Form 10-K

10-K/A 1 form10ka2_2006.htm FORM 10-K/A AMENDMENT #2 Form 10-K

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

FORM 10-K/A
(Amendment No. 2)

(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006

[ ]	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.)

1411 Broadway New York, New York (Address of principal executive offices)	10018 (Zip Code)

Registrant's telephone number, including area code: (212) 642-3860

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

Title of each class

Common Stock, $0.01 par value

Name of each exchange
on which registered

New York Stock Exchange, Inc.

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X] Yes [ ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of the registrant's common stock as reported on the New York Stock Exchange composite tape on July 1, 2006, was approximately $3,530,470,908.

As of February 23, 2007, 108,490,339 shares of the registrant's common stock were outstanding.

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A (this "Amendment") amends our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed on February 26, 2007 (the "Original Filing"), and Amendment No. 1 thereto, filed on April 27, 2007 ("Amendment No. 1"). In response to comments received from a review of the Original Filing and Amendment No. 1 by the Staff of the Securities and Exchange Commission (the "SEC"), we are filing this second amended Annual Report on Form 10-K/A to:

provide additional disclosure in Management's Discussion and Analysis of Financial Condition and Results of Operations;

add a separate line item in the Consolidated Statements of Cash Flows to identify an expense previously included elsewhere in that Statement;

provide additional disclosure and to clarify disclosure in the notes to the consolidated financial statements;

clarify disclosure in Controls and Procedures;

remove officer titles from the first line of the certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; and

revise a column heading in Schedule II.

List of Items Amended

Item		Page
	PART II
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
8.	Financial Statements and Supplementary Data	48
9A.	Controls and Procedures	84
	Part IV
15.	Exhibits, Financial Statement Schedules	125

Items 7, 8 and 9A listed above are amended by deleting the Item in its entirety and replacing it with the corresponding Item filed with this Form 10-K/A No. 2. Item 15 listed above is amended by deleting Schedule II in its entirety and replacing it with Schedule II filed with this Form 10-K/A No. 2. In addition, the certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been amended as indicated above, and those certifications, together with the certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, have been re-executed and filed as of the date of this Form 10-K/A No. 2.

Except for the amendments described above, this 10-K/A does not modify or update other disclosures in, or exhibits to, the Original Filing, as amended by Amendment No. 1. For the convenience of the reader, this Form 10-K/A also includes the remainder of the Original Filing, as amended by Amendment No. 1, in its entirety.

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TABLE OF CONTENTS

	Page
PART I
Item 1 Business	5
Item 1A Risk Factors	22
Item 1B Unresolved Staff Comments	26
Item 2 Properties	26
Item 3 Legal Proceedings	27
Item 4 Submission of Matters to a Vote of Security Holders	27
Executive Officers of the Registrant	27
PART II
Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6 Selected Financial Data	30
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A Quantitative and Qualitative Disclosures About Market Risk	45
Management's Report on Internal Control Over Financial Reporting	46
Item 8 Financial Statements and Supplementary Data	48
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
Item 9A Controls and Procedures	84
PART III
Item 10 Directors, Executive Officers and Corporate Governance	86
Item 11 Executive Compensation	88
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
Item 13 Certain Relationships and Related Transactions, and Director Independence	123
Item 14 Principal Accounting Fees and Services	124
PART IV
Item 15 Exhibits, Financial Statement Schedules	125
Signatures	126
Index to Financial Statement Schedules	127
Exhibit Index	127

DOCUMENTS INCORPORATED BY REFERENCE

None.

DEFINITIONS

As used in this Report, unless the context requires otherwise, "our," "us" and "we" means Jones Apparel Group, Inc. and consolidated subsidiaries, "Sun" means Sun Apparel, Inc., "Nine West Group" means Nine West Group Inc., "Nine West" means Nine West Footwear Corporation, "Victoria" means Victoria + Co Ltd., "Judith Jack" means Judith Jack, LLC, "McNaughton" means McNaughton Apparel Group Inc., "Gloria Vanderbilt" means Gloria Vanderbilt Apparel Corp., "l.e.i." means R.S.V. Sport, Inc. and its related companies, "Kasper" means Kasper, Ltd., "Maxwell" means Maxwell Shoe Company Inc. (acquired July 8, 2004), "Barneys" means Barneys New York, Inc. (acquired December 20, 2004), "FASB" means the Financial Accounting Standards Board, "SFAS" means Statement of Financial Accounting Standards and "SEC" means the United States Securities and Exchange Commission.

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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;
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 our customers;
the effects of vigorous competition in the markets in which we operate;
our ability to identify acquisition candidates and, in an increasingly competitive environment for such acquisitions, acquire such businesses on reasonable financial and other terms;
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, advertising and transportation;
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 general quota has expired on apparel products (while China has agreed to safeguard quota on certain classes of apparel products through 2008, political pressure will likely continue for restraint on importation of apparel);
our ability to successfully implement new operational and financial computer systems; 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. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise.

WEBSITE ACCESS TO COMPANY REPORTS

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

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PART I

ITEM 1. BUSINESS

General

Jones Apparel Group, Inc., a Fortune 500 company, is a leading designer, marketer and wholesaler of branded apparel, footwear and accessories. We also market directly to consumers through our chain of specialty retail and value-based stores, and we operate the Barneys New York chain of luxury stores. Our nationally recognized brands include Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, Easy Spirit, Evan-Picone, Norton McNaughton, Erika, l.e.i., Energie, Enzo Angiolini, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Albert Nipon, Le Suit and Barneys New York. We also market costume jewelry under the Givenchy brand licensed from Givenchy Corporation and footwear under the Dockers Women brand licensed from Levi Strauss & Co. Each brand is differentiated by its own distinctive styling, pricing strategy, distribution channel and target consumer. We contract for the manufacture of our products through a worldwide network of quality manufacturers. We have capitalized on our nationally known brand names by entering into various licenses for several of our trademarks, including Jones New York, Evan-Picone, Anne Klein New York, Nine West, Gloria Vanderbilt and l.e.i., with select manufacturers of women's and men's products which we do not manufacture. For more than 30 years, we have built a reputation for excellence in product quality and value, and in operational execution.

Sale of Polo Jeans Company Business

On January 22, 2006, we entered into a Stock Purchase Agreement with Polo Ralph Lauren Corporation ("Polo") and certain of its subsidiaries with respect to the sale to Polo of all outstanding stock of Sun. We also entered into a settlement and release agreement with Polo to settle litigation between the respective parties, including our former President, upon closing. The transactions closed on February 3, 2006. Sun's assets and liabilities on the closing date primarily related to the Polo Jeans Company business, which Sun operated under long-term license and design agreements entered into with Polo in 1995. We retained distribution and product development facilities in El Paso, Texas, along with certain working capital items, including accounts receivable and accounts payable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Operating Segments

Our operations are comprised of four reportable segments: wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories, and retail. We identify operating segments based on, among other things, the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Segment revenues are generated from the sale of apparel, footwear and accessories through wholesale channels and our own retail locations. See "Business Segment and Geographic Area Information" in the Notes to Consolidated Financial Statements.

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Wholesale Better Apparel

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

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

Group	Products	Label	Product Classification	Retail Price Points
*Jones New York*	Skirts, blouses, pants, jackets, sweaters, jeanswear, suits, dresses, casual tops, outerwear, shorts	Jones New York Jones New York Signature Jones New York Sport Jones Jeans Jones New York Dress Jones New York Suit	Collection Sportswear Lifestyle Casual Sportswear Casual Sportswear Dresses Suits	$29 - $457 $24 - $399 $15 - $199 $34 - $125 $83 - $274 $60 - $340
*Nine West*	Skirts, blouses, pants, jackets, sweaters, dresses, outerwear, shorts, casual tops	Nine West	Lifestyle	$20 - $325
*Anne Klein*	Skirts, blouses, pants, jackets, sweaters, vests, dresses, casual tops	Anne Klein New York AK Anne Klein AK Sport Anne Klein Dress Anne Klein Suit	Collection Sportswear Collection Sportswear Casual Sportswear Dresses Suits	$34 - $1,995 $21 - $329 $7 - $159 $79 - $344 $98 - $692
Other	Skirts, blouses, pants, jackets, sweaters, suits, dresses	Kasper Albert Nipon Evan-Picone Dress Le Suit	Suits, Dresses, Sportswear Suits Dresses Suits	$36 - $326 $259 - $692 $38 - $191 $30 - $240

Wholesale Moderate Apparel

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

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

Group	Products	Label	Product Classification	Retail Price Points
*Jones New York*	Skirts, blouses, jackets, sweaters, casual tops	Jones Wear Jones Wear Jeans Jones & Co.	Collection Sportswear Casual Sportswear Casual Sportswear	$17 - $100
*Nine West*	Skirts, blouses, jackets, sweaters, casual tops	Nine & Company Bandolino	Lifestyle Casual Sportswear	$15 - $130
*Gloria Vanderbilt*	Skirts, blouses, shorts, jackets, sweaters, jeanswear, capris, casual tops	Gloria Vanderbilt	Lifestyle Casual Sportswear	$13 - $18
*McNaughton*	Skirts, blouses, jackets, sweaters, casual tops	Norton McNaughton	Collection Sportswear	$29 - $121
Other	Skirts, blouses, pants, jackets, sweaters, jeanswear, dresses, casual tops and bottoms	Evan-Picone Energie Erika l.e.i. Jeanstar A\|Line A\|Line Sport Pappagallo Rena Rowan GLO/GLO Girls W	Lifestyle Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear Casual Sportswear	$6 - $116

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

Wholesale Footwear and Accessories

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

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Footwear
			Retail Price Points
	Label	Product Classification	Shoes	Boots
Bridge	Joan & David Anne Klein New York	Contemporary Contemporary	$195 - $295 $145 - $295	--- $295 - $395
Better	Nine West Nine West Kids Enzo Angiolini AK Anne Klein Circa Joan & David Botique 58	Contemporary Children's Sophisticated Classics Modern Classics Sophisticated Classics Contemporary	$59 - $89 $25 -$49 $60 - $125 $69 - $85 $89 - $150 $87 - $125	$89 - $340 $45 - $59 $130 - $225 $119 - $189 $139 - $250 $125 - $285
Upper Moderate	Bandolino Easy Spirit	Modern Classics Comfort/Fit, Active, Sport/Casuals	$59 - $75 $59 - $85	$79 - $149 $69 - $165
Moderate	Nine & Company Westies Gloria Vanderbilt Mootsies Tootsies Mootsies Tootsies Kids Sam & Libby Sam & Libby Kids Dockers Women	Contemporary Contemporary Lifestyle Lifestyle Children's Contemporary Children's Lifestyle	$49 - $59 $30 - $55 $35 $30 - $45 $20 - $35 $40 - $55 $28 - $39 $30 - $60	$75 - $105 --- --- $45 - $60 --- $49 $45 $50 - $99

Accessories
	Label	Product Classification	Retail Price Points
Bridge	Judith Jack	Marcasite and Sterling Silver Jewelry	$48 - $1,950
Better	Jones New York Nine West Givenchy	Handbags Handbags, Small Leather Goods and Costume Jewelry Costume and Fashion Jewelry	$78 - $168 $18 - $120 $22 - $295
Upper Moderate	Bandolino	Handbags	$34 - $53
Moderate	Nine & Company Gloria Vanderbilt Napier	Handbags, Small Leather Goods and Costume Jewelry Handbags and Small Leather Goods Costume Jewelry	$12 - $44 $45 - $49 $15 - $75

Retail

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

Specialty Retail Stores. At December 31, 2006, we operated a total of 411 specialty retail stores. These stores sell either footwear and accessories or apparel (or a combination of these products) primarily under their respective brand names. Our Nine West, Easy Spirit, Enzo Angiolini and Bandolino retail stores offer selections of exclusive products not marketed to our wholesale customers. Certain of our specialty retail stores also sell products licensed by us, including belts, legwear, outerwear, watches and sunglasses.

The following table summarizes selected aspects of our specialty retail stores at December 31, 2006. Of these stores, 408 are located within the United States and three are located in Canada. In addition to the

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stores listed in the table, we participate in a joint venture that operates 36 specialty stores in Australia under the Nine West and Enzo Angiolini names.

			Retail Price Range				Average store size (sq. ft.)
	Number of locations	Brands offered	Shoes and Boots	Accessories	Apparel	Type of locations	Average store size (sq. ft.)
Nine West	227	Primarily Nine West	$39 -$230	$5 - $550	$24 - $249	Upscale and regional malls and urban retail centers	1,616
Easy Spirit	111	Primarily Easy Spirit	$16 - $199	$3 - $120	$59 - $129	Upscale and regional malls and urban retail centers	1,385
Bandolino	51	Primarily Bandolino	$39 - $149	$6 - $79	$50 - $150	Urban retail locations and regional malls	1,400
Enzo Angiolini	9	Primarily Enzo Angiolini	$49 - $220	$6 - $190	$119 - $249	Upscale malls and urban retail centers	1,502
Anne Klein New York Accessories	8	Anne Klein New York	$50 - $395	$8 - $795	$550 - $1,200	Urban retail locations and regional malls	1,496
Apparel	5	Various	$50 - $140	$3 - $148	$30 - $750	Urban retail locations and regional malls	4,586

Luxury stores. At December 31, 2006, we operated five Barneys New York flagship stores in prime retail locations in New York City, Beverly Hills, Chicago, Boston and Dallas. The flagship stores, which average 107,583 square feet, establish and promote Barneys New York as a leading specialty retailer of men's and women's fashion. These stores offer customers a wide variety of merchandise, including apparel, accessories, cosmetics and items for the home, catering to affluent, fashion-conscious customers. We also seek to ensure that the ambience of our flagship stores reflects the luxury and distinct style of the merchandise that we sell. The flagship stores in New York and Beverly Hills also include restaurants managed by third-party contractors.

At December 31, 2006, we operated three Barneys New York regional stores in Manhasset, NY, Seattle, WA and Chestnut Hill, MA. The regional stores, which average 12,133 square feet, provide a limited selection of the merchandise offered in the flagship stores and cater to similar customers as our flagship stores in more localized markets.

At December 31, 2006, we operated 12 Barneys New York CO-OP stores. These free-standing stores, which average 8,202 square feet, are an extension of the CO-OP departments in our flagship stores and focus on providing customers with a selection of high-end, contemporary, urban casual apparel and accessories, often at price points that are slightly lower than our non-CO-OP merchandise. CO-OP stores provide us with the opportunity to develop one of Barneys' fastest growing merchandise categories in a less capital intensive manner, relative to Barneys' other luxury stores. These stores give us the opportunity to enter new markets and expand in our existing markets, while broadening our client base by targeting the younger designer customer. In addition, since we will be attracting our Barneys customer earlier in their life cycle, we also believe this format can serve as the initial entree for the shopper who will ultimately develop into our regional and flagship store customer. Similar to our CO-OP departments, our CO-OP stores offer merchandise from established and emerging designers, as well as our Barneys brand.

Outlet Stores. At December 31, 2006, we operated a total of 701 outlet stores. Our shoe stores focus on breadth of product line, as well as value pricing, and offer a distribution channel for our residual inventories. The majority of the shoe stores' merchandise consists of new production of current and proven prior season's styles, with the remainder of the merchandise consisting of discontinued styles from our specialty retail footwear stores and wholesale divisions. The apparel stores focus on breadth of product line, customer service and value pricing. In addition to our brand name merchandise, these stores also sell merchandise

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produced by our licensees. The Barneys New York outlet stores leverage the Barneys New York brand to reach a wider audience by providing a lower priced version of the sophistication, style and quality of the retail experience provided in the luxury stores and also provide a clearance vehicle for residual merchandise from the luxury stores.

The following table summarizes selected aspects of our outlet stores at December 31, 2006. Of these stores, 679 are located within the United States and its territories and 22 are located in Canada. In addition to the stores listed in the table, we participate in a joint venture that operates seven outlet stores in Australia under the Nine West name.

	Number of locations	Brands offered	Type of locations	Average store size (sq. ft.)
Nine West	177	Primarily Nine West	Manufacturer outlet centers	2,851
Jones New York	148	Primarily Jones New York and Jones New York Sport	Manufacturer outlet centers	3,821
Easy Spirit	114	Primarily Easy Spirit	Manufacturer outlet centers	3,651
Stein Mart (leased footwear departments)¹	102	All Company footwear brands	Strip centers	2,657
Kasper	84	Primarily Kasper	Manufacturer outlet centers	2,621
Anne Klein	45	Primarily Anne Klein	Manufacturer outlet centers	2,690
Treza/Jones New York Woman	14	Various Company apparel brands in plus sizes	Manufacturer outlet centers	2,884
Barneys New York	12	Various	Manufacturer outlet centers	6,931
Hot for Shoes	4	All Company footwear brands	Strip centers	7,074
Joan & David	1	Primarily Joan & David	Manufacturer outlet center	2,202

(1) We closed our Stein Mart leased shoe departments in January 2007.

We also operate four Barneys New York warehouse sale events annually, one each spring and fall season in both New York and Santa Monica, California. The warehouse sale events provide another vehicle for liquidation of end of season residual merchandise, as well as a low cost extension of the Barneys New York brand to a wider audience. The events attract a wide range of shoppers, mostly bargain hunters who value quality and fashion.

Licensed Brands

As a result of the acquisition of Victoria, we obtained the exclusive license to produce, market and distribute costume jewelry in the United States, Canada, Mexico and Japan under the Givenchy trademark pursuant to an agreement with Givenchy, which expires on December 31, 2008. The agreement provides for the payment by us of a percentage of net sales against guaranteed minimum royalty and advertising payments as set forth in the agreement.

As a result of the acquisition of Maxwell, we obtained the exclusive license to produce and sell women's footwear under the Dockers Women trademark in the United States (including its territories and possessions) pursuant to an agreement with Levi Strauss & Co. The agreement, which expires in December 2008, provides

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for the payment by us of a percentage of net sales against guaranteed minimum royalty and advertising payments as set forth in the agreement.

Design

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

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

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

Our jewelry brands are developed by separate design teams. Each team presents styles that maintain each brand's distinct personality. A prototype is developed for each new product where appropriate. Most prototypes are produced by our contractors based on technical drawings that we supply. These prototypes are reviewed by our product development team, who negotiate costs with the contractors. After samples are evaluated and cost estimates are received, the lines are modified as needed for presentation for each selling season.

We complement the designer merchandise in our luxury stores with a diverse selection of comparable quality Barneys branded merchandise, including ready-to-wear apparel, handbags, shoes, dress shirts, ties and sportswear. Barneys branded merchandise is manufactured by independent third parties according to our specifications. We are intensively involved in all aspects of the design and manufacture of this collection.

In accordance with standard industry practices for licensed products, we have the right to approve the concepts and designs of all products produced and distributed by our licensees. Similarly, Givenchy and Levi Strauss & Co. also provide design services to us for our licensed products and have the right to approve our designs for the Givenchy and Dockers Women product lines, respectively.

Manufacturing and Quality Control

Apparel

Apparel sold by us is produced in accordance with our design, specification and production schedules through an extensive network of independent factories located in United States territories, Mexico, China and other locations throughout the world. Approximately 96% of our apparel products were manufactured outside the United States and Mexico, primarily in Asia, while approximately 4% were manufactured in the United States, its territories and Mexico during 2006. We source a portion of our products in Central and South America, enabling us to take advantage of shorter lead times than other offshore locations due to proximity. Sourcing in this region enables us to utilize current free-trade agreements, which provide that certain articles assembled abroad from United States components are exempt from United States duties on the value of these components.

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

Our comprehensive quality control program is designed to ensure that raw materials and finished goods meet our exacting standards. Fabrics for garments manufactured are inspected by either independent inspection services or by our contractors upon receipt in their warehouses. Our quality control program includes inspection of both prototypes of each garment prior to cutting by the contractors and a sampling of production garments upon receipt at our warehouse facilities to ensure compliance with our specifications.

Our Mexican contractors are monitored by an in-house contractor operations group located in Mexico and other foreign manufacturers' operations are monitored by our Hong Kong-based personnel, buying agents located in other countries and independent contractors and inspection services. Finished goods are generally shipped to our warehouses for final inspection and distribution.

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

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

We do not have long-term arrangements with any of our suppliers. We have experienced little difficulty in satisfying our raw material requirements and consider our sources of supply adequate. Products have historically been purchased from foreign manufacturers in pre-set United States dollar prices, and therefore, we generally have not been adversely affected by fluctuations in exchange rates.

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

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

Footwear and Accessories

To provide a steady source of inventory, we rely on long-standing relationships developed by Nine West and Maxwell with footwear manufacturers in Asia and Brazil, by Nine West with accessories manufacturers in Asia and by Victoria with jewelry manufacturers in Asia. We work through independent buying agents for footwear and our own offices for accessories and jewelry. Allocation of production among our manufacturing resources is determined based upon a number of factors, including manufacturing capabilities, delivery requirements and pricing.

During 2006, approximately 96% of our footwear products were manufactured by independent footwear manufacturers located in Asia (primarily China), approximately 2% were manufactured by independently

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owned footwear manufacturers in Brazil and approximately 2% were manufactured by independently owned footwear manufacturers in Italy. Our handbags and small leather goods are sourced through our own buying office in China, which utilizes independent third party manufacturers located primarily in China. Products have historically been purchased from the Brazilian and Asian manufacturers in pre-set United States dollar prices, and therefore, we generally have not been adversely affected by fluctuations in exchange rates. We do not have contracts with any of our footwear, handbag or small leather goods manufacturers but, with respect to footwear imported from Brazil and China, we rely on established relationships with our Brazilian and Chinese manufacturers directly and through our independent buying agents. For footwear, quality control reviews are done on-site in the factories by our third-party buying agents primarily to ensure that material and component qualities and fit of the product are in accordance with our specifications. For accessories, quality control reviews are done on-site in the factories by our own locally-based inspection technicians. Our quality control program includes approval of prototypes, as well as approval of final production samples to ensure they meet our high standards.

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

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

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

During 2006, our jewelry products were manufactured primarily by independently-owned jewelry manufacturers in Asia. We believe that the quality and cost of products manufactured by our suppliers provide us with the ability to remain competitive. Sourcing the majority of our products from third-party manufacturers enables us to better control costs and avoid significant capital expenditures, work in process inventory, and costs of managing a larger production workforce. Victoria's history as manufacturers gives them the requisite experience and knowledge to manage their vendors effectively.

Forecasts for basic jewelry products are produced on a rolling 12-week basis and are adjusted based on point of sale information from retailers. Manufacturing of fashion jewelry products is based on marketing forecasts and sales plans; actual orders are received several weeks after such forecasts are produced. Quality control testing is performed on-site by domestic employees or our own locally-based inspection technicians. Quality assurance checks are also performed upon receipt of finished goods at our distribution facilities.

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Workplace Compliance Program

We have an active program in place to monitor compliance by our contract manufacturers (in all product categories) with the Jones Apparel Group Standards for Contractors and Suppliers ("Factory Standards"). In 1996, we became a participant in the United States Department of Labor's Apparel Manufacturer's Compliance Program Agreement. Under that agreement, and through independent agreements with domestic and foreign manufacturers that produce products for us, we regularly audit for compliance with our Factory Standards and require corrective action when appropriate.

Our Factory Standards, which we have posted on our website, apply to conditions of employment, such as child labor, wages and benefits, working hours and days off, health and safety conditions in the workplace and housing, forced labor, discrimination, disciplinary practices and freedom of association.

We have a vigorous factory-auditing program. During 2006, 1,284 audits were conducted (including 880 by independent auditors), including domestic and foreign factories for apparel, footwear, handbag and jewelry products. Our Compliance Auditing staff consists of 24 auditors based in six countries. Twenty-two staff members claim English as a second language, and almost all are multi-lingual and have at least a bachelor's degree from a four-year institution in the United States or abroad. In addition to our own staff, we retain several recognized, unaffiliated workplace compliance audit firms to conduct factory audits on our behalf and to report on such findings, including recommendations for remediation.

Obtaining compliance with our Factory Standards is, in many instances, a very challenging process. We deal with many factories in many countries, each with legal systems and cultures far different from those of the United States. Our auditing program invariably reports problems of varying degrees in almost all factories. Our approach, in virtually all cases, has been to attempt to improve conditions through directions to remediate the cited conditions and to conduct follow-up audits, rather than to cease using a given factory, which would assuredly result in severe hardship for the employees working at those factories. We believe that progress and improvement, although incremental, is quite real.

Marketing

Our ten largest customer groups, principally department stores, accounted for approximately 47% of gross revenues in 2006. Federated Department Stores, Inc., our largest customer in 2006, accounted for 18% of our 2006 gross revenues.

We believe that purchasing decisions are generally made independently by individual department stores within a commonly controlled group. There has been a trend, however, toward more centralized purchasing decisions. As such decisions become more centralized, the risk to us of such concentration increases. Furthermore, we believe a trend exists among our major customers to concentrate purchasing among a narrowing group of vendors. In the future, retailers may have financial problems or continue to consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could increase the concentration of our customers. We attempt to minimize our credit risk from our concentration of customers by closely monitoring accounts receivable balances and shipping levels and the ongoing financial performance and credit status of our customers.

We also believe there is an increasing focus by the department stores to concentrate an increasing portion of their product assortments within their own private label products. These private label lines compete directly with our product lines and may receive prominent positioning on the retail floor by department stores. While this creates more competition, we believe that our brands are preferred by the consumer.

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

We believe retail demand for our apparel products is enhanced by our ability to provide our retail accounts and consumers with knowledgeable sales support. In this regard, we have an established program

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to place retail sales specialists in many major department stores for many of our brands, including Jones New York, Jones New York Sport, Jones New York Signature, Kasper and Anne Klein. These individuals have been trained by us to support the sale of our products by educating other store personnel and consumers about our products and by coordinating our marketing activities with those of the stores. In addition, the retail sales specialists provide us with firsthand information concerning consumer reactions to our products. In addition, we have a program of designated sales personnel in which a store agrees to designate certain sales personnel who will devote a substantial portion of their time to selling our products in return for certain benefits.

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

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

We work closely with our wholesale jewelry customers to create long-term sales programs, which include choosing among our diverse product lines and implementing sales programs at the store level. A team of sales representatives and sales managers monitor product performance against plan and are responsible for inventory management, using point-of-sale information to respond to shifts in consumer preferences. Management uses this information to adjust product mix and inventory requirements. In addition, field merchandising associates recommend how to display our products, assist with merchandising displays and educate store personnel about us and our products. Retailers are also provided with customized displays and store-level merchandising designed to maximize sales and inventory turnover. By providing retailers with in-store product management, we establish close relationships with retailers, allowing us to maximize product sales and increase floor space allocated to our product lines. We have also placed retail sales specialists in major department stores to support the sale of our Napier, Nine West, Givenchy and Judith Jack jewelry products.

Advertising and Promotion

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

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We have national advertising campaigns for the following brands:

Jones New York Collection and Jones New York Signature (in fashion and lifestyle magazines),
Nine West (footwear, apparel, handbags, jewelry and licensed products, primarily in fashion magazines),
Bandolino (in fashion magazines),

l.e.i. (in lifestyle and fashion magazines and radio),

Anne Klein New York (in fashion magazines),
Grane (in fashion magazines), and

Jeanstar (in fashion magazines).

Given the strong recognition and brand loyalty already afforded our brands, we believe these campaigns will serve to further enhance and broaden our customer base. Our in-house creative services departments oversee the conception, production and execution of virtually all aspects of these activities. We also believe that our retail network promotes brand name recognition and supports the merchandising of complete lines by, and the marketing efforts of, our wholesale customers.

Licensing of Company Brands

We have entered into various license agreements under which independent licensees either manufacture, market and sell certain products under our trademarks in accordance with designs furnished or approved by us or distribute our products in certain countries where we do not do business. These licenses, the terms of which (not including renewals) expire at various dates through 2016, typically provide for the payment to us of a percentage of the licensee's net sales of the licensed products against guaranteed minimum royalty payments, which typically increase over the term of the agreement. We are also a party to licensing arrangements pursuant to which three retail stores are operated in Japan and a single in-store department is operated in Singapore under the name Barneys New York.

The following table sets forth information with respect to select aspects of our licensing business:

Brand

Category

Jones New York

Men's Accessories and Jewelry (U.S., Canada)
Men's Dress Shirts (U.S.)
Men's Neckwear (Canada)
Men's Neckwear (U.S.)
Men's Sportswear, Sweaters, Knit Shirts, Woven Shirts, Finished Bottom Slacks and Outerwear
     (Canada)
Men's Tailored Clothing, Dress Shirts, Outerwear, Dress Slacks (Canada)
Men's Tailored Clothing, Formal Wear (U.S.)
Men's Topcoats, Outerwear (U.S.)
Men's Umbrellas, Rain Accessories (U.S.)
Men's and Women's Optical Eyewear (U.S., Canada, Argentina, Aruba, Australia, Bahamas,
     Barbados, Belize, Benelux, Bolivia, Chile, Colombia, Costa Rica, Cyprus, Denmark,
     Dominican Republic, Ecuador, El Salvador, Finland, French Guiana, Guatemala, Honduras,
     Ireland, Israel, Jamaica, Kuwait, Lebanon, Mexico, Netherlands Antilles, Nicaragua, Norway,
     Panama, Paraguay, Peru, Philippines, South Africa, Suriname, Sweden, Trinidad, Turkey,
     Uruguay, Venezuela)
Women's Costume Jewelry (Canada)
Women's Hats (U.S., Canada)
Women's Leather Outerwear (U.S.)
Women's Outerwear, Rainwear (U.S.)
Women's Outerwear, Wool Coats, Rainwear (Canada)
Women's Scarves, Wraps and Cold Weather Accessories (U.S., Canada)
Women's Sleepwear, Loungewear (U.S., Canada)
Women's Sunglasses (U.S., Canada)
Women's Umbrellas, Rain Accessories (U.S.)
Women's Watches (Canada)
Women's Wool Coats (U.S.)
Retail and Wholesale Distribution Rights for Women's Apparel, Handbags, Small Leather Goods,
     Footwear, Belts, Sunglasses, Coats, Scarves, as well as Sleepwear if such items are made
     available in the Territory (China, Hong Kong, Indonesia, Macau, Malaysia, Singapore,
     Taiwan, Thailand)

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Brand	Category
Jones Wear	Women's Costume Jewelry (Canada) Women's Outerwear (Canada) Women's Watches (Canada)
Anne Klein New York and AK Anne Klein	Anne Klein New York Footwear (Worldwide excluding Japan) AK Anne Klein Costume Jewelry (U.S.) Belts (U.S., Canada) Home Sewing Patterns (Worldwide) Hosiery, Casual Legwear (U.S., Canada) Outerwear, Wool Coats, Leather Outerwear, Rainwear (U.S.) Scarves, Cold Weather Accessories, Gloves (U.S., Canada) Sunglasses, Optical Eyewear (Worldwide) Swimwear (U.S.) Watches (Worldwide) Manufacturing and Wholesale and Retail Distribution Rights for Apparel (Japan) Retail and Wholesale Distribution Rights for Handbags (Japan) Sublicensed Wholesale and Retail Distribution Rights for Scarves, Towels, Jewelry (Japan) Manufacturing and Wholesale and Retail Distribution Rights for Apparel, Handbags, Accessories (Korea) Retail and Wholesale Distribution Rights for Apparel and Handbags (Central America, South America, Caribbean, Dominican Republic) Retail and Wholesale Distribution Rights for Apparel, Small Leather Goods, Footwear, Handbags, Belts, Sunglasses, Watches, Jewelry, Coats, Socks, Scarves, Swimwear, as well as Sleepwear, Fragrances, and Cosmetics if such items are made available in the Territory (China, Hong Kong, Indonesia, Macau, Malaysia, Singapore, Taiwan, Thailand, Italy, France, Spain, United Kingdom, Portugal, Ireland, Belgium, Luxembourg, the Netherlands, Saudi Arabia) Retail Distribution Rights for Apparel, Handbags, Accessories, Belts, Sleepwear, Casual Legwear (Philippines)
A\|Line	Costume Jewelry (U.S.) Sunglasses, Optical Eyewear (U.S.)
Albert Nipon	Men's Tailored Clothing (U.S.) Women's Outerwear (U.S.)
Kasper	Men's Tailored Clothing (U.S., Canada, Mexico)
Evan-Picone	Men's Tailored Clothing, Formal Wear, Topcoats (U.S.) Manufacturing and Wholesale Distribution Rights for Women's Sportswear (Japan)
Nine West	Belts (U.S., Canada) Casual Legwear (U.S., Canada) Gloves, Cold Weather Accessories (U.S., Canada) Hats (U.S., Canada) Leather, Wool, Casual Outerwear, Rainwear (U.S., Canada, Spain) Luggage (U.S., Canada) Optical Eyewear (U.S., Canada, China, Mexico) Sunglasses (U.S., Canada, Spain) Retail and Wholesale Distribution Rights for Apparel, Belts, Cold Weather Accessories, Hats, Luggage, Sunglasses, Watches, Jewelry, Coats, Legwear, Scarves, as well as Sleepwear, Swimwear, Fragrances and Cosmetics if such items are made available in the Territory (China, Hong Kong, Indonesia, Japan, Macau, Malaysia, Philippines, Singapore, Taiwan, Thailand, United Kingdom, Ireland)
Nine & Company	Bed and Bath Products and Accessories (U.S.) Belts (U.S.) Casual Legwear (U.S.) Gloves, Cold Weather Accessories (U.S.) Hats (U.S.) Luggage (U.S.) Sleepwear, Loungewear (U.S.) Slippers (U.S.) Sunglasses (U.S.) Watches (U.S.)
Easy Spirit	Slippers (U.S., Canada)
Enzo Angiolini	Sunglasses (U.S.)

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Brand	Category
Energie	Men's Denim and Sportswear (U.S.) Boys' Denim and Sportswear (4-6x and 8-20) (U.S.)
Gloria Vanderbilt	Knit Tops, Bottoms, ActiveWear, Performance ActiveWear (U.S.) Sleepwear, Daywear, Loungewear (U.S., Canada) Infants', Toddlers' and Children's (4-6x) Apparel (U.S., Canada) Decorative Bedding and Bath Products, Accent Rugs (U.S.)
GLO	Infants', Toddlers' and Children's (4-6x) Apparel (U.S.) Swimwear (U.S.)
GLO Girl	Infants', Toddlers' and Children's (4-6x) Apparel (Canada)
l.e.i.	Casual Legwear (U.S.) Children's Apparel (U.S.) Footwear (U.S., Canada) Belts (U.S., Canada) Hats (U.S., Canada) Juniors' and Girls' Intimate Apparel (U.S.) Juniors' and Girls' Outerwear (U.S.) Juniors' and Girls' Sunglasses (U.S., Canada) Watches (U.S., Canada)
Joan & David	Manufacturing and Retail Distribution Rights for Apparel, Footwear, Handbags (China, Hong Kong, Indonesia, Japan, Korea, Macau, Malaysia, Philippines, Singapore, Taiwan, Thailand)
Sam & Libby	Men's, Women's and Children's Slippers and Sandals (U.S.)
International footwear and accessories retail/wholesale distribution	Nine West and Enzo Angiolini retail locations (Bahrain, Kuwait, Oman, Qatar, The United Arab Emirates, Jordan, India, Poland) and Anne Klein New York retail locations and wholesale distribution rights for Anne Klein New York footwear and accessories (Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates) Nine West retail locations (Saudi Arabia, Lebanon) Nine West retail locations and wholesale distribution rights for Nine West, Enzo Angiolini, Bandolino and Easy Spirit footwear and accessories and AK Anne Klein, Circa Joan & David, Sam & Libby and Mootsies Tootsies footwear (Belize, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Venezuela, the Dominican Republic, French Guiana, Guyana, Suriname, the Caribbean Islands) Nine West retail locations and wholesale distribution rights for Nine West footwear and accessories (Greece, Cyprus) Nine West retail locations and wholesale distribution rights for Nine West footwear and accessories (Chile, Peru) and wholesale distribution rights for Enzo Angiolini footwear and accessories (Chile) Nine West, Enzo Angiolini, NW Nine West and Easy Spirit retail locations and wholesale distribution rights for Nine West, Enzo Angiolini, NW Nine West and Easy Spirit footwear and accessories (Hong Kong, Indonesia, Japan, Korea, Macau, Malaysia, the People's Republic of China, the Philippines, Singapore, Taiwan, Thailand) Nine West retail locations and wholesale distribution rights for Nine West footwear and accessories (South Africa) Nine West, Enzo Angiolini and Westies retail locations, wholesale distribution rights for Nine West footwear and accessories and Enzo Angiolini, Westies and AK Anne Klein footwear and manufacturing rights for Westies footwear (Mexico) Nine West retail locations (Turkey) Nine West and Easy Spirit retail locations and wholesale distribution rights for Nine West and Easy Spirit footwear and accessories (Israel) Nine West and Easy Spirit retail locations, wholesale distribution rights for Nine West, Enzo Angiolini, Easy Spirit, Bandolino, Nine & Company and Westies footwear and accessories and AK Anne Klein, Circa Joan & David, Sam & Libby and Mootsies Tootsies footwear (Canada) Nine West retail locations (the United Kingdom, Ireland, the Channel Islands, Denmark) and wholesale distribution rights for Nine West and NW Nine West footwear and accessories and Easy Spirit footwear (the United Kingdom, Ireland, the Channel Islands, Norway, Denmark, Sweden, Finland, Iceland, Belgium, the Netherlands, Luxembourg) Nine West retail locations and wholesale distribution rights for Nine West and Enzo Angiolini footwear and accessories (Spain) Nine West retail locations (Russia) Wholesale distribution rights for Nine West and Napier costume jewelry (Canada)

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Trademarks

We utilize a variety of trademarks which we own, including Jones New York, Jones New York Signature, Jones New York Sport, Jones Wear, Jones New York Country, Jones Jeans, Evan-Picone, Norton McNaughton, Erika, Energie, Nine West, Easy Spirit, Enzo Angiolini, Bandolino, Nine & Company, Westies, Pappagallo, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Gloria Vanderbilt, GLO, l.e.i., Albert Nipon, Anne Klein, Anne Klein New York, AK Anne Klein, A|Line, Kasper, Le Suit, Jeanstar and Barneys New York. We have registered or applied for registration for these and other trademarks for use on a variety of items of apparel, footwear, accessories and/or related products and, in some cases, for retail store services, in the United States and certain other countries. The expiration dates of the United States trademark registrations for our material registered trademarks are as follows, with our other registered foreign and domestic trademarks expiring at various dates through 2022. Certain brands such as Jones New York are sold under several related trademarks; in these instances, the range of expiration dates is provided. All marks are subject to renewal in the ordinary course of business if no third party successfully challenges such registrations and, in the case of domestic and certain foreign registrations, applicable use and related filing requirements for the goods and services covered by such registrations have been met.

Trademark	Expiration Dates	Trademark	Expiration Dates	Trademark	Expiration Dates
Jones New York	2007-2015	Napier	2009	Anne Klein	2007-2016
Jones New York Sport	2013	Judith Jack	2012	Kasper	2012
Evan-Picone	2013	Norton McNaughton	2014	Le Suit	2008
Nine West	2008-2015	Erika	2014	Joan & David	2012-2015
Easy Spirit	2007-2015	Energie	2015	Mootsies Tootsies	2009-2013
Enzo Angiolini	2008-2016	Gloria Vanderbilt	2012-2015	Sam & Libby	2013
Bandolino	2011-2016	l.e.i.	2010-2016	Barneys New York	2007-2015
Nine & Company	2012-2015	Albert Nipon	2007-2019	CO-OP Barneys New York	2014-2016

We carefully monitor trademark expiration dates to provide uninterrupted registration of our material trademarks. We also license the Givenchy and Dockers Women trademarks (see "Licensed Brands" above).

We also hold numerous patents expiring at various dates through 2026 (subject to payment of annuities and/or periodic maintenance fees) and have additional patent applications pending in the United States Patent and Trademark Office. We regard our trademarks and other proprietary rights as valuable assets which are critical in the marketing of our products. We vigorously monitor and protect our trademarks and patents against infringement and dilution where legally feasible and appropriate.

Imports and Import Restrictions

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

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

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

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

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

Backlog

We had unfilled customer orders of approximately $1.1 billion and $1.2 billion at December 31, 2006 and December 31, 2005, respectively. These amounts include both confirmed and unconfirmed orders which we believe, based on industry practice and past experience, will be confirmed. The amount of unfilled orders at a particular time is affected by a number of factors, including the mix of product, the timing of the receipt and processing of customer orders and scheduling of the manufacture and shipping of the product, which in some instances is dependent on the desires of the customer. Backlog is also affected by a continuing trend among customers to reduce the lead time on their orders. Due to these factors, a comparison of unfilled orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments.

Employees

At December 31, 2006, we had approximately 10,880 full-time employees. This total includes approximately 3,555 in quality control, production, design and distribution positions, approximately 2,535 in administrative, sales, clerical and office positions and approximately 4,790 in our retail stores. We also employ approximately 5,605 part-time employees, of which approximately 5,520 work in our retail stores.

Approximately 40 of our employees located in Bristol, Pennsylvania are members of the Teamsters Union, which has a collective bargaining agreement with us expiring on September 10, 2007. Approximately 75 of our employees located in Vaughan, Ontario are members of the Laundry and Linen Drivers and Industrial Workers Union, which has a collective bargaining agreement with us expiring on March 15, 2009. Approximately 40 of our employees are members of the Union of Needletrades, Industrial and Textile Employees, which has a labor agreement with Kasper that expires on May 31, 2007. Approximately 965 of our employees are members of UNITE HERE, which has various labor agreements with Barneys that expire between March 31, 2007 and April 30, 2011. We consider our relations with our employees to be satisfactory.

Jones New York in the Classroom

On May 3, 2005, we announced the launch of a charitable cause initiative, including the establishment of Jones New York In The Classroom, Inc., a not-for-profit corporation, with an initial grant from us of $1 million and a commitment of our continued support. Jones New York In The Classroom is dedicated to improving the quality of education in America and inspiring others, both individuals and corporations, to do the same through support of teachers and vital teacher-based programs in America's schools. It is focused on four areas of support for teachers: recruitment, retention, professional development and recognition and support. Our initial donation was earmarked to support each of the four non-profit organizations selected by Jones New York In The Classroom to benefit from its programs and fundraising: TeachersCount, New Teacher Academy, Fund for Teachers and Adopt-A-Classroom. Each of these organizations addresses one or more of Jones New York In The Classroom's areas of focus. In 2006, our contributions helped Jones New York In The Classroom donate additional funds to these four non-profit organizations. Those funds were used by Adopt-A-Classroom to renew classroom adoptions and to develop a strategic publicity campaign; by Teachers Count to develop several "Behind Every Famous Person is A Fabulous Teacher" public service announcements; by New Teacher Academy to develop a new online curriculum for new teachers to help with

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classroom management skills; and by Fund for Teachers to fund professional development and learning sabbaticals for 50 teachers and a new Asian study program and teacher study guides.

Our commitment since the launch in 2005 has also included support for events to raise public awareness of Jones New York In The Classroom and its goals for teachers and education, as well as initiatives to encourage our employees to participate in volunteer opportunities and fundraising for Jones New York In The Classroom, and the other non-profit organizations Jones New York In The Classroom is supporting. Our corporate employees have the opportunity to volunteer up to three hours of paid time off each month in educational facilities in their local communities, totaling more than 250,000 hours annually in support of teachers and education. Each of our business locations is encouraged to raise or budget funds to adopt a classroom to help with daily classroom needs through Adopt-A-Classroom. Working with our retail customers, we have supported Jones New York In The Classroom with in-store marketing programs, including a limited edition t-shirt for 2006 featuring artwork by illustrator Sujean Rim, and a dedicated Jones New York shopping week during which ten percent of our profits on sales of certain merchandise (up to $500,000) were donated to Jones New York In The Classroom. Additional activities we have participated in include assisting Jones New York In The Classroom in forming a national advisory committee comprised of education professionals; designing, developing and hosting a website for the charity and developing car magnets for sale by the charity to raise funds; holding a charity golf classic to benefit Jones New York In The Classroom; and joining with The Home Depot and Hands On Network for Back to School, Back to Style teacher and classroom makeovers to raise awareness of Jones New York In The Classroom and the four non-profit organizations it has committed to support. We also hosted Apple Day, which recognized five of our associates and one of our cause committees for their outstanding leadership and volunteerism on behalf of the cause initiative and Jones New York In The Classroom.

Strategic Review

We have completed a strategic review of our operating infrastructure and general and administrative support areas 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 a product development management system which will ultimately be integrated with our third-party manufacturers.
We are utilizing 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 and better apparel businesses, and will continue to be expanded across most of our businesses.
We have selected SAP Apparel and Footwear Solution as our 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 customer.
In response to the elimination of apparel quotas and other trade safeguards, we are in the process of consolidating our third-party manufacturing to a more concentrated vendor matrix.

General and Administrative Areas

We are implementing best practices in connection with the migration of our current systems to the SAP Apparel and Footwear Solution platform.

We estimate that the implementation and execution of the initiatives underway will be substantially completed by the end of 2007. 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

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are expected to fall in a range of $115 million to $120 million. As of December 31, 2006, we have spent a total of $74.6 million.

Restructuring

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. All manufacturing was consolidated into existing operations in Durango and Torreon, Mexico. A total of 3,170 employees were terminated as a result of the closure. We undertook 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 December 2005, we closed our distribution center in Bristol, Pennsylvania. A total of 118 employees were affected by the closure.

On May 15, 2006, we announced the closing of our Secaucus, New Jersey warehouse to reduce excess capacity. A total of 211 employees were affected by the closure. The restructuring was substantially completed in September 2006.

On May 30, 2006, we announced the closing of our Stein Mart leased shoe departments, effective January 2007. A total of 520 employees were affected by the closure.

On September 12, 2006, we announced the closing of certain El Paso, Texas and Mexican operations related to the decision by Polo to discontinue the Polo Jeans Company product line, which we produced for Polo subsequent to the sale of the Polo Jeans Company business to Polo in February 2006. A total of 1,863 employees are affected by the closure. The closings will be substantially completed by the end of March 2007.

ITEM 1A. RISK FACTORS

There are certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated. Risks and uncertainties that could adversely affect us include, without limitation, the following factors.

The apparel, footwear and accessories industries are highly competitive. Any increased competition could result in reduced sales or prices, or both, which could have a material adverse effect on us.

Apparel, footwear and accessories companies face competition on many fronts, including the following:

establishing and maintaining favorable brand recognition;
developing products that appeal to consumers;
pricing products appropriately; and
obtaining access to retail outlets and sufficient floor space.

There is intense competition in the sectors of the apparel, footwear and accessories industries in which we participate. We compete with many other manufacturers and retailers, some of which are larger and have greater resources than we do. Any increased competition could result in reduced sales or prices, or both, which could have a material adverse effect on us.

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

We believe that, during the past few years, major department stores and specialty retailers have been increasingly sourcing products from suppliers who are well capitalized or have established reputations for delivering quality merchandise in a timely manner. However, there can be no assurance that significant new competitors will not develop in the future.

We also believe there is an increasing focus by the department stores to concentrate an increasing portion of their product assortments within their own private label products. These private label lines compete directly with our product lines and may receive prominent positioning on the retail floor by department stores. While this creates more competition, our independent studies indicate that our brands are preferred by the consumer.

We may not be able to respond to changing fashion and retail trends in a timely manner, which could have a material adverse effect on us.

The apparel, footwear and accessories industries have historically been subject to rapidly changing fashion trends and consumer preferences. We believe that our success is largely dependent on our ability to anticipate and respond promptly to changing consumer demands and fashion trends in the design, styling and production of our products. If we cannot gauge consumer needs and fashion trends and respond appropriately, then consumers may not purchase our products, and this could have a material adverse effect on us.

We believe that consumers in the United States are shopping less in department stores (our traditional distribution channel) and more in other channels, such as specialty shops and mid-tier locations where value is perceived to be higher. We have responded to these trends by enhancing the brand equity of our brands through our focus on design, quality and value, and through strategic acquisitions which provide significant diversification to the business by successfully adding new distribution channels, labels and product lines. Despite our efforts to respond to these trends, there can be no assurance that these trends will not have a material adverse effect on us.

The apparel, footwear and accessories industries are heavily influenced by general economic cycles. A prolonged period of depressed consumer spending would have a material adverse effect on us.

Purchases of apparel, footwear and related goods generally decline during recessionary periods when disposable income is low. In such an environment, promotional selling would adversely affect our profitability.

The loss of any of our largest customers could have a material adverse effect on us.

Our ten largest customer groups, principally department stores, accounted for approximately 47% of revenues in 2006. Federated Department Stores, Inc. accounted for approximately 18% of our 2006 gross revenues.

We believe that purchasing decisions are generally made independently by department store units within a customer group. There has been a trend, however, toward more centralized purchasing decisions. As such decisions become more centralized, the risk to us of such concentration increases. A decision by the controlling owner of a customer group of department stores to modify those customers' relationships with us (for example, decreasing the amount of product purchased from us, modifying floor space allocated to apparel in general or our products specifically, or focusing on promotion of private label products rather than our products) could have a material adverse effect on us. Furthermore, we believe a trend exists among our major customers to concentrate purchasing among a narrowing group of vendors. To the extent any of our key customers reduces the number of vendors and consequently does not purchase from us, this could have a material adverse effect on us.

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In the future, retailers may have financial problems or consolidate, undergo restructurings or reorganizations, or realign their affiliations, any of which could further increase the concentration of our customers. The loss of any of our largest customers, or the bankruptcy or material financial difficulty of any customer or any of the companies listed above, could have a material adverse effect on us. We do not have long-term contracts with any of our customers, and sales to customers generally occur on an order-by-order basis. As a result, customers can terminate their relationships with us at any time or under certain circumstances cancel or delay orders.

The loss or infringement of our trademarks and other proprietary rights could have a material adverse effect on us.

We believe that our trademarks and other proprietary rights are important to our success and competitive position. Accordingly, we devote substantial resources to the establishment and protection of our trademarks on a worldwide basis. There can be no assurances that such actions taken to establish and protect our trademarks and other proprietary rights will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violative of their trademarks and proprietary rights. Moreover, there can be no assurances that others will not assert rights in, or ownership of, our trademarks and other proprietary rights or that we will be able to successfully resolve such conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. The loss of such trademarks and other proprietary rights, or the loss of the exclusive use of such trademarks and other proprietary rights, could have a material adverse effect on us. Any litigation regarding our trademarks could be time-consuming and costly.

As of December 31, 2006, the book value of our goodwill and other intangibles was $2.1 billion. We utilize independent third-party appraisals to estimate the fair value of both our goodwill and our intangible assets with indefinite lives. These appraisals are based on projected cash flows and interest rates. If interest rates or future cash flows were to differ significantly from the assumptions used in these projections, material non-cash impairment losses could result where the estimated fair values of these assets become less than their carrying amounts.

As a result of continuing decreases in projected revenues and profitability with respect to our Norton McNaughton, l.e.i. and certain other moderate apparel brands and changes in business strategy for our Norton McNaughton brand, as well as continuing decreases in projected revenues for our Albert Nipon better apparel brand, our Westies and Sam & Libby footwear brands and our Richelieu costume jewelry brand, we recorded goodwill and trademark impairment charges of $441.2 million and $50.2 million, respectively, in 2006. As a result of similar continuing decreases in projected accessory revenues in one of our costume jewelry brands, we recorded a trademark impairment charge $0.2 million in 2004.

The extent of our foreign operations and manufacturing may adversely affect our domestic business.

In 2006, approximately 96% of our apparel products were manufactured outside of the United States, its territories and Mexico, primarily in Asia, while approximately 4% were manufactured in the United States, its territories and Mexico. Nearly all of our footwear and accessories products were manufactured outside of North America in 2006 as well. The following may adversely affect foreign operations:

political instability in countries where contractors and suppliers are located;
imposition of regulations and quotas relating to imports;
imposition of duties, taxes and other charges on imports;
significant fluctuation of the value of the dollar against foreign currencies; and
restrictions on the transfer of funds to or from foreign countries.

As a result of our substantial foreign operations, our domestic business is subject to the following risks:

uncertainties of sourcing associated with the new environment in which quota has been eliminated on apparel products pursuant to the World Trade Organization Agreement, effective January 1, 2005 (although China has agreed to safeguard quota on certain classes of apparel products through 2008 as a result of a surge in exports to the United States, political pressure will likely continue for restraint on importation of apparel);

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reduced manufacturing flexibility because of geographic distance between us and our foreign manufacturers, increasing the risk that we may have to mark down unsold inventory as a result of misjudging the market for a foreign-made product; and
violations by foreign contractors of labor and wage standards and resulting adverse publicity.

Fluctuations in the price, availability and quality of raw materials could cause delay and increase costs.

Fluctuations in the price, availability and quality of the fabrics or other raw materials used by us in our manufactured apparel and in the price of materials used to manufacture our footwear and accessories could have a material adverse effect on our cost of sales or our ability to meet our customers' demands. The prices for such fabrics depend largely on the market prices for the raw materials used to produce them, particularly cotton. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including crop yields and weather patterns. In the future, we may not be able to pass all or a portion of such higher raw materials prices on to our customers.

Our reliance on independent manufacturers could cause delay and damage our reputation and customer relationships.

We rely upon independent third parties for the manufacture of most of our products. A manufacturer's failure to ship products to us in a timely manner or to meet the required quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may drive customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on us. This could damage our reputation. We do not have long-term written agreements with any of our third party manufacturers. As a result, any of these manufacturers may unilaterally terminate their relationships with us at any time.

We are also increasing pre-production collaboration efforts with many of our third party manufacturers to utilize their capabilities to increase speed to market and improve margins. Difficulties in effectively achieving this collaboration could have an adverse impact on our ability to achieve a substantial portion of the savings we anticipate as a result of our strategic review.

Although we have an active program to train our independent manufacturers in, and monitor their compliance with, our labor and other factory standards, any failure by those manufacturers to comply with our standards or any other divergence in their labor or other practices from those generally considered ethical in the United States and the potential negative publicity relating to any of these events could materially harm us and our reputation.

Any inability to identify acquisition candidates could have a material effect on our future growth.

A significant part of our growth depends on our ability to identify acquisition candidates and, in an increasingly competitive environment for such acquisitions, acquire such businesses on reasonable financial and other terms. Difficulties in integrating the organizations and operations of any acquired businesses into our existing organization and operations could have a material adverse effect on us and could damage our reputation.

Difficulties in implementing a new enterprise system could impact our ability to design, produce and ship our products on a timely basis.

We have announced the selection of the SAP Apparel and Footwear Solution as our core operational and financial system. The implementation of the SAP Apparel and Footwear Solution software, which began in November 2006, is a key part of our ongoing efforts to eliminate redundancies and enhance our overall cost structure and margin performance. Difficulties migrating existing systems to this new software could impact our ability to design, produce and ship our products on a timely basis.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

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

Location	Owned/Leased	Use	Approximate Area in Square Feet (1)
Bristol, Pennsylvania (2)	leased	Headquarters and distribution warehouse	419,200
Bristol, Pennsylvania	leased	Administrative and computer services	172,600
New York, New York	leased	Administrative, executive and sales offices	793,850
Vaughan, Canada	leased	Administrative offices and distribution warehouse	125,000
Lawrenceburg, Tennessee	owned	Distribution warehouses	1,223,800
South Hill, Virginia	leased	Distribution warehouses	835,900
El Paso, Texas	owned	Administrative, warehouse and preproduction facility	165,000
El Paso, Texas	leased	Distribution warehouses	952,000
White Plains, New York	leased	Administrative offices	132,200
West Deptford, New Jersey	leased	Distribution warehouses	988,150
East Providence, Rhode Island	leased	Distribution warehouses, product development, administrative and computer services	241,400
Goose Creek, South Carolina	leased	Distribution warehouses	715,250
Edison, New Jersey	leased	Distribution warehouse	156,000
San Luis, Mexico	leased	Production and distribution warehouses	186,000
Lyndhurst, New Jersey	leased	Distribution warehouse	180,000
New York, New York	leased	Barneys New York flagship retail store	240,000
Beverly Hills, California	leased	Barneys New York flagship retail store	120,000

_________________
(1) Including mezzanine where applicable.
(2) Approximately 381,800 square feet of this facility is currently not in service.

We sublease a 234,000 square feet office building in White Plains, New York and a 220,000 square foot warehouse facility in Teterboro, New Jersey to independent companies. Our Australian joint venture company leases office and distribution facilities in Australia.

We also own approximately 550,000 square feet of office and manufacturing facilities in Mexico which are not in service. We intend to sell these facilities during 2007.

Our retail stores are leased pursuant to long-term leases, typically five to seven years for apparel and footwear outlet stores, ten years for footwear and accessories and apparel specialty stores and ten to 20 years with multiple ten-year renewal options for our luxury stores. Certain leases allow us to terminate our obligations after a predetermined period (generally one to three years) in the event that a particular location does not achieve specified sales volume, and some leases have options to renew. Many leases include clauses that provide for contingent payments based on sales volumes, and many leases contain escalation clauses for increases in operating costs and real estate taxes.

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

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ITEM 3. LEGAL PROCEEDINGS

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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

Name	Age	Office
Peter Boneparth	47	President and Chief Executive Officer
Sidney Kimmel	79	Chairman
Wesley R. Card	59	Chief Operating Officer
Efthimios P. Sotos	39	Chief Financial Officer
Patrick M. Farrell	57	Executive Vice President and Corporate Controller
Ira M. Dansky	61	Executive Vice President, General Counsel and Secretary
Lynne F. Cote'	41	Chief Executive Officer - Wholesale Sportswear, Suits and Dresses

Mr. Boneparth was named President in March 2002 and Chief Executive Officer in May 2002. He has been Chief Executive Officer of McNaughton since June 1999, President of McNaughton from April 1997 until January 2002, and Chief Operating Officer of McNaughton from 1997 until its acquisition by us.

Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970. Mr. Kimmel has served as our Chairman since 1975 and as Chief Executive Officer from 1975 to May 2002.

Mr. Card was named our Chief Operating Officer in March 2002. He also served as our Chief Financial Officer from 1990 to March 2006.

Mr. Sotos was named Chief Financial Officer in March 2006. He previously served as Executive Vice President - Treasurer, Strategic and Financial Planning from September 2005 to March 2006. He served as Corporate Vice President and Treasurer from 2001 to April 2002 and Senior Vice President and Treasurer from May 2002 to August 2005. Mr. Sotos joined Jones Apparel Group in 1999 as part of our acquisition of Nine West Group, where he was the Assistant Treasurer.

Mr. Farrell was appointed Vice President and Corporate Controller in November 1997, Senior Vice President in September 1999 and Executive Vice President in March 2006.

Mr. Dansky has been our General Counsel since 1996 and our Secretary since January 2001. He was elected an Executive Vice President in March 2002.

Ms. Cote' was named Chief Executive Officer - Wholesale Sportswear, Suits and Dresses in November 2005. She served as Chief Executive Officer - Moderate Sportswear Division from July 2005 to November 2005 and as President - Moderate Sportswear from October 2001 to July 2005. Prior to that, she was Executive Vice President of Merchandising for McNaughton from November 1998 to October 2001.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Price range of common stock:
2006
High	$36.10	$35.98	$33.07	$34.51
Low	$28.58	$30.59	$27.30	$31.72
2005
High	$37.48	$33.69	$33.45	$31.26
Low	$31.61	$29.07	$26.85	$26.47
Dividends per share of common stock:
2006	$0.12	$0.12	$0.12	$0.14
2005	$0.10	$0.10	$0.12	$0.12

Our common stock is traded on the New York Stock Exchange under the symbol "JNY." The above figures set forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the New York Stock Exchange Composite Tape. The last reported sale price per share of our common stock on February 23, 2007 was $34.08, and on that date there were 533 holders of record of our common stock. However, many shares are held in "street name;" therefore, the number of holders of record may not represent the actual number of shareholders.

Annual CEO Certification

The Annual CEO Certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual was submitted to the New York Stock Exchange on May 25, 2006.

Issuer Purchases of Equity Securities

The following table sets forth the repurchases of our common stock for the fiscal quarter ended December 31, 2006.

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
October 1, 2006 to October 28, 2006	225,000	$33.22	225,000	$86,824,607
October 29, 2006 to November 25, 2006	2,595,454	$33.44	2,595,454	$21,441
November 26, 2006 to December 31, 2006	-	-	-	$21,441
Total	2,820,454	$33.43	2,820,454	$21,441

These repurchases were made under a program announced on February 15, 2006 for $250.0 million. This plan has no expiration date.

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Comparative Performance

The SEC requires us to present a chart comparing the cumulative total stockholder return on our common stock with the cumulative total stockholder return of (i) a broad equity market index and (ii) a published industry index or peer group. The following chart compares the performance of our common stock with that of the S&P 500 Composite Index and the S&P 500 Apparel, Accessories & Luxury Goods Index, assuming an investment of $100 on December 31, 2001 in each of our common stock, the stocks comprising the S&P 500 Composite Index and the stocks comprising the S&P 500 Apparel, Accessories & Luxury Goods Index and the reinvestment of dividends.

Performance Graph

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ITEM 6. SELECTED FINANCIAL DATA

The following financial information is qualified by reference to, and should be read in conjunction with, our Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Report. The selected consolidated financial information presented below is derived from our audited Consolidated Financial Statements for each of the five years in the period ended December 31, 2006. We completed our acquisitions of Gloria Vanderbilt, l.e.i., Kasper, Maxwell and Barneys at various dates within the five-year period and, accordingly, the results of their operations are included in our operating results from the respective dates of acquisition.

(All amounts in millions except per share data)

Year Ended December 31,		2006	2005	2004	2003	2002
Income Statement Data
	Net sales	$ 4,669.9	$ 5,014.6	$ 4,592.6	$ 4,339.1	$ 4,312.2
	Licensing income (net)	51.8	59.6	57.1	36.2	28.7
	Service and other revenues	21.1	-	-	-	-

	Total revenues	4,742.8	5,074.2	4,649.7	4,375.3	4,340.9
	Cost of goods sold	3,031.3	3,243.8	2,944.4	2,738.6	2,657.0

	Gross profit	1,711.5	1,830.4	1,705.3	1,636.7	1,683.9
	Selling, general and administrative expenses	1,341.7	1,333.2	1,176.7	1,052.4	1,068.9
	Loss on sale of Polo Jeans Company business	45.1	-	-	-	-
	Trademark impairments	50.2	-	0.2	4.5	24.4
	Goodwill impairment	441.2	-	-	-	-

	Operating (loss) income	(166.7)	497.2	528.4	579.8	590.6
	Interest income	3.5	1.1	1.9	3.5	4.6
	Interest expense and financing costs	58.2	76.2	51.2	58.8	62.7
	Gain on sale of stock in Rubicon Retail Limited	17.4	-	-	-	-
	Equity in earnings of unconsolidated affiliates	4.5	3.2	3.8	2.5	1.0

	(Loss) income before provision for income taxes	(199.5)	425.3	482.9	527.0	533.5
	(Benefit) provision for income taxes	(53.5)	151.0	181.1	198.4	201.2

	(Loss) income before cumulative effect of change in accounting principle	(146.0)	274.3	301.8	328.6	332.3
	Cumulative effect of change in accounting for share-based payments, net of tax	1.9	-	-	-	-
	Cumulative effect of change in accounting for intangible assets, net of tax	-	-	-	-	(13.8)

	Net (loss) income	$(144.1)	$ 274.3	$ 301.8	$ 328.6	$ 318.5

Per Share Data
	(Loss) income per share before cumulative effect of change in accounting principle
	Basic	$(1.32)	$2.33	$2.44	$2.58	$2.59
	Diluted	$(1.32)	$2.30	$2.39	$2.48	$2.46
	Net (loss) income per share
	Basic	$(1.30)	$2.33	$2.44	$2.58	$2.48
	Diluted	$(1.30)	$2.30	$2.39	$2.48	$2.36
	Dividends paid per share	$0.50	$0.44	$0.36	$0.16	-
	Weighted average common shares outstanding
	Basic	110.6	118.0	123.6	127.3	128.2
	Diluted	110.6	119.2	126.5	136.5	139.0
December 31,		2006	2005	2004	2003	2002
Balance Sheet Data
	Working capital	$ 663.2	$ 447.8	$ 612.3	$ 826.9	$ 890.9
	Total assets	3,787.0	4,577.8	4,550.8	4,187.7	3,852.6
	Short-term debt and current portion of long-term debt and capital lease obligations	104.1	357.3	203.2	180.8	6.3
	Long-term debt, including capital lease obligations	788.6	789.8	1,016.6	835.1	978.1
	Stockholders' equity	2,211.6	2,666.4	2,653.9	2,537.8	2,303.5

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information and analysis of our results of operations from 2004 through 2006, and our liquidity and capital resources. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements included elsewhere herein.

Executive 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 women and children, and women'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.

During 2006, the following significant events took place:

in February 2006, we settled litigation with Polo and sold the Polo Jeans Company business to Polo;
in March 2006, we opened a new Barneys New York flagship store in Boston, Massachusetts;
in May 2006, we announced the closing of our Stein Mart leased shoe departments, effective mid-January 2007;
in May 2006, we announced the closing of our Secaucus, New Jersey warehouse;
in September 2006, we opened a new Barneys New York flagship store in Dallas, Texas;
in September 2006, we announced the closing of certain El Paso and Mexican production facilities due to Polo's discontinuance of the Polo Jeans Company product line, which we produced for Polo subsequent to the sale of the Polo Jeans Company business; and
we recognized impairments during the fourth fiscal quarter of 2006 of $8.6 million for property, plant and equipment, $441.2 million of goodwill related to the wholesale moderate apparel segment and $50.2 million of trademark value.

Trends

We believe that several significant trends are occurring in the women's apparel, footwear and accessories industry. We believe that a trend exists among our major retail accounts to concentrate their women's apparel, footwear and accessories buying among a narrowing group of vendors and to differentiate their product offerings through exclusivity of brands. We believe department stores are increasing the focus of their product assortments on their own private label products. We also believe that consumers in the United States and Canada are shopping in multiple channels, including specialty shops and national chains where value is perceived to be higher. We have responded to these trends by enhancing the brand equity of our brands through our focus on design, quality and value, and through strategic acquisitions which provide significant diversification to the business by successfully adding new distribution channels, labels and product lines (such as the Joan & David, Mootsies Tootsies and Sam & Libby brands and the Barneys New York retail stores). Through this diversification, we have evolved into a multidimensional resource in apparel, footwear and accessories and retail. We have leveraged the strength of our brands to increase both the number of locations and amount of selling space in which our products are offered, to introduce product extensions such as the Jones New York Signature, Nine West, Nine & Company and Bandolino apparel brands and the Jones New York accessory brand, and to reposition the Bandolino and Evan-Picone brands to the moderate market segment. We have also leveraged our design, production and marketing capabilities to develop and provide proprietary branded and private label products such as Nine & Company to major wholesale customers.

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On January 1, 2005, the World Trade Organization's 148 member nations lifted all quotas on apparel and textiles. As a result, all textiles and textile apparel manufactured in a member nation and exported after January 1, 2005 are no longer subject to quota restrictions. This allows retailers, apparel firms and others to import unlimited quantities of apparel and textile items from China, India and other low-cost countries. The effects of this action could lead to lower production costs or allow us to improve the quality of our products for a given cost and could also allow us to concentrate production in the most efficient markets. China, however, has implemented an export tax on many of the items previously subject to quota restriction. In addition, litigation and political activity has been initiated by interested parties seeking to re-impose quotas. As a result, we are unable to predict the long-term effects of the lifting of quota restrictions and related events on our results of operations.

Sale of Polo Jeans Company Business

In October 1995, we acquired an exclusive license to manufacture and market women's shirts, blouses, skirts, jackets, suits, sweaters, pants, vests, coats, outerwear and hats under the Lauren by Ralph Lauren trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo (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 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 believed that this was 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 alleged that Polo breached the Lauren License agreements by claiming that the license ends at the end of 2003. The complaint also alleged that Ms. Nemerov breached the confidentiality and non-compete provisions of her employment agreement with us. Additionally, Polo was alleged to have induced Ms. Nemerov to breach her employment agreement and Ms. Nemerov was 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.

These matters were resolved by settlement dated January 22, 2006, which closed on February 3, 2006. In connection with this settlement, we entered into a Stock Purchase Agreement with Polo and certain of its subsidiaries with respect to the sale to Polo of all outstanding stock of Sun. We received gross proceeds of $355.0 million in connection with the sale and the settlement. Sun's assets and liabilities on the closing date primarily related to the Polo Jeans Company business, which Sun operated under long-term license and design agreements entered into with Polo in 1995. We retained distribution and product development facilities in El Paso, Texas, along with certain working capital items, including accounts receivable and accounts payable. In addition, as part of the agreements, we provided certain support services to Polo (including manufacturing, distribution and information technology) until January 2007 and we will continue to provide certain financial and administrative functions until March 2007.

We recorded a pre-tax loss of approximately $145.1 million after allocating $356.7 million of goodwill to the business sold and a pre-tax gain of $100.0 million related to the litigation settlement. Approximately $3.7 million in state and local taxes have been accrued related to the litigation settlement, resulting in a combined after tax loss of approximately $48.8 million. The combined loss created federal and state capital loss carryforwards that we do not expect to be realizable and, as a result, we increased our deferred tax valuation allowance to offset the deferred tax benefit recorded as a result of the combined loss.

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Long-lived assets included in the sale include $2.0 million of net property, plant and equipment and $5.5 million of unamortized long-term prepaid marketing expenses. Net sales for the Polo Jeans Company business, which are reported under the wholesale better apparel segment, were $24.6 million, $303.5 million and $336.5 million for 2006, 2005 and 2004, respectively.

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 (the "denim restructuring"). All manufacturing was consolidated into existing operations in Durango and Torreon, Mexico. A total of 3,170 employees were terminated as a result of the closure. We undertook a number of measures to assist affected employees, including severance and benefits packages. As a result of this consolidation, we expected that our manufacturing operations would perform more efficiently, thereby improving our operating performance.

In connection with the denim restructuring, we recorded $11.4 million of net pre-tax costs (of which $12.1 million was recorded in 2005 and $0.7 million was reversed in 2006), which includes $5.1 million of one-time termination benefits, $3.2 million of losses on the sale of property, plant and equipment, $2.2 million of contract termination costs and $0.9 million of legal and other associated costs. Of these amounts, $10.1 million were reported as cost of sales and $1.3 million were reported as a selling, general and administrative expense in the wholesale moderate apparel segment. The restructuring was substantially completed during the fiscal quarter ended April 1, 2006.

In December 2005, we closed our distribution center in Bristol, Pennsylvania. A total of 118 employees were affected by the closure. We recorded charges of $3.6 million and $0.4 million in 2005 and 2006, respectively, related to one-time termination benefits and other employee-related matters. These expenses are reported as selling, general and administrative expenses in the wholesale better apparel segment.

On May 15, 2006, we announced the closing of our Secaucus, New Jersey warehouse to reduce excess capacity. In connection with the closing, we incurred $2.7 million of one-time termination benefits and associated employee costs for 211 employees and $1.6 million for cleanup costs and remaining rent payments. These expenses are reported as selling, general and administrative expenses in the wholesale better apparel segment. The restructuring was substantially completed in September 2006.

On May 30, 2006, we announced the closing of our Stein Mart leased shoe departments, effective January 2007. In connection with the closing, we have accrued $1.2 million of one-time termination benefits and associated employee costs for an estimated 520 employees, which is reported as a selling, general and administrative expense in the retail segment.

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On September 12, 2006, we announced the closing of certain El Paso, Texas and Mexican operations related to the decision by Polo to discontinue the Polo Jeans Company product line (the "manufacturing restructuring") , which we produced for Polo subsequent to the sale of the Polo Jeans Company business to Polo in February 2006. In connection with the El Paso closing, we expect to incur $4.6 million of one-time termination benefits and associated employee costs for an estimated 129 employees and $0.6 million of other costs. Of this amount, $2.3 million is reported as a selling, general and administrative expense and $1.8 million is reported as a cost of sales in the wholesale moderate apparel segment during 2006, and the remaining $1.1 million will be accrued on a straight-line basis over the remaining period each employee is required to render service to receive the benefit. In connection with the Mexican closing, we expect to incur $3.0 million of one-time termination benefits and associated employee costs for an estimated 1,734 employees and $0.2 million of other costs. Of this amount, $2.8 million is reported as cost of sales in the wholesale moderate apparel segment, and the remaining $0.4 million will be recorded during the first fiscal quarter of 2007. In addition, we determined the estimated fair value of the property, plant and equipment employed in Mexico was less than its carrying value. As a result, we recorded an impairment loss of $8.6 million, which is also reported as cost of sales in the wholesale moderate apparel segment, with the estimated fair value of $5.2 million reclassified as assets held for sale and reported as part of prepaid expenses and other current assets. The closings will be substantially completed by the end of March 2007.

Strategic Review

Supply Chain Management

We are in the process of implementing a product development management system which will ultimately be integrated with our third-party manufacturers.
We are utilizing 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 and better apparel businesses, and will continue to be expanded across most of our businesses.
We have selected SAP Apparel and Footwear Solution as our 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 customer.
In response to the elimination of apparel quotas and other trade safeguards, we are in the process of consolidating our third-party manufacturing to a more concentrated vendor matrix.

General and Administrative Areas

We are implementing best practices in connection with the migration of our current systems to the SAP Apparel and Footwear Solution platform.

Goodwill and Other Intangible Assets

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method. Accounting rules require that we test at least annually for possible goodwill impairment. We perform our test in the fourth fiscal quarter of each year using a discounted cash flow analysis that requires that certain assumptions and estimates be made regarding industry economic factors and future profitability. As a result of the 2006 impairment analysis, we determined that the goodwill balance existing in our wholesale moderate apparel segment was impaired as a result of continuing decreases in projected revenues and profitability with respect to our Norton McNaughton, l.e.i. and certain other moderate apparel brands, as well as changes in business strategy with respect to our Norton McNaughton brand. Accordingly, we recorded an impairment charge of $441.2 million. No other indication of goodwill impairment was identified.

We also perform our annual impairment test for trademarks during the fourth fiscal quarter of the year. As a result of continuing decreases in projected revenues for our Norton McNaughton brand, our Albert Nipon better apparel brand, our Westies and Sam & Libby footwear brands and our Richelieu costume jewelry brand, we recorded trademark impairment charges of $50.2 million in 2006. As a result of similar continuing decreases in projected accessory revenues in one of our costume jewelry brands, we recorded a trademark impairment charge of $0.2 million in 2004. All trademark impairment charges are reported as selling, general and administrative ("SG&A") expenses in the licensing, other and eliminations segment.

Stock-Based Compensation

Effective January 1, 2003, we adopted the fair value method of accounting for employee stock options for all options granted after December 31, 2002 pursuant to the guidelines contained in SFAS No. 123, "Accounting for Stock-Based Compensation" using the "prospective method" set forth in SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." 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. Since the expense to be recorded is dependent on both the timing and the number of options to be granted, we cannot estimate the effect on future results of operations at this time. Prior to January 1, 2003, pursuant to a provision in SFAS No. 123 we had elected to continue using the intrinsic-value method of accounting for stock options granted to employees in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options 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 stock-based awards to employees for options granted at below-market prices. For more information, see "Summary of Accounting Policies - Stock Options" in Notes to Consolidated Financial Statements.

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 adopted 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 were outstanding as of January 1, 2006 will be recognized as the remaining requisite service is rendered. In addition, the adoption of SFAS No. 123R required us to change from recognizing the effect of forfeitures as they occur to estimating the number of outstanding instruments for which the requisite service is not expected to be rendered. As a result, we recorded a pretax gain of $3.1 million on January 1, 2006, which is reported as a cumulative effect of a change in accounting principle. We were also required to change the amortization period for employees eligible to retire from the period over which the awards vest to the period from the grant date to the date the employee is eligible to retire. The adoption of SFAS No. 123R did not have a material effect on our results of operations or our financial position. Concurrently with the adoption of SFAS No. 123R, we have shifted the composition of our share-based compensation awards towards the use of restricted shares and away from the use of employee stock options.

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Critical Accounting Policies

Several of our accounting policies involve significant or complex judgements and uncertainties and require us to make certain critical accounting estimates. We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were highly uncertain at the time the estimate was made. The estimates with the greatest potential effect on our results of operations and financial position include the collectibility of accounts receivable, the recovery value of obsolete or overstocked inventory and the fair values of both our goodwill and intangible assets with indefinite lives. Estimates related to accounts receivable affect our wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories and retail segments. Estimates related to inventory and goodwill affect our wholesale better apparel, wholesale moderate apparel, wholesale footwear and accessories and retail segments. Estimates related to intangible assets with indefinite lives affect our licensing, other and eliminations segment.

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.

We annually test both our goodwill and our intangible assets with indefinite lives for impairment by utilizing independent third-party appraisals to estimate their fair values. 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.

We have not made any material changes to any of our critical accounting estimates in the last three years. Our senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Results of Operations

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

(In millions)		2006		2005		2004
Net sales		$ 4,669.9	98.5%	$ 5,014.6	98.8%	$ 4,592.6	98.8%
Licensing income (net)		51.8	1.1%	59.6	1.2%	57.1	1.2%
Service and other revenues		21.1	0.4%	-	-	-	-

	Total revenues	4,742.8	100.0%	5,074.2	100.0%	4,649.7	100.0%
Cost of goods sold		3,031.3	63.9%	3,243.8	63.9%	2,944.4	63.3%

	Gross profit	1,711.5	36.1%	1,830.4	36.1%	1,705.3	36.7%
Selling, general and administrative expenses		1,341.7	28.3%	1,333.2	26.3%	1,176.9	25.3%
Loss on sale of Polo Jeans Company business		45.1	1.0%	-	-	-	-
Trademark impairments		50.2	1.1%	-	-	-	-
Goodwill impairment		441.2	9.3%	-	-	-	-

	Operating (loss) income	(166.7)	(3.5%)	497.2	9.8%	528.4	11.4%
Interest income		3.5	0.1%	1.1	0.0%	1.9	0.0%
Interest expense and financing costs		58.2	1.2%	76.2	1.5%	51.2	1.1%
Gain on sale of stock in Rubicon Retail Limited		17.4	0.4%	-	-	-	-
Equity of earnings of unconsolidated affiliates		4.5	0.1%	3.2	0.1%	3.8	0.1%

	(Loss) income before provision for income taxes	(199.5)	(4.2%)	425.3	8.4%	482.9	10.4%
(Benefit) provision for income taxes		(53.5)	(1.1%)	151.0	3.0%	181.1	3.9%

	(Loss) income before cumulative effect of change in accounting principle	(146.0)	(3.1%)	274.3	5.4%	301.8	6.5%
Cumulative effect of change in accounting for share-based payments, net of tax		1.9	0.0%	-	-	-	-

	Net (loss) income	$(144.1)	(3.0%)	$ 274.3	5.4%	$ 301.8	6.5%

Percentage totals may not agree due to rounding.

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2006 Compared with 2005

Revenues. Total revenues for 2006 were $4.74 billion compared with $5.07 billion for 2005, a decrease of 6.5%.

Revenues by segment were as follows:

(In millions)	2006	2005	Increase (Decrease)	Percent Change
Wholesale better apparel	$ 1,127.4	$ 1,438.2	$(310.8)	(21.6%)
Wholesale moderate apparel	1,142.0	1,265.2	(123.2)	(9.7%)
Wholesale footwear and accessories	941.1	978.6	(37.5)	(3.8%)
Retail	1,477.9	1,332.6	145.3	10.9%
Licensing and other	54.4	59.6	(5.2)	(8.7%)

Total revenues	$ 4,742.8	$ 5,074.2	$(331.4)	(6.5%)

Wholesale better apparel revenues decreased primarily due to the sale of the Polo Jeans Company business ($278.9 million of the decrease) and the discontinuance of our Easy Spirit apparel line, which we discontinued due to poor retail performance, and our Jones New York Country apparel line, which we discontinued because we were offering similar products under our Jones New York Signature brand. Decreases in shipments of our Jones New York Sport product line as a result of order reductions from its largest customer were partially offset by increased customer orders for our Nine West apparel product line.

Wholesale moderate apparel revenues decreased primarily due to decreased shipments of our l.e.i., Joneswear, Nine & Co., Norton McNaughton and Bandolino product lines (where customers are replacing these brands in their locations with private-label and other products) and the discontinuance by our wholesale customers of their exclusive A|Line, Joneswear Jeans, C.L.O.T.H.E.S. and Latina product lines. These decreases were partially offset by increased shipments resulting from higher customer orders for our Gloria Vanderbilt and GLO product lines and increased shipments of private label products, including the new Duckhead product line.

Wholesale footwear and accessories revenues decreased due to (1) decreased shipments of our Nine West accessory product line due to poor performance and retail consolidations; (2) decreased shipments of our Enzo Angiolini, Sam & Libby and Easy Spirit footwear product lines (primarily due to retail consolidations and reduced customer orders); (3) discontinuance of the Bandolino and l.e.i. costume jewelry product lines due to poor retail performance; and (4) discontinuance of the licensed Tommy Hilfiger costume jewelry product line as a result of the termination of the licensing arrangement. These decreases were partially offset by increased shipments of our Anne Klein and Circa Joan & David footwear product lines due to higher customer orders resulting from strong product performance at retail and an increase in our international footwear business.

Retail revenues increased due to $71.1 million in revenues from new store openings and a $58.7 million additional revenues resulting from a 4.7% increase in comparable store sales (comparable stores are stores that have been open for a full year, are not scheduled to close in the current period and are not scheduled for an expansion or downsize by more than 25% or relocation to a different street or mall). We began 2006 with 1,086 retail locations and had a net increase of 46 locations during the period to end the period with 1,132 locations.

Revenues for 2006 also include $17.4 million of service fees charged to Polo under a short-term transition service agreement entered into with Polo at the time of the sale of the Polo Jeans Company business. These revenues are based on contractual monthly and per-unit fees as set forth in the agreement. Of this amount, $11.7 million was recorded in the wholesale better apparel segment, $3.1 million was recorded in the wholesale moderate apparel segment and $2.6 million was recorded in the licensing and other segment.

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Gross Profit. The gross profit margin was 36.1% for both 2006 and 2005.

Wholesale better apparel gross profit margins were 36.5% and 34.6% for 2006 and 2005, respectively. The increase was due to lower levels of sales to off-price retailers, lower production costs and lower levels of air freight, partially offset by reduced sales of higher-margin Polo Jeans Company products as a result of the sale of the Polo Jeans Company business.

Wholesale moderate apparel gross profit margins were 21.2% and 23.0% for 2006 and 2005, respectively. Increased margins in our Gloria Vanderbilt and GLO product lines were offset by higher levels of sales to off-price retailers, higher levels of air freight and excess capacity in our Mexican manufacturing operations.

Wholesale footwear and accessories gross profit margins were 28.6% and 31.0% for 2006 and 2005, respectively. The decrease was a result of lower net sales in the higher-margin wholesale jewelry business, higher net sales in our lower-margin international business, higher levels of air freight and sales to off-price retailers, markdowns related to the discontinuance of the licensed Tommy Hilfiger jewelry line in the current period and writedowns of excess inventory in our direct selling jewelry and accessory business.

Retail gross profit margins were 48.8% and 50.1% for 2006 and 2005, respectively. The decrease was the result of a higher level of promotional activity in our footwear and accessories stores, the liquidation of excess inventory and increased sales in our lower-margin Barneys stores in the current period.

SG&A Expenses. SG&A expenses were $1.34 billion in 2006 and $1.33 billion in 2005. A $59.1 million decrease due to the sale of the Polo Jeans Company business and headcount reductions as a result of our strategic initiatives were offset by $34.1 million of increased expenses resulting from the opening of new retail stores, $11.5 million of higher advertising expenses, $4.3 million recorded in the wholesale better apparel segment in the current period related to the closing of the Secaucus warehouse, $1.2 million recorded in the retail segment related to the closing of our Stein Mart retail locations, $2.3 million recorded in the wholesale moderate apparel segment related to the closing of our Mexican production facilities and $10.0 million recorded in the wholesale footwear and accessories segment related to the termination of a former executive officer and the settlement of litigation concerning a license agreement. SG&A expenses for 2006 also included $2.6 million in the retail segment and $0.9 million recorded in the licensing, other and eliminations segment related to the termination of the former executive officer. SG&A expenses for 2005 included approximately $3.1 million as a result of an arbitration award to a former employee, approximately $3.6 million related to the closing of our Bristol warehouse facility 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.

Impairment Losses and Other Items. As a result of our 2006 impairment analysis, we determined that the goodwill balance existing in our wholesale moderate apparel segment was impaired as a result of continuing decreases in projected revenues and profitability for our Norton McNaughton, l.e.i. and certain other moderate apparel brands as well as changes in business strategy with respect to our Norton McNaughton brand. Accordingly, we recorded an impairment charge of $441.2 million. As a result of continuing decreases in projected revenues for our Norton McNaughton brand, our Albert Nipon better apparel brand, our Westies and Sam & Libby footwear brands and our Richelieu costume jewelry brand, we also recorded trademark impairment charges of $50.2 million. During 2006, we also recorded a $17.4 million gain (net of associated costs) upon the sale of stock in Rubicon Retail Limited (see "Gain on Sale of Stock in Rubicon Retail Limited" in Notes to Consolidated Financial Statements).

Operating (Loss) Income. The resulting operating loss for 2006 was $166.7 million compared with operating income of $497.2 million for 2005, due to the factors described above and the loss of the sale of the Polo Jeans Company business.

Net Interest Expense. Net interest expense was $54.7 million in 2006 compared with $75.1 million in 2005. The decrease was primarily the result of lower average borrowings during 2006 and the redemption at maturity of our 7.875% Senior Notes in June 2006.

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(Benefit) Provision for Income Taxes. The effective income tax rate was 26.7% for 2006 and 35.5% for 2005. The difference was primarily driven by the net tax effects associated with the sale of the Polo Jeans Company business, the goodwill impairment, the litigation settlement and the gain on the sale of stock in Rubicon Retail Limited. Without the effects of the Polo Jeans Company sale, the goodwill impairment, the litigation settlement and the gain on the sale of stock in Rubicon Retail Limited, the effective tax rate for 2006 was 34.4%. The change from 2005 to 2006 was primarily driven by favorable resolutions of the 2001 to 2003 federal and various state income tax audits that resulted in the reversal of $8.6 million of prior income tax accruals.

Cumulative Effect of Change in Accounting for Share-Based Payment. The adoption of SFAS No. 123R required us to change from recognizing the effect of forfeitures of unvested employee stock options and restricted stock as they occur to estimating the number of outstanding instruments for which the requisite service is not expected to be rendered. As a result, we recorded a gain of $1.9 million (net of $1.2 million in taxes) on January 1, 2006 as a cumulative effect of a change in accounting principle.

Net (Loss) Income and (Loss) Earnings Per Share. Net loss was $144.1 million in 2006 compared with net income of $274.3 million earned in 2005. Diluted (loss) earnings per share for 2006 was $(1.30) compared with $2.30 for 2005, on 7.2% fewer shares outstanding.

2005 Compared with 2004

Revenues. Total revenues for 2005 were $5.07 billion compared with $4.65 billion for 2004, an increase of 9.1%.

Revenues by segment were as follows:

(In millions)	2005	2004	Increase (Decrease)	Percent Change
Wholesale better apparel	$ 1,438.2	$ 1,493.2	$(55.0)	(3.7%)
Wholesale moderate apparel	1,265.2	1,315.3	(50.1)	(3.8%)
Wholesale footwear and accessories	978.6	1,002.4	(23.8)	(2.4%)
Retail	1,332.6	780.3	552.3	70.8%
Licensing and other	59.6	58.5	1.1	1.9%

Total revenues	$ 5,074.2	$ 4,649.7	$ 424.5	9.1%

In the wholesale better apparel segment, decreased shipments of the Polo Jeans Company, Kasper Suit, Jones New York Signature, Jones New York Dress and Le Suit product lines (due to lower wholesale customer orders) were partially offset by increased shipments of our Nine West, Jones New York Collection and Anne Klein product lines due to higher customer orders based on the products' performance at the retail level.

Wholesale moderate apparel revenues decreased primarily as a result of a reduction in shipments of our Norton McNaughton product line (primarily as a result of the decision by certain customers to no longer carry this brand) and our l.e.i., private label denim, Erika and Evan-Picone product lines (due to lower wholesale customer orders). These reductions were partially offset by increases in our Gloria Vanderbilt, Nine & Company and Bandolino product lines due to higher customer orders, as well as initial shipments of several new product lines, including Pappagallo, Rena Rowan, C.L.O.T.H.E.S., A|Line (which launched in the third quarter of 2004) and the W and Latina private label product lines.

Wholesale footwear and accessories revenues decreased primarily due to decreased shipments in our Nine West accessories (due to lower wholesale customer orders) and our Nine West footwear product line (as a result of a customer's decision to no longer carry this brand) and our Easy Spirit and Enzo Angiolini footwear product lines (due to lower wholesale customer orders), partially offset by the product lines added as a result of the Maxwell acquisition ($98.6 million for the portion of 2005 for which there were no corresponding shipments in 2004) as well as an increase in our international footwear business.

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Retail revenues increased primarily as the result of approximately $522.0 million in incremental sales from the locations added as a result of the Barneys acquisition as well as $33.2 million in revenues from new footwear and apparel store openings, partially offset by a $1.4 million revenue reduction resulting from a 0.2% decrease in comparable store sales. We began 2005 with 1,037 retail locations and had a net increase of 49 locations during the period to end the period with 1,086 locations.

Gross Profit. The gross profit margin decreased to 36.1% in 2005 compared with 36.7% in 2004.

Wholesale better apparel gross profit margins were 34.6% and 34.2% for 2005 and 2004, respectively. The increase reflects the effect of a $4.1 million adjustment to cost of sales in 2004 to write up acquired Kasper inventories to market value as required under purchase accounting.

Wholesale moderate apparel gross profit margins were 23.0% and 26.1% for 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 $10.6 million of costs related to the denim restructuring, an estimated $12.5 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 Gloria Vanderbilt products.

Wholesale footwear and accessories gross profit margins were 31.0% and 33.5% for 2005 and 2004, respectively. The decrease was primarily 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 were offset in the prior period by an adjustment to cost of sales of $6.0 million to write up acquired Maxwell inventories to market value as required under purchase accounting.

Retail gross profit margins were 50.1% and 53.3% for 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 $1.33 billion in 2005 represented an increase of $156.3 million from the $1.18 billion reported for 2004. In 2005, Barneys added an incremental $197.4 million to the retail segment, which includes $0.8 million of net amortization of acquired intangible assets and unfavorable leases, and $2.5 million to the licensing, other and eliminations segment. SG&A expenses for 2005 included approximately $3.1 million as a result of an arbitration award to a former employee, approximately $3.6 million related to the closing of our Bristol warehouse facility 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 $13.9 million and $8.0 million of amortization of Maxwell and Kasper purchase prices, respectively, that were assigned to acquired customer orders.

Operating Income. The resulting operating income for 2005 of $497.2 million decreased 5.9%, or $31.2 million, from the $528.4 million for 2004, due to the factors described above.

Net Interest Expense. Net interest expense was $75.1 million in 2005 compared with $49.3 million in 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 35.5% for 2005 and 37.5% for 2004. The reduction was primarily driven by favorable resolutions of various foreign and state income tax audits related to acquired companies that resulted in the reversal of prior income tax accruals.

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Net Income and Earnings Per Share. Net income was $274.3 million in 2005, a decrease of $27.5 million from the net income of $301.8 million earned in 2004. Diluted earnings per share for 2005 was $2.30 compared with $2.39 for 2004, on 5.8% 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 internally generated funds, trade credit, bank borrowings and the issuance of notes to finance our operations and expansion. As of December 31, 2006, total cash and cash equivalents were $71.5 million, an increase of $36.6 million from the $34.9 million reported as of December 31, 2005.

Operating activities provided $423.9 million, $427.4 million and $461.9 million in 2006, 2005 and 2004, respectively.

The $3.5 million decrease from 2005 to 2006 was primarily the result of lower operating income before non-cash impairment charges offset by changes in certain components of working capital. Accounts receivable decreased in 2006 compared to an increase in 2005, primarily as a result of lower wholesale moderate apparel sales in the current period and the effects of the sale of the Polo Jeans Company business. Accounts payable and accrued expenses and other current liabilities experienced increases in 2006 compared to decreases in 2005, primarily as a result of accruals for property, plant and equipment related to new store openings and computer systems and changes in payment terms to certain vendors. These effects were offset by a decrease in taxes payable in 2006 compared to an increase in 2005, primarily as a result of the payment of federal and state audit settlements and the reversal of prior years' income tax audit accruals in the current period and lower estimated federal tax payments in the prior period resulting from tax deductions arising from the Barneys acquisition, and an increase in inventories in 2006 compared to a decrease in 2005, primarily the result of new store openings in 2006 and anticipated sales growth for early 2007.

The change from 2004 to 2005 was primarily due to the lower net income recorded in 2005. There were no significant changes to working capital, accounts receivable or inventory from 2004 to 2005.

Investing activities provided $197.6 million in 2006 and used $88.6 million and $629.4 million in 2005 and 2004, respectively. The changes were primarily due to cash received from the sale of the Polo Jeans Company business offset by higher capital expenditures for Barneys store openings and computer systems in 2006 and the cash paid for the acquisitions of Maxwell and Barneys in 2004. Capital expenditures, which amounted to $170.5 million in 2006, are expected to be approximately $130 million for 2007, primarily for retail store construction and remodeling and the implementation of new computer systems.

Financing activities used $584.8 million in 2006, primarily to redeem at maturity our outstanding 7.875% Senior Notes due 2005 at par on June 15, 2006 (for a total payment of $225.0 million), repurchase our common stock and pay dividends to our common shareholders and repay $29.5 million of net borrowings under our Senior Credit Facilities.

Financing activities used $348.4 million in 2005, primarily to redeem at maturity our outstanding 8.375% Senior Notes due 2005 at par on August 15, 2005 (for a total payment of $129.6 million) and repurchase our common stock and pay dividends to our common shareholders, offset by $60.3 million in net borrowings under our Senior Credit Facilities.

Financing activities used $138.1 million in 2004, primarily to redeem our outstanding Zero Coupon Notes and 7.50% Senior Notes due 2004, repurchase our common stock and pay 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 an SG&A expense of $8.4 million in 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

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conversion rate of 9.8105 shares per note. On June 15, 2004, we redeemed at maturity all our outstanding 7.50% Senior Notes due 2004 at par for a total payment of $175.0 million.

In November 2004, we issued $250.0 million of 4.250% Senior Notes due 2009, $250.0 million of 5.125% Senior Notes due 2014 and $250.0 million of 6.125% Senior Notes due 2034. Net proceeds of the offerings were $743.5 million, which were used to fund the acquisition of Barneys, to redeem $102.3 million of Barneys' outstanding 9% Senior Secured Notes due 2008 and to repay amounts then outstanding under our Senior Credit Facilities. In connection with the 4.250% Senior Notes due 2009 and the 5.125% Senior Notes due 2014, we had entered into two interest rate lock agreements which were terminated upon the issuance of the notes. These terminations resulted in a gain of $0.2 million, which is being amortized as a reduction of interest expense over the term of the related notes.

We repurchased $306.2 million, $235.2 million and $194.9 million of our common stock on the open market during 2006, 2005 and 2004, respectively. As of December 31, 2006, a total of $1.4 billion had been expended under announced programs to acquire such shares and there were no amounts remaining under any uncompleted programs. On February 13, 2007, our Board of Directors authorized an additional $300 million for future stock repurchases. We may make additional share repurchases in the future depending on, among other things, market conditions and our financial condition.

Our Board of Directors has authorized our common stock repurchases as a tax-effective means to enhance shareholder value and distribute cash to shareholders and, to a lesser extent, to offset the impact of dilution resulting from the issuance of employee stock options and shares of restricted stock. We believe that we have sufficient sources of funds to repurchase shares without significantly impacting our short-term or long-term liquidity. In authorizing future share repurchase programs, our Board of Directors gives careful consideration to both our projected cash flows and our existing capital resources.

Proceeds from the issuance of common stock to our employees exercising stock options amounted to $32.4 million, $13.4 million and $35.5 million in 2006, 2005 and 2004, respectively.

At December 31, 2006, 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. At December 31, 2006, $355.7 million was outstanding under the credit facility that expires in June 2009 (comprised of $100.0 million in cash borrowings and $255.7 million in outstanding letters of credit) and no amounts were 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.

At December 31, 2006, 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 July 19, 2006, Moody's lowered our senior long term debt rating to Baa3 from Baa2. On July 28, 2006, Standard & Poor's lowered our corporate credit rating to BBB- from BBB. At the time of these respective downgrades, we remained under review by both rating agencies. On October 16, 2006, Moody's completed its review, confirming their Baa3 rating and assigning us a stable outlook. On November 2, 2006, Standard & Poor's completed its review, confirming their BBB- rating and assigning us a negative outlook. These downgrades will increase the margin over the floating interest rate charged under our Senior Credit Facilities and could impact our cost of accessing the capital markets in the future.

We recorded pension liability adjustments of $2.0 million, $0.2 million and $2.6 million in 2006, 2005 and 2004, respectively, to other comprehensive income resulting primarily from the amortization of actuarial losses during 2006, lower than expected returns on our plan assets and the lowering of the discount rate from

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6.1% to 5.8% in 2004. Our plans are currently underfunded by a total of $15.9 million. As the benefits under our defined benefit plans are frozen with respect to service credits, the effects on future pension expense are not anticipated to be material to our results of operations or to our liquidity.

On December 20, 2004, we completed the acquisition of Barneys. 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 also assumed approximately $106.0 million of Barneys funded debt, $102.2 million of which we subsequently refinanced.

On July 8, 2004, we completed the acquisition of Maxwell. The aggregate cash purchase price was $377.2 million, which included $23.25 for each outstanding share of Maxwell common stock (for a total of $345.8 million) and $24.1 million related to Maxwell's employee stock options.

On February 14, 2007, we announced that the Board of Directors had declared a quarterly cash dividend of $0.14 per share to all common stockholders of record as of March 2, 2007 for payment on March 16, 2007.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements within the meaning of SEC Regulation S-K Item 303(a)(4).

Contractual Obligations and Contingent Liabilities and Commitments

The following is a summary of our significant contractual obligations for the periods indicated that existed as of December 31, 2006, and, except for purchase obligations and other long-term liabilities, is based on information appearing in the Notes to Consolidated Financial Statements (amounts in millions).

	Total	Less than 1 year	1 - 3 years	3 - 5 years	More than 5 years
Long-term debt	$ 753.8	$ -	$ 253.8	$ -	$ 500.0
Interest on long-term debt	558.7	39.1	76.3	56.2	387.1
Short-term borrowings (1)	100.0	100.0	-	-	-
Capital lease obligations	59.5	6.6	12.0	9.8	31.1
Operating lease obligations (2)	1,100.8	155.0	272.5	226.6	446.7
Purchase obligations (3)	917.9	910.6	7.3	-	-
Minimum royalty payments (4)	2.6	1.3	1.3	-	-
Capital expenditure commitments (5)	97.3	94.0	3.3	-	-
Deferred compensation	11.9	11.9	-	-	-
Other long-term liabilities	129.0	2.5	19.0	15.9	91.6

Total contractual obligations	$ 3,731.5	$ 1,321.0	$ 645.5	$ 308.5	$ 1,456.5

(1)	Excludes interest payments.
(2)	Future rental commitments for leases have not been reduced by minimum non-cancelable sublease rentals aggregating $31.8 million.
(3)	Includes outstanding letters of credit of $255.9 million, which primarily represent inventory purchase commitments which typically mature in two to six months.
(4)	Under exclusive licenses to manufacture certain items under trademarks not owned by us pursuant to various license agreements, we are obligated to pay the licensors a percentage of our net sales of these licensed products, subject to minimum scheduled royalty and advertising payments.
(5)	Net of $19.0 million expected to be recovered through landlord construction allowances in 2007.

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We have a joint venture with Sutton Developments Pty. Ltd. ("Sutton") to operate retail locations in Australia. We have unconditionally guaranteed up to $7.0 million of borrowings under the joint venture's uncommitted credit facility and up to $0.4 million of presettlement risk associated with foreign exchange transactions. Sutton is required to reimburse us for 50% of any payments made under these guarantees. At December 31, 2006, 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.

New Accounting Standards

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -an amendment of FASB Statements No. 133 and 140," which simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation and eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 will have no impact on our results of operations or our financial position.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140," which establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities by requiring that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 will have no impact on our results of operations or our financial position.

In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have a material impact on our results of operations or our financial position.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our results of operations or our financial position.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)," which requires a business entity to recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. SFAS No. 158 also requires a business entity to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. As our defined benefit pension plans are currently underfunded and benefits are either frozen or increase only though interest credits, the adoption of SFAS No. 158 did not have a material impact on our results of operations or our financial position.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Instruments

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 following quantitative disclosures were derived using quoted market prices, yields and theoretical pricing models obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying terms, such as the coupon rate, term to maturity and imbedded call options. Certain items such as lease contracts, insurance contracts, and obligations for pension and other post-retirement benefits were not included in the analysis.

Interest Rates

Our primary interest rate exposures relate to our fixed and variable rate debt. The potential decrease in fair value of our fixed rate long-term debt instruments resulting from a hypothetical 10% adverse change in interest rates was approximately $63.1 million at December 31, 2006.

The primary interest rate exposures on floating rate financing arrangements are with respect to United States and Canadian short-term rates. We had approximately $1.8 billion in variable rate financing arrangements at December 31, 2006. As of December 31, 2006, a hypothetical immediate 10% adverse change in interest rates, as they relate to the cash borrowings then outstanding under our variable rate financial instruments, would have a $0.6 million unfavorable impact over a one-year period on our earnings and cash flows.

Foreign Currency Exchange Rates

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. At December 31, 2006, we had outstanding foreign exchange contracts to exchange Canadian Dollars for a total of US $27.3 million at a weighted-average exchange rate of 1.1109 through December 2007, US $40.0 million for Euros at a weighted-average exchange rate of 1.2854 through January 2008 and US $0.75 million for British Pounds at a weighted-average exchange rate of 1.8520 through September 2007. 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" and "Financial Instruments" in the Notes to Consolidated Financial Statements.

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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

February 20, 2007

To the Stockholders of Jones Apparel Group, Inc.

The management of Jones Apparel Group, Inc. is responsible for the preparation, integrity, objectivity and fair presentation of the financial statements and other financial information presented in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect the effects of certain judgments and estimates made by management.

In order to ensure that our internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for our financial reporting as of December 31, 2006. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, referred to as COSO. Our assessment included the documentation and understanding of our internal control over financial reporting. We have evaluated the design effectiveness and tested the operating effectiveness of internal controls to form our conclusion.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that pertain to maintaining records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, providing reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, assuring that receipts and expenditures are being made in accordance with authorizations of our management and directors and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on this assessment, the undersigned officers concluded that 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, 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.

The Audit Committee of our Board of Directors, which consists of independent, non-executive directors, meets regularly with management, the internal auditors and the independent accountants to review accounting, reporting, auditing and internal control matters. The committee has direct and private access to both internal and external auditors.

BDO Seidman, LLP, the independent registered public accountants who audit our financial statements, has reported on management's assertion with respect to the effectiveness of our internal control over financial reporting as of December 31, 2006.


Peter Boneparth President and Chief Executive Officer	Efthimios P. Sotos Chief Financial Officer

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BDO logo

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Jones Apparel Group, Inc.
Bristol, Pennsylvania

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Jones Apparel Group, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

In our opinion, management's assessment that Jones Apparel Group, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Jones Apparel Group, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2006 and our report dated February 20, 2007 expressed an unqualified opinion.

New York, New York
February 20, 2007

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Jones Apparel Group, Inc.
Bristol, Pennsylvania

We have audited the accompanying consolidated balance sheets of Jones Apparel Group, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Jones Apparel Group, Inc. and Subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Jones Apparel Group, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 20, 2007 expressed an unqualified opinion thereon.

New York, New York
February 20, 2007

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

December 31,		2006	2005
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$ 71.5	$ 34.9
	Accounts receivable	411.6	458.4
	Inventories	636.3	650.0
	Deferred taxes	70.0	52.5
	Prepaid expenses and other current assets	89.2	88.5

	TOTAL CURRENT ASSETS	1,278.6	1,284.3
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization		384.8	312.1
GOODWILL		1,299.3	2,097.3
OTHER INTANGIBLES, at cost, less accumulated amortization		771.6	827.5
OTHER ASSETS		52.7	56.6

		$ 3,787.0	$ 4,577.8

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$ 100.0	$ 129.5
	Current portion of long-term debt and capital lease obligations	4.1	227.8
	Accounts payable	315.5	256.5
	Income taxes payable	12.7	54.2
	Accrued employee compensation and benefits	52.3	51.0
	Accrued expenses and other current liabilities	130.8	117.5

	TOTAL CURRENT LIABILITIES	615.4	836.5

NONCURRENT LIABILITIES:
	Long-term debt	752.8	752.6
	Obligations under capital leases	35.8	37.2
	Deferred taxes	42.4	175.9
	Other	129.0	109.2

	TOTAL NONCURRENT LIABILITIES	960.0	1,074.9

	TOTAL LIABILITIES	1,575.4	1,911.4

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 153.2 and 151.4	1.5	1.5
	Additional paid-in capital	1,320.0	1,269.4
	Retained earnings	2,226.4	2,426.2
	Accumulated other comprehensive loss	(5.9)	(6.5)
	Less treasury stock, 45.3 and 35.5 shares, at cost	(1,330.4)	(1,024.2)

	TOTAL STOCKHOLDERS' EQUITY	2,211.6	2,666.4

		$ 3,787.0	$ 4,577.8

See accompanying notes to consolidated financial statements

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

Year Ended December 31,	2006	2005	2004
Net sales	$ 4,669.9	$ 5,014.6	$ 4,592.6
Licensing income (net)	51.8	59.6	57.1
Service and other revenue	21.1	-	-

Total revenues	4,742.8	5,074.2	4,649.7
Cost of goods sold	3,031.3	3,243.8	2,944.4

Gross profit	1,711.5	1,830.4	1,705.3
Selling, general and administrative expenses	1,341.7	1,333.2	1,176.7
Loss on sale of Polo Jeans Company business	45.1	-	-
Trademark impairments	50.2	-	0.2
Goodwill impairment	441.2	-	-

Operating (loss) income	(166.7)	497.2	528.4
Interest income	3.5	1.1	1.9
Interest expense and financing costs	58.2	76.2	51.2
Gain on sale of stock in Rubicon Retail Limited	17.4	-	-
Equity in earnings of unconsolidated affiliates	4.5	3.2	3.8

(Loss) income before provision for income taxes	(199.5)	425.3	482.9
(Benefit) provision for income taxes	(53.5)	151.0	181.1

(Loss) income before cumulative effect of change in accounting principle	(146.0)	274.3	301.8
Cumulative effect of change in accounting for share-based payments, net of tax	1.9	-	-

Net (loss) income	$(144.1)	$ 274.3	$ 301.8

(Loss) earnings per share
	Basic
		(Loss) income before cumulative effect of change in accounting principle	$(1.32)	$2.33	$2.44
		Cumulative effect of change in accounting for share-based payments, net of tax	0.02	-	-

		Basic (loss) earnings per share	$(1.30)	$2.33	$2.44

	Diluted
		(Loss) income before cumulative effect of change in accounting principle	$(1.32)	$2.30	$2.39
		Cumulative effect of change in accounting for share-based payments, net of tax	0.02	-	-

		Diluted (loss) earnings per share	$(1.30)	$2.30	$2.39


	Weighted average common shares outstanding
		Basic	110.6	118.0	123.6
		Diluted	110.6	119.2	126.5

	Dividends declared per share		$0.50	$0.44	$0.36

See accompanying notes to consolidated financial statements

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Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity
(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)
Year ended December 31, 2004:
Comprehensive income:
	Net income	-	301.8	-	-	301.8	-	-
	Minimum pension liability adjustment, net of $1.0 tax	-	(1.6)	-	-	-	(1.6)	-
	Change in fair value of cash flow hedges	-	(0.1)	-	-	-	(0.1)	-
	Reclassification adjustment for hedge gains and losses included in net income, net of $6.9 tax	-	(4.3)	-	-	-	(4.3)	-
	Foreign currency translation adjustments	-	3.0	-	-	-	3.0	-

	Total comprehensive income		298.8

Issuance of restricted stock to employees, net of forfeitures		0.1	-	-	-	-	-	-
Amortization expense in connection with employee stock options and restricted stock		-	16.5	-	16.5	-	-	-
Exercise of employee stock options		1.4	35.5	-	35.5	-	-	-
Excess tax benefit derived from exercise of employee stock options and vesting of restricted stock		-	5.0	-	5.0	-	-	-
Dividends on common stock ($0.36 per share)		-	(44.8)	-	-	(44.8)	-	-
Treasury stock acquired		(5.5)	(194.9)	-	-	-	-	(194.9)

Balance, December 31, 2004		122.2	2,653.9	1.5	1,236.4	2,204.2	0.8	(789.0)
Year ended December 31, 2005:
Comprehensive income:
	Net income	-	274.3	-	-	274.3	-	-
	Minimum pension liability adjustment	-	0.2	-	-	-	0.2	-
	Change in fair value of cash flow hedges, net of $1.5 tax	-	(2.3)	-	-	-	(2.3)	-
	Reclassification adjustment for hedge gains and losses included in net income, net of $1.8 tax	-	(2.8)	-	-	-	(2.8)	-
	Foreign currency translation adjustments	-	(2.4)	-	-	-	(2.4)	-

	Total comprehensive income		267.0

Issuance of restricted stock to employees, net of forfeitures		0.7	-	-	-	-	-	-
Amortization expense in connection with employee stock options and restricted stock		-	18.3	-	18.3	-	-	-
Exercise of employee stock options		0.6	13.4	-	13.4	-	-	-
Excess tax benefit derived from exercise of employee stock options and vesting of restricted stock		-	1.3	-	1.3	-	-	-
Dividends on common stock ($0.44 per share)		-	(52.3)	-	-	(52.3)	-	-
Treasury stock acquired		(7.6)	(235.2)	-	-	-	-	(235.2)

Balance, December 31, 2005		115.9	2,666.4	1.5	1,269.4	2,426.2	(6.5)	(1,024.2)
Year ended December 31, 2006:
Comprehensive loss:
	Net loss	-	(144.1)	-	-	(144.1)	-	-
	Pension and postretirement liability adjustments, net of $0.7 tax	-	(1.1)	-	-	-	(1.1)	-
	Change in fair value of cash flow hedges, net of $1.5 tax	-	2.1	-	-	-	2.1	-
	Reclassification adjustment for hedge gains and losses included in net loss, net of $0.6 tax	-	(1.1)	-	-	-	(1.1)	-
	Foreign currency translation adjustments	-	0.7	-	-	-	0.7	-

	Total comprehensive loss		(143.5)

Cumulative effect of change in accounting for share-based payments		-	(3.1)	-	(3.1)	-	-	-
Issuance of restricted stock to employees, net of forfeitures		0.5	-	-	-	-	-	-
Amortization expense in connection with employee stock options and restricted stock		-	17.9	-	17.9	-	-	-
Exercise of employee stock options		1.3	32.4	-	32.4	-	-	-
Excess tax benefit derived from exercise of employee stock options and vesting of restricted stock		-	3.4	-	3.4	-	-	-
Dividends on common stock ($0.50 per share)		-	(55.7)	-	-	(55.7)	-	-
Treasury stock acquired		(9.8)	(306.2)	-	-	-	-	(306.2)

Balance, December 31, 2006		107.9	$ 2,211.6	$ 1.5	$ 1,320.0	$ 2,226.4	$ (5.9)	$ (1,330.4)

See accompanying notes to consolidated financial statements

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

Year Ended December 31,				2006	2005	2004
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net (loss) income			$(144.1)	$ 274.3	$ 301.8

	Adjustments to reconcile net (loss) income to net cash provided by operating activities, net of acquisitions and sale of Polo Jeans Company business:
		Loss on sale of Polo Jeans Company business		45.1	-	-
		Gain on sale of stock in Rubicon Retail Limited		(17.4)	-	-
		Cumulative effect of change in accounting for share-based payments		(3.1)	-	-
		Impairment losses on property, plant and equipment		8.6	-	-
		Trademark impairments		50.2	-	0.2
		Goodwill Impairment		441.2	-	-
		Amortization of original issue discount		-	-	1.3
		Amortization expense in connection with employee stock options and restricted stock		17.9	18.3	16.5
		Depreciation and other amortization		87.3	84.5	91.2
		Equity in earnings of unconsolidated affiliates		(4.5)	(3.2)	(3.8)
		Dividends received from unconsolidated affiliates		-	1.3	2.0
		Provision for losses on accounts receivable		0.6	1.2	(0.8)
		Deferred taxes		(152.8)	42.8	52.8
		Loss on repurchase of Zero Coupon Convertible Senior Notes		-	-	8.4
		Losses on sales of property, plant and equipment		1.8	5.0	3.8
		Other items, net		0.8	(2.2)	-
		Changes in operating assets and liabilities:
			Accounts receivable	46.3	(11.1)	7.0
			Inventories	(16.2)	14.5	34.8
			Prepaid expenses and other current assets	14.4	(1.4)	(10.5)
			Other assets	2.3	4.0	(2.6)
			Accounts payable	58.9	(3.1)	(14.7)
			Income taxes payable	(41.5)	24.3	22.9
			Accrued expenses and other current liabilities	16.2	(26.6)	(40.2)
			Other liabilities	11.9	4.8	(8.2)

			Total adjustments	568.0	153.1	160.1

			Net cash provided by operating activities	423.9	427.4	461.9

CASH FLOWS FROM INVESTING ACTIVITIES:
	Net proceeds from sale of Polo Jeans Company business			350.6	-	-
	Acquisition of Maxwell, net of cash acquired			-	-	(273.5)
	Acquisition of Barneys, net of cash acquired			-	(4.1)	(261.9)
	Acquisition of Kasper, net of cash acquired			-	-	(37.9)
	Capital expenditures			(170.5)	(87.5)	(56.6)
	Net cash received on sale of stock in Rubicon Retail Limited			17.4	-	-
	Acquisition of intangibles			-	(0.1)	(1.2)
	Capital contributions to unconsolidated affiliates			-	(0.7)	-
	Proceeds from sales of property, plant and equipment			0.1	3.6	1.7
	Other			-	0.2	-

			Net cash provided by (used in) investing activities	197.6	(88.6)	(629.4)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Issuance of 4.25% Senior Notes, net of discount and debt issuance costs			-	-	248.1
	Issuance of 5.125% Senior Notes, net of discount and debt issuance costs			-	-	248.1
	Issuance of 6.125% Senior Notes, net of discount and debt issuance costs			-	-	247.3
	Redemption of Zero Coupon Convertible Senior Notes			-	-	(446.6)
	Redemption at maturity of 7.50% Senior Notes			-	-	(175.0)
	Redemption at maturity of 8.375% Senior Notes			-	(129.6)	-
	Redemption at maturity of 7.875% Senior Notes			(225.0)	-	-
	Redemption of Barneys 9% Senior Secured Notes, including premiums and fees			-	-	(112.7)
	Net (repayment) borrowing under credit facilities			(29.5)	60.3	69.2
	Purchases of treasury stock			(306.2)	(235.2)	(201.5)
	Proceeds from exercise of employee stock options			32.4	13.4	35.5
	Dividends paid			(55.7)	(52.3)	(44.8)
	Proceeds from termination of interest rate hedges			-	-	0.2
	Debt issuance costs			-	(0.6)	-
	Principal payments on capital leases			(4.2)	(4.4)	(5.9)
	Excess tax benefits from share-based payment arrangement			3.4	-	-

			Net cash used in financing activities	(584.8)	(348.4)	(138.1)

EFFECT OF EXCHANGE RATES ON CASH				(0.1)	(0.5)	0.6

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				36.6	(10.1)	(305.0)
CASH AND CASH EQUIVALENTS, BEGINNING				34.9	45.0	350.0

CASH AND CASH EQUIVALENTS, ENDING				$ 71.5	$ 34.9	$ 45.0

See accompanying notes to consolidated financial statements

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Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements

SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel Group, Inc. and our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The results of operations of acquired companies are included in our operating results from the respective dates of acquisition.

We design, contract for the manufacture of and market a broad range of women's collection sportswear, suits and dresses, casual sportswear and jeanswear for women and children, and women'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 luxury, 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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Credit Risk
Financial instruments which potentially subject us to concentration of credit risk consist principally of temporary cash investments and accounts receivable. We place our cash and cash equivalents in investment-grade, short-term debt instruments with high quality financial institutions and the U.S. Government and, by policy, limit the amount of credit exposure in any one financial instrument. We perform ongoing credit evaluations of our customers' financial condition and, generally, require no collateral from our customers. The allowance for non-collection of accounts receivable is based upon the expected collectibility of all accounts receivable.

We also provide credit to certain retail customers through an in-house Barneys New York credit card program. We perform ongoing credit reviews of our credit card accounts. Accounts are generally written off automatically after 180 days have passed without receipt of a full scheduled monthly payment and are written off sooner in the event of bankruptcy or other factors that make collection seem unlikely. We estimate an allowance for uncollectibility using a model that considers the current aging of the accounts, historical write-off and recovery rates and other portfolio data. Concentration of credit risk is limited because of the large number of credit card accounts.

Derivative Financial Instruments
Our primary objectives for holding derivative financial instruments are to manage foreign currency and interest rate risks. We do not use financial instruments for trading or other speculative purposes. We have historically used derivative financial instruments to hedge both the fair value of recognized assets or liabilities (a "fair value" hedge) and the variability of anticipated cash flows of a forecasted transaction (a "cash flow" hedge). Our strategies related to derivative financial instruments have been:

the use of foreign currency forward contracts to hedge a portion of anticipated future short-term inventory purchases to offset the effects of changes in foreign currency exchange rates (primarily between the U.S. Dollar and the Canadian Dollar, the Euro and the British Pound);
the use of interest rate swaps to effectively convert a portion of our outstanding fixed-rate debt to variable-rate debt to take advantage of lower interest rates; and

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the use of treasury rate locks to fix forward the treasury rate component of a portion of our November 2004 debt offering that was priced based on the prevailing applicable treasury rate and credit spread at the time the debt offering was finalized.

The derivatives we use in our risk management strategies are highly effective hedges because all the critical terms of the derivative instruments match those of the hedged item. On the date the derivative contract is entered into, we designate the derivative as either a fair value hedge or a cash flow hedge. Changes in derivative fair values that are designated as fair value hedges are recognized in earnings as offsets to the changes in fair value of the related hedged assets and liabilities. Changes in derivative fair values that are designated as cash flow hedges are deferred and recorded as a component of accumulated other comprehensive income until the associated hedged transactions impact the income statement, at which time the deferred gains and losses are reclassified to either cost of sales for inventory purchases or to SG&A expenses for all other items. Any ineffective portion of a hedging derivative's change in fair value will be immediately recognized in SG&A expenses. Differentials to be paid or received under interest rate contracts are recognized in income over the life of the contracts as adjustments to interest expense. Gains or losses generated from the early termination of interest rate contracts and treasury locks are amortized to earnings over the remaining terms of the contracts as adjustments to interest expense. The fair values of the derivatives, which are based on quoted market prices, are reported as other current assets or accrued expenses and other current liabilities, as appropriate.

Accounts Receivable
Accounts receivable are reported at amounts we expect to be collected, net of trade discounts and deductions for co-op advertising normally taken by our customers, allowances we provide to our retail customers to effectively flow goods through the retail channels, an allowance for non-collection due to the financial position of our customers and credit card accounts, and an allowance for estimated sales returns.

Inventories and Cost of Sales
Inventories are valued at the lower of cost or market. Approximately 55%, 28% and 17% of inventories were determined by using the FIFO (first in, first out), weighted average cost and retail methods of valuation, respectively, as of December 31, 2006 and approximately 57%, 30% and 13% of inventories were determined by using the FIFO, weighted average cost and retail methods of valuation, respectively, as of December 31, 2005. We reduce the carrying cost of inventories for obsolete or slow moving items as necessary to properly reflect inventory value. The cost elements included in inventory consist of all direct costs of merchandise (net of purchase discounts and vendor allowances), allocated overhead (primarily design and indirect production costs), inbound freight and merchandise acquisition costs such as commissions and import fees.

Cost of sales includes the inventory cost elements listed above as well as warehouse outbound freight, internally transferred merchandise freight and realized gains or losses on foreign currency forward contracts associated with inventory purchases. Our cost of sales may not be comparable to those of other entities, since some entities include all of the costs associated with their distribution functions in cost of sales while we include these costs in selling, general and administrative expenses.

Property, Plant, Equipment and Depreciation and Amortization
Property, plant and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements recorded at the inception of a lease are amortized using the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter; for improvements made during the lease term, the amortization period is the shorter of the useful life or the remaining lease term (including any renewal periods that are deemed to be reasonably assured). Property under capital leases is amortized over the lives of the respective leases or the estimated useful lives of the assets, whichever is shorter.

Operating Leases
Total rent payments under operating leases that include scheduled payment increases and rent holidays are amortized on a straight-line basis over the term of the lease. Rent expense on our buildings and retail stores is classified as an SG&A expense and, for certain stores, includes contingent rents that are based on a percentage of retail sales over stated levels. Landlord allowances are amortized by the straight-line method over the original term of the lease as a reduction of rent expense.

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Goodwill and Other Intangibles
Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. We annually test goodwill and other intangibles without determinable lives (primarily tradenames and trademarks) for impairment through the use of independent third-party appraisals. Other intangibles with determinable lives, including license agreements, are amortized on a straight-line basis over the estimated useful lives of the assets (currently ranging from three to 31 years).

Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Where the functional currency of a foreign subsidiary is its local currency, balance sheet accounts are translated at the current exchange rate and income statement items are translated at the average exchange rate for the period. Gains and losses resulting from translation are accumulated in a separate component of stockholders' equity. Where the local currency of a foreign subsidiary is not its functional currency, financial statements are translated at either current or historical exchange rates, as appropriate. These adjustments, along with gains and losses on currency transactions, are reflected in the consolidated statements of operations. Net foreign currency losses reflected in the consolidated statements of operations were $0.4 million, $1.2 million and $1.9 million in 2006, 2005 and 2004, respectively.

Defined Benefit Plans
Our funding policy is to make the minimum annual contributions required by applicable regulations.

Treasury Stock
Treasury stock is recorded at net acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings.

Revenue Recognition
Wholesale apparel and footwear and accessories sales are recognized either when products are shipped or, in certain situations, upon acceptance by the customer. Retail sales are recorded at the time of register receipt. Allowances for estimated returns are provided when sales are recorded primarily by reducing revenues for the total revenues related to estimated returns, with an offsetting reduction to cost of sales for the cost of the estimated returns. Licensing income is recognized based on the higher of contractual minimums or sales of licensed products reported by our licensees.

Shipping and Handling Costs
Shipping and handling costs billed to customers are recorded as revenue. Freight costs associated with shipping goods to customers are recorded as a cost of sales.

Advertising Expense
We record national advertising campaign costs as an expense when the advertising takes place and we expense advertising production costs as incurred, net of reimbursements for cooperative advertising. Advertising costs associated with our cooperative advertising programs are accrued as the related revenues are recognized. Net advertising expense was $92.1 million, $80.6 million and $77.6 million in 2006, 2005 and 2004, respectively.

Income Taxes
We use the asset and liability method of accounting for income taxes. Current tax assets and liabilities are recognized for the estimated Federal, foreign, state and local income taxes payable or refundable on the tax returns for the current year. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income tax provisions are based on the changes to the respective assets and liabilities from period to period. Valuation allowances are recorded to reduce deferred tax assets when uncertainty regarding their realizability exists.

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Earnings per Share
Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options and the conversion of any convertible bonds. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options outstanding were exercised and all convertible bonds have been converted into common stock.

The following options to purchase shares of common stock were outstanding during a portion of 2005 and 2004 but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares and, therefore, would be antidilutive. For 2006, none of the options outstanding were included in the computation of diluted earnings per share due to the net loss for the year.

	2005	2004
Number of options (in millions)	9.6	3.9
Weighted average exercise price	$33.57	$37.44

Stock Options
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 guidelines contained in SFAS No. 123, "Accounting for Stock-Based Compensation" using the "prospective method" set forth in SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." 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. Prior to January 1, 2003, pursuant to a provision in SFAS No. 123 we had elected to continue using the intrinsic-value method of accounting for stock options granted to employees in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options 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 stock-based awards to employees for options granted at below-market prices. The adoption of the fair value method did not have a material effect on our results of operations.

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 adopted 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 had not been rendered and that were outstanding as of January 1, 2006 will be recognized as the remaining requisite service is rendered. In addition, the adoption of SFAS No. 123R required us to change from recognizing the effect of forfeitures as they occur to estimating the number of outstanding instruments for which the requisite service is not expected to be rendered. As a result, we recorded a pretax gain of $3.1 million on January 1, 2006, which is reported as a cumulative effect of a change in accounting principle. We were also required to change the amortization period for employees eligible to retire from the period over which the awards vest to the period from the grant date to the date the employee is eligible to retire. The adoption of SFAS No. 123R did not have a material effect on our results of operations or our financial position. Concurrently with the adoption of SFAS No. 123R, we have shifted the composition of our share-based compensation awards towards the use of restricted shares and away from the use of employee stock options.

Had we elected to adopt the fair value approach of SFAS No. 123 upon its effective date, our net income for 2005 and 2004 would have decreased accordingly. 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

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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 estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. For further information, see "Stock Options and Restricted Stock."

Year Ended December 31,	2005	2004
(In millions except per share data)

Net income - as reported	$ 274.3	$ 301.8
Add: stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported	11.9	10.3
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	(13.1)	(16.9)

Net income - pro forma	$ 273.1	$ 295.2

Basic earnings per share
As reported	$2.33	$2.44
Pro forma	$2.32	$2.39
Diluted earnings per share
As reported	$2.30	$2.39
Pro forma	$2.29	$2.34

Restricted Stock
Compensation cost for restricted stock is measured as the excess, if any, of the quoted market price of our stock at the date the common stock is issued over the amount the employee must pay to acquire the stock. The compensation cost, net of projected forfeitures, is recognized over the period between the issue date and the date any restrictions lapse.

Long-Lived Assets
We review certain long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In that regard, we assess the recoverability of such assets based upon estimated non-discounted cash flow forecasts. If an asset impairment is identified, the asset is written down to fair value based on discounted cash flow or other fair value measures.

Cash Equivalents
We consider all highly liquid short-term investments to be cash equivalents.

Presentation of Prior Year Data
Certain reclassifications have been made to conform prior year data with the current presentation.

New Accounting Standards
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments -an amendment of FASB Statements No. 133 and 140," which simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation and eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement (new basis) event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 will have no impact on our results of operations or our financial position.

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servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 will have no impact on our results of operations or our financial position.

ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS

Accounts receivable consist of the following:

December 31,	2006	2005
(In millions)

Trade accounts receivable	$ 398.8	$ 459.1
Credit card receivable	49.1	40.5
Allowances for doubtful accounts, returns, discounts and co-op advertising	(36.3)	(41.2)

	$ 411.6	$ 458.4

A significant portion of our sales are to retailers throughout the United States and Canada. We have one significant customer in our wholesale apparel and wholesale footwear and accessories operating segments. Federated Department Stores, Inc. accounted for approximately 18%, 19% and 25% of consolidated gross revenues for 2006, 2005 and 2004, respectively, and accounted for approximately 20% of accounts receivable at December 31, 2006.

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,

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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 was 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 $210.6 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.

We assigned $40.3 million of the Maxwell purchase price to intangible assets based on independent, third-party appraisals. Of this amount, $24.7 million was assigned to registered trademarks that are not subject to amortization, $1.1 million was assigned to third-party license agreements, which had a useful life of approximately 18 months on the acquisition date, and $14.5 million was assigned to existing customer orders, which had a useful life of approximately eight months on the acquisition date.

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 branded 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 branded merchandise, including ready-to-wear apparel, handbags, shoes, dress shirts, ties and sportswear. Barneys branded 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 provided 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 also 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, with the excess of the purchase price over the fair value of the net assets acquired of approximately $247.4 million being recorded as goodwill in the retail segment. Of the acquired goodwill relating to Barneys, approximately $83.1 million will be deductible for tax purposes.

We assigned $67.7 million of the Barneys purchase price to intangible assets based on independent, third-party appraisals. Of this amount, $42.0 million was assigned to registered trademarks that are not subject to amortization, $4.0 million was assigned to a third-party license agreement, which had a useful life of approximately 31 years on the acquisition date, $1.2 million was assigned to credit cardholder relationships, which had a useful life of approximately 181 months on the acquisition date, $0.2 million was assigned to a customer database, which had a useful life of approximately 145 months on the acquisition date, and $20.3

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million was assigned to favorable leases, which had a useful life of approximately 158 months on the acquisition date.

ACCRUED RESTRUCTURING COSTS

In connection with the acquisitions of McNaughton, 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.

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 was consolidated into existing operations in Durango and Torreon, Mexico. A total of 3,170 employees were terminated as a result of the closure. We undertook a number of measures to assist affected employees, including severance and benefits packages. As a result of this consolidation, we expected that our manufacturing operations would perform more efficiently, thereby improving our operating performance.

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costs. Of this amount, $2.3 million is reported as a selling, general and administrative expense and $1.8 million is reported as a cost of sales in the wholesale moderate apparel segment during 2006, and the remaining $1.1 million will be accrued on a straight-line basis over the remaining period each employee is required to render service to receive the benefit. In connection with the Mexican closing, we expect to incur $3.0 million of one-time termination benefits and associated employee costs for an estimated 1,734 employees and $0.2 million of other costs. Of this amount, $2.8 million is reported as cost of sales in the wholesale moderate apparel segment, and the remaining $0.4 million will be recorded during the first fiscal quarter of 2007. In addition, we determined the estimated fair value of the property, plant and equipment employed in Mexico was less than its carrying value. As a result, we recorded an impairment loss of $8.6 million, which is also reported as cost of sales in the wholesale moderate apparel segment, with the estimated fair value of $5.2 million reclassified as assets held for sale and reported as part of prepaid expenses and other current assets. The closings will be substantially completed by the end of March 2007.

The accrual of restructuring costs and liabilities, of which $5.1 million is included in accrued expenses and other current liabilities and $1.3 million is included in other noncurrent liabilities, is as follows:

(In millions)	Severance and other employee costs	Closing of retail stores and consolidation of facilities	Denim restructuring	Manufacturing restructuring	Total
Balance, January 1, 2004	$ 6.9	$ 3.7	$ -	$ -	$ 10.6
Net additions	16.9	17.4	-	-	34.3
Payments and reductions	(17.3)	(3.0)	-	-	(20.3)

Balance, December 31, 2004	6.5	18.1	-	-	24.6
Net additions (reversals)	2.9	(6.5)	9.0	-	5.4
Payments and reductions	(6.0)	(9.5)	(6.5)	-	(22.0)

Balance, December 31, 2005	3.4	2.1	2.5	-	8.0
Net additions (reversals)	4.3	1.6	(0.7)	6.9	12.1
Payments and reductions	(6.3)	(2.1)	(1.8)	(3.5)	(13.7)

Balance, December 31, 2006	$ 1.4	$ 1.6	$ -	$ 3.4	$ 6.4

Estimated severance payments and other employee costs of $1.4 million accrued at December 31, 2006 relate to the remaining estimated severance for an estimated 524 employees at locations to be closed. Employee groups affected (totaling an estimated 988 employees) include administrative, warehouse and management personnel at locations closed or to be closed and retail personnel at the Stein Mart locations to be closed.

The $4.3 million net addition in 2006 represents $2.7 million related to the closing of the Secaucus distribution center and $0.4 million of additional severance accruals related to the closing of the Bristol distribution center, which were recorded as selling, general and administrative expenses in the wholesale better apparel segment, and $1.2 million in severance accruals for the Stein Mart locations to be closed, which was recorded as a selling, general and administrative expense in the retail segment.

The $2.9 million net addition in 2005 represents $3.6 million related to the closing of the Bristol facility, which was recorded as a selling, general and administrative expense in the wholesale better apparel segment, offset by $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 $16.9 million net addition during 2004 represents severance accruals related to acquisitions, which was recorded as an increase to goodwill.

During 2006, 2005 and 2004, $6.3 million, $6.0 million and $17.3 million, respectively, of the accrual were utilized (relating to partial or full severance and related costs for 729, 165 and 231 employees, respectively).

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The $1.6 million accrued at December 31, 2006 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 $1.6 million addition in 2006 represents costs related to the closing of the Secaucus distribution center, primarily to return the building to its original condition, which was recorded as a selling, general and administrative expense in the wholesale better apparel segment.

The $6.5 million reversal in 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 a previously-closed North Carolina distribution facility, which was recorded as a reduction of selling, general and administrative expenses in the wholesale better apparel segment.

The $17.4 million addition for 2004 represents a $15.9 million accrual for the closing of certain Kasper and Maxwell facilities, which was recorded as an increase to goodwill, and a $1.7 million lease termination payment related to the prior closing of a North Carolina distribution facility offset by a $0.2 million reduction in accruals related to the prior closing of a Canadian facility, both of which were recorded as SG&A 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
Balance, January 1, 2005	$ -	$ -	$ -	$ -
Additions	5.3	2.6	1.1	9.0
Payments and reductions	(4.9)	(1.0)	(0.6)	(6.5)

Balance, December 31, 2005	0.4	1.6	0.5	2.5
Reversals	(0.2)	(0.3)	(0.2)	(0.7)
Payments and reductions	(0.2)	(1.3)	(0.3)	(1.8)

Balance, December 31, 2006	$ -	$ -	$ -	$ -

During 2006 and 2005, respectively, $0.2 million and $4.9 million of the termination benefits accrual were utilized (relating to costs for 18 and 3,098 employees, respectively).

The details of the manufacturing restructuring accruals are as follows:

(In millions)	One-time termination benefits	Other associated costs	Total denim restructuring
Balance, January 1, 2006	$ -	$ -	$ -
Additions	6.1	0.8	6.9
Payments and reductions	(3.3)	(0.2)	(3.5)

Balance, December 31, 2006	$ 2.8	$ 0.6	$ 3.4

The $3.4 million accrued at December 31, 2006 represents $2.8 million of one-time termination benefits for an estimated 99 employees and $0.6 million of legal fees and related costs. During 2006, $3.3 million of the termination benefits reserve was utilized (relating to partial or full severance for 1,703 employees).

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 will be charged to operations in the period in which they occur.

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SALE OF POLO JEANS COMPANY BUSINESS

In October 1995, we acquired an exclusive license to manufacture and market women's shirts, blouses, skirts, jackets, suits, sweaters, pants, vests, coats, outerwear and hats under the Lauren by Ralph Lauren trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo, 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 trademark in the United States, Canada and Mexico pursuant to license and design service agreements with Polo. The Ralph License was scheduled to end on December 31, 2003.

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PROPERTY, PLANT AND EQUIPMENT

Major classes of property, plant and equipment are as follows:

December 31,	2006	2005	Useful lives (years)
(In millions)

Land and buildings	$ 81.2	$ 95.0	5 - 40
Leasehold improvements	347.5	268.6	1 - 39
Machinery, equipment and software	320.1	294.4	3 - 20
Furniture and fixtures	109.6	95.3	3 - 8
Construction in progress	37.7	31.0	-

	896.1	784.3
Less: accumulated depreciation and amortization	511.3	472.2

	$ 384.8	$ 312.1

Depreciation and amortization expense relating to property, plant and equipment (including capitalized leases) was $83.8 million, $81.2 million and $64.0 million in 2006, 2005 and 2004, respectively. At December 31, 2006, we had outstanding commitments of approximately $97.3 million relating primarily to the construction or remodeling of retail store locations (net of $19.0 million expected to be recovered through landlord construction allowances) and the design and implementation of new computer software systems. During 2006, we capitalized approximately $0.5 million of interest as part of the cost of major capital projects.

Included in property, plant and equipment are the following capitalized leases:

December 31,	2006	2005	Useful lives (years)
(In millions)

Buildings	$ 45.9	$ 58.8	15 - 20
Machinery and equipment	10.5	12.3	4 - 5

	56.4	71.1
Less: accumulated amortization	22.0	29.7

	$ 34.4	$ 41.4

INVENTORIES

Inventories are summarized as follows:

December 31,	2006	2005
(In millions)

Raw materials	$ 10.4	$ 16.6
Work in process	10.1	17.7
Finished goods	615.8	615.7

	$ 636.3	$ 650.0

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method. Accounting rules require that we test at least annually for possible goodwill impairment. We perform our test in the fourth quarter of each year using a discounted cash flow analysis that requires that certain assumptions and estimates be made regarding industry economic factors and future profitability. We

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test for impairment at the operating segment level. As a result of the 2006 impairment analysis, we determined that the goodwill balance existing in our wholesale moderate apparel segment was impaired as a result of continuing decreases in projected revenues and profitability with respect to our Norton McNaughton, l.e.i. and certain other moderate brands as well as changes in business strategy with respect to our Norton McNaughton brand. Accordingly, we recorded an impairment charge of $441.2 million. No other indication of goodwill impairment was identified.

The changes in the carrying amount of goodwill for 2005 and 2006, by segment and in total, are as follows:

(In millions)	Wholesale Better Apparel	Wholesale Moderate Apparel	Wholesale Footwear & Accessories	Retail	Total
Balance, January 1, 2005	$ 400.1	$ 519.2	$ 808.8	$ 396.9	$ 2,125.0
Reclassification of Barneys intangible assets and unfavorable leases, net of tax	-	-	-	(29.3)	(29.3)
Net adjustments to purchase price of prior acquisitions	(3.3)	-	4.5	0.4	1.6

Balance, December 31, 2005	396.8	519.2	813.3	368.0	2,097.3
Sale of Polo Jeans Company business	(356.7)	-	-	-	(356.7)
Impairment	-	(441.2)	-	-	(441.2)
Net adjustments to purchase price of prior acquisitions	-	-	(0.1)	-	(0.1)

Balance, December 31, 2006	$ 40.1	$ 78.0	$ 813.2	$ 368.0	$ 1,299.3

The components of other intangible assets are as follows:

December 31,	2006		2005
(In millions)	Gross Carrying Amount	Accumulated Amortization	Gross Carrying Amount	Accumulated Amortization
Amortized intangible assets
License agreements	$ 64.4	$ 41.3	$ 64.4	$ 37.7
Acquired favorable leases	20.8	3.7	20.8	1.9
Acquired credit cardholder relationships	1.2	0.7	1.2	0.4
Acquired customer database	0.2	0.1	0.2	0.1

	86.6	45.8	86.6	40.1
Unamortized trademarks	730.8	-	781.0	-

	$ 817.4	$ 45.8	$ 867.6	$ 40.1

Amortization expense for intangible assets subject to amortization was $5.7 million, $8.0 million and $32.6 million for 2006, 2005 and 2004, respectively. Amortization expense for intangible assets subject to amortization for each of the years in the five-year period ending December 31, 2011 is estimated to be $4.4 million in 2007, $4.3 million in 2008, $3.8 million in 2009, $3.4 million in 2010 and $3.3 million in 2011.

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FINANCIAL INSTRUMENTS

As a result of our global operating and financing activities, we are exposed to changes in interest rates and foreign currency exchange rates which may adversely affect results of operations and financial condition. In seeking to minimize the risks and/or costs associated with such activities, we manage exposure to changes in interest rates and foreign currency exchange rates through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The instruments eligible for utilization include forward, option and swap agreements. We do not use financial instruments for trading or other speculative purposes.

At December 31, 2006 and 2005, the fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values due to the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on broker quotes or quoted market prices or rates for the same or similar instruments, and the related carrying amounts are as follows:

December 31,	2006		2005
(In millions)	Carrying Amount	Fair Value	Carrying Amount	Fair Value

Long-term debt, including current portion	$ 752.8	$ 694.3	$ 977.5	$ 913.2
Foreign currency exchange contracts, net asset (liability)	2.3	2.3	(1.9)	(1.9)

Financial instruments expose us to counterparty credit risk for nonperformance and to market risk for changes in interest and currency rates. We manage exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor the amount of credit exposure. Our financial instrument counterparties are substantial investment or commercial banks with significant experience with such instruments. We also have procedures to monitor the impact of market risk on the fair value and costs of our financial instruments considering reasonably possible changes in interest and currency rates.

We recorded amortization of net gains resulting from the termination of interest rate swaps and locks of $2.3 million, $6.4 million and $7.8 million during 2006, 2005 and 2004, respectively, as a reduction of interest expense. We reclassified $0.6 million, $1.8 million and $0.9 million of net losses from foreign currency exchange contracts to cost of sales in 2006, 2005 and 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. An estimated $2.3 million of existing pre-tax net gains from currency exchange contracts reported in accumulated other comprehensive income as of December 31, 2006 will be reclassified into cost of sales in the next 12 months.

CREDIT FACILITIES

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(comprised of $100.0 million in cash borrowings and $255.7 million in outstanding letters of credit) and no amounts were 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.

At December 31, 2006, 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.

The weighted-average interest rate for outstanding cash borrowings under our credit facilities was 6.0% and 6.33% at December 31, 2006 and 2005, respectively.

LONG-TERM DEBT

Long-term debt consists of the following:

December 31,	2006	2005
(In millions)

7.875% Senior Notes due 2006, net of unamortized discount of $0.1	$ -	$ 224.9
9% Senior Secured Notes due 2008, net of unamortized discount of $0.2 and $0.4	3.5	3.4
4.250% Senior Notes due 2009, net of unamortized discount of $0.1 and $0.2	249.9	249.8
5.125% Senior Notes due 2014, net of unamortized discount of $0.2 and $0.2	249.8	249.8
6.125% Senior Notes due 2034, net of unamortized discount of $0.4 and $0.4	249.6	249.6

	752.8	977.5
Less: current portion	-	224.9

	$ 752.8	$ 752.6

Long-term debt maturities for each of the next five years are $3.8 million in 2008 and $250.0 million in 2009. All of our notes contain certain covenants, including, among others, restrictions on liens, sale-leaseback transactions and additional secured debt, and pay interest semiannually. The weighted-average interest rate of our long-term debt was 5.2% and 5.8% at December 31, 2006 and 2005, respectively.

On August 15, 2005, we redeemed at maturity all our 8.375% Senior Notes due 2005 for a total payment of $129.6 million. On June 15, 2006, we redeemed at maturity all our outstanding 7.875% Senior Notes due 2006 for a total payment of $225.0 million.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss is comprised of the following:

December 31,	2006	2005
(In millions)

Foreign currency translation adjustments	$ 3.9	$ 3.2
Minimum pension liability adjustments	(11.2)	(10.1)
Unrealized gains on hedge contracts	1.4	0.4

	$ (5.9)	$ (6.5)

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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" (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.

We use foreign currency forward contracts for the specific purpose of hedging the exposure to variability in forecasted cash flows associated primarily with inventory purchases. These instruments are designated as cash flow hedges as the principal terms of the forward exchange contracts are the same as the underlying forecasted foreign currency cash flows. Therefore, changes in the fair value of the forward contracts should be highly effective in offsetting changes in the expected foreign currency cash flows, and accordingly, changes in the fair value of forward exchange contracts are recorded in accumulated other comprehensive income, net of related tax effects, with the corresponding asset or liability recorded in the balance sheet. Amounts recorded in accumulated other comprehensive income are reflected in current-period earnings when the hedged transaction affects earnings.

The following summarizes, by major currency, the U.S. Dollar equivalent amount of our foreign currency forward exchange contracts.

December 31,	2006		2005
(In millions)	Notional Amount	Fair Value - Asset	Notional Amount	Fair Value - (Liability)

Canadian Dollar - U.S. Dollar	$ 27.3	$ 1.2	$ 11.0	$ (0.2)
U.S. Dollar - Euro	40.0	1.0	37.5	(1.6)
U.S. Dollar - British Pound	0.7	0.1	1.5	(0.1)

	$ 68.0	$ 2.3	$ 50.0	$ (1.9)

During 2006, no material amounts were reclassified from other comprehensive income to earnings and there was no material ineffectiveness related to our cash flow hedges. If foreign currency exchange rates or interest rates do not change from their December 31, 2006 amounts, we estimate that any reclassifications from other comprehensive income to earnings within the next 12 months also 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.

OBLIGATIONS UNDER CAPITAL LEASES

Obligations under capital leases consist of the following:

December 31,	2006	2005
(In millions)

Warehouses, office facilities and equipment	$ 39.9	$ 40.1
Less: current portion	4.1	2.9

Obligations under capital leases - noncurrent	$ 35.8	$ 37.2

We lease warehouse and office facilities in Bristol, Pennsylvania. Two 15-year net leases run until March and October 2013, respectively, and require minimum annual rent payments of $1.3 million and $0.9 million, respectively.

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In 2003, we entered into a sale-leaseback agreement for our Virginia warehouse facility. This transaction resulted in a net gain of $7.5 million that has been deferred and is being amortized over the lease term, which runs until April 2023 and requires minimum annual rent payments of $2.4 million. The building has been capitalized at $25.6 million, which approximates the present value of the minimum lease payments.

We also lease various equipment under two to six-year leases at an aggregate annualized rental of $2.0 million. The equipment has been capitalized at its fair market value of $6.8 million, which approximates the present value of the minimum lease payments.

The following is a schedule by year of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 2006:

Year Ending December 31,
(In millions)

2007	$ 6.6
2008	6.8
2009	5.2
2010	4.9
2011	4.9
Later years	31.1

Total minimum lease payments	59.5
Less: amount representing interest	19.6

Present value of net minimum lease payments	$ 39.9

COMMON STOCK

The Board of Directors has authorized several programs to repurchase our common stock from time to time in open market transactions totaling $1.4 billion. As of December 31, 2006, 49.8 million shares had been acquired at a cost of $1.4 billion and there were no amounts remaining under any uncompleted programs. On February 13, 2007, our Board of Directors authorized an additional $300 million for future stock repurchases.

COMMITMENTS AND CONTINGENCIES

(a) CONTINGENT LIABILITIES. We have been named as a defendant in various actions and proceedings, including actions brought by certain employees whose employment has been terminated arising from 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 effect on our financial position or results of operations.

(b) ROYALTIES. We have an exclusive license to produce and sell women's footwear under the Dockers Women trademark in the United States (including its territories and possessions) pursuant to an agreement with Levi Strauss & Co. which expires in December 2008. The agreement provides for payment by us of a percentage of net sales against guaranteed minimum royalty and advertising payments as set forth in the agreement. Minimum payments under this agreement amount to $0.7 million in each of 2007 and 2008.

We have an exclusive license to produce, market and distribute costume jewelry in the United States, Canada, Mexico and Japan under the Givenchy trademark pursuant to an agreement with Givenchy, which expires on December 31, 2008. The agreement provides for the payment by us of a percentage of net sales against guaranteed minimum royalty and advertising payments as set forth in the agreement. Minimum payments under this agreement amount to $0.6 million in each of 2007 and 2008.

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against guaranteed minimum royalty and advertising payments as set forth in the agreement. Minimum payments under this agreement amount to $0.6 million in each of 2007 and 2008.

Year Ended December 31,	2006	2005	2004
(In millions)

Minimum rent	$ 164.1	$ 155.1	$ 127.2
Contingent rent	1.3	0.9	1.9
Less: sublease rent	(6.2)	(5.8)	(6.8)

	$ 159.2	$ 150.2	$ 122.3

The following is a schedule of future minimum rental payments required under operating leases:

Year Ending December 31,
(In millions)

2007	$ 155.0
2008	141.1
2009	131.4
2010	119.8
2011	106.8
Later years	446.7

	$ 1,100.8

Certain of the leases provide for renewal options and the payment of real estate taxes and other occupancy costs. Future rental commitments for leases have not been reduced by minimum non-cancelable sublease rentals aggregating $31.8 million.

INCOME TAXES

The following summarizes the (benefit) provision for income taxes:

Year Ended December 31,	2006	2005	2004
(In millions)

Current:
Federal	$ 71.6	$ 87.4	$ 103.0
State and local	22.3	12.0	16.5
Foreign	6.5	8.8	8.8

	100.4	108.2	128.3

Deferred:
Federal	(128.7)	35.8	48.6
State and local	(22.9)	6.6	4.3
Foreign	(1.2)	0.4	(0.1)

	(152.8)	42.8	52.8

(Benefit) provision for income taxes	$ (52.4)	$ 151.0	$ 181.1

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The total income tax (benefit) provision was recorded as follows:

Year Ended December 31,	2006	2005	2004
(In millions)

Included in (loss) income before cumulative effect of change in accounting principle	$ (53.5)	$ 151.0	$ 181.1
Included in cumulative effect of change in accounting for share-based payments	1.1	-	-

	$ (52.4)	$ 151.0	$ 181.1

The domestic and foreign components of income (loss) before (benefit) provision for income taxes are as follows:

Year Ended December 31,	2006	2005	2004
(In millions)

Included in income (loss) before cumulative effect of change in accounting principle
United States	$(205.4)	$ 413.1	$ 457.1
Foreign	5.9	12.2	25.8

	(199.5)	425.3	482.9

Included in cumulative effect of change in accounting for share-based payments
United States	3.1	-	-
Foreign	-	-	-

	3.1	-	-

Income (loss) before (benefit) provision for income taxes
United States	(202.3)	413.1	457.1
Foreign	5.9	12.2	25.8

	$(196.4)	$ 425.3	$ 482.9

The (benefit) provision for income taxes on adjusted historical income differs from the amounts computed by applying the applicable Federal statutory rates due to the following:

Year Ended December 31,	2006	2005	2004
(In millions)

(Benefit) provision for Federal income taxes at the statutory rate	$(68.8)	$ 148.9	$ 169.0
State and local income taxes, net of federal benefit	(4.9)	12.9	13.6
Foreign income tax difference	(3.7)	(5.8)	0.1
Goodwill impairment	17.1	-	-
Capital loss on sale of subsidiary	(96.4)	-	-
Reversal of prior years federal, state and foreign income tax audit accruals	(8.6)	(5.7)	-
Valuation allowances	112.4	0.7	-
Other items, net	0.5	-	(1.6)

(Benefit) provision for income taxes	$(52.4)	$ 151.0	$ 181.1

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We have not provided for U.S. Federal and foreign withholding taxes on $34.2 million of foreign subsidiaries' undistributed earnings as of December 31, 2006. Such earnings are intended to be reinvested indefinitely.

The following is a summary of the significant components of our deferred tax assets and liabilities:

December 31,	2006	2005
(In millions)

Deferred tax assets (liabilities):
Nondeductible accruals and allowances	$ 84.3	$ 79.2
Depreciation	27.3	15.9
Intangible asset valuation and amortization	(115.0)	(253.6)
Loss and credit carryforwards	118.3	23.6
Amortization of stock-based compensation	15.4	12.5
Deferred compensation	4.6	4.0
Inventory valuation	(5.5)	(6.1)
Inventory overhead	5.7	3.9
Pension	6.8	6.1
Other (net)	(1.9)	0.3
Valuation allowances	(112.4)	(9.2)

Net deferred tax asset (liability)	$ 27.6	$ (123.4)

Included in:
Current assets	$ 70.0	$ 52.5
Noncurrent liabilities	(42.4)	(175.9)

Net deferred tax asset (liability)	$ 27.6	$ (123.4)

As of December 31, 2006, we had state net operating loss carryforwards of $100.2 million which expire through 2026. We also had capital loss carryforwards of $303.1 million which expire in 2011, and state tax credit carryforwards of $8.0 million, which expire through 2026.

During the fourth fiscal quarter of 2006, favorable resolutions to the 2001 to 2003 federal and various state income tax audits resulted in the reversal of $8.6 million of tax accruals.

We have determined that the $303.1 million of capital loss carryforwards expiring in 2011, $12.8 million of state net operating loss carryforwards expiring in 2007 and $6.2 million of state credit carryforwards expiring through 2026 may not be utilized; therefore, we established valuation allowances of $107.7 million, $0.7 million (net of federal tax benefit) and $4.0 million (net of federal tax benefit) in 2006 related to the capital loss, state net operating loss and credit carryforwards, respectively.

During the fourth fiscal quarter of 2003, we determined that the $22.6 million of capital loss carryforwards from 2001 may not be utilized; therefore, we established a valuation allowance of $8.5 million as of December 31, 2003. In 2006, the valuation allowance was reversed as the 2001 capital loss carryforward was unable to be utilized.

During the fourth fiscal quarter of 2005, we determined that $12.3 million of state net operating loss carryforwards from 2001 may not be utilized; therefore, we established a valuation allowance of $0.7 million (net of federal tax benefit). In 2006, the valuation allowance was reversed as the 2001 state net operating loss carryforward was unable to be utilized.

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EARNINGS (LOSS) PER SHARE

Year Ended December 31,	2006	2005	2004
(In millions except per share amounts)

Basic
Net (loss) income	$(144.1)	$ 274.3	$ 301.8
Weighted average common shares outstanding	110.6	118.0	123.6

Basic (loss) earnings per share	$(1.30)	$ 2.33	$ 2.44

Diluted
Net (loss) income	$(144.1)	$ 274.3	$ 301.8
Add: interest expense associated with convertible notes, net of tax benefit	-	-	0.8

(Loss) income available to common shareholders	$(144.1)	$ 274.3	$ 302.6


Weighted average common shares outstanding	110.6	118.0	123.6
Effect of dilutive securities:
Employee stock options	-	1.2	2.2
Assumed conversion of convertible notes	-	-	0.7

Weighted average common shares and share equivalents outstanding	110.6	119.2	126.5

Diluted (loss) earnings per share	$(1.30)	$ 2.30	$ 2.39

STATEMENT OF CASH FLOWS

Year Ended December 31,		2006	2005	2004
(In millions)

Detail of acquisitions:
	Fair value of assets acquired	$ -	$ 1.1	$ 985.7
	Liabilities assumed	-	3.0	(279.3)

	Cash paid for acquisitions	-	4.1	706.4
	Cash acquired in acquisitions	-	-	(133.1)

	Net cash paid for acquisitions	$ -	$ 4.1	$ 573.3

Supplemental disclosures of cash flow information:
	Cash paid during the year for:
	Interest	$ 61.2	$ 86.0	$ 50.3
	Income taxes	135.4	78.6	98.5
Supplemental disclosures of non-cash investing and financing activities:
	Equipment acquired through capital lease financing	3.9	0.5	0.3
	Tax benefits related to stock-based employee compensation	3.4	1.3	5.0
	Restricted stock issued to employees	20.1	24.9	4.5

GAIN ON SALE OF STOCK IN RUBICON RETAIL LIMITED

On October 12, 2006, Mosaic Fashions hf ("Mosaic") completed its acquisition of United Kingdom retailer Rubicon Retail Limited ("Rubicon"). As a result of our sale of Nine West's United Kingdom operations in January 2001, we obtained warrants to purchase stock in Rubicon. These warrants were exercisable only upon a change of control of Rubicon (including a public offering of Rubicon's shares) and, therefore, had no

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ascertainable value prior to Mosaic's acquisition of Rubicon. Upon this acquisition, we exercised these outstanding warrants and Mosaic purchased the resulting shares. As a result, we recorded a gain of $17.4 million (net of associated costs).

STOCK OPTIONS AND RESTRICTED STOCK

Under two stock option plans, we may grant stock options and other awards from time to time to key employees, officers, directors, advisors and independent consultants to us or to any of our subsidiaries. In general, options become exercisable over either a three-year or five-year period from the grant date and expire 10 years after the date of grant for options granted on or before May 28, 2003 and seven years after the date of grant thereafter. In certain cases for non-employee directors, options become exercisable six months after the grant date. Shares available for future option and restricted stock grants at December 31, 2006 and 2005 totaled 4.1 million and 4.3 million, respectively. Our policy is to issue new shares upon the exercise of options and to offset these new shares by repurchasing shares in the open market. We expect to repurchase approximately nine to ten million shares in 2007.

Total compensation cost recorded for stock-based employee compensation awards (including awards to non-employee directors) was $17.9 million, $18.3 million and $16.5 million for 2006, 2005 and 2004, respectively. Total compensation cost related to unvested awards not yet recognized at December 31, 2006 was $21.6 million, which is expected to be amortized over a weighted-average period of approximately 19.5 months. Cash received from option exercises for 2006, 2005 and 2004 was $32.4 million, $13.4 million and $35.5 million, respectively. The total tax benefit recognized for the tax deductions from option exercises and the vesting of restricted stock for 2006, 2005 and 2004 totaled $20.5 million, $13.9 million and $22.2 million, respectively.

The following tables summarize information about stock option transactions and related information (options in millions):

	2006		2005		2004
	Options	Weighted Average Exercise Price	Options	Weighted Average Exercise Price	Options	Weighted Average Exercise Price
Outstanding, January 1	11.5	$30.91	11.5	$30.19	12.6	$29.64
Granted	-	-	1.0	$35.95	0.8	$34.15
Exercised	(1.4)	$24.01	(0.6)	$22.88	(1.4)	$25.54
Cancelled	(0.5)	$35.44	(0.4)	$35.07	(0.5)	$35.26
Expired	(0.2)	$39.75	-	-	-	-

Outstanding, December 31	9.4	$31.43	11.5	$30.91	11.5	$30.19

Exercisable, December 31	8.5	$30.96	9.6	$30.07	8.7	$29.31

	2006	2005	2004
Weighted-average contractual term (in years) of:
Options outstanding at end of year	4.2	5.0	5.8
Options exercisable at end of year	4.1	4.8	5.6

Intrinsic value (in millions) of:
Options outstanding at end of year	$32.1	$27.8	$77.4
Options exercisable at end of year	31.8	27.6	66.7
Options exercised during the year	10.4	4.2	14.7

Fair value (in millions) of options vested during the year	9.2	22.0	28.5

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The fair value of each option award is estimated on the date of the grant using the Black-Scholes-Merton option pricing model. Expected volatilities are based on historical volatility of our stock price and implied volatilities from publicly traded options on our stock. We use historical data to estimate an option's expected life; the expected life for grants to senior management-level employees and other employees are considered separately for valuation purposes. The risk-free interest rate input is based on the U.S. Treasury yield curve in effect at the time of the grant. Compensation cost, net of projected forfeitures, is recognized on a straight-line basis over the period between the grant and vesting dates, with compensation cost for grants with a graded vesting schedule recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards.

The following table summarizes the weighted average fair value of options granted and the related weighted average assumptions used in the Black-Scholes-Merton option pricing model for grants issued in 2005 and 2004. We did not grant any options in 2006.

Year Ended December 31,	2005	2004
Weighted-average fair value of options at grant date:
Exercise price less than market price	$8.00	$32.93
Exercise price equal to market price	$10.43	$10.77

Assumptions:
Dividends yield	1.02%	1.00%
Expected volatility	30.3%	40.9%
Risk-free interest rate	4.46%	2.87%
Expected life (years)	3.9	4.0

Compensation cost for restricted stock is measured as the excess, if any, of the quoted market price of our stock at the date the common stock is issued over the amount the employee must pay to acquire the stock (which is generally zero). The compensation cost, net of projected forfeitures, is recognized over the period between the issue date and the date any restrictions lapse, with compensation cost for grants with a graded vesting schedule recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. The restrictions do not affect voting and dividend rights.

The following tables summarize information about unvested restricted stock transactions (shares in thousands):

	2006		2005		2004
	Shares	Weighted Average Fair Value	Shares	Weighted Average Fair Value	Shares	Weighted Average Fair Value
Nonvested, January 1	1,092	$34.34	738	$32.67	871	$31.79
Granted	635	$31.72	705	$35.35	126	$35.53
Vested	(315)	$31.78	(297)	$31.92	(208)	$30.47
Forfeited	(86)	$35.69	(54)	$34.80	(51)	$35.23

Nonvested, December 31	1,326	$33.61	1,092	$34.34	738	$32.67

	2006	2005	2004
Fair value (in millions) of shares vested during the year	$ 10.0	$ 9.5	$ 6.3

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During 2006, 634,927 shares of restricted common stock were issued to 131 employees under the 1999 Stock Incentive Plan. The restrictions generally lapse on the third anniversary of issue. The value of this stock based on quoted market values was $20.1 million.

During 2005, 705,250 shares of restricted common stock were issued to 200 employees under the 1999 Stock Incentive Plan. The restrictions generally lapse on the third anniversary of issue. The value of this stock based on quoted market values was $24.9 million.

During 2004, 126,250 shares of restricted common stock were issued to 91 employees under the 1999 Stock Incentive Plan. The restrictions generally lapse on one-third of the number of restricted shares on each of the first three anniversary dates of issue. The value of this stock based on quoted market values was $4.5 million.

EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

We maintain the Jones Apparel Group, Inc. Retirement Plan (the "Jones Plan") under Section 401(k) of the Internal Revenue Code (the "Code"). Employees not covered by a collective bargaining agreement and meeting certain other requirements are eligible to participate in the Jones Plan. Under the Jones Plan, participants may elect to have up to 50% of their salary (subject to limitations imposed by the Code) deferred and deposited with a qualified trustee, who in turn invests the money in a variety of investment vehicles as selected by each participant. All employee contributions into the Jones Plan are 100% vested.

We have elected to make the Jones Plan a "Safe Harbor Plan" under Section 401(k)(12) of the Code. As a result of this election, we make a fully-vested safe harbor matching contribution for all eligible participants amounting to 100% of the first 3% of the participant's salary deferred and 50% of the next 2% of salary deferred, subject to maximums set by the Department of the Treasury. We may, at our sole discretion, contribute additional amounts to all employees on a pro rata basis.

In connection with the acquisitions of Gloria Vanderbilt, Kasper and Barneys, we assumed additional plans in which certain employees participate.

Gloria Vanderbilt and Kasper maintained defined contribution plans under Section 401(k) of the Code. Certain employees not covered by a collective bargaining agreement and meeting certain other requirements were eligible to participate in these plans. Participants could elect to have a portion of their salary (subject to limitations imposed by the Code) deferred and deposited with a qualified trustee, who in turn invested the money in a variety of investment vehicles as selected by each participant. All employee contributions into these plans were 100% vested. We matched a portion of the participant's contributions subject to maximums set by the Department of the Treasury. The Gloria Vanderbilt and Kasper plans were merged into the Jones Plan on January 26, 2004 and September 1, 2004, respectively.

Barneys maintained the Barney's Inc. Retirement Savings Plan under Section 401(a) of the Code. Barneys employees meeting certain requirements were eligible to participate in the plan. Under the plan, participants could elect to have up to 13% of their salary (subject to limitations imposed by the Code) deferred and deposited with a qualified trustee, who in turn invested the money in a variety of investment vehicles as selected by each participant. The plan required Barneys to match 50% of employee contributions up to 6% of a participant's eligible compensation and to make a non-discretionary contribution of 1.5% of a participant's eligible compensation. In addition, Barneys could make a discretionary contribution of up to 4% of a participant's eligible compensation. The Barneys plan was merged into the Jones Plan on December 31, 2005.

Pursuant to certain collective bargaining agreements, Barneys is also required to make periodic pension contributions to union-sponsored multi-employer plans which provide for defined benefits for certain union members employed by Barneys.

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We also maintain the Jones Apparel Group, Inc. Deferred Compensation Plan, a non-qualified defined contribution plan for certain management and other highly compensated employees (a "Rabbi Trust"). Under the plan, participants may elect have up to 90% of their salary and annual bonus deferred and deposited with a qualified trustee, who in turn invests the money in a variety of investment vehicles as selected by each participant. The assets of the Rabbi Trust, consisting of primarily debt and equity securities, are recorded at current market prices. The trust assets are available to satisfy claims of our general creditors in the event of bankruptcy. The trust's assets, included in prepaid expenses and other current assets, and the corresponding deferred compensation liability, included in accrued employee compensation and benefits, were $11.9 million and $10.4 million at December 31, 2006 and 2005, respectively. This plan has no effect on our results of operations.

We contributed approximately $9.1 million, $10.3 million and $8.1 million to our defined contribution plans during 2006, 2005 and 2004, respectively.

Defined Benefit Plans

We maintain several defined benefit plans, including the Pension Plan for Associates of Nine West Group Inc. (the "Cash Balance Plan") and The Napier Company Retirement Plan for certain associates of Victoria (the "Napier Plan"). The Cash Balance Plan expresses retirement benefits as an account balance which increases each year through interest credits. All benefits under the Napier Plan are frozen at the amounts earned by the participants as of December 31, 1995. Our funding policy is to make the minimum annual contributions required by applicable regulations. We plan to contribute $7.0 million to our defined benefit plans in 2007. The measurement date for all plans is December 31. During 2005, we terminated a Canadian benefit plan, purchasing joint and survivor annuities for the remaining participants.

Obligations and Funded Status

Year Ended December 31,	2006	2005
(In millions)

Change in benefit obligation
Benefit obligation, beginning of year	$ 39.6	$ 40.4
Interest cost	2.5	2.3
Actuarial loss	4.2	0.4
Termination of Canadian benefit plan	-	(0.9)
Settlements	1.0	1.2
Benefits paid	(4.0)	(3.8)

Benefit obligation, end of year	43.3	39.6

Change in plan assets
Fair value of plan assets, beginning of year	25.2	25.6
Actual return on plan assets	1.9	1.0
Employer contribution	4.3	3.0
Annuity purchases related to termination of Canadian benefit plan	-	(0.6)
Benefits paid	(4.0)	(3.8)

Fair value of plan assets, end of year	27.4	25.2

Funded status at end of year	$(15.9)	(14.4)

Unrecognized net loss	N/A	16.2

Net amount recognized	N/A	$ 1.8

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Amounts Recognized on the Balance Sheet

December 31,	2006	2005
(In millions)

Noncurrent liabilities	$ 15.9	N/A
Accrued benefit liability	N/A	$ (14.4)
Accumulated other comprehensive loss	N/A	16.2

Net amount recognized	N/A	$ 1.8

Amounts Recognized in Accumulated Other Comprehensive Loss

December 31,	2006	2005
(In millions)

Net loss	$ 18.2	$ 16.2

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets

December 31,	2006	2005
(In millions)

Projected benefit obligation	$ 43.3	$ 39.6
Accumulated benefit obligation	43.3	39.6
Fair value of plan assets	27.4	25.2

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income or Loss:

Year Ended December 31,	2006	2005
(In millions)

Net Periodic Benefit Cost:
Interest cost	$ 2.5	$ 2.3
Expected return on plan assets	(1.9)	(2.0)
Settlement costs	1.8	1.9
Amortization of net loss	1.3	1.1

Total net periodic benefit cost	3.7	3.3

Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income or Loss:
Net loss	2.0	-

Total recognized in net periodic benefit cost and other comprehensive income	$ 5.7	$ 3.3

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2007 is $1.0 million.

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Assumptions

	2006	2005
Weighted-average assumptions used to determine:
Benefit obligations at December 31
Discount rate	6.1%	5.6%
Expected long-term return on plan assets	7.9%	7.9%
Net periodic benefit cost for year ended December 31
Discount rate	5.6%	5.8%
Expected long-term return on plan assets	7.9%	7.9%

Estimated Future Benefit Payments

Year Ending December 31,
(In millions)

2007	$ 1.7
2008	1.7
2009	1.9
2010	1.8
2011	1.9
2012 through 2016	12.0

	$ 21.0

Plan Assets

The weighted-average asset allocations at December 31, 2006 and 2005 by asset category are as follows:

December 31,	2006	2005
Equity securities	65%	63%
Debt securities	27%	32%
Other	8%	5%

Total	100%	100%

Our plans are designed to diversify investments across types of investments and investment managers. Permitted investment vehicles include investment-grade fixed income securities, domestic and foreign equity securities, mutual funds, guaranteed insurance contracts and real estate, while speculative and derivative investment vehicles are generally prohibited. The investment managers have full discretion to manage their portion of the investments subject to the objectives and policies of the respective plans. The performance of the investment managers is reviewed on a regular basis. The primary objectives are to achieve a rate of return sufficient to meet current and future plan cash requirements and to emphasize long-term growth of principal while avoiding excessive risk and maintaining fund liquidity. At December 31, 2006, the weighted-average target allocation percentages for fund investments were 44% fixed income securities, 40% U. S. equity securities, 4% real estate and 12% international securities.

To determine the overall expected long-term rate-of-return-on-assets assumption, we add an expected inflation rate to the expected long-term real returns of our various asset classes, taking into account expected volatility and correlation between the returns of the asset classes as follows: for equities and real estate, a historical average arithmetic real return; for government fixed-income securities, current yields on inflation-indexed bonds; and for corporate fixed-income securities, the yield on government fixed-income securities plus a blend of current and historical credit spreads.

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Other Plans

We also maintain the Nine West Group Inc. Supplemental Executive Retirement Plan, the Nine West Group Inc. Postretirement Executive Life Plan and the Nine West Group, Inc. Postretirement Medical Plan, none of which have a material effect on our results of operations or on our financial position. These plans, which are unfunded, were underfunded by $3.0 million at December 31, 2006. Of this amount, $0.3 million is reported under accrued expenses and other current liabilities and $2.7 million is reported under other noncurrent liabilities.

JOINT VENTURES

On July 1, 2002, we entered into two joint ventures with HCL Technologies Limited ("HCL") to provide us with computer consulting, programming and associated support services. HCL is a global technology and software services company offering a suite of services targeted at technology vendors, software product companies and organizations. We received a 49% ownership interest in each joint venture, which operate under the names HCL Jones Technologies, LLC and HCL Jones Technologies (Bermuda), Ltd., for a cash contribution of $0.3 million and the transfer of certain software and employees. HCL received a 51% ownership interest in each company for an initial cash contribution of $1.0 million. HCL has the option to acquire our remaining ownership interest at the end of five years through the issuance of HCL equity shares.

We also have a 50% ownership interest in a joint venture with 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. Performance under the guarantees is required if the joint venture fails to make a required payment under these facilities when due. Sutton is required to reimburse us for 50% of any payments made under these guarantees. At December 31, 2006, the outstanding balance subject to these guarantees was approximately $0.8 million.

The results of our joint ventures are reported under the equity method of accounting. The amount of consolidated retained earnings represented by the undistributed earnings of our joint ventures as of December 31, 2006 was $14.0 million.

BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

We identify operating segments based on, among other things, differences in products sold and 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, goodwill impairment charges, equity in earnings of unconsolidated affiliates and income taxes. Summarized below are our revenues, income and total assets by reportable segments.

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(In millions)		Wholesale Better Apparel	Wholesale Moderate Apparel	Wholesale Footwear & Accessories	Retail	Licensing, Other & Eliminations	Consolidated
For the year ended December 31, 2006
	Revenues from external customers	$ 1,127.4	$ 1,142.0	$ 941.1	$ 1,477.9	$ 54.4	$ 4,742.8
	Intersegment revenues	145.4	3.8	53.9	-	(203.1)	-

	Total revenues	1,272.8	1,145.8	995.0	1,477.9	(148.7)	4,742.8

	Segment income	$ 143.1	$ 71.8	$ 96.8	$ 95.0	$ (87.1)	319.6

	Net interest expense						(54.7)
	Loss on sale of Polo Jeans Company business						(45.1)
	Gain on sale of stock in Rubicon Retail Limited						17.4
	Goodwill impairment						(441.2)
	Equity in earnings of unconsolidated affiliates						4.5

	Loss before benefit for income taxes						$(199.5)

	Depreciation and amortization	$ 17.0	$ 11.2	$ 12.7	$ 32.2	$ 32.1	$ 105.2
For the year ended December 31, 2005
	Revenues from external customers	$ 1,438.2	$ 1,265.2	$ 978.6	$ 1,332.6	$ 59.6	$ 5,074.2
	Intersegment revenues	144.5	4.6	41.5	-	(190.6)	-

	Total revenues	1,582.7	1,269.8	1,020.1	1,332.6	(131.0)	5,074.2

	Segment income	$ 166.5	$ 89.1	$ 141.8	$ 122.6	$ (22.8)	497.2

	Net interest expense						(75.1)
	Equity in earnings of unconsolidated affiliates						3.2

	Income before provision for income taxes						$ 425.3

	Depreciation and amortization	$ 14.9	$ 16.4	$ 10.3	$ 30.9	$ 30.3	$ 102.8
For the year ended December 31, 2004
	Revenues from external customers	$ 1,493.2	$ 1,315.3	$ 1,002.4	$ 780.3	$ 58.5	$ 4,649.7
	Intersegment revenues	146.9	13.0	58.3	-	(218.2)	-

	Total revenues	1,640.1	1,328.3	1,060.7	780.3	(159.7)	4,649.7

	Segment income	$ 160.1	$ 142.6	$ 164.2	$ 78.4	$ (16.9)	528.4

	Net interest expense						(49.3)
	Equity in earnings of unconsolidated affiliates						3.8

	Income before provision for income taxes						$ 482.9

	Depreciation and amortization	$ 24.1	$ 18.0	$ 22.7	$ 11.8	$ 31.1	$ 107.7
Total assets
	December 31, 2006	$ 1,307.1	$ 877.3	$ 1,133.6	$ 822.5	$ (353.5)	$ 3,787.0
	December 31, 2005	1,895.1	1,107.2	1,084.7	790.2	(299.4)	4,577.8
	December 31, 2004	1,891.0	1,071.4	1,210.8	742.2	(364.6)	4,550.8

Revenues from external customers and long-lived assets excluding deferred taxes related to operations in the United States and foreign countries are as follows:

On or for the Year Ended December 31,	2006	2005	2004
(In millions)

Revenues from external customers:
United States	$ 4,456.8	$ 4,804.3	$ 4,448.8
Foreign countries	286.0	269.9	200.9

	$ 4,742.8	$ 5,074.2	$ 4,649.7

Long-lived assets:
United States	$ 2,504.4	$ 3,265.4	$ 3,217.6
Foreign countries	4.0	28.1	37.0

	$ 2,508.4	$ 3,293.5	$ 3,254.6

SUPPLEMENTAL PRO FORMA CONDENSED FINANCIAL INFORMATION

Certain of our subsidiaries function as co-issuers 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").

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The following condensed consolidating balance sheets, statements of operations and statements of cash flows for the "Issuers" (consisting of Jones and Jones USA, Jones Holdings, Nine West and Jones Retail, which are all our subsidiaries that act as co-issuers and co-obligors) and the "Others" (consisting of all of our other subsidiaries, excluding all obligor 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)

		December 31, 2006				December 31, 2005
		Issuers	Others	Eliminations	Cons- olidated	Issuers	Others	Eliminations	Cons- olidated
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$ 35.0	$ 36.5	$ -	$ 71.5	$ 20.3	$ 14.6	$ -	$ 34.9
	Accounts receivable - net	157.2	254.4	-	411.6	178.8	279.6	-	458.4
	Inventories	313.6	329.5	(6.8)	636.3	282.4	374.6	(7.0)	650.0
	Prepaid and refundable income taxes	0.5	6.7	(7.2)	-	1.5	6.5	(8.0)	-
	Deferred taxes	24.3	45.9	(0.2)	70.0	17.7	35.6	(0.8)	52.5
	Prepaid expenses and other current assets	38.9	50.3	-	89.2	45.7	42.8	-	88.5

	TOTAL CURRENT ASSETS	569.5	723.3	(14.2)	1,278.6	546.4	753.7	(15.8)	1,284.3

Property, plant and equipment - net		154.6	230.2	-	384.8	133.6	178.5	-	312.1
Due from affiliates		51.8	857.8	(909.6)	-	63.5	624.8	(688.3)	-
Goodwill		1,456.2	442.6	(599.5)	1,299.3	1,784.3	1,240.5	(927.5)	2,097.3
Other intangibles - net		160.6	611.0	-	771.6	166.8	660.7	-	827.5
Investments in subsidiaries		2,275.5	-	(2,275.5)	-	2,205.2	-	(2,205.2)	-
Other assets		28.9	25.8	(2.0)	52.7	30.7	27.4	(1.5)	56.6

		$ 4,697.1	$ 2,890.7	$ (3,800.8)	$ 3,787.0	$ 4,930.5	$ 3,485.6	$ (3,838.3)	$ 4,577.8

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$ 100.0	$ -	$ -	$ 100.0	$ 129.5	$ -	$ -	$ 129.5
	Current portion of long-term debt and capital lease obligations	1.5	2.6	-	4.1	226.6	1.2	-	227.8
	Accounts payable	154.3	161.2	-	315.5	118.4	138.1	-	256.5
	Income taxes payable	16.1	27.1	(30.5)	12.7	54.9	17.8	(18.5)	54.2
	Deferred taxes	-	0.2	(0.2)	-	0.9	-	(0.9)	-
	Accrued expenses and other current liabilities	97.8	85.3	-	183.1	78.5	90.0	-	168.5

	TOTAL CURRENT LIABILITIES	369.7	276.4	(30.7)	615.4	608.8	247.1	(19.4)	836.5

NONCURRENT LIABILITIES:
	Long-term debt	749.3	3.5	-	752.8	749.2	3.4	-	752.6
	Obligations under capital leases	11.1	24.7	-	35.8	12.5	24.7	-	37.2
	Deferred taxes	11.0	20.0	11.4	42.4	10.7	158.0	7.2	175.9
	Due to affiliates	857.8	51.8	(909.6)	-	624.8	63.5	(688.3)	-
	Other	51.1	77.9	-	129.0	38.0	71.2	-	109.2

	TOTAL NONCURRENT LIABILITIES	1,680.3	177.9	(898.2)	960.0	1,435.2	320.8	(681.1)	1,074.9

	TOTAL LIABILITIES	2,050.0	454.3	(928.9)	1,575.4	2,044.0	567.9	(700.5)	1,911.4

STOCKHOLDERS' EQUITY:
	Common stock and additional paid-in capital	1,321.5	2,189.6	(2,189.6)	1,321.5	1,270.9	2,558.6	(2,558.6)	1,270.9
	Retained earnings	2,661.9	244.7	(680.2)	2,226.4	2,646.3	360.0	(580.1)	2,426.2
	Accumulated other comprehensive (loss) income	(5.9)	2.1	(2.1)	(5.9)	(6.5)	(0.9)	0.9	(6.5)
	Treasury stock	(1,330.4)	-	-	(1,330.4)	(1,024.2)	-	-	(1,024.2)

	TOTAL STOCKHOLDERS' EQUITY	2,647.1	2,436.4	(2,871.9)	2,211.6	2,886.5	2,917.7	(3,137.8)	2,666.4

		$ 4,697.1	$ 2,890.7	$ (3,800.8)	$ 3,787.0	$ 4,930.5	$ 3,485.6	$ (3,838.3)	$ 4,577.8

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Condensed Consolidating Statements of Operations
(In millions)

	Year Ended December 31, 2006
	Issuers	Others	Elim- inations	Cons- olidated
Net sales	$ 2,357.2	$ 2,381.4	$ (68.7)	$ 4,669.9
Licensing income (net)	0.1	51.7	-	51.8
Service and other revenue	2.8	18.3	-	21.1

Total revenues	2,360.1	2,451.4	(68.7)	4,742.8
Cost of goods sold	1,461.7	1,622.6	(53.0)	3,031.3

Gross profit	898.4	828.8	(15.7)	1,711.5
Selling, general and administrative expenses	865.4	489.4	(13.1)	1,341.7
Loss on sale of Polo Jeans Company business	22.8	22.3	-	45.1
Trademark impairments	6.2	44.0	-	50.2
Goodwill impairment	-	441.2	-	441.2

Operating income (loss)	4.0	(168.1)	(2.6)	(166.7)
Net interest expense and financing costs	64.9	(10.2)	-	54.7
Gain on sale of stock in Rubicon Retail Limited	17.4	-	-	17.4
Equity in earnings of unconsolidated affiliates	0.5	4.5	(0.5)	4.5

Loss before benefit for income taxes and equity in earnings of subsidiaries	(43.0)	(153.4)	(3.1)	(199.5)
Benefit for income taxes	(5.2)	(39.2)	(9.1)	(53.5)
Equity in earnings of subsidiaries	107.2	-	(107.2)	-

Income (loss) before cumulative effect of change in accounting principle	69.4	(114.2)	(101.2)	(146.0)
Cumulative effect of change in accounting for share-based payments, net of tax	1.9	-	-	1.9

Net income (loss)	$ 71.3	$(114.2)	$ (101.2)	$(144.1)

	Year Ended December 31, 2005
	Issuers	Others	Eliminations	Consolidated
Net sales	$ 2,380.9	$ 2,708.5	$ (74.8)	$ 5,014.6
Licensing income (net)	0.1	59.5	-	59.6

Total revenues	2,381.0	2,768.0	(74.8)	5,074.2
Cost of goods sold	1,464.0	1,835.0	(55.2)	3,243.8

Gross profit	917.0	933.0	(19.6)	1,830.4
Selling, general and administrative expenses	797.3	551.7	(15.8)	1,333.2

Operating income	119.7	381.3	(3.8)	497.2
Net interest expense (income) and financing costs	80.6	(5.5)	-	75.1
Equity in earnings of unconsolidated affiliates	0.5	1.8	0.9	3.2

Income before provision for income taxes and equity in earnings of subsidiaries	39.6	388.6	(2.9)	425.3
Provision for income taxes	18.2	134.3	(1.5)	151.0
Equity in earnings of subsidiaries	253.0	-	(253.0)	-

Net income	$ 274.4	$ 254.3	$ (254.4)	$ 274.3

	Year Ended December 31, 2004
	Issuers	Others	Elim- inations	Cons- olidated
Net sales	$ 2,302.2	$ 2,379.8	$ (89.4)	$ 4,592.6
Licensing income (net)	0.1	57.0	-	57.1

Total revenues	2,302.3	2,436.8	(89.4)	4,649.7
Cost of goods sold	1,363.6	1,648.5	(67.7)	2,944.4

Gross profit	938.7	788.3	(21.7)	1,705.3
Selling, general and administrative expenses	793.7	396.9	(13.9)	1,176.7
Trademark impairment	-	0.2	-	0.2

Operating income	145.0	391.2	(7.8)	528.4
Net interest expense (income) and financing costs	54.6	(5.3)	-	49.3
Equity in earnings of unconsolidated affiliates	1.8	3.0	(1.0)	3.8

Income before provision for income taxes and equity in earnings of subsidiaries	92.2	399.5	(8.8)	482.9
Provision for income taxes	44.3	137.7	(0.9)	181.1
Equity in earnings of subsidiaries	246.3	-	(246.3)	-

Net income	$ 294.2	$ 261.8	$ (254.2)	$ 301.8

Condensed Consolidating Statements of Cash Flows
(In millions)

		Year Ended December 31, 2006
		Issuers	Others	Eliminations	Consolidated
Net cash provided by operating activities		$ 297.5	$ 127.4	$ (1.0)	$ 423.9

Cash flows from investing activities
	Net proceeds from sale of Polo Jeans Company business	344.1	6.5	-	350.6
	Capital expenditures	(62.1)	(108.4)	-	(170.5)
	Net cash received from sale of stock in Rubicon Retail Limited	17.4	-	-	17.4
	Proceeds from sales of property, plant and equipment	0.1	-	-	0.1

	Net cash provided by (used in) investing activities	299.5	(101.9)	-	197.6

Cash flows from financing activities
	Repurchase of Senior Notes	(225.0)	-	-	(225.0)
	Net repayment under credit facilities	(29.5)	-	-	(29.5)
	Purchases of treasury stock	(306.2)	-	-	(306.2)
	Proceeds from exercise of employee stock options	32.4	-	-	32.4
	Dividends paid	(55.7)	(1.0)	1.0	(55.7)
	Excess tax benefits from share-based payment arrangements	3.4	-	-	3.4
	Other items	(1.7)	(2.5)	-	(4.2)

	Net cash used in financing activities	(582.3)	(3.5)	1.0	(584.8)

Effect of exchange rates on cash		-	(0.1)	-	(0.1)

Net increase cash and cash equivalents		14.7	21.9	-	36.6
Cash and cash equivalents, beginning		20.3	14.6	-	34.9

Cash and cash equivalents, ending		$ 35.0	$ 36.5	$ -	$ 71.5

		Year Ended December 31, 2005
		Issuers	Others	Eliminations	Consolidated
Net cash provided by operating activities		$ 394.3	$ 43.8	$ (10.7)	$ 427.4

Cash flows from investing activities
	Payments for acquisitions, net of cash acquired	(4.1)	-	-	(4.1)
	Capital expenditures	(35.7)	(51.8)	-	(87.5)
	Acquisition of intangibles	-	(0.1)	-	(0.1)
	Proceeds from sales of property, plant and equipment	0.3	3.3	-	3.6
	Other	-	(0.5)	-	(0.5)

	Net cash used in investing activities	(39.5)	(49.1)	-	(88.6)

Cash flows from financing activities
	Repurchase of Senior Notes	(129.6)	-	-	(129.6)
	Net borrowing under credit facilities	60.3	-	-	60.3
	Purchases of treasury stock	(235.2)	-	-	(235.2)
	Proceeds from exercise of employee stock options	13.4	-	-	13.4
	Dividends paid	(52.3)	(10.7)	10.7	(52.3)
	Other items	(3.4)	(1.6)	-	(5.0)

	Net cash used in financing activities	(346.8)	(12.3)	10.7	(348.4)

Effect of exchange rates on cash		-	(0.5)	-	(0.5)

Net increase (decrease) in cash and cash equivalents		8.0	(18.1)	-	(10.1)
Cash and cash equivalents, beginning		12.3	32.7	-	45.0

Cash and cash equivalents, ending		$ 20.3	$ 14.6	$ -	$ 34.9

		Year Ended December 31, 2004
		Issuers	Others	Eliminations	Consolidated
Net cash provided by operating activities		$ 336.8	$ 125.1	$ -	$ 461.9

Cash flows from investing activities
	Payments for acquisitions, net of cash acquired	(573.3)	-	-	(573.3)
	Capital expenditures	(28.8)	(27.8)	-	(56.6)
	Acquisition of intangibles	(1.2)	-	-	(1.2)
	Proceeds from sales of property, plant and equipment	0.1	1.6	-	1.7

	Net cash used in investing activities	(603.2)	(26.2)	-	(629.4)

Cash flows from financing activities
	Issuance of Senior Notes, net	743.5	-	-	743.5
	Repurchase of Senior Notes	(621.6)	(112.7)	-	(734.3)
	Net borrowing under credit facilities	69.2	-	-	69.2
	Purchases of treasury stock	(201.5)	-	-	(201.5)
	Proceeds from exercise of employee stock options	35.5	-	-	35.5
	Dividends paid	(44.8)	-	-	(44.8)
	Other items	(3.6)	(2.1)	-	(5.7)

	Net cash used in financing activities	(23.3)	(114.8)	-	(138.1)

Effect of exchange rates on cash		-	0.6	-	0.6

Net decrease in cash and cash equivalents		(289.7)	(15.3)	-	(305.0)
Cash and cash equivalents, beginning		302.0	48.0	-	350.0

Cash and cash equivalents, ending		$ 12.3	$ 32.7	$ -	$ 45.0

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UNAUDITED CONSOLIDATED FINANCIAL INFORMATION

Unaudited interim consolidated financial information for the two years ended December 31, 2006 is summarized as follows:

	(In millions except per share data)	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
2006
	Net sales	$ 1,200.2	$ 1,059.7	$ 1,221.6	$ 1,188.4
	Total revenues	1,215.3	1,074.1	1,241.0	1,212.5
	Gross profit	450.3	406.4	446.0	408.9
	Operating income (loss)	85.6	69.8	111.9	(434.0)
	Income (loss) before cumulative effect of change in accounting principle	23.9	36.6	63.0	(269.5)
	Net income (loss)	25.8	36.6	63.0	(269.5)
	Basic earnings (loss) per share before cumulative effect of change in accounting principle	$0.21	$0.33	$0.57	$(2.51)
	Diluted earnings (loss) per share before cumulative effect of change in accounting principle	$0.22	$0.32	$0.56	$(2.51)
	Basic earnings (loss) per share	$0.23	$0.33	$0.57	$(2.51)
	Diluted earnings (loss) per share	$0.22	$0.32	$0.56	$(2.51)
	Dividends declared per share	$0.12	$0.12	$0.12	$0.14

2005
	Net sales	$ 1,335.1	$ 1,165.4	$ 1,312.6	$ 1,201.6
	Total revenues	1,349.3	1,176.4	1,327.5	1,221.0
	Gross profit	498.7	434.5	461.4	435.7
	Operating income	158.3	105.4	139.6	93.8
	Net income	87.0	54.8	76.8	55.7
	Basic earnings per share	$0.72	$0.46	$0.66	$0.48
	Diluted earnings per share	$0.71	$0.46	$0.65	$0.48
	Dividends declared per share	$0.10	$0.10	$0.12	$0.12

Quarterly figures may not add to full year due to rounding.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

ITEM 9A. 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 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.

The purpose of disclosure controls is to ensure that information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. The purpose of internal controls is to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded and reported to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

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Our management does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable rather than absolute assurance that the objectives of the control system are met. The design of a control system must also reflect the fact that there are resource constraints, with the benefits of controls considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud (if any) within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that simple errors or mistakes can occur. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our internal controls are evaluated on an ongoing basis by our Internal Audit department and co-sourcing partner Deloitte & Touche, LLP, by other personnel in our organization and by our independent auditors in connection with their audit and review activities. The overall goals of these various evaluation activities are to monitor our disclosure and internal controls and to make modifications as necessary, as disclosure and internal controls are intended to be dynamic systems that change (including improvements and corrections) as conditions warrant. Part of this evaluation is to determine whether there were any significant deficiencies or material weaknesses in our internal controls, or whether we had identified any acts of fraud involving personnel who have a significant role in the our internal controls. Significant deficiencies are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial statements; material weaknesses are particularly serious conditions where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal course of performing their assigned functions.

Based upon this evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that both our disclosure controls and procedures and our internal controls and procedures are effective at the reasonable assurance level 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, 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.

We have made changes to our internal controls and procedures over financial reporting to address the implementation of SAP, an enterprise resource planning ("ERP") system, that occurred during the fourth quarter of 2006. We began the process of implementing SAP throughout Jones Apparel Group, Inc. and our consolidated subsidiaries. SAP will integrate our operational and financial systems and expand the functionality of our financial reporting processes. During the fourth fiscal quarter of 2006, the Gloria Vanderbilt, Norton McNaughton and Miss Erika businesses were converted to this system. We have adequately controlled the transition to the new processes and controls, with no negative impact to our internal control environment. We expect to roll out the implementation of this system to all locations over a multi-year period. As the phased roll out occurs, we will experience changes in internal control over financial reporting each quarter. We expect this ERP system to further advance our control environment by automating manual processes, improving management visibility and standardizing processes as its full capabilities are utilized.

Management's Annual Report on Internal Control Over Financial Reporting

Management's report on Internal Control Over Financial reporting appears on page 46. Our independent registered public accounting firm, BDO Seidman, LLP, has issued a report on our assessment of our internal control over financial reporting. The report on the audit of internal control over financial reporting appears on page 47.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE

Executive Officers

Certain information concerning our executive officers is contained in the discussion entitled "Executive Officers of the Registrant" in Part I of our Form 10-K filed with the SEC on February 26, 2007.

By letter dated March 23, 2007, Efthimios P. Sotos gave notice of his resignation from his position as our Chief Financial Officer. His employment with us ended on March 27, 2007. On March 26, 2007, Wesley R. Card was appointed as our Chief Financial Officer. Mr. Card currently serves as our Chief Operating and Financial Officer.

Board of Directors

The Board of Directors consists of 11 directors. All of the directors other than Frits D. van Paasschen were previously elected by stockholders at the 2006 Annual Meeting of Stockholders. Mr. van Paasschen joined the Board on November 30, 2006. He was identified to the Nominating/Corporate Governance Committee of the Board as a candidate by a third party search firm.

Pursuant to the terms of the amended and restated employment agreement which we entered into with Peter Boneparth on March 11, 2002, we have agreed to include Mr. Boneparth as a nominee for our Board of Directors and to recommend that stockholders vote in favor of his election to the Board of Directors, for so long as Mr. Boneparth is employed by us under the employment agreement. Mr. Boneparth's agreement will expire on March 31, 2009.

The following information as to our directors, as of April 27, 2007, is based upon our records and information furnished to us by the directors.

Name	Age	Other Positions with Jones and Principal Occupation	Has served as director since
Peter Boneparth	47	President and Chief Executive Officer	2001
Sidney Kimmel	79	Chairman	1975
Howard Gittis	73	Vice Chairman and Chief Administrative Officer of MacAndrews & Forbes Holdings Inc.	1992
Anthony F. Scarpa	64	Retired Senior Vice President/Division Executive, JPMorgan Chase Bank	2001
Matthew H. Kamens	55	Attorney	2001
J. Robert Kerrey	63	President of The New School	2002
Ann N. Reese	54	Executive Director, Center for Adoption Policy	2003
Gerald C. Crotty	55	President of Weichert Enterprise LLC	2005
Lowell W. Robinson	58	Chief Financial Officer and Chief Administrative Officer of MIVA, Inc.	2005
Allen I. Questrom	67	Retired Chairman and Chief Executive Officer of J.C. Penney Company, Inc.	2005
Frits D. van Paasschen	46	President and Chief Executive Officer of Coors Brewing Company	November 2006

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Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970. Mr. Kimmel has served as our Chairman since 1975 and as Chief Executive Officer from 1975 to May 2002.

Mr. Gittis has been Vice Chairman and Chief Administrative Officer and a director of MacAndrews & Forbes Holdings Inc., a diversified holding company, and various affiliates, since July 1985. In addition, Mr. Gittis is a director of M & F Worldwide Corp., Revlon, Inc. and Scientific Games Corporation.

Mr. Scarpa served as Senior Vice President and Division Executive of JPMorgan Chase Bank from 1985 until his retirement in December 2000.

Mr. Kamens is employed by Mr. Kimmel as a lawyer and personal advisor. He is also Of Counsel to the law firm of Wolf, Block, Schorr and Solis-Cohen LLP, where he served as its Chairman from 1995 to 2001.

Mr. Kerrey has served as the President of The New School in New York City since January 2001. From 1988 to 2000, he served as United States Senator from Nebraska. During that period, he was a member of numerous congressionally-chartered commissions and Senate committees, including the Senate Finance and Appropriations Committees and the Senate Select Committee on Intelligence. Prior to that time, he served as Governor of Nebraska from 1982 to 1987. Mr. Kerrey also serves on the Board of Directors of Tenet Healthcare Corporation and Genworth Financial, Inc.

Ms. Reese co-founded the Center for Adoption Policy in New York in 2001 and is currently its Executive Director. Prior to co-founding the Center, Ms. Reese served as a principal with Clayton, Dubilier & Rice, a private equity investment firm, from 1999 to 2000, and as Executive Vice President and Chief Financial Officer of ITT Corporation from 1995 to 1998. Ms. Reese also serves on the Board of Directors of Xerox Corporation, Sears Holdings Corporation and Merrill Lynch & Co., Inc.

Mr. Crotty has served as President of Weichert Enterprise LLC, a private equity investment firm, since 2001. He previously served as Chairman of Excelsior Ventures Management LLC from 1999 to 2001. From 1991 to 1998, he held various executive positions with ITT Corporation and its affiliates, including President and Chief Operating Officer of ITT Consumer Financial Corporation and Chairman, President and Chief Executive Officer of ITT Information Services. Prior to that time, he served as both Counsel, and then later as Secretary, to the Governor of New York State. Mr. Crotty serves on the Board of Trustees of AXA Enterprise Multimanager Funds Trust and AXA Premier VIP Trust and on the Board of Directors of Access Integrated Technologies, Inc.

Mr. Robinson has served as the Chief Financial Officer and Chief Administrative Officer of MIVA, Inc., an online advertising network, since December 2006. He previously served as the President of LWR Advisors from 2004 to 2006, as Special Counsel (and Interim Chief Financial Officer) to the President of Polytechnic University from 2002 to 2004 and as Chairman of the Audit Committee and Special Independent Committee of the Board of Edison Schools from 2002 to 2003. Previously, he held senior financial positions at ADVO Inc., Kraft Foods, Inc., HotJobs.com and Citigroup Inc. Mr. Robinson also serves on the Board of Directors of International Wire Group, Inc. and on the Board of Trustees of Diversified Investment Advisors, a registered investment advisory firm which is an affiliate of AEGON N.V.

Mr. Questrom was Chairman and Chief Executive Officer of J.C. Penney Company, Inc. from September 2000 until January 2005. Previously he was the Chief Executive Officer at Barneys New York, Inc., Federated Department Stores, Inc. and Neiman Marcus. He is also a member of the Board of Directors of Sotheby's Holdings, Inc.

Mr. van Paasschen has been the President and Chief Executive Officer of Coors Brewing Company since 2005. From 1998 to 2004, he held several senior positions with Nike, Inc., including Corporate Vice President/General Manager Europe, Middle East and Africa from 2000 to 2004. From 1995 to 1997, he served as Vice President, Finance and Planning of Disney Consumer Products. Prior to that time, Mr. van Paasschen held various management positions with Boston Consulting Group, First Call Corporation, Goldman, Sachs & Co. and McKinsey & Company. Mr. van Paasschen also serves on the Board of Directors of Oakley, Inc.

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Audit Committee

The Board of Directors maintains a standing Audit Committee. The Audit Committee has been established in accordance with Section 3(a)(58)A of the Securities Exchange Act of 1934, as amended, and is currently comprised of Mr. Robinson (Chair), Ms. Reese and Mr. Scarpa.

The Audit Committee assists the Board in oversight of (1) the integrity of our financial statements, (2) our independent registered public accountants' qualifications and independence, (3) the performance of our internal audit function and independent registered public accountants and (4) our compliance with legal and regulatory requirements. In addition, the Committee renders its report for inclusion in our annual proxy statement.

The Audit Committee is also responsible for retaining (subject to stockholder approval), evaluating and, if it deems appropriate, terminating our independent registered public accountants.

The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from us for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties. Each of the current members of the Audit Committee meets the enhanced standards for the independence of audit committee members under SEC rules and New York Stock Exchange listing standards, and is financially literate, as required of audit committee members by the New York Stock Exchange. The Board has determined that Ann N. Reese and Lowell W. Robinson are audit committee financial experts.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics and a Code of Ethics for Senior Executive and Financial Officers, which applies to our Chief Executive Officer, Chief Financial Officer, Controller and other personnel performing similar functions. Both codes are posted on our website, www.jny.com under the "Our Company - Corporate Governance" caption. We intend to make all required disclosures regarding any amendment to, or a waiver of, a provision of the Code of Ethics for Senior Executive and Financial Officers by posting such information on our website.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC and the New York Stock Exchange, and to furnish us with copies of, reports of ownership and changes in ownership of our common stock. Based on a review of our records and written representations of our directors and executive officers, all Section 16(a) reports for 2006 were filed on a timely basis, except that a Form 4 reporting the forfeiture of certain shares of restricted stock held by Anita Britt resulting from the termination of her employment as an executive officer of Jones on March 6, 2006 was filed on March 9, 2006; if the forfeiture was deemed to occur simultaneously with, rather than following, her termination of service, such filing was one day late.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Committee

The Board of Directors maintains a standing Compensation Committee. The Compensation Committee assists the Board in discharging its responsibilities relating to compensation of our Chief Executive Officer and other executives in light of such factors as our compensation philosophy, competitive practices and such other factors as the Committee deems appropriate. The Compensation Committee recommends to the Board the compensation of directors.

The Committee has retained an independent consultant, Mercer Human Resource Consulting, to assist the Committee in fulfilling its responsibilities. The independent consultant reports directly to the Compensation Committee.

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The Compensation Committee's process includes executive sessions where the Committee meets alone, or with its consultant or other advisors, without the presence of management. The Committee has exclusive authority to determine the compensation of our named executive officers, as well as to make equity grants to other executives who are subject to Section 16 of the Securities Exchange Act of 1934, pursuant to Rule 16a-2. The Committee also exercises authority to determine the compensation for other individuals who report directly to our Chief Executive Officer.

The Compensation Committee has the authority to designate a "CEO Committee," composed of the director serving as our chief executive officer, and to delegate to the CEO Committee the authority to:

direct the grant of awards to persons who are eligible to receive awards under our 1999 Stock Incentive Plan in connection with either the hiring or promotion of such persons and

determine the number of shares covered by such grants, the types and terms of any such options and stock appreciation rights to be granted and the exercise prices of such options and stock appreciation rights, and the terms and conditions of vesting and the purchase price, if any, of any such grants of restricted stock.

However, the CEO Committee does not have authority to:

grant awards to any chief executive officer of the Company or to any other eligible individual who at the time of the award is, or is reasonably expected to become, subject to the provisions of Section 16 of the Securities Exchange Act of 1934, pursuant to Rule 16a-2,

during any calendar year, grant options to purchase more than 200,000 shares in the aggregate or grant more the 75,000 shares of restricted stock in the aggregate or

grant to any person eligible to receive an award under our 1999 Stock Incentive Plan awards of options to purchase more than 25,000 shares in the aggregate and/or awards of more than 10,000 shares of restricted stock in the aggregate.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Mr. Gittis, Mr. Kerrey and Mr. Crotty. No member of the Compensation Committee has a relationship that would constitute an interlocking relationship with our executive officers or our other directors.

Compensation Discussion & Analysis

Compensation Program Objectives

The objectives of our executive compensation program are to:

Allow us to successfully attract, retain, and motivate executives who enable us to achieve high standards of consumer satisfaction and operational excellence and

Hold our executives accountable and offer rewards for successful business results and shareholder value creation.

Except as otherwise noted, the description of the compensation program provided here applies to all of our named executive officers.

Oversight of Our Executive Compensation Program

The Compensation Committee of the Board of Directors (the "Committee") oversees and administers our executive compensation program and establishes the compensation of our executive officers. The Committee's responsibilities are detailed in its charter, which can be found on our website at www.jny.com/Our Company/Corporate Governance.

The Committee retains Mercer Human Resource Consulting, an outside compensation consultant, to assist it in fulfilling its responsibilities. Mercer's work for the Committee includes benchmarking the total compensation of our named executive officers relative to a peer group discussed below, assessing the

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Company's financial performance against the peer group, providing advice on how to structure cash and equity incentives, and providing guidance on changing regulatory requirements and best practices. Mercer reports directly to the Committee.

Compensation Benchmarking Process

The Company's policy is to pay executive officers named in the 2006 Summary Compensation Table herein (the "named executive officers"), other than Mr. Kimmel, competitively, taking into account the Company's objectives for annual and long-term performance. The Committee believes this helps to achieve the objective of attracting, retaining, and motivating executives in the highly competitive retail and apparel industry. Because a large portion of total executive compensation is provided in the form of incentives that are contingent on performance, actual compensation of these executives will vary above and below the targeted position, depending on Company financial results and individual performance. In periods of strong performance, actual compensation will exceed the targeted position. If a downturn in performance occurs, the Committee expects actual compensation to be reduced below the guideline.

The Committee regularly reviews data on industry compensation levels and financial performance to assess competitive levels of compensation for our executive officers and the alignment between compensation and Company financial performance. In January 2007, the Committee, with the assistance of its outside consultant, compared the total compensation of our named executive officers and the financial and total shareholder return performance of the Company against the compensation and performance of a peer group.

The peer group was comprised of 16 publicly traded companies which included (i) direct competitors that manufacture apparel and footwear, (ii) department stores that represent our largest customers, and (iii) specialty retailers of footwear and apparel, particularly specialty retailers who design and manufacture their own products, because their businesses are comparable to or compete directly with facets of our business. The companies in the peer group were:

Apparel/Footwear Manufacturing Companies	Department Stores	Specialty Retailers
Brown Shoe Company, Inc. Coach, Inc. Hanesbrands, Inc. Kellwood Company Liz Claiborne, Inc. Phillips-Van Heusen Corporation Polo Ralph Lauren Corporation VF Corporation	Dillard's, Inc Nordstrom, Inc. Saks Inc.	Abercrombie & Fitch Co. AnnTaylor Stores Corporation Foot Locker, Inc. Limited Brands, Inc. The Talbots, Inc.

Components of the Executive Compensation Program-Description of Elements and Evaluation Process

In 2006, the executive compensation program in place for Mr. Kimmel, our founder and chairman, was composed primarily of base salary. In addition, Mr. Kimmel participated in our employee benefit plans and received certain perquisites, as described below. Mr. Kimmel relinquished the role of chief executive officer in 2002, after which Mr. Boneparth was promoted to serve as chief executive officer. During the period that Mr. Kimmel has served only as chairman, the Committee's approach to Mr. Kimmel's compensation has been to continue his base salary, pursuant to the terms of his employment contract with the Company. His base salary has not been adjusted since 2001. Mr. Kimmel last received an annual cash incentive in 2005 for performance in 2004. Since then, Mr. Kimmel has not received a bonus, and he has not received an equity grant since 2001, enabling the Committee to increase the bonuses and equity available to other members of the management team.

Ms. Brown's employment with us terminated in April 2006. Ms. Brown received a termination payment, as reported in the 2006 Summary Compensation Table, consistent with the terms of her employment agreement, as well as salary, restricted stock awards and certain employee benefits during the portion of the

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year that she was employed by us. Additionally, she will receive future payments, which are discussed herein under the heading "Potential Payments and Benefits Upon Termination of Employment."

In March 2007, Mr. Sotos resigned from the Company, and as a result, received payment of his salary and benefits only through the date of his termination of employment. Upon Mr. Sotos' resignation, we asked Mr. Card to resume the responsibilities of the Chief Financial Officer, in addition to serving as our Chief Operating Officer, and Mr. Card agreed.

The current named executive officers, including Mr. Boneparth, have a compensation program that includes the following components:

Base salary,
Annual incentives,
Long-term incentives in the form of performance-contingent and/or time-based restricted stock,
Employee benefits and
Perquisites

The structure of each of these components, as reported in the 2006 Summary Compensation Table, is described below.

Base Salaries. Base salaries are used to compensate our executives for their position and level of responsibility. Each of our named executive officers has an employment agreement with us that defines a minimum annual salary for the executive. The Committee reviews base salaries annually and may adjust salaries above the minimum, depending on individual performance, impact on the business, tenure and experience, changes in job responsibilities and market practice.

In 2006, only two of the named executive officers received base salary increases. Both Ms. Cote' and Mr. Sotos received base salary increases to reflect their promotion to new positions with increased responsibilities. In January 2007, Mr. Sotos received an additional increase to $600,000. Salaries for our current named executive officers are shown below:

Named Executive Officer	2006 Salary	2007 Salary
Peter Boneparth Wesley R. Card Lynne F. Cote'	$2,500,000 $1,100,000 $1,000,000	$2,500,000 $1,100,000 $1,000,000

Annual Cash Incentives. The Executive Annual Incentive Plan was adopted in 1999 and approved by our stockholders. Under its provisions, executive officers are eligible to participate in an "Incentive Pool," which equals not more than 3.0% of our pre-tax income (as adjusted according to the Incentive Plan). During the first quarter of each year, the Compensation Committee allocates a percentage of the Incentive Pool to each participant that determines the maximum cash incentive that may be paid, subject to an overall individual maximum award of $3.0 million. The Committee retains the discretion to reduce these awards but may not increase them. This approach satisfies the tax requirements for performance-based compensation and allows us to deduct annual cash incentives paid under the Incentive Plan.

In 2006, the Committee continued to revise the process used to determine annual cash incentive awards. For 2006, target annual cash incentive awards were established for Mr. Boneparth and Mr. Card, who were named executive officers at the beginning of the year; consistent with recent past practice, none was set for Mr. Kimmel. The target awards were established so that total annual cash compensation of these executives would be roughly comparable to the 75th percentile of the peer group when current base salary levels are taken into account. The target awards are shown below:

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Named Executive Officer	Target Annual Cash Incentive Award for 2006 Performance Year
Peter Boneparth Wesley R. Card Lynne F. Cote' Efthimios P. Sotos	$1,200,000 $770,000 N/A N/A

The Committee worked with our senior management and the Committee's compensation consultant to establish guidelines for the percentage of target awards that could be paid for 2006 performance. Overall Jones performance goals were established, which reflected 2006 budgeted performance. We selected net income and operating cash flow as measures, because they indicate how successful we are at selling our products, operating efficiently, and maintaining a disciplined approach to inventory management during the year. For 2006, the budgeted goal for net income was $255.8 million, and the budgeted goal for operating cash flow was $393.0 million. We assigned a 50% weighting to each measure. We believed the budgeted performance goals constituted realistic but challenging goals.

A matrix that equally weighted the overall corporate financial achievement against budget on these two measures and the assessment of the individual performance of the executive was also established. This matrix (shown below) provided the Committee with a guideline, which allowed for a payout of up to 125% of target, subject to the available Incentive Pool. The matrix also specified that no annual cash incentive awards would be paid as to each performance goal if actual financial results in 2006 fell below 90% of that performance goal.

Percentage of 2006 Target Awards Payable
Corporate Financial Achievement Against Budget	Financial Measures		Individual performance Against Objectives as Assessed by Compensation Committee/Board
Corporate Financial Achievement Against Budget	Net Income	Operating Cash Flow	Partially Meets Expectations			Meets Expectations			Outstanding
	(weighting)	(weighting)	(% of target)			(% of target)			(% of target)
Below 90%	50%	50%	0%	-	0%	0%	-	0%	0%	-	0%
90% - 96.9%	50%	50%	0%	-	50%	50%	-	70%	70%	-	90%
97% - 103%	50%	50%	50%	-	70%	70%	-	100%	90%	-	110%
103.1% - 110%	50%	50%	70%	-	100%	90%	-	110%	110%	-	125%

In 2006, the Company had a net loss of $144.1 million, created primarily by the required recognition of a substantial non-cash charge for trademark and goodwill impairments. Because the Company had a net loss, no Incentive Pool was funded under the 1999 Incentive Plan, and the goals for net income established for 2006 were not met. However, actual operating cash flow was $423.9 million, which exceeded the operating cash flow goal set for 2006 by 8%.

Because the Company reported a loss, the Committee decided not to award Mr. Boneparth any bonus for 2006. The Committee did determine that the other named executive officers should be awarded a portion of their bonuses to recognize the Company's surpassing of operating cash flow goals, as well as individual contributions. For example, Ms. Cote''s business unit exceeded budgeted operating income goals. Mr. Card led the successful restructuring efforts and was integral to the successful ongoing implementation of a new enterprise resource planning system. Mr. Sotos was newly promoted to his position during the year. The bonuses that were awarded to named executives officers are reported in the 2006 Summary Compensation Table.

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At the 2007 annual meeting of stockholders, we will be seeking stockholder approval of the 2007 Executive Annual Cash Incentive Plan. When we designed the new plan, we strove to create a plan that more closely links bonus payouts to Company performance.

In the first quarter of 2007, we established financial performance goals for 2007 cash incentive awards. For executives with corporate responsibility, these goals are based 50% on 2007 net income and 50% on 2007 operating cash flow, excluding the impact of unusual, unplanned, non-recurring or extraordinary items or other occurrences affecting the Company. For executives with business unit responsibility, 100% of the cash incentive awards will be based on the business unit's 2007 operating contribution margin, defined as operating income before corporate overhead allocation. The goals are consistent with the Company's budget and, we believe, are rigorous but attainable. We will assess our actual Company performance relative to these goals in the first quarter of 2008. The percentage of target awards which may be paid as to each of the 2007 financial performance goals is shown in the table below.

For Corporate Participants		For Business Unit Participants
% of Budget Achieved	% of Target Award Earned	% of Budget Achieved	% of Target Award Earned
90%	75%	90%	75%
100%	100%	100%	100%
110% or more	150%	125% or More	150%

Note: Interpolation applies for intermediate points

In certain instances that result from extraordinary circumstances where performance is less than 90% of budget, if the Company achieves 75% of either budgeted net income or operating cash flow goals or if the executive's business unit achieves 75% of its budgeted contribution, then the Committee may pay up to 25% of annual bonus targets to recognize individual performance. In addition, the Committee may use discretion to reduce or eliminate any award based on its assessment of business results compared to performance goals or other factors.

The 2007 target award amounts for Mr. Boneparth, Mr. Card and Ms. Cote' are shown in the table below.

Named Executive Officer	Target Annual Incentive Award for 2007 Performance Year
Peter Boneparth Wesley R. Card Lynne F. Cote'	$1,200,000 80% of 2007 salary 80% of 2007 salary

The target award for our chief executive officer is expressed as a dollar amount rather than as a percentage of base to recognize that his salary, which is governed by his employment agreement, is above average, relative to the peer group. In 2007, maximum awards were increased from 125% to 150% of the target amounts shown above.

Long-Term Incentive Awards. Long-term incentive awards are granted to align our executives with our stockholders by focusing on our stock price performance and other indicators of long-term performance and to retain their services through multi-year vesting provisions. Since 2003, most of the long-term incentive awards made to named executive officers have been performance-contingent restricted stock awards. Although we continue to have the ability to grant stock options, we have used restricted stock because:

Restricted stock is a better retention device,
Fewer shares are required, allowing us to better manage dilution and
Awards are subject to less volatility, given the changing business conditions facing our industry.

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Restricted stock grants are typically granted to named executive officers annually at a Compensation Committee meeting in February or March at a date convenient for the members of the Committee. Last year the Committee approved grants of restricted stock on March 6, 2006. The awards were valued at $29.44 per share, the fair market value on the date of grant, and appear in the Grants of Plan-Based Awards in 2006 table herein.

The vesting of the restricted stock awards in 2006 granted to Messrs. Boneparth and Card was contingent on both performance and time. 50% of the shares were eligible to vest if the Company achieved the 2006 net income budget. The remaining 50% were eligible to vest if the Company achieved the 2006 operating cash flow budget. If actual net income or operating cash flow results were less than 90% of the targeted amounts, the corresponding shares would be forfeited. For achievement of between 90% and 100% of the targeted amounts, a proportionate number of shares would be eligible to vest.

If the financial tests were satisfied, the shares eligible for vesting would vest 100% on the second business day after public release of fourth quarter financial results for 2008 (i.e., approximately three years after the date of grant). Consequently, the ultimate value of these awards depends on stock price performance through mid-February 2009. In 2006, the Committee made the vesting of restricted shares contingent on 2006 annual performance, because the Committee wanted to provide an additional incentive to achieve the 2006 budget, after results fell below budget in 2005. Awards granted in 2005 were contingent on achieving operating cash flow goals that extend through 2007.

Although the Company outperformed its operating cash flow goal, we did not achieve our net income target for 2006. As a result, Messrs. Boneparth and Card forfeited 50% of the restricted stock awards granted in 2006, or 25,000 shares and 12,500 shares, respectively. The restricted shares awarded to Mr. Sotos prior to his appointment as Chief Financial Officer and at his promotion were not subject to performance targets. They would have vested in February 2009 but were forfeited in March 2007 as a result of his resignation. Ms. Cote''s restricted shares were not subject to performance targets and contain a similar three-year cliff time vesting requirement.

The Committee uses discretion to determine the size of restricted stock awards. Mr. Boneparth recommends awards for the other named executive officers, subject to Committee review and approval. The Committee determines the number of shares to award to Mr. Boneparth. Factors that influence the Committee's decisions include:

the Company's performance in the prior year,

the performance of individual executives,

the size of previous equity awards and

total compensation relative to peer group norms.

For the awards made in March 2006, the Committee reduced the number of shares granted by approximately 50% from the prior year, because 2005 net income and 2005 operating cash flow were below budget.

No stock options were granted to named executive officers in 2006.

Following a review of our executive compensation program, we modified our long-term incentive practice for 2007. We defined target guidelines to govern the size of restricted stock awards. Going forward, we will target restricted stock award values for named executive officers with corporate responsibilities at approximately 2X annual cash incentive target awards. Target restricted stock award values for named executive officers with business unit responsibilities will be set at approximately 1.5X annual cash incentive target awards. We feel this creates a clear emphasis on long-term performance instead of short-term performance and is competitive with market practice. 100% of the restricted stock granted to the named executive officers with corporate responsibility, Messrs. Boneparth and Card, was performance-based. For the named executive officer with business unit responsibility, Ms. Cote', a portion of the restricted stock granted was performance-based, while the remaining amount vests based on continued service to encourage retention. The restricted stock awards granted to these executives during the first quarter of 2007 are shown in the following table.

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Named Executive Officer	Time-Based Shares (#)(1)	Performance-Based Shares (#)(2)
Peter Boneparth Wesley R. Card Lynne F. Cote'	0 0 20,000	74,000 51,000 15,000

(1) Time-based restricted shares were granted on January 24, 2007.
(2) Performance-based restricted shares were granted on March 27, 2007.

Time-based restricted stock will vest in full three years from the grant date. The vesting of performance-based restricted stock is subject to three year performance conditions. If the Company's total shareholder return is equal to or greater than the median total shareholder return of a group of select apparel, footwear, and department store companies, 50% of the shares will vest. The companies in the comparator group are:

Apparel and Footwear Companies	Retail Companies
Bakers Footwear Group Inc. Brown Shoe Company, Inc. Fossil, Inc. Genesco Inc. Hanesbrands, Inc. Kellwood Company Liz Claiborne, Inc. Oxford Industries, Inc. Phillips-Van Heusen Corporation Polo Ralph Lauren Corporation Rocky Brands, Inc. Steven Madden, Ltd. VF Corporation The Warnaco Group, Inc. Wolverine World Wide, Inc.	AnnTaylor Stores Corporation Dillard's, Inc. Saks Inc. Federated Department Stores, Inc. Gap Inc. J.C. Penney Company, Inc. Kohl's Corporation Limited Brands, Inc. Quiksilver, Inc. The Talbots, Inc. Tarrant Apparel Group The Bon-Ton Stores, Inc.

The remaining 50% of the shares will vest if cumulative operating cash flow goals are met. The percentage of shares vesting applicable to each performance condition is shown in the table below.

Total Shareholder Return		Operating Cash Flow (interpolate between points)
Performance Relative to Peers	Vesting	Performance Against Budget	Vesting
Median or Better 40-49th Percentile 30-39th Percentile Below 30th Percentile	100% 75% 50% 0%	100% or Better 95% 90% Below 90%	100% 75% 50% 0%

Compensation Mix. For 2007, the Company does not have policies that define specific percentage allocations for performance-based and non-performance-based compensation, or cash and non-cash compensation. The Company does, however, intend to deliver a substantial portion of total compensation in the form of performance-based cash and equity incentives to achieve its objective of holding executives accountable and offering rewards for successful business results and shareholder value creation. As a result, recognizing that individual variations and year-to-year variations will occur, more than 50% of the target total compensation of the named executive officers associated with the 2007 grants is composed of performance-based

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compensation. Variable incentive compensation includes annual cash incentives and performance-contingent restricted shares.

	Non-Performance-Based Compensation		Performance-Based Compensation
Named Executive Officer	Base Salary	Time-Based Equity	Annual Cash Incentive	Performance- Based Equity
Peter Boneparth Wesley R. Card Lynne F. Cote'	41% 29% 34%	0% 0% 23%	20% 24% 27%	39% 47% 16%

Employee Benefits. As a general rule, we do not provide special benefits to senior executives. The named executive officers participate in the same benefit plans, including term life insurance, health and disability insurance, available to all full-time, salaried employees. We offer one retirement plan, a qualified 401(k) plan, to all employees, including the named executive officers. We do not sponsor a supplemental executive retirement plan.

We also pay the premiums on additional term life insurance with an aggregate benefit of $7 million and additional long-term disability insurance with an aggregate monthly benefit of $15,000, for the benefit of Mr. Boneparth, which was negotiated as part of his employment agreement.

In connection with Mr. Card's agreement to resume the role of Chief Financial Officer in March 2007 and in recognition of his additional responsibilities, we adopted a supplemental retirement arrangement for him, which is described under "Employment and Compensation Arrangements" herein.

Non-Qualified Deferred Compensation Plan. Employees with base salaries of $100,000 or more are eligible to participate in our Deferred Compensation Plan. The plan allows them to defer, on a pre-tax basis, with limited cost to the Company, the receipt of up to 90% of both salary and annual bonus into a savings account. We adopted the plan because it allows executives to save for retirement or other needs on a tax-advantaged basis and because similar benefits are offered by competitors. A summary of the terms of the plan and information concerning the named executive officers' participation in the plan are included herein under the caption "2006 Nonqualified Deferred Compensation."

Perquisites and Other Personal Benefits. We have provided certain perquisites to the named executive officers, as summarized in footnote 4 to the 2006 Summary Compensation Table herein. Additionally, current named executive officers are eligible to receive the same perquisites available to all of our senior executives. Each of these perquisites is described below:

Executive Level Merchandise Discounts: All employees and members of the Board of Directors may purchase products in Company-owned stores (other than Barneys stores) at 40% off the original retail price or at the then current price, whichever is lower. All Barneys employees, certain senior executives, including each of the named executive officers, and members of the Board of Directors, receive a discount of 35% on purchases at any Barneys store. All other employees receive a discount of 35% on purchases at Barneys outlet stores. Merchandise discounts are a common benefit in the retail industry, since we can provide our employees with merchandise at minimal net cost to us.

Cars and Allowances: We provide a car and driver for Mr. Kimmel and a car allowance to Messrs. Boneparth and Card. We had also provided a car allowance to Mr. Sotos. We also provide car services for Mr. Card in New York City. We provide the car and driver to Mr. Kimmel because it is a long-standing practice at our Company and is in recognition of his special contribution to the Company over time. For the other executives, we have provided allowances for many years as a stipend that supplements salary.

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Housing Allowance: We rent an apartment in New York City for Mr. Card's use because his primary residence is not within commuting distance from our New York headquarters or our facilities in Bristol. The allowance was a negotiated condition to his retention.

Tax Gross-Up Payments: We pay a tax gross-up to cover the taxable income attributable to Mr. Boneparth's car allowance and to Mr. Card's apartment. This allows them to actually receive the full benefit that we intended to deliver.

In addition to the benefits described above, all holders of restricted shares, including the named executive officers, are paid dividends. Dividends on restricted shares are paid at the same rate and time as dividends paid to all shareholders.

Employment Agreements

Each named executive officer has an employment agreement with the Company. The agreements define the executive's position, stipulate a minimum base salary and provide certain benefits under various termination scenarios. The agreements contain covenants that limit the executive's ability to compete or solicit our employees or customers for defined periods. The covenants also require the executive to keep information confidential. The provisions of the agreements are described in greater detail herein under the heading "Employment and Compensation Arrangements."

On balance, we believe that employment agreements benefit stockholders, because they allow us to compete for executive talent more effectively. Contracts are standard practice in the apparel industry, and we need to be well positioned to hire new talent and retain our talent over time. We believe that the provisions of our contracts are standard compared to industry norms, including the termination provisions. We also believe that the restrictive covenants are beneficial to us.

Change in Control. The employment agreements with Mr. Boneparth, Mr. Card and Mr. Kimmel contain provisions that provide for severance in the event of termination in connection with a change in control (a double trigger provision) and for the accelerated vesting of stock options and restricted stock at any change in control.

The elements of the change in control benefits, including the severance multiples and the accelerated vesting provisions, are consistent with normal market practice. More lucrative benefits, such as severance benefits upon a single trigger, walk-away rights, and excise tax gross-ups, are not provided.

We believe these benefits help to attract and retain executive talent. Further, in the event of a change in control, such benefits preserve the neutrality of our executives throughout the transaction, enhance the value of the entity to the buyer by keeping the executive team in place, and help focus our executives on the business and stockholder interests, rather than on their individual positions and financial security.

Material Tax and Accounting Implications

Section 162(m) of the Internal Revenue Code has a $1 million annual tax deduction limit on compensation the Company pays to the chief executive officer and the four other most highly compensated executive officers. This limit does not apply to "performance-based" compensation, as defined by the Internal Revenue Code and related regulations. Where practical, the Committee designs programs so that compensation paid to our named executive officers is fully deductible. The Committee believes, however, that stockholders' interests may be best served by offering compensation that is not fully deductible where appropriate to attract, retain, and motivate talented officers. Bonuses awarded under the 1999 Incentive Plan are designed to meet the criteria for tax deductibility, but in 2006, the Board determined that it was in the best interest of stockholders to pay bonuses to Mr. Card and Ms. Cote' outside the plan. The new Executive Annual Cash Incentive Plan which will be presented for stockholder approval at the 2007 annual meeting of stockholders has also been designed with the expectation that bonuses to be paid under the plan will meet the criteria for tax deductibility under Section 162(m). Gains realized by the executives from the exercise of stock options and the vesting of performance contingent restricted stock are also expected to be tax deductible.

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Stock Ownership Guidelines for Executives

In December 2004, the Committee adopted Stock Ownership Guidelines for Executives (the "Guidelines") to ensure that the named executive officers have an ongoing ownership stake in the Company, linking their interests to those of the shareholders and enhancing their commitment to our future. Executives have five years to meet the Guidelines. The Guidelines stipulate that the officers beneficially own shares of common stock equal to a multiple of their annual salary. The guidelines are 3x base salary for the Chief Executive Officer, 1.5x base salary for the Chief Operating and Financial Officer, and 1x base salary for all other named executive officers.

Included in the definition of share ownership are unvested shares of restricted stock and any shares owned outright, including shares acquired upon stock option exercise. Unexercised stock options do not count toward meeting the Guidelines.

In addition, our policy states that shares acquired by a named executive officer from exercising stock options granted after the effective date of adoption of the Guidelines (net of shares sold to satisfy tax obligations arising from the exercise) should be retained for at least 12 months.

Compensation Committee Report

The Compensation Committee of the Board of Directors hereby reports as follows:

The Compensation Committee has reviewed and discussed the Company's Compensation Discussion and Analysis ("CD&A") required by Item 402(b) of Regulation S-K with management.

Based on the review and discussions referred to in paragraph 1 above, the Compensation Committee recommended to the Board of Directors that the CD&A be included in the Company's Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission.

The Compensation Committee:
Howard Gittis
J. Robert Kerrey
Gerald C. Crotty

The foregoing report of the Compensation Committee shall not be deemed to be filed with the SEC or to be incorporated by reference into any of our previous or future filings with the SEC, except as otherwise explicitly specified by us in any such filing.

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2006 Summary Compensation Table

The following summary compensation table shows the compensation for the year ended December 31, 2006 for services in all capacities for named executive officers.

Name and Principal Position	Year	Salary ($)(1)	Bonus ($)(2)		Stock Awards ($)(3)		Option Awards ($)(3)	Non-Equity Incentive Plan Compen- sation ($)(2)	Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($)		All Other Compen- sation ($)(4)	Total ($)
Peter Boneparth President and Chief Executive Officer	2006	2,500,000	-		1,457,889	(5)	-	-	-		64,627	4,022,516
Efthimios P. Sotos (6) Chief Financial Officer	2006	476,843	150,000		328,571		116,921	-	-	(7)	24,207	1,096,542
Sidney Kimmel Chairman	2006	1,200,000	-		-		-	-	-		155,183	1,355,183
Wesley R. Card Chief Operating Officer (8)	2006	1,100,000	480,000		800,747	(5)	-	-	-		200,081	2,580,828
Lynne F. Cote' Chief Executive Officer - Wholesale Sportswear, Suits and Dresses	2006	1,000,000	1,000,000		370,139		99,802	-	-		9,150	2,479,091
Rhonda J. Brown (9) President and Chief Executive Officer, Footwear, Accessories and Retail Group	2006	379,167	284,375	(10)	961,382		27,533	-			1,626,015	3,278,472

___________________
(1)	Compensation deferred at the election of the named executive officer is included in the year in which it would otherwise have been reported had it not been deferred.
(2)	Annual bonus and non-equity incentive plan compensation amounts are reported for the year earned and accrued regardless of the timing of the actual payment. No non-equity incentive plan awards were granted to the named executive officers for 2006, because we reported a loss; however, Mr. Sotos, Mr. Card and Ms. Cote' were awarded cash bonuses for 2006. See "Compensation Discussion and Analysis - Components of the Executive Compensation Program - Description of Elements and Evaluation Process - Annual Cash Incentives" herein.
(3)	The amounts reflect the dollar amount recognized for financial statement reporting purposes before the effect of estimated forfeitures for the fiscal year ended December 31, 2006 in accordance with FAS 123(R) and thus may include amounts from awards granted in and prior to 2006. For assumptions used in the valuation of equity-based awards, see "Summary of Accounting Policies - Stock Options," "Summary of Accounting Policies - Restricted Stock" and "Stock Options and Restricted Stock" in Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
(4)	The table below provides our incremental cost of the components of Other Annual Compensation for each of the named executive officers during 2006. We provided a car or car allowance to Messrs. Boneparth, Sotos and Card, and in the case of Mr. Boneparth, provided him with a tax gross-up payment to cover the taxable income attributable

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to the car allowance. We provided a car and driver for Mr. Kimmel, and provided car services for Mr. Card in New York City. We rented an apartment in New York City that was used by Mr. Card. We provided Mr. Card with a tax gross-up payment to cover the taxable income attributable to the apartment. We also paid the premiums on certain term life and disability insurance policies for the benefit of Mr. Boneparth. We also provided the named executive officers with certain group life, health, medical and other non-cash benefits generally available to all full-time salaried employees, which are not included in this table, as permitted by SEC rules.

Name	Termination Payments		New York Apartment		Car Lease/Allowance		Car Services	Car and Driver	Life and Disability Insurance	401(k) Plan Contri- butions(a)	Barneys New York Discounts (b)	Total Other Annual Compen- sation
Name	Termination Payments		Cost	Tax Gross-up	Cost	Tax Gross-up	Car Services	Car and Driver	Life and Disability Insurance	401(k) Plan Contri- butions(a)	Barneys New York Discounts (b)	Total Other Annual Compen- sation
Peter Boneparth	-		-	-	18,000	15,600	-	-	14,321	6,120	10,586	64,627
Efthimios P. Sotos	-		-	-	12,500	-	-	-	-	8,800	2,907	24,207
Sidney Kimmel	-		-	-	-	-	-	120,554	-	8,800	25,829	155,183
Wesley R. Card	-		79,171	77,448	22,915	-	8,411	-	-	8,800	3,336	200,081
Lynne F. Cote'	-		-	-	-	-	-	-	-	8,800	350	9,150
Rhonda J. Brown	1,611,458	(c)	-	-	-	-	4,168	-	-	8,800	1,589	1,626,015


	(a)	The amounts shown in this column represent our contributions on behalf of the named individuals to the Jones Apparel Group, Inc. Retirement Plan, which is our 401(k) defined contribution plan.
	(b)	Represents discounts on purchases made at Barneys New York or Barneys New York CO-OP stores or at the Barneys New York annual warehouse sale event under our discount program. Under our discount program, all our employees, and members of the Board of Directors, may purchase products in Company-owned stores (other than Barneys stores) at 40% off the original retail price or at the then current price, whichever is lower. All Barneys employees, certain of our senior executives, including each of the foregoing executives, and members of the Board of Directors receive a discount of 35% on purchases at any Barneys store. All our other employees receive a discount of 35% on purchases at Barneys outlet stores.
	(c)	Represents salary, bonus and benefits for 2006 for the period subsequent to Ms. Brown's termination of employment. The total value of her severance payments and health and welfare benefits from her termination date through December 31, 2008 is $6,534,831, as discussed under "Potential Payments and Benefits Upon Termination of Employment" herein.
(5)	Amounts for Mr. Boneparth and Mr. Card do not include any expense related to the 50% of their March 6, 2006 restricted stock awards (25,000 and 12,500 shares, respectively) that were forfeited, because 2006 corporate performance targets applicable to that portion of the awards were not achieved. These shares were cancelled on February 8, 2007.
(6)	Mr. Sotos became our Chief Financial Officer on March 8, 2006. His employment with us ended on March 27, 2007.
(7)	The amount of Mr. Sotos' accumulated benefits obligation as of December 31, 2006 decreased by $201 from December 31, 2005.
(8)	Mr. Card served as our Chief Operating Officer throughout 2006. He also served as Chief Financial Officer from January 1 through March 7, 2006. He is currently the Chief Operating and Financial Officer.
(9)	Ms. Brown's employment with us ended on April 17, 2006.
(10)	Represents a prorated target bonus paid to Ms. Brown following termination of her employment, based on 75% of Ms. Brown's annual salary at the time of termination, as required under her employment agreement with us. See "Potential Payments and Benefits Upon Termination of Employment" herein.

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Grants of Plan-Based Awards in 2006

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)			Estimated Future Payouts Under Equity Incentive Plan Awards (2)					All Other Stock Awards: Number of Shares of Stock or Units (#)(2)		All Other Option Awards: Number of Securities Under- lying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)(3)
Name	Grant Date	Thresh- old ($)	Target ($)	Maxi- mum ($)	Thresh- old ($)	Target ($)		Maxi- mum ($)					Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($)(3)
Peter Boneparth	03/06/06	-	-	-	0	50,000	(4)	50,000	(4)	-		-	-	1,472,000
Efthimios P. Sotos (5)	01/31/06 04/10/06	- -	- -	- -	- -	- -		- -		5,000 15,000	(6) (6)	- -	- -	156,400 523,800
Sidney Kimmel	-	-	-	-	-	-		-		-		-	-	-
Wesley R. Card	03/06/06	-	-	-	0	25,000	(4)	25,000	(4)	-		-	-	736,000
Lynne F. Cote'	03/31/06	-	-	-	-	-		-		12,000	(6)	-	-	375,360
Rhonda J. Brown	03/06/06	-	-	-	0	10,000	(7)	10,000	(7)	-		-	-	294,400

(1)	Our named executive officers participate in the Executive Annual Incentive Plan ("AIP"). Under its provisions, annual incentive awards payable in cash (unless otherwise determined by the Compensation Committee of the Board of Directors) for a particular fiscal year may be granted to executive officers who are deemed "covered employees" as defined in the AIP and who are approved by the Compensation Committee for participation. For any fiscal year, the aggregate awards, or "Incentive Pool," available under the AIP equals not more than 3% of our pre-tax income (as adjusted according to the terms of the AIP). During the first quarter of each year, the Compensation Committee allocates a percentage of the Incentive Pool to each participant, which determines the maximum incentive that may be awarded, subject to an overall individual maximum award of $3.0 million. As discussed under "Compensation Discussion and Analysis - Components of the Executive Compensation Program - Description of Elements and Evaluation Process - Annual Cash Incentives," we had a net loss of $144.1 million for 2006, and as a result, the Incentive Pool was not funded for 2006. Accordingly, no non-equity incentive plan awards were granted to the named executive officers for 2006 under the AIP.
(2)	Represents grants of shares of restricted common stock under our 1999 Stock Incentive Plan. During the vesting period, the executives are the beneficial owners of the shares of restricted stock and possess all voting and dividend rights. Dividends are paid on shares of restricted stock at the same rate and at the same time as dividends are paid to all holders of common stock. During 2006, the quarterly dividend rate was $0.12 per share for dividends paid prior to December 1, 2006 and $0.14 per share thereafter.
(3)	Based on the closing price of our common stock on the New York Stock Exchange on the date of grant.
(4)	The restricted stock granted to Mr. Boneparth and Mr. Card on March 6, 2006 was subject to Company financial performance and time-based vesting conditions. 50% of the shares were eligible to vest if we achieved the 2006 net income budget, and the remaining 50% were eligible to vest if we achieved the 2006 operating cash flow budget. If actual 2006 net income or operating cash flow results were less than 90% of the targeted amounts, the corresponding shares would be forfeited. For achievement of between 90% and 100% of the targeted amounts, a proportionate number of shares would be eligible to vest. If the financial tests were satisfied, the shares eligible for vesting would vest 100% on the second business day immediately following our public announcement of fourth quarter financial results for 2008. We outperformed our 2006 operating cash flow target but did not achieve our 2006 net income target. As a

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	result, Mr. Boneparth and Mr. Card each forfeited 50% of their awards, and 25,000 shares and 12,500 shares, respectively, were cancelled on February 8, 2007.
(5)	The grants shown in the table for Mr. Sotos were forfeited as of March 27, 2007, as a result of his termination of employment with us.
(6)	Vesting restrictions lapse on the second business day immediately following our public announcement of fourth quarter financial results for 2008.
(7)	The restricted stock award granted to Ms. Brown on March 6, 2006 was subject to the same Company financial performance and time-based vesting conditions applicable to the awards to Mr. Boneparth and Mr. Card described in footnote (4) to this table. However, Ms. Brown's shares became fully vested upon termination of her employment with us on April 17, 2006.

Outstanding Equity Awards at December 31, 2006

	Option Awards							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)(1)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
Peter Boneparth	164,265 28,200 125,000 1,500,000 300,000		- - - - -		- - - - -	10.18 19.67 31.26 36.54 40.68	04/30/07 12/29/10 12/03/11 03/11/12 06/19/11	25,000	(2)	835,750	125,000	(3)(4)	4,178,750
Efthimios P. Sotos	8,000 - 15,000 15,000 3,000 2,000 501	(5) (5) (5) (5) (5)	- 25,000 - - 4,500 8,000 -	(7) (8) (9)	- - - - - - -	27.75 28.11 29.1875 31.26 34.89 37.06 42.17	09/27/09 09/26/12 12/18/10 12/03/11 01/05/11 01/03/12 05/16/07	31,667	(6)	1,058,628	-		-
Sidney Kimmel	133,333 160,000 266,666 400,000		- - - -		- - - -	22.625 27.625 29.1875 31.26	01/13/10 03/27/08 12/18/10 12/03/11	-		-	-		-
Wesley R. Card	64,544 75,000 86,764 75,000 100,000		- - - - -		- - - - -	19.125 22.625 22.65625 29.1875 31.26	12/28/08 01/13/10 12/12/07 12/18/10 12/03/11	12,500	(2)	417,875	62,500	(3)(10)	2,089,375
Lynne F. Cote'	40,000 9,000 2,000 40,000		- 6,000 8,000 -	(12) (9)	- - - -	31.26 33.36 37.06 40.68	12/03/11 12/12/10 01/03/12 06/19/11	26,334	(11)	880,346	-		-
Rhonda J. Brown	25,000 30,000		- -		- -	31.26 33.36	12/03/11 12/12/10	-		-	-		-

(1)	Calculated based on the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43).

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(2)	These shares vest on the second business day immediately following our public announcement of fourth quarter financial results for 2008.
(3)	Amounts for Mr. Boneparth and Mr. Card include the 50% of their March 6, 2006 restricted stock awards (25,000 shares and 12,500 shares, respectively) that will not vest, as 2006 corporate performance targets applicable to that portion of the awards were not achieved. These shares were cancelled on February 8, 2007. See Footnote 4 to the Grants of Plan-Based Awards in 2006 table herein.
(4)	Includes 100,000 shares of restricted stock subject to achievement of certain "free cash flow" targets. All of those shares are eligible to vest on the second business day immediately following our public announcement of fourth quarter financial results for 2007, if the 2007 minimum free cash flow target is achieved, or, if the 2007 minimum free cash flow target is not achieved, if the minimum aggregate free cash flow target for 2005, 2006 and 2007 is achieved.
(5)	As a result of Mr. Sotos' termination of employment with us on March 27, 2007, these options will expire three months after his termination date (June 27, 2007).
(6)	1,000 shares were to vest on December 9, 2007; 667 shares were to vest on the second business day immediately following our public announcement of fourth quarter financial results for 2006; 10,000 shares were to vest on the second business day immediately following our public announcement of fourth quarter financial results for 2007; and 20,000 shares were to vest on the second business day immediately following our public announcement of fourth quarter financial results for 2009. As a result of Mr. Sotos' termination of employment with us on March 27, 2007, these shares were forfeited as of March 27, 2007.
(7)	These options were to vest on the second business day immediately following our public announcement of third quarter financial results for 2008. As a result of Mr. Sotos' termination of employment with us on March 27, 2007, these options were forfeited as of March 27, 2007.
(8)	1,500 options vested on January 5, 2007 and 1,500 options were to vest on each of January 5, 2008 and 2009. As a result of Mr. Sotos' termination of employment with us on March 27, 2007, the unvested shares on that date were forfeited as of March 27, 2007 and the vested options will expire three months after his termination date (June 27, 2007).
(9)	2,000 options vested on February 16, 2007. 2,000 options were to vest on the second business day immediately following our public announcement of fourth quarter financial results for each of 2007, 2008 and 2009. As a result of Mr. Sotos' termination of employment with us on March 27, 2007, the unvested shares on that date were forfeited as of March 27, 2007 and the vested options will expire three months after his termination date (June 27, 2007).
(10)	Includes 50,000 shares of restricted stock subject to achievement of certain "free cash flow" targets. All of those shares are eligible to vest on the second business day immediately following our public announcement of fourth quarter financial results for 2007, if the 2007 minimum free cash flow target is achieved, or, if the 2007 minimum free cash flow target is not achieved, if the minimum aggregate free cash flow target for 2005, 2006 and 2007 is achieved.
(11)	5,000 shares vest on the second business day immediately following our public announcement of fourth quarter financial results for 2006; 3,334 shares vest on December 12, 2007; 6,000 shares vest on the second business day immediately following our public announcement of fourth quarter financial results for 2007; and 12,000 shares vest on the second business day immediately following our public announcement of fourth quarter financial results for 2008.
(12)	3,000 options vest on December 12 of each of 2007 and 2008.

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Option Exercises and Stock Vested in 2006

	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value realized on Vesting ($)(1)
Peter Boneparth	-	-	83,334	2,520,854
Efthimios P. Sotos	-	-	1,666	53,537
Sidney Kimmel	-	-	-	-
Wesley R. Card	-	-	50,000	1,512,500
Lynne F. Cote'	-	-	-	-
Rhonda J. Brown	-	-	51,666	1,737,312

(1)	Calculated based on the price of our common stock on the New York Stock Exchange on the vesting date.

2006 Pension Benefits

In connection with prior acquisitions, we assumed certain defined benefit pension plans. Mr. Sotos participates in the Pension Plan for Associates of Nine West Group Inc. None of our other named executive officers is eligible to participate in any of our defined benefit pension plans.

Name	Plan Name	Number of Years Credited Service (#)		Present Value of Accumulated Benefit ($)		Payments During Last Fiscal Year ($)
Peter Boneparth	-	-		-		-
Efthimios P. Sotos	Pension Plan for Associates of Nine West Group Inc. (1)	12	(2)	4,405	(3)	-
Sidney Kimmel	-	-		-		-
Wesley R. Card	-	-		-		-
Lynne F. Cote'	-	-		-		-
Rhonda J. Brown	-	-		-		-

(1)	The Pension Plan for Associates of Nine West Group Inc. is a noncontributory, defined benefit cash balance plan that expresses retirement benefits as an account balance based on:
	-	An opening account balance as of January 1, 1997,
	-	Service credits (equal to a percentage of a participant's compensation paid during the plan year, based on the participant's age and years of credited service on the first day of the plan year), earned before February 15, 1999 and
	-	Interest credits (based on the monthly equivalent of the five-year U.S. Treasury Bill interest rate (weighted for constant maturities as in effect on December 1st of the previous plan year), plus 0.25%).
	After February 15, 1999, the account balance increases each year through interest credits only. Interest credits are allocated to a participant's account until the participant retires and receives a benefit. The

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accrued benefit may not be less than a participant's accrued benefit as of December 31, 1996 under the formula contained in the 1996 version of the plan.

Participants are 100% vested in their accrued benefit after completion of five years of vesting service or, if they are active participants and reach age 65, regardless of years of vesting service.

A participant who terminates employment is entitled to receive his vested accrued benefit upon attainment of normal retirement (age 65). Additionally, a participant may elect to receive benefits upon satisfying the criteria for early retirement (upon the later of termination of employment or attainment of age 55 with five years of credited service).

The normal form of benefit is a single life annuity for unmarried participants or a qualified joint and one-half survivor annuity for married participants. Subject to certain notice and waiver procedures, each participant may elect to receive his retirement benefit in one of the other following forms: (1) lump sum payment; (2) joint and survivor annuity; (3) five-year certain and continuous annuity; or (4) 10-year certain and continuous annuity.

(2)

Includes five years of credited service with Nine West Group Inc. prior to our acquisition of Nine West on June 15, 1999.

(3)

Reflects the amount of Mr. Sotos' accumulated benefit obligation as of December 31, 2006 recognized for financial reporting purposes, assuming retirement at age 65, an interest crediting rate of 4.0% and a discount rate of 6.11%. Assuming early retirement at age 55, Mr. Sotos' accumulated benefit obligation as of December 31, 2006 is $5,141. His account balance as of December 31, 2006 was $7,136.

2006 Nonqualified Deferred Compensation

The following table sets forth information relating to the Jones Apparel Group, Inc. Deferred Compensation Plan (the "Deferred Compensation Plan"). Mr. Boneparth, Mr. Sotos and Ms. Cote' are the only named executive officers who elected to defer 2006 compensation under the Deferred Compensation Plan. Ms. Brown had previously elected to defer 2004 and 2005 compensation under the Deferred Compensation Plan.

Name	Executive Contributions in Last FY ($)(1)	Registrant Contributions in Last FY ($)	Aggregate Earnings in Last FY ($)	Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last FYE ($)(2)
Peter Boneparth	615,000	-	296,135	-		2,258,999
Efthimios P. Sotos	206,711	-	56,198	-		542,538
Sidney Kimmel	-	-	-	-		-
Wesley R. Card	-	-	-	-		-
Lynne F. Cote'	50,000	-	64,896	-		584,676
Rhonda J. Brown	-	-	38,650	680,978	(3)	-

(1)	The following amounts in this column are included in the "Salary" column of the 2006 Summary Compensation Table: Mr. Boneparth, $375,000; Mr. Sotos, $119,211; and Ms. Cote', $50,000. Mr. Boneparth's amount in this column also includes $240,000 reported in the "Bonus" column of last year's Summary Compensation Table on page 13 of the proxy statement for the 2006 annual meeting of stockholders.
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(2)	Of the totals in this column, the following amounts were reported in the 2006 Summary Compensation Table or were reported in the Summary Compensation Table for prior years:

Name	Executive Contributions in Last FY ($)(1)	Registrant Contributions in Last FY ($)	Aggregate Earnings in Last FY ($)
Peter Boneparth	375,000	1,419,167	1,794,167
Efthimios P. Sotos	119,211	-	119,211
Sidney Kimmel	-	-	-
Wesley R. Card	-	-	-
Lynne F. Cote'	50,000	-	50,000
Rhonda J. Brown	-	-	-

(3)	Ms. Brown's aggregate account balance was distributed to her following her termination of employment with us.

The Deferred Compensation Plan allows a select group of management or highly compensated employees who are designated by the committee that administers the plan to defer, on a pre-tax basis, receipt of up to 90% of salary and up to 90% of annual bonus, in an account which is credited with a rate of return based on hypothetical investment options selected by the participant from an extensive menu under the plan. The committee has designated employees earning a base salary of $100,000 or more, including the named executive officers, as eligible to participate in the plan. Participant deferrals and related earnings are fully vested upon contribution. However, the plan is not funded; account balances are simply bookkeeping entries that record our unsecured contractual commitment to pay the amounts due under the plan. A rabbi trust has been established under the plan to hold assets separate from our other assets for the purpose of paying future participant benefit obligations. The assets of the rabbi trust are available to our general creditors in the event of our insolvency.

Investment selections may be changed by the participant on a daily basis. The Deferred Compensation Plan does not provide above-market or preferential earnings. The investment crediting options and their one-year rates of return as of December 31, 2006 are as follows:

Fund Offering		Investment Classification	1-Year Annualized Average %
1.	AllianceBernstein International Value	International Value	34.18
2.	AllianceBernstein Value	Large Value	21.22
3.	American Funds EuroPacific Growth	International Growth	21.43
4.	American Funds Growth Fund of America	Large Growth	10.62
5.	BlackRock S&P 500 Index	Market Index	15.49
6.	Columbia Acorn	Small Growth	14.13
7.	Delaware Trend	Mid-Cap Growth	6.88
8.	Goldman Sachs Small Cap Value	Small Value	17.34
9.	JP Morgan Mid Cap Value	Mid-Cap Value	16.73
10.	LASSO^(R) Long and Short Strategic Opportunities^(R)	Absolute Return	7.45
11.	Merrill Lynch Retirement Reserves Money	Money Market	4.54
12.	PIMCO Real Return	Inflation - Linked Bond	-0.16
13.	PIMCO Total Return	Intermediate Term Bond	3.50

New deferral elections may only be made during each annual enrollment period and are effective on January 1 of the subsequent year. Deferral elections remain in effect throughout the year and cannot be discontinued.

Amounts deferred under the plan are not subject to income tax until actually paid to the participant. Distributions of account balances are generally paid following the participant's retirement or termination of employment with us. However, the plan does have provisions for scheduled "in-service" distributions and also allows for hardship withdrawals upon the approval of the committee that administers the plan. Account

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balances of at least $50,000 for participants who terminate employment after attaining age 50 and completing at least ten years of service are paid, pursuant to the participant's election, either in a lump sum or in scheduled quarterly or annual installments during up to a maximum period of 15 years. All other distributions are made in lump sum payments. Distributions to specified "key employees" as defined by Internal Revenue Service regulations, including the named executive officers, may not be made earlier than six months after termination of employment.

Employment and Compensation Arrangements

Effective July 1, 2000, we entered into employment agreements with Sidney Kimmel and Wesley R. Card. Mr. Card's agreement was amended and restated effective as of March 11, 2002 and further amended on each of February 28, 2003, March 8, 2006 and April 17, 2007. Each agreement had an initial term of three years. Each agreement provides for automatic 12-month extensions unless either party gives notice no later than June 30 of the year preceding the final year of the applicable term that the agreement will not be extended. If the agreement is so extended, the extended term begins on July 1 of the applicable year and ends 36 months later. The current term of our agreement with Messrs. Kimmel and Card expires on June 30, 2009.

In connection with our acquisition of McNaughton, in April 2001, we entered into an employment agreement with Peter Boneparth, who was the Chief Executive Officer of McNaughton. The agreement, which became effective on completion of the merger on June 19, 2001, was amended in November 2001, amended and restated on March 11, 2002, when Mr. Boneparth was elected President of Jones and designated to become the Chief Executive Officer on May 22, 2002, and further amended on February 28, 2003. It had an initial term of three years, which expired on March 31, 2005, and provides for automatic 12-month extensions unless either party gives notice no later than March 31 of the year preceding the final year of the applicable term that the agreement will not be extended. If the agreement is so extended, the extended term begins on April 1 of the applicable year and ends 36 months later. On March 27, 2007, we delivered to Mr. Boneparth, and Mr. Boneparth delivered to us, a "Non-extension Notice" pursuant to the agreement. As a result of such notices, the term of Mr. Boneparth's agreement will not be extended to March 31, 2010 and will expire on March 31, 2009.

We entered into an employment agreement with Lynne Cote' effective as of January 1, 2002. Ms. Cote''s agreement was amended effective November 30, 2005. Ms. Cote''s agreement had an initial term of three years. Her agreement provides for automatic 12-month extensions unless either party gives notice no later than December 31 of the year preceding the final year of the applicable term that the agreement will not be extended. If the agreement is so extended, the extended term begins on January 1 of the applicable year and ends 36 months later. The current term of Ms. Cote''s agreement expires on December 31, 2009.

We entered into an employment agreement with Efthimios P. Sotos effective as of July 1, 2004. Mr. Sotos' agreement was amended and restated as of June 5, 2006. His agreement had an initial term of three years ending on June 30, 2009, and we had an option to renew the term for an additional 12-month period. By letter dated March 23, 2007, Mr. Sotos gave notice of his resignation from his position as our Chief Financial Officer. His employment with us ended on March 27, 2007.

Sidney Kimmel. Mr. Kimmel's agreement provides that he will serve as our Chairman and Chief Executive Officer. His annual salary will not be less than $1,100,000, and he is entitled to receive annual bonuses in accordance with the Executive Annual Incentive Plan (for a description of the Executive Annual Incentive Plan, see "Compensation Discussion and Analysis - Components of Executive Compensation Program - Description of Elements and Evaluation Process - Annual Cash Incentives" herein). The agreement also provides for annual grants, at the discretion of the Compensation Committee, of stock options in an amount (plus or minus 25%) equal to 400% of Mr. Kimmel's salary and at an exercise price of the fair market value of the common stock on the date of grant, vesting ratably over three-year periods, or in such other amount and on such other terms as the Compensation Committee may determine. On March 11, 2002, Mr. Kimmel announced his plans to retire as our Chief Executive Officer as of May 22, 2002. He continues to serve as Chairman of our Board of Directors.

If we terminate Mr. Kimmel's employment for "cause" or if he resigns without "good reason," Mr. Kimmel will receive only his unpaid salary through the date of termination or resignation. If Mr. Kimmel's

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employment terminates before the end of the term due to death or "disability" (as defined), we will pay him or his estate, as applicable, (i) any unpaid salary through the date of termination, (ii) an additional six months of salary and (iii) a target bonus (based on 100% of his annual salary at the time of termination) prorated through the date of termination. If we terminate Mr. Kimmel's employment without "cause" (as defined) or Mr. Kimmel resigns for "good reason" (as defined) and no "change in control" (as defined) has occurred, we will pay or provide to him (i) any unpaid salary through the date of termination, (ii) his target bonus prorated through the date of termination, (iii) for each month during the remainder of the term of his agreement, his monthly salary at the time of termination and 1/12 of his target bonus, together with continued benefits, and (iv) reimbursement for up to $10,000 of executive outplacement services. If we terminate Mr. Kimmel's employment without "cause" or Mr. Kimmel resigns for "good reason" following a "change in control," we will pay him (i) any unpaid salary through the date of termination, (ii) his target bonus prorated through the date of termination, (iii) a lump sum equal to three times the sum of his annual salary at the time of termination plus his target bonus, (iv) reimbursement for up to $10,000 of executive outplacement services and (v) a lump sum equal to our cost for his health insurance, life insurance and retirement benefits for the remainder of the term of the agreement.

The agreement also provides for vesting of all previously unvested options upon (i) termination of Mr. Kimmel's employment due to "retirement" (as defined), death or "disability," (ii) a "change in control," (iii) termination by Mr. Kimmel for "good reason" or (iv) if we terminate his employment without "cause." In the case of termination due to "retirement," "disability," "change in control," "good reason" or "without cause," the accelerated options are exercisable during the remaining original option term; in the case of death, the accelerated options are exercisable by Mr. Kimmel's estate or representative for a three-year period after the date of death.

Mr. Kimmel's agreement also contains non-competition restrictions during his employment and for the duration of the severance period (i.e., the period from the termination date through the expiration of the term of the agreement), provided that we are making the payments due to him (as described above). Mr. Kimmel is prohibited from recruiting or hiring our employees during the period ending two years after the severance period and is prohibited from disparaging Jones for the longer of the non-competition period, the non-solicitation period or a period of three years following the termination date. The agreement also restricts him from disclosing confidential information of Jones and requires that he disclose and assign to Jones any trademarks or inventions developed by him which relate to his employment by Jones or to Jones' business. If Mr. Kimmel breaches any of the restrictions and covenants described above following termination of employment, Jones' severance payments to him will immediately cease.

Peter Boneparth. Mr. Boneparth's amended agreement provides that he will serve as the President and, effective May 22, 2002, Chief Executive Officer of Jones, reporting solely and directly to the Board of Directors. We agreed to include Mr. Boneparth as a nominee for the Board of Directors and to recommend that stockholders vote in favor of his election to the Board of Directors for so long as he is employed by us under the agreement. His annual salary will be at the rate of not less than $1,500,000 for the period from March 11, 2002 through December 31, 2002, $2,000,000 for the period from January 1, 2003 through December 31, 2003, and $2,500,000 thereafter. He is entitled to receive annual bonuses in accordance with the Executive Annual Incentive Plan. In satisfaction of Mr. Boneparth's right to receive a guaranteed minimum bonus of $1,000,000 for each of 2002 and 2003 under his April 2001 employment agreement, we paid him $1,000,000 on each of March 11, 2002 and January 2, 2003. Under the agreement, we will continue to provide him the life and disability insurance coverage previously provided to him under his employment agreement with McNaughton.

Under the agreement, on March 11, 2002, Mr. Boneparth received an initial grant of options to purchase 1,500,000 shares of our common stock, which vested ratably on the first three anniversaries of the date of grant. Under the February 28, 2003 amendment, Mr. Boneparth waived his right under his March 11, 2002 amended and restated employment agreement to receive an additional grant of options to purchase 1,500,000 shares of common stock, in consideration of receiving a grant of 250,000 shares of performance-contingent restricted stock, which vest over a three-year period, in lieu thereof. The agreement also provides for annual grants, at the discretion of the Compensation Committee, beginning in 2003, of additional stock options and/or shares of restricted stock in an amount (plus or minus 25%) equal to 300% of Mr. Boneparth's salary. The exercise price of the options will be the fair market value of the common stock on the date of grant.

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Options or restricted stock will vest ratably over three-year periods, with such other vesting provisions as the Compensation Committee may determine, or in such other amount and on such other terms as the Compensation Committee may determine.

If we terminate Mr. Boneparth's employment for "cause" (as defined) or if he resigns without "good reason" (as defined), Mr. Boneparth will receive only his unpaid salary through the date of termination or resignation and any bonus earned in the prior year but not yet paid. If Mr. Boneparth's employment terminates before the end of the term due to death or "disability" (as defined), we will pay him or his estate, as applicable, (i) any unpaid salary through the date of termination and any bonus earned in the prior year but not yet paid, (ii) an additional six months of salary and (iii) the greater of his target bonus (based on 100% of his annual salary at the time of termination) or $3,000,000, prorated through the date of termination. If we terminate Mr. Boneparth's employment without "cause" or Mr. Boneparth resigns for "good reason" and no "change in control" (as defined) has occurred, we will pay or provide to him (i) any unpaid salary through the date of termination and any bonus earned in the prior year but not yet paid, (ii) the greater of his target bonus at the time of termination or $3,000,000, prorated through the date of termination, (iii) for each month during the remainder of the term of his agreement, his monthly salary at the time of termination, 1/12 of the greater of his target bonus or $3,000,000, and continued benefits for the remainder of the term of his agreement and (iv) reimbursement for up to $10,000 of executive outplacement services. If we terminate Mr. Boneparth's employment without "cause" or Mr. Boneparth resigns for "good reason" following a "change in control," we will pay him (i) any unpaid salary through the date of termination and any bonus earned in the prior year but not yet paid, (ii) his target bonus, prorated through the date of termination, (iii) a lump sum equal to three times the sum of Mr. Boneparth's annual salary at the time of termination and the greater of his target bonus at the time of termination or $3,000,000, (iv) reimbursement for up to $10,000 of executive outplacement services and (v) a lump sum equal to our cost for continued health insurance, life insurance and retirement benefits for the remainder of the term of the agreement.

The agreement also provides for vesting of all previously unvested options and lapse of all restrictions on shares of restricted stock held by Mr. Boneparth upon (i) termination of Mr. Boneparth's employment due to "retirement" (as defined), death or "disability," (ii) a "change in control," (iii) termination by Mr. Boneparth for "good reason" or (iv) if we terminate his employment without "cause." In the case of termination due to "retirement," "disability," "change in control," for "good reason" or "without cause," the accelerated options are exercisable during the remaining original option term; in the case of death, the accelerated options are exercisable by Mr. Boneparth's estate or representative for a three-year period after the date of death.

Mr. Boneparth's agreement also contains non-competition restrictions during his employment and for the duration of the severance period (i.e., the period from the termination date through the expiration of the term of the agreement), provided that we are making the payments due to him (as described above). Mr. Boneparth is prohibited from recruiting or hiring our employees during the period ending two years after the severance period and is prohibited from disparaging Jones for the longer of the non-competition period, the non-solicitation period or a period of three years following the termination date. The agreement also restricts him from disclosing confidential information of Jones and requires that he disclose and assign to Jones any trademarks or inventions developed by him which relate to his employment by Jones or to Jones' business. If Mr. Boneparth breaches any of the restrictions and covenants described above following termination of employment, Jones' severance payments to him will immediately cease.

Efthimios P. Sotos. Mr. Sotos' amended agreement provided that he would serve as our Chief Financial Officer. His annual salary would not be less than $500,000, and he was entitled to receive annual bonuses in accordance with the Executive Annual Incentive Plan. The agreement also provided for annual grants, at the discretion of the Compensation Committee, of restricted stock and/or stock options, in such amounts and subject to such terms and conditions as determined by the Compensation Committee.

If we terminated Mr. Sotos' employment for "cause" (as defined) or if he resigned without "good reason" (as defined), Mr. Sotos would receive only his unpaid salary through the date of termination or resignation. If Mr. Sotos' employment terminated before the end of the term due to death or "disability" (as defined), we would pay him or his estate, as applicable, (i) any unpaid salary through the date of termination, (ii) an additional six months of salary and (iii) a target bonus (based on 75% of his annual salary at the time of

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termination), prorated through the date of termination. If we terminated Mr. Sotos' employment without "cause" or Mr. Sotos resigned for "good reason" and no "change in control" (as defined) had occurred, he would receive (i) any unpaid salary through the date of termination, (ii) the target bonus at the time of termination, prorated through the date of termination, (iii) for each month during the remainder of the term of the agreement, his monthly salary at the time of termination plus 1/12 of the target bonus, (iv) continued health insurance, life insurance and retirement benefits for the remainder of the term of the agreement and (v) reimbursement for up to $10,000 of executive outplacement services.

If we terminated Mr. Sotos' employment without "cause" or Mr. Sotos resigned for "good reason" following a "change in control," he would receive (i) any unpaid salary through the date of termination, (ii) the target bonus, prorated through the date of termination, (iii) a lump sum equal to three times 200% of Mr. Sotos' annual salary at the time of termination, (iv) reimbursement for up to $10,000 of executive outplacement services and (v) a lump sum equal to our cost for his continued health insurance, life insurance and retirement benefits for the remainder of the term of the agreement.

The agreement also provided for vesting of all previously unvested options and lapse of all restrictions on shares of restricted stock held by Mr. Sotos upon (i) termination of Mr. Sotos' employment due to "retirement" (as defined), death or "disability," (ii) a "change in control," (iii) termination by Mr. Sotos for "good reason" or (iv) if we terminated his employment without "cause." In the case of termination due to "retirement," "disability," "change in control," "good reason" or "without cause," the accelerated options would be exercisable during the remaining original option term; in the case of death, the accelerated options would be exercisable by Mr. Sotos' estate or representative for a three-year period after the date of death.

Mr. Sotos' agreement also contains non-competition restrictions during his employment and for the duration of the severance period (i.e., the period from the termination date through the expiration of the term of the agreement), provided that we are making the payments due to him (as described above). Mr. Sotos is prohibited from recruiting or hiring our employees during the period ending two years after the severance period and is prohibited from disparaging Jones for the longer of the non-competition period or a period of three years following the termination date. The agreement also restricts him from disclosing confidential information of Jones and requires that he disclose and assign to Jones any trademarks or inventions developed by him which relate to his employment by Jones or to Jones' business.

Wesley R. Card. Mr. Card's amended agreement provides that he will serve as our Chief Operating and Financial Officer. His annual salary will not be less than $850,000, and he is entitled to receive annual bonuses in accordance with the Executive Annual Incentive Plan. Under the February 28, 2003 amendment, Mr. Card waived his right under his March 11, 2002 amended and restated employment agreement to receive a grant of options to purchase 500,000 shares of common stock, in consideration of receiving a grant of 150,000 shares of performance-contingent restricted stock, which vest over a three-year period, in lieu thereof. The agreement also provides for annual grants, at the discretion of the Compensation Committee, of stock options and/or restricted stock in an amount (plus or minus 25%) equal to 150% of Mr. Card's salary. The exercise price of the options will be the fair market value of the common stock on the date of grant. Options or restricted stock will vest ratably over three-year periods, with such other vesting provisions as the Compensation Committee may determine, or in such other amount and on such other terms as the Compensation Committee may determine.

If we terminate Mr. Card's employment for "cause" or if he resigns without "good reason," Mr. Card will receive only his unpaid salary through the date of termination or resignation. If Mr. Card's employment terminates before the end of the term due to death or "disability" (as defined), we will pay him or his estate, as applicable, (i) any

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unpaid salary through the date of termination, (ii) an additional six months of salary and (iii) a target bonus (based on 100% of his annual salary at the time of termination) prorated through the date of termination. If we terminate Mr. Card's employment without "cause" (as defined) or Mr. Card resigns for "good reason" (as defined) and no "change in control" (as defined) has occurred, we will pay or provide to him (i) any unpaid salary through the date of termination, (ii) his target bonus prorated through the date of termination, (iii) for each month during the remainder of the term of his agreement, his monthly salary at the time of termination and 1/12 of his target bonus, together with continued benefits and (iv) reimbursement for up to $10,000 of executive outplacement services. If we terminate Mr. Card's employment without "cause" or Mr. Card resigns for "good reason" following a "change in control," we will pay him (i) any unpaid salary through the date of termination, (ii) his target bonus prorated through the date of termination, (iii) a lump sum equal to three times 200% of his annual salary at the time of termination, (iv) reimbursement for up to $10,000 of executive outplacement services and (v) a lump sum equal to our cost for his health insurance, life insurance and retirement benefits for the remainder of the term of the agreement.

Mr. Card's amended agreement provides that if (1) he remains employed by us through December 31, 2009 and his employment terminates thereafter for any reason, (2) prior to December 31, 2009, his employment terminates due to death or disability or is terminated by us without "cause" or by him for "good reason," or (3) on or after January 1, 2008, he provides to our Board of Directors at least six months' written notice of his retirement and the Board consents to his retirement, which consent shall not be unreasonably withheld or delayed, then we will (i) pay him (or his estate, as applicable) an annual retirement benefit of $500,000, payable in monthly installments, for a period of five years following the date of termination and (ii) provide continued medical and dental coverage for Mr. Card and his spouse for their respective lives, provided that our annual cost of providing that coverage does not exceed $7,500 (which amount increases annually by 10% beginning in 2008). The annual retirement benefit and continued insurance coverage are in addition to any other payments and benefits to which Mr. Card may be entitled under other provisions of the employment agreement.

The agreement also provides for vesting of all previously unvested options and lapse of all restrictions on shares of restricted stock held by Mr. Card upon (i) termination of Mr. Card's employment due to "retirement" (as defined), death or "disability," (ii) a "change in control," (iii) termination by Mr. Card for "good reason" or (iv) if we terminate his employment without "cause." In the case of termination due to "retirement," "disability," "change in control," "good reason" or "without cause," the accelerated options are exercisable during the remaining original option term; in the case of death, the accelerated options are exercisable by Mr. Card's estate or representative for a three-year period after the date of death.

Mr. Card's agreement also contains non-competition restrictions during his employment and for the duration of the severance period (i.e., the period from the termination date through the expiration of the term of the agreement), provided that we are making the payments due to him (as described above). Mr. Card is prohibited from recruiting or hiring our employees during the period ending two years after the severance period and is prohibited from disparaging Jones for the longer of the non-competition period, the non-solicitation period or a period of three years following the termination date. The agreement also restricts him from disclosing confidential information of Jones and requires that he disclose and assign to Jones any trademarks or inventions developed by him which relate to his employment by Jones or to Jones' business. If Mr. Card breaches any of the restrictions and covenants described above following termination of employment, Jones' severance payments to him will immediately cease.

Lynne F. Cote'. Ms. Cote''s amended agreement provides that she will serve as our Chief Executive Officer - Wholesale Sportswear, Suits and Dresses. Her annual salary was at the rate of not less than $600,000 through December 31, 2005 and is at the rate of not less than $1,000,000 commencing as of January 1, 2006. She is eligible to receive annual bonuses in the discretion of the Board of Directors upon the recommendation of the Chief Executive Officer of Jones.

If we terminate Ms. Cote''s employment for "cause" (as defined) or if she resigns without "good reason" (as defined), Ms. Cote' will receive only her unpaid salary through the date of termination or resignation and any bonus earned in the prior year but not yet paid. If Ms. Cote''s employment terminates before the end of the term due to death or "disability" (as defined), we will pay her or her estate, as applicable, (i) any unpaid salary through the date of termination and (ii) an additional six months of salary. If we terminate Ms. Cote''s employment without "cause" or Ms. Cote' resigns for "good reason," she will receive (i) any unpaid salary through the date of termination and any bonus earned in the prior year but not yet paid and (ii) for each month during the remainder of the term of the agreement, her monthly salary at the time of termination. Severance payments to Ms. Cote' will be reduced by the amount, if any, of other compensation or income earned or received by Ms. Cote' after the termination date.

The agreement provides for vesting of all previously unvested options upon termination of Ms. Cote''s employment due to death or "disability." The accelerated options are exercisable during the remaining original option term (or, if shorter, for three years following death).

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Ms. Cote''s agreement also contains non-competition restrictions during Ms. Cote''s employment and for the duration of the severance period (i.e., the period from the termination date through the expiration of the term of the agreement but not less than one year), provided that we are making the payments due to her (as described above). Ms. Cote' is prohibited from recruiting or hiring our employees during the period ending two years after the severance period and is prohibited from disparaging Jones for the longer of the non-competition period, the non-solicitation period or a period of three years following the termination date. The agreement also restricts her from disclosing confidential information of Jones and requires that she disclose and assign to Jones any trademarks or inventions developed by her which relate to her employment by Jones or to Jones' business. If Ms. Cote' breaches any of the restrictions and covenants described above following termination of employment, Jones' severance payments to her will immediately cease.

We have provided certain perquisites to the named executive officers, as summarized in footnote 4 to the 2006 Summary Compensation Table. In addition, each of those executives is eligible to receive all perquisites that are made available to our senior executives, which include participation in the Jones Apparel Group, Inc. Deferred Compensation Plan and participation at the senior executive level in our discount program.

We also provide other benefits, such as medical, dental and life insurance, to the named executive officers on the same terms and conditions as those provided generally to our other full-time, salaried employees.

Potential Payments and Benefits Upon Termination of Employment

This section outlines estimated payments and other benefits that would have been received by each named executive officer employed by us as of December 29, 2006 (the last business day of 2006), or his or her estate, under existing agreements, plans and arrangements, if the named executive officer's employment had terminated on December 29, 2006 under the following circumstances:

voluntary termination by the named executive officer,

termination by us for cause,

termination by us without cause or by the named executive officer with good reason,

termination by us without cause or by the named executive officer with good reason following a change in control,

termination at normal retirement,

termination as a result of disability or

termination as a result of death.

Employment Agreements. The named executive officers have employment agreements with us, as described under the heading "Employment and Compensation Arrangements" herein. The named executive officers had the following number of months remaining as of December 29, 2006 in the then-current terms of their employment agreements: 27 months for Mr. Boneparth; 30 months for Mr. Sotos; 30 months for Mr. Kimmel; 30 months for Mr. Card; and 24 months for Ms. Cote'.

On December 31, 2006, the term of Ms. Cote''s agreement was extended for an additional 12 months.

On March 23, 2007, Mr. Sotos notified us of his resignation from his position as our Chief Financial Officer. Under that circumstance, as shown under the "Voluntary termination by named executive officer" column in the following table for Mr. Sotos, he received no severance payments and benefits other than those generally available to our full-time, salaried employees upon termination of employment other than for cause.

On March 27, 2007, we delivered to Mr. Boneparth, and Mr. Boneparth delivered to us, a "Non-extension Notice" pursuant to his employment agreement. As a result, the term of Mr. Boneparth's agreement will expire on March 31, 2009 (which is the same expiration date on which the quantitative data in the following table for Mr. Boneparth is based).

As provided under each named executive officer's employment agreement with us, the severance payments shown on the following tables would immediately cease if the executive were to breach his or her obligations under the ownership of intellectually property, confidentiality, non-competition, non-solicitation

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or non-disparagement covenants described under the heading "Employment and Compensation Arrangements" herein.

We do not make excise tax gross-up payments in connection with severance payments to the named executive officers. Our employment agreements with Messrs. Boneparth, Sotos, Kimmel and Card provide that if total payments under the terms of the agreement are or will be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, then the total payments will be reduced (but not below zero) to the extent that a reduction would result in the executive retaining a larger amount on an after-tax basis. We would effect the reduction by first reducing or eliminating the portion of total payments which are not payable in cash and then by reducing or eliminating cash payments.

Company Plans and Policies. The following tables do not include payments and benefits generally available to all of our full-time, salaried employees upon termination of employment, including distribution of account balances under the terms and conditions of our Jones Apparel Group, Inc. Retirement Plan (401(k) Plan) for participating employees, payment for accrued but unused vacation, and payment of benefits upon death or disability. The following tables also omit payment of account balances following termination of employment to participants in certain benefit plans discussed elsewhere herein. For information concerning account balances and accumulated benefits for the named executive officers participating in the Jones Apparel Group, Inc. Deferred Compensation Plan or the Pension Plan for Associates of Nine West Group Inc., see the 2006 Nonqualified Deferred Compensation and the 2006 Pension Benefits tables.

We provide a group life insurance benefit to employees of 166% of base annual salary to a maximum benefit of $300,000 (which is doubled in the event of accidental death and is reduced by one-third upon the employee's attainment of each of age 70 and age 75). We also provide long-term disability coverage to employees to age 65 (assuming continued disability) for up to 60% of monthly salary with a limit of $4,000 per month. Employees have the option to purchase additional long-term disability coverage for up to 60% of monthly salary or $11,000 per month, with a $15,000 total monthly benefit limit.

Under the terms of our employment agreement with Mr. Boneparth, we pay the premiums for additional life and disability insurance for Mr. Boneparth's benefit, which are included in the following table. The aggregate benefit under the additional life insurance is $7 million, and the aggregate monthly benefit under the additional long-term disability insurance is $15,000, payable to age 65 (assuming continued disability).

2006 Estimated Termination Payments and Benefits

Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement	Termination due to Disability		Termination due to Death
PETER BONEPARTH:
	Aggregate monthly cash payments	$ -	$ -	$12,374,991	(1)	$ -		$ -	$1,249,998	(2)	$1,249,998	(2)
	Lump sum cash payment	-	-	3,000,000	(3)	19,000,000	(4)	-	3,000,000	(3)	3,000,000	(3)
	Health and welfare benefits continuation (5)	-	-	107,731		-		-	-		-
	Lump sum cost of insurance and retirement benefits (6)	-	-	-		112,105		-	-		-
	Value of accelerated stock options (7)	-	-	-		-		-	-		-
	Value of accelerated restricted stock (8)	-	-	4,178,750		4,178,750		4,178,750	4,178,750		4,178,750
	Executive outplacement services (9)	-	-	10,000		10,000		-	-		-
	TOTAL:	$ -	$ -	$19,671,472		$23,300,855		$4,178,750	$8,428,748		$8,428,748

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(1)	Represents aggregate payments of monthly salary plus monthly bonus (1/12 of the greater of target bonus (last annual salary) or $3 million) through March 31, 2009.
(2)	Represents six months of salary.
(3)	Represents the greater of last annual salary or $3 million.
(4)	Represents (i) target bonus (last annual salary) plus (ii) three times annual salary plus (iii) three times the greater of target bonus (last annual salary) or $3 million.
(5)	Represents the present value at December 31, 2006 of life and health insurance under our group policies through March 31, 2009, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums. Includes our continued contributions to the Jones Apparel Group, Inc. Retirement Plan with an assumed maximum amount of $9,000 annually through March 31, 2009. Also includes present value at December 31, 2006 of life and health insurance premiums to be paid by us through March 31, 2009 under individual life and disability policies for the benefit of Mr. Boneparth, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums.
(6)	Represents our cost of continued life and health insurance and our continued contributions to the Jones Apparel Group, Inc. Retirement Plan for the executive during the period from December 31, 2006 through March 31, 2009.
(7)	Mr. Boneparth's stock options were fully vested as of December 29, 2006.
(8)	Represents intrinsic value of unvested restricted stock subject to accelerated vesting. Calculated based on the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43). Excludes the 50% of the March 6, 2006 restricted stock award (25,000 shares) that will not vest, as 2006 corporate performance targets applicable to that portion of the awards were not achieved.
(9)	Assumes that we reimburse the executive for the maximum reimbursable amount ($10,000) under the executive's employment agreement.

Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement	Termination due to Disability		Termination due to Death
EFTHIMIOS P. SOTOS (1):
	Aggregate monthly cash payments	$ -	$ -	$2,187,500	(2)	$ -		$ -	$250,000	(3)	$250,000	(3)
	Lump sum cash payment	-	-	375,000	(4)	3,375,000	(5)	-	375,000	(4)	375,000	(4)
	Health and welfare benefits continuation (6)	-	-	42,660		-		-	-		-
	Lump sum cost of insurance and retirement benefits (7)	-	-	-		43,447		-	-		-
	Value of accelerated stock options (8)	-	-	133,000		133,000		133,000	133,000		133,000
	Value of accelerated restricted stock (9)	-	-	1,058,628		1,058,628		1,058,628	1,058,628		1,058,628
	Executive outplacement services (10)	-	-	10,000		10,000		-	-		-
	TOTAL:	$ -	$ -	$3,806,788		$4,620,075		$1,191,628	$1,816,628		$1,816,628

(1)	Mr. Sotos resigned in March 2007. As a result, he received payment of his salary and benefits only through the date of termination of employment. The potential payments and benefits upon termination of employment under the various other circumstances shown in this table are provided as required under SEC rules.
(2)	Represents aggregate payments of monthly salary plus monthly bonus (1/12 of 75% of last annual salary) through June 30, 2009.
(3)	Represents six months of salary.
(4)	Represents target bonus (75% of last annual salary).
(5)	Represents (i) target bonus (75% of last annual salary) plus (ii) three times 200% of last annual salary.
(6)	Represents the present value at December 31, 2006 of life and health insurance under our group policies through June 30, 2009, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums. Includes our continued contributions to the Jones Apparel Group, Inc. Retirement Plan with an assumed maximum amount of $9,000 annually through June 30, 2009.
(7)	Represents our cost of continued life and health insurance and our continued contributions to the Jones Apparel Group, Inc. Retirement Plan for the executive during the period from December 31, 2006 through June 30, 2009.
(8)	Represents intrinsic value of unvested options subject to accelerated vesting. Calculated based on the excess amount of the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43) over the exercise price of the option. Includes 34,000 unvested options that were forfeited as of March 27, 2007 as a result of Mr. Sotos' termination of employment with us on March 27, 2007 and 47,001 vested options that will expire three months after his termination date (June 27, 2007).
(9)	Represents intrinsic value of unvested restricted stock subject to accelerated vesting. Calculated based on the closing price of our

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	common stock on the New York Stock Exchange on December 29, 2006 ($33.43). Includes 31,000 shares of restricted stock that were forfeited as of March 27, 2007 as a result of Mr. Sotos' termination of employment with us on March 27, 2007.
(10)	Assumes that we reimburse the executive for the maximum reimbursable amount ($10,000) under the executive's employment agreement.

Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement	Termination due to Disability		Termination due to Death
SIDNEY KIMMEL:
	Aggregate monthly cash payments	$ -	$ -	$6,000,000	(1)	$ -		$ -	$600,000	(2)	$600,000	(2)
	Lump sum cash payment	-	-	1,200,000	(3)	8,400,000	(4)	-	1,200,000	(3)	1,200,000	(3)
	Health and welfare benefits continuation (5)	-	-	52,078		-		-	-		-
	Lump sum cost of insurance and retirement benefits (6)	-	-	-		53,339		-	-		-
	Value of accelerated stock options (7)	-	-	-		-		-	-		-
	Value of accelerated restricted stock	-	-	-		-		-	-		-
	Executive outplacement services (8)	-	-	10,000		10,000		-	-		-
	TOTAL:	$ -	$ -	$7,267,078		$8,463,339		$ -	$1,800,000		$1,800,000

(1)	Represents aggregate payments of monthly salary plus monthly bonus (1/12 of target bonus (last annual salary)) through June 30, 2009.
(2)	Represents six months of salary.
(3)	Represents target bonus (last annual salary).
(4)	Represents (i) target bonus (last annual salary) plus (ii) three times annual salary plus (iii) three times target bonus.
(5)	Represents the present value at December 31, 2006 of life and health insurance under our group policies through June 30, 2009, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums. Includes our continued contributions to the Jones Apparel Group, Inc. Retirement Plan with an assumed maximum amount of $9,000 annually through June 30, 2009.
(6)	Consists of our cost of continued life and health insurance and our continued contributions to the Jones Apparel Group, Inc. Retirement Plan for the executive during the period from December 31, 2006 through June 30, 2009.
(7)	Mr. Kimmel's stock options were fully vested as of December 29, 2006.
(8)	Assumes that we reimburse the executive for the maximum reimbursable amount ($10,000) under the executive's employment agreement.

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Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement	Termination due to Disability		Termination due to Death
WESLEY R. CARD:
	Aggregate monthly cash payments	$ -	$ -	$5,500,020	(1)	$ -		$ -	$550,000	(2)	$550,000	(2)
	Lump sum cash payment	-	-	1,100,000	(3)	7,700,000	(4)	-	1,100,000	(3)	1,100,000	(3)
	Health and welfare benefits continuation (5)	-	-	52,918		-		-	-		-
	Lump sum cost of insurance and retirement benefits (6)	-	-	-		54,221		-	-		-
	Value of accelerated stock options (7)	-	-	-		-		-	-		-
	Value of accelerated restricted stock (8)	-	-	2,089,375		2,089,375		2,089,375	2,089,375		2,089,375
	Executive outplacement services (9)	-	-	10,000		10,000		-	-		-
	TOTAL:	$ -	$ -	$8,752,313		$9,853,596		$2,089,375	$3,739,375		$3,739,375

(1)	Represents aggregate payments of monthly salary plus monthly bonus (1/12 of target bonus (last annual salary)) through June 30, 2009.
(2)	Represents six months of salary.
(3)	Represents target bonus (last annual salary).
(4)	Represents (i) target bonus (last annual salary) plus (ii) three times annual salary plus (iii) three times target bonus.
(5)	Represents the present value at December 31, 2006 of life and health insurance under our group policies through June 30, 2009, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums. Includes our continued contributions to the Jones Apparel Group, Inc. Retirement Plan with an assumed maximum amount of $9,000 annually through June 30, 2009.
(6)	Represents our cost of continued life and health insurance and our continued contributions to the Jones Apparel Group, Inc. Retirement Plan for the executive during the period from December 31, 2006 through June 30, 2009.
(7)	Mr. Card's stock options were fully vested as of December 29, 2006.
(8)	Represents intrinsic value of unvested restricted stock subject to accelerated vesting. Calculated based on the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43). Excludes the 50% of the March 6, 2006 restricted stock award (12,500 shares) that will not vest, as 2006 corporate performance targets applicable to that portion of the awards were not achieved.
(9)	Assumes that we reimburse the executive for the maximum reimbursable amount ($10,000) under the executive's employment agreement.

Upon Mr. Sotos' resignation in March 2007, we asked Mr. Card to resume the role of Chief Financial Officer. He agreed, and in recognition of his new responsibilities, we entered into an amendment of his employment agreement in April 2007 which provides him with additional payments and benefits upon termination of employment under certain circumstances. The following table shows the estimated total payments and other benefits that Mr. Card would have received upon termination of employment as of December 29, 2006, had the amendment been in effect on that date.

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Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement		Termination due to Disability		Termination due to Death
WESLEY R. CARD:
	Aggregate monthly cash payments	$ -	$ -	$8,000,020	(1)	$2,500,000	(2)	$ -	(3)	$3,050,000	(4)	$3,050,000	(4)
	Lump sum cash payment	-	-	1,100,000	(5)	7,700,000	(6)	-		1,100,000	(5)	1,100,000	(5)
	Health and welfare benefits continuation	-	-	309,970	(7)	275,767	(8)	-	(3)	275,767	(8)	275,767	(8)
	Lump sum cost of insurance and retirement benefits (9)	-	-	-		54,221		-		-		-
	Value of accelerated stock options (10)	-	-	-		-		-		-		-
	Value of accelerated restricted stock (11)	-	-	2,089,375		2,089,375		2,089,375		2,089,375		2,089,375
	Executive outplacement services (12)	-	-	10,000		10,000		-		-		-
	TOTAL:	$ -	$ -	$11,509,365		$12,629,363		$2,089,375		$6,515,142		$6,515,142

(1)	Represents aggregate payments of (i) monthly salary plus monthly bonus (1/12 of target bonus (last annual salary)) through June 30, 2009 plus (ii) aggregate monthly cash payments totaling $500,000 per year through December 31, 2011.
(2)	Represents aggregate monthly payments totaling $500,000 per year through December 31, 2011.
(3)	Mr. Card is not entitled to the additional payments and benefits provided under the April 2007 amendment upon termination by reason of retirement except with respect to retirement on or after July 1, 2008 with at least six months' prior written notice of his retirement to our Board of Directors and the consent of the Board to his retirement.
(4)	Represents (i) six months of salary plus (ii) aggregate monthly cash payments totaling $500,000 per year through December 31, 2011.
(5)	Represents target bonus (last annual salary).
(6)	Represents (i) target bonus (last annual salary) plus (ii) three times annual salary plus (iii) three times target bonus.
(7)	Represents the present value at December 31, 2006 of health and dental insurance for Mr. Card and his wife from July 1, 2009 (following expiration of the term of his agreement) for life, assuming a life expectancy of 80 and 84 years, respectively, a discount rate of 6.11%, an annual cost to us of $7,500 and a growth rate of 10% per year for premiums, as provided under the amended employment agreement. Also includes the present value of life and health insurance for Mr. Card under our group policies through June 30, 2009, assuming a discount rate of 6.11% and a growth rate of 8% per year for insurance premiums. Includes our continued contributions to the Jones Apparel Group, Inc. Retirement Plan with an assumed maximum amount of $9,000 annually through June 30, 2009.
(8)	Represents the present value at December 31, 2006 of health and dental insurance for Mr. Card and his wife from December 31, 2006 for life, assuming a life expectancy of 80 and 84 years, respectively, a discount rate of 6.11%, an annual cost to us of $7,500 and a growth rate of 10% per year for premiums, as provided under the amended employment agreement.
(9)	Represents our cost of continued life and health insurance and our continued contributions to the Jones Apparel Group, Inc. Retirement Plan for Mr. Card during the period from December 31, 2006 through June 30, 2009.
(10)	Mr. Card's stock options were fully vested as of December 29, 2006.
(11)	Represents intrinsic value of unvested restricted stock subject to accelerated vesting. Calculated based on the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43). Excludes the 50% of the March 6, 2006 restricted stock award (12,500 shares) that will not vest, as 2006 corporate performance targets applicable to that portion of the awards were not achieved.
(12)	Assumes that we reimburse Mr. Card for the maximum reimbursable amount ($10,000) under his employment agreement.

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Payments and benefits		Voluntary termination by named executive officer	Termination by us for cause	Termination by us without cause or by the named executive officer with good reason		Termination by us without cause or by the named executive officer with good reason following a change in control		Normal retirement	Termination due to Disability		Termination due to Death
LYNNE F. COTE':
	Aggregate monthly cash payments	$ -	$ -	$2,000,000	(1)	$2,000,000	(1)	$ -	$500,000	(2)	$500,000	(2)
	Lump sum cash payment	-	-	-		-		-	-		-
	Health and welfare benefits continuation	-	-	-		-		-	-		-
	Lump sum cost of insurance and retirement benefits	-	-	-		-		-	-		-
	Value of accelerated stock options (3)	-	-	-		-		420	420		420
	Value of accelerated restricted stock (4)	-	-	-		-		713,196	713,196		713,196
	Executive outplacement services	-	-	-		-		-	-		-
	TOTAL:	$ -	$ -	$2,000,000		$2,000,000		$713,616	$1,213,616		$1,213,616

(1)	Represents aggregate payments of monthly salary through December 31, 2008. However, as of December 31, 2006, the term of Ms. Cote''s agreement was automatically extended to December 31, 2009. Severance payments are reduced by the amount, if any, of other compensation or income earned or received by Ms. Cote' after the termination date.
(2)	Represents six months of salary.
(3)	Represents intrinsic value of unvested options subject to accelerated vesting. Calculated based on the excess amount of the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43) over the exercise price of the option.
(4)	Represents intrinsic value of unvested restricted stock subject to accelerated vesting. Calculated based on the closing price of our common stock on the New York Stock Exchange on December 29, 2006 ($33.43).

On April 14, 2006, Rhonda J. Brown's employment with us as President and Chief Executive Officer of our Footwear, Accessories and Retail Group and as President and Chief Executive Officer of Nine West Footwear Corporation was terminated. Pursuant to Ms. Brown's employment agreement with us, which was effective on October 21, 2001 and amended on February 28, 2003, we paid Ms. Brown a lump sum payment of $284,375, representing a prorated target bonus based on 75% of her annual salary ($1,300,000) at the time of termination, and semi-monthly payments of $94,792, representing her monthly salary as of the termination date and 1/12 of her target bonus, during the period from April 15, 2006 through December 31, 2006, totaling $1,611,458. Ms. Brown is entitled to receive continued semi-monthly payments of salary and target bonus until the end of the term of her employment agreement on December 31, 2008, which will total $4,550,000 in the aggregate. Her employment agreement provides that she is entitled to continue to participate in all benefit plans in which she was participating immediately preceding termination of employment for the remaining term of the agreement. The estimated total value of her continued benefits from April 15, 2006 through December 31, 2008 is $88,998, comprised of (i) approximately $18,000 in lieu of the Company matching contribution she would have received had she been permitted to continue to participate in the Jones Apparel Group, Inc. Retirement (401(k)) Plan; (ii) approximately $33,475 to provide equivalent long-term disability coverage with a total monthly benefit of $15,000 through age 65; and (iii) approximately $37,523 for continued health and life insurance coverage under Company plans. The intrinsic value of the previously unvested options held by Ms. Brown which accelerated on her termination date was $131,700, calculated based on the excess amount of the closing price of our common stock on the New York Stock Exchange on April 13, 2006 ($34.80) over the exercise price of the options. The intrinsic value of the previously unvested restricted stock held by Ms. Brown which accelerated on her termination date was $1,333,988, calculated based on the closing price of our common stock on the New York Stock Exchange on April 13, 2006 ($34.80). Ms. Brown's account balance in our non-qualified deferred compensation plan, as shown in the 2006 Nonqualified Deferred Compensation table herein, was distributed to her in October 2006 in accordance with the terms of the plan.

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Director Compensation

The following table provides information on compensation for the year ended December 31, 2006 paid to each non-management director. Directors who are employees receive no additional compensation for serving on the Board of Directors.

2006 Director Compensation

Name	Fees Earned or Paid in Cash ($)(1)(2)	Stock Awards ($)(3)	Option Awards ($)(3)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)(4)	Total ($)
Howard Gittis	92,000	87,850	-	-	-	4,550	184,400
Anthony F. Scarpa	94,000	87,850	-	-	-	-	181,850
Matthew H. Kamens	81,000	87,850	-	-	-	13,238	182,088
J. Robert Kerrey	88,000	87,850	-	-	-	7,975	183,825
Ann N. Reese	89,000	87,850	-	-	-	2,280	179,130
Gerald C. Crotty	83,000	132,298	-	-	-	5,287	220,585
Lowell W. Robinson	98,000	132,298	-	-	-	11,710	242,008
Allen I. Questrom	80,333	152,735	-	-	-	35,198	268,266
Frits D. van Paasschen	5,333	8,737	-	-	-	-	14,070

(1)

Non-management directors receive a $40,000 annual retainer, $2,000 for attending a board meeting and $1,000 for a committee meeting. In addition, the chair of the Audit Committee receives a retainer of $10,000, and the chairs of other committees receive a retainer of $5,000.

(2)

Each non-management director may elect to defer all or a portion of his or her annual retainer and meeting attendance fees under the Jones Apparel Group, Inc. Deferred Compensation Plan for Outside Directors until the earlier of his or her termination of service on the Board or a date selected by the director under the Plan. The Plan does not provide for above-market or preferential earnings. Each director can choose to invest the funds in either of the following two types of hypothetical investments:

Share Units. This type of investment allows the director to invest his or her compensation in hypothetical shares of Jones common stock based on the market price of the common stock at the time the compensation would have been paid. Hypothetical dividends are "reinvested" in additional share units based on the market price of the common stock at the time dividends are paid on the common stock. All share units are paid out in cash.

Cash Units. Funds in this type of account are credited with interest monthly based on U.S. Treasury bill rates using the Treasury constant maturities daily "1-year" rate.

Messrs. Kerrey, Crotty and Questrom previously elected to have their fees deferred in the form of share units, and Mr. Kamens previously elected to have his fees deferred in the form of cash units.

(3)

As of January 2005, each non-management director receives an annual grant of 3,000 shares of restricted common stock, with new non-management directors receiving an initial grant of 6,000 shares of restricted common stock. The restricted stock awards have a value based on the fair market values of our common stock on the effective date of the grant and vest in equal installments over three years. The awards are made from shares available under our 1999 Stock Incentive Plan.

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The amounts reflect the dollar amount recognized for financial statement reporting purposes before the effect of estimated forfeitures for the fiscal year ended December 31, 2006 in accordance with FAS 123(R) and thus may include amounts from awards granted in and prior to 2006. For assumptions used in the valuation of equity-based awards, see "Summary of Accounting Policies - Stock Options," "Summary of Accounting Policies - Restricted Stock" and "Stock Options and Restricted Stock" in Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

In 2004 and 2003, each non-management director received an annual grant of 3,000 options at an exercise price of $1.00 that vested six months from the date of grant. From 1999 to 2002, each non-management director received an annual grant of 2,000 options at an exercise price of $1.00 that vested six months from the date of grant. Prior to 1999, each non-management director received an annual grant of 2,000 options at an exercise price of $0.50 that vested six months from the date of grant. The awards were made from options available under our 1999 Stock Incentive Plan and our 1996 Stock Option Plan.

The following table shows the aggregate number of outstanding stock option and restricted stock awards held by our non-management directors as of December 31, 2006. All outstanding options are fully vested.

Name	Options	Exercise Price	Shares of Restricted Stock
Howard Gittis	2,000 14,000	$0.50 $1.00	5,000
Anthony F. Scarpa	9,500	$1.00	5,000
Matthew H. Kamens	9,000	$1.00	5,000
J. Robert Kerrey	4,500	$1.00	5,000
Ann N. Reese	9,000	$1.00	5,000
Gerald C. Crotty	-	-	7,000
Lowell W. Robinson	-	-	7,000
Allen I. Questrom	-	-	9,000
Frits D. van Paasschen	-	-	6,000

(4)

Represents discounts on purchases made at Barneys New York or Barneys New York CO-OP stores or at the Barneys New York annual warehouse sale event under our discount program. Under our discount program, all our employees, and members of the Board of Directors, may purchase products in Company-owned stores (other than Barneys stores) at 40% off the original retail price or at the then current price, whichever is lower. All Barneys employees, certain of our senior executives, and members of the Board of Directors receive a discount of 35% on purchases at any Barneys store. All our other employees receive a discount of 35% on purchases at Barneys outlet stores.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners

The information contained herein has been obtained from our records or from information furnished directly by the individual or entity to us.

The table below shows, as of April 9, 2007, how much of our common stock was owned by each of our directors, nominees, named executive officers, each person known to us to own 5% or more of our common stock (as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934) and all of our current directors and executive officers, as a group.

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Name	Number of Shares Owned (1)		Rights to Acquire (2)	Restricted Stock (3)	Percent of Outstanding Shares
Peter Boneparth	234,895		1,953,200	199,000	2.2%
Sidney Kimmel	1,027,529	(4)	959,999	-	1.8%
Howard Gittis	9,000		16,000	6,000	*
Anthony F. Scarpa	3,000		9,500	6,000	*
Matthew H. Kamens	3,000		9,000	6,000	*
J. Robert Kerrey	2,000		4,500	6,000	*
Ann N. Reese	6,000		9,000	6,000	*
Gerald C. Crotty	5,000		-	7,000	*
Lowell W. Robinson	5,000		-	7,000	*
Allen I. Questrom	3,000		-	9,000	*
Frits D. van Paasschen	-		-	9,000	*
Efthimios P. Sotos	4,000	(5)	47,001	-	*
Wesley R. Card	106,968	(6)	401,308	113,500	*
Lynne Cote'	-		93,000	56,334	*
Rhonda J. Brown	13,833	(6)(7)	55,000	-	*
AXA Financial, Inc. 1290 Avenue of the Americas New York, NY 10104	5,721,033	(8)	-	-	5.3%
Barclays Global Investors, NA. 45 Fremont Street San Francisco, CA 94105	13,208,193	(9)	-	-	12.1%
Hotchkis and Wiley Capital Management, LLC 725 S. Figueroa Street, 39th Floor Los Angeles, CA 90017	12,665,000	(10)	-	-	11.6%
LSV Asset Management 1 N. Wacker Drive, Suite 4000 Chicago, IL 60606	5,617,242	(11)	-	-	5.2%
All directors and current executive officers as a group (15 persons)	1,415,760		3,742,339	472,001	5.0%

___________________
*	Less than one percent.
(1)	Includes shares for which the named person has either sole or shared voting and investment power. Excludes shares of restricted stock and shares that can be acquired through the exercise of options. Also excludes "share units" (i.e., phantom stock) under our Deferred Compensation Plan for Outside Directors. Under that plan, non-management directors can elect to have the value of deferred amounts of all or a portion of their annual retainer and meeting attendance fees paid out based on an assumed investment in our Common Stock. The participants making that election do not have any right to vote or to receive Common Stock in connection with the assumed investments of the deferred amounts, and they are ultimately paid out in cash, but the assumed investments do represent an economic interest in our Common Stock. Such accounts are credited with additional share units for cash dividends paid on our Common Stock.

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	The following share units have been credited to the following directors under the plan as of April 9, 2007: Mr. Kerrey, 10,383.23 share units; Mr. Crotty, 5,846.79 share units; and Mr. Questrom, 4,135.79 share units. See footnote 2 to the 2006 Director Compensation table herein.
(2)	Shares that can be acquired through stock options exercisable through June 8, 2007.
(3)	Shares subject to a vesting schedule and other restrictions as to which the named individual has voting power.
(4)	Represents shares held by RIP Investments, L.P.
(5)	Based solely upon information provided to us as of February 10, 2007. Mr. Sotos' employment with us ended on March 27, 2007.
(6)	Some or all of the shares may be held in a margin account.
(7)	Based solely upon information provided to us as of February 13, 2007. Ms. Brown's employment with us ended on April 17, 2006.
(8)	Based solely upon information reported in Schedule 13G/A, filed with the SEC on February 13, 2007, reporting beneficial ownership as of December 31, 2006 by AXA Financial, Inc., by AXA and by AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle as a group. According to the filing, a majority of the shares reported are held by unaffiliated third-party client accounts managed by Alliance Capital Management L.P., as investment adviser. AXA Rosenberg Investment Management LLC, as to which AXA serves as a parent holding company, has sole power to dispose or to direct the disposition of 341,011 shares and sole power to vote or to direct the vote of 160,367 shares. AXA Financial, Inc.'s subsidiary, AXA Equitable Life Insurance Company, has sole power to dispose or to direct the disposition of 4,145 shares and sole power to vote or to direct the vote of 2,300 shares. AXA Financial, Inc.'s subsidiary, AllianceBernstein, has sole power to dispose or to direct the disposition of 5,375,877 shares and sole power to vote or to direct the vote of 4,209,005 shares. Gerald C. Crotty, one of our directors, is a trustee of the AXA Premier VIP Trust and the AXA Enterprise Multimanager Funds Trust, for which AXA Equitable Life Insurance Company serves as investment manager. In his role as trustee, Mr. Crotty neither directs the investment nor directs the voting of portfolio securities of those Trusts.
(9)	Based solely upon information reported in Schedule 13G/A, filed with the SEC on April 10, 2007, reporting beneficial ownership as of March 31, 2007. According to the filing, Barclays Global Investors N.A. has sole power to vote or to direct the vote of 8,873,650 shares and sole power to dispose or to direct the disposition of 10,569,476 shares. In addition, each of the following entities has sole voting and dispositive power for the indicated shares: Barclays Global Fund Advisors (880,617 shares), Barclays Global Investors, Ltd (1,019,206 shares), Barclays Global Investors Japan Trust and Banking Company Limited (145,053 shares) and Barclays Global Investors Japan Limited (593,841 shares). The shares reported are held by these entities in trust accounts for the economic benefit of the beneficiaries of those accounts.
(10)	Based solely upon information reported in Schedule 13G/A, filed with the SEC on April 10, 2007, reporting beneficial ownership as of March 31, 2007. According to the filing, Hotchkis and Wiley Capital Management, LLC ("HWCM") has sole power to vote or to direct the vote of 11,224,500 shares, and sole power to dispose or to direct the disposition of 12,665,000 shares. Such shares are owned of record by clients of HWCM, for whom HWCM serves as investment adviser. No such client is known to have voting or dispositive power with respect to more than 5% of the class of such securities.
(11)	Based solely on information reported in Schedule 13G, filed with the SEC on February 12, 2007, reporting beneficial ownership as of December 31, 2006.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2006.

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Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	9,194,772	$31.83	4,101,603
Equity compensation plans not approved by security holders	218,865	$14.75	--
Total	9,413,637	$31.43	4,101,603

In connection with the acquisition of McNaughton, stock options held by McNaughton employees on the acquisition date were converted to fully-vested options to purchase our common stock under the same terms and conditions as the original grants. A portion of these options were originally granted pursuant to equity compensation plans not approved by McNaughton shareholders. No additional options, warrants or other equity rights will be granted under any McNaughton equity compensation plans.

During 2002, 25,000 options were granted pursuant to equity compensation plans not approved by our shareholders. These options were issued to persons not previously employed by us as material inducements to these persons entering into employment contracts with us. These options vest in equal installments on each of the first five anniversary dates of grant and expire ten years from the grant date.

For further information, see "Stock Options and Restricted Stock" in Notes to Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Policy with Respect to Related Person Transactions

It is our policy, set forth in writing, not to permit any transaction in which the Company is a party and in which executive officers or directors, their immediate family members, or 5% shareholders have or will have a direct or indirect interest, other than

transactions available to all employees,
transactions involving purchases of our products at discounts made generally available to all employees or an identified group of employees,
transactions involving compensation approved by the Compensation Committee of the Board of Directors, or
charitable contributions involving less than $10,000 per annum to a charitable entity of which an executive officer or director of the Company, their immediate family members, or a 5% shareholder of the Company is an executive officer.

Any issues as to the application of this policy shall be resolved by the Audit Committee of the Board of Directors. A copy of our Statement of Policy with Respect to Related Person Transactions is available on our website, www.jny.com (under the "Our Company - Corporate Governance" caption).

Independence of Directors

Our Corporate Governance Guidelines provide that a majority of the Board shall consist of independent directors. The Board has determined that eight of our current directors, Howard Gittis, Anthony F. Scarpa, J. Robert Kerrey, Ann N. Reese, Gerald C. Crotty, Lowell W. Robinson, Allen I. Questrom and Frits D. van

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Paasschen, have no material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us) and are independent within the meaning of our Director Independence Standards. Peter Boneparth, our Chief Executive Officer, Sidney Kimmel, our Chairman (and until May 22, 2002 our Chief Executive Officer) and Matthew H. Kamens (who has a personal services contract with Mr. Kimmel) are not independent within the meaning of our Director Independence Standards.

The Board of Directors maintains three standing committees: Audit, Compensation and Nominating/ Corporate Governance. All three committees are composed entirely of independent directors.

In the course of the Board's determination regarding the independence of each independent director, the Board considered any transactions, relationships and arrangements as required by our Director Independence Standards. Specifically with respect to each of the three most recently completed fiscal years, with respect to Mr. Kerrey, the Board considered the amount of charitable contributions to The New School, of which Mr. Kerrey is President, by the Company or Mr. Kimmel and determined that such contributions were less than the greater of (i) $1 million or (ii) 2% of The New School's annual consolidated gross revenues.

The Director Independence Standards adopted by the Board of Directors is available on our website, www.jny.com (under the "Our Company - Corporate Governance" caption).

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

In connection with the audit of the 2006 financial statements, we entered into an engagement agreement with BDO Seidman, LLP, which set forth the terms by which BDO Seidman, LLP has performed audit services for us. That agreement is subject to alternative dispute resolution procedures and an exclusion of punitive damages.

The aggregate fees billed by BDO Seidman, LLP for professional services for 2006 and 2005 were as follows:

	2006	2005
Audit fees (1)	$ 2,474,191	$ 2,541,566
Audit-related fees (2)	547,700	89,900
Tax fees (3)	73,707	356,677
All other fees (4)	23,519	6,415

(1)	Includes audit of financial statements, audit of internal controls, SAS 100 reviews, consultations and statutory audits.
(2)	Includes audits of employee benefit plans and due diligence and reviews related to acquisition and disposition activities.
(3)	Includes foreign tax compliance work, consultations and preparation of expatriate tax returns.
(4)	Includes various foreign government filings relating to the registration or liquidation of subsidiaries.

The Audit Committee's charter provides that the Audit Committee will review, and approve in advance, in its sole discretion, all auditing services, internal control related services and permitted non-audit services, including fees and terms, to be performed for us by our independent registered public accountants, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 which are approved by the Audit Committee prior to completion of the audit. The Audit Committee may form and delegate to subcommittees of one or more members of the Audit Committee its authority to pre-approve audit and permitted non-audit services, including internal control related services, provided that any such subcommittee pre-approvals are presented to the full Audit Committee at the next

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scheduled Audit Committee meeting. In 2006, all of the services and fees were approved by the Audit Committee.

The Audit Committee's charter also provides that the Audit Committee will consider whether the independent registered public accountants' provision of permitted non-audit services is compatible with maintaining the registered public accountants' independence. The Audit Committee considered whether the provision of non-audit services by BDO Seidman, LLP is compatible with maintaining BDO Seidman, LLP's independence with respect to Jones and determined that to be the case.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:
	1.	The exhibits listed in the Exhibit Index attached hereto.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 7, 2007		JONES APPAREL GROUP, INC. (Registrant)
	By:	/s/ Wesley R. Card Wesley R. Card President and Chief Executive Officer

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INDEX TO FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm on Schedule II.

Schedule II. Valuation and qualifying accounts

Schedules other than those listed above have been omitted since the information is not applicable, not required or is included in the respective financial statements or notes thereto.

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
23*	Consent of BDO Seidman, LLP.
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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SCHEDULE II


                                    JONES APPAREL GROUP, INC.
                                 VALUATION AND QUALIFYING ACCOUNTS
                           YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
                                           (In Millions)

           Column A                   Column B             Column C            Column D     Column E
-------------------------------      ----------   -------------------------   ----------   ---------
                                                         Additions
                                                  -------------------------
                                                  Charged
                                                  against
                                                  revenues
                                     Balance at   or to         Charged to                 Balance
                                     beginning    costs and     other                      at end of
Description                          of period    expenses      accounts      Deductions   period
------------                         ----------   ----------    -----------   ----------   ---------
Accounts receivable allowances
------------------------------
Allowance for doubtful accounts
  For the year ended December 31:
    2004                                 $10.9      $ (0.7)      $ 2.1(1)      $  3.3(2)    $  9.0
    2005                                 $ 9.0      $  1.2       $   -         $  4.1(2)    $  6.1
    2006                                 $ 6.1      $  0.6       $   -         $  3.2(2)    $  3.5

Allowance for sales discounts
  For the year ended December 31:
    2004                                 $14.8      $125.2       $   -         $123.9(3)    $ 16.1
    2005                                 $16.1      $114.4       $   -         $115.9(3)    $ 14.6
    2006                                 $14.6      $107.6       $   -         $110.9(3)    $ 11.3

Allowance for sales returns
  For the year ended December 31:
    2004                                 $ 5.2      $ 27.2       $ 3.3 (4)     $ 26.8(3)    $  8.9
    2005                                 $ 8.9      $ 28.6       $ 0.2 (5)     $ 28.0(3)    $  9.7
    2006                                 $ 9.7      $ 30.3       $(0.5)(5)     $ 28.0(3)    $ 11.5

Allowance for co-op advertising
  For the year ended December 31:
    2004                                 $ 7.4      $ 48.1       $ 1.1 (6)     $ 44.4(3)    $ 12.2
    2005                                 $12.2      $ 34.8       $   -         $ 36.2(3)    $ 10.8
    2006                                 $10.8      $ 23.2       $(0.2)(5)     $ 23.8(3)    $ 10.0

Deferred tax valuation allowance
  For the year ended December 31:
    2004                                 $ 8.5      $    -       $   -         $    -       $  8.5
    2005                                 $ 8.5      $  0.7       $   -         $    -       $  9.2
    2006                                 $ 9.2      $112.4       $   -         $  9.2(7)    $112.4

(1)  Addition due to the acquisition of Maxwell on July 8, 2004 and Barneys on December 20, 2004.
(2)  Doubtful accounts written off against accounts receivable.
(3)  Deductions taken by customers written off against accounts receivable.
(4)  Addition due to the acquisition of Maxwell on July 8, 2004 and Barneys on December 20, 2004
     and effects of foreign currency translation.
(5)  Represents effects of foreign currency translation.
(6)  Addition due to the acquisition of Maxwell on July 8, 2004.
(7)  Deferred tax asset written off against the deferred tax valuation allowance.

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