WRNC Warnaco Grp. (The) (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED APRIL 5, 2008

OR

	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)

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.       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                                             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        No.

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

The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of May 2, 2008 is as follows: 45,508,456.

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THE WARNACO GROUP, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 5, 2008

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PART I
FINANCIAL INFORMATION

Item 1.     Financial Statements .

THE WARNACO GROUP, INC.

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

See Notes to Consolidated Condensed Financial Statements.

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THE WARNACO GROUP, INC.

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

See Notes to Consolidated Condensed Financial Statements.

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THE WARNACO GROUP, INC.

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

See Notes to Consolidated Condensed Financial Statements.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars 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. Warnaco Group, Warnaco and certain of Warnaco’s subsidiaries were reorganized under Chapter 11 of the U.S. Bankruptcy Code, 11 U.S.C. Sections 101-1330, as amended, effective February 4, 2003 (the ‘‘Effective Date’’).

Note 2 — Basis of Consolidation and Presentation

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’’). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (‘‘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 the annual period ended December 29, 2007 (‘‘Fiscal 2007’’).

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition, results of operations for interim periods are not necessarily indicative of the results for any other interim period or the full year.

All inter-company accounts and transactions have been eliminated in consolidation.

Periods Covered:     The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to December 31. The period December 30, 2007 to January 3, 2009 (‘‘Fiscal 2008’’) will contain 53 weeks of operations while the period December 31, 2006 to December 29, 2007 (‘‘Fiscal 2007’’) contained 52 weeks of operations. Additionally the period from December 30, 2007 to April 5, 2008 (the ‘‘Three Months Ended April 5, 2008’’), and the period from December 31, 2006 to March 31, 2007 (the ‘‘Three Months Ended March 31, 2007’’) contained fourteen and thirteen weeks of operations, respectively.

Reclassifications:     Prior period items on the Company’s Consolidated Condensed Statement of Operations and Consolidated Condensed Statements of Cash Flows have been reclassified to give effect to the Company’s discontinued operations.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Stock-Based Compensation:     No stock options were granted during the Three Months Ended April 5, 2008. The fair value of stock options granted during the Three Months Ended March 31, 2007 was estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:

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

(b)

The terms of the Company’s Amended and Restated Credit Agreement and the terms of the indenture governing its Senior Notes (each as defined below) limit the Company’s ability to make certain payments, including dividends, and require the Company to meet certain financial covenants. The Company has not paid dividends on its common stock in any of the last three fiscal years.

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

(a)	Stock-based compensation has been reflected in the Company’s consolidated condensed statement of operations as follows:

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Foreign Currency Exchange Contracts:     During the Three Months Ended April 5, 2008, the Company entered into foreign currency exchange contracts which were designed to fix the number of euros required to satisfy 70% of dollar denominated purchases of inventory that certain of the Company’s European subsidiaries expect to make approximately six months from the date such contracts are entered into. Prior to January 2008, the Company’s policy was to enter into foreign currency exchange contracts designed to fix the first one-third of dollar denominated purchases of inventory by certain of the Company’s European subsidiaries. The foreign currency exchange contracts entered into during the Three Months Ended April 5, 2008 were not designated as cash flow hedges. See Note 10 .

Recent Accounting Pronouncements:     The Company adopted the provisions of Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, Fair Value Measurements (‘‘SFAS 157’’) on December 30, 2007. SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures, however the application of this statement may change current practice. In February 2008, the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until fiscal years beginning after November 15, 2008. Accordingly, the Company’s adoption of this standard during the Three Months Ended April 5, 2008 was limited to financial assets and liabilities, which primarily affects the valuation of its derivative contracts. The adoption of SFAS 157 did not have a material effect on the Company’s financial condition or results of operations. The Company is still in the process of evaluating this standard with respect to its effect on nonfinancial assets and liabilities and therefore it has not yet determined the impact that it will have on its financial statements upon full adoption in the 2009 fiscal year.

The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (‘‘SFAS 159’’) on December 30, 2007. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The adoption of SFAS 159 did not have an effect on the Company’s financial condition or results of operations as it did not elect this fair value option, nor is it expected to have a material impact on future periods as the election of this option for the Company’s financial instruments is expected to be limited.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (‘‘SFAS 161 ’’). The new standard requires additional disclosures regarding a company’s derivative instruments and hedging activities by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also requires disclosure of derivative features that are credit risk – related as well as cross-referencing within the notes to the financial statements to enable financial statement users to locate important information about derivative instruments, financial performance, and cash flows. The standard is effective for the Company’s fiscal year and interim periods within such year, beginning January 4, 2009, with early application encouraged. The principal impact from this standard will be to require the Company to expand its disclosures regarding its derivative instruments.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 3 — Acquisitions

2008 CK Licenses:     In connection with the consummation of the January 31, 2006 acquisition of 100% of the shares of the companies (‘‘the CKJEA Business’’) that operate the wholesale and retail businesses of Calvin Klein jeanswear and accessories in Europe and Asia and the CK Calvin Klein ‘‘bridge’’ line of sportswear and accessories in Europe, the Company became obligated to acquire from the seller of the CKJEA Business, for no additional consideration and subject to certain conditions which were ministerial in nature, 100% of the shares of the company (the ‘‘Collection License Company’’) that operates the license (the ‘‘Collection License’’) for the Calvin Klein men’s and women’s Collection apparel and accessories worldwide. The Company acquired the Collection License Company on January 28, 2008. The Collection License was scheduled to expire in December 2013. However, pursuant to an agreement (the ‘‘Transfer Agreement’’) entered into on January 30, 2008, the Company transferred the Collection License Company to Phillips-Van Heusen Corporation (‘‘PVH’’), the parent company of Calvin Klein, Inc. (‘‘CKI’’). In connection therewith, the Company paid approximately $42,000 (net of expected working capital adjustments) to, or on behalf of, PVH and entered into certain new, and amended certain existing, Calvin Klein licenses (collectively, the ‘‘2008 CK Licenses’’). In addition, the Company also incurred professional fees of approximately $1,000 in connection with this transaction.

The rights acquired by the Company pursuant to the 2008 CK Licenses include (i) rights to operate Calvin Klein jeans accessories retail stores in Europe, Asia and Latin America, (ii) rights to operate retail stores for Calvin Klein accessories in Europe and Latin America, (iii) e-commerce rights in the Americas, Europe and Asia for Calvin Klein Jeans, and (iv) e-commerce rights in Europe, Asia and Latin America for Calvin Klein jeans accessories. Each of the 2008 CK Licenses are long-term arrangements. In addition, pursuant to the Transfer Agreement, the Company will sub-license and distribute Calvin Klein Golf apparel and golf related accessories in department stores, specialty stores and other channels in Asia through December 31, 2012 (renewable by the Company for two additional consecutive five year periods after 2012, subject to the fulfillment of certain conditions).

During the Three Months Ended April 5, 2008, the Company recorded $24,700 of intangible assets related to the 2008 CK Licenses and recorded a restructuring charge (included in selling, general and administrative expenses) of $18,535 related to the transfer of the Collection License Company to PVH.

Retail Stores in China:     Effective March 31, 2008, the Company acquired a business which operates 11 retail stores in China (which acquisition included the assumption of the leases related to the stores) for a total consideration of approximately $2,647.

Note 4 — Discontinued Operations

Swimwear brands (except for Calvin Klein):     During Fiscal 2007, the Company disposed of its OP  women’s and junior swimwear, Catalina , Anne Cole and Cole of California businesses. As a result, the OP women’s and junior’s, Anne Cole, Catalina and Cole of California business units have been classified as discontinued operations as of April 5, 2008 and December 29, 2007 and for the Three Months Ended April 5, 2008 and Three Months Ended March 31, 2007. Pursuant to the agreement related to the sale of the Anne Cole, Catalina and Cole of California businesses, the Company is obligated to provide transition services to the buyer through June 30, 2008. In addition, the selling price is subject to working capital adjustments. During the Three Months Ended April 5, 2008, the Company recorded charges of approximately $2,800 primarily related to working capital adjustments and transition services associated with the disposition of these brands. The

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Company’s Nautica , Michael Kors and private label swimwear businesses will be classified as discontinued operations when those businesses have ceased operation, which is expected to occur by the end of June of 2008.

Lejaby Sale:     During Fiscal 2007, the Company began exploring strategic alternatives for its Lejaby business including the potential sale of this business. On February 14, 2008, the Company entered into a stock and asset purchase agreement with Palmers Textil AG (‘‘Palmers’’) whereby, effective March 10, 2008, Palmers acquired the Lejaby business for a base purchase price of €32,500 (approximately $47,400) payable in cash and €12,500 (approximately $18,200) evidenced by an interest free promissory note (payable on December 31, 2013), subject to certain adjustments, including for working capital. In addition, the Company entered into a transition services agreement (the ‘‘TSA’’) with Palmers whereby for a period of nine months following the closing (subject to mutually agreed upon extension periods), the Company agreed to provide certain transitional services to Palmers (primarily related to information technology, operational and logistical, accounting and finance, real estate and human resources and payroll services) for which the Company will be reimbursed. Pursuant to the TSA the Company will continue to operate the Canadian portion of the Lejaby business through the term of the TSA. As a result, the Lejaby business (with the exception of the Company’s Canadian Lejaby division) has been classified as a discontinued operation as of April 5, 2008 and December 29, 2007 and for the Three Months Ended April 5, 2008 and Three Months Ended March 31, 2007. During March 2008, the Company recorded a gain (as part of ‘‘Income from discontinued operations, net of taxes’’) of $11,142 related to the sale of Lejaby . In addition, during the Three Months Ended April 5, 2008, the Company repatriated, in the form of a dividend to the United States, the net proceeds received in connection with the Lejaby sale. The repatriation of the net proceeds from the Lejaby sale resulted in an income tax charge of $19,546 which was recorded as part of ‘‘Provision for income taxes’’ in the Company’s consolidated condensed statement of operations.

Summarized operating results for the discontinued operations are as follows:

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Summarized assets and liabilities of the discontinued operations are presented in the consolidated condensed balance sheets as follows:

Note 5 — Restructuring Expenses

During the Three Months Ended April 5, 2008, the Company incurred restructuring charges primarily related to the transfer of the Collection License Company to PVH and continuation of the restructuring initiatives that commenced in Fiscal 2007:

(a)	Relates to the transfer of the Collection License Company to PVH. See Note 3.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

(b)	For the Three Months ended April 5, 2008, reflects the write down of inventory to net realizable value associated with the Company’s decision to cease operations related to its Nautica , Michael Kors and private label swimwear businesses by the end of June 2008. See Note 4.

Restructuring charges have been recorded in the consolidated condensed statement of operations for the Three Months Ended April 5, 2008 and Three Months Ended March 31, 2007, as follows:

Changes in liabilities related to restructuring expenses for the Three Months Ended April 5, 2008 are summarized below:

(a)	Amounts recorded in accrued liabilities on the Company’s balance sheet. The Company expects to settle these liabilities within 12 months.

(b)	Amounts recorded in other long term liabilities on the Company’s balance sheet. The Company expects to settle these liabilities over the next six years.

Note 6 — Business Segments and Geographic Information    

Business Segments:     The Company operates in three business segments: (i) Sportswear Group; (ii) Intimate Apparel Group; and (iii) Swimwear Group.

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 April 5, 2008, the Sportswear Group operated 343 Calvin Klein retail stores worldwide (consisting of 28 full price free-standing stores, 22 outlet free standing stores and 293 shop-in-shop/concession stores). As of April 5, 2008, there were also 299 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 April 5, 2008, the Intimate Apparel Group operated: (i) 418 Calvin Klein retail stores

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

worldwide (consisting of 32 free-standing stores, 46 outlet free-standing stores, one on-line store and 339 shop-in-shop/concession stores). As of April 5, 2008, there were also 192 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 ^® , Nautica ^® , Michael Kors ^® and Calvin Klein brand names. The Company expects to cease operations of its Nautica and Michael Kors businesses by the end of June 2008. The Swimwear Group operates one on-line store.

Information by business group is set forth below:

All inter-company revenues and expenses are eliminated in consolidation. Management does not include inter-company sales when evaluating segment performance. Each segment’s performance is evaluated based upon operating income after restructuring charges but before depreciation and amortization of certain corporate assets, interest, foreign currency gains and losses and income taxes.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

The table below summarizes corporate/other expenses for each period presented:

A reconciliation of operating income from business groups to income from continuing operations before provision for income taxes is as follows:

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

Information about Major Customers:     For the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007, no one customer accounted for 10% or more of the Company’s net revenues.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 7 — Income Taxes

The following presents the domestic and foreign components of the Company’s provision for income taxes included in income from continuing operations:

The provision for income taxes was $34,717, or an effective tax rate of 82.8% for the Three Months Ended April 5, 2008, compared to $15,559, or an effective tax rate of 33.7% for the Three Months Ended March 31, 2007. The effective tax rate for the Three Months Ended April 5, 2008 reflects a charge of $19,546 related to the repatriation, in the form of a dividend, to the United States, of the net proceeds received in connection with the Lejaby sale (see Note 4 ). In addition, the tax rate reflects certain restructuring expenses associated with the transfer of the Collection License Company to PVH which provided no tax benefits to the Company and income tax expense recorded upon the finalization of the Company’s tax returns in the Netherlands for years through 2005, partially offset by benefits associated with certain income subject to a favorable tax ruling granted by the tax authority in the Netherlands.

Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities. The Company provides a valuation allowance for its deferred tax assets when, in the opinion of management, it is more likely than not that such assets will not be realized. Valuation allowances are determined on a jurisdiction-by-jurisdiction basis. The Company does not have a valuation allowance against its federal deferred tax assets but has established a valuation allowance against certain of its state deferred tax assets of approximately $6,000, of which approximately $3,500 will be recorded as an income statement benefit upon the realization of the deferred tax assets to which the valuation applies and the remainder will be applied to reduce other intangible assets.

In foreign jurisdictions, the Company has recorded a valuation allowance against deferred tax assets of approximately $6,000, of which approximately $2,000 will be recorded as an income statement benefit upon the realization of the deferred tax assets to which the valuation allowance applies and the remainder will be applied to reduce other intangible assets.

The Company is required to file tax returns in multiple domestic and foreign jurisdictions and these tax returns are subject to audit by taxing authorities. Taxing authorities may challenge the Company’s interpretation of tax law and additional tax may be assessed. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1999. The IRS has not commenced examinations of the Company’s U.S. income tax returns for the 1999 through 2007 tax years. The Company has been examined in various state and local and foreign jurisdictions in the last several years and has a variety of open tax years remaining in those jurisdictions. Management does not believe the outcome of any examinations will be material to the Company’s financial statements.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

The Company applies the provisions of FIN 48 to determine whether tax benefits associated with uncertain tax positions may be recognized in the financial statements. During the Three Months Ended April 5, 2008, the Company concluded an audit examination in the Netherlands for tax years prior to 2006 which resulted in a settlement of approximately $2,000 under the terms of the tax ruling in effect for the audit period.

The Company recognizes penalties and interest related to uncertain tax positions in income tax expense and had accrued interest and penalties as of April 5, 2008 of approximately $1,600.

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 (the ‘‘U.S. Plan’’). The Company also sponsors defined benefit plans for certain of its foreign employees (‘‘Foreign Plans’’). The Company follows SFAS No. 87, Employers’ Accounting for Pensions (‘‘SFAS 87’’) and SFAS No. 158, Employer’s Accounting for Pensions , in regard to accounting for its Pension Plans. Pursuant to SFAS 87, each quarter the Company recognizes interest cost offset by the expected return on Pension Plan assets. In addition, the Company obtains a report from the Pension Plan actuaries to measure Pension Plan assets and liabilities at year-end. The Company records the effect of actual gains and losses exceeding the expected return on Pension Plan assets and any other changes determined by the actuaries (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 statement of operations in each period. The following table includes the Company’s U.S. Plan. The Foreign Plans were not considered to be material for any period presented.

The components of net periodic benefit cost are as follows:

(a)	Pension Plan net benefit (income) cost does not include costs related to certain foreign defined benefit plans of $166 for the Three Months Ended March 31, 2007.

The Company’s contributions to the domestic plan were $3,133 during the Three Months Ended April 5, 2008 and are expected to be $8,133 in total for the fiscal year ended January 3, 2009.

Deferred Compensation Plan

The Company’s liability for employee contributions and investment activity was $1,815, $1,379 and $1,270 as of April 5, 2008, December 29, 2007 and March 31, 2007, respectively. This liability is included in other long-term liabilities. The Company’s liability for director contributions and investment activity was $280 and $242 as of April 5, 2008 and December 29, 2007, respectively. This liability is included in other long-term liabilities.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 9 — Comprehensive Income

The components of comprehensive income are as follows:

The components of accumulated other comprehensive income as of April 5, 2008, December 29, 2007 and March 31, 2007 are summarized below:

(a)	The foreign currency translation adjustments reflect the change in the U.S. dollar relative to functional currencies where the Company conducts certain of its operations.

Note 10 — Fair Value Measurement

As discussed in Note 2, the Company adopted SFAS 157 on December 30, 2007, which among other things, requires enhanced disclosures about assets and liabilities measured at fair value. The Company’s adoption of SFAS 157 was limited to financial assets and liabilities, which primarily relate to derivative contracts and deferred compensation plans.

The Company utilizes the market approach to measure fair value for financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

SFAS 157 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. 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.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis as of April 5, 2008, as required by SFAS 157:

Note 11 — 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:

Note 12 — Intangible Assets and Goodwill

The following tables set forth intangible assets as of April 5, 2008, December 29, 2007 and March 31, 2007 and the activity in the intangible asset accounts for the Three Months Ended April 5, 2008:

(a)

During Fiscal 2007, reductions in valuation allowances (as a result of the Company recognizing certain deferred tax assets related to NOL carryovers in existence as of the Effective Date) of $188,557 were ratably applied against non-current intangible assets in existence as of the Effective Date as follows: $178,095 to intangibles of continuing operations, $10,401 to intangibles of discontinued operations and $61 to intangible that were sold during Fiscal 2007.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

(a)

In connection with the purchase of the 2008 CK Licenses, the Company recorded intangible assets of $24,700 during the Three Months Ended April 5, 2008 related to licenses for a term. See Note 3 . The Company expects to amortize the 2008 CK Licenses over a weighted average period of approximately 37 years.

(b)	During the Three Months Ended April 5, 2008, the Company paid $2,027 to renew its Chaps license through December 31, 2013. The Company expects to amortize the rights associated with the Chaps renewal payment over a weighted average period of approximately five years.

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

The following table summarizes the changes in the carrying amount of goodwill for the Three Months Ended April 5, 2008:

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 13 — Debt

Debt was as follows:

Senior Notes

During March 2008, the Company purchased $44,110 aggregate principal amount of the outstanding 8 7 / 8 % Senior Notes due 2013 (‘‘Senior Notes’’) for a total consideration of $46,185 in the open market. In connection with the purchase, the Company recognized a loss of approximately $3,160, which included the write-off of approximately $1,085 of deferred financing costs. The loss on the repurchase is included in the other loss (income) line item in the Company’s consolidated statement of operations.

Interest Rate Swap Agreements

As a result of the interest rate swap agreements entered into on September 18, 2003 (the ‘‘2003 Swap Agreement’’) and November 5, 2004 (the ‘‘2004 Swap Agreement’’), the weighted average effective interest rate of the Senior Notes was 8.94% as of April 5, 2008, 8.93% as of December 29, 2007 and 9.12% as of March 31, 2007.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

The fair value of the Company’s outstanding interest rate swap agreements reflect the termination premium (unrealized loss) or termination discount (unrealized gain) that the Company would realize if such swaps were terminated on the valuation date. Since the provisions of the Company’s 2003 Swap Agreement and 2004 Swap Agreement match the provisions of the Company’s outstanding Senior Notes (the ‘‘Hedged Debt’’), changes in the fair value of the outstanding swaps do not have any effect on the Company’s results of operations but are recorded in the Company’s consolidated balance sheets. Unrealized gains on the outstanding interest rate swap agreements are included in other assets with a corresponding increase in the Hedged Debt. Unrealized losses on the outstanding interest rate swap agreements are included as a component of long-term debt with a corresponding decrease in the Hedged Debt. The table below summarizes the unrealized gain (loss) of the Company’s outstanding swap agreements:

Revolving Credit Facility; Amended and Restated Credit Agreement

As of April 5, 2008, under the Company’s Amended and Restated Credit Agreement, the Company had $106,400 outstanding under the Term B Note and $47,638 outstanding under the revolving credit facility. As of April 5, 2008, the Company had $118,727 of credit available under the revolving credit facility of the Amended and Restated Credit Agreement which included available borrowings of $177,362 (based upon the current borrowing base calculations) less outstanding letters of credit of $58,635.

CKJEA Notes Payable

The weighted average effective interest rate for the outstanding CKJEA notes payable was 5.24% as of April 5, 2008, 4.88% as of December 29, 2007 and 4.33% as of March 31, 2007. All of the CKJEA notes payable are short-term and were renewed during the Three Months Ended April 5, 2008 for additional terms of no more than 12 months.

Note 14 — Stockholders’ Equity

Preferred Stock

The Company has authorized an aggregate of 20,000,000 shares of preferred stock, par value $0.01 per share, of which 112,500 shares are designated as Series A preferred stock, par value $0.01 per share. There were no shares of preferred stock issued and outstanding at April 5, 2008, December 29, 2007 and March 31, 2007.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Stock Incentive Plans

A summary of stock option award activity under the Company’s stock incentive plans as of, and for the Three Months Ended, April 5, 2008 is presented below:

A summary of the activity for unvested restricted share/unit awards under the Company’s stock incentive plans as of, and for the Three Months Ended, April 5, 2008 is presented below:

Note 15 — Supplemental Cash Flow Information

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 16 — Income per Common Share

(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.

Note 17 — Legal Matters

SEC Inquiry:     As disclosed in its Annual Report on Form 10-K for Fiscal 2007, the Company announced, on August 8, 2006, that it would restate its previously reported financial statements for the fourth quarter of 2005, fiscal 2005 and the first quarter of 2006. The restatements were required as a result of certain irregularities discovered by the Company during the Company’s 2006 second quarter closing review and certain other errors. The irregularities primarily related to the accounting for certain returns and customer allowances at the Company’s Chaps menswear division. These matters were reported to the Company’s Audit Committee, which engaged outside counsel, who in turn retained independent forensic accountants, to investigate and report to the Audit Committee. Based on information obtained in that investigation, and also to correct for an error which resulted from the implementation of the Company’s new systems infrastructure at its Swimwear Group during the first quarter of 2006, and certain immaterial errors, the Audit Committee accepted management’s recommendation that the Company restate its financial statements.

In connection with the restatements, the Company contacted the SEC staff to inform them of the restatements and the Company’s related investigation. Thereafter, the SEC staff initiated an informal inquiry, and on February 22, 2008, informed the Company that in September 2007 the SEC had issued a formal order of investigation, with respect to these matters. The Company is cooperating fully with the SEC.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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

Note 18 — Supplemental Consolidating Condensed Financial Information

The following tables set forth supplemental consolidating condensed financial information as of April 5, 2008, December 29, 2007 and March 31, 2007 and for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007 for: (i) The Warnaco Group, Inc.; (ii) Warnaco Inc.; (iii) the subsidiaries that guarantee the Senior Notes (the ‘‘Guarantor Subsidiaries’’); (iv) the subsidiaries other than the Guarantor Subsidiaries (the ‘‘Non-Guarantor Subsidiaries’’); and (v) The Warnaco Group, Inc. on a consolidated basis. The Senior Notes are guaranteed by substantially all of Warnaco Inc.’s domestic subsidiaries.

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

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THE WARNACO GROUP, INC.
    
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, excluding per share amounts)
(Unaudited)

Note 19 — Commitments

Except as set forth below, the contractual obligations and commitments in existence as of April 5, 2008 did not differ materially from those disclosed as of December 29, 2007 in the Company’s Annual Report on Form 10-K for Fiscal 2007.

In addition, as of April 5, 2008, the Company was party to an outstanding foreign currency exchange contract to purchase approximately $26,945 for a total of approximately €18,201 at a weighted average exchange rate of $1.48 to €1.00. The foreign currency exchange contracts mature through September 2008 and are designed to fix the number of euros required to satisfy 70% of dollar denominated purchases of inventory by certain of the Company’s European subsidiaries. These foreign currency exchange contracts were not designated as cash flow hedges for financial reporting purposes and the Company recorded losses of approximately $1,212 for the Three Months Ended April 5, 2008 in the Other loss (income) line item in the Consolidated Condensed Statement of Operations.

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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 those expected in the future and that could affect the market value of the Company’s common stock. Except for the historical information contained herein, this Quarterly Report on Form 10-Q, including the following discussion, contains forward-looking statements that involve risks and uncertainties. See ‘‘ Statement Regarding Forward-Looking Disclosure .’’

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with: (i) the consolidated condensed financial statements and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007 (‘‘Fiscal 2007’’).

The Company operates on a 52/53 week fiscal year basis ending on the Saturday closest to December 31. As such, the period December 30, 2007 to January 3, 2009 (‘‘Fiscal 2008’’) will contain 53 weeks of operations while the period December 31, 2006 to December 29, 2007 (‘‘Fiscal 2007’’) contained 52 weeks of operations. Additionally, the period from December 30, 2007 to April 5, 2008 (the ‘‘Three Months Ended April 5, 2008’’), and the period from December 31, 2006 to March 31, 2007 (the ‘‘Three Months Ended March 31, 2007’’) contained fourteen and thirteen weeks of operations, respectively.

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 ‘‘Designer’’ refer to the Swimwear Group’s fashion brands, including Calvin Klein ^® , Lifeguard ^® , Nautica ^® and Michael Kors ^® . 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.

Overview

The Company designs, sources, markets, licenses and distributes intimate apparel, sportswear and swimwear worldwide through a broad line of 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 and other stores, mass merchandisers and the internet, including such leading retailers as Macy’s and other units of Federated Department Stores, J.C. Penney, Kohl’s, Sears, Target, and Costco. As of April 5, 2008, the Company operated: (i) 761 Calvin Klein retail stores worldwide (consisting of 129 free-standing stores (including one on-line store) and 632 shop-in-shop/concession stores); and (ii) one Speedo ^® on-line store. As of April 5, 2008, there were also 491 Calvin Klein retail stores operated by third parties under retail licenses or distributor agreements.

Highlights for the Three Months Ended April 5, 2008 included:

	•	Net revenues increased $89.1 million, or 18.3%, to $574.9 million for the Three Months Ended April 5, 2008, led primarily by the Company’s Calvin Klein businesses. Operating income increased $1.2 million, or 2.3%, to $55.8 million for the Three Months Ended April 5, 2008 compared to $54.6 million for the Three Months Ended March 31, 2007. Operating income for the Three Months Ended April 5, 2008 includes restructuring charges of $21.4 million, of which $18.5 million (the ‘‘Collection License Company Charge’’) recorded in the Sportswear segment related to the transfer of the Collection License Company (defined below) to Phillips-Van Heusen Corporation (‘‘PVH’’). Both net revenues and operating income for the Three Months Ended April 5, 2008 benefited from the favorable impact of foreign currency translation (see below) as well as an extra week of operating activity as the Three Months Ended April 5, 2008 contained 14 weeks of operations while the Three Months Ended March 31, 2007 contained 13 weeks of operations. Net revenues related to the extra week of operations were approximately $23.0 million.

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	•	In translating foreign currencies into the U.S. dollar, the weakness of the U.S. dollar relative to the functional currencies where the Company conducts certain of its operations (primarily the euro in Europe and Canadian dollar in Canada) resulted in a $27.6 million increase in net revenues and a $3.9 million increase in operating income for the Three Months Ended April 5, 2008.

	•	Income from continuing operations for the Three Months Ended April 5, 2008 was $0.15 per diluted share, a 77.3% decrease compared to the $0.66 per diluted share for the Three Months Ended March 31, 2007. Included in income from continuing operations for the Three Months Ended April 5, 2008 is a tax charge of $19.5 million, or $0.42 per diluted share, related to the repatriation, to the United States, of the net proceeds received in connection with the sale of the Company’s Lejaby business as well as restructuring charges of $20.3 million (net of income tax benefits of $1.1 million), or $0.44 per diluted share.

	•	On January 30, 2008, the Company entered into an agreement with PVH whereby, for total payments of approximately $42 million (net of expected adjustments for working capital), the Company transferred 100% of the shares of the company (the ‘‘Collection License Company’’) that operates the license (the ‘‘Collection License’’) for Calvin Klein men’s and women’s Collection apparel and accessories worldwide to PVH and acquired new, and amended certain existing, Calvin Klein licenses. In addition, the Company also incurred professional fees of approximately $1 million in connection with this transaction. The new licenses acquired and amendments to existing licenses will allow the Company to further extend its Calvin Klein direct-to-consumer business in Europe, Asia and South America. The additional rights granted to the Company extend through 2046. During the Three Months Ended April 5, 2008, the Company recorded intangible assets of $24.6 million related to the new licenses acquired and recorded a restructuring charge (included in selling, general and administrative expenses) of $18.5 million related to the transfer of the Collection License Company to PVH. See Note 3 of Notes to Consolidated Condensed Financial Statements.

	•	On February 14, 2008, the Company entered into an agreement with Palmers Textil AG (‘‘Palmers’’) whereby, effective March 10, 2008, Palmers acquired the Lejaby business for a base purchase price of €32.5 million (approximately $47.4 million) payable in cash and €12.5 million (nominal value of approximately $18.2 million) evidenced by an interest free promissory note (payable on December 31, 2013), subject to certain adjustments, including for working capital. In addition, the Company entered into a transition services agreement with Palmers whereby for a period of nine months following the closing (subject to mutually agreed upon extension periods), the Company agreed to provide certain transitional services to Palmers. During March 2008, the Company recorded a gain of $11.1 million (as part of income from discontinued operations, net of income taxes) related to the sale of Lejaby . In addition, during the Three Months Ended April 5, 2008, the Company repatriated, in the form of a dividend, to the United States, the net proceeds received in connection with the Lejaby sale. The repatriation of the net proceeds from the Lejaby sale resulted in an income tax charge of approximately $19.5 million which was recorded as part of ‘‘Provision for income taxes’’ in the Company’s consolidated condensed statement of operations.

	•	During the Three Months Ended April 5, 2008, from the proceeds from the sale of the Lejaby business, the Company repurchased $44.1 million aggregate principal amount of the outstanding Senior Notes (defined below) for total consideration of $46.2 million. In connection with the purchase, the Company recognized a loss of approximately $3.2 million, which included the write-off of approximately $1.1 million of deferred financing costs.

Discussion of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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

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condensed financial statements and accompanying notes. See the Company’s Annual Report on Form 10-K for Fiscal 2007 for a discussion of the Company’s critical accounting policies.

Recent Accounting Pronouncements:     The Company adopted the provisions of Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, Fair Value Measurements (‘‘SFAS 157’’) on December 30, 2007. SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures, however the application of this statement may change current practice. In February 2008, the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until fiscal years beginning after November 15, 2008. Accordingly, the Company’s adoption of this standard during the Three Months Ended April 5, 2008 was limited to financial assets and liabilities, which primarily affects the valuation of its derivative contracts. The adoption of SFAS 157 did not have a material effect on the Company’s financial condition or results of operations. The Company is still in the process of evaluating this standard with respect to its effect on nonfinancial assets and liabilities and therefore it has not yet determined the impact that it will have on its financial statements upon full adoption in the 2009 fiscal year.

The Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (‘‘ SFAS 159’’) on December 30, 2007. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The adoption of SFAS 159 did not have an effect on the Company’s financial condition or results of operations as it did not elect this fair value option, nor is it expected to have a material impact on future periods as the election of this option for the Company’s financial instruments is expected to be limited.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (‘‘ SFAS 161 ’’). The new standard requires additional disclosures regarding a company’s derivative instruments and hedging activities by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also requires disclosure of derivative features that are credit risk-related as well as cross-referencing within the notes to the financial statements to enable financial statement users to locate important information about derivative instruments, financial performance, and cash flows. The standard is effective for the Company’s fiscal year and interim periods within such year, beginning January 4, 2009, with early application encouraged. The principal impact from this standard will be to require the Company to expand its disclosures regarding its derivative instruments.

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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 Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. The results of the Company’s discontinued operations are included in ‘‘Income from discontinued operations, net of taxes’’ for all periods presented. Results of operations contained 14 weeks of activity for the Three Months Ended April 5, 2008 and 13 weeks of activity for the Three Months Ended March 31, 2007.

Net Revenues

Net revenues by group were as follows:

(a)	Includes $401.0 million and $305.1 million related to the Company’s total Calvin Klein businesses for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007, respectively.

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Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

The $64.7 million increase in Sportswear net revenues and the $30.2 million increase in Intimate Apparel net revenues relate primarily to strength in Calvin Klein jeans and Calvin Klein underwear, respectively, in both Europe and Asia. The $5.8 million decrease in Swimwear Group net revenues primarily reflects declines in the Designer swim business which business (with the exception of Calvin Klein swimwear) the Company expects to exit by the end of June 2008. In translating foreign currencies into the U.S. dollar, the weakness of the U.S. dollar relative to the functional currencies where the Company conducts certain of its operations (primarily the euro in Europe and Canadian dollar in Canada) resulted in a $27.6 million increase in net revenues for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. In addition, the extra week of operations for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007 had a favorable impact on net revenues.

The following table summarizes the Company’s net revenues by channel of distribution for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007:

Sportswear Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Sportswear Group net revenues were as follows:

(a)	Includes net revenues of $26.9 million and $12.7 million related to the Calvin Klein accessories business in Europe and Asia for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007, respectively.

The increase in Calvin Klein jeans wholesale net revenues reflects increases of $27.2 million in Europe, $6.5 million in Asia and $13.9 million in the Americas. The increase in Europe primarily reflects volume growth in both the jeans and accessories business coupled with the favorable effects of

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foreign currency translation and the extra week of operations. The increase in Asia primarily relates to the favorable impact of an extra week of operations and the Company’s expansion efforts in this region, particularly in China. The increase in net revenues in the Americas reflects increases in Mexico, Central and South America of $7.2 million, increases in the U.S of $5.2 million and increases in Canada of $1.5 million. Approximately 72% of the increase in Mexico, Central and South America reflects the consolidation of the results of the Company’s Brazilian operation following the acquisition, effective January 1, 2008, by the Company, of a controlling interest in a Brazilian entity which, prior to January 1, 2008, had been accounted for by the Company under the equity method of accounting. The remainder of the increase in net revenues in Mexico, Central and South America primarily relates to growth in both the department and club channels of distribution coupled with the favorable impact of an additional week of operations. The increase in the U.S. primarily reflects an increase in sales to department stores of approximately $8.0 million which the Company believes is the result of an increase in demand for the Company’s Spring 2008 lines coupled with increases in the Plus size jeans business which launched in 2007, partially offset by a decline in sales to membership clubs of $3.4 million. The Company believes the decline in sales to membership clubs for the Three Months Ended April 5, 2008 versus the Three Months Ended March 31, 2007 is primarily related to the timing of comparable shipments.

The decrease in Chaps net revenues reflects a $2.6 million increase in the U.S, more than offset by a decline of $3.5 million in Canada and Mexico. The increase in Chaps net revenues in the U.S from $34.0 million for the Three Months Ended March 31, 2007 to $36.6 million for the Three Months Ended April 5, 2008 primarily reflects a 29.0% increase in sales to chain stores (which channel of distribution accounts for approximately 44% of total Chaps sales in the U.S.) coupled with a 16.1% increase in sales to department stores. Chaps sales in the U.S. were also favorably impacted by the additional week of operations. Declines in Mexico are primarily related to reduced sales volumes (due mainly to the timing of comparable shipments period over period), partially offset by the favorable impact of an additional week of operations. Declines in Canada are primarily related to a reduction in net revenues associated with a key customer in the region.

The increase in Sportswear retail net revenues primarily reflects a $13.2 million increase in Asia (primarily related to an increase in new and same store sales in Korea and new store openings in China) and a $5.0 million increase in Europe (primarily related to the effect of new store openings in the second, third and fourth quarters of 2007 and the favorable effect of foreign currency translation). The increases in retail revenues in Asia and Europe were both positively impacted by the additional week of operations.

Intimate Apparel Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Intimate Apparel Group net revenues were as follows:

The $14.6 million increase in Calvin Klein Underwear wholesale net revenues reflects increases in Europe of $6.6 million, increases in Mexico, Central and South America of $2.9 million, increases in Asia of $2.2 million, increases in Canada of $1.9 million and increases in the U.S. of $1.0 million. The increase in Europe (from $24.8 million to $31.3 million) primarily relates to increases in sales of both

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men’s (including sales related to the Company’s Steel line which was launched in the second half of 2007) and women’s fashion lines during the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007 coupled with the positive impact of foreign currency translation and the favorable impact of an extra week of operations. The U.S accounted for 46% of the Company’s Calvin Klein Underwear wholesale business and experienced a slight increase in sales primarily related to sales of the Steel line which launched in the third quarter of 2007 and the favorable impact of an extra week of operations.

The $4.8 million increase in Core Intimates net revenues reflects a $3.6 million increase in the U.S., coupled with a $0.8 million increase in Canada and a $0.4 million increase in Mexico. The increase in the U.S. is primarily related to sales of the Company’s Warner’s product to JC Penney as well as the favorable impact of an extra week of operations. The Company launched its Warner’s brand in JC Penney in the second quarter of 2007.

The $10.9 million increase in Calvin Klein Underwear retail net revenues primarily reflects a $7.3 million increase in Europe and a $2.1 million increase in Asia. The increase in net revenues in Europe from $18.4 million for the Three Months Ended March 31, 2007 to $25.7 million for the three Months Ended April 5, 2008 primarily reflects the favorable impact of an extra week of operations, increases in new and same store sales and the positive impact of foreign currency translation. The increase in net revenues in Asia from $4.6 million for the Three Months Ended March 31, 2007 to $6.7 million for the three Months Ended April 5, 2008 primarily reflects the benefit of an extra week of operations coupled with increases related to continued growth in China.

Swimwear Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Swimwear Group net revenues were as follows:

(a)

Includes among other brands, $15.7 million and $11.2 million for Calvin Klein for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007, respectively. As noted previously, the Company intends to exit its remaining Designer swim brands (except for Calvin Klein swimwear) by the end of June 2008.

The $0.6 million decrease in net revenues for Speedo wholesale is due primarily to a $1.2 million decrease in the U.S., partially offset by a $0.2 million increase in Mexico, Central and South America and a $0.4 million increase in Canada. The decrease in the U.S. primarily reflects a $5.1 million increase in sales to membership clubs and the favorable impact of an extra week of operations, more than offset by declines in the mass merchandise, chain store and off price channels of distribution. The Company continues to implement initiatives to improve the productivity and profitability of its Swimwear segment.

The $5.6 million decrease in Designer wholesale net revenues reflects a $10.0 million decrease in the U.S. offset by a $4.4 million increase in Europe. The decrease in the U.S. primarily reflects declines related to the Swimwear Group’s Company’s private label, Michael Kors and Nautica businesses, which businesses the Company intends to exit by the end of June 2008. The increase in Europe relates to growth in the Calvin Klein swim business which the Company believes is the result of design improvements made to the European collection combined with the positive effect of foreign currency translation.

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Gross Profit

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Gross profit was as follows:

Gross profit was $255.3 million, or 44.4% of net revenues, for the Three Months Ended April 5, 2008 compared to $202.7 million, or 41.7% of net revenues, for the Three Months Ended March 31, 2007. The $52.6 million increase in gross profit was due to increases in the Sportswear Group ($38.1 million) and the Intimate Apparel Group ($21.5 million), partially offset by a decrease in the Swimwear Group ($7.0 million). In translating foreign currencies into the U.S. dollar, the weakness of the U.S. dollar relative to the functional currencies where the Company conducts certain of its operations (primarily the euro in Europe and Canadian dollar in Canada) resulted in a $14.5 million increase in gross profit for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. In addition, gross profit for the Three Months Ended April 5, 2008 benefited by an extra week of operations when compared to the Three Months Ended March 31, 2007.

Sportswear Group gross profit increased $38.1 million and gross margin increased 370 basis points for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. Sportswear gross profit during the Three Months Ended April 5, 2008 was favorably impacted by the effects of foreign currency translation and the extra week of operations. The increase in gross profit reflects a $24.6 million increase in Calvin Klein Jeans wholesale (due primarily to an increase in net revenues combined with a more favorable sales mix), an $11.4 million increase in Sportswear retail (due primarily to an increase in net revenues), and a $2.1 million increase in Chaps (due primarily to the increase in net revenues in the U.S). The Chaps business also experienced a 580 basis point increase in gross margin for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007 primarily related to a more favorable sales mix and a decrease in the level of customer allowances.

Intimate Apparel Group gross profit increased $21.5 million and gross margin increased 500 basis points for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. The increase in Intimate Apparel gross profit is reflective of the favorable impact of foreign currency translation coupled with the extra week of operations and consists of a $10.9 million increase in Calvin Klein Underwear wholesale, an $8.1 million increase in Calvin Klein Underwear retail and a $2.5 million increase in Core Intimates. The increase in gross margin is primarily due to reductions in the level of customer allowances, a more favorable sales mix in the Company’s Calvin Klein Underwear business in Europe and increases related to new and existing retail stores.

Despite an extra week of operations, Swimwear Group gross profit decreased $7.0 million and gross margin decreased 430 basis points for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. The decline in gross profit primarily reflects a decline in net revenues (discussed above) coupled with a $1.3 million increase in restructuring expenses. Restructuring expenses incurred during the Three Months Ended April 5, 2008 primarily related to the writedown of inventory associated with the Company’s remaining Designer swim businesses (excluding Calvin Klein ), which the Company expects to exit by the end of June 2008, and additional costs associated with the disposal, in 2007, of manufacturing facilities in Mexico (see Note 5 of Notes to Consolidated Condensed Financial Statements ). The Company continues to implement initiatives to improve the productivity and profitability of its Swimwear segment.

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Selling, General and Administrative Expenses

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Selling, general & administrative (‘‘SG&A’’) expenses increased $52.4 million to $197.3 million (34.4% of net revenues) for the Three Months Ended April 5, 2008 compared to $144.9 million (29.8% of net revenues) for the Three Months Ended March 31, 2007. The increase in SG&A reflects a $19.4 million increase in restructuring expenses (primarily related to the Collection License Company Charge of $18.5 million discussed previously), a $5.6 million increase in marketing expenses, a $20.9 million increase in selling and distribution expenses (primarily related to the increase in net revenues associated with the Calvin Klein businesses in Europe and Asia, partially offset by a decrease in the Swimwear segment) and a $6.5 million increase in administrative expenses. In translating foreign currencies into the U.S. dollar, the weakness of the U.S. dollar relative to the functional currencies where the Company conducts certain of its operations (primarily the euro in Europe and Canadian dollar in Canada) had a $10.6 million unfavorable effect which increased SG&A expenses for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. In addition, SG&A expenses were negatively impacted by the extra week of operations.

Amortization of Intangible Assets

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Amortization of intangible assets was $2.5 million for the Three Months Ended April 5, 2008 compared to $3.4 million for the Three Months Ended March 31, 2007. The decrease relates to the reduction of intangible assets as of December 29, 2007 as a result of the recognition of certain deferred tax assets in existence as of the Effective Date.

Operating Income

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

The following table presents operating income by group:

(a)	Includes approximately $21.4 million and $0.8 million for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007, respectively, related to restructuring expenses. See Note 5 of Notes to Consolidated Condensed Financial Statements .

Operating income was $55.8 million (9.7% of net revenues) for the Three Months Ended April 5, 2008 compared to $54.6 million (11.2% of net revenues) for the Three Months Ended March 31, 2007. Included in operating income for the Three Months Ended April 5, 2008 are restructuring charges of $21.4 million of which $18.5 million relates to the Collection License Company Charge. In translating foreign currencies into the U.S. dollar, the weakness of the U.S. dollar relative to the functional currencies where the Company conducts certain of its operations (primarily the euro in Europe and Canadian dollar in Canada) resulted in a $3.9 million increase in operating income for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007. In addition, operating income was favorably impacted by the additional week of operations.

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Sportswear Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Sportswear Group operating income was as follows:

(a)	Includes the Collection License Company Charge of $18.5 million related to the transfer of the Collection License Company to PVH.

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

Sportswear Group operating income decreased $5.2 million, or 18.9%, primarily reflecting a $7.6 million decrease in the Calvin Klein Jeans wholesale business, offset by a $2.0 million increase in the Chaps business. The decrease in Sportswear operating income reflects a $38.1 million increase in gross profit, more than offset by a $43.3 million increase in SG&A (including amortization of intangible assets) expenses. SG&A expenses in the Calvin Klein Jeans wholesale business includes a restructuring charge of $18.5 million related to the Collection License Company Charge (see Note 3 of Notes to Consolidated Condensed Financial Statements ). Sportswear operating margin declined 420 basis points primarily reflecting a decrease of 610 basis points related to the Collection License Company Charge, partially offset by an increase of 190 basis points primarily related to the effects of gross margin increases in the Company’s Chaps business in the U.S. and Calvin Klein jeans business in Europe.

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Intimate Apparel Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Intimate Apparel Group operating income was as follows:

(a)	Includes an allocation of shared services/other expenses by brand as detailed below:

Intimate Apparel Group operating income increased $8.5 million, or 35.4%, over the prior year reflecting a $3.4 million increase in Calvin Klein Underwear wholesale, a $2.9 million increase in Calvin Klein Underwear retail and a $2.2 million increase in Core Intimates. The 190 basis point improvement in operating income as a percentage of net revenues reflects a 500 basis point increase in gross margin, partially offset by the effects of a 350 basis point increase in SG&A as a percentage of net revenues. The increase in SG&A as a percentage of net revenues primarily relates to expansion of the Company’s Calvin Klein Underwear retail business in Europe and Asia, an increase in marketing expenses and the unfavorable impact of foreign currency translation.

Swimwear Group

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Swimwear Group operating income (loss) was as follows:

(a)	Includes an allocation of shared services expenses by brand as detailed below:

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Swimwear Group operating income decreased $1.5 million, or 9.0%, reflecting a $2.1 million decrease in Speedo wholesale, partially offset by a $0.5 million increase in Designer wholesale and a $0.1 million increase in Swimwear retail. Operating income for the Three Months Ended April 5, 2008 includes restructuring expenses of $2.0 million primarily related to the write-down of inventory to net realizable value associated with the Company’s decision to cease operations related to its Nautica , Michael Kors and private label swimwear businesses by the end of June 2008 and costs associated with the disposition, in 2007, of the Company’s manufacturing plants in Mexico. The Company continues to implement initiatives to improve the productivity and profitability of its Swimwear segment.

Other Loss (Income)

Other loss (income) of $5.5 million for the Three Months Ended April 5, 2008 primarily reflects net losses of $0.9 million on the current portion of inter-company loans denominated in currency other than that of the foreign subsidiaries’ functional currency, a $1.2 million loss related to foreign currency exchange contracts designed to fix the number of euros required to satisfy 70% of inventory purchases made by certain of the Company’s European subsidiaries, a premium paid of $3.2 million (which includes the write-off of approximately $1.1 million of deferred financing costs) related to the repurchase of $44.1 million aggregate principal amount of Senior Notes (defined below) for a total consideration of $46.2 million and other losses, net, of $0.2 million. Losses of $0.6 million for the Three Months Ended March 31, 2007 primarily reflects net gains on the current portion of inter-company loans denominated in a currency other than that of the foreign subsidiaries’ functional currency.

Interest Expense

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Interest expense increased $0.1 million to $9.4 million for the Three Months Ended April 5, 2008 from $9.3 million for the Three Months Ended March 31, 2007. The slight increase primarily relates to increases in foreign bank and credit line fees, partially offset by declines in interest associated with the Term B Note and Revolving Credit Facility in the U.S.

Interest Income

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Interest income increased $0.6 million to $0.9 million for the Three Months Ended April 5, 2008 from $0.3 million for the Three Months Ended March 31, 2007. The increase in interest income was due primarily to an increase in interest earned on outstanding cash balances in foreign countries.

Income Taxes

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

The provision for income taxes was $34.7 million, or an effective tax rate of 82.8% for the Three Months Ended April 5, 2008, compared to $15.6 million, or an effective tax rate of 33.7% for the Three Months Ended March 31, 2007. The increase in the effective tax rate for the Three Months Ended April 5, 2008 compared to the Three Months Ended March 31, 2007 primarily relates to a charge of approximately $19.5 million associated with the repatriation, in the form of a dividend, to the United States, of the net proceeds received in connection with the Lejaby sale; a restructuring charge incurred during the Three Months Ended April 5, 2008, associated with the transfer of the Collection License Company to PVH, for which the Company received no tax benefit; and income tax expense recorded upon the finalization of the Company’s tax returns in the Netherlands for years through 2005. See Note 7 of Notes to Consolidated Condensed Financial Statements .

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Discontinued Operations

Three Months Ended April 5, 2008 compared to Three Months Ended March 31, 2007

Income from discontinued operations, net of taxes, was $10.7 million for the Three Months Ended April 5, 2008 compared to a gain of $7.4 million for the Three Months Ended March 31, 2007. See Note 4 of Notes to Consolidated Condensed Financial Statements .

Capital Resources and Liquidity

Financing Arrangements

Senior Notes

On June 12, 2003, Warnaco Inc., the principal operating subsidiary of Warnaco Group, completed the sale of $210.0 million aggregate principal amount of Senior Notes at par value, which notes mature on June 15, 2013 and bear interest at 8 7 / 8 % payable semi-annually on December 15 and June 15 of each year. No principal payments prior to the maturity date are required. The Senior Notes are unconditionally guaranteed, jointly and severally, by Warnaco Group and substantially all of Warnaco Inc.’s domestic subsidiaries (all of which are 100% owned, either directly or indirectly, by Warnaco Inc.). In June 2006, the Company purchased $5.0 million aggregate principal amount of the outstanding $210.0 million Senior Notes for total consideration of $5.2 million in the open market. During March, 2008, the Company purchased $44.1 million aggregate principal amount of the outstanding Senior Notes for a total consideration of $46.2 million in the open market.

The aggregate principal amount outstanding under the Senior Notes was $160.9 million as of April 5, 2008 and $205.0 million as of December 29, 2007 and March 31, 2007.

The indenture pursuant to which the Senior Notes were issued contains covenants which, among other things, restrict the Company’s ability to incur additional debt, pay dividends and make restricted payments, create or permit certain liens, use the proceeds of sales of assets and subsidiaries’ stock, create or permit restrictions on the ability of certain of Warnaco Inc.’s subsidiaries to pay dividends or make other distributions to Warnaco Group or to Warnaco Inc., enter into transactions with affiliates, engage in certain business activities, engage in sale and leaseback transactions and consolidate or merge or sell all or substantially all of its assets. The Company is not aware of any non-compliance with the covenants of the Senior Notes as of April 5, 2008, December 29, 2007 and March 31, 2007.

Interest Rate Swap Agreements

On September 18, 2003, the Company entered into an Interest Rate Swap Agreement (the ‘‘2003 Swap Agreement’’) with respect to the Senior Notes for a total notional amount of $50 million. The 2003 Swap Agreement provides that the Company will receive interest at 8 7 / 8 % and pay a variable rate of interest based upon six month London Interbank Offered Rate (‘‘LIBOR’’) plus 4.11% (8.94% at April 5, 2008). The 2003 Swap Agreement expires on June 15, 2013 (the date on which the Senior Notes mature).

On November 5, 2004, the Company entered into a second Interest Rate Swap Agreement (the ‘‘2004 Swap Agreement’’) with respect to the Company’s Senior Notes for a total notional amount of $25 million. The 2004 Swap Agreement provides that the Company will receive interest of 8 7 / 8 % and pay a variable rate of interest based upon six months LIBOR plus 4.34% (9.17% at April 5, 2008). The 2004 Swap Agreement expires on June 15, 2013 (the date on which the Senior Notes mature).

As a result of the 2003 and 2004 Swap Agreements, the weighted average effective interest rate of the Senior Notes was 8.94% as of April 5, 2008 and 9.12% as of March 31, 2007.

The fair value of the Company’s outstanding interest rate swap agreements reflect the termination premium (unrealized loss) or termination discount (unrealized gain) that the Company would realize if such swaps were terminated on the valuation date. Since the provisions of the Company’s 2003 Swap

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Agreement and the 2004 Swap Agreement match the provisions of the Company’s outstanding Senior Notes (the ‘‘Hedged Debt’’), changes in the fair value of the outstanding swaps do not have any effect on the Company’s results of operations but are recorded in the Company’s consolidated balance sheets. Unrealized gains on the outstanding interest rate swap agreements are included in other assets with a corresponding increase in the Hedged Debt. Unrealized losses on the outstanding interest rate swap agreements are included as a component of long-term debt with a corresponding decrease in the Hedged Debt. The table below summarizes the fair value (unrealized gains (losses)) of the Company’s outstanding swap agreements:

Revolving Credit Facility; Amended and Restated Credit Agreement

On January 31, 2006, the Company’s revolving credit facility was amended and restated (as further amended, the ‘‘Amended and Restated Credit Agreement’’) in connection with the closing of the CKJEA Acquisition to, among other things, add a $180 million term loan facility (the ‘‘Term B Note’’) which was used to finance a portion of the CKJEA Acquisition. The Amended and Restated Credit Agreement was also amended on November 6, 2006 to, among other things, allow for the sale of the trademarks and certain other assets of its OP businesses. The Amended and Restated Credit Agreement was further amended in December 2007 to, among other things, permit the sale of the Company’s Catalina , Anne Cole and Cole of California businesses and designate that the net proceeds of such sale would be used to repay term loans under the Amended and Restated Credit Agreement. Generally, the loans under the Term B Note bear interest at either Citibank N.A.’s base rate plus 0.50% or at LIBOR plus 1.50%, in each case, on a per annum basis. As of April 5, 2008, the weighted average interest rate for the loans outstanding under the Term B Note was 4.38%. The Term B Note matures on December 31, 2012. As of April 5, 2008, principal payments due under the Term B Note were: (i) quarterly installments of $450,000 through March 31, 2012; (ii) $42.3 million on each of June 30, 2012 and September 30, 2012; and (iii) $14.6 million on December 31, 2012. Loans under the Amended and Restated Credit Agreement may be required to be repaid upon the occurrence of certain events, including certain types of asset sales, insurance recoveries, and issuances of debt. In addition, the Term B Note requires the Company to repay the Term B Note principal in amounts equal to 25% of Excess Cash Flow (as defined in the Amended and Restated Credit Agreement), if any, subject to certain conditions.

In addition to the amendments under the Amended and Restated Credit Agreement relating to the Term B Note, on January 31, 2006, the Company also increased the revolving credit facility commitment under the Amended and Restated Credit Agreement to $225 million. The $225 million revolving credit facility commitment under the Amended and Restated Credit Agreement matures on February 3, 2009. The revolving credit facility includes a provision which allows the Company to increase the maximum available borrowings under the revolving credit facility from $225 million to $375 million. In accordance with the Amended and Restated Credit Agreement, effective April 3, 2007, rates for the revolving credit facility were adjusted to the Citibank N.A.’s base rate plus 0.25% (5.50% at April 5, 2008) or at LIBOR plus 1.25% (approximately 3.98% at April 5, 2008), in each case, on a per annum basis. Prior to the April 3, 2007 adjustment, borrowings under the revolving credit facility bore interest at Citibank N.A.’s base rate plus 0.50% or at LIBOR plus 1.5% (approximately 6.82% at March 31, 2007), in each case, on a per annum basis. The rates of interest payable on outstanding borrowings under the revolving credit facility may change based on the Company’s financial ratios. The Company enters into contracts to elect the LIBOR option when it expects borrowings to be outstanding for more than 30 days. The remaining balances bear interest

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based upon Citibank N.A.’s base rate. The revolving credit facility contains financial covenants that, among other things, require the Company to maintain a fixed charge coverage ratio above a minimum level and a leverage ratio below a maximum level and limit the amount of the Company’s capital expenditures. In addition, the revolving credit facility contains certain covenants that, among other things, limit investments and asset sales, prohibit the payment of dividends (subject to limited exceptions) and limit the incurrence of material additional indebtedness. As part of the Amended and Restated Credit Agreement, certain covenants were modified, including financial covenants and the covenants relating to indebtedness, acquisitions, asset sales and investments. Further, certain terms and conditions under which an Event of Default (as defined in the Amended and Restated Credit Agreement) may be declared were amended.

The Amended and Restated Credit Agreement is guaranteed by the Company and its domestic subsidiaries (other than Warnaco) and the obligations under such guaranty, together with Warnaco’s obligations under the Amended and Restated Credit Agreement, are secured by a lien for the benefit of the lenders on substantially all of the assets of the Company and its domestic subsidiaries.

As of April 5, 2008, under the Amended and Restated Credit Agreement, the Company had $106.4 million outstanding under the Term B Note and $47.6 million outstanding under the revolving credit facility. As of April 5, 2008, the Company had $118.7 million of credit available under the revolving credit facility of the Amended and Restated Credit Agreement which included available borrowings of $177.4 million (based upon the current borrowing base calculations) less outstanding letters of credit of $58.6 million.

The revolving credit facility portion of the Company’s Amended and Restated Credit Agreement expires on February 3, 2009. The Company is in the process of renewing its domestic and foreign revolving credit facilities and expects to complete the renewals in the second half of 2008.

Foreign Revolving Credit Facility

During fiscal 2005, certain of the Company’s foreign subsidiaries (the ‘‘Foreign Subsidiaries’’) entered into a $25 million revolving credit facility with Bank of America, N.A. (the ‘‘Foreign Revolving Credit Facility’’). The Foreign Revolving Credit Facility provides for a four year, non-amortizing revolving credit facility. Borrowings under the Foreign Revolving Credit Facility accrue interest at LIBOR or, if applicable, Bank of America, N.A.’s base rate, in each case, plus 2.25% or 2.00% (depending on the level of EBITDA (as defined in the Foreign Revolving Credit Facility) of the Foreign Subsidiaries). The Foreign Revolving Credit Facility is secured by first priority security interests on the assets of the Foreign Subsidiaries and the Foreign Subsidiaries guarantee each others’ obligations under the Foreign Revolving Credit Facility. The Company has never had any borrowings outstanding under the Foreign Revolving Credit Facility.

The Foreign Revolving Credit Facility contains covenants that require the Foreign Subsidiaries to maintain certain financial ratios and limit the amount of the Foreign Subsidiaries’ capital expenditures. In addition, the Foreign Revolving Credit Facility contains certain restrictive covenants which, among other things, limit investments by the Foreign Subsidiaries and prohibit the Foreign Subsidiaries from incurring additional indebtedness. The Company’s ability to borrow under the Foreign Revolving Credit Facility is subject to the satisfaction of certain conditions. The Company is not aware of any non-compliance with the covenants of the Foreign Revolving Credit Facility as of April 5, 2008, December 29, 2007 and March 31, 2007.

CKJEA Notes Payable

The total CKJEA notes payable of $44.9 million at April 5, 2008 consists of short-term revolving notes with a number of banks at various interest rates (primarily Euro LIBOR plus 1.0%). As of April 5, 2008 and March 31, 2007, the weighted average interest rate for the CKJEA notes payable outstanding was approximately 5.24% and 4.33%, respectively. All of the CKJEA notes payable are short-term and were renewed during the Three Months Ended April 5, 2008 for additional terms of no more than 12 months.

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Liquidity

As of April 5, 2008, the Company had working capital of $562.1 million, cash and cash equivalents of $138.0 million, short-term debt of $96.3 million (inclusive of $47.6 million outstanding under the revolving credit facility). As of April 5, 2008, under the Amended and Restated Credit Agreement, the Company had $106.4 million outstanding under the Term B Note and $47.6 million outstanding under the revolving credit facility. As of April 5, 2008, the Company had $118.7 million of credit available under the revolving credit facility of the Amended and Restated Credit Agreement which included available borrowings of $177.3 million (based upon the current borrowing base calculations) less outstanding letters of credit of $58.6 million.

The Company’s total debt as of April 5, 2008 was $363.8 million, consisting of $160.9 million of the Senior Notes, $106.4 million and $47.6 million of the Term B Note and revolving credit facility, respectively, under the Amended and Restated Credit Agreement, $44.9 million of the CKJEA short-term notes payable and $2.0 million of other outstanding debt. The Company repaid $44.1 million of the Senior Notes in March 2008 from the proceeds of the sale of the Lejaby business during the Three Months Ended April 5, 2008.

The Company believes that cash available under its Amended and Restated Credit Agreement, cash available under the Foreign Revolving Credit Facility and cash to be generated from future operating activities will be sufficient to fund its operations, including capital expenditures, for the next 12 months. The revolving credit facility portion of the Company’s Amended and Restated Credit Agreement expires on February 3, 2009. The Company is in the process of renewing its domestic and foreign revolving credit facilities and expects to complete the renewals in the second half of 2008.

Accounts receivable increased $90.1 million to $357.6 million at April 5, 2008 from $267.5 million at December 29, 2007, reflecting a $46.5 million increase in the Sportswear Group (due primarily to growth in the overseas Calvin Klein Jeans business), a $5.5 million increase in the Intimate Apparel Group and a $38.1 million increase in the Swimwear Group (reflecting the seasonal shipment of swimwear products).

Accounts receivable decreased $4.8 million to $357.6 million at April 5, 2008 from $362.4 million at March 31, 2007. The balance at March 31, 2007 includes approximately $50.3 million related to operations discontinued during the Three Months Ended September 29, 2007. Excluding these discontinued operations, accounts receivable increased $45.5 million reflecting growth in the Company’s Sportswear and Intimate Apparel businesses.

Inventories decreased $11.7 million to $321.0 million at April 5, 2008 from $332.7 million at December 29, 2007 primarily related to declines in the Swimwear group due to the seasonal shipment of swimwear product, partially offset by increases in both Sportswear and Intimate Apparel inventory levels to support expected sales.

Inventories decreased $59.9 million to $321.0 million at April 5, 2008 from $380.9 million at March 31, 2007. The balance at March 31, 2007 includes approximately $50.5 million related to operations discontinued during the Three Months Ended September 29, 2007. Excluding these discontinued operations, inventory decreased $9.4 million.

Share Repurchase Program

In May 2007, the Company’s Board of Directors authorized a share repurchase program (the ‘‘2007 Share Repurchase Program’’) for the repurchase of up to 3,000,000 shares of the Company’s common stock. The Company expects that, in order to comply with the terms of applicable debt instruments, purchases under this newly authorized program will be made over a period of four years from the date the program was approved. During the Three Months Ended April 5, 2008, the Company did not repurchase any shares of common stock under the 2007 Share Repurchase Program. The share repurchase program may be modified or terminated by the Company’s Board of Directors at any time.

Repurchased shares are held in treasury pending use for general corporate purposes.

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Cash Flows

The following table summarizes the cash flows from the Company’s operating, investing and financing activities for the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007:

Cash used in operating activities from continuing operations was $38.8 million for the Three Months Ended April 5, 2008 compared to $15.2 million for the Three Months Ended March 31, 2007. The $23.6 million increase in cash used in operating activities from continuing operations was due primarily to a $20.3 million decrease in net income coupled with the changes to non-cash charges and working capital. The Company experienced a $1.5 million increase in cash required to support working capital (primarily to service accounts receivable, inventories, prepaid assets and accounts payable, partially offset by an increase in taxes payable mainly due to an accrual during the Three Months Ended April 5, 2008 of $19.5 million associated with the repatriation, to the United States, of the net proceeds related to the sale of the Lejaby business). The Company experienced a $1.9 million decline in non-cash charges primarily reflecting, among other items, a $3.4 million increase in gains from discontinued operations and a $3.4 million decrease in inventory write-downs (primarily in the Company’s Swimwear group), partially offset by a $1.8 million decrease in foreign exchange gains and a $3.2 million loss on repurchase of Senior Notes.

Cash used in investing activities from continuing operations was $6.9 million for the Three Months Ended April 5, 2008, mainly attributable to purchases of property, plant and equipment of $11.2 million and cash used for business acquisitions, net of cash acquired, of $30.6 million, mainly related to the transfer of the Collection License to PVH on January 30, 2008 and the acquisition of a business which operates 11 retail stores in China (see Note 3 to the consolidated condensed financial statements). Those amounts were partially offset by a net amount of $34.7 million received from the sale of the Lejaby business, which closed on March 10, 2008 (see Note 4 to the consolidated condensed financial statements). For the Three Months Ended March 31, 2007, cash used in investing activities from continuing operations was $7.7 million, primarily due to purchases of property, plant and equipment.

For the Three Months Ended April 5, 2008, cash used in financing activities was $6.7 million, attributable mainly to the repurchase of $46.2 million of Senior Notes, decrease in short-term notes payable of $12.5 million, repurchase of treasury stock of $4.0 million and repayments of the Term B note of $0.9 million. Those amounts were partially offset by $47.6 million received as borrowing under the revolving credit facility and $9.3 million from the exercise of employee stock options. Cash provided by financing activities in the Three Months Ended March 31, 2007 was $30.7 million primarily due to repayments of the Term B Note of $40.5 million, a decrease in short term notes payable of $20.6 million and purchase of treasury stock of $1.9 million (primarily related to the Company’s stock repurchase programs). These amounts were partially offset by cash received from borrowings under the revolving credit facility of $25.0 million and $7.3 million from the exercise of employee stock options.

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Cash in operating accounts primarily represents lockbox receipts not yet cleared or available to the Company, cash held by foreign subsidiaries and compensating balances required under various trade, credit and other arrangements.

Significant Contractual Obligations and Commitments

Contractual obligations and commitments as of April 5, 2008 were not materially different from those disclosed in the Company’s Annual Report on Form 10-K for Fiscal 2007, with the exception of certain operating leases and other contractual obligations pursuant to agreements entered into during the Three Months Ended April 5, 2008 (see Note 19 of Notes to Consolidated Condensed Financial Statements ). Please refer to the Company’s Annual Report on Form 10-K for Fiscal 2007 for a description of those obligations and commitments outstanding as of December 29, 2007.

Off-Balance Sheet Arrangements

None.

Statement Regarding Forward-Looking Disclosure

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

The following factors, among others, including those described in the Company’s Annual Report on Form 10-K for Fiscal 2007 filed with the SEC on February 27, 2008 (including, without limitation, those described under the headings Item 1A. Risk Factors and ‘‘Statement Regarding Forward-Looking Disclosure,’’ as such disclosure may be modified or supplemented from time to time), could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by it: the Company’s ability to execute its repositioning and sale initiatives (including achieving enhanced productivity and profitability) previously announced; economic conditions that affect the apparel industry; the Company’s failure to anticipate, identify or promptly react to changing trends, styles, or brand preferences; further declines in prices in the apparel industry; declining sales resulting from increased competition in the Company’s markets; increases in the prices of raw materials; events which result in difficulty in procuring or producing the Company’s products on a cost-effective basis; the effect of laws and regulations, including those relating to labor, workplace and the environment; changing international trade regulation, including as it relates to the imposition or elimination of quotas on imports of textiles and apparel; the Company’s ability to protect its intellectual property or the costs incurred by the Company related thereto; the risk of product safety issues, defects or other production problems associated with the Company’s products; the Company’s dependence on a limited number of customers; the effects of consolidation in the retail sector; the Company’s dependence on license agreements with third parties; the Company’s dependence on the reputation of its brand names, including, in particular, Calvin Klein ; the Company’s exposure to conditions in overseas markets in connection with the Company’s foreign operations and the sourcing of products from foreign third-party vendors; the Company’s foreign currency exposure; the Company’s history of insufficient disclosure controls and procedures and internal controls and restated financial statements; unanticipated future internal control deficiencies or weaknesses or

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ineffective disclosure controls and procedures; the effects of fluctuations in the value of investments of the Company’s pension plan; the sufficiency of cash to fund operations, including capital expenditures; the Company’s ability to service its indebtedness, the effect of changes in interest rates on the Company’s indebtedness that is subject to floating interest rates and the limitations imposed on the Company’s operating and financial flexibility by the agreements governing the Company’s indebtedness; the Company’s dependence on its senior management team and other key personnel; the Company’s reliance on information technology; the limitations on purchases under the Company’s share repurchase programs contained in the Company’s debt instruments, the number of shares that the Company purchases under such programs and the prices paid for such shares; the Company’s inability to achieve its financial targets and strategic objectives, as a result of one or more of the factors described above, changes in the assumptions underlying the targets or goals, or otherwise; the failure of acquired businesses to generate expected levels of revenues; the failure of the Company to successfully integrate such businesses with its existing businesses (and, as a result, not achieving all or a substantial portion of the anticipated benefits of such acquisitions); and such acquired businesses being adversely affected, including by one or more of the factors described above, and thereby failing to achieve anticipated revenues and earnings growth.

The Company encourages investors to read the section entitled Item 1A. Risk Factors and the discussion of the Company’s critical accounting policies under ‘‘ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discussion of Critical Accounting Policies ’’ included in the Company’s Annual Report on Form 10-K for Fiscal 2007, as such discussions may be modified or supplemented by subsequent reports that the Company files with the SEC including this Quarterly Report on Form 10-Q. This discussion of forward-looking statements is not exhaustive but is designed to highlight important factors that may affect actual results. Forward-looking statements speak only as of the date on which they are made, and, except for the Company’s ongoing obligation under the U.S. federal securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk .

The Company is exposed to market risk primarily related to changes in hypothetical investment values under certain of the Company’s employee benefit plans, interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculation or for trading purposes.

Market Risk

The Company’s pension plan invests in marketable equity and debt securities, mutual funds and pooled investment accounts, limited partnerships and cash accounts. These investments are subject to changes in the market value of individual securities and interest rates as well as changes in the overall economy. Changes in the value of the pension plan’s investment portfolio are directly reflected in the Company’s consolidated statement of operations through pension expense and in the Company’s consolidated balance sheet as a component of accrued pension liability. The Company records the effect of any changes in actuarial assumptions (including changes in the discount rate) and the difference between the assumed rate of return on plan assets and the actual return on plan assets in the fourth quarter of its fiscal year. The total value of the pension plan’s investment portfolio was $138.1 million at December 29, 2007. A hypothetical 10% increase/decrease in the value of the Company’s pension plan investment portfolio would have resulted in a decrease/increase in pension expense of $13.8 million for Fiscal 2007. The Company estimates pension expense on an interim basis assuming a long-term rate of return on pension plan investments of 8%, net of pension plan expenses. A 1% increase/decrease in the actual return earned on pension plan assets (an increase in the return on plan assets from 8% to 9% or a decrease in the return on plan assets from 8% to 7%) would result in a decrease/increase of approximately $1.4 million in pension expense (increase/decrease in pension income) for Fiscal 2008.

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Interest Rate Risk

The Company has market risk from exposure to changes in interest rates on its 2003 and 2004 Swap Agreements with notional amounts totaling $75.0 million and on its $106.4 million and $47.6 million of loans outstanding at April 5, 2008 under the Term B Note and revolving credit facility, respectively, under the Amended and Restated Credit Agreement. The Company is not exposed to interest rate risk on its Senior Notes because the interest rate on the Senior Notes is fixed at 8 7 / 8 % per annum. With respect to the 2003 and 2004 Swap Agreements, a hypothetical 10% increase in interest rates would have had an unfavorable impact of $0.2 million in each of the Three Months Ended April 5, 2008 and the Three Months Ended March 31, 2007 on the Company’s income from continuing operations before provision for income taxes. A hypothetical 10% increase in interest rates for the loans outstanding under the Term B Note would have had an unfavorable effect of $0.1 million in the Three Months Ended April 5, 2008 and $0.2 million in the Three Months Ended March 31, 2007 on the Company’s income from continuing operations before provision for income taxes. A hypothetical 10% increase in interest rates for the loans outstanding under the revolving credit facility would have had an unfavorable effect of $0.1 million in the Three Months Ended April 5, 2008 and zero the Three Months Ended March 31, 2007 on the Company’s income from continuing operations before provision for income taxes.

Foreign Exchange Risk

The Company has foreign currency exposures primarily related to buying in currencies other than the functional currency in which it operates. These exposures are primarily concentrated in the Company’s Canadian, Mexican, Central and South American and European operations, which accounted for approximately 54.3% of the Company’s total net revenues for the Three Months Ended April 5, 2008. These foreign operations of the Company purchase products from suppliers denominated in U.S. dollars. Total purchases of products made by foreign subsidiaries denominated in U.S. dollars amounted to approximately $48.1 million for the Three Months Ended April 5, 2008. A hypothetical decrease of 10% in the value of these foreign currencies relative to the U.S. dollar would have increased cost of goods sold (which would decrease operating income) by $4.8 million for the Three Months Ended April 5, 2008.

As April 5, 2008, the Company had foreign currency exchange contracts outstanding to purchase approximately $26.9 million for a total of approximately €18.2 million at a weighted-average exchange rate of $1.48 to €1.00. These foreign currency exchange contracts mature through September 2008 and are designed to fix the number of euros required to satisfy the first 70% of dollar denominated purchases of inventory by certain of the Company’s European subsidiaries. A hypothetical 10% adverse change in the foreign currency exchange rate between the euro and the U.S. dollar (i.e., an increase in the euro/dollar exchange rate from 1.48 to 1.63) would have increased the unrealized loss, recognized by the Company in its Statement of Operations, on outstanding foreign exchange contracts by approximately $2.7 million at April 5, 2008.

Item 4.     Controls and Procedures .

(a)     Disclosure Controls and Procedures .

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

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(b)     Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Three Months Ended April 5, 2008 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1.     Legal Proceedings .

The information required by this Item 1 of Part II is incorporated herein by reference to Part I, Item 1. Financial Statements, Note 17 Legal Matters .

Item 1A.     Risk Factors .

Please refer to Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for Fiscal 2007, filed with the SEC on February 27, 2008, for a description of certain significant risks and uncertainties to which the Company’s business, operations and financial condition are subject. There have been no material changes to these risk factors during the Three Months Ended April 5, 2008.

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

The following table summarizes repurchases of the Company’s common stock during the Three Months Ended April 5, 2008.

In May 2007, the Company’s Board of Directors authorized a new share repurchase program (the ‘‘2007 Share Repurchase Program’’) for the repurchase of up to 3,000,000 shares of the Company’s common stock. The Company expects that, in order to comply with the terms of applicable debt instruments, purchases under this newly authorized program will be made over a period of four years from the date the program was approved. During the Three Months Ended April 5, 2008, the Company did not repurchase any shares of common stock under the 2007 Share Repurchase Program. The share repurchase program may be modified or terminated by the Company’s Board of Directors at any time.

Repurchased shares are held in treasury pending use for general corporate purposes.

An aggregate of 110,063 shares included below as repurchased during the Three Months Ended April 5, 2008 reflect the surrender of shares in connection with the vesting of certain restricted stock awarded by the Company to its employees. At the election of an employee, shares having an aggregate value on the vesting date equal to the employee’s withholding tax obligation may be surrendered to the Company in satisfaction thereof.

The Amended and Restated Credit Agreement and the indenture governing the Senior Notes place restrictions on the Company’s ability to pay dividends on the Common Stock, and the Company has not paid any dividends on the Common Stock.

Item 3.     Defaults Upon Senior Securities .

None.

Item 4.     Submission of Matters to a Vote of Security Holders .

None.

Item 5.     Other Information .

None.

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Item 6.     Exhibits .

*	Previously filed.

**	The schedules to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of any of the schedules to the Securities and Exchange Commission upon request.

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

†	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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