Form 10-Q

10-Q 1 tenq05_3q.htm FORM 10-Q Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 1, 2005

OR

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

For the transition period from __________ to __________

Commission File Number 1-10746

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

Pennsylvania (State or other jurisdiction of incorporation or organization)	06-0935166 (I.R.S. Employer Identification No.)
250 Rittenhouse Circle Bristol, Pennsylvania (Address of principal executive offices)	19007 (Zip Code)

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

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class of Common Stock
$.01 par value

Outstanding at October 31, 2005
116,824,284

JONES APPAREL GROUP, INC.

Index		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets October 1, 2005, October 2, 2004 and December 31, 2004	3
	Consolidated Statements of Income Fiscal Quarters and Nine Months ended October 1, 2005 and October 2, 2004	4
	Consolidated Statements of Stockholders' Equity Fiscal Nine Months ended October 1, 2005 and October 2, 2004	5
	Consolidated Statements of Cash Flows Fiscal Nine Months ended October 1, 2005 and October 2, 2004	6
	Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		27
Item 5. Other Information		28
Item 6. Exhibits		28
Signatures		29
Exhibit Index		30

DEFINITIONS

As used in this Report, unless the context requires otherwise, "our," "us" and "we" means Jones Apparel Group, Inc. and consolidated subsidiaries, "Nine West" means Nine West Footwear Corporation, "McNaughton" means McNaughton Apparel Group Inc., "Gloria Vanderbilt" means Gloria Vanderbilt Apparel Corp., "Kasper" means Kasper, Ltd., "Maxwell" means Maxwell Shoe Company Inc. (acquired July 8, 2004), "Barneys" means Barneys New York, Inc. (acquired December 20, 2004), "SFAS" means Statement of Financial Accounting Standards and "SEC" means the United States Securities and Exchange Commission.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Jones Apparel Group, Inc.
Consolidated Balance Sheets
(All amounts in millions except per share data)

		October 1, 2005	October 2, 2004	December 31, 2004
		(Unaudited)	(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$ 29.4	$ 45.9	$ 45.0
	Accounts receivable	649.1	685.8	448.3
	Inventories	731.0	627.7	664.2
	Deferred taxes	56.9	67.0	68.2
	Prepaid expenses and other current assets	82.6	73.0	70.5

	TOTAL CURRENT ASSETS	1,549.0	1,499.4	1,296.2
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $453.8, $428.2 and $499.7		306.2	257.6	303.6
GOODWILL		2,098.2	1,842.5	2,125.0
OTHER INTANGIBLES, at cost, less accumulated amortization		829.2	773.4	768.2
OTHER ASSETS		56.5	52.3	57.8

		$ 4,839.1	$ 4,425.2	$ 4,550.8

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$ 378.5	$ 732.0	$ 69.2
	Current portion of long-term debt and capital lease obligations	227.9	134.6	134.0
	Accounts payable	268.2	256.3	259.3
	Income taxes payable	63.4	44.7	23.7
	Accrued employee compensation	54.7	46.1	55.0
	Accrued expenses and other current liabilities	131.0	114.9	142.7

	TOTAL CURRENT LIABILITIES	1,123.7	1,328.6	683.9

NONCURRENT LIABILITIES:
	Long-term debt	752.6	224.5	977.0
	Obligations under capital leases	37.9	40.4	39.6
	Deferred taxes	175.7	121.7	135.0
	Other	95.5	52.7	61.4

	TOTAL NONCURRENT LIABILITIES	1,061.7	439.3	1,213.0

	TOTAL LIABILITIES	2,185.4	1,767.9	1,896.9

COMMITMENTS AND CONTINGENCIES		-	-	-
STOCKHOLDERS' EQUITY:
	Preferred stock, $.01 par value - shares authorized 1.0; none issued	-	-	-
	Common stock, $.01 par value - shares authorized 200.0; issued 151.2, 150.0 and 150.1	1.5	1.5	1.5
	Additional paid-in capital	1,261.8	1,229.6	1,236.4
	Retained earnings	2,384.4	2,182.4	2,204.2
	Accumulated other comprehensive income (loss)	(5.7)	1.0	0.8
	Treasury stock, 34.2, 26.9 and 27.9 shares, at cost	(988.3)	(757.2)	(789.0)

	TOTAL STOCKHOLDERS' EQUITY	2,653.7	2,657.3	2,653.9

		$ 4,839.1	$ 4,425.2	$ 4,550.8

See accompanying notes to consolidated financial statements

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Jones Apparel Group, Inc.
Consolidated Statements of Income (Unaudited)
(All amounts in millions except per share data)

	Fiscal Quarter Ended		Fiscal Nine Months Ended
	October 1, 2005	October 2, 2004	October 1, 2005	October 2, 2004

Net sales	$ 1,312.6	$ 1,283.0	$ 3,813.0	$ 3,530.6
Licensing income (net)	14.9	13.1	40.2	36.2

Total revenues	1,327.5	1,296.1	3,853.2	3,566.8
Cost of goods sold	866.1	834.5	2,458.5	2,230.2

Gross profit	461.4	461.6	1,394.7	1,336.6
Selling, general and administrative expenses	321.8	297.2	991.3	875.7

Operating income	139.6	164.4	403.4	460.9
Interest income	0.1	0.2	0.9	1.6
Interest expense and financing costs	19.6	12.1	57.3	36.2
Equity in earnings of unconsolidated affiliates	1.0	0.7	2.8	2.0

Income before provision for income taxes	121.1	153.2	349.8	428.3
Provision for income taxes	44.3	57.4	131.2	160.6

Net income	$ 76.8	$ 95.8	$ 218.6	$ 267.7

Earnings per share
Basic	$0.66	$0.78	$1.84	$2.15
Diluted	$0.65	$0.77	$1.82	$2.11
Weighted average common shares and share equivalents outstanding
Basic	116.5	123.0	118.9	124.3
Diluted	117.6	125.0	120.2	127.4
Dividends declared per share	$0.12	$0.10	$0.32	$0.26

See accompanying notes to consolidated financial statements

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Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)
(All amounts in millions except per share data)

		Number of common shares outstanding	Total stock- holders' equity	Common stock	Additional paid-in capital	Retained earnings	Accumu- lated other compre- hensive income (loss)	Treasury stock
Balance, January 1, 2004		126.2	$ 2,537.8	$ 1.5	$ 1,179.4	$ 1,947.2	$ 3.8	$ (594.1)
Fiscal nine months ended October 2, 2004:
Comprehensive income:
	Net income	-	267.7	-	-	267.7	-	-
	Change in fair value of cash flow hedges, net of $0.1 tax	-	(0.1)	-	-	-	(0.1)	-
	Reclassification adjustment for hedge gains and losses included in net income, net of $2.1 tax	-	(3.5)	-	-	-	(3.5)	-
	Foreign currency translation adjustments	-	0.8	-	-	-	0.8	-

	Total comprehensive income		264.9

Issuance of restricted stock to employees, net of forfeitures		0.1	-	-	-	-	-	-
Amortization expense in connection with employee stock options and restricted stock		-	12.9	-	12.9	-	-	-
Exercise of employee stock options		1.3	32.6	-	32.6	-	-	-
Tax benefit derived from exercise of employee stock options		-	4.7	-	4.7	-	-	-
Dividends on common stock ($0.26 per share)		-	(32.5)	-	-	(32.5)	-	-
Treasury stock acquired		(4.5)	(163.1)	-	-	-	-	(163.1)

Balance, October 2, 2004		123.1	$ 2,657.3	$ 1.5	$ 1,229.6	$ 2,182.4	$ 1.0	$ (757.2)

Balance, January 1, 2005		122.2	$ 2,653.9	$ 1.5	$ 1,236.4	$ 2,204.2	$ 0.8	$ (789.0)
Fiscal nine months ended October 1, 2005:
Comprehensive income:
	Net income	-	218.6	-	-	218.6	-	-
	Change in fair value of cash flow hedges, net of $1.5 tax	-	(2.2)	-	-	-	(2.2)	-
	Reclassification adjustment for hedge gains and losses included in net income, net of $1.4 tax	-	(2.1)	-	-	-	(2.1)	-
	Foreign currency translation adjustments	-	(2.2)	-	-	-	(2.2)	-

	Total comprehensive income		212.1

Issuance of restricted stock to employees, net of forfeitures		0.7	-	-	-	-	-	-
Amortization expense in connection with employee stock options and restricted stock		-	13.8	-	13.8	-	-	-
Exercise of employee stock options		0.4	10.5	-	10.5	-	-	-
Tax benefit derived from exercise of employee stock options		-	1.1	-	1.1	-	-	-
Dividends on common stock ($0.32 per share)		-	(38.4)	-	-	(38.4)	-	-
Treasury stock acquired		(6.3)	(199.3)	-	-	-	-	(199.3)

Balance, October 1, 2005		117.0	$ 2,653.7	$ 1.5	$ 1,261.8	$ 2,384.4	$ (5.7)	$ (988.3)

See accompanying notes to consolidated financial statements

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Jones Apparel Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(All amounts in millions)

			Fiscal Nine Months Ended
			October 1, 2005	October 2, 2004

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$ 218.6	$ 267.7

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
	Amortization of original issue discount		-	1.3
	Depreciation and other amortization		76.9	83.1
	Equity in earnings of unconsolidated affiliates		(2.8)	(2.0)
	Dividends received from unconsolidated affiliates		1.3	2.0
	Provision for losses on accounts receivable		0.5	0.2
	Deferred taxes		37.4	20.4
	Losses on redemption of Zero Coupon Convertible Senior Notes		-	8.4
	Other		5.8	2.5
	Changes in operating assets and liabilities:
		Accounts receivable	(200.7)	(271.8)
		Inventories	(66.3)	(3.1)
		Prepaid expenses and other current assets	(5.0)	(21.9)
		Other assets	3.7	(4.5)
		Accounts payable	8.3	14.9
		Income taxes payable	33.3	45.3
		Accrued expenses and other liabilities	(9.4)	(57.8)

		Total adjustments	(117.0)	(183.0)

		Net cash provided by operating activities	101.6	84.7

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures		(60.6)	(39.4)
	Acquisition of Maxwell, net of cash acquired		(0.1)	(249.3)
	Payments relating to acquisition of Kasper		-	(37.8)
	Payments relating to acquisition of Barneys		(4.1)	-
	Acquisition of intangibles		(0.1)	-
	Capital contributions to unconsolidated affiliates		(0.7)	-
	Other		0.6	1.6

		Net cash used in investing activities	(65.0)	(324.9)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net borrowings under credit facilities		309.2	732.0
	Redemption of Zero Coupon Convertible Senior Notes		-	(446.6)
	Redemption at maturity of 8.375% Senior Notes		(129.6)	-
	Redemption at maturity of 7.50% Senior Notes		-	(175.0)
	Principal payments on capital leases		(3.4)	(4.4)
	Debt issuance costs		(0.5)	-
	Purchases of treasury stock		(199.3)	(169.8)
	Dividends paid		(38.4)	(32.5)
	Proceeds from exercise of employee stock options		10.5	32.6

		Net cash used in financing activities	(51.5)	(63.7)

EFFECT OF EXCHANGE RATES ON CASH			(0.7)	(0.2)

NET DECREASE IN CASH AND CASH EQUIVALENTS			(15.6)	(304.1)
CASH AND CASH EQUIVALENTS, BEGINNING			45.0	350.0

CASH AND CASH EQUIVALENTS, ENDING			$ 29.4	$ 45.9

See accompanying notes to consolidated financial statements

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JONES APPAREL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Jones Apparel Group, Inc. and its wholly-owned subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the footnotes thereto included within our Annual Report on Form 10-K/A. The results of Maxwell and Barneys are included in our operating results from the date of acquisition and, therefore, our operating results for the periods presented are not comparable.

In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. Certain reclassifications have been made to conform prior year data with the current presentation. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 2005.

STOCK-BASED EMPLOYEE COMPENSATION

Prior to January 1, 2003, pursuant to a provision in SFAS No. 123, "Accounting for Stock-Based Compensation," 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 expense for stock options had 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 had only recognized compensation expense for options awarded to employees for options granted at below-market prices, with the expense recognized over the vesting period of the options. Had we elected to adopt the fair value approach of SFAS No. 123 upon its effective date, our net income would have decreased accordingly.

Effective January 1, 2003, we adopted the fair value method of accounting for employee stock options for all options granted after December 31, 2002 pursuant to the "prospective method" set forth in SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Under this approach, the fair value of the option on the date of grant (as determined by the Black-Scholes-Merton option pricing model) is amortized to compensation expense over the option's vesting period.

Both the stock-based employee compensation cost included in the determination of net income as reported and the stock-based employee compensation cost that would have been included in the determination of net income if the fair value based method had been applied to all awards, as well as the resulting pro forma net income and earnings per share using the fair value approach, are presented in the following table. These pro forma amounts may not be representative of future disclosures, since the fair value of stock options is amortized to expense over the vesting period and additional options may be granted in future years.

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	Fiscal Quarter Ended		Fiscal Nine Months Ended
(In millions except per share data)	October 1, 2005	October 2, 2004	October 1, 2005	October 2, 2004

Net income - as reported	$ 76.8	$ 95.8	$ 218.6	$ 267.7
Add: stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported	2.7	2.6	8.6	8.1
Deduct: stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value-based method had been applied to all awards	(3.2)	(4.3)	(10.1)	(13.4)

Net income - pro forma	$ 76.3	$ 94.1	$ 217.1	$ 262.4

Basic earnings per share
As reported	$0.66	$0.78	$1.84	$2.15
Pro forma	$0.66	$0.77	$1.83	$2.11
Diluted earnings per share
As reported	$0.65	$0.77	$1.82	$2.11
Pro forma	$0.65	$0.75	$1.81	$2.07

EARNINGS PER SHARE

The computation of basic and diluted earnings per share is as follows:

	Fiscal Quarter Ended		Fiscal Nine Months Ended
(In millions except per share amounts)	October 1, 2005	October 2, 2004	October 1, 2005	October 2, 2004

Basic
Net income	$ 76.8	$ 95.8	$ 218.6	$ 267.7
Weighted average common shares outstanding	116.5	123.0	118.9	124.3

Basic earnings per share	$ 0.66	$ 0.78	$ 1.84	$ 2.15

Diluted
Net income	$ 76.8	$ 95.8	$ 218.6	$ 267.7
Add: interest expense associated with convertible notes, net of tax benefit	-	-	-	0.8

Income available to common shareholders	$ 76.8	$ 95.8	$ 218.6	$ 268.5

Weighted average common shares outstanding	116.5	123.0	118.9	124.3
Effect of dilutive securities:
Employee stock options	1.1	2.0	1.3	2.2
Assumed conversion of convertible notes	-	-	-	0.9

Weighted average common shares and share equivalents outstanding	117.6	125.0	120.2	127.4

Diluted earnings per share	$ 0.65	$ 0.77	$ 1.82	$ 2.11

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ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

(In millions)	October 1, 2005	October 2, 2004	December 31, 2004
Trade accounts receivable	$ 664.5	$ 744.3	$ 458.3
Credit card receivable	38.4	-	36.2
Allowances for doubtful accounts, returns, discounts and co-op advertising	(53.8)	(58.5)	(46.2)

	$ 649.1	$ 685.8	$ 448.3

ACCRUED RESTRUCTURING COSTS

In connection with the acquisitions of McNaughton, Gloria Vanderbilt, Kasper and Maxwell, we assessed and formulated plans to restructure certain operations of each company. These plans involved the closure of distribution facilities and certain offices. The objectives of the plans were to eliminate unprofitable or marginally profitable lines of business and reduce overhead expenses. We have also 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.

In late 2003, we began to evaluate the need to broaden global sourcing capabilities to respond to the competitive pricing and global sourcing capabilities of our denim competitors, as the favorable production costs from non-duty/non-quota countries and the breadth of fabric options from Asia began to outweigh the benefits of Mexico's quick turn and superior laundry capabilities. The decision to expand global sourcing, combined with lower projected shipping levels of denim products for 2005, led us to begin a comprehensive review of our denim manufacturing during the fourth quarter of 2004. The result of this review was the development of a plan of reorganization of our Mexican operations to reduce costs associated with excess capacity.

On July 11, 2005, we announced that we had completed a comprehensive review of our denim manufacturing operations located in Mexico. The primary action plan arising from this review resulted in the closing of the laundry, assembly and distribution operations located in San Luis, Mexico (the "denim restructuring"). All manufacturing has been consolidated into existing operations in Durango and Torreon, Mexico. A total of 3,134 employees have been affected by the closure. We have undertaken a number of measures to assist affected employees, including severance and benefits packages. As a result of this consolidation, we expect that our manufacturing operations will perform more efficiently, thereby improving our operating performance.

In connection with the denim restructuring, we recorded approximately $15.2 million of pre-tax costs through October 1, 2005 as prescribed by SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which includes $5.3 million of one-time termination benefits, $6.2 million of writedowns of property, plant and equipment, $2.6 million of contract termination costs and $1.1 million of legal and other associated costs. Of these amounts, $13.5 million is reported as cost of sales and $1.7 million is reported as a selling, general and administrative expense in the wholesale moderate apparel segment. We currently anticipate recording an additional $1.6 million of one-time termination benefits, legal settlements and fees and other associated costs in the fiscal quarter ending December 31, 2005. The restructuring is expected to be substantially completed by December 31, 2005.

On October 26, 2005, we announced our decision to close our distribution center in Bristol, Pennsylvania by the end of 2005. We expect to record a charge of approximately $5.3 million in the fiscal quarter ending December 31, 2005 related to one-time termination benefits and other employee-related matters.

The accrual of restructuring costs and liabilities, of which $2.4 million is included in accrued expenses and other current liabilities and $4.7 million is included in other noncurrent liabilities, is as follows:

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(In millions)	Severance and other employee costs	Closing and consolidation of facilities	Denim restructuring	Total
Balance, January 1, 2004	$ 6.9	$ 3.7	$ -	$ 10.6
Net additions	17.8	6.9	-	24.7
Payments and reductions	(17.1)	(2.6)	-	(19.7)

Balance, October 2, 2004	$ 7.6	$ 8.0	$ -	$ 15.6


Balance, January 1, 2005	$ 6.5	$ 18.1	$ -	$ 24.6
Net additions (reversals)	(0.7)	(6.5)	9.0	1.8
Payments and reductions	(5.6)	(8.3)	(5.4)	(19.3)

Balance, October 1, 2005	$ 0.2	$ 3.3	$ 3.6	$ 7.1

Estimated severance and other employee costs of $0.2 million accrued at October 1, 2005 relate to the remaining estimated termination benefits for one employee. Employee groups affected (totaling 1,041 employees) include administrative, warehouse and management personnel at locations closed.

The $0.7 million net reversal in the fiscal nine months ended October 1, 2005 represents $0.6 million of adjustments related to severance accruals for the Kasper and Maxwell acquisitions, which were recorded as reductions of goodwill and $0.1 million related to the closing of the Mexican and El Paso production facilities, which was recorded as a reduction of selling, general and administrative expenses in the moderate wholesale apparel segment. The $17.8 million addition in the fiscal nine months ended October 2, 2004 represents $18.0 million related to the initial recording of the Maxwell acquisition offset by adjustments related to the Gloria Vanderbilt and Kasper acquisitions, which was recorded as an increase of goodwill. During the fiscal nine months ended October 1, 2005 and October 2, 2004, $5.6 million and $17.1 million, respectively, of the reserve was utilized (relating to partial or full severance and related costs for 137 and 212 employees, respectively).

The $3.3 million accrued at October 1, 2005 for the consolidation of facilities relates to expected costs to be incurred, including lease obligations, for closing certain acquired facilities in connection with consolidating their operations into our other existing facilities. The $6.5 million reversal in the fiscal nine months ended October 1, 2005 includes a $1.2 million adjustment related to the closing of a Maxwell facility and a $5.0 million adjustment related to the closing of a Kasper facility, both of which were recorded as reductions of goodwill, and a $0.3 million reduction related to the final settlement of the remaining lease for the North Carolina facility, which was recorded as a reduction of selling, general and administrative expenses in the wholesale better apparel segment. The $6.9 million net addition in the fiscal nine months ended October 2, 2004 represents an increase of $7.1 million related to the Kasper and Maxwell acquisitions, which was recorded as an increase of goodwill, offset by a $0.2 million adjustment related to the Canadian production facility, which was recorded as a reduction of selling, general and administrative expenses in the wholesale better apparel segment.

The details of the denim restructuring accruals are as follows:

(In millions)	One-time termination benefits	Contract termination costs	Other associated costs	Total denim restructuring
Additions	$ 5.3	$ 2.6	$ 1.1	$ 9.0
Payments and reductions	(4.7)	(0.2)	(0.5)	(5.4)

Balance, October 1, 2005	$ 0.6	$ 2.4	$ 0.6	$ 3.6

The $3.6 million accrued at October 1, 2005 related to the denim restructuring consists of $0.6 million of estimated one-time termination benefits for an estimated 72 employees, $2.4 million relating to facility leases for locations to be closed and $0.6 million of legal fees and related costs. During the fiscal nine months ended October 1, 2005, $4.7 million of the termination benefits reserve was utilized (relating to costs for 3,062 employees).

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Our plans have not been finalized in all areas, and additional restructuring costs may result as we continue to evaluate and assess the impact of duplicate responsibilities, warehouses and office locations. We do not expect any final adjustments to be material. Any additional costs relating to Barneys before December 20, 2005 will be recorded as goodwill; after that date, additional costs will be charged to operations in the period in which they occur. Any costs not related to Barneys will be charged to operations in the period in which they occur.

INVENTORIES

Inventories are summarized as follows (in millions):

	October 1, 2005	October 2, 2004	December 31, 2004
Raw materials	$ 18.0	$ 23.7	$ 21.5
Work in process	26.3	38.5	33.6
Finished goods	686.7	565.5	609.1

	$ 731.0	$ 627.7	$ 664.2

STATEMENT OF CASH FLOWS

Fiscal Nine Months Ended: (In millions)	October 1, 2005	October 2, 2004
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$ 51.6	$ 37.8
Income taxes, net of refunds	56.4	90.9

Supplemental disclosures of non-cash investing and financing activities:
Tax benefits related to exercise of employee stock options and vesting of restricted stock	1.1	4.7
Equipment acquired through capital lease financing	0.5	0.3
Restricted stock issued to employees	24.6	4.4

Details of acquisitions
Fair value of assets acquired	$ 4.2	$ 478.7
Liabilities assumed	-	(88.0)

Cash paid for acquisitions	4.2	390.7
Cash acquired in acquisitions	-	(103.6)

Net cash paid for acquisitions	$ 4.2	$ 287.1

DERIVATIVES

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," subsequently amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (as amended, hereinafter referred to as "SFAS 133"), establishes accounting and reporting standards for derivative instruments. Specifically, SFAS 133 requires us to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

- 11 -

to exchange Canadian Dollars for a total of US$18.0 million through April 2006, US$31.0 million for Euros through November 2006 and US$1.4 million for British Pounds through June 2006.

We recorded amortization of net gains resulting from the termination of interest rate swaps and locks of $5.2 million and $5.9 million during the fiscal nine months ended October 1, 2005 and October 2, 2004, respectively, as a reduction of interest expense. We reclassified $1.7 million and $0.3 million of net losses from foreign currency exchange contracts to cost of sales during the fiscal nine months ended October 1, 2005 and October 2, 2004, respectively. There has been no material ineffectiveness related to our foreign currency exchange contracts as the instruments are designed to be highly effective in offsetting losses and gains transactions being hedged. As of October 1, 2005, the estimated net amount of existing gains and losses reported in accumulated other comprehensive income that will be reclassified into earnings in the next 12 months include amortization of $3.6 million of net gains resulting from the termination of interest rate swaps as a reduction of interest expense. If foreign currency exchange rates do not change from their October 1, 2005 amounts, we estimate that any reclassifications from other comprehensive income to earnings within the next 12 months will not be material. The actual amounts that will be reclassified to earnings over the next 12 months could vary, however, as a result of changes in market conditions.

PENSION PLANS

Components of Net Periodic Benefit Cost

	Fiscal Quarter Ended		Fiscal Nine Months Ended
(In millions)	October 1, 2005	October 2, 2004	October 1, 2005	October 2, 2004
Service cost	$ -	$ -	$ -	$ 0.1
Interest cost	0.5	0.6	1.6	1.7
Expected return on plan assets	(0.4)	(0.5)	(1.4)	(1.6)
Amortization of net loss	0.3	0.2	0.8	0.7

Net periodic benefit cost	$ 0.4	$ 0.3	$ 1.0	$ 0.9

Employer Contributions

We previously disclosed in our financial statements for the year ended December 31, 2004 that we expected to contribute $2.4 million to our pension plans in 2005. As of October 1, 2005, $3.1 million of contributions have been made. We presently anticipate no additional contributions in 2005.

SEGMENT INFORMATION

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. Our operations are comprised of four reportable segments: wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories, and retail. Segment revenues are generated from the sale of apparel, footwear and accessories through wholesale channels and our own retail locations. The wholesale segments include wholesale operations with third party department and other retail stores, the retail segment includes operations by our own stores, and income and expenses related to trademarks, licenses and general corporate functions are reported under "licensing, other and eliminations." We define segment profit as operating income before net interest expense, equity in earnings of unconsolidated affiliates and income taxes. Summarized below are our revenues and income by reportable segment for the fiscal quarters and fiscal nine months ended October 1, 2005 and October 2, 2004.

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(In millions)	Wholesale Better Apparel	Wholesale Moderate Apparel	Wholesale Footwear & Accessories	Retail	Licensing, Other & Eliminations	Consolidated
For the fiscal quarter ended October 1, 2005
Revenues from external customers	$ 396.7	$ 337.8	$ 262.2	$ 315.9	$ 14.9	$ 1,327.5
Intersegment revenues	41.7	1.1	9.6	-	(52.4)	-

Total revenues	438.4	338.9	271.8	315.9	(37.5)	1,327.5

Segment income	$ 62.6	$ 12.2	$ 48.5	$ 23.6	$ (7.3)	139.6

Net interest expense						(19.5)
Equity in earnings of unconsolidated affiliates						1.0

Income before provision for income taxes						$ 121.1

For the fiscal quarter ended October 2, 2004
Revenues from external customers	$ 435.4	$ 349.0	$ 319.4	$ 178.0	$ 14.3	$ 1,296.1
Intersegment revenues	43.1	3.5	13.5	-	(60.1)	-

Total revenues	478.5	352.5	332.9	178.0	(45.8)	1,296.1

Segment income	$ 65.7	$ 40.2	$ 49.8	$ 10.2	$ (1.5)	164.4

Net interest expense						(11.9)
Equity in earnings of unconsolidated affiliates						0.7

Income before provision for income taxes						$ 153.2

For the fiscal nine months ended October 1, 2005
Revenues from external customers	$ 1,125.9	$ 999.4	$ 748.7	$ 939.1	$ 40.1	$ 3,853.2
Intersegment revenues	114.6	4.0	30.6	-	(149.2)	-

Total revenues	1,240.5	1,003.4	779.3	939.1	(109.1)	3,853.2

Segment income	$ 160.2	$ 80.8	$ 115.4	$ 73.5	$ (26.5)	403.4

Net interest expense						(56.4)
Equity in earnings of unconsolidated affiliates						2.8

Income before provision for income taxes						$ 349.8

For the fiscal nine months ended October 2, 2004
Revenues from external customers	$ 1,164.8	$ 1,055.0	$ 763.3	$ 546.3	$ 37.4	$ 3,566.8
Intersegment revenues	115.0	10.1	45.2	-	(170.3)	-

Total revenues	1,279.8	1,065.1	808.5	546.3	(132.9)	3,566.8

Segment income	$ 165.5	$ 131.8	$ 137.5	$ 47.4	$ (21.3)	460.9

Net interest expense						(34.6)
Equity in earnings of unconsolidated affiliates						2.0

Income before provision for income taxes						$ 428.3

ACQUISITIONS

On July 8, 2004, we acquired all the outstanding shares of Maxwell. Maxwell designs and markets casual and dress footwear for women and children under multiple brand names, each of which is targeted to a distinct segment of the footwear market. Maxwell markets its products nationwide to national chains, department stores and specialty retailers. Maxwell offers footwear for women in the moderately priced market segment under the Mootsies Tootsies, Sam & Libby and Dockers Women brands, in the better market segment under the AK Anne Klein and Circa Joan & David brands and in the bridge segment under the Joan and David and Albert Nipon brands. Maxwell also sells moderately priced children's footwear under both the Mootsies Tootsies and Sam & Libby brands and licenses the J. G. Hook trademark from J. G. Hook, Inc. to source and develop private label products for retailers who require brand identification. Maxwell operates in the wholesale footwear and accessories segment.

The acquisition of Maxwell is intended to provide further diversification in our footwear business and strengthen our positions in both the moderate and children's distribution channels. We also expect to benefit from the cross-branding opportunities that exist with our other lines of business.

The aggregate purchase price was $377.2 million, which included $23.25 per share in cash for each outstanding share of Maxwell (for a total of $345.8 million) and $24.1 million related to Maxwell's employee stock options. The purchase price was allocated to Maxwell's assets and liabilities, tangible and intangible (as determined by an independent appraiser), with the excess of the purchase price over the fair value of the net assets acquired of approximately $210.5 million being recorded as goodwill in the wholesale footwear and accessories segment. The acquired goodwill relating to Maxwell will not be deductible for tax purposes.

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On December 20, 2004, we acquired 100% of the common stock of Barneys. Barneys is a luxury retailer that provides its customers with a wide variety of merchandise across a broad range of prices, including a diverse selection of Barneys label merchandise. Barneys' preferred arrangements with established and emerging designers, combined with creative merchandising, store designs and displays, advertising campaigns, publicity events and emphasis on customer service, has positioned it as a leading retailer of men's and women's fashion, cosmetics, jewelry and home furnishings. Barneys complements its merchandise offerings from designers such as Giorgio Armani, Manolo Blahnik, Marc Jacobs, Prada, Jil Sander and Ermenegildo Zegna with a diverse selection of Barneys label merchandise, including ready-to-wear apparel, handbags, shoes, dress shirts, ties and sportswear. Barneys label merchandise is manufactured by independent third parties according to Barneys' specifications and is of comparable quality to the designer merchandise. Barneys operates in the retail segment.

As our growth strategy has focused on diversification to provide a well-balanced portfolio of businesses, the acquisition of Barneys provides additional diversification by introducing a new competency in luxury specialty retailing. With an inherent diversified portfolio comprised of its own brand, as well as numerous other brands from new designers and classic design houses, Barneys provides entry into the high-growth, resilient luxury goods market.

The aggregate cash purchase price was $295.6 million, which included $19.00 for each outstanding share of Barneys common stock (for a total of $264.5 million) and $26.7 million related to Barneys' employee stock options, preferred stock and stock warrants. We assumed approximately $106.0 million of Barneys funded debt, $102.2 million of which we subsequently refinanced. The purchase price was allocated to Barneys' assets and liabilities, tangible and intangible (as determined by independent appraisers), with the excess of the purchase price over the fair value of the net assets acquired of approximately $248.3 million being recorded as goodwill in the retail segment.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Barneys. The allocation of the purchase price has not been finalized and is subject to refinement. Any additional adjustments resulting from the finalization of the purchase price allocations of Barneys will affect the amounts assigned to goodwill. These adjustments are not expected to be material.

(In millions)

Current assets $ 173.7

Property, plant and equipment 48.6

Intangible assets 67.7

Goodwill 248.3

Other assets 11.9

    Total assets acquired 550.2

Current liabilities 106.9

Long-term debt 147.7

    Total liabilities assumed 254.6

    Net assets acquired $ 295.6

Amounts assigned to intangible assets and the related useful lives are as follows (amounts in millions):

Class
Fair Value
Weighted-average
useful life

Third-party license agreement $ 4.0 31 years

Credit cardholder relationships 1.2 181 months

Customer database 0.2 145 months

Favorable leases 20.3 158 months

Trademarks 42.0 Indefinite

- 14 -

In addition, $20.5 million was recorded as a long-term liability for an acquired unfavorable lease, which will be amortized over a period of 169 months. Of the acquired goodwill relating to Barneys, approximately $83.1 million will be deductible for tax purposes.

OTHER EVENTS

Selling, general and administrative expenses for the fiscal quarter ended October 1, 2005 include a one-time gain of $5.1 million in the better wholesale apparel segment as a result of a recovery of unauthorized markdown allowances from Saks Incorporated (relating to sales made by Kasper prior to the date of acquisition).

NEW ACCOUNTING STANDARDS

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) by requiring these items to be recognized as current-period charges. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted. The adoption of SFAS No. 151 will have no impact on our results of operations or our financial position.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets," which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier application permitted. The adoption of SFAS No. 153 will have no impact on our results of operations or our financial position.

In December 2004, the FASB issued a revision of SFAS No. 123, "Share-Based Payment" (hereinafter referred to as "SFAS No. 123R"), which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This Statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans. We will adopt SFAS No. 123R on January 1, 2006 using the modified prospective application option. As a result, the compensation cost for the portion of awards we granted before January 1, 2006 for which the requisite service has not been rendered and that are outstanding as of January 1, 2006 will be recognized as the remaining requisite service is rendered. The adoption of SFAS No. 123R will not have a material effect on our results of operations or our financial position.

In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which changes the requirements for accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS No. 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, but does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The adoption of SFAS No. 154 will not have a material effect on our results of operations or our financial position.

SUPPLEMENTAL SUMMARIZED FINANCIAL INFORMATION

Certain of our subsidiaries function as co-issuers, obligors and co-obligors (fully and unconditionally guaranteed on a joint and several basis) of the outstanding debt of Jones Apparel Group, Inc. ("Jones"), including Jones Apparel Group USA, Inc. ("Jones USA"), Jones Apparel Group Holdings, Inc. ("Jones Holdings"), Nine West and Jones Retail Corporation ("Jones Retail")(collectively, including Jones, the "Issuers").

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Jones and Jones Holdings function as either co-issuers or co-obligors with respect to the outstanding debt securities of Jones USA and the outstanding debt securities of Nine West. In addition, Nine West and Jones Retail function as either a co-issuer or co-obligor with respect to all of Jones USA's outstanding debt securities, and Jones USA functions as a co-obligor with respect to the outstanding debt securities of Nine West as to which Jones and Jones Holdings function as co-obligors.

The following condensed consolidating balance sheets, statements of income and statements of cash flows for the Issuers and our other subsidiaries have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Separate financial statements and other disclosures concerning Jones are not presented as Jones has no independent operations or assets. There are no contractual restrictions on distributions from Jones USA, Jones Holdings, Nine West or Jones Retail to Jones.

Condensed Consolidating Balance Sheets
(In millions)

		October 1, 2005				December 31, 2004
		Issuers	Others	Eliminations	Cons- olidated	Issuers	Others	Eliminations	Cons- olidated
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$ 13.0	$ 16.4	$ -	$ 29.4	$ 12.3	$ 32.7	$ -	$ 45.0
	Accounts receivable - net	283.6	365.5	-	649.1	174.6	273.7	-	448.3
	Inventories	327.5	413.1	(9.6)	731.0	294.3	373.2	(3.3)	664.2
	Prepaid and refundable income taxes	1.3	6.3	(7.6)	-	1.5	24.9	(26.4)	-
	Deferred taxes	23.3	34.8	(1.2)	56.9	23.5	46.0	(1.3)	68.2
	Prepaid expenses and other current assets	46.9	35.7	-	82.6	37.9	32.6	-	70.5

	TOTAL CURRENT ASSETS	695.6	871.8	(18.4)	1,549.0	544.1	783.1	(31.0)	1,296.2

Property, plant and equipment - net		136.0	170.2	-	306.2	125.3	178.2	0.1	303.6
Due from affiliates		83.5	483.5	(567.0)	-	116.5	511.3	(627.8)	-
Goodwill		1,784.2	314.0	-	2,098.2	1,776.0	349.0	-	2,125.0
Other intangibles - net		167.0	662.2	-	829.2	167.7	600.5	-	768.2
Investments in subsidiaries		2,145.2	-	(2,145.2)	-	2,110.4	-	(2,110.4)	-
Other assets		30.7	33.7	(7.9)	56.5	35.5	24.7	(2.4)	57.8

		$ 5,042.2	$ 2,535.4	$ (2,738.5)	$ 4,839.1	$ 4,875.5	$ 2,446.8	$ (2,771.5)	$ 4,550.8

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$ 378.5	$ -	$ -	$ 378.5	$ 69.2	$ -	$ -	$ 69.2
	Current portion of long-term debt and capital lease obligations	226.6	1.3	-	227.9	132.5	1.5	-	134.0
	Accounts payable	102.6	165.6	-	268.2	105.9	153.4	-	259.3
	Income taxes payable	65.0	16.4	(18.0)	63.4	47.5	9.6	(33.4)	23.7
	Deferred taxes	1.3	-	(1.3)	-	-	-	-	-
	Accrued expenses and other current liabilities	92.3	93.4	-	185.7	93.3	104.4	-	197.7

	TOTAL CURRENT LIABILITIES	866.3	276.7	(19.3)	1,123.7	448.4	268.9	(33.4)	683.9

NONCURRENT LIABILITIES:
	Long-term debt	749.2	3.4	-	752.6	973.7	3.3	-	977.0
	Obligations under capital leases	12.9	25.0	-	37.9	14.1	25.5	-	39.6
	Deferred taxes	13.9	156.1	5.7	175.7	23.6	109.0	2.4	135.0
	Due to affiliates	483.5	83.5	(567.0)	-	511.3	116.5	(627.8)	-
	Other	41.9	60.3	(6.7)	95.5	24.7	28.1	8.6	61.4

	TOTAL NONCURRENT LIABILITIES	1,301.4	328.3	(568.0)	1,061.7	1,547.4	282.4	(616.8)	1,213.0

	TOTAL LIABILITIES	2,167.7	605.0	(587.3)	2,185.4	1,995.8	551.3	(650.2)	1,896.9

STOCKHOLDERS' EQUITY:
	Common stock and additional paid-in capital	1,263.3	1,631.1	(1,631.1)	1,263.3	1,237.9	1,779.9	(1,779.9)	1,237.9
	Retained earnings	2,605.2	300.3	(521.1)	2,384.4	2,430.0	110.6	(336.4)	2,204.2
	Accumulated other comprehensive income (loss)	(5.7)	(1.0)	1.0	(5.7)	0.8	5.0	(5.0)	0.8
	Treasury stock	(988.3)	-	-	(988.3)	(789.0)	-	-	(789.0)

	TOTAL STOCKHOLDERS' EQUITY	2,874.5	1,930.4	(2,151.2)	2,653.7	2,879.7	1,895.5	(2,121.3)	2,653.9

		$ 5,042.2	$ 2,535.4	$ (2,738.5)	$ 4,839.1	$ 4,875.5	$ 2,446.8	$ (2,771.5)	$ 4,550.8

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Condensed Consolidating Statements of Income
(In millions)

		Fiscal Quarter Ended October 1, 2005				Fiscal Quarter Ended October 2, 2004
		Issuers	Others	Eliminations	Cons- olidated	Issuers	Others	Eliminations	Cons- olidated
Net sales		$ 617.5	$ 793.9	$ (98.8)	$ 1,312.6	$ 622.4	$ 678.6	$ (18.0)	$ 1,283.0
Licensing income (net)		-	14.9	-	14.9	0.1	13.0	-	13.1

	Total revenues	617.5	808.8	(98.8)	1,327.5	622.5	691.6	(18.0)	1,296.1
Cost of goods sold		382.7	498.0	(14.6)	866.1	373.9	475.3	(14.7)	834.5

	Gross profit	234.8	310.8	(84.2)	461.4	248.6	216.3	(3.3)	461.6
Selling, general and administrative expenses		191.9	217.0	(87.1)	321.8	190.3	109.9	(3.0)	297.2

	Operating income	42.9	93.8	2.9	139.6	58.3	106.4	(0.3)	164.4
Net interest expense (income) and financing costs		21.1	(1.6)	-	19.5	13.9	(2.0)	-	11.9
Equity in earnings of unconsolidated affiliates		0.2	0.3	0.5	1.0	(0.6)	1.8	(0.5)	0.7

	Income before provision for income taxes and equity in earnings of subsidiaries	22.0	95.7	3.4	121.1	43.8	110.2	(0.8)	153.2
Provision for income taxes		9.7	34.9	(0.3)	44.3	18.4	39.7	(0.7)	57.4
Equity in earnings of subsidiaries		63.2	-	(63.2)	-	72.2	-	(72.2)	-

	Net income	$ 75.5	$ 60.8	$ (59.5)	$ 76.8	$ 97.6	$ 70.5	$ (72.3)	$ 95.8

		Fiscal Nine Months Ended October 1, 2005				Fiscal Nine Months Ended October 2, 2004
		Issuers	Others	Eliminations	Cons- olidated	Issuers	Others	Eliminations	Cons- olidated
Net sales		$ 1,800.0	$ 2,151.8	$ (138.8)	$ 3,813.0	$ 1,754.8	$ 1,831.6	$ (55.8)	$ 3,530.6
Licensing income (net)		-	40.2	-	40.2	0.1	36.1	-	36.2

	Total revenues	1,800.0	2,192.0	(138.8)	3,853.2	1,754.9	1,867.7	(55.8)	3,566.8
Cost of goods sold		1,093.5	1,406.9	(41.9)	2,458.5	1,011.6	1,256.0	(37.4)	2,230.2

	Gross profit	706.5	785.1	(96.9)	1,394.7	743.3	611.7	(18.4)	1,336.6
Selling, general and administrative expenses		579.3	502.6	(90.6)	991.3	581.5	302.8	(8.6)	875.7

	Operating income	127.2	282.5	(6.3)	403.4	161.8	308.9	(9.8)	460.9
Net interest expense (income) and financing costs		59.9	(3.5)	-	56.4	37.9	(3.3)	-	34.6
Equity in earnings of unconsolidated affiliates		0.4	1.2	1.2	2.8	1.5	1.8	(1.3)	2.0

	Income before provision for income taxes and equity in earnings of subsidiaries	67.7	287.2	(5.1)	349.8	125.4	314.0	(11.1)	428.3
Provision for income taxes		30.6	103.4	(2.8)	131.2	51.9	110.3	(1.6)	160.6
Equity in earnings of subsidiaries		182.4	-	(182.4)	-	207.0	-	(207.0)	-

	Net income	$ 219.5	$ 183.8	$ (184.7)	$ 218.6	$ 280.5	$ 203.7	$ (216.5)	$ 267.7

Condensed Consolidating Statements of Cash Flows
(In millions)

		Fiscal Nine Months Ended October 1, 2005				Fiscal Nine Months Ended October 2, 2004
		Issuers	Others	Eliminations	Cons- olidated	Issuers	Others	Eliminations	Cons- olidated
Net cash provided by operating activities		$ 83.1	$ 18.5	$ -	$ 101.6	$ 82.4	$ 2.3	$ -	$ 84.7

Cash flows from investing activities:
	Capital expenditures	(28.0)	(32.6)	-	(60.6)	(17.1)	(22.3)	-	(39.4)
	Acquisition of Maxwell, net of cash acquired	(0.1)	-	-	(0.1)	(249.3)	-	-	(249.3)
	Payments relating to other acquisitions	(4.1)	-	-	(4.1)	(37.8)	-	-	(37.8)
	Other (net)	0.1	(0.3)	-	(0.2)	-	1.6	-	1.6

	Net cash used in investing activities	(32.1)	(32.9)	-	(65.0)	(304.2)	(20.7)	-	(324.9)

Cash flows from financing activities:
	Net borrowings under credit facilities	309.2	-	-	309.2	732.0	-	-	732.0
	Redemption of Zero Coupon Convertible Senior Notes	-	-	-	-	(446.6)	-	-	(446.6)
	Redemption at maturity of 7.50% Senior Notes	(129.6)	-	-	(129.6)	-	-	-	-
	Redemption at maturity of 7.50% Senior Notes	-	-	-	-	(175.0)	-	-	(175.0)
	Debt issuance costs	(0.5)	-	-	(0.5)	-	-	-	-
	Principal payments on capital leases	(2.2)	(1.2)	-	(3.4)	(2.8)	(1.6)	-	(4.4)
	Purchases of treasury stock	(199.3)	-	-	(199.3)	(169.8)	-	-	(169.8)
	Dividends paid	(38.4)	-	-	(38.4)	(32.5)	-	-	(32.5)
	Proceeds from exercise of employee stock options	10.5	-	-	10.5	32.6	-	-	32.6

	Net cash used in financing activities	(50.3)	(1.2)	-	(51.5)	(62.1)	(1.6)	-	(63.7)

Effect of exchange rates on cash		-	(0.7)	-	(0.7)	-	(0.2)	-	(0.2)

Net increase (decrease) in cash and cash equivalents		0.7	(16.3)	-	(15.6)	(283.9)	(20.2)	-	(304.1)
Cash and cash equivalents, beginning		12.3	32.7	-	45.0	302.0	48.0	-	350.0

Cash and cash equivalents, ending		$ 13.0	$ 16.4	$ -	$ 29.4	$ 18.1	$ 27.8	$ -	$ 45.9

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information and analysis of our results of operations for the 13 and 39 week periods ended October 1, 2005 (hereinafter referred to as the "third fiscal quarter of 2005" and the "first fiscal nine months of 2005," respectively) and the 13 and 40 week periods ended October 2, 2004 (hereinafter referred to as the "third fiscal quarter of 2004" and the "first fiscal nine months of 2004," respectively), and our liquidity and capital resources. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements included elsewhere herein.

Overview

We design, contract for the manufacture of, manufacture and market a broad range of women's collection sportswear, suits and dresses, casual sportswear and jeanswear for men, women and children, and women's and children's footwear and accessories. We sell our products through a broad array of distribution channels, including better specialty and department stores and mass merchandisers, primarily in the United States and Canada. We also operate our own network of retail and factory outlet stores. In addition, we license the use of several of our brand names to select manufacturers and distributors of women's and men's apparel and accessories worldwide.

Acquisitions

We completed our acquisitions of Maxwell on July 8, 2004 and Barneys on December 20, 2004. 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. Maxwell operates in the wholesale footwear and accessories segment and Barneys operates in the retail segment.

Restructuring

On July 11, 2005, we announced that we had completed a comprehensive review of our denim manufacturing operations located in Mexico. The primary action plan arising from this review resulted in the closing of the laundry, assembly and distribution operations located in San Luis, Mexico. All manufacturing has been consolidated into existing operations in Durango and Torreon, Mexico. A total of 3,134 employees have been affected by the closure. We are undertaking a number of measures to assist affected employees, including severance and benefits packages. As a result of this consolidation, we expect that our manufacturing operations will perform more efficiently, thereby improving our operating performance.

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Strategic Review

We are completing a strategic review of our operating infrastructure to improve profitability and to ensure we are properly positioned for the long-term benefit of our shareholders. By proactively reviewing our infrastructure, systems and operating processes at a time when the industry is undergoing consolidation and change, we plan to eliminate redundancies and improve our overall cost structure and margin performance.

Supply Chain Management

We are in the process of implementing an enterprise-wide merchandise planning system that has the ability to be fully integrated with third-party manufacturers.
We are analyzing the capabilities of our third-party manufacturers to increase pre-production collaboration efforts with them, thereby increasing speed to market and improving margins. This has already been achieved in some of the moderate businesses, and the initiative is now being expanded to include the better apparel business.
Given the pending elimination of quotas and safeguards, we plan to review our vendor matrix with an expectation of consolidating third-party manufacturing.
We are in the process of selecting an enterprise resource planning system which will be implemented company-wide utilizing one universal platform.
The logistics network is being analyzed in an effort to reduce costs and increase efficiency by following a tiered approach of (i) multiple product usage of existing distribution centers, (ii) utilizing third party logistics providers, and (iii) ultimately direct shipping from factory to vendor.

General and Administrative Areas

We have completed a review of all general and administrative support areas and are developing a timetable to implement best practices to improve service effectiveness where identified.

The reviews have been substantially completed, and we estimate that the implementation and execution of the initiatives underway will be substantially completed within the next three years. We are targeting annual savings of approximately $100 million once all the initiatives have been implemented. The costs associated with the review and the ultimate capital expenditures and execution expenses (including severance and fees) related to the initiatives that are derived are expected to fall in a range of $70 million to $80 million. As of October 1, 2005, we have spent a total of $3.0 million.

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. Historically, actual results in these areas have not been materially different than our estimates, and we do not anticipate that our estimates and assumptions are likely to materially change in the future. However, if we incorrectly anticipate trends or unexpected events occur, our results of operations could be materially affected.

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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.

RESULTS OF OPERATIONS

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

(In millions)	Fiscal Quarter Ended				Fiscal Nine Months Ended
	October 1, 2005		October 2, 2004		October 1, 2005		October 2, 2004
Net sales	$ 1,312.6	98.9%	$ 1,283.0	99.0%	$ 3,813.0	99.0%	$ 3,530.6	99.0%
Licensing income (net)	14.9	1.1%	13.1	1.0%	40.2	1.0%	36.2	1.0%

Total revenues	1,327.5	100.0%	1,296.1	100.0%	3,853.2	100.0%	3,566.8	100.0%
Cost of goods sold	866.1	65.2%	834.5	64.4%	2,458.5	63.8%	2,230.2	62.5%

Gross profit	461.4	34.8%	461.6	35.6%	1,394.7	36.2%	1,336.6	37.5%
Selling, general and administrative expenses	321.8	24.2%	297.2	22.9%	991.3	25.7%	875.7	24.6%

Operating income	139.6	10.5%	164.4	12.7%	403.4	10.5%	460.9	12.9%
Net interest expense	19.5	1.5%	11.9	0.9%	56.4	1.5%	34.6	1.0%
Equity in earnings of unconsolidated affiliates	1.0	0.1%	0.7	0.1%	2.8	0.1%	2.0	0.1%

Income before provision for income taxes	121.1	9.1%	153.2	11.8%	349.8	9.1%	428.3	12.0%
Provision for income taxes	44.3	3.3%	57.4	4.4%	131.2	3.4%	160.6	4.5%

Net income	$ 76.8	5.8%	$ 95.8	7.4%	$ 218.6	5.7%	$ 267.7	7.5%

Percentage totals may not add due to rounding.

Fiscal Quarter Ended October 1, 2005 Compared to Fiscal Quarter Ended October 2, 2004

Revenues. Total revenues for the third fiscal quarter of 2005 were $1.33 billion compared to $1.30 billion for the third fiscal quarter of 2004, an increase of 2.4%.

Revenues by segment were as follows:

(In millions)	Third Fiscal Quarter of 2005	Third Fiscal Quarter of 2004	Increase/ (Decrease)	Percent Change
Wholesale better apparel	$ 396.7	$ 435.4	$(38.7)	(8.9%)
Wholesale moderate apparel	337.8	349.0	(11.2)	(3.2%)
Wholesale footwear and accessories	262.2	319.4	(57.2)	(17.9%)
Retail	315.9	178.0	137.9	77.5%
Other	14.9	14.3	0.6	4.2%

Total revenues	$ 1,327.5	$ 1,296.1	$ 31.4	2.4%

Wholesale better apparel revenues decreased primarily as a result of decreased shipping in our Polo Jeans Company, Jones New York Signature, Jones New York Sport, Easy Spirit and Kasper Suit apparel product lines. These decreases were partially offset by increased shipments of our Nine West, Anne Klein and Jones New York Collection apparel product lines.

Wholesale moderate apparel revenues decreased primarily as a result of reduced shipping in our l.e.i., private label denim, Norton McNaughton and Erika product lines. These reductions were partially offset by increases in our Gloria Vanderbilt, Nine & Company and Energie product lines as well as initial shipments of our Pappagallo, Latina, C.L.O.T.H.E.S. and Rena Rowan product lines and the W private label product line.

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Wholesale footwear and accessories revenues decreased primarily due to decreased shipping in our Nine West accessories and footwear product lines.

Retail revenues increased as the result of $133.8 million in sales from the locations added as a result of the Barneys acquisition and sales from new footwear and apparel store openings, partially offset by a 2.9% decrease in comparable store sales. We estimate that the impact from hurricanes Katrina and Rita reduced retail sales by approximately $2.0 million due to store locations that were damaged by these storms. We began the third fiscal quarter of 2005 with 1,054 retail locations and had a net increase of 11 locations during the quarter to end the quarter with 1,065 locations.

Gross Profit. The gross profit margin decreased to 34.8% in the third fiscal quarter of 2005 compared to 35.6% in the third fiscal quarter of 2004.

Wholesale better apparel gross profit margins were 34.3% and 33.9% for the third fiscal quarters of 2005 and 2004, respectively. The increase was a result of reduced air freight costs in our Kasper, Le Suit and Anne Klein suit divisions.

Wholesale moderate apparel gross profit margins were 19.2% and 25.6% for the third fiscal quarters of 2005 and 2004, respectively. The decrease was a result of a lower margins in our l.e.i. and private label denim businesses primarily due to $13.5 million of costs related to the denim restructuring, an estimated $3.6 million in costs due to excess capacity in our denim manufacturing operations and additional product costs that were not passed through to the customer, partially offset by a higher percentage of Gloria Vanderbilt product shipments, which carry a higher gross margin.

Wholesale footwear and accessories gross profit margins were 32.5% and 32.7% for the third fiscal quarters of 2005 and 2004, respectively. The decrease was primarily due to declines in our wholesale accessories business due to a higher level of sales to off-price retailers as well as a higher percentage of international sales, which carry lower gross margins than the segment average. These decreases offset prior period costs of $6.0 million related to adjustments required under purchase accounting to write up acquired Maxwell inventories to market value.

Retail gross profit margins were 49.4% and 51.9% for the third fiscal quarters of 2005 and 2004, respectively. The decrease was primarily the result of the effects of the addition of the acquired Barneys retail locations, which generate lower margins than the historical segment average.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses of $321.8 million in the third fiscal quarter of 2005 represented an increase of $24.6 million from the $297.2 million reported for the third fiscal quarter of 2004. In the third fiscal quarter of 2005, Barneys added $53.9 million to the retail segment, which includes $0.2 million of amortization of acquired intangible assets and unfavorable leases. SG&A expenses for the third fiscal quarter of 2005 also included one-time gains of $5.1 million in the better wholesale apparel segment as a result of a recovery of unauthorized markdown allowances from Saks Incorporated (relating to sales made by Kasper prior to the date of acquisition) and $5.2 million in the retail segment from a landlord repurchase of a retail store operating lease, offset by $1.7 million related to the denim restructuring in the wholesale moderate apparel segment. The prior period amount included $10.8 million of amortization of the Maxwell purchase price that was assigned to acquired customer orders.

Operating Income. The resulting operating income for the third fiscal quarter of 2005 of $139.6 million decreased $24.8 million from the $164.4 million for the third fiscal quarter of 2004, due to the factors described above.

Net Interest Expense. Net interest expense was $19.5 million in the third fiscal quarter of 2005 compared to $11.9 million in the third fiscal quarter of 2004. The increase was primarily the result of interest related to $750.0 million of Senior Notes that were issued in November 2004.

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Provision for Income Taxes. The effective income tax rate was 36.6% for the third fiscal quarter of 2005 and 37.5% for the third fiscal quarter of 2004. The difference was primarily driven by a U.S. tax benefit associated with the repatriation of earnings from our Canadian subsidiaries during the third fiscal quarter of 2005, partially offset by a higher state tax rate as a result of the Barneys acquisition.

Net Income and Earnings Per Share. Net income was $76.8 million in the third fiscal quarter of 2005, a decrease of $19.0 million from the net income of $95.8 million earned in the third fiscal quarter of 2004. Diluted earnings per share for the third fiscal quarter of 2005 was $0.65 compared to $0.77 for the third fiscal quarter of 2004, on 5.9% fewer shares outstanding.

Fiscal Nine Months Ended October 1, 2005 Compared to Fiscal Nine Months Ended October 2, 2004

Revenues. Total revenues for the first fiscal nine months of 2005 were $3.85 billion compared to $3.57 billion for the first fiscal nine months of 2004, an increase of 8.0%.

Revenues by segment were as follows:

(In millions)	First Fiscal Nine Months of 2005	First Fiscal Nine Months of 2004	Increase/ (Decrease)	Percent Change
Wholesale better apparel	$ 1,125.9	$ 1,164.8	$(38.9)	(3.3%)
Wholesale moderate apparel	999.4	1,055.0	(55.6)	(5.3%)
Wholesale footwear and accessories	748.7	763.3	(14.6)	(1.9%)
Retail	939.1	546.3	392.8	71.9%
Other	40.1	37.4	2.7	7.2%

Total revenues	$ 3,853.2	$ 3,566.8	$ 286.4	8.0%

In the wholesale better apparel segment, decreased shipments of our Jones New York Signature, Kasper Suit, Polo Jeans Company, Jones New York Dress and Le Suit product lines were partially offset by increased shipments of our Nine West, Jones New York Collection and Anne Klein product lines.

Wholesale moderate apparel revenues decreased primarily as a result of a reduction in shipments of our l.e.i., private label denim, Norton McNaughton, Erika and Evan-Picone product lines. These reductions were partially offset by increases in our Gloria Vanderbilt, Bandolino and Nine & Company product lines, as well as initial shipments of several new product lines, including Pappagallo, Latina, Rena Rowan, C.L.O.T.H.E.S., A|Line (which launched in the third quarter of 2004) and the W private label product line.

Wholesale footwear and accessories revenues decreased primarily due to decreased shipments in our Nine West accessories and our Nine West and Easy Spirit footwear product lines, partially offset by the product lines added as a result of the Maxwell acquisition ($98.6 million for the portion of the current period for which there were no corresponding shipments in the prior period) as well as an increase in our international footwear business.

Retail revenues increased primarily as the result of $381.0 million in sales from the locations added as a result of the Barneys acquisition and sales from new footwear and apparel store openings, partially offset by a 1.4% decrease in comparable store sales. We began the first fiscal nine months of 2005 with 1,037 retail locations and had a net increase of 28 locations during the period to end the period with 1,065 locations.

Gross Profit. The gross profit margin decreased to 36.2% in the first fiscal nine months of 2005 compared to 37.5% in the first fiscal nine months of 2004.

Wholesale better apparel gross profit margins were 35.6% and 36.4% for the first fiscal nine months of 2005 and 2004, respectively. The decrease was a result of lower margins due to higher off-price sales and additional product costs that were not passed through to the customer.

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Wholesale moderate apparel gross profit margins were 23.7% and 27.0% for the first fiscal nine months of 2005 and 2004, respectively. The decrease was a result of lower margins in our l.e.i. and private label denim businesses primarily due to $13.5 million of costs related to the denim restructuring, an estimated $11.9 million in costs due to excess capacity in our denim manufacturing operations, higher levels of sales to off-price retailers and additional product costs that were not passed through to the customer. The decrease was partially offset by higher shipments of higher-margin carrying Gloria Vanderbilt products and improved margins in other product lines resulting from lower levels of sales to off-price retailers.

Wholesale footwear and accessories gross profit margins were 31.6% and 34.5% for the first fiscal nine months of 2005 and 2004, respectively. The decrease was primarily due to declines in our wholesale accessories business due to a higher level of sales to off-price retailers as well as a higher percentage of international sales, which carry lower gross margins than the segment average. These decreases offset prior period costs of $6.0 million related to adjustments required under purchase accounting to write up acquired Maxwell inventories to market value.

Retail gross profit margins were 50.3% and 53.7% for the first fiscal nine months of 2005 and 2004, respectively. The decrease was primarily the result of the effects of the addition of the acquired Barneys retail locations, which generate lower margins than the historical segment average.

SG&A Expenses. SG&A expenses of $991.3 million in the first fiscal nine months of 2005 represented an increase of $115.6 million from the $875.7 million reported for the first fiscal nine months of 2004. In the first fiscal nine months of 2005, Barneys added $151.0 million to the retail segment, which includes $0.6 million of amortization of acquired intangible assets and unfavorable leases. SG&A expenses for the first fiscal nine months of 2005 included approximately $3.1 million as a result of an arbitration award to a former employee and $1.7 million related to the denim restructuring in the wholesale moderate apparel segment, offset by one-time gains of $5.1 million in the better wholesale apparel segment as a result of a recovery of unauthorized markdown allowances from Saks Incorporated (relating to sales made by Kasper prior to the date of acquisition) and $5.2 million in the retail segment from a landlord repurchase of a retail store operating lease. The prior period included an $8.4 million writeoff of unamortized bond discounts and debt issue costs in the wholesale better apparel segment resulting from the redemption of all of our outstanding Zero Coupon Convertible Senior Notes due 2021 and $10.8 million of amortization of the Maxwell purchase price that was assigned to acquired customer orders.

Operating Income. The resulting operating income for the first fiscal nine months of 2005 of $403.4 million decreased $57.5 million from the $460.9 million for the first fiscal nine months of 2004, due to the factors described above.

Net Interest Expense. Net interest expense was $56.4 million in the first fiscal nine months of 2005 compared to $34.6 million in the first fiscal nine months of 2004. The increase was primarily the result of interest related to $750.0 million of Senior Notes that were issued in November 2004.

Provision for Income Taxes. The effective income tax rate was 37.5% for both the first fiscal nine months of 2005 and 2004. A U.S. tax benefit associated with the repatriation of earnings from our Canadian subsidiaries during the third fiscal quarter of 2005 was offset by a higher state tax rate for the first fiscal nine months of 2005 as a result of the Barneys acquisition.

Net Income and Earnings Per Share. Net income was $218.6 million in the first fiscal nine months of 2005, a decrease of $49.1 million from the net income of $267.7 million earned in the first fiscal nine months of 2004. Diluted earnings per share for the first fiscal nine months of 2005 was $1.82 compared to $2.11 for the first fiscal nine months of 2004, on 5.7% fewer shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements have been to fund acquisitions, pay dividends, working capital needs, capital expenditures and repurchases of our common stock on the open market. We have historically relied on

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internally generated funds, trade credit, bank borrowings and the issuance of notes to finance our operations and expansion. As of October 1, 2005, total cash and cash equivalents were $29.4 million, a decrease of $15.6 million from the $45.0 million reported as of December 31, 2004.

Operating activities provided $101.6 million and $84.7 million in the first fiscal nine months of 2005 and 2004, respectively. The difference was primarily due to a reduction in accounts receivable due to lower levels of net sales of wholesale apparel and footwear products, offset by increased levels of inventory to support new retail stores and new moderate apparel product lines as well as earlier receipt of better apparel goods. The prior period also reflected usage of cash to pay accrued liabilities acquired as part of the Maxwell acquisition.

Investing activities used $65.0 million and $324.9 million in the first fiscal nine months of 2005 and 2004, respectively. The difference was primarily due to payments relating to the Maxwell and Kasper acquisitions in the prior period, offset by a higher level of capital expenditures in the current period.

Financing activities used $51.5 million in the first fiscal nine months of 2005. Borrowings under our Senior Credit Facilities were offset by repurchases of our common stock, the payment of dividends to our common shareholders and the redemption at maturity of our $129.6 million outstanding 8.375% Senior Notes due 2005 at par on August 15, 2005.

Financing activities used $63.7 million in the first fiscal nine months of 2004. Borrowings under our Senior Credit Facilities were offset by the redemption of our outstanding Zero Coupon Notes and 7.50% Senior Notes due 2004, repurchases of our common stock and the payment of dividends to our common shareholders.

On February 2, 2004, we redeemed all of our outstanding Zero Coupon Notes at a redemption price (inclusive of issue price plus accrued original issue discount) of $554.41 per $1,000 of principal amount at maturity for a total payment of $446.6 million, which was financed primarily through our Senior Credit Facilities. As a result of this transaction, we recorded a charge of $8.4 million in the first fiscal quarter of 2004, representing the writeoff of unamortized bond discounts and debt issuance costs. The securities carried a 3.5% yield to maturity with a face value of $805.6 million ($1,000 per note) and were convertible into common stock at a conversion rate of 9.8105 shares per note. On June 15, 2004, we redeemed at maturity all our 7.50% Senior Notes due 2004 at par for a total payment of $175.0 million.

We repurchased $199.3 million of our common stock on the open market during the first fiscal nine months of 2005 and $163.1 million during the first fiscal nine months of 2004. As of October 1, 2005, a total of $1.06 billion had been expended under announced programs to acquire up to $1.15 billion of such shares. We may make additional share repurchases in the future depending on, among other things, market conditions and our financial condition. Proceeds from the issuance of common stock to our employees exercising stock options amounted to $10.5 million and $32.6 million in the first fiscal nine months of 2005 and 2004, respectively.

At October 1, 2005, we had credit agreements with several lending institutions to borrow an aggregate principal amount of up to $1.75 billion under Senior Credit Facilities. These facilities, of which the entire amount is available for letters of credit or cash borrowings, provide for a $1.0 billion five-year revolving credit facility that expires in June 2009 and a $750.0 million five-year revolving credit facility that expires in June 2010 (which replaced a similar $500.0 million three-year revolving credit facility in May 2005). At October 1, 2005, $598.5 million was outstanding under the credit facility that expires in June 2009 (comprised of $300.0 million in cash borrowings and $298.5 million in outstanding letters of credit) and $78.5 million in cash borrowings was outstanding under the credit facility that expires in June 2010. Borrowings under the Senior Credit Facilities may also be used for working capital and other general corporate purposes, including permitted acquisitions and stock repurchases. The Senior Credit Facilities are unsecured and require us to satisfy both a coverage ratio of earnings before interest, taxes, depreciation, amortization and rent to interest expense plus rents and a net worth maintenance covenant, as well as other restrictions, including (subject to exceptions) limitations on our ability to incur additional indebtedness, prepay subordinated indebtedness, make acquisitions, enter into mergers and pay dividends.

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At October 1, 2005, we also had a C$10.0 million unsecured line of credit in Canada, under which C$0.2 million of letters of credit were outstanding.

On October 26, 2005, we announced that the Board of Directors had declared a quarterly cash dividend of $0.12 per share to all common stockholders of record as of November 14, 2005 for payment on December 2, 2005.

We have two joint ventures with HCL Technologies Limited to provide us with computer consulting, programming and associated support services. As of October 1, 2005, we have committed to purchase $7.3 million in services from these joint venture companies through June 30, 2007.

We also have a joint venture with Sutton Developments Pty. Ltd. ("Sutton") to operate retail locations in Australia. We have unconditionally guaranteed up to $7.0 million of borrowings under the joint venture's uncommitted credit facility and up to $0.4 million of presettlement risk associated with foreign exchange transactions. Sutton is required to reimburse us for 50% of any payments made under these guarantees. At October 1, 2005, the outstanding balance subject to these guarantees was approximately $0.8 million.

We believe that funds generated by operations, proceeds from the issuance of notes, the Senior Credit Facilities and the Canadian line of credit will provide the financial resources sufficient to meet our foreseeable working capital, dividend, capital expenditure and stock repurchase requirements and fund our contractual obligations and our contingent liabilities and commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in interest rates or foreign currency exchange rates. We manage this exposure through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Our policy allows the use of derivative financial instruments for identifiable market risk exposures, including interest rate and foreign currency fluctuations. We do not enter into derivative financial contracts for trading or other speculative purposes.

The primary interest rate exposures on floating rate financing arrangements are with respect to United States and Canadian short-term interest rates. We had approximately $1.75 billion in variable rate credit facilities at October 1, 2005.

We are exposed to market risk related to changes in foreign currency exchange rates. We have assets and liabilities denominated in certain foreign currencies and purchase products from foreign suppliers who require payment in funds other than the U.S. Dollar. We believe that these financial instruments should not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the assets, liabilities, and transactions being hedged. We are exposed to credit-related losses if the counterparty to a financial instrument fails to perform its obligation. However, we do not expect the counterparties, which presently have high credit ratings, to fail to meet their obligations.

For further information see "Derivatives" in the Notes to Consolidated Financial Statements.

Item 4. Controls and Procedures

As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Operating and Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our President and Chief Executive Officer and our Chief Operating and Financial Officer concluded that both our disclosure controls and procedures and our internal controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and that information required to be disclosed by us in these periodic filings is recorded,

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processed, summarized and reported within the time periods specified in the SEC's rules and forms and that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. As described in our annual report filed on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2004, we excluded Barneys, which was acquired on December 20, 2004, from our internal control testing and evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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 ("Lauren") trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo (collectively, the "Lauren License"), which were to expire on December 31, 2006. 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 ("Ralph") trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo (the "Ralph License"). The Ralph License was scheduled to end on December 31, 2003.

During the course of the discussions concerning the Ralph License, Polo asserted that the expiration of the Ralph License would cause the Lauren License agreements 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 License did not cause the Lauren License to end.

On June 3, 2003, we announced that our discussions with Polo regarding the interpretation of the Lauren License had reached an impasse and that, as a result, we had filed a complaint in the New York State Supreme Court against Polo and its affiliates and our former President, Jackwyn Nemerov. The complaint alleges that Polo breached the Lauren License agreements by claiming that the license ends at the end of 2003. The complaint also alleges that Ms. Nemerov breached the confidentiality and non-compete provisions of her employment agreement with us. Additionally, Polo is alleged to have induced Ms. Nemerov to breach her employment agreement and Ms. Nemerov is alleged to have induced Polo to breach the Lauren License agreements. We asked the court to enter a judgment for compensatory damages of $550 million, as well as punitive damages, and to enforce the confidentiality and non-compete provisions of Ms. Nemerov's employment agreement. On June 3, 2003, Polo also filed a complaint in the New York State Supreme Court against us, seeking among other things a declaratory judgment that the Lauren License terminated as of December 31, 2003. On June 25, 2003, we filed an amended complaint adding a claim against Ms. Nemerov for conversion, which alleges that Ms. Nemerov wrongfully took and possesses documents containing confidential information regarding us.

On July 3, 2003, Ms. Nemerov filed a motion to stay our claims against her and to compel arbitration of those claims. We opposed that motion. Additionally, on July 3, 2003, Polo served a motion on us to dismiss our breach of contract claim, and to stay our claim regarding inducement of Ms. Nemerov's breach of her employment agreement pending the outcome of arbitration. On July 8, 2003, we served papers opposing Nemerov's motion. On July 23, 2003, we served papers opposing Polo's motion and also served upon Polo a motion seeking summary judgment in Polo's action for a declaratory judgment. On August 12, 2003, Polo filed a cross-motion for summary judgment in that action.

On March 15, 2004, the Court issued a decision resolving the motions. The Court denied Polo's motion to dismiss our breach of contract claim, granted our motion for summary judgment in Polo's action for a declaratory judgment, and denied Polo's cross-motion for summary judgment in the same action. As a result, the Court

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dismissed Polo's action for a declaratory judgment and entered judgment in our favor in that action, while permitting our action against Polo to proceed.

The Court also denied Nemerov's motion to compel arbitration of our claim against her for inducing Polo to breach the Lauren Agreements, but granted her motion to compel arbitration of our remaining claims against her. The Court granted Polo's motion for a stay of proceedings relating to our claim against Polo for inducing Nemerov to breach her employment agreement while those claims are arbitrated by us and Nemerov. We dismissed our claims against Nemerov in the litigation and are pursuing our claims against her in the arbitration.

Polo appealed from the rulings against it. In addition, Polo filed a motion for leave to reargue and to renew its previous motions to dismiss and for summary judgment, which we opposed. On May 19, 2004, the New York State Supreme Court heard oral argument on Polo's motion. On August 16, 2004, the Court denied Polo's motions to reargue and renew its previous motions. Polo appealed from this ruling. On March 4, 2005, the Appellate Court heard oral argument. On March 24, 2005, the Appellate Division, First Department of the Supreme Court unanimously affirmed the trial court's orders.

On April 22, 2005, Polo filed a motion in the Appellate Division to reargue its March 24, 2005 order and/or for permission to appeal to the New York Court of Appeals. On June 23, 2005, the Appellate Division denied Polo's motion for reargument and granted Polo leave to appeal to the New York Court of Appeals to determine whether the Appellate Division properly affirmed the trial court's orders. Polo is now appealing the Appellate Division's order in the New York Court of Appeals. On September 7, 2005, the New York Court of Appeals set a briefing schedule for this appeal, which contemplates all briefs being filed by January 6, 2006.

On May 12, 2004, we initiated a Demand for Arbitration with the American Arbitration Association against Ms. Nemerov. The demand alleges Ms. Nemerov breached her employment agreement with us, violated her fiduciary duties and converted our property. Ms. Nemerov has denied these allegations and asserted counterclaims for defamation and breach of the non-disparagement and indemnification clauses of her employment agreement. On August 24, 2004, we amended our demand to add a claim for misappropriation of trade secrets. Ms. Nemerov continues to deny our claims and to pursue her counterclaims.

We have been named as a defendant in various actions and proceedings arising from our ordinary business activities. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in our opinion, any such liability will not have a material adverse financial effect on us.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table sets forth the repurchases of our common stock for the fiscal quarter ended October 1, 2005.

Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 3, 2005 to July 30, 2005	-	-	-	$133,756,228
July 31, 2005 to August 27, 2005	1,000,000	$29.13	1,000,000	$104,623,013
August 28, 2005 to October 1, 2005	450,000	$27.79	450,000	$92,118,888
Total	1,450,000	$28.72	1,450,000	$92,118,888

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These repurchases were made under a program announced on May 5, 2005 for $150.0 million. This plan has no expiration date.

Item 5. Other information

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 lower levels of consumer confidence 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;
our reliance on a few department store groups for large portions of our business;
consolidation of our retail customers;
financial difficulties encountered by customers;
the effects of vigorous competition in the markets in which we operate;
our ability to identify acquisition candidates and acquire such businesses on reasonable financial and other terms, in an increasingly competitive environment for such acquisitions;
the integration of the organizations and operations of any acquired businesses into our existing organization and operations;
our reliance on independent foreign manufacturers;
changes in the costs of raw materials, labor and advertising;
the general inability to obtain higher wholesale prices for our products that we have experienced for many years;
the uncertainties of sourcing associated with the new environment in which quota has been eliminated on apparel products while political pressure is building for the re-imposition of quotas in certain categories; 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.

Item 6. Exhibits

See Exhibit Index.

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SIGNATURES

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

JONES APPAREL GROUP, INC.
(Registrant)

Date: November 1, 2005

By /s/ Peter Boneparth
PETER BONEPARTH
Chief Executive Officer

By /s/ Wesley R. Card
WESLEY R. CARD
Chief Operating and Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
31*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32^o	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

____________
* Filed herewith.
^o Furnished herewith.

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Current assets	$ 173.7
Property, plant and equipment	48.6
Intangible assets	67.7
Goodwill	248.3
Other assets	11.9

Total assets acquired	550.2

Current liabilities	106.9
Long-term debt	147.7

Total liabilities assumed	254.6

Net assets acquired	$ 295.6

Class	Fair Value	Weighted-average useful life
Third-party license agreement	$ 4.0	31 years
Credit cardholder relationships	1.2	181 months
Customer database	0.2	145 months
Favorable leases	20.3	158 months
Trademarks	42.0	Indefinite