<html>

<head>
<title>Form 8-K</title>
</head>

<body>

<p align="center"><font face="Times New Roman"><font SIZE="5">UNITED STATES SECURITIES AND
EXCHANGE COMMISSION</font></p>
<font SIZE="4">

<p align="center">Washington, D.C. 20549</font></p>

<p align="center">&nbsp;</p>
<b>

<p align="center"><font SIZE="5">Form 8-K</font></p>

<p ALIGN="CENTER">CURRENT REPORT<br>
PURSUANT TO SECTION 13 OR 15(d) OF THE<br>
SECURITIES EXCHANGE ACT OF 1934</p>
</b>

<p align="center">Date of Report (Date of earliest event reported): <br>
June 2, 2003</p>

<p>&nbsp;</p>

<p align="center"><font SIZE="5">JONES APPAREL GROUP, INC.</font><br>
(Exact Name of registrant as specified in its charter)</p>

<p>&nbsp;</p>
<div align="center"><center>

<table CELLSPACING="0" BORDER="0" CELLPADDING="8" width="100%" style="border: medium none">
  <tr>
    <td WIDTH="34%" VALIGN="TOP" align="center"><p ALIGN="CENTER">Pennsylvania<br>
    (State or Other Jurisdiction of Incorporation)</td>
    <td WIDTH="30%" VALIGN="TOP" align="center"><p ALIGN="CENTER">1-10746<br>
    (Commission File Number)</td>
    <td WIDTH="36%" VALIGN="TOP" align="center"><p ALIGN="CENTER">06-0935166<br>
    (IRS Employer Identification No.)</td>
  </tr>
</table>
</center></div>

<p ALIGN="CENTER">250 Rittenhouse Circle<br>
Bristol, PA 19007<br>
(Address of principal executive offices)</p>

<p align="center">(215) 785-4000 <br>
(Registrant's telephone number, including area code)</p>

<hr>

<p><font size="3">Item 12. Results of Operations and Financial Condition </font></p>

<p>&nbsp;&nbsp;&nbsp; The Securities and Exchange Commission (the
&quot;SEC&quot;) recently issued Regulation G and amended Item 10 of Regulation
S-K concerning the use of non-GAAP financial measures. These regulations became
effective on March 28, 2003. Prior to the effective date of the regulations, on
March 25, 2003, Jones Apparel Group, Inc. (&quot;Jones&quot;), filed its Annual
Report of Form 10-K for the year ended December 31, 2002 (the
&quot;10-K&quot;).&nbsp; Item 7 of the 10-K contained certain references to non-GAAP financial measures,
including
references to &quot;gross profit before purchase accounting adjustments.&quot;
In anticipation of the filing of one or more registration statements on Form S-8
which incorporate by
reference information from the 10-K, Jones is filing this Form 8-K solely for
the purpose of conforming Item 7 of the 10-K to the new requirements of SEC
Regulation G and Item 10 of Regulation S-K by removing all such references to
non-GAAP financial measures.</p>

<p>&nbsp;&nbsp;&nbsp; Item 7 of the 10-K is revised as follows:</p>

<b>
<p><a name="ITEM 7">ITEM 7</a>. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</p>
<p>General</p>
</b>
<p>&nbsp;&nbsp;&nbsp; The following discussion provides
information and analysis of our results of operations from 2000 through 2002,
and our liquidity and capital resources. The following discussion and analysis
should be read in conjunction with our Consolidated Financial Statements
included elsewhere herein.</p>
<p>&nbsp;&nbsp;&nbsp; We completed our acquisitions of Victoria on July 31,
2000, Judith Jack on April 26, 2001, McNaughton on June 19, 2001, Gloria
Vanderbilt on April 8, 2002 and l.e.i. on August 15, 2002. The results of
operations of the acquired companies are included in our operating results from
the respective dates of acquisition. Accordingly, the financial position and
results of operations presented and discussed herein are not directly comparable
between years. Victoria and Judith Jack operate primarily in the wholesale
footwear and accessories segment, and McNaughton, Gloria Vanderbilt and l.e.i.
operate in the wholesale moderate apparel segment.</p>
<p>&nbsp;&nbsp;&nbsp; We believe that we have achieved our growth in recent
years by enhancing the brand equity of our labels through our focus on design,
quality and value, and through strategic acquisitions which provide significant
diversification to the business by successfully adding new labels and product
lines (such as the <i>Napier, Judith Jack, Norton McNaughton, Energie, Erika,
Gloria Vanderbilt</i> and <i>l.e.i.</i> brands). Through this diversification,
we have evolved into a multidimensional resource in apparel, footwear and
accessories. We have leveraged the strength of our brands to increase both the
number of locations and amount of selling space in which our products are
offered, to introduce new product extensions such as the <i>Nine West, Nine
&amp; Company, Easy Spirit </i>and <i>Bandolino </i>apparel and <i>Jones New
York</i> accessory labels, and to reposition the <i>Bandolino</i> and <i>Evan-Picone</i>
labels to the moderate market segment. We believe we have also benefitted from a
trend among our major retail accounts to concentrate their women's apparel,
footwear and accessories buying among a narrowing group of vendors.</p>
<p>&nbsp;&nbsp;&nbsp; During 2002, we restructured several of our operations,
including the closing of Canadian and Mexican production facilities and the
closing of an administrative, warehouse and preproduction facility in El Paso,
Texas. As a result, we recorded restructuring charges of $7.8 million, including
$4.0 of employee severance and related costs and $3.3 million of asset
impairments (based on estimated market values of the affected properties). Of
these charges, $0.9 million is reported as a selling, general and administrative
expense in the wholesale better apparel segment and $6.9 million is reported as
a selling, general and administrative expense in the wholesale moderate apparel
segment.</p>
<p>&nbsp;&nbsp;&nbsp; During 2002, we recorded a $31.9 million charge relating
to contractual obligations under employment contracts, primarily for former
President Jackwyn Nemerov and former Vice Chairman Irwin Samelman. The charges
under these contracts are comprised of pre-tax amounts totaling $11.8 million
for contractual salary and bonus obligations and $18.1 million for non-cash
compensation expense resulting from contractual vesting of outstanding stock
options and restricted stock. Also included is a pre-tax amount of $2.0 million
related to certain obligations under the employment agreement that we entered
into with Peter Boneparth when we acquired McNaughton in 2001. These obligations
were satisfied in March 2002 when Mr. Boneparth was elected President and
designated to become our Chief Executive Officer on May 22, 2002.</p>
<p>&nbsp;&nbsp;&nbsp; We have substantially restructured our businesses at Nine
West, including the sale of Nine West's Asian and United Kingdom operations in
August 2000 and January 2001, respectively, and the closing of underperforming
domestic retail stores, remote distribution and administrative centers and
several domestic manufacturing operations. Several Nine West footwear brands,
including <i>Selby</i> and <i>Pappagallo</i>, were discontinued until
alternative distribution channels can be established or sales of these brands
can be effected. The licensed brand <i>cK/Calvin Klein</i> was also
discontinued.</p>
<p>&nbsp;&nbsp;&nbsp; The terrorist attacks of September 11, 2001 and subsequent
increases in unemployment and reduced consumer spending have clearly had a
negative impact on the United States economy. Retailers in those distribution
channels to which we sell our products responded to the general sense of
economic uncertainty</p>
<p ALIGN="center">2</p>
<hr size="1" color="#000000" noshade>
<p> with order reductions and extremely aggressive promotional
activity. As a result, we had the challenge of liquidating inventory above our
normal plan, as well as working with our retail customers to flow inventories
through the normal retail distribution channels. Accordingly, we recorded a
pre-tax charge of $86.8 million (the &quot;special charge&quot;) in the third
fiscal quarter of 2001 to provide for the writedown of inventories and
receivables. Of the charge, $61.7 million was to write down to net realizable
value merchandise that we either owned or were committed for and needed to
dispose of through off-price channels. The charge to receivables of $24.1
million was to record an incremental provision for customer allowances, which we
anticipated we needed to provide to our retail customers in order to effectively
flow goods through the retail channels. Due to the unusual nature of the cause for this charge, we are presenting 2001
results of operations as reported and also without the effect of the special
charge for comparison purposes.</p>
<p>&nbsp;&nbsp;&nbsp; We identify operating segments based on, among other
things, the way our management organizes the components of our business for
purposes of allocating resources and assessing performance. With the addition of
McNaughton in 2001 and the recent acquisitions of Gloria Vanderbilt and l.e.i.,
we have redefined our reportable operating segments effective January 1, 2002.
Our operations are now comprised of four reportable segments: wholesale better
apparel, wholesale moderate apparel, wholesale footwear and accessories, and
retail. Prior period segment results have been restated to reflect the new
reporting segments.</p>
<p>&nbsp;&nbsp;&nbsp; In November 2001, the FASB Emerging Issues Task Force
released Issue 01-9, &quot;Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products).&quot; The scope of
Issue 01-9 includes vendor consideration to any purchasers of the vendor's
products at any point along the distribution chain, regardless of whether the
purchaser receiving the consideration is a direct customer of the vendor. Our
adoption, effective January 1, 2002, required us to reclassify cooperative
advertising expenses from a deduction against revenues to a selling, general and
administrative expense. As a result, restated net sales, gross profit and SG&amp;A
expenses for 2000 and 2001 all increased by $26.9 million and $25.5 million,
respectively, from amounts previously reported.</p>
<p>&nbsp;&nbsp;&nbsp; In June 2001, the FASB issued SFAS No. 142, &quot;Goodwill
and Other Intangible Assets,&quot; which changed the accounting for goodwill and
other intangible assets from an amortization method to an impairment-only
approach. Upon our adoption of SFAS No. 142 on January 1, 2002, we ceased
amortizing our trademarks without determinable lives and our goodwill. As
prescribed under SFAS No. 142, we had our goodwill and trademarks tested for
impairment during the first fiscal quarter of 2002.</p>
<p>&nbsp;&nbsp;&nbsp; Due to market conditions resulting from a sluggish economy
compounded by the aftereffects of the events of September 11, 2001, we revised
our earnings forecasts for future years for several of our trademarks and
licenses. As a result, the fair market value of these assets (as appraised by an
independent third party) was lower than their carrying value as of December 31,
2001. We accordingly recorded an after-tax impairment charge of $13.8 million,
which is reported as a cumulative effect of change in accounting principle
resulting from the adoption of SFAS No. 142.</p>
<p>&nbsp;&nbsp;&nbsp; In the second fiscal quarter of 2002, we recorded an
additional impairment charge of $5.8 million related to two trademarks due to a
decrease in projected accessory revenues resulting from a further evaluation of
our costume jewelry business. In the fourth quarter of 2002, we had our annual impairment
test for goodwill and trademarks performed. As a result of continuing
decreases in projected accessory revenues in our costume jewelry lines and the
conversion of a portion of our <i>Enzo Angiolini</i> retail stores to the more
moderately-priced <i>Bandolino</i> brand, we recorded an additional trademark
impairment charge of $18.6 million. These charges are reported as a selling,
general and administrative expense in the other and eliminations segment.</p>
<p>&nbsp;&nbsp;&nbsp; If our exclusive licenses
to manufacture and market clothing under the <i>Lauren by Ralph Lauren</i> and <i>Polo
Jeans Company</i> trademarks in the United States, Canada and elsewhere were to
end, it would
have a material adverse effect on us. Our <i>Lauren by Ralph Lauren</i> and <i>Polo
Jeans Company</i> businesses represent significant portions of our sales and
profits. We sell products bearing those trademarks, as well as the <i>Ralph by
Ralph Lauren</i> trademark, under exclusive licenses from affiliates of Polo
Ralph Lauren Corporation. Net sales for all products under license from Polo
Ralph Lauren amounted to $1.0 billion, $1.1 billion and $1.1 billion in 2002,
2001 and 2000, respectively.</p>
<p ALIGN="center"> 3</p>
<hr noshade size="1" color="#000000">
<p>&nbsp;&nbsp;&nbsp; We have been in discussions with Polo Ralph Lauren
Corporation regarding restructuring various license agreements. The two
companies have not agreed on important provisions, including the interpretation
of how the current <i>Lauren by Ralph Lauren</i> license relates to the current <i>Ralph
by Ralph Lauren</i> license. The <i>Ralph by Ralph Lauren</i> license is
scheduled to end on December 31, 2003. Polo Ralph Lauren Corporation has
asserted that the end of the <i>Ralph by Ralph Lauren</i> contract on December
31, 2003 will cause the <i>Lauren by Ralph Lauren</i> license to end on December
31, 2003 instead of December 31, 2006. We believe that this is an improper
interpretation and that the expiration of the <i>Ralph by Ralph Lauren</i>
license does not cause the <i>Lauren by Ralph Lauren</i> license to end. The
discussions between us and Polo Ralph Lauren Corporation could result in
restructured licensing arrangements, an end to some or all of their licensing
arrangements, or litigation.</p>
<p>&nbsp;&nbsp;&nbsp; Net sales of <i>Lauren by Ralph Lauren</i> were $547.8
million and net sales of <i>Ralph by Ralph Lauren</i> were $36.7 million for the
year ended December 31, 2002. If the <i>Lauren by Ralph Lauren</i> license were
to end at the end of 2003, there would be a material adverse impact on our
results of operations after 2003. However, it would not materially adversely
impact our liquidity, and we would continue to have a strong financial position
in the event the <i>Lauren by Ralph Lauren</i> license were to end. The
expiration of the <i>Ralph by Ralph Lauren</i> license would not be material to
us in any respect.</p>
<p>&nbsp;&nbsp;&nbsp; The dispute between us and Polo Ralph Lauren Corporation
does not relate to the <i>Polo Jeans</i> license, and an end to the <i>Lauren by
Ralph Lauren</i> and <i>Ralph by Ralph Lauren</i> licenses would not end our
longer term <i>Polo Jeans</i> license or otherwise adversely affect the <i>Polo
Jeans</i> license in the United States. However, the ongoing discussions between
us and Polo Ralph Lauren Corporation could result in changes to the <i>Polo
Jeans</i> licensing arrangements.</p>
<p>&nbsp;&nbsp;&nbsp; On July 31, 2002, we announced that we will begin
expensing the fair value of employee stock options granted after December 31,
2002 pursuant to the guidelines contained in SFAS No. 123, &quot;Accounting for
Stock-Based Compensation&quot; using the &quot;prospective method&quot; set
forth in SFAS No. 148, &quot;Accounting for Stock-Based Compensation -
Transition and Disclosure.&quot; Since the expense to be recorded is dependent
on both the timing and the number of options to be granted, we cannot estimate
the effect on future results of operations at this time. Prior to January 1,
2003, pursuant to a provision in SFAS No. 123 we had elected to continue using
the intrinsic-value method of accounting for stock options granted to employees
in accordance with Accounting Principles Board Opinion 25, &quot;Accounting for Stock
Issued to Employees.&quot; Accordingly, compensation cost for stock options has
been measured as the excess, if any, of the quoted market price of our stock at
the date of the grant over the amount the employee must pay to acquire the
stock. Under this approach, we have only recognized compensation expense for
stock-based awards to employees for options granted at below-market prices.</p>
<p><b>CRITICAL ACCOUNTING POLICIES</b></p>
<p>&nbsp;&nbsp;&nbsp; Several of our accounting policies involve significant
judgements and uncertainties. The policies with the greatest potential effect on
our results of operations and financial position include the estimated
collectibility of accounts receivable, the recovery value of obsolete or
overstocked inventory and the estimated fair values of both our goodwill and
intangible assets with indefinite lives. For accounts receivable, we estimate
the net collectibility, considering both historical and anticipated trends of
trade discounts and co-op advertising deductions taken by our customers,
allowances we provide to our retail customers to flow goods through the retail
channels, and the possibility of non-collection due to the financial position of
our customers. For inventory, we estimate the amount of goods that we will not
be able to sell in the normal course of business and write down the value of
these goods to the recovery value expected to be realized through off-price
channels. If we incorrectly anticipate these trends or unexpected events occur,
our results of operations could be materially affected. We utilize independent
third-party appraisals to estimate the fair values of both our goodwill and our
intangible assets with indefinite lives. These appraisals are based on projected
cash flows and interest rates; should interest rates or our future cash flows
differ significantly from the assumptions used in these projections, material
impairment losses could result where the estimated fair values of these assets
become less than their carrying amounts.</p>
<p align="center">4</p>
<hr noshade size="1" color="#000000">
<p><b>Results of Operations</b></p>
<p><i>Statements of Income Stated in Dollars and as a Percentage of
Total Revenues</p>
</i>
<table border="0" width="100%" cellspacing="0">
  <tr>
    <td width="20%">(In millions)</td>
  <td width="20%" align="center" colspan="2" valign="bottom"><font size="2"><b>2002</b></font>
    <hr color="#000000" size="1" noshade>
    </td>

<td width="20%" align="center" colspan="2" valign="bottom"><font size="2"><b>2001</b></font>
  <hr color="#000000" size="1" noshade>
</td>
<td width="20%" align="center" colspan="2" valign="bottom"><font size="2"><b>2001 Excluding<br>
                                                    Special Charge</b></font>
  <hr color="#000000" size="1" noshade>
    </td>
<td width="20%" align="center" colspan="2" valign="bottom"><font size="2"><b>2000</b></font>
  <hr color="#000000" size="1" noshade>
    </td>
  </tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">
    Net sales</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 $ 4,312.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 99.3%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 $ 4,073.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 99.4%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 $ 4,097.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 99.4%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 $ 4,147.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 99.5%&nbsp;</font>
  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">
    Licensing income (net)</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    28.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    0.7%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
 0.6%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
 0.6%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    22.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
 0.5%&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom"><font size="2">&nbsp;&nbsp; <b>Total revenues</b></font></td>
<td width="10%" align="right" valign="bottom"><font size="2"><b>
                                              4,340.9</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b> 100.0%</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b>
                                              4,098.6</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b> 100.0%</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b>4,122.7</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b>
                                              100.0%</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b> 4,169.6</b>&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom"><font size="2"><b> 100.0%</b>&nbsp;</font>
  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">&nbsp;&nbsp;<br>
    Cost of goods sold</font></td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  2,633.9&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  60.7%&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  2,552.7&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  62.3%&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  2,491.0&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  60.4%&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  2,433.4&nbsp;</font>
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
  58.4%&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom"><font size="2">Purchase accounting<br>
    &nbsp;&nbsp; adjustments</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">23.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
                      0.5%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">17.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
                      0.4%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">17.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 0.4%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">3.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 0.1%&nbsp;</font>
  </td>
  </tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">Total cost of goods sold</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">2,657.0&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">61.2%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2,570.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">62.7%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2,508.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">60.9%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2,436.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">58.4%&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">&nbsp;&nbsp; <b>Gross profit</b>
    </font></td>
<td width="10%" align="right" valign="bottom"><font size="2">
                                              <b>
                                              1,683.9</b>&nbsp;</font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2"> <b> 38.8%</b>&nbsp;</font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2">
                                              <b>
                                              1,528.2</b>&nbsp;</font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2"> <b> 37.3%</b>&nbsp;</font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2"> <b> 1,614.0&nbsp;</b></font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2"> <b> 39.1%</b>&nbsp;</font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2">
                                              <b>
                                              1,733.1&nbsp;</b></font>
</td>
<td width="10%" align="right" valign="bottom"><font size="2"> <b> 41.6%&nbsp;</b></font>
</td>
  </tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Selling, general and<br>
    &nbsp;&nbsp; administrative<br>
    &nbsp;&nbsp; expenses</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    1,061.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 24.5%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    1,004.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 24.5%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    1,003.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 24.3%&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
                                                1,091.6&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 26.2%&nbsp;</font>
  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">
    Executive&nbsp;<br>
    &nbsp;&nbsp; compensation<br>
    &nbsp;&nbsp; obligations</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    31.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    0.7%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    - &nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 -&nbsp;&nbsp;&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
                                                -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Amortization of&nbsp;<br>
    &nbsp;&nbsp; goodwill</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    -&nbsp; &nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    44.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
 1.1%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    44.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
 1.1%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    36.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
 0.9%&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom"></td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">&nbsp;&nbsp; <b>Operating
                                              income
    </font></b>
    </font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"><b>590.6&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 13.6%&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 479.9&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 11.7%&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 566.7&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 13.7%&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
                                              <b>
                                              604.6&nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> <b> 14.5%&nbsp;</b></font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom"><font size="2">Interest income</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (4.6)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (0.1%)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (4.5)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (0.1%)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (4.5)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (0.1%)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> (2.3)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
                                                (0.1%)</font>
  </td>
  </tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">
    Interest expense and<br>
    &nbsp;&nbsp; financing
                                                costs</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
    62.7&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">1.4%&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 84.6&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 2.1%&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 84.6&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
 2.1%&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">103.8&nbsp;<br>
    </font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
                                                2.5%&nbsp;<br>
    </font>
  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">
    Equity of earnings of<br>
    &nbsp;&nbsp; unconsolidated<br>
    &nbsp;&nbsp; affiliates</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    (1.0)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    <br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">
                                                -&nbsp;&nbsp;&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB">
  <hr noshade size="1" color="#000000">
  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
  <hr noshade size="1" color="#000000">
</font>

  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">&nbsp;&nbsp; Income before&nbsp;<br>
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; provision for&nbsp;<br>
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; income
                                                  taxes</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    533.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    12.3%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 399.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 9.8%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 486.6&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 11.8%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
                                                  503.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
 12.1%&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Provision for income<br>
    &nbsp;&nbsp; taxes<br>
    &nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    201.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
                        4.6%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    163.6&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
                        4.0%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    196.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
 4.8%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    201.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
 4.8%&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom"></td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Earnings before&nbsp;<br>
    &nbsp;&nbsp; change in&nbsp;<br>
    &nbsp;&nbsp; accounting principle</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    332.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    7.7%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    236.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    5.8%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    290.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    7.0%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    301.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    7.2%&nbsp;</font>
  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2">
    Cumulative effect of<br>
    &nbsp;&nbsp; change in accounting<br>
    &nbsp;&nbsp; for intangible assets</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    13.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    0.3%&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    &nbsp;<br>
    -&nbsp;&nbsp;&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="20%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
<td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
<tr>
  <td width="20%" valign="bottom"><font size="2"><b>&nbsp;&nbsp; Net income<br>
    &nbsp;</b></font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>$ 318.5&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>7.3%&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>$
                                                236.2&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> <b> 5.8%&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>$ 290.5&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> <b> 7.0%&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>$ 301.9&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> <b> 7.2%&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
  </td>
</tr>
</table>
                                                <i>
                                                <p ALIGN="right">Percentage
                                                totals may not agree due to
                                                rounding.</p>
                                                </i>
<p><b>
2002 Compared to 2001</p>
</b>
<i>
<p>&nbsp;&nbsp;&nbsp;</i>
 <i>Revenues.</i> Total revenues for 2002 were $4.34 billion compared to $4.10
billion for 2001, an increase of 5.9%. Excluding the effect of the special
charge mentioned above, total revenues for 2002 increased $218.2 million, or
5.3%, over 2001.</p>
<p>&nbsp;&nbsp;&nbsp; Revenues by segment were as follows:&nbsp;</p>
<b>
<table border="0" width="100%" cellspacing="0">
  <tr>
    <td width="17%" valign="bottom" align="center"></td>
    <td width="40%" align="center" valign="bottom" colspan="4"><b><font size="2">Total Revenues</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="3%" align="center" valign="bottom"></td>
                              </b>
    <td width="40%" align="center" valign="bottom" colspan="4"><font size="2"><b>Excluding
      Special Charge</b></font>
      <hr color="#000000" size="1" noshade>
    </td>
  </tr>
<b>
  <tr>
    <td width="17%" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">(In millions)<br>
      &nbsp;&nbsp;</font>
                              </b>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">2002&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> 2001&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">Increase/<br>
                                (Decrease)</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> Percent&nbsp;<br>
 Change&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">2002&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> 2001&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">Increase/<br>
                                (Decrease)</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> Percent&nbsp;<br>
 Change&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
  </tr>
                              </b>
<tr>
  <td width="17%" valign="top"><font size="2">Wholesale&nbsp;<br>
    &nbsp;&nbsp; better apparel</font></td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 $1,636.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
                            $1,834.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 ($197.7)</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 (10.8%)</font>
  </td>
<b>
<td width="3%" align="right" valign="top"></td>
                              </b>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 $1,636.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 $1,845.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 ($209.3)</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    (11.3%)</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="top" bgcolor="#EBEBEB"><font size="2">Wholesale&nbsp;<br>
    &nbsp;&nbsp; moderate apparel</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    1,093.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    547.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    546.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    99.8%&nbsp;</font>
  </td>
  <td width="3%" align="right" valign="top" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    1,093.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    548.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    545.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    99.4%&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="top"><font size="2">Wholesale footwear<br>
    &nbsp;&nbsp; and accessories</font></td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    882.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    980.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
                                (98.4)</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 (10.0%)</font>
  </td>
<b>
  <td width="3%" align="right" valign="top"></td>
                              </b>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    882.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    992.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
    (109.9)</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> &nbsp;<br>
 (11.1%)</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="top" bgcolor="#EBEBEB"><font size="2">Retail&nbsp;</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> 700.0&nbsp;</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2">711.7&nbsp;</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> (11.7)</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2">
                                (1.6%)</font></td>
<b>
  <td width="3%" align="right" valign="top" bgcolor="#EBEBEB"></td>
                              </b>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2">700.0&nbsp;</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2">711.7&nbsp;</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> (11.7)</font></td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB"><font size="2"> (1.6%)</font></td>
</tr>
  <tr>
  <td width="17%" valign="top"><font size="2">Other</font></td>
  <td width="10%" align="right" valign="top"><font size="2">28.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> 24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2">3.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> 15.7%&nbsp;</font>
  </td>
<b>
  <td width="3%" align="right" valign="top"></td>
                              </b>
  <td width="10%" align="right" valign="top"><font size="2">28.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> 24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2">3.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="top"><font size="2"> 15.7%&nbsp;</font>
  </td>
  </tr>
<tr>
  <td width="17%" valign="top" bgcolor="#EBEBEB">&nbsp;</td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
<b>
  <td width="3%" align="right" valign="top" bgcolor="#EBEBEB"></td>
                              </b>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
  <td width="10%" align="right" valign="top" bgcolor="#EBEBEB">
    <hr color="#000000" size="1" noshade>
  </td>
</tr>
<b>
<tr>
  <td width="17%" valign="top"><font size="2">&nbsp;&nbsp; <b> Total revenues<br>
    &nbsp;</b> </font></td>
  <td width="10%" align="right" valign="top"><b><font size="2">$4,340.9&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="10%" align="right" valign="top"><b><font size="2">
                                $4,098.6&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
                              </b>
  <td width="10%" align="right" valign="top"><font size="2"><b>$242.3&nbsp;</b></font>
    <hr color="#000000" size="5" noshade>
 </td>
<b>
  <td width="10%" align="right" valign="top"><b><font size="2">5.9%&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="3%" align="right" valign="top"></td>
  <td width="10%" align="right" valign="top"><b><font size="2">$4,340.9&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="top"><b><font size="2">
                                $4,122.7&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="top"><b><font size="2"> $218.2&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="top"> <b><font size="2">5.3%&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
</tr>
</table>
                              </b>
<p>&nbsp;&nbsp;<br>
&nbsp;&nbsp;&nbsp; As a result of the difficult economic environment experienced
in 2001 and uncertainty as to the extent and duration of any continuing impact
into 2002, we planned reductions across most of our wholesale businesses in
coordination with many of our wholesale customers. In our wholesale better
apparel segment, these planned reductions significantly impacted shipments of
our <i>Jones New York</i> and <i>Rena Rowan</i> career collection businesses
(which had experienced difficult performance at retail during 2001) and, to a
lesser extent, also affected our <i>Lauren by Ralph Lauren</i> collection
business. Wholesale better apparel revenues for
2001 were negatively impacted by $11.6 million relating to the special charge.</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale moderate apparel revenues increased primarily as
a result of the product lines obtained as a result of the McNaughton, Gloria
Vanderbilt and l.e.i. acquisitions, which accounted for $528.5 million of the
increase. Increases in our <i>Evan-Picone</i> and <i>Nine &amp; Company </i>businesses
were offset by lower sales in the <i>Jones&nbsp;</i> </p>
<p ALIGN="center">5</p>
<hr noshade size="1" color="#000000">
<p> <i> Wear</i> and private label jeans
businesses. Wholesale moderate apparel revenues for 2001 were negatively
impacted by $1.0 million relating to the special charge.</p>
<p>&nbsp;&nbsp;&nbsp; We also planned reductions in our wholesale footwear and
accessories business as a result of the uncertain retail environment. The most
significant decreases were experienced in <i>Nine West</i> accessories and in <i>Enzo
Angiolini </i>and <i>Easy Spirit</i> footwear. The decrease is also due to
markdowns recognized in the costume jewelry business to more aggressively
liquidate inventories in both the wholesale and retail channels. Shipments of
the <i>Nine West</i> footwear line increased as a result of the positive
business initiatives of focusing inventory on tested and proven footwear styles,
as well as shortened production lead times and a broadening of product
classifications to provide more options to the consumer. Wholesale footwear and
accessories revenues for 2001 were negatively impacted by $11.5 million relating
to the special charge.</p>
<p>&nbsp;&nbsp;&nbsp; Retail revenues decreased primarily as a result of a
reduction of 18 stores in 2002 compared to the prior period. Comparable store
sales were down approximately 0.5% for footwear and accessories stores and down
approximately 6.0% for apparel outlet stores as compared to 2001. The decrease
in the apparel stores was due to a concentration of career product locations
which experienced difficult selling throughout 2002.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Gross Profit.</i> The gross profit margin increased to
38.8% in 2002 compared to 37.3% in 2001. Cost of sales included $23.1 million and
$17.7 million in 2002 and 2001, respectively, related to adjustments required
under purchase accounting to write up acquired inventories to market value upon
acquisition and $61.7 million in 2001 related to the special charge reflected
in cost of sales.</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale better apparel gross profit margins were 41.3%
and 36.0% for 2002 and 2001, respectively.&nbsp; Wholesale better apparel cost of sales for
2001 included $23.0 million related to the special charge.&nbsp; The primary reasons for the
margin increase were more favorable production costs realized from offshore production
and a continued focus on inventory management, which resulted in lower off-price
sales to discounters, partially offset by higher customer allowances granted to
retailers to clear product.&nbsp;&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale moderate apparel gross profit margins were 27.0%
and 23.0% for 2002 and 2001, respectively. Wholesale moderate apparel cost of sales for
2002 included $23.1 million in purchase accounting adjustments.&nbsp; Cost of sales
for 2001 included $16.7 million in purchase accounting adjustments and $8.2 million
related to the special charge.&nbsp; The margin increase was primarily the result of the
addition of higher-margin businesses realized from the inclusion of McNaughton
for the full year in 2002 compared to only 28 weeks in 2001, as well as the
addition of Gloria Vanderbilt.&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale footwear and accessories gross profit margins
were 32.0% and 32.5% for 2002 and 2001, respectively. Wholesale
footwear and accessories cost of sales for 2001 included $1.0 million in
purchase accounting adjustments and $23.1 million related to the special charge. The decrease in the margin was driven by significant
markdowns in the costume jewelry business to more aggressively liquidate
inventories in both the wholesale and retail channels, and higher off-price
sales to discounters and higher customer allowances in the <i>Nine West</i>
accessories line. Our wholesale footwear business realized a significant
improvement in margins resulting primarily from a continued focus on inventory
management, which resulted in lower off-price sales to discounters.&nbsp;&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Retail gross profit margins were 53.2% and 51.7% for 2002
and 2001, respectively. Retail cost of sales for 2001 included
$7.4 million related to the special charge.&nbsp; Margins in our <i>Nine West </i>retail business
benefitted from better inventory planning and improved product assortments in
our stores. This improvement was offset by more promotional activity in our
apparel outlet stores, impacted by the difficulty experienced in our <i>Jones
New York</i> career business.&nbsp;&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; <i>SG&amp;A expenses.</i> SG&amp;A expenses of $1.09
billion in 2002 represented an increase of $89.2 million from the $1.0 billion
reported for 2001. During 2002, SG&amp;A expenses included $24.4 million of trademark impairment charges.&nbsp;
During 2001, SG&amp;A expenses included $16.3 million of trademark amortization and $1.0 million related to the
special charge. McNaughton,
Gloria Vanderbilt and l.e.i. added a total of $71.0 million to 2002. Also
contributing to the increase in SG&amp;A expenses were the $31.9 million of
executive compensation costs in the other and eliminations segment, $1.9 million
of costs related to the closing of a Canadian production facility in the
wholesale better apparel segment and $6.9 million of costs related to the
closing of administrative and&nbsp;</p>
<p ALIGN="center">6</p>
<hr noshade size="1" color="#000000">
<p> production facilities in Mexico and Texas in the
wholesale moderate apparel segment. These increases were somewhat offset by cost
savings resulting from the restructuring of our costume jewelry business and a
continued focus on cost controls and efficiencies that can be realized by
leveraging common functions across all divisions.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Operating Income.</i> The resulting operating income
for 2002 of $590.6 million increased 23.1%, or $110.7 million, from the $479.9
million for 2001 due to the factors described above.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Net Interest Expense.</i> Net interest expense was
$58.1 million in 2002 compared to $80.1 million in 2001, resulting from lower
average borrowings, lower interest rates, the effects of interest rate swaps and
using the proceeds from zero coupon convertible senior debt securities issued in
February 2001 to repay higher-rate borrowings under our credit facilities.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Provision for Income Taxes</i>. The effective income
tax rate was 37.7% for 2002 compared to 40.9% for 2001. The decrease was
primarily due to the elimination of nondeductible goodwill amortization
resulting from the adoption of SFAS No. 142.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Net Income and Earnings Per Share.</i> Net income was
$318.5 million in 2002, an increase of $82.3 million from the net income of
$236.2 million earned in 2001. Diluted earnings per share for 2002 was $2.36
compared to $1.82 for 2001, on a 4.0% increase in shares outstanding.</p>
<p><b>2001 Compared to 2000</b></p>
<p>&nbsp;&nbsp;&nbsp; <i>Revenues.</i> Total revenues for 2001 decreased 1.7%,
or $71.0 million, to $4.10 billion, compared to $4.17 billion for 2000.
Excluding the special charge, total revenues for 2001 decreased 1.1%, or $46.9
million. Revenue growth from the net sales of product lines added as a result of
the Judith Jack and McNaughton acquisitions were offset by the effects of the
restructuring of the Nine West business mentioned above.</p>
<p>&nbsp;&nbsp;&nbsp; Revenues by segment in total and also
without the discontinued Nine West businesses (as discussed above) were as
follows:</p>
<table border="0" width="100%">
  <tr>
<b>
    <td width="17%" valign="bottom" align="center"></td>
    <td width="40%" align="center" valign="bottom" colspan="4"><b><font size="2">Total Revenues</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="3%" align="center" valign="bottom"></td>
                              </b>
    <td width="40%" align="center" valign="bottom" colspan="4"><font size="2"><b>Total
      Revenues From<br>
      Continuing Businesses Only</b></font>
      <hr color="#000000" size="1" noshade>
    </td>
  </tr>
  <tr>
<b>
    <td width="17%" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">(In millions)<br>
      &nbsp;</font>
                              </b>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">2001&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> 2000&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">Increase/<br>
                                (Decrease)</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> Percent&nbsp;<br>
 Change&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">2001&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> 2000&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2">Increase/<br>
                                (Decrease)</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
    <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><b><font size="2"> Percent&nbsp;<br>
 Change&nbsp;</font>
                              </b>
      <hr color="#000000" size="1" noshade>
    </td>
                              </b>
  </tr>
<tr>
  <td width="17%" valign="bottom"><font size="2">Wholesale&nbsp;<br>
    &nbsp; better apparel</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,834.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
                            $1,882.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 ($48.3)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 (2.6%)</font>
  </td>
<b>
<td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,834.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,882.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 ($48.3)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    (2.6%)</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Wholesale&nbsp;<br>
    &nbsp;&nbsp; moderate apparel</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    547.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    299.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    248.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    82.9%&nbsp;</font>
  </td>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    547.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    299.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    248.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    82.9%&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="bottom"><font size="2">Wholesale footwear<br>
    &nbsp;&nbsp; and accessories</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    980.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    953.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    27.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    2.9%&nbsp;</font>
  </td>
<b>
  <td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    980.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    908.0&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    72.5&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    8.0%&nbsp;</font>
  </td>
</tr>
<tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Retail&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> 711.7&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">1,012.5&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (300.8)</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
                                (29.7%)</font></td>
<b>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
                              </b>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">695.5&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">734.1&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (38.6)</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (5.3%)</font></td>
</tr>
<tr>
  <td width="17%" valign="bottom"><font size="2">Other</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 22.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2.6&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 11.7%&nbsp;</font>
  </td>
<b>
  <td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2">24.8&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 22.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2.6&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 11.7%&nbsp;</font>
  </td>
</tr>
  <tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"> <font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
  <tr>
<b>
  <td width="17%" valign="bottom"><font size="2">&nbsp;&nbsp; <b> Total revenues<br>
    &nbsp;</b> </font></td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">$4,098.6&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">
                                $4,169.6&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>($71.0)</b></font>
    <hr color="#000000" size="5" noshade>
 </td>
<b>
  <td width="10%" align="right" valign="bottom"><b><font size="2">(1.7%)</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="3%" align="right" valign="bottom"></td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">$4,082.2&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">
                                $3,845.9&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2"> $236.3&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"> <b><font size="2">6.1%&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
                              </b>
  </tr>
  <tr>
  <td width="27%" valign="bottom" colspan="2" bgcolor="#EBEBEB"><font size="2">&nbsp;<br>
    <b>Excluding Special Charge</b></font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
<td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  </tr>
  <tr>
  <td width="17%" valign="bottom"><font size="2">Wholesale&nbsp;<br>
    &nbsp;&nbsp; better apparel</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,845.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
                            $1,882.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 ($36.7)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 (1.9%)</font>
  </td>
<b>
<td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,845.7&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 $1,882.4&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
 ($36.7)</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    (1.9%)</font>
  </td>
  </tr>
  <tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Wholesale&nbsp;<br>
    &nbsp;&nbsp; moderate apparel</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    548.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    299.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    249.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    83.3%&nbsp;</font>
  </td>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    548.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    299.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    249.1&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> &nbsp;<br>
    83.3%&nbsp;</font>
  </td>
  </tr>
  <tr>
  <td width="17%" valign="bottom"><font size="2">Wholesale footwear<br>
    &nbsp;&nbsp; and accessories</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    992.2&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    953.3&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    38.9&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    4.1%&nbsp;</font>
  </td>
<b>
  <td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    992.0&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    908.0&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    84.0&nbsp;</font>
  </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> &nbsp;<br>
    9.3%&nbsp;</font>
  </td>
  </tr>
  <tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB"><font size="2">Retail&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> 711.7&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">1,012.5&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (300.8)</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">
                                (29.7%)</font></td>
<b>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB"></td>
                              </b>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">695.5&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2">734.1&nbsp;</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (38.6)</font></td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font size="2"> (5.3%)</font></td>
  </tr>
  <tr>
  <td width="17%" valign="bottom"><font size="2">Other</font></td>
  <td width="10%" align="right" valign="bottom"><font size="2">24.8&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 22.2&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2.6&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 11.7%&nbsp;</font>
    </td>
<b>
  <td width="3%" align="right" valign="bottom"></td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2">24.8&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 22.2&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2">2.6&nbsp;</font>
    </td>
  <td width="10%" align="right" valign="bottom"><font size="2"> 11.7%&nbsp;</font>
    </td>
  </tr>
  <tr>
  <td width="17%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

 </td>
  <td width="3%" align="right" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"><font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  <td width="10%" align="right" valign="bottom" bgcolor="#EBEBEB"> <font face="Times New Roman">
    <hr color="#000000" size="1" noshade>
</font>

  </td>
  </tr>
<tr>
<b>
  <td width="17%" valign="bottom"><font size="2">&nbsp;&nbsp; <b> Total revenues<br>
    &nbsp;</b> </font></td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">$4,122.7&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">
                                $4,169.6&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
                              </b>
  <td width="10%" align="right" valign="bottom"><font size="2"><b>($46.9)</b></font>
    <hr color="#000000" size="5" noshade>
 </td>
<b>
  <td width="10%" align="right" valign="bottom"><b><font size="2">(1.1%)</font></b>
    <hr color="#000000" size="5" noshade>
 </td>
  <td width="3%" align="right" valign="bottom"></td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">$4,106.3&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2">
                                $3,845.9&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"><b><font size="2"> $260.4&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
  <td width="10%" align="right" valign="bottom"> <b><font size="2">6.8%&nbsp;</font></b>
    <hr color="#000000" size="5" noshade>
  </td>
                              </b>
</tr>
</table>
<p>&nbsp;&nbsp;&nbsp; Wholesale better apparel revenues decreased primarily as a
result of decreases in shipments of the <i>Polo Jeans Company</i> product line
and a planned reduction in shipments of <i>Ralph by Ralph Lauren</i>, due to a
decrease in the number of doors in which that product is offered, offset
somewhat by increased shipments of the <i>Jones New York</i> Collection and <i>Jones
New York Dress</i> lines of product. Wholesale better apparel revenues for 2001
were negatively impacted by $11.6 million relating to the special charge.</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale moderate apparel revenues increased primarily as
a result of the product lines obtained from the McNaughton acquisition, which
accounted for $239.2 million of the increase in segment revenues.&nbsp;</p>
<p ALIGN="center">7</p>
<hr noshade size="1" color="#000000">
<p> Increased
shipments of the <i>Jones Wear</i> product line were offset by decreases in
shipments of Sun private-label products. Wholesale moderate apparel revenues for
2001 were negatively impacted by $1.0 million relating to the special charge.</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale footwear and accessories revenues increased
primarily due to the effects of acquisitions, offset by an $11.5 million impact
from the special charge and Nine West product lines that were discontinued. The
product lines obtained as a result of the Judith Jack acquisition accounted for
$15.0 million of the segment revenues. An additional $59.0 million of revenues
is attributable to inclusion of the results of Victoria for all of 2001 but for
only approximately five months during 2000.</p>
<p>&nbsp;&nbsp;&nbsp; Retail revenues decreased primarily due to the divestiture
of certain international operations and domestic store closings. Comparable
store sales were down approximately 6.7% for footwear and accessories stores and
8.8% for apparel outlet stores as compared to 2000, which we believe is
attributable to the generally challenging retail environment prevailing during
2001, which was magnified by the events of September 11, 2001.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Gross Profit.</i> The gross profit margin decreased to
37.3% in 2001 compared to 41.6% in 2000. Cost of sales included $17.7 million and
$3.1 million in 2001 and 2000, respectively, related to adjustments required
under purchase accounting to write up acquired inventories to market value upon
acquisition and $61.7 million in 2001 related to the special charge reflected
in cost of sales.</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale better apparel gross profit margins were 36.0%
and 37.1% for 2001 and 2000, respectively. Wholesale better apparel cost of sales for
2001 included $23.0 million related to the special charge.&nbsp; The margin increase was
primarily the result of lower production and freight costs due to more timely
delivery of goods, which decreased the amount of air freight shipments required
to meet delivery schedules.&nbsp;&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale moderate apparel gross profit margins were 23.0%
and 20.3% for 2001 and 2000, respectively. Wholesale
moderate apparel cost of sales for 2001 included $16.7 million in purchase accounting adjustments
and $8.2 million related to the special charge.&nbsp; The margin increase was primarily the result of the addition of
product lines obtained through the McNaughton acquisition.&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Wholesale footwear and accessories gross profit margins
were 32.5% and 38.2% for 2001 and 2000, respectively. Wholesale footwear and accessories
cost of sales for 2001 included $1.0 million in purchase accounting adjustments
and $23.1 million related to the special charge.&nbsp; Cost of sales for 2000
included $3.1 million in purchase accounting adjustments.&nbsp; The margin decrease was primarily due to more promotional
activity in the department store channels and lower margins on excess
merchandise disposed of during 2001.&nbsp;&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; Retail gross profit margins were 51.7% and 53.5% for 2001
and 2000, respectively. Retail cost of sales for 2001 included $7.4 million related to
the special charge.&nbsp; The margin
decrease was
primarily the result of product markdowns to control inventory levels during
2001.</p>
<p>&nbsp;&nbsp;&nbsp; <i>SG&amp;A expenses</i>. SG&amp;A expenses of $1.0
billion in 2001 represented a decrease of $87.5 million from 2000. The change
was primarily the result of a $141.4 million decrease in retail SG&amp;A
expenses, resulting from the restructuring of the Nine West business, offset by
the acquisition of McNaughton, which added $39.0 million to wholesale moderate
SG&amp;A expenses in 2001.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Operating Income.</i> The resulting operating income
for 2001 of $479.9 million decreased 20.6%, or $124.7 million, from the $604.6
million for 2000, due to the factors discussed above.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Net Interest Expense.</i> Net interest expense was
$80.1 million in 2001 compared to $101.5 million in 2000, resulting from lower
average borrowings, lower interest rates and using the proceeds from zero coupon
convertible senior debt securities issued in February 2001 to repay higher-rate
borrowings under our credit facilities.</p>
<p ALIGN="center">8</p>
<hr noshade size="1" color="#000000">
<p>&nbsp;&nbsp;&nbsp; <i>Provision for Income Taxes. </i>The effective income
tax rate was 40.9% for 2001 compared to 40.0% for 2000. The increase was
primarily due to the impact of nondeductible goodwill due to lower earnings
during 2001 compared to 2000.</p>
<p>&nbsp;&nbsp;&nbsp; <i>Net Income and Earnings Per Share.</i> Net income of
$236.2 million for 2001 represented a decrease of $65.7 million from 2000.
Diluted earnings per share for 2001 was $1.82 compared to $2.48 for 2000, on a
9.7% increase in shares outstanding. Excluding the amortization of certain
intangibles and goodwill that will end upon adoption of SFAS No.142 on January
1, 2002, net income for 2001 and 2000 would have been $289.9 million and $345.9
million, respectively, and diluted earnings per share would have been $2.22 and
$2.84, respectively.</p>
<p><b>Liquidity and Capital Resources</b></p>
<p>&nbsp;&nbsp;&nbsp; Our principal capital requirements have been to fund
acquisitions, working capital needs, capital expenditures and repurchases of our
common stock on the open market. We have historically relied on internally
generated funds, trade credit, bank borrowings and the issuance of notes to
finance our operations and expansion. As of December 31, 2002, total cash and
cash equivalents were $283.3 million, an increase of $206.8 million from the
$76.5 million reported as of December 31, 2001.</p>
<p>&nbsp;&nbsp;&nbsp; Operating activities provided $716.5 million, $562.4
million and $339.2 million in 2002, 2001 and 2000, respectively. The change from
2001 to 2002 was primarily due to lower accounts receivable and inventory
levels, the result of a significant improvement in both accounts receivable and
inventory turns. The change from 2000 to 2001 was primarily due to a decrease in
accounts receivable in 2001 compared to an increase in 2000 and a smaller
decrease in accrued expenses and other current liabilities in 2001 than in 2000.</p>
<p>&nbsp;&nbsp;&nbsp; Investing activities used $368.7 million, $160.3 million
and $134.7 million in 2002, 2001 and 2000, respectively. The increase for 2002
from 2001 was primarily due to the acquisitions of Gloria Vanderbilt and l.e.i.
Similarly, the increase for 2001 from 2000 was primarily due to the acquisitions
of Judith Jack and McNaughton.</p>
<p>&nbsp;&nbsp;&nbsp; Financing activities used $141.1 million in 2002,
primarily to refinance $43.7 million and $83.2 million of debt assumed as part
of the acquisitions of Gloria Vanderbilt and l.e.i., respectively, and to
repurchase our common stock. In addition, we redeemed the remaining $0.1 million
of Nine West's 9% Senior Subordinated Notes Due 2007 in September 2002 at 104.5%
of par. These uses of funds were partially offset by $118.4 million in proceeds
from employees exercising stock options.</p>
<p>&nbsp;&nbsp;&nbsp; Financing activities used $387.2 million of cash in 2001.
In February 2001, we issued 20-year, zero coupon convertible senior debt
securities. Net proceeds of the offering were $392.8 million. The securities
carry a 3.5% yield to maturity with a face value of $805.6 million ($1,000 per
note) and are convertible into common stock at a conversion rate of 9.8105
shares per note. The proceeds were used to repay amounts then outstanding under
our Senior Credit Facilities, repurchase $30.3 million of our outstanding 6.25%
Senior Notes at par, and for general corporate purposes. The remaining $234.7
million of the 6.25% Senior Notes matured and were repaid in full on October 1,
2001. In addition, we redeemed all $0.5 million of Nine West's 5-1/2% Convertible
Subordinated Notes Due 2003 on December 1, 2001 at 100.92% of par. In connection
with the McNaughton acquisition, we repurchased all $125.0 million of
McNaughton's outstanding 12-1/2% Senior Notes due 2005, Series B. We also
refinanced $146.9 million of assumed McNaughton debt and accrued interest using
cash on hand and borrowings under our Senior Credit Facilities.</p>
<p>&nbsp;&nbsp;&nbsp; In January 2001, we realized $8.3 million in proceeds from
terminating interest rate swap agreements that we had entered into in June 1999,
and in October 2002, we realized $21.6 million in proceeds from terminating
interest rate swap agreements that we had entered into in April 2002 (see
&quot;Derivatives&quot; in the Notes to Consolidated Financial Statements).</p>
<p>&nbsp;&nbsp;&nbsp; Financing activities used $190.7 million of cash in 2000,
primarily due to purchases of our common stock on the open market and the
refinancing of $71.0 million of acquired Victoria debt.</p>
<p ALIGN="center">9</p>
<hr noshade size="1" color="#000000">
<p>&nbsp;&nbsp;&nbsp; We repurchased $129.2 million, $68.9 million and $121.9
million of our common stock on the open market during 2002, 2001 and 2000,
respectively. As of December 31, 2002, a total of $555.0 million had been
expended under announced programs to acquire up to $650.0 million of such
shares. We may make additional share repurchases in the future depending on,
among other things, market conditions and our financial condition. Proceeds from
the issuance of common stock to our employees exercising stock options amounted
to $118.4 million, $85.8 million and $27.6 million in 2002, 2001 and 2000,
respectively.</p>
<p>&nbsp;&nbsp;&nbsp; During the first quarter of 2000, we terminated a
five-year Receivables Facility (created in 1995 and amended in 1998) which
permitted Nine West to obtain up to $132.0 million of funding based on the sale,
without recourse, of eligible Nine West accounts receivable. This termination
did not affect our liquidity.</p>
<p>&nbsp;&nbsp;&nbsp; At December 31, 2002, we had credit agreements with
several lending institutions to borrow an aggregate principal amount of up to
$1.55 billion under Senior Credit Facilities. These facilities, of which the
entire amount is available for letters of credit or cash borrowings, provide for
an $850.0 million 364-Day Revolving Credit Facility and a $700.0 million
Five-Year Revolving Credit Facility. At December 31, 2002, $193.3 million was
outstanding under the 364-Day Revolving Credit Facility (comprised solely of
outstanding letters of credit), and no amounts were outstanding under our
Five-Year Revolving Credit Facility. Borrowings under the Senior Credit
Facilities may also be used for working capital and other general corporate
purposes, including permitted acquisitions and stock repurchases. The Senior
Credit Facilities are unsecured and require us to satisfy both a coverage ratio
of earnings before interest, taxes, depreciation, amortization and rent to
interest expense plus rents and a net worth maintenance covenant, as well as
other restrictions, including (subject to exceptions) limitations on our ability
to incur additional indebtedness, prepay subordinated indebtedness, make
acquisitions, enter into mergers and pay dividends.</p>
<p>&nbsp;&nbsp;&nbsp; In addition to these committed facilities, we have an
unsecured uncommitted line of credit for the purpose of issuing letters of
credit and bankers' acceptances for McNaughton and Gloria Vanderbilt. As of
December 31, 2002, $149.7 million was outstanding under this line of credit.</p>
<p>&nbsp;&nbsp;&nbsp; At December 31, 2002, we also had a C$20.0
million unsecured line of credit in Canada, under which no amounts were
outstanding. On January 14, 2003, this facility was replaced by a similar C$25.0
revolving credit facility.</p>
<p>&nbsp;&nbsp;&nbsp; In each of July 2001, December 2001 and August 2002, we
entered into transactions relating to the short sale of $139.0 million, $157.9
million and $190.5 million, respectively, of U. S. Treasury securities. These
transactions were intended to address interest rate exposure and generate
capital gains that could be used to offset previously incurred capital losses.
See &quot;Short Term Bond Transactions&quot; in Notes to Consolidated Financial
Statements. We may enter into similar transactions in the future if we determine
that market conditions are appropriate for generating the desired results from
the transactions.</p>
<p>&nbsp;&nbsp;&nbsp; In 2002, we recorded a $10.8 million minimum pension
liability adjustment to other comprehensive income resulting from negative
returns of the investments in our defined benefit plans during 2002, as well as
the lowering of the anticipated rate of future returns from 9% to 8%. Our plans
are currently underfunded by a total of $13.1 million. As the benefits under our
defined benefit plans are frozen with respect to service credits, the effects on
future pension expense are not anticipated to be material to our results of
operations or to our liquidity.</p>
<p><b>Contractual Obligations and Contingent Liabilities and Commitments</b></p>
<p>&nbsp;&nbsp;&nbsp; The following is a summary of our significant contractual
cash obligations for the periods indicated that existed as of December 31, 2002,
and, except for purchase obligations and other long-term liabilities, is based
on information appearing in the Notes to Consolidated Financial Statements
(amounts in millions).</p>
<p ALIGN="center">10</p>
<hr noshade size="1" color="#000000">
<div align="center">
  <center>
  <table border="0" width="90%" cellspacing="0">
    <tr>
      <td width="30%" valign="bottom"></td>
      <td width="12%" valign="bottom" align="center">Total
        <hr noshade size="1" color="#000000">
      </td>
      <td width="12%" valign="bottom" align="center">Less than<br>
        1 year
        <hr noshade size="1" color="#000000">
      </td>
      <td width="12%" valign="bottom" align="center">1 - 3<br>
        years
        <hr noshade size="1" color="#000000">
      </td>
      <td width="12%" valign="bottom" align="center">3 - 5<br>
        years
        <hr noshade size="1" color="#000000">
      </td>
      <td width="12%" valign="bottom" align="center">More than<br>
        5 years
        <hr noshade size="1" color="#000000">
      </td>
    </tr>
    <tr>
      <td width="30%" valign="bottom" bgcolor="#EBEBEB">Long-term debt&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> $ 967.1&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> $ 1.5&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> $ 307.6&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> $ 227.8&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> $ 430.2&nbsp;</td>
    </tr>
    <tr>
      <td width="30%" valign="bottom">Capital lease
                                            obligations</td>
      <td width="12%" align="right" valign="bottom">35.7&nbsp;</td>
      <td width="12%" align="right" valign="bottom">6.1&nbsp;</td>
      <td width="12%" align="right" valign="bottom">&nbsp;10.2&nbsp;</td>
      <td width="12%" align="right" valign="bottom">5.4&nbsp;</td>
      <td width="12%" align="right" valign="bottom">14.0&nbsp;</td>
    </tr>
    <tr>
      <td width="30%" valign="bottom" bgcolor="#EBEBEB">Operating leases</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
                                            592.2&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 94.6&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 150.8&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 114.4&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 232.4&nbsp;</td>
    </tr>
    <tr>
      <td width="30%" valign="bottom">Purchase obligations (1)</td>
      <td width="12%" align="right" valign="bottom">
                                            1,085.2&nbsp;</td>
      <td width="12%" align="right" valign="bottom"> 1,051.9&nbsp;</td>
      <td width="12%" align="right" valign="bottom"> 21.6&nbsp;</td>
      <td width="12%" align="right" valign="bottom"> 10.9&nbsp;</td>
      <td width="12%" align="right" valign="bottom"> 0.8&nbsp;</td>
    </tr>
    <tr>
      <td width="30%" valign="bottom" bgcolor="#EBEBEB">Minimum royalty payments (2)</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
                                            182.8&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 48.8&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 91.0&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> 43.0&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB"> -&nbsp;</td>
    </tr>
    <tr>
      <td width="30%" valign="bottom">Other long-term liabilities</td>
      <td width="12%" align="right" valign="bottom">
                                            45.1&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom"> 7.7&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom"> 4.4&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom"> 3.9&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom"> 29.1&nbsp;
      </td>
    </tr>
    <tr>
      <td width="30%" valign="bottom" bgcolor="#EBEBEB">&nbsp;</td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
                                            <hr size="1" color="#000000" noshade>
      </td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
        <hr size="1" color="#000000" noshade>
      </td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
        <hr size="1" color="#000000" noshade>
      </td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
        <hr size="1" color="#000000" noshade>
      </td>
      <td width="12%" align="right" valign="bottom" bgcolor="#EBEBEB">
        <hr size="1" color="#000000" noshade>
      </td>
    </tr>
    <tr>
      <td width="30%" valign="bottom">Total contractual
                                            cash&nbsp;<br>
        &nbsp;&nbsp; obligations</td>
      <td width="12%" align="right" valign="bottom">&nbsp;<br>
        $2,908.1
      </td>
      <td width="12%" align="right" valign="bottom">&nbsp;<br>
        $1,210.6&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom">&nbsp;<br>
        $ 585.6&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom">&nbsp;<br>
        $ 405.4&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom">&nbsp;<br>
        $ 706.5&nbsp;
      </td>
    </tr>
    <tr>
      <td width="30%" valign="bottom">&nbsp;</td>
      <td width="12%" align="right" valign="bottom">
      <font face="Times New Roman">
        <hr size="5" color="#000000" noshade>
</font>

      <p>&nbsp;
      </td>
      <td width="12%" align="right" valign="bottom"> <font face="Times New Roman">
        <hr size="5" color="#000000" noshade>
</font>

        <p>&nbsp; </td>
      <td width="12%" align="right" valign="bottom"> <font face="Times New Roman">
        <hr size="5" color="#000000" noshade>
</font>

        <p>&nbsp; </td>
      <td width="12%" align="right" valign="bottom"> <font face="Times New Roman">
        <hr size="5" color="#000000" noshade>
</font>

        <p>&nbsp; </td>
      <td width="12%" align="right" valign="bottom"> <font face="Times New Roman">
        <hr size="5" color="#000000" noshade>
</font>

        <p>&nbsp; </td>
    </tr>
    <tr>
      <td width="90%" valign="bottom" colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;
        (1) Includes outstanding letters of credit of $343.0 million which
        primarily represent inventory purchase commitments which typically
        mature in two to six months.<br>
        &nbsp;</font></td>
    </tr>
    <tr>
      <td width="90%" valign="bottom" colspan="6"><font size="2">&nbsp;&nbsp;&nbsp;
        (2) Under exclusive licenses to manufacture certain items under
        trademarks not owned by us pursuant to various license and design
        service agreements, we are obligated to pay the licensors a percentage
        of our net sales of these licensed products, subject to minimum
        scheduled royalty payments. In addition to these minimum royalty
        payments presented above, we are also obligated to spend on advertising
        a percentage of net sales of these licensed products.</font></td>
    </tr>
  </table>
  </center>
</div>
<p>&nbsp;&nbsp;<br>
&nbsp;&nbsp;&nbsp; We have two joint ventures with HCL Technologies Limited to
provide us with computer consulting, programming and associated support
services. On August 31, 2004, we are obligated to contribute approximately $1.0
million of additional capital to the joint ventures in the form of cash or
assets. We have committed to purchase $30.5 million in services from these joint
venture companies over the next five years.&nbsp;</p>
<p>&nbsp;&nbsp;&nbsp; We also have a joint venture with Sutton Developments Pty.
Ltd. (&quot;Sutton&quot;) to operate retail locations in Australia. We have
unconditionally guaranteed up to $7.0 million of borrowings under the joint
venture's uncommitted credit facility and up to $0.4 million of presettlement
risk associated with foreign exchange transactions. Sutton is required to
reimburse us for 50% of any payments made under these guarantees. At December
31, 2002, the outstanding balance subject to these guarantees was approximately
$0.6 million.</p>
<p>&nbsp;&nbsp;&nbsp; The terms of the acquisition agreement for Victoria
require us to pay the former Victoria shareholders additional consideration of
$3.00 for each $1.00 of Victoria's earnings before interest and taxes (as
defined in the securities purchase agreement) for each of the 12-month periods ending
June 30, 2001 through 2003 that exceeds certain targeted levels. Any future
additional consideration is to be paid 50% in cash and 50% in our common stock,
the value of which will be determined by the prices at which our common stock
trades in a defined period preceding delivery in each year. No payments were
required for the 12-month period ending June 30, 2002.</p>
<p>&nbsp;&nbsp;&nbsp; The terms of the acquisition agreement for Judith Jack
require us to pay the seller additional cash consideration of $2.00 for each
$1.00 of Judith Jack's earnings before interest and taxes (as defined in the
asset purchase agreement) that exceeds certain targeted levels for each of the
years ending December 31, 2001, 2002 and 2003. No payments were required for
either 2001 or 2002.</p>
<p>&nbsp;&nbsp;&nbsp; On April 8, 2002, we completed the acquisition of Gloria
Vanderbilt. The aggregate purchase price was approximately $100.9 million, which
included payments to the selling shareholders of $80.9 million in cash and the
issuance of approximately 0.6 million shares of our common stock. We also
assumed approximately $43.7 million of Gloria Vanderbilt's funded debt and
accrued interest, which we subsequently refinanced. The terms of the acquisition
agreement for Gloria Vanderbilt require us to pay the former Gloria Vanderbilt
shareholders additional consideration of $4.50 for each $1.00 of Gloria
Vanderbilt's earnings before interest and taxes (as defined in the stock
purchase agreement) that exceeds certain targeted levels for the 12 months
following the completion of the acquisition. Any additional consideration (the
amount of which cannot exceed $54.0 million) is to be paid either in cash or a
combination of cash and our common stock, the value of which will be determined
by the prices at which our common stock trades in a defined period preceding
delivery.</p>
<p>&nbsp;&nbsp;&nbsp; On August 16, 2002, we completed the acquisition of l.e.i.
The aggregate purchase price was approximately $309.7 million, which included
payments to the selling shareholders of $272.5 million in cash&nbsp;</p>
<p ALIGN="center">11</p>
<hr noshade size="1" color="#000000">
<p> and the issuance
of approximately 1.0 million shares of our common stock. We also assumed
approximately $84.0 million of l.e.i.'s funded debt and accrued interest, $83.2
million of which we subsequently refinanced. The selling shareholders and
certain employees of l.e.i. will be entitled to receive future payments of up to
$70.0 million in the form of cash and/or common stock if certain earnings
targets are achieved during the three years following the closing of the
transaction.</p>
<p>&nbsp;&nbsp;&nbsp; We believe that funds generated by operations, proceeds
from the issuance of notes, the Senior Credit Facilities and the McNaughton and
Canadian lines of credit will provide the financial resources sufficient to meet
our foreseeable working capital, capital expenditure and stock repurchase
requirements, fund our contractual obligations and contingent liabilities and
commitments, and meet any ongoing obligations to the former Victoria and Gloria
Vanderbilt shareholders, the seller of Judith Jack, and the selling shareholders
and certain employees of l.e.i.</p>
<p><b>New Accounting Standards</b></p>
<p>&nbsp;&nbsp;&nbsp; In June 2002, the FASB issued SFAS No. 146,
&quot;Accounting for Costs Associated with Exit or Disposal Activities,&quot;
which changes the accounting for costs such as lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity
initiated after December 31, 2002. The standard requires companies to recognize
the fair value of costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or disposal
plan. We do not expect the adoption of this standard to have a material effect
on our results of operations.</p>
<p>&nbsp;&nbsp;&nbsp; In December 2002, the FASB issued SFAS No. 148,
&quot;Accounting for Stock-Based Compensation - Transition and Disclosure&quot;
(an amendment of SFAS No. 123), which provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. Effective January 1, 2003, we adopted the
fair value method of accounting for employee stock options for all options
granted after December 31, 2002 pursuant to the &quot;prospective method&quot;
set forth in SFAS No. 148.</p>

<p>&nbsp;</p>

<p align="center">12</p>

<hr>

<p align="center">&nbsp;<b>SIGNATURES</b></p>

<p>&nbsp;&nbsp;&nbsp; Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.</p>

<p ALIGN="JUSTIFY">&nbsp;</p>
<div align="center"><center>

<table border="0" cellpadding="0" width="100%" style="border: medium none">
  <tr>
    <td width="50%"></td>
    <td width="50%">JONES APPAREL GROUP, INC.<br>
    (Registrant)<p>By:&nbsp;<u>/s/ Wesley R. Card&nbsp;</u><br>
    &nbsp;&nbsp;&nbsp;&nbsp; Wesley R. Card<br>
    &nbsp;&nbsp;&nbsp;&nbsp; Chief Operating and Financial Officer</td>
  </tr>
</table>
</center></div>

<p>&nbsp;Date: June 2, 2003</p>

<p align="center">&nbsp;13</p>

</body>
</html>
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Form 8-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
June 2, 2003
JONES APPAREL GROUP, INC.
(Exact Name of registrant as specified in its charter)
Pennsylvania
(State or Other Jurisdiction of Incorporation)
1-10746
(Commission File Number)
06-0935166
(IRS Employer Identification No.)
250 Rittenhouse Circle
Bristol, PA 19007
(Address of principal executive offices)
(215) 785-4000
(Registrant's telephone number, including area code)
Item 12. Results of Operations and Financial Condition
The Securities and Exchange Commission (the
"SEC") recently issued Regulation G and amended Item 10 of Regulation
S-K concerning the use of non-GAAP financial measures. These regulations became
effective on March 28, 2003. Prior to the effective date of the regulations, on
March 25, 2003, Jones Apparel Group, Inc. ("Jones"), filed its Annual
Report of Form 10-K for the year ended December 31, 2002 (the
"10-K").  Item 7 of the 10-K contained certain references to non-GAAP financial measures,
including
references to "gross profit before purchase accounting adjustments."
In anticipation of the filing of one or more registration statements on Form S-8
which incorporate by
reference information from the 10-K, Jones is filing this Form 8-K solely for
the purpose of conforming Item 7 of the 10-K to the new requirements of SEC
Regulation G and Item 10 of Regulation S-K by removing all such references to
non-GAAP financial measures.
Item 7 of the 10-K is revised as follows:
ITEM 7
. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion provides
information and analysis of our results of operations from 2000 through 2002,
and our liquidity and capital resources. The following discussion and analysis
should be read in conjunction with our Consolidated Financial Statements
included elsewhere herein.
We completed our acquisitions of Victoria on July 31,
2000, Judith Jack on April 26, 2001, McNaughton on June 19, 2001, Gloria
Vanderbilt on April 8, 2002 and l.e.i. on August 15, 2002. The results of
operations of the acquired companies are included in our operating results from
the respective dates of acquisition. Accordingly, the financial position and
results of operations presented and discussed herein are not directly comparable
between years. Victoria and Judith Jack operate primarily in the wholesale
footwear and accessories segment, and McNaughton, Gloria Vanderbilt and l.e.i.
operate in the wholesale moderate apparel segment.
We believe that we have achieved our growth in recent
years by enhancing the brand equity of our labels through our focus on design,
quality and value, and through strategic acquisitions which provide significant
diversification to the business by successfully adding new labels and product
lines (such as the
Napier, Judith Jack, Norton McNaughton, Energie, Erika,
Gloria Vanderbilt
and
l.e.i.
brands). Through this diversification,
we have evolved into a multidimensional resource in apparel, footwear and
accessories. We have leveraged the strength of our brands to increase both the
number of locations and amount of selling space in which our products are
offered, to introduce new product extensions such as the
Nine West, Nine
& Company, Easy Spirit
and
Bandolino
apparel and
Jones New
York
accessory labels, and to reposition the
Bandolino
and
Evan-Picone
labels to the moderate market segment. We believe we have also benefitted from a
trend among our major retail accounts to concentrate their women's apparel,
footwear and accessories buying among a narrowing group of vendors.
During 2002, we restructured several of our operations,
including the closing of Canadian and Mexican production facilities and the
closing of an administrative, warehouse and preproduction facility in El Paso,
Texas. As a result, we recorded restructuring charges of $7.8 million, including
$4.0 of employee severance and related costs and $3.3 million of asset
impairments (based on estimated market values of the affected properties). Of
these charges, $0.9 million is reported as a selling, general and administrative
expense in the wholesale better apparel segment and $6.9 million is reported as
a selling, general and administrative expense in the wholesale moderate apparel
segment.
During 2002, we recorded a $31.9 million charge relating
to contractual obligations under employment contracts, primarily for former
President Jackwyn Nemerov and former Vice Chairman Irwin Samelman. The charges
under these contracts are comprised of pre-tax amounts totaling $11.8 million
for contractual salary and bonus obligations and $18.1 million for non-cash
compensation expense resulting from contractual vesting of outstanding stock
options and restricted stock. Also included is a pre-tax amount of $2.0 million
related to certain obligations under the employment agreement that we entered
into with Peter Boneparth when we acquired McNaughton in 2001. These obligations
were satisfied in March 2002 when Mr. Boneparth was elected President and
designated to become our Chief Executive Officer on May 22, 2002.
We have substantially restructured our businesses at Nine
West, including the sale of Nine West's Asian and United Kingdom operations in
August 2000 and January 2001, respectively, and the closing of underperforming
domestic retail stores, remote distribution and administrative centers and
several domestic manufacturing operations. Several Nine West footwear brands,
including
Selby
and
Pappagallo
, were discontinued until
alternative distribution channels can be established or sales of these brands
can be effected. The licensed brand
cK/Calvin Klein
was also
discontinued.
The terrorist attacks of September 11, 2001 and subsequent
increases in unemployment and reduced consumer spending have clearly had a
negative impact on the United States economy. Retailers in those distribution
channels to which we sell our products responded to the general sense of
economic uncertainty
2
with order reductions and extremely aggressive promotional
activity. As a result, we had the challenge of liquidating inventory above our
normal plan, as well as working with our retail customers to flow inventories
through the normal retail distribution channels. Accordingly, we recorded a
pre-tax charge of $86.8 million (the "special charge") in the third
fiscal quarter of 2001 to provide for the writedown of inventories and
receivables. Of the charge, $61.7 million was to write down to net realizable
value merchandise that we either owned or were committed for and needed to
dispose of through off-price channels. The charge to receivables of $24.1
million was to record an incremental provision for customer allowances, which we
anticipated we needed to provide to our retail customers in order to effectively
flow goods through the retail channels. Due to the unusual nature of the cause for this charge, we are presenting 2001
results of operations as reported and also without the effect of the special
charge for comparison purposes.
We identify operating segments based on, among other
things, the way our management organizes the components of our business for
purposes of allocating resources and assessing performance. With the addition of
McNaughton in 2001 and the recent acquisitions of Gloria Vanderbilt and l.e.i.,
we have redefined our reportable operating segments effective January 1, 2002.
Our operations are now comprised of four reportable segments: wholesale better
apparel, wholesale moderate apparel, wholesale footwear and accessories, and
retail. Prior period segment results have been restated to reflect the new
reporting segments.
In November 2001, the FASB Emerging Issues Task Force
released Issue 01-9, "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)." The scope of
Issue 01-9 includes vendor consideration to any purchasers of the vendor's
products at any point along the distribution chain, regardless of whether the
purchaser receiving the consideration is a direct customer of the vendor. Our
adoption, effective January 1, 2002, required us to reclassify cooperative
advertising expenses from a deduction against revenues to a selling, general and
administrative expense. As a result, restated net sales, gross profit and SG&A
expenses for 2000 and 2001 all increased by $26.9 million and $25.5 million,
respectively, from amounts previously reported.
In June 2001, the FASB issued SFAS No. 142, "Goodwill
and Other Intangible Assets," which changed the accounting for goodwill and
other intangible assets from an amortization method to an impairment-only
approach. Upon our adoption of SFAS No. 142 on January 1, 2002, we ceased
amortizing our trademarks without determinable lives and our goodwill. As
prescribed under SFAS No. 142, we had our goodwill and trademarks tested for
impairment during the first fiscal quarter of 2002.
Due to market conditions resulting from a sluggish economy
compounded by the aftereffects of the events of September 11, 2001, we revised
our earnings forecasts for future years for several of our trademarks and
licenses. As a result, the fair market value of these assets (as appraised by an
independent third party) was lower than their carrying value as of December 31,
2001. We accordingly recorded an after-tax impairment charge of $13.8 million,
which is reported as a cumulative effect of change in accounting principle
resulting from the adoption of SFAS No. 142.
In the second fiscal quarter of 2002, we recorded an
additional impairment charge of $5.8 million related to two trademarks due to a
decrease in projected accessory revenues resulting from a further evaluation of
our costume jewelry business. In the fourth quarter of 2002, we had our annual impairment
test for goodwill and trademarks performed. As a result of continuing
decreases in projected accessory revenues in our costume jewelry lines and the
conversion of a portion of our
Enzo Angiolini
retail stores to the more
moderately-priced
Bandolino
brand, we recorded an additional trademark
impairment charge of $18.6 million. These charges are reported as a selling,
general and administrative expense in the other and eliminations segment.
If our exclusive licenses
to manufacture and market clothing under the
Lauren by Ralph Lauren
and
Polo
Jeans Company
trademarks in the United States, Canada and elsewhere were to
end, it would
have a material adverse effect on us. Our
Lauren by Ralph Lauren
and
Polo
Jeans Company
businesses represent significant portions of our sales and
profits. We sell products bearing those trademarks, as well as the
Ralph by
Ralph Lauren
trademark, under exclusive licenses from affiliates of Polo
Ralph Lauren Corporation. Net sales for all products under license from Polo
Ralph Lauren amounted to $1.0 billion, $1.1 billion and $1.1 billion in 2002,
2001 and 2000, respectively.
3
We have been in discussions with Polo Ralph Lauren
Corporation regarding restructuring various license agreements. The two
companies have not agreed on important provisions, including the interpretation
of how the current
Lauren by Ralph Lauren
license relates to the current
Ralph
by Ralph Lauren
license. The
Ralph by Ralph Lauren
license is
scheduled to end on December 31, 2003. Polo Ralph Lauren Corporation has
asserted that the end of the
Ralph by Ralph Lauren
contract on December
31, 2003 will cause the
Lauren by Ralph Lauren
license to end on December
31, 2003 instead of December 31, 2006. We believe that this is an improper
interpretation and that the expiration of the
Ralph by Ralph Lauren
license does not cause the
Lauren by Ralph Lauren
license to end. The
discussions between us and Polo Ralph Lauren Corporation could result in
restructured licensing arrangements, an end to some or all of their licensing
arrangements, or litigation.
Net sales of
Lauren by Ralph Lauren
were $547.8
million and net sales of
Ralph by Ralph Lauren
were $36.7 million for the
year ended December 31, 2002. If the
Lauren by Ralph Lauren
license were
to end at the end of 2003, there would be a material adverse impact on our
results of operations after 2003. However, it would not materially adversely
impact our liquidity, and we would continue to have a strong financial position
in the event the
Lauren by Ralph Lauren
license were to end. The
expiration of the
Ralph by Ralph Lauren
license would not be material to
us in any respect.
The dispute between us and Polo Ralph Lauren Corporation
does not relate to the
Polo Jeans
license, and an end to the
Lauren by
Ralph Lauren
and
Ralph by Ralph Lauren
licenses would not end our
longer term
Polo Jeans
license or otherwise adversely affect the
Polo
Jeans
license in the United States. However, the ongoing discussions between
us and Polo Ralph Lauren Corporation could result in changes to the
Polo
Jeans
licensing arrangements.
On July 31, 2002, we announced that we will begin
expensing the fair value of employee stock options granted after December 31,
2002 pursuant to the guidelines contained in SFAS No. 123, "Accounting for
Stock-Based Compensation" using the "prospective method" set
forth in SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure." Since the expense to be recorded is dependent
on both the timing and the number of options to be granted, we cannot estimate
the effect on future results of operations at this time. Prior to January 1,
2003, pursuant to a provision in SFAS No. 123 we had elected to continue using
the intrinsic-value method of accounting for stock options granted to employees
in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation cost for stock options has
been measured as the excess, if any, of the quoted market price of our stock at
the date of the grant over the amount the employee must pay to acquire the
stock. Under this approach, we have only recognized compensation expense for
stock-based awards to employees for options granted at below-market prices.
CRITICAL ACCOUNTING POLICIES
Several of our accounting policies involve significant
judgements and uncertainties. The policies with the greatest potential effect on
our results of operations and financial position include the estimated
collectibility of accounts receivable, the recovery value of obsolete or
overstocked inventory and the estimated fair values of both our goodwill and
intangible assets with indefinite lives. For accounts receivable, we estimate
the net collectibility, considering both historical and anticipated trends of
trade discounts and co-op advertising deductions taken by our customers,
allowances we provide to our retail customers to flow goods through the retail
channels, and the possibility of non-collection due to the financial position of
our customers. For inventory, we estimate the amount of goods that we will not
be able to sell in the normal course of business and write down the value of
these goods to the recovery value expected to be realized through off-price
channels. If we incorrectly anticipate these trends or unexpected events occur,
our results of operations could be materially affected. We utilize independent
third-party appraisals to estimate the fair values of both our goodwill and our
intangible assets with indefinite lives. These appraisals are based on projected
cash flows and interest rates; should interest rates or our future cash flows
differ significantly from the assumptions used in these projections, material
impairment losses could result where the estimated fair values of these assets
become less than their carrying amounts.
4
Results of Operations
Statements of Income Stated in Dollars and as a Percentage of
Total Revenues
(In millions)
2002
2001
2001 Excluding
Special Charge
2000
Net sales
$ 4,312.2
99.3%
$ 4,073.8
99.4%
$ 4,097.9
99.4%
$ 4,147.4
99.5%
Licensing income (net)
28.7
0.7%
24.8
0.6%
24.8
0.6%
22.2
0.5%
Total revenues
4,340.9
100.0%
4,098.6
100.0%
4,122.7
100.0%
4,169.6
100.0%
Cost of goods sold
2,633.9
60.7%
2,552.7
62.3%
2,491.0
60.4%
2,433.4
58.4%
Purchase accounting
adjustments
23.1
0.5%
17.7
0.4%
17.7
0.4%
3.1
0.1%
Total cost of goods sold
2,657.0
61.2%
2,570.4
62.7%
2,508.7
60.9%
2,436.5
58.4%
Gross profit
1,683.9
38.8%
1,528.2
37.3%
1,614.0
39.1%
1,733.1
41.6%
Selling, general and
administrative
expenses
1,061.4
24.5%
1,004.1
24.5%
1,003.1
24.3%
1,091.6
26.2%
Executive
compensation
obligations
31.9
0.7%
-
-
-
-
-
-
Amortization of
goodwill
-
-
44.2
1.1%
44.2
1.1%
36.9
0.9%
Operating
                                              income
590.6
13.6%
479.9
11.7%
566.7
13.7%
604.6
14.5%
Interest income
(4.6)
(0.1%)
(4.5)
(0.1%)
(4.5)
(0.1%)
(2.3)
(0.1%)
Interest expense and
financing
                                                costs
62.7
1.4%
84.6
2.1%
84.6
2.1%
103.8
2.5%
Equity of earnings of
unconsolidated
affiliates
(1.0)
-
-
-
-
-
-
-
Income before
provision for
income
                                                  taxes
533.5
12.3%
399.8
9.8%
486.6
11.8%
503.1
12.1%
Provision for income
taxes
201.2
4.6%
163.6
4.0%
196.1
4.8%
201.2
4.8%
Earnings before
change in
accounting principle
332.3
7.7%
236.2
5.8%
290.5
7.0%
301.9
7.2%
Cumulative effect of
change in accounting
for intangible assets
13.8
0.3%
-
-
-
-
-
-
Net income
$ 318.5
7.3%
$
                                                236.2
5.8%
$ 290.5
7.0%
$ 301.9
7.2%
Percentage
                                                totals may not agree due to
                                                rounding.
2002 Compared to 2001
Revenues.
Total revenues for 2002 were $4.34 billion compared to $4.10
billion for 2001, an increase of 5.9%. Excluding the effect of the special
charge mentioned above, total revenues for 2002 increased $218.2 million, or
5.3%, over 2001.
Revenues by segment were as follows:
Total Revenues
Excluding
      Special Charge
(In millions)
2002
2001
Increase/
(Decrease)
Percent
Change
2002
2001
Increase/
(Decrease)
Percent
Change
Wholesale
better apparel
$1,636.4
$1,834.1
($197.7)
(10.8%)
$1,636.4
$1,845.7
($209.3)
(11.3%)
Wholesale
moderate apparel
1,093.5
547.3
546.2
99.8%
1,093.5
548.3
545.2
99.4%
Wholesale footwear
and accessories
882.3
980.7
(98.4)
(10.0%)
882.3
992.2
(109.9)
(11.1%)
Retail
700.0
711.7
(11.7)
(1.6%)
700.0
711.7
(11.7)
(1.6%)
Other
28.7
24.8
3.9
15.7%
28.7
24.8
3.9
15.7%
Total revenues
$4,340.9
$4,098.6
$242.3
5.9%
$4,340.9
$4,122.7
$218.2
5.3%
As a result of the difficult economic environment experienced
in 2001 and uncertainty as to the extent and duration of any continuing impact
into 2002, we planned reductions across most of our wholesale businesses in
coordination with many of our wholesale customers. In our wholesale better
apparel segment, these planned reductions significantly impacted shipments of
our
Jones New York
and
Rena Rowan
career collection businesses
(which had experienced difficult performance at retail during 2001) and, to a
lesser extent, also affected our
Lauren by Ralph Lauren
collection
business. Wholesale better apparel revenues for
2001 were negatively impacted by $11.6 million relating to the special charge.
Wholesale moderate apparel revenues increased primarily as
a result of the product lines obtained as a result of the McNaughton, Gloria
Vanderbilt and l.e.i. acquisitions, which accounted for $528.5 million of the
increase. Increases in our
Evan-Picone
and
Nine & Company
businesses
were offset by lower sales in the
Jones
5
Wear
and private label jeans
businesses. Wholesale moderate apparel revenues for 2001 were negatively
impacted by $1.0 million relating to the special charge.
We also planned reductions in our wholesale footwear and
accessories business as a result of the uncertain retail environment. The most
significant decreases were experienced in
Nine West
accessories and in
Enzo
Angiolini
and
Easy Spirit
footwear. The decrease is also due to
markdowns recognized in the costume jewelry business to more aggressively
liquidate inventories in both the wholesale and retail channels. Shipments of
the
Nine West
footwear line increased as a result of the positive
business initiatives of focusing inventory on tested and proven footwear styles,
as well as shortened production lead times and a broadening of product
classifications to provide more options to the consumer. Wholesale footwear and
accessories revenues for 2001 were negatively impacted by $11.5 million relating
to the special charge.
Retail revenues decreased primarily as a result of a
reduction of 18 stores in 2002 compared to the prior period. Comparable store
sales were down approximately 0.5% for footwear and accessories stores and down
approximately 6.0% for apparel outlet stores as compared to 2001. The decrease
in the apparel stores was due to a concentration of career product locations
which experienced difficult selling throughout 2002.
Gross Profit.
The gross profit margin increased to
38.8% in 2002 compared to 37.3% in 2001. Cost of sales included $23.1 million and
$17.7 million in 2002 and 2001, respectively, related to adjustments required
under purchase accounting to write up acquired inventories to market value upon
acquisition and $61.7 million in 2001 related to the special charge reflected
in cost of sales.
Wholesale better apparel gross profit margins were 41.3%
and 36.0% for 2002 and 2001, respectively.  Wholesale better apparel cost of sales for
2001 included $23.0 million related to the special charge.  The primary reasons for the
margin increase were more favorable production costs realized from offshore production
and a continued focus on inventory management, which resulted in lower off-price
sales to discounters, partially offset by higher customer allowances granted to
retailers to clear product.
Wholesale moderate apparel gross profit margins were 27.0%
and 23.0% for 2002 and 2001, respectively. Wholesale moderate apparel cost of sales for
2002 included $23.1 million in purchase accounting adjustments.  Cost of sales
for 2001 included $16.7 million in purchase accounting adjustments and $8.2 million
related to the special charge.  The margin increase was primarily the result of the
addition of higher-margin businesses realized from the inclusion of McNaughton
for the full year in 2002 compared to only 28 weeks in 2001, as well as the
addition of Gloria Vanderbilt.
Wholesale footwear and accessories gross profit margins
were 32.0% and 32.5% for 2002 and 2001, respectively. Wholesale
footwear and accessories cost of sales for 2001 included $1.0 million in
purchase accounting adjustments and $23.1 million related to the special charge. The decrease in the margin was driven by significant
markdowns in the costume jewelry business to more aggressively liquidate
inventories in both the wholesale and retail channels, and higher off-price
sales to discounters and higher customer allowances in the
Nine West
accessories line. Our wholesale footwear business realized a significant
improvement in margins resulting primarily from a continued focus on inventory
management, which resulted in lower off-price sales to discounters.
Retail gross profit margins were 53.2% and 51.7% for 2002
and 2001, respectively. Retail cost of sales for 2001 included
$7.4 million related to the special charge.  Margins in our
Nine West
retail business
benefitted from better inventory planning and improved product assortments in
our stores. This improvement was offset by more promotional activity in our
apparel outlet stores, impacted by the difficulty experienced in our
Jones
New York
career business.
SG&A expenses.
SG&A expenses of $1.09
billion in 2002 represented an increase of $89.2 million from the $1.0 billion
reported for 2001. During 2002, SG&A expenses included $24.4 million of trademark impairment charges. 
During 2001, SG&A expenses included $16.3 million of trademark amortization and $1.0 million related to the
special charge. McNaughton,
Gloria Vanderbilt and l.e.i. added a total of $71.0 million to 2002. Also
contributing to the increase in SG&A expenses were the $31.9 million of
executive compensation costs in the other and eliminations segment, $1.9 million
of costs related to the closing of a Canadian production facility in the
wholesale better apparel segment and $6.9 million of costs related to the
closing of administrative and
6
production facilities in Mexico and Texas in the
wholesale moderate apparel segment. These increases were somewhat offset by cost
savings resulting from the restructuring of our costume jewelry business and a
continued focus on cost controls and efficiencies that can be realized by
leveraging common functions across all divisions.
Operating Income.
The resulting operating income
for 2002 of $590.6 million increased 23.1%, or $110.7 million, from the $479.9
million for 2001 due to the factors described above.
Net Interest Expense.
Net interest expense was
$58.1 million in 2002 compared to $80.1 million in 2001, resulting from lower
average borrowings, lower interest rates, the effects of interest rate swaps and
using the proceeds from zero coupon convertible senior debt securities issued in
February 2001 to repay higher-rate borrowings under our credit facilities.
Provision for Income Taxes
. The effective income
tax rate was 37.7% for 2002 compared to 40.9% for 2001. The decrease was
primarily due to the elimination of nondeductible goodwill amortization
resulting from the adoption of SFAS No. 142.
Net Income and Earnings Per Share.
Net income was
$318.5 million in 2002, an increase of $82.3 million from the net income of
$236.2 million earned in 2001. Diluted earnings per share for 2002 was $2.36
compared to $1.82 for 2001, on a 4.0% increase in shares outstanding.
2001 Compared to 2000
Revenues.
Total revenues for 2001 decreased 1.7%,
or $71.0 million, to $4.10 billion, compared to $4.17 billion for 2000.
Excluding the special charge, total revenues for 2001 decreased 1.1%, or $46.9
million. Revenue growth from the net sales of product lines added as a result of
the Judith Jack and McNaughton acquisitions were offset by the effects of the
restructuring of the Nine West business mentioned above.
Revenues by segment in total and also
without the discontinued Nine West businesses (as discussed above) were as
follows:
Total Revenues
Total
      Revenues From
Continuing Businesses Only
(In millions)
2001
2000
Increase/
(Decrease)
Percent
Change
2001
2000
Increase/
(Decrease)
Percent
Change
Wholesale
better apparel
$1,834.1
$1,882.4
($48.3)
(2.6%)
$1,834.1
$1,882.4
($48.3)
(2.6%)
Wholesale
moderate apparel
547.3
299.2
248.1
82.9%
547.3
299.2
248.1
82.9%
Wholesale footwear
and accessories
980.7
953.3
27.4
2.9%
980.5
908.0
72.5
8.0%
Retail
711.7
1,012.5
(300.8)
(29.7%)
695.5
734.1
(38.6)
(5.3%)
Other
24.8
22.2
2.6
11.7%
24.8
22.2
2.6
11.7%
Total revenues
$4,098.6
$4,169.6
($71.0)
(1.7%)
$4,082.2
$3,845.9
$236.3
6.1%
Excluding Special Charge
Wholesale
better apparel
$1,845.7
$1,882.4
($36.7)
(1.9%)
$1,845.7
$1,882.4
($36.7)
(1.9%)
Wholesale
moderate apparel
548.3
299.2
249.1
83.3%
548.3
299.2
249.1
83.3%
Wholesale footwear
and accessories
992.2
953.3
38.9
4.1%
992.0
908.0
84.0
9.3%
Retail
711.7
1,012.5
(300.8)
(29.7%)
695.5
734.1
(38.6)
(5.3%)
Other
24.8
22.2
2.6
11.7%
24.8
22.2
2.6
11.7%
Total revenues
$4,122.7
$4,169.6
($46.9)
(1.1%)
$4,106.3
$3,845.9
$260.4
6.8%
Wholesale better apparel revenues decreased primarily as a
result of decreases in shipments of the
Polo Jeans Company
product line
and a planned reduction in shipments of
Ralph by Ralph Lauren
, due to a
decrease in the number of doors in which that product is offered, offset
somewhat by increased shipments of the
Jones New York
Collection and
Jones
New York Dress
lines of product. Wholesale better apparel revenues for 2001
were negatively impacted by $11.6 million relating to the special charge.
Wholesale moderate apparel revenues increased primarily as
a result of the product lines obtained from the McNaughton acquisition, which
accounted for $239.2 million of the increase in segment revenues.
7
Increased
shipments of the
Jones Wear
product line were offset by decreases in
shipments of Sun private-label products. Wholesale moderate apparel revenues for
2001 were negatively impacted by $1.0 million relating to the special charge.
Wholesale footwear and accessories revenues increased
primarily due to the effects of acquisitions, offset by an $11.5 million impact
from the special charge and Nine West product lines that were discontinued. The
product lines obtained as a result of the Judith Jack acquisition accounted for
$15.0 million of the segment revenues. An additional $59.0 million of revenues
is attributable to inclusion of the results of Victoria for all of 2001 but for
only approximately five months during 2000.
Retail revenues decreased primarily due to the divestiture
of certain international operations and domestic store closings. Comparable
store sales were down approximately 6.7% for footwear and accessories stores and
8.8% for apparel outlet stores as compared to 2000, which we believe is
attributable to the generally challenging retail environment prevailing during
2001, which was magnified by the events of September 11, 2001.
Gross Profit.
The gross profit margin decreased to
37.3% in 2001 compared to 41.6% in 2000. Cost of sales included $17.7 million and
$3.1 million in 2001 and 2000, respectively, related to adjustments required
under purchase accounting to write up acquired inventories to market value upon
acquisition and $61.7 million in 2001 related to the special charge reflected
in cost of sales.
Wholesale better apparel gross profit margins were 36.0%
and 37.1% for 2001 and 2000, respectively. Wholesale better apparel cost of sales for
2001 included $23.0 million related to the special charge.  The margin increase was
primarily the result of lower production and freight costs due to more timely
delivery of goods, which decreased the amount of air freight shipments required
to meet delivery schedules.
Wholesale moderate apparel gross profit margins were 23.0%
and 20.3% for 2001 and 2000, respectively. Wholesale
moderate apparel cost of sales for 2001 included $16.7 million in purchase accounting adjustments
and $8.2 million related to the special charge.  The margin increase was primarily the result of the addition of
product lines obtained through the McNaughton acquisition.
Wholesale footwear and accessories gross profit margins
were 32.5% and 38.2% for 2001 and 2000, respectively. Wholesale footwear and accessories
cost of sales for 2001 included $1.0 million in purchase accounting adjustments
and $23.1 million related to the special charge.  Cost of sales for 2000
included $3.1 million in purchase accounting adjustments.  The margin decrease was primarily due to more promotional
activity in the department store channels and lower margins on excess
merchandise disposed of during 2001.
Retail gross profit margins were 51.7% and 53.5% for 2001
and 2000, respectively. Retail cost of sales for 2001 included $7.4 million related to
the special charge.  The margin
decrease was
primarily the result of product markdowns to control inventory levels during
2001.
SG&A expenses
. SG&A expenses of $1.0
billion in 2001 represented a decrease of $87.5 million from 2000. The change
was primarily the result of a $141.4 million decrease in retail SG&A
expenses, resulting from the restructuring of the Nine West business, offset by
the acquisition of McNaughton, which added $39.0 million to wholesale moderate
SG&A expenses in 2001.
Operating Income.
The resulting operating income
for 2001 of $479.9 million decreased 20.6%, or $124.7 million, from the $604.6
million for 2000, due to the factors discussed above.
Net Interest Expense.
Net interest expense was
$80.1 million in 2001 compared to $101.5 million in 2000, resulting from lower
average borrowings, lower interest rates and using the proceeds from zero coupon
convertible senior debt securities issued in February 2001 to repay higher-rate
borrowings under our credit facilities.
8
Provision for Income Taxes.
The effective income
tax rate was 40.9% for 2001 compared to 40.0% for 2000. The increase was
primarily due to the impact of nondeductible goodwill due to lower earnings
during 2001 compared to 2000.
Net Income and Earnings Per Share.
Net income of
$236.2 million for 2001 represented a decrease of $65.7 million from 2000.
Diluted earnings per share for 2001 was $1.82 compared to $2.48 for 2000, on a
9.7% increase in shares outstanding. Excluding the amortization of certain
intangibles and goodwill that will end upon adoption of SFAS No.142 on January
1, 2002, net income for 2001 and 2000 would have been $289.9 million and $345.9
million, respectively, and diluted earnings per share would have been $2.22 and
$2.84, respectively.
Liquidity and Capital Resources
Our principal capital requirements have been to fund
acquisitions, working capital needs, capital expenditures and repurchases of our
common stock on the open market. We have historically relied on internally
generated funds, trade credit, bank borrowings and the issuance of notes to
finance our operations and expansion. As of December 31, 2002, total cash and
cash equivalents were $283.3 million, an increase of $206.8 million from the
$76.5 million reported as of December 31, 2001.
Operating activities provided $716.5 million, $562.4
million and $339.2 million in 2002, 2001 and 2000, respectively. The change from
2001 to 2002 was primarily due to lower accounts receivable and inventory
levels, the result of a significant improvement in both accounts receivable and
inventory turns. The change from 2000 to 2001 was primarily due to a decrease in
accounts receivable in 2001 compared to an increase in 2000 and a smaller
decrease in accrued expenses and other current liabilities in 2001 than in 2000.
Investing activities used $368.7 million, $160.3 million
and $134.7 million in 2002, 2001 and 2000, respectively. The increase for 2002
from 2001 was primarily due to the acquisitions of Gloria Vanderbilt and l.e.i.
Similarly, the increase for 2001 from 2000 was primarily due to the acquisitions
of Judith Jack and McNaughton.
Financing activities used $141.1 million in 2002,
primarily to refinance $43.7 million and $83.2 million of debt assumed as part
of the acquisitions of Gloria Vanderbilt and l.e.i., respectively, and to
repurchase our common stock. In addition, we redeemed the remaining $0.1 million
of Nine West's 9% Senior Subordinated Notes Due 2007 in September 2002 at 104.5%
of par. These uses of funds were partially offset by $118.4 million in proceeds
from employees exercising stock options.
Financing activities used $387.2 million of cash in 2001.
In February 2001, we issued 20-year, zero coupon convertible senior debt
securities. Net proceeds of the offering were $392.8 million. The securities
carry a 3.5% yield to maturity with a face value of $805.6 million ($1,000 per
note) and are convertible into common stock at a conversion rate of 9.8105
shares per note. The proceeds were used to repay amounts then outstanding under
our Senior Credit Facilities, repurchase $30.3 million of our outstanding 6.25%
Senior Notes at par, and for general corporate purposes. The remaining $234.7
million of the 6.25% Senior Notes matured and were repaid in full on October 1,
2001. In addition, we redeemed all $0.5 million of Nine West's 5-1/2% Convertible
Subordinated Notes Due 2003 on December 1, 2001 at 100.92% of par. In connection
with the McNaughton acquisition, we repurchased all $125.0 million of
McNaughton's outstanding 12-1/2% Senior Notes due 2005, Series B. We also
refinanced $146.9 million of assumed McNaughton debt and accrued interest using
cash on hand and borrowings under our Senior Credit Facilities.
In January 2001, we realized $8.3 million in proceeds from
terminating interest rate swap agreements that we had entered into in June 1999,
and in October 2002, we realized $21.6 million in proceeds from terminating
interest rate swap agreements that we had entered into in April 2002 (see
"Derivatives" in the Notes to Consolidated Financial Statements).
Financing activities used $190.7 million of cash in 2000,
primarily due to purchases of our common stock on the open market and the
refinancing of $71.0 million of acquired Victoria debt.
9
We repurchased $129.2 million, $68.9 million and $121.9
million of our common stock on the open market during 2002, 2001 and 2000,
respectively. As of December 31, 2002, a total of $555.0 million had been
expended under announced programs to acquire up to $650.0 million of such
shares. We may make additional share repurchases in the future depending on,
among other things, market conditions and our financial condition. Proceeds from
the issuance of common stock to our employees exercising stock options amounted
to $118.4 million, $85.8 million and $27.6 million in 2002, 2001 and 2000,
respectively.
During the first quarter of 2000, we terminated a
five-year Receivables Facility (created in 1995 and amended in 1998) which
permitted Nine West to obtain up to $132.0 million of funding based on the sale,
without recourse, of eligible Nine West accounts receivable. This termination
did not affect our liquidity.
At December 31, 2002, we had credit agreements with
several lending institutions to borrow an aggregate principal amount of up to
$1.55 billion under Senior Credit Facilities. These facilities, of which the
entire amount is available for letters of credit or cash borrowings, provide for
an $850.0 million 364-Day Revolving Credit Facility and a $700.0 million
Five-Year Revolving Credit Facility. At December 31, 2002, $193.3 million was
outstanding under the 364-Day Revolving Credit Facility (comprised solely of
outstanding letters of credit), and no amounts were outstanding under our
Five-Year Revolving Credit Facility. Borrowings under the Senior Credit
Facilities may also be used for working capital and other general corporate
purposes, including permitted acquisitions and stock repurchases. The Senior
Credit Facilities are unsecured and require us to satisfy both a coverage ratio
of earnings before interest, taxes, depreciation, amortization and rent to
interest expense plus rents and a net worth maintenance covenant, as well as
other restrictions, including (subject to exceptions) limitations on our ability
to incur additional indebtedness, prepay subordinated indebtedness, make
acquisitions, enter into mergers and pay dividends.
In addition to these committed facilities, we have an
unsecured uncommitted line of credit for the purpose of issuing letters of
credit and bankers' acceptances for McNaughton and Gloria Vanderbilt. As of
December 31, 2002, $149.7 million was outstanding under this line of credit.
At December 31, 2002, we also had a C$20.0
million unsecured line of credit in Canada, under which no amounts were
outstanding. On January 14, 2003, this facility was replaced by a similar C$25.0
revolving credit facility.
In each of July 2001, December 2001 and August 2002, we
entered into transactions relating to the short sale of $139.0 million, $157.9
million and $190.5 million, respectively, of U. S. Treasury securities. These
transactions were intended to address interest rate exposure and generate
capital gains that could be used to offset previously incurred capital losses.
See "Short Term Bond Transactions" in Notes to Consolidated Financial
Statements. We may enter into similar transactions in the future if we determine
that market conditions are appropriate for generating the desired results from
the transactions.
In 2002, we recorded a $10.8 million minimum pension
liability adjustment to other comprehensive income resulting from negative
returns of the investments in our defined benefit plans during 2002, as well as
the lowering of the anticipated rate of future returns from 9% to 8%. Our plans
are currently underfunded by a total of $13.1 million. As the benefits under our
defined benefit plans are frozen with respect to service credits, the effects on
future pension expense are not anticipated to be material to our results of
operations or to our liquidity.
Contractual Obligations and Contingent Liabilities and Commitments
The following is a summary of our significant contractual
cash obligations for the periods indicated that existed as of December 31, 2002,
and, except for purchase obligations and other long-term liabilities, is based
on information appearing in the Notes to Consolidated Financial Statements
(amounts in millions).
10
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
Long-term debt
$ 967.1
$ 1.5
$ 307.6
$ 227.8
$ 430.2
Capital lease
                                            obligations
35.7
6.1
10.2
5.4
14.0
Operating leases
592.2
94.6
150.8
114.4
232.4
Purchase obligations (1)
1,085.2
1,051.9
21.6
10.9
0.8
Minimum royalty payments (2)
182.8
48.8
91.0
43.0
-
Other long-term liabilities
45.1
7.7
4.4
3.9
29.1
Total contractual
                                            cash
obligations
$2,908.1
$1,210.6
$ 585.6
$ 405.4
$ 706.5
(1) Includes outstanding letters of credit of $343.0 million which
        primarily represent inventory purchase commitments which typically
        mature in two to six months.
(2) Under exclusive licenses to manufacture certain items under
        trademarks not owned by us pursuant to various license and design
        service agreements, we are obligated to pay the licensors a percentage
        of our net sales of these licensed products, subject to minimum
        scheduled royalty payments. In addition to these minimum royalty
        payments presented above, we are also obligated to spend on advertising
        a percentage of net sales of these licensed products.
We have two joint ventures with HCL Technologies Limited to
provide us with computer consulting, programming and associated support
services. On August 31, 2004, we are obligated to contribute approximately $1.0
million of additional capital to the joint ventures in the form of cash or
assets. We have committed to purchase $30.5 million in services from these joint
venture companies over the next five years.
We also have a joint venture with Sutton Developments Pty.
Ltd. ("Sutton") to operate retail locations in Australia. We have
unconditionally guaranteed up to $7.0 million of borrowings under the joint
venture's uncommitted credit facility and up to $0.4 million of presettlement
risk associated with foreign exchange transactions. Sutton is required to
reimburse us for 50% of any payments made under these guarantees. At December
31, 2002, the outstanding balance subject to these guarantees was approximately
$0.6 million.
The terms of the acquisition agreement for Victoria
require us to pay the former Victoria shareholders additional consideration of
$3.00 for each $1.00 of Victoria's earnings before interest and taxes (as
defined in the securities purchase agreement) for each of the 12-month periods ending
June 30, 2001 through 2003 that exceeds certain targeted levels. Any future
additional consideration is to be paid 50% in cash and 50% in our common stock,
the value of which will be determined by the prices at which our common stock
trades in a defined period preceding delivery in each year. No payments were
required for the 12-month period ending June 30, 2002.
The terms of the acquisition agreement for Judith Jack
require us to pay the seller additional cash consideration of $2.00 for each
$1.00 of Judith Jack's earnings before interest and taxes (as defined in the
asset purchase agreement) that exceeds certain targeted levels for each of the
years ending December 31, 2001, 2002 and 2003. No payments were required for
either 2001 or 2002.
On April 8, 2002, we completed the acquisition of Gloria
Vanderbilt. The aggregate purchase price was approximately $100.9 million, which
included payments to the selling shareholders of $80.9 million in cash and the
issuance of approximately 0.6 million shares of our common stock. We also
assumed approximately $43.7 million of Gloria Vanderbilt's funded debt and
accrued interest, which we subsequently refinanced. The terms of the acquisition
agreement for Gloria Vanderbilt require us to pay the former Gloria Vanderbilt
shareholders additional consideration of $4.50 for each $1.00 of Gloria
Vanderbilt's earnings before interest and taxes (as defined in the stock
purchase agreement) that exceeds certain targeted levels for the 12 months
following the completion of the acquisition. Any additional consideration (the
amount of which cannot exceed $54.0 million) is to be paid either in cash or a
combination of cash and our common stock, the value of which will be determined
by the prices at which our common stock trades in a defined period preceding
delivery.
On August 16, 2002, we completed the acquisition of l.e.i.
The aggregate purchase price was approximately $309.7 million, which included
payments to the selling shareholders of $272.5 million in cash
11
and the issuance
of approximately 1.0 million shares of our common stock. We also assumed
approximately $84.0 million of l.e.i.'s funded debt and accrued interest, $83.2
million of which we subsequently refinanced. The selling shareholders and
certain employees of l.e.i. will be entitled to receive future payments of up to
$70.0 million in the form of cash and/or common stock if certain earnings
targets are achieved during the three years following the closing of the
transaction.
We believe that funds generated by operations, proceeds
from the issuance of notes, the Senior Credit Facilities and the McNaughton and
Canadian lines of credit will provide the financial resources sufficient to meet
our foreseeable working capital, capital expenditure and stock repurchase
requirements, fund our contractual obligations and contingent liabilities and
commitments, and meet any ongoing obligations to the former Victoria and Gloria
Vanderbilt shareholders, the seller of Judith Jack, and the selling shareholders
and certain employees of l.e.i.
New Accounting Standards
In June 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities,"
which changes the accounting for costs such as lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity
initiated after December 31, 2002. The standard requires companies to recognize
the fair value of costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or disposal
plan. We do not expect the adoption of this standard to have a material effect
on our results of operations.
In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure"
(an amendment of SFAS No. 123), which provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. Effective January 1, 2003, we adopted the
fair value method of accounting for employee stock options for all options
granted after December 31, 2002 pursuant to the "prospective method"
set forth in SFAS No. 148.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
JONES APPAREL GROUP, INC.
(Registrant)
By:
/s/ Wesley R. Card
Wesley R. Card
Chief Operating and Financial Officer
Date: June 2, 2003
13