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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________

FORM 10-K

Commission file number 1-10746

JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (215) 785-4000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [X] Yes [ ] No

    The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of the registrant's common stock as reported on the New York Stock Exchange composite tape on July 5, 2002, was approximately $4,524,000,000.

    As of March 24, 2003, 127,937,558 shares of the registrant's common stock were outstanding.

TABLE OF CONTENTS

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DOCUMENTS INCORPORATED BY REFERENCE

    The documents incorporated by reference into this Form 10-K and the Parts hereof into which such documents are incorporated are listed below:

    As used in this Report, unless the context requires otherwise, "our," "us" and "we" means Jones Apparel Group, Inc. and consolidated subsidiaries, "Sun" means Sun Apparel, Inc., "Nine West" means Nine West Group Inc., "Victoria" means Victoria + Co Ltd., "Judith Jack" means Judith Jack, LLC (acquired April 26, 2001), "McNaughton" means McNaughton Apparel Group Inc. (acquired June 19, 2001), "Gloria Vanderbilt" means Gloria Vanderbilt Apparel Corp. (acquired April 8, 2002), "l.e.i." means R.S.V. Sport, Inc. and its related companies (acquired August 15, 2002), "FASB" means the Financial Accounting Standards Board, "SFAS" means Statement of Financial Accounting Standards and "SEC" means the United States Securities and Exchange Commission.

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

    This Report includes, and incorporates by reference, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding our expected financial position, business and financing plans are forward-looking statements. The words "believes," "expects," "plans," "intends," "anticipates" and similar expressions identify forward-looking statements. Forward-looking statements also include representations of our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of national and regional economic conditions, lowered levels of consumer spending resulting from a general economic downturn or generally reduced shopping activity caused by public safety concerns, the performance of our products within the prevailing retail environment, customer acceptance of both new designs and newly-introduced product lines, financial difficulties encountered by customers, the effects of vigorous competition in the markets in which we operate, the integration of the organizations and operations of any acquired businesses into our existing organization and operations, the termination or non-renewal of the licenses with Polo Ralph Lauren Corporation, our foreign operations and manufacturing, changes in the costs of raw materials, labor and advertising, and our ability to secure and protect trademarks and other intellectual property rights. All statements other than statements of historical facts included in this Report, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from our expectations ("Cautionary Statements") are disclosed in this Report in conjunction with the forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.

WEBSITE ACCESS TO COMPANY REPORTS

    Copies of our filings under the Securities Exchange Act of 1934 (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports) are available free of charge on our investor relations website at www.jny.com on the same day they are electronically filed with the SEC.

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    Jones Apparel Group, Inc. is a leading designer and marketer of branded apparel, footwear and accessories. Our nationally recognized brands include Jones New York; Lauren by Ralph Lauren, Ralph by Ralph Lauren, and Polo Jeans Company, which are licensed from Polo Ralph Lauren Corporation; Evan-Picone, Rena Rowan, Norton McNaughton, Gloria Vanderbilt, Erika, l.e.i., Energie, Todd Oldham, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Napier and Judith Jack. We also market costume jewelry under the Tommy Hilfiger brand licensed from Tommy Hilfiger Corporation and the Givenchy brand licensed from Givenchy Corporation, and footwear and accessories under the ESPRIT brand licensed from Esprit Europe, B.V. Each brand is differentiated by its own distinctive styling, pricing strategy, distribution channel and target consumer. We primarily contract for the manufacture of our products through a worldwide network of quality manufacturers. We have capitalized on our nationally known brand names by entering into various licenses for several of our trademarks, including Jones New York, Evan-Picone, Nine West, Gloria Vanderbilt and l.e.i., with select manufacturers of women's and men's products which we do not manufacture. Celebrating more than 30 years of service, we have built a reputation for excellence in product quality and value and in operational execution.

    On April 8, 2002, we acquired 100% of the common stock of Gloria Vanderbilt and also the Gloria Vanderbilt (and related) trademarks and third-party licenses from Gloria Vanderbilt Trademark B.V. Gloria Vanderbilt is a leading designer, marketer and distributor of women's moderately priced stretch and twill jeanswear. Gloria Vanderbilt markets its products nationwide to national chains, department stores, mass merchants, and specialty retailers. Brands include Gloria Vanderbilt and junior product marketed under the GLO brand name. Licensed products under the Gloria Vanderbilt brand include women's watches, woven shirts, costume jewelry (Canada), sleepwear, knit tops and bottoms, sweaters, swimwear and women's and men's apparel (Canada). The acquisition of Gloria Vanderbilt increases our penetration into the moderate market distribution channel and is intended to improve our profitability and cash flow by the cross-branding opportunities that exist with our other lines of business.

    On August 15, 2002, we acquired 100% of the common stock of l.e.i., a leading designer, manufacturer and distributor of girls' and young women's moderately-priced jeanswear. l.e.i.'s products are marketed nationwide to national chains, department stores and specialty retailers. Licensed products under the l.e.i. brand include tops, swimwear, watches, casual legwear, handbags, belts and accessories, sunglasses, outerwear, footwear, and children's apparel. The acquisition of l.e.i. is intended to enhance our competitive position in the moderate market and to improve our profitability and cash flow by the cross-branding opportunities that exist with our other lines of business, by leveraging l.e.i.'s strengths in design, production, merchandising and logistics, and by achieving cost synergies and economies of scale in the manufacturing process.

Operating Segments

    Our operations are comprised of four reportable segments: wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories, and retail. 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. Segment revenues are generated from the sale of apparel, footwear and accessories through wholesale channels and our own retail locations. See "Business Segment and Geographic Area Information" in the Notes to Consolidated Financial Statements.

Wholesale Better Apparel

    Our brands cover a broad array of categories for the women's markets; we also provide Polo Jeans Company apparel to the men's markets. Within those brands, various product classifications include career and casual sportswear, jeanswear, dresses, suits, and a combination of all components termed lifestyle

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collection. Career and casual sportswear are marketed as individual items or groups of skirts, pants, shorts, jackets, blouses, sweaters and related accessories which, while sold as separates, are coordinated as to styles, color schemes and fabrics, and are designed to be worn together. New collections are introduced in four of the principal selling seasons - Spring, Summer, Fall and Holiday. Each season is comprised of a series of individual items or groups which have systematically spaced shipment dates to ensure a fresh flow of goods to the retail floor. In addition, certain labels offer key item styles, which are less seasonal in nature, on a replenishment basis (which ship generally within three to five days from receipt of order).

The following table summarizes selected aspects of the products sold under both our brands and licensed brands:

  
Wholesale Moderate Apparel

    Our brands cover a broad array of categories for the women's, juniors and girls markets. Within those brands, various product classifications include career and casual sportswear, jeanswear, dresses, and a combination of all components termed lifestyle collection. Career and casual sportswear are marketed as individual items or groups of skirts, pants, shorts, jackets, blouses, sweaters and related accessories which, while sold as separates, are coordinated as to styles, color schemes and fabrics, and are designed to be worn together. New collections are introduced in four of the principal selling seasons - Spring, Summer, Fall and Holiday. Each season is comprised of a series of individual items or groups which have systematically spaced shipment dates to ensure a fresh flow of goods to the retail floor. In addition, certain labels offer key item styles, which are less seasonal in nature, on a replenishment basis (which ship generally within three to five days from receipt of order).

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    In addition to the products sold under these brands, we provide design and manufacturing resources to certain retailers to develop moderately-priced product lines to be sold under private labels.

Wholesale Footwear and Accessories

    Our wholesale footwear and accessories operations include the sale of both brand name and private label footwear, handbags, small leather goods, luggage and costume, semi-precious, sterling silver, and marcasite jewelry. The following table summarizes selected aspects of the products sold under both our brands and licensed brands:

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Retail

    We market apparel, footwear and accessories directly to consumers through our specialty retail stores operating in malls and urban retail centers, as well as our various value-based ("outlet") stores. We constantly evaluate both the opportunities for new locations and the results of underperforming locations for possible modification or closure.

    Specialty Retail Stores. At December 31, 2002, we operated a total of 418 specialty retail stores. These stores sell either footwear and accessories or apparel (or a combination of these products) primarily under their respective brand names. Our Nine West, Easy Spirit and Enzo Angiolini retail stores offer selections of exclusive products not marketed to our wholesale customers. Certain of our specialty retail stores also sell products licensed by us, including belts, legwear, outerwear, watches and sunglasses.

    The following table summarizes selected aspects of our specialty retail stores at December 31, 2002. Of these stores, 414 are located within the United States and 4 are located in Canada. In addition to the stores listed in the table, we participate in a joint venture that operates 25 specialty stores in Australia under the Nine West and Enzo Angiolini names.

    During 2003, we will rebrand 20 of the 47 retail stores operating under the Enzo Angiolini brand name. These stores have not achieved our return on investment goal. As a result, they will be converted to a retail footwear concept operating under the more moderately-priced Bandolino brand name. We will continue to evaluate the remaining 27 Enzo Angiolini store locations.

    Outlet Stores. At December 31, 2002, we operated a total of 507 outlet stores. Our shoe stores focus on breadth of product line, as well as value pricing, and offer a distribution channel for our residual inventories. The majority of the shoe stores' merchandise consists of new production of current and proven prior season's styles, with the remainder of the merchandise consisting of discontinued styles from our specialty retail footwear stores and wholesale divisions. The apparel stores focus on breadth of product line, customer service and value pricing. In addition to our brand name merchandise, these stores also sell merchandise produced by our licensees.

    The following table summarizes selected aspects of our outlet stores at December 31, 2002. Of these stores, 489 are located within the United States and its territories and 18 are located in Canada. In addition to the stores listed in the table, we participate in a joint venture that operates four outlet stores in Australia under the Nine West name.

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Licensed Brands

    We license three major brands from Polo Ralph Lauren Corporation for selling in the United States, Canada and Mexico: Lauren by Ralph Lauren, Ralph by Ralph Lauren and Polo Jeans Company. We also license the Polo Ralph Lauren brand in Canada.

    In October 1995, we acquired an exclusive license to manufacture and market women's shirts, blouses, skirts, jackets, suits, sweaters, pants, vests, coats, outerwear and hats under the Lauren by Ralph Lauren trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo Ralph Lauren Corporation which expire on December 31, 2006. The agreements provide for the payment by us of a percentage of net sales against guaranteed minimum royalty and design service payments as set forth in the agreements.

    In May 1998, we acquired an exclusive license to manufacture and market women's dresses, shirts, blouses, skirts, jackets, suits, sweaters, pants, vests, coats, outerwear and hats under the Ralph by Ralph Lauren trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo Ralph Lauren. The agreements are scheduled to end on December 31, 2003. The agreements provide for the payment by us of a percentage of net sales against guaranteed minimum royalty and design service payments as set forth in the agreements.

    As a result of the acquisition of Sun, we obtained the right to sell Polo Jeans Company products under long-term license and design agreements which Sun entered into with Polo Ralph Lauren in 1995 (collectively, the "Polo Jeans License"). Under the Polo Jeans License, Polo Ralph Lauren has granted us an exclusive license for the design, manufacture and sale of men's and women's jeanswear, sportswear, and related apparel under the Polo Jeans Company by Ralph Lauren trademarks in the United States, its territories and Mexico. The agreements expire on December 31, 2005 and may be renewed by us in five-year increments for up to 25 additional years, provided that we achieve certain minimum sales levels. Renewal of the Polo Jeans License after 2010 requires a one-time payment by us of $25.0 million or, at our option, a transfer of a 20% interest in our Polo Jeans Company business to Polo Ralph Lauren (with no fees required for subsequent renewals). Polo Ralph Lauren also has an option, exercisable on or before June 1, 2010, to purchase our Polo Jeans Company business at the end of 2010 for a purchase price, payable in cash, equal to 80% of the then fair value of the business as a going concern, assuming continuation of the Polo Jeans License through 2030. The agreements provide for the payment by us of a percentage of net sales against guaranteed minimum royalty and design service payments as set forth in the agreements.

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    In June 2000, we acquired an exclusive license to manufacture and market in Canada certain products under the Polo Jeans Company and Polo Ralph Lauren trademarks pursuant to license and design service agreements with Polo Ralph Lauren Corporation. The agreements expire on December 31, 2005 and are renewable for an additional five years, provided that we achieve certain minimum sales levels. The agreements provide for the payment by us of a percentage of net sales against guaranteed minimum royalty and design service payments as set forth in the agreements.

    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.

    As a result of the acquisition of Victoria, we obtained the exclusive license to produce and sell costume jewelry in the United States and Canada under the Tommy Hilfiger trademark. This agreement expires on March 31, 2005 and is renewable for an additional three years, provided that we achieve certain minimum sales levels. The agreement provides for payment by us of a percentage of net sales against guaranteed minimum royalty and advertising payments as set forth in the agreement. We also obtained the exclusive, worldwide license to produce, market and distribute costume jewelry under the Givenchy mark, which expired on December 31, 2002. We are currently in discussions with Givenchy Corporation to extend the term of that license.

    In July 2002, we obtained the exclusive license to produce and sell women's and young women's footwear, luggage, handbags and small leather goods bearing a diversified complement of ESPRIT trademarks pursuant to license and design service agreements with Esprit Europe B.V., a subsidiary of Esprit Holdings Limited. These branded products will be distributed exclusively by Nine West to department stores, retail specialty stores and other direct to consumer venues throughout the United States and Puerto Rico. The agreement expires on December 31, 2007 and is renewable for an additional five years provided that we achieve certain minimum sales levels.

Design

    Each of our apparel product lines has a design team which is responsible for the creation, development and coordination of the product group offerings within each line. We believe our design staff is recognized for its distinctive styling of garments and its ability to update fashion classics with contemporary trends. Our apparel designers travel throughout the world for fabrics and colors, and stay continuously abreast of the latest fashion trends. In addition, we actively monitor the retail sales of our products to determine changes in consumer trends.

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    For most sportswear lines, we will develop several groups in a season. A group typically consists of an assortment of skirts, pants, jeans, shorts, jackets, blouses, sweaters, t-shirts and various accessories. We believe that we are able to minimize design risks because we often will not have started cutting fabrics until the first few weeks of a major selling season. Since different styles within a group often use the same fabric, we can redistribute styles and, in some cases, colors, to fit current market demand.

    Our footwear brands are developed by a combination of our own design teams and third-party designers, which independently interpret global lifestyle, clothing, footwear and accessories trends. To research and confirm such trends, the teams travel extensively in Asia, Europe and major American markets, conduct extensive market research on retailer and consumer preferences, and subscribe to fashion and color information services. Each team presents styles that maintain each brand's distinct personality. Samples are refined and then produced. After the samples are evaluated, lines are modified further for presentation at each season's shoe shows.

    Our jewelry brands are developed by separate design teams. Each team presents styles that maintain each brand's distinct personality. A prototype is developed for each new product where appropriate. Most prototypes are produced in-house, and samples are sent to vendors for cost estimates. After samples are evaluated and cost estimates are received, the lines are modified as needed for presentation for each selling season.

    In accordance with standard industry practices for licensed products, we have the right to approve the concepts and designs of all products produced and distributed by our licensees. Similarly, Polo Ralph Lauren provides design services to us for our licensed products and has the right to approve our designs for the Lauren by Ralph Lauren, Ralph by Ralph Lauren, Polo Ralph Lauren and Polo Jeans Company product lines. Esprit Europe B.V. also provides design services to us for our licensed products and has the right to approve our designs for the ESPRIT product line.

Manufacturing and Quality Control

Apparel

    Apparel sold by us is produced in accordance with our design, specification and production schedules through a network of approximately 1,600 independent factories (some of which are under common ownership). Of these factories, 55 are located in the United States and its territories, 123 are in Mexico and 347 are in China with the remainder in other locations throughout the world. We also operate several manufacturing facilities of our own. Approximately 24% of our apparel products were manufactured in the United States and Mexico and 76% in other parts of the world (primarily Asia) during 2002. We source a portion of our products in Central America, enabling us to take advantage of shorter lead times than other offshore locations due to proximity. Sourcing in this region enables us to utilize exemptions under "807" customs regulations, which provide that certain articles assembled abroad from United States components are exempt from United States duties on the value of these components.

    We believe that outsourcing a majority of our products allows us to maximize production flexibility, while avoiding significant capital expenditures, work-in-process inventory build-ups and costs of managing a larger production work force. Our fashion designers, production staff and quality control personnel closely examine garments manufactured by contractors to ensure that they meet our high standards.

    Our comprehensive quality control program is designed to ensure that purchased raw materials and finished goods meet our exacting standards. Substantially all of the fabric purchases for garments manufactured domestically, in Mexico and in Central America are inspected upon receipt in either our warehouse facilities (where they are stored prior to shipment for cutting) or at the contractor's warehouse. Fabrics for garments manufactured offshore are inspected by either independent inspection services or by our contractors upon receipt in their warehouses. Our quality control program includes inspection of prototypes of each garment prior to cutting by the contractors to ensure compliance with our specifications.

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    Domestic contractors are supervised by our quality control staff based primarily in Pennsylvania, while foreign manufacturers' operations are monitored by both our Hong Kong-based personnel and buying agents located in other countries. Finished goods are generally shipped to our warehouses for final inspection and distribution.

    For our sportswear business, we generally supply the raw material to our domestic manufacturers and occasionally to foreign manufacturers. Otherwise, the raw materials are purchased directly by the manufacturer in accordance with our specifications. Raw materials, which are in most instances made and/or colored especially for us, consist principally of piece goods and yarn and are purchased by us from a number of domestic and foreign textile mills and converters. Our foreign finished goods purchases are generally purchased on a letter of credit basis, while our domestic purchases are generally purchased on open account.

    Our primary raw material in our jeanswear business is denim, which is primarily purchased from leading mills located in the United States and Mexico. Denim purchase commitments and prices are negotiated on a quarterly or semi-annual basis. We perform our own extensive testing of denim, cotton twill and other fabrics to ensure consistency and durability.

    We do not have long-term arrangements with any of our suppliers. We have experienced little difficulty in satisfying our raw material requirements and consider our sources of supply adequate.

    Our apparel products are manufactured according to plans prepared each year which reflect prior years' experience, current fashion trends, economic conditions and management estimates of a line's performance. We generally order piece goods concurrently with concept development. The purchase of piece goods is controlled and coordinated on a divisional basis. When possible, we limit our exposure to specific colors and fabrics by committing to purchase only a portion of total projected demand with options to purchase additional volume if demand meets the plan.

    We believe our extensive experience in logistics and production management underlies our success in coordinating with contractors who manufacture different garments included within the same product group. We also contract for the production of a portion of our products through a network of foreign agents. We have had long-term mutually satisfactory business relationships with many of our contractors and agents but do not have long-term written agreements with any of them.

    We have an active program in place to monitor compliance by our contract manufacturers (in all product categories in accordance with the Jones Apparel Group Standards for Contractors and Suppliers) with applicable laws relating to the payment of wages and working conditions. In 1996, we became a participant in the United States Department of Labor's Apparel Manufacturers Compliance Program for that purpose. Under that program, and through our independent agreements with each of our domestic and foreign manufacturers, we regularly audit such compliance and require corrective action when appropriate.

Footwear and Accessories

    To provide a steady source of footwear and accessories inventory, we rely on long-standing relationships developed by Nine West with Brazilian and Chinese manufacturers, working through independent buying agents, and third party manufacturers in other countries and long-standing relationships developed by Victoria with third-party Asian manufacturers. Allocation of production among our footwear and accessories manufacturing resources is determined based upon a number of factors, including manufacturing capabilities, delivery requirements and pricing.

    During 2002, approximately 74% of our footwear products were manufactured by independent footwear manufacturers located in China and approximately 25% were manufactured by independently owned footwear manufacturers in Brazil. The remainder of footwear production (approximately 1%) originates primarily in Italy. Our handbags and small leather goods are sourced through our own buying offices in Korea and Hong Kong, which utilize independent third party manufacturers located primarily in China. Products have historically been purchased from the Brazilian and Asian manufacturers in pre-set United States dollar prices, and therefore, we generally have not been adversely affected by fluctuations in exchange 

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rates. We do not have any contracts with any of our footwear, handbag or small leather goods manufacturers but, with respect to footwear imported from Brazil and China, we rely on established relationships with our Brazilian and Chinese manufacturers directly and through our independent buying agent, Bentley HSTE Far East, Limited. Quality control reviews are done on-site in the factories by our third-party buying agents primarily to ensure that material and component qualities and fit of the product are in accordance with our specifications. Our quality control program includes approval of prototypes, as well as approval of final production samples to ensure they meet our high standards.

    We believe that our relationships with our Brazilian and Chinese manufacturers provide us with a responsive and active source of supply of our products and, accordingly, give us a significant competitive advantage. We also believe that purchasing a significant percentage of our products in Brazil and China allows us to maximize production flexibility while limiting our capital expenditures, work-in-process inventory and costs of managing a larger production work force. Because of the sophisticated manufacturing techniques of these manufacturers, individual production lines can be quickly changed from one style to another, and production of certain styles can be completed in as few as four hours, from uncut leather to boxed footwear.

    Historically, periodic instability in Brazil's political and economic environment has not had a material adverse effect on Nine West's financial condition or results of operations. We cannot predict, however, the effect that future changes in economic or political conditions in Brazil could have on the economics of doing business with our Brazilian manufacturers. Although we believe that we could source in China a portion of those products which we currently source in Brazil and find alternative manufacturing sources for the remainder of those products, the establishment of new manufacturing relationships would involve various uncertainties, and the loss of a substantial portion of our Brazilian manufacturing capacity before the alternative sourcing relationships were fully developed could have a material adverse effect on our financial condition or results of operations.

    We place our projected orders for each season's styles with our manufacturers prior to the time we have received all of our customers' orders. Because of our close working relationships with our third party manufacturers (which allow for flexible production schedules and production of large quantities of footwear within a short period of time), most of our orders are finalized only after we have received orders from a majority of our customers. As a result, we believe that, in comparison to our competitors, we are better able to meet sudden demands for particular designs, more quickly exploit market trends as they occur, reduce inventory risk and more efficiently fill reorders booked during a particular season.

    We do not have any contracts with any of our jewelry manufacturers but rely on long-standing relationships developed by Victoria and Judith Jack, principally with third-party Asian manufacturers. We also have our own manufacturing facility to satisfy demand for products manufactured domestically (such as cosmetic containers) and to provide product samples, prototypes, small quantities of test merchandise and a small amount of production capacity in the event of a disruption of certain outsourced manufacturing. Victoria and Judith Jack have historically experienced little difficulty in satisfying finished goods requirements, and we consider their source of supplies adequate. Products have historically been purchased from Asian manufacturers in preset U. S. dollar prices, effectively minimizing the effects of adverse fluctuations in exchange rates.

    During 2002, our jewelry products were manufactured primarily by independently-owned jewelry manufacturers in Asia. We believe that the quality and cost of products manufactured by our suppliers provide us with the ability to remain competitive. Sourcing the majority of our products enables us to better control costs and avoid significant capital expenditures, work in process inventory, and costs of managing a larger production workforce. Victoria's and Judith Jack's history as manufacturers gives them the requisite experience and knowledge to manage their vendors effectively.

    Forecasts for basic jewelry products are produced on a rolling 12-week basis and are adjusted based on point of sale information from retailers. Manufacturing of fashion jewelry products is based on marketing forecasts and sales plans; actual orders are received several weeks after such forecasts are produced. Quality 

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control testing is performed on-site by domestic employees or private firms in the country of manufacture and quality assurance checks are also performed upon receipt of finished goods at our distribution facilities.

Marketing

    During 2002, no single customer accounted for more than 10% of sales; however, certain of our customers are under common ownership. When considered together as a group under common ownership, sales to eight department store customers currently owned by The May Department Stores Company ("May") accounted for approximately 14% of 2002 sales, and sales to ten department store customers currently owned by Federated Department Stores, Inc. ("Federated") also accounted for approximately 14% of 2002 sales. Our ten largest customer groups accounted for approximately 61% of sales in 2002. While we believe that purchasing decisions are generally made independently by each department store customer (including the stores in the May and Federated groups), in some cases the trend is toward more centralized purchasing decisions. We attempt to minimize our credit risk from our concentration of customers by closely monitoring accounts receivable balances and shipping levels and the ongoing financial performance and credit status of our customers.

    Sportswear products are marketed to department stores and specialty retailing customers during "market weeks," which are generally four to six months in advance of the corresponding industry selling seasons. While we typically will allocate a six-week period to market a sportswear line, most major orders are written within the first three weeks of any market period.

    We believe retail demand for our apparel products is enhanced by our ability to provide our retail accounts and consumers with knowledgeable sales support. In this regard, we have an established program to place retail sales specialists in many major department stores for many of our brands, including Jones New York, Jones New York Sport, Lauren by Ralph Lauren, Ralph by Ralph Lauren and Polo Jeans Company. These individuals have been trained by us to support the sale of our products by educating other store personnel and consumers about our products and by coordinating our marketing activities with those of the stores. In addition, the retail sales specialists provide us with firsthand information concerning consumer reactions to our products. In addition, we have a program of designated sales personnel in which a store agrees to designate certain sales personnel who will devote a substantial portion of their time to selling our products in return for certain benefits.

    We introduce new collections of footwear at industry-wide shoe shows, held semi-annually in both New York City and Las Vegas, and at regional shoe shows throughout the year. We introduce new handbag and small leather goods collections at market shows that occur four times each year in New York City. Jewelry products are marketed in New York City showrooms through individual customer appointments and at five industry-wide market shows each year. Retailers visit our showrooms at these times to view various product lines and merchandise.

    We market our footwear, handbag, luggage and small leather goods businesses with certain department stores and specialty retail stores by bringing our retail and sales planning expertise to those retailers. Under this program, members of branded division management who have extensive retail backgrounds work with the retailer to create a "focus area" or "concept shop" within the store that displays the full collection of an entire brand in one area. These individuals assist the department and specialty retail stores by: providing advice about appropriate product assortment and product flow; making recommendations about when a product should be re-ordered; providing sales guidance, including the training of store personnel; and developing advertising programs with the retailer to promote sales of our products. In addition, our sales force and, for handbags and small leather goods, field merchandising associates recommend how to display our products and educate store personnel about us and our products. The goal of this approach is to promote high retail sell-throughs of our products. With this approach, customers are encouraged to devote greater selling space to our products, and we are better able to assess consumer preferences, the future ordering needs of our customers, and inventory requirements.

    Most of our wholesale jewelry customers outsource their product management and merchandising to us. We work closely with these retailers to create long-term sales programs, which include choosing among our 

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diverse product lines and implementing sales programs at the store level. A team of sales representatives and sales managers monitor product performance against plan and are responsible for inventory management, using point-of-sale information to respond to shifts in consumer preferences. Management uses this information to adjust product mix and inventory requirements. Retailers are also provided with customized displays and store-level merchandising designed to maximize sales and inventory turnover. By providing retailers with in-store product management, we establish close relationships with retailers, allowing us to maximize product sales and increase floor space allocated to our product lines. We have also placed retail sales specialists in major department stores to support the sale of our Napier, Nine West, Tommy Hilfiger and Judith Jack jewelry products.

Advertising and Promotion

    We employ a cooperative advertising program for our branded products, whereby we share the cost of certain wholesale customers' advertising and promotional expenses in newspapers, magazines and other media up to a preset maximum percentage of the customer's purchases. An important part of the marketing program includes prominent displays of our products in wholesale customers' sales catalogs as well as in-store shop displays.

    National advertising campaigns in the print media have existed for the Lauren by Ralph Lauren, Ralph by Ralph Lauren and Polo Jeans Company products since their inception. We also have national advertising campaigns for Jones New York (primarily in the print media encompassing both our products and products of our licensees), Nine West (footwear, apparel, jewelry and licensed products, primarily in fashion magazines), Easy Spirit (primarily in fashion, lifestyle, health and fitness magazines), Enzo Angiolini (in fashion magazines), Norton McNaughton (in fashion, lifestyle and ethnic magazines), Erika and Erika Sport (in lifestyle magazines), Nine & Company (in fashion magazines through co-op advertising efforts), Napier (in fashion magazines) and the licensed Tommy Hilfiger jewelry line (in fashion and general interest magazines and outdoor advertising in select large markets). We have also planned advertising campaigns for Bandolino, GLO, GLORIA and l.e.i. during 2003. Given the strong recognition and brand loyalty already afforded our brands, we believe these campaigns will serve to further enhance and broaden our customer base. Except for Norton McNaughton, Erika and Erika Sport, our in-house creative services departments oversee the conception, production and execution of virtually all aspects of these activities. We also believe that our retail network promotes brand name recognition and supports the merchandising of complete lines by, and the marketing efforts of, our wholesale customers.

Licensing of Company Brands

    We have entered into various license agreements under which independent licensees produce and sell certain products under our trademarks in accordance with designs furnished or approved by us. These licenses typically provide for the payment to us of a percentage of the licensee's net sales of the licensed products against guaranteed minimum royalty payments, which typically increase over the term of the agreement.

    Current licenses under our Jones New York (and related) trademarks cover products sold in the United States, Canada and various other territories, including men's tailored clothing and formal wear, women's sleepwear, women's wool coats, women's outerwear and rainwear, women's leather outerwear, men's topcoats, wool and leather outerwear, men's belts and small leather goods, men's neckwear, women's scarves, women's belts, women's sunglasses and optical eyewear, swimwear and umbrellas, costume jewelry (Canada) and hair accessories (Canada). During 2002, we received $11.8 million of gross licensing revenues under these agreements.

    Current licenses under our Evan-Picone trademarks cover products sold in the United States, Canada and various other territories. These licenses cover products including men's tailored clothing, women's sunglasses and optical eyewear, and women's hosiery, casual legwear and sportswear solely for distribution in Japan. During 2002, we received $2.6 million of gross licensing revenues under these agreements.

15

    Current licenses under our Nine West, Nine & Company and Easy Spirit trademarks cover footwear and non-footwear products sold in the United States, including legwear, outerwear, gloves and cold weather accessories, belts, sunglasses, hats, slippers, sleepwear, swimwear, optical eyewear, and watches. We have also entered into foreign distribution and license agreements under which independent licensees have the exclusive right to distribute and sell at retail (and, in some cases, at wholesale) footwear, handbags and small leather goods under the Nine West, Enzo Angiolini, Easy Spirit, Westies and Bandolino trademarks and to own and operate Nine West and Enzo Angiolini retail stores in certain countries. These licenses provide for the payment to us of commissions on the sale to the licensees of certain licensed products, as well as a percentage of the licensee's net sales of all licensed products against guaranteed minimum royalty payments which typically increase over the term of the agreement. We have entered into such licenses for Turkey, Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates, portions of South America and Asia, Mexico, Canada, Greece, Cyprus, South Africa, Spain, portions of Central America and the Carribean, Lebanon, Denmark, Iceland, Norway, Sweden, the United Kingdom, Ireland and the Channel Islands. During 2002, we received $15.8 million of gross licensing revenues under these various licenses.

    Current licenses under our Gloria Vanderbilt trademarks cover products sold in the United States and Canada, including women's watches, woven shirts, costume jewelry (Canada), sleepwear, knit tops and bottoms, sweaters, swimwear and women's and men's apparel (Canada). During 2002, we received $3.8 million of gross licensing revenues under these agreements.

    Current licenses under our l.e.i. trademarks cover products sold in the United States, including tops, swimwear, watches, casual legwear, handbags, belts and accessories, sunglasses, outerwear, footwear and children's apparel. During 2002, we received $2.7 million of gross licensing revenues under these agreements.

    We have also entered into license agreements for products to be launched in 2003 under which independent licensees will produce and sell men's denim and sportswear under the Energie trademark and women's sleepwear and loungewear under a sub-license of the Lauren by Ralph Lauren trademark we license from Polo Ralph Lauren Corporation.

Trademarks

    We utilize a variety of trademarks which we own, including Jones New York, Jones New York Sport, Jones Wear, Jones New York Country, Jones Jeans, Rena Rowan, Evan-Picone, Todd Oldham, Executive Suite, Norton McNaughton, Maggie McNaughton, Norton Studio, Erika, Energie, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Banister, Calico, Nine & Company, Westies, Napier, Richelieu, Judith Jack, Gloria Vanderbilt, GLO, and l.e.i. We have registered or applied for registration for these and other trademarks for use on a variety of items of apparel, footwear, accessories and/or related products and, in some cases, for retail store services, in the United States and certain other countries. The expiration dates of the United States trademark registrations for our material registered trademarks are as follows, with our other registered foreign and domestic trademarks expiring at various dates through 2017. Certain brands such as Jones New York are sold under several related trademarks; in these instances, the range of expiration dates is provided. All marks are subject to renewal in the ordinary course of business if no third party successfully challenges such registrations and, in the case of domestic and certain foreign registrations, applicable use and related filing requirements for the goods and services covered by such registrations have been met.

    We carefully monitor trademark expiration dates to provide uninterrupted registration of our material trademarks. We also license the Lauren by Ralph Lauren, Ralph by Ralph Lauren, Polo Jeans Company by Ralph Lauren, Polo Ralph Lauren, Givenchy, Tommy Hilfiger and ESPRIT trademarks (see "Licensed Brands" above).

16

    We also hold numerous patents and have several patent applications pending in the United States Patent and Trademark Office and in certain other countries. We regard our trademarks and other proprietary rights as valuable assets which are critical in the marketing of our products. We vigorously monitor and protect our trademarks and patents against infringement and dilution where legally feasible and appropriate.

Imports and Import Restrictions

    Our transactions with our foreign manufacturers and suppliers are subject to the risks of doing business abroad. Imports into the United States are affected by, among other things, the cost of transportation and the imposition of import duties and restrictions. The United States, China, Brazil and other countries in which our products are manufactured may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could affect our operations and our ability to import products at current or increased levels. We cannot predict the likelihood or frequency of any such events occurring.

    Our import operations are subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign countries, including Hong Kong, Taiwan and Korea. These agreements impose quotas on the amount and type of goods which can be imported into the United States from these countries. Such agreements also allow the United States to impose, at any time, restraints on the importation of categories of merchandise that, under the terms of the agreements, are not subject to specified limits. Our imported products are also subject to United States customs duties and, in the ordinary course of business, we are from time to time subject to claims by the United States Customs Service for duties and other charges.

    We monitor duty, tariff and quota-related developments and continually seek to minimize our potential exposure to quota-related risks through, among other measures, geographical diversification of our manufacturing sources, the maintenance of overseas offices, allocation of overseas production to merchandise categories where more quota is available and shifts of production among countries and manufacturers.

    Because our foreign manufacturers are located at greater geographic distances from us than our domestic manufacturers, we are generally required to allow greater lead time for foreign orders, which reduces our manufacturing flexibility. Foreign imports are also affected by the high cost of transportation into the United States.

    In addition to the factors outlined above, our future import operations may be adversely affected by political instability resulting in the disruption of trade from exporting countries, any significant fluctuation in the value of the dollar against foreign currencies and restrictions on the transfer of funds.

Backlog

    On December 31, 2002, we had unfilled customer orders of approximately $1.4 billion, compared to approximately $1.2 billion of such orders at December 31, 2001. These amounts include both confirmed and unconfirmed orders which we believe, based on industry practice and past experience, will be confirmed. The amount of unfilled orders at a particular time is affected by a number of factors, including the mix of product, the timing of the receipt and processing of customer orders and scheduling of the manufacture and shipping of the product, which in some instances is dependent on the desires of the customer. Backlog is also affected by a continuing trend among customers to reduce the lead time on their orders. Due to these factors, as well as the acquisitions of Gloria Vanderbilt and l.e.i. during 2002, a comparison of unfilled orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments.

Competition

    Competition is intense in the sectors of the apparel, footwear and accessory industries in which we participate. We compete with many other manufacturers and retailers, some of which are larger and have greater resources.

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    We compete primarily on the basis of fashion, price and quality. We believe our competitive advantages include our ability to anticipate and respond quickly to changing consumer demands, our brand names and range of products and our ability to operate within the industries' production and delivery constraints. Furthermore, our established brand names and relationships with retailers have resulted in a loyal following of customers.

    We consider the risk of formidable new competitors to be minimal due to barriers to entry, such as significant startup costs and the long-term nature of supplier and customer relations. We believe that, during the past few years, major department stores and specialty retailers have been increasingly sourcing products from suppliers who are well capitalized or have established reputations for delivering quality merchandise in a timely manner. However, there can be no assurance that significant new competitors will not develop in the future.

Employees

    At December 31, 2002, we had approximately 15,950 full-time employees. This total includes approximately 9,855 in quality control, production, design and distribution positions, approximately 2,970 in administrative, sales, clerical and office positions and approximately 3,125 in our retail stores. We also employ approximately 4,835 part-time employees, of which approximately 4,720 work in our retail stores.

    Approximately 215 of our employees located in Bristol, Pennsylvania are members of the Teamsters Union, which has a collective bargaining agreement with us expiring in March 2006. Approximately 85 of our employees located in Vaughan, Ontario are members of the Laundry and Linen Drivers and Industrial Workers Union, which has a collective bargaining agreement with us expiring in March 2003. We are currently in negotiations to renew this agreement. Approximately 1,085 of our employees located in Mexico are members of an affiliate of the Cofederacion de Trabajadores Mexicanos, which has a collective bargaining agreement expiring on January 1, 2004. We consider our relations with our employees to be satisfactory.

    The general location, use and approximate size of our principal properties are set forth below:

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    We sublease approximately 200,000 square feet of our White Plains facilities to an independent company. Our Australian joint venture company leases office and distribution facilities in Australia.

    We also own two production facilities totaling 101,000 square feet in Torreon, Mexico and a 67,000 square foot production facility in Juarez, Mexico which are currently not in service.

    Our retail stores are leased pursuant to long-term leases, typically five to seven years for apparel and footwear outlet stores and ten years for footwear and accessories and apparel specialty stores. Certain leases allow us to terminate our obligations after a predetermined period (generally one to three years) in the event that a particular location does not achieve specified sales volume. Many leases include clauses that provide for contingent payments based on sales volumes, and many leases contain escalation clauses for increases in operating costs and real estate taxes.

    We believe that our existing facilities are well maintained, in good operating condition and that our existing and planned facilities will be adequate for our operations for the foreseeable future.

    We have been named as a defendant in various actions and proceedings, including actions brought by certain employees whose employment has been terminated arising from ordinary business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, it is our opinion that any such liability would not have a material adverse financial effect on us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Not Applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Our common stock is traded on the New York Stock Exchange under the symbol "JNY." The above figures set forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the New York Stock Exchange Composite Tape. The last reported sale price per share of our common stock on March 24, 2003 was $28.48, and on that date there were 441 holders of record of our common stock. However, many shares are held in "street name;" therefore, the number of holders of record may not represent the actual number of shareholders. To date, we have not paid any cash dividends on shares of our common stock. We anticipate that all of our future earnings will be retained for our financial requirements and do not anticipate paying cash dividends on our common stock in the foreseeable future.

    The following financial information is qualified by reference to, and should be read in conjunction with, our Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Report. The selected consolidated financial information presented below is derived from our audited Consolidated Financial Statements for each of the five years in the period ended December 31, 2002. We completed our acquisitions of Sun, Nine West, Victoria, Judith Jack, McNaughton, Gloria Vanderbilt and l.e.i. at various dates within the five-year period and, accordingly, the results of their operations are included in our operating results from the respective dates of acquisition.

    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)." Our adoption, effective January 1, 2002, required us to reclassify cooperative advertising expenses from a deduction against revenues to a selling, general and administrative ("SG&A") expense. As a result, restated net sales, gross profit and SG&A expenses for the years 1998 through 2001 all increased by $13.8 million, $22.6 million, $26.9 million, and $25.5 million, respectively, from amounts previously reported.

20

(All amounts in millions except net income per share data)

(1) Reflects an increase in cost of goods sold attributable to the fair value of inventory over cost, recorded as a result of acquisitions as required by the purchase method of accounting.

21

    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

22

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.

23

    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.

24

Results of Operations

Statements of Income Stated in Dollars and as a Percentage of Total Revenues

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: 

                                                         December 31, 2002                            December 31, 2001
                                             ----------------------------------------     ----------------------------------------
                                                                     Elim-      Cons-                             Elim-      Cons-
                                              Issuers    Others   inations   olidated      Issuers    Others   inations   olidated
                                             ----------------------------------------     ----------------------------------------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                    $255.3    $ 28.0    $     -     $283.3       $ 24.5    $ 52.0        $ -     $ 76.5
  Accounts receivable - net                     186.6     202.7          -      389.3        251.9     143.9          -      395.8
  Inventories                                   269.7     268.7       (8.8)     529.6        351.9     230.4       (9.4)     572.9
  Prepaid and refundable income taxes             0.7       1.4       (2.1)         -          4.0         -       (4.0)         -
  Deferred taxes                                 48.2      32.6          -       80.8         35.6      26.6       (0.1)      62.1
  Prepaid expenses and other
    current assets                               24.8      10.4          -       35.2         20.8      12.9          -       33.7
                                             ----------------------------------------     ----------------------------------------
    TOTAL CURRENT ASSETS                        785.3     543.8      (10.9)   1,318.2        688.7     465.8      (13.5)   1,141.0

Property, plant and equipment - net             151.1      98.2          -      249.3        166.0      76.5          -      242.5
Due from affiliates                             551.8     215.4     (767.2)         -        595.9     349.7     (945.6)         -
Goodwill - net                                  646.3     894.9          -    1,541.2        646.3     722.1          -    1,368.4
Other intangibles - net                         240.5     436.8          -      677.3        267.1     266.2          -      533.3
Investments in subsidiaries                   3,120.8      26.6   (3,147.4)         -      2,521.2      24.4   (2,545.6)         -
Deferred taxes                                    4.1         -       (4.1)         -         10.7         -      (10.7)         -
Other assets                                     43.3      23.6       (0.3)      66.6         58.1      30.2          -       88.3
                                             ----------------------------------------     ----------------------------------------
                                             $5,543.2  $2,239.3  $(3,929.9)  $3,852.6     $4,954.0  $1,934.9  $(3,515.4)  $3,373.5
                                             ========================================     ========================================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt
    and capital lease obligations               $ 6.3     $   -      $   -      $ 6.3        $ 6.2     $ 1.5        $ -      $ 7.7
  Accounts payable                              152.0      78.2          -      230.2        152.7      64.0          -      216.7
  Income taxes payable                           22.5       5.5       (2.0)      26.0          5.8       5.2       (4.0)       7.0
  Accrued expenses and other
    current liabilities                          96.9      67.9          -      164.8         85.9      61.0       (0.1)     146.8
                                             ----------------------------------------     ----------------------------------------
    TOTAL CURRENT LIABILITIES                   277.7     151.6       (2.0)     427.3        250.6     131.7       (4.1)     378.2
                                             ----------------------------------------     ----------------------------------------

NONCURRENT LIABILITIES:
  Long-term debt                                955.7         -          -      955.7        941.5       8.0          -      949.5
  Obligations under capital leases               22.4         -          -       22.4         27.1         -          -       27.1
  Deferred taxes                                 27.9      74.8       (4.1)      98.6         40.8      50.7      (10.7)      80.8
  Due to affiliates                             178.4     588.8     (767.2)         -        337.2     608.4     (945.6)         -
  Other                                          41.2       3.9          -       45.1         28.5       4.0          -       32.5
                                             ----------------------------------------     ----------------------------------------
    TOTAL NONCURRENT LIABILITIES              1,225.6     667.5     (771.3)   1,121.8      1,375.1     671.1     (956.3)   1,089.9
                                             ----------------------------------------     ----------------------------------------
    TOTAL LIABILITIES                         1,503.3     819.1     (773.3)   1,549.1      1,625.7     802.8     (960.4)   1,468.1
                                             ----------------------------------------     ----------------------------------------

STOCKHOLDERS' EQUITY:
  Common stock and additional
    paid-in capital                           2,117.2   1,167.9   (2,139.8)   1,145.3      2,061.0     835.3   (1,920.6)     975.7
  Retained earnings                           2,385.5     258.7   (1,005.4)   1,638.8      1,648.8     303.7     (632.2)   1,320.3
  Accumulated other comprehensive
    income                                       22.6      (6.4)     (11.4)       4.8          9.6      (6.9)      (2.2)       0.5
                                             ----------------------------------------     ----------------------------------------
                                              4,525.3   1,420.2   (3,156.6)   2,788.9      3,719.4   1,132.1   (2,555.0)   2,296.5
  Less treasury stock                          (485.4)        -          -     (485.4)      (391.1)        -          -     (391.1)
                                             ----------------------------------------      ----------------------------------------
    TOTAL STOCKHOLDERS' EQUITY                4,039.9   1,420.2   (3,156.6)   2,303.5      3,328.3   1,132.1   (2,555.0)   1,905.4
                                             ----------------------------------------     ----------------------------------------
                                             $5,543.2  $2,239.3  $(3,929.9)  $3,852.6     $4,954.0  $1,934.9  $(3,515.4)  $3,373.5
                                             ========================================     ========================================

                                Year Ended December 31, 2002            Year Ended December 31, 2001            Year Ended December 31, 2000
                           --------------------------------------  --------------------------------------  --------------------------------------
                                                  Elim-     Cons-                         Elim-     Cons-                         Elim-     Cons-
                            Issuers    Others  inations  olidated   Issuers    Others  inations  olidated   Issuers    Others  inations  olidated
                           --------------------------------------  --------------------------------------  --------------------------------------

Net sales                  $2,729.5  $1,676.8    $(94.1) $4,312.2  $2,965.6  $1,210.3  $ (102.1) $4,073.8  $3,292.2   $ 956.0  $ (100.8) $4,147.4
Licensing income (net)         15.9      12.8         -      28.7      14.6      10.2         -      24.8      12.0      10.2         -      22.2
                           --------------------------------------  --------------------------------------  --------------------------------------
Total revenues              2,745.4   1,689.6     (94.1)  4,340.9   2,980.2   1,220.5    (102.1)  4,098.6   3,304.2     966.2    (100.8)  4,169.6
Cost of goods sold          1,566.7   1,178.5     (88.2)  2,657.0   1,851.8     817.7     (99.1)  2,570.4   1,897.5     640.5    (101.5)  2,436.5
                           --------------------------------------  --------------------------------------  --------------------------------------
Gross profit                1,178.7     511.1      (5.9)  1,683.9   1,128.4     402.8      (3.0)  1,528.2   1,406.7     325.7       0.7   1,733.1
Selling, general and
  administrative expenses     795.0     304.7      (6.4)  1,093.3     777.0     227.7      (0.6)  1,004.1     929.0     167.5      (4.9)  1,091.6
Amortization of goodwill          -         -         -         -      23.6      20.6         -      44.2      36.0      13.4     (12.5)     36.9
                           --------------------------------------  --------------------------------------  --------------------------------------
Operating income              383.7     206.4       0.5     590.6     327.8     154.5      (2.4)    479.9     441.7     144.8      18.1     604.6
Net interest (income)
  expense and financing
  costs                        43.2      14.9         -      58.1      71.2       8.9         -      80.1     122.5     (21.0)        -     101.5
Equity in earnings of
  unconsolidated affiliates    (1.1)     (0.1)      0.2      (1.0)        -         -         -         -         -         -         -         -
                           --------------------------------------  --------------------------------------  --------------------------------------
Income before provision
  for income taxes,
  equity in earnings of
  subsidiaries and
  cumulative effect of
  change in accounting
  principle                   341.6     191.6       0.3     533.5     256.6     145.6      (2.4)    399.8     319.2     165.8      18.1     503.1
Provision for income taxes    130.1      71.0       0.1     201.2     114.4      49.2         -     163.6     135.4      64.2       1.6     201.2
Equity in earnings of
  subsidiaries               (708.0)     (1.9)    709.9         -    (405.1)     (4.3)    409.4         -    (439.7)     (2.6)    442.3         -
                           --------------------------------------  --------------------------------------  --------------------------------------
Income before cumulative
  effect of change in
  accounting principle        919.5     122.5    (709.7)    332.3     547.3     100.7    (411.8)    236.2     623.5     104.2    (425.8)    301.9
Cumulative effect of change
  in accounting for
  intangible assets,
  net of tax                    7.9       5.9         -      13.8         -         -         -         -         -         -         -         -
                           --------------------------------------  --------------------------------------  --------------------------------------
Net income                  $ 911.6   $ 116.6   $(709.7)  $ 318.5   $ 547.3   $ 100.7  $ (411.8)  $ 236.2   $ 623.5   $ 104.2  $ (425.8)  $ 301.9
                           ======================================  ======================================  ======================================

                                Year Ended December 31, 2002            Year Ended December 31, 2001            Year Ended December 31, 2000
                           --------------------------------------  --------------------------------------  --------------------------------------
                                                  Elim-     Cons-                         Elim-     Cons-                         Elim-     Cons-
                            Issuers    Others  inations  olidated   Issuers    Others  inations  olidated   Issuers    Others  inations  olidated
                           --------------------------------------  --------------------------------------  --------------------------------------

Net cash provided by
 operating activities       $ 985.0    $ 68.1  $(336.6)   $ 716.5   $ 717.8   $ 233.0  $ (388.4)  $ 562.4   $ 269.5    $ 69.7       $ -   $ 339.2
                           --------------------------------------  --------------------------------------  --------------------------------------

Cash flows from investing
 activities:
  Acquisitions, net of
    cash acquired            (332.7)        -         -    (332.7)   (112.8)    (21.2)        -    (134.0)    (14.9)    (14.2)        -     (29.1)
  Capital expenditures        (22.8)    (29.8)        -     (52.6)    (32.8)    (23.6)        -     (56.4)    (23.9)    (22.9)        -     (46.8)
  Proceeds from sale of
    U. S. Treasury bonds      381.3         -         -     381.3     321.6         -         -     321.6         -         -         -         -
  Repurchase/collateral
    required for repurchase
    of U. S. Treasury bonds  (372.1)        -         -    (372.1)   (318.5)        -         -    (318.5)        -         -         -         -
  Additional consideration
    paid for acquisition
    of Sun                        -         -         -         -      (1.0)        -         -      (1.0)    (26.6)        -         -     (26.6)
  Additional consideration
    paid for acquisition
    of Victoria                   -         -         -         -     (18.4)        -         -     (18.4)        -         -         -         -
  Acquisition of intangibles   (0.2)     (2.7)        -      (2.9)        -      (1.0)        -      (1.0)     (1.0)     (1.0)        -      (2.0)
  Proceeds from sale of Nine
    West UK operations            -         -         -         -      28.0         -         -      28.0         -         -         -         -
  Repayments from (loans to)
    officers                    2.0         -         -       2.0      18.0         -         -      18.0     (20.0)        -         -     (20.0)
  Other                         7.6       0.7         -       8.3       0.4       1.0         -       1.4     (10.4)      0.2         -     (10.2)
                           --------------------------------------  --------------------------------------  --------------------------------------
    Net cash used in
      investing activities   (336.9)    (31.8)        -    (368.7)   (115.5)    (44.8)        -    (160.3)    (96.8)    (37.9)        -    (134.7)
                           --------------------------------------  --------------------------------------  --------------------------------------

Cash flows from
  financing activities:
    Issuance of Senior
      Notes, net                  -         -         -         -     392.8         -         -     392.8         -         -         -         -
    Repurchase of Senior
      Notes                    (0.1)        -         -      (0.1)   (265.5)   (125.0)        -    (390.5)        -         -         -         -
    Premiums paid on
      repurchase of
      Senior Notes                -         -         -         -         -     (35.2)        -     (35.2)        -         -         -         -
    Refinancing of
      acquired debt          (126.9)        -         -    (126.9)        -    (146.9)        -    (146.9)    (71.0)        -         -     (71.0)
    Net borrowings (payments)
      under credit
      facilities               (1.5)    (10.5)        -     (12.0)   (227.7)      0.7         -    (227.0)    (30.4)      9.5         -     (20.9)
    Purchases of treasury
      stock                  (129.2)        -         -    (129.2)    (68.9)        -         -     (68.9)   (121.9)        -         -    (121.9)
    Proceeds from exercise
      of employee stock
      options                 118.4         -         -     118.4      85.8         -         -      85.8      27.6         -         -      27.6
    Net intercompany
      borrowings (payments)  (114.7)    114.7         -         -    (544.0)    544.0         -         -      34.4     (34.4)        -         -
    Dividends to affiliates  (174.9)   (161.7)    336.6         -         -    (388.4)    388.4         -         -         -         -         -
    Other items                11.6      (2.9)        -       8.7       3.4      (0.7)        -       2.7      (4.0)     (0.5)        -      (4.5)
                           --------------------------------------  --------------------------------------  --------------------------------------
      Net cash (used in)
        provided by
        financing
        activities           (417.3)    (60.4)    336.6    (141.1)   (624.1)   (151.5)    388.4    (387.2)   (165.3)    (25.4)        -    (190.7)
                           --------------------------------------  --------------------------------------  --------------------------------------

Effect of exchange rates
  on cash                         -       0.1         -       0.1       0.8       0.3         -       1.1      (0.8)      0.5         -      (0.3)
                           --------------------------------------  --------------------------------------  --------------------------------------

Net increase (decrease) in
  cash and cash equivalents   230.8     (24.0)        -     206.8     (21.0)     37.0         -      16.0       6.6       6.9         -      13.5
Cash and cash equivalents,
  beginning                    24.5      52.0         -      76.5      45.5      15.0         -      60.5      38.9       8.1         -      47.0
                           --------------------------------------  --------------------------------------  --------------------------------------

Cash and cash equivalents,
  ending                    $ 255.3    $ 28.0     $   -   $ 283.3    $ 24.5    $ 52.0       $ -    $ 76.5    $ 45.5    $ 15.0       $ -    $ 60.5
                           ======================================  ======================================  ======================================