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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-K



(Mark One)



|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended October 31, 2004



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                                                       |  | 52-2303510                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|17622 Armstrong 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:



121/2% 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 þ 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.



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ̈No þ



The aggregate market value of Registrants Common Stock held by nonaffiliates was approximately $13,097,000 as of May 2, 2004, the last business day
of the Registrants most recently completed second fiscal quarter (based on the closing price of the Common Stock on such date as reported on the OTC Bulletin Board quotation system).



As of January 26, 2005, the Registrant had 6,289,953 shares of Common Stock
outstanding.



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##### Table of Contents

INDEX



|         |  |                                                                                                                  |  |            
|-------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -----------
|         |  |                                                                                                                  |  | Page Number
|         |  | PART I                                                                                                           |  |            
|ITEM 1.  |  | Business                                                                                                         |  | 3          
|ITEM 2.  |  | Properties                                                                                                       |  | 12         
|ITEM 3.  |  | Legal Proceedings                                                                                                |  | 13         
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  | 13         
|         |  | PART II                                                                                                          |  |            
|ITEM 5.  |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 14         
|ITEM 6.  |  | Selected Financial Data                                                                                          |  | 15         
|ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 16         
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 23         
|ITEM 8.  |  | Financial Statements and Supplementary Data                                                                      |  | 24         
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 24         
|ITEM 9A. |  | Controls and Procedures                                                                                          |  | 24         
|ITEM 9B. |  | Other Information                                                                                                |  | 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 and Related Stockholder Matters                   |  | 31         
|ITEM 13. |  | Certain Relationships and Related Transactions                                                                   |  | 33         
|ITEM 14. |  | Principal Accountant Fees and Services                                                                           |  | 35         
|         |  | PART IV                                                                                                          |  |            
|ITEM 15. |  | Exhibits and Financial Statement Schedules                                                                       |  | 36         



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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 40 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 retail boutiques and outlet 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.



|Products | 
|-------- | 



The companys products are organized primarily into six separate product lines: Knitwear, Sport, Shoes, Jewelry, Accessories and Home Accessories.



Knitwear. The company organizes its Knitwear into four groups: Collection, Evening, 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 group.



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 classic tailored look. The Collection line also includes
jackets, pants, skirts, coats and sweaters. All items in the line are sold as separates.



Evening. The Evening line consists of dresses, gowns and separates. The look of the Evening line is one of understated elegance enhanced by innovative touches, such as layers of transparent paillettes
and sequins, embroidered sleeves or embellished 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, in solid black. Simplicity of design 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, jackets, pants, skirts and tops
which are designed with luxurious trims, embroidery and embellishments. The evening group consists jackets, skirts, pants, dresses and gowns. Both groups are designed using a variety of luxurious fabrics, trims, paillettes and stones.



Sport. St. John Sport is a line of active lifestyle clothing which includes jackets,
skirts, pants, tops and jeans and is targeted to the designer sportswear customer as well as the companys core Knitwear customers. The line is manufactured in the companys production facilities and by select outside contractors located
throughout the world. The line includes various knit styles along with woven garments made from fabrics purchased primarily in Italy and Asia.



Non-apparel. The non-apparel group consists of shoes, jewelry, accessories and home accessories. During the fourth quarter of fiscal 2004, the company made the
decision to discontinue the sale of these products to its wholesale customers due to the lower than expected overall profit margins the company was experiencing. These products are currently being sold in the company owned boutiques and outlet
stores. Below is a brief description of each of these product lines.



Shoes. The St. John Shoe line consists of pumps, sling backs, loafers, boots and sandals, manufactured in Italy using high quality Italian leather. Some shoe styles are designed to match the look and colors of the Knitwear
line.



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Jewelry. The Jewelry line is comprised of fashion jewelry, including earrings,
necklaces, chokers, pins and bracelets. The Jewelry line is manufactured in the companys production facilities.



Accessories. The Accessories line is comprised primarily of handbags and belts. Handbags are manufactured in Italy using the highest
quality Italian leather and fabrics. Belts are manufactured primarily in the companys production facilities.



Home Accessories. The company manufactures various home accessory items in its production facilities. These items are sold through
company-owned retail stores and select wholesale customers. These items were also sold in St. John Home stores, until they were closed in early fiscal 2003.



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



|                 |  |                                                   |  |                                 
|---------------- |  | ------------------------------------------------- |  | --------------------------------
|Product Line     |  | Selected Products                                 |  | Range of Suggested Retail Prices
|Knitwear         |  |                                                   |  |                                 
|Collection       |  | Dresses, Jackets, Pants, Skirts, Coats, Sweaters  |  | $300-$1,600                     
|Evening          |  | Dresses, Jackets, Pants, Skirts, Dressy Separates |  | $400-$1,700                     
|Basics           |  | Jackets, Skirts, Pants                            |  | $250-$1,200                     
|Couture          |  | Dresses, Gowns, Jackets, Pants, Skirts            |  | $450-$4,700                     
|Sport            |  | Jackets, Skirts, Pants, Tops, Jeans               |  | $220-$1,600                     
|Shoes            |  | Pumps, Sling Backs, Loafers, Boots, Sandals       |  | $250-$1,500                     
|Jewelry          |  | Earrings, Necklaces, Chokers, Pins, Bracelets     |  | $  45-$   650                   
|Accessories      |  | Handbags, Belts                                   |  | $125-$1,600                     
|Home Accessories |  | Barware, Candle Holders, Napkin Rings             |  | $  45-$   550                   



Sales by Product Line



The following is a comparison of the net sales by product
line for fiscal years 2004, 2003 and 2002 :



|                    |  |                |         |      |   |         |  |   |        
|------------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                    |  | Fiscal Years  
|                    |  | 2004           |         | 2003 |   | 2002   
|                    |  | (in thousands)
|Knitwear            |  | $              | 302,660 |      | $ | 289,902 |  | $ | 276,038
|Sport               |  |                | 67,829  |      |   | 59,172  |  |   | 61,843 
|Shoes(1)            |  |                | 4,728   |      |   | 5,175   |  |   | 5,171  
|Jewelry(1)          |  |                | 8,531   |      |   | 6,556   |  |   | 7,185  
|Accessories(1)      |  |                | 6,016   |      |   | 4,816   |  |   | 2,775  
|Home Accessories(1) |  |                | 1,803   |      |   | 1,545   |  |   | 1,650  
|Coats(2)            |  |                | 3,675   |      |   | 1,238   |  |   | 1,428  
|Other(3)            |  |                | 361     |      |   | 1,739   |  |   | 6,144  
|                    |  |                |         |      |   |         |  |   |        
|Total Net Sales(4)  |  | $              | 395,603 |      | $ | 370,143 |  | $ | 362,234
|                    |  |                |         |      |   |         |  |   |        



|(1) | The company discontinued the sale of these product lines to its wholesale customers during
the fourth quarter of fiscal 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(2) | These amounts primarily represent the sale of coats manufactured by a third party under a
license agreement.
|--- | ------------------------------------------------------------------------------------------------------------



|(3) | These amounts primarily represent the sale of items in St. John Home stores which were not
manufactured by the company.
|--- | -----------------------------------------------------------------------------------------------------------------------



|(4) | License revenues of approximately $600,000, $361,000 and $333,000 for fiscal years 2004, 2003
and 2002, respectively, are included in other income (expense) on the accompanying consolidated statements of income.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Licenses



During the first quarter of fiscal 2004, the company licensed the right to manufacture and sell swimsuits under the St. John name to a third party. The
license expires on December 31, 2009. The St. John Swimsuit Collection offers a wide range of styles, including many with the companys signature elements.



The company has licensed the right to manufacture and sell coats under the St. John name to a third party. The license expires on March 31, 2005. The
St. John Coat Collection, which is manufactured under the license agreement, offers the classic style, elegance and superior quality the St. John customer has come to expect. The company retained the right to also manufacture and sell coats in
company-owned retail stores.



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The company has also licensed to third parties the right to use the St. John name on retail stores at
specified locations in South Korea, Russia, Kuwait and the United Arab Emirates. There currently are 19 such stores located in South Korea and one in Russia, Kuwait and the United Arab Emirates. The company does not receive royalties for the use of
its name on these retail locations, but benefits through the sale of products to the licensees.



Manufacturing



The
company has developed a vertically integrated manufacturing process which it believes is unique and critical to its success. During fiscal 2004, approximately 86% of the products sold by the company were manufactured at the companys own
facilities. The company twists and dyes its yarn, as well as knits, constructs, presses and finishes its knitwear products in its six 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 the hardware used on its garments as well as its Jewelry and Home Accessories lines. Products not manufactured by the company
include a portion of the Sport product line, as well as the Shoe and Accessories product lines.



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 the
manufacturing process allows it to consistently produce garments to its high quality standards.



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



The company operates a manufacturing facility in Mexico. This facility gives the company additional manufacturing capacity as well as the ability to lower
the cost of certain labor-intensive items through reduced labor costs. Employees from the U.S. operations are on hand to ensure that the quality control program is strictly followed.



Quality Control



The company has achieved its quality reputation by vertically integrating its 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, and includes inspection points throughout the manufacturing processes. During the manufacturing processes, every garment is individually inspected at the
completion of each major manufacturing process and again prior to shipping. In addition, the company uses outside contractors for the manufacturing of its shoes, handbags and certain woven products. The company has instituted procedures to maintain
the quality of products manufactured by these 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 management team has an average of 12 years of experience with the company.



Distribution



The companys products are distributed primarily through a select group
of specialty retailers and company owned retail boutiques and outlet stores.



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Wholesale 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 2004 (approximately 42.0% collectively) and have been customers of the company for over
30, 25 and 20 years, respectively. The company distributes its products to approximately 300 locations in the U.S. The company works with these and other customers to create in-store boutiques, which are designated areas devoted exclusively to the
companys products. Other significant customers of the company include select Bloomingdales, Marshall Fields and Belks stores.



St. John Boutiques and Outlet 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 32 such boutiques in the U.S. and Canada. Most of the companys boutiques showcase the entire line of apparel products, which has helped to expand the distribution and enhance the brand awareness. The
company also operates 13 outlet stores. The companys outlet stores primarily sell seconds, design samples and slow-moving inventory from the companys full-price boutiques.



St. John Home Stores.During 1997, the company began opening home furnishing stores and operated three such stores during fiscal 2002
under the name St. John Home. In addition, the company operated one St. John Home outlet store in Nevada. The company closed its last St. John Home store and the St. John Home outlet store during fiscal 2003.



International. The company sells its products to specialty retailers 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 seeking to increase its penetration in these
accounts. In Japan, the company operates a wholly owned subsidiary that distributes its products throughout Japan and operates a number of small retail shops which are located within larger department stores, two in-hotel shops and two freestanding
retail boutiques. The company operates one retail boutique in western Canada and one small boutique and one retail shop in Hong Kong. The companys European efforts involve expanding and upgrading its relationships with high quality independent
wholesale customers, principally in the United Kingdom, Germany, Belgium, Switzerland and the Netherlands. The company distributes its products to approximately 205 locations outside the U.S. During fiscal 2004, international sales to wholesale
customers and sales through the companys subsidiaries in Japan, Canada and Hong Kong accounted for approximately 11% of the companys net sales.



The following table presents net sales by distribution category for fiscal years 2004, 2003 and 2002:



|                   |  |                |         |      |   |         |  |   |        
|------------------ |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                   |  | Fiscal Years  
|                   |  | 2004           |         | 2003 |   | 2002   
|                   |  | (in thousands)
|Wholesale-domestic |  | $              | 188,720 |      | $ | 181,046 |  | $ | 190,117
|Retail-domestic    |  |                | 164,103 |      |   | 152,514 |  |   | 140,095
|International(1)   |  |                | 42,780  |      |   | 36,583  |  |   | 32,022 
|                   |  |                |         |      |   |         |  |   |        
|Total              |  | $              | 395,603 |      | $ | 370,143 |  | $ | 362,234
|                   |  |                |         |      |   |         |  |   |        



|(1) | International net sales include both wholesale and retail sales as discussed above.
|--- | -----------------------------------------------------------------------------------



Business 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, Jewelry, Accessories and Home Accessories. For segment reporting purposes, international sales are aggregated into the wholesale business segment. For fiscal 2004 and 2003, retail sales were primarily generated
through the companys boutiques and outlet stores. Management evaluates segment performance based primarily on revenue and earnings from operations. For segment information regarding net sales, operating profits, assets, capital expenditures
and depreciation and amortization, as well as certain geographic information regarding net sales, see Note 17 of Notes to Consolidated Financial Statements, included herein.



Marketing



The company markets its Collection, Evening and Couture lines four times a year, during the Fall and Cruise/Spring seasons.
These lines are shown beginning in January for delivery between May and October and beginning in July for delivery between November and April. Orders for each of these six-month delivery periods are received after showings, and the goods are then
made to order. The company markets its Sport line three times per year. The company markets its Basics line throughout the year.



The company shows its product lines to wholesale buyers in its New York and Irvine showrooms. Members of the companys senior management team work
closely with major 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.



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The company also shows its products in its Dusseldorf, Germany and Tokyo, 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 wholesale 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 38 U.S. and five 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 wholesale 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 and W. In fiscal 2004, the company spent approximately $14.0 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 and the companys retail boutiques. 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 2004, the company purchased approximately $11.6 million of wool and approximately $3.5 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 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 yarn and fabric from various suppliers and has little difficulty in satisfying its requirements from Europe and Asia. Certain raw materials used in the manufacture of paillettes are purchased from a supplier in Europe.
The company believes that there are limited sources for these 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 wholesale customers. In a broader context, the company does compete with such successful designers as Armani, Calvin Klein, Chanel, Donna Karan and
Escada.



Trademarks



The company owns and uses several trademarks, principal among which are St.
John®, St. John by Marie Gray® and St. John Sport®. The companys principal marks are registered with the United States Patent and
Trademark Office and in the other major jurisdictions in the world where the company does business or may eventually do business. 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.



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, workplace safety and product labeling and 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.



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Geographic Information



The following table presents information related to the geographic areas in which the company operated during fiscal years 2004, 2003 and 2002:



|              |  |                |         |      |   |         |  |   |        
|------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Fiscal Years  
|              |  | 2004           |         | 2003 |   | 2002   
|              |  | (in thousands)
|United States |  | $              | 352,823 |      | $ | 333,560 |  | $ | 330,212
|Asia          |  |                | 28,761  |      |   | 24,922  |  |   | 21,202 
|Europe        |  |                | 6,327   |      |   | 5,962   |  |   | 5,816  
|Canada        |  |                | 4,894   |      |   | 3,358   |  |   | 2,505  
|Other         |  |                | 2,798   |      |   | 2,341   |  |   | 2,499  
|              |  |                |         |      |   |         |  |   |        
|              |  | $              | 395,603 |      | $ | 370,143 |  | $ | 362,234
|              |  |                |         |      |   |         |  |   |        



For information on the
Companys assets by geographic area see Note 17 of Notes to Consolidated Financial Statements, included herein.



The Company



SJKI became the parent company of St. John Knits, Inc., a California corporation (St. John) and its subsidiaries as a result of mergers
consummated in July 1999. On July 7, 1999, (i) 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
(ii) Pearl Acquisition Corp. (Pearl), 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 SJKI. Immediately after the mergers, SJKI was approximately 7% owned by former shareholders of St. John, other than Bob Gray, Marie Gray and Kelly Gray, and approximately 93% owned by
Vestar/Gray Investors LLC. At the time, Vestar/Gray Investors LLC was approximately 84% owned by an affiliate of Vestar Capital Partners III, L.P., 9% owned by Bob and Marie Gray and 7% owned by Kelly Gray. 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. SJKI was
incorporated in Delaware during fiscal 1999. Prior to the mergers, SJKI was incorporated in Barbados as a large FSC under Section 922 of the Internal Revenue Code of 1986, as amended. St. John was incorporated during 1962.



Employees



At October 31, 2004, the company had approximately 4,925 full-time
employees. In the U.S. there were approximately 7 employees in management positions, 240 in design and sample production, 2,380 in production, 240 in quality control, 485 in retail, 95 in sales and advertising and the balance in clerical and office
positions. In addition, the company had approximately 1,120 full-time employees working at the companys manufacturing facility in Mexico and approximately 70 employees working at the companys subsidiary in Japan, principally in retail
and various clerical and office positions. The company is not party to any labor agreements. 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.



Backlog



At October 31, 2004, the company had unfilled customer orders for the Cruise/Spring season of approximately $147.6 million compared with approximately $142.3 million as of November 2, 2003. 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.



Risk Factors



Substantial Leverage and Debt Service.The company is highly leveraged. As of October
31, 2004, the company had total debt of approximately $207.2 million, of which approximately $107.8 million was senior debt, and a stockholders deficit of approximately $83.0 million, which resulted from the recapitalization of the company in
connection with the mergers. In addition, the company may borrow money under its revolving credit facility which is intended to be used primarily for working capital. Subject to restrictions in the senior credit facilities and the indenture
governing the companys senior subordinated notes, the company may borrow more money for working capital, capital expenditures, acquisitions or other purposes.



8



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##### Table of Contents

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



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



| |  |  | The company will need to use a large portion of the money it earns to pay principal and interest on its senior credit facilities and notes, which will reduce the amount of money
available to finance operations and other business activities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | some of the outstanding debt has a variable rate of interest, which exposes the company to the risk of increased interest rates; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the company may have a much higher level of debt than its competitors, which may cause a competitive disadvantage and may reduce flexibility in responding to changing business and
economic conditions, including increased competition.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The company expects to obtain the money to pay expenses and the principal and interest on its outstanding notes and senior credit facilities from operations and from loans under its revolving credit facility. The ability to pay such amounts
will depend on the companys future performance, which will be affected by financial, business, economic and other factors. The company cannot control many of these factors, such as economic conditions in the markets and pressure from
competitors. The company cannot be certain that the money it earns will be sufficient to pay principal and interest on the debt and meet any other obligations. If the money is not sufficient, the company may be required to refinance all or part of
its existing debt, sell assets or borrow more money. The company cannot guarantee that it will be able to refinance its debt, sell assets or borrow more money on terms that are acceptable. In addition, the terms of existing or future debt
agreements, including its senior credit facilities and the indenture governing its notes, may restrict the company from adopting any of these alternatives.



The inability to refinance the companys credit agreement could affect its ability to operate its business. The company is currently negotiating with
potential lenders to refinance its existing credit facility. If the company is unable to negotiate a new credit facility it may not be able to meet its payment obligations under its current agreements which could cause such debt, together with
accrued interest, to be declared immediately due and payable.



Covenant
restrictions may limit the companys ability to operate its business.The indenture governing the companys senior subordinated notes contains covenants that, among other things:



| |  |  | limit the companys ability to incur indebtedness and pay dividends on and redeem capital stock; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | create restrictions on:
| | - |  | -----------------------



| |  |  | investments in unrestricted subsidiaries;
| | - |  | -----------------------------------------



| |  |  | 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, the companys ability to consolidate and merge with or to transfer all or substantially
all of its assets to another party.



Under the companys
senior credit facilities, the company must also comply with certain specified financial ratios and tests that may restrict its ability to make distributions or other payments to investors and creditors and if the company does not comply with these
or other covenants and restrictions contained in the senior credit facilities it could default. Such debt, together with accrued interest, could then be declared immediately due and payable. The companys ability to comply with these provisions
may be affected by events beyond its control.



Although the
company believes that it has been in compliance and that it will be able to maintain compliance with its current financial tests there can be no assurance that it will be able to do so. The restrictions imposed by such covenants may adversely affect
the ability of the company 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 the companys notes.



9



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Competition and/or an economic downturn could have a material adverse effect on the companys business.The
apparel industry is highly competitive. The company competes primarily on the basis of price and quality. The company believes that its success depends in large part on its ability to anticipate, gauge and respond to changing consumer demands in a
timely manner. The company cannot assure that it will always be successful in this regard. If these demands are misjudged sales may suffer, which could adversely affect the business, financial condition and results of operations of the company.



The company competes 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 the company. Increased competition from these and future competitors
could reduce sales and adversely affect the companys operating results. Because of its debt level, the company may be less able to respond effectively to such competition than others.



The apparel industry 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 the companys
business, financial condition and results of operations.



The loss of one or
more of the companys primary customers could have a material adverse effect on its business. The company, like many of its competitors, sells to retailers. In recent years, the retail industry has experienced consolidation and other
ownership changes. In the future, retailers in the U.S. 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 the St. John product or increase the ownership concentration within the retail industry. Any such change could have a negative impact on the company.



During fiscal 2004 and 2003, net sales to the companys three largest wholesale customers, Saks Fifth Avenue, Neiman Marcus and Nordstrom, totaled
approximately 42% and 44% of net sales, respectively, with each exceeding 10% individually. Net sales to the companys largest wholesale customer accounted for approximately 15% of net sales in fiscal 2004 and 16% of net sales in fiscal 2003.
Although the company has long-established relationships with many of its customers, there are no long-term sales agreements. The loss of or significant decrease in business from any of its major customers could have a material adverse effect on the
companys business, financial condition and results of operations.



The
company is controlled by Vestar Capital Partners III, L.P.(Vestar). Vestar beneficially owns approximately 81% of the outstanding common stock of SJKI. As a result, Vestar is able to effectively control the outcome of all matters
requiring a stockholder vote, including the election of a majority of the directors of SJKI. Such ownership of common stock may have the effect of delaying, deferring or preventing a change of control.



A significant increase in the price or a decrease in the availability of wool or rayon,
the companys primary raw materials, could have a material adverse effect on the companys business.The companys principal raw materials are wool and rayon. In fiscal 2004, the company purchased approximately $11.6
million of wool and approximately $3.5 million of rayon. The price of wool and rayon may fluctuate significantly depending on world demand. There can be no assurances that such fluctuation in the price of wool or rayon will not affect the
companys business, financial condition and results of operations.



The company imports wool primarily from Australia. It also imports other raw materials, including rayon, from Europe and Japan. In addition, the companys shoes, handbags and certain woven products are manufactured in Europe and Asia.
The companys 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 the
companys 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.



International operations expose the company to additional political, economic and regulatory risks not faced by businesses that operate only in the U.S. The
company conducts international operations in Mexico, Europe, Asia and Canada. In fiscal 2004, approximately 11% of the companys sales occurred outside the U.S., and approximately 14% of the companys products were manufactured by
third-party contractors, many of which were outside the United States. International operations are subject to risks similar to those affecting the U.S. operations in addition to a number of other risks, including:



| |  |  | lack of complete operating control;
| | - |  | -----------------------------------



| |  |  | currency fluctuations;
| | - |  | ----------------------



| |  |  | trade barriers;
| | - |  | ---------------



10



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##### Table of Contents

| |  |  | 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 U.S. have laws limiting the right and ability of non-U.S. subsidiaries and affiliates to pay dividends and
remit earnings to affiliated companies unless specified conditions exist. The companys ability to expand the manufacture and sale of its products internationally is also limited by the necessity of obtaining regulatory approval in new
countries.



The companys financial performance on a U.S.
dollar denominated basis can be significantly affected by fluctuations in currency exchange rates. From time to time the company may enter into agreements to seek to reduce our foreign currency exposure, but the company cannot assure that it will be
successful.



Changes in, or the costs of complying with, various
governmental regulations could have a material adverse effect on the companys business.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. It 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, it cannot assure that requirements will not change in the future or that it will not incur significant costs to comply with such requirements.



The loss or infringement of the companys trademarks and other
proprietary rights could have a material adverse effect on business. The company believes that its trademarks and other proprietary rights are important to its success and competitive position. Accordingly, the company devotes substantial
resources to the establishment and protection of its trademarks on a worldwide basis. There can be no assurances that such actions taken to establish and protect its trademarks and other proprietary rights will be adequate to prevent imitation of
the companys products by others or to prevent others from seeking to block sales of its products as violative of their trademarks and proprietary rights. Moreover, there can be no assurances that others will not assert rights in, or ownership
of, trademarks and other proprietary rights of the company or that it will be able to successfully resolve such conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the
United States. The loss of such trademarks and other proprietary rights, or the loss of the exclusive use of such trademarks and other proprietary rights, could have a material adverse effect on the companys business, financial condition and
results of operations.



A major earthquake or other natural disaster in
southern California could have a material adverse effect on the companys business. The companys executive offices and the major portion of its production facilities are in Irvine, California, which is located near major earthquake
fault lines. If there is a major earthquake or any other natural disaster in these areas, it could significantly disrupt the companys operations. If the companys manufacturing operations were impacted, it could materially disrupt
production capabilities and result in the company experiencing a significant delay in delivery, or substantial shortage, of its products.



11



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##### Table of Contents

|Item 2. | PROPERTIES
|------- | ----------



The
principal executive offices of the company are located at 17622 Armstrong Avenue, Irvine, California 92614.



Company-owned Properties



The general location, use and approximate size of the only company-owned property is set forth below. Such property is used in the companys wholesale business segment.



|                |  |                                                      |  |                                
|--------------- |  | ---------------------------------------------------- |  | -------------------------------
|Location        |  | Use                                                  |  | Approximate Area in Square Feet
|Tijuana, Mexico |  | Jewelry and Hardware Manufacturing, Sewing, Knitting |  | 108,100                        



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.



|                           |  |                                                          |  |                                 |  |                      
|-------------------------- |  | -------------------------------------------------------- |  | ------------------------------- |  | ---------------------
|Location                   |  | Use                                                      |  | Approximate Area in Square Feet |  | Lease Expiration Date
|Irvine, California(2)(3)   |  | Sewing, Finishing, Shipping, Administrative Offices      |  | 171,100                         |  | 7/2010               
|Irvine, California(1)(3)   |  | Design Facility, Sewing, Warehousing, Shipping           |  | 110,500                         |  | 7/2019               
|Irvine, California(4)      |  | Warehousing, Administrative Offices, Shipping            |  | 90,100                          |  | 7/2010               
|Irvine, California(3)(6)   |  | Twisting, Dyeing, Warehousing                            |  | 88,100                          |  | 2/2013               
|Alhambra, California(3)(6) |  | Assembling, Sewing                                       |  | 41,000                          |  | 8/2006               
|Irvine, California(1)(3)   |  | Knitting                                                 |  | 32,100                          |  | 7/2019               
|Irvine, California(1)(3)   |  | Corporate Headquarters, Showroom, Administrative Offices |  | 26,200                          |  | 7/2019               
|Irvine, California(1)(3)   |  | Knitting, Sequins Manufacturing                          |  | 20,500                          |  | 7/2019               
|Costa Mesa, California     |  | Retail Boutique                                          |  | 15,400                          |  | 1/2014               
|New York, New York(3)      |  | Showroom                                                 |  | 12,300                          |  | 6/2011               
|Chicago, Illinois          |  | Retail Boutique                                          |  | 9,400                           |  | 5/2018               
|Beverly Hills, California  |  | Retail Boutique                                          |  | 8,400                           |  | 10/2013              
|New York, New York(5)      |  | Retail Boutique                                          |  | 7,500                           |  | 6/2011               
|New York, New York(5)      |  | Retail Boutique                                          |  | 6,200                           |  | 6/2011               
|Las Vegas, Nevada          |  | Retail Boutique                                          |  | 5,600                           |  | 1/2009               

---

|(1) | These properties were sold and leased back during fiscal 2004.
|--- | --------------------------------------------------------------



|(2) | The company leases this property from a general partnership in which the company holds a 50 %
interest.
|--- | -------------------------------------------------------------------------------------------------------



|(3) | This property is used in the companys wholesale business segment.
|--- | ------------------------------------------------------------------



|(4) | This property is used in both the companys retail and wholesale business segment.
|--- | ----------------------------------------------------------------------------------



|(5) | The square footage of the retail boutique located on 5th Avenue in New York City is covered
by these two leases.
|--- | ----------------------------------------------------------------------------------------------------------------



|(6) | These properties are owned by partnerships in which Bob and Marie Gray own a significant
interest. See Item 13Certain Relationships and Related Transactions.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



As of October 31, 2004, annual base rents for the companys leased properties listed in the table above ranged from approximately $160,000 to $1,500,000. 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 facility expires. The company also leases space for 27 additional retail boutiques, one additional showroom, two additional manufacturing and warehouse facilities
and 13 outlet stores.



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##### Table of Contents

|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------



The company is involved from time to time in litigation incidental to its business. Management believes that the outcome of any current litigation will not have a material effect upon the results of operations or financial condition of the
company.



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



Not applicable.



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##### Table of Contents

PART II



|Item 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ----------------------------------------------------------------------------------------------------------------



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 2004 |       | Fiscal 2003
|Quarter |  | High        |       | Low         |   | High  |  | Low
|Fourth  |  | $           | 37.00 |             | $ | 32.00 |  | $   | 30.00 |  | $ | 27.50
|Third   |  | $           | 32.50 |             | $ | 27.50 |  | $   | 30.00 |  | $ | 27.50
|Second  |  | $           | 33.00 |             | $ | 27.75 |  | $   | 28.00 |  | $ | 27.55
|First   |  | $           | 30.00 |             | $ | 27.00 |  | $   | 33.00 |  | $ | 27.25



As of January 26,
2005, there were approximately 25 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 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources and
Note 9 of Notes to Consolidated Financial Statements.



14



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##### Table of Contents

|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.



|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|-------------------------------------------- |  | ---------------------------------------- | ------- | ---------------- | - | ------- | ---------------- |  | ---------------- | ------- | ---------------- | - | ------- |  | - | -------
|                                             |  | Fiscal Year Ended                       
|                                             |  | October 31, 2004                         |         | November 2, 2003 |   |         | November 3, 2002 |  | October 28, 2001 |         | October 29, 2000
|                                             |  | (in thousands, except per share amounts)
|Income Statement Data:                       |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Net sales                                    |  | $                                        | 395,603 |                  | $ | 370,143 |                  |  | $                | 362,234 |                  | $ | 365,921 |  | $ | 336,459
|Cost of sales                                |  |                                          | 179,172 |                  |   | 156,642 |                  |  |                  | 154,508 |                  |   | 159,484 |  |   | 141,097
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Gross profit                                 |  |                                          | 216,431 |                  |   | 213,501 |                  |  |                  | 207,726 |                  |   | 206,437 |  |   | 195,362
|Selling, general and administrative expenses |  |                                          | 175,259 |                  |   | 163,213 |                  |  |                  | 143,904 |                  |   | 137,325 |  |   | 123,251
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Operating income                             |  |                                          | 41,172  |                  |   | 50,288  |                  |  |                  | 63,822  |                  |   | 69,112  |  |   | 72,111 
|Interest expense                             |  |                                          | 21,536  |                  |   | 24,395  |                  |  |                  | 23,674  |                  |   | 28,344  |  |   | 31,787 
|Other income (expense)                       |  |                                          | 50      |                  |   | (1,537  | )                |  |                  | 358     |                  |   | 4,036   |  |   | 1,000  
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Income before income taxes                   |  |                                          | 19,686  |                  |   | 24,356  |                  |  |                  | 40,506  |                  |   | 44,804  |  |   | 41,324 
|Income taxes                                 |  |                                          | 6,238   |                  |   | 9,474   |                  |  |                  | 16,201  |                  |   | 18,925  |  |   | 17,511 
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Net income                                   |  | $                                        | 13,448  |                  | $ | 14,882  |                  |  | $                | 24,305  |                  | $ | 25,879  |  | $ | 23,813 
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Net income allocated to common stockholders  |  | $                                        | 13,448  |                  | $ | 14,882  |                  |  | $                | 20,847  |                  | $ | 21,006  |  | $ | 19,612 
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Net income per common share-diluted          |  | $                                        | 2.11    |                  | $ | 2.23    |                  |  | $                | 3.14    |                  | $ | 3.17    |  | $ | 3.00   
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        
|Weighted average shares outstanding-diluted  |  |                                          | 6,383   |                  |   | 6,678   |                  |  |                  | 6,642   |                  |   | 6,623   |  |   | 6,546  
|                                             |  |                                          |         |                  |   |         |                  |  |                  |         |                  |   |         |  |   |        



|                                       |  |                  |         |   |                  |   |         |                  |  |   |                  |   |  |                  |          |   |  |   |          |  
|-------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | ---------------- |  | - | ---------------- | - |  | ---------------- | -------- | - |  | - | -------- | -
|                                       |  | As of            |        
|                                       |  | October 31, 2004 |         |   | November 2, 2003 |   |         | November 3, 2002 |  |   | October 28, 2001 |   |  | October 29, 2000 |         
|                                       |  | (in thousands)   |        
|Balance Sheet Data:                    |  |                  |         |   |                  |   |         |                  |  |   |                  |   |  |                  |          |   |  |   |          |  
|Working capital                        |  | $                | 72,908  |   |                  | $ | 68,908  |                  |  | $ | 86,038           |   |  | $                | 71,025   |   |  | $ | 69,821   |  
|Total assets                           |  |                  | 207,997 |   |                  |   | 234,138 |                  |  |   | 235,907          |   |  |                  | 222,223  |   |  |   | 218,499  |  
|Long-term debt                         |  |                  | 189,062 |   |                  |   | 231,755 |                  |  |   | 259,104          |   |  |                  | 243,291  |   |  |   | 261,847  |  
|Mandatorily redeemable preferred stock |  |                  |        |   |                  |   |        |                  |  |   |                 |   |  |                  | 25,000   |   |  |   | 25,000   |  
|Redeemable common stock                |  |                  | 26,370  |   |                  |   | 26,381  |                  |  |   | 54,060           |   |  |                  | 27,132   |   |  |   | 29,069   |  
|Stockholders deficit                  |  |                  | (82,992 | ) |                  |   | (91,667 | )                |  |   | (129,790         | ) |  |                  | (123,924 | ) |  |   | (146,670 | )



15



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##### Table of Contents

|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.



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:



|                                             |  |                                           |   |  |                  |   |  |                  |  
|-------------------------------------------- |  | ----------------------------------------- | - |  | ---------------- | - |  | ---------------- | -
|                                             |  | Percentage of Net Sales Fiscal Year Ended |  
|                                             |  | October 31, 2004                          |   |  | November 2, 2003 |   |  | November 3, 2002 |  
|Net sales                                    |  | 100.0                                     | % |  | 100.0            | % |  | 100.0            | %
|Cost of sales                                |  | 45.3                                      |   |  | 42.3             |   |  | 42.7             |  
|                                             |  |                                           |   |  |                  |   |  |                  |  
|Gross profit                                 |  | 54.7                                      |   |  | 57.7             |   |  | 57.3             |  
|Selling, general and administrative expenses |  | 44.3                                      |   |  | 44.1             |   |  | 39.7             |  
|                                             |  |                                           |   |  |                  |   |  |                  |  
|Operating income                             |  | 10.4                                      |   |  | 13.6             |   |  | 17.6             |  
|Interest expense                             |  | 5.4                                       |   |  | 6.6              |   |  | 6.5              |  
|Other income (expense)                       |  |                                          |   |  | (0.4             | ) |  | 0.1              |  
|                                             |  |                                           |   |  |                  |   |  |                  |  
|Income before income taxes                   |  | 5.0                                       |   |  | 6.6              |   |  | 11.2             |  
|Income taxes                                 |  | 1.6                                       |   |  | 2.6              |   |  | 4.5              |  
|                                             |  |                                           |   |  |                  |   |  |                  |  
|Net income                                   |  | 3.4                                       | % |  | 4.0              | % |  | 6.7              | %
|                                             |  |                                           |   |  |                  |   |  |                  |  



Fiscal 2004 Compared to Fiscal 2003



Net sales for fiscal 2004 increased by $25.5 million, or
6.9% as compared to fiscal 2003. This increase was principally attributable to (i) an increase in sales by company-owned retail boutiques of approximately $10.0 million, approximately half of which was due to the relocation of two existing retail
boutiques located in Beverly Hills, California and Chicago, Illinois and the addition of two new retail boutiques which were opened since the beginning of fiscal 2003, (ii) an increase in sales to domestic wholesale customers of approximately $7.7
million, (iii) an increase in international sales of approximately $6.2 million, primarily due to expanding operations in Japan and increased sales by the retail boutique located in Vancouver, Canada and (iv) an increase in sales by company-owned
retail outlet stores of approximately $2.8 million, due to the addition of three new retail outlet stores, which were opened since the beginning of fiscal 2003. These increases were partially offset by a decrease in sales of approximately $1.3
million for the St. John Home stores, which were closed during the first six months of fiscal 2003. Sales for company-owned retail boutiques open at least one year increased 7.1% during fiscal 2004 as compared to fiscal 2003. The overall increase in
net sales was primarily due to a shift in sales to higher priced Knitwear garments and increased unit sales of the Sport product line during fiscal 2004 as compared to the prior year. The company has made the decision to close four of its retail
boutiques during fiscal 2005 and, combined with its decision in the fourth quarter of fiscal 2004 to stop selling its non-apparel products to its wholesale customers, is therefore expecting net sales to decrease slightly during fiscal 2005 as
compared to fiscal 2004. This anticipated decrease in net sales is not expected to materially impact operating income.



Gross profit for fiscal 2004 increased by $2.9 million, or 1.4% as compared with fiscal 2003, but decreased as a percentage of net sales to 54.7% from
57.7%. This decrease as a percentage of net sales was primarily the result of a decrease in the gross profit margin for the Knitwear and Sport product lines due to a change in the mix of the products being manufactured and sold to lower margin
styles and increased labor costs relating to the Knitwear product line. In addition, the company recorded an increase to cost of sales of approximately $3.2 million to write down the non-apparel inventory to its estimated net realizable value due to
the companys decision to curtail the sale of non-apparel items to its wholesale customers. These decreases were partially offset by an increase in the gross profit margin resulting from increased sales at company-owned retail boutiques, which
on a consolidated basis have a higher gross profit margin than sales to wholesale customers.



Selling, general and administrative expenses for fiscal 2004 increased by $12.0 million, or 7.4% over fiscal 2003, and increased as a percentage of net sales to 44.3% from 44.1%. Selling, general and administrative
expenses increased during the period primarily due to (i) an increase of approximately $6.0 million resulting from the opening of two new retail boutiques, the relocation of five retail boutiques, the expansion of four retail boutiques and the
opening of three new retail outlet stores since the beginning of fiscal 2003, (ii) the write down of the book value of the assets related to four of the companys retail boutiques of $4.4 million, (iii) an increase in costs related to the
companys expanding operations in Japan of approximately $2.4 million, (iv) executive recruiting and related costs of approximately $1.1 million, (v) an increase in commission expense for boutique



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employees of approximately $0.9 million related to the increase in sales and (vi) approximately $0.5 million in costs related to the closure of one of the
companys manufacturing facilities during the first quarter of fiscal 2004. The $4.4 million write down of retail boutique assets consisted primarily of leasehold improvements and was due to the companys decision to close such boutiques
during fiscal 2005. These increases were partially offset by a decrease in advertising expenses of approximately $2.0 million, a decrease of approximately $1.9 million due to the closure of the St. John Home stores during fiscal 2003 and a decrease
in design sample expenses of approximately $0.5 million.



Operating income for fiscal 2004 decreased by $9.1 million, or 18.1% as compared to fiscal 2003. Operating income as a percentage of net sales decreased to 10.4% from 13.6% during the same period. This decrease in operating income as a
percentage of net sales was due to a decrease in the gross profit margin combined with an increase in selling, general and administrative expenses as a percentage of net sales.



Interest expense for fiscal 2004 decreased by $2.9 million, or 11.7% from fiscal 2003. This decrease was primarily due to a
decrease in the average debt balance from fiscal 2003, as well as a reduction in interest rates on the companys variable rate debt.



Other expenses decreased from $1.5 million for fiscal 2003 to income of less than $0.1 million for fiscal 2004. This decrease in other expenses was
primarily due to a loss of $0.9 million recorded on the disposition of fixed assets during fiscal 2003, a gain of approximately $0.4 million recorded on the sale of one of the companys manufacturing facilities during fiscal 2004 and an
increase in royalty income of approximately $0.2 million during fiscal 2004 as compared to fiscal 2003.



Income taxes for fiscal 2004 decreased by $3.2 million from fiscal 2003. The tax rate decreased from 38.9% to 31.7% during the same period. This decrease
in the tax rate was primarily due to an adjustment recorded during the first quarter of fiscal 2004 to reduce the companys tax liability for potential income tax audit issues which were resolved during the period.



Fiscal 2003 Compared to Fiscal 2002



Net sales for fiscal 2003 increased by $7.9 million, or 2.2% as compared to
fiscal 2002. This increase was principally attributable to (i) an increase in sales by company-owned retail outlet stores of approximately $9.7 million, including $5.2 million related to the addition of four retail outlet stores since the beginning
of fiscal 2002, (ii) an increase in sales by company-owned retail boutiques of approximately $8.1 million, due to an increase in sales of $10.1 million related to six new retail boutiques which were added since the beginning of fiscal 2002 and (iii)
an increase in international sales of approximately $4.6 million. These increases were partially offset by a decrease in sales to domestic wholesale customers of approximately $10.4 million, primarily due to a reduction of approximately $8.5 million
associated with the bankruptcy filing and subsequent liquidation of Jacobson Stores, Inc. (Jacobson) and a decrease in sales of approximately $4.0 million for the St. John Home stores, which the company closed in early fiscal 2003. Sales
for company-owned retail boutiques open at least one year decreased 1.2% during fiscal 2003 as compared to fiscal 2002. The overall increase in net sales was primarily the result of increased unit sales of the Knitwear product line.



Gross profit for fiscal 2003 increased by $5.8 million, or 2.8% as compared
with fiscal 2002, and increased as a percentage of net sales to 57.7% from 57.3%. This increase in the gross profit margin was predominately the result of an increase in the gross profit margin for the company-owned retail boutiques due to lower
point of sale markdowns.



Selling, general and administrative
expenses for fiscal 2003 increased by $19.3 million, or 13.4% over fiscal 2002, and increased as a percentage of net sales to 44.1% from 39.7%. Selling, general and administrative expenses increased during the period primarily due to (i) an increase
in expenses of approximately $11.6 million, resulting from the opening of six company-owned retail boutiques, the relocation of three retail boutiques, the expansion of two retail boutiques and the opening of four retail outlet stores since the
beginning of fiscal 2002, (ii) an increase in the expenses for the purchase of design samples of approximately $2.7 million, (iii) an increase in advertising expenses of approximately $2.3 million, relating to an increase in the number of print ads
placed during fiscal 2003, (iv) an increase in costs related to the companys expanding operations in Japan of approximately $1.3 million, (vi) an increase in bad debt expenses of approximately $1.0 million, primarily relating to the Jacobson
bankruptcy and (vii) an increase in design salary expense of approximately $0.9 million. The increase in expenses for the new and relocated/expanded retail boutiques and outlet stores is primarily comprised of rent, depreciation, salaries and other
operational expenses.



Operating income for fiscal 2003
decreased by $13.5 million, or 21.2% as compared to fiscal 2002. Operating income as a percentage of net sales decreased to 13.6% from 17.6% during the same period. This decrease in operating income as a percentage of net sales was due to an
increase in selling, general and administrative expenses as a percentage of net sales, which was partially offset by an increase in the gross profit margin for the period.



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Interest expense for fiscal 2003 increased by $0.7 million, or 3.0% from fiscal 2002. This increase was
due to an increase in the debt balance resulting from the conversion of the companys preferred stock and accrued dividends to senior subordinated 15.25% notes during July 2002. These notes were subsequently paid off during May 2003 using the
proceeds from an additional borrowing of $30.0 million under the companys credit agreements and excess cash on hand. This increase in interest expense was partially offset by a reduction in interest rates during fiscal 2003 on the
companys variable rate debt.



Liquidity and Capital Resources



The companys primary cash requirements are to fund
payments required to service the companys debt, to fund the companys working capital needs, primarily inventory and accounts receivable, and for the purchase of property and equipment. During fiscal 2004, cash provided by operating
activities was $30.9 million. Cash provided by operating activities was primarily generated by net income, a decrease in accounts receivable and an increase in accounts payable, while cash used in operating activities was primarily used to fund an
increase in inventories. The decrease in accounts receivable was primarily due to lower wholesale sales in October 2004 as compared to October 2003. Inventory increased in each of the three categories, finished goods, work in process and raw
materials, with the largest increase coming in the finished goods category. The increase in finished goods inventory was primarily due to an increase in the Knitwear division as the company increased its inventory level of some styles of finished
garments in anticipation of reorders and had completed certain styles for shipment in November 2004. In addition, finished goods inventory increased in the retail division and in Japan. The increase in raw materials was primarily due to an increase
in the Knitwear division as the company increased its yarn inventory with additional types of yarn. Work in process inventory also increased for the Knitwear division as the company increased the number of garments in the production cycle. Cash
provided by investing activities was $15.6 million during fiscal 2004. The principal source of cash provided by investing activities was the sale of the companys facilities located in Irvine and San Ysidro, California, which were subsequently
leased back, and the sale of the companys manufacturing facility in Van Nuys, California, while the principal use of cash in investing activities was for (i) the construction of leasehold improvements for upgrades to company-owned retail
boutiques, (ii) the construction of leasehold improvements for new, relocated or expanded retail boutiques, (iii) upgrades to the manufacturing operations, including the purchase of electronic knitting machines, (iv) the construction of St. John
shops within the companys major wholesale customer locations and (v) costs incurred to upgrade the companys computer systems. Cash used in financing activities was $48.4 million during fiscal 2004, resulting from required debt
prepayments of approximately $23.9 million arising from the sale of the properties noted above, a $5.0 million voluntary prepayment and scheduled payments made on the companys long-term debt and the redemption of $5.0 million of the
companys redeemable common stock from its former Chief Executive Officer.



As of October 31, 2004, the company had approximately $72.9 million in working capital and $17.8 million in cash and cash equivalents. The companys principal source of liquidity is internally generated funds. As
part of its credit facility with a syndicate of banks, the company also has a $25.0 million revolving commitment, which expires on July 31, 2005. The revolving commitment is secured and borrowings thereunder bear interest at the companys
choice of the banks borrowing rate (4.75% at October 31, 2004) plus 1.75% or LIBOR (2.19% at October 31, 2004) plus 2.75%. The availability of funds under the revolving commitment 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. As of October 31, 2004, the company was in compliance with all covenants and no amounts were outstanding under the revolving commitment. The company is currently negotiating the renewal or
replacement of its revolving commitment. The company had $15.3 million of letters of credit outstanding at October 31, 2004 which reduces the amount available under the revolving commitment by a corresponding amount. The company invests its excess
cash in a money market fund.



Total debt outstanding decreased
$43.4 million to $207.2 million during fiscal 2004. This decrease was due to $28.9 million in prepayments made on the companys long-term debt, along with scheduled principal payments made during the period. The companys outstanding debt
was comprised of bank borrowings of $107.8 million and senior subordinated 12.5% notes (12.5% notes) of $100.0 million, excluding the unamortized issue discount of $0.6 million.



The company completed a transaction to sell and leaseback four of its
facilities located in Irvine, California during July 2004. The transaction resulted in net proceeds of approximately $19.8 million, which were used to prepay a portion of the companys outstanding bank debt. The company recorded a deferred gain
of approximately $3.5 million related to the transaction. The company signed lease agreements on each of the four facilities expiring in 2019. The initial annual lease payments under the new leases total approximately $1.7 million.



The companys primary ongoing cash expenditures are for debt service and
the purchase of property and equipment. The companys debt service requirements consist primarily of principal and interest payments on bank borrowings and interest on the senior subordinated notes. The company believes it will be able to
finance its debt service and capital investment requirements with internally generated funds and availability under the revolving credit facility through at least fiscal 2005. Beyond fiscal 2005, the company will have a significant increase in the
principal payments required on its bank borrowings



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resulting from the maturity of its senior credit facilities. As a result, the company will probably need to raise additional capital or refinance such debt
in order to satisfy its obligations. The company is currently negotiating with potential lenders to refinance its long-term debt. The company expects the refinancing to be completed during the first half of fiscal 2005.



The table below summarizes the payments due for specific known contractual obligations as of
October 31, 2004:



|                        |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |         |  |   |        |  |   |        
|----------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------- |  | - | ------ |  | - | -------
|                        |  | Fiscal Years          
|Contractual Obligations |  | 2005                   |        | 2006 |   | 2007   |  | 2008 |        | 2009 |   | Thereafter |  | Total
|                        |  | (Amounts in thousands)
|12.5% notes             |  | $                      |       |      | $ |       |  | $    |       |      | $ |           |  | $     | 100,000 |  | $ |       |  | $ | 100,000
|Variable rate debt      |  |                        | 18,181 |      |   | 44,829 |  |      | 44,829 |      |   |           |  |       |        |  |   |       |  |   | 107,839
|Operating leases        |  |                        | 24,852 |      |   | 24,589 |  |      | 24,052 |      |   | 23,672     |  |       | 22,672  |  |   | 82,539 |  |   | 202,376
|Other(1)                |  |                        | 10,376 |      |   | 3,085  |  |      | 3,135  |      |   | 2,435      |  |       | 2,435   |  |   |       |  |   | 21,466 
|                        |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |         |  |   |        |  |   |        
|Total obligations       |  | $                      | 53,409 |      | $ | 72,503 |  | $    | 72,016 |      | $ | 26,107     |  | $     | 125,107 |  | $ | 82,539 |  | $ | 431,681
|                        |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |         |  |   |        |  |   |        

|(1) | Includes obligations for the purchase of yarn under contracts and payments under employment agreements, including employment agreements entered into during December
2004. In addition, the company also enters into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation or that are undocumented
except for an invoice. Such unconditional purchase obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in this line item.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the obligations above, during its
normal course of business, the company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include those given to various lessors in
connection with facility leases for certain claims arising from such facility or lease. The company has also issued guarantees, in the form of letters of credit, to cover contractual commitments, including merchandise purchases from foreign vendors
and to secure the payment for potential future workers compensation claims. The company had $15.3 million of letters of credit outstanding at October 31, 2004. Of this total, $13.8 million is related to potential future workers
compensation claims. The company will be required to issue additional letters of credit totaling approximately $3.6 million during fiscal 2005 for potential future workers compensation claims. The company has accrued a liability for the
estimated claims, both reported and incurred but not yet reported. The duration of these indemnities, commitments and guarantees varies and in certain cases is indefinite. The majority of these indemnities, commitments and guarantees do not provide
for any limitation of the maximum potential future payments the company could be obligated to make. The company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets other
than as noted.



In addition to the fiscal 2005 payments
included in the table above, the company anticipates purchasing property and equipment of approximately $14.7 million during fiscal 2005 but is not contractually committed to do so. The estimated $14.7 million will be used principally for (i) the
implementation of a new computer system for the retail division, (ii) the construction of St. John shops within the companys major wholesale customer locations, (iii) upgrades to the companys computer systems and (iv) upgrades to the
companys production facilities, including the purchase of electronic knitting machines.



Under certain conditions, the company may be required to repurchase a portion of the common stock beneficially owned by Bob, Marie or Kelly Gray, not to exceed $5.0 million in any 12 month period. Any such repurchases
would be limited by the restrictions of the agreements under the credit facilities and senior subordinated notes. See Notes 9 and 10 of Notes to Consolidated Financial Statements, included herein.



SJKI must rely on distributions, loans and other intercompany cash flows from
its subsidiaries to generate the funds necessary to satisfy the repayment of its outstanding loans. Except for restrictions under applicable law, there are no material restrictions on distributions to the company from the companys wholly owned
subsidiaries that have guaranteed the companys payment obligations under its 12.5% notes. See Note 18 of Notes to Consolidated Financial Statements, included herein.



SJKI did not make any payment of dividends during fiscal years 2004, 2003 and 2002, and does not anticipate the payment of
any cash dividends on its common stock in the future.



The
companys debt covenant EBITDA (EBITDA which is defined in the companys credit agreement for its senior secured credit facilities as net income, excluding the effects of interest expense, income taxes, depreciation and a
majority of the



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items included in other income and expense) was $64.3 million and $67.8 million for fiscal 2004 and 2003, respectively. EBITDA as defined by the company may
not be consistent with similarly titled measures of other companies. EBITDA is not a defined term under generally accepted accounting principles (GAAP) and is not an alternative to operating income or cash flow from operations as
determined under GAAP. EBITDA is used to calculate certain covenants under the companys credit agreement, including a maximum leverage ratio and minimum fixed charge and interest expense coverage ratios. The company believes that EBITDA
provides additional information for determining its ability to meet future debt service requirements; however, EBITDA should not be construed as an indication of the companys operating performance or as a measure of liquidity.



The table below shows the reconciliation from net income to EBITDA (as
defined in the terms of the credit agreement) for fiscal years 2004 and 2003:



|                              |  |                |        |   |      |   |       
|----------------------------- |  | -------------- | ------ | - | ---- | - | ------
|                              |  | Fiscal Years  
|                              |  | 2004           |        |   | 2003
|                              |  | (in thousands)
|Net income                    |  | $              | 13,448 |   |      | $ | 14,882
|Income taxes                  |  |                | 6,238  |   |      |   | 9,474 
|Interest expense              |  |                | 21,536 |   |      |   | 24,396
|Depreciation and amortization |  |                | 16,663 |   |      |   | 16,690
|Write down of retail assets   |  |                | 4,395  |   |      |   |      
|Deferred rent expense         |  |                | 639    |   |      |   | 460   
|Gain on sale of fixed assets  |  |                | 390    |   |      |   |      
|Licensing income              |  |                | 600    |   |      |   | 360   
|Accrued letter of credit fees |  |                | 474    |   |      |   |      
|Other (income) expense        |  |                | (50    | ) |      |   | 1,537 
|                              |  |                |        |   |      |   |       
|Debt covenant EBITDA          |  | $              | 64,333 |   |      | $ | 67,799
|                              |  |                |        |   |      |   |       



Off-Balance-Sheet Arrangements



The company does not have any off-balance sheet
arrangements within the meaning of Securities and Exchange Commission regulation S-K Item 303(a)(4).



Credit Facilities



The company is a party to a credit agreement with a syndicate of banks, which initially provided for an aggregate principal amount of loans totaling $215.0 million. The credit agreement consisted of three facilities: (i) tranche A
facility totaling $75.0 million, maturing July 31, 2005, (ii) tranche B facility totaling $115.0 million, maturing July 31, 2007 and (iii) the revolving credit facility totaling $25.0 million, maturing 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 banks borrowing rate plus 1.75% or LIBOR plus 2.75%. 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 banks borrowing rate plus 2.75% or LIBOR plus 3.75%. In addition, the company is required to pay a commitment fee on the unused portion of the revolving credit
facility of up to 0.5% per year.



Borrowings under the tranche
A facility began to mature quarterly on November 2, 1999, while borrowings under the tranche B facility began to mature quarterly on November 2, 2000. 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 the tranche A and B facilities, subject to certain exceptions, in amounts equal to (i) 75% of excess cash flow (as defined in
the companys credit agreement); (ii) 75% of the net cash proceeds of a permitted asset sale (as defined in the companys credit agreement) and (iii) 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). In July, the tranche A facility was retired as a result of the
prepayments discussed above.



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The obligations of the company under the credit agreement are guaranteed by each domestic subsidiary of
the company, 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 (i) a pledge of 100% of the capital stock of each
domestic subsidiary of the company and 65% of each foreign subsidiary of the company and (ii) a security interest in, and mortgage on, substantially all the assets of the company and each domestic subsidiary of the company 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. Each ratio is
calculated using EBITDA as defined in the credit agreement. In the event of non-compliance with any of these ratios, the company would be in default under the credit agreement. 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 12.5% notes if it fails to perform its obligations under, or fails to meet the conditions of, the credit agreement or if such payment
creates a default under the credit agreement. The credit agreement contains customary events of default. In the event of default, the total amount of the outstanding debt plus any accrued interest would become immediately due and payable. At October
31, 2004, the company was in compliance with all covenants.



Senior
Subordinated 12.5% Notes



In addition to the credit
facilities described above, the company has outstanding $100 million of senior subordinated notes (the notes). 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 beginning July 1, 2004. 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.



Redeemable Common Stock



SJKI is a party to a stockholders agreement with St. John, Vestar/Gray Investors, Vestar and the Grays, which states, among other things, that 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 to purchase the shares of SJKI common stock beneficially owned by them, up to a maximum of $5.0 million of such common stock for all the Grays during any 12-month period. If any of the Grays are terminated without cause or
resigns for good reason, as these terms are defined in their employment agreements with the company, then he or she will have the right to require SJKI to purchase the shares of SJKI common stock beneficially owned by them, up to a
maximum of 25% of the total shares held by such terminated or resigning Gray employee during any 12-month period. This agreement may be limited by the terms of the agreements related to the credit facilities and the 12.5% notes.



At the end of fiscal 2002, Bob Gray retired from his position as Chairman of
the Board and Chief Executive Officer of the company. In November 2002, as provided in the stockholders agreement, pursuant to Mr. Grays request, the company redeemed at fair market value, as determined by the board of directors, 89,621
shares of SJKIs common stock beneficially owned by him at a total cost of $5.0 million, or $55.79 per share. In May 2004, in accordance with the terms of the stockholders agreement, the company redeemed at fair market value, 166,666
shares of SJKIs common stock beneficially owned by Mr. Gray at a total cost of $5.0 million, or $30.00 per share.



The value of the companys redeemable common stock, as reported on the companys consolidated balance sheets, remained constant at $26.4 million
at October 31, 2004 and November 3, 2003. The company purchased shares from Mr. Gray as discussed above, which was offset by an increase in the fair market value of the companys common stock.



Critical Accounting Policies



The companys consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States. As such, the company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates and the reported
amounts of revenue and expense during the reporting periods. Actual results could significantly differ from such estimates.



The company believes that the following accounting policies are among the most critical because they involve significant judgments and uncertainties and
could potentially result in materially different results under different assumptions and conditions.



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Inventories



Inventories are stated at the lower of the cost to purchase and/or manufacture the inventory or the current estimated market value (lower of cost or
market). The company regularly reviews its inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on the companys estimated forecast of product demand and production requirements. Any significant
change in the anticipated demand for the companys products could cause the company to revise its estimate of excess and obsolete inventory, which could affect the companys reported results.



Revenue Recognition



Sales to the companys wholesale customers are recognized when the goods are shipped and title passes. Sales are
recognized upon purchase by customers at the companys retail store locations at the point of sale. The company has recorded reserves to estimate sales returns by customers based on historical sales return results. Actual return rates have
historically been within managements expectations and the reserves established. However, in the unlikely event that the actual rate of sales returns by customers changes significantly, the companys reported results could be affected.



Wholesale Markdowns



The company has arrangements with some of its major wholesale customers
which may result in the company reimbursing them for markdowns. The company records an estimate of its liability under these arrangements at the time of sale, based upon historical experience. These estimates are based in part on projected sales and
markdowns for these customers. While historical experience has been within managements expectations, any significant variation from the projected sales or markdowns could cause the company to change its estimates. Any such change in the
companys estimates could affect the companys reported results.



Long-lived Assets



During the normal course of
business, the company acquires tangible long-lived assets. The company periodically evaluates the recoverability of the carrying amount of these assets. An impairment is assessed when the undiscounted expected future cash flows derived from an asset
are less than its carrying amount. Impairments are recognized in operating income as they are realized. The company uses its best judgment, based upon the most current facts and circumstances surrounding the specific assets, when applying these
impairment rules. Changes in the assumptions used could have a significant impact on the companys assessments of the recoverability. Many factors, including changes to the companys business and the global economy, could significantly
impact managements decision to retain or dispose of certain of its long-lived assets.



Foreign Currency Translation



The company sells its products to wholesale customers located in various parts of Europe in the customers local currencies, Euros and British Pounds. The company also purchases its shoes, leather goods and various other raw material
items from vendors located in Europe in Euros. Fluctuations in the exchange rates can have an effect on the sales revenues and expenses recorded in connection with such transactions. For fiscal years 2004 and 2003, the company made the decision to
allow its sales and purchases to act as a natural hedge. This decision was based upon the fact that the sales and purchases made in the foreign currencies were similar in amounts over each of the fiscal years. The company has made a decision to
hedge its sales made in Euros and Pounds for the first six months of fiscal 2005 through the purchase of forward contracts. The forward contracts were purchased based upon a percentage of the estimated sales for the period. The company has not
hedged any of its purchases to be made in Euros. Future changes in the exchange rates will continue to affect the companys reported results.



Accounts Receivable



The company performs ongoing credit evaluations of its wholesale customers and adjusts credit limits based upon payment history and the customers
current financial status. The company continuously monitors its customer payments and maintains a provision for estimated credit losses based upon the companys historical experience and any specific customer collection issues that have been
identified. The companys accounts receivable are concentrated in the apparel industry, primarily with its three major wholesale customers. The risk of collection is concentrated within this industry and with these specific customers. As a
result of this concentration, a change in the creditworthiness of the companies within the apparel industry could cause the company to revise its estimate of credit losses, which could affect the companys reported results.



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Insurance Program



The company is partially self-insured for its workers compensation insurance coverage. Under this insurance program the company is liable for a
deductible of $500,000 for each individual claim. The company records a liability for the estimated cost of claims both reported and incurred but not reported based upon its historical experience. The estimated costs include the estimated future
cost of all open claims. The company will continue to adjust the estimates as the actual experience dictates. A significant change in the number or dollar amount of claims could cause the company to revise its estimate of potential losses and affect
its reported results.



New Accounting Pronouncements



See Note 2(p) 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, among other things: (i) the companys anticipated purchases of property and equipment during fiscal 2005, (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 facility through fiscal 2005, (iii) the companys anticipation
that it will not pay cash dividends on its common stock in the future and (iv) the companys expectations regarding its ability to refinance its long-term debt during the first half of fiscal 2005.



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, changes to 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 financial health of the companys principal customers, (iii) the companys ability to develop, market and sell its products, (iv) competition from other manufacturers and retailers of
womens clothing and accessories, (v) general economic conditions and (vi) the ability of the company to meet the financial covenants under its credit facilities and indenture. The company undertakes no obligation to review or update publicly
any forward looking statements.



|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 risk management practices, the company may enter into foreign exchange forward contracts. These contractual arrangements are typically entered
into with a major financial institution. The company does not hold derivative financial instruments for speculative trading. The primary business objective of this program is to secure the anticipated profit on sales denominated in foreign
currencies. The companys primary exposure to foreign exchange fluctuation is on the Euro and British Pound.At October 31, 2004, the company held contracts maturing from December 31, 2004 to May 31, 2005 to sell 2.0 million Euros and
600,000 Pounds at an average exchange rate of 1.21 U.S. dollars to the Euro and 1.78 U.S. dollars to the Pound. The total tax effected fair value at October 31, 2004 was a loss of $106,000, which was recorded as a component of stockholders
equity and comprehensive income.



The company also purchases
its shoes and leather goods, as well as various other raw materials, from companies located in Europe. The purchase of these items is completed in Euros. In order to reduce the effect of the fluctuation in the exchange rate between the Euro and the
U.S. dollar, the company may enter into forward contracts. The company did not hold any forward contracts to purchase Euros at October 31, 2004.



The company made a decision to use its sales made in Euros as a natural hedge for the purchases of inventory items made in Euros for each of fiscal years
2004 and 2003.



The company is also exposed to market
risks related to fluctuations in interest rates on its bank borrowings under the credit agreement. The company also holds fixed rate subordinated notes. 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



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changes in interest rates by issuing part of its debt with a fixed interest rate. Assuming that the balance of variable rate debt remains constant, a one
percentage point increase in the interest rate from the first day of the year would result in an annual increase in interest expense of approximately $1.1 million.



The table below details the principal amounts due and the average nominal interest rates for the debt in each category based
on the expected maturity dates and applicable amortization schedules. The carrying value of the variable rate debt approximates fair value as the interest rate is adjusted to market periodically. The 12.5% notes are publicly traded and the fair
value is based upon the quoted market value at October 31, 2004.



|                         |  |                |        |   |      |   |        |      |  |   |        |   |      |   |   |            |   |         |   |  |            |   |  |   |         |   |  |   |        
|------------------------ |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - | ---- | - | - | ---------- | - | ------- | - |  | ---------- | - |  | - | ------- | - |  | - | -------
|                         |  | Fiscal Years   |        |   |      |   |        |      |  |  
|                         |  | 2005           |        |   | 2006 |   |        | 2007 |  |   | 2008   |   | 2009 |   |   | Thereafter |   | Total   |   |  | Fair Value
|                         |  | (in thousands)
|Fixed rate 12.5% notes   |  | $              |       |   |      | $ |       |      |  | $ |       |   |      | $ |  |            | $ | 100,000 |   |  | $          |  |  | $ | 100,000 |   |  | $ | 107,420
|Average interest rate    |  |                |        |   |      |   |        |      |  |   |        |   |      |   |   |            |   | 12.5    | % |  |            |   |  |   | 12.5    | % |  |   |        
|Variable rate debt       |  | $              | 18,181 |   |      | $ | 44,829 |      |  | $ | 44,829 |   |      | $ |  |            | $ |        |   |  | $          |  |  | $ | 107,839 |   |  | $ | 107,839
|Average interest rate(1) |  |                | 5.7    | % |      |   | 5.7    | %    |  |   | 5.7    | % |      |   |   |            |   |         |   |  |            |   |  |   | 5.7     | % |  |   |        



|(1) | The average interest rate is based upon the actual rate in place as of October 31,
2004.
|--- | ----------------------------------------------------------------------------------------



The company does not believe
that the future market rate risks related to the above securities will have a material impact on the company or the results of its operations.



|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------



See Item 15. Exhibits and Financial Statement Schedules - 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.



|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



The company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information
required to be disclosed in the companys reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to the companys management, including the companys Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



The company carried out an evaluation under the supervision and with the participation of management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of October 31, 2004, the end of the period covered by this report. Based on that evaluation, the companys Chief Executive Officer
and Chief Financial Officer concluded that the companys disclosure controls and procedures were effective at the reasonable assurance level as of October 31, 2004.



There have been no changes in the companys internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the quarter ended October 31, 2004 that materially affected, or are reasonably likely to materially affect, the companys internal control over financial reporting.



|Item 9B. | OTHER INFORMATION
|-------- | -----------------



Not Applicable.



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PART III



|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
|-------- | ----------------------------------------------



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



|                      |  |                                                              |  |    
|--------------------- |  | ------------------------------------------------------------ |  | ---
|Name                  |  | Position with St. John Knits International                   |  | Age
|James Kelley          |  | Chairman of the Board                                        |  | 50 
|Richard Cohen         |  | Director and Chief Executive Officer                         |  | 50 
|Kelly Gray            |  | Director and Creative Director                               |  | 38 
|Bruce Fetter          |  | Director and Chief Operating Officer                         |  | 50 
|Marie Gray            |  | Vice Chairman of the Board and Chief Designer                |  | 68 
|Roger Ruppert         |  | Executive Vice President­Finance and Chief Financial Officer |  | 61 
|Robert Green          |  | Executive Vice President  Sales and Marketing               |  | 49 
|Max Weinstein         |  | Executive Vice President - Operations                        |  | 57 
|Bob Gray              |  | Director and Honorary Chairman                               |  | 79 
|Daniel OConnell      |  | Director                                                     |  | 50 
|Sander Levy           |  | Director                                                     |  | 43 
|Christopher Henderson |  | Director                                                     |  | 37 
|Philip Miller         |  | Director                                                     |  | 66 



Biographical Information



James Kelley, a director of the company since July 1999,
was appointed as Chairman of the Board in November 2002. Mr. Kelley is President 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.



Richard Cohen, a director of the company since September 2004, has served
as Chief Executive Officer of the company since August 2004. Prior to joining the company, Mr. Cohen was the Chief Executive Officer of Ermenegildo Zegna North America, a wholesale and retail apparel company, from 1987 to August 2004.



Kelly Gray, a director of the company since October 1994, has served as
Creative Director since June 1991. She also served as Co-Chief Executive Officer of the company from November 2002 to August 2004 and as President of the company from April 1996 until November 2002. 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 and held various other administrative positions with the company. Ms. Gray is the daughter of Bob Gray
and Marie Gray.



Bruce Fetter, a director of the company since
November 2002, has served as Chief Operating Officer of the company since October 2001. He also served as Co-Chief Executive Officer of the company from November 2002 to August 2004, as Co-President and Chief Operating Officer of the company from
October 2001 until November 2002 and as Executive Vice President and Chief Operating Officer of the company from June 1999 until October 2001. Prior to that he served as Senior Vice President and Chief Operating Officer of the company from November
1997 to June 1999. He joined the company in January 1997 as Vice President­Distribution and in April 1997 was appointed Senior Vice President­Operations. From August 1994 to December 1996 he held the position of Vice President­Logistics
for Bobs Stores, a division of the Melville Corporation.



Marie Gray, Vice Chairman of the Board since May 2003 and a director since inception, is a co-founder of St. John and has served as Chief Designer of the company since its inception in 1962. Ms. Gray served as Secretary of the company from
March 1993 to November 2002. Prior to forming St. John, 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.



Roger Ruppert was appointed
Executive Vice President-Finance and Chief Financial Officer of the company in October 2002. He served as Senior Vice President­Finance and Chief Financial Officer of the company from October 1986 to October 2002. Prior to joining the company,
Mr. Ruppert was Vice President­Finance and Chief Financial Officer of Cardis Corporation, a publicly traded auto parts distributor, from October 1985 to October 1986. Mr. Ruppert is a certified public accountant.



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Robert Green was appointed Executive Vice President  Sales & Marketing of the company in
January 2005. Prior to joining the company, Mr. Green was President and Chief Executive Officer of Vestimenta, an apparel company, from November 2003 to December 2004. From 1994 to November 2003, Mr. Green was employed by Ermenegildo Zegna, most
recently serving as Executive Vice President, Sales & Marketing.



Max Weinstein was appointed Executive Vice President  Operations of the company in January 2005. Prior to joining the company, Mr. Weinstein had managed worldwide operations functions, including product development, production,
distribution, information technology and facilities management for Calvin Klein since 1999, most recently serving as Corporate Senior Vice President, Global Operations. Mr. Weinstein has over 30 years experience in the apparel industry.



Bob Gray retired from his position as Chairman of the Board
and Chief Executive Officer effective November 2002. He is a co-founder of St. John and served as Chairman of the Board of the company since its inception in 1962. Mr. Gray remains a director of the company and Honorary Chairman of the Board. He
also served as Chief Executive Officer of the company from its inception until February 2001 and was re-appointed Chief Executive Officer in October 2001. 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. Mr. Gray is the husband of Marie Gray and the father of Kelly Gray.



Daniel OConnell, a director of the company since July 1999, is the Chief Executive Officer and founder of Vestar
Capital. Mr. OConnell is a director of Birds Eye Foods, Inc., FL Selenia S.p.A., Solo Cup company and Sunrise Medical Inc.



Sander Levy, a director of the company since July 1999, 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 Symetra Financial Corporation, Wilton Re Holdings Limited and Gleason Corporation.



Christopher Henderson, a director of the company since June 2001, is a Managing Director of Vestar Capital and has been a member of the firm since 1993.
Mr. Henderson is a director of Gold Toe Corp.



Philip Miller, a
director of the company since January 9, 2003, is the President of Philip B. Miller Associates, a consulting firm which he founded in July 2001. Prior to starting his own company, he served as Chairman and CEO of Saks Fifth Avenue, from 1993 to
February 2000 and as Chairman from 1993 to July 2001. Prior to that, he held other positions with Saks Fifth Avenue as well as serving as Chairman and CEO of Marshall Fields. Mr. Miller is a director of Kenneth Cole.



CODE OF ETHICS FOR SENIOR EXECUTIVE AND FINANCIAL OFFICERS



The companys Board of Directors has adopted a Code of Ethics for
Senior Executive and Financial Officers. A copy of the Code of Ethics is available, free of charge, upon written request sent to the legal department at the companys corporate offices located at 17622 Armstrong Avenue, Irvine, California
92614.



AUDIT COMMITTEE FINANCIAL EXPERT



The companys Board of Directors has determined that James Kelley and
Sander Levy, directors and members of the audit committee, are Audit Committee Financial Experts. Messrs. Kelley and Levy are not independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.



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|Item 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



Summary
Compensation Table



The following table sets forth the
compensation earned by the named executive officers of the company (collectively, the Named Executive Officers) for services in all capacities to SJKI and its subsidiaries for the fiscal years indicated:



|                                                                            |  |                     |  |        |                              |           |       |   |                           |  |   |                                         |     |                        |                 |  |   |        |    
|--------------------------------------------------------------------------- |  | ------------------- |  | ------ | ---------------------------- | --------- | ----- | - | ------------------------- |  | - | --------------------------------------- | --- | ---------------------- | --------------- |  | - | ------ | ---
|                                                                            |  | Annual Compensation |  |        | Long Term CompensationAwards |           |       |  
|                                                                            |  | Year                |  | Salary |                              |           | Bonus |   | Other Annual Compensation |  |   | Shares of CommonStock UnderlyingOptions |     | All Other Compensation |                
|Richard Cohen(1)Chief Executive Officer                                     |  | 2004                |  | $      | 252,115                      |           |       | $ | 300,000                   |  | $ | 171,827                                 | (2) |                        | 200,000         |  | $ | 23,340 | (3)
|Kelly Gray(4)Creative Director and formerCo-Chief Executive Officer         |  | 200420032002        |  | $      | 1,286,8931,280,2981,187,705  | (5)(5)(5) |       |   |                        |  |   | ***                                     |     |                        |              |  |   |     |    
|Bruce Fetter(4)Chief Operating Officer andformer Co-Chief Executive Officer |  | 200420032002        |  | $      | 790,827760,849685,701        |           |       |   |                        |  |   | ***                                     |     |                        |   50,00025,000 |  |   |     |    
|Marie GrayChief Designer                                                    |  | 200420032002        |  | $      | 814,562884,791834,533        |           |       |   |                        |  |   | ***                                     |     |                        |              |  |   |     |    
|Roger RuppertChief Financial Officer                                        |  | 200420032002        |  | $      | 360,828352,699340,908        |           |       |   |                        |  |   | ***                                     |     |                        |   1,667       |  |   |     |    

---

|* | Indicates that the aggregate amount of perquisites and other personal benefits, securities or property paid did not exceed the lesser of 10% of such officers total annual
salary and bonus for such year or $50,000.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) | Mr. Cohen joined the company as Chief Executive Officer in August 2004.
|--- | -----------------------------------------------------------------------



|(2) | This amount includes payments made on behalf of Mr. Cohen of $79,000 for a medical
reimbursement plan, as well as payments made to Mr. Cohen of $49,300 for moving and living expenses in connection with his relocation and income tax reimbursement payments associated with such relocation expenses of $34,700.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This amount represents personal life insurance policy premiums paid by the company.
|--- | -----------------------------------------------------------------------------------



|(4) | Ms. Gray and Mr. Fetter served as Co-Chief Executive Officers of the company from November
2002 through August 2004. In fiscal 2003 each of them also served as Co-Presidents.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | This amount includes modeling fees of $500,000 which were paid to Ms. Gray during each of
fiscal years 2004, 2003 and 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------



Employment Agreements



The company is a party to employment agreements with each
of Richard Cohen, Kelly Gray and Marie Gray. Mr. Cohens employment agreement with the company expires August 9, 2009, subject to automatic one-year extensions if neither the company nor Mr. Cohen notifies the other at least 90 days prior to
August 9, 2009 or the end of any applicable extension period that the term shall not be extended. Pursuant to the agreement, Mr. Cohen received a $300,000 signing bonus, subject to repayment in the event Mr. Cohen is terminated by the company for
cause or he terminates his employment without good reason prior to December 31, 2005. The agreement also provides that Mr. Cohen will receive an annual base salary of $1,200,000 and that he is eligible to receive an annual
bonus with respect to each fiscal year during the term of the agreement of up to 50% of his base salary in fiscal 2004 and 2005 (but no less than $68,000 in 2004 and $350,000 in 2005) and up to 100% of



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his base salary during the remainder of the term, based on the achievement of performance goals set by the companys Board of Directors. In addition,
the company is also required to (i) pay premiums on a $1,000,000 whole life policy and a $2,000,000 term life policy on the life of Mr. Cohen along with premiums on an individual and a group disability policy, (ii) pay premiums of, or if an
insurance policy is not available, reimburse him for, up to $470,000 annually for dependent medical care, (iii) pay relocation costs for his move from New York to California, and (iv) unless prohibited by law, if requested by Mr. Cohen, loan him up
to $500,000 to apply towards his purchase of a primary residence in Southern California, at the lowest rate not resulting in income to Mr. Cohen, repayable upon the sale of his New York residence.



In the event of termination of Mr. Cohens employment by the company
with cause, or by him without good reason, the employment agreement provides that he will receive salary and benefits earned through the date of termination (Accrued Rights) and continuation of the dependent care
coverage until the earlier of the second anniversary of his termination or the date on which be becomes employed elsewhere. If Mr. Cohen is terminated due to death or disability, he will receive his Accrued Rights, continuation of the dependent care
coverage until the later of one year following such termination or the expiration of the term of the employment agreement assuming he had not died or been disabled, and a lump sum payment equal to a pro rata portion of the annual bonus that he would
have actually earned in the fiscal year in which termination occurred if he had remained employed (the Pro Rata Bonus). In the event of termination of employment by the company without cause, or by Mr. Cohen with good
reason, he will receive (i) the Pro Rata Bonus, (ii) continued base salary payments for two years (the Severance Period), (iii) an amount equal to approximately two times his historical average annual bonus payable in installments
over the Severance Period, (iv) continuation of health insurance coverage for the Severance Period, (v) continuation of the dependent care coverage until the later of expiration of the Severance Period or expiration of the term as if such
termination had not occurred, and (vi) his Accrued Rights. In addition, if the company elects not to extend the term of the agreement at the end of the initial term or any renewal period, then, he will be entitled to continued payment of his base
salary, health insurance coverage and dependent care coverage for one year, and an amount equal to his historical average annual bonus payable over one year.



Pursuant to the terms of the employment agreement, Mr. Cohen also agreed to acquire 1,667 shares of the companys common stock at a purchase price of
$30.00 per share and received a grant of stock options to purchase (i) 50,000 shares at $30.00 per share, (ii) 50,000 shares at $40.00 per share, (iii) 50,000 shares at $50.00 per share and (iv) 50,000 shares at $60.00 per share under the
companys stock option plan.



Kelly Grays employment
agreement expires December 31, 2007, subject to automatic one-year extensions if neither the company nor Ms. Gray notifies the other at least 90 days prior to the original expiration date, or the end of any applicable extension period, that the term
shall not be extended. The agreement provides that Ms. Gray will receive an annual base salary of $650,000 in calendar 2005 and $750,000 in calendar 2006 and 2007. For any extensions of the term beyond the third year, her base salary will be
determined by the Chief Executive Officer and approved by the Board of Directors. However, at no time will her base salary be less than that of the highest paid designer of the company, other than Marie Gray.



She is also eligible to receive an annual bonus with respect to each year
during the term of the agreement of up to $200,000 in calendar 2005 and up to 30% of her base salary in each calendar year thereafter, based on achievement of company and individual performance goals approved by the Board of Directors. The agreement
also entitles her to receive an automobile allowance of $2,000 per month and to participate in the companys clothing allotment program, and its other employee plans and benefits. In addition, in calendar 2005, Ms. Gray will receive a modeling
fee of $250,000.



In the event of termination of Kelly
Grays employment by the company with cause, by her without good reason, or due to her death or disability, the employment agreement provides that she will receive her Accrued Rights. In the event of termination of
employment by the company without cause, or by Ms. Gray with good reason, she will receive (i) a lump sum payment, within 60 days of the beginning of the following year, equal to a pro rata portion of the annual bonus that
she would have earned in the year in which termination occurred if she had remained employed, (ii) continuation of base salary payments for eighteen months, (iii) continuation of health insurance coverage, at the companys cost, for eighteen
months, (iv) any unpaid portion of the $250,000 modeling fee for 2005 and (v) her Accrued Rights. In addition, if the company elects not to extend the term of the agreement at the end of the initial term or any renewal period, then she will be
entitled to receive the same benefits as if she were terminated by the company without cause, except that the continuation of base salary and health insurance coverage shall be reduced to nine months.



Marie Grays employment agreement with the company expires December 31,
2005 and provides for an annual base salary of $750,000. In the event of termination of Marie Grays employment by the company with cause, or by her without good reason, the employment agreement provides that she will
receive her Accrued Rights. In the event of termination of employment by the company without cause, or by Ms. Gray with good reason, she will receive continued salary payments for one year and health benefits for the longer
of the remainder of the term of the agreement or six months. In addition, her employment agreement provides that the company will pay severance payments in the form of salary and health benefits



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continuation for a period equal to one month for each year of service, up to a maximum of eighteen months, if her employment is terminated by reason of a
disability. Finally, in the event Marie Grays employment agreement is terminated for good reason due to the fact that a successor company did not assume the agreement, she would also receive a lump sum payment of $1,500,000.



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, 2004:



|              |  |                                                    |  |                                                              |      |    |                |                      |                 |                              |                                                                                               |   |                                    |  |   |                                     
|------------- |  | -------------------------------------------------- |  | ------------------------------------------------------------ | ---- | -- | -------------- | -------------------- | --------------- | ---------------------------- | --------------------------------------------------------------------------------------------- | - | ---------------------------------- |  | - | ------------------------------------
|              |  | Number of Securities Underlying Options Granted(1) |  | Percent of Total Options Granted to Employees in Fiscal Year |      |    | Exercise Price |                      | Expiration Date |                              | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation forOption Term
|Name          |  |                                                    |  |                                                              |      | 5% |                | 10%                 
|Richard Cohen |  | 50,00050,00050,00050,000                           |  | 25252525                                                     | %%%% |    | $              | 30.0040.0050.0060.00 |                 | 8/09/158/09/158/09/158/09/15 |                                                                                               | $ | 943,0001,258,0001,572,0001,887,000 |  | $ | 2,391,0003,187,0003,984,0004,781,000
|Marie Gray    |  |                                                   |  |                                                             |      |    |                |                     |                 |                             |                                                                                               |   |                                   |  |   |                                    
|Kelly Gray    |  |                                                   |  |                                                             |      |    |                |                     |                 |                             |                                                                                               |   |                                   |  |   |                                    
|Bruce Fetter  |  |                                                   |  |                                                             |      |    |                |                     |                 |                             |                                                                                               |   |                                   |  |   |                                    
|Roger Ruppert |  |                                                   |  |                                                             |      |    |                |                     |                 |                             |                                                                                               |   |                                   |  |   |                                    



|(1) | The options were granted under the 1999 St. John International, Incorporated Stock Option Plan for a term of ten years, subject to earlier termination in certain
events related to termination of employment. The options become exercisable 20% per year, beginning one year from the date of grant. To the extent not already exercisable, the options generally become exercisable upon a change in control
transaction. All options were granted at or above fair market value.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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, 2004 and unexercised options held by each such officer as of October 31, 2004:



|              |  |                             |  |                |  |                                                                        |  |                                                                 |  |               |         |  |   |        
|------------- |  | --------------------------- |  | -------------- |  | ---------------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ------------- | ------- |  | - | -------
|              |  | Shares Acquired on Exercise |  | Value Realized |  | Number of Securities Underlying Unexercised Options at Fiscal Year-End |  | Value of Unexercised In-the-Money Options at Fiscal Year-End(1)
|Name          |  |                             |  | Exercisable    |  | Unexercisable                                                          |  | Exercisable                                                     |  | Unexercisable
|Richard Cohen |  |                            |  |               |  |                                                                       |  | 200,000                                                         |  | $             |        |  | $ | 350,000
|Marie Gray    |  |                            |  |               |  | 72,736                                                                 |  | 36,368                                                          |  |               | 509,152 |  |   | 253,876
|Kelly Gray    |  |                            |  |               |  | 96,982                                                                 |  | 48,490                                                          |  |               | 678,874 |  |   | 339,430
|Bruce Fetter  |  |                            |  |               |  | 60,000                                                                 |  | 40,000                                                          |  |               | 280,000 |  |   |       
|Roger Ruppert |  |                            |  |               |  | 9,333                                                                  |  | 667                                                             |  |               | 65,331  |  |   | 4,669  



|(1) | The estimated fair market value of the companys common stock at October 31, 2004 was $37.00.
|--- | ---------------------------------------------------------------------------------------------



Director Compensation



Directors holding salaried positions with the company, or with Vestar, do not receive compensation for their services as a
director. Bob Gray is currently acting as a consultant to the company and will not receive any compensation for his services as a director. All other directors will receive $40,000 annually for their services as a director, in addition to an
attendance fee of $2,500 for each board meeting that is attended in person and $500 for each board or committee meeting attended telephonically. During January 2003, the company appointed Mr. Miller as a director. Mr. Miller is currently the only
director eligible to receive this compensation. The board granted Mr. Miller 10,000 stock options on his appointment date. The options have an exercise price equal to the fair market value of the shares at the date of grant, have a life of 10 years
and will vest over a five year period.



29



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##### Table of Contents

Compensation Committee Interlocks and Insider Participation



The company does not have a compensation committee. Issues regarding
executive compensation are addressed by the full board of directors. The Grays and Bruce Fetter participated in deliberations regarding executive compensation during fiscal 2004. See Item 13 - Certain Relationships and Related
Transactions for a discussion of certain transactions between the company and these directors.



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##### Table of Contents

|Item 12. | SECURY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | --------------------------------------------------------------------------------------------



Beneficial Ownership



The following table sets forth information as of January 26, 2005 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 Named Executive Officer; and (iv) all current directors and executive officers of SJKI as a group.



|                                                                        |  |                                                 |  |                  |  
|----------------------------------------------------------------------- |  | ----------------------------------------------- |  | ---------------- | -
|Name                                                                    |  | Approximate Number of Shares Beneficially Owned |  | Percentage Owned |  
|Vestar/Gray Investors LLC(1)                                            |  | 5,833,918                                       |  | 92.75            | %
|1225 17th Street, Suite 1660                                            |  |                                                 |  |                  |  
|Denver, Colorado 80202                                                  |  |                                                 |  |                  |  
|Bob Gray(2)                                                             |  | 460,957                                         |  | 7.16             | %
|Marie Gray(2)                                                           |  | 460,957                                         |  | 7.16             | %
|Kelly Gray(3)                                                           |  | 494,191                                         |  | 7.74             | %
|Richard Cohen                                                           |  |                                                |  | *                |  
|Bruce Fetter(4)                                                         |  | 61,750                                          |  | *                |  
|Roger Ruppert(5)                                                        |  | 10,333                                          |  | *                |  
|James Kelley(6)                                                         |  | 5,121,222                                       |  | 81.42            | %
|Daniel OConnell(6)                                                     |  | 5,121,222                                       |  | 81.42            | %
|Sander Levy(6)                                                          |  | 5,121,222                                       |  | 81.42            | %
|Christopher Henderson(6)                                                |  | 5,121,222                                       |  | 81.42            | %
|Philip Miller                                                           |  |                                                |  | *                |  
|All current directors and executive officers as a group (13 persons)(7) |  | 6,148,453                                       |  | 93.13            | %

---

|* | 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 81%, of SJKIs common stock
through its controlling interest in Vestar/SJK Investors LLC, which owns approximately 88% of Vestar/Gray Investors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes 315,485 shares which are beneficially owned (through Vestar/Gray Investors) by the Gray Family Trust, of which Bob and Marie Gray serve as co-trustees and
are the sole beneficiaries. In addition, includes 145,472 shares issuable upon exercise of options exercisable at or within 60 days of January 26, 2005. Bob and Marie Gray each held 72,736 of such option shares. Their address is 17622 Armstrong
Avenue, Irvine, California, 92614.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes 342,571 shares which are beneficially owned (through Vestar/Gray Investors) by the Kelly Gray Living Trust, of which Kelly Gray serves as sole trustee and
beneficiary. In addition, includes 54,640 shares which are beneficially owned (through Vestar/Gray Investors) by the Kelly Ann Gray Trust, of which Kelly Gray serves as trustee and sole beneficiary. Also includes 96,982 shares issuable upon exercise
of options exercisable at or within 60 days of January 26, 2005. Her address is 17622 Armstrong Avenue, Irvine, California, 92614.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes 60,000 shares issuable upon exercise of options exercisable at or within 60 days of January 26, 2005.
|--- | --------------------------------------------------------------------------------------------------------------



|(5) | Includes 9,333 shares issuable upon exercise of options exercisable at or within 60 days of January 26, 2005.
|--- | -------------------------------------------------------------------------------------------------------------



|(6) | Includes shares beneficially owned by Vestar. Each of Mr. OConnell, Mr. Kelley, Mr. Levy and Mr. Henderson disclaims the existence of a group and disclaims
beneficial ownership of the common stock not held by him.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Includes 311,785 shares issuable upon exercise of options exercisable at or within 60 days of January 26, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Equity Compensation Plan Information



The following table provides information about the companys shares of common stock that may be issued upon the
exercise of options, warrants and rights under all of its existing equity compensation plans as of October 31, 2004:



|                                                              |  |                                                                                             |  |                                                                              |       |                                                                                                                                            |        
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------
|Plan category                                                 |  | (a)Number of securities tobe issued upon exerciseof outstanding options,warrants and rights |  | (b) Weighted-averageexercise price ofoutstanding options,warrants and rights |       | (c)Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securitiesreflected in
column (a))
|Equity compensation plans approved by security holders        |  |                                                                                            |  |                                                                              |      |                                                                                                                                            |       
|Equity compensation plans not approved by security holders(1) |  | 864,760                                                                                     |  | $                                                                            | 35.48 |                                                                                                                                            | 362,534
|                                                              |  |                                                                                             |  |                                                                              |       |                                                                                                                                            |        
|Total                                                         |  | 864,760                                                                                     |  | $                                                                            | 35.48 |                                                                                                                                            | 362,534
|                                                              |  |                                                                                             |  |                                                                              |       |                                                                                                                                            |        



|(1) | Represents options granted under the 1999 St. John Knits International, Incorporated Stock Option Plan, which was approved by the companys board of
directors in connection with the mergers. The Plan was adopted to permit the grant of options to employees of the company as an additional incentive by allowing them to benefit directly from its growth, development and financial success. Options to
purchase an aggregate of 1,227,360 shares are authorized for issuance under the Plan. Options may be granted under the Plan at an exercise price to be determined by the Plan Administrator, and have a term of ten years, subject to earlier termination
in certain events related to termination of employment. Each option issued to date was granted at or above the fair market value on the date of grant. The options become exercisable in installments as determined by the Plan Administrator, generally
over a period of three to five years from the date of grant. To the extent not already exercisable, the options generally become exercisable upon a change in control transaction.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



The company leases a 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 ten-year term expiring on February 28, 2013, 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 $63,000 with annual increases of 4%. During fiscal years 2004, 2003 and 2002, the company paid GM Properties approximately $750,000, $761,000 and $809,000, respectively, to lease this facility.



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, 2006, 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 $30,000, with annual increases of 4%. During fiscal years 2004, 2003 and 2002, the company paid Alhambra Partners approximately
$344,000, $331,000 and $318,000, respectively, under this lease.



The company periodically rents the use of an airplane from BK Air, a partnership which is owned equally by Bob Gray and Kelly Gray. BK Air owns a fractional interest in an airplane. Payments made to BK Air for the use of the airplane are
the same as those paid by BK Air. During fiscal years 2004, 2003 and 2002, the company paid BK Air approximately $181,000, $97,000 and $126,000, respectively, under this arrangement.



The company sublet a warehouse facility from Michael Gray, the son of Bob Gray. The building is owned by a partnership
comprised of BK Air and Michael Gray. The sublease was terminated during July 2004. During fiscal years 2004, 2003 and 2002, the company paid Michael Gray approximately $38,000, $90,000 and $108,000, respectively, under this sublease.



The company leases its retail boutique located in Denver, Colorado from
Steele & Second Avenue, LLC, a Delaware limited liability company in which the Gray Family Trust has a 60% ownership interest. The balance of the partnership is owned by a former vice president of the company. The lease is for a ten-year term
expiring on March 31, 2012, with the company having an option to extend the lease for two five-year terms at lease amounts to be agreed upon. The current base monthly lease payment under this lease is approximately $16,000, with annual increases of
3%. During fiscal years 2004, 2003 and 2002 the company paid Steele & Second Avenue, LLC approximately $193,000, $188,000 and $128,000, respectively, under this lease.



Effective April 30, 2002, the company loaned $500,000 to Bruce Fetter, the Co-President and Chief Operating Officer at the
time. The loan accrues interest at 2.9% per year and is payable in full on April 30, 2005.



The company has a consulting agreement with Bob Gray, a current director and former Chief Executive Officer. The agreement commenced November 4, 2002 and expires November 3, 2005. Mr. Gray received compensation under
the agreement of $125,000 and $500,000 in fiscal years 2004 and 2003, respectively, and is scheduled to receive $125,000 in fiscal 2005.



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 2003 and 2002, the company paid approximately $7,000 and $5,000, respectively, with respect to such property. In addition, the company and Ocean each hold a 50% ownership interest in a partnership
(partnership) which owns an airplane. As of October 31, 2004, each partner had a net capital investment in the partnership of approximately $1,943,000. During fiscal years 2004, 2003 and 2002, the partnership leased the airplane to the
company and received lease payments totaling approximately $1,020,000, $1,200,000 and $1,200,000, respectively. The company and the partnership will terminate the lease agreement for the airplane effective January 31, 2005. The company has not
guaranteed any debt of Ocean.



The company rents the hangar
used to store the airplane from Ocean. The agreement is on a month-to-month basis. The current monthly rent is $4,500. During fiscal years 2004, 2003 and 2002, the company paid to Ocean approximately $54,000, $54,000 and $50,000, respectively, for
the rental of this property.



Effective December 7, 2004, the
company loaned $2,025,000 to Richard Cohen, the companys Chief Executive Officer and his wife. The loan accrues interest at 5.0% per year and is payable in full on the earlier of June 7, 2006 or upon the sale of their home located in New York.
The loan is secured by the New York residence.



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



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##### Table of Contents

Certain Agreements Relating to the 1999 Mergers



Vestar Capital, SJKI and St. John have entered into a management agreement. Under the agreement, Vestar Capital provides
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, SJKI pays Vestar Capital an annual fee of $500,000 and reimburses 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 mergers 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 88%, and the Grays beneficially own approximately 12%, of Vestar/Gray Investors. The Vestar/Gray Investors limited liability company agreement provides, among other things, that Vestar may appoint a majority of
SJKIs directors.



SJKI has entered into a
stockholders agreement with 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.



At the end of fiscal 2002, Bob Gray retired from his position as Chairman of
the Board and Chief Executive Officer of the company. In November 2002, in accordance with the terms of the stockholder agreement, pursuant to Mr. Grays request, the company redeemed at fair market value, as determined by the board of
directors, 89,621 shares of SJKIs common stock beneficially owned by him at a total cost of $5.0 million, or $55.79 per share. In May 2004, in accordance with the terms of the stockholders agreement, the company redeemed at fair market
value, 166,666 shares of SJKIs common stock beneficially owned by Mr. Gray at a total cost of $5.0 million, or $30.00 per share.



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.



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##### Table of Contents

|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------



The aggregate fees billed for services rendered by Deloitte & Touche LLP during each of the fiscal years ended October 31, 2004 and November 2, 2003 are as follows:



|                      |      |                |         |  |   |        
|--------------------- | ---- | -------------- | ------- |  | - | -------
|Category              |      | Aggregate Fees
|                      | 2004 |                | 2003   
|Audit fees(1)         |      | $              | 118,500 |  | $ | 123,700
|Audit related fees(2) |      |                | 43,100  |  |   | 76,400 
|Tax fees(3)           |      |                | 287,400 |  |   | 347,900
|All other fees(4)     |      |                | 12,500  |  |   | 45,000 
|                      |      |                |         |  |   |        
|Total fees            |      | $              | 461,500 |  | $ | 593,000
|                      |      |                |         |  |   |        



|(1) | Audit feesThese fees were paid for professional services performed by Deloitte for the audit of the companys annual financial statements and review of
financial statements included in the companys quarterly reports on Form 10-Q.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Audit-related feesThese fees were paid for assurance and related services performed by Deloitte that are reasonably related to the performance of the audit or
review of the companys financial statements. This includes: employee benefit plan audits; retail location audits; and consulting on financial accounting/reporting standards.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Tax feesThese fees were paid for professional services performed by Deloitte with respect to tax compliance, tax advice and tax planning. This includes:
preparation of tax returns for the company and its subsidiaries; payment planning; tax audit assistance; tax planning assistance.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | All Other FeesThese are fees for other permissible work performed by Deloitte that does not meet the above category descriptions.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



The Audit Committee does not have a written policy regarding the preapproval
of audit and permissible non-audit services rendered by Deloitte & Touche. As a matter of practice, however, the Audit Committee preapproves all audit and permissible non-audit services rendered by Deloitte & Touche.



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##### Table of Contents

PART IV



|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



(a) The following documents are filed as part of this Annual Report on Form 10-K:



1. Consolidated Financial StatementsSee Index to Consolidated Financial Statements



2. Consolidated Financial Statement ScheduleSee
Index to Consolidated Financial Statements



3. ExhibitsThe exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated by reference, are filed as part of this Annual Report on Form 10-K.



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                        |  |     
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                        |  | Page
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM                                                                                  |  | 38  
|                                                                                                                                        | 
|CONSOLIDATED FINANCIAL STATEMENTS                                                                                                       |  |     
|Consolidated Balance Sheets as of October 31, 2004 and November 2, 2003                                                                 |  | 39  
|Consolidated Statements of Income and Comprehensive Income for the years ended October 31, 2004, November 2, 2003, and November 3, 2002 |  | 40  
|Consolidated Statements of Stockholders Equity (Deficit) for the years ended October 31, 2004, November 2, 2003, and November 3, 2002  |  | 41  
|Consolidated Statements of Cash Flows for the years ended October 31, 2004, November 2, 2003, and November 3, 2002                      |  | 42  
|Notes to Consolidated Financial Statements                                                                                              |  | 44  
|                                                                                                                                        | 
|CONSOLIDATED FINANCIAL STATEMENT SCHEDULE                                                                                               |  |     
|Schedule IIValuation and Qualifying Accounts                                                                                           |  | 68  



37



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM



To the Board of Directors and Stockholders of St. John Knits International, Incorporated



We have audited the accompanying consolidated balance sheets of St. John Knits International, Incorporated and subsidiaries as of October 31, 2004 and November 2, 2003 and the related consolidated statements of income
and comprehensive income, stockholders equity (deficit), and cash flows for the fiscal years ended October 31, 2004, November 2, 2003, and November 3, 2002. Our audits also included the consolidated financial statement schedule for the fiscal
years ended October 31, 2004, November 2, 2003 and November 3, 2002 listed in the Index at Item 15. These consolidated financial statements and the consolidated financial statement schedule are the responsibility of the companys management.
Our responsibility is to express an opinion on these consolidated financial statements and the consolidated financial statement schedule based on our audits.



We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such 2004, 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of St. John Knits
International, Incorporated and its subsidiaries as of October 31, 2004 and November 2, 2003, and the results of their operations and their cash flows for the fiscal years ended October 31, 2004, November 2, 2003 and November 3, 2002, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule for the fiscal years ended October 31, 2004, November 2, 2003 and November 3, 2002, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



DELOITTE & TOUCHE LLP



Costa Mesa, California

January 27, 2005



38



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



CONSOLIDATED BALANCE SHEETS



|                                                                                                           |  |                  |              |   |                  |   |              |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------- | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                           |  | October 31, 2004 |              |   | November 2, 2003 |  
|A S S E T S                                                                                                |  |                  |              |   |                  |   |              |  
|Current assets:                                                                                            |  |                  |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                  |  | $                | 17,849,345   |   |                  | $ | 19,265,499   |  
|Accounts receivable, net                                                                                   |  |                  | 28,781,108   |   |                  |   | 31,458,163   |  
|Inventories                                                                                                |  |                  | 71,345,303   |   |                  |   | 60,116,314   |  
|Deferred income tax benefit                                                                                |  |                  | 16,300,707   |   |                  |   | 14,955,723   |  
|Prepaid expenses and other                                                                                 |  |                  | 4,628,858    |   |                  |   | 5,177,772    |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Total current assets                                                                                       |  |                  | 138,905,321  |   |                  |   | 130,973,471  |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Property and equipment:                                                                                    |  |                  |              |   |                  |   |              |  
|Machinery and equipment                                                                                    |  |                  | 71,506,561   |   |                  |   | 69,691,007   |  
|Leasehold improvements (notes 14 and 15)                                                                   |  |                  | 50,517,924   |   |                  |   | 54,004,212   |  
|Buildings (note 14)                                                                                        |  |                  | 5,886,369    |   |                  |   | 25,717,272   |  
|Furniture and fixtures                                                                                     |  |                  | 18,445,000   |   |                  |   | 16,600,716   |  
|Land (note 14)                                                                                             |  |                  | 1,729,891    |   |                  |   | 8,798,320    |  
|Construction in progress                                                                                   |  |                  | 1,619,851    |   |                  |   | 707,005      |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|                                                                                                           |  |                  | 149,705,596  |   |                  |   | 175,518,532  |  
|LessAccumulated depreciation and amortization                                                             |  |                  | 94,994,072   |   |                  |   | 88,391,898   |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|                                                                                                           |  |                  | 54,711,524   |   |                  |   | 87,126,634   |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Deferred financing costs                                                                                   |  |                  | 4,930,633    |   |                  |   | 6,972,572    |  
|Deferred income tax benefit                                                                                |  |                  | 3,473,541    |   |                  |   | 1,768,464    |  
|Other assets                                                                                               |  |                  | 5,975,857    |   |                  |   | 7,296,645    |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|                                                                                                           |  | $                | 207,996,876  |   |                  | $ | 234,137,786  |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                             |  |                  |              |   |                  |   |              |  
|Current liabilities:                                                                                       |  |                  |              |   |                  |   |              |  
|Accounts payable                                                                                           |  | $                | 13,454,759   |   |                  | $ | 11,515,439   |  
|Accrued expenses                                                                                           |  |                  | 25,373,965   |   |                  |   | 22,032,299   |  
|Current portion of long-term debt                                                                          |  |                  | 18,180,507   |   |                  |   | 18,892,088   |  
|Accrued interest expense                                                                                   |  |                  | 4,120,612    |   |                  |   | 4,102,795    |  
|Income taxes payable                                                                                       |  |                  | 4,867,728    |   |                  |   | 5,522,444    |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Total current liabilities                                                                                  |  |                  | 65,997,571   |   |                  |   | 62,065,065   |  
|Long-term debt, net of current portion                                                                     |  |                  | 189,062,174  |   |                  |   | 231,755,065  |  
|Other liabilities                                                                                          |  |                  | 9,559,774    |   |                  |   | 5,603,938    |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Total liabilities                                                                                          |  |                  | 264,619,519  |   |                  |   | 299,424,068  |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Redeemable common stock - par value $0.01, issued and outstanding712,696 and 879,362 shares, respectively |  |                  | 26,369,752   |   |                  |   | 26,380,860   |  
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Commitment and contingencies (notes 8 and 16)                                                              |  |                  |              |   |                  |   |              |  
|Stockholders equity (deficit):                                                                            |  |                  |              |   |                  |   |              |  
|Common stock - par value $0.01, authorized10,000,000 shares, issued and outstanding5,577,257 shares      |  |                  | 55,772       |   |                  |   | 55,772       |  
|Additional paid-in capital                                                                                 |  |                  | 110,783,133  |   |                  |   | 115,772,005  |  
|Unrealized loss on securities                                                                              |  |                  |             |   |                  |   | (42,012      | )
|Unrealized loss on hedging transactions                                                                    |  |                  | (106,258     | ) |                  |   |             |  
|Cumulative foreign currency translation adjustment                                                         |  |                  | 1,014,980    |   |                  |   | 735,172      |  
|Accumulated deficit                                                                                        |  |                  | (194,740,022 | ) |                  |   | (208,188,079 | )
|                                                                                                           |  |                  |              |   |                  |   |              |  
|Total stockholders deficit                                                                                |  |                  | (82,992,395  | ) |                  |   | (91,667,142  | )
|                                                                                                           |  |                  |              |   |                  |   |              |  
|                                                                                                           |  | $                | 207,996,876  |   |                  | $ | 234,137,786  |  
|                                                                                                           |  |                  |              |   |                  |   |              |  



See accompanying notes.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | --------------- | - | ----------- | ---------------- |  | - | ----------- | -
|                                                                                                               |  | For the years ended |            
|                                                                                                               |  | October 31,2004     |             |   | November 2,2003 |   |             | November 3, 2002 | 
|Net sales                                                                                                      |  | $                   | 395,602,962 |   |                 | $ | 370,143,242 |                  |  | $ | 362,234,249 |  
|Cost of sales (including $3.2 million related to the closure of the non-apparel line in fiscal 2004 - note 13) |  |                     | 179,171,779 |   |                 |   | 156,642,464 |                  |  |   | 154,507,656 |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Gross profit                                                                                                   |  |                     | 216,431,183 |   |                 |   | 213,500,778 |                  |  |   | 207,726,593 |  
|Selling, general and administrative expenses                                                                   |  |                     | 175,258,639 |   |                 |   | 163,212,976 |                  |  |   | 143,904,391 |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Operating income                                                                                               |  |                     | 41,172,544  |   |                 |   | 50,287,802  |                  |  |   | 63,822,202  |  
|Interest expense                                                                                               |  |                     | 21,535,963  |   |                 |   | 24,395,506  |                  |  |   | 23,674,157  |  
|Other income (expense)                                                                                         |  |                     | 49,655      |   |                 |   | (1,536,693  | )                |  |   | 358,063     |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Income before income taxes                                                                                     |  |                     | 19,686,236  |   |                 |   | 24,355,603  |                  |  |   | 40,506,108  |  
|Income taxes                                                                                                   |  |                     | 6,238,179   |   |                 |   | 9,473,990   |                  |  |   | 16,201,099  |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net income                                                                                                     |  |                     | 13,448,057  |   |                 |   | 14,881,613  |                  |  |   | 24,305,009  |  
|Preferred stock dividends                                                                                      |  |                     |            |   |                 |   |            |                  |  |   | 3,458,233   |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net income allocated to common stockholders                                                                    |  | $                   | 13,448,057  |   |                 | $ | 14,881,613  |                  |  | $ | 20,846,776  |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Comprehensive income, net of tax:                                                                              |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net income                                                                                                     |  | $                   | 13,448,057  |   |                 | $ | 14,881,613  |                  |  | $ | 24,305,009  |  
|Foreign currency translation adjustments                                                                       |  |                     | 279,808     |   |                 |   | 342,702     |                  |  |   | 194,812     |  
|Unrealized loss on hedging transactions                                                                        |  |                     | (106,258    | ) |                 |   |            |                  |  |   | (64,203     | )
|Unrealized gain (loss) on securities                                                                           |  |                     |            |   |                 |   | 1,305       |                  |  |   | (1,993      | )
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Comprehensive income                                                                                           |  | $                   | 13,621,607  |   |                 | $ | 15,225,620  |                  |  | $ | 24,433,625  |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net income per common share:                                                                                   |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Basic                                                                                                          |  | $                   | 2.11        |   |                 | $ | 2.30        |                  |  | $ | 3.18        |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Diluted                                                                                                        |  | $                   | 2.11        |   |                 | $ | 2.23        |                  |  | $ | 3.14        |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Shares used in the calculation of net income per common share:                                                 |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Basic                                                                                                          |  |                     | 6,381,780   |   |                 |   | 6,457,847   |                  |  |   | 6,546,240   |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Diluted                                                                                                        |  |                     | 6,382,615   |   |                 |   | 6,678,443   |                  |  |   | 6,641,544   |  
|                                                                                                               |  |                     |             |   |                 |   |             |                  |  |   |             |  



See accompanying notes.



40



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                  |  |                  |  |        |        |                            |                                   |             |                                   |  |   |                               |   |  |                            |         |   |                     |   |          |       |  |   |              |   |  |   |              |  
|------------------------------------------------- |  | ---------------- |  | ------ | ------ | -------------------------- | --------------------------------- | ----------- | --------------------------------- |  | - | ----------------------------- | - |  | -------------------------- | ------- | - | ------------------- | - | -------- | ----- |  | - | ------------ | - |  | - | ------------ | -
|                                                  |  | Common Stock     |  |        |        |                            | Other Comprehensive Income (Loss) |             |                                   |  |   |                               |   | 
|                                                  |  | Number of Shares |  | Amount |        | Additional Paid-In Capital |                                   |             | Cumulative Translation Adjustment |  |   | Unrealized Loss on Securities |   |  | Unrealized Loss on Hedging |         |   | Accumulated Deficit |   |          | Total | 
|Balance October 28, 2001                          |  | 5,577,257        |  | $      | 55,772 |                            | $                                 | 120,021,341 |                                   |  | $ | (150,371                      | ) |  | $                          | (40,826 | ) |                     | $ | 106,999  |       |  | $ | (243,916,468 | ) |  | $ | (123,923,553 | )
|Dividends accrued for preferred stock             |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   | (3,458,233   | ) |  |   | (3,458,233   | )
|Unrealized loss on securities                     |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            | (3,322  | ) |                     |   |         |       |  |   |             |   |  |   | (3,322       | )
|Foreign currency translation adjustment           |  |                 |  |        |       |                            |                                   |            |                                   |  |   | 324,669                       |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | 324,669      |  
|Unrealized gain on hedging transactions           |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   | (106,999 | )     |  |   |             |   |  |   | (106,999     | )
|Increase in fair value of redeemable common stock |  |                 |  |        |       |                            |                                   | (26,928,038 | )                                 |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | (26,928,038  | )
|Net income                                        |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   | 24,305,009   |   |  |   | 24,305,009   |  
|                                                  |  |                  |  |        |        |                            |                                   |             |                                   |  |   |                               |   |  |                            |         |   |                     |   |          |       |  |   |              |   |  |   |              |  
|Balance November 3, 2002                          |  | 5,577,257        |  |        | 55,772 |                            |                                   | 93,093,303  |                                   |  |   | 174,298                       |   |  |                            | (44,148 | ) |                     |   |         |       |  |   | (223,069,692 | ) |  |   | (129,790,467 | )
|Unrealized gain on securities                     |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            | 2,136   |   |                     |   |         |       |  |   |             |   |  |   | 2,136        |  
|Foreign currency translation adjustment           |  |                 |  |        |       |                            |                                   |            |                                   |  |   | 560,874                       |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | 560,874      |  
|Decrease in fair value of redeemable common stock |  |                 |  |        |       |                            |                                   | 22,678,702  |                                   |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | 22,678,702   |  
|Net income                                        |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   | 14,881,613   |   |  |   | 14,881,613   |  
|                                                  |  |                  |  |        |        |                            |                                   |             |                                   |  |   |                               |   |  |                            |         |   |                     |   |          |       |  |   |              |   |  |   |              |  
|Balance November 2, 2003                          |  | 5,577,257        |  |        | 55,772 |                            |                                   | 115,772,005 |                                   |  |   | 735,172                       |   |  |                            | (42,012 | ) |                     |   |         |       |  |   | (208,188,079 | ) |  |   | (91,667,142  | )
|Unrealized gain on securities                     |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            | 42,012  |   |                     |   |         |       |  |   |             |   |  |   | 42,012       |  
|Foreign currency translation adjustment           |  |                 |  |        |       |                            |                                   |            |                                   |  |   | 279,808                       |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | 279,808      |  
|Unrealized loss on hedging transactions           |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   | (106,258 | )     |  |   |             |   |  |   | (106,258     | )
|Increase in fair value of redeemable common stock |  |                 |  |        |       |                            |                                   | (4,988,872  | )                                 |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   |             |   |  |   | (4,988,872   | )
|Net income                                        |  |                 |  |        |       |                            |                                   |            |                                   |  |   |                              |   |  |                            |        |   |                     |   |         |       |  |   | 13,448,057   |   |  |   | 13,448,057   |  
|                                                  |  |                  |  |        |        |                            |                                   |             |                                   |  |   |                               |   |  |                            |         |   |                     |   |          |       |  |   |              |   |  |   |              |  
|Balance October 31, 2004                          |  | 5,577,257        |  | $      | 55,772 |                            | $                                 | 110,783,133 |                                   |  | $ | 1,014,980                     |   |  | $                          |        |   |                     | $ | (106,258 | )     |  | $ | (194,740,022 | ) |  | $ | (82,992,395  | )
|                                                  |  |                  |  |        |        |                            |                                   |             |                                   |  |   |                               |   |  |                            |         |   |                     |   |          |       |  |   |              |   |  |   |              |  



See accompanying notes.



41



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------- | ----------- | - | --------------- | - | ----------- | ---------------- |  | - | ----------- | -
|                                                                                  |  | For the years ended |            
|                                                                                  |  | October 31,2004     |             |   | November 2,2003 |   |             | November 3, 2002 | 
|Cash flows from operating activities:                                             |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net income                                                                        |  | $                   | 13,448,057  |   |                 | $ | 14,881,613  |                  |  | $ | 24,305,009  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Depreciation and amortization                                                     |  |                     | 16,663,289  |   |                 |   | 16,690,300  |                  |  |   | 15,681,286  |  
|Amortization of discount on 12.5% notes due 2009                                  |  |                     | 138,400     |   |                 |   | 138,398     |                  |  |   | 141,062     |  
|Amortization of deferred loan costs                                               |  |                     | 2,121,693   |   |                 |   | 2,102,279   |                  |  |   | 2,060,609   |  
|Deferred income tax benefit                                                       |  |                     | (3,159,453  | ) |                 |   | (123,050    | )                |  |   | (2,785,152  | )
|Loss on disposal of property and equipment                                        |  |                     | 4,143,282   |   |                 |   | 1,212,698   |                  |  |   | 340,723     |  
|Provision for the allowance for doubtful accounts                                 |  |                     | 125,276     |   |                 |   | 301,040     |                  |  |   | (652,344    | )
|Partnership losses                                                                |  |                     | 956,754     |   |                 |   | 872,178     |                  |  |   | 904,502     |  
|Changes in operating assets and liabilities:                                      |  |                     |             |   |                 |   |             |                  |  |   |             |  
|(Increase) decrease in accounts receivable                                        |  |                     | 2,551,779   |   |                 |   | (414,289    | )                |  |   | (5,179,667  | )
|Increase in inventories                                                           |  |                     | (11,228,989 | ) |                 |   | (5,410,441  | )                |  |   | (2,208,176  | )
|(Increase) decrease in other current assets                                       |  |                     | 548,914     |   |                 |   | (1,381,401  | )                |  |   | (155,531    | )
|Increase in other assets                                                          |  |                     | (15,792     | ) |                 |   | (1,171,243  | )                |  |   | (855,546    | )
|Increase (decrease) in accounts payable                                           |  |                     | 1,684,097   |   |                 |   | 4,641,507   |                  |  |   | (2,087,538  | )
|Increase (decrease) in accrued expenses                                           |  |                     | (395,540    | ) |                 |   | 5,230,611   |                  |  |   | 1,023,862   |  
|Increase (decrease) in accrued interest expense                                   |  |                     | 17,817      |   |                 |   | (1,716,511  | )                |  |   | 1,488,076   |  
|Increase (decrease) in income taxes payable                                       |  |                     | (654,716    | ) |                 |   | (1,679,056  | )                |  |   | 5,280,465   |  
|Increase in other liabilities                                                     |  |                     | 3,955,836   |   |                 |   | 460,153     |                  |  |   | 5,143,785   |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net cash provided by operating activities                                         |  |                     | 30,900,704  |   |                 |   | 34,634,786  |                  |  |   | 42,445,425  |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Cash flows from investing activities:                                             |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Proceeds from sale of property and equipment                                      |  |                     | 27,621,971  |   |                 |   | 22,500      |                  |  |   | 20,900      |  
|Purchase of property and equipment                                                |  |                     | (12,387,445 | ) |                 |   | (21,267,318 | )                |  |   | (17,427,210 | )
|Sale of short-term investments                                                    |  |                     |            |   |                 |   | 6,713       |                  |  |   | 3,332       |  
|Capital distributions from partnership                                            |  |                     | 405,000     |   |                 |   | 440,000     |                  |  |   | 486,500     |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net cash provided by (used in) investing activities                               |  |                     | 15,639,526  |   |                 |   | (20,798,105 | )                |  |   | (16,916,478 | )
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Cash flows from financing activities:                                             |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Principal payments of long-term debt                                              |  |                     | (43,290,444 | ) |                 |   | (10,292,684 | )                |  |   | (22,343,512 | )
|Proceeds from bank borrowings                                                     |  |                     |            |   |                 |   | 30,299,243  |                  |  |   | 408,230     |  
|Redemption of 15.25% subordinated notes                                           |  |                     |            |   |                 |   | (39,293,709 | )                |  |   |            |  
|Financing fees and expenses                                                       |  |                     | (79,754     | ) |                 |   | (974,114    | )                |  |   |            |  
|Redemption of redeemable common stock                                             |  |                     | (4,999,980  | ) |                 |   | (5,000,000  | )                |  |   |            |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net cash used in financing activities                                             |  |                     | (48,370,178 | ) |                 |   | (25,261,264 | )                |  |   | (21,935,282 | )
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Effect of exchange rate changes                                                   |  |                     | 413,794     |   |                 |   | 560,874     |                  |  |   | 324,669     |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                              |  |                     | (1,416,154  | ) |                 |   | (10,863,709 | )                |  |   | 3,918,334   |  
|Beginning balance, cash and cash equivalents                                      |  |                     | 19,265,499  |   |                 |   | 30,129,208  |                  |  |   | 26,210,874  |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  
|Ending balance, cash and cash equivalents                                         |  | $                   | 17,849,345  |   |                 | $ | 19,265,499  |                  |  | $ | 30,129,208  |  
|                                                                                  |  |                     |             |   |                 |   |             |                  |  |   |             |  



42



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)



|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|------------------------------------------------------------------------------------------------ |  | ------------------- | ---------- | - | --------------- | - | ----------- | ---------------- |  | - | ---------- | -
|                                                                                                 |  | For the years ended |           
|                                                                                                 |  | October 31,2004     |            |   | November 2,2003 |   |             | November 3, 2002 | 
|Supplemental disclosures of cash flow information:                                               |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Cash received for interest income                                                                |  | $                   | 241,357    |   |                 | $ | 440,057     |                  |  | $ | 1,044,376  |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Cash paid for:                                                                                   |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Interest expense                                                                                 |  | $                   | 19,400,328 |   |                 | $ | 23,804,683  |                  |  | $ | 19,798,563 |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Income taxes                                                                                     |  | $                   | 10,181,508 |   |                 | $ | 11,388,433  |                  |  | $ | 15,095,044 |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Supplemental disclosure of noncash financing and investing activities:                           |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Deferred gain on sale leaseback                                                                  |  | $                   | 3,634,028  |   |                 | $ |            |                  |  | $ |           |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Dividends accrued on mandatorily redeemable preferred stock                                      |  | $                   |           |   |                 | $ |            |                  |  | $ | 3,458,233  |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Conversion of mandatorily redeemable preferred stock and accrued dividends to subordinated notes |  | $                   |           |   |                 | $ |            |                  |  | $ | 38,760,748 |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Conversion of accrued interest to subordinated notes                                             |  | $                   |           |   |                 | $ | 532,961     |                  |  | $ |           |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Unrealized gain (loss) on securities                                                             |  | $                   |           |   |                 | $ | 2,136       |                  |  | $ | (542       | )
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Unrealized loss on hedging transactions                                                          |  | $                   | (106,258   | ) |                 | $ |            |                  |  | $ | (106,999   | )
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  
|Adjustment of redeemable common stock to fair value                                              |  | $                   | 4,988,872  |   |                 | $ | (22,678,702 | )                |  | $ | 26,928,038 |  
|                                                                                                 |  |                     |            |   |                 |   |             |                  |  |   |            |  



See accompanying notes.



43



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004, November 2, 2003 and November 3, 2002



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.



The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America.



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 2004, 2003, and 2002 ended on October 31, November 2, and November 3, respectively. Fiscal years 2004 and 2003 were comprised of 52 weeks while fiscal year 2002 included 53 weeks.



b. Use of Estimates



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



c. Revenue Recognition



Revenue on sales to the Companys wholesale customers is recognized when the goods are shipped and title and risk of loss passes. The Company
establishes liabilities for estimated allowances and wholesale markdowns 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
allowances for estimated returns for wholesale and retail sales based on historical experience. Accounts receivable are shown net of allowances for discounts and uncollectible amounts of $2,208,000 and $1,068,000 in fiscal year 2004 and $2,613,000
and $2,560,000 in fiscal year 2003, respectively. The provision for the allowance for doubtful accounts was $125,000 and $301,000 for fiscal years 2004 and 2003, respectively.



d. Inventories



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



Inventories are comprised of the following:



|                  |  |      |            |      |   |           
|----------------- |  | ---- | ---------- | ---- | - | ----------
|                  |  | 2004 |            | 2003
|Raw materials     |  | $    | 15,686,238 |      | $ | 14,432,876
|Work-in-process   |  |      | 11,904,165 |      |   | 9,920,428 
|Finished products |  |      | 43,754,900 |      |   | 35,763,010
|                  |  |      |            |      |   |           
|                  |  | $    | 71,345,303 |      | $ | 60,116,314
|                  |  |      |            |      |   |           



44



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



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 3 to 39 years. Leasehold improvements are amortized over the shorter of their useful lives or the term of the underlying lease. The table below
provides the estimated useful lives by classification:



|                        |  |            
|----------------------- |  | -----------
|                        |  | Useful Life
|                        |  | ( years)   
|Machinery and equipment |  | 3 to 5     
|Leasehold improvements  |  | 5 to 15    
|Buildings               |  | 39         
|Furniture and fixtures  |  | 3 to 5     



f. Cash and Cash
Equivalents



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



g. Foreign Exchange Transactions and Contracts



The Company may enter 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 may enter into such contracts to sell foreign currencies in the future only to protect the U.S. dollar value of certain anticipated foreign currency transactions. The foreign exchange contracts are carried on the
balance sheet at their fair value with changes in their fair value initially included as 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 accounts for income taxes under
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred income taxes
are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized.



i. Earnings per Share



Basic earnings per
common share is computed by dividing income allocated to common stockholders by the weighted average number of common shares outstanding, excluding the dilutive effect of common stock equivalents, including stock options. Diluted earnings per common
share includes all dilutive items and 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. Preferred stock dividends are deducted from net income to arrive at income allocated to common stockholders.



45



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



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



|                                                           |  |              |  |           |  |          
|---------------------------------------------------------- |  | ------------ |  | --------- |  | ---------
|                                                           |  | Fiscal Years
|                                                           |  | 2004         |  | 2003      |  | 2002     
|Weighted average shares outstanding                        |  | 6,381,780    |  | 6,457,847 |  | 6,546,240
|Add: dilutive effect of stock options                      |  | 835          |  | 220,596   |  | 95,304   
|                                                           |  |              |  |           |  |          
|Shares used to calculate diluted earnings per common share |  | 6,382,615    |  | 6,678,443 |  | 6,641,544
|                                                           |  |              |  |           |  |          



The Company excluded
approximately 864,000, 463,000 and 386,000 of dilutive securities from the calculation of earnings per common share for fiscal years 2004, 2003 and 2002, respectively, because the effect is antidilutive.



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 fair value method is required. Had compensation cost for stock options been recorded in accordance with SFAS No. 123, the Companys net income and earnings per common share would have reflected the following pro forma amounts:



|                                                                                                                                              |  |              |            |      |   |            |  |   |           
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- | - | ---------- |  | - | ----------
|                                                                                                                                              |  | Fiscal Years
|                                                                                                                                              |  | 2004         |            | 2003 |   | 2002      
|Net income, as reported                                                                                                                       |  | $            | 13,448,057 |      | $ | 14,881,613 |  | $ | 24,305,009
|Less: total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax
effects |  |              | 512,779    |      |   | 543,290    |  |   | 958,018   
|                                                                                                                                              |  |              |            |      |   |            |  |   |           
|Pro forma net income                                                                                                                          |  | $            | 12,935,278 |      | $ | 14,338,323 |  | $ | 23,346,991
|                                                                                                                                              |  |              |            |      |   |            |  |   |           
|Earnings per common share:                                                                                                                    |  |              |            |      |   |            |  |   |           
|Basic  as reported                                                                                                                           |  | $            | 2.11       |      | $ | 2.30       |  | $ | 3.18      
|Basic  pro forma                                                                                                                             |  | $            | 2.03       |      | $ | 2.22       |  | $ | 3.04      
|Diluted  as reported                                                                                                                         |  | $            | 2.11       |      | $ | 2.23       |  | $ | 3.14      
|Diluted  pro forma                                                                                                                           |  | $            | 2.03       |      | $ | 2.15       |  | $ | 2.99      



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 2004, 2003 and 2002: weighted-average risk-free interest rate of 3.29%, 3.32% and 3.08%,
respectively; weighted-average volatility of 39.14%, 47.15% and 67.43%, respectively; expected life of 6 years; and weighted-average dividend yield of 0.00%.



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 in accumulated other comprehensive income. Gains and losses on short-term intercompany foreign currency transactions
are recognized as incurred.



46



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



k. Advertising and Promotion



All costs associated with the advertising and promotion of the Companys products are expensed as incurred. Total
advertising expenses for the Company for fiscal years 2004, 2003 and 2002 were approximately $14,000,000, $16,000,000 and $13,400,000, respectively.



l. Comprehensive Income



SFAS No. 130, Reporting Comprehensive Income, requires that all components of comprehensive income be reported in the financial statements in
the period in which they are recognized. The components of comprehensive income for the Company include net income, realized gains or losses on investments, unrealized gains or losses on cash flow hedges and foreign currency translation adjustments.



m. Segment Reporting



The Company applies SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, 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 in Note 17.



n.
Shipping and Handling Fees



The Company accounts for its
shipping and handling fees and costs in accordance with Emerging Issues Task Force (EITF) No. 00-10, Accounting for Shipping and Handling Fees and Costs. EITF No. 00-10 governs the accounting treatment and classification of
the Companys delivery revenues and certain of its delivery expenses.



During fiscal years 2004, 2003 and 2002, the Company incurred shipping expenses to ship its products to its wholesale customers of approximately $3,262,000, $3,181,000 and $3,223,000, respectively. These shipping
expenses are included in selling, general and administrative expenses for all years.



o. Deferred Rent



The
Company averages any defined rental escalations over the term of the related lease in order to provide level recognition of rent expense. The amount of any such rental expense in excess of the cash paid is recognized as deferred rent expense and
recorded in other liabilities on the accompanying consolidated balance sheets at October 31, 2004 and November 2, 2003.



p. New Accounting Pronouncements



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation (FIN) No. 46, Consolidation of
Variable Interest Entities and in December 2003, issued Interpretation No. 46 (R) (revised December 2003) Consolidation of Variable Interest Entities  An Interpretation of Accounting Research Bulletin (ARB) No.
51. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46(R) clarifies the application of ARB
51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities
without subordinated financial support from other parties. FIN 46 (R) applies immediately to variable interest entities created after December 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It
applies no later than the first reporting period ending after December 15, 2004, to variable interest entities in which an enterprise



47



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



holds a variable interest that it acquired before January 1, 2004. FIN 46 (R) applies to public enterprises as of the beginning of the applicable interim or
annual period ending after March 15, 2004. The adoption of FIN 46 and FIN 46 (R) did not have a material impact on its financial position or results of operations because the Company has no variable interest entities.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an
issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred implementation of SFAS 150 regarding parent company treatment of mandatorily redeemable
minority interests for limited life entities. This deferral is for an indefinite period. The adoption of SFAS 150 will not have a material impact on the Companys financial position or results of operations.



In December 2003, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition, which supersedes SAB 101, Revenue Recognition in Financial Statements. SAB 104 clarifies existing guidance regarding revenues for contracts which contain
multiple deliverables to make it consistent with Emerging Issues Task Force No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. The adoption of SAB 104 did not have a material impact on the Companys revenue
recognition policies, its financial position or results of operations.



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) should be
recognized as current period charges, and that fixed production overheads should be allocated to inventory based on normal capacity of production facilities. This statement is effective for the Companys fiscal year 2006. The Company is in the
process of evaluating whether the adoption of SFAS 151 will have a significant impact on our overall results of operations or financial position.



In December 2004, the FASB issued SFAS No. 123(R) Share-Based Payment. SFAS 123(R) requires the recognition of compensation cost relating to
share-based payment transactions in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued as of the grant date, based on the estimated number of awards that are expected to vest. SFAS
123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123(R) replaces FASB Statement No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123(R) is effective for interim periods that begin after June 15, 2005. The Company is
allowed to select from three alternative transition methods, each having different reporting implications. The Company has not completed our evaluation or determined the impact of adopting SFAS 123(R).



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.



Senior Credit Facility  The term debt related to the senior credit facility approximates the fair value as the interest rate on the debt is variable
and similar to current rates management believes would be available to the Company.



12.5% Senior Subordinated Notes due 2009  The fair value of these notes is based on their quoted market price.



Redeemable Common Stock  The carrying value of the redeemable common stock is adjusted each period based upon the quoted market price as reported on
the OTC Bulletin Board quotation system, consequently its carrying value approximates fair value.



48



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



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



|                                         |  |                  |             |                  |   |             |  |            |             |  |   |            
|---------------------------------------- |  | ---------------- | ----------- | ---------------- | - | ----------- |  | ---------- | ----------- |  | - | -----------
|                                         |  | October 31, 2004 |             | November 2, 2003
|                                         |  | Book Value       |             | Fair Value       |   | Book Value  |  | Fair Value
|Financial Assets:                        |  |                  |             |                  |   |             |  |            |             |  |   |            
|Cash and cash equivalents                |  | $                | 17,849,345  |                  | $ | 17,849,345  |  | $          | 19,265,499  |  | $ | 19,265,499 
|Financial Liabilities:                   |  |                  |             |                  |   |             |  |            |             |  |   |            
|Long-term debt:                          |  |                  |             |                  |   |             |  |            |             |  |   |            
|Senior Credit Facility                   |  | $                | 107,837,799 |                  | $ | 107,837,799 |  | $          | 149,803,380 |  | $ | 149,803,380
|12.5% Senior Subordinated Notes due 2009 |  | $                | 99,358,066  |                  | $ | 107,420,000 |  | $          | 99,219,666  |  | $ | 110,250,000
|Redeemable Common Stock                  |  | $                | 26,369,752  |                  | $ | 26,369,752  |  | $          | 26,380,860  |  | $ | 26,380,860 



4. Hedging Activities



The Company accounts for its hedging activities in
accordance with 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 Company may enter into contracts to buy and sell foreign currencies in
the future 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 transactions occur. Such gains and losses then offset the related gains and losses reported on the underlying transaction. At October 31, 2004, the Company held contracts maturing from December 31,
2004 to May 31, 2005 to sell 2.0 million Euros and 600,000 Pounds at an average exchange rate of 1.21 U.S. dollars to the Euro and 1.78 U.S. dollars to the Pound. The total tax effected fair value at October 31, 2004 was a loss of $106,000 and is
recorded as a component of stockholders equity and comprehensive income.



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. During October 1999, the Company entered into an
interest rate collar agreement with a major financial institution to limit its exposure on $45.0 million of the Companys variable rate debt. The agreement expired on July 7, 2002. The Company made payments totaling approximately $860,000
during fiscal year 2002 under this agreement.



On the date the
Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company does not enter into derivative instruments that do not qualify as cash flow hedges as described in SFAS No. 133. The
Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies
the firm commitment or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging
relationships, both at the hedge inception and on an ongoing basis, in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if it is determined that the derivative is no longer effective in
offsetting change in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated or exercised, (iii) when the derivative is designated as a hedge instrument, because it is probable that the forecasted transaction will
not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate.



49



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



5. Accrued Expenses



Accrued expenses for fiscal years 2004 and 2003 are comprised of the following:



|                                      |  |      |            |      |   |           
|------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                      |  | 2004 |            | 2003
|Wages and benefits                    |  | $    | 7,280,488  |      | $ | 6,659,164 
|Workers compensation                 |  |      | 9,795,145  |      |   | 7,896,225 
|Profit-sharing plan contribution      |  |      | 500,000    |      |   | 500,000   
|Promotional and advertising allowance |  |      | 389,867    |      |   | 218,578   
|Other                                 |  |      | 7,408,465  |      |   | 6,758,332 
|                                      |  |      |            |      |   |           
|                                      |  | $    | 25,373,965 |      | $ | 22,032,299
|                                      |  |      |            |      |   |           



6. Income Taxes



The provision for income taxes for fiscal years 2004, 2003 and 2002 consists
of the following:



|                  |  |      |            |   |      |   |           |      |  |   |            |  
|----------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                  |  | 2004 |            |   | 2003 |   |           | 2002 | 
|Current:          |  |      |            |   |      |   |           |      |  |   |            |  
|Federal           |  | $    | 6,453,131  |   |      | $ | 7,432,085 |      |  | $ | 13,858,630 |  
|State and foreign |  |      | 2,944,502  |   |      |   | 2,164,955 |      |  |   | 5,127,621  |  
|                  |  |      |            |   |      |   |           |      |  |   |            |  
|                  |  |      | 9,397,633  |   |      |   | 9,597,040 |      |  |   | 18,986,251 |  
|Deferred benefit  |  |      | (3,159,454 | ) |      |   | (123,050  | )    |  |   | (2,785,152 | )
|                  |  |      |            |   |      |   |           |      |  |   |            |  
|                  |  | $    | 6,238,179  |   |      | $ | 9,473,990 |      |  | $ | 16,201,099 |  
|                  |  |      |            |   |      |   |           |      |  |   |            |  



The components of the
Companys deferred income tax benefit as of October 31, 2004 and November 2, 2003 are as follows:



|                                     |  |      |            |   |      |   |            |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                     |  | 2004 |            |   | 2003 |  
|Deferred income tax benefit:         |  |      |            |   |      |   |            |  
|Tax basis adjustments to inventory   |  | $    | 1,971,493  |   |      | $ | 1,179,139  |  
|Allowance for uncollectible accounts |  |      | 509,105    |   |      |   | 590,234    |  
|Inventory adjustments to market      |  |      | 3,460,543  |   |      |   | 3,781,260  |  
|Accrued expenses                     |  |      | 11,700,179 |   |      |   | 10,464,217 |  
|Foreign loss carryforwards           |  |      | 3,254,689  |   |      |   | 1,919,697  |  
|Depreciation and other               |  |      | (1,121,761 | ) |      |   | (1,210,360 | )
|                                     |  |      |            |   |      |   |            |  
|                                     |  | $    | 19,774,248 |   |      | $ | 16,724,187 |  
|                                     |  |      |            |   |      |   |            |  



A reconciliation of
the U.S. federal statutory rate of 35% to the effective tax rate for fiscal years 2004, 2003 and 2002 is as follows:



|                                                      |  |      |   |  |      |   |  |      |  
|----------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                      |  | 2004 |   |  | 2003 |   |  | 2002 |  
|Computed expected statutory federal income tax rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
|State income taxes, net of federal income tax benefit |  | 0.2  |   |  | 6.4  |   |  | 6.1  |  
|Foreign                                               |  | (2.9 | ) |  | (2.1 | ) |  | (1.3 | )
|Other                                                 |  | (0.6 | ) |  | (0.4 | ) |  | 0.2  |  
|                                                      |  |      |   |  |      |   |  |      |  
|Effective income tax rate                             |  | 31.7 | % |  | 38.9 | % |  | 40.0 | %
|                                                      |  |      |   |  |      |   |  |      |  



For fiscal years 2004,
2003 and 2002, substantially all of the Companys pretax income was in domestic rather than foreign jurisdictions.



The Company does not provide for U.S. federal, state or additional foreign income tax effect on foreign earnings that management intends on keeping
permanently reinvested. For the fiscal year ended October 31, 2004, foreign earnings earmarked for permanent reinvestment totaled approximately $1,034,000.



50



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



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 approximately $8,811,000, $7,162,000 and $7,258,000 for fiscal years 2004, 2003 and 2002, 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.



The Company is partially self-insured for its workers compensation insurance coverage. Under this program, the Company is liable for a deductible of
$500,000 for each individual claim. The Company records a liability for the estimated cost of claims both reported and incurred but not reported. The estimated liability for future payments under this program is included in accrued expenses on the
accompanying consolidated balance sheets.



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 2004, 2003 and 2002.



The Company has one stock option plan, the 1999 St. John Knits International, Incorporated Stock Option Plan (the 1999 Plan). Options granted under the 1999 Plan are nonstatutory stock options. The Company accounts for the plan
under APB Opinion No. 25 Accounting for Stock Issued to Employees, under which no compensation cost has been recognized for fiscal years 2004, 2003 and 2002.



The Company may grant up to 1,277,360 options under the 1999 Plan. The Company has granted 864,826 options and has 864,760
options outstanding as of October 31, 2004. Stock options are granted with an exercise price equal to the fair market value of the stock at the date of grant. Options generally vest over three to five years; are exercisable in whole or in
installments; and expire 10 years from date of grant.



The
following is a summary of the activity in the 1999 Plan for fiscal years 2004, 2003 and 2002:



|                                               |  |         |   |      |                                  |       |        |         |   |                                  |   |        |  |         |                                  |  |   |      
|---------------------------------------------- |  | ------- | - | ---- | -------------------------------- | ----- | ------ | ------- | - | -------------------------------- | - | ------ |  | ------- | -------------------------------- |  | - | -----
|                                               |  | 2004    |   | 2003 |                                  | 2002 
|                                               |  | Shares  |   |      | Weighted- Average Exercise Price |       | Shares |         |   | Weighted- Average Exercise Price |   | Shares |  |         | Weighted- Average Exercise Price
|Outstanding, beginning of year                 |  | 683,764 |   |      | $                                | 32.64 |        | 602,097 |   |                                  | $ | 30.11  |  | 554,263 |                                  |  | $ | 30.00
|Granted                                        |  | 200,000 |   |      |                                  | 45.00 |        | 90,002  |   |                                  |   | 49.32  |  | 57,500  |                                  |  |   | 31.13
|Exercised                                      |  |        |   |      |                                  |      |        |        |   |                                  |   |       |  |        |                                  |  |   |     
|Forfeited                                      |  | (19,004 | ) |      |                                  | 33.32 |        | (8,335  | ) |                                  |   | 30.00  |  | (9,666  | )                                |  |   | 30.00
|                                               |  |         |   |      |                                  |       |        |         |   |                                  |   |        |  |         |                                  |  |   |      
|Outstanding, end of year                       |  | 864,760 |   |      | $                                | 35.48 |        | 683,764 |   |                                  | $ | 32.64  |  | 602,097 |                                  |  | $ | 30.11
|                                               |  |         |   |      |                                  |       |        |         |   |                                  |   |        |  |         |                                  |  |   |      
|Exercisable, end of year                       |  | 430,137 |   |      | $                                | 30.82 |        | 382,886 |   |                                  | $ | 30.03  |  | 340,286 |                                  |  | $ | 30.00
|Weighted-average fair value of options granted |  |         |   |      | $                                | 12.39 |        |         |   |                                  | $ | 14.46  |  |         |                                  |  | $ | 12.93



The options
outstanding as of October 31, 2004 have a weighted-average exercise price of $35.48 and a weighted-average remaining contractual life of 6.46 years.



51



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



The following table summarizes stock options outstanding and exercisable at October 31, 2004:



|                         |             |                    |         |                                               |      |                             |   |                    |  |                             |  |   |      
|------------------------ | ----------- | ------------------ | ------- | --------------------------------------------- | ---- | --------------------------- | - | ------------------ |  | --------------------------- |  | - | -----
|                         |             |                    |         | Options Outstanding                           |      | Options Exercisable        
|Range of Exercise Prices |             | Number Outstanding |         | Weighted Avg Remaining Contractual Life (yrs) |      | Weighted Avg Exercise Price |   | Number Exercisable |  | Weighted Avg Exercise Price
|$                        | 30.00-37.19 |                    | 653,428 |                                               | 5.49 |                             | $ | 30.26              |  | 417,604                     |  | $ | 30.08
|$                        | 40.00-49.55 |                    | 51,332  |                                               | 9.82 |                             | $ | 40.25              |  | 533                         |  | $ | 49.55
|$                        | 50.00-60.00 |                    | 160,000 |                                               | 9.23 |                             | $ | 55.30              |  | 12,000                      |  | $ | 55.79



8. Commitments and Contingencies



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 2019 and certain leases contain renewal options. Rental expense under these leases
was approximately $23,158,000, $21,548,000 and $17,774,000 in fiscal years 2004, 2003 and 2002, respectively.



The following is a schedule of future annual minimum rental payments required under noncancelable operating leases as of October 31, 2004:



|            |  |                |           |               |   |             |  |   |            
|----------- |  | -------------- | --------- | ------------- | - | ----------- |  | - | -----------
|Fiscal Year |  | RelatedParties |           | Third Parties |   | Total      
|2005        |  | $              | 1,309,000 |               | $ | 23,543,000  |  | $ | 24,852,000 
|2006        |  |                | 1,265,000 |               |   | 23,324,000  |  |   | 24,589,000 
|2007        |  |                | 964,000   |               |   | 23,088,000  |  |   | 24,052,000 
|2008        |  |                | 971,000   |               |   | 22,701,000  |  |   | 23,672,000 
|2009        |  |                | 977,000   |               |   | 21,695,000  |  |   | 22,672,000 
|Thereafter  |  |                | 3,081,000 |               |   | 79,458,000  |  |   | 82,539,000 
|            |  |                |           |               |   |             |  |   |            
|            |  | $              | 8,567,000 |               | $ | 193,809,000 |  | $ | 202,376,000
|            |  |                |           |               |   |             |  |   |            



The Company has
various employment contracts with certain key employees, which expire at various times through December 31, 2005. These agreements provide for total annual compensation aggregating $3,950,000 and the payment of severance benefits upon the
termination of employment under certain conditions.



As of
October 31, 2004 and November 2, 2003, the Companys commitments to purchase yarn were approximately $6,441,000 and $7,993,000, respectively.



During the normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments
in relation to certain transactions. These indemnities include those given to various lessors in connection with facility leases for certain claims arising from such facility or lease. The Company has also issued guarantees, in the form of letters
of credit, to cover contractual commitments, including merchandise purchases from foreign vendors and to secure the payment for potential future workers compensation claims. The Company had $15.3 million of letters of credit outstanding at
October 31, 2004. Of this total, $13.8 million is related to potential future workers compensation claims. The Company has accrued a liability for the estimated claims, both reported and incurred but not yet reported, on the accompanying
consolidated balance sheets. The duration of these indemnities, commitments and guarantees varies and in certain cases is indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make. The Company has not recorded any significant liabilities for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets other than as noted.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



9. Long-term Debt



|                                                 |  |                  |             |                  |   |            
|------------------------------------------------ |  | ---------------- | ----------- | ---------------- | - | -----------
|                                                 |  | October 31, 2004 |             | November 2, 2003
|Long-term debt consists of the following:        |  |                  |             |                  |   |            
|Senior credit facility:                          |  |                  |             |                  |   |            
|Tranche A                                        |  | $                |            |                  | $ | 28,174,234 
|Tranche B                                        |  |                  | 107,837,799 |                  |   | 121,629,146
|                                                 |  |                  |             |                  |   |            
|                                                 |  |                  | 107,837,799 |                  |   | 149,803,380
|Senior Subordinated 12.5% notes, net of discount |  |                  | 99,358,066  |                  |   | 99,219,666 
|Other                                            |  |                  | 46,816      |                  |   | 1,624,107  
|                                                 |  |                  |             |                  |   |            
|                                                 |  |                  | 207,242,681 |                  |   | 250,647,153
|Less  Current portion                           |  |                  | 18,180,507  |                  |   | 18,892,088 
|                                                 |  |                  |             |                  |   |            
|                                                 |  | $                | 189,062,174 |                  | $ | 231,755,065
|                                                 |  |                  |             |                  |   |            



Senior Credit Facilities



Effective May 30, 2003, the Company amended its credit
agreement with a syndicate of lending institutions (the Lenders). The amended agreement provides for an aggregate principal amount of loans of up to $215.0 million (the Credit Agreement). Loans under the Credit Agreement
consisted of $190.0 million in aggregate principal amount of term loans (Term Loan Facility), which facility included a $75.0 million tranche A term loan subfacility, a $122.0 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 amendment allowed the Company to borrow an additional $30.0 million under the tranche B facility. The Company used these funds, along with a portion of its available cash, to
retire its 15.25% subordinated notes. There were no borrowings outstanding under the Revolving Credit Facility at October 31, 2004.



The tranche A term loan facility and the Revolving Credit Facility mature on July 31, 2005. The tranche B term loan facility matures on July 31, 2007. 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 without penalty. The Company is
currently reviewing its options concerning the renewal or replacement of its revolving commitment.



Indebtedness under the Term Loan Facility and the Revolving Credit Facility bears interest at a rate based (at the Companys option) upon (i) LIBOR
for one, two, three or six months, plus 2.75% with respect to the tranche A term loan facility and the Revolving Credit Facility or plus 3.75% with respect to the tranche B term loan facility, or (ii) the Alternate Base Rate (4.75% at October 31,
2004) plus 1.75% with respect to the tranche A term loan facility and the Revolving Credit Facility or plus 2.75% with respect to the tranche B term loan facility. The interest rate at October 31, 2004 was approximately 5.7% on the tranche B term
loan.



The Company is required to pay to the Lenders in the
aggregate a commitment fee equal to 0.50% per annum on the undrawn amount of the Revolving Credit Facility during the preceding quarter.



Pursuant to the terms of the Credit Agreement and the Revolving Credit Facility, the Company is required to maintain certain financial ratios. 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. At October 31, 2004, the Company was in compliance with all covenants.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



Senior Subordinated 12.5% Notes



The Company has outstanding $100.0 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. These notes are subordinated to the Senior Credit Facility as discussed above. The Subordinated Notes are redeemable, in whole or in part, at the option of the Company, beginning 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.



Redemption values are as follows:



|                            |  |         |  
|--------------------------- |  | ------- | -
|Redemption Date             |  | Price   |  
|July 1, 2004                |  | 106.250 | %
|July 1, 2005                |  | 104.688 | %
|July 1, 2006                |  | 103.125 | %
|July 1, 2007                |  | 101.563 | %
|July 1, 2008 and thereafter |  | 100.000 | %



Fees associated with
obtaining the Subordinated Notes and the tranche A and tranche B term loans were approximately $15.3 million, which are amortized over the terms of the respective notes using the effective interest rate method. Amortization expense of approximately
$2,122,000, $2,102,000 and $2,061,000 relating to such fees is included in interest expense for fiscal years 2004, 2003 and 2002, respectively.



Senior Subordinated 15.25% Notes



During fiscal year 2002, Vestar/SJK Investors LLC and the Gray family, the holders of all of the Companys 15.25% mandatorily redeemable preferred
stock, sold their interest therein to a third party. Vestar/SJK Investors LLC is owned by Vestar Capital Partners III, L.P. (Vestar). Four of the Companys non-executive directors are affiliates of Vestar. In connection with such
sale, the terms of the preferred stock were amended to provide for the exchange of the securities, plus any accrued dividends, for senior subordinated unsecured notes bearing interest at a rate of 15.25%. On July 2, 2002, the preferred stock plus
accrued dividends were converted with an aggregate balance of $38.8 million. The Company had the option to redeem the 15.25% notes in cash for face value of the notes plus accrued and unpaid interest after January 2, 2003 and before January 2, 2004.
Effective May 30, 2003, the Company redeemed such notes. Prior to initiating this transaction, the Companys credit agreement was amended to allow for the redemption and to provide for additional borrowing of $30.0 million. The proceeds of this
additional borrowing, together with cash on hand, were used to redeem the notes. The redemption of the notes and accrued interest totaled $41.8 million. The amendment increased the interest rate on the total outstanding balance of the bank
borrowings by increasing the current spread over the banks borrowing rate and LIBOR by 0.75%. The Company paid fees of approximately $1.0 million to complete the amendment. These fees have been recorded as deferred financing costs and will be
amortized over the life of the agreement.



Maturities of Long-Term Debt



As of October 31, 2004, future annual maturities of
long-term debt were as follows:



|            |  |   |            
|----------- |  | - | -----------
|Fiscal Year |  |  
|2005        |  | $ | 18,180,507 
|2006        |  |   | 44,875,462 
|2007        |  |   | 44,828,646 
|2008        |  |   |           
|2009        |  |   | 99,358,066 
|Thereafter  |  |   |           
|            |  |   |            
|            |  | $ | 207,242,681
|            |  |   |            



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



10. Redeemable Common Stock



Redeemable Common Stock represents all of the shares of the Companys common stock that are beneficially owned by the
Gray family. The carrying value shown on the consolidated balance sheet at October 31, 2004 and November 2, 2003 was based upon the quoted market price as reported on the OTC Bulletin Board quotation system. Changes in the fair market value of the
Redeemable Common Stock from period to period are recorded as an increase or decrease to additional paid-in capital.



The Company is party to a stockholders agreement with Vestar/Gray Investors, Vestar and the Grays, which states, among other things, that 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 to purchase the shares of SJKI common stock beneficially owned by them, up to a maximum of $5.0 million of such common stock for all the Grays during any 12-month period. If any of the Grays are 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 to purchase the shares of SJKI common stock beneficially owned by
them, up to a maximum of 25% of the total shares held by such terminated or resigning Gray employee during any 12-month period. This agreement may be limited by the terms of the agreements related to the credit facilities and the senior subordinated
notes.



At the end of fiscal 2002, Bob Gray retired from his
position as Chairman of the Board and Chief Executive Officer of the Company. In November 2002, as provided in the stockholders agreement, the Company redeemed 89,621 shares at a total cost of $5.0 million. In May 2004, in accordance with the
terms of the stockholders agreement, the Company redeemed at fair market value, 166,666 shares of SJKIs common stock beneficially owned by Bob Gray at a total cost of $5.0 million.



11. Related-Party Transactions



The Company has a management agreement with Vestar. Pursuant to the
agreement, the Company pays an annual fee of $500,000 to Vestar for management services.



Effective April 30, 2002, the Company loaned $500,000 to Bruce Fetter, the Co-President and Chief Operating Officer at the time. The loan accrues interest at 2.9% per year and is payable in full on April 30, 2005.



Effective November 4, 2002, the Company entered into a
consulting agreement with Bob Gray, its current director and former Chief Executive Officer, which expires on November 3, 2005. Mr. Gray received compensation under the agreement of $125,000 and $500,000 in fiscal years 2004 and 2003, respectively
and is scheduled to receive $125,000 in fiscal 2005.



The
Company leases three manufacturing and/or warehousing facilities from partnerships in which stockholders of the Company are significant partners. The annual payments on these leases were approximately $1,132,000, $1,182,000 and $1,235,000 in fiscal
years 2004, 2003 and 2002, respectively. The leases expire at various dates through fiscal year 2013. Payments under these leases are included in the future minimum rental payments disclosure at Note 8.



The Company leases a retail boutique from a partnership in which stockholders
of the Company are significant partners. The lease began during fiscal year 2002 and will expire on March 31, 2012. The payments were approximately $193,000, $188,000 and $128,000 in fiscal years 2004, 2003 and 2002, respectively. Payments under
this lease are included in the future minimum rental payments disclosure at Note 8.



The Company periodically rents personal property provided by a company that is owned by stockholders. Rental payments for the use of such property were approximately $7,000 and $5,000 in fiscal years 2003 and 2002,
respectively.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



The Company periodically rents the use of an airplane from a partnership which is owned by
stockholders of the Company. The partnership owns a fractional interest in an airplane and payments made for the use of the airplane are the same as those paid by the partnership. During fiscal years 2004, 2003 and 2002, the Company paid
approximately $181,000, $97,000 and $126,000, respectively, under this arrangement.



At October 31, 2004 and November 2, 2003, the Company held a 50% ownership interest in a partnership which leases an airplane to the Company. The holder of the other 50% ownership interest is a corporation which is
wholly owned by stockholders of the Company. At October 31, 2004 and November 2, 2003, the Companys investment in this partnership, net of partnership losses, was approximately $1,943,000 and $3,305,000, respectively, and is included in other
assets on the accompanying consolidated balance sheets. The partnerships only asset is an airplane, which had a net book value on the partnerships books of approximately $10,801,351 and $13,502,000 at October 31, 2004 and November 2,
2003, respectively. The total liabilities of the partnership were $7,000,000 at October 31, 2004 and November 2, 2003. During fiscal years 2004, 2003 and 2002, the Company made lease payments to the partnership, which are recorded as revenue on the
partnership books, of $1,020,000, $1,200,000 and $1,200,000, respectively. During the same years, the Company reported net losses from the activities of the partnership of approximately $957,000, $872,000 and $905,000, respectively.



The Company rents the hangar used to store the airplane from a stockholder.
The agreement is on a month-to-month basis. The current monthly rent is $4,500 per month. During fiscal years 2004, 2003 and 2002, the Company paid approximately $54,000, $54,000 and $50,000, respectively, for the rental of this property.



12. Current Vulnerability Due to Certain Concentrations



Sales to the Companys three major customers accounted for 15%, 14% and
13% of net sales during fiscal 2004, 16%, 14% and 14% of net sales during fiscal year 2003 and 16%, 15% and 14% of net sales during fiscal year 2002. The combined accounts receivable balance for these customers, before any offsets for discounts or
uncollectable amounts, totaled $23.3 million and $27.6 million at October 31, 2004 and November 2, 2003, respectively. The loss of any one of these customers could have a materially adverse effect 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, 2004 and November 2, 2003.



13. Non Apparel Product Lines



During the fourth quarter of fiscal 2004, the
Company discontinued the sale of its non-apparel product lines to its wholesale customers. During the fourth quarter of fiscal 2004, the Company incurred a charge to cost of sales of approximately $3.2 million to write down non-apparel inventories
to the estimated net realizable value, which is included in cost of sales in the accompanying consolidated statements of income.



14. Sale of Properties



During July 2004, the Company completed a transaction with an unaffiliated third party to sell and leaseback four of its facilities located in Irvine,
California. The total net book value of the properties was approximately $19.1 million. The Company recorded a deferred gain of approximately $3.5 million, which is recorded in other liabilities on the accompanying consolidated balance sheets at
October 31, 2004. This deferred gain will be amortized over the life of the lease (15 years). The transaction resulted in net proceeds of approximately $19.8 million, which were used to prepay a portion of the Companys outstanding bank debt.
The Company signed lease agreements on each of the four facilities expiring in 2019. The initial annual lease payments under the new leases total approximately $1.7 million.



15. Impairment of Long-term Assets



During the fourth quarter of fiscal 2004 the Company recorded an impairment charge related to four of its retail locations. The Company recorded a charge
to write down the book value of these assets to the estimated fair value at October 31, 2004. This charge of approximately $4,395,000 was recorded to selling, general and administrative expenses in the accompanying consolidated statements of
income.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



16. Litigation



The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of any current litigation will
not have a material effect upon the results of operations or financial condition of the Company.



17. 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, Jewelry, Accessories and Home Accessories. For fiscal
year 2004 and 2003, retail sales were primarily generated through the Companys boutiques and outlet stores. For segment reporting purposes, international sales are aggregated into the wholesale business segment. Management evaluates segment
performance based primarily on revenue and earnings from operations. Inter-segment sales are recorded at the Companys wholesale selling prices and eliminated, along with any profit in ending inventory, through the eliminations column. Interest
expense, the equity in the net income of investees accounted for by the equity method and income taxes are not allocated to the segments. The Companys chief operational decision making group is presently comprised of the Chief Executive
Officer and the Chief Financial Officer.



Segment information
is summarized as follows for fiscal years 2004, 2003 and 2002:



|                              |  |                |         |        |   |           |  |              |        |  |       |         |   |  |   |        
|----------------------------- |  | -------------- | ------- | ------ | - | --------- |  | ------------ | ------ |  | ----- | ------- | - |  | - | -------
|                              |  | Wholesale      |         | Retail |   | Corporate |  | Eliminations |        |  | Total
|                              |  | (in thousands)
|Fiscal 2004                   |  |                |         |        |   |           |  |              |        |  |       |         |   |  |   |        
|Net sales                     |  | $              | 324,656 |        | $ | 166,311   |  | $            |       |  | $     | (95,364 | ) |  | $ | 395,603
|Segment operating income      |  |                | 56,212  |        |   | 922       |  |              |       |  |       | (15,961 | ) |  |   | 41,173 
|Segment assets                |  |                | 124,275 |        |   | 74,251    |  |              | 26,648 |  |       | (17,177 | ) |  |   | 207,997
|Capital expenditures          |  |                | 5,725   |        |   | 6,662     |  |              |       |  |       |        |   |  |   | 12,387 
|Depreciation and amortization |  |                | 9,439   |        |   | 7,224     |  |              |       |  |       |        |   |  |   | 16,663 
|Fiscal 2003                   |  |                |         |        |   |           |  |              |        |  |       |         |   |  |   |        
|Net sales                     |  | $              | 305,857 |        | $ | 153,844   |  | $            |       |  | $     | (89,558 | ) |  | $ | 370,143
|Segment operating income      |  |                | 58,257  |        |   | 8,425     |  |              |       |  |       | (16,394 | ) |  |   | 50,288 
|Segment assets                |  |                | 147,913 |        |   | 76,754    |  |              | 26,851 |  |       | (17,380 | ) |  |   | 234,138
|Capital expenditures          |  |                | 7,626   |        |   | 13,641    |  |              |       |  |       |        |   |  |   | 21,267 
|Depreciation and amortization |  |                | 9,881   |        |   | 6,809     |  |              |       |  |       |        |   |  |   | 16,690 
|Fiscal 2002                   |  |                |         |        |   |           |  |              |        |  |       |         |   |  |   |        
|Net sales                     |  | $              | 300,187 |        | $ | 140,095   |  | $            |       |  | $     | (78,048 | ) |  | $ | 362,234
|Segment operating income      |  |                | 63,899  |        |   | 8,693     |  |              |       |  |       | (8,770  | ) |  |   | 63,822 
|Segment assets                |  |                | 157,328 |        |   | 61,091    |  |              | 29,319 |  |       | (11,831 | ) |  |   | 235,907
|Capital expenditures          |  |                | 8,188   |        |   | 9,239     |  |              |       |  |       |        |   |  |   | 17,427 
|Depreciation and amortization |  |                | 10,688  |        |   | 4,993     |  |              |       |  |       |        |   |  |   | 15,681 



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002





The following is a
comparison of the net sales by product line for fiscal years 2004, 2003 and 2002:



|                 |  |                |         |      |   |         |  |   |        
|---------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                 |  | Fiscal Years  
|                 |  | 2004           |         | 2003 |   | 2002   
|                 |  | (in thousands)
|Knitwear         |  | $              | 302,660 |      | $ | 289,902 |  | $ | 276,038
|Sport            |  |                | 67,829  |      |   | 59,172  |  |   | 61,843 
|Shoes            |  |                | 4,728   |      |   | 5,175   |  |   | 5,171  
|Jewelry          |  |                | 8,531   |      |   | 6,556   |  |   | 7,185  
|Accessories      |  |                | 6,016   |      |   | 4,816   |  |   | 2,775  
|Home Accessories |  |                | 1,803   |      |   | 1,545   |  |   | 1,650  
|Coats(1)         |  |                | 3,675   |      |   | 1,238   |  |   | 1,428  
|Other(2)         |  |                | 361     |      |   | 1,739   |  |   | 6,144  
|                 |  |                |         |      |   |         |  |   |        
|Total Net Sales  |  | $              | 395,603 |      | $ | 370,143 |  | $ | 362,234
|                 |  |                |         |      |   |         |  |   |        



|(1) | These amounts include the sale of coats manufactured by a third party under a license agreement.
|--- | ------------------------------------------------------------------------------------------------



|(2) | These amounts primarily represent the sale of items in St. John Home stores which are not manufactured by the Company.
|--- | ----------------------------------------------------------------------------------------------------------------------



The table below presents net sales information related to geographic areas in
which the Company operated during fiscal years 2004, 2003 and 2002:



|              |  |                |         |      |   |         |  |   |        
|------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Fiscal Years  
|              |  | 2004           |         | 2003 |   | 2002   
|              |  | (in thousands)
|United States |  | $              | 352,823 |      | $ | 333,560 |  | $ | 330,212
|Asia          |  |                | 28,761  |      |   | 24,922  |  |   | 21,202 
|Europe        |  |                | 6,327   |      |   | 5,962   |  |   | 5,816  
|Canada        |  |                | 4,894   |      |   | 3,358   |  |   | 2,505  
|Other         |  |                | 2,798   |      |   | 2,341   |  |   | 2,499  
|              |  |                |         |      |   |         |  |   |        
|              |  | $              | 395,603 |      | $ | 370,143 |  | $ | 362,234
|              |  |                |         |      |   |         |  |   |        



The table below
presents information on the Companys assets by geographic area for fiscal years 2004, 2003 and 2002:



|              |  |                |         |      |   |         |  |   |        
|------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Fiscal Years  
|              |  | 2004           |         | 2003 |   | 2002   
|              |  | (in thousands)
|United States |  | $              | 188,827 |      | $ | 216,849 |  | $ | 225,112
|Foreign       |  |                | 19,170  |      |   | 17,289  |  |   | 10,795 
|              |  |                |         |      |   |         |  |   |        
|              |  | $              | 207,997 |      | $ | 234,138 |  | $ | 235,907
|              |  |                |         |      |   |         |  |   |        



18. 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 income, 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, 2004 and November 2, 2003, and for the
years ended October 31, 2004 and November 2, 2003 and November 3, 2002.



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

OCTOBER 31, 2004



|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | -------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|(Amounts in thousands)                               |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   |  | CONSOLIDATED |        
|ASSETS                                               |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Current assets:                                      |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Cash, cash equivalents and investments               |  | $             | 16,677  |   |                       | $ | 483                        |  | $ | 689          |   |  | $            |        |   |  | $ | 17,849  |  
|Accounts receivable, net                             |  |               | 23,230  |   |                       |   | 3,517                      |  |   | 2,034        |   |  |              |         |   |  |   | 28,781  |  
|Inventories(1)                                       |  |               | 24,026  |   |                       |   | 41,880                     |  |   | 5,439        |   |  |              |         |   |  |   | 71,345  |  
|Deferred income tax benefit                          |  |               | 16,301  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 16,301  |  
|Prepaid expenses and other                           |  |               | 3,976   |   |                       |   | 495                        |  |   | 158          |   |  |              |         |   |  |   | 4,629   |  
|Intercompany accounts receivable                     |  |               | 9,750   |   |                       |   |                            |  |   |              |   |  |              | (9,750  | ) |  |   |        |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total current assets                                 |  |               | 93,960  |   |                       |   | 46,375                     |  |   | 8,320        |   |  |              | (9,750  | ) |  |   | 138,905 |  
|Property and equipment, net                          |  |               | 18,927  |   |                       |   | 26,908                     |  |   | 8,876        |   |  |              |         |   |  |   | 54,711  |  
|Investment in subsidiaries                           |  |               | 54,757  |   |                       |   |                            |  |   |              |   |  |              | (54,757 | ) |  |   |        |  
|Receivable from consolidated subsidiaries            |  |               | 28,265  |   |                       |   |                            |  |   |              |   |  |              | (28,265 | ) |  |   |        |  
|Deferred financing costs                             |  |               | 4,931   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 4,931   |  
|Deferred income tax benefit                          |  |               | 3,474   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 3,474   |  
|Other assets                                         |  |               | 2,966   |   |                       |   | 1,036                      |  |   | 1,974        |   |  |              |         |   |  |   | 5,976   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total assets                                         |  | $             | 207,280 |   |                       | $ | 74,319                     |  | $ | 19,170       |   |  | $            | (92,772 | ) |  | $ | 207,997 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Current liabilities:                                 |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Accounts payable                                     |  | $             | 12,768  |   |                       | $ |                           |  | $ | 687          |   |  | $            |        |   |  | $ | 13,455  |  
|Accrued expenses                                     |  |               | 22,278  |   |                       |   | 3,084                      |  |   | 12           |   |  |              |         |   |  |   | 25,374  |  
|Current portion of long-term debt                    |  |               | 18,180  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 18,180  |  
|Accrued interest expense                             |  |               | 4,120   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 4,120   |  
|Intercompany accounts payable                        |  |               |         |   |                       |   |                            |  |   | 9,750        |   |  |              | (9,750  | ) |  |   |        |  
|Income taxes payable                                 |  |               | 8,689   |   |                       |   |                            |  |   | (3,821       | ) |  |              |         |   |  |   | 4,868   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total current liabilities                            |  |               | 66,035  |   |                       |   | 3,084                      |  |   | 6,628        |   |  |              | (9,750  | ) |  |   | 65,997  |  
|Intercompany payable                                 |  |               |        |   |                       |   | 16,147                     |  |   | 12,118       |   |  |              | (28,265 | ) |  |   |        |  
|Long-term debt, net of current portion               |  |               | 189,015 |   |                       |   |                            |  |   | 47           |   |  |              |         |   |  |   | 189,062 |  
|Other liabilities                                    |  |               | 8,852   |   |                       |   | 708                        |  |   |              |   |  |              |         |   |  |   | 9,560   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total liabilities                                    |  |               | 263,902 |   |                       |   | 19,939                     |  |   | 18,793       |   |  |              | (38,015 | ) |  |   | 264,619 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Redeemable common stock                              |  |               | 26,370  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 26,370  |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total stockholders equity (deficit)                 |  |               | (82,992 | ) |                       |   | 54,380                     |  |   | 377          |   |  |              | (54,757 | ) |  |   | (82,992 | )
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $             | 207,280 |   |                       | $ | 74,319                     |  | $ | 19,170       |   |  | $            | (92,772 | ) |  | $ | 207,997 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  



|(1) | Inventories are shown at cost (without intercompany profits) for all entities
|--- | -----------------------------------------------------------------------------



59



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET

NOVEMBER 2, 2003



|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|---------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | -------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|(Amounts in thousands)                               |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   |  | CONSOLIDATED |        
|ASSETS                                               |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Current assets:                                      |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Cash, cash equivalents and investments               |  | $             | 18,492  |   |                       | $ | 306                        |  | $ | 467          |   |  | $            |        |   |  | $ | 19,265  |  
|Accounts receivable, net                             |  |               | 27,017  |   |                       |   | 2,769                      |  |   | 1,672        |   |  |              |         |   |  |   | 31,458  |  
|Inventories(1)                                       |  |               | 16,082  |   |                       |   | 39,945                     |  |   | 4,089        |   |  |              |         |   |  |   | 60,116  |  
|Deferred income tax benefit                          |  |               | 14,956  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 14,956  |  
|Prepaid expenses and other                           |  |               | 3,890   |   |                       |   | 1,170                      |  |   | 118          |   |  |              |         |   |  |   | 5,178   |  
|Intercompany accounts receivable                     |  |               | 4,628   |   |                       |   |                            |  |   |              |   |  |              | (4,628  | ) |  |   |        |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total current assets                                 |  |               | 85,065  |   |                       |   | 44,190                     |  |   | 6,346        |   |  |              | (4,628  | ) |  |   | 130,973 |  
|Property and equipment, net                          |  |               | 46,384  |   |                       |   | 31,976                     |  |   | 8,767        |   |  |              |         |   |  |   | 87,127  |  
|Investment in subsidiaries                           |  |               | 58,449  |   |                       |   |                            |  |   |              |   |  |              | (58,449 | ) |  |   |        |  
|Receivable from consolidated subsidiaries            |  |               | 22,330  |   |                       |   |                            |  |   |              |   |  |              | (22,330 | ) |  |   |        |  
|Deferred financing costs                             |  |               | 6,972   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 6,972   |  
|Deferred income tax benefit                          |  |               | 1,769   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 1,769   |  
|Other assets                                         |  |               | 4,090   |   |                       |   | 1,031                      |  |   | 2,176        |   |  |              |         |   |  |   | 7,297   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total assets                                         |  | $             | 225,059 |   |                       | $ | 77,197                     |  | $ | 17,289       |   |  | $            | (85,407 | ) |  | $ | 234,138 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Current liabilities:                                 |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Accounts payable                                     |  | $             | 10,733  |   |                       | $ |                           |  | $ | 782          |   |  | $            |        |   |  | $ | 11,515  |  
|Accrued expenses                                     |  |               | 19,050  |   |                       |   | 2,200                      |  |   | 783          |   |  |              |         |   |  |   | 22,033  |  
|Current portion of long-term debt                    |  |               | 18,892  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 18,892  |  
|Accrued interest expense                             |  |               | 4,103   |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 4,103   |  
|Intercompany accounts payable                        |  |               |         |   |                       |   |                            |  |   | 4,628        |   |  |              | (4,628  | ) |  |   |        |  
|Income taxes payable                                 |  |               | 8,079   |   |                       |   |                            |  |   | (2,557       | ) |  |              |         |   |  |   | 5,522   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total current liabilities                            |  |               | 60,857  |   |                       |   | 2,200                      |  |   | 3,636        |   |  |              | (4,628  | ) |  |   | 62,065  |  
|Intercompany payable                                 |  |               |        |   |                       |   | 10,311                     |  |   | 12,019       |   |  |              | (22,330 | ) |  |   |        |  
|Long-term debt, net of current portion               |  |               | 231,456 |   |                       |   |                            |  |   | 299          |   |  |              |         |   |  |   | 231,755 |  
|Other Liabilities                                    |  |               | 5,465   |   |                       |   | 139                        |  |   |              |   |  |              |         |   |  |   | 5,604   |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total liabilities                                    |  |               | 297,778 |   |                       |   | 12,650                     |  |   | 15,954       |   |  |              | (26,958 | ) |  |   | 299,424 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Redeemable common stock                              |  |               | 26,381  |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   | 26,381  |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total stockholders equity (deficit)                 |  |               | (99,100 | ) |                       |   | 64,547                     |  |   | 1,335        |   |  |              | (58,449 | ) |  |   | (91,667 | )
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Total liabilities and stockholders equity (deficit) |  | $             | 225,059 |   |                       | $ | 77,197                     |  | $ | 17,289       |   |  | $            | (85,407 | ) |  | $ | 234,138 |  
|                                                     |  |               |         |   |                       |   |                            |  |   |              |   |  |              |         |   |  |   |         |  



|(1) | Inventories are shown at cost (without intercompany profits) for all entities
|--- | -----------------------------------------------------------------------------



60



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

FISCAL YEAR ENDED
OCTOBER 31, 2004



|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|---------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------- | -------------------------- |  | - | ------------ | - | ------------ | - | ------ |  | - | -------
|(Amounts in thousands)                                           |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |         | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   | CONSOLIDATED
|Net sales                                                        |  | $             | 216,342 |   |                       | $ | 164,103 |                            |  | $ | 15,158       |   |              | $ |       |  | $ | 395,603
|Cost of sales                                                    |  |               | 88,869  |   |                       |   | 83,424  |                            |  |   | 6,879        |   |              |   |        |  |   | 179,172
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|Gross profit                                                     |  |               | 127,473 |   |                       |   | 80,679  |                            |  |   | 8,279        |   |              |   |       |  |   | 216,431
|Selling, general and administrative expenses                     |  |               | 78,550  |   |                       |   | 86,344  |                            |  |   | 10,365       |   |              |   |        |  |   | 175,259
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|Operating income (loss)                                          |  |               | 48,923  |   |                       |   | (5,665  | )                          |  |   | (2,086       | ) |              |   |       |  |   | 41,173 
|Interest expense                                                 |  |               | 21,536  |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   | 21,536 
|Other income (expense)                                           |  |               | 4,717   |   |                       |   | (4,502  | )                          |  |   | (165         | ) |              |   |        |  |   | 50     
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|Income (loss) before income taxes                                |  |               | 32,104  |   |                       |   | (10,167 | )                          |  |   | (2,251       | ) |              |   |       |  |   | 19,686 
|Income taxes                                                     |  |               | 7,472   |   |                       |   |        |                            |  |   | (1,234       | ) |              |   |        |  |   | 6,238  
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|Income (loss) before equity in loss of consolidated subsidiaries |  |               | 24,632  |   |                       |   | (10,167 | )                          |  |   | (1,017       | ) |              |   |       |  |   | 13,448 
|Equity in loss of consolidated subsidiaries                      |  |               | (11,184 | ) |                       |   |         |                            |  |   |              |   |              |   | 11,184 |  |   |       
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        
|Net income (loss)                                                |  | $             | 13,448  |   |                       | $ | (10,167 | )                          |  | $ | (1,017       | ) |              | $ | 11,184 |  | $ | 13,448 
|                                                                 |  |               |         |   |                       |   |         |                            |  |   |              |   |              |   |        |  |   |        



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

FISCAL YEAR ENDED
NOVEMBER 2, 2003



|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|---------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------ | -------------------------- |  | - | ------------ | - | ------------ | - | ----- |  | - | ------- | -
|(Amounts in thousands)                                           |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |        | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   | CONSOLIDATED |  
|Net sales                                                        |  | $             | 308,709 |   |                       | $ | 50,512 |                            |  | $ | 10,922       |   |              | $ |      |  | $ | 370,143 |  
|Cost of sales                                                    |  |               | 127,322 |   |                       |   | 24,101 |                            |  |   | 5,219        |   |              |   |       |  |   | 156,642 |  
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|Gross profit                                                     |  |               | 181,387 |   |                       |   | 26,411 |                            |  |   | 5,703        |   |              |   |      |  |   | 213,501 |  
|Selling, general and administrative expenses                     |  |               | 126,054 |   |                       |   | 29,604 |                            |  |   | 7,555        |   |              |   |       |  |   | 163,213 |  
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|Operating income (loss)                                          |  |               | 55,333  |   |                       |   | (3,193 | )                          |  |   | (1,852       | ) |              |   |      |  |   | 50,288  |  
|Interest expense                                                 |  |               | 24,395  |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   | 24,395  |  
|Other expense                                                    |  |               | (394    | ) |                       |   | (852   | )                          |  |   | (291         | ) |              |   |       |  |   | (1,537  | )
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|Income (loss) before income taxes                                |  |               | 30,544  |   |                       |   | (4,045 | )                          |  |   | (2,143       | ) |              |   |      |  |   | 24,356  |  
|Income taxes                                                     |  |               | 11,462  |   |                       |   | (660   | )                          |  |   | (1,328       | ) |              |   |       |  |   | 9,474   |  
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|Income (loss) before equity in loss of consolidated subsidiaries |  |               | 19,082  |   |                       |   | (3,385 | )                          |  |   | (815         | ) |              |   |      |  |   | 14,882  |  
|Equity in loss of consolidated subsidiaries                      |  |               | (4,200  | ) |                       |   |        |                            |  |   |              |   |              |   | 4,200 |  |   |        |  
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  
|Net income (loss)                                                |  | $             | 14,882  |   |                       | $ | (3,385 | )                          |  | $ | (815         | ) |              | $ | 4,200 |  | $ | 14,882  |  
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |         |  



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME

FISCAL YEAR ENDED
NOVEMBER 3, 2002



|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|---------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------ | -------------------------- |  | - | ------------ | - | ------------ | - | ----- |  | - | -------
|(Amounts in thousands)                                           |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |        | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   | CONSOLIDATED
|Net sales                                                        |  | $             | 348,516 |   |                       | $ | 5,280  |                            |  | $ | 8,438        |   |              | $ |      |  | $ | 362,234
|Cost of sales                                                    |  |               | 146,656 |   |                       |   | 3,333  |                            |  |   | 4,519        |   |              |   |       |  |   | 154,508
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|Gross profit                                                     |  |               | 201,860 |   |                       |   | 1,947  |                            |  |   | 3,919        |   |              |   |      |  |   | 207,726
|Selling, general and administrative expenses                     |  |               | 133,587 |   |                       |   | 4,669  |                            |  |   | 5,648        |   |              |   |       |  |   | 143,904
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|Operating income (loss)                                          |  |               | 68,273  |   |                       |   | (2,722 | )                          |  |   | (1,729       | ) |              |   |      |  |   | 63,822 
|Interest expense                                                 |  |               | 23,674  |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   | 23,674 
|Other income (expense)                                           |  |               | 586     |   |                       |   | (13    | )                          |  |   | (215         | ) |              |   |       |  |   | 358    
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|Income (loss) before income taxes                                |  |               | 45,185  |   |                       |   | (2,735 | )                          |  |   | (1,944       | ) |              |   |      |  |   | 40,506 
|Income taxes                                                     |  |               | 18,560  |   |                       |   | (1,149 | )                          |  |   | (1,210       | ) |              |   |       |  |   | 16,201 
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|Income (loss) before equity in loss of consolidated subsidiaries |  |               | 26,625  |   |                       |   | (1,586 | )                          |  |   | (734         | ) |              |   |      |  |   | 24,305 
|Equity in loss of consolidated subsidiaries                      |  |               | (2,320  | ) |                       |   |        |                            |  |   |              |   |              |   | 2,320 |  |   |       
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        
|Net income (loss)                                                |  | $             | 24,305  |   |                       | $ | (1,586 | )                          |  | $ | (734         | ) |              | $ | 2,320 |  | $ | 24,305 
|                                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |              |   |       |  |   |        



63



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FISCAL YEAR
ENDED OCTOBER 31, 2004



|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------- | -------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|(Amounts in thousands)                                                                   |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |         | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   |  | CONSOLIDATED |        
|OPERATING ACTIVITIES:                                                                    |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Net income (loss)                                                                        |  | $             | 13,448  |   |                       | $ | (10,167 | )                          |  | $ | (1,017       | ) |  | $            | 11,184  |   |  | $ | 13,448  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Depreciation and amortization                                                            |  |               | 6,251   |   |                       |   | 7,126   |                            |  |   | 3,286        |   |  |              |         |   |  |   | 16,663  |  
|Amortization of discount on 12.5% notes due 2009                                         |  |               | 138     |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 138     |  
|Amortization of deferred loan costs                                                      |  |               | 2,122   |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 2,122   |  
|Deferred income tax benefit                                                              |  |               | (3,159  | ) |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | (3,159  | )
|Provision for the allowance for doubtful accounts                                        |  |               | 125     |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 125     |  
|(Gain) loss on disposal of property and equipment                                        |  |               | (432    | ) |                       |   | 4,502   |                            |  |   | 73           |   |  |              |         |   |  |   | 4,143   |  
|Partnership losses                                                                       |  |               | 957     |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 957     |  
|Equity in loss of consolidated subsidiaries                                              |  |               | 11,184  |   |                       |   |         |                            |  |   |              |   |  |              | (11,184 | ) |  |   |        |  
|Changes in operating assets and liabilities:                                             |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Accounts receivable                                                                      |  |               | 3,759   |   |                       |   | (748    | )                          |  |   | (459         | ) |  |              |         |   |  |   | 2,552   |  
|Intercompany receivables (net)                                                           |  |               | (9,709  | ) |                       |   | 5,836   |                            |  |   | 3,873        |   |  |              |         |   |  |   |        |  
|Inventories                                                                              |  |               | (7,942  | ) |                       |   | (1,935  | )                          |  |   | (1,352       | ) |  |              |         |   |  |   | (11,229 | )
|Other current assets                                                                     |  |               | (182    | ) |                       |   | 674     |                            |  |   | 57           |   |  |              |         |   |  |   | 549     |  
|Other assets                                                                             |  |               | (213    | ) |                       |   | (5      | )                          |  |   | 202          |   |  |              |         |   |  |   | (16     | )
|Accounts payable                                                                         |  |               | 1,797   |   |                       |   |         |                            |  |   | (113         | ) |  |              |         |   |  |   | 1,684   |  
|Accrued expenses                                                                         |  |               | (1,362  | ) |                       |   | 884     |                            |  |   | 82           |   |  |              |         |   |  |   | (396    | )
|Accrued interest expense                                                                 |  |               | 18      |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 18      |  
|Income taxes payable                                                                     |  |               | 607     |   |                       |   |         |                            |  |   | (1,262       | ) |  |              |         |   |  |   | (655    | )
|Other liabilities                                                                        |  |               | 3,387   |   |                       |   | 569     |                            |  |   |              |   |  |              |         |   |  |   | 3,956   |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash provided by operating activities                                                |  |               | 20,794  |   |                       |   | 6,736   |                            |  |   | 3,370        |   |  |              |        |   |  |   | 30,900  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|INVESTING ACTIVITIES:                                                                    |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Proceeds from sale of property and equipment                                             |  |               | 27,622  |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | 27,622  |  
|Purchase of property and equipment                                                       |  |               | (2,406  | ) |                       |   | (6,559  | )                          |  |   | (3,422       | ) |  |              |         |   |  |   | (12,387 | )
|Capital distributions from partnership                                                   |  |               | 105     |   |                       |   |         |                            |  |   | 300          |   |  |              |         |   |  |   | 405     |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash used in investing activities                                                    |  |               | 25,321  |   |                       |   | (6,559  | )                          |  |   | (3,122       | ) |  |              |        |   |  |   | 15,640  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|FINANCING ACTIVITIES:                                                                    |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Principal payments of long-term debt                                                     |  |               | (43,038 | ) |                       |   |         |                            |  |   | (252         | ) |  |              |         |   |  |   | (43,290 | )
|Redemption of redeemable common stock                                                    |  |               | (5,000  | ) |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | (5,000  | )
|Financing fees and expenses                                                              |  |               | (80     | ) |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   | (80     | )
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Net cash used in financing activities                                                    |  |               | (48,118 | ) |                       |   |        |                            |  |   | (252         | ) |  |              |        |   |  |   | (48,370 | )
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Effect of exchange rate changes                                                          |  |               | (112    | ) |                       |   |         |                            |  |   | 526          |   |  |              |         |   |  |   | 414     |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                     |  |               | (1,815  | ) |                       |   | 177     |                            |  |   | 222          |   |  |              |         |   |  |   | (1,416  | )
|Beginning balance, cash and cash equivalents                                             |  |               | 18,492  |   |                       |   | 306     |                            |  |   | 467          |   |  |              |         |   |  |   | 19,265  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Ending balance, cash and cash equivalents                                                |  | $             | 16,677  |   |                       | $ | 483     |                            |  | $ | 689          |   |  | $            |        |   |  | $ | 17,849  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Supplemental disclosures of cash flow information:                                       |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Cash received for interest income                                                        |  | $             | 241     |   |                       | $ |        |                            |  | $ |             |   |  | $            |        |   |  | $ | 241     |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Cash paid for:                                                                           |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense                                                                         |  | $             | 19,400  |   |                       | $ |        |                            |  |   |              |   |  | $            |        |   |  | $ | 19,400  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Income taxes                                                                             |  | $             | 10,181  |   |                       | $ |        |                            |  | $ |             |   |  | $            |        |   |  | $ | 10,181  |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Supplemental disclosures of noncash financing and investing activities:                  |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Deferred gain on sale leaseback transactions                                             |  | $             | 3,634   |   |                       | $ |        |                            |  | $ |             |   |  | $            |        |   |  | $ | 3,634   |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Unrealized loss on hedging transactions                                                  |  | $             | (106    | ) |                       | $ |        |                            |  | $ |             |   |  | $            |        |   |  | $ | (106    | )
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  
|Adjustment of redeemable common stock to fair value                                      |  | $             | 4,989   |   |                       | $ |        |                            |  | $ |             |   |  | $            |        |   |  | $ | 4,989   |  
|                                                                                         |  |               |         |   |                       |   |         |                            |  |   |              |   |  |              |         |   |  |   |         |  



64



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##### Table of Contents

ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FISCAL YEAR
ENDED NOVEMBER 2, 2003



|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------ | -------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|(Amounts in thousands)                                                                   |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |        | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   |  | CONSOLIDATED |       
|OPERATING ACTIVITIES:                                                                    |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Net income (loss)                                                                        |  | $             | 14,882  |   |                       | $ | (3,385 | )                          |  | $ | (815         | ) |  | $            | 4,200  |   |  | $ | 14,882  |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Depreciation and amortization                                                            |  |               | 13,022  |   |                       |   | 2,846  |                            |  |   | 822          |   |  |              |        |   |  |   | 16,690  |  
|Amortization of discount on 12.5% notes due 2009                                         |  |               | 138     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 138     |  
|Amortization of deferred loan costs                                                      |  |               | 2,102   |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 2,102   |  
|Deferred income tax benefit                                                              |  |               | (123    | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (123    | )
|Loss on disposal of property and equipment                                               |  |               | 484     |   |                       |   | 660    |                            |  |   | 69           |   |  |              |        |   |  |   | 1,213   |  
|Provision for the allowance for doubtful accounts                                        |  |               | 301     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 301     |  
|Partnership losses                                                                       |  |               | 872     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 872     |  
|Equity in loss of consolidated subsidiaries                                              |  |               | 4,200   |   |                       |   |        |                            |  |   |              |   |  |              | (4,200 | ) |  |   |        |  
|Changes in operating assets and liabilities:                                             |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Accounts receivable                                                                      |  |               | 943     |   |                       |   | (1,220 | )                          |  |   | (137         | ) |  |              |        |   |  |   | (414    | )
|Intercompany receivables (net)                                                           |  |               | (18,191 | ) |                       |   | 9,801  |                            |  |   | 8,390        |   |  |              |        |   |  |   |        |  
|Inventories                                                                              |  |               | 1,338   |   |                       |   | (5,206 | )                          |  |   | (1,542       | ) |  |              |        |   |  |   | (5,410  | )
|Other current assets                                                                     |  |               | (341    | ) |                       |   | (527   | )                          |  |   | (513         | ) |  |              |        |   |  |   | (1,381  | )
|Other assets                                                                             |  |               | 171     |   |                       |   | 45     |                            |  |   | (1,387       | ) |  |              |        |   |  |   | (1,171  | )
|Accounts payable                                                                         |  |               | 4,641   |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 4,641   |  
|Accrued expenses                                                                         |  |               | 2,054   |   |                       |   | 2,765  |                            |  |   | 411          |   |  |              |        |   |  |   | 5,230   |  
|Accrued interest expense                                                                 |  |               | (1,717  | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (1,717  | )
|Income taxes payable                                                                     |  |               | (294    | ) |                       |   |        |                            |  |   | (1,385       | ) |  |              |        |   |  |   | (1,679  | )
|Deferred rent                                                                            |  |               | 321     |   |                       |   | 139    |                            |  |   |              |   |  |              |        |   |  |   | 460     |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash provided by operating activities                                                |  |               | 24,803  |   |                       |   | 5,918  |                            |  |   | 3,913        |   |  |              |       |   |  |   | 34,634  |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|INVESTING ACTIVITIES:                                                                    |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Proceeds from sale of property and equipment                                             |  |               | 22      |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 22      |  
|Purchase of property and equipment                                                       |  |               | (10,566 | ) |                       |   | (6,366 | )                          |  |   | (4,335       | ) |  |              |        |   |  |   | (21,267 | )
|Sale of short-term investments                                                           |  |               | 7       |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 7       |  
|Capital distributions from partnership                                                   |  |               | 440     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 440     |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash used in investing activities                                                    |  |               | (10,097 | ) |                       |   | (6,366 | )                          |  |   | (4,335       | ) |  |              |       |   |  |   | (20,798 | )
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|FINANCING ACTIVITIES:                                                                    |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|                                                                                         |  |               |         |   |                      
|Principal payments of long-term debt                                                     |  |               | (9,872  | ) |                       |   |        |                            |  |   | (420         | ) |  |              |        |   |  |   | (10,292 | )
|Proceeds from bank borrowings                                                            |  |               | 30,000  |   |                       |   |        |                            |  |   | 299          |   |  |              |        |   |  |   | 30,299  |  
|Redemptionof 15.25% subordinated notes                                                   |  |               | (39,294 | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (39,294 | )
|Redemption of redeemable common stock                                                    |  |               | (5,000  | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (5,000  | )
|Financing fees and expenses                                                              |  |               | (974    | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (974    | )
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash used in financing activities                                                    |  |               | (25,140 | ) |                       |   |       |                            |  |   | (121         | ) |  |              |       |   |  |   | (25,261 | )
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Effect of exchange rate changes                                                          |  |               | 267     |   |                       |   |        |                            |  |   | 294          |   |  |              |        |   |  |   | 561     |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net decrease in cash and cash equivalents                                                |  |               | (10,167 | ) |                       |   | (448   | )                          |  |   | (249         | ) |  |              |       |   |  |   | (10,864 | )
|Beginning balance, cash and cash equivalents                                             |  |               | 28,659  |   |                       |   | 754    |                            |  |   | 716          |   |  |              |        |   |  |   | 30,129  |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Ending balance, cash and cash equivalents                                                |  | $             | 18,492  |   |                       | $ | 306    |                            |  | $ | 467          |   |  | $            |       |   |  | $ | 19,265  |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Supplemental disclosures of cash flow information:                                       |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Cash received for interest income                                                        |  | $             | 440     |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 440     |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Cash paid for:                                                                           |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Interest expense                                                                         |  | $             | 23,802  |   |                       | $ |       |                            |  | $ | 3            |   |  | $            |       |   |  | $ | 23,805  |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Income taxes                                                                             |  | $             | 11,388  |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 11,388  |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Supplemental disclosures of noncash financing and investing activities:                  |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Conversion of accrued interest to subordinated notes                                     |  | $             | 533     |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 533     |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Unrealized gain on securities                                                            |  | $             | 2       |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 2       |  
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Adjustment of redeemable common stock to fair value                                      |  | $             | (22,679 | ) |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | (22,679 | )
|                                                                                         |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FISCAL YEAR
ENDED NOVEMBER 3, 2002



|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------ | -------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|(Amounts in thousands)                                                                             |  | PARENTCOMPANY |         |   | GUARANTORSUBSIDIARIES |   |        | NON- GUARANTORSUBSIDIARIES |  |   | ELIMINATIONS |   |  | CONSOLIDATED |       
|OPERATING ACTIVITIES:                                                                              |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net income (loss)                                                                                  |  | $             | 24,360  |   |                       | $ | (1,586 | )                          |  | $ | (679         | ) |  | $            | 2,210  |   |  | $ | 24,305  |  
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Depreciation and amortization                                                                      |  |               | 14,320  |   |                       |   | 569    |                            |  |   | 792          |   |  |              |        |   |  |   | 15,681  |  
|Amortization of discount on 12.5% notes due 2009                                                   |  |               | 141     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 141     |  
|Amortization of deferred loan costs                                                                |  |               | 2,061   |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 2,061   |  
|Deferred income tax benefit                                                                        |  |               | (2,785  | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (2,785  | )
|Loss on disposal of property and equipment                                                         |  |               | 145     |   |                       |   |        |                            |  |   | 196          |   |  |              |        |   |  |   | 341     |  
|Provision for the allowance for doubtful accounts                                                  |  |               | (652    | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (652    | )
|Partnership losses                                                                                 |  |               | 905     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 905     |  
|Equity in loss of consolidated subsidiaries                                                        |  |               | 2,210   |   |                       |   |        |                            |  |   |              |   |  |              | (2,210 | ) |  |   |        |  
|Changes in operating assets and liabilities:                                                       |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Accounts receivable                                                                                |  |               | (4,806  | ) |                       |   | 54     |                            |  |   | (428         | ) |  |              |        |   |  |   | (5,180  | )
|Intercompany receivables (net)                                                                     |  |               | (2,192  | ) |                       |   | (686   | )                          |  |   | 2,878        |   |  |              |        |   |  |   |        |  
|Inventories                                                                                        |  |               | (2,904  | ) |                       |   | 1,303  |                            |  |   | (607         | ) |  |              |        |   |  |   | (2,208  | )
|Other current assets                                                                               |  |               | (245    | ) |                       |   | 89     |                            |  |   |              |   |  |              |        |   |  |   | (156    | )
|Other assets                                                                                       |  |               | (767    | ) |                       |   | 36     |                            |  |   | (124         | ) |  |              |        |   |  |   | (855    | )
|Accounts payable                                                                                   |  |               | (2,088  | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (2,088  | )
|Accrued expenses                                                                                   |  |               | 890     |   |                       |   | 196    |                            |  |   | (62          | ) |  |              |        |   |  |   | 1,024   |  
|Accrued interest expense                                                                           |  |               | 1,488   |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 1,488   |  
|Income taxes payable                                                                               |  |               | 6,438   |   |                       |   |        |                            |  |   | (1,158       | ) |  |              |        |   |  |   | 5,280   |  
|Deferred rent                                                                                      |  |               | 5,144   |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 5,144   |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash provided by (used in) operating activities                                                |  |               | 41,663  |   |                       |   | (25    | )                          |  |   | 808          |   |  |              |       |   |  |   | 42,446  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|INVESTING ACTIVITIES:                                                                              |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Proceeds from sale of property and equipment                                                       |  |               | 21      |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 21      |  
|Purchases of property and equipment                                                                |  |               | (16,698 | ) |                       |   | 23     |                            |  |   | (752         | ) |  |              |        |   |  |   | (17,427 | )
|Sale of short-term investments                                                                     |  |               | 3       |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 3       |  
|Capital distributions from partnership                                                             |  |               | 486     |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | 486     |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash provided by (used in) investing activities                                                |  |               | (16,188 | ) |                       |   | 23     |                            |  |   | (752         | ) |  |              |       |   |  |   | (16,917 | )
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|FINANCING ACTIVITIES:                                                                              |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Principal payments of long-term debt                                                               |  |               | (22,344 | ) |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   | (22,344 | )
|Proceeds from bank borrowings                                                                      |  |               |         |   |                       |   |        |                            |  |   | 408          |   |  |              |        |   |  |   | 408     |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Net cash provided by (used in) financing activities                                                |  |               | (22,344 | ) |                       |   |       |                            |  |   | 408          |   |  |              |       |   |  |   | (21,936 | )
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Effect of exchange rate changes                                                                    |  |               | 290     |   |                       |   |        |                            |  |   | 35           |   |  |              |        |   |  |   | 325     |  
|Net increase (decrease) in cash and cash equivalents                                               |  |               | 3,421   |   |                       |   | (2     | )                          |  |   | 499          |   |  |              |       |   |  |   | 3,918   |  
|Beginning balance, cash and cash equivalents                                                       |  |               | 25,990  |   |                       |   | 4      |                            |  |   | 217          |   |  |              |        |   |  |   | 26,211  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Ending balance, cash and cash equivalents                                                          |  | $             | 29,411  |   |                       | $ | 2      |                            |  | $ | 716          |   |  | $            |       |   |  | $ | 30,129  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Supplemental disclosures of cash flow information:                                                 |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Cash received for interest income                                                                  |  | $             | 1,044   |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 1,044   |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Cash paid for:                                                                                     |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Interest expense                                                                                   |  | $             | 19,796  |   |                       | $ |       |                            |  | $ | 3            |   |  | $            |       |   |  | $ | 19,799  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Income taxes                                                                                       |  | $             | 15,095  |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 15,095  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Supplemental disclosure of noncash financing and investing activities:                             |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Dividends accrued on mandatorily redeemable preferred stock                                        |  | $             | 3,458   |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 3,458   |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Conversion of mandatorily redeemable preferred stock and accrued dividends to subordinated notes   |  | $             | 38,761  |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 38,761  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Unrealized loss on securities                                                                      |  | $             | (1      | ) |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | (1      | )
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Unrealized loss on hedging transactions                                                            |  | $             | (107    | ) |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | (107    | )
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  
|Adjustment of redeemable common stock to fair value                                                |  | $             | 26,928  |   |                       | $ |       |                            |  | $ |             |   |  | $            |       |   |  | $ | 26,928  |  
|                                                                                                   |  |               |         |   |                       |   |        |                            |  |   |              |   |  |              |        |   |  |   |         |  



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ST. JOHN KNITS INTERNATIONAL, INCORPORATED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



October 31, 2004, November 2, 2003 and November 3, 2002



19. Results by Quarter (Unaudited)



The unaudited results by quarter for fiscal years 2004 and 2003 are shown
below:



|                                           |  |                                          |         |                |   |               |  |                |        |  |   |         |  
|------------------------------------------ |  | ---------------------------------------- | ------- | -------------- | - | ------------- |  | -------------- | ------ |  | - | ------- | -
|                                           |  | First Quarter                            |         | Second Quarter |   | Third Quarter |  | Fourth Quarter |       
|                                           |  | (in thousands, except per share amounts) |        
|Year ended October 31, 2004                |  |                                          |         |                |   |               |  |                |        |  |   |         |  
|Net sales                                  |  | $                                        | 103,626 |                | $ | 100,423       |  | $              | 90,773 |  | $ | 100,780 |  
|Gross profit                               |  |                                          | 56,295  |                |   | 57,540        |  |                | 50,419 |  |   | 52,177  |  
|Net income (loss)(1)                       |  |                                          | 6,074   |                |   | 4,737         |  |                | 2,967  |  |   | (330    | )
|Net income (loss) per common share-diluted |  |                                          | 0.94    |                |   | 0.73          |  |                | 0.47   |  |   | (0.05   | )
|Year ended November 2, 2003                |  |                                          |         |                |   |               |  |                |        |  |   |         |  
|Net sales                                  |  | $                                        | 98,296  |                | $ | 87,595        |  | $              | 83,524 |  | $ | 100,728 |  
|Gross profit                               |  |                                          | 54,681  |                |   | 52,674        |  |                | 48,135 |  |   | 58,010  |  
|Net income                                 |  |                                          | 5,004   |                |   | 1,947         |  |                | 1,938  |  |   | 5,993   |  
|Net income per common share-diluted        |  |                                          | 0.75    |                |   | 0.29          |  |                | 0.29   |  |   | 0.91    |  



|(1) | See notes 13 and 15.
|--- | --------------------



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SCHEDULE II



ST. JOHN KNITS INTERNATIONAL, INCORPORATED



VALUATION AND QUALIFYING ACCOUNTS



October 31, 2004, November 2, 2003 and November 3, 2002



|                                             |  |                                     |           |                               |   |            |            |  |                               |            |  |   |          
|-------------------------------------------- |  | ----------------------------------- | --------- | ----------------------------- | - | ---------- | ---------- |  | ----------------------------- | ---------- |  | - | ---------
|                                             |  | Balance at Beginning of Fiscal Year |           | Charged to Costs and Expenses |   |            | Deductions |  | Balance at End of Fiscal Year
|Allowance for Uncollectible Accounts:        |  |                                     |           |                               |   |            |            |  |                               |            |  |   |          
|Fiscal year ended October 31, 2004           |  | $                                   | 2,559,767 |                               | $ | 125,276    |            |  | $                             | 1,617,291  |  | $ | 1,067,752
|Fiscal year ended November 2, 2003           |  | $                                   | 2,316,150 |                               | $ | 301,040    |            |  | $                             | 57,423     |  | $ | 2,559,767
|Fiscal year ended November 3, 2002           |  | $                                   | 3,091,498 |                               | $ | (652,344   | )          |  | $                             | 123,004    |  | $ | 2,316,150
|                                             |  |                                     |           |                              
|Allowance for Discounts:                     |  |                                     |           |                               |   |            |            |  |                               |            |  |   |          
|Fiscal year ended October 31, 2004           |  | $                                   | 2,613,009 |                               | $ | 17,368,808 |            |  | $                             | 17,774,056 |  | $ | 2,207,761
|Fiscal year ended November 2, 2003           |  | $                                   | 2,709,593 |                               | $ | 16,630,134 |            |  | $                             | 16,726,718 |  | $ | 2,613,009
|Fiscal year ended November 3, 2002           |  | $                                   | 2,510,779 |                               | $ | 17,227,292 |            |  | $                             | 17,028,478 |  | $ | 2,709,593
|                                             |  |                                     |           |                              
|Allowance for Excess and Obsolete Inventory: |  |                                     |           |                               |   |            |            |  |                               |            |  |   |          
|Fiscal year ended October 31, 2004           |  | $                                   | 3,023,901 |                               | $ | 3,882,795  |            |  | $                             | 1,531,830  |  | $ | 5,374,866
|Fiscal year ended November 2, 2003           |  | $                                   | 4,565,491 |                               | $ | 351,281    |            |  | $                             | 1,892,871  |  | $ | 3,023,901
|Fiscal year ended November 3, 2002           |  | $                                   | 4,107,371 |                               | $ | 1,171,525  |            |  | $                             | 713,405    |  | $ | 4,565,491



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.



Date: January 26, 2005



ST. JOHN KNITS INTERNATIONAL, INCORPORATED (REGISTRANT)By:

/s/    RICHARD
COHENRichard CohenChief 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.



|                                                  |  |                                                                                                           |  |                 
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | ----------------
|Signature                                         |  | Title                                                                                                     |  | Date            
|                                                  |  |                                                                                                          
|/S/    RICHARD
COHENRichard
Cohen                 |  | Director and Chief Executive Officer (Principal Executive Officer)                                        |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    ROGER G.
RUPPERTRoger G.
Ruppert           |  | Executive Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    JAMES
KELLEYJames
Kelley                   |  | Chairman of the Board                                                                                     |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    MARIE
GRAYMarie Gray                       |  | Vice Chairman of the Board and Chief Designer                                                             |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    BRUCE
FETTERBruce
Fetter                   |  | Director and Chief Operating Officer                                                                      |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    KELLY
GRAYKelly Gray                       |  | Director and Creative Director                                                                            |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    BOB
GRAYBob Gray                           |  | Director                                                                                                  |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    DANIEL
OCONNELLDaniel
OConnell           |  | Director                                                                                                  |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    SANDER
LEVYSander Levy                     |  | Director                                                                                                  |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    CHRISTOPHER
HENDERSONChristopher
Henderson |  | Director                                                                                                  |  | January 26, 2005
|                                                  |  |                                                                                                          
|/S/    PHILIP
MILLERPhilip
Miller                 |  | Director                                                                                                  |  | January 26, 2005



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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT



No annual report or proxy material has been sent to security holders covering fiscal 2004.



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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 Amendment of Certificate of Designations (incorporated by reference to Exhibit 3.1 to St. John Knits International, Incorporated Report on Form 10-Q for the quarter ended April
28, 2002).                                                                                                                                                                                                                                     
|            | 
|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         |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.5         |  | Modification Agreement (incorporated by reference to Exhibit 4.1 to St. John Knits International, Incorporated Report on Form 10-Q for the quarter ended April 28, 2002).                                                                                                                                                                                                                                                                      
|            | 
|4.6         |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.7         |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|4.8         |  | Amended and Restated Credit Agreement dated May 30, 2003 (incorporated by reference to Exhibit 4.1 to St. John Knits International, Incorporateds Report on Form 10-Q for the quarter
ended May 4, 2003).                                                                                                                                                                                                                                     
|            | 
|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).                                                                                                                                                              
|            | 
|10.5        |  | Not used                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 
|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).                                                                                                                                                                  



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|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 November 2, 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  |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 
|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* |  | Written Description of Non-employee Director Compensation Pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.                                                                                                                                                                                                                                                                                                                                  
|       | 
|10.17  |  | Employment Agreement dated as of January 1, 2001 between St. John Knits, Inc. and Bruce Fetter (incorporated by reference to Exhibit 10.17 to St. John Knits International, Incorporateds
Report on Form 10-K for the fiscal year ended October 29, 2000).**                                                                                                                                                                                     
|       | 
|10.18  |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 
|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 October 18, 2001 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 10.20 to St. John Knits International, Incorporateds Report on Form 10-K for the fiscal year ended October 28, 2001).                                                                                                            
|       | 
|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  |  | First Amendment to Employment Agreement, effective as of November 5, 2001, between Bruce Fetter and St. John Knits, Inc. (incorporated by reference to Exhibit 10.25 to St. John Knits
International, Incorporateds Report on Form 10-K for the fiscal year ended October 28, 2001).**                                                                                                                                                           
|       | 
|10.26  |  | Lease Extension Agreement dated November 20, 2000 between St. John Knits, Inc. and G.M. Properties (extending the lease for a manufacturing facility) (incorporated by reference to Exhibit
10.26 to St. John Knits International, Incorporateds Report on Form 10-K for the fiscal year ended October 29, 2000).                                                                                                                                
|       | 
|10.27  |  | Lease Extension Agreement dated as of November 20, 2000 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 10.27 to St. John Knits International, Incorporateds Report on Form 10-K for the fiscal year ended October 29, 2000).                                                                                           
|       | 
|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  |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       | 
|10.30  |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                                                                         



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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|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 |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|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).**                                                                                                                   
|      | 
|10.37 |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.38 |  | First Amendment to Amended and Restated Employment Agreement, effective as of May 4, 2000, between Marie St. John Gray and St. John Knits, Inc. (incorporated by reference to Exhibit 10.1 to
St. John Knits International, Incorporateds Report on Form 10-Q for the quarter ended July 30, 2000).**                                                                                         
|      | 
|10.39 |  | Amended and Restated St. John Knits International, Incorporated 1999 Stock Option Plan, executed May 15, 2000 (incorporated by reference to Exhibit 10.1 to St. John Knits International,
Incorporateds Report on Form 10-Q for the quarter ended July 30, 2000).**                                                                                                                           
|      | 
|10.40 |  | Amendment, dated May 15, 2000, to the Management Stockholders Agreement dated as of September 21, 1999 among St. John Knits International, Incorporated, Vestar/Gray Investors LLC,
Vestar/SJK Investors LLC and the Management Investors (incorporated by reference to Exhibit 10.1 to St. John Knits International, Incorporateds Report on Form 10-Q for the quarter ended July 30, 2000).
|      | 
|10.41 |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.42 |  | Separation and General Release Agreement, effective as of October 16, 2001, between Hugh Mullins and St. John Knits, Inc. (incorporated by reference to Exhibit 10.42 to St. John Knits
International, Incorporateds Report on Form 10-K for the fiscal year ended October 28, 2001).**                                                                                                       
|      | 
|10.43 |  | Amendment to the Amended and Restated Limited Liability Company Agreement of Vestar/Gray Investors LLC, dated as of July 7, 1999 (incorporated by reference to Exhibit 10.1 to St. John Knits
International, Incorporateds Report on Form 10-Q for the quarter ended July 29, 2001).                                                                                                          
|      | 
|10.44 |  | Amended to the Stockholders Agreement dated July 7, 1999, by and among the Company, SJK and Vestar/Gray Investors, LLC (incorporated by reference to Exhibit 10.2 to St. John Knits
International, Incorporateds Report on Form 10-Q for the quarter ended July 29, 2001).                                                                                                                   
|      | 
|10.45 |  | Second Amendment to Amended and Restated Employment Agreement, effective as of September 24, 2002, between Marie St. John Gray and St. John Knits, Inc. (incorporated by reference to Exhibit
10.45 to St. John Knits International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                   
|      | 
|10.46 |  | Third Amendment to Amended and Restated Employment Agreement, effective as of January 9, 2003, between Marie St. John Gray and St. John Knits, Inc. (incorporated by reference to Exhibit 10.46
to St. John Knits International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                       
|      | 
|10.47 |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.48 |  | Not used.                                                                                                                                                                                                                                                                                                                                                                                      
|      | 
|10.49 |  | Second Amendment to Amended and Restated Employment Agreement, effective as of November 4, 2002, between Bruce Fetter and St. John Knits, Inc. (incorporated by reference to Exhibit 10.49 to
St. John Knits International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                            
|      | 
|10.50 |  | Separation Agreement between St. John Knits International, Incorporated and Bob Gray, effective as of November 3, 2002. (incorporated by reference to Exhibit 10.50 to St. John Knits
International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                                                   
|      | 
|10.51 |  | Amended and Restated Separation Agreement between St. John Knits International, Incorporated and Bob Gray, effective as of November 3, 2002. (incorporated by reference to Exhibit 10.51 to St.
John Knits International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                              
|      | 
|10.52 |  | Consulting Agreement between St. John Knits, Inc. and Bob Gray, effective as of November 4, 2002. (incorporated by reference to Exhibit 10.52 to St. John Knits International,
Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                                                                         
|      | 
|10.53 |  | Amended and Restated Consulting Agreement between St. John Knits, Inc. and Bob Gray effective as of November 4, 2002. (incorporated by reference to Exhibit 10.53 to St. John Knits
International, Incorporateds Report on Form 10-K for fiscal 2002). **                                                                                                                                     



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.54  |  | Agreement of intent of sell SJKI common stock by and between St. John Knits International, Incorporated and Bob Gray, dated November 7, 2002. (incorporated by reference to Exhibit 10.54 to
St. John Knits International, Incorporateds Report on Form 10-K for fiscal 2002). **                                          
|       | 
|10.55  |  | Employment agreement dated as of June 3, 2004 between St. John Knits, Inc. and Richard Cohen. (incorporated by reference to Exhibit 10.1 to St. John Knits International, Incorporateds
Report on Form 10-Q for the quarter ended August 1, 2004).**                                                                       
|       | 
|10.56  |  | Agreement for Purchase and Sale and Lease of Property and Escrow Instructions dated June 11, 2004 by and between St. John Knits, Inc. and John R. Saunders Trust. (incorporated by reference to
Exhibit 10.2 to St. John Knits International, Incorporateds Report on Form 10-Q for the quarter ended August 1, 2004).     
|       | 
|10.57  |  | Lease agreement dated July 21, 2004 by and between St. John Knits, Inc. and JS SJK L.P. (lease covering the location at 17522 Armstrong Avenue in Irvine, California). (incorporated by
reference to Exhibit 10.3 to St. John Knits International, Incorporateds Report on Form 10-Q for the quarter ended August 1, 2004).
|       | 
|10.58  |  | Lease agreement dated July 21, 2004 by and between St. John Knits, Inc. and JS SJK L.P. (lease covering the location at 17622 Armstrong Avenue in Irvine, California). (incorporated by
reference to Exhibit 10.4 to St. John Knits International, Incorporateds Report on Form 10-Q for the quarter ended August 1, 2004).
|       | 
|10.59  |  | Agreement of intent to sell SJKI Common Stock by and between St. John Knits International, Incorporated and Bob Gray, dated May 21, 2004. (incorporated by reference to Exhibit 10.5 to St.
John Knits International, Incorporateds Report on Form 10-Q for the quarter ended August 1, 2004).                             
|       | 
|10.60  |  | Form of Time Option Agreement for the Amended and Restated St. John Knits International, Incorporated 1999 Stock Option Plan. (incorporated by reference to Exhibit 10.6 to St. John Knits
International, Incorporateds Report on Form 10-Q for the quarter ended August 1, 2004).                                         
|       | 
|10.61* |  | Employment Agreement dated as of December 27, 2004 between St. John Knits, Inc. and Max Weinstein.**                                                                                                                                                                                                                        
|       | 
|10.62* |  | Time Option Agreement dated as of January 11, 2005 between St. John Knits, Inc. and Max Weinstein.**                                                                                                                                                                                                                        
|       | 
|10.63* |  | Employment Agreement dated as of December 24, 2004 between St. John Knits, Inc. and Robert Green.**                                                                                                                                                                                                                         
|       | 
|10.64* |  | Time Option Agreement dated as of January 11, 2005 between St. John Knits, Inc. and Robert Green.**                                                                                                                                                                                                                         
|       | 
|10.65* |  | Employment Agreement dated as of December 17, 2004 between St. John Knits, Inc. and Elfie Campbell.**                                                                                                                                                                                                                       
|       | 
|10.66* |  | Fourth Amendment to Amended and Restated Employment Agreement, effective as of January 10, 2005, between Marie St. John Gray and St. John Knits, Inc.**                                                                                                                                                                     
|       | 
|10.67* |  | Employment agreement dated as of January 10, 2005 between St. John Knits, Inc. and Kelly Gray.**                                                                                                                                                                                                                            
|       | 
|21.1   |  | List of subsidiaries                                                                                                                                                                                                                                                                                                        
|       | 
|31.1*  |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                              
|       | 
|31.2*  |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                              
|       | 
|32.1*  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief Executive Officer                                                                                                                                                                            
|       | 
|32.2*  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002  Chief Financial Officer                                                                                                                                                                            



|* | Filed herewith
|- | --------------



|** | Management Contract or Compensation Plan
|-- | ----------------------------------------



74