<PAGE>
 

<PAGE>
________________________________________________________________________________
________________________________________________________________________________
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K
 
<TABLE>
<C>              <S>
  (Mark One)     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      X          THE SECURITIES EXCHANGE ACT OF 1934
     ---         [FEE REQUIRED]

                 FOR THE FISCAL YEAR ENDED JANUARY 6, 1996

                                     OR
 
     ---         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934
 
                 FOR THE TRANSITION PERIOD FROM __________ TO ____________
</TABLE>
 
                         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 of this Form 10-K. [x]
 
     The aggregate market value  of the voting stock  held by non-affiliates  of
the registrant as of March 15, 1996 was approximately $1,201,722,000.
 
     The  number of shares outstanding of  the registrant's Class A Common Stock
as of March 15, 1996: 51,787,312.
 
     Documents incorporated by reference: The definitive Proxy Statement of  The
Warnaco  Group,  Inc. relating  to the  1996 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. ('Company'), a Delaware corporation, was organized
in 1986 for the purpose of acquiring Warnaco Inc. ('Warnaco'), a publicly traded
apparel company. As a  result, Warnaco became a  wholly owned subsidiary of  the
Company.  The Company designs, manufactures and  markets 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. 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  upon  the expiration  of an
existing license on December 31, 1994. The Company seeks to continue its  growth
strategy  by capitalizing 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%, 20%  and 5%, respectively,  of net  revenues in fiscal  1995, 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', Valentino Intimo'r', Scaasi'r', Van Raalte'r', White Stag'r', Fruit of
the Loom'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  approximately 30% of such women's bra  sales over the last three years. The
Warner's and Olga brand names,  which are owned by the  Company, are 122 and  55
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  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
nearly  7%  in the  mass merchandise  market.  This license  was renewed  by the
Company in  1994. The  Company has  a 3-year  distribution agreement  with  Avon
Products,  Inc. ('Avon') to distribute Warner's and Fruit of the Loom bras on an
exclusive basis and Scaasi sleepwear throughout the United States. In late 1994,
the Company purchased the  Van Raalte trademark for  $1 million and launched  an
intimate  apparel line through Sears stores in  July 1995. In February 1996, the
Company acquired substantially all of the  assets of the GJM Group of  companies
('GJM'),  a private  label manufacturer  and marketer  of women's  sleepwear and
lingerie.
 
     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'r',  Hathaway'r' and Catalina'r'  brand names. Chaps  by
Ralph  Lauren has  increased its net  revenues by approximately  500% since 1989
from $23 million to $138.2 million in 1995 by refocusing its products to the age
25 to 50 consumer and predominantly by using natural fibers in its products. The
Menswear Division's strategy is to build on the strength of its brand names  and
eliminate  those  businesses whose  profit contribution  is below  the Company's
required return.  Consistent  with this  strategy,  the Company  has  eliminated
several  under-performing brands since  1992. In 1995,  the Company extended its
Chaps by Ralph Lauren license through December 31, 2004.
 
     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
 
                                       1

<PAGE>
 

<PAGE>
operations generated $108.7 million  of net revenues or  11.9% of the  Company's
net  revenues in fiscal 1995 compared to $94.2 million of net revenues in fiscal
1994 or 11.9% of the Company's net revenues.
 
     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 56 stores  at the end of  fiscal 1995 compared to  53 stores and 48
stores at the end of fiscal 1994 and fiscal 1993, respectively.
 
     The Company's products  are distributed to  over 5,000 customers  operating
more  than 15,000 department, specialty and mass merchandising stores, including
such  leading  retailers  in  the  United  States  as  Dayton-Hudson,  Federated
Department  Stores, J.C. Penney,  Victoria's Secret, Macy's,  The May Department
Stores, Sears and Wal-Mart and such  leading retailers in Canada as Eaton's  and
The  Hudson Bay  Company. 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 also
opened new channels of distribution by entering into a three-year agreement with
Avon Products, Inc.  to distribute Warner's  and Fruit  of the Loom  bras on  an
exclusive basis and Scaasi sleepware throughout the United States and by joining
in  a joint venture arrangement  with News Corp Limited  to market the Company's
products directly to consumers  in Asia through  the Satellite Television  Asian
Region Network ('STAR').
 
  (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
 
     The  Company operates within one dominant industry segment, the manufacture
and distribution  of apparel.  No customer  accounted  for 10%  or more  of  the
Company's  net revenues in any of the three years in the period ended January 6,
1996. (See Note 7 of Notes to Consolidated Financial Statements on pages F-7  to
F-22).
 
  (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 owned and licensed brand names. The Company operates
three divisions,  Intimate Apparel,  Menswear and  Retail Outlet  Stores,  which
accounted for 75%, 20% and 5%, respectively, of net revenues in fiscal 1995.
 
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 approximately 30% of women's  bra sales over the last three  years
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
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) in  1992, entered  into a license
agreement with Fruit of the Loom,  Inc. and began to distribute moderate  priced
bras,  daywear  and other  related  items under  this  license through  the mass
merchandise market, (ii) in  late 1993, signed  a 3-year distribution  agreement
with Avon Products, Inc. to distribute Warner's and Fruit of the Loom bras on an
exclusive  basis and  Scaasi sleepwear  throughout the  United States,  (iii) 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, (iv) in late 1994, purchased the Van Raalte trademark  for
$1  million and launched an  intimate apparel line through  Sears stores in July
1995, (v)  in June  1995, entered  an agreement  to manufacture  and  distribute
intimate apparel products under the Speedo brand
 
                                       2
 

<PAGE>
 

<PAGE>
name and (vi) in February 1996, acquired substantially all of the assets of GJM,
a private label manufacturer of women's sleepwear and lingerie.
 
     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
Valentino Intimo...................                premium                         intimate apparel
Calvin Klein.......................           better to premium            intimate apparel/men's underwear
Scaasi.............................                premium                             sleepwear
Van Raalte(1)......................               moderate                         intimate apparel
Fruit of the Loom..................               moderate                         intimate apparel
White Stag.........................               moderate                         intimate apparel
Speedo(2)..........................                better                          intimate apparel
</TABLE>
 
------------------
 
(1) Shipments began in the third quarter of fiscal 1995.
 
(2) The Company  entered  an exclusive  license  agreement for  the  design  and
    marketing of certain intimate apparel products in June 1995; shipments began
    in the fourth quarter of fiscal 1995.
 
     The  Company owns the Warner's, Olga,  Calvin Klein (underwear and intimate
apparel) and Van Raalte brand names and trademarks. The Company has an exclusive
license in  perpetuity  for  White  Stag for  women's  sportswear  and  intimate
apparel.  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  own brand  names. The Warner's
brand is 122 years old and the Olga brand is 55 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 nearly 7% 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 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.  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 1995. The Calvin  Klein
brand  accounted for net revenues of $159.7  million in fiscal 1995, an increase
of 162% over the $61.0 million recorded in fiscal 1994.
 
     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, 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
 
                                       3
 

<PAGE>
 

<PAGE>
the  first  time,  to  see  the product  in  the  store.  The  Company's product
innovations have become standards in the industry.
 
     Growth in  the intimate  apparel industry  is benefiting  from a  shift  in
consumer   attitudes.   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 and Scaasi names in the
premium end of  the market, 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 Company  has 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  19.3%
compounded  annual growth rate since 1991, to  $689.2 million in fiscal 1995, as
the Company increased its penetration with existing accounts, expanded sales  to
new  customers by capitalizing  on the high  growth in such  specialty stores as
Victoria's Secret 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 Company's strong sales  increase was accomplished  despite the softening  of
the  general retail market  due to poor economic  conditions and the bankruptcy,
reorganization or liquidation  of certain  major retail  store customers  during
this  period. The Intimate Apparel Division  has reduced operating expenses as a
percentage of net revenue by  narrowing its product lines, 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 nine  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. In late 1993 the Company  further expanded its channels of  distribution
by  signing  a  three-year  agreement with  Avon  Products,  Inc.  to distribute
Warner's and Fruit of the Loom bras  on an exclusive basis and Scaasi  sleepwear
throughout  the United States. 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 the panties and daywear product lines.
 
     The  Intimate Apparel  Division has  subsidiaries in  Canada and  Mexico in
North America and  in the United  Kingdom, France, Belgium,  Ireland, Spain  and
Germany  in Europe. International sales accounted for approximately 14.5% of the
Intimate  Apparel  Division's  net  revenues   in  fiscal  1995.  Net   revenues
attributable  to the  international divisions  of the  Intimate Apparel Division
were $84.5 million, $84.1 million and $100.0 million in fiscal years 1993,  1994
and  1995,  respectively.  Management's  strategy  is  to  increase  its  market
penetration in Europe and to open additional channels of distribution. In  1994,
the  Company joined  in a  joint venture arrangement  with News  Corp Limited to
market, on  an  exclusive  basis,  the Company's  products  over  the  Satellite
Television  Asian Region Network ('STAR'), 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. In addition, the Company  began distributing its products directly
in Spain, Portugal and Italy in  1994, having taken back these territories  from
its   previous   licensee.   In   addition   to   the   international  marketing
 
                                       4
 

<PAGE>
 

<PAGE>
of its product lines, the Company has licensed its intimate apparel brand  names
to manufacturers in several other foreign countries.
 
     The Company's intimate apparel products are manufactured principally in the
Company's  facilities in  North America,  Central America,  the Caribbean Basin,
Ireland and the United Kingdom. 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  achieved  a  portion of  the  expected  future
benefits  associated with these  plants in fiscal 1995  with gross profit margin
increasing 140  basis  points  (See  Management's  Discussion  and  Analysis  of
Financial  Condition  and Results  of  Operations on  pages  14 to  20).  In the
Company's experience,  it  is 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 with approximately 56% of net revenues and 59% of
operating income generated during the second half of the fiscal year.
 
MENSWEAR
 
     The  Menswear Division designs, manufactures,  imports and markets moderate
to better-priced dress  shirts and neckwear,  sportswear and men's  accessories.
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.
 
     The Menswear Division markets its lines under the following brand names:
 
<TABLE>
<CAPTION>
             BRAND NAME                           PRICE RANGE                         TYPE OF APPAREL
------------------------------------  ------------------------------------   ---------------------------------
 
<S>                                   <C>                                    <C>
Hathaway............................                 better                  dress shirts, neckwear, knit and
                                                                               woven sportshirts and sweaters

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 Hathaway brand name is owned by the Company. 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  whose profit  contribution is  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  label (See Note  4 of  Notes to  Consolidated
Financial  Statements on pages F-7 to F-22),  (ii) sold the Puritan label in the
United States to Wal-Mart in  December 1993 and (iii)  did not renew its  Golden
Bear by Jack Nicklaus license which expired in June 1994.
 
                                       5
 

<PAGE>
 

<PAGE>
     Due  to the strategic decision to discontinue approximately $100 million of
net revenues in  under-performing brands, the  Menswear Division's net  revenues
have  increased  slightly from  $180.8  million in  fiscal  year 1991  to $185.7
million in fiscal 1995. The reduction  in net revenues from discontinued  brands
has  been offset by  the tremendous success  of the Chaps  by Ralph Lauren brand
which has increased its net revenues by approximately 253% since fiscal 1991  to
$138.2 million in fiscal 1995.
 
     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 a license  agreement to design  men's and women's  sportswear and  men's
dress  shirts  and furnishings  bearing the  Catalina trademark.  Catalina brand
products are sold  in the mass  merchandise segment of  the market. The  Company
recorded  approximately $2.0 million of  royalty income associated with Catalina
products in fiscal 1995. The Company is in the process of expanding its line  of
pants and casual bottoms under the Chaps by Ralph Lauren brand.
 
     Accessories. The Menswear Division markets men's small leather goods, men's
jewelry  and belts under the Calvin Klein  brand name under a worldwide license.
The first shipments of Calvin Klein  accessories were made in the third  quarter
of  fiscal 1995 to United States  customers and accounted for approximately $3.9
million of net  revenues in  fiscal 1995. 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  on a  consistent basis  has  generated
higher margins than other menswear products.
 
     Dress  Shirts and  Neckwear. The  Menswear Division  designs, manufactures,
imports  and   markets   three  principal   lines   of  dress   shirts:   basic,
intermediate-fashion  and fashion. The  average full retail  prices of the dress
shirts, which are marketed  under the Hathaway and  Chaps by Ralph Lauren  brand
names,  range from $20 to $45. Substantially  all of the division's dress shirts
are manufactured at Company owned or leased facilities in North America and  the
Caribbean Basin. The dress shirt and neckwear market has deteriorated during the
last  three years  due to  an oversupply and  a shift  toward casual  wear. As a
result, the Menswear  Division discontinued  the Christian Dior  portion of  its
manufactured  dress shirt and neckwear business segment  in 1994 in an effort to
improve the Company's profitability and operating margins.
 
     International sales accounted for approximately  5% of net revenues of  the
Menswear  Division in  fiscal l995.  Net revenues  attributable to international
divisions of the Menswear  Division were $14.1 million,  $10.2 million and  $8.8
million  in  fiscal years  l993, 1994  and 1995,  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  Menswear Division's sportswear, consisting of knit shirts and sweaters
and other  apparel, is  sourced  principally from  the  Far East.  The  Menswear
Division  manufactures its  dress shirts  in North  America and  sources certain
styles of 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,  like  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 and 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 56% of the
Menswear Division's net revenues  and 59% 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.
 
                                       6
 

<PAGE>
 

<PAGE>
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's
newer retail outlet stores  are principally intimate  apparel stores located  in
outlet  shopping malls. 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. EBITDA for  the Retail Outlet Stores  Division in fiscal  1995
improved  25%  over fiscal  1994 to  $3.5 million.  As of  January 6,  1996, the
Company operated 56 stores, of which 41 carried intimate apparel only, 3 carried
menswear only and 12 carried both lines.
 
INTERNATIONAL OPERATIONS
 
     The Company has subsidiaries in Canada  and Mexico in North America and  in
the  United Kingdom, Ireland, Belgium, France, Spain and Germany in Europe which
engage in sales and marketing activities. With the exception of the  fluctuation
of  local  currencies against  the United  States dollar,  the Company  does not
believe that the operations  in Canada and Western  Europe are subject to  risks
which   are  significantly  different  from   domestic  operations.  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% of the Company's net revenues in fiscal 1995.
 
     The  Company maintains manufacturing facilities  in Mexico, Honduras, Costa
Rica, the  Dominican  Republic,  Canada,  Ireland and  the  United  Kingdom  and
warehousing  facilities in Canada, Mexico, the  United Kingdom and contracts for
warehousing in  Spain.  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  imported purchases are  invoiced in  United
States   dollars  and,  therefore,  are   not  subject  to  short-term  currency
fluctuations.
 
SALES AND MARKETING
 
     The Intimate Apparel and  Menswear Divisions sell  to over 5,000  customers
operating  more than 15,000  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% of  the Company's net revenues during any
of the three years in the period ended January 6, 1996.
 
     The Company's  retail  customers  are served  by  approximately  200  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  its products to customers on a
timely basis and at the lowest cost possible.
 
     The Company utilizes various  forms of advertising  media. In fiscal  l995,
the  Company  spent approximately  $41.0  million or  4.5%  of net  revenues for
advertising and promotion of its various  product lines. This compares to  $37.2
million  or 4.7%  of net revenues  in fiscal  1994. The statement  of income for
fiscal 1995  also includes  a special  charge for  advertising costs  previously
deferable  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 1995 compared to fiscal 1994
 
                                       7
 

<PAGE>
 

<PAGE>
reflects the introductions of Calvin Klein intimate apparel and accessories  and
Van  Raalte intimate  apparel and  the Company's  desire to  maintain its strong
market position in  Warner's, Olga and  Fruit of the  Loom intimate apparel  and
Calvin  Klein men's underwear.  The Company participates  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. 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.  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  it has  a  significant  competitive advantage
because of high consumer recognition and  acceptance of its brand names and  its
strong  presence and strong  market share in the  major department and specialty
store chains.
 
     A substantial  portion of  the Company's  sales are  of products,  such  as
intimate  apparel and  mens 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 Divisions are available from multiple sources.
 
IMPORT QUOTAS
 
     Approximately one-third  of  the  Company's 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  U.S.  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.
 
EMPLOYEES
 
     The  Company and  its subsidiaries  employ approximately  16,200 employees.
Approximately 18% 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   significant  interruption   of   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 of  America.  The
Company's  license to use the Valentino Intimo trademark for intimate apparel in
the United States of
 
                                       8
 

<PAGE>
 

<PAGE>
America, 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 co-terminus  with
the  Company's  United States  license, through  December  31, 2002,  subject to
extension by  mutual agreement  of the  parties. The  Company has  an  exclusive
license  to  use the  Scaasi  trademark in  the  United States  of  America, its
territories and possessions, Puerto Rico, Canada, Mexico, and numerous Caribbean
Islands until December 31,  l999. The Company's  exclusive license agreement  to
use  the  Fruit of  the  Loom trademark  in the  United  States of  America, its
territories and possessions, Canada and Mexico expires December 31, 1996 and  is
currently under negotiation for renewal.
 
     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  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 exclusive license for  use of the Speedo name
for intimate apparel products continues in perpetuity.
 
     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, Calvin Klein intimate apparel, Van
Raalte  and Hathaway.  The Company  has a license  in perpetuity  for White Stag
women's sportswear and intimate apparel.
 
     The Company  licenses  the Warner's,  Hathaway,  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,
Hathaway, 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  $15.0
million  (including the sale of  the Puritan trademark in  the United States for
$7.7 million),  $11.5  million (including  the  sale of  certain  trademarks  to
Authentic  Fitness Corporation  for $6.6  million) and  $10.8 million  in fiscal
years 1993, 1994 and 1995, 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-7 to F-22.
 
                                       9
 

<PAGE>
 

<PAGE>

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, the  Company  leases
offices  in Connecticut and  California, pursuant to leases  that expire in 1999
and 2000, respectively.
 
     The Company has 14 domestic manufacturing and warehouse facilities  located
in Alabama, Connecticut, Georgia, Kentucky, Pennsylvania, Maine, California, New
York  and Tennessee and 19  international manufacturing and warehouse facilities
located in Costa  Rica, the  Dominican Republic, Honduras,  Mexico, Canada,  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 eight 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 1996 to  2007. No facility is under-utilized
except for one  facility located  in Sylvania,  Georgia, 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; Frankfurt, Germany;
Toronto, Canada; London,  England; Madrid,  Spain and Paris,  France. The  sales
office  leases expire between 1996  and 2001 and are  renewable at the Company's
option. The  Company  leases 55  retail  outlet store  locations.  Outlet  store
leases,  except for two month-to-month leases, expire  from 1996 to 2006 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 the
Caribbean Basin in the last three years and anticipates additional expansion  in
Mexico to support the Company's continued growth.
 
ITEM 3. LEGAL PROCEEDINGS.
 
     The Company is not a party to any litigation, other than routine litigation
incidental  to the  business of  the Company,  which is  individually or  in the
aggregate 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...................................   50    Director, Chairman of the Board, President and
                                                              Chief Executive Officer
William S. Finkelstein.............................   47    Director, Senior Vice President and Chief Financial
                                                              Officer
Stanley P. Silverstein.............................   43    Vice President, General Counsel and Secretary
Wallis H. Brooks...................................   40    Vice President and Controller
Carl J. Deddens....................................   43    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
 
                                       10
 

<PAGE>
 

<PAGE>

to October 1984. Mrs. Wachner also serves as a Director of Travelers Group, Inc.
and Authentic Fitness Corporation.
 
     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.  Brooks has been Vice President and Controller of the Company since May
1995. Mr. Brooks served as Senior Vice President and Chief Financial Officer  of
Authentic  Fitness Corporation from  November 1993 until  April 1995. Mr. Brooks
held various  financial positions  with  the Company  from November  1988  until
October  1993 including  Treasurer of  the Company  from May  1992 until October
1993. Prior  to  joining  the  Company,  Mr.  Brooks  was  associated  with  the
predecessor to the international accounting firm Ernst & Young LLP.
 
     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 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. Prices  have been adjusted  to reflect  the
two-for one stock split effective October 3, 1994.
 
<TABLE>
<CAPTION>
PERIOD                                                                                    HIGH                LOW
----------------------------------------------------------------------------------   ---------------    ---------------
 
<S>                                                                                  <C>                <C>
1993:
     First Quarter................................................................   $19 5/8            $13 3/8
     Second Quarter...............................................................    18 15/16           14 13/16
     Third Quarter................................................................    17 1/16            14 3/8
     Fourth Quarter...............................................................    17 13/16           14 1/4
 
1994:
     First Quarter................................................................   $15 5/8            $13 1/8
     Second Quarter...............................................................    17 5/8             14 5/8
     Third Quarter................................................................    18 5/8             14 5/16
     Fourth Quarter...............................................................    19 1/4             14 1/8
 
1995:
     First Quarter................................................................   $18                 14 7/8
     Second Quarter...............................................................    21 1/4             16 1/2
     Third Quarter................................................................    24 3/8             20
     Fourth Quarter...............................................................    26 7/8             21 7/8
 
1996:
     First Quarter (through March 15, 1996).......................................   $28                 21 3/8
</TABLE>
 
                                       11
 

<PAGE>
 

<PAGE>
     A recent last sales price for the shares of Common Stock as reported on the
New  York Stock Exchange Composite Tape was $26  5/8 on March 15, 1996. On March
1, 1996 there were 161 holders of Class A 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
annum. The initial  cash dividend was  paid on  June 30, 1995.  On February  22,
1996,  the Company's Board  of Directors approved  a cash dividend  of $0.07 per
share payable on April 8, 1996 to shareholders of record on March 1, 1996. Total
dividends paid or accrued on the Company's Common Stock were approximately  $9.5
million  in the year ended  January 6, 1996 (none in  the years ended January 8,
1994 and January 7, 1995, respectively).
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     The following  selected  consolidated  financial data  should  be  read  in
conjunction  with the  Consolidated Financial  Statements and  the Notes thereto
included elsewhere herein. The consolidated  statement of income data set  forth
below  with respect to the  fiscal years ended January  8, 1994, January 7, 1995
and January 6, 1996, the consolidated balance sheet data at January 7, 1995  and
January 6, 1996 are derived from, and are qualified by reference to, the audited
consolidated  financial  statements  included  herein  and  should  be  read  in
conjunction with those financial statements and notes thereto. The  consolidated
statement  of income data for the fiscal years ended January 4, 1992 and January
2, 1993 and the consolidated balance sheet  data at January 4, 1992, January  2,
1993  and  January  8,  1994 are  derived  from  audited  consolidated financial
statements not included herein.
 
                                       12
 

<PAGE>
 

<PAGE>
 
<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED
                                        ---------------------------------------------------------------------
                                        JANUARY 4,     JANUARY 2,     JANUARY 8,     JANUARY 7,    JANUARY 6,
                                         1992(A)          1993        1994(A)(B)     1995(A)(C)     1996(E)
                                        ---------------------------------------------------------------------
                                                     (IN MILLIONS, EXCEPT RATIOS AND SHARE DATA)
 
<S>                                     <C>            <C>            <C>            <C>           <C>
STATEMENT OF INCOME DATA:
 
Net revenues........................    $   562.5      $   625.1      $   703.8      $   788.8     $   916.2
Gross profit........................        195.4          219.3          236.4          255.8         309.7
Income before non-recurring items,
  special items, interest and income
  taxes.............................         70.8           89.8           92.2           99.2         125.6
Interest expense....................         72.3           48.8           38.9           32.5          33.9
Income (loss) before non-recurring
  and special items, net of income
  taxes.............................         (6.5)          47.6           53.3           66.3          56.9
Income (loss) from continuing
  operations........................        (19.5)          47.6           53.3           63.3          49.6
Preferred stock dividends paid......          5.5            2.7             --             --            --
Income (loss) from continuing
  operations applicable to common
  stock.............................        (25.0)          44.9           53.3           63.3          49.6
Net income (loss) applicable to
  common stock(d)...................        (33.9)         (20.2)          24.1           63.3          46.5
Dividends on common stock...........           --             --             --             --           9.5
Per share amounts:(d)
Income (loss) before non-recurring
  and special items, net of income
  taxes.............................        (0.34)          1.25           1.34           1.61          1.26
Income (loss) from continuing
  operations........................        (1.31)          1.18           1.34           1.53          1.10
Net income (loss)...................        (1.78)         (0.53)          0.61           1.53          1.03
Weighted average number of shares of
  Common Stock outstanding(d).......    19,059,062     38,109,450     39,770,482     41,285,355    45,278,117
Divisional Summary:
  Net revenues:
    Intimate Apparel................    $   339.7      $   384.8      $   423.2      $   565.3     $   689.2
    Menswear........................        180.8          200.0          243.2          183.8         185.7
    Retail Outlet Stores............         42.0           40.3           37.4           39.7          41.3
                                        ----------     ----------     ----------     ----------    ----------
                                        $   562.5      $   625.1      $   703.8      $   788.8     $   916.2
                                        ----------     ----------     ----------     ----------    ----------
                                        ----------     ----------     ----------     ----------    ----------
  Percentage of net revenues:
    Intimate Apparel................         60.4%          61.6%          60.1%          71.7%         75.2%
    Menswear........................         32.1           32.0           34.6           23.3          20.3
    Retail Outlet Stores............          7.5            6.4            5.3            5.0           4.5
                                        ----------     ----------     ----------     ----------    ----------
                                            100.0%         100.0%         100.0%         100.0%        100.0%
                                        ----------     ----------     ----------     ----------    ----------
                                        ----------     ----------     ----------     ----------    ----------
  BALANCE SHEET DATA (AT FISCAL YEAR
    END):
    Working capital.................    $   109.3      $   141.5      $   122.0      $   104.5     $   309.5
    Total assets....................        540.5          629.6          688.6          780.6         939.1
    Long term debt (excluding
      current maturities)...........        344.8          277.6          245.5          206.8         194.3
    Redeemable preferred stock......         41.5             --             --             --            --
    Stockholders' equity
      (deficit).....................         (1.7)         135.8          159.1          240.5         500.3
</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 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 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.  Also, 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 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.
 
                                       13
 

<PAGE>
 

<PAGE>
 (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  normalized  tax
     provision at the Company's fiscal 1995 effective income tax rate of 38% 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.
 
 (e) Effective  with  the 1995  fiscal year,  the  Company adopted  Statement of
     Position 93-7 ('SOP 93-7'), dealing  with 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 deferable of  $11.7 million ($7.3 million net
     of income  tax benefits)  (or  $0.16 per  share)  primarily in  the  fourth
     quarter of fiscal 1995 related to SOP 93-7.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
     During  the last  several years,  the Company  has implemented  a number of
strategies designed to  reduce operating  expenses and refocus  its business  on
less  fashion  sensitive  and  higher  margin  product  lines  with  world brand
potential. As a  result of  this strategic refocusing,  and notwithstanding  the
bankruptcy,  reorganization or  liquidation of  several of  the Company's retail
customers, including  B.  Altman  &  Co., Bonwit  Teller,  Carter  Hawley  Hale,
Federated  Department  Stores, Miller  & Rhoades,  R.H. Macy  & Co.,  Woodward &
Lathrop, and P.A. Bergner & Co., and the general softening of the retail  market
as  a result of  the economic slowdown  from 1989 through  1994, the Company has
significantly increased operating income.
 
     The Intimate Apparel  Division's net  revenues have grown  at a  compounded
annual growth rate of approximately 19% since 1991.
 
     Menswear Division net revenues have decreased from $213.9 million in fiscal
1989  to  $185.7  million in  fiscal  1995, reflecting  the  Company's strategic
decisions to eliminate  cash intensive  businesses and businesses  that did  not
demonstrate   the  potential  to  achieve  profitability  levels  acceptable  to
management (See Note 4  of Notes to Consolidated  Financial Statements on  pages
F-7  to F-22). The  strategic decisions included (i)  not renewing the Company's
license  with  Pringle  of   Scotland  in  1989,   (ii)  closing  its   knitwear
manufacturing  facilities in 1991, (iii) restructuring the Company's dress shirt
and neckwear manufacturing facilities in  1993, (iv) not renewing the  Company's
license  for Golden Bear by Jack Nicklaus in 1994, (v) terminating the Christian
Dior licenses for dress shirts, neckwear and accessories in 1994 and selling the
Christian Dior  license for  sportswear in  1992 and  (vi) selling  the  Puritan
trademark  in the United States to Wal-Mart  in 1993. The negative impact on net
revenues of the discontinued businesses was partially offset by strong growth in
the Company's Chaps  by Ralph Lauren  line which has  increased net revenues  by
approximately 500% since 1989.
 
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  Company's business strategy is  to use its  retail
outlet  stores 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.
 
                                       14
 

<PAGE>
 

<PAGE>
                              STATEMENT OF INCOME
                                (SELECTED DATA)
 
<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                              --------------------------------------------------------------------------
                                              JANUARY 8,    % OF NET    JANUARY 7,    % OF NET    JANUARY 6,    % OF NET
                                                 1994       REVENUES       1995       REVENUES       1996       REVENUES
                                              ----------    --------    ----------    --------    ----------    --------
 
<S>                                           <C>           <C>         <C>           <C>         <C>           <C>
Net revenues...............................     $703.8        100.0%      $788.8        100.0%      $916.2        100.0%
Cost of goods sold.........................      467.4         66.4%       533.0         67.6%       606.5         66.2%
                                              ----------    --------    ----------    --------    ----------    --------
Gross profit...............................      236.4         33.6%       255.8         32.4%       309.7         33.8%
Selling, administrative and general
  expenses.................................      144.2         20.5%       156.6         19.9%       184.0         20.1%
Income before non-recurring and special
  items, interest and income taxes.........       92.2         13.1%        99.2         12.5%       125.6         13.7%
Interest expense...........................       38.9                      32.5                      33.9
Income before extraordinary items and
  cumulative effect of the change in the
  method of accounting.....................       53.3                      63.3                      49.6
Income before non-recurring and special
  items, adjusted for a normalized income
  tax provision of 38%.....................       33.0                      41.4                      56.9
</TABLE>
 
                               DIVISIONAL SUMMARY
 
<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                              --------------------------------------------------------------------------
                                                              % OF                      % OF                      % OF
                                              JANUARY 8,     GROSS      JANUARY 7,     GROSS      JANUARY 6,     GROSS
                                                 1994        PROFIT        1995        PROFIT        1996        PROFIT
                                              ----------    --------    ----------    --------    ----------    --------
 
<S>                                           <C>           <C>         <C>           <C>         <C>           <C>
Net revenues:
     Intimate Apparel......................     $423.2                    $565.3                    $689.2
     Menswear..............................      243.2                     183.8                     185.7
     Retail Outlet Stores..................       37.4                      39.7                      41.3
                                              ----------                ----------                ----------
                                                $703.8                    $788.8                    $916.2
                                              ----------                ----------                ----------
                                              ----------                ----------                ----------
Gross profit:
     Intimate Apparel......................     $167.7         70.9%      $203.5         79.6%      $259.2         83.7%
     Menswear..............................       53.7         22.7%        38.2         14.9%        35.5         11.5%
     Retail Outlet Stores..................       15.0          6.4%        14.1          5.5%        15.0          4.8%
                                              ----------    --------    ----------    --------    ----------    --------
                                                $236.4        100.0%      $255.8        100.0%      $309.7        100.0%
                                              ----------    --------    ----------    --------    ----------    --------
                                              ----------    --------    ----------    --------    ----------    --------
</TABLE>
 
COMPARISON OF FISCAL 1995 WITH FISCAL 1994.
 
     Net  revenues increased  16.2% to  $916.2 million  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  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% 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 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  compared  to  $84.1  million in  fiscal  1994  which  represents a
     significant turnaround compared to prior years.
 
                                       15
 

<PAGE>
 

<PAGE>
     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%  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% 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 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
     in  fiscal 1994 (20.7% of  net revenues). The 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 deferable in accordance with SOP 93-7) of approximately $4 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 American Institute of  Certified Public Accountants Statement  of
Position  93-7 ('SOP 93-7'). SOP 93-7 requires, among other things, that certain
advertising costs previously deferred and  amortized over the period  benefited,
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
deferable  of  $11.7   million  ($7.3  million  net   of  income  tax  benefits)
primarily 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%. 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  U.S. federal statutory income  tax rate of  35%
and  the Company's effective  income tax rate  of 38% 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.
 
                                       16
 

<PAGE>
 

<PAGE>
     For income tax purposes, the  Company has net operating loss  carryforwards
available  to  offset future  taxable  income amounting  to  approximately $39.8
million at January 6,  1996. These carryforwards, which  the Company expects  to
fully  utilize,  will result  in  a future  tax  savings of  approximately $13.9
million at current U.S.  federal corporate income tax  rates. The net  operating
loss carryforwards expire beginning in 2001 and fully expire in 2007.
 
     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 U.S. corporate income tax laws and regulations (See Note 8
of Notes to Consolidated Financial Statements on pages F-7 to F-22).
 
     Income before  non-recurring  and  special items,  adjusted  to  reflect  a
normalized  income tax rate of  38%, increased 37.4% to  $56.9 million in fiscal
1995 compared to  $41.4 million  in fiscal  1994. The  increase reflects  higher
operating income.
 
     In  October 1995, the  Company entered into new  bank credit agreements and
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.
 
COMPARISON OF FISCAL 1994 WITH FISCAL 1993.
 
     Net revenues increased 12.1% from $703.8  million in fiscal 1993 to  $788.8
million  in fiscal 1994. The increase in  net revenue was accomplished despite a
planned reduction of approximately $90  million in discontinued Menswear  brands
and  is  attributable  to continued  growth  in the  Company's  Intimate Apparel
Division of 33.6%  and continued net  revenue growth in  the Company's Chaps  by
Ralph Lauren line of 36%.
 
     INTIMATE  APPAREL DIVISION. Net revenues  increased 33.6% to $565.3 million
     in fiscal  1994  from the  $423.2  million  recorded in  fiscal  1993.  The
     increase  was driven by the acquisition of Calvin Klein which generated net
     revenues of $61.0 million in fiscal 1994, an increase in Fruit of the  Loom
     net revenues of 95.4% to $64.3 million and increases in the net revenues of
     Warner's and Olga of 13.2%.
 
     MENSWEAR DIVISION. Net revenues for fiscal 1994 decreased to $183.8 million
     from  $243.2 million in fiscal 1993.  The decrease in sales is attributable
     to the Company's strategic  decisions in fiscal 1993  and 1994 to (i)  sell
     the Puritan trademark to Wal-Mart, (ii) discontinue the Golden Bear by Jack
     Nicklaus  product line, and (iii) terminate the Christian Dior licenses for
     men's dress  shirts,  neckwear  and  accessories  in  1995.  Without  these
     discontinued  brands,  Menswear Division  net  revenues increased  15.3% in
     fiscal 1994  to $164.5  million from  $142.9 million  in fiscal  1993.  The
     increase  is attributable to continued growth  of 36.0% in the net revenues
     of Chaps by Ralph Lauren.
 
     Gross profit increased to $255.8 million in fiscal 1994 from $236.4 million
in fiscal 1993. Gross profit as a percentage of net revenues decreased to  32.4%
in  fiscal 1994  from 33.6% in  fiscal 1993. The  decrease in gross  profit as a
percentage of net revenue reflects  the higher mix of  Fruit of the Loom  sales,
the  amortization  of start  up  costs in  the Fruit  of  the Loom  business and
decreased manufacturing efficiency due to the start up of four new plants.
 
     INTIMATE APPAREL DIVISION. Intimate Apparel Division gross profit increased
     21.3% to $203.5  million (36.0% of  net revenues) from  the $167.7  million
     (39.6%  of net  revenues) recorded  in fiscal  1993. The  increase in gross
     profit reflects the  higher net  revenues noted  above. Gross  profit as  a
     percentage  of net revenues decreased from 39.6% to 36.0% due to the mix of
     Fruit of the Loom
 
                                       17
 

<PAGE>
 

<PAGE>
     sales, the amortization of Fruit of  the Loom start-up costs and  decreased
     manufacturing efficiency, as noted above.
 
     MENSWEAR  DIVISION.  Menswear  Division  gross  profit  decreased  to $38.2
     million (20.7% of net revenues) in fiscal 1994 from $53.7 million (22.1% of
     net revenues) last year.  The decrease in gross  profit reflects the  lower
     sales  volume due to discontinued brands,  as discussed above. The decrease
     in gross profit  as a  percentage of  net revenues  reflects the  favorable
     impact in fiscal 1993 from the sale of the Puritan trademark.
 
     Selling,  administrative and general expenses increased 8.6% in fiscal 1994
to $156.6  million (19.9%  of net  revenue) from  $144.2 million  (20.5% of  net
revenue)  in fiscal  1993. The increase  in selling,  administrative and general
expenses reflects sales volume increases  and an increase in marketing  expenses
of  $5.6 million  to $37  million. Marketing expenses  increased to  4.7% of net
revenue in fiscal 1994  from 4.5% in  fiscal 1993 and 3.2%  in fiscal 1992.  The
decrease  in selling, administrative and general expenses as a percentage of net
revenue reflects continued efforts to control operating expenses by the  Company
and the favorable impact of increased sales to mass merchandisers and Avon which
have   lower  selling  expense  than   the  Company's  traditional  channels  of
distribution.
 
     Interest expense decreased 17% to $32.5  million in fiscal 1994 from  $38.9
million  in fiscal 1993 despite a  significant increase in interest rates during
1994. The decrease in  interest expense is  a result of  the refinancing of  the
Company's  credit agreement in the fourth quarter of fiscal 1993, the attainment
of an Investment Grade credit rating of BBB- from Standard & Poor's in May 1994,
and the  renegotiation of  the Company's  cost of  borrowing in  June 1994.  The
combination  of the refinancing, the improved credit rating and the renegotiated
borrowing rate lowered  the Company's cost  of borrowing by  75 basis points  to
LIBOR  plus  0.5%. In  addition, the  Company has  purchased interest  rate swap
agreements which effectively fix the Company's rate of interest on $275  million
of debt at approximately 6.2% through fiscal 1995.
 
     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 has earthquake
insurance and, other than  a deductible of approximately  $3 million, which  was
recorded as a non-recurring expense in the first quarter of fiscal 1994, expects
to fully recover its losses.
 
     The  provision for income taxes for fiscal 1994 reflects the recognition of
tax benefits  of $22.6  million  related to  the  Company's net  operating  loss
carryforwards  which  offset  substantially  all  of  the  Company's  income tax
provision for fiscal 1994. The Company has utilized substantially all of its net
operating loss  carryforwards for  financial reporting  purposes at  the end  of
fiscal  1994. The Company  had total deferred tax  assets of approximately $38.5
million at the end of  fiscal 1994 and as a  result began reporting fully  taxed
earnings  in fiscal  1995. The  Company recognized  $31.3 million  of income tax
benefits related to future periods in fiscal years 1992 and 1993.
 
     For income tax purposes  the Company had  net operating loss  carryforwards
available  to  offset  future  taxable income  amounting  to  approximately $110
million at January 7,  1995. These carryforwards, which  the Company expects  to
fully  utilize,  will result  in  a future  tax  savings of  approximately $38.5
million at current  U.S. federal corporate  income tax  rates as of  the end  of
fiscal  1994. The net operating loss  carryforwards expire beginning in 2001 and
fully expire in 2007.
 
     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 may 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 U.S. corporate income tax laws and regulations (See Note 8
of Notes to Consolidated Financial Statements on pages F-7 to F-22).
 
                                       18
 

<PAGE>
 

<PAGE>
     Income  from  continuing  operations  for  fiscal  1994  was  $63.3 million
compared to $53.3 million in fiscal 1993. The increase in income from continuing
operations of  $10.0 million  or 18.8%  is attributable  to increased  operating
income and lower interest expense, as noted above.
 
     Net  income for fiscal 1994 was $63.3  million compared to $24.1 million in
fiscal 1993. Net income for fiscal 1993 included an extraordinary item of  $18.6
million  (without income tax benefit) primarily  related to premium payments and
the  write-off  of   deferred  financing   costs  associated   with  the   early
extinguishment  of  debt.  In addition,  fiscal  1993 included  a  $10.5 million
non-cash charge for the cumulative effective of adopting Statement of  Financial
Accounting Standards No. 106.
 
CAPITAL RESOURCES AND LIQUIDITY
 
     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  arising at  the end  of the  second
quarter  and during the third quarter of  the fiscal year. The Company typically
generates nearly all of its net operating cash flow in the fourth quarter of the
fiscal year, reflecting third quarter and fourth quarter shipments and the  sale
of   inventory  built   during  the  first   half  of  the   fiscal  year.  (See
'Seasonality').
 
     In October 1995, the Company sold 9,717,000 shares of Class A Common  Stock
in   an  underwritten  public  offering.  Net  proceeds  of  the  offering  were
approximately $223 million and were used to repay outstanding debt. In addition,
the Company refinanced its bank credit agreement. The new bank credit agreements
consist of a term loan of $200  million and revolving loans of $350 million.  In
addition,  the Company entered a new letter  of credit bank facility that allows
the Company to issue up to $200  million in trade letters of credit and  finance
up  to $100 million of the trade letters of credit for up to 90 days. Borrowings
under the above credit agreements are essentially unsecured and bear interest at
the bank's base lending rate or at approximately LIBOR plus 0.375%. The rate  of
interest  payable on  outstanding borrowing  decreases as  the Company's implied
senior debt  rating from  certain credit  rating agencies  improves. In  January
1996,  the Company achieved an  implied senior debt rating  of BBB from Standard
and Poors, Inc., its fifth debt rating upgrade in less than four years.
 
     Cash used  by  operating  activities  for  the  1995  fiscal  year  totaled
approximately  $(13.6) million compared to cash provided by operating activities
of $77.8 million  in fiscal 1994.  The use of  cash in fiscal  1995 compared  to
fiscal  1994  reflects  the  increase in  working  capital,  primarily inventory
necessary to support increases in net revenues  for fiscal 1995 of over 16%.  In
addition,  the increase in inventory  reflects management's decision to increase
inventory in core products and growth  brands (Calvin Klein, Warner's and  Chaps
by Ralph Lauren) to continue its growth and improve service levels to customers.
 
     Interest  expense for fiscal 1995 totalled $33.9 million, a slight increase
over the $32.5 million in  fiscal 1994. Interest expense includes  approximately
$1.2  million of non-cash interest in both fiscal 1995 and fiscal 1994. Non-cash
interest primarily  reflects amortization  of deferred  debt issue  costs. As  a
result  of  receiving  approximately  $223  million  of  net  proceeds  from the
Company's stock  offering in  October 1995,  the Company  expects that  interest
expense  will be reduced to approximately $25 million in fiscal 1996. The actual
level of  interest  expense  that the  Company  will  incur in  fiscal  1996  is
dependent on several factors, including the overall level of interest rates, the
general  level of economic activity, the level of retail sales and the Company's
need for working capital to fund growth in its operations.
 
     At  January  6,  1996,  the  Company  had  approximately  $293  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
and  Europe. At January  6, 1996, the  Company had approximately  $29 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 at least
the next several years.
 
     Capital   expenditures  for   new  facilities,   improvements  to  existing
facilities and for  machinery and  equipment were  approximately $12.4  million,
$17.5  million  and $39.1  million  in the  1993,  1994 and  1995  fiscal years,
respectively. Depreciation expense  was $9.2  million, $10.8  million and  $13.3
million in the
 
                                       19
 

<PAGE>
 

<PAGE>
1993,  1994  and  1995  fiscal  years,  respectively.  The  increase  in capital
expenditures in fiscal 1995 compared  to fiscal 1994 represents the  significant
investment in store fixtures for both the Calvin Klein and Chaps by Ralph Lauren
brands.
 
SEASONALITY
 
     The operations of the Company are somewhat seasonal, with approximately 56%
of  net  revenues,  60%  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 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 1994 and fiscal 1995.
 
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                      ----------------------------------------------------------------------------
                                                                     (IN MILLIONS)
                                      APR 9,    JUL 9,    OCT 8,    JAN 7,    APR 8,    JUL 8,    OCT 7,    JAN 6,
                                       1994      1994      1994      1995      1995      1995      1995      1996
                                      ------    ------    ------    ------    ------    ------    ------    ------
<S>                                   <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Net revenues.......................   $147.7    $190.3    $217.9    $232.9    $195.2    $210.4    $239.5    $271.1
Operating income before non-
  recurring items..................   $ 20.1    $ 18.1    $ 30.1    $ 30.9    $ 25.5    $ 24.4    $ 39.2    $ 36.5
Cash flow from operating
  activities.......................   $(41.0)   $ (2.9)   $ 17.7    $ 92.8    $(43.0)   $  0.4    $(70.4)   $ 99.4
</TABLE>
 
INFLATION
 
     The  Company  does  not  believe that  the  relatively  moderate  levels of
inflation which have been 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
 
     The  American Institute of Certified Public Accountants issued Statement of
Position 93-7 -- Reporting  on Advertising Costs ('SOP  93-7') in December  1993
effective  for the  Company's 1995 fiscal  year. SOP 93-7  requires, among other
things, that  certain advertising  and promotional  costs that  the Company  had
previously  deferred and  amortized over the  period benefitted  must be charged
directly to operations in the period  the advertisement first runs. The  Company
incurred  a special charge  for advertising costs  previously deferable of $11.7
million ($7.3  million net  of  income tax  benefits)  primarily in  the  fourth
quarter of fiscal 1995 related to SOP 93-7.
 
     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  is required to adopt  FAS
123  for  its 1996  fiscal  year and  anticipates  that the  accounting  for its
stock-based compensation will  continue to  follow APB Opinion  25. The  Company
expects  to provide  pro-forma disclosure in  fiscal 1996 using  the fair market
value method specified in FAS 123.
 
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.
 
                                       20
 

<PAGE>
 

<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     The information required by Item 10 is incorporated by reference from pages
10-11 of Item 4 of  Part I included herein and  from the Proxy Statement of  The
Warnaco Group, Inc.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     The  information required  by Item 11  is hereby  incorporated by reference
from the Proxy Statement of The Warnaco Group, Inc.
 
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.
 
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.
 
                                    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 7, 1995 and January 6, 1996......................................    F-3
Consolidated Statements of Income for the Years Ended January 8, 1994, January 7, 1995 and January 6,
  1996.....................................................................................................    F-4
Consolidated Statement of Stockholders' Equity for the Years Ended January 8, 1994, January 7, 1995 and
  January 6, 1996..........................................................................................    F-5
Consolidated Statements of Cash Flows for the Years Ended January 8, 1994, January 7, 1995 and January 6,
  1996.....................................................................................................    F-6
Notes to Consolidated Financial Statements.................................................................    F-7
</TABLE>
 
     2.  Financial Statement Schedules:
 
<TABLE>
        <S>                                                                                                   <C>
        Report of Independent Accountants...................................................................   S-1
        II  Valuation and Qualifying Accounts and Reserves..................................................   S-2
</TABLE>
 
         Schedules 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.
 
                                       21
 

<PAGE>
 

<PAGE>
     3.  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      Bylaws  of the Company.  (Incorporated herein by  reference to Exhibit  3.2 to the Company's
          Registration Statement on Form S-1, No. 33-45877.)
 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 the 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.
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 Statement 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 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 Company's  Proxy
          Statement for its 1994 Annual Meeting of Shareholders.)
10.11     Amended  and Restated 1993  Stock Plan. (Incorporated  herein by reference  to the Company's
          Proxy Statement for its 1994 Annual Meeting of Shareholders.)
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 Shareholders.)
11.1      Computation of earnings per common share.
22.1      Subsidiaries of the Company.
24.1(a)   Consent of Independent Accountants
24.1(b)   Consent of Independent Auditors
24.1(c)   Consent of Independent Auditors
</TABLE>
 
------------------
 
    (b) Reports on Form 8-K.
 
    No  reports on Form 8-K were filed by  the registrant in the last quarter of
    the 1995 fiscal year.
 
                                       22



<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 20th day of March, 1996.
 
                                          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>
             LINDA J. WACHNER               Chairman of the Board; Director;                 March 20, 1996
------------------------------------------  President and Chief Executive
            (LINDA J. WACHNER)              Officer (Principal Executive Officer)
 
          WILLIAM S. FINKELSTEIN            Director; Senior Vice President and Chief        March 20, 1996
------------------------------------------  Financial Officer (Principal Financial and
         (WILLIAM S. FINKELSTEIN)           Accounting Officer)
 
         JOSEPH A. CALIFANO, JR.            Director                                         March 20, 1996
------------------------------------------
        (JOSEPH A. CALIFANO, JR.)
 
             ANDREW G. GALEF                Director                                         March 20, 1996
------------------------------------------
            (ANDREW G. GALEF)
 
            STEWART A. RESNICK              Director                                         March 20, 1996
------------------------------------------
           (STEWART A. RESNICK)
 
             ROBERT D. WALTER               Director                                         March 20, 1996
------------------------------------------
            (ROBERT D. WALTER)
</TABLE>
 
                                       23




<PAGE>
 

<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Stockholders of The Warnaco Group, Inc.
 
In  our opinion,  the accompanying  consolidated balance  sheet 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  6, 1996,  and  the  results  of  their
operations  and their  cash flows  for the  year 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 audit. We conducted our audit
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  audit  provides   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 21, 1996
 
                                      F-1
 

<PAGE>
 

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
The Warnaco Group, Inc.
 
     We  have audited the accompanying consolidated balance sheet of The Warnaco
Group, Inc. as of  January 7, 1995, and  the related consolidated statements  of
income,  stockholders' equity and  cash flows for  each of the  two years in the
period ended January 7, 1995. Our  audits 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 audits  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 financial position of
The Warnaco Group, Inc. at January 7, 1995, and the consolidated results of  its
operations  and its  cash flows for  each of the  two years in  the period 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.
 
     As  discussed  in  Note 9  to  the consolidated  financial  statements, the
Company changed its method of accounting for postretirement benefits other  than
pensions in 1993.
 
                                                   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 7,      JANUARY 6,
                                                                                              1995            1996
                                                                                           -----------    -----------
<S>                                                                                        <C>            <C>
ASSETS
Current assets:
     Cash, restricted $1,918 -- 1994 and $3,939 -- 1995.................................    $   3,791      $   6,162
     Accounts receivable, less allowance for doubtful accounts of $2,858 -- 1994 and
      $1,960 -- 1995....................................................................      148,659        156,607
     Inventories........................................................................      252,183        356,466
     Prepaid expenses...................................................................       15,892         23,148
                                                                                           -----------    -----------
          Total current assets..........................................................      420,525        542,383
                                                                                           -----------    -----------
Property, plant and equipment, at cost:
     Land and land improvements.........................................................        5,696          5,741
     Buildings and building improvements................................................       62,301         67,667
     Machinery and equipment............................................................       81,138        113,968
                                                                                           -----------    -----------
                                                                                              149,135        187,376
Less: Accumulated depreciation..........................................................       68,203         81,051
                                                                                           -----------    -----------
     Net property, plant and equipment..................................................       80,932        106,325
                                                                                           -----------    -----------
Other assets:
     Deferred financing costs, less accumulated amortization of $1,589 -- 1994 and
      $139 -- 1995......................................................................        6,160          1,522
     Trademarks, licenses, intangible and other assets, at cost, less accumulated
      amortization of $52,495 -- 1994 and $57,596 -- 1995...............................      118,534        158,817
     Excess of cost over net assets acquired, less accumulated amortization of
      $33,420 -- 1994 and $37,066 -- 1995...............................................      115,897        112,805
     Deferred income tax asset..........................................................       38,505         17,277
                                                                                           -----------    -----------
          Total other assets............................................................      279,096        290,421
                                                                                           -----------    -----------
                                                                                            $ 780,553      $ 939,129
                                                                                           -----------    -----------
                                                                                           -----------    -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Borrowing under revolving credit facilities........................................    $ 115,679      $  51,033
     Borrowing under foreign credit facilities..........................................        9,822         --
     Current portion of long term debt..................................................       50,315         26,700
     Accounts payable...................................................................      109,786        123,447
     Accrued liabilities................................................................       27,838         26,503
     Federal and other income taxes.....................................................        2,611          5,231
                                                                                           -----------    -----------
          Total current liabilities.....................................................      316,051        232,914
                                                                                           -----------    -----------
Long-term debt..........................................................................      206,792        194,301
Other long-term liabilities.............................................................       17,238         11,613
Stockholders' equity:
     Preferred Stock; $.01 par value, 10,000,000 shares authorized, none issued.........       --             --
     Class A Common Stock; $.01 par value, shares authorized 65,000,000 -- 1994,
      130,000,000 -- 1995, shares outstanding 41,734,192 -- 1994, 51,745,512 -- 1995....          421            521
     Capital in excess of par value.....................................................      337,872        567,965
     Cumulative translation adjustment..................................................       (1,732)        (3,745)
     Accumulated deficit................................................................      (83,897)       (46,896)
     Treasury stock, at cost............................................................       (5,000)        (5,000)
     Notes receivable for Common Stock issued and unearned stock compensation...........       (7,192)       (12,544)
                                                                                           -----------    -----------
          Total stockholders' equity....................................................      240,472        500,301
                                                                                           -----------    -----------
                                                                                            $ 780,553      $ 939,129
                                                                                           -----------    -----------
                                                                                           -----------    -----------
</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 8,    JANUARY 7,    JANUARY 6,
                                                                                   1994          1995          1996
                                                                                ----------    ----------    ----------
 
<S>                                                                             <C>           <C>           <C>
Net revenues.................................................................    $ 703,769     $ 788,758     $ 916,179
                                                                                ----------    ----------    ----------
Cost of goods sold...........................................................      467,362       532,998       606,498
Selling, administrative and general expenses.................................      144,219       156,573       184,048
Special charge for advertising costs previously deferable (in 1995) and
  non-recurring items (in 1993 and 1994).....................................       22,500         3,000        11,745
                                                                                ----------    ----------    ----------
Income before interest and income taxes......................................       69,688        96,187       113,888
Interest expense.............................................................       38,935        32,459        33,867
                                                                                ----------    ----------    ----------
Income before income taxes...................................................       30,753        63,728        80,021
Provision (benefit) for income taxes.........................................      (22,500)          400        30,408
                                                                                ----------    ----------    ----------
Income before extraordinary items and cumulative effect of the change in the
  method of accounting.......................................................       53,253        63,328        49,613
Extraordinary items, net of income tax benefits of $ 0 -- 1993 and
  $1,913 -- 1995.............................................................      (18,637)       --            (3,120)
Cumulative effect of the change in the method of accounting for
  postretirement benefits other than pensions................................      (10,500)       --            --
                                                                                ----------    ----------    ----------
Net income...................................................................    $  24,116     $  63,328     $  46,493
                                                                                ----------    ----------    ----------
                                                                                ----------    ----------    ----------
 
Income per common share:
     Income before extraordinary items and cumulative effect of change in the
       method of accounting..................................................    $    1.34     $    1.53     $    1.10
     Extraordinary items.....................................................        (0.47)       --             (0.07)
     Cumulative effect of the change in the method of accounting for
       postretirement benefits other than pensions...........................        (0.26)       --            --
                                                                                ----------    ----------    ----------
Net income per common share..................................................    $    0.61     $    1.53     $    1.03
                                                                                ----------    ----------    ----------
                                                                                ----------    ----------    ----------
 
Weighted average number of shares of common stock outstanding................       39,770        41,285        45,278
                                                                                ----------    ----------    ----------
                                                                                ----------    ----------    ----------
</TABLE>
 
  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 2, 1993....................  $ 404     $315,209      $ 1,960      ($ 171,341)    $ --          ($10,390)
Repurchased 57,750 shares of Class A Common
  Stock from employees........................                (141)                                                    141
Payments of employee notes receivable.........                                                                         858
Net income....................................                                           24,116
Change in cumulative translation adjustment...                           (1,681)
                                               -------   ----------   -----------   ------------   ---------   --------------
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 including tax
  benefit.....................................   --            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)
                                               -------   ----------   -----------   ------------   ---------   --------------
                                               -------   ----------   -----------   ------------   ---------   --------------
 
<CAPTION>
 
                                                 TOTAL
                                                --------
<S>                                            <C>
Balance at January 2, 1993....................  $135,842
Repurchased 57,750 shares of Class A Common
  Stock from employees........................     --
Payments of employee notes receivable.........       858
Net income....................................    24,116
Change in cumulative translation adjustment...    (1,681)
                                                --------
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 including tax
  benefit.....................................       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
                                                --------
                                                --------
</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 8,      JANUARY 7,    JANUARY 6,
                                                                                              1994            1995          1996
                                                                                           ----------      ----------    ----------
 
Cash flow from operations:
  Net income........................................................................      $  24,116       $  63,328     $  46,493
  Non cash items included in net income:
     Depreciation and amortization..................................................         18,525          18,798        22,058
     Interest.......................................................................          3,309           1,233         1,205
     Extraordinary items............................................................         18,637          --             3,120
     Cumulative effect of the change in the method of accounting....................         10,500          --            --
     Amortization of unearned stock compensation....................................         --              --               580
     Write down of fixed assets included in non-recurring expenses..................          1,159          --            --
     (Increase) decrease in deferred income tax assets..............................        (24,700)         (2,467)       21,641
  Other changes in operating accounts...............................................        (38,661)           (519)     (103,305)
  Income taxes paid.................................................................         (1,008)         (2,547)       (5,373)
                                                                                           ----------      ----------    ----------
Net cash provided from (used for) operations........................................         11,877          77,826       (13,581)
                                                                                           ----------      ----------    ----------
 
Cash flow from investing activities:
  Proceeds from the sale of fixed assets............................................          1,739             773           616
  Increase in intangibles and other assets..........................................         (7,467)         (9,936)      (34,320)
  Purchase of property, plant and equipment.........................................        (12,438)        (17,534)      (39,122)
  Purchase of Calvin Klein license -- Canada........................................         --              --            (6,200)
  Purchase of Calvin Klein net assets...............................................         --             (33,103)       (5,000)
                                                                                           ----------      ----------   -----------
Net cash used for investing activities..............................................        (18,166)        (59,800)      (84,026)
                                                                                           ----------      ----------   -----------
 
Cash flow from financing activities:
  Proceeds from sale of Class A Common Stock and payment of notes 
     receivable from employees.....................................................             858           2,199       224,261
  Borrowing (repayment) under credit facility.......................................         37,774          14,835       (64,646)
  Proceeds from issuance of other debt..............................................        428,721           8,582           872
  Repayments of debt................................................................       (453,832)        (41,841)      (46,800)
  Increase in deferred financing costs..............................................         (8,360)         (1,767)       (1,599)
  Cash dividends paid...............................................................         --              --            (5,868)
  Purchase of treasury stock........................................................         --              (5,000)       --
  Other.............................................................................          2,016           4,106        (6,242)
                                                                                           ----------      ----------   -----------
Cash provided from (used for) financing activities..................................          7,177         (18,886)       99,978
                                                                                           ----------      ----------   -----------
Increase (decrease) in cash.........................................................            888            (860)        2,371
Cash at beginning of year...........................................................          3,763           4,651         3,791
                                                                                           ----------      ----------   -----------
Cash at end of year.................................................................      $   4,651       $   3,791     $   6,162
                                                                                           ----------      ----------   -----------
                                                                                           ----------      ----------   -----------
Other changes in operating accounts:
  Accounts receivable...............................................................      ($  3,613)      ($ 14,328)    ($  7,948)
  Inventories.......................................................................        (30,206)         (4,646)     (104,283)
  Prepaid expenses..................................................................         (2,119)          6,256        (7,256)
  Accounts payable and accrued expenses.............................................          7,139          13,810         8,702
  Federal and other income taxes....................................................          2,876             400         9,493
  Other.............................................................................        (12,738)         (2,011)       (2,013)
                                                                                           ----------      ----------   -----------
                                                                                          ($ 38,661)      ($    519)    ($103,305)
                                                                                           ----------      ----------   -----------
                                                                                           ----------      ----------   -----------
 
</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') ('Acquisition'). 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, 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 8,  1994  ('Fiscal 1993'),
January 7, 1995 ('Fiscal 1994') and January 6, 1996 ('Fiscal 1995'). Fiscal 1993
included 53 weeks of operations. The impact of the additional week of operations
was not material to the operations of the Company.
 
     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 foreign  operations and  are applied  directly  to
stockholders' equity.
 
     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  20 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 will be reviewed if  facts
and  circumstances suggest that it  may be impaired. If  such a determination is
made, the  Company  will reduce  the  carrying  value of  this  asset.  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  $19,982,000  and
$34,673,000 at  January 7,  1995  and January  6,  1996, respectively,  and  are
included in other assets.
 
     Employee  Retirement Plans: The Company has a non-contributory pension plan
and  defined  contribution  retirement  plans  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% of the
Company's net revenues in any of the three years in the period ended January  6,
1996.
 
NOTE 2 - ACQUISITION
 
     On  March 14, 1994,  the Company acquired certain  assets and the worldwide
trademarks, rights and business  of Calvin Klein  men's underwear, licensed  the
Calvin  Klein  trademark  for  men's  accessories  and  acquired  the  worldwide
trademarks and  rights  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  $22,821,000) 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 (in millions of dollars):
 
<TABLE>
<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  will directly  design, produce  and market
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.
 
NOTE 3 - SPECIAL CHARGE FOR ADVERTISING COSTS PREVIOUSLY DEFERABLE
 
     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  deferable 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 was  $31,578,000, $37,192,000 and $40,988,000
(excluding the special charge)  in the years ended  January 8, 1994, January  7,
1995 and January 6, 1996, respectively.
 
                                      F-8
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 4 - NON-RECURRING EXPENSES
 
     On  October 3, 1993, the Company made a strategic decision to discontinue a
portion of  its  men's  manufactured  dress shirt  and  neckwear  business.  Net
revenues  for the year  ended January 8, 1994  approximated $33,500,000 for this
operation. Non-recurring expense for fiscal  1993 includes a $19,900,000  charge
for  fourth quarter losses and anticipated future losses from operations through
the estimated  date of  disposal and  losses and  expenses associated  with  the
disposal of assets, liquidation of inventories and termination of employees.
 
     In  addition,  non-recurring expense  for the  year  ended January  8, 1994
includes $2,600,000 of costs associated with the final wind-up of the  Company's
Canadian womenswear business, which had been discontinued in a prior year.
 
     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 has earthquake
insurance and, other than  a deductible of approximately  $3 million, which  was
recorded as a non-recurring expense in the first quarter of fiscal 1994, expects
to fully recover its losses.
 
NOTE 5 - EXTRAORDINARY ITEMS
 
     In  October 1993, in conjunction with a refinancing of the Company's credit
agreement, the Company  recorded non-cash extraordinary  charges of  $18,637,000
(without  income tax benefit,  due to the Company's  then existing net operating
loss carryforwards) related to the  write-off of deferred financing costs  under
the Company's previous credit agreement.
 
     In  October 1995, in conjunction with a refinancing of the Company's credit
agreement, 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%  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.  Authentic Fitness purchases certain  occupancy services related to leased
facilities, computer  service, laboratory  testing and  transportation  services
from  the Company, all of which are charged at the Company's cost. Total charges
to  Authentic  Fitness  for   these  services  were  approximately   $1,412,000,
$6,292,000  and $5,335,000 in the  years ended January 8,  1994, January 7, 1995
and January 6, 1996, 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  sells
certain inventory to Authentic Fitness for sale in its outlet stores, such sales
totaled $2,400,000 and $2,668,000 in the years ended January 7, 1995 and January
6,  1996 (none in the year ended January 8, 1994). 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 $500,000, $1,600,000 and $2,206,000 in the years ended January  8,
1994,  January 7, 1995 and January  6, 1996, respectively. The Company purchases
inventory from  Authentic  Fitness for  sale  in the  Company's  outlet  stores.
Inventory  purchases  from  Authentic  Fitness  were  $700,000,  $2,547,000  and
$7,562,000 in the years ended  January 8, 1994, January  7, 1995 and January  6,
 
                                      F-9
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1996,  respectively. The Company purchased  certain machinery and equipment from
Authentic Fitness in fiscal 1994 for a total purchase price of $1,400,000  (none
in fiscal year ended January 8, 1994 and January 6, 1996).
 
     In  December 1993,  the Company  sold its  Checotah, Oklahoma manufacturing
facility to Authentic Fitness. The sales  price of $3,317,000 was determined  by
an independent appraisal, and resulted in a gain of $901,000.
 
     In  June 1995, the Company and Authentic Fitness entered into a sub-license
agreement whereby the Company  will produce certain  intimate apparel using  the
Speedo  brand name.  The Company  will pay  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 in the year ended January 6, 1996.
 
     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,  including
expenses, not to exceed $500,000 (plus cost of living increases) for a period of
five  years. The  contract expires  on May 9,  1996. Amounts  charged to expense
pursuant to this agreement were $500,000 in each of the three fiscal years ended
January 6, 1996.
 
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% of the Company's net revenues for any of the three years in the  period
ended January 6, 1996. The Company operates in several geographic areas.
<TABLE>
<CAPTION>
                                                                           (AMOUNTS IN THOUSANDS)
                                                                          CANADA AND
         FOR THE YEAR ENDED JANUARY 8, 1994             UNITED STATES    LATIN AMERICA     EUROPE       CONSOLIDATED
-----------------------------------------------------   -------------    -------------     -------      ------------
 
<S>                                                     <C>              <C>               <C>          <C>
Net revenues.........................................     $ 605,124         $52,945        $45,700        $703,769
                                                        -------------    -------------     -------      ------------
                                                        -------------    -------------     -------      ------------
Operating profit.....................................     $ 105,438         $ 6,366        $ 3,441        $115,245
                                                        -------------    -------------     -------
                                                        -------------    -------------     -------
General corporate expense -- net.....................                                                      (45,557)
Interest expense.....................................                                                      (38,935)
                                                                                                        ------------
Income before income taxes, extraordinary item and
  cumulative effect..................................                                                     $ 30,753
                                                                                                        ------------
                                                                                                        ------------
 
<CAPTION>
 
         FOR THE YEAR ENDED JANUARY 7, 1995
-----------------------------------------------------
<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
                                                                                                        ------------
                                                                                                        ------------
Identifiable assets at January 7, 1995...............     $ 635,888         $30,482        $31,307        $697,677
                                                        -------------    -------------     -------
                                                        -------------    -------------     -------
Corporate assets.....................................                                                       82,876
                                                                                                        ------------
Total assets at January 7, 1995......................                                                     $780,553
                                                                                                        ------------
                                                                                                        ------------
</TABLE>
 
                                      F-10
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                          CANADA AND
         FOR THE YEAR ENDED JANUARY 6, 1996             UNITED STATES    LATIN AMERICA     EUROPE       CONSOLIDATED
-----------------------------------------------------   -------------    -------------     -------      ------------
<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 income taxes and extraordinary item....                                                     $ 80,021
                                                                                                        ------------
                                                                                                        ------------
Identifiable assets at January 6, 1996...............     $ 705,300         $43,093        $39,329        $787,722
                                                        -------------    -------------     -------
                                                        -------------    -------------     -------
Corporate assets.....................................                                                      151,407
                                                                                                        ------------
Total assets at January 6, 1996......................                                                     $939,129
                                                                                                        ------------
                                                                                                        ------------
</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   expenses-net,   interest   expense,   and   income  taxes.
Non-recurring expense of  $22,500,000 in  fiscal 1993 and  $3,000,000 in  fiscal
1994 is included in general corporate expense-net. The special charge related to
the  adoption of SOP 93-7 of $11,745,000  in fiscal 1995 are included in general
corporate expense-net.
 
     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.
 
NOTE 8 - INCOME TAXES
 
     The  following  presents the  U.S. and  foreign  components of  income from
operations before  income taxes  and the  related provision  (benefit) for  U.S.
federal and other income taxes:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 8,      JANUARY 7,      JANUARY 6,
                                                                            1994            1995            1996
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
 
<S>                                                                      <C>             <C>             <C>
U.S. income from operations before income taxes.....................      $ 29,750        $ 63,574        $ 75,542
Foreign income before taxes.........................................         1,003             154           4,479
                                                                         ----------      ----------      ----------
Income before income taxes, extraordinary items and cumulative
  effect of change in method of accounting..........................      $ 30,753        $ 63,728        $ 80,021
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------

Current:
U.S. federal........................................................      $ 10,413        $ 18,295        $  1,790
State and Puerto Rico...............................................           643           4,253           6,013
Foreign.............................................................         1,557             487           1,923
                                                                         ----------      ----------      ----------
                                                                            12,613          23,035           9,726
Deferred:
U.S. federal........................................................       (35,113)        (22,635)         23,792
State and Puerto Rico...............................................        --              --              (3,110)
                                                                         ----------      ----------      ----------
                                                                           (35,113)        (22,635)         20,682
                                                                         ----------      ----------      ----------
Total...............................................................      $(22,500)       $    400        $ 30,408
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     During  fiscal  1993,  the  Company  recognized  a  deferred  tax  asset of
$1,541,000 (offset  in its  entirety by  a valuation  allowance) related  to  an
increase  in the  Company's statutory  tax rate  resulting from  tax legislation
passed in fiscal 1993. The Company re-evaluated its deferred tax asset in fiscal
1993 and fiscal
 
                                      F-11
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1994 and reversed portions of  its valuation allowance amounting to  $24,700,000
and $22,635,000, respectively.
 
     At January 7, 1995 and January 6, 1996, the Company had net deferred income
tax  assets of $38,505,000 and $17,277,000, 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 U.S. federal income taxes computed at the statutory rate:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 8,      JANUARY 7,      JANUARY 6,
                                                                            1994            1995            1996
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
 
<S>                                                                      <C>             <C>             <C>
Income before income taxes, extraordinary items and cumulative
  effect of the change in the method of accounting..................      $ 30,753        $ 63,728        $ 80,021
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
Provision for income taxes at the statutory rate....................        10,764          22,304          28,007
Foreign income taxes at rates in excess of the statutory rate.......         1,206             433             300
State income taxes -- net of federal benefit........................           343           2,764           3,908
Puerto Rico income taxes............................................           300              --              --
Non-deductible intangible amortization..............................            --           1,321           1,256
Other -- net........................................................            --              --             234
Current benefit of capital loss carryforward........................            --          (3,787)         (1,275)
Benefit of U.S. NOL carryforwards...................................       (35,113)        (22,635)         (2,022)
                                                                         ----------      ----------      ----------
Provision (benefit) for income taxes................................      ($22,500)       $    400        $ 30,408
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     For  tax  purposes,  the  Company has  estimated  U.S.  net  operating loss
carryforwards of approximately $42,910,000 which expire from 2001 through 2007.
 
     As a result  of the  1992 public stock  offering, the  1991 initial  public
offering  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.
 
                                      F-12
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     The components of deferred tax assets and liabilities as of January 7, 1995
and January 6, 1996 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 7,      JANUARY 6,
                                                                                            1995            1996
                                                                                         ----------      ----------
 
<S>                                                                                      <C>             <C>
Deferred tax assets:
     Discounts and sales allowances.................................................      $  1,516        $  1,502
     Inventory......................................................................           474            (462)
     Postretirement benefits........................................................         3,675           3,675
     State and local taxes..........................................................           620             620
     Amortization of intangibles....................................................         3,656           4,635
     Alternative minimum tax credit carryforwards...................................        --               1,832
     Net operating loss carryforwards...............................................        38,505          13,935
                                                                                         ----------      ----------
                                                                                          $ 48,446        $ 25,737
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Deferred tax liabilites:
     Prepaid advertising............................................................      $  3,203        $  1,453
     Deferred expenses..............................................................         2,165           2,165
     Investment in Authentic Fitness stock..........................................         1,275          --
     Depreciation...................................................................           803           1,678
     Retirement plans...............................................................           485             485
     Other..........................................................................         2,010           3,092
                                                                                         ----------      ----------
                                                                                          $  9,941        $  8,873
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</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  seven
highest  consecutive calendar years of compensation  (increasing to ten years in
1999  and  fifteen  years  in  2000)  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).
 
     Pension costs were:
 
<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED
                                                                         ------------------------------------------
                                                                         JANUARY 8,      JANUARY 7,      JANUARY 6,
                                                                            1994            1995            1996
                                                                         ----------      ----------      ----------
                                                                                       (IN THOUSANDS)
 
<S>                                                                      <C>             <C>             <C>
Benefits earned.....................................................      $  2,004        $  2,372        $  1,676
Interest cost on projected benefits.................................         7,367           7,630           7,801
Actual (return) loss on investments.................................       (12,834)          5,085         (20,976)
Net amortization/deferral...........................................         3,899         (13,981)         13,271
                                                                         ----------      ----------      ----------
Cost of Company plan................................................           436           1,106           1,772
Cost of other plans.................................................           343             519             539
                                                                         ----------      ----------      ----------
Net pension cost....................................................      $    779        $  1,625        $  2,311
                                                                         ----------      ----------      ----------
                                                                         ----------      ----------      ----------
</TABLE>
 
     The  Plan had  projected benefit  obligations in  excess of  Plan assets at
January 7,  1995 and  January 6,  1996. Plan  investments include  fixed  income
securities  and marketable equity securities, including 71,800 and 71,800 shares
of the  Company's  Class A  Common  Stock, which  had  a fair  market  value  of
 
                                      F-13
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
$1,239,000  and $1,795,000 at January 7, 1995 and January 6, 1996, respectively.
The Plan also  owned 101,300  and 101,300  shares of  Authentic Fitness'  common
stock  which had a fair market value  of $1,406,000 and $2,102,000 at January 7,
1995 and January 6, 1996, respectively.
 
     The following table presents a reconciliation  of the funded status of  the
Plan at January 7, 1995 and January 6, 1996:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 7,      JANUARY 6,
                                                                                            1995            1996
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Plan assets at fair value...........................................................      $ 88,618        $ 101,905
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Actuarial present value of benefit obligation:
  Vested............................................................................        84,146           98,379
  Non-vested........................................................................         2,101            2,403
                                                                                         ----------      ----------
Accumulated benefit obligation......................................................        86,247          100,782
Effect of projected future salary increases.........................................         7,663            7,471
                                                                                         ----------      ----------
Projected benefit obligation........................................................        93,910          108,253
                                                                                         ----------      ----------
Plan assets less than projected benefit obligation..................................         5,292            6,348
Unrecognized prior service cost.....................................................        --                  794
Unrecognized net loss...............................................................        (2,044)          (2,122)
                                                                                         ----------      ----------
Accrued pension cost of the Plan....................................................         3,248            5,020
Accrued pension cost -- others......................................................            31               --
                                                                                         ----------      ----------
Amounts accrued for employee retirement plans.......................................      $  3,279        $   5,020
                                                                                         ----------      ----------
                                                                                         ----------      ----------
Assumptions used for Company pension plans:
  Discount rate.....................................................................         8.75%            7.50%
</TABLE>
 
     The  actuarial assumption for long term rate of return on plan assets is 9%
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
4.6% to 14% per annum.
 
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.
 
     Effective  January  3, 1993,  the  Company adopted  Statement  of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement  Benefits
Other  than Pensions ('SFAS No. 106') and,  as a result, recorded an expense for
the cumulative effect of a change in the method of accounting for postretirement
benefits  of   $10,500,000   (without   income  tax   benefit).   Net   periodic
postretirement benefit cost is as follows:
 
<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED
                                                            --------------------------------------
                                                            JANUARY 8,    JANUARY 7,    JANUARY 6,
                                                               1994          1995          1996
                                                            ----------    ----------    ----------
                                                                        (IN THOUSANDS)
 
<S>                                                         <C>           <C>           <C>
Service cost.............................................     $  103         $ 83          $109
Interest cost............................................        897          655           599
Net amortization/deferral................................      --             (57)         (220)
                                                            ----------    ----------    ----------
                                                              $1,000         $681          $488
                                                            ----------    ----------    ----------
                                                            ----------    ----------    ----------
</TABLE>
 
                                      F-14
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The funded status of the plans is as follows:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 7,      JANUARY 6,
                                                                                            1995            1996
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Accumulated postretirement benefit obligation:
  Retirees..........................................................................       $6,620          $6,438
  Actives, fully eligible...........................................................          316             222
  Actives, not fully eligible.......................................................        1,198             900
Unrecognized net gain from
  experience differences and
  changes in assumptions............................................................        1,685           2,045
                                                                                         ----------      ----------
Amount accrued for postretirement benefit costs.....................................       $9,819          $9,605
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</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  8, 1994  was 13%  for years  1-4, 10%  for years  5-9 and  5% 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 years
ended January 7, 1995 and  January 6, 1996 was 11%  for years 1-3, 9% for  years
4-8,  and 5% for  years thereafter. A  1% increase in  the trend rate assumption
would have increased the cumulative effect adjustment by approximately  $442,000
and  would increase  the periodic  postretirement benefit  cost by approximately
$44,000, $34,000 and  $34,000 for the  years ended January  8, 1994, January  7,
1995, and January 6, 1996, respectively. The weighted average discount rate used
in  determining the accumulated  postretirement benefit obligation  is 8.75% and
7.50% at  January  7,  1995 and  January  6,  1996, respectively.  The  rate  is
consistent with the discount rate 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%  of  the  first  6%  of  employee  contributions  to  the  defined
contribution plan. The maximum Company contribution on behalf of any employee is
$1,350  in any year. Employees vest in the Company contribution over four years.
Company contribution to the defined  contribution plan totaled $125,000 for  the
year  ended January 6, 1996 (none in the years ended January 8, 1994 and January
7, 1995).
 
NOTE 10 - INVENTORIES
 
     Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 7,      JANUARY 6,
                                                                                            1995            1996
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Finished goods......................................................................      $ 131,450       $ 214,252
Work in process.....................................................................         60,513          77,940
Raw materials.......................................................................         60,220          64,274
                                                                                         ----------      ----------
                                                                                          $ 252,183       $ 356,466
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</TABLE>
 
                                      F-15
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 11 - DEBT
 
     Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                                         JANUARY 7,      JANUARY 6,
                                                                                            1995            1996
                                                                                         ----------      ----------
                                                                                               (IN THOUSANDS)
 
<S>                                                                                      <C>             <C>
Term Note due 1996-2000.............................................................      $ 232,000       $ 200,000
Capital lease obligations...........................................................          6,700           4,975
Other...............................................................................         18,407          16,026
                                                                                         ----------      ----------
                                                                                            257,107         221,001
Less: amounts due within one year...................................................         50,315          26,700
                                                                                         ----------      ----------
                                                                                          $ 206,792       $ 194,301
                                                                                         ----------      ----------
                                                                                         ----------      ----------
</TABLE>
 
     Approximate maturities of long-term debt are as follows:
 
<TABLE>
<CAPTION>
                                                                  AMOUNT
   YEAR                                                       (IN THOUSANDS)
   ----                                                       --------------
<S>                                                           <C>
1996..........................................................    $ 26,700
1997..........................................................      49,867
1998..........................................................      41,090
1999..........................................................      51,006
2000..........................................................      50,517
2001 -- Thereafter............................................       1,821
</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 is renewable
at  the  Company's  option.  Amounts  outstanding  under  the  1995  Bank Credit
Agreements bear  interest at  the Bank's  base lending  rate, or  at LIBOR  plus
0.425%.  In addition, the 1995 Bank Credit Agreements allow the Company to place
amounts borrowed under the $250 million revolving loan portion of the 1995  Bank
Credit  Agreements 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 Credit Agreements  are
unsecured. The Company is required to pay a commitment fee on unused portions of
the  Revolving Credit Facilities  equal to 0.175%  per annum in  the case of the
$250 million revolving loan and 0.125% per annum on the 364 day revolving  loan.
Unused  commitments under  the Revolving  Credit Facilities  at January  6, 1996
amounted to approximately $293 million. The rate of interest payable on  amounts
outstanding under the 1995 Bank Credit Agreements and the commitment fee payable
on  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 6,
1996, were as follows: (1) Minimum net worth -- $471,300,000, (2) Leverage ratio
of .550 to 1, and (3) Fixed charge coverage ratio of 1.20 to 1. As of January 6,
1996, the Company was  in compliance with  all of the  covenants under the  1995
Bank Credit Agreements.
 
     On  October 14, 1993,  the Company entered into  a Financing Agreement (the
'1993 Financing'). The  1993 Financing provided  for a revolving  loan of up  to
$200  million (subsequently increased to  $235 million) and a  term note of $300
million  at  the  lender's  base  rate  plus  .25%.  It  also  provided  for   a
 
                                      F-16
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
LIBOR  option at a rate of LIBOR plus 1.25%. In May 1994, the Company obtained a
senior credit rating of BBB- from certain credit rating agencies, which  reduced
the  interest rate payable on the Company's  outstanding debt to the bank's base
rate or LIBOR plus  .875%. In addition,  in June 1994  the Company negotiated  a
further  reduction  in  the  interest rate  on  the  Company's  outstanding debt
obligations to LIBOR plus  50 basis points. The  1993 Financing was replaced  in
October 1995 by the 1995 Bank Credit Agreements.
 
     Certain  provisions in the  1993 Financing required the  Company to fix the
interest rate  on  $125 million  of  the Company's  $500  million  (subsequently
increased  to  $535 million)  facility. As  a result,  the Company  entered into
agreements which effectively fixed the Company's interest rate on $25 million at
6.31%, $150 million at 6.57% and  $100 million at 4.29%. The agreements  expired
prior  to their maturity in October 1995, when the Company entered into the 1995
Bank Credit Agreements.  There was  no cost to  the Company  to terminate  these
agreements prior to their maturity. The related write-off of deferred debt issue
costs  associated with the 1993 Financing  amounted to $3,120,000 (net of income
tax benefits of $1,913,000) and was recorded in October 1995 as an extraordinary
item related to the early extinguishment of debt.
 
     In October  1995,  in  conjunction  with  entering  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%.  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  a payment under
this agreement  amounting to  $20,000 in  the year  ended January  6, 1996.  The
Company estimates that the cost to terminate the agreement as of January 6, 1996
would have been approximately $3,214,000.
 
     Cash  interest paid amounted to $37,069,000, $30,680,000 and $32,667,000 in
the years  ended  January  8,  1994,  January  7,  1995  and  January  6,  1996,
respectively.
 
     The  Company's average interest  rate on all its  outstanding bank debt was
approximately  6.35%  and  6.19%  at  January  7,  1995  and  January  6,  1996,
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, the amounts  due under maturing
trade letters of credit  ('90 Day Loans'). Total  amounts outstanding under  the
L/C  Facility, including the face  amount of trade letters  of credit and 90 Day
Loans may not exceed $200,000,000 in the  aggregate. The total amount of 90  Day
Loans  outstanding may not exceed $100,000,000  at any time. Amounts outstanding
under 90 Day  Loans accrue interest  at the bank's  base rate or  at LIBOR  plus
0.4250%.  The interest rate payable on outstanding 90 Day Loans decreases as the
Company's implied senior debt rating improves. The L/C Facility is for a term of
one year. 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 90  Day  Loans with  trade  accounts
payable.  The amount of 90 Day Loans  outstanding at January 7, 1995 and January
6, 1996 was $7,244,000 and $41,369,000, 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 Agreements and the L/C
Facility. At January 7,  1995 and January 6,  1996, the Company had  outstanding
letters   of  credit   totalling  approximately   $42,515,000  and  $49,785,000,
respectively, of which $10,599,000 and $6,490,000, respectively, reduced amounts
available under the Revolving Credit Facilities.
 
                                      F-17
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     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 6, 1996, the total amount
of  credit available under  the Foreign Credit  Facilities was approximately $29
million.
 
     The Company is required to maintain compensating balances securing  certain
credit  arrangements. Such balances amounted to $114,000 and $100,000 at January
7, 1995 and January 6, 1996,  respectively. In addition, the Company  classifies
lock  box receipts not available until the next business day as restricted cash.
Such balances  amounted to  $1,804,000 and  $3,839,000 at  January 7,  1995  and
January 6, 1996, respectively.
 
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  Incorpoation  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
year ended January 6, 1996 were $5,868,000. In addition, on November 7, 1995 the
Company's declared a quarterly dividend of $0.07 per share payable on January 8,
1996 to  shareholders  of record  on  December  1, 1995.  The  accrued  dividend
amounted  to $3,624,000 and was  paid on January 8,  1996. On February 22, 1996,
the Company declared  a quarterly cash  dividend of $0.07  per share payable  on
April  5, 1996 to shareholders of record on  March 1, 1996. The 1995 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 both
January  7,  1995  and  January  6,  1996,  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  $6,561,000 and $5,971,000 at  January 7, 1995 and
January 6, 1996 are non-
 
                                      F-18
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
interest bearing, while the balance earn interest at approximately 8%. 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.
 
     During 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% 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 6,  1996 was 5,873,601.  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 option 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.
 
     Options issued, exercised, cancelled and outstanding under the Stock  Plan,
the Option Plan and the Director Plan at January 6, 1996 are summarized below:
 
<TABLE>
<CAPTION>
                                                                               PRICE RANGE        SHARES
                                                                            -----------------    ---------
 
<S>                                                                         <C>                  <C>
Outstanding January 3, 1993..............................................   $           17.31      812,000
Options granted..........................................................         15.81-18.31    2,410,000
Options cancelled........................................................         15.81-18.31     (243,000)
                                                                            -----------------    ---------
Outstanding January 8, 1994..............................................         15.81-18.31    2,979,000
Options granted..........................................................         13.13-17.38      670,000
Options cancelled........................................................         13.38-17.38     (162,000)
                                                                            -----------------    ---------
Outstanding January 7, 1995..............................................         13.13-18.31    3,487,000
Options granted..........................................................         15.75-18.50    2,570,000
Options exercised........................................................         15.81-18.31     (106,500)
Options cancelled........................................................         15.81-18.31     (362,500)
                                                                            -----------------    ---------
Outstanding January 6, 1996..............................................   $     13.13-18.50    5,588,000
                                                                            -----------------    ---------
                                                                            -----------------    ---------
</TABLE>
 
                                      F-19
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     Under  the above plans, options to purchase  a total of 5,588,000 shares of
Common Stock were outstanding, 3,583,000 of which were exercisable. 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 May
22, 2005.
 
     The  Company  has reserved  7,467,101 shares  of Class  A Common  Stock for
issuance under the above plans as of January 6, 1996.
 
     In August 1995, in  accordance with the provisions  of the Stock Plan,  the
Company  granted  320,000  shares  of  restricted  stock  to  certain employees,
including certain officers of the Company. The restricted shares vest over  four
years  and will  be fully vested  in August 1999.  The fair market  value of the
restricted shares  was  $6,960,000  at  the date  of  grant.  The  Company  will
recognize  compensation expense equal to the fair value of the restricted shares
over the vesting period. Compensation expense for the year ended January 6, 1996
was $580,000. The outstanding amount  of unearned stock compensation at  January
6, 1996 was $6,380,000 and is deducted from stockholders' equity.
 
     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.
 
NOTE 13 - LEASES
 
     Rental expense was $14,213,000, $15,100,000  and $16,545,000 for the  years
ended January 8, 1994, January 7, 1995 and January 6, 1996, 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 6, 1996:
 
<TABLE>
<CAPTION>
                                                                           RENTAL PAYMENTS
                                                                       ------------------------
                                                                            (IN THOUSANDS)
                                                                       REAL ESTATE    EQUIPMENT
                                                                       -----------    ---------
 
<S>                                                                    <C>            <C>
1996................................................................     $ 9,944       $ 3,522
1997................................................................     $ 8,460       $ 3,160
1998................................................................     $ 7,926       $ 2,834
1999................................................................     $ 7,250       $ 2,657
2000................................................................     $ 8,277       $ 2,628
2001 - thereafter...................................................     $11,804       $13,123
</TABLE>
 
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS
 
     The following summarizes the unaudited  quarterly results of operations  of
the Company for the 1994 and 1995 fiscal years.
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED JANUARY 7, 1995
                                                                    --------------------------------------------
                                                                     FIRST       SECOND      THIRD       FOURTH
                                                                    QUARTER     QUARTER     QUARTER     QUARTER
                                                                    --------    --------    --------    --------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<S>                                                                 <C>         <C>         <C>         <C>
Net revenues.....................................................   $147,731    $190,302    $217,872    $232,853
Gross profit.....................................................     50,376      56,990      69,896      78,498
Net income.......................................................   $  8,961    $  9,086    $ 21,711    $ 23,570
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Net income per common share......................................   $   0.22    $   .022    $   .052    $   .057
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
</TABLE>
 
                                      F-20
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
<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 item.................................     10,620       9,265      18,091      11,637
Extraordinary item...............................................         --          --          --       3,120
Net income.......................................................   $ 10,620    $  9,265    $ 18,091    $  8,517
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Income before extraordinary item per common share................   $   0.26    $   0.22    $   0.41    $   0.22
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
Net income.......................................................   $   0.26    $   0.22    $   0.41    $   0.16
                                                                    --------    --------    --------    --------
                                                                    --------    --------    --------    --------
</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 fair value of the Company's agreement to
fix the interest  rate on  $150,000,000 of its  outstanding debt  is based  upon
quoted market prices.
 
     Letters  of credit. Letters of credit collaterlize 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 7, 1995 and January 6, 1996 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                            JANUARY 7, 1995         JANUARY 6, 1996
                                                          --------------------    --------------------
                                                          CARRYING      FAIR      CARRYING      FAIR
                                                           AMOUNT      VALUE       AMOUNT      VALUE
                                                          --------    --------    --------    --------
 
<S>                                                       <C>         <C>         <C>         <C>
Revolving loans........................................   $125,501    $125,501    $ 51,033    $ 51,033
Term Loan..............................................    232,000     232,000     200,000     200,000
Interest rate swap.....................................         --       1,821          --      (3,214)
Letters of credit......................................     42,515      42,515      49,785      49,785
</TABLE>
 
NOTE 16 - SUBSEQUENT EVENT -- ACQUISITION
 
     On February 9, 1996 the Company acquired substantially all of the assets of
the  GJM Group  of companies  ('GJM'), a  private label  manufacturer of women's
sleepwear and  lingerie. The  purchase  price consisted  of  a cash  payment  of
$12,500,000   at  closing  and  a  cash  payment  of  $1,500,000  due  upon  the
satisfactory completion of  an audit of  the net assets  acquired. The  purchase
price  is subject to adjustment if the net assets acquired, as determined by the
audit of  the  balance  sheet  of  the acquired  assets,  are  not  equal  to  a
predetermined amount.
 
                                      F-21
 

<PAGE>
 

<PAGE>
                            THE WARNACO GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
     The preliminary estimated allocation of purchase price to the fair value of
the assets acquired is summarized below (in millions of dollars):
 
<TABLE>
<S>                                                                                          <C>
Accounts receivable.......................................................................      $10.7
Inventories...............................................................................        7.7
Prepaid expenses..........................................................................        1.4
Property and equipment....................................................................        2.9
Intangible and other assets...............................................................        7.5
Liabilities assumed.......................................................................      (16.2)
                                                                                                -----
     Total purchase price.................................................................      $14.0
                                                                                                -----
                                                                                                -----
</TABLE>
 
                                      F-22



<PAGE>
 

<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE
 
To the Board of Directors of
The Warnaco Group, Inc.
 
Our  audit of  the consolidated financial  statements referred to  in our report
dated February 21, 1996 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 year  ended  January 6,  1996.  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 21, 1996
 
                                      S-1
 

<PAGE>
 

<PAGE>
                                                                     SCHEDULE II
 
                            THE WARNACO GROUP, INC.
                   VALUATION & QUALIFYING ACCOUNTS & RESERVES
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                         ADDITIONS
                                                           BALANCE AT    CHARGED TO
                                                           BEGINNING     COSTS AND                      BALANCE AT
DESCRIPTION                                                 OF YEAR       EXPENSES     DEDUCTIONS(1)    END OF YEAR
--------------------------------------------------------   ----------    ----------    -------------    -----------
 
<S>                                                        <C>           <C>           <C>              <C>
Year Ended January 8, 1994
  Allowance for doubtful accounts.......................     $1,770        $1,199         $ 1,556         $ 1,413
                                                           ----------    ----------    -------------    -----------
                                                           ----------    ----------    -------------    -----------
 
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
                                                           ----------    ----------    -------------    -----------
                                                           ----------    ----------    -------------    -----------
</TABLE>
 
------------------
 
(1) Uncollectible accounts written off, net of recoveries.
 
    The above reserves are deducted from the related assets in the  consolidated
    balance sheets.
 
                                      S-2





<PAGE>
 

<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT                                                                                              SEQUENTIALLY
NUMBER                                      EXHIBIT DESCRIPTION                                      NUMBERED PAGE
-------   ----------------------------------------------------------------------------------------   -------------
 
<S>       <C>                                                                                        <C>
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 named therein.
11.1      -- Calculation of Income per common share.
22.1      -- Subsidiaries of the Company
24.1(a)   -- Consent of Independent Accountants
24.1(b)   -- Consent of Independent Auditors
24.1(c)   -- Consent of Independent Auditors
27        -- Financial Data Schedule
</TABLE>




<PAGE>