<PAGE>

=============================================================================

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

                                ______________

                                   FORM 10-K

(Mark One)


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

                  For the fiscal year ended October 31, 1999

                                      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 333-73107


                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
            (Exact name of registrant as specified in its charter)


                 Delaware                                 52-2061057
       (State or other jurisdiction                    (I.R.S. Employer
     of incorporation or organization)              Identification Number)

           17422 Derian Avenue
           Irvine, California                                92614
  (Address of principal executive offices)                 (Zip Code)


      Registrant's telephone number, including area code: (949) 863-1171

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

                                     None

          Securities registered pursuant to Section 15(d) of the Act:

                             Title of each class:
                             -------------------
                  12  1/2% Senior Subordinated Notes due 2009

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

     Indicate by check mark 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. *

*  The Registrant is not subject to the reporting requirements of Item 405.

     As of January 18, 2000, the Registrant had 6,546,174 shares of Common Stock
outstanding, and the aggregate market value of Registrant's Common Stock held by
nonaffiliates was $6,515,023 (based on the average bid and ask prices of the
Common Stock on such date of $14.375 as reported on the OTC Bulletin Board
quotation system).


=============================================================================
<PAGE>

                                     INDEX
<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                         Number
                                                                                                         ------
<S>        <C>                                                                                           <C>
                                                        PART I
ITEM 1.    Business.....................................................................................   3
ITEM 2.    Properties...................................................................................  14
ITEM 3.    Legal Proceedings............................................................................  15
ITEM 4.    Submission of Matters to a Vote of Security holders..........................................  16
                                                        PART II
ITEM 5.    Market for the Registrant's Common Equity and Related Stockholder Matters....................  17
ITEM 6.    Selected Financial Data......................................................................  18
ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations........  19
ITEM 7a.   Quantitative and Qualitative Disclosure About Market Risk....................................  24
ITEM 8.    Financial Statements and Supplementary Data..................................................  24
ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........  24
                                                        PART III
ITEM 10.   Directors and Executive Officers of the Registrant...........................................  25
ITEM 11.   Executive Compensation.......................................................................  27
ITEM 12.   Security Ownership of Certain Beneficial Owners and Management...............................  31
ITEM 13.   Certain Relationships and Related Transactions...............................................  32
                                                        PART IV
ITEM 14.   Exhibits, Financial Statements, Schedules and Reports on Form 8-K............................  34
</TABLE>

                                       2
<PAGE>

                                    PART I

Item 1.  BUSINESS

Overview

     St. John Knits International, Incorporated ("SJKI" and together with its
subsidiaries, the "company") is a leading designer, manufacturer and marketer of
fine women's clothing and accessories. The St. John name has been associated
with high quality women's knitwear for over 35 years. The company's core
knitwear product line consists of a collection of lifestyle clothing for women's
business, evening and casual needs. The company manufactures its products
primarily to order and distributes them on a highly selective basis through a
group of upscale retailers with whom it has long-term relationships, as well as
through company-owned stores.

     The company's core knitwear products are considered unique and highly
desirable by customers due to their classic styling, durability, comfort, fit
and quality. These attributes, combined with selective distribution and targeted
advertising, have created a loyal base of customers consisting of professional
and higher-income women.

Products

St. John


     The company's products are organized primarily into six separate product
lines: Knitwear, Sport, Griffith & Gray, Shoes, Accessories and Fragrance.

Knitwear. The company organizes its St. John Knitwear into four groups:
Collection, Dressy, Basics and Couture. Due to the breadth of each product
group, the company competes in most segments of women's designer clothing. The
company's knitwear products are sold as a collection of lifestyle clothing for
women's business, evening and casual needs. Due to its all-purpose weight, St.
John Knitwear is a year-round product, not confined to a single season or
climate. The company manufactures all of its knitwear products and designs
knitwear collections to encourage consumers to coordinate outfits, resulting in
multiple product purchases within a collection.


     Collection.  The company is best known for its Collection line consisting
     -----------
     of elegant ready-to-wear styles. This line of daytime knit fashions
     includes sophisticated dresses and suits that focus on a tailored look. The
     Collection line also includes jackets, pants, skirts, coats and sweaters.
     All items in the line are sold as separates, including two-piece suit
     styles.

     Dressy. The Dressy line consists of dresses, theater suits and dressy
     -------
     separates. The look of the Dressy line is one of understated elegance
     enhanced by innovative touches, such as layers of transparent paillettes
     and sequins, embroidered sleeves or glittery collars and cuffs.

     Basics. The Basics line is comprised of products which are sold throughout
     -------
     the year and which generally do not vary by season. These products consist
     of classic jackets, skirts and pants that are an integral part of women's
     wardrobes, all in solid black, white or navy. Simplicity of design and
     color allows these products to be combined with any number of styles from
     any of the company's product lines and worn for daytime or dressed up for
     evening. Retailers' inventories of Basics products tend to be maintained
     throughout the year and reordered as necessary.

     Couture. The Couture line is the company's most exclusive group of day and
     --------
     evening apparel and is produced in limited quantities. The day group
     includes dresses and two-piece suits which are designed with elegant
     embroidery. The evening group consists of two-piece suits and long gowns.
     Both groups are designed using colored paillettes and sequins.


Sport. St. John Sport is a line of activewear which includes jackets, skirts,
pants, tops and jeans and is targeted to our core knitwear customers. The line
is manufactured primarily in the company's production facilities using woven
fabrics purchased in Italy.

Griffith & Gray. Griffith & Gray includes suits, coats, dresses, separates and
eveningwear. The line targets a slightly younger customer than the core Knitwear
line. Approximately half of the line is manufactured in the company's
facilities, including various knit styles. The balance of the line is
manufactured by outside contractors located in Italy using high quality European
woven fabrics. Commencing with the Fall 1999 line, Griffith & Gray will be
carried exclusively in our company-owned stores.

                                       3
<PAGE>

Shoes. The St. John Shoe line consists of pumps, sling backs, loafers and boots,
manufactured in Italy using high quality Italian leather. Shoes are designed to
match the styles and colors of the Knitwear line. During fiscal 1997, the
company began distribution of the Shoe line to most of its major customers in
the United States.

Accessories. The Accessories line is comprised of fine jewelry, scarves, belts
and handbags. All Accessories are color coordinated with the various fashion
collections. Four collections of upscale jewelry are produced each year.

Fragrance. The Fragrance line includes perfume, eau de parfum, perfumed body
mist, body cream, lotion, body powder and bath products. The Fragrance line
includes two scents, the signature fragrance, St. John, and White Camellia, both
marketed as accessories to the St. John apparel line through most of the
company's major customers and company-owned retail stores. During fiscal 1997,
the company signed a distribution agreement to allow a third party the right to
distribute the Fragrance line in the United States.


     The following table details the approximate range of suggested retail
prices by product line. The suggested retail prices are indicative of individual
item prices.


<TABLE>
<CAPTION>

                                                                               Range of Suggested
     Product Line                         Selected Products                       Retail Prices
     ------------                         -----------------                       -------------
<S>                       <C>                                                  <C>
     Knitwear
       Collection         Dresses, Two-Piece Suits, Jackets, Pants, Skirts,        $350-$1,400
                          Coats, Sweaters, Separates
       Dressy             Dresses, Theater Suits, Dressy Separates                 $650-$2,000
       Basics             Skirts, Jackets, Pants                                   $160-$  690
       Couture            Dresses, Gowns, Two-Piece Suits                          $900-$3,300
     Accessories          Jewelry, Scarves, Belts, Handbags                        $ 60-$  525
     Sport                Jackets, Skirts, Pants, Tops, Jeans                      $ 95-$1,100
     Griffith & Gray      Suits, Coats, Dresses, Separates, Eveningwear            $200-$1,800
     Shoes                Pumps, Sling Backs, Loafers, Boots                       $210-$  375
     Fragrance            Perfume, Bath Products                                   $ 25-$  250
</TABLE>

Sales by Division

  The following is a comparison of the net sales by division for the past three
fiscal years (in 000's):


<TABLE>
<CAPTION>
                                                                                          Fiscal Years
                                                                         ----------------------------------------------
                                                                           1999               1998            1997
                                                                           -----              ----            ----
<S>                                                                      <C>                 <C>             <C>
          Knitwear.................................................      $214,086            $198,458        $173,550
          Company-Owned Retail Stores..............................        89,577              74,330          64,154
          Sport....................................................        12,521               9,912           8,545
          SJK......................................................          (646)/(1)/         9,011           1,980(2)
          Jewelry & Accessories....................................         6,362               8,750           9,328
          Shoes....................................................         7,964               6,439           3,441
          St. John Home............................................         8,552               6,260             293(2)
          Griffith & Gray..........................................         2,672               5,952           5,605
          Coat.....................................................             2/(1)/          1,446           2,440
          St. John Company, Ltd....................................         5,996               4,415           1,781(2)
          St. John Asia, Ltd.......................................           308                  --              --
          Fragrance................................................         1,581               2,263           1,725
          Sales Elimination........................................       (48,692)            (45,275)        (30,741)
                                                                         --------            --------        --------
          Total Net Sales..........................................      $300,283            $281,961        $242,101
                                                                         ========            ========        ========
</TABLE>

_________________
     (1) The SJK and Coat lines were discontinued at the end of fiscal 1998.

     (2) The SJK line began shipping during the fourth quarter of fiscal 1997.
         St. John Home began operations during the fourth quarter of fiscal 1997
         with the opening of its first two stores. St. John Company, Ltd. also
         began operations during the fourth quarter of fiscal 1997.

                                       4
<PAGE>

Licenses

     The company has license agreements to manufacture and sell eyewear and
coats under the St. John name. The eyewear line was launched during fiscal 1998.
In February 1999, the company signed a licensing agreement to create a new line
of women's coats. The new St. John Coat Collection will offer the usual classic
styles, elegance and superior quality which St. John customers have come to
expect. The new line was launched in August 1999. Prior to the license
agreement, the company's Coat Collection, consisting primarily of faux fur coats
in various styles and colors, was manufactured in the company's factories using
fabric imported from Europe.

     During fiscal 1999, the company cancelled its license agreement for the
manufacture and sale of watches.

St. John Home

     The company operates two home furnishing stores, located in Scottsdale,
Arizona and Costa Mesa, California, under the name St. John Home. In addition,
the company operates one St. John Home outlet store in Nevada that opened in
June 1999. St. John Home stores sell upscale home furnishings and gift items.
The company previously operated six home furnishing stores through a joint
venture which was terminated in May 1999. Three of those stores were closed, and
one was transferred to the joint venture partner.

Manufacturing

     The company has developed a vertically integrated manufacturing process
which it believes is unique and critical to its success. During fiscal 1999,
approximately 94% of the company's products were manufactured at the company's
own facilities, while the remaining 6% was manufactured by outside contractors,
primarily in Europe. The company twists and dyes its yarn, as well as knits,
constructs, presses and finishes its knitwear products, in its seven facilities
located in Southern California and one facility located in Mexico. The company
manufactures its knitwear using its highly automated electronic knitting
machines coupled with a skilled labor force. The company also manufactures its
own jewelry and hardware for its products. Products not manufactured by the
company principally consist of the Griffith & Gray and Shoe product lines as
well as home furnishings, handbags, scarves, belts and fragrances.

     The company believes that its vertical integration differentiates it from
other apparel manufacturers and has been critical to its success because it
enables the company to manufacture products to order, maximize manufacturing
flexibility and maintain superior quality control. The company believes that the
ability to produce to order limits its exposure to both the inventory and market
risks associated with many apparel companies that source products
internationally. The company's in-house manufacturing capabilities also enable
it to quickly increase production of popular styles. The company's ability to
control every aspect of the manufacturing process allows it to consistently
produce garments to its high quality standards. Finally, the company believes
that its vertical integration has enabled it to consistently achieve margins
that are among the highest in the apparel industry.

     The manufacturing process begins with the twisting together of wool and
rayon on the company's precision twisting machines in a proprietary process that
produces the company's "Santana" yarn. The twisted yarn is transferred to the
company's dye house for dyeing based on garment orders received. The dyed yarn
is knit on the company's computerized electronic knitting machines and then cut,
assembled and finished in the company's linking, seaming and hand finishing
facilities. The company's jewelry and hardware manufacturing plants produce the
buttons and buckles for garments, as well as bracelets, earrings, necklaces,
chokers, pins and other accessories. The company also manufactures many of its
woven products, as well as blouses, jeans and certain scarves.

     During fiscal 1998, the company completed a new jewelry and garment
hardware manufacturing facility in Mexico. The new facility gives the company
additional manufacturing capacity as well as the ability to lower the cost of
certain labor-intensive jewelry and hardware components through reduced labor
costs. In addition, workers at the Mexico facility apply paillettes and sequins
to some of the company's apparel products.

Quality Control

     The company has achieved its quality reputation by vertically integrating
manufacturing processes and maintaining control over its operations. The
expansion into dyeing, yarn twisting and jewelry and hardware manufacturing was
due primarily to the inability of outside suppliers to provide products meeting
the company's standards on a consistent and timely basis. The company's quality
control program is designed to enable all finished goods to meet the company's
standards. During the second quarter of fiscal 1998, the company incurred
additional labor costs to repair finished product which did not meet its final

                                       5
<PAGE>

inspection criteria. Due to these issues, the company reevaluated its quality
control program and instituted additional procedures. Included in these changes
was the appointment of a director of quality control and the establishment of
inspection points throughout the manufacturing processes. During the
manufacturing processes, every garment is individually inspected.

     As noted above, the company uses outside contractors primarily for the
manufacturing of its shoes, handbags and certain woven products. The company has
instituted procedures to maintain the quality of products manufactured by
outside contractors.

Design

     The company designs its garments to be consistent with its classic,
timeless style. To accomplish this goal, design teams reference the prior
season's designs and patterns to establish a basis for the current season's
lines. The design teams also work closely with the sales force to incorporate
current consumer preferences into the season's line. Dye lots are kept
consistent with prior years to enable consumers to augment their wardrobes over
several seasons. Once design parameters for a particular item are established,
the design teams work with the manufacturing group to plan construction details
and hardware attachments, such as buttons, to ensure efficient manufacturing.
The design staff has an average of nine years of experience with the company.

Distribution

     The company's products are distributed primarily through a select group of
retail customers and the company's 19 boutiques, 10 outlet stores, two home
furnishing stores and one home furnishing outlet.

Retail Customers.  The company selectively distributes its products through some
of the nation's leading upscale retailers, including Saks Fifth Avenue, Neiman
Marcus and Nordstrom, each of which accounted for more than 10% of the company's
net sales in fiscal 1999 (approximately 41% collectively) and have been
customers of the company for approximately 25, 20 and 15 years, respectively.
The company distributes its products to approximately 615 locations in the
United States and internationally.  Since the mid-1980s, the company has worked
with these and certain other retail customers to create in-store boutiques,
which are designated areas devoted exclusively to the company's products. Other
significant customers of the company include Jacobson's, Macy's West, Lord &
Taylor and select Marshall Field's and Dayton Hudson stores.

Company-Owned Stores. In order to diversify its product distribution and enhance
name recognition, the company began opening its own retail boutiques in 1989 and
currently operates 19 such boutiques. The boutiques showcase the company's
entire line of products and have expanded the distribution and enhanced the
brand awareness of its products. The company also operates 10 outlet stores.
Unlike many of its competitors, the company does not expressly manufacture
product for its outlets, instead utilizing the outlets to sell seconds, design
samples and slow-moving inventory from the company's full-price boutiques. In
addition, the company operates two home furnishing stores and one home
furnishing outlet.

International. The company sells its products to retail customers in Asia,
Europe, Canada and Mexico. In Asia, the company has established relationships
with a number of highly qualified retailers, including Lane Crawford in Hong
Kong and China and ShinSegae in South Korea, and is now seeking to increase its
penetration in these accounts. In Japan, the company operates a majority owned
subsidiary that distributes its products throughout Japan and operates a number
of small retail stores and two in-hotel boutiques. The company's European
efforts involve expanding and upgrading its relationships with high quality
independent retail customers, principally in the United Kingdom, Germany,
Belgium, Switzerland and the Netherlands. During fiscal 1999, international
sales to retail customers and sales through the company's subsidiary in Japan
accounted for approximately 8.1% of SJKI's net sales.

Financial Information About Segments

     The company has two reportable business segments, wholesale and retail
sales. The company's wholesale sales business consists primarily of six
divisions: Knitwear, Sport, Shoes, Accessories, Griffith & Gray and Fragrance.
Retail sales are generated through the company's 19 St. John boutiques, 10
St. John outlet stores, two St. John Home stores and one St. John Home outlet
store. Management evaluates segment performance based primarily on revenue and
earnings from operations. For segment information regarding net sales, operating
profits and assets, see note 14 to the company's financial statements, included
herein.

Marketing

     The company markets its Collection, Dressy and Couture lines along with its
Sport line twice a year, during the Fall and Cruise/Spring seasons. These lines
are shown in January for delivery between May and October and in August for
delivery between November and April. The majority of orders for each of these
six-month delivery periods normally are received within

                                       6
<PAGE>

five weeks of showings, and the goods are then made to order. The Shoe line is
marketed four times per year. The company markets its Basics, Accessories and
Fragrance lines throughout the year.

     The company shows its product lines to retail customer buyers in its New
York, Irvine and Dallas showrooms. Members of the company's senior management
team work closely with major retail customers to develop sales plans and to
determine the appropriate mix of merchandise. These detailed sales plans are
based on past purchases, expected sales growth and profitability. The company
also shows its products in its Dusseldorf and Japan showrooms as well as in
other foreign countries at various times during the year using its outside sales
representatives.

     The company's strategy is to sell its products to its retail accounts and
to facilitate the sale of its products through to the ultimate consumer. The
company employs a sales team, showroom personnel and customer service
representatives. The sales team is currently comprised of 24 U.S. and seven
international field representatives. The sales team establishes and maintains
in-store boutique presentations, develops close working relationships with store
management and trains key sales people to be St. John specialists. The St. John
specialists at certain key retail accounts are eligible for the company's
incentive rewards. In addition, the company's customer service representatives
monitor computerized information on each store's sales and styles sold in an
effort to track and increase sales.

     In order to promote its upscale image, the company advertises in both
national and international fashion magazines, including Vanity Fair, Vogue, Elle
and Harper's. In fiscal 1999, the company spent approximately $11.3 million on
advertising. Management believes that this advertising approach enhances the
company's image. The company's advertising features Kelly Gray as its Signature
Model. The company also designs and produces seasonal exclusive St. John
catalogs, which are distributed at the discretion of individual retailers.
Distribution is usually limited to target repeat purchasers or those who meet
the company's consumer profile.

Raw Materials and Suppliers

     The company's primary raw materials in the production of its knitwear are
wool and rayon. In fiscal 1999, the company purchased approximately $9.1 million
of wool and approximately $2.4 million of rayon. The company uses the highest
quality wool, primarily from Australia. Generally, a wool commitment is taken
with the company's primary U.S. spinner for a set quantity of wool based on the
company's forecasted wool requirements for approximately one year. Multiple
spinners are available, both domestically and internationally, with comparable
pricing for spun Australian wool yarn. The company also purchases yarn from
suppliers in Europe and Asia. The company generally holds an inventory of
twisted yarn sufficient for approximately six weeks of production to protect it
from potential supply interruptions. Rayon is available in raw or dyed form from
various European and Japanese suppliers.

     In addition to wool and rayon, the company purchases fabric from various
suppliers and has little difficulty in satisfying its fabric requirements from
Europe and Asia. Crystals, glass beadings, pearls and raw materials used in the
manufacture of paillettes are purchased from certain suppliers in Europe. The
company believes that there are alternative sources for certain of these
specialized items.

Competition

     Due to its history of strong sales and market leadership in designer
knitwear, the company believes that it faces limited direct competition for its
core product offerings. In addition, the company believes that the risk of
strong new competitors is further limited given its substantial investment in
knitwear production technology and its strong relationships with its retail
accounts. In a broader context, the company does compete with such successful
designers as Armani, Calvin Klein, Chanel, Donna Karan and Escada for higher-
income female customers.

Trademarks

     The company owns and utilizes several trademarks, principal among which are
St. John(R), St. John by Marie Gray(R), St. John Sport by Marie Gray (R), St.
John Boutiques(R) and Griffith & Gray(R). The St. John(R) trademark is
registered with the United States Patent and Trademark Office and in several
other major jurisdictions in the world. The company regards its trademarks and
other proprietary rights as valuable assets and believes that they have
significant value in the marketing of its products. The company vigorously
protects its trademarks against infringement.

                                       7
<PAGE>

Regulation

     The company is subject to a variety of federal, state and local laws and
regulations including those relating to zoning, land use, environmental
protection and workplace safety. The company is also subject to laws governing
its relationship with its employees, including minimum wage requirements,
overtime, working conditions and work permit requirements. Although the company
believes that it is and has been in material compliance with all of the various
regulations applicable to its business, the company cannot assure that
requirements will not change in the future or that it will not incur significant
costs to comply with such requirements.

Geographic Information

     The table below presents information related to the geographic areas in
which the company operated during fiscal years 1999, 1998 and 1997 (in 000's):

<TABLE>
<CAPTION>
                                                                            Fiscal Years
                                                                ------------------------------------------
                                                                   1999            1998             1997
                                                                -----------     ---------        ---------
<S>                                                             <C>             <C>              <C>
Net sales:
  United States............................................     $275,813        $260,679         $223,633
  Asia.....................................................       13,344           9,877            9,451
  Europe...................................................        6,909           7,113            6,268
  Other....................................................        4,217           4,292            2,749
                                                                --------        --------         --------
                                                                $300,283        $281,961         $242,101
                                                                ========        ========         ========
</TABLE>

The Company

 SJKI

     SJKI became the parent company of St. John Knits, Inc., a California
corporation ("St. John") and its subsidiaries as a result of the mergers
consummated in July 1999. Prior to the mergers, SJKI was a wholly owned
subsidiary of St. John. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Agreement and Plan of Merger." SJKI was
incorporated in Delaware during fiscal 1999. Prior to such time, SJKI was
incorporated in Barbados as a "large FSC" under Section 922 of the Internal
Revenue Code of 1986, as amended.

 St. John Knits, Inc.

     St. John Knits Inc., a California corporation, is a wholly owned subsidiary
of SJKI and was incorporated during 1961.

 SJK International, Inc.

     SJK International, Inc. ("International") is a foreign sales corporation
for the company. International was incorporated during fiscal 1999 in Barbados
as a "large FSC" under Section 922 of the Internal Revenue Code of 1986, as
amended. International participates in certain of the company's foreign
operations.

 St. John Company, Ltd.

  St. John Company, Ltd. is a majority owned subsidiary of  St. John which was
incorporated during fiscal 1997 under the laws of Japan. St. John Company, Ltd.
is licensed by the company to distribute the company's products in Japan.
During fiscal 1998, St. John increased its ownership percentage in this
subsidiary to 68 percent from 51 percent held previously.

 St. John Home Stores, LLC

  St. John Home Stores, LLC ("St. John Home"), a Delaware limited liability
company, is a wholly owned subsidiary of St. John.  St. John Home was formerly
operated as Amen Wardy Home Stores, LLC, a 51 percent owned subsidiary of St.
John.  The name and ownership change occurred during fiscal 1999.

                                       8
<PAGE>

 St. John Trademarks, Inc.

  St. John Trademarks, Inc. is a wholly owned subsidiary of St. John. St. John
Trademarks, Inc. and St. John have entered into a partnership organized under
the laws of Luxembourg to hold certain of the company's proprietary rights.

 St. John--Varian Development Company

  St. John--Varian Development Company, a 50 percent owned joint venture with an
unrelated third party, was formed during fiscal 1995.  The joint venture owns a
175,000 square foot building located in Irvine which is leased to the company
under a lease agreement expiring in 2010.

 St. John--Italy, Inc.

  St. John--Italy, Inc., a California corporation, is a wholly owned subsidiary
of St. John. St. John--Italy, Inc. was incorporated during fiscal 1996 to
operate as a branch in Italy. During fiscal 1997, the entity began operating as
a buying office for the company.  Subsequent to the end of fiscal 1998, the
company moved its operations to Irvine, California and is currently not
operating in Italy.

 St. John Knits AG

  St. John Knits AG is a wholly owned subsidiary of St. John which was
incorporated during fiscal 1996 under the laws of Switzerland. St. John Knits AG
operates a research and development facility and buying office located in
Switzerland.

 St. John de Mexico SA de CV

     St. John de Mexico SA de CV is a wholly owned subsidiary of St. John which
was incorporated during fiscal 1997 under the laws of Mexico. St. John de Mexico
operates as a manufacturing entity within Mexico to assist in the production of
the company's jewelry and hardware components. During fiscal 1998, St. John de
Mexico began assisting in the application of sequins on certain of the company's
product lines.

Employees

     At October 31, 1999, the company had approximately 4,260 full-time
employees, including seven in executive positions, approximately 280 in design
and sample production, 2,750 in production, 190 in quality control, 285 in
retail, 75 in sales and advertising and the balance in clerical and office
positions. In addition, the company had approximately 275 full-time employees
working at the company's facility in Mexico, 40 working at St. John Home and 40
at St. John Company, Ltd. The company is not party to any labor agreements, and
none of its employees is represented by a union. The company believes a
significant number of its employees are highly skilled and that turnover among
these employees has been minimal. The company considers its relationship with
its employees to be good and has not experienced any interruption of its
operations due to labor disputes.

Risk Factors

Substantial Leverage and Debt Service. Our company is highly leveraged. As of
October 31, 1999, we had total debt of approximately $289.9 million, of which
approximately $189.3 million was senior debt, and a stockholders' deficit of
approximately $136.9 million, which resulted from the recapitalization of the
company in connection with the mergers consummated in July 1999. In addition, we
may borrow money under our revolving credit facility which is intended to be
used primarily for working capital. Subject to restrictions in our senior credit
facilities and the indenture governing our senior subordinated notes, we may
borrow more money for working capital, capital expenditures, acquisitions or
other purposes.

     Our high level of debt could have important consequences, including the
following:

   . our debt level makes us more vulnerable to economic downturns and adverse
     developments in our business, may cause us to have difficulty borrowing
     money in the future for working capital, capital expenditures, acquisitions
     or other purposes and limits our ability to pursue other business
     opportunities and implement our business strategies;

                                       9
<PAGE>

   . we will need to use a large portion of the money we earn to pay principal
     and interest on our senior credit facilities, our notes and on other debt,
     which will reduce the amount of money available to us to finance our
     operations and other business activities;

   . some of our debt has a variable rate of interest, which exposes us to the
     risk of increased interest rates; and

   . may have a much higher level of debt than our competitors, which may put us
     at a competitive disadvantage and may reduce our flexibility in responding
     to changing business and economic conditions, including increased
     competition.

     We expect to obtain the money to pay our expenses and to pay the principal
and interest on our notes, our senior credit facilities and other debt from our
operations and from loans under our revolving credit facility. Our ability to
meet our expenses thus depends on our future performance, which will be affected
by financial, business, economic and other factors. We will not be able to
control many of these factors, such as economic conditions in the markets where
we operate and pressure from competitors. We cannot be certain that the money we
earn will be sufficient to allow us to pay principal and interest on our debt
and meet our other obligations. If we do not have enough money, we may be
required to refinance all or part of our existing debt, sell assets or borrow
more money. We cannot guarantee that we will be able to refinance our debt, sell
assets or borrow more money on terms acceptable to us. In addition, the terms of
existing or future debt agreements, including our senior credit facilities and
the indenture governing our notes, may restrict us from adopting any of these
alternatives.

Covenant restrictions may limit our ability to operate our business.  The
indenture governing our senior subordinated notes contains covenants that, among
other things:

   . limit our ability to incur indebtedness and pay dividends on and redeem
     capital stock; and

   . create restrictions on:

     . investments in unrestricted subsidiaries,

     . limiting distributions from some of the company's subsidiaries,

     . the use of proceeds from the sale of assets and subsidiary stock,

     . entering into transactions with affiliates and

     . creating liens.

     The indenture also restricts, subject to certain exceptions, our ability to
consolidate and merge with or to transfer all or substantially all our assets
to, another person.

     Under our senior credit facilities, we must also comply with certain
specified financial ratios and tests that may restrict our ability to make
distributions or other payments to our investors and creditors and if we do not
comply with these or other covenants and restrictions contained in the senior
credit facilities we could default under the senior credit facilities. Such
debt, together with accrued interest, could then be declared immediately due and
payable. Our ability to comply with such provisions may be affected by events
beyond our control.
     Although we believe that we will be able to maintain compliance with our
current financial tests there can be no assurance that we will be able to do so.
The restrictions imposed by such covenants may adversely affect our ability to
take advantage of favorable business opportunities.  Failure to comply with the
terms of such covenants could result in acceleration of the indebtedness
represented by our notes.

Competition and/or an economic downturn could have a material adverse effect on
our business. The apparel industry is highly competitive. We compete primarily
on the basis of price and quality. We believe that our success depends in large
part on our ability to anticipate, gauge and respond to changing consumer
demands in a timely manner. We cannot assure that we will always be successful
in this regard. If we misjudge these demands, our sales may suffer, which could
adversely affect our business, financial condition and results of operations.
For example, in fiscal 1997 we introduced a lower-priced line of apparel under
the SJK label and attempted to broaden the appeal of our core Knitwear line by
including a number of more "fashion forward" styles. The SJK line did not
perform as well as we anticipated and has been discontinued. The Fall 1998 core
Knitwear line did not include sufficient product options for the traditional St.
John customer and experienced below-average retail performance.

     We compete with numerous domestic and foreign designers, brands and
manufacturers of apparel and accessories, some of which may be significantly
larger and more diversified and have greater financial and other resources than
we do. Increased competition from these and future competitors could reduce our
sales and prices, adversely affecting our results. Because of our debt level, we
may be less able to respond effectively to such competition than others.

                                       10
<PAGE>

     The industry in which we operate is cyclical. Purchases of apparel
generally tend to decline during recessions and also may decline at other times.
A recession in the general economy or uncertainties regarding future economic
prospects could affect consumer spending habits and have a material adverse
effect on our business, financial condition and results of operations.

The loss of one or more of our primary customers could have a material adverse
effect on our business. We, like many of our competitors, sell to retailers. In
recent years, the retail industry has experienced consolidation and other
ownership changes. In the future, retailers in the United States and in foreign
markets may have financial problems or consolidate, undergo restructurings or
reorganizations, or realign their affiliations, any of which could decrease the
number of stores that carry our products or increase the ownership concentration
within the retail industry. We cannot assure you as to the future effect of any
such changes.

     During fiscal 1999 and 1998, net sales to our three largest retail
customers, Saks Fifth Avenue, Neiman Marcus and Nordstrom, totaled approximately
41% and 45% of net sales, respectively, and net sales to Saks Fifth Avenue, our
largest retail customer, accounted for approximately 15% and 17% of net sales,
respectively. Although we have long-established relationships with many of our
customers, we do not have any long-term sales agreements. The loss of or
significant decrease in business from any of our major customers could have a
material adverse effect on our business, financial condition and results of
operations.

The loss of one or more members of our senior management team could have a
material adverse effect on our business. Our success has been largely dependent
on the personal efforts and abilities of Bob Gray, Chairman and Chief Executive
Officer, Marie Gray, Chief Designer, and Kelly Gray, President, each of whom has
an employment agreement with the company. The loss of the services of any of
these executives could have a material adverse effect on our business, financial
condition and results of operations.

We are controlled by Vestar. Vestar and the Grays, through Vestar/Gray Investors
LLC, beneficially own approximately 78% and 15%, respectively, of the
outstanding common stock of SJKI. As a result, Vestar will be able to
effectively control the outcome of certain matters requiring a stockholder vote,
including the election of three of the five directors of SJKI (the Grays will be
contractually entitled to appoint the remaining two directors). Such ownership
of common stock may have the effect of delaying, deferring or preventing a
change of control.

We may incur costs in connection with certain legal proceedings. On January 23,
2000 the Company reached an agreement in principle to settle a case filed in
1998 by Binary Traders, Inc. for $5 million, an amount the company's insurance
carrier has agreed to pay. On October 13, 1998, Binary Traders, Inc. had filed a
complaint on behalf of purchasers of publicly traded securities of St. John
during the period of February 25, 1998 to August 20, 1998 (the "Class Period")
against St. John, Bob Gray, and Kelly Gray in the United States District Court,
Central District of California, Southern Division (Binary Traders, Inc. v. St.
John Knits, Inc. et al.). The complaint, which sought class action
certification, alleged that the defendants violated federal securities laws by
allegedly making fraudulent statements during the Class Period and sought an
unspecified amount of compensatory damages. The settlement is subject to court
approval, which is expected to occur in the spring.

     We are also a party to six lawsuits that allege claims against some of St.
John's current and former directors for breach of fiduciary duty alleged to have
arisen in connection with the mergers consummated in July 1999. All of these
lawsuits were filed in the Superior Court of the State of California for the
County of Orange. The principal relief sought in the six actions is
certification of the putative class and a rescission of the mergers and damages
and attorneys' fees in an unspecified amount. These six lawsuits were
consolidated into one action on February 24, 1999, and the court has set a March
6, 2000 trial date.

     On September 9, 1999, three of the plaintiffs filed another lawsuit in the
Superior Court of the State of California, County of Orange, naming SJKI, Pearl
Acquisition Corp., Vestar/Gray Investors LLC, SJK Acquisition, Inc., Vestar
Capital Partners III, L.P., Vestar Capital Partners and Merrill Lynch, Pierce,
Fenner & Smith, Inc. The plaintiffs claim that each of the defendants aided and
abetted the breach of fiduciary duties alleged in their earlier actions against
St. John, Bob Gray and Kelly Gray. Since the claims in this litigation are based
exclusively on secondary liability and are completely contingent upon the
success of the claims in the earlier action, on November 16, 1999, at the
request of several defendants, the court stayed all proceedings in this
litigation pending the outcome of the earlier action.

     We intend to contest these lawsuits vigorously if the plaintiffs elect to
proceed with their actions. We expect to incur legal and other defense costs as
a result of such proceedings. These proceedings could involve a substantial
diversion of the time of some of the members of management, and an adverse
determination in, or settlement of, such litigation could involve payment of
significant amounts.

An increase in the price or a decrease in the availability of wool or rayon, our
primary raw materials, could have a material adverse effect on our business. Our
principal raw materials are wool and rayon. In fiscal 1999, we purchased
approximately

                                       11
<PAGE>

$9.1 million of wool and approximately $2.4 million of rayon. The price of wool
and rayon may fluctuate significantly depending on world demand. We cannot
assure that such fluctuation in the price of wool or rayon will not affect our
business, financial condition and results of operations.

     We purchase wool imported primarily from Australia. We also import other
raw materials, including rayon, from Europe and Japan. In addition, our shoes,
small leather goods and certain woven products are manufactured in Europe. Our
imported materials and products are subject to United States customs duties
which comprise a material portion of the cost of the merchandise. A substantial
increase in customs duties could have a material adverse effect on our business,
financial condition and results of operations. The United States and the
countries in which materials and products are produced or sold may, from time to
time, impose new quotas, duties, tariffs or other restrictions, or adversely
adjust prevailing quota, duty or tariff levels, any of which could have a
material adverse effect on the company.

Our international operations expose us to additional political, economic and
regulatory risks not faced by businesses that operate only in the United States.
We conduct international operations in Mexico, Europe, Asia and Canada. In
fiscal 1999, approximately 8.1% of our sales occurred outside the United States,
and approximately 4.9% of our products were manufactured abroad by third-party
contractors. Any international operations will be subject to risks similar to
those affecting our U.S. operations in addition to a number of other risks,
including:

     . lack of complete operating control;

     . currency fluctuations;

     . trade barriers;

     . exchange controls;

     . governmental expropriation;

     . foreign taxation;

     . difficulty in enforcing intellectual property rights;

     . language and other cultural barriers; and

     . political and economic instability.


     In addition, various jurisdictions outside the United States have laws
limiting the right and ability of non-United States subsidiaries and affiliates
to pay dividends and remit earnings to affiliated companies unless specified
conditions exist. Our ability to expand the manufacture and sale of our products
internationally is also limited by the necessity of obtaining regulatory
approval in new countries.

     Our financial performance on a U.S. dollar denominated basis can be
significantly affected by fluctuations in currency exchange rates. From time to
time we enter into agreements to seek to reduce our foreign currency exposure,
but we cannot assure that we will be successful in so doing.

Changes in, or the costs of complying with, various governmental regulations
could have a material adverse effect on our business. We are subject to a
variety of federal, state and local laws and regulations including those
relating to zoning, land use, environmental protection and workplace safety. We
are also subject to laws governing our relationship with our employees,
including minimum wage requirements, overtime, working conditions and work
permit requirements. Although we believe that we are and have been in material
compliance with all of the various regulations applicable to our business, we
cannot assure that requirements will not change in the future or that we will
not incur significant costs to comply with such requirements.

The loss or infringement of our trademarks and other proprietary rights could
have a material adverse effect on our business. 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. We cannot assure that our
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, we cannot assure that others will
not assert rights in, or ownership of, trademarks and other proprietary rights
of ours or that we will be able to successfully resolve such conflicts. In
addition, the laws of certain foreign countries may not protect

                                       12
<PAGE>

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 our trademarks and other proprietary rights, could have a
material adverse effect on our business, financial condition and results of
operations.

Backlog

     At October 31, 1999, the company had unfilled customer orders for the
cruise/spring season of approximately $103 million compared with approximately
$99 million as of November 1, 1998. Orders for the cruise/spring season are
generally shipped during November through April. The company's experience has
been that the cancellations, rejections or returns of orders do not materially
reduce the amount of sales realized from its backlog.

                                       13
<PAGE>

Item 2.  PROPERTIES

  The principal executive offices of the company are located at 17422 Derian
Avenue, Irvine, California 92614.

Company-owned Properties

  The general location, use and approximate size of the company-owned properties
are set forth below. All of such properties are used in the company's wholesale
business segment.

<TABLE>
<CAPTION>
                                                                                                                Approximate
                                                                                                                  Area in
              Location                                                       Use                                Square Feet
              --------                                                       ---                                -----------
<S>                                                      <C>                                                    <C>
Irvine, California.....................................  Design Facility, Showroom, Sewing, Warehousing,           110,500
                                                         Shipping
Tijuana, Mexico........................................  Jewelry and Hardware Manufacturing                         63,100
Van Nuys, California...................................  Assembling, Sewing                                         27,900
San Ysidro, California.................................  Assembling                                                 27,300
Irvine, California.....................................  Warehousing, Administrative Offices                        24,300
Irvine, California.....................................  Knitting                                                   32,100
Irvine, California.....................................  Knitting                                                   20,500
</TABLE>

Leased Properties

  The general location, use, approximate size and lease expiration date of the
company's principal leased properties are set forth below.  All of such
properties are used in the company's retail business segment except as noted.

<TABLE>
<CAPTION>
                                                                                                    Approximate        Lease
                                                                                                      Area in        Expiration
                       Location                                            Use                      Square Feet         Date
                       --------                                            ---                      -----------      -----------
<S>                                                      <C>                                       <C>             <C>
Irvine, California/(1)(4)/............................   Knitting, Sewing, Finishing, Shipping,        175,000            7/10
                                                         Administrative Offices
Irvine, California/(4)/................................  Corporate Headquarters, Showroom,              85,000            5/01
                                                         Twisting, Dyeing
Alhambra, California/(4)/..............................  Assembling, Sewing                             41,000            8/01
Santa Ana, California/(4)/.............................  Jewelry and Hardware Manufacturing             25,000            5/04
Costa Mesa, California/(2)/............................  Retail Boutique                                15,400            1/14
New York, New York/(4)/................................  Showroom                                       12,300            6/11
New York, New York/(3)/................................  Retail Boutique                                 7,500            6/11
Beverly Hills, California..............................  Retail Boutique                                 7,000            3/06
New York, New York/(3)/................................  Retail Boutique                                 6,200            6/11
Chicago, Illinois......................................  Retail Boutique                                 6,000            9/04
Las Vegas, Nevada......................................  Retail Boutique                                 5,600            1/09
Munich, Germany........................................  Retail Boutique                                 4,400            4/02
</TABLE>

  (1) The company leases this property from a general partnership in which St.
      John holds a 50 percent interest.
  (2) This lease includes both the St. John and St. John Home boutiques which
      were opened during fiscal 1999.
  (3) The square footage of the retail boutique located on 5th Avenue in New
      York City is covered by these two leases.
  (4) This property is used in the company's wholesale business segment.

     As of October 31, 1999, annual base rents for the company's leased
properties listed in the table above ranged from approximately $251,000 to
$1,230,000. In general, the terms of these leases provide for rent escalations
dependent upon either increases in the lessor's operating expenses or
fluctuations in the consumer price index in the relevant geographical area.

     The company believes that there are facilities available for lease in the
event that either the productive capacities of the company's manufacturing
facilities need to be expanded or a current lease of a manufacturing facility
expires. The company also leases space for 13 additional retail boutiques, two
additional showrooms, one additional administrative facility, one additional
warehouse facility, 10 outlet stores, one home furnishing store and one home
furnishing outlet store (aggregating approximately 343,000 square feet).

                                       14
<PAGE>

     The company leases certain of its facilities from affiliates of the
company. See "Certain Relationships and Related Transactions." The company
believes that its existing facilities are well maintained and in good operating
condition.

Item 3.   LEGAL PROCEEDINGS

Securities Fraud Class Action

     On January 23, 2000 the Company reached an agreement in principle to settle
a case filed in 1998 by Binary Traders, Inc. for $5 million, an amount the
company's insurance carrier has agreed to pay. On October 13, 1998, Binary
Traders, Inc. had filed a complaint on behalf of purchasers of publicly traded
securities of St. John during the period of February 25, 1998 to August 20, 1998
(the "Class Period") against St. John, Bob Gray, and Kelly Gray in the United
States District Court, Central District of California, Southern Division (Binary
Traders, Inc. v. St. John Knits, Inc. et al.). The complaint, which sought class
action certification, alleged that the defendants violated federal securities
laws by allegedly making fraudulent statements during the Class Period and
sought an unspecified amount of compensatory damages. The settlement is subject
to court approval, which is expected to occur in the spring.

Litigation Regarding the Mergers

     The company is also a party to six lawsuits that allege claims against some
of St. John's current and former directors for breach of fiduciary duty alleged
to have arisen in connection with the mergers consummated in July 1999. All of
these lawsuits were filed in the Superior Court of the State of California for
the County of Orange. The principal relief sought in the six actions is
certification of the putative class and a rescission of the mergers and damages
and attorneys' fees in an unspecified amount. These six lawsuits were
consolidated into one action on February 24, 1999.

     On April 15, 1999, the plaintiffs in this lawsuit filed a motion for a
preliminary injunction seeking to prevent the mergers from proceeding. The
preliminary injunction motion was heard by the California state court on April
28, 1999. On April 30, 1999, the court denied the plaintiffs' motion. In denying
the plaintiffs' request, the court ruled that the plaintiffs had not shown a
"reasonable probability" that they could succeed in proving at trial that the
$30.00 per share offer in the mergers is unfair. Similarly, the court ruled that
the plaintiffs were unlikely to show that the special committee of St. John's
board of directors that evaluated and approved the terms of the mergers on
behalf of St. John lacked independence or failed to "shop" St. John adequately
to other buyers.

     While declining to grant the preliminary injunction, the court imposed a
constructive trust which prevents the Grays from receiving in the mergers any
amount for their St. John shares in excess of $30.00 per share until a full
trial on the merits is held. Prior to the determination of the final terms of
the stock options to be granted to the Grays after the mergers, the plaintiffs
had argued that these options represent additional consideration for the Grays'
St. John shares. It is the company's belief that these employee stock options
represent incentive compensation for the Grays' services as officers of SJKI
after the mergers and are not additional consideration for their St. John
shares.

     The court also imposed a constructive trust preventing two of St. John's
former directors from exercising options that were repriced by the board of
directors in September 1998 until a full trial on the merits is held. It is the
company's belief that the September 1998 option repricing was not improper. The
repricing was consistent with the repricing of options held by key employees of
St. John, excluding the Grays.

     In imposing the constructive trusts, the court indicated that the
plaintiffs had shown "reasonable probability" that they could succeed at trial
in proving that the former St. John directors breached their fiduciary duties
with respect to the repricing of the director options and the alleged
preferential treatment of the Grays to the extent that the Grays receive a
higher price for their shares than the public shareholders in the mergers.

     On January 20, 2000, the court issued a ruling denying summary judgment
motions brought by both the plaintiffs and the defendants, with the exception of
granting plaintiffs' motion to strike defendants' affirmative defense of
ratification and also with the exception of granting the defendants' motion to
dismiss plaintiffs' claim for unjust enrichment.  Virtually all of the fact
discovery has been completed and the court has set a May 8, 2000 trial date.

     On September 9, 1999, three of the plaintiffs filed another lawsuit in the
Superior Court of the State of California, County of Orange, naming SJKI, Pearl
Acquisition Corp., Vestar/Gray Investors LLC, SJK Acquisition, Inc., Vestar
Capital Partners III, L.P., Vestar Capital Partners and Merrill Lynch, Pierce,
Fenner & Smith, Inc.  The plaintiffs claim that each of the defendants aided and
abetted the breach of fiduciary duties alleged in their earlier actions against
St. John, Bob Gray and Kelly

                                       15
<PAGE>

Gray. Since the claims in this litigation are based exclusively on secondary
liability and are completely contingent upon the success of the claims in the
earlier action, on November 16, 1999, at the request of several defendants, the
court stayed all proceedings in this litigation pending the outcome of the
earlier action.

     The company intends to contest these lawsuits vigorously if the plaintiffs
elect to proceed with their actions. The company expects to incur legal and
other defense costs as a result of such proceedings in an amount which it can
not currently estimate. These proceedings could involve a substantial diversion
of the time of some of the members of management, and an adverse determination
in, or settlement of, such litigation could involve payment of significant
amounts, which could have an adverse impact on the company's business, financial
condition, results of operations and cash flows.

Amen Wardy Home Stores Litigation

     In May 1999, the company settled litigation relating to the Amen Wardy Home
Stores joint venture. In connection with this settlement, the company
transferred ownership of the Las Vegas home furnishing store and the Amen Wardy
name to its former partner in the joint venture. The company also transferred
certain property and agreed to pay certain expenses in connection with the
settlement.

     The company is not a party to any other litigation which is individually or
in the aggregate material to its business.


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

        Not applicable.

                                       16
<PAGE>

                                    PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
        MATTERS

     SJKI's common stock is quoted on the OTC Bulletin Board quotation system
under the symbol "SJKI". The following table sets forth, for each of the full
quarterly periods indicated, the quarterly high and low bid quotations for
SJKI's common stock as reported by the OTC Bulletin Board. The prices in the
table represent prices between dealers and do not include adjustments for retail
mark-ups, markdowns or commissions and may not represent actual transactions.

                                 Fiscal 1999/(1)/
                                 ----------------
                              High              Low
                            --------         ---------
          Fourth Quarter     $24.50            $12.00

______________

(1)  As a result of the mergers consummated on July 7, 1999, 455,969 shares of
     SJKI were issued to former shareholders of St. John, other than the Grays.
     Prior to such time, SJKI was a wholly owned subsidiary of St. John.

     As of January 26, 2000, there were approximately 88 holders of record of
SJKI's common stock.

     SJKI has never declared dividends on its common stock and does not intend
to pay dividends on its common stock in the future. SJKI's ability to pay
dividends depends upon the receipt of dividends from St. John, which is a wholly
owned subsidiary of SJKI. In addition, SJKI's ability to pay dividends on its
common stock is restricted by the terms of its senior credit facilities and the
indenture governing its senior subordinated notes as well as limitations under
applicable law and other factors the board of directors deems relevant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquity and Capital Resources."

                                       17
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

     The following selected financial data has been derived from the
consolidated financial statements of the company. This information should be
read in conjunction with the company's audited consolidated financial statements
and notes thereto and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                                           Fiscal Year Ended
                                                                   ----------------------------------------------------------------
                                                                    October 31,  November 1,  November 2,  November 3,  October 29,
                                                                       1999         1998         1997         1996         1995
                                                                    -----------  -----------  -----------  -----------  -----------
                                                                               (in thousands, except per share amounts)
<S>                                                                 <C>          <C>          <C>          <C>          <C>
Income Statement Data:
Net sales.........................................................     $300,283     $281,961     $242,101     $202,951     $161,795
Cost of sales.....................................................      130,131      120,883       99,545       88,871       74,252
                                                                       --------     --------     --------     --------     --------
Gross profit......................................................      170,152      161,078      142,556      114,080       87,543
Selling, general and administrative expenses......................      120,996      107,026       84,545       68,385       54,550
Transaction fees and expenses.....................................       15,123           --           --           --           --
                                                                       --------     --------     --------     --------     --------
Operating income..................................................       34,033       54,052       58,011       45,695       32,993
Interest expense..................................................       10,224           --           42           --           --
Other income......................................................        1,197        1,369          755        1,355          803
                                                                       --------     --------     --------     --------     --------
Income before income taxes........................................       25,006       55,421       58,724       47,050       33,796
Income taxes......................................................       10,317       22,001       24,300       19,929       14,243
                                                                       --------     --------     --------     --------     --------
Net income........................................................     $ 14,689     $ 33,420     $ 34,424     $ 27,121     $ 19,553
                                                                       ========     ========     ========     ========     ========
Net income per common share-diluted/(1)/..........................     $   0.98     $   1.94     $   2.01     $   1.59     $   1.19
                                                                       ========     ========     ========     ========     ========
Dividends per share/(1)/..........................................     $  0.075     $   0.10     $   0.10     $   0.10     $   0.10
                                                                       ========     ========     ========     ========     ========
Weighted average shares outstanding-diluted/(1)/..................       13,669       17,235       17,134       17,016       16,433
                                                                       ========     ========     ========     ========     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                                                As of
                                                                    --------------------------------------------------------------
                                                                    October 31,   November 1,  November 2,  November 3,  October 29,
                                                                        1999         1998         1997         1996        1995
                                                                    ------------  -----------  -----------  ----------  ----------
                                                                                               (in thousands)
<S>                                                                 <C>           <C>          <C>          <C>         <C>
Balance Sheet Data:
Working capital...................................................    $  89,140      $ 89,190     $ 69,693    $ 49,628     $38,130
Total assets......................................................      206,810       182,390      153,904     116,494      85,973
Long-term debt/(2)/...............................................      287,321           408           --          --          --
Mandatorily redeemable preferred stock............................       25,000            --           --          --          --
Stockholders' equity (deficit)....................................     (136,930)      161,574      130,680      97,093      69,227
</TABLE>

________________

(1)  Net income per share, dividends per share and weighted average shares
     outstanding have been adjusted for the 2-for-1 stock split which occurred
     during the third quarter of fiscal 1996.

(2)  The company increased its long-term debt in connection with the mergers
     consummated in July 1999. See "Management's Discussion and Analysis of
     Financial Condition and Results of Operations - Agreement and Plan of
     Merger."

                                       18
<PAGE>

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

     Management's discussion and analysis should be read in conjunction with the
company's consolidated financial statements and the notes related thereto.

Agreement and Plan of Merger

     On July 7, 1999, (a) SJKAcquisition, Inc., a California corporation and
direct wholly owned subsidiary of SJKI, merged with and into St. John, with St.
John surviving the merger (the "reorganization merger") and (b) Pearl
Acquisition Corp., a Delaware corporation and direct wholly owned subsidiary of
Vestar/Gray Investors LLC, a Delaware limited liability company, merged with and
into SJKI, with SJKI surviving the merger (the "acquisition merger" and together
with the reorganization merger, the "mergers"), as contemplated by the Agreement
and Plan of merger, dated as of February 2, 1999, among SJKI, St. John,
SJKAcquisition and Pearl. As a result of the mergers, St. John became a wholly
owned subsidiary of the SJKI. Immediately after the mergers, SJKI was
approximately 7% owned by former shareholders of St. John, other than
Robert E. Gray, Marie Gray and Kelly A. Gray, and approximately 93% owned by
Vestar/Gray Investors LLC. Vestar/Gray Investors LLC is approximately 84% owned
by an affiliate of Vestar Capital Partners III, L.P. and 16% owned by the Grays.

     As a result of the mergers, except for fractional shares and shares owned
by St. John, Pearl, Vestar/Gray Investors LLC and the Grays, and subject to
proration, each issued and outstanding share of St. John prior to the
reorganization merger was converted into the right to receive either $30 in cash
or, for each former issued and outstanding share of common stock of St. John
with respect to which an election had been made and not withdrawn in accordance
with the merger agreement, one fully paid and non-assessable share of SJKI's
common stock, with a total of 455,969 shares (after elimination of fractional
shares) of SJKI issued to former shareholders of St. John, other than the Grays.

     The aggregate cash consideration paid to company stockholders in connection
with the mergers was approximately $448.7 million. The company financed the
mergers with proceeds from senior secured credit facilities of $190.0 million,
an equity contribution by Vestar/Gray Investors LLC of $146.5 million, a
subordinated debt offering of $100.0 million and the issuance of preferred stock
of $25.0 million. The transaction was recorded as a recapitalization. Expenses
related to the new debt financing of approximately $15.2 million have been
recorded as deferred financing costs and are being amortized over the life of
the related debt. Expenses related to the purchase of the company's outstanding
stock of approximately $9.3 million have been reflected as a reduction in
retained earnings. Expenses totaling approximately $15 million were incurred
during the third quarter of fiscal 1999 related to the mergers. These expenses
were primarily related to payments made to settle the company's outstanding
stock options in connection with the mergers.

Results of Operations

     The following table is derived from the company's Consolidated Statements
of Income and sets forth, for the periods indicated, the results of operations
as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                                            Percentage of Net Sales
                                                                                               Fiscal Year Ended
                                                                                   -----------------------------------------
                                                                                   October 31,    November 1,   November 2,
                                                                                       1999           1998          1997
                                                                                   -------------  ------------  ------------
<S>                                                                                <C>            <C>           <C>
Net sales........................................................................         100.0%        100.0%        100.0%
Cost of sales....................................................................          43.3          42.9          41.1
                                                                                          -----         -----         -----
Gross profit.....................................................................          56.7          57.1          58.9
Selling, general and administrative expenses.....................................          40.3          38.0          34.9
Transaction fees and expenses....................................................           5.0            --            --
                                                                                          -----         -----         -----
Operating income.................................................................          11.4          19.1          24.0
Interest expense.................................................................           3.4            --            --
Other income.....................................................................           0.4           0.5           0.3
                                                                                          -----         -----         -----
Income before income taxes.......................................................           8.4          19.6          24.3
Income taxes.....................................................................           3.4           7.8          10.0
                                                                                          -----         -----         -----
Net income.......................................................................           5.0%         11.8%         14.3%
                                                                                          =====         =====         =====
</TABLE>

                                       19
<PAGE>

Fiscal 1999 Compared to Fiscal 1998

     Net sales for fiscal 1999 increased by $18.3 million, or 6.5% over fiscal
1998. This increase was principally attributable to (i) an increase in sales by
company-owned retail stores of approximately $15.2 million , due in part to the
expansion of the Las Vegas and South Coast Plaza boutiques which were completed
in May 1998 and December 1998, respectively, increased sales at the boutique
located in Beverly Hills and the addition of one retail boutique in Scottsdale,
Arizona and one outlet store since the beginning of fiscal 1998, (ii) an
increase in international sales of $3.2 million, which includes the sales of St.
John Company, Ltd., a majority owned subsidiary which commenced operations in
Japan during the fourth quarter of fiscal 1997 and (iii) an increase in sales of
approximately $2.3 million recorded by St. John Home, which commenced operations
during the fourth quarter of fiscal 1997. These increases were offset by a
decrease in sales to existing domestic retail customers, primarily due to the
discontinuance of the SJK line. Net sales increased primarily as a result of
increased unit sales of various product lines. See "Business - Sales by
Division."

     Gross profit for fiscal 1999 increased by $9.1 million, or 5.6% as compared
with fiscal 1998, and decreased as a percentage of net sales to 56.7% from
57.1%. This decrease in the gross profit margin was primarily due to a decrease
in the gross margin for the Knitwear line, due to increased production costs
which were not offset by a corresponding increase in the selling price. This
increase in the production costs was due in part to the reevaluation of the
company's quality control program and the related procedures which were
implemented during the second half of fiscal 1998.

     Selling, general and administrative expenses for  fiscal 1999 increased by
$14.0 million, or 13.1% over  fiscal 1998, and increased as a percentage of net
sales to 40.3% from 38.0%. This increase was primarily due to (i) an increase of
approximately $2.0 million in selling expenses related to increased costs of
promoting and marketing its products to its major customers, (ii) non-recurring
expenses totaling approximately $1.7 million incurred in connection with
resolving the litigation involving Amen Wardy Home Stores and the closure of
three such stores, (iii) the write off of the costs associated with the
acquisition of the Company's trademark in Japan totaling approximately $600,000
and (iv) additional legal fees related to the Amen Wardy Home litigation and
litigation involving the mergers.

     Transaction fees and expenses represent costs directly associated with the
completion of the mergers as discussed above under "Agreement and Plan of
Merger."

     Operating income for fiscal 1999 decreased by $20.0 million, or 37.0% as
compared with fiscal 1998. Operating income as a percentage of net sales
decreased to 11.4% from 19.1% during the same period as a result of the reasons
mentioned above.

     Interest expense for fiscal 1999 increased by $10.2 million as compared
with fiscal 1998.  This increase was due to the borrowings under the senior
credit facility and senior subordinated notes incurred in connection with the
mergers.

Fiscal 1998 Compared to Fiscal 1997

     Net sales for fiscal 1998 increased by approximately $39.9 million, or
16.5% over fiscal 1997. This increase was principally attributable to (i) an
increase in sales to existing domestic retail customers of approximately $20.9
million; (ii) an increase in sales by company-owned stores of approximately
$10.2 million, due in part to the increased sales of the New York boutique, the
expansion of the Las Vegas boutique and the addition of three outlet stores
since the beginning of fiscal 1997; (iii) an increase in sales of approximately
$6.0 million recorded by St. John Home; and (iv) an increase in international
sales of approximately $2.8 million, which includes the sales of St. John
Company Ltd. Net sales increased primarily as a result of increased unit sales
of various product lines. See "Business - Sales by Division".

     Gross profit for fiscal 1998 increased by approximately $18.5 million, or
13.0% as compared with fiscal 1997, and decreased as a percentage of net sales
to 57.1% from 58.9%. This decrease in the gross profit margin was primarily due
to (i) capacity constraints which led to production inefficiencies; (ii) cost
increases related to production difficulties and overtime associated with the
manufacture of certain highly ornate styles in the Knitwear line; (iii) expenses
relating to training of new employees; and (iv) lower gross margins at company-
owned outlet stores. All of such additional costs were partially offset by an
increase in the number of garments being produced and sold without a
corresponding increase in certain production costs, due in part to the fixed
nature of these costs.

     Selling, general and administrative expenses for fiscal 1998 increased by
approximately $22.5 million, or 26.6% over fiscal 1997, and increased as a
percentage of net sales to 38.0% from 34.9%. This increase was primarily due to
(i) an increase of approximately $5.2 million in sales, marketing, design and
administrative personnel expenses; (ii) expenses of approximately $4.9 million
associated with the start-up of the company's home furnishing retail stores;

(iii) increased costs of approximately

                                       20
<PAGE>

$2.1 million in connection with higher markdowns on the Fall 1998 line and with
the discontinuation of the SJK line; (iv) an immediate increase in fixed
overhead at one upgraded boutique without a corresponding increase in revenues;
and (v) costs related to the start-up of a new jewelry and garment hardware
manufacturing facility in Mexico.

     Operating income for fiscal 1998 decreased by approximately $4.0 million,
or 6.8% over fiscal 1997. Operating income as a percentage of net sales
decreased to 19.1% from 24.0% during the same period as a result of the reasons
mentioned above.

Liquidity and Capital Resources

     SJKI is effectively a holding company and, accordingly, must rely on
distributions, loans and other intercompany cash flows from its affiliates and
subsidiaries to generate the funds necessary to satisfy the repayment of its
outstanding loans. Except as may be required under applicable law, there are no
significant restrictions on the transfer of funds or assets from the wholly
owned subsidiary guarantors to SJKI.

     The company's primary cash requirements are to fund payments required to
service its debt, to fund its working capital needs, primarily inventory and
accounts receivable, and for the purchase of property and equipment. During
fiscal 1999, cash provided by operating activities was $44.1 million. Cash
provided by operating activities was primarily generated by net income, an
increase in accrued interest expenses, a decrease in inventories and a decrease
in accounts receivable. Cash used in investing activities was $13.1 million
during fiscal 1999. The principal use of cash in investing activities was for
the purchase of electronic knitting machines, the purchase of a 32,000 square
foot building in Irvine, California to be used as additional manufacturing
space, the construction of leasehold improvements for a new boutique location in
South Coast Plaza in Costa Mesa, California and the completion of leasehold
improvements for a new St. John Home store at South Coast Plaza. Cash used in
financing activities was $13.2 million during fiscal 1999. Cash provided by
financing activities included $190.0 million provided by senior secured credit
facilities, $98.6 million provided by the sale of senior subordinated notes, and
$25.0 million provided by the issuance of preferred stock. Cash used in
financing activities related to the mergers was $311.8 million and $15.2 million
was paid as fees and expenses related to the acquisition of the financing.

     The company anticipates purchasing property and equipment of approximately
$20.0 million during fiscal 2000. The estimated $20.0 million will be used
principally for upgrades to the company's computer systems, the purchase of
electronic knitting machines, the construction of leasehold improvements for a
new boutique location in Hawaii, the expansion of the boutique location in Palm
Desert, California and the construction of leasehold improvements for 4
additional retail boutiques.

     As of October 31, 1999, the company had approximately $89.1 million in
working capital and $32.5 million in cash and marketable securities.  The
company's principal source of liquidity is internally generated funds.  As part
of the senior credit facilities, the company has a $25.0 million revolving
credit facility which expires on July 31, 2005.  The revolving credit facility
is secured and borrowings thereunder bear interest at the company's choice of
the bank's borrowing rate plus 2.0% (8.25% at October 31, 1999) or a Eurodollar
rate plus 3.0%.  The availability of funds under the revolving credit facility
is subject to the company's continued compliance with certain covenants,
including a covenant that sets the maximum amount the company can spend annually
on the acquisition of fixed or capital assets, and certain financial covenants,
including a maximum leverage ratio, a minimum fixed charge coverage ratio and a
minimum interest expense coverage ratio.  See "Credit Facilities" below.  As of
October 31, 1999, no amounts were outstanding under the revolving credit
facility.  The company invests its excess cash primarily in a money market fund
and investment grade commercial paper.

     Total debt outstanding increased $289.2 million to $289.9 million at
October 31, 1999, as compared to the amount outstanding at November 1, 1998.
This increase is due to the effect of the mergers. The company's outstanding
debt is comprised of senior secured credit facilities of $189.3 million and
$98.7 million of senior subordinated notes.

     The company's primary ongoing cash requirements will be for debt service
and capital expenditures.  The company's debt service requirements consist
primarily of principal and interest payments on bank borrowings and interest on
the notes.  The company believes it will be able to finance its debt service and
capital expenditure requirements for the foreseeable future with internally
generated funds and availability under the revolving credit facility.  However,
the company's ability to fund its capital investment requirements, interest and
principal payment obligations and working capital requirements and to comply
with all of the financial covenants under its debt agreements depends on its
future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the company's control.  See "Risk Factors-Substantial
Leverage and Debt Service."

     St. John paid approximately $1,245,000 in dividends to its shareholders
during fiscal 1999 prior to the mergers.  SJKI does not anticipate the payment
of any cash dividends on its common stock in the future.

                                       21
<PAGE>

     The company's EBITDA as defined in its credit agreement for its senior
secured credit facilities was $66,528,000 and $66,425,000 for fiscal 1999 and
1998, respectively. EBITDA is not a defined term under GAAP and is not an
alternative to operating income or cash flow from operations as determined under
GAAP. The company believes that EBITDA provides additional information for
determining its ability to meet future debt service requirements; however,
EBITDA does not reflect cash available to fund cash requirements and should not
be construed as an indication of the company's operating performance or as a
measure of liquidity.

Credit Facilities

     In order to finance a portion of the cash consideration paid pursuant to
the mergers, the company entered into a credit agreement with a group of
financial institutions, which provides for an aggregate principal amount of
loans totaling $215 million. The credit agreement consists of three facilities:
(i) tranche A facility totaling $75 million which matures July 31, 2005, (ii)
tranche B facility totaling $115 million which matures July 31, 2007 and (iii)
the revolving credit facility totaling $25 million which matures July 31, 2005.

     Borrowings under the tranche A facility and the revolving credit facility
bear interest at a floating rate, which is based upon the leverage ratio of the
company, but cannot exceed the banks' borrowing rate plus 2.0% or LIBOR plus
3.0%.  Borrowings under the tranche B facility bear interest at a floating rate,
which is also based upon the leverage ratio of the company, but cannot exceed
the banks' borrowing rate plus 2.5% or LIBOR plus 3.5%.  In addition, the
company is required to pay a commitment fee on the unused portion of the
revolving credit facility of 0.5% per year.

     Borrowings under the tranche A facility began to mature quarterly beginning
October 31, 1999, while borrowings under the tranche B facility mature quarterly
beginning October 31, 2000.  The term loans require a mandatory prepayment based
upon the excess cash flow of the company beginning in fiscal year 2000.

     The obligations of the company under the credit agreement are guaranteed by
each domestic subsidiary of the company, including St. John, and to the extent
no adverse tax consequences would result from such guarantees, each foreign
subsidiary of the company.  The credit agreement and the related guarantees are
secured by (a) a pledge of 100% of the capital stock of each domestic subsidiary
of the company, including St. John, and 65% of each foreign subsidiary of the
company and (b) a security interest in, and mortgage on, substantially all the
assets of the company and each domestic subsidiary of the company, including St.
John, and to the extent no adverse tax consequences would result therefrom, each
foreign subsidiary of the company.

     The credit agreement requires the company to comply with specified
financial ratios, including a minimum interest coverage ratio, a maximum
leverage ratio and a minimum fixed charge coverage ratio. The credit agreement
also contains additional covenants that, among other things, restrict the
ability of the company to dispose of assets, incur additional indebtedness, pay
dividends, create liens on assets, make investments, loans or advances and
engage in mergers or consolidations. The credit agreement prohibits the company
from declaring or paying any dividends or making any payments with respect to
the company's senior subordinated notes if it fails to perform its obligations
under, or fails to meet the conditions of, the credit agreement or if payment
creates a default under the credit agreement. The credit agreement contains
customary events of default.

     The credit agreement permits the company to prepay loans and to permanently
reduce revolving credit commitments, in whole or in part, at any time.  In
addition, the company is required to make mandatory prepayments of tranche A and
B facilities, subject to certain exceptions, in amounts equal to (i) 75% of
excess cash flow (as defined in the credit agreement); and (ii) 100% of the net
cash proceeds of certain dispositions of assets or issuances of debt or equity
of the company or any of its subsidiaries (in each case, subject to certain
exceptions and subject to a reduction to zero based upon the company's financial
performance).

Senior Subordinated Notes

     In addition to the credit facilities described above, the company sold $100
million of senior subordinated notes (the "notes") to help finance the mergers.
The notes are unsecured and mature on July 1, 2009.  The notes bear interest at
a rate of 12.5% per year and were issued at 98.616% of the actual face value.
Interest on the notes is payable semiannually to the holders of record. The
notes are subject to redemption by the company on or after July 1, 2004.  In
addition, on or before July 1, 2002, the company may redeem up to 35% of the
outstanding notes with the net cash proceeds of certain equity offerings.  The
indenture governing the notes limits, among other things, the payment of
dividends, the incurrence of additional indebtedness and other restricted
payments.  The indenture contains customary events of default.  The company will
be obligated to pay certain liquidated damages to holders of the notes if the
company does not file a registration statement providing for a registered
exchange offer for the notes, if the registration statement is not declared
effective or if the exchange offer for the notes is not consummated, in each
case within certain specified times after the date of issuance of the notes.
The company filed such registration statement providing for a registered
exchange offer for the notes on September 3, 1999.  The Securities and Exchange
Commission declared such

                                       22
<PAGE>

registration statement effective on November 2, 1999 and the company completed
such exchange offer on December 30, 1999. The company filed a post-effective
ammendment to the registration statement on January 12, 2000, which was declared
effective January 18, 2000.

Mandatorily Redeemable Preferred Stock

     In order to finance a portion of the cash consideration paid in the
mergers, SJKI issued 250,000 shares of 15.25% Mandatorily Redeemable preferred
stock due 2010 (the "preferred stock") to Vestar/SJK Investors LLC. The
liquidation preference of the preferred stock is $100 per share. The preferred
stock ranks junior in right of payment to all liabilities and obligations
(whether or not for borrowed money) of SJKI (other than common stock of SJKI and
any preferred stock of SJKI which by its terms is on parity with or junior to
the preferred stock). Holders of the preferred stock will be entitled to
receive, when, and if declared by the Board of Directors of SJKI, out of funds
legally available therefor, dividends on the preferred stock, at an annual rate
equal to 15.25%, provided that if dividends are not paid on a dividend payment
date, dividends will continue to accrue on unpaid dividends. Dividends on the
preferred stock may only be paid in cash if permitted under the terms of the
company's senior secured credit facilities, indenture and other contractual
arrangements. Dividends accrue from the date of issuance and are payable semi-
annually in arrears on January 1 and July 1 of each year, commencing on January
1, 2000. If permitted under the terms of the company's senior secured credit
facilities, the indenture and other contractual arrangements, the preferred
stock may be redeemed at any time, in whole or in part, at the option of SJKI at
specified redemption prices. On July 1, 2010, SJKI is required to redeem
(subject to contractual and other restrictions with respect thereto and to the
legal availability of funds therefor) all outstanding shares of preferred stock
at a price equal to the liquidation value thereof plus all accumulated dividends
to the date of redemption. SJKI may, at its option, exchange all, but not less
than all, of the shares of the then outstanding preferred stock for debentures
of SJKI in a principal amount equal to the liquidation value of the preferred
stock plus accumulated dividends. The exchange debentures will bear interest at
15.25% per year, have a final stated maturity of July 1, 2010, have optional
redemption provisions comparable to the preferred stock and will have customary
covenants and events of default. SJKI may not cause the exchange of the
preferred stock for debentures unless permitted under the terms of the company's
senior secured credit facilities, the indenture and other contractual
arrangements.

Year 2000

     The company undertook many actions intended to assure that its computer
systems and other equipment were capable of functioning in, and processing for,
periods for the Year 2000 and beyond.  These actions were generally described in
the company's report on Form 10-Q for the quarter ended July 31, 1999.  The
company implemented a program intended to address, on a timely basis, "Year 2000
Readiness" (the need for computer applications and other systems used by the
company to function in and after the Year 2000 and to recognize and properly
perform date sensitive functions involving dates after December 31, 1999).

     As of January 25, 2000, the company has not experienced any material
consequences of failure of Year 2000 Readiness, either by the company, its
suppliers, or its customers.  However, Year 2000 Readiness has many elements and
potential consequences, some of which may not be foreseeable or may be realized
in future periods.  Therefore, there can be no assurance that unforeseen
circumstances could still not arise, or that the company will not in the future
identify equipment or systems which are not Year 2000 ready.

     The company's Year 2000 costs were approximately $716,000.

New Accounting Pronouncements

     See Note 2(o) "New Accounting Pronouncements" included under the caption
Notes to Consolidated Financial Statements included elsewhere in this document.

Forward Looking Statements

     This Annual Report on Form 10-K contains certain statements which describe
the company's beliefs concerning future business conditions and the outlook for
the company based on currently available information. Wherever possible the
company has identified these "forward looking" statements (as defined in Section
21E of the Securities Exchange Act of 1934) by words such as "anticipates,"
"believes," "estimates," "expects" and other similar expressions. The forward
looking statements and associated risks set forth herein may include or relate
to: (i) the company's anticipated purchases of property and equipment during
fiscal 2000 and (ii) the company's belief that it will be able to fund its
working capital and capital expenditure requirements with internally generated
funds and borrowings under the revolving credit line.

                                       23
<PAGE>

     These forward looking statements are subject to risks, uncertainties and
other factors which could cause the company's actual results, performance or
achievements to differ materially from those expressed in, or implied by, these
statements. See "Business-Risk Factors." In addition to the factors that may be
described in this report, the following factors could cause actual results to
differ from those expressed in any forward looking statements made by the
company: (i) the financial strength of the retail industry and the level of
consumer spending for apparel and accessories, (ii) the company's ability to
develop, market and sell its products, (iii) increased competition from other
manufacturers and retailers of women's clothing and accessories, (iv) general
economic conditions and (v) the inability of the company to meet the financial
covenants under its credit facilities and indenture.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The company has exposure to fluctuations in foreign currency exchange rates
for the revenues derived from sales to its foreign customers denominated in
foreign currency. In order to reduce the effects of such fluctuations, under
established procedures and controls, the company enters into forward contracts.
These contractual arrangements are entered with a major financial institution.
The company does not hold derivative financial instruments for trading.

     The primary business objective of this hedging program is to secure the
anticipated profit on sales denominated in foreign currencies. Forward contracts
are entered into at the time the company prices its products. The company's
primary exposure to foreign exchange fluctuation is on the Euro and the British
pound. At October 31, 1999, the company had contracts maturing through February
29, 2000 to sell 2.2 million Euros and 280,000 British pounds at rates ranging
from 1.05 to 1.06 U.S. dollars to the Euro and 1.57 to 1.67 U.S. dollars to the
British pound. The company also held a contract which matures on November 30,
1999 to sell 700,000 deutsche marks at a rate of 1.66 deutsche marks to the U.S.
dollar. At November 1, 1998, the company had contracts maturing through May 28,
1999 to sell 5.4 million deutsche marks and 365,000 British pounds at rates
ranging from 1.71 to 1.77 deutsche marks to the U.S. dollar and 1.63 to 1.64
U.S. dollars to the British pound.

     The company is exposed to market risks related to fluctuations in interest
rates on its variable rate debt which consists of bank borrowings related to the
mergers. The company also holds fixed rate subordinated notes. The company has
entered into an interest rate collar agreement with a major financial
institution to limit its exposure on the variable rate debt. The agreement
became effective on October 4, 1999 and will expire on July 7, 2002. The
agreement sets a cap rate for libor contracts at 8.5%. The agreement also sets a
minimum rate of 5.37%. The agreement covers $45 million of the company's
variable rate debt.

     For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. The company has managed its
exposure to changes in interest rates by issuing part of its debt with a fixed
interest rate. Holding the variable rate debt balance constant, each one
percentage point increase in interest rates occurring on the first day of the
year would result in an increase in interest expense for the coming year of
approximately $1.9 million.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements and supplementary data filed with this report.

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

     Not applicable.

                                       24
<PAGE>

                                   PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF ST. JOHN KNITS INTERNATIONAL

     The following sets forth certain information concerning the directors and
executive officers of  SJKI:

<TABLE>
<CAPTION>
         Name               Position with St. John Knits International        Age
         ----               ------------------------------------------        ---
<S>                 <C>                                                       <C>
Bob Gray            Chairman of the Board and Chief Executive Officer           73
Kelly Gray          Director and President                                      33
Marie Gray          Chief Designer and Secretary                                62
Bruce Fetter        Executive Vice President and Chief Operating Officer        44
Roger Ruppert       Senior Vice President-Finance and Chief Financial Officer   56
Karla Guyer         Senior Vice President-Marketing                             47
Linda Koontz        Vice President-Sales                                        42
Daniel O'Connell    Director                                                    45
James Kelley        Director                                                    44
Sander Levy         Director                                                    37
</TABLE>


Biographical Information

     Bob Gray, a co-founder of St. John, has served as Chairman of the Board and
Chief Executive Officer of the company since its inception in 1962. Prior to
forming St. John, Mr. Gray held various sales and production positions with
Cannady Creations, a small sportswear company, from 1952 to 1962, his last
position being General Manager. He graduated from the University of Southern
California with a B.A. degree in political science and psychology. Mr. Gray is
the husband of Marie Gray and the father of Kelly Gray.

     Kelly Gray became President of the company in April 1996. She served as
Creative Director of the company from June 1991 and Executive Vice
President-Creative Director from December 1995 until April 1996. Ms. Gray also
heads the company's retail boutique division and has design responsibilities for
the St. John product line and the Griffith & Gray line. In addition, she has
been the company's Signature Model since 1982. Prior to becoming Creative
Director, Ms. Gray headed the company's advertising department from 1988 to June
1991. Prior to heading the advertising department of the company, Ms. Gray held
various other administrative positions with the company.  Ms. Gray is the
daughter of Bob Gray and Marie Gray.

     Marie Gray, a co-founder of the company, has served as Chief Designer of
the company since its inception in 1962 and as Secretary of the company since
March 1993. Prior to forming the company, Ms. Gray was a fashion model, served
as hostess of the Queen For a Day television show and was a fit model for some
of the leading designers in the Los Angeles area. Ms. Gray is the wife of Bob
Gray and the mother of Kelly Gray.

     Bruce Fetter was appointed Executive Vice President and Chief Operating
Officer in June 1999. He served as Senior Vice President and Chief Operating
Officer of the company since November 1997. He joined the company in January
1997 as Vice President-Distribution and in April was appointed Senior Vice
President-Operations. From August 1994 to December 1996 he held the position of
Vice President-Logistics for Bob's Stores, a division of the Melville
Corporation. Mr. Fetter graduated with a B.S. degree from the University of
Southern California in 1976, majoring in business.

     Roger Ruppert has served as Senior Vice President-Finance and Chief
Financial Officer of the company since October 1986. Prior to joining the
company, Mr. Ruppert was Vice President-Finance and Chief Financial Officer of
Cardis Corporation, a publicly traded auto parts distributor, from October 1985
to October 1986. He graduated with a B.S. degree in engineering from the U.S.
Naval Academy and also received an M.B.A. from the University of California, Los
Angeles. Mr. Ruppert is a certified public accountant.

     Karla Guyer has been Senior Vice President-Marketing of the company since
1993. Between August 1990 and 1993, she was Vice President/National Sales
Manager. Ms. Guyer attended Fullerton College in California.

     Linda Koontz was appointed Vice President-Sales of the company in January
1996. Previously, she served as National Sales Manager for ready-to-wear from
1993 to 1996 and National Sales Manager for the accessory division from 1991 to
1993.

                                       25
<PAGE>

Ms. Koontz graduated with a B.A. degree in political science from
California State University-San Bernardino and also received a J.D. from Western
State University.

     Daniel O'Connell is the Chief Executive Officer and founder of Vestar
Capital. Mr. O'Connell is a director of Advanced Organics, Inc., Aearo
Corporation, Cluett American Corp., Insight Communications Company, L.P.,
Remington Products Company L.L.C., Russell-Stanley Holdings, Inc., Siegel & Gale
Holdings, Inc. and Sheridan Healthcare, Inc. Mr. O'Connell received an A.B.
degree from Brown University and an M.B.A. degree from Yale University.

     James Kelley is a Managing Director of Vestar Capital and was a founding
partner of Vestar Capital at its inception in 1988. Mr. Kelley is a director of
Consolidated Container Holdings, LLC, Celestial Seasonings, Inc. and
Westinghouse Air Brake Company. Mr. Kelley received a B.S. degree from the
University of Northern Colorado, a J.D. degree from the University of Notre Dame
and an M.B.A. degree from Yale University.

     Sander Levy is a Managing Director of Vestar Capital and was a founding
partner of Vestar Capital at its inception in 1988. Mr. Levy is a director of
Cluett American Corp. Mr. Levy received a B.S. degree from The Wharton School of
the University of Pennsylvania and an M.B.A. degree from Columbia University.

Director Compensation

     Directors of SJKI do not receive compensation, except as officers or
employees of the company.

                                       26
<PAGE>

Item 11. EXECUTIVE COMPENSATION


Summary Compensation Table

     The following table sets forth the compensation for services in all
capacities to SJKI and its subsidiaries of the following persons: (i) the chief
executive officer of the company during fiscal year 1999 and (ii) the other four
most highly compensated executive officers (the "Named Executive Officers"):

<TABLE>
<CAPTION>
                                                                                       Long Term
                                              Annual Compensation/(7)/               Compensation
                                              ------------------------               ------------
                                                                                         Awards
                                                                                         ------
                                                                                   Shares of Common
                                                                                    Stock underlying        All Other
                                            Year     Salary/(1)/          Bonus        Options             Compensation
                                            ----     -----------          -----        -------             ------------
<S>                                         <C>    <C>                    <C>          <C>               <C>
Bob Gray                                    1999   $1,615,663/(2)/        $ --         109,104           $6,880,000/(6)/
 Chairman and Chief Executive Officer       1998    1,617,132/(2)/          --              --                1,383
                                            1997    1,569,535/(2)/          --              --                1,189

Marie Gray                                  1999      551,311               --         109,104            1,720,000/(6)/
  Chief Designer and Secretary              1998      525,985               --              --                1,383
                                            1997      419,457               --              --                  321

Kelly Gray                                  1999      677,406/(3)/          --         145,472            1,290,000/(6)/
  President                                 1998      663,432/(3)/          --              --                1,383
                                            1997      604,616/(3)/          --              --                1,510

Bruce Fetter                                1999      327,007               --          16,667              402,500/(6)/
  Chief Officer of Operations               1998      258,130               --              --                1,383
                                            1997      155,334/(5)/          --              --               26,750/(4)/

Roger Ruppert                               1999      278,426               --           8,333              545,000/(6)/
  Chief Financial Officer                   1998      231,997               --              --                1,383
                                            1997      218,179               --              --                1,510
</TABLE>
___________

(1)  The amounts shown in this column include amounts and awards accrued during
     each of fiscal years 1999, 1998 and 1997 that were earned but not paid in
     such fiscal year.

(2)  This amount includes $327,000 of salary which was earned but initially
     deferred in fiscal 1999 and $500,000 of annual salary that was earned but
     deferred in fiscal years 1998 and 1997, pursuant to the Employment
     Agreement, as amended, dated June 1, 1995 by and between the company and
     Mr. Gray. During fiscal 1999, in connection with the mergers, all such
     deferred compensation was paid to Mr. Gray.

(3)  This amount includes modeling fees of $250,000 which were paid to Ms. Gray
     during each of fiscal years 1999, 1998 and 1997.

(4)  This amount represents relocation expenses paid by the company.

(5)  These amounts represent a partial year due to the executive being hired
     during the applicable fiscal year.

(6)  This amount was paid to settle outstanding stock options in connection with
     the mergers. Each outstanding option was cancelled and replaced with the
     right to receive a cash payment equal to the excess of $30 over the
     exercise price per share of the stock subject to such option.

(7)  The company has concluded that the aggregate amount of perquisites and
     other personal benefits, securities or property paid to each of the listed
     officers for fiscal each of the fiscal years 1999, 1998 and 1997 did not
     exceed the lesser of 10% of such officer's total annual salary and bonus
     for such year or $50,000. Therefore, any such amounts are not included in
     the table.

                                       27
<PAGE>

Employment Agreements

     During fiscal 1995, the company entered into an Employment Agreement with
Bob Gray commencing, June 1, 1995 for three years. During fiscal 1998, this
agreement was amended to extend the term to May 31, 2000. The company also
entered into new Employment Agreements with Marie Gray, Kelly Gray, Bruce Fetter
and Roger Ruppert, effective July 14, 1998. The new employment agreements
extended through December 31, 1998 and renew automatically at the end of each
year unless terminated on thirty days notice by either party. The agreements
require each employee to devote substantially his or her full business time and
attention and best efforts to the affairs of the company during the term of the
agreements. The agreements currently provide for the payment of a base salary at
the rate of $1,475,000 for Bob Gray, $500,000 for Marie Gray, $420,000 for Kelly
Gray, $375,000 for Bruce Fetter and $290,000 for Roger Ruppert. Under Kelly
Gray's employment agreement, the company also compensates Ms. Gray $400,000 each
year for her position as the Signature Model of the company.

     Prior to being amended in October 1999, Bob Gray's employment agreement
provided for additional annual compensation of $500,000 to be deferred each year
into a grantor trust. However, in connection with the closing of the mergers,
Bob Gray received a lump sum payment of approximately $2.1 million, which
represented all deferred compensation owed to him under his employment agreement
(the "Deferred Payment"). Under the terms of his employment agreement, the
deferred compensation would not otherwise be distributed to Mr. Gray until the
earlier of (i) the termination of his employment with the company and (ii) June
1, 2000, on an installment basis, subject to the $1.0 million compensation limit
under Section 162(m) of the Internal Revenue Code of 1986, as amended. In
connection with the payment of the Deferred Payment, Mr. Gray's employment
agreement was amended to provide that as of August 6, 1999, no portion of his
annual compensation from the company will be deferred and all provisions of his
employment agreement regarding compensation deferrals were terminated. As a
result, the $500,000 per year previously deferred will now be included in Mr.
Gray's base salary.

     The employment agreements for each of Bob, Marie and Kelly Gray, Bruce
Fetter and Roger Ruppert also provide for the payment of severance benefits upon
the termination of the employee's employment. Each employment agreement provides
that the company pay severance benefits in the form of compensation continuation
for a period equal to 18 months if the employee's employment is terminated by
reason of a disability. In cases where the employee's employment is terminated
by reason of the employee's death, the company generally will provide certain
health insurance benefits to the employee's immediate family for a period of six
months.

     Under the agreements, in cases where the employee's employment is
terminated by the company without cause or by the employee with good reason,
such severance benefits would include payment to the employee (excluding Mr.
Gray) of the employee's base salary for the longer of the remaining term of the
agreement or six months. Under Mr. Gray's employment agreement, such severance
benefits would include payment to him of all base salary through May 31, 2000.
For purposes of the employment agreements, (i) termination by the company "with
cause" includes termination for dishonesty, willful misconduct, a breach of a
fiduciary duty which involves personal profit or benefit to the employee, a
willful violation of any law and conviction thereunder and a material breach of
the employment agreement and (ii) termination by the employee "for good reason"
includes termination as a result of the assignment to the employee of duties
inconsistent with the employee's position and status, a substantial alteration
in the nature, status or prestige of the employee's responsibilities, the
relocation of the company's executive offices to a point more than 50 miles from
the location of such offices as of the date of the applicable employment
agreement and a reduction in the employee's base salary.

     Under the employment agreements, termination of employment for good reason
also means voluntary termination by the employee as a result of (i) the failure
by the company to obtain from any successor, before the succession takes place,
an agreement to assume and perform the employment agreements or (ii) an
occurrence of a "change of control event." A "change of control event" takes
place when a person or group of persons acquire ownership of 25% or more of the
outstanding common stock of the company without first obtaining the approval of
the company's then outstanding directors. These employment agreements provide
for additional severance benefits to the employees upon these events of
voluntary termination, including a lump sum payment equal to two times the
employee's then base salary.

     Kelly Gray has been the company's Signature Model since 1982. Ms. Gray's
responsibilities as Signature Model include still photography modeling for the
company's Cruise/Spring and Fall clothing lines, fragrance and accessories.  The
company uses photographs of Ms. Gray in the company's print advertising for
these products. The company believes the modeling arrangement with Ms. Gray
contains terms no less favorable to the company than those obtainable from
unaffiliated third parties.

                                       28
<PAGE>

Retirement Plan

     The company maintains the Employees' Profit Sharing Plan, as amended (the
"Retirement Plan"), a qualified profit-sharing plan for the benefit of all
eligible employees. The Retirement Plan contemplates the sharing of profits and
is funded annually by cash contributions at the discretion of the board of
directors. The Retirement Plan was funded in each of fiscal years 1999, 1998 and
1997 with contributions of $500,000.

Stock Option Plan

     In connection with the mergers, in order to provide financial incentives
for certain of its employees, SJKI adopted a stock option plan, which provides
for the grant of options to purchase shares of SJKI common stock.

     SJKI granted Bob Gray, Marie Gray and Kelly Gray, as incentive
compensation, employee stock options to acquire SJKI common stock representing
approximately 5% of the total shares of SJKI common stock outstanding on a fully
diluted basis. The exercise price of the options is $30.00 per share. The
options vest and become exercisable in specified circumstances, including upon
the continued employment of the Grays for a specified period of time and the
achievement of specified performance criteria, and have up to a 10-year term.
Any unvested options expire following specified terminations of the applicable
individual's employment with SJKI. In addition, if the applicable performance
criteria are not met, the options will not become exercisable and will terminate
without payment therefor.

     In addition, some members of management other than the Grays received, as
incentive compensation, employee stock options to acquire shares of SJKI common
stock. The exercise price reflects the fair market value of the underlying
shares, as determined by the board of directors of SJKI in its best judgment.
The options vest and become exercisable upon the continued employment of the
applicable individual with SJKI for a specified period of time and have up to a
10-year term. Any unvested options expire following specified terminations of
the applicable individual's employment with SJKI. In addition, upon the
occurrence of a change in control transaction, these options may become fully
exercisable. The board of directors of SJKI determines which members of
management will receive these options.

     The shares of SJKI common stock underlying the options that these members
of management received as incentive compensation will, along with any future
grants, in the aggregate, represent approximately 5% of the outstanding common
stock of SJKI on a fully diluted basis.

Option Grants in Last Fiscal Year

     The following table sets forth information with respect to the Named
Executive Officers concerning the number of stock options granted during the
fiscal year ended October 31, 1999:


<TABLE>
<CAPTION>
                                                                                                       Potential Realizable
                                                             Percent of                                   Value at Assumed
                                               Number of   Total Options                                Annual Rates of Stock
                                               Securities    Granted to                                Price Appreciation for
                                               Underlying   Employees in   Exercise   Expiration             Option Term
                                                                                                             -----------
               Name                             Options     Fiscal Year     Price       Date           5%            10%
               ----                             -------     -----------     -----       ----          --             --
<S>                                             <C>         <C>             <C>       <C>             <C>    <C>
Bob Gray.....................................     109,104       21.9%        $30.00     7/07/09       --     $  972,117
Marie Gray...................................     109,104       21.9%        $30.00     7/07/09       --        972,117
Kelly Gray...................................     145,472       29.2%        $30.00     7/07/09       --      1,296,156
Bruce Fetter.................................      16,667        3.3%        $30.00     7/07/09       --        148,503
Roger Ruppert................................       8,333        1.7%        $30.00     7/07/09       --         74,247
</TABLE>

                                       29
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

     The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended October 31, 1999 and unexercised options held by each such officer as of
October 31, 1999:

<TABLE>
<CAPTION>
                                                                         Number of Securities
                                                                        Underlying Unexercised       Value of Unexercised
                                                 Shares                       Options at           In-the-Money Options at
                                               Acquired on   Value         Fiscal Year-End           Fiscal Year-End/(1)/
                                                                      ------------------------------------------------------
Name                                            Exercise    Realized  Exercisable  Unexercisable  Exercisable  Unexercisable
----                                           -----------  --------  -----------  -------------  -----------  -------------
<S>                                            <C>          <C>       <C>          <C>            <C>          <C>
Bob Gray.....................................       --        --           --        109,104           --             --
Marie Gray...................................       --        --           --        109,104           --             --
Kelly Gray...................................       --        --           --        145,472           --             --
Bruce Fetter.................................       --        --           --         16,667           --             --
Roger Ruppert................................       --        --           --          8,333           --             --
</TABLE>

_____________

(1)  All stock options currently held by the Named Executive Officers have an
     exercise price of $30. The current fair market value of the stock is less
     than the exercise price and therefore, there is no current value to the
     unexercised options.

                                       30
<PAGE>

Item 12. SECURY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information as of January 26, 2000 regarding
the beneficial ownership of SJKI's common stock by: (i) each person who is known
by SJKI to be the beneficial owner of more than 5% of the common stock; (ii)
each of the directors of SJKI; (iii) each executive officer listed in the
Summary Compensation Table above; and (iv) all current directors and executive
officers of SJKI as a group.

<TABLE>
<CAPTION>
                                                                           Approximate
                                                                        Number of Shares
                                                                          Beneficially
Name                                                                          Owned         Percentage Owned
----                                                                          -----         ----------------
<S>                                                                     <C>                 <C>
Vestar/Gray Investors LLC/(1)/                                               6,090,205           93.03%
     1225 17th Street, Suite 1660
     Denver, Colorado 80202
Bob Gray/(2)/                                                                  611,412            9.34%
Marie Gray/(2)/                                                                611,412            9.34%
Kelly Gray                                                                     357,571            5.46%
Bruce Fetter                                                                     1,750               *
Roger Ruppert                                                                    1,000               *
Daniel O'Connell/(3)/                                                        5,121,222           78.23%
James Kelley/(3)/                                                            5,121,222           78.23%
Sander Levy/(3)/                                                             5,121,222           78.23%
All current directors and executive officers as a group (seven persons)      6,092,955           93.08%
</TABLE>
___________

*    less than 1%

(1)  Vestar Capital Partners III, L.P., 245 Park Avenue, New York, New York
     10167, beneficially owns 5,121,222 shares, or approximately 78.23%, of
     SJKI's common stock through its controlling interest in Vestar/SJK
     Investors LLC, which owns approximately 84% of Vestar/Gray Investors.

(2)  Includes 556,772 shares which are beneficially owned (through Vestar/Gray
     Investors) by the Gray Family Trust, of which Robert and Marie Gray serve
     as co-trustees and are the sole beneficiaries. In addition, includes 54,640
     shares which are beneficially owned (through Vestar/Gray Investors) by the
     Kelly Ann Gray Trust, of which Robert and Marie Gray serve as co-trustees
     and of which Kelly Gray is the sole beneficiary.

(3)  Includes shares beneficially owned by Vestar. Each of Mr. O'Connell, Mr.
     Kelley and Mr. Levy disclaims the existence of a group and disclaims
     beneficial ownership of the common stock not held by him.

                                       31
<PAGE>

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The company leases its corporate office and manufacturing facility in
Irvine, California from GM Properties, a partnership in which the Gray Family
Trust, of which Bob and Marie Gray serve as co-trustees and are the sole
beneficiaries, has a 50% general partnership interest. The lease is for a five-
year term expiring on May 30, 2001, with the company having the option to extend
the lease for another five-year term at a lease amount to be agreed upon. The
current base monthly lease payment under this lease is approximately $60,000,
with annual increases of 4%. During fiscal years 1999, 1998 and 1997, the
company paid GM Properties approximately $729,000, $701,000 and $621,000,
respectively, under this lease.

     The company leases its Alhambra, California manufacturing facility from
Alhambra Partners, a limited partnership in which the Gray Family Trust has a
65% general partnership interest. The lease is for a five-year term expiring on
August 31, 2001, with the company having the option to extend the lease for a
five-year term at a lease amount to be agreed upon. The current base monthly
lease payment under this lease is approximately $24,000, with annual increases
of 4%. During fiscal years 1999, 1998 and 1997, the company paid Alhambra
Partners approximately $285,000, $274,000 and $263,000, respectively, under this
lease.

     The company periodically rents certain personal property from Ocean Air
Charters, Inc. ("Ocean"), in which Bob Gray and Marie Gray are the sole
shareholders. During fiscal years 1999, 1998 and 1997, the company paid
approximately $8,000, $21,000 and $30,000, respectively, with respect to such
property. In addition, St. John and Ocean each hold a 50% ownership interest in
a partnership ("Partnership") which owns an airplane. As of October 31, 1999,
each partner had a net capital investment in the Partnership of approximately
$496,000. During fiscal years 1999, 1998 and 1997, the Partnership leased the
airplane to the company and received lease payments totaling approximately
$1,038,000, $868,000 and $840,000, respectively. As of April 1, 1999, St. John
and the Partnership entered into a lease agreement for the airplane expiring
March 31, 2001, at a lease rate of $93,000 per month.

     Each of the arrangements between the company and entities controlled by the
Gray family is, in the opinion of management, on terms no less favorable to the
company than those that were available from persons not affiliated with the
company.

Certain Agreements Relating to the Mergers

     Vestar Capital, SJKI and St. John have entered into a management agreement.
Pursuant to the management agreement, SJKI and St. John paid to Vestar Capital a
transaction fee of $4.0 million at closing and reimbursed Vestar Capital for all
out-of-pocket expenses incurred in connection with the mergers. In addition,
under the agreement Vestar Capital will provide management services, including
advisory and consulting services, in relation to the selection, supervision and
retention of independent auditors, outside legal counsel, investment bankers or
other financial advisors or consultants. For these services, the management
agreement provides that SJKI and St. John will pay Vestar Capital an annual fee
of $500,000 and will reimburse Vestar Capital for all out-of-pocket expenses.
The management agreement will terminate if Vestar Capital and its partners and
their respective affiliates, through Vestar/Gray Investors or otherwise, hold,
in the aggregate, less than 50% of the SJKI stock beneficially owned by Vestar
immediately following the closing of the transactions and cease to control a
majority of SJKI's board of directors.

     SJKI is approximately 93% owned by Vestar/Gray Investors. Vestar
beneficially owns approximately 84%, and the Grays beneficially own
approximately 16%, of Vestar/Gray Investors. The Vestar/Gray Investors limited
liability company agreement provides, among other things, that Vestar may
appoint three of SJKI's five directors and the Grays may appoint the remaining
two directors. The right of Vestar and the Grays to appoint directors will be
subject to reduction to the extent the amount of SJKI stock allocated to either
is reduced.

     SJKI has entered into a stockholders' agreement with stockholders of SJKI,
including Vestar/Gray Investors, Vestar and the Grays, which states, among other
things, that (i) prior to a public offering of SJKI common stock, if Bob Gray
ceases to serve as Chairman or Chief Executive Officer of St. John or SJKI or if
the employment with SJKI of Marie Gray or Kelly Gray ceases for any reason, then
he or she will have the right to require SJKI, or, under some circumstances, St.
John, to purchase the shares of SJKI common stock beneficially owned by such
employee, up to a maximum of $5.0 million worth of such common stock for all
Gray employees during any 12-month period; and (ii) prior to a public offering
of SJKI common stock, if any of the Grays is terminated without "cause" or
resigns for "good reason," as these terms are defined in their current
respective employment agreements with the company, then he or she will have the
right to require SJKI, or, under some circumstances, St. John, to purchase
shares of SJKI common stock beneficially owned by such employee, up to a maximum
of 25% of the common stock beneficially owned by all such terminated or
resigning Gray employees during any 12-month period.

                                       32
<PAGE>

     The stockholders' agreement also provides that each of the Grays, so long
as he or she is employed by the company and for a period of five years after he
or she ceases to be so employed, will not, directly or indirectly, engage in the
design, manufacturing, production, marketing, sale or distribution of women's
clothing or accessories anywhere in the world in which the company is doing
business, other than through his or her employment with the company. The
agreement also provides that if Kelly Gray is terminated without "cause" or
resigns for "good reason," as defined under her current employment agreement,
the term of the non-compete period will be reduced to three years, and, subject
to restrictions, she will be permitted to engage in certain otherwise
competitive activities.

     All outstanding shares of preferred stock of SJKI are currently held by
Vestar/SJK Investors LLC, Kelly Gray and The Gray Family Trust. The holders of
the preferred stock will be entitled to up to five demand registration rights at
the expense of SJKI.

                                       33
<PAGE>

                                    PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report:


          1. Consolidated Financial Statements--See "Index to Consolidated
             Financial Statements"

          2. Consolidated Financial Statement Schedule--See "Index to
             Consolidated Financial Statements"

          3. Exhibits--See "Exhibit Index"


     (b) Reports on Form 8-K

          None

                                       34
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                    -------
<S>                                                                                                                 <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS..........................................................................       36

CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Balance Sheets at October 31, 1999 and November 1, 1998............................................       37
  Consolidated Statements of Income for the years ended October 31, 1999, November 1, 1998 and
    November 2, 1997..............................................................................................       38
  Consolidated Statements of Stockholders' Equity (Deficit) for the years ended October 31, 1999,
    November 1, 1998 and November 2, 1997.........................................................................       39
  Consolidated Statements of Cash Flows for the years ended October 31, 1999, November 1, 1998
    and November 2, 1997..........................................................................................       40
  Notes to Consolidated Financial Statements......................................................................       42

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
  Schedule II--Valuation and Qualifying Account...................................................................       63
</TABLE>

                                       35
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To St. John Knits International, Incorporated:

  We have audited the accompanying consolidated balance sheets of ST. JOHN KNITS
INTERNATIONAL, INCORPORATED (a Delaware corporation) and subsidiaries as of
October 31, 1999 and November 1, 1998, and the related consolidated statements
of income, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended October 31, 1999. 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 generally accepted auditing
standards. 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 consolidated financial position of
St. John Knits International, Incorporated and subsidiaries as of October 31,
1999 and November 1, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1999 in
conformity with generally accepted accounting principles.

  Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.



                                                   ARTHUR ANDERSEN LLP

Orange County, California
January 25, 2000

                                       36
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                              October 31,            November 1,
                                      A S S E T S                                                 1999                  1998
                                      -----------                                             -------------          ------------
<S>                                                                                           <C>                    <C>
Current assets:
  Cash and cash equivalents.............................................................      $  32,443,815          $ 14,336,872
  Investments...........................................................................             25,412             1,175,427
  Accounts receivable, net..............................................................         33,562,573            35,562,189
  Inventories...........................................................................         43,521,734            47,748,286
  Deferred income tax benefit...........................................................          7,678,272             7,743,961
  Other.................................................................................          2,634,127             2,377,352
                                                                                              -------------          ------------
     Total current assets...............................................................        119,865,933           108,944,087
                                                                                              -------------          ------------
Property and equipment:
  Machinery and equipment...............................................................         51,242,600            47,023,808
  Leasehold improvements................................................................         32,856,047            30,691,098
  Buildings.............................................................................         17,913,064            17,883,700
  Furniture and fixtures................................................................          6,868,556             6,462,833
  Land..................................................................................          5,786,857             5,786,857
  Construction in progress..............................................................          4,132,267               666,481
                                                                                              -------------          ------------
                                                                                                118,799,391           108,514,777
  Less--Accumulated depreciation and amortization.......................................         49,211,044            38,627,543
                                                                                              -------------          ------------
                                                                                                 69,588,347            69,887,234
                                                                                              -------------          ------------
Deferred financing costs................................................................         14,585,755                    --
Other assets............................................................................          2,770,219             3,558,347
                                                                                              -------------          ------------
                                                                                              $ 206,810,254          $182,389,668
                                                                                              =============          ============

           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
           ----------------------------------------------

Current liabilities:
  Accounts payable......................................................................      $   6,805,079          $  8,303,874
  Current portion of long-term debt.....................................................          2,564,352               227,979
  Accrued expenses......................................................................         11,275,809            11,101,794
  Accrued interest expense..............................................................          7,661,434                    --
  Dividends payable.....................................................................          1,228,472                    --
  Income taxes payable..................................................................          1,190,888               120,657
                                                                                              -------------          ------------
     Total current liabilities..........................................................         30,726,034            19,754,304
Long-term debt, net of current portion..................................................        287,321,021               407,599
                                                                                              -------------          ------------
     Total liabilities..................................................................        318,047,055            20,161,903
                                                                                              -------------          ------------
Minority interest.......................................................................            693,391               653,435
                                                                                              -------------          ------------

Mandatorily redeemable preferred stock, $100 stated value:  Authorized--3,000,000
    shares, issued and outstanding--250,000 and none, respectively......................         25,000,000                    --
                                                                                              -------------          ------------

Stockholders' equity (deficit):
  Common stock, par value $0.01 per share: Authorized--30,000,000 shares, issued and
    outstanding--6,546,174 and 16,579,484 shares, respectively..........................             65,462               502,799
  Unrealized loss on securities.........................................................            (28,261)              (27,504)
  Cumulative translation adjustment.....................................................            406,823               197,249
  Additional paid-in capital............................................................        147,141,194            17,882,672
  Retained earnings (deficit)...........................................................       (284,515,410)          143,019,114
                                                                                              -------------          ------------
   Total stockholders' equity (deficit).................................................       (136,930,192)          161,574,330
                                                                                              -------------          ------------
                                                                                              $ 206,810,254          $182,389,668
                                                                                              =============          ============
</TABLE>

                            See accompanying notes.

                                       37
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                        For the years ended
                                                                          ----------------------------------------------
                                                                           October 31,      November 1,      November 2,
                                                                              1999             1998             1997
                                                                          ------------      ------------    ------------
<S>                                                                       <C>              <C>              <C>
Net sales...............................................................  $300,283,000     $281,960,763     $242,100,843
Cost of sales...........................................................   130,130,588      120,882,597       99,545,173
                                                                          ------------     ------------     ------------
Gross profit............................................................   170,152,412      161,078,166      142,555,670
Selling, general and administrative expenses............................   120,995,893      107,025,666       84,544,884
Transaction fees and expenses...........................................    15,122,809               --               --
                                                                          ------------     ------------     ------------
Operating income........................................................    34,033,710       54,052,500       58,010,786
Interest expense........................................................    10,224,486               --           42,266
Other income............................................................     1,196,654        1,369,022          754,960
                                                                          ------------     ------------     ------------
Income before income taxes..............................................    25,005,878       55,421,522       58,723,480
Income taxes............................................................    10,316,811       22,000,904       24,299,829
                                                                          ------------     ------------     ------------
Net income..............................................................    14,689,067       33,420,618       34,423,651
                                                                          ------------     ------------     ------------
Comprehensive income, net of tax:
   Foreign currency translation adjustments.............................       123,649          127,794          (11,417)
   Unrealized loss on securities........................................          (447)         (16,227)              --
                                                                          ------------     ------------     ------------
Comprehensive income....................................................  $ 14,812,269     $ 33,532,185     $ 34,412,234
                                                                          ============     ============     ============
Net income per common share:

   Basic................................................................  $       1.01     $       2.00     $       2.07
                                                                          ============     ============     ============
   Diluted..............................................................  $       0.98     $       1.94     $       2.01
                                                                          ============     ============     ============
Dividends per share.....................................................  $      0.075     $       0.10     $       0.10
                                                                          ============     ============     ============
Shares used in the calculation of net income per share:

   Basic................................................................    13,389,747       16,693,955       16,614,975
                                                                          ============     ============     ============
   Diluted..............................................................    13,668,638       17,234,630       17,133,631
                                                                          ============     ============     ============
</TABLE>

                            See accompanying notes.

                                       38
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                         Common Stock
                                    -----------------------
                                      Number                  Additional     Cumulative   Unrealized      Retained
                                        Of                      Paid-In     Translation     Loss on       Earnings
                                      Shares       Amount       Capital      Adjustment   Securities      (Deficit)      Total
                                      ------       ------       -------      ----------   ----------      ---------      -----
<S>                                 <C>          <C>         <C>             <C>          <C>          <C>            <C>
Balance, November 3, 1996........   16,599,064   $ 502,799   $ 18,085,151      $     --     $     --   $  78,505,362  $  97,093,312
  Dividends declared
    ($.10 per share).............           --          --             --            --           --      (1,661,909)    (1,661,909)
  Shares issued upon
    exercise of options
    including tax benefit........       35,484          --        844,390            --           --              --        844,390
  Foreign currency
    translation adjustment.......           --          --             --       (19,351)          --              --        (19,351)
  Net income.....................           --          --             --            --           --      34,423,651     34,423,651
                                   -----------   ---------   ------------      --------   ----------   -------------  -------------
Balance November 2, 1997.........   16,634,548     502,799     18,929,541       (19,351)          --     111,267,104    130,680,093
  Dividends declared
    ($.10 per share).............           --          --             --            --           --      (1,668,608)    (1,668,608)
  Shares issued upon
    exercise of options
    including tax benefit........      109,336          --      1,832,969            --           --              --      1,832,969
  Shares repurchased.............     (164,400)         --     (2,879,838)           --           --              --     (2,879,838)
  Unrealized loss on securities..           --          --             --            --      (27,504)             --        (27,504)
  Foreign currency translation
    adjustment...................           --          --             --       216,600           --              --        216,600
  Net income.....................           --          --             --            --           --      33,420,618     33,420,618
                                   -----------   ---------   ------------      --------   ----------   -------------  -------------
Balance November 1, 1998.........   16,579,484     502,799     17,882,672       197,249      (27,504)    143,019,114     161,574,330
  Dividends declared
    ($.075 per share)............           --          --             --            --           --      (1,244,545)    (1,244,545)
  Dividends accrued for
    preferred stock..............           --          --             --            --           --      (1,228,472)    (1,228,472)
  Shares issued upon
    exercise of options
    including tax benefit........       39,329          --        796,510            --           --              --        796,510
  Unrealized loss on securities..           --          --             --            --         (757)             --           (757)
  Foreign currency translation
    adjustment...................           --          --             --       209,574           --              --        209,574
  Recapitalization transaction...  (10,072,639)   (437,337)   128,407,850            --           --    (439,750,574)  (311,780,061)
  Reimbursement of
   short-swing profit............           --          --         54,162            --           --              --         54,162
  Net income.....................           --          --             --            --           --      14,689,067     14,689,067
                                   -----------   ---------   ------------      --------   ----------   -------------  -------------
Balance October 31, 1999.........    6,546,174   $  65,462   $147,141,194      $406,823     $(28,261)  $(284,515,410) $(136,930,192)
                                   ===========   =========   ============      ========   ==========   =============  =============
</TABLE>



                            See accompanying notes.

                                       39
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           For the years ended
                                                                             ------------------------------------------------
                                                                              October 31,       November 1,      November 2,
                                                                                  1999             1998             1997
                                                                             -------------     -------------    -------------
<S>                                                                          <C>               <C>              <C>
Cash flows from operating activities:
 Net income................................................................  $  14,689,067     $ 33,420,618     $ 34,423,651
 Adjustments to reconcile net income to net cash provided
  by operating activities:
   Depreciation and amortization...........................................     13,611,668       11,370,680        8,858,703
   Amortization of discount on 12.5% notes due 2009........................         44,596               --               --
   Amortization of deferred loan costs.....................................        611,990               --               --
   Net (increase) decrease in deferred income tax benefit..................         65,689       (1,950,000)        (300,000)
   Loss on disposal of property and equipment..............................      1,315,830          483,920          215,810
   Partnership losses......................................................        231,213          331,405          351,165
   Write-off of trademark in Japan.........................................        620,077               --               --
   Minority interest in income of consolidated subsidiaries................         39,956           50,525          602,910
   (Increase) decrease in accounts receivable..............................      1,999,616        1,010,234       (8,478,817)
   (Increase) decrease in inventories......................................      4,226,552      (17,011,306)      (7,117,926)
   (Increase) decrease in other current assets.............................       (256,775)         214,390       (1,322,360)
   (Increase) decrease in other assets.....................................       (472,032)        (488,410)           6,700
   Increase (decrease) in accounts payable.................................     (1,498,795)      (1,730,522)       4,629,995
   Increase (decrease) in accrued expenses.................................        174,015        1,240,704       (1,004,422)
   Increase in accrued interest expense....................................      7,661,434               --               --
   Increase (decrease) in income taxes payable.............................      1,070,231       (1,960,585)        (262,758)
   Decrease in deferred income tax liability...............................             --               --         (143,941)
                                                                             -------------     ------------     ------------
    Net cash provided by operating activities..............................     44,134,332       24,981,653       30,458,710
                                                                             -------------     ------------     ------------
Cash flows from investing activities:
 Proceeds from sale of property and equipment..............................        183,860           10,499           84,641
 Purchase of property and equipment........................................    (14,530,943)     (23,648,032)     (22,751,076)
 Purchase of trademarks....................................................             --               --         (747,928)
 Purchase of short-term investments........................................             --               --         (204,959)
 Sale of short-term investments............................................      1,150,015        1,176,338        2,075,710
 Capital contributions to partnership......................................             --               --          (67,108)
 Capital distributions from partnership....................................        127,341           84,496           68,500
                                                                             -------------     ------------     ------------
    Net cash used in investing activities..................................    (13,069,727)     (22,376,699)     (21,542,220)
                                                                             -------------     ------------     ------------
Cash flows from financing activities:
 Proceeds from credit agreement............................................    190,000,000               --               --
 Proceeds from issuance of subordinated notes..............................     98,616,000               --               --
 Addition to  long-term debt...............................................      1,427,000          407,599               --
 Principal payments of long-term debt......................................       (837,800)              --               --
 Recapitalization transaction..............................................   (311,780,061)              --               --
 Issuance of common stock..................................................        796,510        1,832,969          844,390
 Issuance of preferred stock...............................................     25,000,000               --               --
 Financing fees and expenses...............................................    (15,197,745)              --               --
 Cash dividends paid.......................................................     (1,244,545)      (2,084,472)      (1,661,022)
 Short-swing profit reimbursement..........................................         54,162               --               --
 Payment for the repurchase of common stock................................             --       (2,879,838)              --
                                                                             -------------     ------------     ------------
    Net cash used in financing activities..................................    (13,166,479)      (2,723,742)        (816,632)
                                                                             -------------     ------------     ------------
</TABLE>

                                       40
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Continued)

<TABLE>
<CAPTION>
                                                                                           For the years ended
                                                                             -------------------------------------------------
                                                                               October 31,      November 1,      November 2,
                                                                                  1999             1998             1997
                                                                             ---------------  ---------------  ---------------
<S>                                                                          <C>              <C>              <C>
Effect of exchange rate changes............................................        209,574          216,600          (19,351)
                                                                             -------------     ------------     ------------
Unrealized loss on securities..............................................           (757)         (27,504)              --
                                                                             -------------     ------------     ------------
Net increase in cash and cash equivalents..................................     18,106,943           70,308        8,080,507
Beginning balance, cash and cash equivalents...............................     14,336,872       14,266,564        6,186,057
                                                                             -------------     ------------     ------------
Ending balance, cash and cash equivalents..................................  $  32,443,815     $ 14,336,872     $ 14,266,564
                                                                             =============     ============     ============
Supplemental disclosures of cash flow information:
    Cash received during the year for interest income......................  $   1,239,507     $  1,154,834     $    988,272
                                                                             =============     ============     ============
    Cash paid during the year for:
         Interest expense..................................................  $   1,882,331     $         --     $     46,954
                                                                             =============     ============     ============
         Income taxes......................................................  $  10,554,471     $ 25,286,040     $ 24,526,911
                                                                             =============     ============     ============
</TABLE>



                            See accompanying notes.

                                       41
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

            October 31, 1999, November 1, 1998 and November 2, 1997

1.  Company Background and Basis of Presentation

     The consolidated financial statements include the accounts of St. John
Knits International, Incorporated ("SJKI"), a Delaware corporation, and its
subsidiaries, including St. John Knits, Inc. ("St. John"). SJKI and its
subsidiaries are collectively referred to herein as "the Company." All
interdivisional and intercompany transactions and accounts have been eliminated
in consolidation. The Company is a leading designer, manufacturer and marketer
of women's clothing and accessories. The Company's products are distributed
primarily through specialty retailers and the Company's own retail boutiques and
outlets.

     On February 2, 1999, St. John entered into a merger agreement to be
acquired by a group consisting of Vestar Capital Partners III, L.P. (Vestar) and
Bob Gray, Marie Gray and Kelly Gray at an offer price of $30 per share. Pursuant
to the agreement, on July 7, 1999, the Company consummated two mergers. As a
result of the mergers, St. John became a wholly owned subsidiary of SJKI. The
mergers were accounted for as a recapitalization. The operating results for all
periods prior to the mergers consist entirely of the historical results of St.
John and its subsidiaries.

     During fiscal 1997, the Company formed St. John Company, Ltd. in Japan to
operate as a 51 percent owned subsidiary to distribute the Company's products in
Japan. During fiscal 1998, the Company increased its ownership percentage to 68
percent.  During fiscal 1997, the Company also formed Amen Wardy Home Stores,
LLC, a 51 percent owned limited liability company. During fiscal 1999 the
Company changed the name of this subsidiary to St. John Home Stores, LLC and now
owns 100 percent of this entity.  St. John Home operates two home furnishing
stores and one outlet store.  The operations of both entities are included in
the accompanying consolidated financial statements.


2.  Summary of Accounting Policies

    a. Definition of Fiscal Year

     The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends
on the Sunday nearest to October 31. Accordingly, fiscal years 1999, 1998 and
1997 ended on October 31, November 1 and November 2, respectively. Fiscal years
1999, 1998 and 1997 were comprised of 52 weeks.


    b. Use of Estimates

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


    c. Revenue Recognition

     Revenue on sales to specialty retailers is recognized when the goods are
shipped. The Company establishes liabilities for estimated returns and
allowances at the time of shipment. The Company also provides for estimated
discounts when recording sales. Retail sales are recognized at the point of
sale. The Company establishes liabilities for estimated returns at the retail
stores. Accounts receivable are shown net of allowances for discounts and
uncollectible amounts of $2,270,000 and $1,205,000 in fiscal year 1999, and
$2,488,000 and $951,000 in fiscal year 1998, respectively.

                                       42
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

    d. Inventories

     Inventories are valued at the lower of cost (first-in, first-out) or
market.


     Inventories are comprised of the following:

<TABLE>
<CAPTION>
                                                                                               1999                1998
                                                                                               ----                ----
          <S>                                                                                <C>                <C>
          Raw materials..........................................................            $11,940,108        $14,529,822
          Work-in-process........................................................              6,847,155          8,896,248
          Finished products......................................................             24,734,471         24,322,216
                                                                                             -----------        -----------
                                                                                             $43,521,734        $47,748,286
                                                                                             ===========        ===========
</TABLE>

    e. Property and Equipment

     Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method to provide for the retirement of
property and equipment at the end of their estimated useful lives, which range
from three to thirty-nine years.


    f. Cash and Cash Equivalents

     For purposes of the statements of cash flows, cash and cash equivalents
include all liquid debt instruments purchased with a maturity of three months or
less.


    g. Foreign Exchange Transactions and Contracts

     The Company enters into foreign exchange contracts as a hedge against
exchange rate risk on the collection of certain accounts receivable denominated
in a foreign currency. The Company enters into contracts to sell foreign
currencies in the future only to protect the U.S. dollar value of certain
anticipated foreign currency transactions. The forward contracts are carried on
the balance sheet at their fair value with changes in their fair value initially
included in a separate component of stockholders' equity until the anticipated
transaction occurs. Such gains and losses then offset the related gains and
losses reported on the underlying transaction (Note 4).


    h. Income Taxes

     The Company utilizes the liability method of accounting for income taxes
required by Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes."


    i. Earnings per Share

     The Company adopted SFAS No. 128 "Earnings Per Share" during fiscal 1998.
Under the new requirement, primary earnings per share was replaced with basic
earnings per share.  Basic earnings per share excludes the dilutive effect of
common stock equivalents, including stock options.  Diluted earnings per share,
which replaced fully diluted earnings per share, includes all dilutive items.
Dilution is calculated based upon the treasury stock method, which assumes that
all dilutive securities were exercised and that the proceeds received were
applied to repurchase outstanding shares at the average market price during the
period.

     As a result of the adoption of SFAS No. 128, primary earnings per share for
fiscal 1997 was restated from $2.01 to $2.07 to reflect the change to basic
earnings per share. The difference between basic and diluted earnings per share,
as shown on the Company's Consolidated Statements of Income, is due to the
dilutive effect of stock options outstanding.

                                       43
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

     The following is a reconciliation of the Company's net income and weighted
average shares outstanding for the purpose of calculating basic and diluted
earnings per share for all periods presented:

<TABLE>
<CAPTION>
                                                                                 Fiscal Year Ended
                                                                ------------------------------------------------------
                                                                   October 31,        November 1,       November 2,
                                                                     1999               1998              1997
                                                                ----------------   ----------------   ----------------
<S>                                                             <C>                <C>                <C>
Net income...................................................   $     14,689,067   $     33,420,618   $     34,423,651
Less:  preferred stock dividends.............................          1,228,472                 --                 --
                                                                ----------------   ----------------   ----------------
Income allocated to common stockholders......................   $     13,460,595   $     33,420,618   $     34,423,651
                                                                ================   ================   ================
Weighted average shares outstanding-basic....................         13,389,747         16,693,955         16,614,975
                                                                ================   ================   ================
Basic earnings per share.....................................   $           1.01   $           2.00   $           2.07
                                                                ================   ================   ================
Add:  dilutive effect of stock options.......................            278,891            540,675            518,656
                                                                ----------------   ----------------   ----------------
Weighted average shares outstanding-diluted..................         13,668,638         17,234,630         17,133,631
                                                                ================   ================   ================
Diluted earnings per share...................................   $           0.98   $           1.94   $           2.01
                                                                ================   ================   ================
</TABLE>

    j. Foreign Currency Translation

     The Company translates the financial statements of its foreign subsidiaries
from the local (functional) currencies to U.S. dollars in accordance with SFAS
No. 52 "Foreign Currency Translation". Substantially all assets and liabilities
of the Company's foreign subsidiaries are translated at year-end exchange rates,
while revenue and expenses are translated at average exchange rates prevailing
during the year. Adjustments for foreign currency translation fluctuations are
excluded from net income and are included as a separate component of
consolidated stockholders' equity.


    k. Advertising and Promotion

     All costs associated with advertising and promotion of the Company's
products are expensed as incurred.


    l. Investments

     The Company's investments are categorized as available-for-sale securities,
as defined by SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." Unrealized holding gains and losses are reflected as a net
amount in a separate component of stockholders' equity until realized. For the
purpose of computing realized gains and losses, cost is identified on a specific
identification basis.


   m. Comprehensive Income

     The Company has adopted SFAS No. 130 "Reporting Comprehensive Income"
during the first quarter of fiscal 1999. This statement requires that all items
that meet the definition of components of comprehensive income be reported in a
financial statement for the period in which they are recognized. Components of
comprehensive income include revenues, expenses, gains and losses that under
generally accepted accounting principles are included in comprehensive income
but excluded from net income.

                                       44
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


    n. Segment Reporting

     The Company adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information", effective in fiscal 1999.  SFAS No. 131
established new standards for reporting information about business segments and
related disclosures about products, geographic areas and major customers.  The
business segments of the Company are wholesale and retail sales.  Information on
segment reporting is included at Note 14.

    o. New Accounting Pronouncements

     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities". The Company will be required to adopt this standard in fiscal 2000.
The adoption of this standard is not expected to have a material impact on the
Company's financial position or results of operations.

3.  Fair Value of Financial Instruments

     The following methods and assumptions were used by management to estimate
the fair value of each class of financial instrument for which it is practicable
to estimate:

     Cash and Cash Equivalents - The carrying amount is a reasonable estimate of
the fair value.

     Investments - Investments consist primarily of municipal bonds with
maturity dates of less than six months and common stock, which are classified as
available-for-sale and reported at fair value.

     Senior Credit Facility - The term debt related to the senior credit
facility approximates the market value as the interest rate on the debt is
variable and similar to what is currently available.

     12.5% Senior Notes due 2009 - This issue was publicly traded (on a limited
basis) at October 31, 1999.  Therefore, the fair value of this issue is based on
its quoted market price at that date.

     Mandatorily Redeemable Preferred Stock - Based on current market
conditions, the fair value of this item approximates book value at October 31,
1999.

     Foreign Currency Contracts - The fair value of foreign currency contracts
(used for hedging purposes) is estimated based on current market prices.

     Interest Rate Collar - The fair value of this instrument is based upon the
present value of the estimated future cash flows.

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                                                  Fiscal Year Ended
                                                         -------------------------------------------------------------------
                                                                        1999                              1998
                                                         -------------------------------------------------------------------
                                                            Book Value       Fair Value         Book Value      Fair Value
                                                         ----------------  --------------     ---------------  -------------
<S>                                                      <C>               <C>                <C>              <C>
Financial Assets:
   Cash and cash equivalents...........................  $     32,443,815  $   32,443,815     $    14,336,872  $  14,336,872
   Investments.........................................            25,412          25,412           1,175,427      1,175,427
Financial Liabilities:
   Long-term debt:
      Senior Credit Facility................                  189,250,000     189,250,000                  --             --
      12  1/2% Senior Subordinated Notes due 2009......        98,660,596      87,000,000                  --             --
   Mandatorily Redeemable Preferred Stock..............        25,000,000      25,000,000                  --             --
</TABLE>

                                       45
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


            October 31, 1999, November 1, 1998 and November 2, 1997


<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended
                                                         ----------------------------------------------------------------------
                                                                          1999                                 1998
                                                         ----------------------------------------------------------------------
                                                          Notional Amount     Fair Value      Notional Amount     Fair Value
                                                         -----------------  --------------   -----------------  ---------------
<S>                                                      <C>                <C>              <C>                <C>
Other:
   Foreign currency contracts..........................    $ 3,191,185         $(59,972)         $3,670,839        $197,187
   Interest rate collar................................     45,000,000           33,578                  --              --
</TABLE>

    4.  Hedging Activities

     During the fourth quarter of fiscal 1998, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and has
designated certain financial instruments as cash flow hedges which must be
reported in accordance with SFAS No. 133.  The adoption of SFAS No. 133 did not
have a material effect on the Company's financial position or results of
operations.

     It is the Company's policy to reduce the effects of fluctuations in foreign
currency exchange rates associated with its sale of goods denominated in a
foreign currency by entering into forward contracts. The Company enters into
contracts to sell foreign currencies in the future only to protect the U.S.
dollar value of certain anticipated foreign currency transactions. The forward
contracts are carried on the balance sheet at their fair value with changes in
their fair value initially included in a separate component of stockholders'
equity until the anticipated transaction occurs. Such gains and losses then
offset the related gains and losses reported on the underlying transaction. The
total net gain recorded during fiscal years 1999 and 1998 was $168,000 and
$321,000, respectively.

     The Company holds various foreign exchange contracts. At October 31, 1999,
the Company had contracts maturing through February 29, 2000 to sell 2.2 million
Euros and 280,000 British pounds at rates ranging from 1.05 to 1.06 U.S. dollars
to the Euro and 1.57 to 1.67 U.S. dollars to the British pound. The Company also
held a contract which matures on November 30, 1999 to sell 700,000 deutsche
marks at a rate of 1.66 deutsche marks to the U.S. dollar. At November 1, 1998,
the Company had contracts maturing through May 28, 1999 to sell 5.4 million
deutsche marks and 365,000 British pounds at rates ranging from 1.71 to 1.77
deutsche marks to the U.S. dollar and 1.63 to 1.64 U.S. dollars to the British
pound. At October 31, 1999 and November 1, 1998 the fair value of these foreign
currency contracts has not been recorded as a component of stockholders' equity
as the amounts are not material.

     The Company is exposed to market risks related to fluctuations in interest
rates on its variable rate debt which consists of bank borrowings related to the
mergers.  The Company has entered into an interest rate collar agreement with a
major financial institution to limit its exposure on $45 million of the
Company's variable rate debt and establishes a LIBOR cap at 8.50% and a LIBOR
floor at 5.37%.  The agreement became effective on October 4, 1999 and will
expire on July 7, 2002.

     The fair value of the interest rate collar agreement is included on the
balance sheet and the ineffective portion is included currently in interest
expense.


5.  Accrued Expenses

     Accrued expenses for fiscal years 1999 and 1998 are comprised of the
following:


<TABLE>
<CAPTION>
                                                                                        1999             1998
                                                                                        ----             ----
       <S>                                                                             <C>              <C>
      Wages and benefits.........................................................      $ 4,567,077      $ 5,135,454
      Workers' compensation......................................................          240,303          646,100
      Profit-sharing plan contribution...........................................          500,000          500,000
      Promotional and advertising allowance......................................        2,136,492        1,896,955
      Other......................................................................        3,831,937        3,151,264
                                                                                       -----------      -----------
                                                                                       $11,275,809      $11,329,773
                                                                                       ===========      ===========
</TABLE>

                                       46
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


6.  Income Taxes

     The provision for income taxes for fiscal years 1999, 1998 and 1997,
consists of the following:

<TABLE>
<CAPTION>
                                                                       1999            1998             1997
                                                                       ----            ----             ----
          <S>                                                    <C>              <C>              <C>
          Current:
               Federal........................................   $ 9,248,127      $17,568,636      $18,878,088
               State..........................................     1,002,995        4,220,969        5,335,096
                                                                 -----------      -----------      -----------
                                                                  10,251,122       21,789,605       24,213,184
          Deferred provision..................................        65,689          211,299           86,645
                                                                 -----------      -----------      -----------
                                                                 $10,316,811      $22,000,904      $24,299,829
                                                                 ===========      ===========      ===========
</TABLE>

     The components of the deferred income tax provision for fiscal years 1999,
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                       1999            1998             1997
                                                                       ----            ----             ----
          <S>                                                    <C>              <C>                <C>
          Allowance for uncollectible accounts...............    $    86,516      $    16,718      $    57,083
          Inventory adjustments to market....................     (1,097,816)        (431,311)         609,067
          Accrued expenses...................................        157,138          663,042         (429,750)
          Depreciation.......................................        919,851          (37,150)        (149,755)
                                                                 -----------      -----------      -----------
                                                                 $    65,689      $   211,299      $    86,645
                                                                 ===========      ===========      ===========
</TABLE>

     The components of the Company's deferred income tax benefit as of October
31, 1999 and November 1, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                 1999             1998
                                                                                 ----             ----
          <S>                                                                 <C>              <C>
          Deferred income tax benefit:
            Tax basis adjustments to inventory............................    $  948,780       $2,126,806
            Allowance for uncollectible accounts..........................       456,750          879,725
            Inventory adjustments to market...............................     3,112,131        2,283,321
            Accrued expenses..............................................     3,160,611        2,454,109
                                                                              ----------       ----------
                                                                              $7,678,272       $7,743,961
                                                                              ==========       ==========
</TABLE>

     The reported provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the income before provision
for income taxes for fiscal years 1999, 1998 and 1997 as follows:

<TABLE>
<CAPTION>
                                                                       1999            1998             1997
                                                                       ----            ----             ----
          <S>                                                      <C>              <C>              <C>
          Income tax provision computed at statutory rate.....     $ 8,752,057      $19,397,537      $20,553,218
          State taxes, net of federal benefit.................       1,564,754        3,350,232        3,549,834
          Tax credits and other...............................              --         (746,865)         196,777
                                                                   -----------      -----------      -----------
          Tax provision.......................................     $10,316,811      $22,000,904      $24,299,829
                                                                   ===========      ===========      ===========
</TABLE>


7.  Benefit and Stock Option Plans

     The Company is self-insured for a portion of its medical benefits programs.
Amounts charged to expense for health benefits were $3,917,000, $3,594,000 and
$3,110,000 for fiscal years 1999, 1998 and 1997, respectively, and were based on
actual claims and an estimate of claims incurred but not reported. The current
liability for health benefits is included in accrued expenses on the
accompanying consolidated balance sheets. The Company maintains excess insurance
coverage on an individual and an aggregate basis.

                                       47
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

     The Company maintains a qualified profit-sharing plan for the benefit of
all eligible employees. This plan contemplates the sharing of profits annually
at the discretion of the Board of Directors and is funded by cash contributions.
The contribution to this plan was $500,000, in each of the fiscal years 1999,
1998 and 1997.

     Prior to the mergers, the Company had one stock option plan, the 1993 St.
John Knits, Inc. Stock Option Plan (the "1993 Plan"). During fiscal 1999 the
Company terminated the 1993 Plan and adopted the 1999 St. John Knits
International, Incorporated Stock Option Plan (the "1999 Plan"). Options granted
under the 1999 Plan may be either incentive or nonstatutory stock options. The
Company accounts for the plans under Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees", under which no compensation cost has
been recognized for fiscal years 1999, 1998 and 1997.

     SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in 1995
and, if fully adopted, changes the methods for recognition of cost on plans
similar to that of the Company. Adoption of SFAS No. 123 is optional for
employee stock option grants, however pro forma disclosure as if the Company had
adopted the cost recognition method is required. Had compensation cost for stock
options awarded under the 1999 Plan or 1993 Plan been determined to be
consistent with SFAS No. 123, the Company's net income and earnings per share
would have reflected the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                                             1999             1998
                                                                                             ----             ----
     <S>                             <C>                                                    <C>              <C>
     Net income:                     As reported......................................      $14,689,067      $33,420,618
                                     Pro forma........................................      $12,253,026      $31,818,853
     Net income per share-diluted:   As reported......................................      $      0.98      $      1.94
                                     Pro forma........................................      $      0.81      $      1.85
</TABLE>

     The Company may grant up to 727,360 options under the 1999 Plan. The
Company has granted 498,519 options as of October 31, 1999 under the 1999 Plan.
Stock options are issued at the approximate fair market value. Options generally
vest over three to five years; are exercisable in whole or in installments; and
expire ten years from date of grant.

     The following is a summary of the activity in the 1999 Plan and the 1993
Plan for fiscal years 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                                      1999                 1998                 1997
                                                               -------------------  -------------------  ------------------
                                                                          Weighted             Weighted            Weighted
                                                                          Average              Average             Average
                                                                          Exercise             Exercise            Exercise
                                                                Shares     Price     Shares     Price     Shares    Price
                                                               ---------  --------  ---------  --------  --------  --------
<S>                                                            <C>        <C>       <C>        <C>       <C>       <C>
Outstanding, beginning of year...............................    921,652    $15.42    842,988    $17.16   681,472     $ 9.45
Granted......................................................    498,519     30.00    527,334     27.12   197,000      42.27
Exercised....................................................   (894,316)    15.42   (109,336)     9.79   (35,484)      8.50
Forfeited....................................................    (27,336)    18.50   (339,334)    39.44        --        --
                                                               ---------    ------   --------   ------   --------     ------
Outstanding, end of year.....................................    498,519    $30.00    921,652   $15.42    842,988     $17.16
                                                               =========             ========            ========

Exercisable, end of year.....................................        --         --    677,960   $14.37    668,644     $11.28
Weighted average fair value of options granted...............               $ 8.92              $11.34                $17.93
</TABLE>


     The options outstanding as of October 31, 1999 have an exercise price of
$30.00 and a weighted average remaining contractual life of 9.75 years.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following assumptions used for the
grants in fiscal years 1999 and 1998:  weighted average risk-free interest rate
of 6.09% and 5.55%; weighted average volatility of 33.73% and 27.53%; expected
life of 6 years; and weighted average dividend yield of 0.00% and 0.26%.
Options granted in 1999 and 1998 have a weighted average contractual life of
9.75 and 9.61 years, respectively.

                                       48
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

8.  Commitments

     The Company has entered into various leases for manufacturing, showroom,
warehouse, retail and office locations, including leases with related parties
(Note 11). The leases expire at various dates through the year 2014 and certain
leases contain renewal options. Rental expense under these leases was
approximately $13,846,000, $12,052,000 and $9,474,000 in fiscal years 1999, 1998
and 1997, respectively.

     The following is a schedule of future minimum rental payments required
under noncancellable operating leases as of October 31, 1999:

<TABLE>
      <S>                                                          <C>
      2000....................................................     $ 14,095,000
      2001....................................................       13,395,000
      2002....................................................       12,279,000
      2003....................................................       11,948,000
      2004....................................................       12,059,000
      Thereafter..............................................       67,830,000
                                                                   ------------
                                                                   $131,606,000
                                                                   ============
</TABLE>


     The Company has various employment contracts with certain key employees,
which expire at various times through June 1, 2000. These agreements provide for
total annual compensation aggregating $3,694,000 and the payment of severance
benefits upon the termination of employment.

     As of October 31, 1999 and November 1, 1998, the Company's commitments to
purchase wool yarn were approximately $7,897,000 and $12,779,000, respectively.
The Company had a commitment to purchase computerized knitting machines totaling
approximately $569,000 at November 1, 1998.

9. Long-term Debt

<TABLE>
<CAPTION>
                                                                         October 31,      November 1,
Long-term debt consists of the following:                                   1999              1998
                                                                       ---------------  ----------------
     <S>                                                               <C>              <C>
     Senior credit facility:
        Tranche A....................................................     $ 74,250,000          $     --
        Tranche B....................................................      115,000,000                --
        Revolving credit facility....................................               --                --
                                                                          ------------          --------
                                                                           189,250,000                --
        Senior subordinated notes, net of discount...................       98,660,596                --
      Other..........................................................        1,974,777           635,578
                                                                          ------------          --------
                                                                           289,885,373           635,578
       Less - Current portion........................................        2,564,352           227,979
                                                                          ------------          --------
                                                                          $287,321,021          $407,599
                                                                          ============          ========
</TABLE>

Senior Credit Facilities

     Concurrent with the consummation of the mergers, the Company entered into a
Credit Agreement with a syndicate of lending institutions (the "Lenders"), which
agreement provides for an aggregate principal amount of loans of up to $215.0
million.  Loans under the Credit Agreement consist of $190.0 million in
aggregate principal amount of term loans ("Term Loan Facility"), which facility
includes a $75.0 million tranche A term loan subfacility, a $115.0 million
tranche B term loan subfacility, and a $25.0 million revolving credit facility
("Revolving Credit Facility").  The Credit Agreement includes a subfacility for
swingline borrowings and a sublimit for letters of credit.  The Company's
obligations under the Credit Agreement are secured by a security interest in
substantially all of the Company's assets.  The Company used proceeds from the
Term Loan to provide a portion of the funding necessary to consummate the
mergers.  There were no borrowings under the Revolving Credit Facility at
October 31, 1999.

                                       49
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


            October 31, 1999, November 1, 1998 and November 2, 1997



     The tranche B term loan facility matures on July 31, 2007.  The tranche A
term loan facility and the Revolving Credit Facility mature on July 31, 2005.
The Term Loan facility is subject to repayment according to quarterly
amortization of principal based upon the Scheduled Amortization (as defined in
the Credit Agreement).  The Company may prepay the term loan facility.

     Indebtedness under the Term Loan Facility and the Revolving Credit Facility
initially bears interest at a rate based (at the Company's option) upon (i)
LIBOR for one, two, three or six months, plus 3.00% with respect to the tranche
A term loan facility and the Revolving Credit Facility or plus 3.50% with
respect to the tranche B term loan facility, or (ii) the Alternate Base Rate
(8.25% at October 31, 1999) plus 2.00% with respect to the tranche A term loan
facility and the Revolving Credit Facility or plus 2.50% with respect to the
tranche B term loan facility; provided that, the interest rates for the
Revolving Credit Facility and tranche A and B term loans are subject to several
point reductions in the event the Company meets certain performance targets
beginning of the end of the first quarter of fiscal 2000.

     Interest rates at October 31, 1999 were approximately 8.9% and 9.4% on
tranche A and tranche B term loans, respectively.  Effective October 4, 1999,
the Company entered into an interest rate collar agreement with a major
financial institution.  The agreement limits the Company's exposure on a portion
of the term loans by placing a cap on the rate for LIBOR contracts at 8.5%.  The
contract also sets a minimum rate of 5.37%.  The contract covers $45 million of
the term debt and will expire on July 7, 2002.

     The Company is required to pay to the Lenders in the aggregate a commitment
fee equal to 0.5% per annum on the undrawn amount of the Revolving Credit
Facility during the preceding quarter.

     Pursuant to the terms of the Agreement and the Revolving Credit Facility,
the Company is required to maintain certain financial ratios and minimum levels
of tangible net worth and working capital as well as to achieve certain levels
of earnings before interest, taxes, depreciation and amortization. In addition,
the Company is restricted from entering into certain transactions or making
certain payments and dividend distributions without the prior consent of the
lenders.

Senior Subordinated Notes

     In connection with the Mergers, the Company obtained financing through the
issuance of $100 million in senior subordinated debt ("Subordinated Notes").
The Subordinated Notes bear interest at a rate of 12.5% per year and were issued
at 98.616% of the actual face value.  The Subordinated Notes will mature on July
1, 2009.  Interest on the Subordinated Notes is payable in cash semi-annually on
January 1 and July 1 of each year, commencing on January 1, 2000.  The
Subordinated Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after July 1, 2004, at the redemption prices set
forth below, plus accrued and unpaid interest and liquidation damages, if any,
to the date of redemption.

<TABLE>
<CAPTION>
                        Redemption Year                             Price
                        ---------------                             -----
                        <S>                                        <C>
                        2004..........................             106.250%
                        2005..........................             104.688%
                        2006..........................             103.125%
                        2007..........................             101.563%
                        2008 and thereafter...........             100.000%
</TABLE>

     In addition, at any time on or before July 1, 2002, the Company may redeem
up to 35% of the original aggregate principal amount of the Subordinated Notes
with the net proceeds of an Initial Public Equity offering at a redemption price
equal to 112.5% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the date of redemption (subject  to
the  right of  holders  of  record  on the relevant record date to receive
interest due on the relevant  interest  payment date);  provided,  however, that
at least 65% of the originally issued aggregate principal amount of the notes
must remain  outstanding  immediately after giving effect to each such
redemption  (excluding any notes held by SJKI or any of its affiliates).  Notice
of any such  redemption  must be given within 60 days after the date of the
closing of the relevant public equity offering of SJKI.   These notes are
subordinated to the Senior Credit Facility as discussed above.

                                       50
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


     Fees associated with obtaining the Subordinated Notes and the tranche A and
tranche B term loans were $15.2 million, which are amortized over the terms of
the respective notes using the effective interest rate method. Amortization
expense of approximately $612,000 relating to such fees is included in interest
expense for the year ended October 31, 1999.

     As of October 31, 1999, future maturities of long-term debt were as
follows:


<TABLE>
          <S>                                                      <C>
          2000..................................................   $  2,564,352
          2001..................................................      6,263,465
          2002..................................................     11,024,032
          2003..................................................     14,774,032
          2004..................................................     26,774,032
          Later years...........................................    229,824,864
                                                                   ------------
                                                                   $291,224,777
                                                                   ============
</TABLE>

10. Mandatorily Redeemable Preferred Stock

     The  $25,000,000 Mandatorily Redeemable Preferred Stock consists of 250,000
shares of Preferred Stock with a liquidation preference of $100 per share and
ranks junior in right of payment to all liabilities and obligations  (whether or
not for borrowed money) of SJKI  (other than common stock of SJKI and any
preferred stock of SJKI which by its terms is on parity with or junior to the
Preferred Stock).

     Holders of Preferred Stock will be entitled to receive, when, as and if
declared by the board of directors of SJKI, out of funds legally available
therefor, dividends on the Preferred Stock, at an annual rate equal to 15.25%,
provided that if dividends are not paid on a dividend payment date, dividends
shall continue to accrue on unpaid dividends.

     The Preferred Stock may be redeemed at any time on or after July 1, 2004,
in whole or in part, at the option of SJKI, at the redemption prices (expressed
in percentages of liquidation value) set forth below together with all
accumulated dividends to the date of redemption, if redeemed during the 12-month
period beginning on July 1 of the years indicated.

<TABLE>
<CAPTION>
          Redemption Year                                     Percentage
          --------------                                      ----------
          <S>                                                 <C>
          2004.............................................    107.625%
          2005.............................................    105.719%
          2006.............................................    103.813%
          2007.............................................    101.906%
          2008 and thereafter..............................    100.000%
</TABLE>

     The  Preferred  Stock will also be redeemable in whole or in part, at the
option of SJKI at any time  before  July 1, 2004,  at a  redemption  price equal
to the greater of (i) 100% of the liquidation value of the Preferred Stock and
(ii) the present  values  of the  liquidation  value at the  mandatory
redemption  date, discounted  on a semi-annual  basis at the Treasury  Yield
plus 15 basis points. The "Treasury  Yield" means, with respect to any
redemption date, the rate per annum equal to the  semi-annual  equivalent  yield
to maturity  for a comparable treasury issue.

     In addition, at any time and from time to time on or prior to July 1, 2002,
SJKI may redeem in the aggregate up to 35% of the originally issued liquidation
value of the  Preferred  Stock with the net cash proceeds of one or more Public
Equity Offerings (as defined in the  indenture)  by SJKI at a redemption  price
in cash equal to 115.25% of the liquidation  value thereof,

                                       51
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


plus accumulated  dividends thereon, if any, to the date of redemption;
provided, however, that at least 65% of the originally issued aggregate
liquidation value of the Preferred Stock must remain  outstanding  immediately
after  giving  effect to each such  redemption (excluding any Preferred Stock
held by SJKI or any of its affiliates). Notice of any such  redemption  must be
given within 60 days after the date of the closing of the relevant  public
equity offering of SJKI. The Preferred Stock may only be redeemed  if  permitted
under the terms of the senior  credit  facilities,  the indenture and other
contractual arrangements of SJKI.

     On July 1, 2010, SJKI will be required to redeem  (subject to contractual
and other restrictions with respect thereto and to the legal availability of
funds therefor) all outstanding shares of Preferred Stock at a price equal to
the liquidation value thereof plus all accumulated dividends to the date of
redemption.  Accordingly,  the carrying value of such stock has been  classified
outside of shareholders' equity.

     SJKI may, at its option, exchange all but not less than all of the shares
of then outstanding Preferred Stock for debentures of SJKI in a principal amount
equal to the liquidation value of the Preferred Stock plus accumulated
dividends. The exchange debentures will bear interest at 15.25% per annum, have
a final stated maturity of July 1, 2010, have optional redemption provisions
comparable to the Preferred Stock and will have customary covenants and events
of default. SJKI may not cause the exchange of Preferred Stock for debentures
unless permitted under the terms of the senior credit facilities, the indenture
and other contractual arrangements of SJKI.

11.  Related-Party Transactions

     The Company entered into a management agreement with Vestar. Pursuant to
the management agreement, the Company paid to Vestar a transaction fee of $4.0
million at the closing of the mergers. The Company will also pay an annual fee
of $500,000 to Vestar for management services.

     The Company leases its corporate headquarters/manufacturing facility and
one other manufacturing facility from partnerships in which a shareholder of the
Company is a significant partner. The annual payments on these leases were
approximately $1,014,000, $975,000 and $884,000 in fiscal years 1999, 1998 and
1997, respectively. The leases expire at various dates during fiscal year 2001
and are included in the future minimum rental payments disclosure (Note 8).

     The Company periodically rents personal property provided by a company that
is owned by a shareholder. Rental payments for the use of such equipment were
approximately $8,000, $21,000 and $30,000 in fiscal years 1999, 1998 and 1997,
respectively.

     At October 31, 1999 and November 1, 1998, the Company held a 50 percent
ownership interest in a partnership which leases transportation equipment to the
Company. The holder of the other 50 percent ownership interest is a corporation
which is wholly-owned by one of the Company's stockholders.   At October 31,
1999 and November 1, 1998, the Company's investment in this partnership, net of
partnership losses, was approximately $496,000 and $854,000, respectively, and
is included in other assets on the accompanying consolidated balance sheets.
During fiscal years 1999, 1998 and 1997, the Company made lease payments to the
partnership of $1,038,000, $868,000 and $840,000, respectively. During the same
years, the Company reported net losses from the activities of the partnership of
$231,000, $331,000 and $351,000, respectively.

12.  Current Vulnerability Due to Certain Concentrations

     A substantial portion of the Company's sales are made to three major
customers. These three customers accounted for 15, 13 and 13 percent of net
sales during fiscal 1999, 17, 14 and 14 percent of net sales during fiscal 1998
and 17, 15 and 15 percent during fiscal 1997. The loss of any one of these
customers could have a materially adverse affect on the Company's business.

     The Company sells primarily to specialty apparel retailers; thus, the risk
of collection losses is concentrated in this industry. Management believes that
the Company's credit and collection policies are adequate to prevent significant
collection losses and that the allowance for uncollectible accounts is adequate
at October 31, 1999 and November 1, 1998.

                                       52
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


13.  Litigation

Securities Fraud Class Action

     On January 23, 2000 the Company reached an agreement in principle to settle
a case filed in 1998 by Binary Traders, Inc. for $5 million, an amount the
company's insurance carrier has agreed to pay.  On October 13, 1998, Binary
Traders, Inc. had filed a complaint on behalf of purchasers of publicly traded
securities of St. John during the period of February 25, 1998 to August 20, 1998
(the "Class Period") against St. John, Bob Gray, and Kelly Gray in the United
States District Court, Central District of California, Southern Division (Binary
Traders, Inc. v. St. John Knits, Inc. et al.).  The complaint, which sought
class action certification, alleged that the defendants violated federal
securities laws by allegedly making fraudulent statements during the Class
Period and sought an unspecified amount of compensatory damages.  The settlement
is subject to court approval, which is expected to occur in the spring.

Litigation Regarding the Transactions

     The Company is also a party to six lawsuits that allege claims against some
of St. John's current and former directors for breach of fiduciary duty alleged
to have arisen in connection with the mergers. All of these lawsuits were filed
in the Superior Court of the State of California for the County of Orange. The
principal relief sought in the six actions is certification of the putative
class and a rescission of the mergers, damages, and attorneys' fees in an
unspecified amount. These six lawsuits were consolidated into one action on
February 24, 1999.

     On April 15, 1999, the plaintiffs in this lawsuit filed a motion for a
preliminary injunction seeking to prevent the mergers from proceeding. The
preliminary injunction motion was heard by the California state court on April
28, 1999. On April 30, 1999, the court denied the plaintiffs' motion. In denying
the plaintiffs' request, the court ruled that the plaintiffs had not shown a
"reasonable probability" that they could succeed in proving at trial that the
$30.00 per share offer in the mergers is unfair.  Similarly, the court ruled
that the plaintiffs were unlikely to show that the special committee of St.
John's board of directors that evaluated and approved the terms of the mergers
on behalf of St. John lacked independence or failed to "shop" St. John
adequately to other buyers.

     While declining to grant the preliminary injunction, the court imposed a
constructive trust which prevents the Grays from receiving in the mergers any
amount for their St. John shares in excess of $30.00 per share until a full
trial on the merits is held. Prior to the determination of the final terms of
the stock options to be granted to the Grays after the mergers, the plaintiffs
had argued that these options represent additional consideration for the Grays'
St. John shares. It is the Company's belief that these employee stock options
represent incentive compensation for the Grays' services as officers of St. John
Knits International after the mergers and are not additional consideration for
their St. John shares.

     The court also imposed a constructive trust preventing two of St. John's
former directors from exercising options that were repriced by the board of
directors in September 1998 until a full trial on the merits is held. It is the
Company's belief that the September 1998 option repricing was not improper. The
repricing was consistent with the repricing of options held by key employees of
St. John, excluding the Grays.

     In imposing the constructive trusts, the court indicated that the
plaintiffs had shown "reasonable probability" that they could succeed at trial
in proving that the former St. John directors breached their fiduciary duties
with respect to the repricing of the director options and the alleged
preferential treatment of the Grays to the extent that the Grays receive a
higher price for their shares than the public shareholders in the mergers.

     On January 20, 2000, the court issued a ruling denying summary judgment
motions brought by both the plaintiffs and the defendants, with the exception of
granting plaintiffs' motion to strike defendants' affirmative defense of
ratification and also with the exception of granting the defendants' motion to
dismiss plaintiffs' claim for unjust enrichment.  Virtually all of the fact
discovery has been completed and the court has set a May 8, 2000 trial date.


                                       53
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

     On September 9, 1999, three of the plaintiffs filed another lawsuit in the
Superior Court of the State of California, County of Orange, naming SJKI, Pearl
Acquisition Corp., Vestar/Gray Investors LLC, SJK Acquisition, Inc., Vestar
Capital Partners III, L.P., Vestar Capital Partners and Merrill Lynch, Pierce,
Fenner & Smith, Inc.  The plaintiffs claim that each of the defendants aided and
abetted the breach of fiduciary duties alleged in their earlier actions against
St. John, Bob Gray and Kelly Gray.  Since the claims in this litigation are
based exclusively on secondary liability and are completely contingent upon the
success of the claims in the earlier action, on November 16, 1999, at the
request of several defendants, the court stayed all proceedings in this
litigation pending the outcome of the earlier action.

     The company intends to contest these lawsuits vigorously if the plaintiffs
elect to proceed with their actions. The company expects to incur legal and
other defense costs as a result of such proceedings in an amount which it can
not currently estimate.  These proceedings could involve a substantial diversion
of the time of some of the members of management, and an adverse determination
in, or settlement of, such litigation could involve payment of significant
amounts, which could have an adverse impact on the company's business, financial
condition, results of operations and cash flows. The Company does not believe it
is not a party to any other litigation which is individually or in the aggregate
material to its business.

Amen Wardy Home Stores Litigation

     In May 1999, the Company settled litigation relating to the Amen Wardy Home
Stores joint venture. In connection with this settlement, the Company
transferred ownership of the Las Vegas home furnishing store and the Amen Wardy
name to its former partner in the joint venture.  The Company also transferred
certain property and agreed to pay certain expenses in connection with the
settlement.

14. Segment Information

     The Company has two reportable business segments, wholesale and retail
sales.  The Company's wholesale sales business consists primarily of six
divisions, Knitwear, Sport, Shoes, Accessories, Griffith & Gray and Fragrance.
Retail sales are generated through the Company's 19  St. John boutiques, 10 St.
John outlet stores, two St. John Home stores and one St. John Home outlet store.
Management evaluates segment performance based primarily on revenue and earnings
from operations.

     Segment information is summarized as follows for fiscal years 1999, 1998
and 1997 (in 000's):

<TABLE>
<CAPTION>
                                                                          Wholesale  Retail   Corporate  Eliminations    Total
                                                                          ---------  -------  ---------  -------------  --------
<S>                                                                       <C>        <C>      <C>        <C>            <C>
Fiscal 1999
  Net sales.............................................................   $250,846  $98,129    $    --      $(48,692)  $300,283
  Segment operating income..............................................     47,646    1,511    (15,123)                  34,034
  Segment assets........................................................    137,209   46,842     22,759                  206,810

Fiscal 1998
  Net sales.............................................................   $246,646  $80,590    $    --      $(45,275)  $281,961
  Segment operating income..............................................     53,993       60         --                   54,053
  Segment assets........................................................    130,130   43,662      8,598                  182,390

Fiscal 1997
  Net sales.............................................................   $208,395  $64,447    $    --      $(30,741)  $242,101
  Segment operating income..............................................     51,716    6,295         --                   58,011
  Segment assets........................................................    119,068   27,772      7,064                  153,904
</TABLE>

                                       54
<PAGE>

                   ST. JOHN KNITS INTERNATIONAL, INCORPORATED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997

     The table below presents information related to geographic areas in which
the Company operated during fiscal years 1999, 1998 and 1997 (in 000's):

<TABLE>
<CAPTION>
                                                                                          Fiscal Years
                                                                          --------------------------------------------
                                                                             1999            1998             1997
                                                                          -----------      -----------     -----------
<S>                                                                       <C>             <C>             <C>
Net sales:
  United States.........................................................     $275,813        $260,679         $223,633
  Asia..................................................................       13,344           9,877            9,451
  Europe................................................................        6,909           7,113            6,268
  Other.................................................................        4,217           4,292            2,749
                                                                             --------        --------         --------
                                                                             $300,283        $281,961         $242,101
                                                                             ========        ========         ========
</TABLE>

15. Supplemental Condensed Consolidated Financial Information

     The Company's payment obligations under the Senior Subordinated Notes are
guaranteed by certain of the Company's wholly owned subsidiaries (the Guarantor
Subsidiaries). Such guarantees are full, unconditional and joint and several.
Except as may be required under applicable law, there are no restrictions on the
transfer of funds or assets from the Guarantor Subsidiaries to SJKI.  Separate
financial statements of the Guarantor Subsidiaries are not presented because the
Company's management has determined that they would not be material to
investors. The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations, and statement of
cash flows information for the Parent Company (consisting of St. John Knits
International, Incorporated and St. John Knits, Inc.), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the Non-Guarantor
Subsidiaries). The supplemental financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. The supplemental financial information is presented
for the periods as of October 31, 1999 and November 1, 1998, and for the years
ended  October 31, 1999 and November 1, 1998.  Supplemental financial
information has not been presented as of November 2, 1997 as the Non-Guarantor
Subsidiaries are inconsequential and, accordingly, the historical consolidated
financial statements for this period represents, in substance, the combined
financial information for the Guarantor Subsidiaries.

                                       55
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                               OCTOBER 31, 1999
                                  (Unaudited)

<TABLE>
<CAPTION>

(in 000's)                                            PARENT        GUARANTOR       NON-GUARANTOR
                                                      COMPANY      SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS   CONSOLIDATED
                                                  ------------------------------------------------------------------------------
<S>                                               <C>              <C>              <C>              <C>            <C>
ASSETS

Current assets:
Cash, cash equivalents and investments            $    32,270      $        80      $        118     $       -      $    32,468
Accounts receivable, net                               31,575              302             1,686                         33,563
Inventories   (1)                                      39,701            1,917             1,876            28           43,522
Deferred income tax benefit                             7,678                                  -                          7,678
Prepaid income tax                                                                             -                              -
Other                                                   2,465              100                69                          2,634
Intercompany accounts receivable                        1,484                                  -        (1,484)               -
                                                  ------------------------------------------------------------------------------
Total current assets                                  115,173            2,399             3,749        (1,456)         119,865
Property and equipment, net                            63,061            1,500             5,027                         69,588
Investment in subsidiaries                             (1,837)                                 -         1,837                -
Receivable from consolidated subsidiaries              16,112                                  -       (16,112)               -
Deferred financing costs                               14,586                                  -                         14,586
Other assets                                            1,399               88             1,283                          2,770
                                                  ------------------------------------------------------------------------------
  Total Assets                                    $   208,494      $     3,987      $     10,059     $ (15,731)     $   206,809
                                                  ==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable                                  $     6,414      $       264      $        127     $       -      $     6,805
Accrued expenses                                       10,819              279               150            28           11,276
Acured interest expense                                 7,661                                                             7,661
Dividends payable                                       1,228                                                             1,228
Curent portion of long-term debt                        2,248                                316                          2,564
Intercompany accounts payable                               -                              1,484        (1,484)               -
Income taxes payable                                    4,435           (3,413)              169                          1,191
                                                  ------------------------------------------------------------------------------
Total current liabilities                              32,805           (2,870)            2,246        (1,456)          30,725

Intercompany payable                                                    11,244             4,868       (16,112)               -
Long-term debt, net of current portion                287,082                                239                        287,321
                                                  ------------------------------------------------------------------------------
Total liabilities                                     319,887            8,374             7,353       (17,568)         318,112
Minority interest                                                                            693                            693
Preferred stock                                        25,000                                  -                         25,000
Total stockholders' equity (deficit)                 (136,393)          (4,387)            2,013         1,837         (136,930)
                                                  ------------------------------------------------------------------------------
  Total liabilities and stockholders'
    equity (deficit)                              $   208,494      $     3,987      $     10,059     $ (15,731)     $   206,809
                                                  ==============================================================================
</TABLE>



(1) Inventories are shown at cost for all entities

                                       56
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
              SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
                               NOVEMBER 1, 1998

<TABLE>
<CAPTION>
                                                                                         NON-
                                                             PARENT     GUARANTOR      GUARANTOR
(in 000's)                                                  COMPANY    SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS   CONSOLIDATED
                                                            -----------------------------------------------------------------------
<S>                                                         <C>        <C>             <C>              <C>            <C>
ASSETS

Current assets:
Cash, cash equivalents and investments                      $ 15,273      $   154           $   86         $      -       $ 15,513
Accounts receivable, net                                      33,926          201            1,435                          35,562
Inventories (1)                                               42,922        4,090              736                          47,748
Deferred income tax benefit                                    7,744                                                         7,744
Other                                                          2,091          287                                            2,378
Intercompany accounts receivable                                  72                                            (72)             -
                                                            -----------------------------------------------------------------------
Total current assets                                         102,028        4,732            2,257              (72)       108,945
Property and equipment, net                                   64,227        1,859            3,801                          69,887
Investment in subsidiaries                                       855                                           (855)             -
Receivable from consolidated subsidiaries                     12,528                                        (12,526)             -
Other assets                                                   2,308            2            1,248                           3,558
                                                            -----------------------------------------------------------------------
     Total Assets                                           $181,944      $ 6,593           $7,306         $(13,453)      $182,390
                                                            =======================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable                                            $  7,832      $   373           $   99         $      -       $  8,304
Accrued expenses                                              10,991           24               87                          11,102
Current portion of long-term debt                                                              228                             228
Intercompany accounts payable                                                                   72              (72)             -
Income taxes payable                                           1,181       (1,144)              84                             121
                                                            -----------------------------------------------------------------------
Total current liabilities                                     20,004         (747)             570              (72)        19,755

Intercompany payable                                                        8,468            4,058          (12,526)             -
Long-term debt, net of current portion                                                         408                             408
                                                            -----------------------------------------------------------------------
Total liabilities                                             20,004        7,721            5,036          (12,598)        20,163

Minority interest                                                                              653                             653
Total stockholders' equity (deficit)                         161,940       (1,128)           1,617             (855)       161,574
                                                            -----------------------------------------------------------------------
     Total liabilities and stockholders' equity (deficit)   $181,944      $ 6,593           $7,306         $(13,453)      $182,390
                                                            =======================================================================
</TABLE>



(1) Inventories are shown at cost for all entities.

                                       57
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      FISCAL YEAR ENDED OCTOBER 31, 1999

<TABLE>
<CAPTION>
                                                                                 NON-
                                                  PARENT        GUARANTOR      GUARANTOR
                                                  COMPANY     SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                                  ------------------------------------------------------------------------
(in 000's)
<S>                                               <C>         <C>             <C>             <C>            <C>
Net sales                                         $285,427       $  8,552          $6,304          $   -         $300,283
Cost of sales                                      122,240          5,255           2,636                         130,131
                                                  ------------------------------------------------------------------------
Gross profit                                       163,187          3,297           3,668              -          170,152

Selling, general and administrative expenses       109,446          7,576           3,974              -          120,996
Transaction fees and expenses                       15,123                                                         15,123
                                                  ------------------------------------------------------------------------
Operating income                                    38,618         (4,279)           (306)             -           34,033

Interest expense                                    10,224                                                         10,224
Other income/(expense)                               2,321         (1,251)            167             (40)          1,197
                                                  ------------------------------------------------------------------------
Income (loss) before income taxes                   30,715         (5,530)           (139)            (40)         25,006
Income taxes                                        12,648         (2,270)            (61)                         10,317
                                                  ------------------------------------------------------------------------
Income (loss) before equity in loss of
  consolidated subsidiaries                         18,068         (3,260)            (79)            (40)         14,689
Equity in income of consolidated subsidiaries       (2,692)            -               -            2,692              -
                                                  ------------------------------------------------------------------------
Net income (loss)                                 $ 15,376        ($3,260)           ($79)         $2,652        $ 14,689
                                                  ========================================================================
</TABLE>

                                       58
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                      FISCAL YEAR ENDED NOVEMBER 1, 1998

<TABLE>
<CAPTION>

                                                                                        NON-
                                                        PARENT       GUARANTOR        GUARANTOR
                                                        COMPANY     SUBSIDIARIES     SUBSIDIARIES     ELIMINATIONS   CONSOLIDATED
                                                        -------------------------------------------------------------------------
(in 000's)
<S>                                                    <C>          <C>              <C>              <C>            <C>
Net sales                                              $271,286         $ 6,260         $4,415           $  -          $281,961
Cost of sales                                           115,875           3,100          1,908                          120,883
                                                       -------------------------------------------------------------------------
Gross profit                                            155,411           3,160          2,507              -           161,078

Selling, general and administrative expenses             99,061           5,283          2,682                          107,026
                                                       -------------------------------------------------------------------------
Operating income (loss)                                  56,350          (2,123)          (175)             -            54,052

Other income (expense)                                    1,797            (423)            45            (50)            1,369
                                                       -------------------------------------------------------------------------
Income (loss) before income taxes                        58,147          (2,546)          (130)           (50)           55,421
Income taxes                                             23,116          (1,051)           (64)                          22,001
                                                       -------------------------------------------------------------------------
Income (loss) before equity in loss of
  consolidated subsidiaries                              35,031          (1,495)           (66)           (50)           33,420
Equity in loss of consolidated subsidiaries                (656)                                          656                 -
                                                       -------------------------------------------------------------------------
Net income (loss)                                      $ 34,375         $(1,495)        $  (66)          $606          $ 33,420
                                                       =========================================================================
</TABLE>

                                       59
<PAGE>

                     ST. JOHN INTERNATIONAL, INCORPORATED
         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                      FISCAL YEAR ENDED OCTOBER 31, 1999

 <TABLE>
<CAPTION>
                                                                                             NON-
                                                                 PARENT     GUARANTOR      GUARANTOR
(in 000's)                                                       COMPANY   SUBSIDIARIES   SUBSIDIARIES  ELIMINATIONS   CONSOLIDATED
                                                                -------------------------------------------------------------------
<S>                                                             <C>        <C>            <C>           <C>            <C>
OPERATING ACTIVITIES:

Net Income                                                      $  15,376  $     (3,260)  $        (79) $      2,652   $     14,689
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
   Depreciation and amortization                                   13,165           266            181                       13,612
   Amortization of discount on 12.5% notes due 2009                    45                                                        45
   Amortization of deferred loan costs                                612                                                       612
   Increase in deferred income tax benefit                             66                                                        66
   Loss on disposal of property and equipment                        (209)        1,525                                       1,316
   Partnership losses                                                 231                                                       231
   Write off of trademark in Japan                                    620                                                       620
   Minority interest in income of consolidated subsidiaries             -                                         40             40
   Equity in income(loss) of consolidated subsidiaries              2,692                                     (2,692)             -
Cash provided by (used in) changes in operating assets
   and liabilities
   Accounts receivable                                              2,360          (103)          (257)                       2,000
   Intercompany receivables (net)                                  (3,674)        3,027            647                            -
   Inventories                                                      2,457         2,173           (404)                       4,226
   Other current assets                                              (443)          189             (3)                        (257)
   Other assets                                                      (481)          (85)            94                         (472)
   Accounts payable                                                (1,499)                                                   (1,499)
   Accrued expenses                                                   230          (105)            49                          174
   Accrued interest expense                                         7,662                                                     7,662
   Income taxes payable                                             3,249        (2,269)            90                        1,070
                                                                -------------------------------------------------------------------
      Net cash provided by operating activities                    42,459         1,358            318             -         44,135
                                                                -------------------------------------------------------------------

INVESTING ACTIVITIES

   Proceeds from sale of property and equipment                       184                                                       184
   Purchases of property and equipment                            (12,769)       (1,433)          (329)                     (14,531)
   Sale of short-term investments                                   1,150                                                     1,150
   Capital distributions from partnership                             127                                                       127
                                                                -------------------------------------------------------------------
      Net cash used in investing activities                       (11,308)       (1,433)          (329)            -        (13,070)
                                                                -------------------------------------------------------------------

FINANCING ACTIVITIES

   Proceeds from credit agreement                                 190,000                                                   190,000
   Proceeds from issuance of subordinated notes                    98,616                                                    98,616
   Addition to long-term debt                                       1,427                                                     1,427
   Principle payments of long-term debt                              (670)                        (168)                        (838)
   Recapitalization                                              (311,780)                                                 (311,780)
   Issuance of common stock                                           797                                                       797
   Issuance of preferred stock                                     25,000                                                    25,000
   Financing fees and expenses                                    (15,198)                                                  (15,198)
   Cash dividends paid                                             (1,245)                                                   (1,245)
   Short-swing profit reimbursement                                    54                                                        54
                                                                -------------------------------------------------------------------
      Net cash used in financing activities                       (12,999)            -           (168)            -        (13,167)
                                                                -------------------------------------------------------------------

Effect of exchange rate changes                                        (2)                         212                          210
Unrealized loss on securities                                          (1)                                                       (1)
                                                                -------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents               18,149           (75)            33             -         18,107
Beginning balance, cash and cash equivalents                       14,096           155             86                       14,337
                                                                -------------------------------------------------------------------
Ending balance, cash and cash equivalents                       $  32,245  $         80   $        119  $          -   $     32,444
                                                                ===================================================================
Supplemental disclosures of cash flow information:
   Cash received during the year for interest income            $   1,240                                              $      1,240
                                                                ===================================================================
   Cash paid during the year for:
     Interest Expense                                           $   1,701                                              $      1,701
                                                                ===================================================================
     Income taxes                                               $  10,554                                              $     10,554
                                                                ===================================================================
</TABLE>
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED
         SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                      FISCAL YEAR ENDED NOVEMBER 1, 1998

<TABLE>
<CAPTION>
(in 000's)                                                                                    NON-
                                                                   PARENT    GUARANTOR     GUARANTOR
                                                                   COMPANY  SUBSIDIARIES  SUBSIDIARIES  ELIMINATIONS  CONSOLIDATED
                                                                ------------------------------------------------------------------
<S>                                                             <C>         <C>           <C>           <C>           <C>
OPERATING ACTIVITIES:

Net income                                                      $   34,375  $     (1,495) $        (66) $        608  $     33,420
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                     11,039           232           100                      11,371
  Increase in deferred income tax benefit                           (1,950)                                                 (1,950)
  Loss on disposal of property and equipment                           484                                                     484
  Partnership losses                                                   331                                                     331
  Minority interest in income of consolidated subsidiaries               -                                        50            50
  Equity in income(loss) of consolidated subsidiaries                  656                                      (656)            -
Cash provided by (used by) changes in operating assets
   and liabilities:
  Accounts receivable                                                1,092          (201)          119                       1,010
  Intercompany receivables (net)                                   (11,074)        6,714         4,360                           -
  Inventories                                                      (13,078)       (3,107)         (826)                    (17,011)
  Other current assets                                                (194)          395            13                         214
  Other assets                                                         (51)                       (437)                       (488)
  Accounts payable and other accrued expenses                         (742)          139           114                        (488)
  Income taxes payable                                                (582)       (1,051)         (328)                     (1,961)
                                                                ------------------------------------------------------------------
     Net cash provided by operation activities                      20,306         1,626         3,049             -        24,981
                                                                ------------------------------------------------------------------

INVESTING ACTIVITIES

  Purchases of property and equipment                              (17,640)       (1,580)       (4,428)                    (23,648)
  Short-term investments                                             1,176                                                   1,176
  Other                                                                 95                                                      95
                                                                ------------------------------------------------------------------
     Net cash used in investing activities                         (16,369)       (1,580)       (4,428)            -       (22,377)
                                                                ------------------------------------------------------------------

FINANCING ACTIVITIES

  Issuance of common stock                                           1,233                         600                       1,833
  Payments for the repurchase of common stock                       (2,880)                                                 (2,880)
  Addition to long-term debt                                             -                         407                         407
  Dividends paid                                                    (2,084)                                                 (2,084)
                                                                ------------------------------------------------------------------
     Net cash provided by (used in) financing activities            (3,731)            -         1,007             -        (2,724)
                                                                ------------------------------------------------------------------

Effect of exchange rate changes                                         69                         148                         217
Unrealized loss on securities                                          (27)                                                    (27)
                                                                ------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   248            46          (224)            -            70
Beginning balance, cash and cash equivalents                        13,849           108           310                      14,267
                                                                ------------------------------------------------------------------
Ending balance, cash and cash equivalents                       $   14,097  $        154  $         86  $          -  $     14,337
                                                                ==================================================================

Supplemental disclosures of cash flow information:
  Cash received during the year for interest income             $    1,155                                            $      1,155
                                                                ==================================================================
  Cash paid during the year for:
     Interest expense                                           $        -                                            $          -
                                                                ==================================================================
     Income taxes                                               $    25,286                                           $     25,286
                                                                ==================================================================
</TABLE>

                                       61
<PAGE>

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

            October 31, 1999, November 1, 1998 and November 2, 1997


16.  Results by Quarter (Unaudited)

     The unaudited results by quarter for fiscal years 1999 and 1998 are shown
below:

<TABLE>
<CAPTION>
                                                                                First    Second        Third           Fourth
                                                                               Quarter   Quarter      Quarter         Quarter
                                                                               -------   -------      -------         -------
                                                                                 (in thousands, except per share amounts)
<S>                                                                            <C>       <C>          <C>           <C>
Year ended October 31, 1999
  Net sales..................................................................  $73,389   $78,237      $70,309         $78,348
  Gross profit...............................................................   39,559    45,280       39,714          45,599
  Net income (loss)..........................................................    5,824     8,268       (3,868)          4,465
  Net income (loss) per common share-diluted.................................     0.34      0.49        (0.29)/(1)/      0.53
Year ended November 1, 1998
  Net sales..................................................................  $68,761   $69,806      $67,727         $75,667
  Gross profit...............................................................   39,778    40,876       39,428          40,996
  Net income.................................................................    9,220     9,746        7,325           7,129
  Net income per common share-diluted........................................     0.54      0.57         0.43            0.42
</TABLE>

________________

(1) Consummation of recapitalization transaction.

                                       62
<PAGE>

SCHEDULE II

                  ST. JOHN KNITS INTERNATIONAL, INCORPORATED

                       VALUATION AND QUALIFYING ACCOUNT

                 For the Fiscal Years Ended October 31, 1999,
                     November 1, 1998 and November 2, 1997

<TABLE>
<CAPTION>
                                                                        Balance at    Charged to                 Balance at
                                                                       Beginning of   Costs and                    End of
                                                                        Fiscal Year    Expenses     Deductions   Fiscal Year
                                                                        -----------    --------     ----------   -----------
<S>                                                                    <C>            <C>           <C>          <C>
Allowance for Uncollectible Accounts:
  Fiscal year ended October 31, 1999..................................  $   950,757    $395,181     $  140,977   $ 1,204,961
  Fiscal year ended November 1, 1998..................................  $   905,000    $283,826     $  238,099   $   950,727
  Fiscal year ended November 2, 1997..................................  $   750,000    $369,987     $  214,987   $   905,000
</TABLE>

                                       63
<PAGE>

                                  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.

Date: January 26, 2000


                            ST. JOHN KNITS INTERNATIONAL, INCORPORATED
                              (Registrant)



                            By:   /s/ BOB GRAY
                               ----------------------------------------------
                                         Bob Gray
                                   Chairman of the Board and
                                    Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
                 Signature                                               Title                                Date
                 ---------                                               -----                                ----
<S>                                                            <C>                                       <C>
                    /s/ BOB GRAY                               Chairman of the Board and Chief           January 26, 2000
-----------------------------------------------------          Executive Officer (Principal
                     Bob Gray                                  Executive Officer)



                  /s/ KELLY A. GRAY                            Director and President                    January 26, 2000
-----------------------------------------------------
                      Kelly A. Gray



              /s/ ROGER G. RUPPERT                             Senior Vice President-Finance             January 26, 2000
-----------------------------------------------------          and Chief Financial Officer (Principal
                  Roger G. Ruppert                             Financial Officer and Principal
                                                               Accounting Officer)

              /s/ DANIEL O'CONNELL                             Director                                  January 26, 2000
-----------------------------------------------------
                  Daniel O'Connell


                    /s/ JAMES KELLEY                           Director                                  January 26, 2000
-----------------------------------------------------
                       James Kelley


                 /s/ SANDER LEVY                               Director                                  January 26, 2000
-----------------------------------------------------
                      Sander Levy
</TABLE>

                                       64
<PAGE>

                                 EXHIBIT INDEX

Exhibit No.                   Description of Exhibit
-----------                   ----------------------

   2.1         Agreement and Plan of Merger, dated as of February 2, 1999, among
               St. John Knits, Inc., SJK Acquisition, Inc., St. John Knits
               International, Incorporated and Acquisition Corp. (incorporated
               by reference to Exhibit 2.1 to St. John Knits International's
               Registration Statement on Form S-4 dated March 1, 1999).

   3.1         Restated Certificate of Incorporation of St. John Knits
               International, Incorporated (incorporated by reference to Exhibit
               3.1 to St. John Knits International's Registration Statement on
               Form S-4 dated September 3, 1999).

   3.2         By-Laws of St. John Knits International, Incorporated
               (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to
               St. John Knits International's Registration Statement on Form S-4
               dated May 17, 1999).

   3.3         Certificate of Designation for 15.25% Exchangeable Preferred
               Stock due 2010 of St. John Knits International, Incorporated
               (incorporated by reference to Exhibit (a)(3) to St. John Knits
               International's Amendment No. 4 to Rule 13e-3 Transaction
               Statement on Schedule 13E-3 dated July 12, 1999).

   4.1         Indenture, dated as of July 7, 1999, by and among St. John Knits
               International, Incorporated, the guarantors named therein and The
               Bank of New York, as the trustee (incorporated by reference to
               Exhibit (a)(2) to St. John Knits International's Amendment No. 4
               to Rule 13e-3 Transaction Statement on Schedule 13E-3 dated July
               12, 1999).

   4.2         Form of 12.5% Senior Subordinated Notes due 2009 (included as
               part of the Indenture filed as Exhibit 4.1 hereto).

   4.3         Exchange and Registration Rights Agreement, dated as of July 7,
               1999, by and among St. John Knits International, Incorporated,
               St. John Knits, Inc., St. John Italy, Inc., St. John Trademarks,
               Inc., St. John Home, LLC, Chase Securities Inc., Bear, Stearns &
               Co. Inc. and PaineWebber Incorporated (incorporated by reference
               to Exhibit 4.3 to St. John Knits International's Registration
               Statement on Form S-4 dated September 3, 1999).

   4.4         Subscription Agreement, dated as of July 7, 1999, between St.
               John Knits International, Incorporated and Vestar/SJK Investors
               LLC, relating to the 15.25% Exchangeable Preferred Stock due 2010
               of St. John Knits International, Incorporated (incorporated by
               reference to Exhibit 4.5 of St. John Knits International's
               Registration Statement on Form S-4 dated September 3, 1999).

   10.1        Credit Agreement, dated July 7, 1999, by and among the Company,
               the Lenders from time to time party thereto and The Chase
               Manhattan Bank, as administrative agent (incorporated by
               reference to Exhibit (a)(1) to St. John Knits International's
               Amendment No. 4 to Rule 13e-3 Transaction Statement on Schedule
               13E-3 dated July 12, 1999).

   10.2        Voting Agreement, dated as of February 2, 1999, among Vestar
               Capital Partners III, L.P., Vestar/Gray LLC and the parties
               listed on Schedule A thereto (incorporated by reference to
               Exhibit 10.1 to St. John Knits International's Registration
               Statement on Form S-4 dated March 1, 1999).

   10.3        Stockholders' Agreement, dated July 7, 1999, by and among the
               Company, SJK, Vestar/Gray Investors LLC, Vestar/SJK Investors LLC
               and the members of Vestar/Gray Investors LLC signatory thereto
               (incorporated by reference to Exhibit 99.3 of St. John Knits
               International's Form 8-K dated July 7, 1999).

   10.4        Amended and Restated Limited Liability Company Agreement of
               Vestar/SJK Investors LLC, dated as of July 7, 1999 (incorporated
               by reference to Exhibit 10.4 to St. John Knits International's
               Amendment No. 1 to the Registration Statement on Form S-4 dated
               November 12, 1999).

   10.5        Management Agreement among St. John Knits, Inc., St. John Knits
               International, Incorporated and Vestar Capital Partners
               (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to
               St. John Knits International's Registration Statement on Form S-4
               dated April 28, 1999).

   10.6        Letter Agreement dated April 27, 1999, between Vestar Capital
               Partners and Robert E. Gray, attaching (i) a summary of terms for
               the Grays' stock options, (ii) a form of St. John Knits
               International, Incorporated 1999 Stock Option Plan and (iii) a
               form of stock option agreement (incorporated by reference to
               Exhibit 10.5 to Amendment No. 1 to St. John Knits International's
               Registration Statement on Form S-4 dated April 28, 1999).

   10.7        Superior Court of the State of California County of Orange,
               Central Justice Center Minute Order, dated April 30, 1999
               (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to
               St. John Knits International's Registration Statement on Form S-4
               dated May 17, 1999).

   10.8        Lease Amendment Agreement dated April 1, 1997 between St. John
               Knits, Inc. and G.M. Properties (increasing the space of the
               corporate headquarters, warehousing and manufacturing facility)
               (incorporated by reference to Exhibit 10.1 to St. John Knits,
               Inc.'s Report on Form 10-K for the fiscal year ended November 2,
               1997).

   10.9        Agreement of Lease dated as of December 31, 1995 by and between
               St. John Knits, Inc. and Rolex Realty Company, Inc. (New York
               Boutique) (incorporated by reference to Exhibit 10.3 to St. John
               Knits, Inc.'s Report on Form 10-K for the fiscal year ended
               October 29, 1995).

                                       65
<PAGE>

10.10     Lease dated June 1, 1986 between G.M. Properties and St. John Knits,
          Inc. (Corporate Headquarters) (incorporated by reference to Exhibit
          10.4 to St. John Knits, Inc.'s Registration Statement on Form S-1, as
          amended (file no. 33-57128)).

10.11     Industrial Real Estate Lease dated November 13, 1985 between Alhambra
          Partners, a California Limited Partnership, and St. John Knits, Inc.,
          together with Amendment No. 1 to Industrial Real Estate Lease dated
          November 13, 1985 and Option to Extend Term dated November 13, 1985
          (Assembling, Sewing) (incorporated by reference to Exhibit 10.5 to St.
          John Knits, Inc.'s Registration Statement on Form S-1, as amended
          (file no. 33-57128)).

10.12     Agreement of Lease dated January 11, 1991 by and between Rolex Realty
          Company, Inc. and St. John Knits, Inc. together with Lease
          Modification Agreement dated January 11, 1991 and Second Lease
          Modification Agreement dated April 12, 1991 (New York Boutique)
          (incorporated by reference to Exhibit 10.9 to St. John Knits, Inc.'s
          Registration Statement on Form S-1, as amended (file no. 33-57128)).

10.13     Amended and Restated Agreement of Limited Partnership of SJA 1&2, Ltd.
          dated October 31, 1993 by and between St. John Knits, Inc. and Ocean
          Air Charters, Inc. (incorporated by reference to Exhibit 10.13 to St.
          John Knits International's Amendment No. 1 to the Registration
          Statement on Form S-4 dated November 12, 1999).

10.14     Amended and Restated Employment Agreement between St. John Knits, Inc.
          and Robert E. Gray (incorporated by reference to Exhibit 10.14 to St.
          John Knits International's Amendment No. 1 to the Registration
          Statement on Form S-4 dated November 12, 1999).

10.15     Employment Agreement dated as of July 14, 1998 between St. John Knits,
          Inc. and Marie St. John Gray (incorporated by reference to Exhibit
          10.4 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the
          quarter ended August 2, 1998).

10.16     Employment Agreement dated as of July 14, 1998 between St. John Knits,
          Inc. and Kelly A. Gray (incorporated by reference to Exhibit 10.5 to
          St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the quarter
          ended August 2, 1998).

10.17     Employment Agreement dated as of July 14, 1998 between St. John Knits,
          Inc. and Roger G. Ruppert (incorporated by reference to Exhibit 10.6
          to St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the
          quarter ended August 2, 1998).

10.18     Employment Agreement dated as of July 14, 1998 between St. John Knits,
          Inc. and Karla R. Guyer (incorporated by reference to Exhibit 10.8 to
          St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the quarter
          ended August 2, 1998).

10.19     St. John Knits, Inc. Employees' Profit Sharing Plan dated as of August
          21, 1995 (incorporated by reference to Exhibit 10.18 to St. John
          Knits, Inc.'s Report on Form 10-K for the fiscal year ended October
          29, 1995).

10.20     Aircraft Lease dated April 1, 1998 by and between St. John Knits, Inc.
          and Ocean Air Charters, Inc. as Trustee of the SJA 1&2, Ltd. Trust
          (Lease for Company airplane) (incorporated by reference to Exhibit
          10.1 to St. John Knits, Inc.'s Quarterly Report on Form 10-Q for the
          quarter ended May 3, 1998).

10.21     Form of Indemnity Agreement by and between St. John Knits, Inc., St.
          John Knits International, Incorporated and each of their directors and
          officers (incorporated by reference to Exhibit 10.21 to St. John Knits
          International's Amendment No. 1 to the Registration Statement on Form
          S-4 dated November 12, 1999).

10.22     Distribution Agreement dated June 11, 1997 by and between St. John
          Knits, Inc. and Gary Farn, Ltd. (incorporated by reference to Exhibit
          10.26 to St. John Knits, Inc.'s Report on Form 10-K for the fiscal
          year ended November 2, 1997).

10.23     General Partnership Agreement of St. John-Varian Development Company
          dated April 3, 1995 by and between St. John Knits, Inc. and Varian
          Associates, a California General Partnership (incorporated by
          reference to Exhibit 10.28 to St. John Knits, Inc.'s Report on Form
          10-K for the fiscal year ended October 29, 1995).

10.24     Lease Agreement dated April 3, 1995 by and between St. John Knits,
          Inc. and St. John-Varian Development Company (Knitting, Sewing,
          Finishing, Shipping, Administrative Offices) (incorporated by
          reference to Exhibit 10.29 to St. John Knits, Inc.'s Report on Form
          10-K for the fiscal year ended October 29, 1995).

10.25     Joint Venture Agreement dated July 17, 1997 between St. John Knits,
          Inc. and Commercial Development Co., Ltd. (incorporated by reference
          to Exhibit 10.30 to St. John Knits, Inc.'s Report on Form 10-K for the
          fiscal year ended November 2, 1997).

10.26     Lease Extension Agreement dated February 6, 1996 between St. John
          Knits, Inc. and G.M. Properties (extending the lease for St. John
          Knits, Inc.'s current corporate headquarters) (incorporated by
          reference to Exhibit 10.32 to St. John Knits, Inc.'s Report on Form
          10-K for the fiscal year ended November 3, 1996).

10.27     Lease Extension Agreement dated as of September 1, 1996 between St.
          John Knits, Inc. and Alhambra Partners (extending the lease for one of
          the Company's assembling and sewing facilities) (incorporated by
          reference to Exhibit 10.34 to St. John Knits, Inc.'s Report on Form
          10-K for the fiscal year ended November 3, 1996).

                                       66
<PAGE>

10.28     License and Distribution Agreement dated as of August 1, 1997 between
          St. John Knits, Inc. and St. John Co., Ltd. (incorporated by reference
          to Exhibit 10.35 to St. John Knits, Inc.'s Report on Form 10-K for the
          fiscal year ended November 2, 1997).

10.29     Asset Purchase Agreement dated as of August 29, 1996 among St. John
          Knits, Inc., Jakob Schlaepfer & Co. AG and Jakob Schlaepfer, Inc.
          (incorporated by reference to Exhibit 10.39 to St. John Knits, Inc.'s
          Report on Form 10-K for the fiscal year ended November 3, 1996).

10.30     Manufacturing and Supply Agreement dated as of November 9, 1996 by and
          between St. John Knits, Inc. and Calzaturificio M.A.B. S.p.A.
          (incorporated by reference to Exhibit 10.41 to St. John Knits, Inc.'s
          Report on Form 10-K for the fiscal year ended November 3, 1996).

10.31     Sales Representative Agreement dated November 13, 1996 by and between
          St. John Knits, Inc. and Hilda Chang (incorporated by reference to
          Exhibit 10.43 to St. John Knits, Inc.'s Report on Form 10-K for the
          fiscal year ended November 3, 1996).

10.32     Unit Price Construction Agreement between St. John de Mexico, S.A. de
          C.V. and Administration Tijuana Industrial, S.A. de C.V. (incorporated
          by reference to Exhibit 10.50 to St. John Knits, Inc.'s Report on Form
          10-K for the fiscal year ended November 2, 1997).

10.33     1999 St. John Knits International, Incorporated Stock Option Plan
          (incorporated by reference to Exhibit 10.33 to St. John Knits
          International's Amendment No. 1 to the Registration Statement on Form
          S-4 dated November 12, 1999).

10.34     Stock Option Agreement, dated as of July 7, 1999, between St. John
          Knits International and Bob Gray (incorporated by reference to Exhibit
          10.34 to St. John Knits International's Amendment No. 1 to the
          Registration Statement on Form S-4 dated November 12, 1999).

10.35     Stock Option Agreement, dated as of July 7, 1999, between St. John
          Knits International and Marie St. John Gray (incorporated by reference
          to Exhibit 10.35 to St. John Knits International's Amendment No. 1 to
          the Registration Statement on Form S-4 dated November 12, 1999).

10.36     Stock Option Agreement, dated as of July 7, 1999, between St. John
          Knits International and Kelly A. Gray (incorporated by reference to
          Exhibit 10.36 to St. John Knits International's Amendment No. 1 to the
          Registration Statement on Form S-4 dated November 12, 1999).

27        Financial Data Schedule

                                       67