<PAGE>


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

                                      FORM 10-Q
                                           
                              ----------------------------

  /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
     SECURITIES EXCHANGE ACT OF 1934
                                           
For the quarterly period ended June 29, 1997

                                          OR

 / /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 
    SECURITIES EXCHANGE ACT OF 1934
                                           
For the transition period from              to

Commission File Number 1-11805
                                           
                           -------------------------------
                                           

                            DONNA KARAN INTERNATIONAL INC.
                (Exact name of registrant as specified in its charter)
                                           
                                           

               Delaware                                  13-3882426
   (State or other jurisdiction of              (I.R.S. Employer Identification
   incorporation or organization)                           Number)      


                     550 Seventh Avenue, New York, New York 10018
                       (Address of principal executive offices)
                                      (Zip Code)
                                           
                                    (212) 789-1500
                 (Registrant's telephone number including area code)
                                           
                                    Not Applicable
                       (Former name, former address and former
                      fiscal year, if changed since last report)
                                           
                  ------------------------------------------------- 
                                           
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter periods that the 
registrant was required to file such reports) and (2) has been subject to 
such filing requirements for the past 90 days.       YES /x/      NO / /
                                           
Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practical date.

        Class                                Outstanding as of August 6, 1997
-----------------------------              ------------------------------------
Common Stock, par value $.01                          21,447,764

                                           
*Does not include 18 shares of Class A Common Stock, par value $.01 per 
share, and two shares of Class B Common Stock, par value $.01 per share, 
outstanding as of such date.

<PAGE>

                             DONNA KARAN INTERNATIONAL INC.
                                  INDEX TO FORM 10-Q

                                           
PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)
                                                                               
                                                                          Page 
                                                                          ---- 

    Statements of operations for the three months and six months ended
         June 30, 1996 and June 29, 1997, respectively....................    3

    Balance sheets as of December 29, 1996 and June 29, 1997..............    4

    Statements of cash flows for the six months ended
         June 30, 1996 and June 29, 1997, respectively....................    5

    Notes to Financial Statements.........................................    6


Item 2.  Management's Discussion and Analysis of Financial Condition 
         and Results of Operations........................................   10


PART II. OTHER INFORMATION


Item 1.  Legal Proceedings...............................................    16


Item 4.  Submission of Matters to a Vote of Security Holders.............    16


Item 5.  Other Matters...................................................    17


Item 6.  Exhibits and Reports on Form 8-K................................    17


                                             2

<PAGE>
                           DONNA KARAN INTERNATIONAL INC.
 
                              STATEMENTS OF OPERATIONS 
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                               Three Months Ended           Six Months Ended
                                                           --------------------------  --------------------------
<S>                                                        <C>           <C>           <C>           <C>
                                                             JUNE 30,      JUNE 29,      JUNE 30,      JUNE 29,
                                                               1996          1997          1996          1997
                                                           ------------  ------------  ------------  ------------
                                                                  (In thousands, except per share amounts)
<S>                                                        <C>           <C>           <C>           <C>
Net revenues.............................................  $    117,641       111,045  $    277,226  $    269,821
Cost of sales............................................        80,496        88,434       187,220       202,172
                                                           ------------  ------------  ------------  ------------
Gross profit.............................................        37,145        22,611        90,006        67,649
Selling, general and administrative expenses.............        38,032        47,788        77,443        92,344
Restructuring charges....................................            --         1,571            --         1,571
                                                           ------------  ------------  ------------  ------------
Operating income (loss)..................................          (887)      (26,748)       12,563       (26,266)
Other income (expense):
  Equity in earnings (losses) of affiliates..............           621           (23)        1,609           709
  Interest expense, net..................................        (2,249)         (419)       (4,296)         (139)
  Interest expense on distribution notes.................        (1,882)           --        (1,882)           --
                                                           ------------  ------------  ------------  ------------
Income (loss) before income taxes........................        (4,397)      (27,190)        7,994       (25,696)
Provision (benefit) for income taxes.....................          (245)      (12,508)          445       (11,820)
                                                           ------------  ------------  ------------  ------------
Net income (loss)........................................  $     (4,152) $    (14,682) $      7,549  $    (13,876)
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------

Pro forma


Historical income (loss) before income taxes.............  $     (4,397)                      7,994
Pro forma adjustments other than income taxes............         1,706                         249
                                                           ------------                ------------  
Pro forma income (loss) before income taxes..............        (2,691)                      8,243
Pro forma provision (benefit) for income taxes...........        (1,144)                      3,578
                                                           ------------                ------------  
Pro forma net income (loss)..............................  $     (1,547)               $      4,665
                                                           ------------                ------------  
                                                           ------------                ------------  

Per share data (pro forma for 1996)


Net income (loss) per share..............................  $      (0.17) $      (0.68) $       0.15  $      (0.64)
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
Weighted average common shares outstanding...............    16,017,032    21,447,764    16,017,032    21,447,764
                                                           ------------  ------------  ------------  ------------
                                                           ------------  ------------  ------------  ------------
</TABLE>
 

                                       See Notes to Financial Statements
 
                                       3

<PAGE>
                               DONNA KARAN INTERNATIONAL INC.
 
                                     BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                   
                                                                     DECEMBER 29,    JUNE 29,
                                                                        1996          1997
                                                                    -------------  -----------
                                                                      (Audited)    (Unaudited)
<S>                                                                 <C>            <C>          
                                                                          (In thousands)
ASSETS


Current assets:
   Cash and cash equivalents......................................       $40,550    $   3,294
   Accounts receivable, net of allowances of $26,757                    
      at December 29, 1996 and                                          
      $29,062 at June 29,1997.....................................        73,770       45,242
   Inventories....................................................       100,680      126,711
   Deferred income taxes..........................................        25,207       26,159
   Prepaid expenses and other current assets......................        14,466       23,710
                                                                    -------------  -----------   
      Total current assets........................................       254,673      225,116
Property and equipment, at cost-net...............................        32,402       36,354
Deferred income taxes.............................................         6,106        6,475
Deposits and other noncurrent assets..............................        18,514       19,545
                                                                    -------------  -----------   
                                                                        $311,695    $ 287,490
                                                                    -------------  -----------  
                                                                    -------------  -----------  
LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
   Accounts payable...............................................       $73,394    $  41,986
   Accrued expenses and other current liabilities.................        34,192       28,847
   Current portion of long-term debt..............................           282          177
                                                                    -------------  -----------   
      Total current liabilities...................................       107,868       71,010
Long-term debt....................................................            36       26,550
Stockholders' equity:
   Common stock, $0.01 par value, 35,000,000 shares 
      authorized, 21,468,034 shares issued, 21,447,764 
      shares outstanding..........................................           215          215
   Common stock class A, $0.01 par value,18 shares 
      authorized, issued and outstanding..........................            --           --
   Common stock class B, $0.01 par value, 2 shares 
      authorized, issued and outstanding..........................            --           --
   Preferred stock, $0.01 par value, 1,000,000 shares 
      authorized, no shares issued and outstanding................            --           --
   Additional paid in capital.....................................       186,899      186,899
   Retained earnings..............................................        17,487        3,611
   Cumulative translation adjustment..............................          (331)        (316)
                                                                    -------------  -----------
                                                                         204,270      190,409
   Less treasury stock, at cost (20,270 shares)...................          (479)        (479)
                                                                    -------------  -----------
   Total stockholders' equity.....................................       203,791      189,930
                                                                    -------------  -----------
                                                                        $311,695    $ 287,490
                                                                    -------------  -----------
                                                                    -------------  -----------    
</TABLE>
 
                                     See Notes to Financial Statements
 
                                       4

<PAGE>
                                DONNA KARAN INTERNATIONAL INC.
 
                                  STATEMENTS OF CASH FLOWS 
                                      (Unaudited)
<TABLE>
<CAPTION>
                                                                               Six Months Ended
                                                                            ---------------------
                                                                             June 30,    June 29,
                                                                              1996        1997
                                                                            ---------  ----------
<S>                                                                         <C>        <C>
                                                                                 (In thousands)
Operating activities
Net income (loss).........................................................  $   7,549  $  (13,876)
Adjustments to reconcile net income (loss) to net cash 
provided by (used in) operating activities:
   Depreciation and amortization..........................................      4,015       5,866
   Provision for bad debts................................................        249         411
   Equity in earnings of affiliate........................................     (1,609)       (709)
   Deferred taxes.........................................................         --      (1,321)
   Changes in operating assets and liabilities:
    Decrease in accounts receivable.......................................      6,525      28,117
    Increase in inventories...............................................     (6,787)    (26,016)
    Increase in prepaid expenses and other current assets.................     (6,197)     (9,244)
     Increase in deposits and other noncurrent assets.....................       (998)     (2,611)
     Increase (decrease) in accounts payable, accrued 
       expenses, and other current liabilities............................      1,316     (36,753)
                                                                            ---------  ----------
Net cash provided by (used in) operating activities.......................      4,063     (56,136)
                                                                            ---------  ----------
Investing activities
Purchase of property and equipment........................................     (6,761)     (7,529)
                                                                            ---------  ----------
Net cash used in investing activities.....................................     (6,761)     (7,529)
                                                                            ---------  ----------
Financing activities
Net increase in borrowing under revolving credit facility.................     22,554      26,547
Payments under capital lease..............................................       (127)       (138)
Repayments of long-term debt..............................................     (3,750)         --
Distributions to partners.................................................    (25,394)         --
                                                                            ---------  ----------
Net cash (used in) provided by financing activities.......................     (6,717)     26,409
                                                                            ---------  ----------
Decrease in cash..........................................................     (9,415)    (37,256)
Cash at beginning of period...............................................     12,153      40,550
                                                                            ---------  ----------
Cash at end of period.....................................................  $   2,738  $    3,294
                                                                            ---------  ----------
                                                                            ---------  ----------               
Supplemental cash flow information
Interest paid.............................................................  $   3,667  $      389
                                                                            ---------  ----------
                                                                            ---------  ----------
Taxes paid................................................................  $     434  $    9,035
                                                                            ---------  ----------
                                                                            ---------  ----------
</TABLE>
 
                                      See Notes to Financial Statements
 
                                              5
<PAGE>

                                       DONNA KARAN INTERNATIONAL INC.
                               
                                       NOTES TO FINANCIAL STATEMENTS
                                              June 29, 1997
                                               (Unaudited)
                               
                               
1.  Unaudited Financial Statements
  
    The unaudited financial statements do not include all information and 
footnote disclosures normally included in financial statements prepared in 
accordance with generally accepted accounting principles.  For further 
information, such as significant accounting policies followed by the Company, 
refer to the notes to the Company's audited consolidated financial statements.
   
    In the opinion of management, the unaudited financial statements include 
all necessary adjustments (consisting of normal, recurring accruals) for a 
fair presentation of the financial position, results of operations and cash 
flows for the interim periods presented. On a quarter to quarter basis, the 
Company's operations may vary as a result of, among other things,  production 
and shipping schedules, the introduction of new products, and variation in 
the timing of certain holidays from year to year. The results of operations 
for the three-month and six-month periods ended June 30, 1996 and June 29, 
1997 are not necessarily indicative of the operating results to be expected 
for a full year.
   
2.  Basis of Presentation    
   
    Donna Karan International Inc. ("DKI") was incorporated in Delaware in 
April 1996.  In connection with DKI's initial public offering of stock (the 
"Offering") on July 3, 1996, the former principals of the predecessor group 
of companies and certain of their affiliates simultaneously contributed to 
DKI all of the outstanding stock and partnership interests in the entities 
that comprised the predecessor group of companies, in exchange for common 
stock (the "Reorganization").  The accompanying financial statements include 
the results of operations for the period from January 1, 1996 to June 30, 
1996 of The Donna Karan Company, Donna Karan Studio, The Donna Karan Company 
Store G.P., DK Footwear Partners, Takihyo Fashion Company, L.P., Takihyo 
Design Company, L.P., TFT Store Company, L.P., TFT Shoe Company, L.P., TFT 
Japan Company, L.P., and DSTF Japan Company, which are affiliated general and 
limited partnerships; Gabby Apparel, Inc., Tolara Tetragon Inc., Full 
Requirements Merchandising, Inc., The Donna Karan Store Corporation, Tomio 
Tangents, Inc., Formal Reserve Management, Inc., DK Shoe Corp., Tangents Two, 
Inc., First Run Management, Inc., Gabrielle Japan, Inc., TT DK Japan, Inc., 
and FM DK Japan, Inc., which are affiliated United States corporations; Donna 
Karan Canada Inc., Donna Karan (H.K.) Limited, Donna Karan Italy, S.R.L., and 
Donna Karan Italy Shoe Company, S.R.L., which are foreign corporations 
(together, the " Predecessor Company").  
   
    For the period from December 30, 1996 through June 29, 1997, the 
accompanying financial statements include the results of operations of Donna 
Karan International Inc., as well as all entities that were included in the 
Predecessor Company, except for Takihyo Fashion Company, L.P., Takhiyo Design 
Company, L.P., TFT Store Company, L.P., TFT Shoe Company, L.P. and TFT Japan 
Company, L.P., all of which were dissolved in connection with the 
Reorganization (the "Company").  All companies other than The Donna Karan 
Company, Donna Karan Studio, The Donna Karan Company Store, G.P., DK Footwear 
Partners, Donna Karan Canada Inc., Donna Karan (H.K.) Limited, Donna Karan 
Italy, S.R.L., Donna Karan Italy Shoe Company, S.R.L., and Donna Karan Japan 
are intermediate United States holding companies. 
   
    The financial statements of the Predecessor Company are being presented 
on a combined basis because of their common ownership.  The combined 
financial statements have been prepared as if the entities had operated as a 
single consolidated group since their respective dates of organization.
   
    All significant intercompany balances and transactions have been 
eliminated.  The equity method of accounting is used for Donna Karan Japan, 
K.K., a Japanese joint stock company, which is 70% owned by a nonaffiliated 
entity.
   
    In February 1997, the Financial Accounting Standards Board issued 
Statement No. 128, Earnings per Share, which is effective for both interim 
and annual periods ending after December 15, 1997.  At that time, the Company 
will be required to change the method currently used to compute earnings per 
share and to restate all prior periods.  Under the new requirements for 
calculating primary earnings per share, the dilutive effect of stock options 
will be excluded.  The impact of Statement 128 on the calculation of primary 
and fully diluted earnings per share for the three-month and six-month 
periods ended June 30, 1996 and June 29, 1997 is not expected to be material.
   
                                             6
<PAGE>    
                          DONNA KARAN INTERNATIONAL INC.
                               
                   NOTES TO FINANCIAL STATEMENTS-- (Continued)

3.  Restructure and other charges
   
    During the three-month period ended June 29, 1997, the Company 
implemented a multi-step plan aimed at containing costs and restructuring 
certain of its operations.  In connection with this plan, the Company 
recorded a pre-tax restructuring charge of $1.6 million, relating primarily 
to severance costs and other related benefits.  In addition, the Company 
recorded several other pre-tax charges in this three-month period aggregating 
$3.6 million.  These charges, which are included in selling, general and 
administrative expenses, relate to additional severance costs, a provision 
for the estimated economic impairment of Donna Karan New York -Registered 
Trademark- Accessories inventory and receivables not qualifying as a 
restructuring charge as a result of the Company's decision to reduce 
operations to a level to meet existing commitments, as well as certain other 
charges recorded during the cost containment process.
   
4.  Distribution Notes
   
    On April 16, 1996, the Company issued to its  former principals and 
certain of their affiliates distribution notes totaling $114,484,000, which 
represented an estimate of the cumulative undistributed taxable income (on 
which taxes previously had been paid) of the Predecessor Company since its 
inception through the anticipated closing date of the Offering.  The notes 
bore interest at a rate of 8% per annum, and were repaid with the proceeds 
from the Offering (see Note 5). 
   
5.  Initial Public Offering
  
    Effective July 3, 1996, the Company sold 10,750,000 shares of its common 
stock in an initial public offering.  Net proceeds of the Offering, after 
deducting underwriting discounts and commissions and professional fees, 
aggregated $236.0 million.  Proceeds of the Offering were used to retire the 
distribution notes and accrued interest thereon totaling approximately $116.4 
million, to repay  the Predecessor Company's term loans and the revolving 
line of credit which totaled approximately $76.8 million, to pay a certain 
one-time bonus under an employment agreement which amounted to approximately 
$5.0 million and to pay a one-time fee under a license agreement which 
amounted to $4.6 million.  The remaining $33.2 million was used for other 
general corporate purposes.
  
6.  Pro Forma Adjustments
  
    The pro forma financial information on the income statement presents the 
effects on the historical financial statements of certain transactions as if 
they had occurred on January 1, 1996.  The impact of these adjustments for 
the three-and six-month periods ended June 30, 1996 are: (i) increased 
royalty expense of $3.1 million and $7.2 million for the three-month and 
six-month periods ended June 30, 1996, respectively, to be paid to a 
corporation owned by two of the Company's stockholders and their affiliated 
trusts pursuant to a license agreement, (ii) reduced levels of compensation 
of $0.8 million and $1.5 million  for the three-month and six-month periods 
ended June 30, 1996, respectively, for two of the Company's executives 
pursuant to their employment agreements, (iii) reduction in interest costs of 
$1.8 and $3.5 million for the three-month and six-month periods ended June 
30, 1996, respectively, assuming the application of the proceeds from the 
Offering to reduce the actual outstanding indebtedness under the Company's 
credit agreement, (iv) reduction in interest expense on distribution notes of 
$1.9 million for both the three-month and six-month periods ended June 30, 
1996, assuming the distribution notes would not have been outstanding during 
these periods, (v) reduction in amortization of deferred financing costs of 
$0.3 million and $0.6 million for the three-month and six-month periods ended 
June 30, 1996, respectively, which would have been written off in connection 
with repayment of outstanding indebtedness under the Company's credit 
agreement, and (vi) increase in income taxes of ($0.9) million and $3.1 
million for the three-month and six-month periods ended June 30, 1996, 
respectively, as if the Company had been subject to Federal and additional 
state income taxes for the entire period.
  
7.  Pro Forma Per Share Information
  
    Pro forma net income (loss) per share for the three months and six months 
ended June 30, 1996 is based upon (a) 10,612,934 shares of common stock 
outstanding during the period,  (b) the number of shares of common stock 
(5,298,998) sold by the Company, at an offering price of $24.00 per share 
($21.96, net of expenses), the proceeds of which would be necessary to pay 
approximately $116.4 million to the former principals of the Company and 
certain of their affiliates in satisfaction of the 

                                          7
<PAGE>
                          DONNA KARAN INTERNATIONAL INC.
                               
                   NOTES TO FINANCIAL STATEMENTS-- (Continued)

distribution notes previously issued (includes accrued interest thereon), 
representing cumulative undistributed taxable income on which taxes 
previously have been paid, and (c) 105,100 shares of common stock which the 
Company awarded to certain employees pursuant to the Company's stock incentive 
plan.  Per share information for the three-months ended June 29, 1997 is based 
upon 21,447,764 shares outstanding subsequent to the Offering.  The net loss 
used in the calculation of pro forma per share information for the three months 
ended June 30,1996 excludes the reduction of interest costs of $1.8 million and 
the reduction in amortization of deferred financing costs of $0.3 million and 
the related tax effect of $0.9 million.  The net income used in the calculation 
of pro forma per share information for the six months ended June 30, 1996 
excludes the reduction of interest costs of $3.4 million and the reduction in 
amortization of deferred financing costs of $0.6 million and the related tax 
effect of $1.7 million.


   Supplementary pro forma earnings (loss) per share for the three months and 
six months ended June 30, 1996 were ($0.08) and $0.24, respectively.  
Supplementary pro forma per share information is based upon 10,612,934 shares 
of common stock outstanding during the period increased by (a) the sale of 
5,298,998 shares of common stock at an offering price of $24.00 per share 
($21.96, net of expenses), the proceeds of which would be necessary to pay 
approximately $116.4 million in satisfaction of the distribution notes, (b) 
the sale of 3,279,827 shares of common stock, at an offering price of $24.00 
per share, ($21.96, net of expenses), the proceeds of which would be 
necessary to repay approximately $72.0 million to the Company's lenders for 
the term loans under the Company's credit facility and to reduce the amount 
outstanding under the Company's revolving line of credit, and (c) 105,100 
shares of common stock which the Company awarded to certain employees 
pursuant to the Company's stock incentive plan.
  
8. Inventories
  
   Inventories consist of the following (in thousands):
  
  
  
  
  
  
                                                  December 29,       June 29, 
                                                     1996              1997
                                                 --------------     -----------
  Raw materials.................................   $  16,780        $  17,640
  Work in process...............................      11,030           10,792
  Finished goods................................      72,870           98,279
                                                 --------------     -----------
                                                   $ 100,680        $ 126,711
                                                 --------------     -----------
                                                 --------------     -----------



9. Accrued Expenses and Other Current Liabilities
  
   Accrued expenses and other current liabilities are comprised of the 
   following (in thousands):
  
  
  
                                                  December 29,       June 29, 
                                                     1996              1997
                                                 --------------     -----------
  Accrued operating expenses....................  $  12,779           $ 10,429
  Accrued income taxes..........................      8,010                 --
  Accrued compensation..........................      6,260              8,654
  Accrued royalties.............................      5,133              4,478
  Accrued restructure and other charges.........         --              3,351
  Accrued taxes other than income taxes.........        948                499
  Other.........................................      1,062              1,436
                                                 --------------     -----------
                                                  $  34,192           $ 28,847
                                                 --------------     -----------
                                                 --------------     -----------

                                             8
<PAGE>  
  
                        DONNA KARAN INTERNATIONAL INC.
                               
                NOTES TO FINANCIAL STATEMENTS-- (Continued)

10. Pro Forma Income Taxes
  
    The entities in the Predecessor Company were partnerships, or 
corporations that had elected to be taxed as S corporations pursuant to the 
Internal Revenue Code.  In connection with the Offering, the Company became 
subject to Federal and additional state income tax.  The pro forma provision 
for income taxes represents the income tax provisions that would have been 
reported if the Company had been subject to Federal and additional state 
income taxes.
  
    Concurrent with becoming subject to Federal and additional state income 
taxes, the Company recorded a deferred tax asset and a corresponding tax 
benefit in the statement of income in accordance with the provisions of SFAS 
No. 109.  This was approximately   $19.0 million, and, as of the date of the 
Offering, resulted in a total deferred tax asset of approximately $20.7 
million which includes certain state and local tax assets recorded on a 
historical basis.
  
   Income tax expense for the three-month and six-month periods ended June 
29, 1997 includes a benefit for Federal, state and local taxes of 
approximately $12.5 million and $11.8 million, respectively, at an effective 
rate of approximately 46%.   Pro forma income tax expense for the three-month 
period ended June 30, 1996 includes a benefit for Federal, state, and local 
taxes of approximately $1.1 million at an effective rate of approximately 
43%.  Pro forma income tax expense for the six-month period ended June 30, 
1996 includes a provision for Federal, state and local taxes of approximately 
$3.6 million at an effective rate of approximately 43%.
  

















                                            9  

<PAGE>


                           MANAGEMENT'S DISCUSSION AND ANALYSIS
                      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                    

RESULTS OF OPERATIONS   
                                     
Overview
                                     
     Donna Karan International Inc. is one of the world's leading 
international fashion design houses.  The Company designs, contracts for the 
production of, markets, and distributes "designer" and "bridge" collections 
of men's and women's clothing, sportswear, accessories, and shoes under the 
Donna Karan New York-Registered Trademark- and DKNY-Registered Trademark- 
brand names, respectively.  The Company also develops, contracts for the 
production of, markets, and distributes collections of men's and women's 
fragrance, bath and body, and treatment products under the DK Men-TM- and 
Donna Karan New York-Registered Trademark-  brand names, respectively.  In 
addition, the Company selectively has granted licenses for the manufacture 
and distribution of certain other products under the Donna Karan New 
York-Registered Trademark- and DKNY-Registered Trademark-brand names, 
including hosiery, intimate apparel, eyewear and children's apparel under the 
DKNY-Registered Trademark- brand name in Europe and the Middle East.
                                     
     The following discussion provides information and analysis of the 
Company's results of operations for the three months and six months ended 
June 30, 1996 and June 29, 1997.  The Company utilizes a 52- or 53-week 
fiscal year ending on the Sunday nearest December 31.  Accordingly, the 
second quarters and first half of 1996 and 1997 ended June 30, 1996 and June 
29, 1997, respectively.  The second quarters in 1996 and 1997 contained 13 
weeks and the first half years in 1996 and 1997 contained 26 weeks. As used 
in "Management's Discussion and Analysis of Financial Condition and Results 
of Operations," the Donna Karan New York-Registered Trademark- collections 
and the DKNY-Registered Trademark- collections each include apparel, 
accessories, and shoes.
                                     
     Certain statements contained herein are forward looking statements that 
have been made pursuant to the safe harbor provisions of the Private 
Securities Litigation Reform Act of 1995.  Forward-looking statements involve 
known and unknown risks and uncertainties  which may cause the Company's 
actual results in future periods or plans for future periods to differ 
materially from what was anticipated.  Those risks include, among others, 
risks associated with the receipt, pricing and timing of customer orders; the 
timing, terms and consummation of a joint-venture, sale or licensing of the 
Company's beauty division; timing and expense associated with cost cutting 
measures; timing of and costs associated with new store openings; general 
competitive factors; a change in retailer or consumer acceptance of the 
Company's products; and the variability of the Company's results in any 
period due to the seasonal nature of the business, the timing and level of 
the Company's sales and promotions, the timing of launching new products and 
collections and opening of new doors, fashion trends, and the timing, terms 
and consummation of any joint ventures, licenses, or other dispositions of 
product lines.
                                     
     As previously disclosed, the Company currently is exploring possible 
strategic alternatives for the Beauty Division, including a joint venture, 
license, and/or possible sale of the business.  Currently, it is anticipated 
that the Company will make an announcement regarding the transaction during 
the third quarter of 1997.
                                     
     In the second quarter of 1997, the Company implemented a multi-step plan 
aimed at containing costs and restructuring certain of its operations.  In 
connection with this plan, the Company recorded a pre-tax restructuring 
charge of $1.6 million, relating primarily to severance costs and other 
related benefits.  In addition, the Company recorded several other pre-tax 
charges in the second quarter of 1997 aggregating $3.6 million.  These 
charges relate to additional severance costs, a provision for the estimated 
economic impairment of Donna Karan New York-Registered Trademark- Accessories 
inventory and receivables not qualifying as a restructuring charge as a 
result of the Company's decision to reduce operations to a level to meet 
existing commitments, as well as certain other charges recorded during the 
cost containment process.



                                              10

<PAGE>



             Pro forma statement of income for the three months ended 
                         June 30, 1996 -- (Unaudited) 
                                                                 
                                                                 
     The following table sets forth for the three-month period ended June 30, 
1996: (a) historical combined statement of income data; (b) pro forma 
adjustments to reflect the Reorganization, the Offering, and certain other 
adjustments as if they had occurred on January 1, 1996; and (c) pro forma 
combined statement of income data.
                                                                 
                                                                 
<TABLE>
<CAPTION>
                                                                               Three Months Ended June 30, 1996
                                                                            ---------------------------------------
                                                                            Historical    Pro Forma     Pro Forma
                                                                             Combined    Adjustments    Combined
                                                                            -----------  -----------  -------------
                                                                                (In thousands, except per share
                                                                                           amounts)
<S>                                                                         <C>          <C>          <C>
Net revenues..............................................................   $ 117,641                 $   117,641
                                                                            -----------               -------------------
Gross profit..............................................................      37,145      3,086(i)        34,059
Selling, general and administrative expenses..............................      38,032       750(ii)        37,282
                                                                            -----------               -------------------
                                          
Operating loss............................................................        (887)                     (3,223)
Equity in earnings of affiliate...........................................         621                         621
Interest expense, net.....................................................      (2,249)     320(iii)           (89)
                                                                                           1,840(iv)
Interest expense on distribution notes....................................      (1,882)     1,882(v)            --
                                                                            -----------               -------------------
Loss before income taxes..................................................      (4,397)                     (2,691)
Benefit for income taxes..................................................        (245)     (899)(vi)       (1,144)
                                                                            -----------               -------------------
Net loss                                                                     $  (4,152)                $    (1,547)
                                                                            -----------               -------------------
                                                                            -----------               -------------------
Pro forma net loss per share..............................................                             $(0.17)(vii)(viii)
                                                                                                      -------------------
                                                                                                      -------------------
</TABLE>
 
(i)    Royalties of $3.1 million payable to Gabrielle Studio pursuant to the 
       License Agreement.
(ii)   Decrease in aggregate compensation of $0.8 million for two of the 
       Company's executives pursuant to their employment agreements.
(iii)  Reduction of $0.3 million, in amortization of deferred financing 
       costs, which would have been written off in connection with repayment 
       of outstanding indebtedness under the Company's credit agreement.
(iv)   Reduction in interest costs of $1.8 million, assuming the application 
       of up to $83.5 million (which amount represents the maximum amount 
       outstanding during the period) of the proceeds from the Offering to 
       reduce the actual outstanding indebtedness under the Company's credit 
       agreement.
(v)    Reduction in interest expense on distribution notes of $1.9 million, 
       assuming the distribution notes would not have been outstanding during 
       the period.
(vi)   Increase of $0.9 million for income tax benefit based upon pro forma 
       pre-tax loss as if the Company had been subject to Federal and 
       additional state income taxes.
(vii)  Pro forma net loss per share is based upon (a) 10,612,934 shares of 
       common stock outstanding during the period, (b) the number of shares 
       of common stock (5,298,998) sold by the Company, at an offering price 
       of $24.00 per share ($21.96, net of expenses), the proceeds of which 
       would be necessary to pay approximately $116.4 million to the former 
       principals of the Company and certain of their affiliates in 
       satisfaction of the distribution notes previously issued (includes 
       accrued interest thereon), representing cumulative undistributed 
       taxable income on which taxes previously have been paid, and (c) 
       105,100 shares of common stock which the Company awarded to certain 
       employees pursuant to the Company's stock incentive plan. The net loss 
       used in the calculation of pro forma per share information excludes 
       the reduction of interest costs of $1.8 million and the reduction in 
       amortization of deferred financing costs of $0.3 million and the 
       related tax effect of $0.9 million.
(viii) Loss per share would have been ($0.07) if calculated using 21,447,764 
       shares, which assumes the number of shares outstanding after the 
       Offering were outstanding for the entire period.
 
  Comparison of the three months ended June 29, 1997 to the three months ended
                                 June 30, 1996


<TABLE>
<CAPTION>
                                                                                              1996
                                                                       --------------------------------------------------
<S>                                                                    <C>          <C>          <C>          <C>
                                                                              Historical                Pro Forma
                                                                       ------------------------  ------------------------
 
<CAPTION>
                                                                                     (Dollars in Millions)
<S>                                                                    <C>          <C>          <C>          <C>
Net revenues.........................................................   $   117.6        100.0%   $   117.6        100.0%
Gross profit.........................................................        37.1         31.5         34.1         29.0
Selling, general and administrative expenses.........................        38.0         32.3         37.3         31.7
Restructuring charges................................................         --           --           --           --
Operating loss.......................................................        (0.9)        (0.8)        (3.2)        (2.7)
Equity in earnings of affiliate......................................         0.6          0.5          0.6          0.5
Net loss.............................................................        (4.2)        (3.6)        (1.5)        (1.3)
 
<CAPTION>
                                                                                 1997
                                                                       ------------------------
<S>                                                                    <C>          <C>
                                                                              HISTORICAL
                                                                       ------------------------
 
<S>                                                                    <C>          <C>
Net revenues.........................................................   $   111.0        100.0%
Gross profit.........................................................        22.6         20.4
Selling, general and administrative expenses.........................        47.8         43.0
Restructuring charges................................................         1.6          1.4
Operating loss.......................................................       (26.7)       (24.1)
Equity in earnings of affiliate......................................         --           --
Net loss.............................................................       (14.7)       (13.2)
</TABLE>



 
    Net revenues were $111.0 million for the three months ended June 29, 1997
compared to net revenues of $117.6 million for the three months ended June 30,
1996. This decrease was due primarily to a $4.6 million, or 7.4%, decrease in
DKNY-Registered Trademark- women's collections, a $3.5 million, or 31.8%,
decrease in the Donna Karan New York -Registered Trademark- collections for men,
and a $1.4 million, or 19.1%, decrease in beauty products. These decreases were
somewhat offset by a $2.1 million, or 13.0%, increase in outlet stores and
licensing and a $1.7 million, or 18.5%, increase in the Donna Karan New
York-Registered Trademark- collections for women.
 
                                       11
<PAGE>
    The decrease in net revenue in both the DKNY-Registered Trademark- women's
collections and the Donna Karan New York-Registered Trademark- collections for
men resulted from poor sales of the Spring season collections at retail
resulting in increased sales dilution. The decrease in net revenue in beauty
products was primarily related to decreased domestic sales, somewhat offset by
increased international sales. The increase in net revenue in the Donna Karan
New York -Registered Trademark- collections for women resulted primarily from a
timing difference with certain spring season shipments being delayed until the
second quarter. The increase in outlet store and licensing was due to an
increase in the number of outlet stores compared to the year earlier period,
somewhat offset by a decrease in comparable store sales.
 
    Gross profit as a percentage of sales decreased to 20.4% in 1997 from 31.5%
in 1996 (29.0% on a pro forma basis). Gross profit was primarily impacted by the
effect of the increased sales dilution earlier described, primarily in the DKNY
women's collection, as well as increased product development costs. The decrease
in the historical gross margin was additionally impacted by $3.4 million in
royalty fees in 1997, which were expensed in connection with the license
agreement (the "Gabrielle License") between Donna Karan Studio and Gabrielle
Studio, Inc., a corporation owned by two of the Company's stockholders and their
affiliated trusts.
 
    Selling, general and administrative expenses increased to 43.0% of net 
revenues in the second quarter of 1997 from 32.3% of net revenues for the 
same period of 1996 (31.7% on a pro forma basis). The increase in selling, 
general and administrative expenses was attributable primarily to the 
continued investment in infrastructure, especially in the Company's new 
businesses, planned increased Beauty expenses, the addition of ten new outlet 
stores compared to the second quarter of 1996, and the increased amortization 
of shop-in-shops. In addition, selling, general and administrative expense 
included several other charges in the second quarter of 1997 totaling $3.6 
million, related primarily to severance costs, provisions for the estimated 
economic impairment of Donna Karan New York -Registered Trademark- 
Accessories inventory and accounts receivable, as well as certain other 
charges identified during the cost containment process. Excluding these 
charges, selling, general and administrative expenses would have been 39.8% 
of net revenues in the second quarter of 1997.
 
    Restructuring charges amounted to $1.6 million in the second quarter of 1997
and primarily related to severance costs and other related benefits in
connection with the Company's program aimed at containing costs and
restructuring certain of its operations.
 
    Operating loss increased to $26.7 million in the second quarter of 1997 from
$0.9 million in the same period in 1996. On a pro forma basis, operating loss
was $3.2 million in the second quarter of 1996.
 
    Interest expense, net amounted to $0.4 million in the second quarter of
1997, as compared to $2.2 million in the second quarter of 1996. Primarily due
to the receipt of the proceeds from the Offering, the Company had less amounts
outstanding under its revolving credit facility in 1997 compared to 1996.
 
    Benefit for income taxes amounted to $12.5 million in 1997, compared to $0.2
million during the same period in 1996, when the Company was not subject to
Federal and certain state income taxes. On a pro forma basis, income taxes were
recorded as if the Company had been subject to Federal and additional state
income taxes for the entire 1996 period.
 
    Net loss for the second quarter was $14.7 million in 1997 and $4.2 million
in 1996 ($1.5 million on a pro forma basis).
 
                                       12
<PAGE>
        Pro forma statement of income for the six months ended June 30,
                               1996--(Unaudited)
 
    The following table sets forth for the six-month period ended June 30, 1996:
(a) historical combined statement of income data; (b) pro forma adjustments to
reflect the Reorganization, the Offering, and certain other adjustments as if
they had occurred on January 1, 1996; and (c) pro forma combined statement of
income data.
<TABLE>
<CAPTION>
                                                                                 Six Months Ended June 30, 1996
                                                                              ------------------------------------------
                                                                              Historical    Pro Forma       Pro Forma
                                                                               Combined    Adjustments      Combined
                                                                              -----------  -----------  ----------------
                                                                               (In thousands, except per share amounts)
<S>                                                                           <C>          <C>          <C>
Net revenues................................................................   $ 277,226                 $      277,226
                                                                              -----------               ----------------
Gross profit................................................................      90,006      7,248(i)           82,758
Selling, general and administrative expenses................................      77,443     1,500(ii)           75,943
                                                                              -----------               ----------------
Operating income............................................................      12,563                          6,815
Equity in earnings of affiliate.............................................       1,609                          1,609
Interest expense, net.......................................................      (4,296)     640(iii)             (181)
                                                                                             3,475(iv)
Interest expense on distribution notes......................................      (1,882)     1,882(v)               --
                                                                              -----------               ----------------
Income before income taxes..................................................       7,994                          8,243
Provision for income taxes..................................................         445     3,133(vi)            3,578
                                                                              -----------               ----------------
Net income..................................................................   $   7,549                 $        4,665
                                                                              -----------               ----------------
                                                                              -----------               ----------------
Pro forma earnings per share................................................                             $0.15(vii)(viii)
                                                                                                        ----------------
                                                                                                        ----------------
</TABLE>
 
(i)    Royalties of $7.2 million payable to Gabrielle Studio pursuant to the 
       License Agreement.
(ii)   Decrease in aggregate compensation of $1.5 million for two of the 
       Company's executives pursuant to their employment agreements.
(iii)  Reduction of $0.6 million, in amortization of deferred financing 
       costs, which would have been written off in connection with repayment 
       of outstanding indebtedness under the Company's credit agreement.
(iv)   Reduction in interest costs of $3.5 million, assuming the application 
       of up to $83.5 million (which amount represents the maximum amount 
       outstanding during the period) of the proceeds from the Offering to 
       reduce the actual outstanding indebtedness under the Company's credit 
       agreement.
(v)    Reduction in interest expense on distribution notes of $1.9 million, 
       assuming the distribution notes would not have been outstanding during 
       the period.
(vi)   Increase of $3.1 million for income taxes based upon pro forma pre-tax 
       income as if the Company had been subject to Federal and additional 
       state income taxes.
(vii)  Pro forma earnings per share is based upon (a) 10,612,934 shares of 
       common stock outstanding during the period, (b) the number of shares 
       of common stock (5,298,998) sold by the Company, at an offering price 
       of $24.00 per share ($21.96, net of expenses), the proceeds of which 
       would be necessary to pay approximately $116.4 million to the former 
       principals of the Company and certain of their affiliates in 
       satisfaction of the distribution notes previously issued (includes 
       accrued interest thereon), representing cumulative undistributed 
       taxable income on which taxes previously have been paid, and (c) 
       105,100 shares of common stock which the Company awarded to certain 
       employees pursuant to the Company's stock incentive plan. The net 
       income used in the calculation of pro forma per share information 
       excludes the reduction of interest costs of $3.4 million and the 
       reduction in amortization of deferred financing costs of $0.6 million 
       and the related tax effect of $1.7 million.
(viii) Earnings per share would have been $0.22 if calculated using 
       21,447,764 shares, which assumes the number of shares outstanding 
       after the Offering were outstanding for the entire period.

    Comparison of the six months ended June 29, 1997 to the six months ended
                                June 30, 1996



<TABLE>
<CAPTION>
                                                                                              1996
                                                                       --------------------------------------------------
                                                                              Historical                Pro Forma
                                                                       ------------------------  ------------------------
 
                                                                                        (Dollars in millions)
<S>                                                                    <C>          <C>          <C>          <C>
Net revenues.........................................................   $   277.2        100.0%   $   277.2        100.0%
Gross profit.........................................................        90.0         32.5         82.8         29.9
Selling, general and administrative expenses.........................        77.4         27.9         75.9         27.4
Restructuring charges................................................         --           --           --           --
Operating income (loss)..............................................        12.6          4.5          6.8          2.5
Equity in earnings of affiliate......................................         1.6          0.6          1.6          0.6
Net income (loss)....................................................         7.5          2.7          4.7          1.7
 
<CAPTION>
                                                                                 1997
                                                                       ------------------------
                                                                              Historical
                                                                       ------------------------
 
<S>                                                                    <C>          <C>
Net revenues.........................................................   $   269.8        100.0%
Gross profit.........................................................        67.6         25.1
Selling, general and administrative expenses.........................        92.3         34.2
Restructuring charges................................................         1.6          0.6
Operating income (loss)..............................................       (26.3)        (9.7)
Equity in earnings of affiliate......................................         0.7          0.3
Net income (loss)....................................................       (13.9)        (5.1)
</TABLE>


    Net revenues were $269.8 million in the six months ended June 29, 1997, a
decrease of 2.7% from the net revenues of $277.2 million recorded in the six
months ended June 30, 1996. This decrease was due primarily to a $7.1 million,
or 4.6%, decrease in DKNY-Registered Trademark- women's collections, and a $2.4
million, or 10.8%, decrease in the Donna Karan New York -Registered Trademark-
collections for men. These decreases were somewhat offset by a $3.3 million, or
11.3%, increase in outlet stores and licensing.

                                       13

<PAGE>

                                     
  The decrease in net revenue in both the DKNY-Registered Trademark- women's 
collections and the Donna Karan New York-Registered Trademark-collections for 
men resulted from poor sales of the Spring season collections at retail 
resulting in increased sales dilution.  The increase in outlet store and 
licensing was due to an increase in the number of outlet stores compared to 
the year earlier period, somewhat offset by a decrease in comparable store 
sales. 
                                     
  Gross profit as a percentage of sales decreased to 25.1% in 1997 from 32.5% 
in 1996 (29.9% on a pro forma basis).  Gross profit was primarily impacted by 
the increased sales dilution earlier described, primarily in the 
DKNY-Registered Trademark- women's collections, as well as increased product 
development costs.  The decrease in the historical gross profit was 
additionally impacted by $7.9 million in royalty fees in 1997, which were 
expensed in connection with the Gabrielle License.
                                     
  Selling, general and administrative expenses increased to 34.2% of net 
revenues in the first six months of 1997 from 27.9% of net revenues for the 
same period of 1996 (27.4% on a pro forma basis).  The increase in selling, 
general and administrative expenses was attributable primarily to continued 
investment in infrastructure, especially in the Company's new businesses, 
planned increased beauty expenses, the addition of ten new outlet stores 
compared to 1996, the increased amortization of shop-in-shops and the timing 
of certain media and advertising expenditures.  In addition, selling, general 
and administrative expenses included several other charges in the second 
quarter of 1997 totaling $3.6 million, related primarily to severance costs, 
provisions for the estimated economic impairment of Donna Karan New York 
-Registered Trademark- accessories inventory and accounts receivable, as well 
as certain other charges identified during the cost containment process.  
Excluding these charges, selling, general and administrative expenses would 
have been 32.9% of net revenues in the first six months of 1997.
                                     
  Restructuring charges amounted to $1.6 million in 1997 and primarily 
related to severance costs and other related benefits in connection with the 
Company's program aimed at containing costs and restructuring certain of its 
operations.
                                     
  Operating income (loss) decreased from operating income of $12.6 million in 
1996 ( $6.8 million on a pro forma basis) to an operating loss of $26.3 
million in 1997.  
                                     
  Interest expense, net amounted to $0.1 million in 1997, compared to $4.3 
million during the same period in 1996.  Primarily due to the receipt of the 
proceeds from the Offering and, to a lesser extent, the advance payments from 
the DKNY-Registered Trademark- Jeans License which was terminated in the 
first quarter, the Company was in an investing position for most of the first 
quarter of 1997, and generally had less amounts outstanding under its 
revolving credit facility than during the similar periods of 1996.  
                                     
  Provision (benefit) for income taxes amounted to $11.8 million benefit for 
the six month period ended June 29, 1997 compared to a provision of $0.4 
million for the six month period ended June 30, 1996 when the Company was not 
subject to Federal and certain state income taxes.  On a pro forma basis, 
income taxes were recorded as if the Company had been subject to Federal and 
additional state income taxes for the entire 1996 period.
                                     

  Net income (loss) was a loss of $13.9 million for the six month period 
ended June 29, 1997 compared to net income of $7.5 million for the six month 
period ended June 30, 1996 (net income of $4.7 million on a pro forma basis).
                                      
                                          14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
                                     
                                     
     The Company's principal need for funds is to finance working capital
(principally inventory and receivables), capital expenditures, and investments
in the start up of new collections and the extension of existing collections. 
The Company uses cash flow from operations and borrowings under the credit
facility described below.

     At June 29, 1997, the Company had working capital of $154.1 million, 
compared to working capital of $146.8 million at December 29, 1996. Changes 
in working capital include: a decrease in cash of $37.2 million primarily 
related to operations, $9.0 million for income tax payments, $10.5 million 
paid to Designer Holdings Ltd. in connection with the termination of the 
DKNY-Registered Trademark- Jeans License, $7.5 million for the purchase of 
property and equipment, all offset by $26.5 million of increased borrowings 
under revolving credit facility; a decrease in accounts receivable of $28.5 
million, an increase in inventories of $26.0 million, and a decrease in 
accounts payable of $31.4 million, in each case, with the exception of 
amounts paid in connection with the termination of the DKNY-Registered 
Trademark- Jeans License, due to revenue growth and the effects of 
seasonality; an increase of $1.0 million of deferred income taxes primarily 
related to reserves for restructure and other charges and certain state net 
operating loss carry forwards, partially offset by amounts paid to Designer 
Holdings Ltd.; an increase in prepaid expenses and other current assets of 
$9.3 million, primarily for income tax receivables; and a decrease in accrued 
expenses of $5.3 million primarily due to the payment of income taxes 
described above, offset by accrued restructure and other charges.
                                     
     In May 1997, the Company amended its $150 million, three year revolving 
credit facility (the "Amended Credit Facility").  Borrowings under the 
Amended Credit Facility will bear interest at the lead bank's prime rate plus 
a margin (ranging from 0.125% to 1.0%) or, at the option of the Company, at a 
fixed margin (ranging from 1.0% to 2.25%) over LIBOR, and are limited to a 
borrowing base calculated on eligible accounts receivable and inventory.  The 
Amended Credit Facility eliminates the need for a 45-day clean down period.  
The Amended Credit Facility is secured by accounts receivable, inventory, and 
certain intangibles of the Company and a pledge of all the equity interests 
of the subsidiaries of the Company.  The Amended Credit Facility also 
contains certain restrictive covenants which, among other things, require the 
Company to maintain certain financial ratios and restrict investments, 
additional indebtedness, and payment of dividends. The Amended Credit 
Facility is used for working capital needs and general corporate purposes. 
                                     
     Capital expenditures, primarily for leasehold improvements, equipment, 
machinery, computers, office furniture, and outlet stores, were approximately 
$7.5 million and $6.8 million for the six month periods ended June 29, 1997 
and June 30, 1996, respectively.  As of August 1, 1997, the Company had 
committed to additional capital expenditures during 1997 of approximately 
$0.7 million.

     The Company anticipates that it will be able to satisfy its ongoing cash 
requirements for the foreseeable future, primarily with cash flow from 
operations and borrowings under the Credit Facility. 

Seasonality of Business

     The Company's business varies with general seasonal trends that are 
characteristic of the apparel and beauty industries, and it generally 
experiences lower net revenues and net income (or higher net losses) in the 
first half of each fiscal year as compared to the second half of its fiscal 
year.  Accordingly, the Company's outstanding borrowings under its credit 
agreement, historically, have been lower on or about its fiscal year end.  On 
a quarter to quarter basis, the Company's operations may vary with production 
and shipping schedules, the introduction of new products, and variation in 
the timing of certain holidays from year to year.  To the extent the Company 
continues to expand its business, the Company's operating performance may not 
reflect the typical seasonality of the apparel and beauty industries.
                                     
     The Company historically has experienced lower net revenues and 
operating income (or higher net losses) in the second quarter than in other 
quarters due to (i) lower demand among retail customers typical of the 
apparel industry, and (ii) certain expenses that are constant throughout the 
year being relatively higher as a percentage of net revenues.  To the extent 
the Company retains the Beauty Division and sales of the Company's beauty 
products increase relative to sales of its other products, the Company's net 
revenues and operating income will be increasingly influenced by the 
seasonality of the beauty industry. In general, the fragrance portion of the 
beauty industry experiences lower net revenues and operating income in the 
first three quarters and has substantially higher net revenues and operating 
income in the fourth quarter.  Fragrance products are the primary component 
of the Company's beauty business.  The Company is in the process of exploring 
strategic alternatives for the Beauty Division, which may reduce or eliminate 
the impact of the seasonality of the beauty business to the Company.
                                      
                                      15
<PAGE>

                      DONNA KARAN INTERNATIONAL INC.
                                     
                                     
PART II.  OTHER INFORMATION
                                     
Item 1.   Legal Proceedings
                                     
     On or about April 21, 1997, a purported class action was commenced 
against the Company and certain of its officers (collectively, the "DK 
Defendants") in the United States District Court for the Eastern District of 
New York (Steinmetz v. Donna Karan International Inc., et al., 97 Civ. 2011), 
alleging violations of sections 10(b) and 20(a) of the Securities Exchange 
Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated thereunder, and 
New York common law.  Plaintiff claims that defendants made false and 
fraudulent statements and omissions of material facts in connection with 
public disclosures and accounting treatment of the Company's license 
agreement with Designer Holdings, Inc., which agreement was entered into in 
or about September, 30, 1996 and terminated on or about March 5, 1997 (the 
"Designer Holdings License"). Plaintiff seeks unspecified damages on behalf 
of a purported class of all persons who purchased the Company's common stock 
during the period September 30, 1996 through March 5, 1997 (the "Exchange Act 
Claims Class").
                                     
     On or about June 19, 1997, a second purported class action was commenced 
against the DK Defendants in the United States District Court for the Eastern 
District of New York (Busby, et al. v. Donna Karan International Inc., et al, 
97 Civ. 3597), alleging violations of (i) Sections 11 and 12 (a)(2) and 15 of 
the Securities Act of 1933 (the "Securities Act") on the grounds that the 
Company's Registration Statement and Prospectus for its June 27, 1996 initial 
public offering (the "IPO") allegedly contained untrue statements and 
omissions of material facts with respect to the business, management and 
financial condition of the Company, and (ii) Sections 10(b) and 20(a) of the 
Exchange Act and Rule 10b-5 on the grounds that the Company allegedly made 
false and fraudulent statements and omissions of material fact in connection 
with public disclosures regarding and accounting treatment of the Designer 
Holdings License.  Plaintiffs seek unspecified damages on behalf of (i) a 
purported class of all persons who purchased the Company's common stock 
during the period June 27, 1996 and May 7, 1997 pursuant to or traceable to 
the Registration statement and Prospectus for the IPO and (the "Securities 
Act Claims Class"); and (ii) a purported subclass identical to the Exchange 
Act Claims Class in the Steinmetz action.  Also named as defendants in the 
Busby litigation are Morgan Stanley & Co., Bear Stearns & Co., Merrill Lynch 
& Co. and Smith Barney Inc., the lead underwriters in the IPO (the "Lead 
Underwriters").
                                     
     On or about June 20, 1997, a third purported class action was commenced 
against the DK Defendants and the Lead Underwriters (Portannese v. Donna 
Karan International Inc., et al., 97 Civ. 3631).  Plaintiff's claims are 
substantively identical to the Securities Act claims asserted in the Busby 
action, and the purported class is identical to Securities Act Claims Class 
in the Busby action.
                                     
     By motion filed on or about June 27, 1997, plaintiffs in the Steinmetz, 
Busby and Portannese actions (collectively, the "Class Action") moved to 
consolidate the three actions and to appoint lead plaintiffs and co-lead 
counsel (the "Consolidation Motion").  The DK Defendants do not intend to 
oppose the Consolidation Motion.  By stipulation dated July 10, 1997, counsel 
for plaintiffs in the Class Action and counsel for the DK Defendants agreed, 
inter alia, that, following the court's disposition of the Consolidation 
Motion, plaintiffs would file an amended consolidated complaint and that the 
DK defendants would have 45 days to answer, move or otherwise plead in 
response thereto.

     On or about July 31, 1997, a fourth purported class action was commenced 
against the DK Defendants in the United States District Court for the Eastern 
District of New York (Rosalee Bain et al v Donna Karan International Inc. et 
al, 97 Civ. 4396).  Plaintiff's claims are substantively identical to the 
Exchange Act claims asserted in the Steinmetz action, and the purported class 
is identical to the Exchange Act Claims Class in the Steinmetz action.  While 
this action initially was assigned to a different judge, it is anticipated 
that this action will be consolidated with the others.
                                     
     The DK Defendants believe that the allegations contained in the 
foregoing actions are without merit and intend to defend the litigation 
vigorously.
                                     
Item 4.   Submission of Matters to a Vote of Security Holders
                                     
     At the Company's Annual Meeting of Stockholders held on June 12, 1997, 
the following matters were voted upon at the meeting and received the 
following votes cast for, against, or withheld:
                                     
                                         16
<PAGE>
                                     
     Proposal I:   Election of Class I Directors for a three-year term.
                         Stephen L. Ruzow
                            For:             17,774,172
                            Withheld:           232,524
                                     
                         Andrea Jung
                            For:             17,799,005
                            Withheld:           207,691
                                     
    Proposal II:   Confirm the appointment of Ernst & Young LLP as the
                   Company's independent auditors for the 1997 fiscal year.
                           For:             17,906,210
                           Against:             75,724
                           Abstain:             24,762
                                     
    Proposal III:  Approve an amendment of the Company's 1996 Stock Incentive 
                   Plan to increase the number of shares of Common Stock 
                   issuable under such plan and to continue to qualify such plan
                   under Section 162 (m) of the Internal Revenue Code.
                           For:             11,199,965
                           Against:          6,731,304
                           Abstain:             75,427
                                     
Item 5.  Other Matters

    On July 28, 1997, the Company announced that Mr. John Idol had joined the 
Company and would be named to the position of Chief Executive Officer 
effective August 11, 1997.  Ms. Donna Karan is continuing as Chairman of the 
Board and Chief Designer of the Company.  Mr. Idol has been elected to the 
Board of Directors of the Company.
                                     
    Additionally, on July 31, 1997, Mr. Stephen L. Ruzow resigned as 
President and Chief Operating Officer of the Company, effective immediately. 
Mr. Ruzow has resigned as a director of the Company.  Mr. Ruzow is continuing 
as a consultant for the Company through January 28, 1998.
                                     
Item 6.  Exhibits and Reports on Form 8-K
                                     
    (a)  Exhibits
              10.1 Amended and Restated Credit Agreement dated as of May 30,
                   1997.
              27-  Financial Data Schedule
                                     
    (b)  Reports on Form 8-K
                                     
         No reports on Form 8-K were filed by the Company during the quarter 
ended June 29, 1997.
                                     
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<PAGE>

                                     
                                SIGNATURES
                                     
                                     
     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.
                                     
                                     
                                     
                                      DONNA KARAN INTERNATIONAL INC. 
                                                  (Registrant)
                                     
                                     
Date: August 13, 1997                  By: /s/ Joseph B. Parsons
                                          ------------------------------------
                                           Joseph B. Parsons, Executive Vice
                                           President & Chief Financial Officer


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