<PAGE>

<PAGE>
________________________________________________________________________________
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K
 

  (Mark One)     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      X          THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE FISCAL YEAR ENDED JANUARY 4, 1997
                 OR
 
      --         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934
 
                 FOR THE TRANSITION PERIOD FROM _________TO _______

 
                         COMMISSION FILE NUMBER: 1-4715
 
                         ------------------------------
                            THE WARNACO GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                                               <C>
                        DELAWARE                                                 95-4032739
            (STATE OR OTHER JURISDICTION OF                                   (I.R.S. EMPLOYER
             INCORPORATION OR ORGANIZATION)                                 IDENTIFICATION NO.)
 
                     90 PARK AVENUE                                                10016
                   NEW YORK, NEW YORK                                            (ZIP CODE)
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 661-1300
 
                         ------------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                     NAME OF EACH EXCHANGE
              TITLE OF EACH CLASS                     ON WHICH REGISTERED
------------------------------------------------    ------------------------
<S>                                                 <C>
Class A Common Stock, par value $0.01 per share     New York Stock Exchange
</TABLE>
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
 
                         ------------------------------
     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 [x]      No [ ]
 
     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's  knowledge,  in  definitive  proxy  or   information
statements  incorporated  by reference  in Part  III  of this  Form 10-K  or any
amendment to this Form 10-K. [x]
 
     The aggregate market  value of the  Class A Common  Stock, the only  voting
stock  of the registrant  issued and outstanding, held  by non-affiliates of the
registrant as of April 1, 1997, was approximately $1,465,789,000.
 
     The number of shares outstanding of  the registrant's Class A Common  Stock
as of April 1, 1997: 51,762,384.
 
     Documents  incorporated by reference: The definitive Proxy Statement of The
Warnaco Group,  Inc. relating  to the  1997 Annual  Meeting of  Stockholders  is
incorporated by reference in Part III hereof.
 
________________________________________________________________________________







<PAGE>

<PAGE>
                                     PART I
 
ITEM 1. BUSINESS.
 
  (A) GENERAL DEVELOPMENT OF BUSINESS.
 
     The  Warnaco  Group,  Inc.  (the 'Company'),  a  Delaware  corporation, was
organized in 1986 for the purpose of acquiring the outstanding shares of Warnaco
Inc. ('Warnaco'). As a result of  the Company's acquisition of Warnaco,  Warnaco
became   a  wholly-owned  subsidiary  of  the   Company.  The  Company  and  its
subsidiaries design, manufacture  and market  a broad line  of women's  intimate
apparel,  such  as  bras, panties  and  sleepwear,  and men's  apparel,  such as
sportswear, underwear and accessories, all of which are sold under a variety  of
internationally  recognized owned and licensed  brand names. During fiscal 1996,
the Company made  three strategic  acquisitions, GJM,  Lejaby and  Bodyslimmers,
designed to increase the breadth of the Company's product lines and increase the
worldwide  distribution of  the Company's products.  In March  1994, the Company
acquired the worldwide trademarks, rights and business of Calvin Klein'r'  men's
underwear  and licensed  the Calvin  Klein trademark  for men's  accessories. In
addition, the acquisition included the worldwide trademarks and rights of Calvin
Klein women's intimate apparel. The Company's growth strategy is to continue  to
capitalize  on its highly recognized brand  names worldwide while broadening its
channels of  distribution  and  improving manufacturing  efficiencies  and  cost
controls. The Company attributes the strength of its brand names to the quality,
fit  and design of its  products which have developed  a high degree of consumer
loyalty and  a  high  level  of repeat  business.  The  Company  operates  three
divisions,  Intimate Apparel, Menswear and Retail Outlet Stores, which accounted
for 75.4%, 20.2% and  4.4%, respectively, of net  revenues in fiscal 1996,  with
the  Intimate  Apparel  Division  accounting  for  a  larger  percentage  of the
Company's gross profit for the same period.
 
     The Intimate Apparel Division designs, manufactures and markets moderate to
premium priced intimate apparel for women under the Warner's'r', Olga'r', Calvin
Klein'r', Lejaby'r', Valentino Intimo'r', Van Raalte'r', White Stag'r', Fruit of
the Loom'r', Bodyslimmers'r',  Marilyn Monroe'r' and  Speedo'r' brand names.  In
addition,  the Intimate Apparel Division designs, manufactures and markets men's
underwear under the Calvin  Klein brand name. The  Intimate Apparel Division  is
the  leading marketer of women's bras to  department and specialty stores in the
United States, accounting for over 32.0% of such women's bra sales in 1996.  The
Warner's  and Olga brand names,  which are owned by the  Company, are 123 and 56
years old, respectively.
 
     The Intimate Apparel  Division's strategy  is to increase  its channels  of
distribution  and expand its highly recognized  brand names worldwide. In fiscal
1996, the Company  made three  strategic acquisitions designed  to increase  the
breadth  of the Company's product lines  and increase the worldwide distribution
of the Company's products. In February 1996, the Company purchased the GJM Group
of Companies ('GJM') from Cygne  Designs, Inc. GJM is  a private label maker  of
sleepwear  and  intimate  apparel.  The acquisition  provided  the  Company with
design,  marketing  and  manufacturing  expertise  in  the  sleepwear  business,
broadening  the Company's product line and contributing to the Company's base of
low  cost  manufacturing   capacity.  In  June   1996,  the  Company   purchased
Bodyslimmers.  Bodyslimmers  is  a  leading designer  and  manufacturer  of body
slimming undergarments targeted at aging baby boomers, which also increased  the
Company's  presence in a growing segment of the intimate apparel market. In July
1996, the Company  acquired the  Lejaby/Euralis Group  of Companies  ('Lejaby').
Lejaby  is a leading maker of intimate apparel in Europe. The Lejaby acquisition
increased the size of  the Company's operations in  Western Europe and  provides
the  Company with an opportunity  to expand the distribution  of its products in
the critical  European market.  In  December 1996,  the Company  introduced  its
Marilyn Monroe line of intimate apparel.
 
     In  1991, the Company  entered into a  license agreement with  Fruit of the
Loom, Inc. for the  design, manufacture and marketing  of moderate priced  bras,
daywear  and other related  items to be  distributed through mass merchandisers,
such as Wal-Mart and Kmart, under the Fruit of the Loom brand name and has built
its market share to  over 7.0% in  the mass merchandise market. This license was
renewed  by the  Company in 1994.  In late  1994, the Company  purchased the Van
Raalte trademark for $1.0 million and launched an  intimate apparel line through
Sears stores in July 1995.
 
                                       1
 






<PAGE>

<PAGE>
     The  Menswear Division designs, manufactures,  imports and markets moderate
to premium  priced  men's apparel  and  accessories  under the  Chaps  by  Ralph
Lauren'r',  Calvin Klein and Catalina'r' brand  names. Chaps by Ralph Lauren has
increased its net revenues by over 300% since 1991 from $39.0 million to  $170.7
million  in 1996, by  refocusing its products to  the age 25  to 50 consumer and
predominantly by using  natural fibers  in its  products. In  1995, the  Company
extended  its  Chaps by  Ralph  Lauren license  through  December 31,  2004. The
Menswear Division's  strategy is  to build  on  the strength  of its  owned  and
licensed  brand names  and eliminate  those businesses  which generate  a profit
contribution below the Company's required return. Consistent with this strategy,
the Company has eliminated several underperforming brands since 1992,  including
its Hathaway business, which was sold to a group of investors in November 1996.
 
     The  Company licenses certain  of its brand names  throughout the world and
has been expanding the activities of its wholly-owned operating subsidiaries  in
Canada,  Europe and  Mexico. International  operations, including  export sales,
generated $212.4 million,  or 20.0%,  of the  Company's net  revenues in  fiscal
1996,  compared to $135.5  million, or 14.8%,  of the Company's  net revenues in
fiscal 1995, due primarily to the acquisition of Lejaby in July 1996.
 
     The Company's business strategy  with respect to  its Retail Outlet  Stores
Division  is to  provide a  channel for  disposing of  the Company's  excess and
irregular inventory, thereby limiting its exposure to off-price retailers and to
shift to more  profitable intimate apparel  stores to improve  its margins.  The
Company  had 73 stores at the end of fiscal 1996 (including two stores in Canada
and seven stores in the United Kingdom)  compared to 61 stores and 54 stores  at
the end of fiscal 1995 and fiscal 1994, respectively.
 
     The  Company's products are distributed  to over 16,000 customers operating
more than 26,000  department, specialty and  mass merchandise stores,  including
such  leading retailers in the United  States as Dayton-Hudson, Macy's and other
units of Federated Department  Stores, J.C. Penney,  Victoria's Secret, The  May
Department  Stores,  Sears, Kmart  and Wal-Mart  and  such leading  retailers in
Canada as The Hudson Bay Company  and Zeller's. The Company's products are  also
distributed  to such  leading European  retailers as  Marks &  Spencer, House of
Fraser, British Home Stores, Harrods,  Galeries Lafayette and Au Printemps.  The
Company  has  a joint  venture with  News  Corp. Limited  to further  expand its
channels of  distribution and  market the  products of  the Company  and  others
directly  to  consumers  in  Asia  and the  Middle  East  through  the Satellite
Television Asian Region Network ('STAR').
 
  (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
 
     The Company  operates  within one  industry  segment, the  manufacture  and
distribution  of  apparel.  No  customer  accounted for  10.0%  or  more  of the
Company's net revenues in the  three years ended in fiscal  1996. See Note 7  of
Notes to Consolidated Financial Statements on pages F-1 to F-24.
 
  (C) NARRATIVE DESCRIPTION OF BUSINESS.
 
     The  Company  designs, manufactures  and markets  a  broad line  of women's
intimate apparel, and  men's apparel  and accessories  sold under  a variety  of
internationally  recognized brand  names owned or  licensed by  the Company. The
Company operates three divisions, Intimate  Apparel, Menswear and Retail  Outlet
Stores, which accounted for 75.4%, 20.2% and 4.4%, respectively, of net revenues
in fiscal 1996.
 
INTIMATE APPAREL
 
     The  Company's Intimate Apparel Division  designs, manufactures and markets
women's intimate apparel, which includes  bras, panties, sleepwear and  daywear.
The  Company also designs and markets  men's underwear. The Company's bra brands
accounted for over  32.0% of  women's bra  sales in  the 1996  calendar year  in
department  and specialty stores in the  United States. Management considers the
Intimate Apparel  Division's  primary  strengths to  include  its  strong  brand
recognition,  product quality and design innovation, low cost production, strong
relationships with department and  specialty stores and  its ability to  deliver
its  merchandise  rapidly.  Building on  the  strength  of its  brand  names and
 
                                       2
 






<PAGE>

<PAGE>
reputation for  quality,  the  Company has  historically  focused  its  intimate
apparel  products  on the  upper moderate  to  premium priced  range distributed
through leading department and specialty stores.  In order to expand its  market
penetration  in recent years,  the Company (i) entered  into a license agreement
with Fruit of the  Loom, Inc., and  in June 1992,  began to distribute  moderate
priced  bras, daywear  and other related  items under this  license through mass
merchandise stores,  (ii)  in March  1994,  acquired the  worldwide  trademarks,
rights  and  businesses  of  Calvin  Klein  men's  underwear  and  the worldwide
trademarks, rights and businesses of Calvin Klein women's intimate apparel  upon
the  expiration of an existing license on December 31, 1994, (iii) in late 1994,
purchased the  Van Raalte  trademark for  $1 million  and launched  an  intimate
apparel  line through Sears stores  in July 1995, (iv)  in June 1995, entered an
agreement to  manufacture and  distribute intimate  apparel products  under  the
Speedo  brand  name, (v)  in February  1996, acquired  substantially all  of the
assets of GJM, a private label  manufacturer of women's sleepwear and  lingerie,
(vi)  in fiscal 1996, acquired the stock  and assets of the Lejaby/Euralis Group
of Companies, a leading European manufacturer and marketer of intimate  apparel,
(vii)  in June 1996, acquired  the business of Bodyslimmers,  a marketer of body
slimming undergarments targeted at  aging baby boomers,  and (viii) in  December
1996, launched the Marilyn Monroe brand of intimate apparel and sleepwear.
 
     The  intimate apparel division markets its  lines under the following brand
names:
 
<TABLE>
<CAPTION>
            BRAND NAME                           PRICE RANGE                        TYPE OF APPAREL
-----------------------------------  -----------------------------------   ---------------------------------
 
<S>                                  <C>                                   <C>
Warner's...........................       upper moderate to better                 intimate apparel
Olga...............................                better                          intimate apparel
Lejaby(1)..........................           better to premium                    intimate apparel
Bodyslimmers(1)....................           better to premium                    intimate apparel
Valentino Intimo...................                premium                         intimate apparel
Calvin Klein.......................           better to premium            intimate apparel/men's underwear
Van Raalte.........................               moderate                         intimate apparel
Fruit of the Loom..................               moderate                         intimate apparel
White Stag.........................               moderate                         intimate apparel
Speedo sports bras.................                better                          intimate apparel
Marilyn Monroe(2)..................       upper moderate to better                 intimate apparel
</TABLE>
 
------------------
 
(1) Business acquired in fiscal 1996.
 
(2) New product line introduced in December 1996.
 
                            ------------------------
 
     The Company owns the Warner's,  Olga, Calvin Klein (underwear and  intimate
apparel),  Lejaby, Bodyslimmers and  Van Raalte brand  names and trademarks. The
Company has exclusive licenses  in perpetuity for the  White Stag trademark  for
women's  sportswear and  intimate apparel and  the Speedo  trademark for women's
sports bras. The Company licenses the  other brand names under which it  markets
its   product  lines,  primarily  on  an   exclusive  basis.  The  Company  also
manufactures intimate apparel on a private and exclusive label basis for certain
leading  specialty  and  department  stores.  The  Intimate  Apparel  Division's
revenues  are primarily generated  by sales of the  Company's owned brand names.
The Warner's brand is 123 years old and the Olga brand is 56 years old.
 
     In August 1991,  the Company  entered into an  exclusive license  agreement
with  Fruit  of the  Loom, Inc.  for  the design,  manufacture and  marketing of
moderate priced bras which are  distributed through mass merchandisers, such  as
Wal-Mart  and  Kmart,  under the  Fruit  of  the Loom  brand  name.  The license
agreement has since been  extended to include daywear,  full slips, half  slips,
culottes  and petticoats as well as  coordinated fashion sets (bras and panties)
and certain control bottoms and sleepwear.  The Company began shipping Fruit  of
the  Loom products in June  1992 and has built its  current market share to over
7.0% in the mass merchandise market. The agreement with Fruit of the Loom,  Inc.
has  allowed the Company to enter the  mass merchandise market, which is growing
faster than the department and specialty store market.
 
     In March 1994, the  Company acquired the  worldwide trademarks, rights  and
business  of Calvin  Klein men's underwear,  and effective January  1, 1995, the
worldwide trademark and rights for Calvin
 
                                       3
 






<PAGE>

<PAGE>
Klein women's  intimate  apparel. The  purchase  price was  approximately  $60.9
million  and consisted of  cash payments of  $33.1 million in  fiscal 1994, $5.0
million in fiscal  1995 and the  issuance of 1,699,492  shares of the  Company's
Common  Stock valued at fair market value ($22.8 million) for such shares. Since
that time the Company has acquired the business of several of its  international
licensees  and distributors of Calvin  Klein products including Canada, Germany,
Italy, Portugal and Spain.  In addition, the Company  entered into an  exclusive
license agreement to produce men's accessories and small leather goods under the
Calvin  Klein label. The growth potential of the Calvin Klein brand is evidenced
in the  Company's financial  results for  fiscal 1996.  The Calvin  Klein  brand
accounted  for net  revenues of  $255.4 million in  fiscal 1996,  an increase of
56.1% over the $163.6 million recorded  in fiscal 1995. If current sales  trends
continue,  and  the Company's  objectives for  the Calvin  Klein brand  are met,
revenues for that brand could reach $500 million within the next three years.
 
     In fiscal 1996, the Company  made three strategic acquisitions designed  to
increase  the breadth of the Company's product lines and expand the distribution
of its products. In February 1996, the  Company purchased GJM. GJM is a  private
label  maker of  sleepwear and  intimate apparel.  The acquisition  provided the
Company with  design, marketing  and manufacturing  expertise in  the  sleepwear
business,  broadening  the  Company's  product  line  and  contributing  to  the
Company's base of  low cost manufacturing  capacity. In June  1996, the  Company
purchased  Bodyslimmers, a  leading designer  and manufacturer  of body slimming
undergarments targeted  at  aging baby  boomers.  The purchase  of  Bodyslimmers
increased  the Company's presence  in a growing segment  of the intimate apparel
market. In July 1996, the Company acquired Lejaby. Lejaby is a leading maker  of
intimate  apparel in  Europe. The Lejaby  acquisition increased the  size of the
Company's operations  in  Western  Europe  and  provides  the  Company  with  an
opportunity  to expand the distribution of its products, including Calvin Klein,
in the critical European market.
 
     In December  1996,  the  Company  introduced its  Marilyn  Monroe  line  of
intimate apparel designed to expand the Company's product offerings.
 
     The  Company attributes the strength of its  brands to the quality, fit and
design of its intimate  apparel, which has developed  a high degree of  customer
loyalty  and a high level  of repeat business. The  Company believes that it has
maintained its leadership  position, in  part, through  product innovation  with
accomplishments  such as introducing the alphabet bra (A, B, C and D cup sizes),
the first  all-stretch  bra, the  body  stocking, the  use  of two  way  stretch
fabrics, seamless molded cups for smooth look bras, the cotton-Lycra bra and the
sports  bra.  The  Company  also  introduced  the  use  of  hangers  and certain
point-of-sale hang tags for  in-store display of bras,  which was a  significant
change  from marketing bras in boxes, and  enabled women, for the first time, to
see the product  in the  store. The  Company's product  innovations have  become
standards in the industry.
 
     The  Company believes  that a  shift in  consumer attitudes  is stimulating
growth in  the  intimate  apparel industry.  Women  increasingly  view  intimate
apparel  as a  fashion-oriented purchase  rather than as  a purchase  of a basic
necessity. The  shift has  been  driven by  the  expansion of  intimate  apparel
specialty  stores and  catalogs, such as  Victoria's Secret, and  an increase in
space allocated to intimate apparel  by department stores. The Company  believes
that it is well-positioned to benefit from increased demand for intimate apparel
due  to its reputation for forward-looking  design, quality, fit and fashion and
to the breadth of its  product lines at a range  of price points. Over the  past
five  years,  the Company  has further  improved its  position by  obtaining the
licenses to produce  intimate apparel  under the  Valentino Intimo  name in  the
premium  end of the market and the Marilyn  Monroe name in the better end of the
market and by continuing to introduce  new products under the Warner's and  Olga
brands  in the better end of the market,  by obtaining the license from Fruit of
the Loom, Inc. to  produce bras, daywear and  other related items, by  producing
White Stag bras for the mass merchandise segment of the market, by acquiring the
Calvin  Klein trademarks for premium priced  women's intimate apparel and better
priced men's underwear, by purchasing  the Van Raalte trademark and  introducing
an  intimate apparel  line through  Sears stores  in July  1995, by  entering an
agreement to  manufacture and  distribute intimate  apparel products  under  the
Speedo  brand name and by making  strategic acquisitions to expand product lines
and distribution channels  such as  the GJM  acquisition in  February 1996,  the
Lejaby acquisition in fiscal 1996, the Bodyslimmers acquisition in June 1996 and
by introducing the Marilyn Monroe line in the better end of the intimate apparel
market in December 1996. The Company has
 
                                       4
 






<PAGE>

<PAGE>
further improved its position by continuing to strengthen its relationships with
its department store, specialty store and mass merchandise customers.
 
     The Intimate Apparel Division's net revenues have increased at a compounded
annual growth rate of 18.7% since 1991, to $802.0 million in fiscal 1996, as the
Company  has increased its penetration with existing accounts, expanded sales to
new customers such as Van Raalte to Sears and sales of Fruit of the Loom to mass
merchandisers such as  Wal-Mart and  Kmart and  broadened its  product lines  to
include  men's underwear.  The Intimate  Apparel Division  has reduced operating
expenses as a  percentage of net  revenue by narrowing  its product  assortment,
controlling   selling,  administrative   and  general   expenses  and  improving
manufacturing efficiency. The Company believes that it is one of the lowest-cost
producers of  intimate apparel  in the  United States,  producing  approximately
eight million dozen garments per year.
 
     The  Company's  bras are  sold primarily  in  the department  and specialty
stores that  have been  the  Company's traditional  customer base  for  intimate
apparel.  In June 1992, the Company expanded into a new channel of distribution,
mass merchandisers, with  its Fruit  of the Loom  product line,  which offers  a
range  of styles  designed to  meet the  needs of  the consumer  profile of this
market. The Company also sees opportunities for continued growth in the Intimate
Apparel Division for bras specifically designed for the 'full figure' market, as
well as in  its panty and  daywear product lines,  and acquired Bodyslimmers  in
June 1996 to provide important brand name recognition in this growing segment of
the intimate apparel market.
 
     The  Intimate Apparel  Division has  subsidiaries in  Canada and  Mexico in
North America and in the United Kingdom, France, Belgium, Ireland, Spain, Italy,
Austria, Switzerland and Germany  in Europe and in  the Philippines, Sri  Lanka,
the  People's  Republic of  China  and Hong  Kong  in Asia.  International sales
accounted for  approximately  25.4%  of  the  Intimate  Apparel  Division's  net
revenues  in  fiscal 1996  compared to  18.4%  in fiscal  1995. The  increase in
international net  revenues  is primarily  attributable  to the  acquisition  of
Lejaby  in July 1996. The Company has  acquired the businesses of several former
distributors and licensees of its Calvin  Klein products in the past two  years,
including  those in  Canada, Germany, Italy,  Portugal and  Spain. The Company's
objective in acquiring its  former licensees and distributors  is to expand  its
business  in foreign  markets through  a coordinated  set of  product offerings,
marketing and pricing  strategies and  by consolidating  distribution to  obtain
economies  of scale. Net revenues attributable to the international divisions of
the Intimate  Apparel Division  were $84.1  million, $126.7  million and  $204.1
million  in fiscal  years 1994, 1995  and 1996,  respectively. International net
revenues for  the fiscal  1997 are  expected to  increase substantially  as  the
Company  will record  revenues from  Lejaby and  several of  the acquired Calvin
Klein licensees for the full fiscal  year. Management's strategy is to  increase
its   market  penetration  in   Europe  and  to   open  additional  channels  of
distribution. In 1994, the Company entered into a joint venture with News  Corp.
Limited to market, on an exclusive basis, the products of the Company and others
over  the  STAR network,  serving Asia  and  the Middle  East. The  STAR network
reaches over 60  million households  in 53 countries  in an  area that  includes
two-thirds  of the world's population. Initial  shipments of merchandise to STAR
were made in the fourth quarter of fiscal 1995.
 
     The Company's intimate apparel products are manufactured principally in the
Company's facilities in North America, Central America, the Caribbean Basin, the
United Kingdom, France, Ireland, Morocco  (joint venture), the Phillipines,  Sri
Lanka  and the People's Republic of China. Over the last three years the Company
has opened five new  manufacturing facilities in  response to increased  demand.
Certain  direct  and  incremental  plant  start-up  costs  associated  with  the
establishment of new manufacturing facilities in countries where special efforts
are needed to recruit and train entire work forces are capitalized and amortized
over five  years.  Capitalized  costs represent  direct  and  incremental  costs
associated   with  the  new  facility  and   include  site  selection  and  site
development, worker  training costs,  rent and  other operating  costs  incurred
prior  to achieving full production in the facility. This amortization, together
with the initial inefficiencies associated with the new facilities, resulted  in
a  lower gross  profit margin  (gross profit  as a  percentage of  net revenues)
during the 1993 and 1994 fiscal years. The Company has achieved a portion of the
expected future benefits associated with these plants in fiscal 1995 and  fiscal
1996  with Intimate  Apparel Division gross  profit margin  increasing 150 basis
points since fiscal 1994. See Management's Discussion and Analysis of  Financial
Condition and Results of
 
                                       5
 






<PAGE>

<PAGE>
Operations on pages 14 to 21. The Company believes it will be approximately five
years   before  new   facilities  achieve  the   manufacturing  efficiencies  of
established plants.
 
     Although the Intimate Apparel Division generally markets its product  lines
for  three  retail selling  seasons (spring,  fall and  holiday), its  sales and
revenues are  somewhat seasonal.  Approximately 60.0%  of the  Intimate  Apparel
Division's  net revenues and  operating income were  generated during the second
half of the 1996 fiscal year.
 
MENSWEAR
 
     The Menswear Division designs,  manufactures, imports and markets  moderate
to  better priced  sportswear, better  to premium  priced men's  accessories and
moderate to better priced  dress shirts and  neckwear. Management considers  the
Menswear  Division's primary strengths to  include its strong brand recognition,
product quality,  reputation  for  fashion styling,  strong  relationships  with
department  and specialty stores and its ability to deliver merchandise rapidly.
In November  1996, the  Company sold  its underperforming  men's Hathaway  dress
shirt business to an investor group. In fiscal 1996, the Company recorded losses
associated  with exiting the  Hathaway business of  approximately $46.0 million,
consisting of  operating losses  incurred prior  to the  disposition and  losses
related to the write-down of the Hathaway assets, including intangible assets.
 
     The Menswear Division markets its lines under the following brand names:
 
<TABLE>
<CAPTION>
             BRAND NAME                           PRICE RANGE                         TYPE OF APPAREL
------------------------------------  ------------------------------------   ---------------------------------
 
<S>                                   <C>                                    <C>
Calvin Klein........................             better/premium              men's underwear (a) and
                                                                               accessories
Chaps by Ralph Lauren...............             upper moderate              dress shirts, neckwear, knit and
                                                                               woven sportshirts, sweaters,
                                                                               sportswear and bottoms
Catalina............................                moderate                 men's and women's sportswear and
                                                                               dress shirts and furnishings
</TABLE>
 
------------------
 
(a) See Intimate Apparel Division.
 
                            ------------------------
 
     The  Chaps by  Ralph Lauren,  Catalina and  Calvin Klein  accessories brand
names are licensed on an exclusive basis by the Company.
 
     The Menswear Division's strategy is to  build on the strength of its  brand
names,  strengthen its position as a  global apparel company and eliminate those
businesses which generate  a profit  contribution below  the Company's  required
return.  Since 1993, to improve profitability  in this division, the Company (i)
discontinued its  manufactured dress  shirt, neckwear  and accessories  business
segment under the Christian Dior'r' label, (ii) sold the Puritan'r' label in the
United  States to Wal-Mart in December 1993, (iii) did not renew its Golden Bear
by Jack  Nicklaus'r' license,  which expired  in June  1994, and  (iv) sold  its
Hathaway dress shirt business in November 1996.
 
     Despite  the strategic decision to discontinue approximately $140.0 million
of annualized net  revenues in underperforming  brands, the Menswear  Division's
net revenues have increased from $180.8 million in fiscal 1991 to $214.4 million
in  fiscal 1996. The reduction in net revenues from discontinued brands has been
offset by the success of the Chaps by Ralph Lauren brand which has increased its
net revenues by over 300% since fiscal 1991 to $170.7 million in fiscal 1996.
 
     Sportswear. In 1989,  the Company  began repositioning its  Chaps by  Ralph
Lauren  product lines by changing to the  use of all natural fibers and updating
its styling, which has generated significant net revenue increases, as mentioned
above. The  Company sold,  for $7.7  million, its  Puritan label  in the  United
States  to  Wal-Mart  in 1993,  due  to  the difficult  price  points  for men's
sportswear in the  mass merchandise market.  During 1992 and  1994, the  Company
sold  or terminated its licenses for  Christian Dior sportswear, neckwear, dress
shirts and accessories. In addition, the  Company did not renew its Golden  Bear
by  Jack  Nicklaus license  which expired  in  June 1994.  In 1993,  the Company
entered into a
 
                                       6
 






<PAGE>

<PAGE>
license agreement to design men's and women's sportswear and men's dress  shirts
and  furnishings bearing the  Catalina trademark. Catalina  products are sold to
the mass merchandise segment of  the market. The Company recorded  approximately
$1.5 million of royalty income associated with Catalina products in fiscal 1996.
 
     Accessories. The Menswear Division markets men's small leather goods, men's
jewelry  and  belts and  soft side  luggage  under the  Calvin Klein  brand name
pursuant to a worldwide license. The first shipments of Calvin Klein accessories
were made in the third  quarter of fiscal 1995  to United States customers.  The
line has already grown significantly, accounting for approximately $11.1 million
of net revenues in fiscal 1996. Management believes that one of the strengths of
its  accessories lines is  the high level  of international consumer recognition
associated with the Calvin Klein label. The Company's strategy is to expand  the
accessories business, which has consistently generated higher margins than other
menswear products.
 
     International sales accounted for approximately 4.0% of net revenues of the
Menswear  Division in  fiscal l996.  Net revenues  attributable to international
operations of the Menswear  Division were $10.2 million,  $8.8 million and  $8.3
million  in  fiscal years  l994, 1995  and 1996,  respectively. The  decrease in
international sales over the last  three years reflects the Company's  strategic
decision  to terminate the Christian Dior licenses, as previously mentioned. The
Company expects to generate  future revenue from  international sales of  Calvin
Klein accessories.
 
     The  Menswear Division's sportswear, consisting of knit shirts and sweaters
and other  apparel, is  sourced  principally from  the  Far East.  The  Menswear
Division  sources  dress shirts  in the  Far  East and  in the  Caribbean Basin.
Accessories are sourced in the United States, Europe and the Far East.  Neckwear
is sourced primarily in the United States.
 
     The  Menswear Division, similar to the Intimate Apparel Division, generally
markets its apparel products for three retail selling seasons (spring, fall  and
holiday).  The Menswear Division introduces new styles, fabrics and colors based
upon consumer preferences, market  trends and to  coincide with the  appropriate
retail selling season. The sales of the Menswear Division's product lines follow
individual  seasonal shipping patterns ranging from one season to three seasons,
with multiple releases in  some of the  division's more fashion-oriented  lines.
Consistent  with industry and  consumer buying patterns,  approximately 59.0% of
the Menswear  Division's  net revenues  and  62.0% of  the  Menswear  Division's
operating  profit  are  generated  in  the second  half  of  the  calendar year,
reflecting the strength of the fall and holiday shopping seasons.
 
RETAIL OUTLET STORES DIVISION
 
     The Retail Outlet Stores Division primarily sells the Company's products to
the general public. The Company's business  strategy with respect to its  retail
outlet  stores is to provide a channel for disposing of the Company's excess and
irregular inventory, thereby limiting its  exposure to off-price retailers.  The
Company's retail outlet stores are situated in areas where they generally do not
conflict  with the Company's principal channels of distribution. The Company has
found that it has improved margins  by operating retail outlet stores that  sell
products  of only one of the Company's  divisions, and has converted most of its
outlets to the exclusive  sale of intimate apparel.  The Company's newer  retail
outlet stores are principally intimate apparel stores located in outlet shopping
malls.  EBITDA for  the Retail  Outlet Stores  Division in  fiscal 1996 improved
82.0% over fiscal  1995 to  $6.2 million.  As of  January 4,  1997, the  Company
operated  73 stores, of which  67 carried intimate apparel  only and six carried
both intimate apparel and menswear.
 
INTERNATIONAL OPERATIONS
 
     The Company has subsidiaries in Canada  and Mexico in North America and  in
the United Kingdom, France, Belgium, Ireland, Spain, Italy, Austria, Switzerland
and  Germany  in  Europe, which  engage  in sales,  manufacturing  and marketing
activities. The  results of  the  Company's operations  in these  countries  are
influenced  by  the  movement  of  foreign  currency  exchange  rates.  With the
exception of the fluctuation in the rates of exchange of the local currencies in
which these subsidiaries conduct  their business, the  Company does not  believe
that the operations in Canada and Western Europe are
 
                                       7
 






<PAGE>

<PAGE>
subject  to risks which are significantly different from those to which domestic
operations are subjected. Mexico has historically been subject to high rates  of
inflation  and currency  restrictions which may,  from time to  time, impact the
Mexican operation. The Company also sells  directly to customers in Mexico.  Net
revenues  from these  shipments represent  less than  1.0% of  the Company's net
revenues.
 
     The Company maintains manufacturing  facilities in Mexico, Honduras,  Costa
Rica,  the  Dominican Republic,  Canada,  Ireland, the  United  Kingdom, France,
Morocco (joint  venture), Sri  Lanka, the  People's Republic  of China  and  the
Philippines. The Company maintains warehousing facilities in Canada, Mexico, the
United  Kingdom, Spain, Belgium, Italy, Austria, Switzerland, France and Germany
and contracts for warehousing in the Netherlands. The Intimate Apparel  Division
operates  manufacturing facilities in Mexico and in the Caribbean Basin pursuant
to duty-advantaged (commonly referred to as 'Item 807') programs. The  Company's
manufacturing  policy is to have many potential sources of manufacturing so that
a disruption of production at any one facility will not significantly impact the
Company.
 
     The majority of the Company's purchases which are imported into the  United
States  are invoiced in United States dollars and, therefore, are not subject to
currency fluctuations.
 
SALES AND MARKETING
 
     The Intimate Apparel and Menswear  Divisions sell to over 16,000  customers
operating  more than 26,000  department, mass merchandise  and men's and women's
specialty stores  throughout North  America and  Europe. None  of the  Company's
customers accounted for more than 10.0% of the Company's net revenues during any
of the three years in the period ended January 4, 1997.
 
     The  Company's  retail  customers  are served  by  approximately  300 sales
representatives. The Company also employs  marketing coordinators who work  with
the  Company's  customers  in  designing  in-store  displays  and  planning  the
placement  of  merchandise.   The  Company  has   implemented  Electronic   Data
Interchange  (commonly referred to as 'EDI') programs with most of its retailing
customers which permit  the Company  to receive  purchase orders  electronically
from  these customers and,  in some cases,  to transmit invoices electronically.
These innovations  assist the  Company in  getting products  to customers  on  a
timely basis.
 
     The  Company utilizes various  forms of advertising  media. In fiscal l996,
the Company spent  approximately $59.5  million, or  5.6%, of  net revenues  for
advertising  and promotion of its various  product lines. This compares to $41.0
million, or 4.5%, of net  revenues in fiscal 1995.  The statement of income  for
fiscal  1995  includes  a  special  charge  for  advertising  costs,  previously
deferrable, of $11.7  million ($7.3 million  after giving effect  to income  tax
benefits  of  $4.4 million)  related  to the  change  in accounting  for certain
advertising costs in  accordance with  Statement of Position  93-7 ('SOP  93-7')
issued  by the American  Institute of Certified  Public Accountants ('AICPA') in
December 1993, for years beginning after July 1994. The increase in  advertising
costs  in fiscal 1996, compared to fiscal 1995, reflects the Company's desire to
maintain its  strong market  position in  Calvin Klein  underwear and  Warner's,
Olga,  and  Fruit of  the  Loom intimate  apparel.  The Company  participates in
advertising on a cooperative basis with retailers, principally through newspaper
advertisements.
 
COMPETITION
 
     The apparel  industry  is  highly competitive.  The  Company's  competitors
include apparel manufacturers of all sizes, some of which have greater resources
than the Company.
 
     The  Company  also  competes with  foreign  producers, but,  to  date, such
foreign competition has not materially affected the Intimate Apparel or Menswear
Divisions. In addition to competition from other branded apparel  manufacturers,
the  Company competes  in certain  product lines  with department  store private
label programs. The Company believes that its manufacturing skills, coupled with
its existing Central American and  Caribbean Basin manufacturing facilities  and
selective  use  of off-shore  sourcing, enable  the Company  to maintain  a cost
structure competitive with other major apparel manufacturers.
 
                                       8
 






<PAGE>

<PAGE>
     The Company  believes  that  it has  a  significant  competitive  advantage
because  of high consumer  recognition and acceptance of  its owned and licensed
brand names  and  its strong  presence  and strong  market  share in  the  major
department, specialty and mass merchandise store chains.
 
     A  substantial  portion of  the Company's  sales are  of products,  such as
intimate apparel and  men's underwear, that  are not very  susceptible to  rapid
design  changes.  This  relatively  stable base  of  business  is  a significant
contributing factor to the Company's favorable competitive and cost position  in
the apparel industry.
 
RAW MATERIALS
 
     The  Company's raw materials are  principally cotton, wool, silk, synthetic
and cotton-synthetic blends  of fabrics  and yarns.  Raw materials  used by  the
Intimate Apparel and Menswear Division are available from multiple sources.
 
IMPORT QUOTAS
 
     Substantially  all of the Company's Menswear Division's sportswear products
are manufactured  by  contractors  located  outside  the  United  States.  These
products  are imported  and are  subject to  federal customs  laws, which impose
tariffs as well as  import quota restrictions established  by the Department  of
Commerce.  While importation of  goods from certain countries  may be subject to
embargo by United States Customs  authorities if shipments exceed quota  limits,
the  Company closely monitors import quotas  through its Washington, D.C. office
and can, in  most cases, shift  production to contractors  located in  countries
with  available quotas or to domestic manufacturing facilities. The existence of
import quotas  has,  therefore, not  had  a  material effect  on  the  Company's
business.  Substantially  all  of  the  Company's  Intimate  Apparel  Division's
products are manufactured  in the  Company's facilities located  in Mexico,  the
Caribbean Basin, Europe and Asia. The Company's policy is to have many potential
manufacturing  sources so  that a disruption  of production at  any one facility
will not significantly impact the Company.
 
EMPLOYEES
 
     The Company  and its  subsidiaries employ  approximately 17,323  employees.
Approximately  27.0% of the Company's employees, all  of whom are engaged in the
manufacture and distribution of its  products, are represented by labor  unions.
The  Company considers labor relations with employees to be satisfactory and has
not experienced  any significant  interruption of  its operations  due to  labor
disagreements.
 
TRADEMARKS AND LICENSING AGREEMENTS
 
     The  Company has license agreements permitting it to manufacture and market
specific products  using  the  trademarks of  others.  The  Company's  exclusive
license  and design agreements for the Chaps by Ralph Lauren trademark expire on
December 31, 2004. These  licenses grant the Company  an exclusive right to  use
the  Chaps by Ralph Lauren trademark in the United States. The Company's license
to use the Valentino Intimo trademark for intimate apparel in the United States,
its territories and possessions, Puerto Rico and Canada, expires on December 31,
2002, and  is extendable  subject to  the mutual  agreement of  the parties.  In
October  1995,  the  Company  entered  into  a  worldwide  licensing arrangement
granting the Company  exclusive, worldwide  rights to use  the Valentino  Intimo
trademark  for  intimate apparel  for a  period  coterminous with  the Company's
United States license, through December 31, 2002, subject to extension by mutual
agreement of  the  parties. The  Company  has negotiated  an  exclusive  license
agreement  to  use the  Fruit  of the  Loom trademark  in  the United  States of
America, its territories and possessions, Canada and Mexico through December 31,
1998.
 
     The Company's  exclusive  license  agreement with  Calvin  Klein,  Inc.  to
produce  Calvin Klein men's  accessories is for  a period of  five years through
March 14, 1999 and is renewable for  a five year period through March 14,  2004,
solely  at  the option  of the  Company.  The Company  has entered  into license
agreements with  Authentic Fitness  Corporation to  produce and  sell men's  and
women's sportswear and
 
                                       9
 






<PAGE>

<PAGE>
men's dress shirts and furnishings under the Catalina label and certain intimate
apparel  under  the Speedo  label. The  Company's exclusive  license to  use the
Catalina trademark for these products worldwide expires in December 2003 and the
Company's exclusive license to use the Speedo name for intimate apparel products
continues in perpetuity.
 
     The Company is the  exclusive worldwide licensee of  the Estate of  Marilyn
Monroe  for use  of the  name, voice,  image and  likeness of  Marilyn Monroe on
men's, boys',  women's and  girls' underwear,  sleepwear, bodywear  and  certain
activewear products, for a five year period expiring December 31, 2000, with two
sucessive  five year renewal periods through  December 31, 2005 and December 31,
2010, respectively,  each at  the  Company's option.  Under a  separate  license
arrangement  with Twentieth Century Fox Licensing and Merchandising, the Company
has been  granted the  right to  use artwork,  film titles,  and other  creative
elements  of films  owned or  controlled by Fox,  Inc., in  which Marilyn Monroe
appeared, on and in connection with  the products produced by the Company  under
its  license  agreement  with  the  Estate  of  Marilyn  Monroe,  for  a  period
coterminous with that license agreement,  including subsequent renewals of  that
agreement.
 
     Although  the specific  terms of each  of the  Company's license agreements
vary, generally  such agreements  provide for  minimum royalty  payments  and/or
royalty  payments based  on a percentage  of net sales.  Such license agreements
also generally grant the licensor the  right to approve any designs marketed  by
the licensee.
 
     The  Company  owns  other  trademarks,  the  most  important  of  which are
Warner's, Olga, Calvin Klein men's underwear and sleepwear, Calvin Klein women's
intimate apparel and sleepwear, Van Raalte, Lejaby, Rasurel'r' and Bodyslimmers.
The Company has a  license in perpetuity for  White Stag women's sportswear  and
intimate apparel as well as Speedo sports bras.
 
     The  Company licenses the  Warner's, White Stag,  Catalina and Calvin Klein
brand names to domestic and international  licensees for a variety of  products.
These agreements generally require the licensee to pay royalties and fees to the
Company based on a percentage of the licensee's net sales. The Company regularly
monitors  product design, development, quality,  merchandising and marketing and
schedules meetings throughout the year with licensees to assure compliance  with
the  Company's overall  marketing, merchandising  and design  strategies, and to
ensure uniformity  and  quality  control.  The Company,  on  an  ongoing  basis,
evaluates  entering  into license  agreements  with other  companies  that would
permit such  companies  to  market  products under  the  Warner's,  White  Stag,
Catalina,  Calvin  Klein  and  other  trademarks.  Generally,  in  evaluating  a
potential licensee, the Company  considers the experience, financial  stability,
manufacturing  performance  and  marketing  ability  of  the  proposed licensee.
Royalty income  derived  from such  licensing  was approximately  $11.5  million
(including  the sale of certain trademarks  to Authentic Fitness Corporation for
$6.6 million), $10.8 million  and $10.3 million in  fiscal years 1994, 1995  and
1996, respectively.
 
     The Company believes that only the trademarks mentioned herein are material
to the business of the Company.
 
BACKLOG
 
     A  substantial portion  of net  revenues is  based on  orders for immediate
delivery and, therefore,  backlog is  not necessarily indicative  of future  net
revenues.
 
  (D)  FINANCIAL INFORMATION  ABOUT FOREIGN  AND DOMESTIC  OPERATIONS AND EXPORT
SALES.
 
     The information required by this portion  of Item 1 is incorporated  herein
by  reference to Note 7  of Notes to Consolidated  Financial Statements on pages
F-1 to F-24.
 
ITEM 2. PROPERTIES.
 
     The principal  executive offices  of the  Company are  located at  90  Park
Avenue,  New York,  New York  10016 and  are occupied  pursuant to  a lease that
expires in 2004. In addition to its executive offices,
 
                                       10
 






<PAGE>

<PAGE>
the Company leases  offices in  Connecticut and California,  pursuant to  leases
that expire in 1999 and 2000, respectively.
 
     The  Company  has  four  domestic  manufacturing  and  warehouse facilities
located in Connecticut, Georgia, Pennsylvania and Tennessee and 29 international
manufacturing and  warehouse  facilities  located in  Canada,  Costa  Rica,  the
Dominican  Republic, France, Germany, Honduras, Mexico, the People's Republic of
China, the  Philippines,  Sri Lanka,  the  United Kingdom,  Ireland  and  Spain.
Certain  of the Company's  manufacturing and warehouse  facilities are also used
for administrative and retail functions. The  Company owns four of its  domestic
and  three of  its international facilities.  The balance of  the facilities are
leased. Lease terms, except for four month-to-month leases, expire from 1997  to
2011.  No  facility is  underutilized, except  for  three facilities  located in
Sylvania, Georgia, Barbourville, Kentucky and Dothan, Alabama, each of which has
discontinued operations and which the Company has listed for sale.
 
     The Company leases  sales offices in  a number of  major cities,  including
Dallas  and New  York in  the United  States; Brussels,  Belgium; Dusseldorf and
Frankfurt, Germany;  Toronto,  Canada;  Madrid,  Spain;  Lausanne,  Switzerland;
Vienna,  Austria; Milan, Italy;  Paris, France; and Hong  Kong. The sales office
leases expire between 1997 and 2009 and are generally renewable at the Company's
option. The  Company also  occupies  offices in  London,  England subject  to  a
freehold  lease which expires in 2114. The Company leases 73 retail outlet store
locations. Outlet store  leases, except  for two  month-to-month leases,  expire
from 1997 to 2007 and are generally renewable at the Company's option.
 
     All  of the  Company's production and  warehouse facilities  are located in
appropriately designed  buildings,  which are  kept  in good  repair.  All  such
facilities  have  well maintained  equipment and  sufficient capacity  to handle
present volumes. The Company has expanded its production capacity in Mexico  and
the Caribbean Basin during the last three years.
 
ITEM 3. LEGAL PROCEEDINGS.
 
     The Company is not a party to any litigation, other than routine litigation
incidental  to the business of the Company that individually or in the aggregate
is not material to the business of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     None.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
     The executive officers of the Company,  their ages and their positions  are
set forth below.
 
<TABLE>
<CAPTION>
                       NAME                           AGE                        POSITION
---------------------------------------------------   ---   ---------------------------------------------------
 
<S>                                                   <C>   <C>
Linda J. Wachner...................................   51    Director, Chairman of the Board, President and
                                                              Chief Executive Officer
William S. Finkelstein.............................   48    Director, Senior Vice President and Chief Financial
                                                              Officer
Stanley P. Silverstein.............................   44    Vice President, General Counsel and Secretary
Carl J. Deddens....................................   44    Vice President and Treasurer
</TABLE>
 
     Mrs.  Wachner has been a Director, President and Chief Executive Officer of
the Company since August 1987, and the Chairman of the Board since August  1991.
Mrs.  Wachner was  a Director and  President of  the Company from  March 1986 to
August 1987. Mrs. Wachner held various positions, including President and  Chief
Executive  Officer, with  Max Factor and  Company from December  1978 to October
1984. Mrs. Wachner also  serves as a Director  of Travelers Group Inc.,  Applied
Graphics Technologies, Inc. and Authentic Fitness Corporation.
 
                                       11
 






<PAGE>

<PAGE>
     Mr.  Finkelstein has  been Senior Vice  President of the  Company since May
1992 and Chief Financial Officer and Director of the Company since May 1995. Mr.
Finkelstein served as Vice President and Controller of the Company from November
1988 until his appointment as Senior  Vice President. Mr. Finkelstein served  as
Vice  President of Finance  of the Company's Activewear  and Olga Divisions from
March 1988 until his appointment as  Controller of the Company. Mr.  Finkelstein
served  as  Vice  President  and Controller  of  SPI  Pharmaceuticals  Inc. from
February 1986  to March  1988 and  held various  financial positions,  including
Assistant  Corporate Controller  with Max Factor  and Company,  between 1977 and
1985.  Mr.  Finkelstein  also  serves   as  a  Director  of  Authentic   Fitness
Corporation.
 
     Mr.  Silverstein has been Vice President,  General Counsel and Secretary of
the Company since December 1990.  Mr. Silverstein served as Assistant  Secretary
of  the Company  from June  1986 until his  appointment as  Secretary in January
1987.
 
     Mr. Deddens has  been Vice  President and  Treasurer of  the Company  since
March  1996. Prior to joining the Company,  Mr. Deddens served as Vice President
and Treasurer of Revlon, Inc. from 1991 to 1996 and as Assistant Treasurer  from
1987  to 1991. Mr.  Deddens held various  financial positions with Allied-Signal
Corporation and Union Texas Petroleum Corporation from 1981 to 1987.
 
                                    PART II
 
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The Company's Class A Common Stock, $0.01 par value per share (the  'Common
Stock'),  is listed on the  New York Stock Exchange  under the symbol 'WAC'. The
table below sets forth, for the periods indicated, the high and low sales prices
of the  Company's Common  Stock, as  reported  on the  New York  Stock  Exchange
Composite Tape.
 
<TABLE>
<CAPTION>
PERIOD                                                                    HIGH                LOW          DIVIDEND
------------------------------------------------------------------   ---------------    ---------------    --------
 
<S>                                                                  <C>                <C>                <C>
1995:
     First Quarter................................................   $18                $14 7/8              $.00
     Second Quarter...............................................   $21 1/4            $16 1/2              $.07
     Third Quarter................................................   $24 3/8            $20                  $.07
     Fourth Quarter...............................................   $26 7/8            $21 7/8              $.07
 
1996:
     First Quarter................................................   $27 1/2            $21 1/2              $.07
     Second Quarter...............................................   $31 1/4            $24 1/4              $.07
     Third Quarter................................................   $25 3/4            $21 5/8              $.07
     Fourth Quarter...............................................   $29 5/8            $22 3/4              $.07
 
1997:
     First Quarter (through April 1, 1997)........................   $33 3/8            $22 5/8              $.08(1)
</TABLE>
 
------------
 
(1) On  February 20,  1997, the  Company  declared its  regular  quarterly  cash
    dividend of  $.08 per share  payable  on  April 8, 1997  to stockholders  of
    record as of March 31, 1997.
 
                            ------------------------
 
     As of March 31,  1997, there were  165 holders of  the Common Stock,  based
upon  the number of holders of record  and the number of individual participants
in certain security position listings.
 
     In fiscal 1995, the Company initiated a regular cash dividend of $0.28  per
share  per  annum. The  initial  cash dividend  was paid  on  June 30,  1995. On
February 20, 1997, the Company's Board of Directors approved an increase in  the
Company's  quarterly cash dividend  to $0.08 per share.  Total dividends paid or
accrued on the Common Stock  were $9.2 million and  $14.5 million in the  fiscal
years  ended January 6, 1996 and January 4, 1997 (none in the year ended January
7, 1995), respectively.
 
                                       12
 






<PAGE>

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
 
     Set forth below is  consolidated statement of income  data with respect  to
the fiscal years ended January 7, 1995, January 6, 1996 and January 4, 1997, and
consolidated  balance sheet data at January 6,  1996 and January 4, 1997, all of
which are derived from, and qualified by reference to, the audited  consolidated
financial statements included herein and such data should be read in conjunction
with those financial statements and notes thereto. The consolidated statement of
income  data for the fiscal years ended January  2, 1993 and January 8, 1994 and
the consolidated balance  sheet data  at January 2,  1993, January  8, 1994  and
January  7, 1995 are derived from  audited consolidated financial statements not
included herein.
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED
                                        ---------------------------------------------------------------------
                                        JANUARY 2,     JANUARY 8,     JANUARY 7,     JANUARY 6,    JANUARY 4,
                                           1993        1994(a)(b)     1995(a)(c)     1996(a)(c)(e)  1997(f)
                                        ---------------------------------------------------------------------
                                                     (IN MILLIONS, EXCEPT RATIOS AND SHARE DATA)
<S>                                     <C>            <C>            <C>            <C>           <C>
STATEMENT OF INCOME DATA:
Net revenues........................    $   625.1      $   703.8      $   788.8      $   916.2     $ 1,063.8
Gross profit........................        219.3          236.4          255.8          309.7         327.7
Income before non-recurring items,
  special items, interest and income
  taxes.............................         89.8           92.2           99.2          125.6         164.5
Interest expense....................         48.8           38.9           32.5           33.9          32.4
Pre-tax income before non-recurring
  and special items.................         41.0           53.3           66.7           91.7         132.1
Income before non-recurring and
  special items.....................         47.6           53.3           66.3           56.9          80.6
Income (loss) from continuing
  operations........................         47.6           53.3           63.3           49.6          (8.2 )
Preferred stock dividends paid......          2.7             --             --             --            --
Income (loss) from continuing
  operations applicable to Common
  Stock.............................         44.9           53.3           63.3           49.6          (8.2 )
Net income (loss) applicable to
  Common Stock(d)...................        (20.2 )         24.1           63.3           46.5          (8.2 )
Dividends on Common Stock...........           --             --             --            9.5          14.5
Per Share Data:(d)
Income (loss) before non-recurring
  and special items.................    $    1.25      $    1.34      $    1.61      $    1.26     $    1.51
Income (loss) from continuing
  operations........................    $    1.18      $    1.34      $    1.53      $    1.10     $   (0.16 )
Net income (loss)...................        (0.53 )         0.61           1.53           1.03         (0.16 )
Weighted average number of shares of
  Common Stock outstanding(d).......    38,109,450     39,770,482     41,285,355     45,278,117    51,707,392
Divisional Summary Data:
  Net revenues:
    Intimate Apparel................    $   384.8      $   423.2      $   565.3      $   689.2     $   802.0
    Menswear........................        200.0          243.2          183.8          185.7         214.4
    Retail Outlet Stores............         40.3           37.4           39.7           41.3          47.4
                                        ----------     ----------     ----------     ----------    ----------
                                        $   625.1      $   703.8      $   788.8      $   916.2     $ 1,063.8
                                        ----------     ----------     ----------     ----------    ----------
                                        ----------     ----------     ----------     ----------    ----------
    Percentage of net revenues:
    Intimate Apparel................         61.6 %         60.1 %         71.7 %         75.2 %        75.4 %
    Menswear........................         32.0           34.6           23.3           20.3          20.2
    Retail Outlet Stores............          6.4            5.3            5.0            4.5           4.4
                                        ----------     ----------     ----------     ----------    ----------
                                            100.0 %        100.0 %        100.0 %        100.0 %       100.0 %
                                        ----------     ----------     ----------     ----------    ----------
                                        ----------     ----------     ----------     ----------    ----------
BALANCE SHEET DATA:
    Working capital.................    $   141.5      $   122.0      $   104.5      $   307.5     $   210.6
    Total assets....................        629.6          688.6          780.6          941.1       1,142.9
    Long term debt (excluding
      current maturities)...........        277.6          245.5          206.8          194.3         215.8
    Stockholders' equity............        135.8          159.1          240.5          500.3         475.7
</TABLE>
 
------------------
 
 (a) On September 4, 1991, the Company's Board of Directors determined that  the
     Company  should  restructure  its  knitwear  operations.  The restructuring
     resulted in a non-recurring charge of $13.0 million (or $0.68 per share) in
     fiscal 1991. Such charge was associated  with the closing of the  Company's
     knitwear  manufacturing  facilities  and  the  liquidation  of  the related
     inventory. In
 
                                               (footnote continued on next page)
 
                                       13
 






<PAGE>

<PAGE>
(footnote continued from previous page)
     October 1993, the  Company decided to  discontinue a portion  of its  men's
     manufactured  dress shirt and neckwear business segment. This resulted in a
     non-recurring charge of $19.9 million. Additionally, the Company incurred a
     $2.6 million non-recurring charge associated with a previously discontinued
     business. The total non-recurring charge recorded in fiscal 1993 was  $22.5
     million  (or $0.56 per share). In fiscal  1994, the Company incurred a $3.0
     million (or $0.07 per share) charge related to the California earthquake.
 
 (b) Fiscal 1993 includes a  $10.5 million charge (or  $0.26 per share) for  the
     cumulative  effect of  the Company  changing its  method of  accounting for
     postretirement benefits other than pensions.
 
 (c) Income reflects the benefits of utilizing the Company's net operating  loss
     carryforward  to offset the Company's  federal income tax provision. Income
     before non-recurring items, after giving effect to a full tax provision  at
     the  Company's effective  income tax rate  of 38.0%, was  $41.1 million (or
     $1.00 per share).
 
 (d) All share  and  per  share  amounts  have  been  adjusted  to  reflect  the
     two-for-one  stock split effective October 3,  1994 and includes all Common
     Stock and Common Stock equivalents when the effect on earnings per share is
     dilutive.
 
 (e) Effective with the 1995  fiscal year, the Company  adopted SOP 93-7,  which
     relates  to the accounting  for certain types  of advertising and promotion
     costs. SOP 93-7 requires, among other things, that certain costs, which had
     previously been  deferred  for  amortization against  future  revenues,  be
     currently  expensed. The Company incurred  a special charge for advertising
     costs, previously deferrable, of $11.7 million ($7.3 million net of  income
     tax  benefits or  $0.16 per  share) in  the fourth  quarter of  fiscal 1995
     related to SOP 93-7.
 
 (f) Fiscal 1996  includes non-recurring  charges  related to  the sale  of  the
     Company's  Hathaway dress shirt operations  of $46.0 million, consolidation
     and realignment of the Company's Intimate Apparel Division of $72.1 million
     and other items  of $20.4  million. Total non-recurring  items were  $138.5
     million  ($88.8 million  net of  income tax  benefits of  $49.7 million, or
     $1.66 per share).
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS
OF OPERATIONS.
 
  STRATEGIC ACTIONS (See Note 4 of Notes to Consolidated Financial Statements)
 
     Following  the  acquisition of  the GJM  business  in February  1996, which
significantly added to the Company's low cost sleepwear manufacturing  capacity,
in  addition  to an  immediate  expansion of  the  Company's product  lines, the
Company undertook  a  strategic  review  of  its  businesses  and  manufacturing
facilities.  The  further  acquisitions  of Bodyslimmers  and  Lejaby  were also
considered. As a  result of this  review, the  Company has, to  date, taken  the
following  steps which have resulted in a non-recurring charge in fiscal 1996 as
summarized below (in millions):
 
<TABLE>
<S>                                                                                 <C>
Loss related to the sale of the Hathaway business................................   $ 46.0
Charge for the consolidation and realignment of the Intimate Apparel Division....     72.1
Other items including merger termination costs...................................     20.4
                                                                                    ------
                                                                                     138.5
     Less: income tax benefits...................................................    (49.7)
                                                                                    ------
                                                                                    $ 88.8
                                                                                    ------
                                                                                    ------
</TABLE>
 
                                       14
 






<PAGE>

<PAGE>
EXIT FROM THE HATHAWAY BUSINESS
 
     In May 1996, following  a comprehensive evaluation  of the Company's  men's
dress  shirt business, the Company decided  to cease manufacturing and marketing
the Hathaway  brand.  In  recent  years the  dress  shirt  business  had  become
increasingly  price driven and, as a  result, the Company's dress shirt business
had returned  profit margins  considerably  below those  of the  Company's  core
intimate  apparel  business.  In  addition, the  dress  shirt  business required
continuous investment, particularly of working capital, disproportionate to  its
return.  Accordingly, the  Company elected to  withdraw from  the Hathaway dress
shirt business, freeing up funds for reinvestment in brands and businesses  with
higher growth potential and greater returns.
 
     On  November 12, 1996, the Company completed  the sale of certain assets of
its Hathaway dress shirt business, including its Waterville, Maine and Prescott,
Ontario  manufacturing  facilities  ('Hathaway  Assets').  The  loss  from   the
write-down  of the  Hathaway Assets  to fair  value and  losses incurred  in the
operation of the  Hathaway business since  the Company announced  its intent  to
exit  this business of approximately $29.5 million net of income tax benefits of
$16.5 million are included in the  Statement of Operations for fiscal 1996.  The
pre-tax  loss includes  the write  off of  $13.8 million  of Hathaway intangible
assets, including goodwill.
 
INTIMATE APPAREL CONSOLIDATION AND REALIGNMENT
 
     In April 1996, the Company announced the consolidation of certain  intimate
apparel  and other manufacturing, distribution  and administrative operations in
the United States and Europe. The consolidation and realignment of the  Intimate
Apparel  Division is designed to reduce costs  and improve the efficiency of the
Company's operations and is expected to result in annual cost savings in  excess
of  $15 million per  year. The consolidation  and realignment has  resulted in a
non-recurring charge of approximately $46.2 million after income tax benefits of
$25.9 million, comprised primarily of a write-down of asset values, accruals  of
lease  and other contractual obligations, and employee termination and severance
costs. In order  to maximize the  cost savings and  efficiencies made  available
through  the consolidation of facilities and the additional volumes contemplated
as a result of  the Lejaby, GJM and  Bodyslimmers acquisitions, the Company  has
reevaluated  the viability of  all product assortments and  styles. As a result,
certain products and styles have been  discontinued to permit the investment  of
working  capital in products  and styles with greater  returns. In addition, the
Company incurred certain costs and  expenses associated with the realignment  of
manufacturing  plants,  consolidation of  the  Company's intimate  apparel sales
forces and other  costs during  the second and  third quarters  of fiscal  1996,
which are also included in the non-recurring charge.
 
OTHER ITEMS
 
     The  non-recurring charge  also includes $11.3  million, net  of income tax
benefits of  $6.1 million,  related to  the cancellation  of certain  contracts,
realignment  of its  European organization  and the  write-off of  insurance and
other receivables.
 
     In June 1996,  the Company  announced its  intent to  merge with  Authentic
Fitness  Corporation. On July 25, 1996, the Company announced the termination of
the merger. The Company has  incurred legal, accounting and investment  advisory
fees in connection with the proposed merger, of approximately $3.0 million, $1.9
million  net of income tax benefits ($0.03 per share), all of which were charged
to the results of operations in fiscal 1996.
 
     The non-recurring charge for the Hathaway disposition, the Intimate Apparel
Division  consolidation   and  realignment   and  certain   other  items   total
approximately  $87.0 million,  after income  tax benefits  of $48.5  million, or
$1.63 per share for the year ended January 4, 1997.
 
RESULTS OF OPERATIONS
 
     The consolidated statements of income for the Company are summarized below.
The Divisional Summary includes the Retail Outlet Stores Division for  reporting
purposes; however, since the
 
                                       15
 






<PAGE>

<PAGE>
Company's  business strategy is  to use its  Retail Outlet Stores  Division as a
channel for its excess inventory and  the Company does not consider the  results
of  such  division to  be material,  the  Retail Outlet  Stores Division  is not
discussed further.
 
                              STATEMENT OF INCOME
                          (SELECTED DATA, IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                              --------------------------------------------------------------------------
                                              JANUARY 7,    % OF NET    JANUARY 6,    % OF NET    JANUARY 4,    % OF NET
                                                 1995       REVENUES       1996       REVENUES       1997       REVENUES
                                              ----------    --------    ----------    --------    ----------    --------
 
<S>                                           <C>           <C>         <C>           <C>         <C>           <C>
Net revenues...............................     $788.8        100.0%      $916.2        100.0%     $1,063.8       100.0%
Cost of goods sold.........................      533.0         67.6%       606.5         66.2%        698.2        65.6%
Non-recurring items........................      --           --           --           --             37.9         3.6%
                                              ----------    --------    ----------    --------    ----------    --------
Gross profit...............................      255.8         32.4%       309.7         33.8%        327.7        30.8%
Selling, administrative and general
  expenses.................................      156.6         19.9%       184.0         20.1%        201.1        18.9%
                                              ----------    --------    ----------    --------    ----------    --------
Income before interest, income taxes and
  non-recurring items......................       99.2         12.5%       125.6         13.7%        164.5        15.5%
Interest expense...........................       32.5                      33.9                       32.4
Income from operations.....................       63.3                      49.6                       80.6
Income before non-recurring and special
  items, adjusted for a normalized income
  tax provision............................       41.4                      56.9                       80.6
</TABLE>
 
                               DIVISIONAL SUMMARY
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                              --------------------------------------------------------------------------
                                                              % OF                      % OF                      % OF
                                              JANUARY 7,     GROSS      JANUARY 6,     GROSS      JANUARY 4,     GROSS
                                                 1995        PROFIT        1996        PROFIT        1997        PROFIT
                                              ----------    --------    ----------    --------    ----------    --------
 
<S>                                           <C>           <C>         <C>           <C>         <C>           <C>
Net revenues:
     Intimate Apparel......................     $565.3                    $689.2                   $  802.0
     Menswear..............................      183.8                     185.7                      214.4
     Retail Outlet Stores..................       39.7                      41.3                       47.4
                                              ----------                ----------                ----------
                                                $788.8                    $916.2                   $1,063.8
                                              ----------                ----------                ----------
                                              ----------                ----------                ----------
Gross profit(1):
     Intimate Apparel......................     $203.5         79.6%      $259.2         83.7%     $  302.4        82.7%
     Menswear..............................       38.2         14.9%        35.5         11.5%         44.7        12.2%
     Retail Outlet Stores..................       14.1          5.5%        15.0          4.8%         18.5         5.1%
                                              ----------    --------    ----------    --------    ----------    --------
                                                $255.8        100.0%      $309.7        100.0%     $  365.6       100.0%
                                              ----------    --------    ----------    --------    ----------    --------
                                              ----------    --------    ----------    --------    ----------    --------
</TABLE>
 
------------
 
(1) Does not  include non-recurring  expenses of  $37.9 million  related to  the
    decision to exit the Hathaway business and the restructuring and realignment
    of the Intimate Apparel Division in fiscal 1996.
 
COMPARISON OF FISCAL 1996 TO FISCAL 1995
 
     Net  revenues increased 16.1%  to $1,063.8 million  from the $916.2 million
recorded in fiscal 1995 with double-digit increases across all divisions.
 
     INTIMATE APPAREL DIVISION. Net revenues  increased 16.4% to $802.0  million
     in  fiscal 1996  from $689.2  million in fiscal  1995. The  increase in net
     revenues is attributable to a 53.0%  increase in Calvin Klein net  revenues
     to  $244.3 million in fiscal 1996, an increase in sleepwear net revenues of
 
                                       16
 






<PAGE>

<PAGE>
     $55 million reflecting the acquisition of  GJM in February 1996 and  Lejaby
     net revenues of $47.5 million reflecting the acquisition in July 1996. This
     was  partially offset  by a  decrease in  shipments to  Avon and Victoria's
     Secret of over $75 million.
 
     MENSWEAR DIVISION. Menswear Division net revenues increased 15.5% to $214.4
     million in  fiscal 1996  compared to  $185.7 million  in fiscal  1995.  The
     increase in net revenues is attributable to an increase  of  24.0% in Chaps
     by Ralph Lauren net revenues and the start-up of Calvin  Klein accessories.
     The increases in Chaps by Ralph Lauren  and Calvin Klein  accessories  were
     partially  offset  by  a  decrease  in Hathaway  net  revenues  due  to the
     disposition of the Hathaway dress shirt operations in November 1996.
 
     Gross profit increased 5.8%  to $327.7 million in  fiscal 1996 from  $309.7
million  in fiscal 1995. Gross profit for  fiscal 1996 includes $37.9 million of
non-recurring expenses related to  the Company's decision  to exit its  Hathaway
dress  shirt operations and  the realignment and  restructuring of the Company's
intimate apparel division. Excluding these  items, gross profit increased  18.0%
to  $365.6 million in  fiscal 1996, compared  to $309.7 million  in fiscal 1995.
Gross profit as a  percentage of net revenues  (before non-recurring items)  was
34.4% in fiscal 1996, higher than the 33.8% recorded in fiscal 1995.
 
     INTIMATE   APPAREL  DIVISION.   Intimate  Apparel   Division  gross  profit
     (excluding  the  effect  of  the  realignment  and  restructuring  charges)
     increased  16.7% to $302.4  million (37.7% of net  revenues) in fiscal 1996
     from $259.2 (37.6% of net revenues)  in fiscal 1995. The increase in  gross
     profit  reflects the higher sales volume noted above. The increase in gross
     profit as a percentage of net revenues reflects manufacturing  efficiencies
     in  the Company's manufacturing facilities and a higher mix of Calvin Klein
     sales partially offset  by the slightly  lower margins on  the GJM  private
     label business, which was acquired in February 1996.
 
     MENSWEAR  DIVISION. Menswear Division gross profit increased 25.9% to $44.7
     million (20.8% of net revenues) in fiscal 1996 from $35.5 million (19.1% of
     net revenues) in  fiscal 1995. The  increase in gross  profit reflects  the
     higher  sales  volume  noted  above.  The increase  in  gross  profit  as a
     percentage of net  revenues reflects  the more  favorable mix  of Chaps  by
     Ralph  Lauren and  Calvin Klein  accessories business  and the  sale of the
     Company's Hathaway dress shirt operations in November 1996.
 
     Selling, administrative  and  general  expenses  before  non-recurring  and
restructuring  charges increased 9.2% to $201.0  million (18.9% of net revenues)
in fiscal 1996  compared to  $184.0 million (20.1%  of net  revenues) in  fiscal
1995.  The increase in selling, administrative  and general expenses reflects an
increase in  marketing and  promotion expenses  to $59.5  million (5.6%  of  net
revenues)  in fiscal 1996  compared to $41.0  million (4.5% of  net revenues) in
fiscal 1995 and  higher sales  volume as noted  above. Despite  the increase  in
marketing  and promotion  expense and  the increased  sales volume  noted above,
selling, administrative and general  expenses decreased as  a percentage of  net
revenues   reflecting  the  cost  savings  realized  from  the  realignment  and
restructuring of the Company's Intimate Apparel Division, as noted above.
 
     Non-recurring expenses in fiscal 1996  were $138.5 million ($88.8  million,
net of income tax benefits of $49.7 million), including $37.9 million classified
in  cost of goods sold. The  non-recurring expense reflects the restructuring of
the Company's Intimate Apparel Division, the loss associated with the  Company's
decision  to exit the Hathaway dress shirt operations and other items, including
terminated merger costs, as noted above.
 
     Interest expense decreased slightly  to $32.4 million  in fiscal 1996  from
$33.9  million in  fiscal 1995.  The decrease  in interest  expense reflects the
benefit from the proceeds of the Company's stock offering, completed in  October
1995,  which was partially offset by interest  on the funds borrowed to complete
the GJM, Lejaby and Bodyslimmers acquisitions.
 
     Income tax expense for  fiscal 1996 was  $1.8 million primarily  reflecting
foreign  and state income  taxes. For income  tax purposes, the  Company has net
operating loss carryforwards available to offset future taxable income amounting
to approximately $53.5 million  at January 4,  1997. These carryforwards,  which
the  Company expects to fully utilize, should  result in a future tax savings of
 
                                       17
 






<PAGE>

<PAGE>
approximately $19.3 million at current United States corporate income tax rates.
The net operating loss carryforwards expire  beginning in 2001 and fully  expire
in 2008.
 
     As  a result of the  Company's Common Stock offerings  in 1991 and 1992 and
other changes in the ownership of the Company's Common Stock, certain provisions
of the Internal Revenue Code could limit  the rate at which the Company will  be
able  to utilize its net operating loss carryforwards. The Company believes that
it will  realize all  of the  benefits attributable  to its  net operating  loss
carryforwards;  however,  the  amount of  such  benefits that  the  Company will
realize and the period in which any  benefit is realized are subject to  several
factors, including the general level of economic activity, the level of earnings
and  future changes in United States  corporate income tax laws and regulations.
See Note 8 of Notes to Consolidated Financial Statements on pages F-1 to F-24.
 
     The net loss  of $8.2 million  in fiscal  1996 reflects the  impact of  the
non-recurring  charges  noted  above. Income  before  non-recurring  charges for
fiscal 1996 was $80.6 million compared to income before the adoption of SOP 93-7
of $56.9 million  in fiscal 1995.  The increase in  income before  non-recurring
charges reflects the higher operating income, as noted above.
 
COMPARISON OF FISCAL 1995 WITH FISCAL 1994.
 
     Net  revenues increased  16.2% to  $916.2 million  in fiscal  1995 from the
$788.8 million recorded  in fiscal 1994,  due primarily to  a 21.9% increase  in
intimate apparel net revenues.
 
     INTIMATE  APPAREL DIVISION. Net revenues  increased 21.9% to $689.2 million
     in fiscal  1995 from  $565.3  million in  fiscal  1994. Warner's  and  Olga
     domestic  net  revenues increased  12.6%  (including Victoria's  Secret and
     Avon). Calvin Klein net revenues increased 162% to $159.7 million in fiscal
     1995 compared to $61.0 million in fiscal 1994 (nine months of operations in
     fiscal 1994). The increase  in Calvin Klein  is a result  of the launch  of
     Calvin  Klein women's  intimate apparel and  an over 70.0%  increase in the
     Calvin Klein  men's underwear  business.  Fruit of  the Loom  net  revenues
     decreased  17.3%  in fiscal  1995 compared  to fiscal  1994 primarily  as a
     result of  a decrease  of approximately  $27.0 million  in Avon  shipments.
     Fruit  of the  Loom net  revenues in  the mass  merchandise market (without
     Avon) increased 30.7% in fiscal 1995 compared to fiscal 1994. International
     sales increased 18.9% to  $100.0 million in fiscal  1995 compared to  $84.1
     million  in fiscal 1994, which represents a significant turnaround compared
     to prior years.
 
     MENSWEAR DIVISION. Net revenues increased 1.1% to $185.7 million in  fiscal
     1995  from  $183.8 million  in fiscal  1994. Excluding  discontinued brands
     (Dior, Puritan and Nicklaus), net  revenues increased 13.6% in fiscal  1995
     compared  to  fiscal 1994,  primarily attributable  to continued  growth in
     Chaps by Ralph Lauren,  where net revenues increased  14.3% in fiscal  1995
     compared  to fiscal  1994, and  to the  launch of  Calvin Klein accessories
     which generated net revenues  of $3.9 million in  its first four months  of
     shipping.  Hathaway net revenues decreased 6.0%  in fiscal 1995 compared to
     fiscal 1994 reflecting continued softness in the men's dress shirt market.
 
     Gross profit increased 21.1% to $309.7  million in fiscal 1995 compared  to
$255.8  million in  fiscal 1994.  Gross profit as  a percentage  of net revenues
increased to 33.8% in fiscal 1995 compared to 32.4% in fiscal 1994. The increase
in gross profit as a  percentage of net revenues  of 140 basis points  primarily
reflects  manufacturing efficiencies  achieved in the  Intimate Apparel Division
and a more favorable mix due to growth in the Calvin Klein business.
 
     INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit increased
     27.4% to $259.2 million (37.6% of net revenues) in fiscal 1995 from  $203.5
     million  (36.0%  of  net  revenues)  in  fiscal  1994.  Gross  profit  as a
     percentage of net  revenues increased to  37.6% of net  revenues in  fiscal
     1995  from 36.0% in fiscal 1994 due primarily to manufacturing efficiencies
     associated with the Company's new manufacturing facilities and a better mix
     of sales reflecting, the sales increase in the Calvin Klein business.
 
     MENSWEAR DIVISION. Gross profit in the Menswear Division decreased slightly
     to $35.5 million (19.1% of net revenues) in fiscal 1995 from $38.2  million
     (20.7% of net revenues) in fiscal 1994. The
 
                                       18
 






<PAGE>

<PAGE>
     decrease  in net revenues and gross profit  as a percentage of net revenues
     reflects  softness  in  the  men's  dress  shirt  business  and  the  final
     liquidation of merchandise related to discontinued brands.
 
     Selling,  administrative  and general  expenses  increased 17.5%  to $184.0
million (20.1% of net revenues) in fiscal 1995 from $156.6 million (19.9% of net
revenues) in fiscal 1994.  The increase in  selling, administrative and  general
expenses  reflects  higher  sales  volume  and  an  increase  in  marketing  and
advertising expenses (not  including the  special charge  for advertising  costs
previously deferrable in accordance with SOP 93-7) of approximately $4.0 million
in  fiscal  1995  compared  to  fiscal 1994.  The  increase  in  advertising and
promotion expenses is primarily  related to the launch  of Calvin Klein  women's
intimate  apparel. Selling, administrative and  general expenses as a percentage
of net  revenues  for  fiscal  1995  were  essentially  equal  to  fiscal  1994,
reflecting continuing efforts to control operating expenses.
 
     Interest  expense increased slightly  to $33.9 million  in fiscal 1995 from
$32.5 million  in  fiscal  1994.  The increase  in  interest  expenses  reflects
increased  interest costs supporting the  increased working capital required for
the 16.2% sales growth  achieved in fiscal 1995  offset by the favorable  impact
from  the  proceeds  from  the  Company's offering  of  Common  Stock  which was
completed in October 1995.
 
     The Company's treatment of certain advertising costs changed in fiscal 1995
reflecting the SOP  93-7. SOP 93-7  requires, among other  things, that  certain
advertising costs, previously deferred and amortized over the period benefitted,
be  expensed in the period the advertising is first run. As a result of adopting
SOP  93-7,  the  Company  incurred  a  special  charge  for  advertising  costs,
previously  deferrable,  of  $11.7  million  ($7.3  million  net  of  income tax
benefits) in the fourth quarter of fiscal 1995.
 
     Income tax expense for  fiscal 1995 was $30.4  million corresponding to  an
effective  income tax rate of 38.0%. Income tax expense for fiscal 1994 was $0.4
million. Income  tax expense  for  fiscal 1994  reflects  $22.5 million  of  tax
benefits  associated with  the Company's  net operating  loss carryforwards. The
Company had utilized substantially  all of its  net operating loss  carryforward
benefits  for financial reporting purposes  at the end of  fiscal 1994 and, as a
result, had approximately $38.5  million of deferred tax  assets at 1994  fiscal
year end.
 
     The  difference between the United States federal statutory income tax rate
of 35.0% and the Company's  effective income tax rate  of 38.0% for fiscal  1995
primarily  reflects  the  impact  of  state  income  taxes  and  the  effect  of
non-deductible intangible  amortization  partially offset  by  certain  benefits
associated with state income tax net operating loss carryforwards.
 
     Income  before  non-recurring  and  special items,  adjusted  to  reflect a
normalized income tax rate of 38.0%, increased 37.4% to $56.9 million in  fiscal
1995  compared to  $41.4 million  in fiscal  1994. The  increase reflects higher
operating income and lower interest expense, as noted above.
 
     In October 1995, the Company entered  into new bank credit agreements.  The
Company  wrote off  deferred financing  costs related  to the  prior bank credit
agreement. The write-off resulted in an extraordinary item of $3.1 million  (net
of income tax benefits of $1.9 million) due to the early extinguishment of debt.
 
     Net  income, after  non-recurring, special  and extraordinary  charges, was
$46.5 million in  fiscal 1995,  compared to $63.3  million in  fiscal 1994.  The
decrease  in net  income in  fiscal 1995  compared to  fiscal 1994  reflects the
impact of the full income  tax provision in fiscal  1995 and the special  charge
for SOP 93-7, partially offset by higher operating income, as noted above.
 
CAPITAL RESOURCES AND LIQUIDITY
 
     On  May  11,  1995,  consistent  with  the  Company's  goal  of  increasing
stockholder value, the Company declared a  quarterly cash dividend of $0.07  per
share. The Company has since declared eight successive quarterly cash dividends.
On February 20, 1997, the Company increased its quarterly cash dividend to $0.08
per share.
 
                                       19
 






<PAGE>

<PAGE>
     On  February 9, 1996, the Company  acquired substantially all of the assets
(including certain subsidiaries) of GJM. GJM is a private label manufacturer  of
women's  lingerie and sleepwear. The purchase  price consisted of a cash payment
of $12.5 million plus assumed liabilities.
 
     In the  third and  fourth quarters  of fiscal  1996, the  Company  acquired
Lejaby,  a leading European intimate apparel manufacturer, for approximately $79
million, including certain fees and  expenses and assumed liabilities. Funds  to
consummate the transaction were provided by members of the Company's bank credit
group.  The terms of the  bank loans are substantially the  same as the terms of
the Company's existing credit agreements and  include a term loan totalling  370
million French Francs and a revolving loan facility totalling 150 million French
Francs.
 
     On July 19, 1996, the Company acquired Bodyslimmers, for approximately $6.5
million  and assumed liabilities.  The acquisition of  Bodyslimmers expanded the
Company's product line to  include body slimming  undergarments, a fast  growing
segment  of  the  intimate apparel  market  targeting aging  baby  boomers. This
acquisition enhances the  Company's leading  position in  the domestic  intimate
apparel market.
 
     The  Company's liquidity requirements arise primarily from its debt service
requirements and the funding of  the Company's working capital needs,  primarily
inventory  and  accounts receivable.  The  Company's borrowing  requirements are
seasonal, with peak working  capital needs generally arising  at the end of  the
second  quarter and  during the  third quarter of  the fiscal  year. The Company
typically generates  a substantial  amount of  its operating  cash flow  in  the
fourth quarter of the fiscal year, reflecting third and fourth quarter shipments
and the sale of inventory built during the first half of the fiscal year.
 
     Cash  provided from (used in) operations  in fiscal 1996 was $27.0 million,
compared to $(13.6)  million in fiscal  1995 and $77.8  million in fiscal  1994.
Cash  flow from operating  activities for fiscal 1996  includes $67.7 million of
cash expenses  related  to  the  decision to  exit  the  Hathaway  business  and
restructuring  and realignment of  the Intimate Apparel  Division. Cash provided
from operating activities before the non-recurring charges was $94.8 million  in
fiscal  1996. The improvement  in cash flow from  operating activities in fiscal
1996 compared to  fiscal 1995 primarily  reflects the decreased  use of  working
capital,  primarily  inventory,  reflecting  the  Company's  efforts  to control
inventory investment. Cash flow from operating activities decreased $90  million
in  fiscal 1995  compared to  fiscal 1994,  primarily as  a result  of increased
working capital usage  to support  the rapid  growth of  the Company's  Intimate
Apparel  Division and the  Calvin Klein business.  Depreciation and amortization
expense was $27.6 million, $22.1 million and $18.8 million in fiscal 1996,  1995
and  1994, respectively. The  increase in depreciation  and amortization expense
primarily reflects amortization of intangible assets related to the acquisitions
completed in fiscal 1995 and fiscal 1996.
 
     Cash used  in  investing activities  was  $156.5 million  in  fiscal  1996,
compared  to $84.0  million in  fiscal 1995  and $59.8  million in  fiscal 1994.
Fiscal 1996  includes  $85.6 million,  net  of  cash acquired,  related  to  the
purchase  of  Lejaby, GJM  and  Bodyslimmers and  $30.1  million related  to the
payment of acquired liabilities  and acquisition accruals. Capital  expenditures
for  new facilities, improvements  to existing facilities  and for machinery and
equipment were approximately $33.8 million,  $39.1 million and $17.5 million  in
the  1996, 1995  and 1994 fiscal  years, respectively.  Capital expenditures for
fiscal 1995 includes approximately $15  million of investment in store  fixtures
for the Calvin Klein and Chaps by Ralph Lauren businesses.
 
     Cash provided from (used in) financing activities was $135.2 million, $99.9
million  and $(18.9) million in fiscal 1996, 1995 and 1994, respectively. During
fiscal 1996,  the Company  entered into  a bank  credit agreement  with  several
members  of its bank credit group which provided the Company with a term loan of
370 million French Francs and a revolving credit agreement of 150 million French
Francs (the  'Lejaby  Credit  Agreements').  Proceeds  from  the  Lejaby  Credit
Agreements of approximately $79.2 million were used to purchase Lejaby in fiscal
1996.  In  addition,  the  Company  increased  the  outstanding  balance  on its
revolving lines of  credit by approximately  $105.5 million in  fiscal 1996.  In
fiscal 1995, the Company sold 9,717,000 shares of Common Stock which resulted in
net  proceeds to the Company of $224.3 million. Proceeds from the sale of Common
Stock were primarily used to repay
 
                                       20
 






<PAGE>

<PAGE>
outstanding debt. Debt repayments  were $27.8 million,  $46.8 million and  $41.8
million in fiscal 1996, 1995 and 1994, respectively.
 
     At  January  4,  1997,  the Company  had  approximately  $197.0  million of
additional borrowing available under the  revolving loan portions of its  United
States  bank facilities. The Company also  has bank credit agreements in Canada,
Europe and Asia. At January 4, 1997, the Company had approximately $55.0 million
of additional credit available under these agreements. The Company believes that
funds available under its various bank facilities, together with cash flow to be
generated from  future  operations,  will  be sufficient  to  meet  the  capital
expenditure  requirements and  working capital  needs of  the Company, including
interest and debt principal payments for the next twelve months and for the next
several years.
 
SEASONALITY
 
     The operations of  the Company  are somewhat  seasonal, with  approximately
59.0%  of net revenues, 62.0% of operating income before non-recurring items and
substantially all  of the  Company's  net cash  flow from  operating  activities
generated  in the  second half of  fiscal 1996.  The second half  of fiscal 1996
includes the results of  operations of Lejaby, which  was acquired in the  third
and   fourth  quarters  of   fiscal  1996.  Excluding   the  impact  of  Lejaby,
approximately 58.0% of  the Company's  net revenue and  operating income  before
operating  items was generated in the second half of the fiscal year. Generally,
the Company's  operations during  the first  half of  the year  are financed  by
increased borrowing. The following sets forth the net revenues, operating income
before non-recurring items and net cash flow from operating activities generated
for each quarter of fiscal 1995 and fiscal 1996.
 
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                      ----------------------------------------------------------------------------
                                                                     (IN MILLIONS)
                                      APR 8,    JUL 8,    OCT 7,    JAN 6,    APR 6,    JUL 6,    OCT 5,    JAN 4,
                                       1995      1995      1995      1996      1996      1996      1996      1997
                                      ------    ------    ------    ------    ------    ------    ------    ------
 
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net revenues.......................   $195.2    $210.4    $239.5    $271.1    $206.5    $222.8    $292.0    $342.5
Operating income(1)................   $ 25.5    $ 24.4    $ 39.2    $ 36.5    $ 32.3    $ 31.0    $ 49.6    $ 51.6
Cash flow from operating
  activities(1)....................   $(43.0)   $  0.4    $(70.4)   $ 99.4    $(71.3)   $ (8.2)   $ 12.7    $164.6
</TABLE>
 
------------
 
(1) Before non-recurring items.
 
INFLATION
 
     The  Company  does  not  believe that  the  relatively  moderate  levels of
inflation which have been recently experienced in the United States, Canada  and
Western  Europe  have  had a  significant  effect  on its  net  revenues  or its
profitability. Management believes that, in the past, the Company has been  able
to  offset such effects  by increasing prices or  by instituting improvements in
efficiency. Mexico historically  has been  subject to high  rates of  inflation;
however,  the  effects  of high  rates  of  inflation on  the  operation  of the
Company's Mexican subsidiaries have not had a material impact on the results  of
operations of the Company.
 
IMPACT OF NEW ACCOUNTING STANDARDS
 
     In  October 1995, the Financial Accounting Standards Board issued Statement
on  Financial  Accounting   Standards  No.  123,   Accounting  for   Stock-Based
Compensation   ('FAS  123'),  which  establishes  market  value  accounting  and
reporting standards for stock-based  employee compensation plans. Companies  may
elect  to continue to  account for stock-based  compensation using the intrinsic
value approach under APB Opinion No. 25.  The Company was required to adopt  FAS
123  for  its 1996  fiscal year.  The Company's  accounting for  its stock-based
compensation plans will continue to follow APB Opinion 25. Pro forma  disclosure
required  by FAS 123 is  included in Note 12  of Notes to Consolidated Financial
Statements. See Pages F-1 to F-24.
 
                                       21
 






<PAGE>

<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The information required  by Item 8  of Part II  is incorporated herein  by
reference  to the Consolidated Financial Statements  filed with this report. See
Item 14 of Part IV.
 
ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     The  information required by Item 10 is incorporated by reference from page
11 of Item  4 of  Part I included  herein and  from the Proxy  Statement of  The
Warnaco Group, Inc., relating to the 1997 Annual Meeting of Stockholders.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     The  information required  by Item 11  is hereby  incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
 












                                       22
 






<PAGE>

<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     The information required  by Item  12 is hereby  incorporated by  reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     The  information required  by Item 13  is hereby  incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc., relating to the 1997 Annual
Meeting of Stockholders.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
 
  (a)  1.  The Consolidated Financial Statements of The Warnaco Group, Inc.
 
<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
Report of Independent Accountants..............................................................    F-1
Report of Independent Auditors.................................................................    F-2
Consolidated Balance Sheets as of January 6, 1996 and January 4, 1997..........................    F-3
Consolidated Statements of Income for the Years Ended January 7, 1995,
  January 6, 1996 and January 4, 1997..........................................................    F-4
Consolidated Statements of Stockholders' Equity for the Years Ended January 7, 1995, January 6,
  1996 and January 4, 1997.....................................................................    F-5
Consolidated Statements of Cash Flow for the Years Ended January 7, 1995, January 6, 1996 and
  January 4, 1997..............................................................................    F-6
Notes to Consolidated Financial Statements ................................................   F-7-F-24
</TABLE>
 
       2.  Financial Statement Schedule:
 
<TABLE>
          <C>   <S>                                                                                <C>
Report of Independent Accountants...............................................................   S-1
II.  Valuation and Qualifying Accounts and Reserves.............................................   S-2
</TABLE>
 
         All other  schedules for  which  provision is  made in  the  applicable
         accounting  regulations of the Securities and Exchange Commission which
         are not included with this additional financial data have been  omitted
         because they are not applicable or the required information is shown in
         the Consolidated Financial Statements or Notes thereto.
 
                                       23
 






<PAGE>

<PAGE>
(a) 3.  LIST OF EXHIBITS:
 
<TABLE>
   <C>       <S>                                                                                         <C>
    3.1      Amended  and Restated Certificate of Incorporation of the Company (incorporated herein by
             reference to Exhibit 3.1 to the Company's Form 10-Q filed May 16, 1995).
    3.2      Amended Bylaws of the Company.
    4.1      Registration Rights Agreement dated March 14, 1994 between the Company and Calvin  Klein,
             Inc.  ('CKI') (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q
             filed May 24, 1994).
   10.1      Credit  Agreement,  dated  as  of  October  12,  1995  (the  'U.S.  $450,000,000   Credit
             Agreement'), among the Company, Warnaco Inc.; The Bank of Nova Scotia and Citibank, N.A.,
             as  Managing Agents; Citibank, N.A.,  as Documentation Agent; The  Bank of Nova Scotia as
             Paying Agent, Competitive Bid Agent,  Swing Line Lender and  an Issuing Bank and  certain
             other  lenders named  therein (incorporated  herein by reference  to Exhibit  10.1 to the
             Company's Form 10-Q filed November 21, 1995).
   10.2      Credit Agreement, dated as of October 12, 1995 (the 'U.S. $100,000,000 364-day  Revolving
             Credit  Agreement'), among Warnaco Inc. and The Bank of Nova Scotia and Citibank, N.A. as
             Managing Agents; Citibank, N.A. as Documentation Agent; The Bank of Nova Scotia as Paying
             Agent, Competitive Bid Agent,  Swing Line Lender  and an Issuing  Bank and certain  other
             lenders  named therein (incorporated herein by reference to Exhibit 10.1 to the Company's
             Form 10-Q filed November 21, 1995).
   10.3      Credit  Agreement,  dated  as  of  December  4,  1995  (the  'U.S.  $200,000,000   Credit
             Agreement'),  among Warnaco Inc., the  Company and The Bank of  Nova Scotia, as agent for
             the Lenders and certain other lenders named therein (incorporated herein by reference  to
             Exhibit 10.3 to the Company's Form 10-K filed April 5, 1996).
   10.4      Employment  Agreement, dated  as of  January 6,  1991, between  the Company  and Linda J.
             Wachner (incorporated herein by reference to  Exhibit 10.7 to the Company's  Registration
             Statement on Form S-1, No. 33-42641).
   10.5      Incentive  Compensation Plan  (incorporated herein  by reference  to Exhibit  10.8 to the
             Company's Registration on Form S-1, No. 33-45877).
   10.6      1991 Stock Option Plan (incorporated herein by reference to Exhibit 10.9 to the Company's
             Registration Statement on Form S-1, No. 33-45877).
   10.7      Amended and Restated 1988 Employee Stock  Purchase Plan, as amended (incorporated  herein
             by  reference to Exhibit 10.10  to the Company's Registration  Statement on Form S-1, No.
             33-45877).
   10.8      Warnaco Employee Retirement Plan  (incorporated herein by reference  to Exhibit 10.11  to
             the Company's Registration Statement on Form S-1, No. 33-45877).
   10.9      Executive  Management  Agreement, dated as  of  May 9, 1991,  as  extended,  between  the
             Company, Warnaco  Inc. and The Spectrum  Group, Inc. (incorporated herein by reference to
             Exhibit 10.13 to the Company's Registration Statement on Form S-1, No. 33-45877).
   10.10     1993 Non-Employee Director Stock Plan (incorporated herein by reference to the  Company's
             Proxy Statement for its 1994 Annual Meeting of Stockholders).
   10.11     Amended  and Restated 1993 Stock Plan (incorporated  herein by reference to the Company's
             Proxy Statement for its 1994 Annual Meeting of Stockholders).
   10.12     The Warnaco Group, Inc. Supplemental Incentive Compensation Plan (incorporated herein  by
             reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders).
   11.1      Calculation of Net Income (Loss) per common share.
   21.1      Subsidiaries of the Company.
   23.1(a)   Consent of Independent Accountants.
   23.1(b)   Consent of Independent Auditors.
   23.1(c)   Consent of Independent Auditors.
   27        Financial Data Schedule.
</TABLE>
 
(b)  REPORTS ON FORM 8-K.
 
     No  reports on Form 8-K were filed by the registrant in the last quarter of
the 1996 fiscal year.
 
                                       24







<PAGE>

<PAGE>
                                   SIGNATURES
 
     Pursuant  to  the requirements  of Section  13 or  15(d) 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  in the  City of  New
York, State of New York, on the 4th day of April, 1997.
 
                                          THE WARNACO GROUP, INC.
 
                                          By:        /S/ LINDA J. WACHNER
                                            _______________________________
                                                      Linda J. Wachner
                                               Chairman, President and Chief
                                                     Executive Officer
 
     Pursuant  to the requirements of the  Securities Exchange Act of 1934, this
Report has been signed  by the following  persons in the  capacities and on  the
dates indicated.
 
<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE                              DATE
------------------------------------------  --------------------------------------------   -------------------
 
<C>                                         <S>                                            <C>
           /s/ LINDA J. WACHNER             Chairman of the Board; Director;                  April 4, 1997
------------------------------------------  President and Chief Executive
             LINDA J. WACHNER               Officer (Principal Executive Officer)
 
        /s/ WILLIAM S. FINKELSTEIN          Director; Senior Vice President and Chief         April 4, 1997
------------------------------------------  Financial Officer (Principal Financial and
          WILLIAM S. FINKELSTEIN            Accounting Officer)
 
       /s/ JOSEPH A. CALIFANO, JR.          Director                                          April 4, 1997
------------------------------------------
         JOSEPH A. CALIFANO, JR.
 
          /s/ WILLIAM R. FIELDS             Director                                          April 4, 1997
------------------------------------------
            WILLIAM R. FIELDS
 
            /s/ JOSEPH H. FLOM              Director                                          April 4, 1997
------------------------------------------
              JOSEPH H. FLOM
 
           /s/ ANDREW G. GALEF              Director                                          April 4, 1997
------------------------------------------
             ANDREW G. GALEF
 
            /s/ WALTER F. LOEB              Director                                          April 4, 1997
------------------------------------------
              WALTER F. LOEB
 
          /s/ STEWART A. RESNICK            Director                                          April 4, 1997
------------------------------------------
            STEWART A. RESNICK
</TABLE>
 
                                       25







<PAGE>

<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
The Board of Directors and
Stockholders of The Warnaco Group, Inc.
 
In  our opinion,  the accompanying consolidated  balance sheets  and the related
consolidated statements of income, stockholders'  equity and cash flows  present
fairly,  in all material respects, the  financial position of The Warnaco Group,
Inc. and  its subsidiaries  at January  4, 1997  and January  6, 1996,  and  the
results  of their operations  and their cash  flows for the  years then ended in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements   are   the   responsibility  of   the   Company's   management;  our
responsibility is to express an opinion  on these financial statements based  on
our  audits.  We conducted  our audits  of these  statements in  accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements  are
free  of material  misstatement. An audit  includes examining, on  a test basis,
evidence supporting the  amounts and  disclosures in  the financial  statements,
assessing  the  accounting principles  used  and significant  estimates  made by
management, and  evaluating the  overall  financial statement  presentation.  We
believe  that our  audits provide a  reasonable basis for  the opinion expressed
above.
 
As discussed in  Note 3 to  the consolidated financial  statements, the  Company
adopted   the  provisions  of   the  American  Institute   of  Certified  Public
Accountants' Statement of Position 93-7, 'Reporting on Advertising Costs' during
the year ended January 6, 1996.
 
PRICE WATERHOUSE LLP
New York, New York
February 18, 1997
 
                                      F-1
 






<PAGE>

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
The Warnaco Group, Inc.
 
     We  have  audited  the  accompanying  consolidated  statements  of  income,
stockholders' equity and cash flow of The Warnaco Group, Inc. for the year ended
January 7, 1995. Our audit also included the financial statement schedule listed
in  the Index  at Item  14(a). These financial  statements and  schedule are the
responsibility of the Company's management. Our responsibility is to express  an
opinion on these financial statements and schedule based on our audits.
 
     We  conducted  our audit  in  accordance with  generally  accepted auditing
standards. Those standards require that we plan and perform the audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also  includes
assessing  the  accounting principles  used  and significant  estimates  made by
management, as well as evaluating the overall financial statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In  our opinion,  the consolidated  financial statements  referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of The Warnaco Group, Inc. for the year ended January 7, 1995, in
conformity with generally accepted accounting principles. Also, in our  opinion,
the  related financial  statement schedule, when  considered in  relation to the
basic financial statements  taken as a  whole, presents fairly  in all  material
respects the information set forth therein.
 
                                                   ERNST & YOUNG LLP
 
New York, New York
February 23, 1995
 
                                      F-2







<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                          CONSOLIDATED BALANCE SHEETS
                           (IN THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                                                          JANUARY 6,     JANUARY 4,
                                                                                             1996           1997
                                                                                          -----------    -----------
<S>                                                                                       <C>            <C>
ASSETS
Current assets:
     Cash, restricted $3,939 -- 1995 and $134 -- 1996..................................    $   6,162     $    11,840
     Accounts receivable, less allowance for doubtful accounts of $1,960 -- 1995 and
      $2,475 -- 1996...................................................................      156,607         211,038
     Inventories.......................................................................      356,466         387,318
     Prepaid expenses..................................................................       23,148          40,313
                                                                                          -----------    -----------
          Total current assets.........................................................      542,383         650,509
                                                                                          -----------    -----------
Property, plant and equipment, at cost:
     Land and land improvements........................................................        5,741           5,690
     Buildings and building improvements...............................................       67,667          67,868
     Machinery and equipment...........................................................      113,968         133,223
                                                                                          -----------    -----------
                                                                                             187,376         206,781
     Less: Accumulated depreciation....................................................       81,051          85,244
                                                                                          -----------    -----------
          Net property, plant and equipment............................................      106,325         121,537
                                                                                          -----------    -----------
Other assets:
     Deferred financing costs, less accumulated amortization of $139 -- 1995 and
      $553 -- 1996.....................................................................        1,522           3,536
     Licenses, trademarks, intangible and other assets, at cost, less accumulated
      amortization of $57,596 -- 1995 and $61,801 -- 1996..............................      159,230         164,402
     Excess of cost over net assets acquired, less accumulated amortization of
      $37,066 -- 1995 and $36,005 -- 1996..............................................      112,805         180,495
     Deferred income tax asset.........................................................       18,822          22,465
                                                                                          -----------    -----------
          Total other assets...........................................................      292,379         370,898
                                                                                          -----------    -----------
                                                                                           $ 941,087     $ 1,142,944
                                                                                          -----------    -----------
                                                                                          -----------    -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowing under revolving credit facility.........................................    $  51,033     $   146,960
     Borrowing under foreign credit facilities.........................................       --              19,185
     Current portion of long-term debt.................................................       26,700          49,281
     Accounts payable..................................................................      123,447         174,149
     Accrued liabilities...............................................................       28,461          50,123
     Federal and other income taxes....................................................        5,231             195
                                                                                          -----------    -----------
          Total current liabilities....................................................      234,872         439,893
                                                                                          -----------    -----------
Long-term debt.........................................................................      194,301         215,805
                                                                                          -----------    -----------
Other long-term liabilities............................................................       11,613          11,532
                                                                                          -----------    -----------
Stockholders' equity:
     Preferred Stock; $.01 par value 10,000,000 shares authorized, none issued in 1995
      and 1996, respectively...........................................................       --             --
     Class A Common Stock, $.01 par value, 130,000,000 shares authorized, 51,745,512
      and 51,861,512 outstanding in 1995 and 1996, respectively........................          521             524
     Capital in excess of par value....................................................      567,965         575,691
     Cumulative translation adjustment.................................................       (3,745)         (3,307)
     Accumulated deficit...............................................................      (46,896)        (69,667)
     Treasury stock, at cost...........................................................       (5,000)        (12,030)
     Notes receivable for common stock issued and unearned stock compensation..........      (12,544)        (15,497)
                                                                                          -----------    -----------
          Total stockholders' equity...................................................      500,301         475,714
                                                                                          -----------    -----------
                                                                                           $ 941,087     $ 1,142,944
                                                                                          -----------    -----------
                                                                                          -----------    -----------
</TABLE>
 
  This Statement should be read in conjunction with the accompanying Notes to
                       Consolidated Financial Statements.
 
                                      F-3
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                        FOR THE YEAR ENDED
                                                                              --------------------------------------
                                                                              JANUARY 7,    JANUARY 6,    JANUARY 4,
                                                                                 1995          1996          1997
                                                                              ----------    ----------    ----------
 
<S>                                                                           <C>           <C>           <C>
Net revenues...............................................................    $ 788,758     $ 916,179    $1,063,823
Cost of goods sold(a)......................................................      532,998       606,498       736,116
Selling, administrative and general expenses(b)............................      159,573       195,793       301,732
                                                                              ----------    ----------    ----------
Income before interest and income taxes....................................       96,187       113,888        25,975
Interest expense...........................................................       32,459        33,867        32,435
                                                                              ----------    ----------    ----------
Income (loss) before income taxes..........................................       63,728        80,021        (6,460)
Provision for income taxes.................................................          400        30,408         1,779
                                                                              ----------    ----------    ----------
Income (loss) before extraordinary items...................................       63,328        49,613        (8,239)
Extraordinary items, net of income tax benefits of $1,913 -- 1995..........       --            (3,120)       --
                                                                              ----------    ----------    ----------
Net income.................................................................    $  63,328     $  46,493    $   (8,239)
                                                                              ----------    ----------    ----------
                                                                              ----------    ----------    ----------
 
Income per common share:
     Income (loss) before extraordinary items..............................    $    1.53     $    1.10    $    (0.16)
     Extraordinary items...................................................       --             (0.07)       --
                                                                              ----------    ----------    ----------
Net income per common share................................................    $    1.53     $    1.03    $    (0.16)
                                                                              ----------    ----------    ----------
                                                                              ----------    ----------    ----------
 
Weighted average number of shares of common stock outstanding..............       41,285        45,278        51,707
                                                                              ----------    ----------    ----------
                                                                              ----------    ----------    ----------
</TABLE>
 
------------
 
 (a) Includes  $37,868,000 of non-recurring  items in the  year ended January 4,
     1997. See Note 4 of Notes to Consolidated Financial Statements.
 
 (b) Includes $3,000,000,  $11,745,000  and $100,672,000  of  non-recurring  and
     special  items in  the years  ended January  7, 1995,  January 6,  1996 and
     January 4, 1997, respectively. See Notes  3 and 4 of Notes to  Consolidated
     Financial Statements.
 
  This Statement should be read in conjunction with the accompanying Notes to
                       Consolidated Financial Statements.
 
                                      F-4
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                                                                   NOTES
                                                                                                                 RECEIVABLE
                                                          CAPITAL                                                FOR COMMON
                                               CLASS A       IN       CUMULATIVE                                 STOCK AND
                                               COMMON    EXCESS OF    TRANSLATION   ACCUMULATED    TREASURY    UNEARNED STOCK
                                                STOCK    PAR VALUE    ADJUSTMENT      DEFICIT        STOCK      COMPENSATION
                                               -------   ----------   -----------   ------------   ---------   --------------
 
<S>                                            <C>       <C>          <C>           <C>            <C>         <C>
Balance at January 8, 1994....................  $ 404     $315,068      $   279      ($ 147,225)   $      --      ($ 9,391)
Issued 1,699,492 shares of Class A Common
  Stock in connection with the Calvin Klein
  business....................................     17       22,804
Payments of employee notes receivable.........                                                                       2,199
Net income....................................                                           63,328
Change in cumulative translation adjustment...                           (2,011)
Purchase of 286,600 shares of Treasury
  Stock.......................................   --                                                   (5,000)
                                               -------   ----------   -----------   ------------   ---------   --------------
Balance at January 7, 1995....................    421      337,872       (1,732)        (83,897)      (5,000)       (7,192)
Sold 9,717,000 shares of Class A Common Stock
  net of expenses of $10,180..................     97      222,931
Payments of employee notes receivable.........                                                                       1,028
Issued 320,000 shares of restricted stock.....      3        6,957                                                  (6,960)
Dividends.....................................                                           (9,492)
Employee stock options exercised..............   --            205
Amortization of unearned stock compensation...                                                                         580
Net income....................................                                           46,493
Change in cumulative translation adjustment...                           (2,013)
                                               -------   ----------   -----------   ------------   ---------   --------------
Balance at January 6, 1996....................    521      567,965       (3,745)        (46,896)      (5,000)      (12,544)
Issued 190,700 shares of restricted stock.....      2        5,576                                                  (5,578)
Dividends.....................................                                          (14,532)
Employee stock options exercised and payment
  of employee notes receivable................      1        2,150                                                     123
Amortization of unearned stock compensation...                                                                       2,502
Net loss......................................                                           (8,239)
Change in cumulative translation adjustment...                              438
Purchase of 250,000 shares of Treasury
  Stock.......................................   --                                                   (7,030)
                                               -------   ----------   -----------   ------------   ---------   --------------
Balance at January 4, 1997....................  $ 524     $575,691      ($3,307)     ($  69,667)   ($ 12,030)     ($15,497)
                                               -------   ----------   -----------   ------------   ---------   --------------
                                               -------   ----------   -----------   ------------   ---------   --------------
 
<CAPTION>
 
                                                 TOTAL
                                                --------
<S>                                            <<C>
Balance at January 8, 1994....................  $159,135
Issued 1,699,492 shares of Class A Common
  Stock in connection with the Calvin Klein
  business....................................    22,821
Payments of employee notes receivable.........     2,199
Net income....................................    63,328
Change in cumulative translation adjustment...    (2,011)
Purchase of 286,600 shares of Treasury
  Stock.......................................    (5,000)
                                                --------
Balance at January 7, 1995....................   240,472
Sold 9,717,000 shares of Class A Common Stock
  net of expenses of $10,180..................   223,028
Payments of employee notes receivable.........     1,028
Issued 320,000 shares of restricted stock.....     --
Dividends.....................................    (9,492)
Employee stock options exercised..............       205
Amortization of unearned stock compensation...       580
Net income....................................    46,493
Change in cumulative translation adjustment...    (2,013)
                                                --------
Balance at January 6, 1996....................   500,301
Issued 190,700 shares of restricted stock.....     --
Dividends.....................................   (14,532)
Employee stock options exercised and payment
  of employee notes receivable................     2,274
Amortization of unearned stock compensation...     2,502
Net loss......................................    (8,239)
Change in cumulative translation adjustment...       438
Purchase of 250,000 shares of Treasury
  Stock.......................................    (7,030)
                                                --------
Balance at January 4, 1997....................  $475,714
                                                --------
                                                --------
</TABLE>
 
  This Statement should be read in conjunction with the accompanying Notes to
                       Consolidated Financial Statements.
 
                                      F-5
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                          INCREASE (DECREASE) IN CASH
                           (IN THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                                                                   FOR THE YEAR ENDED
                                                                                       ------------------------------------------
<S>                                                                                    <C>             <C>             <C>
                                                                                       JANUARY 7,      JANUARY 6,      JANUARY 4,
                                                                                          1995            1996            1997
                                                                                       ----------      ----------      ----------
Cash flow from operations:
  Net income (loss)...............................................................      $ 63,328        $  46,493       ($  8,239)
  Non-cash items included in net income:
     Depreciation and amortization................................................        18,798           22,058          27,576
     Extraordinary item...........................................................        --                3,120          --
     Amortization of unearned stock compensation..................................        --                  580           2,502
     Charge related to exiting the Hathaway business, restructuring and realigning
      the intimate apparel division and other items...............................        --               --             138,540
     (Increase) decrease in deferred income tax assets............................        (2,467)          21,641          (3,643)
  Other changes in operating accounts.............................................          (519)        (103,305)        (53,312)
  Income taxes paid...............................................................        (1,314)          (4,168)         (8,672)
                                                                                       ----------      ----------      ----------
Net cash provided from (used in) operations before non-recurring items............        77,826          (13,581)         94,752
Cash expenses related to exiting the Hathaway business and restructuring and
  realigning the intimate apparel division and other items........................        --               --             (67,747)
                                                                                       ----------      ----------      ----------
Net cash provided from (used in) operations.......................................        77,826          (13,581)         27,005
                                                                                       ----------      ----------      ----------
Cash flow from investing activities:
  Proceeds from the sale of fixed assets..........................................           773              616           1,135
  Increase in intangibles and other assets........................................        (9,936)         (34,320)         (8,178)
  Purchase of property, plant and equipment.......................................       (17,534)         (39,122)        (33,765)
  Acquisition of businesses, net of cash acquired.................................       (33,103)         (11,200)        (85,648)
  Payment of assumed liabilities and acquisition accruals.........................        --               --             (30,052)
                                                                                       ----------      ----------      ----------
Net cash used in investing activities.............................................       (59,800)         (84,026)       (156,508)
                                                                                       ----------      ----------      ----------
Cash flow from financing activities:
  Proceeds from sale of Class A Common Stock and payment of notes receivable from
     employees....................................................................         2,199          224,261           2,274
  Borrowing under credit facilities...............................................        14,835          (64,646)        105,500
  Proceeds from other debt........................................................         8,582              872          79,249
  Repayments of debt..............................................................       (41,841)         (46,800)        (27,839)
  Increase in deferred financing cost.............................................        (1,767)          (1,599)         (2,441)
  Cash dividends paid.............................................................        --               (5,868)        (14,532)
  Purchase of treasury shares.....................................................        (5,000)          --              (7,030)
  Other...........................................................................         4,106           (6,242)         --
                                                                                       ----------      ----------      ----------
Cash provided from (used for) financing activities................................       (18,886)          99,978         135,181
                                                                                       ----------      ----------      ----------
Increase (decrease) in cash.......................................................          (860)           2,371           5,678
Cash at beginning of year.........................................................         4,651            3,791           6,162
                                                                                       ----------      ----------      ----------
Cash at end of year...............................................................      $  3,791        $   6,162       $  11,840
                                                                                       ----------      ----------      ----------
                                                                                       ----------      ----------      ----------
Other changes in operating accounts:
  Accounts receivable.............................................................      ($14,328)       ($  7,948)      ($ 29,690)
  Inventories.....................................................................        (4,646)        (104,283)        (36,526)
  Prepaid expenses................................................................         6,256           (7,256)        (16,985)
  Accounts payable and accrued expenses...........................................        13,810            8,702          23,411
  Federal and other income taxes..................................................           400            9,493           5,880
  Other...........................................................................        (2,011)          (2,013)            598
                                                                                       ----------      ----------      ----------
                                                                                        ($   519)       ($103,305)      ($ 53,312)
                                                                                       ----------      ----------      ----------
                                                                                       ----------      ----------      ----------
</TABLE>
 
   This Statement should be read in conjunction with the accompanying Notes to
                       Consolidated Financial Statements.
 
                                      F-6







<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Organization:  The Warnaco Group, Inc.  (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 the Company.
 
     Nature of Operations: The Company designs, manufactures and markets a broad
line  of  women's  intimate  apparel,  men's  underwear  and  men's  sportswear,
accessories and dress  furnishings under a  number of owned  and licensed  brand
names.  The Company's products are sold to department and specialty stores, mass
merchandise stores and catalog and other retailers throughout the United States,
Canada, Mexico and Western Europe.
 
     Basis of  Consolidation  and Presentation:  The  accompanying  Consolidated
Financial  Statements include  the accounts of  The Warnaco Group,  Inc. and all
subsidiary companies  for  the years  ended  January 7,  1995  ('Fiscal  1994'),
January 6, 1996 ('Fiscal 1995') and January 4, 1997 ('Fiscal 1996').
 
     The  preparation  of  financial  statements  in  conformity  with generally
accepted  accounting  principles  requires  management  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.
 
     Certain amounts  have been  reclassified  to conform  to the  current  year
presentation.
 
     Translation of Foreign Currencies: Cumulative translation adjustments arise
primarily  from consolidating  the net assets  and liabilities  of the Company's
foreign operations at  current rates of  exchange as of  the respective  balance
sheet  date and are applied directly to stockholders' equity. Income and expense
items for the Company's foreign operations are translated using monthly  average
exchange rates.
 
     Inventories:  Inventories are stated at the  lower of cost, determined on a
first-in-first-out basis, or market.
 
     Depreciation and  Amortization:  Provision  is  made  for  depreciation  of
property,  plant and equipment  computed over the estimated  useful lives of the
assets using the straight-line method, as summarized below:
 
<TABLE>
<S>                                                                                  <C>
Buildings......................................................................      20-40 years
Building improvements..........................................................       2-20 years
Machinery and equipment........................................................       3-10 years
</TABLE>
 
     Licenses, trademarks and  other intangible  assets are  amortized over  the
estimated economic life of the assets which range from 7 to 40 years. The excess
of  cost over net assets acquired is amortized over 40 years. The carrying value
of the excess of cost over net  assets acquired is reviewed regularly to  assess
recoverability.  The Company will reduce the carrying value of this asset if the
value is impaired. Deferred financing costs  are amortized over the life of  the
related debt, using the debt outstanding method.
 
     Start-Up  Costs:  The  Company  defers certain  costs  associated  with the
start-up of new  manufacturing facilities and  certain new businesses.  Deferred
costs are amortized using the straight-line method, principally over five years.
Start-up   costs,  net   of  accumulated  amortization,   were  $34,673,000  and
$38,637,000 at  January 6,  1996  and January  4,  1997, respectively,  and  are
included in other assets.
 
     Employee  Retirement Plans: The Company has a non-contributory pension plan
and a  defined  contribution  retirement  plan for  the  benefit  of  qualifying
employees.  Contributions are deposited with fund managers who invest the assets
of the plans.
 
     Income Taxes: The provision for income  taxes and income taxes payable  are
determined  in accordance with  Statement of Financial  Accounting Standards No.
109.
 
                                      F-7
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     Capitalized  Leases:  The   asset  values  and   related  amortization   of
capitalized   leases  are  included  with  property,  plant  and  equipment  and
accumulated depreciation  and the  associated debt  is included  with  long-term
debt.
 
     Revenue  Recognition: The Company recognizes revenue when goods are shipped
to customers.
 
     Income Per Common Share: Income per  common share is based on the  weighted
average  number  of  shares  of common  stock  outstanding  taking  into account
potential dilution from common stock equivalents.
 
     Concentration of Credit Risk: The Company sells its products to  department
stores,  specialty outlets, catalogs, direct sellers and mass merchandisers. The
Company  performs  periodic  credit  evaluations  of  its  customers'  financial
condition  and generally  does not require  collateral. Credit  losses have been
within management's expectations. No customer  accounted for more than 10.0%  of
the Company's net revenues in any of the three years in the period ended January
4, 1997.
 
NOTE 2 - ACQUISITIONS
 
     On  March 14, 1994,  the Company acquired certain  assets and the worldwide
trademarks, rights and businesses of Calvin Klein men's underwear, licensed  the
Calvin  Klein  trademark  for  men's  accessories  and  acquired  the  worldwide
trademarks, rights and businesses of Calvin Klein women's intimate apparel  upon
the  expiration of an existing license on  December 31, 1994. The purchase price
was approximately $60,924,000 and consisted  of cash payments of $33,103,000  in
fiscal  1994 and $5,000,000 in fiscal 1995  and the issuance of 1,699,492 shares
of the Company's Common Stock valued at the fair market value ($13.43 per  share
or  $22,824,000) for  such shares. The  acquisition was accounted  for under the
purchase  method  of   accounting.  Accordingly,   the  accompanying   financial
statements  include the results of the  Calvin Klein businesses commencing March
15, 1994.
 
     The purchase price was  allocated to the fair  value of assets acquired  as
summarized below:
 
<TABLE>
<CAPTION>
                                                              (IN MILLIONS OF DOLLARS)
 
<S>                                                          <C>
Accounts receivable.......................................             $  7.4
Inventories...............................................                7.9
Property and equipment....................................                0.2
Intangible and other assets...............................               45.4
                                                                       ------
Total purchase price......................................             $ 60.9
                                                                       ------
                                                                       ------
</TABLE>
 
     In  February 1995,  the Company  terminated the  license agreement  for the
production of men's underwear  and women's intimate  apparel bearing the  Calvin
Klein  name in  Canada. The Company  designs, produces and  markets Calvin Klein
men's underwear and women's intimate apparel in Canada. The cost of  terminating
the  license agreement before its expiration in the year 2000 was $6,200,000. In
August 1996, the  Company terminated  a production agreement  with the  original
seller  of the Calvin Klein license in  Canada prior to its expiration date. The
cost to terminate the production agreement was approximately $1,793,000.
 
     On February 9, 1996, the Company  acquired substantially all of the  assets
(including  certain subsidiaries) comprising the  GJM Group of Companies ('GJM')
from Cygne Designs, Inc. GJM is a private label manufacturer of women's lingerie
and sleepwear. The  purchase price consisted  of a cash  payment of  $12,500,000
plus assumed liabilities.
 
     In  the third and fourth  quarters of fiscal 1996  the Company acquired the
assets and  stock  in  the  companies comprising  the  Lejaby/Euralis  group  of
companies  ('Lejaby'),  a leading  European  intimate apparel  manufacturer, for
approximately  $79,249,000  plus  assumed  liabilities  and  certain  fees   and
expenses.  Funds to consummate  the transaction were provided  by members of the
Company's bank credit group. The terms  of the bank loans are substantially  the
same as the terms of the Company's
 
                                      F-8
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
existing  credit  agreements and  include a  term loan  facility of  370 million
French Francs and revolving  loan facilities of 150  million French Francs.  The
term  and revolving  loans mature on  December 31,  2001. On July  19, 1996, the
Company acquired Bodyslimmers, for approximately $6,500,000 million plus assumed
liabilities. Bodyslimmers designs  and markets body  slimming undergarments  for
women.
 
     The  GJM, Lejaby and Bodyslimmers acquisitions were accounted for using the
purchase method of  accounting. The  results of  operations of  GJM, Lejaby  and
Bodyslimmers  have been included in the consolidated results of operations since
the respective  dates  of acquisition.  The  purchase price  of  the  respective
acquisitions  was allocated to the fair  value of the assets acquired, including
certain trademarks  and intangible  assets. In  addition, the  Company  incurred
certain  costs  to  consolidate  the  acquired  businesses  into  the  Company's
operations and  terminate  certain  contracts and  agreements.  The  preliminary
allocation  of acquisition costs  to the fair  value of the  assets acquired and
liabilities assumed is summarized below:
 
<TABLE>
<CAPTION>
                                                                        (IN THOUSANDS)
 
<S>                                                                     <C>
Accounts receivable..................................................      $ 34,772
Inventories..........................................................        30,514
Other current assets.................................................         1,180
Fixed assets.........................................................         6,932
Intangible and other assets..........................................        90,478
Notes payable........................................................        (2,287)
Accounts payable.....................................................       (29,115)
Accrued liabilities..................................................       (46,826)
                                                                        --------------
Purchase price -- net of cash balances of acquired entities..........      $ 85,648
                                                                        --------------
                                                                        --------------
</TABLE>
 
     These acquisitions did not have a material pro-forma impact on consolidated
earnings.
 
NOTE 3 - SPECIAL CHARGE FOR ADVERTISING COSTS PREVIOUSLY DEFERRABLE
 
     In December 1993,  the American Institute  of Certified Public  Accountants
issued  Statement  of  Position 93-7  --  Reporting on  Advertising  Costs ('SOP
93-7'). SOP  93-7 requires,  among other  things, that  certain advertising  and
promotion  costs that the Company had previously deferred and amortized over the
period the advertising benefitted be expensed when the advertisement first runs.
As a  result, the  Company  recorded a  special  charge for  advertising  costs,
previously  deferrable, of $11,745,000 ($7,282,000 net of income tax benefits of
$4,463,000) primarily in the fourth quarter of fiscal 1995 related to SOP  93-7.
Advertising  and  promotion expense  before the  special charge  for advertising
costs, previously deferrable,  was $37,192,000, $40,988,000  and $59,544,000  in
the  years  ended  January  7,  1995,  January  6,  1996  and  January  4, 1997,
respectively.
 
NOTE 4 - NON-RECURRING EXPENSE
 
     In  January  1994,  the  Company's  leased  warehouse  located  in  Sylmar,
California   suffered  significant  structural  damage  due  to  the  California
earthquake  and  was  permanently  closed.  The  Company  was  able  to  recover
substantially  all of its inventory, transfer  the inventory to other locations,
and begin  shipping at  normal levels  in  March 1994.  The Company  recorded  a
non-recurring  expense of approximately $3 million in fiscal 1994 related to the
insurance deductible.
 
     The acquisition of the GJM businesses in February 1996, significantly added
to the Company's low  cost manufacturing capacity and  resulted in an  immediate
expansion  of product  lines. The  Company undertook  a strategic  review of its
businesses and manufacturing facilities. The acquisitions of
 
                                      F-9
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Bodyslimmers and Lejaby were  also considered. As a  result of this review,  the
Company  has taken the actions described below which resulted in a non-recurring
charge in fiscal 1996 summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                            (IN THOUSANDS)
 
<S>                                                                                         <C>
Loss related to the sale of the Hathaway business........................................      $ 46,058
Charge for the consolidation and realignment of the Intimate Apparel Division............        72,073
Other items, including merger termination costs..........................................        20,409
                                                                                            --------------
                                                                                                138,540
Less: income tax benefits................................................................       (49,736)
                                                                                            --------------
                                                                                               $ 88,804
                                                                                            --------------
                                                                                            --------------
</TABLE>
 
     The losses reported above include inventory markdowns directly attributable
to the decision to exit the Hathaway  business as well as the consolidation  and
realignment  of the  intimate apparel division.  It is  difficult to distinguish
inventory markdowns  attributable  to the  decision  to exit  or  realign  these
activities from external market conditions. Accordingly, inventory markdowns, as
well  as  gross  margin  losses  of Hathaway  incurred  during  fiscal  1996 and
settlement of  insurance  claims  receivable relating  to  the  1994  California
earthquake and other claims receivable aggregating $37,868,000, are reflected in
the  consolidated statement of  operations within cost of  goods sold. All other
charges totaling $100,672,000 are  reflected within selling, administrative  and
general  expenses.  The Company  estimated certain  expenses and  charges during
interim periods of fiscal 1996. The actual expenses as reflected below differ in
some  cases  from  the  Company's  original  estimates.  A  description  of  the
non-recurring items follows.
 
EXIT FROM THE HATHAWAY BUSINESS
 
     On  May 6, 1996, after a careful evaluation of the Company's Hathaway men's
dress shirt  operations, the  Company announced  that it  had decided  to  cease
manufacturing  and marketing this brand. On  November 12, 1996 the Company sold,
to an  investor  group,  certain  assets comprising  the  Hathaway  dress  shirt
manufacturing  operations in  Waterville, Maine and  Prescott, Ontario including
certain inventory,  property  and  equipment and  other  assets  (the  'Hathaway
Assets').  The Company's Puerto  Rico facility (not included  in the sale) ended
production of Hathaway  products in 1995  and necessary legal  filings to  cease
operations in the leased Puerto Rico plant were made in May 1996.
 
     Net  revenues of  the Hathaway  business were  $42,432,000, $37,754,000 and
$27,800,000, for the years ended January 7, 1995, January 6, 1996 and January 4,
1997, respectively. Results of operations for  the years ended January 7,  1995,
January  6, 1996 and January  4, 1997 generated a  pre-tax loss of approximately
$1,298,000, $4,641,000 and $8,669,000, respectively.
 
     Losses recorded  in  fiscal  1996  related to  the  Hathaway  business  are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                           (IN THOUSANDS)
 
<S>                                                                                        <C>
Write-down of assets to fair value (including $13.8 million of intangible assets and
  $1.0 million in cost of goods sold)...................................................      $ 32,420
Severance and other employee costs......................................................         4,760
Legal and professional fees.............................................................           209
Losses incurred during fiscal 1996......................................................         8,669
                                                                                           --------------
Total charges...........................................................................        46,058
Less: income tax benefits...............................................................       (16,535)
                                                                                           --------------
     Total net loss related to exit from the Hathaway business -- fiscal 1996...........      $ 29,523
                                                                                           --------------
                                                                                           --------------
</TABLE>
 
     Through January 4, 1997, the Company had expended approximately $13,200,000
of  net cash  related to  the Hathaway  disposition. In  addition, the Company's
income tax payments will  be reduced in future  periods resulting in  additional
positive  cash flows.  The Company does  not expect to  recognize any additional
charges related to exiting the Hathaway business or to incur any additional cash
expenses.
 
                                      F-10
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
INTIMATE APPAREL DIVISION CONSOLIDATION AND REALIGNMENT
 
     In April 1996, the Company  announced the consolidation and realignment  of
certain  of  its  intimate  apparel  manufacturing,  distribution,  selling  and
administrative functions and  facilities in  the United States  and Europe.  The
consolidation  and realignment has resulted in  a non-recurring charge in fiscal
1996 of $46,198,000, net of income  tax benefits of $25,875,000. The closing  of
several  manufacturing  facilities  and  consolidation  of  certain distribution
operations has resulted in  the Company incurring  certain integration costs  in
its  remaining manufacturing  facilities to reconfigure  product assortments and
retrain  existing  personnel.  The  costs  attendant  to  the  realignment   and
retraining incurred in fiscal 1996 amounted to approximately $16,100,000.
 
     In  order  to maximize  the cost  savings  and efficiencies  made available
through the consolidation of facilities and the additional volumes  contemplated
as  a result of the  Lejaby, GJM and Bodyslimmers  acquisitions, the Company has
re-evaluated the viability of all product lines and styles. As a result, certain
products and styles have been discontinued  to permit the investment of  working
capital  in products and  styles with greater returns.  The liquidation of these
products,  completed  in  fiscal   1996,  resulted  in   mark  down  losses   of
approximately $18,070,000 in fiscal 1996.
 
     A  summary  of  the  total  intimate  apparel  division  consolidation  and
realignment charge follows:
 
<TABLE>
<CAPTION>
                                                                                            (IN THOUSANDS)
 
<S>                                                                                         <C>
Fees and other expenses..................................................................      $  2,840
Lease termination costs..................................................................         6,042
Severance and other employee costs, net of pension curtailment gains.....................        21,861
Realignment of manufacturing facilities and retraining costs.............................        16,100
Disposition and write-down of discontinued inventory.....................................        18,070
Manufacturing variances..................................................................         7,160
                                                                                            --------------
     Total charges.......................................................................        72,073
Less: Income tax benefits................................................................       (25,875)
                                                                                            --------------
     Net intimate apparel consolidation and realignment charge...........................      $ 46,198
                                                                                            --------------
                                                                                            --------------
</TABLE>
 
     Total cash expense incurred through January 4, 1997 related to this  charge
was  approximately $43,600,000  partially offset by  proceeds from  the sales of
certain assets  of approximately  $12  million. The  Company expects  to  expend
approximately  $3,000,000  of  additional  cash  over  the  next  several years,
primarily for lease  termination costs. Future  cash outlays will  be more  than
offset  by tax  benefits realized,  resulting in  a future  cash savings  to the
Company.
 
OTHER
 
     Other non-recurring items  of $13,083,000,  net of income  tax benefits  of
$7,326,000, were incurred in fiscal 1996.
 
     The  addition of the GJM  manufacturing and administrative organization has
enabled the Company to begin manufacturing and direct sourcing certain  products
which had been previously outsourced through a buying agent. This will result in
significant  ongoing cost  savings to the  Company. The cost  of terminating the
existing agency contract was $2,693,000.
 
     The Company has recognized other opportunities for further cost savings  by
consolidating certain administrative and sales functions in Europe following the
Lejaby  acquisition.  Actions  taken  in fiscal  1996,  primarily  reductions in
existing staff, resulted in a non-recurring charge of $6,066,000 in fiscal 1996.
 
     In order to achieve an early resolution of the insurance claims related  to
the  destruction of one of the Company's distribution centers as a result of the
1994 California  earthquake, the  Company accepted  a cash  settlement offer  of
approximately  $19,000,000 and wrote-off the  remaining receivable of $6,082,000
in fiscal 1996. The Company also settled certain other claims for  approximately
$2,568,000 in fiscal 1996.
 
                                      F-11
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     In  June 1996,  the Company  announced its  intent to  merge with Authentic
Fitness Corporation. On July 25, 1996, the Company announced the termination  of
the  merger. The Company incurred legal, accounting and investment advisory fees
in connection with the proposed merger of $3,000,000.
 
     All of the  above costs  were paid  in fiscal  1996. The  Company does  not
expect any future significant cash outlays related to these items.
 
NOTE 5 - EXTRAORDINARY ITEM
 
     In  October 1995, in conjunction with a refinancing of the Company's credit
agreements, as more fully described in Note 11, the Company recorded a  non-cash
extraordinary  charge of $3,120,000  (net of income  tax benefits of $1,913,000)
related to  the  write-off  of  deferred financing  costs  under  the  Company's
previous credit agreement.
 
NOTE 6 - RELATED PARTY TRANSACTIONS
 
     In  1990,  the  Company sold  its  Activewear  Division to  a  newly formed
company, Authentic Fitness Corporation ('Authentic Fitness'). Certain  directors
and  officers  of  the Company  are  also  directors and  officers  of Authentic
Fitness. The Company maintained an equity interest in Authentic Fitness equal to
approximately 3.0% of the  outstanding equity of  Authentic Fitness. The  equity
interest was sold in March 1995 pursuant to an option granted at the time of the
sale.  From time  to time, the  Company and Authentic  Fitness jointly negotiate
contracts and agreements with vendors and suppliers. Authentic Fitness purchases
certain occupancy  services  related  to leased  facilities,  computer  service,
laboratory  testing, transportation  and contract  production services  from the
Company, all  of which  are charged  at  the Company's  cost. Total  charges  to
Authentic  Fitness for these services  were approximately $6,292,000, $5,335,000
and $5,446,000 in the years ended January  7, 1995, January 6, 1996 and  January
4, 1997, respectively.
 
     In  1994, the Company sold certain  trademarks and trade names to Authentic
Fitness for $6,550,000 (net  book value of $0),  a purchase price determined  at
arms-length  based on  an independent  third party  appraisal. The  Company sold
certain inventory to Authentic Fitness for sale in its outlet stores; such sales
totaled $2,400,000, $2,668,000 and $350,000 in the years ended January 7,  1995,
January 6, 1996 and January 4, 1997, respectively. The Company purchases certain
design  and occupancy services from Authentic  Fitness. All services are charged
at Authentic  Fitness' cost.  Charges  for design  and occupancy  services  were
approximately  $1,600,000, $2,206,000 and $1,244,000  in the years ended January
7, 1995,  January  6,  1996  and January  4,  1997,  respectively.  The  Company
purchases  inventory from  Authentic Fitness  for sale  in the  Company's outlet
stores. Inventory purchases from  Authentic Fitness were $2,547,000,  $7,562,000
and  $15,531,000 in the years ended January 7, 1995, January 6, 1996 and January
4, 1997, respectively.  The Company  purchased certain  machinery and  equipment
from  Authentic Fitness in fiscal 1994 for a total purchase price of $1,400,000.
In July 1996, Authentic Fitness announced  that it was exiting the outlet  store
business.  Pursuant to an agreement, leases  relating to four outlet stores were
assigned to the Company and the Company purchased the existing Authentic Fitness
outlet store inventory for its net book value of $2,000,000, included above.
 
     In June 1995, the Company and Authentic Fitness entered into a  sub-license
agreement  whereby  the  Company  secured  rights  to  design,  manufacture  and
distribute certain intimate  apparel using  the Speedo brand  name. The  Company
pays  a royalty to Authentic  Fitness for garments sold  under the Speedo label.
The Company  paid Authentic  Fitness $1,000,000  for this  sub-license.  Royalty
expense under this agreement was approximately $78,000 and $469,000 in the years
ended January 6, 1996 and January 4, 1997, respectively (none in the fiscal year
ended January 7, 1995).
 
     A  director  and a  stockholder  of the  Company  is the  sole stockholder,
President and a director of The Spectrum Group, Inc. ('Spectrum'). Spectrum  and
the Company are parties to an agreement under which Spectrum provides consulting
services to the Company. The Spectrum consulting agreement was amended on May 9,
1991   to  provide  for   annual  fees  of  $350,000   or  such  higher  amount,
 
                                      F-12
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
including expenses, not to exceed $500,000 (plus cost of living increases) for a
period of five  years. The  contract was renewed  through May  9, 1998.  Amounts
charged  to expense pursuant  to these agreements  were $500,000 in  each of the
three fiscal years ended January 4, 1997.
 
NOTE 7 - SEGMENT REPORTING
 
     The Company  operates within  one  industry segment  -- the  marketing  and
manufacturing  of apparel. The Company has  no customer which accounted for more
than 10.0% of  the Company's  net revenues  for any of  the three  years in  the
period ended January 4, 1997. The Company operates in several geographic areas.
<TABLE>
<CAPTION>
                                                                         CANADA AND
         FOR THE YEAR ENDED JANUARY 7, 1995            UNITED STATES    LATIN AMERICA      EUROPE       CONSOLIDATED
----------------------------------------------------   -------------    -------------     --------      ------------
                                                                          (AMOUNTS IN THOUSANDS)
<S>                                                    <C>              <C>               <C>           <C>
Net revenues........................................     $ 696,174         $47,668        $ 44,916       $  788,758
                                                       -------------    -------------     --------      ------------
                                                       -------------    -------------     --------      ------------
Operating profit....................................     $ 113,752         $ 5,937        $  2,561          122,250
                                                       -------------    -------------     --------
                                                       -------------    -------------     --------
General corporate expense -- net....................                                                        (26,063)
Interest expense....................................                                                        (32,459)
                                                                                                        ------------
Income before income taxes..........................                                                     $   63,728
                                                                                                        ------------
                                                                                                        ------------
 
<CAPTION>
         FOR THE YEAR ENDED JANUARY 6, 1996
----------------------------------------------------
<S>                                                    <C>              <C>               <C>           <C>
Net revenues........................................     $ 807,491         $57,820        $ 50,868       $  916,179
                                                       -------------    -------------     --------      ------------
                                                       -------------    -------------     --------      ------------
Operating profit....................................     $ 142,673         $ 9,948        $  2,449       $  155,070
                                                       -------------    -------------     --------
                                                       -------------    -------------     --------
General corporate expense -- net....................                                                        (41,182)
Interest expense....................................                                                        (33,867)
                                                                                                        ------------
Income before extraordinary items and income
  taxes.............................................                                                     $   80,021
                                                                                                        ------------
                                                                                                        ------------
Identifiable assets at January 6, 1996..............     $ 707,258         $43,093        $ 39,329       $  789,680
                                                       -------------    -------------     --------
                                                       -------------    -------------     --------
Corporate assets....................................                                                        151,407
                                                                                                        ------------
     Total Assets at January 6, 1996................                                                     $  941,087
                                                                                                        ------------
                                                                                                        ------------
<CAPTION>
         FOR THE YEAR ENDED JANUARY 4, 1997
----------------------------------------------------
<S>                                                    <C>              <C>               <C>           <C>
Net revenues........................................     $ 902,572         $66,297        $ 94,954       $1,063,823
                                                       -------------    -------------     --------      ------------
                                                       -------------    -------------     --------      ------------
Operating profit....................................     $ 149,632         $ 9,444        $ 15,375       $  175,451
                                                       -------------    -------------     --------
                                                       -------------    -------------     --------
General corporate expense -- net....................                                                       (148,476)
Interest expense....................................                                                        (32,435)
                                                                                                        ------------
Income (loss) before income taxes...................                                                     $   (6,460)
                                                                                                        ------------
                                                                                                        ------------
Identifiable assets at January 4, 1997..............     $ 859,971         $32,810        $102,730          995,511
                                                       -------------    -------------     --------
                                                       -------------    -------------     --------
Corporate assets....................................                                                        147,433
                                                                                                        ------------
     Total Assets at January 4, 1997................                                                     $1,142,944
                                                                                                        ------------
                                                                                                        ------------
</TABLE>
 
     Operating  profit is  total revenue  less operating  expenses. In computing
operating profit,  none of  the  following items  has  been added  or  deducted:
general   corporate  expense  --   net,  interest  expense   and  income  taxes.
Non-recurring expense  of  $3,000,000 in  fiscal  1994 is  included  in  general
corporate  expense -- net. Special charges related to SOP 93-7 of $11,745,000 in
fiscal 1995 are included in general corporate expense -- net. Restructuring  and
other  non-recurring charges  related to  the sale  of the  Hathaway dress shirt
operations, the restructuring and re-alignment of the intimate apparel  division
and  other  items  totalling  $138,540,000  are  included  in  general corporate
expense -- net in fiscal 1996.
 
     Identifiable assets are  those assets  of the Company  that are  associated
with  the operations in  each geographic area.  Corporate assets are principally
accounts  receivable,  prepaid  expenses,   property  and  equipment,   deferred
financing costs, deferred income tax assets and other assets.
 
                                      F-13
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 8 - INCOME TAXES
 
     The  following presents the United States  and foreign components of income
from operations  before income  taxes and  the related  provision (benefit)  for
United States federal and other income taxes:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 7,      JANUARY 6,      JANUARY 4,
                                                                            1995            1996            1997
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
<S>                                                                      <C>             <C>             <C>
United States income (loss) from operations before income taxes.....      $ 63,574        $ 75,542        $ (24,659)
Foreign income before taxes.........................................           154           4,479           18,199
                                                                         ----------      ----------      ----------
Income (loss) before income taxes, and extraordinary items..........      $ 63,728        $ 80,021        $  (6,460)
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
 
Current Provision:
United States federal...............................................      $ 18,295        $  1,790        $  --
State and Puerto Rico...............................................         4,253           6,013               60
Foreign.............................................................           487           1,923            1,161
                                                                         ----------      ----------      ----------
                                                                            23,035           9,726            1,221
 
Deferred Provision (Benefit):
United States federal...............................................       (22,635)         23,792           (2,767)
State and Puerto Rico...............................................        --              (3,110)             102
Foreign.............................................................        --              --                3,223
                                                                         ----------      ----------      ----------
                                                                           (22,635)         20,682              558
                                                                         ----------      ----------      ----------
Total...............................................................      $    400        $ 30,408        $   1,779
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     The Company re-evaluated its deferred tax asset in fiscal 1994 and reversed
a portion of its valuation allowance amounting to $22,635,000.
 
     At January 6, 1996 and January 4, 1997, the Company had net deferred income
tax  assets of $16,864,000 and $16,381,000, respectively. Future tax benefits of
$3,000,000 were  realized  in fiscal  1994  from the  treatment  of  acquisition
related liabilities and were credited against goodwill.
 
     The following presents the reconciliation of the provision for income taxes
to United States federal income taxes computed at the statutory rate:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 7,      JANUARY 6,      JANUARY 4,
                                                                            1995            1996            1997
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
 
<S>                                                                      <C>             <C>             <C>
Income (loss) from continuing operations before income taxes........      $ 63,728        $ 80,021        $ (6,460)
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
Provision for income taxes @ the statutory rate.....................        22,304          28,007          (2,261)
Foreign income taxes @ rates in excess of (lower than) the statutory
  rate..............................................................           433             300          (2,108)
State income taxes (benefit) -- net of federal benefit..............         2,764           3,908             105
Non-deductible intangible amortization and disposals................         1,321           1,256           4,736
Other -- net........................................................        --                 234           1,307
Current benefit of capital loss carryforward........................        (3,787)         (1,275)         --
Current benefit for United States NOL carryforward..................       (22,635)         (2,022)         --
                                                                         ----------      ----------      ----------
Provision (benefit) for income taxes................................      $    400        $ 30,408        $  1,779
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     For  tax purposes,  the Company has  estimated United  States net operating
loss carryforwards of approximately $53,530,000  which expire from 2001  through
2007.
 
                                      F-14
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     As a result of certain sales of the Company's Common Stock in 1991 and 1992
and  other ownership  changes occurring  during the  prior three-year  period, a
change of  ownership occurred  under Internal  Revenue Code  Section 382,  which
effectively  limits the rate at which the  Company may utilize its net operating
loss carryforwards. Nevertheless, the  Company expects that it  will be able  to
utilize  substantially all of the net operating loss carryforwards it would have
used, absent any Section 382 limitation.
 
     The components of deferred tax assets and liabilities as of January 6, 1996
and January 4, 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 6,      JANUARY 4,
                                                                                            1996            1997
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
<S>                                                                                      <C>             <C>
Deferred tax assets:
     Discounts and sales allowances.................................................      $  1,502        $   1,841
     Postretirement benefits........................................................         3,675            3,675
     State and local taxes..........................................................           620              584
     Amortization of intangibles....................................................         4,635            7,674
     Alternative minimum tax credit carryforwards...................................         1,832            1,907
     Net operating loss carryforwards...............................................        13,935           18,736
                                                                                         ----------      ----------
                                                                                          $ 26,199        $  34,417
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Deferred tax liabilities:
     Inventory......................................................................      $    462        $   3,372
     Prepaid advertising............................................................         1,453            2,388
     Deferred expenses..............................................................         2,165            2,165
     Foreign acquisition adjustments................................................        --                3,223
     Depreciation...................................................................         1,678            2,587
     Retirement plans...............................................................           485              485
     Other..........................................................................         3,092            3,816
                                                                                         ----------      ----------
                                                                                          $  9,335        $  18,036
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</TABLE>
 
NOTE 9 - EMPLOYEE RETIREMENT PLANS
 
  Pensions
 
     The Company has a defined  benefit pension plan which covers  substantially
all  non-union domestic employees (the 'Plan').  The Plan is noncontributory and
benefits are based  upon years  of service and  average earnings  for the  eight
highest  consecutive calendar years of compensation  (increasing to ten years in
1999  and  fifteen  years  in  2004)  during  the  years  immediately  preceding
retirement. Pension contributions are also made to foreign plans and directly to
union-sponsored plans.
 
     The  funding policy for the Plan is to make, as a minimum contribution, the
equivalent of the minimum  required by the  Employee Retirement Income  Security
Act of 1974 (ERISA).
 
                                      F-15
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     Pension costs were:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 7,      JANUARY 6,      JANUARY 4,
                                                                            1995            1996            1997
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
<S>                                                                      <C>             <C>             <C>
Benefits earned.....................................................      $  2,372        $  1,676        $  1,552
Interest cost on projected benefits.................................         7,630           7,801           7,728
Actual (return) loss on investments.................................         5,085         (20,976)         (9,326)
Net amortization/deferral...........................................       (13,981)         13,271             (91)
                                                                         ----------      ----------      ----------
Net periodic pension cost (income) -- Company plan..................         1,106           1,772            (137)
Cost of other plans.................................................           519             539           1,054
Curtailment gain and other -- net...................................        --              --              (2,048)
                                                                         ----------      ----------      ----------
Net pension cost (income)...........................................      $  1,625        $  2,311        $ (1,131)
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     The  Plan had  projected benefit  obligations in  excess of  Plan assets at
January 6, 1996 and assets in excess of projected benefit obligations at January
4, 1997. Plan investments include fixed income securities and marketable  equity
securities,  including 71,800, 71,800 and 81,800 shares of the Company's Class A
Common Stock,  which had  a  fair market  value  of $1,239,000,  $1,795,000  and
$2,423,000   at  January  7,  1995,  January   6,  1996  and  January  4,  1997,
respectively. The  Plan  also  owned  101,300, 101,300  and  112,500  shares  of
Authentic  Fitness' common stock,  which had a fair  market value of $1,406,000,
$2,102,000 and $1,350,000  at January 7,  1995, January 6,  1996 and January  4,
1997, respectively.
 
     The  following table presents a reconciliation  of the funded status of the
Plan at January 6, 1996 and January 4, 1997.
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 6,      JANUARY 4,
                                                                                            1996            1997
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Plan assets at fair value...........................................................      $ 101,905         104,267
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Actuarial present value of benefit obligation:
     Vested.........................................................................         98,379          94,452
     Non-vested.....................................................................          2,403           1,542
                                                                                         ----------      ----------
Accumulated benefit obligation......................................................        100,782          95,994
Effect of projected future salary increases.........................................          7,471           4,785
                                                                                         ----------      ----------
Projected benefit obligation........................................................        108,253         100,779
                                                                                         ----------      ----------
Plan assets less than (in excess of) projected benefit obligation...................          6,348          (3,488)
Unrecognized prior service cost.....................................................            794             422
Unrecognized net gain (loss)........................................................         (2,122)          4,426
                                                                                         ----------      ----------
Amounts accrued for employee retirement plans.......................................      $   5,020       $   1,360
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Assumptions used for Company pension plans:
     Discount rate (through July 1, 1996)...........................................          7.50%      7.50-8.25%
     Discount rate (after July 1, 1996).............................................         --               8.00%
</TABLE>
 
     The discount rate was 7.50% at January  1, 1996, 8.25% at July 1, 1996  and
8.00% at December 31, 1996.
 
     The  actuarial assumption  for long-term rate  of return on  plan assets is
9.0% for all periods presented. The actuarial assumption for increases in salary
levels are based on employee's attained age and years of service and range  from
4.8% to 12.0% per annum.
 
                                      F-16
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
OTHER POSTRETIREMENT BENEFITS
 
     In  addition to providing pension benefits, the Company has defined benefit
health care and  life insurance  plans that provide  postretirement benefits  to
retired employees and former directors. The plans are contributory, with retiree
contributions  adjusted annually,  and contain  cost-sharing features, including
deductibles and co-insurance. The Company does not fund postretirement benefits.
 
     Net periodic postretirement benefit cost is as follows:
 
<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED
                                                     ------------------------------------------
                                                     JANUARY 7,      JANUARY 6,      JANUARY 4,
                                                        1995            1996            1997
                                                     ----------      ----------      ----------
                                                                   (IN THOUSANDS)
 
<S>                                                  <C>             <C>             <C>
Service cost....................................        $ 83           $  109          $   68
Interest cost...................................         655              599             601
Net amortization/deferral.......................         (57)            (220)           (187)
Curtailment gain................................       --               --               (171)
                                                     ----------      ----------      ----------
Net periodic postretirement benefit cost........        $681           $  488          $  311
                                                     ----------      ----------      ----------
                                                     ----------      ----------      ----------
</TABLE>
 
     The following table presents a reconciliation  of the funded status of  the
plans at January 6, 1996 and January 4, 1997:
 
<TABLE>
<CAPTION>
                                                                     JANUARY 6,      JANUARY 4,
                                                                        1996            1997
                                                                     ----------      ----------
                                                                           (IN THOUSANDS)
 
<S>                                                                  <C>             <C>
Accumulated postretirement benefit obligation:
     Retirees...................................................       $6,438          $6,979
     Actives, fully eligible....................................          222             129
     Actives, not fully eligible................................          900             551
Unrecognized net gain from experience differences and changes in
  assumptions...................................................        2,045           1,667
                                                                     ----------      ----------
Amount accrued for postretirement benefit costs.................       $9,605          $9,326
                                                                     ----------      ----------
                                                                     ----------      ----------
</TABLE>
 
     The  weighted average  annual assumed  rate of  increase in  the per capita
costs of  covered benefits  (health care  cost trend  rate) for  the year  ended
January  7, 1995 was 11.0% for years 1-3, 9.0% for years 4-8, and 5.0% for years
thereafter. The weighted  average annual  assumed rate  of increase  in the  per
capita  costs of  covered benefits  (health care cost  trend rate)  for the year
ended January 6, 1996 was 11.0% for years 1-3, 9.0% for years 4-8, and 5.0%  for
years  thereafter. The weighted  average annual assumed rate  of increase in the
per capita costs of covered benefits (health care cost trend rate) for the  year
ended  January  4, 1997  was 9.0%  for years  1-4, and  5.0% thereafter.  A 1.0%
increase in  the  trend  rate  assumption  would  have  increased  the  periodic
postretirement  benefit cost by  approximately $34,000, $34,000  and $47,000 for
the years  ended  January  7,  1995,  January 6,  1996,  and  January  4,  1997,
respectively.  The  weighted  average  discount  rate  used  in  determining the
accumulated postretirement benefit obligation  is 7.50% at  January 1, 1996.  To
reflect the curtailment under FAS 106 resulting primarily from the restructuring
and  realignment of the Intimate Apparel Division,  a discount rate of 8.25% was
used at a measurement  date of July 1,  1996. As of the  end of the  measurement
period, the discount rate was decreased to 8.0%. The rate is consistent with the
discount rates used in valuing the Company's pension plans.
 
     The Company also sponsors a defined contribution plan for substantially all
of  its domestic employees. Employees  can contribute to the  plan, on a pre-tax
and after-tax basis,  a percentage of  their qualifying compensation  up to  the
legal  limits allowed. Beginning  July 1, 1995,  the Company contributes amounts
equal to  15.0% of  the first  6.0%  of employee  contributions to  the  defined
contribution plan. The maximum Company contribution on behalf of any employee is
$1,350  in one year. Employees vest in the Company contribution over four years.
Company contributions to the defined contribution plan
 
                                      F-17
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
totalled $125,000 and $300,000 for the  years ended January 6, 1996 and  January
4, 1997 (none in the year ended January 7, 1995).
 
NOTE 10 - INVENTORIES
 
     Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 6,      JANUARY 4,
                                                                                            1996            1997
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Finished goods......................................................................      $ 214,252       $ 227,929
Work in process.....................................................................         77,940          76,445
Raw materials.......................................................................         64,274          82,944
                                                                                         ----------      ----------
                                                                                          $ 356,466       $ 387,318
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</TABLE>
 
NOTE 11 - DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 6,      JANUARY 4,
                                                                                            1996            1997
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Term Note due 1995-1999.............................................................      $ 200,000       $ 175,000
Term Note due 1997-2001.............................................................         --              70,560
Capital lease obligations...........................................................          4,975           3,265
Other...............................................................................         16,026          16,261
                                                                                         ----------      ----------
                                                                                            221,001         265,086
Less: amounts due within one year...................................................         26,700          49,281
                                                                                         ----------      ----------
                                                                                          $ 194,301       $ 215,805
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</TABLE>
 
     Approximate maturities of long-term debt are as follows:
 
<TABLE>
<CAPTION>
YEAR                                                          (IN THOUSANDS)
----------------------------------------------------------------------------
 
<S>                                                           <C>
1997..........................................................    $ 49,281
1998..........................................................      45,729
1999..........................................................      60,575
2000..........................................................      60,144
2001..........................................................      47,126
2002 and thereafter...........................................       2,231
</TABLE>
 
     On  October 12, 1995, the Company  entered into Bank Credit Agreements (the
'1995 Bank Credit Agreements') with substantially  the same lenders as those  in
the  Company's previous bank  credit agreement. The  1995 Bank Credit Agreements
provide for a  term loan  of $200  million, a five  year revolving  loan in  the
amount  of $250  million and  a 364  day revolving  loan in  the amount  of $100
million ('Revolving Credit Facilities'). The 364 day revolving loan was extended
for an additional 364 days in fiscal  1996 and is extendable for additional  364
day  periods. Amounts  outstanding under  the 1995  Bank Credit  Agreements bear
interest at the Bank's base lending rate, or at LIBOR plus 0.4250%. In addition,
the 1995 Bank  Credit Agreements  allow the  Company to  place amounts  borrowed
under  the revolving credit portion of the $250 million Credit Agreement for bid
with participating credit institutions. The Company  has the right to accept  or
reject  any bids offered by the  participating institutions. Amounts drawn under
the  Revolving  Credit  Facilities  are  not  limited  to  any  borrowing  base.
Borrowings  under the 1995 Bank Credit Agreements are essentially unsecured. The
Company is required to  pay a commitment fee  (included in interest expense)  on
unused  portions of the Revolving Credit  Facilities equal to 0.1750% per annum.
Unused commitments under the Revolving Credit
 
                                      F-18
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Facilities at January 4, 1997 amounted  to approximately $197 million. The  rate
of interest payable on amounts outstanding under the 1995 Bank Credit Agreements
and  the commitment fee  payable on the  unused portion of  the Revolving Credit
Facilities decreases as the Company's  implied senior debt rating, from  certain
credit rating agencies, improves.
 
     The  1995  Bank  Credit  Agreements  contain  various  covenants  involving
additional debt,  liens  on  Company property,  mergers,  investments  in  other
entities,  asset sales  and other  items. The  1995 Bank  Credit Agreements also
require the Company  to meet  certain financial tests,  which as  of January  4,
1997,  were  as follows:  (1) Adjusted  minimum net  worth --  $511,559,000, (2)
Leverage ratio of .500 to 1, and (3)  Fixed charge coverage ratio of 1.20 to  1.
As  of January 4, 1997, the Company was  in compliance with all of the covenants
under the 1995 Bank Credit Agreements.
 
     In July and August 1996, the Company entered into credit agreements related
to the purchase of Lejaby with several of the members of its existing bank group
(the 'Lejaby  Bank Credit  Agreements'). The  terms of  the Lejaby  Bank  Credit
Agreements are substantially the same as those of the 1995 Bank Credit Agreement
and include a term loan facility of 370 million French Francs and revolving loan
facilities  of 150 million French Francs. The term and revolving loans mature on
December 31, 2001. Borrowings  under the term loan  and revolving loan  facility
bear  interest  at LIBOR  plus  .45%. The  term loan  will  be repaid  in annual
installments beginning on July 1, 1997, with a final installment due on December
31, 2001. As of January  4, 1997, the Company  had approximately $20 million  of
additional  credit available under the revolving loan portion of the Lejaby Bank
Credit Agreement.
 
     In October 1995,  in conjunction with  entering into the  1995 Bank  Credit
Agreements,  the  Company entered  into  an agreement  with  a bank  whereby the
interest rate on $150,000,000 of the Company's variable rate debt was fixed  for
a  term of three years at an interest rate of 5.99%. During 1996 the Company and
the bank  agreed  to  amend  the  agreement  such  that  the  interest  rate  on
$150,000,000  of the Company's variable  rate debt will be  fixed at an interest
rate of 5.67% for the term of  the agreement. In addition, the agreement  allows
the  bank to  renew the  agreement for an  additional term,  expiring in October
2000, for up to  $200,000,000 of the Company's  variable rate debt.  Differences
between  the fixed  interest rate  and the three  month LIBOR  interest rate are
settled quarterly between the Company and the bank and are included in  interest
expense. The Company made a payment under this agreement amounting to $20,000 in
the  year  ended January  6, 1996  and  total payments  under this  agreement of
approximately $490,000 in  the year  ended January 4,  1997. In  June 1996,  the
Company  entered into  an agreement  with a  bank whereby  the interest  rate on
$6,500,000 of the Company's  variable rate debt  was fixed for  a term of  three
years  at an interest rate of 6.60%. Differences between the fixed interest rate
and the  three month  LIBOR  interest rate  are  settled quarterly  between  the
Company  and  the  bank.  The  Company made  payments  under  this  agreement of
approximately $34,000 in the year ended  January 4, 1997. The Company  estimates
that  if these agreements  had been terminated  at January 4,  1997, the Company
would have received a cash payment of $261,000.
 
     The Company believes that the fair market value of its outstanding variable
rate debt is approximately equal to the outstanding principal amount thereof  as
(i)  substantially all  of the Company's  debt bears interest  at floating rates
(market) and  (ii) there  are no  prepayment  premiums required  by any  of  the
Company's material debt agreements.
 
     Cash  interest paid amounted to $30,680,000, $32,667,000 and $32,008,000 in
the years  ended  January  7,  1995,  January  6,  1996  and  January  4,  1997,
respectively.
 
     The  Company's  average  interest  rate on  all  its  outstanding  debt was
approximately  6.19%  and  6.06%  at  January  6,  1996  and  January  4,  1997,
respectively.
 
     In  December 1995, the Company entered into a $200,000,000 credit agreement
with its  banks  which provides  the  Company with  a  credit facility  for  the
issuance  of commercial letters of credit (the 'L/C Facility'). The L/C Facility
replaced a previous  facility with the  same lenders in  an aggregate amount  of
$80,000,000  (subsequently increased to $100,000,000).  In addition to providing
for the issue of  trade letters of  credit, the L/C  Facility provides that  the
Company may borrow, for a period of 90 days
 
                                      F-19
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(subsequently  increased  to 120  days), the  amounts  due under  maturing trade
letters of credit  ('120 Day Loans').  Total amounts outstanding  under the  L/C
Facility,  including the  face amount  of trade  letters of  credit and  120 Day
Loans, may not exceed $200,000,000 in the aggregate. The total amount of 120 Day
Loans outstanding may not exceed  $100,000,000 at any time. Amounts  outstanding
under  120 Day Loans  accrue interest at the  bank's base rate  or at LIBOR plus
0.4250%. The interest rate payable on outstanding 120 Day Loans decreases as the
Company's implied senior debt rating improves.  The L/C Facility had an  initial
maturity  of December  1, 1996 and  was extended  for an additional  364 days in
1996. The L/C Facility is extendable for additional 364 day periods. The Company
is required to pay a  commitment fee on the unused  portion of the L/C  Facility
equal to 0.125% per annum of the average unused portion of the L/C Facility. The
Company  classifies 120 Day Loans with trade accounts payable. The amount of 120
Day Loans outstanding at January 6, 1996 and January 4, 1997 was $41,369,000 and
$64,902,000, respectively.
 
     The Company issues stand-by and  commercial letters of credit  guaranteeing
the  Company's  performance under  certain purchase  agreements. The  letters of
credit are issued under the terms of the 1995 Bank Credit Agreement and the  L/C
Facility.  Certain obligations  for letters  of credit  reduce amounts available
under the Revolving Credit Facilities. At  January 6, 1996 and January 4,  1997,
the   Company  had   outstanding  letters  of   credit  totalling  approximately
$49,785,000 and $42,590,000, respectively,  of which $6,490,000 and  $5,031,000,
respectively, reduced amounts available under the Revolving Credit Facility.
 
     The  Company  and certain  of its  foreign  subsidiaries have  entered into
credit agreements that provide  for revolving lines  of credit ('Foreign  Credit
Facilities').  The  terms of  the  Foreign Credit  Facilities  are substantially
similar to the 1995 Bank Credit Agreements. At January 4, 1997, the total amount
of credit available under  the Foreign Credit  Facilities was approximately  $57
million, of which approximately $35 million was available.
 
     The  Company is required to maintain compensating balances securing certain
credit arrangements. Such balances amounted to $100,000 and $134,000 at  January
6,  1996 and January 4, 1997,  respectively. In addition, the Company classifies
lock box receipts not available until the next business day as restricted  cash.
Such  balances amounted  to $3,839,000  at January 6,  1996 (none  at January 4,
1997).
 
NOTE 12 - CAPITAL STOCK
 
     On  August  25,  1994,  the  Company's  Board  of  Directors  authorized  a
two-for-one  stock split  for stockholders  of record  on September  8, 1994 and
effective October 3, 1994. The split increased the number of outstanding  shares
of  Class A Common  Stock and outstanding  options by 100%.  Exercise prices for
outstanding options were adjusted to  reflect the split. All outstanding  shares
and  per share information has  been restated to reflect the  split as if it had
occurred at the beginning of each period presented.
 
     On May 14, 1993, the stockholders of the Company approved amendments to the
Company's Amended and Restated Certificate of Incorporation which authorized the
issuance of up to 10,000,000 shares of preferred stock with a par value of  $.01
and increased the authorized number of shares of Common Stock from 40,000,000 to
65,000,000.  On May  11, 1995 the  Company approved amendments  to the Company's
Amended and  Restated Certificate  of  Incorporation increasing  the  authorized
number of shares of Common Stock from 65,000,000 to 130,000,000.
 
     Prior  to May 1994, dividends to  common stockholders were restricted under
certain covenants of the debt agreements.  The provision of the debt  agreements
restricting  the Company's ability to  pay dividends were automatically modified
upon the Company's achievement of an investment grade senior debt rating of BBB-
from Standard  & Poor's  and,  as a  result, the  Company  may declare  and  pay
dividends. On June 30, 1995 the Company paid its first quarterly dividend on its
Common  Stock equal to  $.07 per common  share. Total dividends  paid during the
years ended January 6, 1996 and January 4, 1997 were $5,868,000 and $14,532,000,
respectively  (none   in   the  year   ended   January  7,   1995).   The   1995
 
                                      F-20
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Bank  Credit Agreements include certain restrictions  on the amount of dividends
the Company may declare in any period.
 
     In 1988, the Company adopted the 1988 Employee Stock Purchase Plan  ('Stock
Purchase  Plan'). The Stock Purchase Plan provides  for sales of up to 4,800,000
shares of Class  A Common  Stock of  the Company  to certain  key employees.  At
January  6,  1996  and  January  4,  1997,  4,521,300  shares  were  issued  and
outstanding pursuant to grants under the Stock Purchase Plan. The Stock Purchase
Plan  is  administered  by  the  Employee  Stock  Purchase  Plan  Administrative
Committee  of the Board of  Directors which has full  authority to determine the
number of shares granted or sold, vesting requirements, voting requirements  and
conditions  of  any  stock purchase  agreement  between  the Company  and  a key
employee.
 
     All shares were sold at amounts determined  to be equal to the fair  market
value  of  the  shares.  The  shares are  subject  to  vesting  requirements and
restrictions on  the  transfer  of ownership.  In  addition,  certain  employees
elected  to pay for the shares granted by executing a promissory note payable to
the Company. Notes totalling $5,971,000 at January 6, 1996 and January 4,  1997,
are non-interest bearing, while the balance earn interest at approximately 8.0%.
The note maturities range from five to ten years.
 
     Notes  receivable from employees are deducted from stockholders' equity and
are principally owed by officers and directors of the Company.
 
     In 1991, the Company established The Warnaco Group, Inc. 1991 Stock  Option
Plan  ('Option Plan') and authorized  the issuance of up  to 1,500,000 shares of
Class A Common Stock to cover grants to be made under the plan. The Option  Plan
is  administered by a committee  of the Board of  Directors of the Company which
determines the number of stock options to be granted under the Option Plan,  and
the  terms  and conditions  of such  grants.  The Option  Plan provides  for the
granting of qualified stock options within the meaning of Internal Revenue  Code
Section 422 and non-qualified stock options. In addition, the Option Plan limits
the  amount  of  qualified stock  options  that  may become  exercisable  by any
individual during a  calendar year  and limits  the vesting  period for  options
awarded under the Option Plan.
 
     On  May 14,  1993, the  stockholders approved  the adoption  of The Warnaco
Group, Inc. 1993  Stock Plan  ('Stock Plan'). The  Stock Plan  provided for  the
issuance of up to 2,000,000 shares of common stock of the Company through awards
of  stock  options, stock  appreciation  rights, performance  awards, restricted
stock units and stock unit awards. On May 12, 1994, the stockholders approved an
amendment to the  Stock Plan  whereby the number  of shares  issuable under  the
Stock  Plan  is automatically  increased each  year by  3.0% of  the outstanding
number of shares of Class A Common Stock  of the Company as of the beginning  of
each  fiscal year. The total  number of shares available  for issuance under the
Stock Plan as of January 4,  1997, was 5,882,793. The Compensation Committee  of
the  Board of Directors has the sole and complete authority to make awards under
the Stock  Plan and  to determine  the  specific terms  and conditions  of  such
awards,  except that the  exercise price of any  award may not  be less than the
fair market value of the Company's Common Stock at the date of the grant.
 
     In May 1994, the Company's stockholders  approved the adoption of the  1993
Non-Employee  Director Stock Plan ('Director  Plan'). The Director Plan provides
for awards of non-qualified  stock options to directors  of the Company who  are
not  employees  of the  Company.  Options granted  under  the Director  Plan are
exercisable in whole or in part until the earlier of ten years from the date  of
the grant or one year from the date on which an optionee ceases to be a Director
eligible  for  grants. Options  are  granted at  the  fair market  value  of the
Company's Common Stock at the date of the grant. The Director Plan provides  for
the  automatic grant of  options to purchase  (i) 30,000 shares  of Common Stock
upon a Director's election to the  Company's Board of Directors and (ii)  10,000
shares  of Common Stock immediately  following each annual shareholders' meeting
as of the date of such meeting.
 
                                      F-21
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     Options issued, exercised, cancelled and outstanding under the Stock  Plan,
the Option Plan and the Director Plan at January 4, 1997 are summarized below:
 
<TABLE>
<CAPTION>
                                                                               PRICE RANGE     SHARES
                                                                               -----------    ---------
 
<S>                                                                            <C>            <C>
Outstanding January 8, 1994.................................................   15.81-18.31    2,979,000
Options granted.............................................................   13.13-17.38      680,000
Options cancelled...........................................................   13.38-17.38     (162,000)
                                                                                              ---------
Outstanding January 7, 1995.................................................   13.13-18.31    3,497,000
Options granted.............................................................   15.75-18.50    2,255,000
Options exercised...........................................................   15.81-18.31     (100,500)
Options cancelled...........................................................   15.81-18.31     (369,000)
                                                                                              ---------
Outstanding January 6, 1996.................................................   13.13-18.50    5,282,500
Options granted.............................................................   22.38-29.25    1,962,000
Options exercised...........................................................   13.25-17.32     (417,500)
Options cancelled...........................................................   13.25-24.38     (136,000)
                                                                                              ---------
Outstanding January 4, 1997.................................................   13.13-29.25    6,691,000
                                                                                              ---------
                                                                                              ---------
</TABLE>
 
     Under  the above plans, options to purchase  a total of 6,691,000 shares of
common stock were outstanding, 4,850,250 of which were exercisable at a weighted
average exercise price of $18.28 per share. Options are exercisable for a period
of ten years from  date of the grant  and vest when granted  in the case of  the
Director  Plan and  from the  grant date to  four years  for the  Stock Plan and
Option Plan. Options expire from February 14, 2002 to July 16, 2006.
 
     The Company  has reserved  7,145,293 shares  of Class  A Common  Stock  for
issuance under the above plans as of January 4, 1997.
 
     In  accordance with the  provisions of the Stock  Plan, the Company granted
320,000 and 190,700 shares of  restricted stock to certain employees,  including
certain  officers of  the Company  during the years  ending January  6, 1996 and
January 4, 1997, respectively. The restricted  shares vest over four years.  The
fair  market value of the restricted shares was $6,960,000 and $5,578,000 at the
dates of grant,  respectively. The Company  will recognize compensation  expense
equal  to  the fair  value of  the  restricted shares  over the  vesting period.
Compensation expense for the years ended January 6, 1996 and January 4, 1997 was
$580,000 and $2,502,000, respectively (none in the year ended January 7,  1995).
The  outstanding amount  of unearned stock  compensation at January  6, 1996 and
January 4, 1997  was $6,380,000  and $9,456,000, respectively,  and is  deducted
from stockholders' equity.
 
     For options outstanding as of the end of fiscal 1996, the range of exercise
prices  was  $13.13-$29.25  and the  weighted  average  life was  10  years. The
weighted average  fair values  of the  options granted  during fiscal  1995  and
fiscal  1996 were $5.71 and $8.23, respectively. Fair value was determined using
the Black Scholes options pricing formula.  For options granted in fiscal  1995,
the  risk  free interest  rate was  7.14%, the  expected life  was 5  years, the
expected volatility was 31.43%  and the expected dividend  yield was 1.70%,  all
calculated  on a weighted average basis. For options granted in fiscal 1996, the
risk free interest rate was 5.47%, the  expected life was 5 years, the  expected
volatility  was 31.89% and the expected dividend yield was 1.15%, all calculated
on a weighted average basis.
 
     On a pro forma basis under the  provisions of SFAS 123, net income and  net
income  per  share for  the  year ended  January  6, 1996  would  have decreased
$4,348,000 and $0.10, respectively and the net  loss and net loss per share  for
the  year  ended January  4,  1997 would  have  increased $6,708,000  and $0.13,
respectively.
 
     In August 1994,  the Company  purchased 286,600 shares  of its  outstanding
Common  Stock on the open market at an  average price of $17.45 per share. Total
cost of  the  purchase was  $5,000,000  and  was funded  by  increasing  amounts
outstanding  under the Company's revolving line of credit. In the fourth quarter
of fiscal 1996, the Company purchased  250,000 shares of its outstanding  Common
Stock  at an average price  of $28.12 per share. The  total cost of the purchase
was $7,030,000  and  was funded  by  increasing amounts  outstanding  under  the
Company's revolving line of credit.
 
                                      F-22
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 13 - LEASES
 
     Rental  expense was $15,100,000, $16,545,000  and $19,923,000 for the years
ended January 7, 1995, January 6, 1996 and January 4, 1997, respectively.
 
     The following  is a  schedule of  future minimum  rental payments  required
under operating leases with terms in excess of one year, as of January 4, 1997:
 
<TABLE>
<CAPTION>
                                                                           RENTAL PAYMENTS
                                                                       ------------------------
                                                                            (IN THOUSANDS)
                                                                       REAL ESTATE    EQUIPMENT
                                                                       -----------    ---------
 
<S>                                                                    <C>            <C>
1997................................................................     $13,408       $ 4,093
1998................................................................     $12,002       $ 3,755
1999................................................................     $ 9,693       $ 2,819
2000................................................................     $ 8,351       $ 2,735
2001................................................................     $ 7,275       $ 2,726
2002 and thereafter.................................................     $ 9,990       $13,592
</TABLE>
 
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS
 
     The  following summarizes the unaudited  quarterly results of operations of
the Company for the 1995 and 1996 fiscal years.
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED JANUARY 6, 1996
                                                                    --------------------------------------------
                                                                     FIRST       SECOND      THIRD       FOURTH
                                                                    QUARTER     QUARTER     QUARTER     QUARTER
                                                                    --------    --------    --------    --------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<S>                                                                 <C>         <C>         <C>         <C>
Net revenues.....................................................   $195,156    $210,395    $239,569    $271,059
Gross profit.....................................................     66,824      68,219      84,628      90,010
Income before extraordinary items................................     10,620       9,265      18,091      11,637
Extraordinary items..............................................      --          --          --          3,120
Net income.......................................................   $ 10,620    $  9,265    $ 18,091    $  8,517
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Income before extraordinary items per common share...............   $   0.26    $   0.22    $   0.41    $   0.22
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Net income per common share......................................   $   0.26    $   0.22    $   0.41    $   0.16
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED JANUARY 4, 1997
                                                                    --------------------------------------------
                                                                     FIRST       SECOND      THIRD       FOURTH
                                                                    QUARTER     QUARTER     QUARTER     QUARTER
                                                                    --------    --------    --------    --------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<S>                                                                 <C>         <C>         <C>         <C>
Net revenues.....................................................   $206,480    $222,805    $292,010    $342,528
Gross profit.....................................................     72,909      47,237      90,374     117,604
Net income (loss)................................................   $ 15,218    $(55,482)   $  5,811    $ 26,216
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Net income (loss) per common share...............................   $   0.29    $  (1.03)   $   0.11    $   0.49
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
</TABLE>
 
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The  following  methods  and  assumptions  were  used  by  the  Company  in
estimating its fair value disclosures for financial instruments.
 
     Revolving and term loans. The carrying amounts of the Company's outstanding
balances under its 1995 Credit Agreements and other outstanding debt approximate
the  fair  value because  the  interest rate  on  the outstanding  borrowings is
variable and there are no prepayment penalties.
 
     Interest rate swap agreement.  The Company has  entered into interest  rate
swap  agreements which have the effect of  converting a portion of the Company's
outstanding variable rate debt into fixed rate
 
                                      F-23
 






<PAGE>

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
debt. The fair value  of the Company's  agreements to fix  the interest rate  on
$156,500,000 of its outstanding debt is based upon quoted market prices.
 
     Letters of credit. Letters of credit collateralize the Company's obligation
to  third parties  and have  terms ranging from  30 days  to one  year. The face
amount of the  letters of credit  are a  reasonable estimate of  the fair  value
since the value for each is fixed over its relatively short maturity.
 
     The  carrying amounts and fair value of the Company's financial instruments
as of January 6, 1996 and January 4, 1997, are as follows:
 
<TABLE>
<CAPTION>
                                                            JANUARY 6, 1996         JANUARY 4, 1997
                                                          --------------------    --------------------
                                                          CARRYING      FAIR      CARRYING      FAIR
                                                           AMOUNT      VALUE       AMOUNT      VALUE
                                                          --------    --------    --------    --------
                                                                         (IN THOUSANDS)
 
<S>                                                       <C>         <C>         <C>         <C>
Revolving loans........................................   $ 51,033    $ 51,033    $166,145    $166,145
Term Loans.............................................    200,000     200,000     245,560     245,560
Interest rate swaps....................................      --         (3,214)      --            261
Letters of credit......................................     49,785      49,785      42,590      42,590
</TABLE>
 
                                      F-24







<PAGE>

<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE
 
To the Board of Directors of
The Warnaco Group, Inc.
 
Our  audits of the  consolidated financial statements referred  to in our report
dated February 18, 1997 appearing on page F-1 of this Form 10-K also included an
audit of the  Financial Statement Schedule  listed in Item  14(a)2 of this  Form
10-K  as of and  for the two years  ended January 4, 1997.  In our opinion, this
Financial Statement  Schedule presents  fairly, in  all material  respects,  the
information  set  forth  therein  when  read  in  conjunction  with  the related
consolidated financial statements.
 
PRICE WATERHOUSE LLP
New York, New York
February 18, 1997
 
                                      S-1
 






<PAGE>

<PAGE>
                                                                     SCHEDULE II
 
                             THE WARNACO GROUP, INC
                   VALUATION & QUALIFYING ACCOUNTS & RESERVES
                           (IN THOUSANDS OF DOLLARS)
 
<TABLE>
<CAPTION>
                                                BALANCE AT    ADDITIONS
                                                BEGINNING     CHARGED TO
                                                    OF        COSTS AND                                  BALANCE AT
DESCRIPTION                                        YEAR        EXPENSES     DEDUCTIONS(1)    OTHER(2)    END OF YEAR
---------------------------------------------   ----------    ----------    -------------    --------    -----------
 
<S>                                             <C>           <C>           <C>              <C>         <C>
Year Ended January 7, 1995
  Allowance for doubtful accounts............     $1,413        $1,965         $   520         $           $ 2,858
                                                ----------    ----------    -------------    --------    -----------
                                                ----------    ----------    -------------    --------    -----------
Year Ended January 6, 1996
  Allowance for doubtful accounts............     $2,858        $  827         $ 1,725         $           $ 1,960
                                                ----------    ----------    -------------    --------    -----------
                                                ----------    ----------    -------------    --------    -----------
Year Ended January 4, 1997
  Allowance for doubtful accounts............     $1,960        $  713         $   649         $451        $ 2,475
                                                ----------    ----------    -------------    --------    -----------
                                                ----------    ----------    -------------    --------    -----------
</TABLE>
 
------------------
 
(1) Uncollectible accounts written-off, net of recoveries.
 
(2) Uncollectible accounts related to assets acquired in fiscal 1996.
 
    The above reserves are deducted from the related assets in the  consolidated
    balance sheets.
 
                                      S-2







<PAGE>

<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT                                                                                                     PAGE
NUMBER                                       DESCRIPTION OF DOCUMENT                                       NUMBER
-------   ----------------------------------------------------------------------------------------------   ------
<C>       <S>                                                                                              <C>
(a) 3.  LIST OF EXHIBITS:
 
 3.1      Amended  and  Restated Certificate  of Incorporation  of the  Company (incorporated  herein by
          reference to Exhibit 3.1 to the Company's Form 10-Q filed May 16, 1995). .....................
 3.2      Amended Bylaws of the Company. ...............................................................
 4.1      Registration Rights Agreement dated March 14, 1994 between the Company and Calvin Klein,  Inc.
          ('CKI')  (incorporated herein by reference to Exhibit 4.1 to the Company's Form 10-Q filed May
          24, 1994). ...................................................................................
10.1      Credit Agreement, dated  as of October  12, 1995 (the  'U.S. $450,000,000 Credit  Agreement'),
          among  the Company,  Warnaco Inc.;  The Bank of  Nova Scotia  and Citibank,  N.A., as Managing
          Agents; Citibank, N.A.,  as Documentation  Agent; The  Bank of  Nova Scotia  as Paying  Agent,
          Competitive  Bid Agent, Swing Line Lender and an  Issuing Bank and certain other lenders named
          therein (incorporated herein by  reference to Exhibit  10.1 to the  Company's Form 10-Q  filed
          November 21, 1995). ..........................................................................
10.2      Credit  Agreement, dated  as of  October 12,  1995 (the  'U.S. $100,000,000  364-day Revolving
          Credit Agreement'), among  Warnaco Inc.  and The  Bank of Nova  Scotia and  Citibank, N.A.  as
          Managing  Agents; Citibank,  N.A. as Documentation  Agent; The  Bank of Nova  Scotia as Paying
          Agent, Competitive Bid Agent, Swing Line Lender and an Issuing Bank and certain other  lenders
          named  therein (incorporated herein  by reference to  Exhibit 10.1 to  the Company's Form 10-Q
          filed November 21, 1995). ....................................................................
10.3      Credit Agreement, dated  as of December  4, 1995 (the  'U.S. $200,000,000 Credit  Agreement'),
          among  Warnaco Inc., the  Company and The  Bank of Nova  Scotia, as agent  for the Lenders and
          certain other lenders named therein (incorporated herein  by reference to Exhibit 10.3 to  the
          Company's Form 10-K filed April 5, 1996). ....................................................
10.4      Employment  Agreement, dated as of  January 6, 1991, between the  Company and Linda J. Wachner
          (incorporated herein by reference to Exhibit  10.7 to the Company's Registration Statement  on
          Form S-1, No. 33-42641). .....................................................................
10.5      Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Company's
          Registration on Form S-1, No. 33-45877). .....................................................
10.6      1991  Stock Option  Plan (incorporated herein  by reference  to Exhibit 10.9  to the Company's
          Registration Statement on Form S-1, No. 33-45877). ...........................................
10.7      Amended and Restated  1988 Employee Stock  Purchase Plan, as  amended (incorporated herein  by
          reference  to  Exhibit  10.10  to  the  Company's  Registration  Statement  on  Form  S-1, No.
          33-45877). ...................................................................................
10.8      Warnaco Employee Retirement  Plan (incorporated herein  by reference to  Exhibit 10.11 to  the
          Company's Registration Statement on Form S-1, No. 33-45877). .................................
10.9      Executive  Management Agreement,  as extended, dated  as of  May 9, 1991  between the Company,
          Warnaco Inc. and The Spectrum Group, Inc.  (incorporated herein by reference to Exhibit  10.13
          to the Company's Registration Statement on Form S-1, No. 33-45877). ..........................
10.10     1993 Non-Employee Director Stock Plan (incorporated herein by reference to the Company's Proxy
          Statement for its 1994 Annual Meeting of Stockholders). ......................................
10.11     Amended  and Restated 1993 Stock Plan (incorporated herein by reference to the Company's Proxy
          Statement for its 1994 Annual Meeting of Stockholders). ......................................
10.12     The Warnaco  Group, Inc.  Supplemental  Incentive Compensation  Plan (incorporated  herein  by
          reference to the Company's Proxy Statement for its 1994 Annual Meeting of Stockholders). .....
11.1      Calculation of Net Income (Loss) per common share. ...........................................
21.1      Subsidiaries of the Company. .................................................................
23.1(a)   Consent of Independent Accountants. ..........................................................
23.1(b)   Consent of Independent Auditors. .............................................................
23.1(c)   Consent of Independent Auditors. .............................................................
27        Financial Data Schedule. .....................................................................
</TABLE>
 
(b)  REPORTS ON FORM 8-K.
 
     No  reports on Form 8-K were filed by the registrant in the last quarter of
the 1996 fiscal year.



                              STATEMENT OF DIFFERENCES
                              ------------------------

The registered trademark symbol shall be expressed as............. 'r'

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