		)		(4,177		)		3,023			(4,741		)
Amounts attributable to Warnaco Group
Net income	$	41,128			$	44,611			$	86,660		$	134,145
common shareholders:
Basic income per common share (see Note 17):
Income from continuing operations, net of tax		$	9,625	$	45,566		$	42,507	$	90,098
Income from continuing operations	$	0.99			$	1.15			$	2.02		$	3.18
Income (loss) from discontinued operations, net of taxes			(9)		(63)			3,025		(564)
Income (loss) from discontinued operations	—				(0.10		)		0.08			(0.11		)
Net Income		$	9,616	$	45,503		$	45,532	$	89,534
Net income	$	0.99			$	1.05			$	2.10		$	3.07
Basic income per common share (see Note 17):
Diluted income per common share (see Note 17):
Income from continuing operations	$	$0.98	~~0.23~~	$	~~1.03~~$	1.13	$	~~1.03~~	$	21.0399		$	3.11
Income (loss) from discontinued operations	—		-		-(0.10		)	~~0.07~~	0.07	~~(0.01)~~		(0.11		)
Net income	$	$0.98	~~0.23~~	$	~~1.03~~$	1.03	$	~~1.10~~	$	2.0206		$	3.00
Diluted income per common share (see Note 17):
Weighted average number of shares outstanding used incomputing income per common share (see Note 17):
Income from continuing operations		$	0.23	$	1.01		$	1.01	$	1.99
Basic	40,908,995				41,713,958				40,800,528			43,076,120
Income (loss) from discontinued operations			-		-			0.07		(0.02)
Diluted	41,498,354				42,581,100				41,525,805			44,023,646
Net income		$	0.23	$	1.01		$	1.08	$	1.97
Weighted average number of shares outstanding used in
computing income per common share (see Note 17):
Basic			40,962,008		43,622,535			40,746,295		43,757,202
Diluted			41,551,860		44,458,373			41,505,033		44,698,317

See Notes to Consolidated Condensed Financial Statements.

Table of Contents

THE WARNACO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)

	Three Months Ended	~~Three Months Ended~~				~~Six Months Ended~~			Nine Months Ended
		June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
	September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
Net income	$	941,~~431~~228	$	~~45,503~~	$	4544,~~386~~452	$	~~89,534~~	$	86,614		$	133,986
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	15,175	~~(24,099)~~		~~13,463~~	(64,774	~~(3,833)~~	)	~~41,717~~	11,342			(23,057		)
Change in cash flow hedges	(2,090	~~(479)~~	)	74	440	~~(2,187)~~		~~(1,609)~~	(4,277		)	(1,169		)
Other	2	23		~~(1)~~	(3	12	)	~~(2)~~	14			(5		)
Other comprehensive income (loss), net of tax:	13,087	~~(24,555)~~		~~13,536~~	(64,337	~~(6,008)~~	)	~~40,106~~	7,079			(24,231		)
Total comprehensive income (loss)	54,315	~~(15,124)~~		~~59,039~~	(19,885	~~39,378~~	)	~~129,640~~	93,693			109,755
Less: comprehensive income attributable to
Less: comprehensive income attributable toredeemable non-controlling interest	75				—				75			—
redeemable non-controlling interest		649		-		-		-
Total comprehensive income (loss) attributable to Warnaco Group	$	54,240			$	(19,885	)		$	93,618		$	109,755
Total comprehensive income (loss) attributable to Warnaco Group	$	(14,475)	$	59,039	$	39,378	$	129,640

See Notes to Consolidated Condensed Financial Statements.

Table of Contents

THE WARNACO GROUP, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE NON-CONTROLLING INTEREST

AND STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

			~~Warnaco Group Stockholders' Equity~~		Warnaco Group Stockholders' Equity
								Accumulated
	RedeemableNon-controllingInterest				CommonStock				AdditionalPaid-inCapital				Accumulated OtherComprehensiveIncome			RetainedEarnings			TreasuryStock			Total
		Redeemable				Additional		Other
Balance as of January 1, 2011	$	—			$	517			$	674,508			$	43,048		$	501,394		$	(246,861	)	$	972,606
		Non-controlling		Common		Paid-in		Comprehensive		Retained		Treasury
Net income (loss)	(159		)													134,145						134,145
		Interest		Stock		Capital		Income		Earnings		Stock		Total
Other comprehensive income	(1,604		)										(22,627		)							(22,627		)
Balance as of January 1, 2011	$	0	$	517	$	674,508	$	43,048	$	501,394	$	(246,861)	$	972,606
Stock issued in connection with stock compensation plans					4				9,018													9,022
Net income										89,534				89,534
Compensation expense in connection with employee stock compensation plans									21,215													21,215
Other comprehensive income								40,106						40,106
Purchase of treasury stock related to stock compensation plans																			(2,406		)	(2,406		)
Stock issued in connection with stock
Other repurchases of common stock																			(210,788		)	(210,788		)
compensation plans				4		7,863								7,867
Acquisition date fair value of redeemable non-controlling interest in joint venture in India	15,200
Compensation expense in connection with
Adjustment to redemption value	1,763															(1,763		)				(1,763		)
employee stock compensation plans						16,484								16,484
Balance as of October 1, 2011	$	15,200			$	521			$	704,741			$	20,421		$	633,776		$	(460,055	)	$	899,404
Purchase of treasury stock related to stock
compensation plans												(2,082)		(2,082)
Other repurchases of common stock												(87,592)		(87,592)
Balance as of July 2, 2011	$	0	$	521	$	698,855	$	83,154	$	590,928	$	(336,535)	$	1,036,923
			Warnaco Group Stockholders' Equity
								Accumulated
		Redeemable				Additional		Other
		Non-controlling		Common		Paid-in		Comprehensive		Retained		Treasury
		Interest		Stock		Capital		Income		Earnings		Stock		Total
Balance as of December 31, 2011	$	15,200	$	522	$	721,356	$	16,242	$	625,760	$	(466,680)	$	897,200
Net income (loss)		(146)								45,532				45,532
Other comprehensive (loss)		(646)						(5,362)						(5,362)
Tax benefit related to exercise of equity awards						13,143								13,143
Stock issued in connection with stock
compensation plans				8		14,866								14,874
Compensation expense in connection with
employee stock compensation plans						9,952								9,952
Purchase of treasury stock related to stock
compensation plans												(5,625)		(5,625)
Other repurchases of common stock												(8,826)		(8,826)
Adjustment to redemption value		792								(792)				(792)
Balance as of June 30, 2012	$	15,200	$	530	$	759,317	$	10,880	$	670,500	$	(481,131)	$	960,096



				Warnaco Group Stockholders' Equity
	Redeemable Non-controlling Interest			Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock			Total
Balance as of December 31, 2011	$	15,200		$	522	$	721,356	$	16,242	$	625,760	$	(466,680	)	$	897,200
Net income (loss)	(46		)							86,660					86,660
Other comprehensive income	121							6,958							6,958
Tax benefit related to exercise of equity awards						21,527									21,527
Stock issued in connection with stock compensation plans				9		17,811									17,820
Compensation expense in connection with employee stock compensation plans						13,127									13,127
Purchase of treasury stock related to stock compensation plans												(5,783		)	(5,783		)
Other repurchases of common stock												(8,826		)	(8,826		)
Balance as of September 29, 2012	$	15,275		$	531	$	773,821	$	23,200	$	712,420	$	(481,289	)	$	1,028,683

See Notes to Consolidated Condensed Financial Statements.

Table of Contents

THE WARNACO GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

		Six Months Ended
	Nine Months Ended
		June 30, 2012		July 2, 2011
	September 29, 2012				October 1, 2011
Cash flows from operating activities:
Net income	$	4586,~~386~~614	$	~~89,534~~	$	133,986
Adjustments to reconcile net income to net cash provided by
Adjustments to reconcile net income to net cash provided byoperating activities:
operating activities:
Foreign exchange loss	263				2,185
Foreign exchange gain (loss)		1,676		(5,142)
(Income) loss from discontinued operations	(3,023		)		4,741
(Income) Loss from discontinued operations		(3,025)		564
Depreciation and amortization	49,920				43,669
Depreciation and amortization		34,113		29,927
Stock compensation	13,127				21,215
Stock compensation		9,952		16,484
Provision for bad debts	1,707				2,259
Provision for bad debts		1,506		1,594
Inventory writedown	14,217				14,581
Inventory writedown		9,632		9,353
Write-down of note receivable from Palmers	12,046				—
Gain on sale of trademarks		-		(2,000)
Excess tax benefit from share-based payment arrangements	(21,527		)		—
Write-down of note receivable from Palmers		12,040		-
Other	(21		)		(1,697		)
Excess tax benefit from share-based payment arrangements		(13,143)		-
Changes in operating assets and liabilities:
Other		103		80
Accounts receivable	(3,963		)		(32,383		)
Changes in operating assets and liabilities:
Inventories	(45,865		)		(101,375		)
Accounts receivable		34,894		9,093
Prepaid expenses and other assets	(914		)		(13,125		)
Inventories		9,508		(39,514)
Accounts payable, accrued expenses and other liabilities	5,047				14,766
Prepaid expenses and other assets		(332)		7,901
Accrued income taxes	(5,685		)		(12,139		)
Accounts payable, accrued expenses and other liabilities		(41,282)		(48,600)
Net cash provided by operating activities from continuing operations	101,943				76,683
Accrued income taxes		(13,016)		(7,776)
Net cash (used in) operating activities from discontinued operations	—				(16,501		)
Net cash provided by operating activities from continuing operations		88,012		61,498
Net cash provided by operating activities	101,943				60,182
Net cash (used in) operating activities from discontinued operations		-		(18,057)
Cash flows from investing activities:
Net cash provided by operating activities		88,012		43,441
Proceeds from disposal of assets	564				146
Cash flows from investing activities:
Purchases of property, plant & equipment	(39,749		)		(36,311		)
Proceeds from disposal of assets		407		115
Business acquisitions, net of cash acquired	(2,795		)		(21,454		)
Purchases of property, plant & equipment		(25,273)		(20,955)
Loan to non-controlling shareholder	—				(6,000		)
Business acquisitions, net of cash acquired		(2,123)		(1,160)
Proceeds from disposal of businesses	340				2,000
Net cash (used in) investing activities from continuing operations	(41,640	~~(26,989)~~	)	~~(22,000)~~	(61,619		)
Net cash (used in) investing activities from discontinued operations	—	-		-	—
Net cash (used in) investing activities	(41,640	~~(26,989)~~	)	~~(22,000)~~	(61,619		)
Cash flows from financing activities:
Change in short-term notes payable	4,302	~~1,723~~		~~(12,875)~~	24,340
Change in revolving credit loans		-		-
Repayment of Italian Note	—				(13,370		)
Repayment of Italian Note		-		(13,370)
Proceeds from 2011 Term Loan	—				200,000
Proceeds from 2011 Term Loan		-		200,000
Payments on 2011 Term Loan	(1,500		)		(500		)
Payments on 2011 Term Loan		(1,000)		-
Payment of deferred premium on Interest Rate Cap Agreement	(1,779		)		—
Payment of deferred premium on Interest Rate Cap Agreement		(969)		-
Proceeds from the exercise of employee stock options	16,978				8,231
Proceeds from the exercise of employee stock options		14,032		7,077
Payment of deferred financing costs	—				(5,385		)
Payment of deferred financing costs		-		(4,779)
Excess tax benefit from share-based payment arrangements	21,527				—
Excess tax benefit from share-based payment arrangements		13,143		-
Purchase of treasury stock	(14,609		)		(211,206		)
Purchase of treasury stock		(14,451)		(89,674)
Contingent payment related to acquisition of non-controlling interest in Brazilian subsidiary	(10,123		)		(11,467		)
Contingent payment related to acquisition of non-controlling
Net cash provided by (used in) financing activities from continuing operations	14,796				(9,357		)
interest in Brazilian subsidiary		(10,123)		(11,467)
Net cash provided by financing activities from discontinued operations	—				—
Net cash provided by financing activities from continuing operations		2,355		74,912
Net cash provided by (used in) financing activities	14,796				(9,357		)
Net cash provided by financing activities from discontinued operations		-		-
Effect of foreign exchange rate changes on cash and cash equivalents	3,381				(1,107		)
Net cash provided by financing activities		2,355		74,912
Increase (decrease) in cash and cash equivalents	78,480				(11,901		)
Effect of foreign exchange rate changes on cash and cash equivalents		(563)		7,222
Cash and cash equivalents at beginning of period	232,531				191,227
Increase in cash and cash equivalents		62,815		103,575
Cash and cash equivalents at end of period	$	311,011			$	179,326
Cash and cash equivalents at beginning of period		232,531		191,227
Cash and cash equivalents at end of period	$	295,346	$	294,802

See Notes to Consolidated Condensed Financial Statements.

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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 2011 (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, as of 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 1, 2012 to December 29, 2012 (“Fiscal 2012”), 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 contained 52 weeks of operations. Additionally, the period from ~~April~~July 1, 2012 to ~~June~~September 3029, 2012 (the “Three Months Ended ~~June~~September 3029, 2012”) and the period from ~~April~~July 3, 2011 to ~~July~~October 21, 2011 (the “Three Months Ended ~~July~~October 2,1 2011”) each contained 13 weeks of operations and the period from January 1, 2012 to ~~June~~September 3029, 2012 (the “~~Six~~Nine Months Ended ~~June~~September ~~30,~~29 2012”) and the period from January 2, 2011 to ~~July~~October 21, 2011 (the “~~Six~~Nine Months Ended ~~July~~October 21, 2011”) each contained 2639 weeks of operations.

Subsequent Event: The Company has evaluated events and transactions occurring after June 30, 2012 for potential recognition or disclosure in the Consolidated Condensed Financial Statements. See Note 5 of Notes to Consolidated Condensed Financial Statements.

Recent Accounting Pronouncements

There are no accounting pronouncements that were issued through June 30, 2012 that were not yet adopted that are expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows in future periods.

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Recent Accounting Pronouncement

During July 2012, the FASB issued Accounting Standards Update 2012-02 Intangibles-Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”) which is intended to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how the Company tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. Under ASU 2012-02, the Company has the option first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The Company also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not expect the adoption of ASU 2012-02 to have a material effect on its financial position, results of operations and cash flows.

Note 3—Acquisitions

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 was required to make three payments through March 31, 2012, which were contingent on the level of operating income achieved (as specified in the acquisition agreement) by WBR during the fourth quarter of Fiscal 2009, Fiscal 2010 and Fiscal 2011, respectively. 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. The Company made the third contingent payment of 18,500 Brazilian real (approximately $10,123 as of March 31, 2012), based on the operating results of WBR for Fiscal 2011, in two separate payments: (i) $7,592 on March 30, 2012 and (ii) $2,531 on April 2, 2012.

Note 4—Discontinued Operations

As disclosed in its Annual Report on Form 10-K for Fiscal 2011, the Company discontinued certain operations in prior periods. Summarized operating results for the discontinued operations are presented in the Consolidated Condensed Statements of Operations as follows:

	Three Months Ended	~~Three Months Ended~~				~~Six Months Ended~~			Nine Months Ended
		June 30,		July 2,		June 30,		July 2,
	September 29, 2012				October 1, 2011				September 29, 2012		October 1, 2011
		2012		2011		2012		2011
Net revenues	$	—			$	—			$	—	$	—
Net revenues	$	-	$	-	$	-	$	-
Income (loss) before income tax (benefit) (a)	$	(2	)		$	(4,214	)		$	3,023	$	(5,090	)
Income (loss) before income tax (benefit) (a)	$	(9)	$	(100)	$	3,025	$	(876)
Income tax (benefit)	—				(37		)		—		(349		)
Income tax (benefit)		-		(37)		-		(312)
Income (loss) from discontinued operations	$	(2	)		$	(4,177	)		$	3,023	$	(4,741	)
Income (loss) from discontinued operations	$	(9)	$	(63)	$	3,025	$	(564)

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

		June 30,		December 31,		July 2,
	September 29, 2012				December 31, 2011		October 1, 2011
		2012		2011		2011
Accounts payable	$	—			$	5	$	5
Accounts payable	$	-	$	5	$	6
Accrued liabilities (b)	—				6,792		7,043
Accrued liabilities (b)		-		6,792		3,427
Liabilities of discontinued operations	$	—			$	6,797	$	7,048
Liabilities of discontinued operations	$	-	$	6,797	$	3,433

(a) The amount in income (loss) before income tax (benefit) for the Three Months Ended June 30, 2012 reflects a loss in connection with the write-off of a working capital receivable, partially offset by a gain related to the reversal of a reserve for litigation matters, both associated with the Company’s discontinued Lejaby business. The amount in income (loss) before income tax (benefit) for the Six Months Ended June 30, 2012 reflects the reversal of a reserve related to a French tax liability associated with the Company’s discontinued Lejaby business in addition to those two items. See Note 18 of Notes to Consolidated Condensed Financial Statements – Legal Matters regarding the Company’s Lejaby business.

(b) The decrease in accrued liabilities between December 31, 2011 and June 30, 2012 is primarily due to the reversal of a reserve related to a French tax liability and the write-off of a reserve for litigation matters, both of which are associated with the Company’s discontinued Lejaby business. See Note 18 of Notes to Consolidated Condensed Financial Statements – Legal Matters regarding the Company’s Lejaby business.

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

(a)

The amount in income (loss) before income tax (benefit) for the Nine Months Ended September 29, 2012 reflects (i) a gain related to the reversal of a reserve for litigation matters; (ii) a gain related to the reversal of a reserve related to a French tax liability, partially offset by (iii) a loss in connection with the write-off of a working capital receivable, items (i) through (iii) associated with the Company’s discontinued Lejaby business . See Note 18 of Notes to Consolidated Condensed Financial Statements – Legal Matters regarding the Company’s Lejaby business.

(b)

The decrease in accrued liabilities between December 31, 2012 and September 29, 2012 is primarily due to the reversal of a reserve related to a French tax liability and the write-off of a reserve for litigation matters, both of which are associated with the Company’s discontinued Lejaby business. See Note 18 of Notes to Consolidated Condensed Financial Statements – Legal Matters regarding the Company’s Lejaby business.

Note 5—Restructuring Expenses and Other Exit Costs

During the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012, the Company incurred restructuring charges and other exit costs of $168,~~212~~029 and $2230,~~802~~831, respectively, related to (i) the rationalization and consolidation of the Company’s international operations, primarily in Europe ($65,~~544~~442 and $814,~~877~~319, respectively); (ii) charges in connection with employee termination and reorganization of management structure ($1,~~595~~615 and $24,~~472~~087, respectively); (iii) charges related to the cessation of the Company’s existing operations of its calvinkleinjeans.com e-commerce site ($~~5,724~~(208) and $5,~~724~~516, respectively) ; (iv) non-cash impairment charges associated with store closures, including ~~those~~stores that were related to its CK/Calvin Klein “bridge” business, and office space in connection with consolidation of the Company's sourcing/design/merchandising functions ($~~500~~1,365 and $12,~~502~~867, respectively ); (v) severance, lease contract termination and related costs in connection with retail store, office and warehouse closures ($~~761~~(746) and $2,~~971~~225, respectively); and (vi) legal, professional and other exit costs ($~~1,088~~561 and $1,~~256~~817, respectively).

As previously disclosed in the Company’s Annual Report on Form 10-K for Fiscal 2011, during Fiscal 2010 and Fiscal 2011, the Company did not meet the minimum sales thresholds required under the Bridge Licenses (as defined below). As a result, the Company and Calvin Klein, Inc. (“CKI”) began discussions at such time regarding the transition of the Company’s “bridge” business back to CKI. On August 3, 2012, the Company and CKI entered into an agreement (the “Termination Agreement”), pursuant to which effective December 31, 2012, the parties agreed to terminate (i) the wholesale license agreements for “bridge” apparel and “bridge” accessories (covering Europe, Eastern Europe, Middle East, Africa, India, and Central and South America) and (ii) the corresponding retail license agreements for “bridge” apparel-only retail stores and “bridge” accessories-only retail stores ((i) and (ii), collectively, the “Bridge Licenses”).

Following the termination of the Bridge Licenses, the Company will no longer have the right to produce, commercialize or sell “bridge” apparel or “bridge” accessories and CKI will reacquire the right to produce, commercialize and sell “bridge” apparel and “bridge” accessories in the previously licensed territories. However, the Company will have the right to sell any and all remaining inventory of “bridge” apparel and “bridge” accessories until August 31, 2013. CKI will continue to license other Calvin Klein products to the Company, including Calvin Klein Jeans apparel and Calvin Klein Jeans accessories. During the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012, combined net revenues and operating loss of the “bridge” business ~~was~~were $2284,~~200~~475 and $1,393, respectively, while during the Nine Months Ended October 1, 2011, combined net revenues and operating loss of the “bridge” business were $92,375 and $4,~~400~~710, respectively .The terms of the settlement agreement were consistent with amounts previously recorded by the Company and no charges were recorded as a result of the execution of the settlement agreement.

As of June 30, 2012, the Company ceased the existing operations of its calvinkleinjeans.com internet site in the U.S. The Company recorded (i) a non-cash impairment charge of $4,284, which was equal to the carrying value of the intangible asset; (ii) an impairment charge of $120, related to the write-down of the net carrying value of the property, plant and equipment of the internet site and (iii) a charge of $1,~~320~~112 related to termination of the Company’s relationship with the service provider for the internet site.

During the Three and ~~Six~~Nine Months Ended ~~July~~October 21, 2011, the Company incurred restructuring charges and other exit costs of $47,~~954~~547 and $1118,~~443,~~990 respectively, primarily related to (i) the rationalization and consolidation of the Company’s international operations, primarily in Europe ($12,~~798~~191 and $47,~~863~~054, respectively); (ii) job eliminations in the U.S. ($~~864~~840 and $2,~~031~~871, respectively); (iii) impairment charges and lease contract termination costs in connection with retail store, office and warehouse closures ($24,~~128~~396 and $48,~~352~~748, respectively) and (iv) other exit costs ($~~164~~120 and $~~197~~317, respectively).

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Restructuring charges and other exit costs have been recorded in the Consolidated Condensed Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, as follows:

	Three Months Ended	~~Three Months Ended~~				~~Six Months Ended~~			Nine Months Ended
		June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
	September 29, 2012				October 1, 2011				September 29, 2012		October 1, 2011
Cost of goods sold	$	32,~~134~~676	$	~~799~~	$	~~3,568~~376	$	~~1,466~~	$	6,244	$	1,842
Selling, general and administrative
Selling, general and administrative expenses	5,353				7,171				20,303		17,148
expenses		8,794		4,155		14,950		9,977
Amortization of intangible assets	—				—				4,284		—
Amortization of intangible assets		4,284		-		4,284		-
	$	8,029			$	7,547			$	30,831	$	18,990
	$	16,212	$	4,954	$	22,802	$	11,443
Cash portion of restructuring items	$	6,664			$	7,547			$	23,977	$	17,823
Cash portion of restructuring items	$	11,317	$	3,813	$	17,323	$	10,276
Non-cash portion of restructuring items	1,365				—				6,854		1,167
Non-cash portion of restructuring items		4,895		1,141		5,479		1,167

Changes in liabilities related to restructuring expenses and other exit costs for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011 are summarized below:

Balance as of January 1, 2011	$	3,582
Charges for the Six Months Ended July 2, 2011		10,276
Charges for the Nine Months Ended October 1, 2011	18,437
Cash reductions for the Six Months Ended July 2, 2011		(7,210)
Cash reductions for the Nine Months Ended October 1, 2011	(11,720		)
Non-cash changes and foreign currency effects	277	34
Balance as of July 2, 2011	$	6,682
Balance as of October 1, 2011	$	10,576
Balance as of December 31, 2011	$	9,160
Charges for the Six Months Ended June 30, 2012		17,323
Charges for the Nine Months Ended September 29, 2012	23,977
Cash reductions for the Six Months Ended June 30, 2012		(11,276)
Cash reductions for the Nine Months Ended September 29, 2012	(17,434		)
Non-cash changes and foreign currency effects	133	~~127~~
Balance as of June 30, 2012 (a)	$	15,334
Balance as September 29, 2012 (a)	$	15,836

(a) The balance as of ~~June~~September 3029, 2012 includes approximately $1413,~~037~~082 recorded in accrued liabilities (part of current liabilities) which amounts are expected to be settled over the next 12 months and approximately $12,~~297~~754 recorded in other long term liabilities which amounts are expected to be settled over the following two years.

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

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 (“CEO”), who is the chief operating decision maker, reviews the Company’s business.

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 ~~June 30~~September 29, 2012, the Sportswear Group operated ~~742~~775 Calvin Klein retail stores worldwide (consisting of ~~169~~182 full-price free-standing stores, 6063 outlet free-standing stores and ~~513~~530 concession /shop-in-shop stores). As of ~~June 30~~September 29, 2012, there were also ~~381~~408 Calvin Klein 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 ~~June 30~~September 29, 2012, the Intimate Apparel Group operated ~~868~~895 Calvin Klein retail stores worldwide (consisting of ~~102~~105 full-price free-standing stores, 5859 outlet free-standing stores and ~~707~~730 concession /shop-in-shop stores and, in the U.S., and one on-line store). As of ~~June 30~~September 29, 2012, there were also ~~235~~256 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 June 30, 2012, the Swimwear Group operated 193 Calvin Klein retail concession /shop-in-shop stores in Europe and one on-line store in the U.S. 9

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

The Swimwear Group designs, licenses, sources and markets mass market to premium priced swimwear, fitness apparel, swim accessories and related products under the Speedo® and Calvin Klein brand names. As of September 29, 2012, the Swimwear Group operated 181 Calvin Klein retail concession /shop-in-shop stores in Europe and one on-line store in the U.S.

Information by business segment is set forth below:

			Intimate								Unallocated
	Sportswear Group			IntimateApparelGroup				Swimwear Group			Group Total			UnallocatedCorporate /Other			Total
	Sportswear		Apparel			Swimwear			Group		Corporate /
Three Months Ended September 29, 2012
	Group		Group			Group			Total		Other		Total
Net revenues	$	337,377		$	232,203			$	41,958		$	611,538		$	—		$	611,538
Three Months Ended June 30, 2012
Operating income (loss) (a)	29,528			41,204				(429		)	70,303			(3,601		)	66,702
Net revenues	$	265,028	$	212,126		$	86,757		$	563,911	$	-	$	563,911
Depreciation and amortization	8,961			4,955				523			14,439			1,368			15,807
Operating income (loss) (a)		(11,283)		25,993			13,645			28,355		4,445		32,800
Restructuring expense	5,551			1,702				(545		)	6,708			1,321			8,029
Depreciation and amortization		13,577		4,603			612			18,792		399		19,191
Capital expenditures	11,685			5,179				51			16,915			1,454			18,369
Restructuring expense		11,986		3,223			806			16,015		197		16,212
Three Months Ended October 1, 2011
Capital expenditures		6,422		4,989			164			11,575		715		12,290
Net revenues	$	357,935		$	247,880			$	39,306		$	645,121		$	—		$	645,121
Three Months Ended July 2, 2011
Operating income (loss)	34,129			38,620				(3,352		)	69,397			(4,641		)	64,756
Net revenues	$	286,289	$	226,443		$	78,655		$	591,387	$	-	$	591,387
Depreciation and amortization	8,347			4,413				589			13,349			393			13,742
Operating income (loss) (b), (c)		15,957		34,470			10,705			61,132		(8,533)		52,599
Restructuring expense	3,545			699				2,988			7,232			315			7,547
Depreciation and amortization		9,583		4,899			683			15,165		315		15,480
Capital expenditures	6,014			7,379				245			13,638			443			14,081
Restructuring expense		1,974		1,480			1,187			4,641		313		4,954
Nine Months Ended September 29, 2012
Capital expenditures		6,782		1,353			89			8,224		547		8,771
Net revenues	$	903,208		$	667,206			$	220,576		$	1,790,990		$	—		$	1,790,990
Six Months Ended June 30, 2012
Operating income (loss) (a)	31,828			97,151				28,053			157,032			(5,311		)	151,721
Net revenues	$	565,831	$	435,003		$	178,618		$	1,179,452	$	-	$	1,179,452
Depreciation and amortization	31,840			14,095				1,829			47,764			2,156			49,920
Operating income (loss) (a)		2,300		55,947			28,482			86,729		(1,710)		85,019
Restructuring expense	21,228			7,954				282			29,464			1,367			30,831
Depreciation and amortization		22,879		9,140			1,306			33,325		788		34,113
Capital expenditures	22,619			12,947				337			35,903			3,406			39,309
Restructuring expense		15,677		6,251			827			22,755		47		22,802
Nine Months Ended October 1, 2011
Capital expenditures		10,934		7,768			286			18,988		1,952		20,940
Net revenues	$	983,695		$	695,317			$	219,657		$	1,898,669		$	—		$	1,898,669
Six Months Ended July 2, 2011
Operating income (loss) (b), (c)	88,686			103,627				21,421			213,734			(26,725		)	187,009
Net revenues	$	625,760	$	447,437		$	180,351		$	1,253,548	$	-	$	1,253,548
Depreciation and amortization	27,010			13,751				1,889			42,650			1,019			43,669
Operating income (loss) (b), (c)		54,557		65,007			24,773			144,337		(22,084)		122,253
Restructuring expense	7,169			3,619				7,254			18,042			948			18,990
Depreciation and amortization		18,663		9,338			1,300			29,301		626		29,927
Capital expenditures	17,687			14,863				390			32,940			1,294			34,234
Restructuring expense		3,624		2,922			4,264			10,810		633		11,443
Balance Sheet
Capital expenditures		11,673		7,484			145			19,302		851		20,153
Total Assets:
Balance Sheet
September 29, 2012	$	1,082,857		$	493,581			$	112,293		$	1,688,731		$	163,762		$	1,852,493
Total Assets:
December 31, 2011	994,425			486,636				148,982			1,630,043			117,807			1,747,850
June 30, 2012	$	949,869	$	447,703		$	152,408		$	1,549,980	$	168,548	$	1,718,528
October 1, 2011	1,068,298			494,482				117,949			1,680,729			132,042			1,812,771
December 31, 2011		994,425		486,636			148,982			1,630,043		117,807		1,747,850
Property, Plant and Equipment:
July 2, 2011		984,604		519,956			153,689			1,658,249		206,039		1,864,288
September 29, 2012	$	67,844		$	42,507			$	1,158		$	111,509		$	23,545		$	135,054
Property, Plant and Equipment:
December 31, 2011	64,149			43,966				2,220			110,335			22,687			133,022
June 30, 2012	$	63,663	$	42,548		$	2,031		$	108,242	$	19,708	$	127,950
October 1, 2011	62,317			38,486				2,472			103,275			25,930			129,205
December 31, 2011		64,149		43,966			2,220			110,335		22,687		133,022
July 2, 2011		65,281		32,153			2,540			99,974		30,592		130,566

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

(a) During the ~~Three~~Nine Months Ended ~~June 30~~September 29, 2012, the Company ~~began~~continues to ~~consolidate~~be in the process of consolidating its sourcing/design/merchandising functions related to Calvin Klein Jeans, which are currently located in both Europe and New York, entirely in New York. During the period of transition, which is expected to occur from April through December 2012, the Company expects to incur costs which otherwise would not have been incurred if the consolidation were not implemented (the “Transition Sourcing/Design Costs”). The Transition Sourcing/Design Costs include, among other things, salary/fringe, relocation, retention, occupancy and recruitment fees as well as travel and consulting fees. Certain of the Transition Sourcing/Design Costs are considered to be duplicative costs. None of the estimated Transition Sourcing/Design Costs are expected to expand the capacity of the consolidated New York sourcing/design/merchandising functions beyond the combined capacity of the European sourcing/design/merchandising functions that are being eliminated and the New York sourcing/design/merchandising functions prior to the consolidation activities. The reports presented to the CEO, which are used for the purpose of allocating resources to the Company’s operating segments, reflect the Transition Sourcing/Design Costs as “unallocated corporate expenses” and such costs were not allocated to the Sportswear Group. During the Three and ~~Six~~Nine Months Ended ~~June~~September 3029, 2012, the amount of the Transition Sourcing/Design Costs was $~~346~~991 and $1,338, respectively, and is reflected in Unallocated/corporate other in the table above. The Transition Sourcing/Design Costs are expected to total approximately $65,500 for Fiscal 2012.

(b) 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.

(c) 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 operating income is presented in the table above and includes restructuring charges and allocations of corporate expenses but does not include unallocated corporate/other expenses. The amount of unallocated corporate/other expenses that reconciles total business segment operating income to the Company’s total operating income primarily includes employee compensation, other general administrative and professional fees and foreign exchange gains or losses. The ~~income~~significant reductions during the Three ~~Months Ended June 30, 2012~~ and ~~the~~Nine ~~significant reduction during the Six~~ Months Ended ~~June 30~~ September 29, 2012 in the amount of unallocated corporate/other expenses is due to reductions, during those periods, toin the estimated amounts of certain corporate -wide expenses, primarily employee compensation and health benefits, compared to the estimates of the amounts of those expenses that had been made atduring the ~~beginning~~comparable ofperiods ~~Fiscal 2012. During the Three Months Ended June 30, 2012, the extent of the reductions~~ in ~~those~~Fiscal ~~estimates of expenses more than offset other unallocated corporate/other expenses~~2011.

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

	Three Months Ended	~~Three Months Ended~~						~~Six Months Ended~~	Nine Months Ended
		June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
	September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
Operating income by business segments	$	2870,~~355~~303		$	~~61,132~~$	69,397	$	~~86,729~~	$	$157,032	~~144,337~~	$	213,734
Unallocated corporate/other expenses	(3,601	~~4,445~~	)		(84,~~533)~~641		)	~~(1,710)~~	(5,311		~~(22,084~~)	(26,725		)
Operating income	66,702	~~32,800~~			5264,~~599~~756			~~85,019~~	151,721		~~122,253~~	187,009
Other loss (income) (a)		12,894			(215)			12,625			(859)
Other loss (a)	13				1,357				12,638			498
Interest expense	4,614	~~4,645~~			34,~~460~~986			~~9,094~~	13,708		~~6,156~~	11,142
Interest income	(831	~~(1,001)~~	)		(~~810)~~986		)	~~(1,874)~~	(2,705		~~(1,556~~)	(2,542		)
Income from continuing operations before
Income from continuing operations before provision for income taxes and redeemable non-controlling interest	$	62,906			$	59,399			$	128,080		$	177,911
provision for income taxes and redeemable
non-controlling interest	$	16,262		$	50,164		$	65,174		$	118,512

(a) For the ~~Three~~Nine ~~and Six~~ Months Ended ~~June~~September 3029, 2012, includes an adjustment to the Company’s loan receivable related to the sale of its discontinued Lejaby business (see Note 18 of Notes to Consolidated Condensed Financial Statements).

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

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

	Three Months Ended	~~Three Months Ended~~
		June 30, 2012	%			July 2, 2011		%
	September 29, 2012			%			October 1, 2011		%
Net revenues:
United States	$	~~247~~237,~~827~~298	~~44.0%~~	38.8	$%	~~250,645~~	$	~~42.4%~~241,764	37.5	%
Europe	161,464	~~107,728~~	~~19.1%~~	26.4	%	~~128,093~~	182,265	~~21.7%~~	28.3	%
Asia	130,164	~~116,432~~	~~20.6%~~	21.3	%	~~113,785~~	129,985	~~19.2%~~	20.1	%
Mexico, Central and South America	58,812	~~61,978~~	~~11.0%~~	9.6	%	~~62,132~~	62,848	~~10.5%~~	9.7	%
Canada	23,800	~~29,946~~	~~5.3%~~	3.9	%	~~36,732~~	28,259	~~6.2%~~	4.4	%
	$	~~563~~611,~~911~~538	~~100.0%~~	100.0	$%	~~591,387~~	$	~~100.0%~~645,121	100.0	%

	Six Months Ended
	Nine Months Ended
		June 30, 2012	%			July 2, 2011		%
	September 29, 2012			%			October 1, 2011		%
Net revenues:
United States	$	~~496~~733,~~236~~534	~~42.0%~~	40.9	$%	~~535,788~~	$	~~42.7%~~777,552	41.0	%
Europe	415,504	~~254,040~~	~~21.5%~~	23.2	%	~~296,562~~	478,827	~~23.8%~~	25.2	%
Asia	384,359	~~254,195~~	~~21.6%~~	21.5	%	~~240,561~~	370,546	~~19.2%~~	19.5	%
Mexico and Central and South America		115,081	9.8%			113,850		9.1%
Mexico, Central and South America	173,893			9.7	%		176,698		9.3	%
Canada	83,700	~~59,900~~	~~5.1%~~	4.7	%	~~66,787~~	95,046	~~5.2%~~	5.0	%
	$	1,~~179~~790,~~452~~990	~~100.0%~~	100.0	$%	~~1,253,548~~	$	~~100.0%~~1,898,669	100.0	%

Note 7—Income Taxes

The effective tax rates for the Three Months Ended ~~June 30~~September 29, 2012 and ~~July 2~~October 1, 2011 were 4234.05% and 918.21% respectively. The higher effective tax rate for the Three Months Ended ~~June 30~~September 29, 2012 primarily reflects a shift in earnings from lower to higher taxing jurisdictions, aas well as certain discrete tax ~~benefit~~benefits of ~~approximately~~ $48,~~000~~600 recorded during the Three Months Ended ~~June~~October 1, 302011 that did not recur in the Three Months Ended September 29, 2012. ~~resulting~~Those ~~from~~discrete antax ~~audit~~benefits ~~settlement~~included ~~with~~(i) a 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 ~~authority~~jurisdictions; and (ii) a tax benefit ~~of approximately $11,000~~ recorded during the Three Months Ended ~~July~~October 21, 2011 ~~due~~relating to a ~~favorable~~change ~~tax~~in ~~ruling~~various indomestic aand foreign ~~jurisdiction~~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.

The effective tax rates for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and ~~July 2~~October 1, 2011 were 3534.07% and 2422.0% respectively. The higher effective tax rate for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 primarily reflects (i) a shift in earnings from lower to higher taxing jurisdictions,; (ii) a tax benefit of approximately $4,000 recorded during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 resulting from an audit settlement with a foreign tax authority; ~~and~~(iii) a tax benefit of approximately $11,000 recorded during the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011 due to a favorable tax ruling in a foreign jurisdiction and (iv) certain discrete tax benefits of $8,600 recorded during the Nine Months Ended October 1, 2011 that did not recur in the Nine Months Ended September 29, 2012. During the Nine Month Ended September 29, 2012, the Company recorded a tax benefit in excess of compensation expense related to the exercise of stock options and the vesting of restricted stock of $21,527. During the Nine Months Ended October 1, 2011, the Company had unrealized tax benefits related to share-based compensation, which were offset by the Company's net operating loss carryforwards. Therefore, the Company did not record any amount of those tax benefits to additional paid in capital.

As of ~~June 30~~September 29, 2012, the Company remains under audit in various taxing jurisdictions. It is 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 future events, it is reasonably possible that within the next 12 months the reserve for uncertain tax positions may decrease between $2,000 and $4,000 due to (i) tax positions the Company expects to take during the next 12 months, (ii) the reevaluation of current uncertain tax positions arising from developments in examinations, (iii) the finalization of tax examinations, or (iv) the closure of tax statutes.

13 12

~~THE~~Table ~~WARNACO~~of ~~GROUP, INC.~~ Contents

~~NOTES~~tax TOpositions ~~CONSOLIDATED~~may ~~CONDENSED~~decrease ~~FINANCIAL~~between ~~STATEMENTS~~ $2,000 and $4,000 due to (i) tax positions the Company expects to take during the next 12 months, (ii) the reevaluation of current uncertain tax positions arising from developments in examinations, (iii) the finalization of tax examinations, or (iv) the closure of tax statutes.

(Currencies in thousands, excluding per share amounts)

(Unaudited)

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 have 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~~Post-retirement Plans"). The ~~Postretirement~~Post-retirement Plans are, in most cases, contributory with retiree contributions adjusted annually.

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 $01,660 and $1718,~~230~~890 to the Pension Plan during the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and $1,650 and $57,~~500~~150 for the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, respectively. The Company’s contributions to the Pension Plan are expected to be $20,~~550~~250 in total for Fiscal 2012.

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 Plan	~~Pension Plan~~					~~Postretirement Plans~~		Postretirement Plans
	Three Months Ended	~~Three Months Ended~~					~~Three Months Ended~~		Three Months Ended
		June 30, 2012		July 2, 2011			June 30, 2012		July 2, 2011
	September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
Service cost	$	-—	$	-	$	$—	55	$	62$	55		$	62
Interest cost	2,221	~~2,221~~		~~2,334~~	2,334		64		7064			70
Expected return on plan assets	(2,350	~~(2,350)~~	)	~~(2,703)~~	(2,703		-)		-—			—
Amortization of actuarial gain	—	-		-	—		~~(24)~~		(~~25)~~24		)	(25		)
Net benefit (income) cost (a)	$	(129)	$)	~~(369)~~	$	$(369	95)	$	~~107~~$	95		$	107



	Pension Plan						Postretirement Plans
	Nine Months Ended						Nine Months Ended
	September 29, 2012			October 1, 2011			September 29, 2012			October 1, 2011
Service cost	$	—		$	—		$	165		$	186
Interest cost	6,663			7,002			192			210
Expected return on plan assets	(7,050		)	(8,109		)	—			—
Amortization of actuarial gain	—			—			(72		)	(75		)
Net benefit (income) cost (a)	$	(387	)	$	(1,107	)	$	285		$	321

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

		Pension Plan				Postretirement Plans
		Six Months Ended				Six Months Ended
		June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Service cost	$	-	$	-	$	110	$	124
Interest cost		4,442		4,668		128		140
Expected return on plan assets		(4,700)		(5,406)		-		-
Amortization of actuarial gain		-		-		(48)		(50)
Net benefit (income) cost (a)	$	(258)	$	(738)	$	190	$	214


(a)	Net benefit (income) cost does not include costs related to the Foreign Plans of $74 and $223 for the Three and Nine Months Ended September 29, 2012, respectively, and $59 and $176 for the Three and Nine Months Ended October 1, 2011, respectively.

(a) Net benefit (income) cost does not include costs related to the Foreign Plans of $74 and $149 for the Three and Six Months Ended June 30, 2012, respectively, and $60 and $117 for the Three and Six Months Ended July 2, 2011, respectively.

Deferred Compensation Plans

The Company’s liability under the employee deferred compensation plan was $43,~~878~~013, $4,602 and $4,~~628~~185 as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, respectively. This liability is included in other long-term liabilities. The Company’s cash liability under the director deferred compensation plan was $1,~~375~~558, $1,237 and $1,~~184~~068 as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, respectively. This liability is included in other long-term liabilities.

Note 9—Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011 are summarized below:

		June 30,		December 31,		July 2,
	September 29, 2012				December 31, 2011			October 1, 2011
		2012		2011		2011
Foreign currency translation adjustments (a)	$	32,577			$	21,356		$	24,529
Foreign currency translation adjustments (a)	$	18,168	$	21,356	$	87,699
Actuarial losses related to post retirement medical plans, net of tax of $1,232 as of September 29, 2012, December 31, 2011 and October 1, 2011	(1,299		)		(1,299		)	(1,099		)
Actuarial losses related to post retirement medical
Loss on cash flow hedges, net of taxes of $5,108, $2,930 and $2,175 as of September 29 2012, December 31, 2011 and October 1, 2011, respectively	(8,214		)		(3,937		)	(3,016		)
plans, net of tax of $1,232 as of June 30, 2012,
Other	136				122			7
December 31, 2011 and July 2, 2011		(1,299)		(1,299)		(1,099)
Total accumulated other comprehensive income	$	23,200			$	16,242		$	20,421
(Loss) on cash flow hedges, net of taxes of $4,225, $2,930
and $1,358 as of June 30, 2012, December 31, 2011 and
July 2, 2011, respectively		(6,124)		(3,937)		(3,456)
Other		135		122		10
Total accumulated other comprehensive income	$	10,880	$	16,242	$	83,154

(a) Foreign currency translation adjustments related to the Company’s assets and liabilities reflect the change in the U.S. dollar relative to functional currencies in countries where the Company conducts certain of its operations and the fact that the majority of the Company’s assets are related to the Company’s business outside of the U.S.

15 Note 10—Fair Value Measurement

The Company utilizes the market approach to measure fair value for financial assets and liabilities, which primarily include derivative contracts. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company uses the income approach to measure fair value of the Interest Rate Cap Agreement (as defined below) (see Note 14 of Notes to Consolidated Condensed Financial Statements). 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.

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Note 10—Fair Value Measurement

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.

Valuation Techniques

The fair value of foreign currency exchange forward contracts 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 the Interest Rate Cap Agreement was determined using broker quotes, which use discounted cash flows, an income approach, 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.

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis, as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011:

		June 30, 2012						December 31, 2011						July 2, 2011
	September 29, 2012												December 31, 2011								October 1, 2011
	(Level 1)	~~(Level 1)~~		~~(Level 2)~~	(Level 2)	~~(Level 3)~~		~~(Level 1)~~	(Level 3)	~~(Level 2)~~		~~(Level 3)~~	(Level 1)	~~(Level 1)~~		~~(Level 2)~~	(Level 2)	~~(Level 3)~~	(Level 3)		(Level 1)		(Level 2)		(Level 3)
Assets
Foreign currency exchange contracts	$	-—	$	~~3,599~~	$	-429	$	-	$	~~5,587~~—	$	-	$	-—	$	~~419~~	$	-5,587	$	—	$	—	$	4,761	$	—
Interest Rate Cap Agreement	—	-		~~3,468~~	2,654	-		-	—	~~6,276~~		-	—	-		~~14,395~~	6,276	-	—		—		7,399		—
Liabilities
Foreign currency exchange contracts	$	-—	$	~~1,020~~	$	-2,339	$	-	$	~~532~~—	$	-	$	-—	$	~~7,465~~	$	-532	$	—	$	—	$	495	$	—

16 The following table represents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of September 29, 2012, December 31, 2011 and October 1, 2011. 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 2011 for a description of the testing of retail stores and intangible assets for impairment.



	Nine Months Ended							Year Ended							Nine Months Ended
	September 29, 2012							December 31, 2011							October 1, 2011
	Fair Value		(Level 3)		Total (Losses)			Fair Value		(Level 3)		Total (Losses)			Fair Value		(Level 3)		Total (Losses)
Assets
Long-lived assets, retail stores and offices	$	76	$	76	$	(2,867	)	$	665	$	665	$	(5,950	)	$	—	$	—	$	(1,140	)
Long-lived assets, intangible assets	1,500		1,500		(5,285		)	3,579		3,579		(35,225		)	—		—		—
					$	(8,152	)					$	(41,175	)					$	(1,140	)

The impairment charges for long-lived assets of retail stores and offices relate to leasehold improvements and furniture and fixtures of certain retail stores which were scheduled to close or office space, both of which were part of restructuring plans. Those charges recorded during the Nine Months Ended September 29, 2012, Fiscal 2011 and the Nine Months Ended October 1, 2011 related to (i) the Sportswear Group, including the Company’s CK/Calvin Klein “bridge” business, and Unallocated Corporate; (ii) the Sportswear Group and the Intimate Apparel Group and (iii) the Sportswear Group and Intimate Apparel Group, respectively. See Note 5 of Notes to Consolidated Condensed Financial Statements - Restructuring Expenses and Other Exit Costs.

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

The ~~following~~impairment ~~table~~charges ~~represents~~for intangible assets relate to the write off or write down of the carrying values of licenses related to (i) the Company’s ~~assets~~decision ~~and~~to ~~liabilities~~cease ~~measured~~existing atoperations ~~fair~~of ~~value~~its oncalvinkleinjeans.com ~~a non~~e-~~recurring~~commerce ~~basis~~site as of June, 30, 2012, ~~December~~(ii) ~~31,~~a ~~2011~~change ~~and~~in ~~July~~estimate 2,during ~~2011.~~the ~~See~~Nine ~~Note~~Months 1Ended September 29, 2012 of ~~Notes~~the expected consideration to ~~Consolidated~~be ~~Financial~~paid ~~Statements~~for –the ~~Nature~~rights ofreceived ~~Operations~~from ~~and~~CKI ~~Summary~~in ofconnection ~~Significant~~with ~~Accounting~~the ~~Policies~~formation –of ~~Long-Lived~~the ~~Assets~~Company’s joint venture in India and (iii) the Company’s ~~Annual~~agreement ~~Report~~with onCKI ~~Form~~in ~~10-K~~which ~~for~~the ~~Fiscal~~Company ~~2011~~will ~~for~~transition aits ~~description~~CK/Calvin ofKlein ~~the~~“bridge” ~~testing~~business back to CKI (see Note 5 of ~~retail~~Notes ~~stores~~to Consolidated Condensed Financial Statements) and ~~intangible~~are ~~assets~~related ~~for~~to ~~impairment~~the Sportswear Group.

		June 30, 2012						December 31, 2011						July 2, 2011
		Fair				Total		Fair				Total		Fair				Total
		Value		(Level 3)		(Losses)		Value		(Level 3)		(Losses)		Value		(Level 3)		(Losses)
Assets
Long-lived assets, retail stores	$	139	$	139	$	(1,502)	$	665	$	665	$	(5,950)	$	-	$	-	$	(1,140)
Long-lived assets, intangible assets		1,500		1,500		(5,285)		3,579		3,579		(35,225)		-		-		-
					$	(6,787)					$	(41,175)					$	(1,140)

The impairment charges for long-lived assets of retail stores relate to leasehold improvements and furniture and fixtures of certain retail stores which were scheduled to close as part of restructuring plans. Those charges recorded during the Six Months Ended June 30, 2012, Fiscal 2011 and the Six Months Ended July 2, 2011 related to (i) the Sportswear Group, including the Company’s CK/Calvin Klein “bridge” business, (ii) the Sportswear Group and the Intimate Apparel Group and (iii) the Sportswear Group and Intimate Apparel Group, respectively. See Note 5 of Notes to Consolidated Condensed Financial Statements - Restructuring Expenses and Other Exit Costs.

The impairment charges for intangible assets relate to (i) the Company’s decision to cease existing operations of its calvinkleinjeans.com e-commerce site as of June 30, 2012, (ii) a change in estimate during the Three Months Ended June 30, 2012 of the expected consideration to be paid for the rights received from CKI in connection with the formation of the Company’s joint venture in India and (iii) the Company’s agreement with CKI in which the Company will transition its CK/Calvin Klein “bridge” business back to CKI (see Note 5 of Notes to Consolidated Condensed Financial Statements) and are related to the Sportswear Group.

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 as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011 are as follows:

				June 30, 2012						December 31, 2011				July 2, 2011
			September 29, 2012											December 31, 2011					October 1, 2011
								~~Level in~~			Level in
		Balance Sheet		Carrying		Fair		Fair Value		Carrying		Fair		Carrying		Fair
	Balance SheetLocation		CarryingAmount				FairValue				Fair ValueHierarchy			CarryingAmount			FairValue		CarryingAmount		FairValue
		Location		Amount		Value		Hierarchy		Amount		Value		Amount		Value
Assets:
Assets:
Accounts receivable	Accounts receivable, net of reserves		$	323,719			$	323,719						$	322,976		$	322,976	$	341,406	$	341,406
Accounts receivable		Accounts receivable,
Open foreign currency exchange contracts	Prepaid expenses and other current assets		429				429				2			5,587			5,587		4,761		4,761
		net of reserves	$	283,370	$	283,370			$	322,976	$	322,976	$	320,416	$	320,416
Interest Rate Cap Agreement	Other assets		2,654				2,654				2			6,276			6,276		7,399		7,399
Open foreign currency		Prepaid expenses
Liabilities:
exchange contracts		and other current assets		3,599		3,599		2		5,587		5,587		419		419
Accounts payable	Accounts payable		$	173,616			$	173,616						$	141,797		$	141,797	$	182,517	$	182,517
Interest Rate Cap Agreement		Other assets		3,468		3,468		2		6,276		6,276		14,395		14,395
Short-term debt	Short-term debt		47,393				47,393				1			43,021			43,021		43,355		43,355
Liabilities:
Open foreign currency exchange contracts	Accrued liabilities		2,339				2,339				2			532			532		495		495
Accounts payable		Accounts payable	$	139,096	$	139,096			$	141,797	$	141,797	$	149,665	$	149,665
2011 Term Loan, current portion	Short-term debt		2,000				2,000				2			2,000			1,980		2,000		1,950
Short-term debt		Short-term debt		41,764		41,764		1		43,021		43,021		8,909		8,909
2011 Term Loan	Long-term debt		195,500				195,500				2			197,000			195,030		197,500		194,513
Open foreign currency
exchange contracts		Accrued liabilities		1,020		1,020		2		532		532		7,465		7,465
2011 Term Loan, current portion		Short-term debt		2,000		1,990		2		2,000		1,980		2,000		2,000
2011 Term Loan		Long-term debt		196,000		195,020		2		197,000		195,030		198,000		198,000

See Note 17 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2011 for the methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments.

Derivative Financial Instruments

Foreign Currency Exchange Forward Contracts

During the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, 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. In addition, during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012, one of the Company’s Mexican subsidiaries began a program, using foreign exchange forward contracts, to hedge up to 75% of the royalty payments due on net sales of Calvin Klein Jeans and Calvin Klein Underwear apparel. All of the foregoing forward contracts were designated as cash flow hedges, with gains and losses accumulated on the Consolidated Condensed Balance Sheets in Accumulated Other Comprehensive Income (“AOCI”) and recognized in Cost of Goods Sold, with the exception of the Mexican royalty forward contracts, for which gains and losses released from AOCI are recognized in Selling, general and administrative expense, in the Consolidated Condensed Statement of Operations during the periods in which the underlying transactions occur.

During the Six Months Ended June 30, 2012 and the Six Months Ended July 2, 2011, the Company also continued hedging programs, which were accounted for as economic hedges, with gains and losses recorded directly in Other loss (income) in the Consolidated Condensed Statements of Operations in the period in which they are incurred. Those hedging programs included foreign currency exchange forward contracts that were designed to fix the number of Euros, Korean won, Canadian dollars, Mexican pesos or Singaporean dollars 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 British pound; or (iii) U.S. dollar denominated intercompany and third-party loans and payables. 16

18 Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

During the Nine Months Ended September 29, 2012 and the Nine Months Ended October 1, 2011, the Company also continued hedging programs, which were accounted for as economic hedges, with gains and losses recorded directly in Other loss (income) in the Consolidated Condensed Statements of Operations in the period in which they are incurred. Those hedging programs included foreign currency exchange forward contracts that were designed to fix the number of Euros, Korean won, Canadian dollars, Mexican pesos or Singaporean dollars 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 British pound; or (iii) U.S. dollar denominated intercompany and third-party loans and payables.

Interest Rate Cap Agreement

On July 1, 2011, the Company entered into the Interest Rate Cap Agreement, which is intended to 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 (as defined below) that equals the notional amount of the Interest Rate Cap Agreement. 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 Agreement.

The following table summarizes the Company’s derivative instruments as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011:

		Asset Derivatives								~~Liability Derivatives~~						Liability Derivatives
				Fair Value		~~Fair Value~~								~~Fair Value~~			Fair Value
	Type	Balance Sheet		June 30,		December 31,		July 2,		Balance Sheet		June 30,		December 31,		July 2,
	Type(a)	Balance SheetLocation		September 29, 2012				December 31, 2011				October 1, 2011				Balance SheetLocation	September 29, 2012		December 31, 2011		October 1, 2011
	(a)	Location		2012		2011		2011		Location		2012		2011		2011
Derivatives designated as hedging instruments under FASB ASC 815-20
Derivatives designated
Foreign exchange contracts	CF	Prepaid expenses and other current assets		$	71			$	1,308			$	1,873			Accrued liabilities	$	1,404	$	—	$	—
as hedging
Interest Rate Cap Agreement	CF	Other assets		2,654				6,276				7,399					—		—		—
instruments under
				$	2,725			$	7,584			$	9,272				$	1,404	$	—	$	—
FASB ASC 815-20
Derivatives not designated as hedging instruments under FASB ASC 815-20
Foreign exchange contracts	CF	Prepaid expenses and other current assets		$	358			$	4,279			$	2,888			Accrued liabilities	$	935	$	532	$	495
		and other
Total derivatives				$	3,083			$	11,863			$	12,160				$	2,339	$	532	$	495
		current								Accrued
		assets	$	828	$	1,308	$	-		liabilities	$	407	$	-	$	3,895
Interest Rate Cap Agreement	CF	Other assets		3,468		6,276		14,395				-		-		-
			$	4,296	$	7,584	$	14,395			$	407	$	-	$	3,895
Derivatives not designated
as hedging
instruments under
FASB ASC 815-20
Foreign exchange contracts		Prepaid expenses
		and other
		current								Accrued
		assets	$	2,771	$	4,279	$	419		liabilities	$	613	$	532	$	3,570
Total derivatives			$	7,067	$	11,863	$	14,814			$	1,020	$	532	$	7,465
(a) CF = cash flow hedge

19 (a) CF = cash flow hedge

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

The following tables summarize the effect of the Company’s derivative instruments on the Consolidated Condensed Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011:

								Location of		Amount of				Location of		Amount of
Derivatives in FASB ASC 815-20 Cash Flow Hedging Relationships	Nature of Hedged Transaction		Amount of Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)								Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) (c)	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Derivatives				Amount of				Gain (Loss)		Gain (Loss)				Gain (Loss)		Gain (Loss)
			Three Months Ended										Three Months Ended								Three Months Ended
in FASB				Gain (Loss)				Reclassified		Reclassified				Recognized		Recognized
			September 29, 2012				October 1, 2011						September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
ASC 815-20				Recognized in				from		from				in Income		in Income
Foreign exchange contracts	Minimum royalty and advertising costs (a)		$	(398	)		$	900			cost of goods sold		$	152			$	(47	)	other loss/income	$	(8	)	$	35
Cash Flow		Nature of		OCI on				Accumulated		Accumulated				on Derivative		on Derivative
Foreign exchange contracts	Purchases of inventory (b)		(1,722		)		4,216				cost of goods sold		(70		)		(1,069		)	other loss/income	(16		)	149
Hedging		Hedged		Derivatives				OCI into Income		OCI into Income				(Ineffective		(Ineffective
Interest rate cap	Interest expenses on 2011 Term Loan		(814		)		(6,996		)		interest expense		(42		)		—			other loss/income	—			—
Relationships		Transaction		(Effective Portion)				(Effective Portion)		(Effective Portion)				Portion) (c)		Portion)
Total			$	(2,934	)		$	(1,880	)				$	40			$	(1,116	)		$	(24	)	$	184
				Three		Three				Three		Three				Three		Three
			Nine Months Ended										Nine Months Ended								Nine Months Ended
				Months		Months				Months		Months				Months		Months
			September 29, 2012				October 1, 2011						September 29, 2012				October 1, 2011				September 29, 2012			October 1, 2011
				Ended		Ended				Ended		Ended				Ended		Ended
Foreign exchange contracts	Minimum royalty and advertising costs (a)		$	(82	)		$	(111	)		cost of goods sold		$	740			$	(708	)	other loss/income	$	(12	)	$	16
				June 30,		July 2,				June 30,		July 2,				June 30,		July 2,
Foreign exchange contracts	Purchases of inventory (b)		(2,405		)		732				cost of goods sold		(323		)		(2,807		)	other loss/income	(25		)	121
				2012		2011				2012		2011				2012		2011
Interest rate cap	Interest expenses on 2011 Term Loan		(3,622		)		(6,996		)		interest expense		(70		)		—			other loss/income	—			—
Foreign		Minimum
Total			$	(6,109	)		$	(6,375	)				$	347			$	(3,515	)		$	(37	)	$	137
exchange		royalty and						cost of						other
contracts		advertising costs (a)	$	832	$	(311)		goods sold	$	412	$	(324)		loss/income	$	11	$	3
Foreign
exchange		Purchases						cost of						other
contracts		of inventory (b)		878		(946)		goods sold		(133)		(989)		loss/income		11		30
Interest		Interest expense
rate		on 2011						interest						other
cap		Term Loan		(2,579)		-		expense		(21)		-		loss/income		-		-
Total			$	(869)	$	(1,257)			$	258	$	(1,313)			$	22	$	33
				Six		Six				Six		Six				Six		Six
				Months		Months				Months		Months				Months		Months
				Ended		Ended				Ended		Ended				Ended		Ended
				June 30,		July 2,				June 30,		July 2,				June 30,		July 2,
				2012		2011				2012		2011				2012		2011
Foreign		Minimum
exchange		royalty and						cost of						other
contracts		advertising costs (a)	$	316	$	(1,011)		goods sold	$	588	$	(661)		loss/income	$	(4)	$	(19)
Foreign
exchange		Purchases						cost of						other
contracts		of inventory (b)		(683)		(3,484)		goods sold		(253)		(1,738)		loss/income		(9)		(28)
Interest		Interest expense
rate		on 2011						interest						other
cap		Term Loan		(2,808)		-		expense		(28)		-		loss/income		-		-
Total			$	(3,175)	$	(4,495)			$	307	$	(2,399)			$	(13)	$	(47)
(a)		As of June 30, 2012, the amount of minimum royalty costs hedged was $23,811; contracts expire through April 2013. As of July 2, 2011, the amount of minimum royalty costs hedged was $11,366; contracts expired through March 2012.
(b)		As of June 30, 2012, the amount of inventory purchases hedged was $58,730; contracts expire through May 2013. As of July 2, 2011, the amount of inventory purchases hedged was $55,100; contracts expire through August 2012.
(c)		No amounts were excluded from effectiveness testing.

20 (a) As of September 29, 2012, the amount of minimum royalty costs hedged was $10,445; contracts expire through July 2013. As of October 1, 2011, the amount of minimum royalty costs hedged was $11,366; contracts expired through June 2012.


(b)	As of September 29, 2012, the amount of inventory purchases hedged was $49,175; contracts expire through September 2013. As of October 1, 2011, the amount of inventory purchases hedged was $44,700; contracts expired through August 2012.


(c)	No amounts were excluded from effectiveness testing.

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Derivatives

Amount of

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

Nature of Hedged Transaction

Instrument

Amount Hedged

Maturity Date

Location of Gain (Loss) Recognized in Income on Derivative

Amount of Gain (Loss) Recognized in Income on Derivative

not designated

Location of

Gain (Loss)

Three MonthsEnded

Nine Months Ended

as hedging

Gain (Loss)

Recognized

September 29, 2012

instruments

Nature of

Recognized in

in Income

Foreign exchange contracts (d)

Intercompany sales of inventory

Forward contracts

15,921

September 2013

other loss/income

(177

)

(548

)

under

Hedged

Amount

Maturity

Income on

Foreign exchange contracts (e)

Minimum royalty and advertising costs

Forward contracts

12,500

October 2013

other loss/income

(107

)

146

FASB ASC 815-20

Transaction

Instrument

Hedged

Date

Derivative

Foreign exchange contracts

Intercompany payables

Forward contract

22,500

April 2013

other loss/income

(283

)

220

Three

Six

Foreign exchange contracts

Intercompany loans

Forward contracts

34,500

April 2013

other loss/income

(543

)

271

Months

Foreign exchange contracts

Intercompany loans

Forward contracts

6,000

August 2013

other loss/income

169

290

Ended

Foreign exchange contracts

Intercompany payables

Forward contracts

—

other loss/income

)

(19

)

June 30,

Total

(943

)

360

June 30, 2012

2012

Foreign

Intercompany

other

exchange

sales of

Forward

loss/

contracts (d)

inventory

contracts

9,030

April 2013

income

(351)

(371)

Foreign

Minimum

other

exchange

royalty and

Forward

loss/

contracts (e)

advertising costs

contracts

10,000

April 2013

income

504

253

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

payables

contracts

21,500

January 2013

income

1,272

503

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

loans

contracts

34,500

January 2013

income

1,753

814

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

loans

contracts

6,000

July 2012

income

(50)

121

Foreign

other

exchange

Intercompany

Forward

income/

contracts

payables

contracts

4,000

July 2012

loss/

(17)

Total

3,111

1,303



Derivatives not designated as hedging instruments under FASB ASC 815-20	Nature of Hedged Transaction	Instrument	Amount Hedged		Maturity Date	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
							Three Months Ended			Nine Months Ended
			October 1, 2011				October 1, 2011			October 1, 2011
Foreign exchange contracts (d)	Intercompany sales of inventory	Forward contracts	$	6,546	July 2012	other loss/income	$	(313	)	$	103
Foreign exchange contracts (e)	Minimum royalty and advertising costs	Forward contracts	10,000		July 2012	other loss/income	723			(260		)
Foreign exchange contracts	Intercompany payables	Forward contract	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	)


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


(e)	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.

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Derivatives

Amount of

not designated

Location of

Gain (Loss)

as hedging

Gain (Loss)

Recognized

instruments

Nature of

Recognized in

in Income

under

Hedged

Amount

Maturity

Income on

FASB ASC 815-20

Transaction

Instrument

Hedged

Date

Derivative

Three

Six

Months

Ended

July 2,

July 2, 2011

2011

Foreign

Intercompany

other

exchange

sales of

Forward

loss/

contracts (d)

inventory

contracts

7,234

April 2012

income

149

417

Foreign

Minimum

other

exchange

royalty and

Forward

loss/

contracts (e)

advertising costs

contracts

10,000

April 2012

income

(311)

(983)

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

payables

contracts

28,000

January 2012

income

(603)

(2,401)

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

loans

contracts

20,000

November 2011

income

(446)

(1,601)

Foreign

other

exchange

Intercompany

Forward

loss/

contracts

loans

contracts

28,328

September 2011

income

(663)

Total

(1,874)

(5,231)

(d)

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

(e)

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.

A reconciliation of the balance of AOCI during the Nine Months Ended September 29, 2012 and the Nine Months Ended October 1, 2011 related to cash flow hedges is as follows:



Balance as of January 1, 2011	$	(2,331	)
Derivative losses recognized	(6,375		)
Losses amortized to earnings	3,515
Balance before tax effect on 2011 activity	(5,191		)
Tax effect on 2011 activity	2,175
Balance as of October 1, 2011, net of tax	$	(3,016	)

Balance as of December 31, 2011	$	(3,937	)
Derivative losses recognized	(6,109		)
Gain amortized to earnings	(347		)
Balance before tax effect on 2012 activity	(10,393		)
Tax effect on 2012 activity	2,179
Balance as of September 29, 2012, net of tax	$	(8,214	)

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

A reconciliation of the balance of AOCI during the Six Months Ended June 30, 2012 and the Six Months Ended July 2, 2011 related to cash flow hedges is as follows:

Balance as of January 1, 2011	$	(2,331)
Derivative losses recognized		(4,495)
Losses amortized to earnings		2,399
Balance before tax effect on 2011 activity		(4,427)
Tax effect on 2011 activity		971
Balance as of July 2, 2011, net of tax	$	(3,456)
Balance as of December 31, 2011	$	(3,937)
Derivative losses recognized		(3,175)
Gain amortized to earnings		(307)
Balance before tax effect on 2012 activity		(7,419)
Tax effect on 2012 activity		1,295
Balance as of June 30, 2012, net of tax	$	(6,124)

See Note 14 of Notes to Consolidated Condensed Financial Statements - Interest Rate Cap Agreement for a reconciliation of the balance of AOCI related to the Interest Rate Cap Agreement, which is included in the reconciliation above.

During the 12 months following ~~June 30~~September 29, 2012, the net amount of ~~gains~~losses recorded in Other Comprehensive Income as of ~~June 30~~September 29, 2012 that are estimated to be amortized into earnings is $~~118~~2,316 on a pre-tax basis. During the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012, the Company expected that all originally forecasted purchases of inventory, payment of minimum royalty and advertising costs, or payment of interest on the 2011 Term Loan, which were covered by cash flow hedges, would occur by the end of the respective originally specified time periods or within two months after that time. Therefore, no amount of gains or losses was reclassified into earnings during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 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:

		June 30, 2012		December 31, 2011		July 2, 2011
	September 29, 2012				December 31, 2011		October 1, 2011
Finished goods	$	~~329~~387,~~873~~828	$	~~350,010~~	$	~~353~~350,~~162~~010	$	390,205
Raw materials	999	~~698~~		~~825~~	825	~~2,222~~	1,868
	$	~~330~~388,~~571~~827	$	~~350,835~~	$	~~355~~350,~~384~~835	$	392,073

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. As of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, the amount of such deposits was $12,~~537~~457, $4,385 and $64,~~888~~234, respectively.

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

23 20

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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 ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011 and the activity in the intangible asset accounts for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012:

		June 30, 2012						December 31, 2011						July 2, 2011
	September 29, 2012												December 31, 2011								October 1, 2011
		Gross						Gross						Gross
	Gross CarryingAmount				AccumulatedAmortization				Net				Gross CarryingAmount				AccumulatedAmortization		Net		Gross CarryingAmount		AccumulatedAmortization		Net
		Carrying		Accumulated				Carrying		Accumulated				Carrying		Accumulated
Finite-lived intangible assets:
		Amount		Amortization		Net		Amount		Amortization		Net		Amount		Amortization		Net
Licenses for a term (Company as licensee)	$	326,719			$	108,974			$	217,745			$	323,950			$	99,229	$	224,721	$	323,422	$	61,773	$	261,649
Finite-lived intangible assets:
Other	34,276				17,273				17,003				34,459				14,932		19,527		35,009		13,978		21,031
Licenses for a term
	360,995				126,247				234,748				358,409				114,161		244,248		358,431		75,751		282,680
(Company as licensee)	$	323,179	$	107,186	$	215,993	$	323,950	$	99,229	$	224,721	$	341,287	$	59,485	$	281,802
Indefinite-lived intangible assets:
Other		34,043		16,524		17,519		34,459		14,932		19,527		36,060		13,004		23,056
Trademarks	54,415				—				54,415				53,519				—		53,519		54,715		—		54,715
		357,222		123,710		233,512		358,409		114,161		244,248		377,347		72,489		304,858
Licenses in perpetuity	22,797				—				22,797				23,113				—		23,113		23,113		—		23,113
Indefinite-lived intangible assets:
	77,212				—				77,212				76,632				—		76,632		77,828		—		77,828
Trademarks		54,415		-		54,415		53,519		-		53,519		54,715		-		54,715
Total Intangible Assets	$	438,207			$	126,247			$	311,960			$	435,041			$	114,161	$	320,880	$	436,259	$	75,751	$	360,508
Licenses in perpetuity		22,797		-		22,797		23,113		-		23,113		23,113		-		23,113
		77,212		-		77,212		76,632		-		76,632		77,828		-		77,828
Intangible Assets	$	434,434	$	123,710	$	310,724	$	435,041	$	114,161	$	320,880	$	455,175	$	72,489	$	382,686

								Other
	Trademarks				LicensesinPerpetuity				Licensesfor aTerm			OtherFinite-livedIntangibleAssets			Total
				Licenses		Licenses		Finite-lived
Balance as of December 31, 2011	$	53,519			$	23,113			$	224,721		$	19,527		$	320,880
				in		for a		Intangible
Amortization expense (a)	—				—				(9,745		)	(2,341		)	(12,086		)
		Trademarks		Perpetuity		Term		Assets		Total
Translation adjustments	—				—				4,350			(183		)	4,167
Balance as of December 31, 2011	$	53,519	$	23,113	$	224,721	$	19,527	$	320,880
Tax benefit (provision) (b)	896				(316		)		(580		)	—			—
Amortization expense (a)		-		-		(7,957)		(1,592)		(9,549)
Other (c)	—				—				(1,001		)	—			(1,001		)
Translation adjustments		-		-		810		(416)		394
Balance as of September 29, 2012	$	54,415			$	22,797			$	217,745		$	17,003		$	311,960
Tax benefit (b)		896		(316)		(580)		-		-
Other (c)		-		-		(1,001)		-		(1,001)
Balance as of June 30, 2012	$	54,415	$	22,797	$	215,993	$	17,519	$	310,724


(a)	Licenses for a Term includes $4,284 related to the cessation of the Company’s existing operations of its calvinkleinjeans.com e-commerce site in the U.S. (see Note 5 of Notes to Consolidated Condensed Financial Statements).

(b) Relates to the allocation of a tax benefit or tax provision realized for the excess of tax deductible goodwill over book goodwill in certain jurisdictions.


(c)	Relates to a change in estimate of the expected consideration to be paid for the rights received from CKI in connection with the formation of the Company’s joint venture in India.

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

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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 estimated amortization expense for intangible assets for the next five years:



2013	$	10,123
2014	8,952
2015	8,950
2016	8,928
2017	8,679

2013	$	9,945
2014		8,772
2015		8,770
2016		8,748
2017		8,502

The following table summarizes the changes in the carrying amount of goodwill for the Nine Months Ended September 29, 2012:

The following table summarizes the changes in the carrying amount of goodwill for the Six Months Ended June 30, 2012:



	Sportswear Group		Intimate Apparel Group		Swimwear Group		Total
Goodwill balance as of December 31, 2011	$	134,395	$	4,911	$	642	$	139,948
Translation adjustments	879		52		—		931
Other (a)	166		58		—		224
Goodwill balance as of September 29, 2012	$	135,440	$	5,021	$	642	$	141,103

				Intimate
		Sportswear		Apparel		Swimwear
		Group		Group		Group		Total
Goodwill balance as of December 31, 2011	$	134,395	$	4,911	$	642	$	139,948
Translation adjustments		(2,212)		(152)		-		(2,364)
Goodwill balance as of June 30, 2012	$	132,183	$	4,759	$	642	$	137,584

(a) Relates to the acquisition of the business of one of the Company's distributors in the People's Republic of China.during the Three Months Ended September 29, 2012.

Note 14—Debt

Debt was as follows:

		June 30,		December 31,		July 2,
	September 29, 2012				December 31, 2011		October 1, 2011
		2012		2011		2011
Short-term debt:
Short-term debt:
2011 Term Loan -current	$	2,000			$	2,000	$	2,000
2011 Term Loan -current	$	2,000	$	2,000	$	2,000
CKJEA Notes payable and Other	44,696				43,021		43,355
CKJEA Notes payable and Other		41,764		43,021		8,909
2008 Credit Agreements	—				—		—
2008 Credit Agreements		-		-		-
Premium on interest rate cap - current	2,697				2,492		2,418
Premium on interest rate cap - current		2,635		2,492		1,764
	49,393				47,513		47,773
		46,399		47,513		12,673
Long-term debt:
Long-term debt:
2011 Term Loan	195,500				197,000		197,500
2011 Term Loan		196,000		197,000		198,000
Premium on interest rate cap	9,799				11,477		12,052
Premium on interest rate cap		10,360		11,477		12,631
	205,299				208,477		209,552
		206,360		208,477		210,631
Total Debt	$	254,692			$	255,990	$	257,325
Total Debt	$	252,759	$	255,990	$	223,304

25 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”) and the term loan thereunder (the “2011 Term Loan”) 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 matures on June 17, 2018. As of September 29, 2012, there was $197,500 in term loans outstanding under the 2011 Term Loan Agreement.

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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) plus a margin of 1.75% or at LIBOR (with a floor of 1.00%) plus a margin of 2.75%, in each case, on a per annum basis. As of September 29, 2012, December 31, 2011 and October 1, 2011, the interest rate on the entire balance of the 2011 Term Loan was 3.75%, based on three-month LIBOR (with a floor of 1.00%) plus a margin of 2.75%.

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”) and the term loan thereunder (the “2011 Term Loan”) 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 matures on June 17, 2018. As of June 30, 2012, there was $198,000 in term loans outstanding under the 2011 Term Loan Agreement.

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) plus a margin of 1.75% or at LIBOR (with a floor of 1.00%) plus a margin of 2.75%, in each case, on a per annum basis. As of June 30, 2012 and December 31, 2011, the interest rate on the entire balance of the 2011 Term Loan was 3.75%, based on three-month LIBOR (with a floor of 1.00%) plus a margin of 2.75%. As of July 2, 2011, the 2011 Term Loan had a weighted average annual interest rate of 4.50% (comprised of $80,000 at 3.75% and $120,000 at a base rate of 5.0%).

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~~Counter-party”), effective July 29, 2011, on a notional amount of $120,000 (the “Interest Rate Cap Agreement”), which is a series of 27 individual caplets that reset and settle quarterly over the period from October 31, 2011 to April 30, 2018. The effect of the Interest Rate Cap Agreement is to 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 Agreement.

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 above 1.00%. At the inception of the hedging relationship, the fair value of the Interest Rate Cap Agreement of $14,395 was allocated to the respective caplets within the Interest Rate Cap Agreement on a fair value basis. To the extent that the Interest Rate Cap Agreement is effective in offsetting that variability, changes in the Interest Rate Cap Agreement’s fair value will be recorded in AOCI in the Company’s Consolidated Condensed Balance Sheets and subsequently recognized in interest expense in the Consolidated Condensed Statements of Operations as the underlying interest expense is recognized on the 2011 Term Loan.

As of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, the fair value of the Interest Rate Cap Agreement was $32,~~468~~654, $6,276 and $147,~~395~~399, respectively, which was recorded in Other assets. As of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, the balance of Deferred premium on the Interest Rate Cap Agreement that was recorded in Short-term debt and in Long-term debt is presented in the table above.

A reconciliation of the balance of AOCI during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 related to the Interest Rate Cap Agreement is as follows:

Balance as of December 31, 2011, net of tax	$	(4,848)	)
Change in fair value of interest rate cap	(3,622	~~(2,808)~~	)
Initial fair value of maturing caplets	70	28
Balance as of June 30, 2012, pre-tax		(7,628)
Balance as of September 29, 2012, pre-tax	(8,400		)
Tax effect	1,448	~~1,122~~
Balance as of June 30, 2012, net of tax	$	(6,506)
Balance as of September 29, 2012, net of tax	$	(6,952	)

26 Interest expense recognized on the Interest Rate Cap Agreement during the Nine Months Ended September 29, 2012 is as follows:



Initial fair value of maturing caplets	$	70
Accretion of deferred premium	306
Total	$	376

Table of Contents

THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Interest expense recognized on the Interest Rate Cap Agreement during the Six Months Ended June 30, 2012 is as follows:

Initial fair value of maturing caplets	$	28
Accretion of deferred premium		208
Total	$	236

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. On June 17, 2011 and November 8, 2011, the 2008 Credit Agreements were amended (see Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for Fiscal 2011).

As of ~~June 30~~September 29, 2012, 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) 1.9684%, 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) 2.69%, based on the BA Rate (as defined below) plus 1.50%, 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) 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.

As of ~~June 30~~September 29, 2012, the Company had no loans and approximately $3837,~~929~~089 in letters of credit outstanding under the 2008 Credit Agreement, leaving approximately $~~173~~161,~~425~~368 of availability. As of ~~June 30~~September 29, 2012, there were no loans and $3,~~692~~501 in letters of credit outstanding under the 2008 Canadian Credit Agreement and the available line of credit was approximately $1419,~~859~~091.

CKJEA Notes and Other Short-Term Debt

One of the Company’s European businesses has short-term notes payable (the “CKJEA Notes”). The total amounts of CKJEA Notes payable of $3240,~~603~~511 as of ~~June 30~~September 29, 2012, $36,648 as of December 31, 2011 and $339,~~764~~027 as of ~~July 2~~October 1, 2011 each consist of short-term revolving notes with a number of banks at various interest rates (primarily Euro LIBOR plus 3.5% as of September 29, 2012 and December 31, 2011 and Euro LIBOR plus 1.0% as of October 1, 2011). The weighted average effective interest rate for the outstanding CKJEA Notes payable was 3.9687% as of ~~June 30~~September 29, 2012, 4.00% as of December 31, 2011 and 3.2714% as of ~~July 2~~October 1, 2011. All of the CKJEA Notes payable are short-term and were renewed during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 for additional terms of no more than 120 days.

In addition, as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011, the Company’s Brazilian subsidiary, WBR, had lines of credit with several banks, with total outstanding balances of $23,~~965~~125, $6,373 and $54,~~145~~328, 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. In addition, as of ~~June 30~~September 29, 2012, WBR ~~has~~had outstanding short-term loans with several Brazilian banks totaling $61,~~196~~059, with a weighted average interest rate of 1110.7600%.

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 working capital and general corporate purposes. The Asian Credit Facility bears interest of 1.75% over one-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 one-month periods for up to one year. The Asian Credit Facility was renewed in September 2012 and may be renewed annually in the future. 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 as of December 31, 2011 or ~~June 30~~September 29, 2012 or during the Three orand ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012.

27 24

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

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 as of ~~June 30~~September 29, 2012, December 31, 2011 and ~~July 2~~October 1, 2011.

Share Repurchase Programs

During September 2011, the Company’s Board of Directors approved a 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 in a manner consistent with the terms of the Company’s applicable debt instruments. During the Three Months Ended ~~June~~September 29, 302012, the Company did not repurchase any shares under the 2011 Share Repurchase Program. During the Nine Months Ended September 29, 2012, the Company repurchased 200,000 shares under the 2011 Share Repurchase Program for $8,826 (based on an average of $44.13 per share), leaving $179,847 of common stock to be repurchased. ~~No shares were repurchased under the 2011 Share Repurchase Program during the first quarter of Fiscal 2012.~~

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 ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, the Company repurchased 14,~~629~~060,~~651~~842 shares of its common stock under the 2010 Share Repurchase Program for $87205,~~592~~800 (based on an average of $5350.7568 per share). There are no shares of the Company’s common stock available for repurchase under the 2010 Share Repurchase Program.

Stock Incentive Plans

The Company granted 3717,~~944~~817 and ~~333~~351,~~393~~210 stock options during the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and 612,~~250~~050 and ~~348~~360,~~850~~900 stock options during the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, respectively. The fair values of stock options granted during the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011 were estimated as of the dates of grant using the Black-Scholes-Merton option pricing model with the following assumptions:

	Three Months Ended				~~Six Months Ended~~	Nine Months Ended
	June 30,		July 2,		June 30,	July 2,
	September 29, 2012			October 1, 2011		September 29, 2012		October 1, 2011
	2012		2011		2012	2011
Weighted average risk free rate of return (a)	0.51	%		0.71	%	0.62	%	1.62	%
Weighted average risk free rate of return (a)	0.71%		1.30%		0.63%	1.65%
Dividend yield	—			—		—		—
Dividend yield	-		-		-	-
Expected volatility of the market price of the Company's common stock	56.0	%		57.7	%	56.0	%	57.7	%
Expected volatility of the market price of
Expected option life (years)	4.1			4.1		4.1		4.1
the Company's common stock	56.0%		57.7%		56.0%	57.7%
Expected option life (years)	4.1		4.1		4.1	4.1

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

28 25

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

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

	Three Months Ended	~~Three Months Ended~~				~~Six Months Ended~~			Nine Months Ended
		June 30,		July 2,		June 30,		July 2,
	September 29, 2012				October 1, 2011				September 29, 2012		October 1, 2011
		2012		2011		2012		2011
Stock-based compensation expense before income taxes:
Stock-based compensation expense before income taxes:
Stock options	$	1,437			$	1,566			$	5,128	$	6,938
Stock options	$	1,663	$	1,551	$	3,691	$	5,372
Restricted stock grants	1,738				3,165				7,999		14,277
Restricted stock grants		2,866		3,586		6,261		11,112
Total	3,175				4,731				13,127		21,215
Total		4,529		5,137		9,952		16,484
Income tax benefit:
Income tax benefit:
Stock options	500				532				1,746		2,407
Stock options		564		509		1,246		1,875
Restricted stock grants	641				1,121				2,156		4,776
Restricted stock grants		1,062		1,392		1,515		3,655
Total	1,141				1,653				3,902		7,183
Total		1,626		1,901		2,761		5,530
Stock-based compensation expense after income taxes:
Stock-based compensation expense after income taxes:
Stock options	937				1,034				3,382		4,531
Stock options		1,099		1,042		2,445		3,497
Restricted stock grants	1,097				2,044				5,843		9,501
Restricted stock grants		1,804		2,194		4,746		7,457
Total	$	2,034			$	3,078			$	9,225	$	14,032
Total	$	2,903	$	3,236	$	7,191	$	10,954

A summary of stock option award activity under the Company’s stock incentive plans as of and for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 is presented below:

			Weighted
	Options			WeightedAverageExercisePrice
			Average
Outstanding as of December 31, 2011	1,886,925			$	38.35
			Exercise
Granted	351,210			55.90
	Options		Price
Exercised	(598,062	)		28.36
Outstanding as of December 31, 2011	1,886,925	$	38.35
Forfeited / Expired	(76,541	)		50.94
Granted	333,393		56.45
Outstanding as of September 29, 2012	1,563,532			$	45.49
Exercised	(509,197)		27.53
Options Exercisable as of September 29, 2012	910,438			$	39.76
Forfeited / Expired	(35,674)		50.42
Outstanding as of June 30, 2012	1,675,447	$	44.98
Options Exercisable as of June 30, 2012	985,487	$	39.15

A summary of the activity for unvested restricted share/unit awards under the Company’s stock incentive plans (excluding Performance Awards, as defined below) as of and for the Nine Months Ended September 29 , 2012 is presented below:



	Restricted shares/units		Weighted Average Grant Date Fair Value
Unvested as of December 31, 2011	859,766		$	39.77
Granted	210,806		55.63
Vested	(268,026	)	29.34
Forfeited	(57,673	)	48.56
Unvested as of September 29, 2012	744,873		$	47.19

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

			Weighted
			Average
	Restricted		Grant Date
	shares/units		Fair Value
Unvested as of December 31, 2011	859,766	$	39.77
Granted	197,239		56.37
Vested	(258,876)		28.98
Forfeited	(27,885)		48.81
Unvested as of June 30, 2012	770,244	$	47.10

During the first quarters of Fiscal 2012 and Fiscal 2011, share-based compensation awards granted to certain of the Company’s officers under Warnaco Group’s 2005 Stock Incentive Plan included 55,557 and 80,050 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 1 of Notes to Consolidated Financial Statements - Nature of Operations and Summary of Significant Accounting Policies – Stock-Based Compensation in the Company’s Annual Report on Form 10-K for Fiscal 2011 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 ($1,893 as of March 6, 2012 and $3,245 as of March 1, 2011) 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 2012 to March 6, 2012 (the grant date) for Performance Awards granted on March 6, 2012, and the period from the beginning of Fiscal 2011 to March 1, 2011 (the grant date) for Performance Awards granted on March 1, 2011, for which actual TSR’s are calculated; and


(ii)	the periods from the respective grant dates to the end of the fiscal years ending 2013 or 2014, respectively, a total of 2.82 years and 2.83 years, respectively,(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 6, 2012 and on March 1, 2011 included the following assumptions:

	March 6,	March 1,
	March 6, 2012	March 1, 2011
	2012	2011
Weighted average risk free rate of return	0.38%	1.07%
Dividend yield	-—%	-—%
Expected volatility - Company (a)	38.26%	61.50%
Expected volatility - Peer Companies	28.3% - 74.8%	38.2% - 113.4%
Remaining measurement period (years)	2.82	2.83

(a) Expected volatility - Company for Performance Awards granted on March 6, 2012 and on March 1, 2011 is based on a Remaining Measurement Period of 2.82 years and 2.83 years, respectively.

The Company recorded compensation expense for the Performance Awards during the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011 based on the performance condition.

Performance Award activity for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 was as follows:

			Weighted
	PerformanceShares			WeightedAverageGrant DateFair Value
			Average
Unvested as of December 31, 2011	154,500			$	49.65
	Performance		Grant Date
Granted	55,557			56.54
	Shares		Fair Value
Forfeited	(3,683	)		56.16
Unvested as of December 31, 2011	154,500	$	49.65
Unvested as of September 29, 2012	206,374			$	51.39
Granted	55,557		56.54
Forfeited	(1,450)		55.57
Unvested as of June 30, 2012	208,607	$	51.44

~~Note 16—Supplemental Cash Flow Information~~ 27

		Six Months Ended
		June 30,	July 2,
		2012	2011
Cash paid (received) during the period for:
Interest expense	$	7,601	$ 5,167
Interest income		(881)	(942)
Income taxes, net of refunds received		35,829	36,190
Supplemental non-cash investing and financing activities:
Accounts payable for purchase of fixed assets		3,337	6,206

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

Note 16—Supplemental Cash Flow Information



	Nine Months Ended
	September 29, 2012			October 1, 2011
Cash paid (received) during the period for:
Interest expense	$	11,393		$	8,606
Interest income	(1,450		)	(1,525		)
Income taxes, net of refunds received	50,174			51,323
Supplemental non-cash investing and financing activities:
Accounts payable for purchase of fixed assets	7,230			4,930

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, including earned performance shares, are deemed participating securities, which participate equally with common shareholders. The weighted average restricted stock outstanding was ~~518~~505,~~504~~665 shares and ~~640~~622,~~931~~969 shares for the Three Months Ended ~~June~~September 3029, 2012 and the Three Months Ended ~~July~~October 21, 2011, respectively and ~~548~~534,~~384~~727 shares and ~~646~~639,~~828~~980 shares for the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, 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.

32 28

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

	Three Months Ended	~~Three Months Ended~~
		June 30,		July 2,
	September 29, 2012				October 1, 2011
		2012		2011
Numerator for basic and diluted income per common share:
Numerator for basic and diluted income per common share:
Income from continuing operations attributable to Warnaco Group common shareholders and participating securities	$	41,130			$	48,788
Income from continuing operations attributable to Warnaco Group
Less: allocation to participating securities	(502		)		(718		)
common shareholders and participating securities	$	9,625	$	45,566
Income from continuing operations attributable to Warnaco Group common shareholders	$	40,628			$	48,070
Less: allocation to participating securities		(120)		(660)
Loss from discontinued operations, net of tax, attributable to Warnaco Group common shareholders and participating securities	$	(2	)		$	(4,177	)
Income from continuing operations attributable to Warnaco Group
Less: allocation to participating securities	—				61
common shareholders	$	9,505	$	44,906
Loss from discontinued operations attributable to Warnaco Group common shareholders	$	(2	)		$	(4,116	)
Loss from discontinued operations, net of tax, attributable to
Net income attributable to Warnaco Group common shareholders and participating securities	$	41,128			$	44,611
Warnaco Group common shareholders and participating securities	$	(9)	$	(63)
Less: allocation to participating securities	(502		)		(656		)
Less: allocation to participating securities		-		1
Net income attributable to Warnaco Group common shareholders	$	40,626			$	43,955
Loss from discontinued operations attributable to Warnaco Group
Basic income per common share attributable to Warnaco Group common shareholders:
common shareholders	$	(9)	$	(62)
Weighted average number of common shares outstanding used in computing income per common share	40,908,995				41,713,958
Net income attributable to Warnaco Group common shareholders
Income per common share from continuing operations	$	0.99			$	1.15
and participating securities	$	9,616	$	45,503
Loss per common share from discontinued operations	—				(0.10		)
Less: allocation to participating securities		(120)		(659)
Net income per common share	$	0.99			$	1.05
Net income attributable to Warnaco Group common shareholders	$	9,496	$	44,844
Diluted income per share attributable to Warnaco Group common shareholders:
Basic income per common share attributable to Warnaco Group common shareholders:
Weighted average number of common shares outstanding used in computing basic income per common share	40,908,995				41,713,958
Weighted average number of common shares outstanding used in
Effect of dilutive securities:
computing income per common share		40,962,008		43,622,535
Stock options and restricted stock units	589,359				867,142
Income per common share from continuing operations	$	0.23	$	1.03
Weighted average number of shares and share equivalents used in computing income per common share	41,498,354				42,581,100
Loss per common share from discontinued operations		-		-
Income per common share from continuing operations	$	0.98			$	1.13
Net income per common share	$	0.23	$	1.03
Loss per common share from discontinued operations	—				(0.10		)
Diluted income per share attributable to Warnaco Group common shareholders:
Net income per common share	$	0.98			$	1.03
Weighted average number of common shares outstanding used in computing
Number of anti-dilutive "out-of-the-money" stock options outstanding (a)	889,209				355,200
basic income per common share		40,962,008		43,622,535
Effect of dilutive securities:
Stock options and restricted stock units		589,852		835,838
Weighted average number of shares and share equivalents used in computing
income per common share		41,551,860		44,458,373
Income per common share from continuing operations	$	0.23	$	1.01
Loss per common share from discontinued operations		-		-
Net income per common share	$	0.23	$	1.01
Number of anti-dilutive "out-of-the-money" stock options outstanding (a)		922,617		3,350

33 (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.

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

		Six Months Ended
	Nine Months Ended
		June 30,		July 2,
	September 29, 2012				October 1, 2011
		2012		2011
Numerator for basic and diluted income per common share:
Numerator for basic and diluted income per common share:
Income from continuing operations attributable to Warnaco Group common shareholders and participating securities	$	83,637			$	138,886
Income from continuing operations attributable to Warnaco Group
Less: allocation to participating securities	(1,082		)		(2,033		)
common shareholders and participating securities	$	42,507	$	90,098
Income from continuing operations attributable to Warnaco Group common shareholders	$	82,555			$	136,853
Less: allocation to participating securities		(564)		(1,312)
Income (Loss) from discontinued operations, net of tax, attributable to Warnaco Group common shareholders and participating securities	$	3,023			$	(4,741	)
Income from continuing operations attributable to Warnaco Group
Less: allocation to participating securities	(39		)		69
common shareholders	$	41,943	$	88,786
Income (Loss) from discontinued operations attributable to Warnaco Group common shareholders	$	2,984			$	(4,672	)
Income (Loss) from discontinued operations, net of tax, attributable to
Net income attributable to Warnaco Group common shareholders and participating securities	$	86,660			$	134,145
Warnaco Group common shareholders and participating securities	$	3,025	$	(564)
Less: allocation to participating securities	(1,121		)		(1,964		)
Less: allocation to participating securities		(40)		8
Net income attributable to Warnaco Group common shareholders	$	85,539			$	132,181
Income (Loss) from discontinued operations attributable to Warnaco Group
Basic income per common share attributable to Warnaco Group common shareholders:
common shareholders	$	2,985	$	(556)
Weighted average number of common shares outstanding used in computing income per common share	40,800,528				43,076,120
Net income attributable to Warnaco Group common shareholders
Income per common share from continuing operations	$	2.02			$	3.18
and participating securities	$	45,532	$	89,534
Income (Loss) per common share from discontinued operations	0.08				(0.11		)
Less: allocation to participating securities		(605)		(1,304)
Net income per common share	$	2.10			$	3.07
Net income attributable to Warnaco Group common shareholders	$	44,927	$	88,230
Diluted income per share attributable to Warnaco Group common shareholders:
Basic income per common share attributable to Warnaco Group common shareholders:
Weighted average number of common shares outstanding used in computing basic income per common share	40,800,528				43,076,120
Weighted average number of common shares outstanding used in
Effect of dilutive securities:
computing income per common share		40,746,295		43,757,202
Stock options and restricted stock units	725,277				947,526
Income per common share from continuing operations	$	1.03	$	2.03
Weighted average number of shares and share equivalents used in computing income per common share	41,525,805				44,023,646
Income (Loss) per common share from discontinued operations		0.07		(0.01)
Income per common share from continuing operations	$	1.99			$	3.11
Net income per common share	$	1.10	$	2.02
Income (Loss) per common share from discontinued operations	0.07				(0.11		)
Diluted income per share attributable to Warnaco Group common shareholders:
Net income per common share	$	2.06			$	3.00
Weighted average number of common shares outstanding used in
Number of anti-dilutive "out-of-the-money" stock options outstanding (a)	625,906				327,950
computing basic income per common share		40,746,295		43,757,202
Effect of dilutive securities:
Stock options and restricted stock units		758,738		941,115
Weighted average number of shares and share equivalents used in
computing income per common share		41,505,033		44,698,317
Income per common share from continuing operations	$	1.01	$	1.99
Income (Loss) per common share from discontinued operations		0.07		(0.02)
Net income per common share	$	1.08	$	1.97
Number of anti-dilutive "out-of-the-money" stock options outstanding (a)		636,117		332,100

(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.

34 30

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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, sought to declare the sale null and void, claimed monetary damages in an unspecified amount and sought other relief (the “Palmers Suit”). On February 13, 2012, Le Tribunal de Commerce de Paris dismissed the Palmers Suit and awarded the Company €100 in costs. On March 12, 2012, Palmers appealed the judgment. The Company had a litigation reserve of $3,700 related to the Palmers Suit, which was included in Liabilities of discontinued operations as of December 31, 2011 ~~and March 31, 2012~~. During the ~~Three~~Nine Months Ended ~~June~~September 3029, 2012, the Company reversed the litigation reserve for the Palmers Suit because the Company believes that no amounts will be due related to this matter. The reversal of the litigation reserve of $3,700 is included in discontinued operations in the accompanying Consolidated Condensed Statements of Operations for the ~~Three~~Nine ~~and Six~~ Months Ended ~~June~~September 3029, 2012.

Lejaby Receivables: As a result of the Company’s sale of its Lejaby business to Palmers on March 10, 2008, the Company had a non-interest bearing loan receivable from Palmers (which loan was recorded on a discounted basis and for which interest income was imputed) as well as another receivable related to working capital adjustments associated with such sale. Both the loan receivable and the receivable related to working capital adjustments were included in Other long-term assets on the Company’s Consolidated Condensed Balance Sheets. The carrying value of the loan, including imputed interest, was $13,800 and the working capital receivable was $3,700 prior to any write-downs. During the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012, the Company received certain information which indicated that all or a portion of the receivables from Palmers might not be collectible. As of ~~June~~September 3029, 2012, based upon its best estimate from the available information, the Company reduced the carrying value of the loan receivable, including accrued interest, from $13,800 to $1,900, which represents the Company's best estimate of net realizable value. The charge of $11,900, which includes the reversal of $3,800 of previously recorded interest income, was recorded as Other expense on the Company’s Consolidated Condensed Statements of Operations during the ~~Three~~Nine Months Ended ~~June~~September 3029, 2012. The charge was recorded to Other expense because the note was the original form of payment under the terms of the purchase agreement and adjustment of such note subsequent to the disposal date was not directly related to the disposal of the Lejaby business and, accordingly, does not affect the determination of the related gain or loss at the disposal date. The Company wrote-off the $3,700 receivable related to the working capital receivable due to uncertainty of collection. The charge resulting from the write-off of the working capital receivable was recorded in discontinued operations because the working capital adjustment was directly related to the disposal of the Lejaby business and the amount of the write-off represents the resolution of a purchase price adjustment.

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 cash flows.

Note 19 — Commitments and Contingencies

The contractual obligations and commitments in existence as of ~~June 30~~September 29, 2012 did not differ materially from those disclosed as of December 31, 2011 in the Company’s Annual Report on Form 10-K for Fiscal 2011, except for the following changes, which occurred during the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012:

	2013	~~2013~~		~~2014~~	2014	~~2015~~		~~2016~~	2015	~~2017~~		~~Thereafter~~	2016	~~Total~~	2017		Thereafter		Total
Operating leases	$	718,~~229~~557	$	~~4,739~~	$	315,~~412~~046	$	~~2,680~~	$	112,~~658~~370	$	~~8,880~~	$	289,~~598~~836	$	7,481	$	9,325	$	72,615
Other contractual obligations	6,154	~~3,994~~		~~238~~	826	~~275~~		~~141~~	602	~~196~~		~~1,075~~	133	~~5,919~~	188		1,148		9,051
Total	$	1124,~~223~~711	$	~~4,977~~	$	315,~~687~~872	$	~~2,821~~	$	112,~~854~~972	$	~~9,955~~	$	349,~~517~~969	$	7,669	$	10,473	$	81,666

35 As of September 29, 2012, in the ordinary course of business, the Company had open purchase orders with suppliers of approximately $395,772, of which $182,078 are payable in Fiscal 2012 and $213,694 are payable in 2013.

As of September 29, 2012, the Company was also party to outstanding hedging instruments (see Note 11 of Notes to Consolidated Condensed Financial Statements).

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THE WARNACO GROUP, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Currencies in thousands, excluding per share amounts)

(Unaudited)

As of ~~June 30~~September 29, 2012, in the ~~ordinary~~Company ~~course~~remains ofunder ~~business,~~audit ~~the~~in ~~Company~~various ~~had~~taxing ~~open~~jurisdictions ~~purchase~~(see ~~orders~~Note ~~with~~7 of ~~suppliers~~Notes ofto ~~approximately~~Consolidated ~~$358,446,~~Condensed ofFinancial ~~which~~Statements ~~$348,312~~for ~~are~~a ~~payable~~discussion inrelated ~~Fiscal~~to ~~2012~~the ~~and~~Company’s ~~$10,134~~reserve ~~are~~for ~~payable~~uncertain intax ~~2013~~positions).

~~As of June 30, 2012, the Company was also party to outstanding hedging instruments (see~~ Note 1120-Subsequent ~~of Notes to Consolidated Condensed Financial Statements).~~ Event

AsOn ofOctober ~~June 30~~31, 2012, the Company ~~remains~~announced ~~under~~that ~~audit~~it inhad ~~various~~entered ~~taxing~~into ~~jurisdictions~~an Agreement and Plan of Merger, dated October 29, 2012 (~~see~~the ~~Note~~“Merger 7 Agreement”), with PVH Corp. (“PVH”) and Wand Acquisition Corp., a wholly owned subsidiary of ~~Notes~~PVH (“Merger Sub”), pursuant to ~~Consolidated~~which, ~~Condensed~~and ~~Financial~~subject ~~Statements~~to ~~for~~the terms and conditions therein, Merger Sub will merge with and into the Company and the Company will become a ~~discussion~~wholly ~~related~~owned tosubsidiary of PVH. At the effective time of the merger, each outstanding share of the Company’'s ~~reserve~~common ~~for~~stock, ~~uncertain~~other ~~tax~~than ~~positions~~dissenting shares or shares held by PVH, the Company or their respective subsidiaries, will be converted into the right to receive $51.75 in cash and .1822 of a share of PVH common stock (equivalent to $20.04 based upon a closing price of PVH stock of $109.99 on October 31, 2012) .

36 Certain costs related to the proposed merger, such as advisor legal and accounting fees, are payable by the Company whether or not the proposed acquisition is completed, and in certain circumstances, the Company could be required to pay a termination fee of $100 million if the merger does not occur. The merger is subject to the approval of the stockholders of the Company, regulatory approvals and other customary closing conditions. For a more detailed description of the Merger Agreement, please refer to the Current Report on Form 8−K filed by the Company on November 2, 2012.

Table of Contents

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 Fiscal 2011.

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 1, 2012 to December 29, 2012 (“Fiscal 2012”), 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 contained 52 weeks of operations. Additionally, the period from ~~April~~July 1, 2012 to ~~June~~September 3029, 2012 (the “Three Months Ended ~~June~~September 3029, 2012 ”) and the period from ~~April~~July 3, 2011 to ~~July~~October 21, 2011 (the “Three Months Ended ~~July~~October 21, 2011”) each contained 13 weeks of operations and the period from January 1, 2012 to ~~June~~September 3029, 2012 (the “~~Six~~Nine Months Ended ~~June~~September 3029, 2012 ”) and the period from January 2, 2011 to ~~July~~October 21, 2011 (the “~~Six~~Nine Months Ended ~~July~~October 21, 2011”) each contained 2639 weeks of operations.

The Company has three operating segments: (i) Sportswear Group; (ii) Intimate Apparel Group; and (iii) Swimwear Group. These groupings reflect the manner in which the Company’s business is managed and the manner in which the Company’s CEO, who is the chief operating decision maker, reviews the Company’s business.

During the ~~Three~~Nine Months Ended ~~June~~September 3029, 2012, the Company ~~began~~continues to ~~consolidate~~be in the process of consolidating its sourcing/design/merchandising functions related to Calvin Klein Jeans, which are currently located in both Europe and New York, entirely to New York. As a result, during the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012, $1.0 million and $1.3 million, respectively, of related costs have been classified as unallocated corporate expenses and such costs have not been allocated to the Sportswear Group (see Note 6 of Notes to Consolidated Condensed Financial Statements for further details). The total amount of these costs is expected to be approximately $65.5 million.

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.

References to the effects of fluctuations in foreign currencies reflect the following factors:


(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)

a transaction effect related to entities which purchase inventory in currencies other than that entity’s reporting currency. The transaction effect represents the effect of the following differences in the foreign currency exchange rates on cost of goods sold: (a) the foreign currency exchange rate in effect at the time of purchase of inventory sold in the current period and (b) the foreign currency exchange rate in effect at the time of purchase of inventory sold in the comparable prior year period; and


(iii)	gains and losses recorded by the Company as a result of fluctuations in foreign currency exchange rates and gains and losses related to the Company’s foreign currency hedge programs (see Note 11 of Notes to Consolidated Condensed Financial Statements).

37 33

Table of Contents

Overview

On October 31, 2012, the Company announced that it had entered into an Agreement and Plan of Merger, dated October 29, 2012 (the “Merger Agreement”), with PVH Corp. (“PVH”) and Wand Acquisition Corp., a wholly owned subsidiary of PVH (“Merger Sub”), pursuant to which, and subject to the terms and conditions therein, Merger Sub will merge with and into the Company and the Company will become a wholly owned subsidiary of PVH. At the effective time of the merger, each outstanding share of the Company's common stock, other than dissenting shares or shares held by PVH, the Company or their respective subsidiaries, will be converted into the right to receive $51.75 in cash and .1822 of a share of PVH common stock (equivalent to $20.04 based upon a closing price of PVH stock of $109.99 on October 31, 2012).

Certain costs related to the proposed merger, such as advisor legal and accounting fees, are payable by the Company whether or not the proposed acquisition is completed, and in certain circumstances, the Company could be required to pay a termination fee of $100 million if the merger does not occur. The Merger is subject to the approval of the stockholders of the Company, regulatory approvals and other customary closing conditions. For a more detailed description of the Merger Agreement, please refer to the Current Report on Form 8−K filed by the Company on November 2, 2012.

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 owned full-price free standing retail stores, outlet stores, concession/shop-in-shop stores and the internet.

The Company's ~~has~~mission ~~adopted~~is ato ~~credo,~~become ~~which~~the ~~includes its role as a~~ leading global apparel and accessories company, ~~creating value for its stakeholders~~ by growing its powerful brands and by being consumer, brand and product focused. In order to ~~implement~~accomplish ~~the tenets of~~ its ~~credo~~mission, the Company has identified the following key strategic objectives~~, which it intends to focus on over the next five years:~~ .

·• Optimize and grow the international Calvin Klein businesses. The Company intends to continue the global expansion of its Calvin Klein Jeans and Calvin Klein Underwear businesses, particularly in Latin America, Asia and Northern and Eastern Europe. The key driver for this expansion is expected to be achieved via growth in the Company’s retail business through a combination of new store openings, improving sales in existing stores and the selective acquisition of stores operated by distributors of the Company’s products. The Company expects to concentrate its investment in new store openings in the faster growing regions of Asia, with a continued focus on the People’s Republic of China, and Latin America. In Europe, in addition to expansion in Northern and Eastern Europe, the focus will be on improving productivity in existing stores and encouraging development of stores operated by distributors. During the Six Months Ended June 30, 2012, the Company increased the number of Calvin Klein retail stores in Europe, Asia and South America, net of store closures, by 44 retail stores (consisting of an addition of 37 concession /shop-in-shop stores and an increase of eight full price stores, partially offset by the cessation of the Company’s existing operations of its calvinkleinjeans.com e-commerce site in the U.S.). As of June 30, 2012, the Company operated (i) 1,803 Calvin Klein retail stores worldwide (consisting of 389 free-standing stores (including 271 full-price and 118 outlet stores), 1,413 concession /shop-in-shop stores and one Calvin Klein Underwear on-line store) and (ii) one Speedo® on-line store.Retail net revenues from sales of Calvin Klein products increased 2.6% to $346.5 million for the Six Months Ended June 30, 2012 compared to $337.7 million for the Six Months Ended July 2, 2011, and represented 29.4% and 26.9% of the Company’s net revenues for those respective periods.

·During ~~Gain~~the ~~market~~Nine ~~share~~Months inEnded ~~heritage~~September ~~businesses.~~29, ~~The~~2012, the Company’s ~~heritage~~increased ~~businesses~~the ~~include~~number ~~Chaps®,~~of ~~Warner’s~~Calvin ~~and~~Klein ~~Olga~~retail ~~(both~~stores ofin ~~which~~Europe, ~~are~~Asia, ~~included~~South inAmerica ~~Core Intimates)~~ and ~~Speedo®~~the ~~brands~~U.S., ~~During~~net ~~the~~of ~~past~~store ~~five years~~closures, ~~the~~by ~~Company~~92 ~~has~~retail ~~focused~~stores on(consisting ~~managing~~of ~~the~~an ~~existing~~addition ~~product lines~~ of ~~the~~4 ~~heritage~~outlet ~~businesses~~stores, ~~for~~65 ~~profitability.~~concession ~~The~~/shop-in-shop ~~Company’s~~stores ~~strategy~~and ~~over~~24 ~~the~~full ~~next~~price ~~five~~stores, ~~years~~partially isoffset toby ~~achieve~~the ~~growth~~cessation of the ~~heritage~~Company’s ~~businesses~~existing ~~through~~operations ~~gains~~of inits ~~market~~calvinkleinjeans.com ~~share,~~e-commerce ~~while~~site ~~maintaining~~in ~~operating~~the ~~margins~~U.S.). ~~The~~As ~~Company~~of ~~believes~~September 29, it2012, ~~can~~the ~~achieve~~Company ~~gains~~operated in(i) ~~market~~1,851 ~~share~~Calvin ~~through~~Klein ~~expansion~~retail ofstores ~~the~~worldwide ~~number~~(consisting of ~~product~~409 ~~lines,~~free-standing ~~improvements~~stores in(including ~~style~~287 offull-price ~~products,~~ and ~~increases~~122 inoutlet ~~the~~stores), ~~channels~~1,441 concession /shop-in-shop stores and toone ~~the~~Calvin ~~customer~~Klein ~~base,~~Underwear inon-line ~~which~~store) ~~the~~and ~~heritage~~(ii) ~~brands~~one ~~are~~Speedo® ~~sold~~on-line store.

·Retail ~~Better~~net ~~alignment~~revenues offrom ~~organization~~sales ~~with~~of ~~strategies.~~Calvin ~~The~~Klein ~~Company~~products ~~believes~~decreased ~~that~~$5.3 inmillion ~~order~~ to ~~achieve~~$178.9 ~~its~~million ~~strategic~~for ~~objectives~~the itThree ~~must~~Months ~~build~~Ended aSeptember ~~more~~29, ~~consumer-centric~~2012 ~~culture~~compared ~~with~~to ~~strong customer relationships and an increased focus on product quality and style~~$184.2 Tomillion ~~that~~for ~~end,~~ the ~~Company~~Three ~~has~~Months ~~recently~~Ended ~~made~~October ~~key organizational changes. Specifically~~1, ~~the~~2011 ~~Company~~and ~~created~~represented ~~the~~29.2% ~~positions of Chief Merchandising Officer~~ and ~~Chief Commercial Officer for its Calvin Klein Jeans businesses~~28.5% Inof ~~addition,~~ the Company’s isnet inrevenues ~~the~~for ~~process~~those ofrespective ~~centralizing its design and merchandising functions and streamlining its planning and production operations~~periods.

38 Retail net revenues from sales of Calvin Klein products increased $3.5 million to $525.4 million for the Nine Months Ended September 29, 2012 compared to $521.9 million for the Nine Months Ended October 1, 2011, and represented 29.3% and 27.5% of the Company’s net revenues for those respective periods.

Table of Contents

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Gain market share in heritage businesses. The Company’s heritage businesses include Chaps®, Warner’s and Olga (both of which are included in Core Intimates) and Speedo® brands. During the past five years, the Company has focused on managing the existing product lines of the heritage businesses for profitability. The Company’s strategy is to achieve growth of the heritage businesses through gains in market share, while maintaining operating margins. The Company believes it can achieve gains in market share through expansion of the number of product lines, improvements in style of products, and increases in the channels, and to the customer base, in which the heritage brands are sold.

•

Better alignment of organization with strategies. The Company believes that in order to achieve its strategic objectives it must build a more consumer-centric culture with strong customer relationships and an increased focus on product quality and style. To that end, the Company has recently made key organizational changes. Specifically, the Company created and filled the positions of Chief Merchandising Officer and Chief Commercial Officer for its Calvin Klein Jeans businesses. In addition, the Company is in the process of centralizing its design and merchandising functions and streamlining its planning and production operations.

Net Revenues

The Company’s net revenues decreased $2733.56 million, or 45.62%, to $~~563~~611.95 million for the Three Months Ended ~~June~~September 3029, 2012 compared to $~~591~~645.41 million for the Three Months Ended ~~July~~October 21, 2011 and decreased $74107.17 million, or 5.97%, to $1.188 billion for the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 compared to $1.259 billion for the ~~Six~~Nine Months Ended ~~July~~October 21, 2011. The decreases in net revenues for those respective periods include the unfavorable effect of foreign currency fluctuations, which resulted in decreases in net revenues of $2730.27 million and $3465.96 million, respectively. Thus, on a constant currency basis, net revenue for the Three Months Ended ~~June~~September 3029, 2012 ~~was~~decreased ~~effectively~~$2.9 ~~unchanged~~million from net revenue for the Three Months Ended ~~July~~October 21, 2011 and for the Nine Months Ended September 29, 2012 net revenue decreased $42.1 million from net revenue for the Nine Months Ended October 1, 2011 (see Non-GAAP Measures, below).

On a business segment basis, the decrease in net revenues for the Three Months Ended ~~June~~September 3029, 2012 compared to the Three Months Ended ~~July~~October 21, 2011 was due to:

·• a decrease of $2120.36 million in the Company’s Sportswear Group (which primarily reflects ~~continued weakness in~~ the ~~Company’s U.S. and European operations and the~~ negative effect of fluctuations in foreign currency exchange rates in Europe, ~~partially~~and ~~offset~~Mexico byand ~~increases~~Central and South America combined with poor macroeconomic conditions in ~~net~~the ~~revenues,~~Company’s ~~primarily~~operations in ~~Asia~~those geographies as well as in the U.S.); and

·• a decrease of $1415.37 million in the Intimate Apparel Group (which primarily reflects macroeconomic weakness in Europe, the U.S., Mexico and Central and South America and Canada and the negative effect of fluctuations in foreign currency exchange rates in ~~Europe~~all of those geographies, partially offset by strong sales of ~~the newly launched~~ Calvin Klein Bold brand of men’s underwear, which was launched in March 2012);

·• partially offset by an increase of $82.17 million in the Swimwear Group (which primarily reflects the Company’s strategy in the U.S. of focusing its Speedo business more on its higher margin customers and less on its lower margin customers).

On a business segment basis, the decrease in net revenues for the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 compared to the ~~Six~~Nine Months Ended ~~July~~October 21, 2011 was due to:

·• a decrease of $5980.95 million in the Company’s Sportswear Group (which primarily reflects continued weakness in the Company’s U.S and European operations, the negative effects of fluctuations in foreign currency exchange rates in Europe and a strategic decision by the Company to reduce sales in order to reduce royalty penalties during Fiscal 2012 associated with sales in the off-price channel, partially offset by increases in net revenues in other regions, primarily in Asia;

·• a decrease of $1228.51 million in the Intimate Apparel Group (which primarily reflects macroeconomic weakness in Europe, Asia, Mexico and Central and South America and Canada and the negative effect of fluctuations in foreign currency exchange rates in ~~Europe~~all those geographies, partially offset by ~~strong~~an ~~sales~~increase in net revenues in Asia, primarily due to the expansion of the ~~newly~~distribution ~~launched~~network in the People's Republic of China, and worldwide strong sales of Calvin Klein Bold brand of men’s underwear, which was launched in March 2012); ~~and~~

· a decrease of $1.7 million in the Swimwear Group (which primarily reflects the Company’s strategy of focusing more on its higher margin customers and less on its lower margin customers). While this strategy resulted in lower net revenues during the first quarter of Fiscal 2012, net revenues have increased during the Three Months Ended June 30, 2012 and are expected to continue to increase in the future.35

OnTable aof ~~channel basis, the decline in net revenues for the Three Months Ended June 30, 2012 compared to the Three Months Ended July 2, 2011 includes decreases in:~~ Contents

·• ~~the~~partially ~~wholesale~~offset ~~channel~~by an increase of $250.39 million, in the ~~Sportswear~~Swimwear Group ~~and~~(which ~~the~~primarily ~~Intimate~~reflects ~~Apparel~~the ~~Group,~~Company’s ~~primarily~~strategy in the U.S. of focusing its Speedo business more on its higher margin customers and ~~Europe,~~less ~~which~~on ~~reflects~~its lower margin customers). As a ~~decrease~~result of ~~$14.7~~this ~~million~~strategy, ~~due~~net torevenues have increased during the ~~unfavorable~~Nine ~~effect~~Months ofEnded ~~fluctuations~~September 29, 2012. Those increases were partially offset by a decrease in ~~foreign~~net ~~currency~~revenues ~~exchange~~of ~~rates;~~Calvin ~~and~~Klein swimwear in Europe.

39 On a channel basis, the decline in net revenues for the Three Months Ended September 29, 2012 compared to the Three Months Ended October 1, 2011 includes decreases in:

·• the ~~retail~~wholesale channel of $229.20 million, ~~including (i) a decrease of $4.3 million (3.0%)~~ in ~~comparable~~the ~~store~~Sportswear ~~sales,~~Group ~~primarily as a result of decreases in Korea~~ and ~~Spain, which~~ the ~~Company~~Intimate ~~believes~~Apparel ~~are~~Group, primarily ~~due to poor macroeconomic conditions~~ in ~~Southern~~the U.S., Europe, and aMexico ~~general~~and ~~decline~~Central inand ~~the~~South ~~retail apparel industry in those regions~~America, ~~partially~~which ~~offset~~reflects ~~by an increase in comparable store sales in Hong Kong; (ii)~~ a decrease of $1216.5 million due to the unfavorable effect of fluctuations in foreign currency exchange rates,; partially offset by (iii) an increase in retail net revenues of $14.6 million due to the net addition of 191,500 square feet of retail space from July 2, 2011 through June 30, 2012. The increase in retail space includes space for both the Sportswear Group and the Intimate Apparel Group and includes the opening of additional Calvin Klein international retail stores and the acquisition of a controlling interest in the business of the Company’s distributor in India during the third quarter of Fiscal 2011. The total amount of the Company’s retail space was 1.1 million square feet worldwide as of June 30, 2012.

On• athe retail channel ~~basis~~of $4.6 million, including (i) a decrease of $0.4 million (0.3%) in comparable store sales, primarily as a result of a decrease in Spain, which the ~~decline~~Company believes is primarily due to poor macroeconomic conditions in Southern Europe, and in Korea, partially offset by an increase in comparable store sales in Hong Kong; (ii) a decrease of $14.2 million due to the unfavorable effect of fluctuations in foreign currency exchange rates, partially offset by (iii) an increase in retail net revenues of $10.0 million due to the net addition of 138,400 square feet of retail space from October 2, 2011 through September 29, 2012. The increase in retail space includes space for both the ~~Six~~Sportswear ~~Months~~Group ~~Ended~~and ~~June~~the 30Intimate Apparel Group and includes the opening of additional Calvin Klein international retail stores and the acquisition of the businesses of certain of the Company's distributors in Macau, Malaysia and the People's Republic of China. The total amount of the Company’s retail space was 1.2 million square feet worldwide as of September 29, 2012 compared to ~~the~~1.0 ~~Six Months~~million ~~Ended~~square ~~July~~feet 2as of October 1, 2011 ~~includes:~~ .

· On a ~~decrease in the wholesale~~ channel ~~of $82.8 million~~basis, ~~primarily in~~ the ~~Sportswear~~decline ~~Group~~in ~~and~~net ~~the~~revenues for ~~Intimate Apparel Group in~~ the ~~U.S.~~Nine ~~and~~Months ~~Europe~~Ended ~~which~~September ~~reflects~~29, a2012 ~~decrease~~compared ~~of $19.4 million due~~ to the ~~unfavorable~~Nine ~~effect~~Months ofEnded ~~fluctuations~~October in1, ~~foreign~~2011 ~~currency exchange rates; and~~includes:

·• ana ~~increase~~decrease ~~of $8.7 million~~ in the ~~retail channel, which partially offset the decrease in~~ wholesale ~~net revenues. The increase in the retail~~ channel ~~includes: (i) an increase in retail net revenues~~ of $29111.69 million ~~due to the net addition of 191~~,~~500~~ ~~square~~primarily ~~feet of retail space~~ in the ~~period from July 2, 2011 through June 30, 2012. The increase in retail space includes space for both the~~ Sportswear Group and the Intimate Apparel Group ~~and includes the opening of additional Calvin Klein international retail stores and the acquisition of a controlling interest~~ in the ~~business of the Company’s distributor in India during the third quarter of Fiscal 2011; (ii) a decrease of $5~~U.~~5 million (2~~S.~~0%)~~ ~~in comparable store sales, primarily as a result of decreases in Korea~~ and ~~Spain,~~Europe which ~~the~~reflects ~~Company believes are primarily due to poor macroeconomic conditions in Southern Europe and~~ a ~~general decline in the retail apparel industry in those regions, partially offset by an increase in comparable store sales in Hong Kong ; and (iii) a~~ decrease of $1536.40 million due to the unfavorable effect of fluctuations in foreign currency exchange rates.; and

•

an increase of $4.2 million in the retail channel, which partially offset the decrease in wholesale net revenues. The increase in the retail channel includes: (i) an increase in retail net revenues of $38.6 million due to the net addition of 138,400 square feet of retail space in the period from October 2, 2011 through September 29, 2012. The increase in retail space includes space for both the Sportswear Group and the Intimate Apparel Group and includes the opening of additional Calvin Klein international retail stores and the acquisition of the businesses of certain of the Company's distributors in Macau, Malaysia and the People's Republic of China; partially offset by (ii) a 1.2% ($4.8 million) decrease in comparable store sales ($397.6 million for the Nine Months Ended September 29, 2012 compared to $402.4 million for the Nine Months Ended October 1, 2011, primarily as a result of decreases in Korea, the People's Republic of China and Spain, which the Company believes are primarily due to poor macroeconomic conditions in Asia and southern Europe and a general decline in the retail apparel industry in those regions, partially offset by an increase in comparable store sales in Hong Kong, northern Europe and Mexico and Central and South America ; and (iii) a decrease of $29.6 million due to the unfavorable effect of fluctuations in foreign currency exchange rates.

Operating Income

The Company’s operating income ~~decreased~~increased $191.89 million, or 373.60%, to $3266.87 million for the Three Months Ended ~~June~~September 3029, 2012 compared to $5264.68 million for the Three Months Ended ~~July~~October 21, 2011, reflecting ~~declines~~increases in the ~~Sportswear Group ($27.2 million) and in the~~ Intimate Apparel Group ($82.56 million), ~~partially offset by an increase in~~ the Swimwear Group ($2.9 million) and expense reductions (primarily associated with reductions in employee compensation) in Corporate/other ($131.0 million), partially offset by a decline in the Sportswear Group ($4.6 million). Operating income includes restructuring charges and other exit costs of $168.2 0 million for the Three Months Ended ~~June~~September 3029, 2012 and $57.05 million for the Three Months Ended ~~July~~October 21, 2011 (see Liquidity and Capital Resources – Restructuring and Note 5 of Notes to Consolidated Condensed Financial Statements). The effect of fluctuations in the U.S. dollar relative to certain functional currencies where the Company conducts certain of its operations resulted in a $0.2 million decrease in operating income for the Three Months Ended September 29, 2012 compared to the Three Months Ended October 1, 2011.

The Company’s operating income decreased $37.3 million, or 30.5%, to $85.0 million for the Six Months Ended June 30, 2012 compared to $122.3 million for the Six Months Ended July 2, 2011, reflecting declines in the Sportswear Group ($52.2 million) and in the Intimate Apparel Group ($9.0 million), partially offset by an increase in the Swimwear Group ($3.7 million) and expense reductions (primarily associated with reductions in employee compensation) in Corporate/other ($20.2 million). Operating income includes restructuring charges and other exit costs of $22.8 million for the Six Months Ended June 30, 2012 and $11.4 million for the Six Months Ended July 2, 2011. 36

~~During~~Table ~~the Six Months Ended June 30, 2012, although the decline in operating income was primarily related to a decrease in net revenues, certain~~ of the Company’s businesses continued to experience an increase in product and freight costs, which adversely affected the operating margins of those businesses. The Company expects that product costs will stabilize or decline during the remainder of Fiscal 2012. During the Six Months Ended June 30, 2012, the Company was able to partially mitigate the cost increases described above in certain geographic markets in Asia and in Mexico and Central and South America by selectively increasing the selling prices of its goods and by implementing other sourcing initiatives. Contents

40 The Company’s operating income decreased $35.3 million, or 18.9%, to $151.7 million for the Nine Months Ended September 29, 2012 compared to $187.0 million for the Nine Months Ended October 1, 2011, reflecting declines in the Sportswear Group ($56.8 million) and in the Intimate Apparel Group ($6.5 million), partially offset by an increase in the Swimwear Group ($6.6 million) and expense reductions (primarily associated with reductions in employee compensation) in Corporate/other ($21.4 million). Operating income includes restructuring charges and other exit costs of $30.8 million for the Nine Months Ended September 29, 2012 and $19.0 million for the Nine Months Ended October 1, 2011. The effect of fluctuations in the U.S. dollar relative to certain functional currencies where the Company conducts certain of its operations resulted in a $0.7 million increase in operating income for the Nine Months Ended September 29, 2012 compared to the Nine Months Ended October 1, 2011.

During the Nine Months Ended September 29, 2012, the decline in operating income was primarily related to a decrease in net revenues. The decline in operating income was partially mitigated by (i) the stabilization or decline of product and freight costs during the Three Months Ended September 29, 2012 and (ii) the decline in selling, general and administrative costs, which resulted from the Company's focus on reducing those costs (see Selling, General and Administrative Expenses, below). The Company expects that product costs will continue to stabilize or decline during the remainder of Fiscal 2012. During the first half of Fiscal 2012, the Company was able to partially mitigate the increased product and freight costs in certain geographic markets in Asia and in Mexico and Central and South America by selectively increasing the selling prices of its goods and by implementing other sourcing initiatives.

Earnings per Share

For the Three Months Ended ~~June~~September 3029, 2012 compared to the Three Months Ended ~~July~~October 21, 2011, income from continuing operations per diluted share decreased 7713.3% to $0.2398 per diluted share (from $1.0113 per diluted share). ~~The effect of fluctuations in foreign currencies on income from continuing operations per diluted share was negligible.~~ For the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 compared to the ~~Six~~Nine Months Ended ~~July~~October 21, 2011, income from continuing operations per diluted share decreased 4936.0% to $1.0199 per diluted share (from $13.9911 per diluted share), including an increase of $0.0304 per diluted share due to the favorable effect of fluctuations in foreign currencies.

Balance Sheet

As of ~~June 30~~September 29, 2012, the Company’s balance sheet included cash and cash equivalents of $~~295~~311.30 million and total debt of $~~252~~254.87 million compared to $ ~~294~~179.83 million and $~~223~~257.3 million, respectively, as of ~~July 2~~October 1, 2011.

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				Six Months Ended
		June 30,		July 2,		June 30,		July 2,
		2012		2011		2012		2011
		(Dollars in thousands, except per share amounts)
Operating income, as reported (GAAP)	$	32,800	$	52,599	$	85,019	$	122,253
Restructuring charges and pension income (a)		16,157		4,645		22,693		10,822
Operating income, as adjusted (non-GAAP)		48,957		57,244		107,712		133,075
Income from continuing operations attributable to
Warnaco Group common shareholders, as reported (GAAP)	$	9,625	$	45,566	$	42,507	$	90,098
Restructuring charges and pension, net of income tax (a)		11,734		3,218		16,382		7,339
Lejaby loan receivable (b)		12,040		-		12,040		-
Taxation adjustment (c)		(3,204)		(11,788)		(3,346)		(10,137)
Income from continuing operations attributable to
Warnaco Group common shareholders, as adjusted (non-GAAP)	$	30,195	$	36,996	$	67,583	$	87,300
Diluted earnings per share from continuing operations attributable to
Warnaco Group common shareholders, as reported (GAAP)	$	0.23	$	1.01	$	1.01	$	1.99
Restructuring charges and pension , net of income tax (a)		0.28		0.07		0.39		0.16
Lejaby loan receivable (b)		0.29		-		0.29		-
Taxation adjustment (c)		(0.08)		(0.26)		(0.08)		(0.22)
Diluted earnings per share from continuing operations attributable to
Warnaco Group common shareholders, as adjusted (non-GAAP)	$	0.72	$	0.82	$	1.61	$	1.93

41 Table of Contents

(a) For all periods presented, this adjustment seeks to present operating income, income from continuing operations attributable to Warnaco Group common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders without the effects of restructuring charges and pension income. Restructuring charges (on a pre-tax basis) were $16.2 million and $22.8 million for the Three and Six Months Ended June 30, 2012, respectively, and $4.9 million and $11.4 million for the Three and Six Months Ended July 2, 2011, respectively. Pension income (on a pre-tax basis) was $0.1 million and $0.1 million for the Three and Six Months Ended June 30, 2012, respectively, and $0.3 million and $0.6 million for the Three and Six Months Ended July 2, 2012, 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.



	Three Months Ended					Nine Months Ended
	September 29, 2012		October 1, 2011			September 29, 2012			October 1, 2011
	(Dollars in thousands, except per share amounts)

Operating income, as reported (GAAP)	$	66,702	$	64,756		$	151,721		$	187,009
Restructuring charges and pension income (a)	7,974		7,238			30,667			18,060
Acquisition expense (b)	750		—			750			—
Operating income, as adjusted (non-GAAP)	$	75,426	$	71,994		$	183,138		$	205,069

Income from continuing operations attributable to Warnaco Group common shareholders, as reported (GAAP)	$	41,130	$	48,788		$	83,637		$	138,886
Restructuring charges and pension, net of income tax (a)	6,096		5,486			22,479			12,825
Acquisition expense (b)	505					505
Lejaby loan receivable (c)	—		—			12,040			—
Taxation adjustment (d)	375		(8,202		)	(3,171		)	(16,528		)
Income from continuing operations attributable to Warnaco Group common shareholders, as adjusted (non-GAAP)	$	48,106	$	46,072		$	115,490		$	135,183

Diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders, as reported (GAAP)	$	0.98	$	1.13		$	1.99		$	3.11
Restructuring charges and pension , net of income tax (a)	0.15		0.13			0.54			0.29
Acquisition expense (b)	0.01					0.01
Lejaby loan receivable (c)	—		—			0.29			—
Taxation adjustment (d)	0.01		(0.19		)	(0.08		)	(0.37		)
Diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders, as adjusted (non-GAAP)	$	1.15	$	1.07		$	2.75		$	3.03

(ba) For ~~the~~all ~~Three~~periods ~~and Six Months Ended June 30~~presented, ~~2012,~~ this adjustment seeks to present operating income, income from continuing operations attributable to Warnaco Group common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders without the ~~effect~~effects of ~~the~~restructuring ~~adjustment~~charges toand ~~the~~pension ~~loan~~income. ~~receivable~~Restructuring ~~related~~charges to(on a pre-tax basis) were $8.0 million and $30.8 million for the ~~Company’s~~Three ~~discontinued~~and ~~Lejaby~~Nine ~~business~~Months Ended September 29, 2012, respectively, and $7.5 ~~This~~million ~~adjustment~~and ~~was~~$19.0 ~~recorded~~million infor ~~other~~the ~~income/expense~~Three ~~within~~and ~~income~~Nine ~~from~~Months ~~continuing~~Ended ~~operations~~October 1, 2011, respectively. Pension income (on a pre-tax basis) was $0.1 million and $0.2 million for the ~~Company’s~~Three ~~Consolidated~~and ~~Condensed~~Nine ~~Financial~~Months ~~Statements~~Ended ~~(see~~September ~~Note~~29, 182012, ofrespectively, ~~Notes~~and to$0.3 ~~Consolidated~~million ~~Condensed~~and ~~Financial~~$0.9 ~~Statements)~~million for the Three and Nine Months Ended October 1, 2011, respectively. The ~~reporting~~income ~~entity~~tax ~~that~~rates ~~recorded~~used to compute the income tax effect related to this adjustment ~~has~~correspond ato 0%the local statutory tax ~~rate~~rates of the reporting entities that incurred restructuring charges or recognized pension income.

(cb) For the Three and ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 ~~and the Three and Six Months Ended July 2~~, ~~2011,~~ this adjustment ~~reflects~~seeks ~~an additional amount required in order~~ to present operating income, income from continuing operations attributable to Warnaco Group common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders atwithout the Company’s forecasted normalized tax rates for Fiscal 2012 (32.5%) and Fiscal 2011 (33.2%), respectively. The Company’s forecasted normalized tax rates for both Fiscal 2012 and Fiscal 2011 exclude the effects of ~~restructuring~~acquisition ~~charges,~~expense ~~pension income and certain tax adjustments~~ related to ~~either~~the ~~changes~~Company's inproposed ~~estimates~~merger inwith ~~prior~~a ~~period~~wholly-owned ~~tax~~subsidiary ~~provisions~~of orPVH ~~adjustments for certain discrete tax items~~Corp. ~~Adjustments~~as ~~for~~noted ~~discrete~~in ~~items reflect~~ the ~~federal,~~table ~~state~~above. ~~and~~The ~~foreign~~income tax ~~effects~~rate ~~related~~used to: 1)compute ~~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;~~effect ~~and~~related 3)to ~~other adjustments not considered part of the Company's core business activities. In addition,~~ this adjustment ~~for~~corresponds ~~Fiscal~~to ~~2011 excludes~~ the ~~effect~~statutory oftax arate ~~benefit of $10.9 million recorded during the Three and Six Months Ended July 2, 2011 associated with the recognition of net operating losses~~ in ~~a foreign jurisdiction resulting from~~ the ~~successful petition of that country’s taxing authority~~U.S.

(c)

For the Nine Months Ended September 29, 2012, this adjustment seeks to present income from continuing operations attributable to Warnaco Group common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders without the effect of the adjustment to the loan receivable related to the Company’s discontinued Lejaby business. This adjustment was recorded in other income/expense within income from continuing operations on the Company’s Consolidated Condensed Financial Statements (see Note 18 of Notes to Consolidated Condensed Financial Statements). The reporting entity that recorded this adjustment has a 0% local statutory tax rate.

(d)

For the Three and Nine Months Ended September 29, 2012 and the Three and Nine Months Ended October 1, 2011, this adjustment reflects an additional amount required in order to present income from continuing operations attributable to Warnaco Group common shareholders and diluted earnings per share from continuing operations attributable to Warnaco Group common shareholders at the Company’s forecasted normalized tax rates for Fiscal 2012 (32.7%) and Fiscal 2011 (31.1%), respectively. The Company’s forecasted normalized tax rates for both Fiscal 2012 and Fiscal 2011 exclude the effects of restructuring charges, pension income and 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.

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For 2011, this adjustment primarily reflects the following:

a. The exclusion of a $10.9 million 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 $7.3 million 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 $1.3 million 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.

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 from continuing operations as a component of the measurement of incentive compensation.

Earnings per Share – As Adjusted

On an adjusted (non-GAAP) basis, for the Three Months Ended ~~June 30~~September 29, 2012 compared to the Three Months Ended ~~July 2~~October 1, 2011, income from continuing operations per diluted share ~~decreased~~increased 127.25% to $01.7215 per diluted share (from $01.8207 per diluted share). For the ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 compared to the ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011, income from continuing operations per diluted share decreased 169.62% to $12.6175 per diluted share (from $13.9303 per diluted share).

Net Revenues on a Constant Currency Basis

The Company 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 when the Company translates its foreign revenues into U.S. dollars. Such rate fluctuations can have a significant effect on reported net revenues. As a supplement to its reported net revenues, the Company presents net revenues on a constant currency basis, which is a non-GAAP financial measure. The Company uses constant currency information to provide a framework to assess net revenue performance excluding the effects of changes in foreign currency exchange rates. Management believes this information is useful to investors to facilitate comparisons of net revenues and better identify trends in the Company’s businesses.

To calculate the increase in net revenues on a constant currency basis, net revenues 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 for, 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
		(in thousands of dollars)
		Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
				Impact of						Impact of
		GAAP		Foreign		Non-GAAP		GAAP		Foreign		Non-GAAP
		As		Currency		Constant		As		Currency		Constant
		Reported		Exchange		Currency		Reported		Exchange		Currency
By Segment:
Sportswear Group	$	265,028	$	(17,712)	$	282,740	$	565,831	$	(22,321)	$	588,152
Intimate Apparel Group		212,126		(8,223)		220,349		435,003		(10,579)		445,582
Swimwear Group		86,757		(1,277)		88,034		178,618		(1,951)		180,569
Net revenues	$	563,911	$	(27,212)	$	591,123	$	1,179,452	$	(34,851)	$	1,214,303
By Region:
United States	$	247,827	$	-	$	247,827	$	496,236	$	-	$	496,236
Europe		107,728		(11,254)		118,982		254,040		(15,680)		269,720
Asia		116,432		(2,964)		119,396		254,195		(1,885)		256,080
Mexico and Central
Central and South America		61,978		(11,531)		73,509		115,081		(15,294)		130,375
Canada		29,946		(1,463)		31,409		59,900		(1,992)		61,892
Total	$	563,911	$	(27,212)	$	591,123	$	1,179,452	$	(34,851)	$	1,214,303

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	NET REVENUES ON A CONSTANT CURRENCY BASIS
	(in thousands of dollars)

	Three Months Ended September 29, 2012							Nine Months Ended September 29, 2012
	GAAP As Reported		Impact of Foreign Currency Exchange			Non-GAAP Constant Currency		GAAP As Reported		Impact of Foreign Currency Exchange			Non-GAAP Constant Currency
By Segment:
Sportswear Group	$	337,377	$	(21,252	)	$	358,629	$	903,208	$	(43,573	)	$	946,781
Intimate Apparel Group	232,203		(8,527		)	240,730		667,206		(19,106		)	686,312
Swimwear Group	41,958		(961		)	42,919		220,576		(2,912		)	223,488
Net revenues	$	611,538	$	(30,740	)	$	642,278	$	1,790,990	$	(65,591	)	$	1,856,581


By Region:
United States	$	237,298	$	—		$	237,298	$	733,534	$	—		$	733,534
Europe	161,464		(19,292		)	180,756		415,504		(34,972		)	450,476
Asia	130,164		(2,113		)	132,277		384,359		(3,998		)	388,357
Mexico, Central and South America	58,812		(8,975		)	67,787		173,893		(24,269		)	198,162
Canada	23,800		(360		)	24,160		83,700		(2,352		)	86,052
Total	$	611,538	$	(30,740	)	$	642,278	$	1,790,990	$	(65,591	)	$	1,856,581

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 ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012, 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 2011.

Recent Accounting ~~Pronouncements~~ Pronouncement

~~There~~During ~~are~~July no2012, ~~accounting~~the ~~pronouncements~~FASB issued Accounting Standards Update 2012-02 Intangibles-Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”) which is intended to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how the Company tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. Under ASU 2012-02, the Company has the option first to assess qualitative factors to determine whether it is more likely than not that ~~were~~an ~~issued~~indefinite-lived ~~through~~intangible ~~June~~asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The Company also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. The Company will be able to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 ~~that~~is ~~were~~effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company does not ~~yet~~expect ~~adopted~~the ~~that~~adoption ~~are~~of ~~expected~~ASU 2012-02 to have a material effect on ~~the~~its ~~Company’s consolidated~~ financial position, results of operations orand cash flows ~~in future periods~~.

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Results of Operations

Statement of Operations (Selected Data)

The following tables summarize the historical results of operations of the Company for the Three and ~~Six~~Nine Months Ended ~~June 30~~September 29, 2012 and the Three and ~~Six~~Nine Months Ended ~~July 2~~October 1, 2011. The results of the Company's discontinued operations are included in "Income (Loss) from discontinued operations, net of taxes" for all periods presented.

		Three Months				Three Months			Six Months			Six Months
	Three Months Ended September 29, 2012				% of Net Revenues		Three Months Ended October 1, 2011			% of Net Revenues			Nine Months Ended September 29, 2012			% of Net Revenues	Nine Months Ended October 1, 2011			% of Net Revenues
		Ended		% of		Ended	% of		Ended	% of		Ended		% of
	(in thousands of dollars)
		June 30,		Net		July 2,	Net		June 30,	Net		July 2,		Net
Net revenues	$	611,538			100	%	$	645,121		100	%		$	1,790,990		100%	$	1,898,669		100	%
		2012		Revenues		2011	Revenues		2012	Revenues		2011		Revenues
Cost of goods sold	344,581				56.3	%	365,412			56.6	%		1,017,609			56.8%	1,065,552			56.1	%
		(in thousands of dollars)
Gross profit	266,957				43.7	%	279,709			43.4	%		773,381			43.2%	833,117			43.9	%
Net revenues	$	563,911		100.0%	$	591,387	100.0%	$	1,179,452	100.0%	$	1,253,548		100.0%
Selling, general and administrative expenses	197,773				32.3	%	212,000			32.9	%		609,738			34%	637,491			33.6	%
Cost of goods sold		324,972		57.6%		333,117	56.3%		673,028	57.1%		700,140		55.9%
Amortization of intangible assets	2,537				0.4	%	3,263			0.5	%		12,086			0.7%	9,548			0.5	%
Gross profit		238,939		42.4%		258,270	43.7%		506,424	42.9%		553,408		44.1%
Pension income	(55		)		—	%	(310		)	—	%		(164		)	—%	(931		)	—	%
Selling, general and administrative expenses		199,344		35.4%		202,854	34.3%		411,965	34.9%		425,491		33.9%
Operating income	66,702				10.9	%	64,756			10.0	%		151,721			8.5%	187,009			9.8	%
Amortization of intangible assets		6,850		1.2%		3,126	0.5%		9,549	0.8%		6,285		0.5%
Other loss	13						1,357						12,638				498
Pension income		(55)		0.0%		(309)	-0.1%		(109)	0.0%		(621)		0.0%
Interest expense	4,614						4,986						13,708				11,142
Operating income		32,800		5.8%		52,599	8.9%		85,019	7.2%		122,253		9.8%
Interest income	(831		)				(986		)				(2,705		)		(2,542		)
Other loss (income)		12,894				(215)			12,625			(859)
Income from continuing operations before provision for income taxes and redeemable non-controlling interest	62,906						59,399						128,080				177,911
Interest expense		4,645				3,460			9,094			6,156
Provision for income taxes	21,676						10,770						44,489				39,184
Interest income		(1,001)				(810)			(1,874)			(1,556)
Income from continuing operations before redeemable non-controlling interest	41,230						48,629						83,591				138,727
Income from continuing operations before provision
Income (loss) from discontinued operations, net of taxes	(2		)				(4,177		)				3,023				(4,741		)
for income taxes and redeemable non-controlling interest		16,262				50,164			65,174			118,512
Net income	41,228						44,452						86,614				133,986
Provision for income taxes		6,822				4,598			22,813			28,414
Less: income (loss) attributable to redeemable non-controlling interest	100						(159		)				(46		)		(159		)
Income from continuing operations before
Net income attributable to Warnaco Group	$	41,128					$	44,611					$	86,660			$	134,145
redeemable non-controlling interest		9,440				45,566			42,361			90,098
Income (loss) from discontinued operations, net of taxes		(9)				(63)			3,025			(564)
Net income		9,431				45,503			45,386			89,534
Less: (loss) attributable to redeemable non-controlling interest		(185)				-			(146)			-
Net income attributable to Warnaco Group	$	9,616			$	45,503		$	45,532		$	89,534

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Net Revenues

Net revenues by segment were as follows:

		Three Months		Three Months					Six Months		Six Months
	Three Months Ended September 29, 2012				Three Months Ended October 1, 2011			Increase (Decrease)				% Change		Nine Months Ended September 29, 2012		Nine Months Ended October 1, 2011		Increase (Decrease)			% Change
		Ended		Ended					Ended		Ended
	(in thousands of dollars)
		June 30,		July 2,		Increase	%		June 30,		July 2,		Increase	%
Sportswear Group	$	337,377			$	357,935		$	(20,558	)		(5.7	)%	$	903,208	$	983,695	$	(80,487	)	(8.2	)%
		2012		2011		(Decrease)	Change		2012		2011		(Decrease)	Change
Intimate Apparel Group	232,203				247,880			(15,677		)		(6.3	)%	667,206		695,317		(28,111		)	(4.0	)%
		(in thousands of dollars)
Swimwear Group	41,958				39,306			2,652				6.7	%	220,576		219,657		919			0.4	%
Sportswear Group	$	265,028	$	286,289	$	(21,261)	-7.4%	$	565,831	$	625,760	$	(59,929)	-9.6%
Net revenues	$	611,538			$	645,121		$	(33,583	)		(5.2	)%	$	1,790,990	$	1,898,669	$	(107,679	)	(5.7	)%
Intimate Apparel Group		212,126		226,443		(14,317)	-6.3%		435,003		447,437		(12,434)	-2.8%
Swimwear Group		86,757		78,655		8,102	10.3%		178,618		180,351		(1,733)	-1.0%
Net revenues	$	563,911	$	591,387	$	(27,476)	-4.6%	$	1,179,452	$	1,253,548	$	(74,096)	-5.9%

Net revenues by channel of distribution were as follows:

	Three		Three		Six	Six
	Three Months Ended September 29, 2012			Three Months Ended October 1, 2011		Nine Months Ended September 29, 2012		Nine Months Ended October 1, 2011
	Months		Months		Months	Months
United States - wholesale
	Ended		Ended		Ended	Ended
Department stores and independent retailers	10	%		9	%	8	%	8	%
	June 30,		July 2,		June 30,	July 2,
Specialty stores	7	%		6	%	8	%	7	%
	2012		2011		2012	2011
Chain stores	8	%		7	%	8	%	7	%
United States - wholesale
Mass merchandisers	1	%		1	%	2	%	2	%
Department stores
Membership clubs	2	%		3	%	4	%	5	%
and independent retailers	6%		8%		7%	8%
Off price and other	10	%		11	%	10	%	11	%
Specialty stores	10%		7%		9%	7%
Total United States - wholesale	38	%		37	%	40	%	40	%
Chain stores	9%		8%		8%	8%
International - wholesale	32	%		34	%	30	%	32	%
Mass merchandisers	3%		3%		2%	2%
Retail (a)	30	%		29	%	30	%	28	%
Membership clubs	3%		6%		5%	7%
Net revenues - consolidated	100	%		100	%	100	%	100	%
Off price and other	12%		10%		10%	10%
Total United States - wholesale	43%		42%		41%	42%
International - wholesale	26%		29%		29%	31%
Retail (a)	31%		29%		30%	27%
Net revenues - consolidated	100%		100%		100%	100%

(a) For the Three Months Ended ~~June~~September 3029, 2012 and the Three Months Ended ~~July~~October 21, 2011, 9897.09% and 98.05%, respectively, and for the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 and the ~~Six~~Nine Months Ended ~~July~~October 21, 2011, 98.21% and 98.13%, respectively, of retail net revenues were derived from the Company’s international operations.

	Net Revenues	~~Net Revenues~~								~~Net Revenues~~
		Three		Three						Six		Six
	Three Months Ended September 29, 2012				Three Months Ended October 1, 2011			Increase (Decrease)				% Change			Nine Months Ended September 29, 2012		Nine Months Ended October 1, 2011		Increase (Decrease)			% Change
		Months		Months						Months		Months
	(in thousands of dollars)
		Ended		Ended		Increase	%			Ended		Ended		Increase		%
Wholesale	$	429,834			$	458,877		$	(29,043	)		(6.3	)%		$	1,258,325	$	1,370,212	$	(111,887	)	(8.2	)%
		June 30, 2012		July 2, 2011		(Decrease)	Change			June 30, 2012		July 2, 2011		(Decrease)		Change
Retail	181,704				186,244			(4,540		)		(2.4	)%		532,665		528,457		4,208			0.8	%
		(in thousands of dollars)								(in thousands of dollars)
Total	$	611,538			$	645,121		$	(33,583	)		(5.2	)%		$	1,790,990	$	1,898,669	$	(107,679	)	(5.7	)%
Wholesale	$	391,973	$	417,251	$	(25,278)	-6.1%		$	828,491	$	911,335	$	(82,844)		-9.1%
Retail		171,938		174,136		(2,198)	-1.3%			350,961		342,213		8,748		2.6%
Total	$	563,911	$	591,387	$	(27,476)	-4.6%		$	1,179,452	$	1,253,548	$	(74,096)		-5.9%

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Net revenues by geography were as follows:

	Net Revenues	~~Net Revenues~~										~~Net Revenues~~
		Three		Three								Six		Six
	Three Months Ended September 29, 2012				Three Months Ended October 1, 2011			Increase (Decrease)				% Change			Nine Months Ended September 29, 2012			Nine Months Ended October 1, 2011		Increase (Decrease)			% Change
		Months		Months					Constant $			Months		Months					Constant $
	(in thousands of dollars)
		Ended		Ended		Increase	%		%			Ended		Ended		Increase	%		%
United States	$	237,298			$	241,764		$	(4,466	)		(1.8	)%		$	733,534		$	777,552	$	(44,018	)	(5.7	)%
		June 30, 2012		July 2, 2011		(Decrease)	Change		Change (a)			June 30, 2012		July 2, 2011		(Decrease)	Change		Change (a)
Europe	161,464				182,265			(20,801		)		(11.4	)%		415,504			478,827		(63,323		)	(13.2	)%
		(in thousands of dollars)										(in thousands of dollars)
Asia	130,164				129,985			179				0.1	%		384,359			370,546		13,813			3.7	%
United States	$	247,827	$	250,645	$	(2,818)	-1.1%		-1.1%		$	496,236	$	535,788	$	(39,552)	-7.4%		-7.4%
Mexico, Central and South America	58,812				62,848			(4,036		)		(6.4	)%		173,893			176,698		(2,805		)	(1.6	)%
Europe		107,728		128,093		(20,365)	-15.9%		-7.1%			254,040		296,562		(42,522)	-14.3%		-9.1%
Canada	23,800				28,259			(4,459		)		(15.8	)%		83,700			95,046		(11,346		)	(11.9	)%
Asia		116,432		113,785		2,647	2.3%		4.9%			254,195		240,561		13,634	5.7%		6.5%
	$	611,538			$	645,121		$	(33,583	)		(5.2	)%		$	1,790,990		$	1,898,669	$	(107,679	)	(5.7	)%
Mexico and Central
and South America		61,978		62,132		(154)	-0.2%		18.3%			115,081		113,850		1,231	1.1%		14.5%
Canada		29,946		36,732		(6,786)	-18.5%		-14.5%			59,900		66,787		(6,887)	-10.3%		-7.3%
	$	563,911	$	591,387	$	(27,476)	-4.6%		0.0%		$	1,179,452	$	1,253,548	$	(74,096)	-5.9%		-3.1%

~~(a)~~The ~~Constant~~number ~~dollar~~of ~~percentage~~retail ~~change~~stores isoperated aby ~~non-GAAP~~the ~~measure.~~Company ~~See~~as ~~Non-GAAP~~of ~~Measures~~September 29, ~~above.~~2012, December 31, 2011 and October 1, 2011 was as follows:



	September 29, 2012				December 31, 2011				October 1, 2011
	Asia	Europe	Americas	Total	Asia	Europe	Americas	Total	Asia	Europe	Americas	Total
Segments / Brands
Sportswear - Calvin Klein Jeans
Number of Owned Full Price Stores	96	55	31	182	80	55	23	158	73	47	19	139
Number of Owned Outlet Stores	14	45	4	63	11	44	2	57	11	44	1	56
Number of Concession / Shop-in-shop Stores	257	191	82	530	280	136	62	478	271	98	32	401
Total Number of Stores	367	291	117	775	371	235	87	693	355	189	52	596

Intimate Apparel - Calvin Klein Underwear
Number of Owned Full Price Stores	58	24	23	105	50	25	30	105	46	23	30	99
Number of Owned Outlet Stores	10	43	6	59	8	42	11	61	8	41	12	61
Number of Concession / Shop-in-shop Stores	261	469	—	730	259	459	—	718	257	441	—	698
Total Number of Stores	329	536	29	894	317	526	41	884	311	505	42	858

Swimwear - Calvin Klein Swimwear
Number of Owned Full Price Stores	—	—	—	—	—	—	—	—	—	—	—	—
Number of Owned Outlet Stores	—	—	—	—	—	—	—	—	—	—	—	—
Number of Concession / Shop-in-shop Stores	—	181	—	181	—	180	—	180	—	178	—	178
Total Number of Stores	—	181	—	181	—	180	—	180	—	178	—	178

Total Company*
Number of Owned Full Price Stores	154	79	54	287	130	80	53	263	119	70	49	238
Number of Owned Outlet Stores	24	88	10	122	19	86	13	118	19	85	13	117
Number of Concession / Shop-in-shop Stores	518	841	82	1,441	539	775	62	1,376	528	717	32	1,277
Total Number of Stores	696	1,008	146	1,850	688	941	128	1,757	666	872	94	1,632

Total Square Footage (thousands)	521.4	525.0	110.1	1,156.5	449.2	516.4	121.4	1,087	420.4	486.9	110.8	1,018.1

~~The number of retail stores operated by the Company as of June 30, 2012, December 31, 2011 and July 2, 2011 was as follows:~~ 43

	June 30, 2012				December 31, 2011				July 2, 2011
Segments / Brands	Asia	Europe	Americas	Total	Asia	Europe	Americas	Total	Asia	Europe	Americas	Total
Sportswear - Calvin Klein Jeans
Number of Owned Full Price Stores	90	55	24	169	80	55	23	158	50	45	17	112
Number of Owned Outlet Stores	12	45	3	60	11	44	2	57	10	43	1	54
Number of Concession /
Shop-in-shop Stores	277	159	77	513	280	123	62	465	249	84	-	333
Total Number of Stores	379	259	104	742	371	222	87	680	309	172	18	499
Intimate Apparel - Calvin Klein Underwear
Number of Owned Full Price Stores	55	24	23	102	50	25	30	105	39	18	32	89
Number of Owned Outlet Stores	9	43	6	58	8	42	11	61	6	41	18	65
Number of Concession /
Shop-in-shop Stores	251	456	-	707	259	459	-	718	210	441	-	651
Total Number of Stores	315	523	29	867	317	526	41	884	255	500	50	805
Swimwear - Calvin Klein Swimwear
Number of Owned Full Price Stores	-	-	-	-	-	-	-	-	-	-	-	-
Number of Owned Outlet Stores	-	-	-	-	-	-	-	-	-	-	-	-
Number of Concession /
Shop-in-shop Stores	-	193	-	193	-	193	-	193	-	191	-	191
Total Number of Stores	-	193	-	193	-	193	-	193	-	191	-	191
Total Company*
Number of Owned Full Price Stores	145	79	47	271	130	80	53	263	89	63	49	201
Number of Owned Outlet Stores	21	88	9	118	19	86	13	118	16	84	19	119
Number of Concession /
Shop-in-shop Stores	528	808	77	1,413	539	775	62	1,376	459	716	-	1,175
Total Number of Stores	694	975	133	1,802	688	941	128	1,757	564	863	68	1,495
Total Square Footage (thousands)	496.8	523.0	96.3	1116.1	449.2	516.4	121.4	1087.0	328.8	474.1	123.1	926.0
* 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 December 31, 2011 and July 2, 2011 and one Calvin Klein Underwear on-line store and one Speedo on-line store as of June 30, 2012.

Table of Contents

~~The~~* ~~effect~~In ofaddition ~~fluctuations~~to inthe ~~foreign~~stores ~~currency~~above, ~~exchange~~the ~~rates~~Company onoperated ~~net~~one ~~revenues~~Calvin ~~was~~Klein aUnderwear ~~decrease~~on-line ofstore ~~$27.2~~and ~~million~~one ~~for~~Speedo ~~the~~on-line ~~Three~~store ~~Months~~as ~~Ended~~of ~~June~~September 3029, 2012 ~~compared~~and toone ~~the~~Calvin ~~Three~~Klein ~~Months~~Jeans ~~Ended~~on-line ~~July 2~~store, ~~2011~~one ~~and~~Calvin aKlein ~~decrease~~Underwear ofon-line ~~$34.9~~store ~~million~~and ~~for~~one ~~the~~Speedo ~~Six~~on-line ~~Months~~store ~~Ended~~as ~~June~~of 30December 31, ~~2012~~2011 ~~compared~~and toOctober ~~the Six Months Ended July 2~~1, 2011. ~~See Overview, above.~~

~~During~~The ~~the~~effect ~~Three~~of ~~and~~fluctuations ~~Six~~in ~~Months~~foreign ~~Ended~~currency ~~June~~exchange ~~30,~~rates ~~2012,~~on ~~the~~net ~~Company’s~~revenues ~~top~~was ~~five~~a ~~customers~~decrease ~~accounted for $122.9 million (21.8%~~ of ~~Company net revenue) and~~ $~~247~~30.87 million ~~(21.0%~~for ofthe ~~Company~~Three ~~net~~Months ~~revenue),~~Ended ~~respectively~~September 29, as2012 compared to ~~$124.4~~the ~~million~~Three ~~(21.0%~~Months ofEnded ~~Company~~October 1, ~~net~~2011 ~~revenue)~~ and ~~$256.4~~a ~~million~~decrease ~~(20.5%~~ of ~~Company~~$65.6 ~~net~~million ~~revenue), respectively,~~ for the ~~Three~~Nine ~~and Six~~ Months Ended ~~July 2~~September 29, ~~2011. During the Three and Six Months Ended June 30,~~ 2012 ~~and~~compared to the ~~Three~~Nine ~~and Six~~ Months Ended ~~July 2~~October 1, 2011. See Overview, ~~no one customer accounted for 10% or more of the Company’s net revenues~~above.

47 During the Three and Nine Months Ended September 29, 2012, the Company’s top five customers accounted for $118.4 million (19.4% of Company net revenue) and $366.2 million (20.4% of Company net revenue), respectively, as compared to $124.9 million (19.4% of Company net revenue) and $381.3 million (20.1% of Company net revenue), respectively, for the Three and Nine Months Ended October 1, 2011. During the Three and Nine Months Ended September 29, 2012 and the Three and Nine Months Ended October 1, 2011, 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					Six Months		Six Months
	Three Months Ended September 29, 2012				Three Months Ended October 1, 2011			Increase (Decrease)				% Change		Nine Months Ended September 29, 2012		Nine Months Ended October 1, 2011		Increase (Decrease)			% Change
		Ended		Ended					Ended		Ended
	(in thousands of dollars)
		June 30,		July 2,		Increase	%		June 30,		July 2,		Increase	%
Calvin Klein Jeans	$	170,502			$	198,311		$	(27,809	)		(14.0	)%	$	425,226	$	524,905	$	(99,679	)	(19.0	)%
		2012		2011		(Decrease)	Change		2012		2011		(Decrease)	Change
Chaps	61,835				54,842			6,993				12.8	%	159,919		155,064		4,855			3.1	%
		(in thousands of dollars)
Sportswear wholesale	232,337				253,153			(20,816		)		(8.2	)%	585,145		679,969		(94,824		)	(13.9	)%
Calvin Klein Jeans	$	112,752	$	142,448	$	(29,696)	-20.8%	$	254,724	$	326,594	$	(71,870)	-22.0%
Calvin Klein Jeans retail	105,040				104,782			258				0.2	%	318,063		303,726		14,337			4.7	%
Chaps		49,370		45,343		4,027	8.9%		98,084		100,222		(2,138)	-2.1%
Sportswear Group (a)	$	337,377			$	357,935		$	(20,558	)		(5.7	)%	$	903,208	$	983,695	$	(80,487	)	(8.2	)%
Sportswear wholesale		162,122		187,791		(25,669)	-13.7%		352,808		426,816		(74,008)	-17.3%
Calvin Klein Jeans retail		102,906		98,498		4,408	4.5%		213,023		198,944		14,079	7.1%
Sportswear Group (a)	$	265,028	$	286,289	$	(21,261)	-7.4%	$	565,831	$	625,760	$	(59,929)	-9.6%

________________________________

(a) Includes net revenues of $2541.91 million and $2947.26 million for the Three Months Ended ~~June~~September 3029, 2012 and the Three Months Ended ~~July~~October 21, 2011, respectively, and $67107.39 million and $71118.29 million for the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 and the ~~Six~~Nine Months Ended ~~July~~October 21, 2011, respectively, related to the Calvin Klein accessories business in Europe, Asia, Canada and in Mexico and Central and South America. Those amounts include net revenues of Calvin Klein “bridge” accessories of $820.45 million and $1026.83 million for the Three Months Ended ~~June~~September 3029, 2012 and the Three Months Ended ~~July~~October 21, 2011, respectively, and $2748.74 million and $3460.48 million for the ~~Six~~Nine Months Ended ~~June~~September 3029, 2012 and the ~~Six~~Nine Months Ended ~~July~~October 21, 2011, respectively. See ~~Part~~Note ~~II,~~5 ~~Item~~of 5Notes to Consolidated Condensed Financial Statements - Restructuring and Other ~~Information~~Exit Activities for a discussion of the Company’s and CKI’s (as defined below) agreement whereby the Company will transition its “bridge” business back to CKI.

Three Months Ended ~~June~~September 3029, 2012 compared to Three Months Ended ~~July~~October 21, 2011

Sportswear Group net revenues decreased $2120.35 million to $~~265~~337.04 million for the Three Months Ended ~~June~~September 3029, 2012 from $~~286~~357.39 million for the Three Months Ended ~~July~~October 21, 2011. Sportswear Group net revenues from international operations decreased $719.91 million and from domestic operations decreased $131.4 million. The decrease in international net revenues includes a $1721.73 million decrease due to the unfavorable effect of fluctuations in certain foreign currency exchange rates. See Overview, above.

Net revenues from Calvin Klein Jeans decreased $2527.35 million overall. The Company believes that its actions in creating Chief Commercial Officer and Chief Merchandising Officer positions and transitioning its sourcing and design function to New York should address the weakness in its Calvin Klein Jeans business. Wholesale net revenues of Calvin Klein Jeans decreased $2927.78 million (including a decrease of $1118.89 million from international operations and aan $178.9 million decline in the U.S.). The decrease in international wholesale net revenues was primarily driven by decreases of $912.19 million in Europe, ~~and~~ $34.05 million in ~~Asia,~~Mexico ~~partially~~and ~~offset~~Central byand anSouth ~~increase~~America ofand $1.01 million in ~~Mexico~~Canada and ~~Central and South America and~~ was primarily due (in constant currency) to the following:

(i) a decrease in Europe primarily due to a more promotional environment combined with decreased sales of Calvin Klein Jeans apparel and accessories to department, specialty and independent stores and distributors and to the off-price channel, which the Company believes reflects deteriorating macroeconomic conditions, particularly in southern Europe. There was also a shift in timing of shipments (certain shipments are expected to occur in the third quarter of Fiscal 2012 whereas comparable shipments occurred in the second quarter of Fiscal 2011); and44

~~(ii)~~Table ~~a decrease in Asia primarily due to decreased sales in Korea, mainly related to the conversion~~ of wholesalers to retailers and deteriorating macroeconomic conditions, and in other regions of Asia. Those decreases were partially offset by an increase in sales to the People’s Republic of China, primarily related to the expansion of the distribution network in that country;Contents

(i)

a decrease in Europe primarily due to a more promotional environment combined with decreased sales of Calvin Klein Jeans apparel and accessories to department, specialty and independent stores and distributors, which the Company believes reflects deteriorating macroeconomic conditions, particularly in southern Europe. The Company believes that its actions in creating and filling Chief Commercial Officer and Chief Merchandising Officer positions and transitioning its sourcing/design/merchandising function to New York should address the weakness in its Calvin Klein Jeans business; and

(ii) a decrease in Canada primarily due to a decrease in sales to specialty stores,

partially offset by

(iii) an increase in ~~sales in~~ Mexico and Central and South America primarily due to ~~department~~an ~~stores,~~increase in sales to membership clubs and specialty stores and ~~the~~increased ~~off-price~~penetration ~~channel~~within existing customers, ~~partially~~which was more than offset by the unfavorable effect of fluctuations in foreign currency exchange rates and a ~~decrease~~decline in sales to ~~membership~~department ~~clubs~~stores.

48 The decrease in the U.S. was primarily due to decreased sales volume to department stores, outlet stores and the off-price channel, which primarily reflects continuing weakness in the Company’s men’s and women’s businesses. The decrease in the off-price channel primarily reflects a strategic decision by the Company to reduce sales in order to reduce royalty penalties during Fiscal 2012. Those decreases were partially offset by increased sales to membership clubs.

~~The~~Net ~~decrease~~revenues from Calvin Klein Jeans retail sales increased $0.3 million (including increases of $1.9 million in ~~the~~Mexico Uand Central and South America and $0.S5 million in Asia, partially offset by decreases of $1.3 million in Canada and $0.8 million in Europe). The increase in retail net revenues was primarily due (in constant currency) to a(i) ~~more~~the ~~promotional~~addition ~~environment~~of ~~combined~~new ~~with~~stores ~~decreased~~opened ~~sales~~and acquired by the Company during the fourth quarter of Fiscal 2011 and the first nine months of Fiscal 2012; (asii) athe ~~result~~conversion of ~~both~~wholesalers ~~reduced~~to ~~volumes~~retailers in Macau, Malaysia and ~~reduced~~the ~~selling~~People’s ~~prices~~Republic of China and (iii) tothe ~~department~~effect ~~stores~~of an overall 2.1% increase in comparable store sales ($82.6 million for the Three Months Ended September 29, 2012 and ~~membership~~$80.9 ~~clubs~~million for the Three Months Ended October 1, ~~which~~2011), ~~primarily~~predominantly ~~reflects~~reflecting increases ~~continuing~~in ~~weakness~~Europe and Mexico and Central and South America and a decrease in Asia. The increase in retail net revenues due to (i) through (iii) above were partially offset by the ~~Company’s~~closure ~~men’s~~of stores in Canada during Fiscal 2011 and ~~women’s~~in ~~businesses~~Korea during Fiscal 2012.

Net revenues from ~~Calvin~~Chaps ~~Klein Jeans retail sales~~ increased $47.40 million ~~(including increases of $5.1 million in Asia and $1.3 million in Mexico and Central and South America~~, ~~partially~~primarily ~~offset~~reflecting byan aincrease ~~decrease~~ of $17.85 million in ~~Canada)~~the U. S. The increase in ~~retail~~the ~~net~~U.S. ~~revenues~~ was ~~primarily~~mainly due ~~(in constant currency)~~ to ~~(i)~~increased ~~the~~sales ~~addition~~volume ofto ~~new~~department stores, ~~opened~~membership clubs and ~~acquired by~~ the ~~Company~~off-price ~~during~~channel. ~~the~~The ~~second~~increases ~~half~~were ofprimarily ~~Fiscal~~due ~~2011~~to ~~and~~new ~~the~~product ~~first~~offerings ~~half~~and ofmore ~~Fiscal~~promotional ~~2012;~~sales. ~~(ii)~~The ~~the~~increases ~~conversion~~were ofpartially ~~wholesalers~~offset toby ~~retailers~~decreased insales ~~Korea;~~volume ~~and~~to ~~(iii)~~chain ~~the~~stores ~~effect~~primarily ofdue anto ~~overall~~a ~~0.2%~~shift ~~increase~~ in ~~comparable~~timing ~~store~~of ~~sales~~shipments (~~$79.5~~certain ~~million~~shipments ~~for~~were ~~the~~accelerated ~~Three~~into ~~Months~~the ~~Ended~~third ~~June~~quarter ~~30,~~of ~~2012~~Fiscal ~~and~~2011 ~~$79.3~~from ~~million for~~ the ~~Three~~fourth ~~Months~~quarter ~~Ended~~of ~~July~~Fiscal 2, 2011), ~~predominantly~~whereas ~~reflecting~~comparable ~~increases~~shipments inare ~~Europe~~expected ~~and~~to ~~Mexico~~occur ~~and Central and South America, but also partially offset by decreases~~ in ~~Asia and Canada. The increase in retail net revenues due to (i) through (iii) above were partially offset by~~ the ~~closure~~fourth quarter of ~~outlet stores in Canada during~~ Fiscal ~~2011~~2012).

~~Net~~Nine ~~revenues~~Months ~~from~~Ended ~~Chaps~~September ~~increased $4.0 million~~29, primarily reflecting an increase of $4.5 million in the U.S., partially offset by a decrease of $1.1 million in Mexico and Central and South America. The increase in the U.S. was mainly due to increased sales volume to department stores and the chain store channel primarily due to new product offerings and a shift in timing of shipments (certain shipments occurred in the second quarter of Fiscal 2012 ~~whereas~~compared comparable shipments occurred in the third quarter of Fiscal 2011), partially offset by an increase in customer allowances. The increase in the U.S. was partially offset by a decrease in net revenues in Mexico and Central and South America due primarily to ~~decreased~~Nine ~~sales~~Months toEnded ~~department~~October ~~stores~~1, ~~membership~~2011 ~~clubs and specialty stores.~~

~~Six~~Sportswear Group net revenues decreased $80.5 million to $903.2 million for the Nine Months Ended ~~June~~September 3029, 2012 ~~compared~~from to$983.7 ~~Six~~million for the Nine Months Ended ~~July~~October 21, 2011 . Sportswear Group net revenues from international operations decreased $30.2 million and from domestic operations decreased $50.3 million. The decrease in international net revenues includes a $43.6 million decrease due to the unfavorable effect of fluctuations in certain foreign currency exchange rates. See Overview, above.

~~Sportswear~~Net ~~Group~~revenues ~~net~~from ~~revenues~~Calvin Klein Jeans decreased $5985.93 million tooverall. Wholesale sales of Calvin Klein Jeans decreased $~~565~~99.97 million ~~for~~(including ~~the~~a ~~Six~~decrease ~~Months~~of ~~Ended~~$46.4 ~~June~~million ~~30,~~from ~~2012~~international ~~from~~operations and a decrease of $~~625~~53.83 million ~~for~~in the ~~Six~~U.S.). ~~Months~~The ~~Ended~~decrease ~~July~~in 2,international ~~2011. Sportswear~~wholesale ~~Group~~ net revenues ~~from~~was ~~international~~primarily ~~operations~~driven ~~decreased~~by decreases of $1137.10 million ~~and~~in ~~from~~Europe, ~~domestic operations decreased~~ $485.81 million. ~~The decrease~~ in ~~international~~Mexico ~~net~~and ~~revenues~~Central ~~includes~~and aSouth America, $222.34 million ~~decrease~~in ~~due~~Asia toand ~~the~~$1.9 ~~unfavorable~~million ~~effect~~in ofCanada ~~fluctuations~~and inwas ~~certain~~primarily ~~foreign~~due ~~currency~~(in ~~exchange~~constant ~~rates.~~currency) ~~See~~to ~~Overview,~~the ~~above.~~ following:

~~Net~~(i) ~~revenues~~a ~~from~~decrease ~~Calvin~~in ~~Klein~~Europe ~~Jeans~~primarily ~~decreased~~due ~~$57.8~~to ~~million~~a ~~overall.~~more ~~The~~promotional ~~Company~~environment ~~believes~~combined ~~that~~with ~~its~~decreased ~~actions~~sales inof ~~creating~~Calvin ~~Chief~~Klein ~~Commercial~~Jeans ~~Officer~~apparel and ~~Chief~~accessories ~~Merchandising~~to ~~Officer~~department, ~~positions~~specialty and ~~transitioning~~independent ~~its~~stores ~~sourcing~~ and ~~design~~distributors ~~function~~and to ~~New~~the ~~York~~off-price ~~should~~channel, ~~address~~which the ~~weakness~~Company inbelieves ~~its~~reflects ~~Calvin~~deteriorating ~~Klein~~macroeconomic ~~Jeans~~conditions, ~~business. Wholesale~~particularly ~~sales~~in ofsouthern ~~Calvin Klein Jeans decreased $71~~Europe.9 ~~million~~The ~~(including~~Company abelieves ~~decrease~~that ofits ~~$27.5~~actions ~~million~~in ~~from~~creating ~~international operations~~ and afilling ~~decrease~~Chief ofCommercial ~~$44.4~~Officer ~~million~~and inChief ~~the~~Merchandising ~~U.S.).~~Officer ~~The~~positions ~~decrease~~and intransitioning ~~international~~its ~~wholesale~~sourcing/design/merchandising ~~net~~function ~~revenues~~to ~~was~~New ~~primarily~~York ~~driven~~should byaddress ~~decreases~~the ofweakness ~~$24.0 million~~ in ~~Europe~~its ~~and~~Calvin ~~$2.1~~Klein ~~million~~Jeans ~~in Asia and was primarily due (in constant currency) to the following:~~ business.;

~~(ii)~~Table ~~a decrease in Asia primarily due to decreased sales in Korea, (due mainly to the conversion~~ of wholesalers to retailers, deteriorating macroeconomic conditions and warmer weather during the first quarter of Fiscal 2012), and in other regions of Asia. Those decreases were partially offset by an increase in sales to the People’s Republic of China, primarily related to the expansion of the distribution network in that country.Contents

~~The~~(ii) a decrease in ~~the~~Asia ~~U.S. was~~ primarily due to ~~a more promotional environment combined with decreased sales~~ (as a) ~~result~~the conversion of ~~both~~wholesalers ~~reduced volumes and reduced selling prices)~~ to ~~department~~retailers ~~stores~~in Macau, ~~membership~~Malaysia ~~clubs~~ and the ~~off-price~~People's ~~channel,~~Republic ~~which~~of ~~primarily~~China; ~~reflects~~(b) ~~continuing weakness in~~ the ~~Company’s~~termination ~~men’s~~of ~~and~~under-performing ~~women’s~~distributors ~~businesses. In addition, declines~~ in ~~the~~Korea ~~off-price~~and ~~channel also reflect~~ (ic) adeteriorating ~~shift~~macroeconomic conditions in ~~timing~~Korea ofand ~~shipments (certain shipments occurred~~ in ~~the~~other ~~fourth~~regions ~~quarter~~ of ~~Fiscal~~Asia. ~~2011~~Those ~~rather~~decreases ~~than~~were ~~the~~partially ~~first~~offset ~~quarter~~by ofan ~~Fiscal~~increase ~~2012~~in ~~whereas~~sales ~~comparable shipments occurred~~ in the ~~first~~People’s ~~quarter~~Republic of ~~Fiscal~~China, ~~2011)~~primarily ~~and~~related ~~(ii)~~to athe ~~strategic~~expansion ~~decision~~of by the ~~Company~~distribution tonetwork ~~reduce sales~~ in ~~order~~that tocountry; ~~reduce royalty penalties during Fiscal 2012 associated with sales in the off-price channel.~~ and

49 (iii) a decrease in Canada primarily due to a decline in sales to specialty and independent stores;

Net revenues from Calvin Klein Jeans retail sales increased $14.1 million (including increases of $10.4 million in Asia, $2.4 million in Europe and $4.0 million in Mexico and Central and South America, partially offset by a decrease of $2.7 million in Canada). The increase in retail net revenues was primarily due (in constant currency) to (i) the addition of new stores opened and acquired by the Company during the second half of Fiscal 2011 and the first half of Fiscal 2012 and (ii) the effect of an overall 0.1% increase in comparable store sales ($162.2 million for the Six Months Ended June 30, 2012 and $162.1 million for the Six Months Ended July 2, 2011), predominantly reflecting increases in Europe and Mexico and Central and South America, but also partially offset by decreases in Asia and Canada. The increase in retail net revenues due to (i) and (ii) above were partially offset by the closure of outlet stores in Canada during Fiscal 2011.

~~Net revenues from Chaps decreased $2.1 million, primarily reflecting a decrease of $4.2 million in the U.S., partially offset by~~ (iv) an increase ~~of $2.7 million~~ in ~~Canada.~~Mexico ~~The~~and ~~decrease~~Central inand ~~the~~South ~~U.S.~~America ~~was~~primarily ~~mainly~~ due to an increase in ~~customer allowances, which more than offset the increase in~~ sales ~~volume~~ to department stores, ~~and~~membership ~~the~~clubs, ~~chain store channel. Such increases in sales volume were primarily due to new product offerings and a shift in timing of shipments (certain shipments occurred in~~ the ~~second quarter of Fiscal 2012 whereas comparable shipments occurred in the third quarter of Fiscal 2011) and were partially offset by decreased sales volume to the~~ off-price channel inand ~~the~~specialty ~~U.S. The decrease in the U.S. was partially offset by an increase in sales volume in Canada to department~~ stores, ~~and~~coupled ~~the~~with ~~off-price~~increased ~~channel~~penetration aswithin ~~well~~existing ascustomers, awhich ~~shift~~was inmore ~~timing~~than ofoffset ~~shipments~~by ~~(certain shipments occurred in~~ the ~~first~~unfavorable ~~quarter~~effect of ~~Fiscal~~fluctuations ~~2012 whereas comparable shipments occurred~~ in ~~the~~foreign ~~fourth~~currency ~~quarter~~exchange ~~of Fiscal 2011)~~rates.

The decrease in the U.S. was primarily due to decreased sales volume to department stores, membership clubs and the off-price channel, which primarily reflects continuing weakness in the Company’s men’s and women’s businesses. In addition, declines in the off-price channel also reflect (i) a shift in timing of shipments (certain shipments occurred in the fourth quarter of Fiscal 2011 rather than the first quarter of Fiscal 2012 whereas comparable shipments occurred in the first quarter of Fiscal 2011) and (ii) a strategic decision by the Company to reduce sales in order to reduce royalty penalties during Fiscal 2012 associated with sales in the off-price channel.

Net revenues from Calvin Klein Jeans retail sales increased $14.4 million (primarily including increases of $10.9 million in Asia, $1.6 million in Europe and $6.0 million in Mexico and Central and South America, partially offset by a decrease of $3.9 million in Canada). The increase in retail net revenues was primarily due (in constant currency) to (i) the addition of new stores opened and acquired by the Company during the fourth quarter of Fiscal 2011 and the first nine months of Fiscal 2012; (ii) the conversion of wholesalers to retailers in Macau, Malaysia and the People’s Republic of China and (iii) the effect of an overall 1.1% increase in comparable store sales ($229.6 million for the Nine Months Ended September 29, 2012 and $227.2 million for the Nine Months Ended October 1, 2011), predominantly reflecting increases in Europe and in Mexico and Central and South America and a decrease in Asia. The increase in retail net revenues due to (i) through (iii) above were partially offset by the closure of stores in Canada during Fiscal 2011 and in Korea during Fiscal 2012.

Net revenues from Chaps increased $4.8 million, primarily reflecting an increase of $3.3 million in the U.S. and an increase of $1.9 million in Canada. The increase in the U.S. was mainly due to increased sales volume to department stores, membership clubs and specialty stores, primarily due to new product offerings and more promotional sales, partially offset by an increase in customer allowances. Increases in those channels were partially offset by decreased sales to the off-price channel. The increase in Canada primarily reflects increased sales volume to department stores and the off-price channel as well as a shift in timing of shipments to membership clubs (certain shipments occurred in the first quarter of Fiscal 2012 whereas comparable shipments occurred in the fourth quarter of Fiscal 2011).

Intimate Apparel Group

Intimate Apparel Group net revenues were as follows:

		Three Months		Three Months					Six Months		Six Months
	Three Months Ended September 29, 2012				Three Months Ended October 1, 2011			Increase (Decrease)				% Change		Nine Months Ended September 29, 2012		Nine Months Ended October 1, 2011		Increase (Decrease)			% Change
		Ended		Ended					Ended		Ended
	(in thousands of dollars)
		June 30,		July 2,		Increase	%		June 30,		July 2,		Increase	%
Calvin Klein Underwear	$	115,985			$	130,769		$	(14,784	)		(11.3	)%	$	329,310	$	346,588	$	(17,278	)	(5.0	)%
		2012		2011		(Decrease)	Change		2012		2011		(Decrease)	Change
Core Intimates	45,688				42,220			3,468				8.2	%	136,918		139,932		(3,014		)	(2.2	)%
		(in thousands of dollars)
Intimate Apparel wholesale	161,673				172,989			(11,316		)		(6.5	)%	466,228		486,520		(20,292		)	(4.2	)%
Calvin Klein Underwear	$	98,449	$	105,362	$	(6,913)	-6.6%	$	213,325	$	215,819	$	(2,494)	-1.2%
Calvin Klein Underwear retail	70,530				74,891			(4,361		)		(5.8	)%	200,978		208,797		(7,819		)	(3.7	)%
Core Intimates		49,614		52,492		(2,878)	-5.5%		91,230		97,712		(6,482)	-6.6%
Intimate Apparel Group	$	232,203			$	247,880		$	(15,677	)		(6.3	)%	$	667,206	$	695,317	$	(28,111	)	(4.0	)%
Intimate Apparel wholesale		148,063		157,854		(9,791)	-6.2%		304,555		313,531		(8,976)	-2.9%
Calvin Klein Underwear retail		64,063		68,589		(4,526)	-6.6%		130,448		133,906		(3,458)	-2.6%
Intimate Apparel Group	$	212,126	$	226,443	$	(14,317)	-6.3%	$	435,003	$	447,437	$	(12,434)	-2.8%

~~Three Months Ended June 30, 2012 compared to Three Months Ended July 2, 2011~~ 46

~~Intimate~~Table Apparel Group net revenues decreased $14.3 million to $212.1 million for the Three Months Ended June 30, 2012 from $226.4 million for the Three Months Ended July 2, 2011. Intimate Apparel Group net revenues from domestic operations were substantially unchanged and from international operations decreased $14.3 million. The decrease in international net revenues includes a $8.2 million decrease due to the unfavorable effect of ~~fluctuations in foreign currency exchange rates. See Overview, above.~~ Contents

~~Net~~Three ~~revenues~~Months ~~from~~Ended ~~Calvin~~September ~~Klein Underwear decreased $11.4 million overall. Calvin Klein Underwear wholesale sales decreased $6.9 million~~29, ~~reflecting~~2012 acompared ~~decrease~~to ofThree ~~$8.3~~Months ~~million~~Ended ~~from~~October ~~international operations~~1, ~~partially~~2011 ~~offset by an increase of $1.4 million in the U.S.~~

~~The~~Intimate ~~decrease~~Apparel inGroup ~~international~~net ~~wholesale~~revenues ~~net~~decreased ~~revenue~~$15.7 ~~was~~million ~~primarily~~to ~~driven~~$232.2 bymillion ~~decreases~~for ofthe Three Months Ended September 29, 2012 from $5247.79 million infor ~~Europe~~the Three Months Ended October 1, 2011. Intimate Apparel Group net revenues from domestic operations decreased $16.3 million inand ~~Canada~~from ~~and~~international operations decreased $1.9

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