Form 10-Q

10-Q 1 tenq10_3q.htm FORM 10-Q Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended October 2, 2010

OR

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

For the transition period from __________ to __________

Commission File Number 1-10746

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

Pennsylvania (State or other jurisdiction of incorporation or organization)	06-0935166 (I.R.S. Employer Identification No.)
1411 Broadway New York, New York (Address of principal executive offices)	10018 (Zip Code)

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

JONES APPAREL GROUP, INC.
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [ ]

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

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

Class of Common Stock
$.01 par value

Outstanding at October 26, 2010
87,174,686

THE JONES GROUP INC.

Index		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets October 2, 2010, October 3, 2009 and December 31, 2009	3
	Consolidated Statements of Operations Fiscal Quarters and Nine Months ended October 2, 2010 and October 3, 2009	4
	Consolidated Statements of Changes in Equity Fiscal Nine Months ended October 2, 2010 and October 3, 2009	5
	Consolidated Statements of Cash Flows Fiscal Nine Months ended October 2, 2010 and October 3, 2009	6
	Notes to Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		35
Item 5. Other Information		36
Item 6. Exhibits		37
Signatures		38
Exhibit Index		39

DEFINITIONS

As used in this Report, unless the context requires otherwise, "Jones," "our," "us" and "we" means The Jones Group Inc. and consolidated subsidiaries, "GRI" means GRI Group Limited, "FASB" means the Financial Accounting Standards Board, "ASC" means the "FASB Accounting Standards Codification^TM", "ASU" means "Accounting Standards Update" and "SEC" means the United States Securities and Exchange Commission.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

			October 2, 2010			October 3, 2009			December 31, 2009
ASSETS			(Unaudited	)		(Unaudited	)
CURRENT ASSETS:
	Cash and cash equivalents	$	34.0		$	156.9		$	333.4
	Accounts receivable		523.1			413.7			303.1
	Inventories, primarily finished goods		513.6			417.0			375.0
	Prepaid and refundable income taxes		0.7			9.1			-
	Deferred taxes		33.2			22.1			28.1
	Prepaid expenses and other current assets		36.3			37.3			25.6
	TOTAL CURRENT ASSETS		1,140.9			1,056.1			1,065.2
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $547.9, $523.5 and $539.4			230.5			246.8			239.0
GOODWILL			161.8			160.7			40.1
OTHER INTANGIBLES, at cost, less accumulated amortization			766.7			589.1			559.8
PREPAID AND REFUNDABLE INCOME TAXES			-			-			4.7
DEFERRED TAXES			-			-			3.9
INVESTMENT IN AND LOANS TO UNCONSOLIDATED AFFILIATE			40.0			43.1			42.1
OTHER ASSETS			95.7			71.2			70.2
	TOTAL ASSETS	$	2,435.6		$	2,167.0		$	2,025.0
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$	16.3		$	-		$	-
	Current portion of long-term debt		0.1			7.5			-
	Current portion of capital lease obligations		1.9			2.7			2.6
	Current portion of acquisition consideration payable		9.3			-			-
	Accounts payable		237.9			194.7			185.3
	Income taxes payable		13.2			-			11.8
	Accrued employee compensation and benefits		49.3			41.6			42.7
	Accrued expenses and other current liabilities		97.3			78.8			81.7
	TOTAL CURRENT LIABILITIES		425.3			325.3			324.1
NONCURRENT LIABILITIES:
	Long-term debt		509.3			499.5			499.5
	Obligations under capital leases		25.6			27.5			26.9
	Income taxes payable		9.5			11.3			-
	Deferred taxes		3.0			2.4			-
	Acquisition consideration payable		198.2			-			-
	Other noncurrent liabilities		72.8			77.8			82.0
	TOTAL NONCURRENT LIABILITIES		818.4			618.5			608.4
	TOTAL LIABILITIES		1,243.7			943.8			932.5
COMMITMENTS AND CONTINGENCIES			-			-			-
EQUITY:
	Preferred stock, $.01 par value - shares authorized 1.0; none issued		-			-			-
	Common stock, $.01 par value - shares authorized 200.0; issued 158.5, 156.8 and 156.8		1.6			1.6			1.6
	Additional paid-in capital		1,378.1			1,356.5			1,360.3
	Retained earnings		1,645.2			1,699.1			1,564.4
	Accumulated other comprehensive loss		(6.8	)		(7.9	)		(7.6	)
	Treasury stock, 71.4 shares for all periods, at cost		(1,826.3	)		(1,826.3	)		(1,826.3	)
	TOTAL JONES STOCKHOLDERS' EQUITY		1,191.8			1,223.0			1,092.4
	Noncontrolling interest		0.1			0.2			0.1
	TOTAL EQUITY		1,191.9			1,223.2			1,092.5
	TOTAL LIABILITIES AND EQUITY	$	2,435.6		$	2,167.0		$	2,025.0

See accompanying notes to consolidated financial statements

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

	Fiscal Quarter Ended					Fiscal Nine Months Ended
		October 2, 2010		October 3, 2009			October 2, 2010			October 3, 2009
Net sales	$	1,009.9	$	843.9		$	2,735.0		$	2,516.8
Licensing income		12.0		11.6			33.3			33.3
Other revenues		0.2		0.2			0.6			0.6
Total revenues		1,022.1		855.7			2,768.9			2,550.7
Cost of goods sold		679.5		551.3			1,782.9			1,670.9
Gross profit		342.6		304.4			986.0			879.8
Selling, general and administrative expenses		282.5		243.5			794.3			763.1
Operating income		60.1		60.9			191.7			116.7
Interest income		0.4		0.6			1.2			2.3
Interest expense and financing costs		14.6		12.1			41.7			46.5
Loss and costs associated with repurchase of 4.250% Senior Notes		-		-			-			2.0
Equity in income (loss) of unconsolidated affiliate		0.5		(2.3	)		(1.3	)		(2.8	)
Income before provision for income taxes		46.4		47.1			149.9			67.7
Provision for income taxes		17.2		16.5			55.5			23.7
Net income		29.2		30.6			94.4			44.0
Less: income attributable to noncontrolling interest		0.1		0.2			0.5			0.2
Income attributable to Jones	$	29.1	$	30.4		$	93.9		$	43.8
Earnings per common share attributable to Jones
Basic	$	0.34	$	0.36		$	1.09		$	0.52
Diluted		0.34		0.36			1.09			0.51
Weighted average shares outstanding
Basic		82.2		81.7			82.1			81.7
Diluted		82.9		81.8			82.7			81.7
Dividends declared per share	$	0.05	$	0.05		$	0.15		$	0.15

See accompanying notes to consolidated financial statements

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

		Number of common shares outstanding		Total equity			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock			Non-controlling interest
Balance, January 1, 2009		83.4	$	1,182.2		$	1.5	$	1,350.7		$	1,668.0		$	(11.7	)	$	(1,826.3	)	$	-
Fiscal nine months ended October 3, 2009:
Comprehensive income:
	Net income	-		44.0			-		-			43.8			-			-			0.2
	Change in fair value of cash flow hedges, net of $0.3 tax benefit	-		(0.6	)		-		-			-			(0.6	)		-			-
	Reclassification adjustment for hedge gains and losses included in net income, net of $0.1 tax benefit	-		0.3			-		-			-			0.3			-			-
	Foreign currency translation adjustments	-		4.1			-		-			-			4.1			-			-
	Total comprehensive income			47.8
Issuance of restricted stock to employees, net of forfeitures		2.0		-			-		-			-			-			-			-
Amortization expense in connection with employee stock options and restricted stock		-		9.2			0.1		9.1			-			-			-			-
Tax effects from vesting of restricted stock		-		(1.1	)		-		(1.1	)		-			-			-			-
Tax effects of expired employee stock options		-		(2.2	)		-		(2.2	)		-			-			-			-
Dividends on common stock ($0.15 per share)		-		(12.7	)		-		-			(12.7	)		-			-			-
Balance, October 3, 2009		85.4	$	1,223.2		$	1.6	$	1,356.5		$	1,699.1		$	(7.9	)	$	(1,826.3	)	$	0.2
Balance, January 1, 2010		85.4	$	1,092.5		$	1.6	$	1,360.3		$	1,564.4		$	(7.6	)	$	(1,826.3	)	$	0.1
Fiscal nine months ended October 2, 2010:
Comprehensive income:
	Net income	-		94.4			-		-			93.9			-			-			0.5
	Reclassification adjustment for hedge gains and losses included in net income, net of $0.1 tax benefit	-		0.1			-		-			-			0.1			-			-
	Foreign currency translation adjustments	-		0.7			-		-			-			0.7			-			-
	Total comprehensive income			95.2
Issuance of restricted stock to employees, net of forfeitures		1.7		-			-		-			-			-			-			-
Exercise of employee stock options		-		0.6			-		0.6			-			-			-			-
Amortization expense in connection with employee stock options and restricted stock		-		19.1			-		19.1			-			-			-			-
Distributions to noncontrolling interest		-		(0.5	)		-		-			-			-			-			(0.5	)
Tax effects from vesting of restricted stock and exercise of employee stock options		-		(1.5	)		-		(1.5	)		-			-			-			-
Tax effects of expired employee stock options		-		(0.4	)		-		(0.4	)		-			-			-			-
Dividends on common stock ($0.15 per share)		-		(13.1	)		-		-			(13.1	)		-			-			-
Balance, October 2, 2010		87.1	$	1,191.9		$	1.6	$	1,378.1		$	1,645.2		$	(6.8	)	$	(1,826.3	)	$	0.1

See accompanying notes to consolidated financial statements

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

			Fiscal Nine Months Ended
				October 2, 2010			October 3, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	94.4		$	44.0
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of acquisitions:
	Loss and costs associated with repurchase of 4.250% Senior Notes			-			2.0
	Amortization of employee stock options and restricted stock			19.1			9.2
	Depreciation and other amortization			72.5			58.0
	Impairment losses			9.7			22.8
	Equity in loss of unconsolidated affiliate			1.3			2.8
	(Recovery of) provision for losses on accounts receivable			(0.4	)		1.6
	Deferred taxes			1.2			22.3
	Write-off of deferred financing fees			-			7.9
	Other items, net			0.1			0.6
	Changes in operating assets and liabilities:
		Accounts receivable		(196.3	)		(54.2	)
		Inventories		(117.5	)		94.6
		Prepaid expenses and other current assets		(8.9	)		(2.3	)
		Other assets		(16.6	)		(2.1	)
		Accounts payable		49.3			(37.3	)
		Income taxes payable/prepaid income taxes		13.3			(5.2	)
		Accrued expenses and other current liabilities		13.1			(8.3	)
		Acquisition consideration payable		8.0			-
		Other liabilities		(13.0	)		(7.2	)
		Total adjustments		(165.1	)		105.2
	Net cash (used in) provided by operating activities			(70.7	)		149.2
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(27.5	)		(20.1	)
	Acquisition of Stuart Weitzman Holdings, LLC, net of cash acquired			(159.3	)		-
	Acquisition of Moda Nicola International, LLC			(14.4	)		-
	Investment in GRI			-			(15.2	)
	Other items, net			0.4			-
	Net cash used in investing activities			(200.8	)		(35.3	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Repurchase of 4.250% Senior Notes, including consent fees and related costs			-			(252.4	)
	Costs related to secured revolving credit agreement			(7.3	)		(30.0	)
	Net increase in short-term borrowings			16.2			-
	Principal payments on capital leases			(2.0	)		(2.4	)
	Cash distributions to selling members of Stuart Weitzman, LLC			(19.0	)		-
	Payments related to acquisition consideration payable			(2.5	)		-
	Dividends paid			(13.0	)		(12.7	)
	Other items, net			0.4			-
	Net cash used in financing activities			(27.2	)		(297.5	)
EFFECT OF EXCHANGE RATES ON CASH				(0.7	)		2.2
NET DECREASE IN CASH AND CASH EQUIVALENTS				(299.4	)		(181.4	)
CASH AND CASH EQUIVALENTS, BEGINNING				333.4			338.3
CASH AND CASH EQUIVALENTS, ENDING			$	34.0		$	156.9

See accompanying notes to consolidated financial statements

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

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of The Jones Group Inc. and its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the footnotes thereto included within our Annual Report on Form 10-K.

In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operations for the full year ending December 31, 2010.

Distribution costs. Our cost of sales may not be comparable to those of other entities, since some entities include all of the costs associated with their distribution functions in cost of sales while we include these costs in selling, general and administrative ("SG&A") expenses. Distribution costs included in SG&A expenses for the fiscal nine months ended October 2, 2010 and October 3, 2009 were $78.4 million and $74.6 million, respectively.

EARNINGS PER SHARE

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

(In millions, except per share amounts)	Fiscal Quarter Ended						Fiscal Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009

Net income	$	29.2		$	30.6		$	94.4		$	44.0
Less: income attributable to noncontrolling interest		(0.1	)		(0.2	)		(0.5	)		(0.2	)
Income attributable to Jones		29.1			30.4			93.9			43.8
Less: income allocated to participating securities		(1.3	)		(1.3	)		(4.2	)		(1.7	)
Income available to common stockholders of Jones	$	27.8		$	29.1		$	89.7		$	42.1
Weighted average shares outstanding - basic		82.2			81.7			82.1			81.7
Effect of dilutive employee stock options and restricted stock		0.7			0.1			0.6			-
Weighted average shares outstanding - diluted		82.9			81.8			82.7			81.7
Earnings per share attributable to Jones
Basic	$	0.34		$	0.36		$	1.09		$	0.52
Diluted		0.34			0.36			1.09			0.51

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ACQUISITIONS

Moda Nicola International, LLC
On February 4, 2010, we acquired 100% of the membership interests in Moda Nicola International, LLC ("Moda"), a privately-held designer, marketer and wholesaler of women's contemporary eveningwear and sportswear, and owner of the Robert Rodriguez Collection, for $35.7 million. Under the terms of the agreement, we made cash payments of $14.4 million to the selling members of Moda. We deferred $2.5 million of the purchase price, with payment subject to an indemnification holding period as set forth in the acquisition agreement. The selling members of Moda are also entitled to receive future cash payments upon achievement of certain financial targets set within the agreement for the years 2011 through 2014. At the acquisition date, we recorded an acquisition consideration liability for $18.8 million, based on projected revenues and gross margins of the acquired business and a discount factor based on an estimated weighted average cost of capital. Adjustments to this liability are recorded as an SG&A expense in our wholesale better apparel segment. At October 2, 2010, the liability was $22.0 million, with $3.2 million recorded as an SG&A expense during the fiscal nine months ended October 2, 2010.

We pursued the acquisition of Moda to increase our presence in the contemporary apparel market and to further develop a business portfolio with significant growth opportunities. Moda is reported as part of our wholesale better apparel segment.

The following table summarizes the fair values of the assets acquired and liabilities assumed from Moda on February 4, 2010.

(In millions)	Amortization life (in months)		Fair Value
Current assets		$	3.2
Property, plant and equipment			0.2
Intangible assets:
Goodwill			6.6
Customer relationships	120		7.9
Trademarks	240		17.0
Covenants not to compete	59		0.2
Order backlog	3		1.7
Total assets acquired			36.8
Current liabilities			(1.1	)
Total purchase price		$	35.7

The fair value of receivables acquired from Moda was $2.2 million, with gross contractual amounts receivable amounting to $2.7 million.

The acquisition resulted in the recognition of $6.6 million of goodwill, which is expected to be deductible for tax purposes. Goodwill largely consists of expected synergies resulting from the acquisition, such as manufacturing and supply chain work process improvements and the elimination of redundant corporate overhead for shared services and governance, the acquired assembled workforce, which does not qualify as an amortizable intangible asset, and the potential for product extensions, such as footwear.

The following table provides total revenues and results of operations from the acquired Moda business included in our results since the acquisition.

(In millions)		Fiscal Quarter Ended October 2, 2010		Fiscal Nine Months Ended October 2, 2010
Total revenues	$	6.3	$	12.9
Income (loss) before provision for income taxes		1.8		(4.8	)

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Stuart Weitzman Holdings, LLC
On June 2, 2010, we acquired 55% of the membership interests in Stuart Weitzman Holdings, LLC ("SWH"), a privately-held designer and manufacturer of women's salon footwear and accessories under the Stuart Weitzman label. SWH markets its products in fine specialty and department stores worldwide and in its own chain of retail stores in the U.S. and abroad.

Under the terms of the agreement, the acquisition will occur in two stages. We made an initial cash payment of $180.3 million for a 55% interest in SWH. The purchase of the remaining 45% will occur on December 31, 2012. The remaining purchase price will be determined under a formula set forth in the agreement, which is based upon the financial results of SWH from 2010 through 2012. For accounting purposes, the transaction is treated as an initial acquisition of 100% of the equity interests of SWH, with an acquisition consideration liability of $181.8 million recorded for the initial value of the projected payment for the remaining 45% interest, based on probability-weighted projected earnings before interest, taxes, depreciation and amortization (as defined in the agreement) of the acquired business and cash distributions that are required by the agreement to be disbursed for 2010 through 2012, using a discount factor based on an estimated weighted average cost of capital. Adjustments to this liability are recorded as interest expense. At October 2, 2010, the liability was $184.1 million, with $5.5 million recorded as interest expense and $3.2 million of payments recorded during the fiscal nine months ended October 2, 2010.

We pursued the acquisition of SWH to increase our presence in the contemporary footwear market and to further develop a business portfolio with significant growth opportunities. SWH's wholesale footwear business is reported in our wholesale footwear and accessories segment, their retail business is reported in our retail segment, and their licensing business is reported in our licensing, eliminations and other segment.

The following table summarizes the fair values of the assets acquired and liabilities assumed from SWH on June 2, 2010.

(In millions)	Amortization life (in months)		Fair Value
Cash		$	21.0
Accounts receivable			20.1
Inventories			18.9
Other current assets			1.5
Property, plant and equipment			19.4
Intangible assets:
Trademarks			154.1
Goodwill			115.1
Customer relationships	120		20.2
Covenant not to compete	55		3.5
Order backlog	9		10.5
Favorable lease agreements	139		6.1
Licensing agreements	55		3.6
Other noncurrent assets			0.7
Total assets acquired			394.7
Cash distributions payable			19.0
Current liabilities			10.6
Unfavorable lease agreements	73		2.7
Other long-term liabilities			0.3
Total liabilities assumed			32.6
Total purchase price		$	362.1

The gross contractual accounts receivable acquired from SWH was $24.4 million.

The acquisition resulted in the recognition of $115.1 million of goodwill, which is expected to be deductible for tax purposes. Goodwill largely consists of expected synergies resulting from the acquisition, such as the elimination of redundant corporate overhead for shared services and governance,

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the acquired assembled workforce, which does not qualify as an amortizable intangible asset, and the potential for product extensions, such as apparel.

The following table provides total revenues and results of operations from the acquired SWH business included in our results since the acquisition.

(In millions)		Fiscal Quarter Ended October 2, 2010		Fiscal Nine Months Ended October 2, 2010
Total revenues	$	61.7	$	83.4
Income before provision for income taxes		0.6		3.4

The following table provides pro forma total revenues and results of operations for the fiscal quarters and nine months ended October 2, 2010 and October 3, 2009 as if Moda and SWH had been acquired on January 1, 2009. The unaudited pro forma results reflect certain adjustments related to the acquisitions, such as amortization expense on intangible assets acquired from Moda and SWH resulting from the fair valuation of assets acquired. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Moda or SWH. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed at the beginning of 2009, nor are they indicative of the future operating results of the combined companies.

(In millions, except per share amounts)	Fiscal Quarter Ended				Fiscal Nine Months Ended
		October 2, 2010		October 3, 2009		October 2, 2010		October 3, 2009
Total revenues	$	1,022.1	$	917.0	$	2,852.3	$	2,709.8
Net income		34.0		32.2		104.9		30.5
Earnings per share attributable to Jones
Basic		0.40		0.38		1.22		0.36
Diluted		0.39		0.38		1.21		0.36

Acquisition Expenses
During the fiscal nine months ended October 2, 2010, pretax charges totaling $0.5 million and $5.4 million were recorded for legal expenses and other transactions related to the Moda and SWH acquisitions, respectively. These charges, which were expensed in accordance with the accounting guidance for business combinations, were recorded as SG&A costs in our licensing, other and eliminations segment.

ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

(In millions)		October 2, 2010			October 3, 2009			December 31, 2009
Trade accounts receivable	$	563.3		$	448.0		$	327.9
Allowances for doubtful accounts, returns, discounts and co-op advertising		(40.2	)		(34.3	)		(24.8	)
	$	523.1		$	413.7		$	303.1

Due to our 25% ownership interest in GRI, GRI is deemed to be a related party. Included in accounts receivable are amounts due from GRI in the amount of $38.5 million, $45.6 million and $40.7 million at October 2, 2010, October 3, 2009 and December 31, 2009, respectively. Net revenues from GRI amounted to $55.8 million and $34.9 million for the fiscal nine months ended October 2, 2010 and October 3, 2009, respectively. On April 23, 2009, we converted $10.0 million of the outstanding GRI accounts receivable to a three-year interest-bearing convertible note. GRI has the option, during the 90-day period that begins when the audited financial statements for the GRI fiscal year ending January 31, 2011 become available

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(or such shorter period that ends on the maturity date of the note), to convert the note into common shares of GRI at a conversion rate based on the greater of eight times the net income of GRI for such fiscal year, or an appraised value determined as of that date.

ACCRUED RESTRUCTURING COSTS

Moderate Apparel Restructuring. In connection with the exit from and reorganization of certain moderate apparel product lines, we decided to close certain New York offices, and on October 9, 2007, we announced the closing of warehouse facilities in Goose Creek, South Carolina. These closings were substantially complete by the end of February 2008. Prior to 2009, we had recorded $7.4 million of one-time termination benefits and associated employee costs for approximately 440 employees and $0.9 million of lease obligations as selling, general and administrative expenses in our wholesale jeanswear segment. During the fiscal nine months ended October 3, 2009, we recorded $1.9 million of additional lease obligation costs as selling, general and administrative expenses in our wholesale jeanswear segment relating to one of the warehouse facilities. During the fiscal nine months ended October 2, 2010, we reversed $1.4 million of lease obligation costs as SG&A expenses in our wholesale jeanswear segment relating to a sublease of one of the warehouse facilities.

The details of the moderate apparel restructuring accruals are as follows:

(In millions)		One-time termination benefits			Lease obligations			Total moderate apparel restructuring
Balance, January 1, 2009	$	0.9		$	0.3		$	1.2
Net (reversals) additions		(0.2	)		1.9			1.7
Payments and reductions		(0.7	)		(1.1	)		(1.8	)
Balance, October 3, 2009	$	-		$	1.1		$	1.1
Balance, January 1, 2010	$	-		$	2.0		$	2.0
Net reversal		-			(1.4	)		(1.4	)
Payments and reductions		-			(0.3	)		(0.3	)
Balance, October 2, 2010	$	-		$	0.3		$	0.3

During the fiscal nine months ended October 3, 2009, $0.7 million of the termination benefits accrual were utilized (relating to partial severance for one employee). The net accrual of $1.1 million at October 3, 2009 is reported as $0.5 million of accrued expenses and other current liabilities and $0.6 million of other noncurrent liabilities. The net accrual of $0.3 million at October 2, 2010 is reported as $0.1 million of accrued expenses and other current liabilities and $0.2 million of other noncurrent liabilities.

Jewelry. During 2009, we decided to discontinue the domestic manufacturing, product development and sourcing activities of our jewelry business, and also announced the closing of our jewelry distribution center and showrooms by the end of 2010. Total termination benefits and associated employee costs are expected to be $6.8 million for approximately 150 employees. During the fiscal nine months ended October 2, 2010, we recorded $2.2 million of lease obligation costs relating to vacated jewelry showrooms. These costs are reported as SG&A expenses in the wholesale footwear and accessories segment.

The details of the jewelry restructuring accruals are as follows:

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(In millions)		One-time termination benefits			Lease obligations			Total jewelry restructuring
Balance, January 1, 2009	$	-		$	-		$	-
Additions		5.2			-			5.2
Payments and reductions		(3.1	)		-			(3.1	)
Balance, October 3, 2009	$	2.1		$	-		$	2.1
Balance, January 1, 2010	$	2.9		$	-		$	2.9
Additions		0.4			2.2			2.6
Payments and reductions		(1.7	)		(0.2	)		(1.9	)
Balance, October 2, 2010	$	1.6		$	2.0		$	3.6

During the fiscal nine months ended October 3, 2009 and October 2, 2010, $3.1 million and $1.7 million of the termination benefits accrual were utilized (relating to partial or full severance for 53 and 50 employees, respectively). The net accrual of $2.1 million at October 3, 2009 is reported as accrued expenses and other current liabilities. The net accrual of $3.6 million at October 2, 2010 is reported as $2.0 million of accrued expenses and other current liabilities and $1.6 million of other noncurrent liabilities.

Texas Warehouse. On December 1, 2009, we announced the closing of warehouse facilities in Socorro, Texas. Total termination benefits and associated employee costs are expected to be $3.4 million for approximately 220 employees. During the fiscal nine months ended October 2, 2010, we recorded $5.7 million of lease obligation costs relating to the warehouse. These costs are reported as SG&A expenses in the wholesale jeanswear segment. The closing was substantially completed by the end of June 2010.

The details of the Texas warehouse restructuring accruals are as follows:

(In millions)		One-time termination benefits			Lease obligations			Total Texas warehouse restructuring
Balance, January 1, 2010	$	3.1		$	-		$	3.1
Additions		0.3			5.7			6.0
Payments and reductions		(3.2	)		(1.4	)		(4.6	)
Balance, October 2, 2010	$	0.2		$	4.3		$	4.5

During the fiscal nine months ended October 2, 2010, $3.2 million of the termination benefits accrual were utilized (relating to partial or full severance for 219 employees). The net accrual of $4.5 million at October 2, 2010 is reported as accrued expenses and other current liabilities.

Other Restructurings
Retail Stores. We have decided to close underperforming retail locations, of which 248 have closed as of October 2, 2010. Total termination benefits and associated employee costs are expected to be $7.5 million for approximately 1,655 employees, including both store employees and administrative support personnel. We also recorded $7.1 million and $22.8 million of impairment losses on leasehold improvements and furniture and fixtures located in the stores to be closed for the fiscal nine months ended October 2, 2010 and October 3, 2009, respectively. These costs are reported as SG&A expenses in the retail segment.

Kasper Restructuring. In connection with the acquisition of Kasper, Ltd. (in 2003), we assessed and formulated plans to restructure certain operations. These plans involved the closure of certain facilities and selected domestic and international retail locations. The objectives of the plans were to eliminate unprofitable or marginally profitable lines of business and reduce overhead expenses. These costs were reported as a component of goodwill.

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The details of these restructuring accruals are as follows:

(In millions)		Retail stores			Kasper restructuring
Balance, January 1, 2009	$	-		$	0.8
Additions		5.0			-
Payments and reductions		(2.3	)		(0.2	)
Balance, October 3, 2009	$	2.7		$	0.6
Balance, January 1, 2010	$	1.9		$	0.5
Additions		2.9			-
Payments and reductions		(1.6	)		(0.2	)
Balance, October 2, 2010	$	3.2		$	0.3

During the fiscal nine months ended October 3, 2009 and October 2, 2010, $2.3 million and $1.6 million of the termination benefits accrual were utilized (relating to partial or full severance for 256 and 544 employees, respectively). The net accrual of $3.3 million at October 3, 2009 is reported as $1.9 million of accrued expenses and other current liabilities and $1.4 million of other noncurrent liabilities. The net accrual of $3.5 million at October 2, 2010 is reported as $3.0 million of accrued expenses and other current liabilities and $0.5 million of other noncurrent liabilities.

GOODWILL

The following table presents, by segment and in total, changes in the carrying amount of goodwill for the fiscal nine months ended October 2, 2010. There were no changes to our goodwill balances for the fiscal nine months ended October 3, 2009.

(In millions)		Wholesale Better Apparel		Wholesale Jeanswear			Wholesale Footwear & Accessories			Retail			Total
Balance, January 1, 2010
Goodwill	$	40.1	$	519.2		$	813.2		$	120.6		$	1,493.1
Accumulated impairment losses		-		(519.2	)		(813.2	)		(120.6	)		(1,453.0	)
Net goodwill		40.1		-			-			-			40.1
Addition from acquisition of Moda		6.6		-			-			-			6.6
Addition from acquisition of SWH		-		-			115.1			-			115.1
Balance, October 2, 2010
Goodwill		46.7		519.2			928.3			120.6			1,614.8
Accumulated impairment losses		-		(519.2	)		(813.2	)		(120.6	)		(1,453.0	)
Net goodwill	$	46.7	$	-		$	115.1		$	-		$	161.8

FAIR VALUES

ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Subtopic 820-10 outlines a valuation framework, creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements, and details the disclosures that are required for items measured at fair value. We are permitted to choose to measure many financial instruments and certain other items at fair value, although we did not elect the fair value measurement option for any of our financial assets or liabilities. Our financial assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows:

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Level 1 - inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;
Level 2 - inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3 - unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing assets or liabilities based on the best information available.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We have certain financial assets and liabilities that are required to be measured at fair value. These include:

the assets and liabilities of the Jones Apparel Group Inc. Deferred Compensation Plan (the "Rabbi Trust"), which represent deferred employee compensation invested in mutual funds and which fall within Level 1 of the fair value hierarchy;
deferred director fees, which represent phantom units of our common stock that have a fair value based on the market price of our common stock and which fall within Level 1 of the fair value hierarchy;
foreign currency forward contracts, which have fair values based on observable inputs including foreign exchange forward and spot rates and which fall within Level 2 of the fair value hierarchy;
interest rate swaps and caps, which have fair values based on observable inputs including yield curves and LIBOR rates and which fall within Level 2 of the fair value hierarchy;
long-term debt that is hedged by interest rate swaps as a fair-value hedge and which falls within Level 2 of the fair value hierarchy; and
consideration liabilities recorded as a result of the acquisition of Moda and SWH, which have fair values based on our projections of financial results and cash flows for the acquired business and a discount factor based on our weighted average cost of capital, and which fall within Level 3 of the fair value hierarchy.

In accordance with the fair value hierarchy described above, the following table shows the fair value of our financial assets and liabilities that are required to be measured at fair value on a recurring basis at October 3, 2009, December 31, 2009 and October 2, 2010.

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(In millions)
Description	Classification		Total Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
October 3, 2009:
Rabbi Trust assets	Prepaid expenses and other current assets	$	7.4	$	7.4	$	-	$	-
	Total assets	$	7.4	$	7.4	$	-	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	7.4	$	7.4	$	-	$	-
Canadian Dollar - U.S. Dollar forward contracts	Accrued expenses and other current liabilities		0.2		-		0.2		-
Deferred director fees	Accrued expenses and other current liabilities		1.1		1.1		-		-
	Total liabilities	$	8.7	$	8.5	$	0.2	$	-
December 31, 2009:
Rabbi Trust assets	Prepaid expenses and other current assets	$	7.8	$	7.8	$	-	$	-
	Total assets	$	7.8	$	7.8	$	-	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	7.8	$	7.8	$	-	$	-
Canadian Dollar - U.S. Dollar forward contracts	Accrued expenses and other current liabilities		0.2		-		0.2		-
Deferred director fees	Accrued expenses and other current liabilities		1.1		1.1		-		-
	Total liabilities	$	9.1	$	8.9	$	0.2	$	-
October 2, 2010:
Rabbi Trust assets	Prepaid expenses and other current assets	$	8.5	$	8.5	$	-	$	-
Interest rate swaps	Other long-term assets		9.1		-		9.1		-
Interest rate cap	Other long-term assets		0.6		-		0.6		-
	Total assets	$	18.2	$	8.5	$	9.7	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	8.5	$	8.5	$	-	$	-
Canadian Dollar - U.S. Dollar forward contracts	Accrued expenses and other current liabilities		0.1		-		0.1		-
Deferred director fees	Accrued expenses and other current liabilities		1.5		1.5		-		-
Acquisition consideration	Current portion of acquisition consideration payable		9.3		-		-		9.3
5.125% Senior Notes due 2014	Long-term debt		259.4		-		259.4		-
Acquisition consideration	Acquisition consideration payable, net of current portion		196.8		-		-		196.8
	Total liabilities	$	475.6	$	10.0	$	259.5	$	206.1

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The following table presents the changes in Level 3 acquisition consideration liabilities for the fiscal nine months ended October 2, 2010.

(In millions)		Acquisition of SWH			Acquisition of Moda		Total Acquisition Consideration Payable
Beginning balance, January 1, 2010	$	-		$	-	$	-
Acquisition		181.8			18.8		200.6
Payments		(3.2	)		-		(3.2	)
Total adjustments included in earnings		5.5			3.2		8.7
Balance, October 2, 2010	$	184.1		$	22.0	$	206.1

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In accordance with the fair value hierarchy described above, the following table shows the fair value of our non-financial assets and liabilities that were required to be measured at fair value on a nonrecurring basis at October 3, 2009 and October 2, 2010, and the total losses recorded as a result of the remeasurement process.

(In millions)			Fair Value Measurements Using
Description		Carrying Value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total losses recorded for the fiscal nine months
At October 3, 2009:
Property and equipment	$	-	$	-	$	-	$	-	$	22.8
At October 2, 2010:
Property and equipment		-		-		-		-		7.1
License agreement		-		-		-		-		2.6

During the fiscal nine months ended October 2, 2010 and October 3, 2009, property and equipment utilized in our retail operations with a carrying amount of $7.1 million and $22.8 million, respectively, were written down to a fair value of zero, primarily as a result of our decision to close underperforming retail locations. These losses were recorded as SG&A expenses in the retail segment. We consider long-term assets utilized in a retail location to be impaired when a pattern of operating losses at the location indicate that future operating losses are probable and that the resulting cash flows will not be sufficient to recover the carrying value of the associated long-term assets.

During the fiscal nine months ended October 2, 2010, we wrote off the value of an intangible asset associated with a handbag license with a carrying value of $2.6 million due to the deteriorating financial condition of the licensee. The loss was recorded as an SG&A expense in the licensing, other and eliminations segment.

Financial Instruments

As a result of our global operating and financing activities, we are exposed to changes in interest rates and foreign currency exchange rates which may adversely affect results of operations and financial condition. In seeking to minimize the risks and/or costs associated with such activities, we manage exposure to changes in interest rates and foreign currency exchange rates through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The instruments eligible for utilization include forward, option, swap and cap agreements. We do not use financial instruments for trading or other speculative purposes. At October 2, 2010, we had the following derivative financial instruments outstanding:

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foreign exchange contracts to exchange Canadian Dollars for a total notional value of US $8.9 million at a weighted average exchange rate of $1.05 maturing through March 2011;
interest rate swaps to convert our $250 million Senior Notes due 2014 to variable-rate debt; and
an interest rate cap to limit our exposure to increases in the variable rates of our interest rate swaps.

For additional information on these instruments, see "Derivatives."

At October 2, 2010 and October 3, 2009, the fair values of cash and cash equivalents, receivables and accounts payable approximated their carrying values due to the short-term nature of these instruments. The fair value of the note receivable from GRI approximates the $10.0 million carrying value as it is a variable-rate instrument. The estimated fair values of other financial instruments subject to fair value disclosures and the related carrying amounts are as follows:

(In millions)	October 2, 2010				October 3, 2009				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion	$	509.4	$	458.5	$	507.0	$	420.0	$	499.5	$	499.4
Interest rate swaps, net asset		9.1		9.1		-		-		-		-
Interest rate cap, net asset		0.6		0.6		-		-		-		-
Canadian Dollar - U.S. Dollar forward contracts, net liability		0.1		0.1		0.2		0.2		0.2		0.2

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

CREDIT FACILITIES

We have a secured revolving credit agreement expiring on May 13, 2015 (the "Credit Facility") with several lending institutions to borrow an aggregate principal amount of up to $650 million. Under the Credit Facility, up to the entire amount of the facility is available for cash borrowings, with up to $400 million available for trade letters of credit and up to $50 million for standby letters of credit, and a subfacility available to our Canadian subsidiaries of up to $25 million for letters of credit and borrowings. Borrowings under the Credit Facility may be used to refinance existing indebtedness and for general corporate purposes in the ordinary course of business. Such borrowings bear interest either based on the alternate base rate, as defined in the Credit Facility, or based on Eurocurrency rates, each with a margin that depends on the availability remaining under the Credit Facility. The Credit Facility contains customary events of default.

Availability under the Credit Facility is determined in reference to a borrowing base consisting of a percentage of eligible inventory, accounts receivable, credit card receivables and licensee receivables, minus reserves determined by the joint collateral agents. At October 2, 2010, we had $16.3 million of borrowings and $39.0 million of letters of credit outstanding, and our remaining availability was $589.0 million. If availability under the Credit Facility falls below a stated level, we will be required to comply with a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative and negative covenants that, among other things, will limit or restrict our ability to (1) incur indebtedness, (2) create liens, (3) merge, consolidate, liquidate or dissolve, (4) make investments (including acquisitions), loans or advances, (5) sell assets, (6) enter into sale and leaseback transactions, (7) enter into swap agreements, (8) make certain restricted payments (including dividends and other payments in respect of capital stock), (9) enter into transactions with affiliates, (10) enter into restrictive agreements, and (11) amend material documents. The Credit Facility is secured by a first priority lien on substantially all of our personal property.

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In connection with the acquisition of SWH, we were required to amend certain covenants of our Credit Facility to allow the acquisition. These amendments were completed on May 5, 2010. On June 29, 2010, we completed an amendment and extension of our Credit Facility. The amended terms and conditions provide for an extension of the maturity date from March 13, 2012 to May 13, 2015. The amendment also provides for, among other things, the following changes to the Credit Facility: (1) a reduction in the interest rate spreads and commitment fees payable under the Credit Facility; (2) changes in the borrowing base eligibility criteria for accounts owing by certain customers, foreign accounts and inventory in transit; (3) changes in the calculation of the borrowing base relating to foreign accounts; (4) the establishment in the joint collateral agents' permitted discretion of reserves against the borrowing base for the Senior Notes due 2014; (5) the allowance of repayments and prepayments, including pursuant to open market purchases or a tender offer, of such notes subject to compliance with certain liquidity and/or other conditions; (6) an increase in the general debt basket from $300 million to $600 million and the addition of a new lien basket; and (7) an extension of the grace period for events of default arising from the amount of open account obligations exceeding the applicable cap therefor.

SWH has a $1.5 million unsecured borrowing facility with a lending institution that expires on October 1, 2011 and is renewable on an annual basis, under which no cash borrowings and $1.4 million in letters of credit were outstanding at October 2, 2010. Cash borrowings under this facility bear interest based on either the prevailing prime rate or the prevailing LIBOR rate plus 300 basis points. SWH also has a €0.3 million variable-rate unsecured borrowing facility with a European lending institution that expires in March 2011 and is renewable on an annual basis, under which no amounts were outstanding at October 2, 2010.

DERIVATIVES

We recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Additionally, the fair value adjustments will affect either equity or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

Interest Rate Swaps and Caps
On May 27, 2010, we entered into three interest rate swap transactions to effectively convert the entire amount of our $250 million fixed-rate 5.125% Senior Notes due 2014 (the "Notes") to variable-rate debt. Under the terms of the transactions, we are required to make semiannual variable-rate payments to the counterparties calculated based on three-month LIBOR rates (that are reset on the 15th day of each calendar quarter) plus 2.92%, and the counterparties are obligated to make semiannual fixed-rate payments to us of 5.125%. Concurrently, we also entered into an interest rate cap at a cost of $2.7 million that limits our three-month LIBOR rate exposure to 5.0%. The swap and cap transactions have an effective date of June 1, 2010 and a termination date of November 15, 2014, the date the Notes mature.

We have designated the swap transactions as hedges of the fair value of the Notes. The fair values of the swaps are recorded either as an asset or a liability, with changes in their fair values recorded through interest expense. The changes in fair value of the Notes related to the hedged portion of the Notes are also recorded through interest expense. As these changes in fair value will not exactly offset each other, the net effect on earnings represents the ineffectiveness of the hedging instruments. We evaluate effectiveness under the "long haul" method of accounting. The interest rate cap has not been designated as a hedging instrument; as a result, all changes in the fair value of the cap are recorded through interest expense.

We recorded a decrease of $0.8 million and an increase of $0.4 million in interest expense related to the ineffectiveness of the swaps for the fiscal quarter and nine months ended October 2, 2010, respectively. We recorded increases of $0.7 million and $2.1 million in interest expense related to changes in the fair value of the cap for the fiscal quarter and nine months ended October 2, 2010, respectively. On October 18, 2010, we dedesignated the hedging relationship between the swaps and the Notes and

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received $10.2 million upon termination of the swaps. The related fair market valuation adjustment to the Notes will be amortized as a reduction of interest expense over the remaining life of the Notes.

Foreign Currency Forward Contracts
We use foreign currency forward contracts for the specific purpose of hedging the exposure to variability in forecasted cash flows associated primarily with inventory purchases. Fair values of foreign currency forward contracts are calculated by comparing each agreement's contractual exchange rate with the currency exchange forward and spot rates at the reporting date.

We have outstanding forward contracts to exchange Canadian Dollars for U.S. Dollars. These contracts are designated as cash flow hedges as the principal terms of the contracts are the same as the underlying forecasted foreign currency cash flows. Therefore, changes in the fair value of these forward contracts should be highly effective in offsetting changes in the expected foreign currency cash flows, and accordingly, changes in the fair value of these contracts are recorded in accumulated other comprehensive income, net of related tax effects, with the corresponding asset or liability recorded in the balance sheet. Amounts recorded in accumulated other comprehensive income are reflected in current-period earnings when the hedged transaction affects earnings.

The following summarizes the U.S. Dollar notional amount and the fair value of our foreign currency forward exchange contracts outstanding at October 2, 2010, which mature at various dates through March 2011.

(In millions)	October 2, 2010				October 3, 2009				December 31, 2009
		Notional amount		Fair value - other current liabilities		Notional amount		Fair value - other current liabilities		Notional amount		Fair value - other current liabilities
Canadian Dollar - U.S. Dollar	$	8.9	$	0.1	$	5.9	$	0.2	$	8.6	$	0.2

The effect of our foreign currency cash flow hedges on the statement of operations was as follows:

(In millions)	Amount of Pretax Gain (Loss) Recognized in Other Comprehensive Income					Amount of Pretax Gain (Loss) Reclassified from Other Comprehensive Income into Income
Derivative type	Fiscal Nine Months Ended October 2, 2010		Fiscal Nine Months Ended October 3, 2009		Location of Pretax Gain (Loss) Reclassified from Other Comprehensive Income into Income	Fiscal Nine Months Ended October 2, 2010		Fiscal Nine Months Ended October 3, 2009

Canadian Dollar - U.S. Dollar forward contracts

(0.9

)

Cost of sales

(0.2

)

(0.4

)

Since the derivatives we use in our risk management strategies are highly effective hedges because all the critical terms of the derivative instruments match those of the hedged item, we record no ineffectiveness related to our cash flow hedges. If foreign currency exchange rates between the Canadian and U.S. Dollars do not change from their October 2, 2010 amounts, we estimate that any reclassifications from other comprehensive income to earnings within the next 12 months will not be material.

For additional information on our derivative instruments, see "Fair Values."

EQUITY METHOD INVESTMENTS

On June 20, 2008, we acquired a 10% equity interest in GRI, an international accessories and apparel brand management and retail-distribution network, for $20.2 million. On June 24, 2009, we increased our equity interest to 25% for an additional $15.2 million. The selling shareholders of GRI are entitled to receive an additional cash payment equaling 60% of the amount of GRI's fiscal year 2011 net income that exceeds a certain threshold. GRI is the exclusive licensee of several of our brands in Asia, including Nine

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West, Anne Klein New York, AK Anne Klein, Easy Spirit, Enzo Angiolini and Joan & David. GRI also distributes other women's apparel, shoes and accessory brands. See "Accounts Receivable" for additional information regarding GRI.

STATEMENT OF CASH FLOWS

Fiscal Nine Months Ended		October 2, 2010		October 3, 2009
(In millions)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	21.2	$	28.1
Net income tax payments		38.2		1.0

Supplemental disclosures of non-cash investing and financing activities:
Restricted stock issued to employees		27.9		7.2
Acquisition consideration payable recorded for acquisition of Moda		18.8		-
Acquisition consideration payable recorded for acquisition of SWH		181.8		-

PENSION PLANS

Components of Net Periodic Benefit Cost

(In millions)	Fiscal Quarter Ended						Fiscal Nine Months Ended
		October 2, 2010			October 3, 2009			October 2, 2010			October 3, 2009
Interest cost	$	0.7		$	0.7		$	2.0		$	2.0
Expected return on plan assets		(0.6	)		(0.6	)		(1.8	)		(1.6	)
Amortization of net loss		0.4			0.4			1.2			1.1
Net periodic benefit cost	$	0.5		$	0.5		$	1.4		$	1.5

Employer Contributions

During the fiscal nine months ended October 2, 2010, we contributed $7.3 million to our defined benefit pension plans. We anticipate contributing an additional $0.5 million during 2010.

We participate in a multi-employer defined benefit plan that covers union employees at a distribution center that has been closed. As a result of closing this facility, in March 2009 we paid a partial withdrawal liability payment of $2.4 million. Should any of the other participating companies in this plan also cease participation, we may become liable for a full withdrawal liability payment. We do not believe any resulting liability will be material.

SEGMENT INFORMATION

We identify operating segments based on, among other things, differences in products sold and the way our management organizes the components of our business for purposes of allocating resources and assessing performance. Our operations are comprised of four reportable segments: wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories, and retail. Segment revenues are generated from the sale of apparel, footwear and accessories through wholesale channels and our own retail locations. The wholesale segments include wholesale operations with third party department and other retail stores and our own retail stores, the retail segment includes operations by our own stores and e-commerce web sites, and income and expenses related to trademarks, licenses and general corporate functions are reported under "licensing, other and eliminations." We define segment income as operating income before net interest expense, goodwill impairment charges, gains or losses on sales of

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subsidiaries, equity in earnings of unconsolidated affiliates and income taxes. Summarized below are our revenues and income by reportable segment for the fiscal quarters and nine months ended October 2, 2010 and October 3, 2009. We are an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, we do not represent that these segments, if operated independently, would report the operating profit and other financial information shown below.

(In millions)			Wholesale Better Apparel		Wholesale Jeanswear		Wholesale Footwear & Accessories		Retail			Licensing, Other & Eliminations			Consolidated
For the fiscal quarter ended October 2, 2010
	Revenues from external customers	$	287.4	$	227.6	$	322.9	$	172.2		$	12.0		$	1,022.1
	Intersegment revenues		40.2		1.0		17.4		-			(58.6	)		-
	Total revenues		327.6		228.6		340.3		172.2			(46.6	)		1,022.1
	Segment income (loss)	$	40.9	$	20.4	$	35.6	$	(18.8	)	$	(18.0	)		60.1
	Net interest expense														(14.2	)
	Equity in income of unconsolidated affiliate														0.5
	Income before provision for income taxes													$	46.4
For the fiscal quarter ended October 3, 2009
	Revenues from external customers	$	245.5	$	204.4	$	227.2	$	167.0		$	11.6		$	855.7
	Intersegment revenues		41.7		0.2		15.0		-			(56.9	)		-
	Total revenues		287.2		204.6		242.2		167.0			(45.3	)		855.7
	Segment income (loss)	$	38.1	$	21.3	$	28.3	$	(16.9	)	$	(9.9	)		60.9
	Net interest expense														(11.5	)
	Equity in loss of unconsolidated affiliate														(2.3	)
	Income before provision for income taxes													$	47.1
For the fiscal nine months ended October 2, 2010
	Revenues from external customers	$	799.3	$	638.1	$	806.6	$	491.6		$	33.3		$	2,768.9
	Intersegment revenues		109.4		2.8		40.6		-			(152.8	)		-
	Total revenues		908.7		640.9		847.2		491.6			(119.5	)		2,768.9
	Segment income (loss)	$	130.0	$	70.8	$	81.6	$	(37.0	)	$	(53.7	)		191.7
	Net interest expense														(40.5	)
	Equity in loss of unconsolidated affiliate														(1.3	)
	Income before provision for income taxes													$	149.9
For the fiscal nine months ended October 3, 2009
	Revenues from external customers	$	740.0	$	653.9	$	631.5	$	492.0		$	33.3		$	2,550.7
	Intersegment revenues		110.3		1.8		43.3		-			(155.4	)		-
	Total revenues		850.3		655.7		674.8		492.0			(122.1	)		2,550.7
	Segment income (loss)	$	107.3	$	61.4	$	47.6	$	(73.0	)	$	(26.6	)		116.7
	Net interest expense														(44.2	)
	Loss and costs associated with repurchase of 4.250% Senior Notes														(2.0	)
	Equity in loss of unconsolidated affiliate														(2.8	)
	Income before provision for income taxes													$	67.7

Total assets at October 2, 2010		$	813.7	$	634.1	$	979.1	$	264.0		$	(255.3	)	$	2,435.6

SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION

Certain of our subsidiaries function as co-issuers (fully and unconditionally guaranteed on a joint and several basis) of the outstanding debt of The Jones Group Inc. ("Jones"), including Jones Apparel Group, USA, Inc. ("Jones USA"), Jones Apparel Group Holdings, Inc. ("Jones Holdings") and JAG Footwear, Accessories and Retail Corporation ("JAG Footwear").

The following condensed consolidating balance sheets, statements of operations and statements of cash flows for the "Issuers" (consisting of Jones and Jones USA, Jones Holdings, JAG Footwear, which are all our subsidiaries that act as co-issuers and co-obligors) and the "Others" (consisting of all of our other subsidiaries, excluding all obligor subsidiaries) have been prepared using the equity method of accounting in accordance with the requirements for presentation of such information. Separate financial

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statements and other disclosures concerning Jones are not presented as Jones has no independent operations or assets. There are no contractual restrictions on distributions from Jones USA, Jones Holdings or JAG Footwear to Jones.

Condensed Consolidating Balance Sheets
(In millions)

		October 2, 2010											December 31, 2009
			Issuers			Others		Elim- inations			Cons- olidated			Issuers			Others		Elim- inations			Cons- olidated
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$	12.3		$	21.7	$	-		$	34.0		$	322.1		$	11.3	$	-		$	333.4
	Accounts receivable		341.1			182.0		-			523.1			189.5			113.6		-			303.1
	Inventories		347.3			166.2		0.1			513.6			259.7			115.1		0.2			375.0
	Prepaid and refundable income taxes		-			-		0.7			0.7			0.7			0.1		(0.8	)		-
	Deferred taxes		18.9			14.3		-			33.2			13.3			14.8		-			28.1
	Prepaid expenses and other current assets		26.3			10.0		-			36.3			18.2			7.4		-			25.6
	TOTAL CURRENT ASSETS		745.9			394.2		0.8			1,140.9			803.5			262.3		(0.6	)		1,065.2
Property, plant and equipment - net			76.0			154.5		-			230.5			93.4			145.6		-			239.0
Due from affiliates			-			1,485.3		(1,485.3	)		-			-			1,382.9		(1,382.9	)		-
Goodwill			46.7			115.1		-			161.8			40.1			-		-			40.1
Other intangibles - net			8.0			758.7		-			766.7			0.5			559.3		-			559.8
Prepaid and refundable income taxes			-			-		-			-			5.4			-		(0.7	)		4.7
Deferred taxes			94.1			-		(94.1	)		-			83.3			-		(79.4	)		3.9
Investments in and loans to subsidiaries			2,611.1			40.0		(2,611.1	)		40.0			2,125.2			42.1		(2,125.2	)		42.1
Other assets			78.7			17.0		-			95.7			60.2			10.0		-			70.2
	TOTAL ASSETS	$	3,660.5		$	2,964.8	$	(4,189.7	)	$	2,435.6		$	3,211.6		$	2,402.2	$	(3,588.8	)	$	2,025.0
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
	Short-term borrowings	$	16.3		$	-	$	-		$	16.3		$	-		$	-	$	-		$	-
	Current portion of long-term debt and capital lease obligations		-			2.0		-			2.0			-			2.6		-			2.6
	Current portion of acquisition consideration payable		9.3			-		-			9.3			-			-		-			-
	Accounts payable		155.1			82.8		-			237.9			129.8			55.5		-			185.3
	Income taxes payable		5.3			25.8		(17.9	)		13.2			23.1			7.8		(19.1	)		11.8
	Accrued expenses and other current liabilities		87.4			59.2		-			146.6			75.7			48.7		-			124.4
	TOTAL CURRENT LIABILITIES		273.4			169.8		(17.9	)		425.3			228.6			114.6		(19.1	)		324.1
NONCURRENT LIABILITIES:
	Long-term debt		509.1			0.2		-			509.3			499.5			-		-			499.5
	Obligations under capital leases		-			25.6		-			25.6			-			26.9		-			26.9
	Income taxes payable		8.7			0.8		-			9.5			-			0.7		(0.7	)		-
	Deferred taxes		-			79.1		(76.1	)		3.0			-			203.5		(203.5	)		-
	Acquisition consideration payable		196.8			1.4		-			198.2			-			-		-			-
	Due to affiliates		1,485.3			-		(1,485.3	)		-			1,382.9			-		(1,382.9	)		-
	Other		50.3			22.5		-			72.8			63.3			18.7		-			82.0
	TOTAL NONCURRENT LIABILITIES		2,250.2			129.6		(1,561.4	)		818.4			1,945.7			249.8		(1,587.1	)		608.4
	TOTAL LIABILITIES		2,523.6			299.4		(1,579.3	)		1,243.7			2,174.3			364.4		(1,606.2	)		932.5
EQUITY:
	Common stock and additional paid-in capital		1,379.7			2,037.1		(2,037.1	)		1,379.7			1,361.9			1,540.5		(1,540.5	)		1,361.9
	Retained earnings		1,590.3			623.4		(568.5	)		1,645.2			1,509.3			493.3		(438.2	)		1,564.4
	Accumulated other comprehensive (loss) income		(6.8	)		4.8		(4.8	)		(6.8	)		(7.6	)		3.9		(3.9	)		(7.6	)
	Treasury stock		(1,826.3	)		-		-			(1,826.3	)		(1,826.3	)		-		-			(1,826.3	)
	Total Jones stockholders' equity		1,136.9			2,665.3		(2,610.4	)		1,191.8			1,037.3			2,037.7		(1,982.6	)		1,092.4
	Noncontrolling interest		-			0.1		-			0.1			-			0.1		-			0.1
	TOTAL EQUITY		1,136.9			2,665.4		(2,610.4	)		1,191.9			1,037.3			2,037.8		(1,982.6	)		1,092.5
	TOTAL LIABILITIES AND EQUITY	$	3,660.5		$	2,964.8	$	(4,189.7	)	$	2,435.6		$	3,211.6		$	2,402.2	$	(3,588.8	)	$	2,025.0

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Condensed Consolidating Statements of Operations
(In millions)

	Fiscal Quarter Ended October 2, 2010											Fiscal Quarter Ended October 3, 2009
		Issuers			Others			Elim- inations			Cons- olidated		Issuers			Others			Elim- inations			Cons- olidated
Net sales	$	683.5		$	330.1		$	(3.7	)	$	1,009.9	$	608.7		$	238.6		$	(3.4	)	$	843.9
Licensing income		-			12.0			-			12.0		-			11.6			-			11.6
Other revenues		0.2			-			-			0.2		0.2			-			-			0.2
Total revenues		683.7			342.1			(3.7	)		1,022.1		608.9			250.2			(3.4	)		855.7
Cost of goods sold		458.5			221.8			(0.8	)		679.5		385.1			167.6			(1.4	)		551.3
Gross profit		225.2			120.3			(2.9	)		342.6		223.8			82.6			(2.0	)		304.4
Selling, general and administrative expenses		235.2			50.0			(2.7	)		282.5		227.6			18.7			(2.8	)		243.5
Operating (loss) income		(10.0	)		70.3			(0.2	)		60.1		(3.8	)		63.9			0.8			60.9
Net interest expense (income) and financing costs		15.5			(1.3	)		-			14.2		12.9			(1.4	)		-			11.5
Equity in income (loss) of unconsolidated affiliate		-			0.5			-			0.5		-			(2.3	)		-			(2.3	)
(Loss) income before (benefit) provision for income taxes and equity in earnings of subsidiaries		(25.5	)		72.1			(0.2	)		46.4		(16.7	)		63.0			0.8			47.1
(Benefit) provision for income taxes		(7.5	)		24.8			(0.1	)		17.2		(7.6	)		23.1			1.0			16.5
Equity in earnings of subsidiaries		47.2			-			(47.2	)		-		40.0			-			(40.0	)		-
Net income		29.2			47.3			(47.3	)		29.2		30.9			39.9			(40.2	)		30.6
Less: income attributable to noncontrolling interest		-			0.1			-			0.1		-			0.2			-			0.2
Income attributable to Jones	$	29.2		$	47.2		$	(47.3	)	$	29.1	$	30.9		$	39.7		$	(40.2	)	$	30.4

	Fiscal Nine Months Ended October 2, 2010												Fiscal Nine Months Ended October 3, 2009
		Issuers			Others			Elim- inations			Cons- olidated			Issuers			Others			Elim- inations			Cons- olidated
Net sales	$	1,915.5		$	830.0		$	(10.5	)	$	2,735.0		$	1,783.1		$	744.1		$	(10.4	)	$	2,516.8
Licensing income		-			33.3			-			33.3			-			33.3			-			33.3
Other revenues		0.6			-			-			0.6			0.6			-			-			0.6
Total revenues		1,916.1			863.3			(10.5	)		2,768.9			1,783.7			777.4			(10.4	)		2,550.7
Cost of goods sold		1,225.3			560.3			(2.7	)		1,782.9			1,137.6			537.2			(3.9	)		1,670.9
Gross profit		690.8			303.0			(7.8	)		986.0			646.1			240.2			(6.5	)		879.8
Selling, general and administrative expenses		690.4			111.6			(7.7	)		794.3			696.7			74.5			(8.1	)		763.1
Operating income (loss)		0.4			191.4			(0.1	)		191.7			(50.6	)		165.7			1.6			116.7
Net interest expense (income) and financing costs		44.6			(4.1	)		-			40.5			48.3			(4.1	)		-			44.2
Loss and costs associated with repurchase of 4.250% Senior Notes		-			-			-			-			2.0			-			-			2.0
Equity in loss of unconsolidated affiliate		-			(1.3	)		-			(1.3	)		-			(2.8	)		-			(2.8	)
(Loss) income before (benefit) provision for income taxes and equity in earnings of subsidiaries		(44.2	)		194.2			(0.1	)		149.9			(100.9	)		167.0			1.6			67.7
(Benefit) provision for income taxes		(7.8	)		63.5			(0.2	)		55.5			(38.8	)		58.9			3.6			23.7
Equity in earnings of subsidiaries		130.6			-			(130.6	)		-			108.7			-			(108.7	)		-
Net income		94.2			130.7			(130.5	)		94.4			46.6			108.1			(110.7	)		44.0
Less: income attributable to noncontrolling interest		-			0.5			-			0.5			-			0.2			-			0.2
Income attributable to Jones	$	94.2		$	130.2		$	(130.5	)	$	93.9		$	46.6		$	107.9		$	(110.7	)	$	43.8

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Condensed Consolidating Statements of Cash Flows
(In millions)

		Fiscal Nine Months Ended October 2, 2010												Fiscal Nine Months Ended October 3, 2009
			Issuers			Others			Elim- inations			Cons- olidated			Issuers			Others			Elim- inations		Cons- olidated
Net cash (used in) provided by operating activities		$	(102.1	)	$	35.3		$	(3.9	)	$	(70.7	)	$	136.7		$	12.5		$	-	$	149.2
Cash flows from investing activities:
	Capital expenditures		(9.9	)		(17.6	)		-			(27.5	)		(11.3	)		(8.8	)		-		(20.1	)
	Acquisition of Stuart Weitzman Holdings, LLC		(180.3	)		21.0			-			(159.3	)		-			-			-		-
	Acquisition of Moda Nicola International, LLC		(14.4	)		-			-			(14.4	)		-			-			-		-
	Investment in GRI		-			-			-			-			-			(15.2	)		-		(15.2	)
	Other items, net		-			0.4			-			0.4			-			-			-		-
	Net cash (used in) provided by investing activities		(204.6	)		3.8			-			(200.8	)		(11.3	)		(24.0	)		-		(35.3	)
Cash flows from financing activities:
	Repurchase of 4.250% Senior Notes, including consent fees and related costs		-			-			-			-			(252.4	)		-			-		(252.4	)
	Costs related to revolving credit agreement		(7.3	)		-			-			(7.3	)		(30.0	)		-			-		(30.0	)
	Net increase (decrease) in short-term borrowings		16.3			(0.1	)		-			16.2			-			-			-		-
	Principal payments on capital leases		-			(2.0	)		-			(2.0	)		-			(2.4	)		-		(2.4	)
	Cash distributions to selling members of Stuart Weitzman Holdings, LLC		-			(19.0	)		-			(19.0	)		-			-			-		-
	Payments related to acquisition consideration payable		-			(2.5	)		-			(2.5	)		-			-			-		-
	Dividends paid		(13.0	)		(3.9	)		3.9			(13.0	)		(12.7	)		-			-		(12.7	)
	Other items, net		0.9			(0.5	)		-			0.4			-			-			-		-
	Net cash used in financing activities		(3.1	)		(28.0	)		3.9			(27.2	)		(295.1	)		(2.4	)		-		(297.5	)
Effect of exchange rates on cash			-			(0.7	)		-			(0.7	)		-			2.2			-		2.2
Net (decrease) increase in cash and cash equivalents			(309.8	)		10.4			-			(299.4	)		(169.7	)		(11.7	)		-		(181.4	)
Cash and cash equivalents, beginning			322.1			11.3			-			333.4			318.4			19.9			-		338.3
Cash and cash equivalents, ending		$	12.3		$	21.7		$	-		$	34.0		$	148.7		$	8.2		$	-	$	156.9

NEW ACCOUNTING STANDARDS

In February 2010, the FASB issued ASU 2010-09, "Subsequent Events (Topic 855) - Amendments to Certain Recognition and Disclosure Requirements." ASU 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement that an SEC filer disclose the date through which subsequent events have been evaluated. ASC 2010-09 was effective upon issuance. The adoption of this standard had no effect on our results of operation or our financial position.

In April 2010, the FASB issued ASU 2010-13, "Compensation - Stock Compensation (Topic 718) - Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades." ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard will not have an effect on our results of operation or our financial position.

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

The following discussion provides information and analysis of our results of operations for the 13 and 39 week periods ended October 2, 2010 (hereinafter referred to as the "third fiscal quarter of 2010" and the "first fiscal nine months of 2010," respectively) and October 3, 2009 (hereinafter referred to as the "third fiscal quarter of 2009" and the "first fiscal nine months of 2009," respectively) and our liquidity and capital resources. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements included elsewhere herein.

Executive Overview

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

During 2010 to date, the following significant events took place:

in January 2010, we announced that GLO jeans will be carried exclusively at Kmart stores nationwide;
in January 2010, we announced that we entered into an exclusive licensing agreement with VCJS LLC to design, develop, produce and distribute Jessica Simpson jeanswear under the Jessica Simpson Collection;
on February 4, 2010, we announced that we had acquired Moda Nicola International, LLC ("Moda"), owner of the Robert Rodriguez Collection, a privately held designer, marketer and wholesaler of women's contemporary eveningwear and sportswear;
on March 24, 2010, we launched our shoewoo.com e-commerce site;
on May 20, 2010, we announced that our jeanswear division is entering the menswear market and had entered into an exclusive licensing and distribution agreement with G-III Apparel Group, Ltd. for Andrew Marc men's jeanswear;
on June 2, 2010, we announced that we had acquired a 55% interest in Stuart Weitzman Holdings, LLC ("SWH"), a privately-held designer and manufacturer of women's salon footwear and accessories under the Stuart Weitzman label, pursuant to an acquisition agreement we entered into on May 6, 2010, which provides for our acquisition of the remaining 45% interest on December 31, 2012;
on June 29, 2010, we announced an amendment and extension of our existing $650 million senior credit facility to provide for a decrease in fees and interest rates to current market rates and to extend the maturity date to May 13, 2015;
on July 26, 2010, we announced that we had entered into an exclusive, world-wide license agreement with Inter Parfums USA, LLC, a wholly-owned subsidiary of Inter Parfums, Inc. for the creation, production, marketing and global distribution of women's fragrances under the Nine West brand; and
on August 31, 2010, we announced that we had entered into an exclusive licensing agreement with Brian Atwood to create, produce, market and distribute B Brian Atwood, a new footwear and accessory line that will be the contemporary counterpart to Brian Atwood's high-end, luxury shoe business.

Retail store closings

We have decided to close underperforming retail locations, of which 248 have closed as of October 2, 2010. Total termination benefits and associated employee costs are expected to be $7.5 million for approximately 1,655 employees, including both store employees and administrative support personnel. We also recorded $7.1 million and $22.8 million of impairment losses on leasehold improvements and furniture and fixtures located in the stores to be closed for the fiscal nine months ended October 2, 2010 and October 3, 2009, respectively. These costs are reported as SG&A expenses in the retail segment.

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Critical Accounting Policies

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

For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends of trade discounts and co-op advertising deductions given to our customers, allowances we provide to our retail customers to flow goods through the retail channels, and the possibility of non-collection due to the financial position of our customers. For inventory, we estimate the amount of goods that we will not be able to sell in the normal course of business and write down the value of these goods to the recovery value expected to be realized through off-price channels. Historically, actual results in these areas have not been materially different than our estimates, and we do not anticipate that our estimates and assumptions are likely to materially change in the future. However, if we incorrectly anticipate trends or unexpected events occur, our results of operations could be materially affected.

We test our goodwill and our indefinite-lived trademarks for impairment on an annual basis (during our fourth fiscal quarter) and between annual tests if an event occurs or circumstances change that would reduce the fair value of an asset below its carrying value. These tests utilize discounted cash flow models to estimate fair values. These cash flow models involve several assumptions. Changes in our assumptions could materially impact our fair value estimates, and material impairment losses could result where the estimated fair values of these assets become less than their carrying amounts. Assumptions critical to our fair value estimates are: (i) discount rates used to derive the present value factors used in determining the fair value of the reporting units and trademarks; (ii) royalty rates used in our trademark valuations; (iii) projected average revenue growth rates used in the reporting unit and trademark models; and (iv) projected long-term growth rates used in the derivation of terminal values. These and other assumptions are impacted by economic conditions and expectations of management and will change in the future based on period-specific facts and circumstances.

Acquisition consideration liabilities are recorded as a result of acquisitions, where a portion of the purchase price is payable at the end of a specific future period, with the amount of payment based on the financial results of the acquired business during that period. The fair values of acquisition consideration liabilities are based on probability-weighted projections of the financial results of the acquired business and a discount factor based on our weighted average cost of capital. Changes in our assumptions could materially impact our fair value estimates, and material gains and losses could result where the estimated fair value of these liabilities differ from their carrying amounts.

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Results of Operations

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

(In millions)	Fiscal Quarter Ended									Fiscal Nine Months Ended
	October 2, 2010				October 3, 2009					October 2, 2010					October 3, 2009
Net sales	$	1,009.9	98.8	%	$	843.9		98.6	%	$	2,735.0		98.8	%	$	2,516.8		98.7	%
Licensing income		12.0	1.2			11.6		1.4			33.3		1.2			33.3		1.3
Other revenues		0.2	0.0			0.2		0.0			0.6		0.0			0.6		0.0
Total revenues		1,022.1	100.0			855.7		100.0			2,768.9		100.0			2,550.7		100.0
Cost of goods sold		679.5	66.5			551.3		64.4			1,782.9		64.4			1,670.9		65.5
Gross profit		342.6	33.5			304.4		35.6			986.0		35.6			879.8		34.5
Selling, general and administrative expenses		282.5	27.6			243.5		28.5			794.3		28.7			763.1		29.9
Operating income		60.1	5.9			60.9		7.1			191.7		6.9			116.7		4.6
Net interest expense and financing costs		14.2	1.4			11.5		1.3			40.5		1.5			44.2		1.7
Loss and fees related to repurchase of 4.250% Senior Notes		-	-			-		-			-		-			2.0		0.1
Equity in income (loss) of unconsolidated affiliate		0.5	0.0			(2.3	)	(0.3	)		(1.3	)	(0.0	)		(2.8	)	(0.1	)
Income before provision for income taxes		46.4	4.5			47.1		5.5			149.9		5.4			67.7		2.7
Provision for income taxes		17.2	1.7			16.5		1.9			55.5		2.0			23.7		0.9
Net income		29.2	2.9			30.6		3.6			94.4		3.4			44.0		1.7
Less: income attributable to noncontrolling interest		0.1	0.0			0.2		0.0			0.5		0.0			0.2		0.0
Income attributable to Jones	$	29.1	2.8	%	$	30.4		3.6	%	$	93.9		3.4	%	$	43.8		1.7	%

Percentage totals may not add due to rounding.

Fiscal Quarter Ended October 3, 2010 Compared with Fiscal Quarter Ended October 3, 2009

Revenues. Total revenues for the third fiscal quarter of 2010 were $1.0 billion, compared with $0.9 billion for the third fiscal quarter of 2009, an increase of 19.4%. Revenues by segment were as follows:

(In millions)		Third Fiscal Quarter of 2010		Third Fiscal Quarter of 2009		Increase	Percent Change
Wholesale better apparel	$	287.4	$	245.5	$	41.9	17.1	%
Wholesale jeanswear		227.6		204.4		23.2	11.4
Wholesale footwear and accessories		322.9		227.2		95.7	42.1
Retail		172.2		167.0		5.2	3.1
Licensing and other		12.0		11.6		0.4	3.4
Total revenues	$	1,022.1	$	855.7	$	166.4	19.4	%

Wholesale better apparel revenues increased $41.9 million, primarily due to increased shipments of our Jones New York, Jones New York Sport and Anne Klein products due to the performance of these product lines at retail and initial shipments of our new J Jones New York, Rachel Roy Signature and Jessica Simpson product lines, as well as $6.3 million of revenues for the Robert Rodriguez and Robbi and Nikki product lines acquired through the acquisition of Moda. The increase in revenues includes a $0.6 million favorable effect of changes in exchange rates between the U.S. and Canadian Dollars.

Wholesale jeanswear revenues increased $23.2 million. Revenues increased due to increased shipments of our Gloria Vanderbilt products due to the performance of the products at retail and new product extensions, initial shipments of our GLO products to Kmart and increased shipments of our Joneswear products due to the performance of the products at retail.

Wholesale footwear and accessories revenues increased $95.7 million, primarily due to $48.4 million in sales of the acquired Stuart Weitzman product line, increased shipments of our Nine West, AK Anne Klein and Easy Spirit product lines due to product performance and the improved economic outlook in the

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current period and increases in our international business due to improved global economic conditions and product performance compared to the prior period.

Retail revenues increased $5.2 million, primarily due to $13.1 million from the acquired Stuart Weitzman stores, a 2.5% increase in comparable store sales ($3.7 million) and a $0.5 million favorable effect of changes in exchange rates between the U.S. and Canadian Dollars, partially offset by operating fewer stores in the current period. Comparable stores are locations (including e-commerce sites) that have been open for a full year, are not scheduled to close in the current period and are not scheduled for an expansion or downsize by more than 25% or relocation to a different street or mall. A 25.4% increase in our comparable e-commerce business ($2.6 million) and a 1.5% increase in comparable store sales for our footwear stores ($1.3 million) were partially offset by a 0.6% decrease in comparable store sales for our apparel stores ($0.2 million). We began the current quarter with 880 retail locations, had a net decrease of 46 locations during the quarter to end the period with 834 locations, compared with 971 at the end of the prior period.

Licensing and other revenues increased $0.4 million, primarily due to increased sales volume of our licensees and $0.2 million of SWH licensing revenues.

Gross Profit. The gross profit margins were 33.5% and 35.6% for the third fiscal quarters of 2010 and 2009, respectively.

Wholesale better apparel gross profit margins were 32.8% and 34.8% for the third fiscal quarters of 2010 and 2009, respectively. The decrease was primarily due to lower recoveries on sales to off-price retailers, partially offset by the addition of higher-margin Robert Rodriguez products and the favorable effect of changes in exchange rates between the U.S. and Canadian Dollars in the current period.

Wholesale jeanswear gross profit margins were 23.4% and 26.1% for the third fiscal quarters of 2010 and 2009, respectively. The decrease was primarily due to price compression on our Energie, l.e.i. and private label products, as well as higher inventory liquidations of our Energie products.

Wholesale footwear and accessories gross profit margins were 28.6% and 28.7% for the third fiscal quarters of 2010 and 2009, respectively. The slight decrease was primarily due to higher transportation costs, increased product (material and labor) costs, higher levels of sales to off-price retailers and higher vendor allowances to clear inventory at the retail level, partially offset by the addition of higher-margin Stuart Weitzman products.

Retail gross profit margins were 51.6% and 50.7% for the third fiscal quarters of 2010 and 2009, respectively. The increase was primarily due to improved performance in our Canadian retail operations, the addition of higher-margin Stuart Weitzman locations, partially offset by higher promotional activity in our footwear stores and e-commerce sites, as well as increased transportation costs.

Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses were $282.5 million in the third fiscal quarter of 2010 and $243.5 million in the third fiscal quarter of 2009.

Wholesale better apparel SG&A expenses increased $4.6 million, primarily due to $2.1 million of costs related to our new Jessica Simpson jeanswear product line, a $1.6 million increase in marketing costs, a $1.5 million increase in occupancy costs, $0.6 million of expenses added as a result of the Moda acquisition, net of a $1.9 million favorable fair value adjustment of the related acquisition consideration payable and a $0.5 million unfavorable effect of changes in exchange rates between the U.S. and Canadian Dollars. These increases were offset by $1.7 million of other net cost decreases.

Wholesale jeanswear SG&A expenses increased $0.9 million. The increase is the result of $3.0 million of charges related to the closure of our Texas warehouse and a $1.0 million increase in compensation costs in the current period. These increases were partially offset by a $1.3 million reduction in sample costs and $1.8 million of other net cost decreases.

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Wholesale footwear and accessories SG&A expenses increased $20.4 million, primarily due to a $15.4 million increase as a result of the SWH acquisition, a $2.5 million increase in compensation costs, a $2.1 million increase in severance costs and a $1.5 million increase in distribution costs due to increased shipments, offset by $1.1 million of other net cost decreases.

Retail SG&A expenses increased $6.0 million, primarily due to $10.4 million of costs related to the stores acquired in the SWH acquisition, a $3.3 million increase in asset impairment charges over the prior period, a $3.0 million increase in administrative costs, a $1.2 million increase in lease cancellation payments in the current period and $0.6 million of other net cost increases, partially offset by cost reductions of $8.6 million for occupancy and $3.9 million for compensation costs related primarily to operating fewer locations during the current period.

SG&A expenses for the licensing, other and eliminations segment increased $7.1 million, primarily due to a $2.9 million increase in amortization of share-based compensation, a $2.6 million impairment of an acquired license, a $0.7 million increase in other compensation-related costs and $0.9 million of other cost increases.

Operating Income. The resulting operating income for the third fiscal quarter of 2010 was $60.1 million, compared with $60.9 million for the third fiscal quarter of 2009, due to the factors described above.

Net Interest Expense. Net interest expense increased $2.7 million, primarily the result of $5.4 million of interest recorded on the acquisition consideration liability in the current period, partially offset by a $1.2 million net favorable effect of our interest rate swaps and cap, a $1.0 million reduction in the amortization of fees related to our secured revolving credit line and $0.5 of other net interest reductions.

Income Taxes. The effective income tax rate was 37.0% and 35.0% for the third fiscal quarters of 2010 and 2009, respectively. The increase is primarily due to the impact of the foreign income tax differential on higher pre-tax income in the third fiscal quarter of 2010 compared with the third fiscal quarter of 2009.

Net Income and Earnings Per Share. Net income was $29.2 million in the third fiscal quarter of 2010, compared with $30.6 million in the third fiscal quarter of 2009. Diluted earnings per share for the third fiscal quarter of 2010 was $0.34, compared with $0.36 for the third fiscal quarter of 2009, with 1.3% more shares outstanding.

Fiscal Nine Months Ended October 2, 2010 Compared with Fiscal Nine Months Ended October 3, 2009

Revenues. Total revenues for the first fiscal nine months of 2010 were $2.8 billion, compared with $2.6 billion for the first fiscal nine months of 2009, an increase of 8.6%. Revenues by segment were as follows:

(In millions)		First Fiscal Nine Months of 2010		First Fiscal Nine Months of 2009		Increase (Decrease	)	Percent Change
Wholesale better apparel	$	799.3	$	740.0	$	59.3		8.0	%
Wholesale jeanswear		638.1		653.9		(15.8	)	(2.4	)
Wholesale footwear and accessories		806.6		631.5		175.1		27.7
Retail		491.6		492.0		(0.4	)	(0.1	)
Licensing and other		33.3		33.3		-		-
Total revenues	$	2,768.9	$	2,550.7	$	218.2		8.6	%

Wholesale better apparel revenues increased $59.3 million, primarily due to initial shipments of our J Jones New York, Jessica Simpson jeanswear and Rachel Roy Signature product lines, shipments of our Rachel Rachel Roy products that were introduced for Fall 2009 and increased shipments of our Jones New York, Jones New York Sport and Anne Klein products due to the performance of these product lines at retail, as well as $12.9 million of revenues for the Robert Rodriguez and Robbi and Nikki product lines acquired

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through the acquisition of Moda. The increase in revenues includes a $3.1 million favorable effect of changes in exchange rates between the U.S. and Canadian Dollars.

Wholesale jeanswear revenues decreased $15.8 million. Revenues decreased due to lower shipments of our l.e.i. products to Walmart due to competing new product initiatives and price compression, lower shipments of our Energie product line as a result of product assortment issues and lower shipments of our Erika products, primarily due to repositioning of the product at retail. These decreases were partially offset by increased shipments of our Gloria Vanderbilt products due to the performance of the products at retail and new product extensions.

Wholesale footwear and accessories revenues increased $175.1 million, primarily due to $65.8 million in sales of the acquired Stuart Weitzman product line, increases in our international business due to improved global economic conditions and product performance, and increased shipments of our Nine West, Easy Spirit, Enzo Angiolini and AK Anne Klein product lines due to product performance and the improved economic outlook compared to the prior period.

Retail revenues decreased $0.4 million, primarily due to the closure of underperforming locations, partially offset by both $17.2 million related to the acquired Stuart Weitzman stores and a 3.2% increase in comparable store sales ($13.9 million) resulting from product performance. We began 2010 with 938 retail locations, had a net decrease of 148 locations during the period and added 44 locations as a result of the SWH acquisition to end the period with 834 locations, compared with 971 at the end of the prior period. A 26.3% increase in our comparable e-commerce business ($8.5 million) and 2.6% increase in comparable store sales for our footwear stores ($6.7 million) were partially offset by a 0.9% decrease in comparable store sales for our apparel stores ($1.3 million). The decrease in revenues was partially offset by a $3.1 million favorable effect of changes in exchange rates between the U.S. and Canadian Dollars.

Licensing and other revenues were $33.3 million for both periods. Reduced sales volume of our licensees was offset by $0.4 million of SWH licensing revenues.

Gross Profit. The gross profit margins were 35.6% and 34.5% for the first fiscal nine months of 2010 and 2009, respectively.

Wholesale better apparel gross profit margins were 36.2% and 34.8% for the first fiscal nine months of 2010 and 2009, respectively. The increase was primarily due to the product mix, the performance of our products at retail, the addition of higher-margin Robert Rodriguez products and the favorable effect of changes in exchange rates between the U.S. and Canadian Dollars in the current period.

Wholesale jeanswear gross profit margins were 26.4% and 25.1% for the first fiscal nine months of 2010 and 2009, respectively. The increase was primarily due to lower levels of off-price sales and discontinued products in the current period and increased sales of our higher-margin Gloria Vanderbilt products, partially offset by price compression on our Energie, l.e.i. and private label products.

Wholesale footwear and accessories gross profit margins were 28.2% and 26.7% for the first fiscal nine months of 2010 and 2009, respectively. The increase was primarily due to additional discounting in the prior period to assist our customers in liquidating excess inventory due to economic conditions as well as the addition of higher-margin Stuart Weitzman products in the current period, partially offset by increased product (material and labor) and transportation costs and increased sales in our lower-margin international business.

Retail gross profit margins were 52.6% and 50.2% for the first fiscal nine months of 2010 and 2009, respectively. The increase was primarily due to improved performance in our Canadian retail operations and the addition of higher-margin Stuart Weitzman locations, partially offset by increased transportation costs.

SG&A Expenses. SG&A expenses were $794.3 million in the first fiscal nine months of 2010 and $763.1 million in the first fiscal nine months of 2009.

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Wholesale better apparel SG&A expenses increased $10.8 million, primarily due to $10.8 million of expenses added as a result of the Moda acquisition, which includes a $3.2 million fair value adjustment of the related acquisition consideration payable. Our new Jessica Simpson jeanswear line added $3.1 million of costs and compensation costs increased by $2.0 million, which were offset by $3.5 million of other net cost reductions and a $1.6 million favorable effect of changes in exchange rates between the U.S. and Canadian Dollars.

Wholesale jeanswear SG&A expenses decreased $4.6 million, primarily due to a $3.2 million adjustment to accrued lease costs for a closed warehouse, a $2.4 million reduction in administrative costs, a $0.7 million reduction in sample costs, a $1.0 million reduction in advertising costs and $3.3 million of other net cost decreases, partially offset by $6.0 million of charges related to the closure of our Texas warehouse in the current period.

Wholesale footwear and accessories SG&A expenses increased $24.8 million, primarily due to $20.0 million of expenses added as a result of the SWH acquisition and a $4.7 million increase in administrative costs, a $2.7 million increase in compensation expenses, a $2.5 million increase in distribution costs due to increased volume and $2.9 million of other net cost increases in the current period, partially offset by lower restructuring and severance costs of $1.5 million. The prior period included $3.5 million related to the bankruptcy of our former United Kingdom footwear licensee, $1.6 million of settlements of sales and use tax audits and $1.4 million in loss accruals related to certain leased property.

Retail SG&A expenses decreased $24.4 million, due to a $15.7 million reduction in asset impairment charges as compared with the prior period and cost reductions of $15.8 million for occupancy, $12.5 million for compensation costs and $0.7 million of other costs related primarily to operating fewer locations during the current period, partially offset by a $5.6 million increase in administrative costs and a $1.3 million unfavorable effect of changes in exchange rates between the U.S. and Canadian Dollars. The stores acquired in the SWH acquisition also added $13.4 million to the current period.

SG&A expenses for the licensing, other and eliminations segment increased $24.6 million, primarily due to a $10.2 million increase in amortization of share-based compensation, $5.9 million of acquisition costs related to the acquisitions of Moda and SWH, a $2.6 million increase in other compensation-related costs, a $2.6 million impairment of an acquired license and $3.3 million of other cost increases.

Operating Income. The resulting operating income for the first fiscal nine months of 2010 was $191.7 million, compared with $116.7 million for the first fiscal nine months of 2009, due to the factors described above.

Net Interest Expense. Net interest expense decreased $3.7 million, primarily the result of the $7.9 million write-off of deferred financing fees in the prior period related to our prior revolving credit line and a $4.0 million reduction of interest primarily related to the repurchase of our 4.250% Senior Notes in 2009. These decreases were partially offset by $5.5 million of interest recorded on the acquisition consideration liability in the current period, a $1.1 million net unfavorable effect of our interest rate swaps and cap, a $1.1 million reduction of interest income due to lower average cash balances in the current period, and $0.5 million of other net increases.

Income Taxes. The effective income tax rate was 37.0% and 35.0% for the first fiscal nine months of 2010 and 2009, respectively. The increase is primarily due to the impact of the foreign income tax differential on higher pre-tax income in the first fiscal nine months of 2010 compared with the first fiscal nine months of 2009.

Net Income and Earnings Per Share. Net income was $94.4 million in the first fiscal nine months of 2010, compared with $44.0 million in the first fiscal nine months of 2009. Diluted earnings per share for the first fiscal nine months of 2010 was $1.09, compared with $0.51 for the first fiscal nine months of 2009, with 1.2% more shares outstanding.

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Liquidity and Capital Resources

Our principal capital requirements have been for working capital needs, capital expenditures, dividend payments, acquisition funding and repurchases of our common stock on the open market. We have historically relied on internally generated funds, trade credit, bank borrowings and the issuance of notes to finance our operations. We currently fund our operations primarily through cash generated by operating activities, and rely on our revolving credit facility for the issuance of trade letters of credit for certain purchases of inventory and for cash borrowings as needed. As of October 2, 2010, total cash and cash equivalents were $34.0 million, a decrease of $299.4 million from the $333.4 million reported as of December 31, 2009.

Cash flows from operating activities used $70.7 million and provided $149.2 million in the fiscal nine months ended October 2, 2010 and October 3, 2009, respectively. The change from the prior period was primarily due to changes in working capital, which offset the higher net income in the current period. Accounts receivable increased more in the current period due to increased revenues and the timing of shipments and collections compared with the prior period. Inventory increased in the current period (compared with a decrease in the prior period) primarily due to increased customer orders, the timing of receipts and the clearance of excess inventories in our footwear and jeanswear businesses during the prior period. Accounts payable increased in the current period (compared with a decrease in the prior period) primarily due to the timing of inventory payments during the prior period.

Cash flows from investing activities used $200.8 million and $35.3 million in the first fiscal nine months of 2010 and 2009, respectively, primarily for the acquisition of Moda and SWH in 2010 and a $15.2 million investment in GRI in 2009, as well as the purchases of property and equipment.

Cash flows from financing activities used $27.2 million and $297.5 million in the first fiscal nine months of 2010 and 2009, respectively.

During the first fiscal nine months of 2009, we repurchased a total of $242.5 million of our 4.250% Senior Notes due 2009 for a payment of $237.7 million, and we paid $12.9 million in consent fees and $1.8 million of related costs.

During the first fiscal nine months of 2009, we paid $30.0 million to enter into a secured revolving credit agreement expiring on March 13, 2012, and we paid $7.3 million during the first fiscal nine months of 2010 to amend the facility as described below and extend the expiration date to May 13, 2015.

During the first fiscal nine months of 2010, we made a cash distribution of $19.0 million to the former owners of SWH as required by the acquisition agreement.

We repurchased no common stock during the first fiscal nine months of 2010 and 2009. As of October 2, 2010, $304.1 million of Board authorized repurchases was still available. We may make additional share repurchases in the future depending on, among other things, market conditions and our financial condition.

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minus reserves determined by the joint collateral agents. At October 2, 2010, we had $16.3 million of borrowings and $39.0 million of letters of credit outstanding, and our remaining availability was $589.0 million. If availability under the Credit Facility falls below a stated level, we will be required to comply with a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative and negative covenants that, among other things, will limit or restrict our ability to (1) incur indebtedness, (2) create liens, (3) merge, consolidate, liquidate or dissolve, (4) make investments (including acquisitions), loans or advances, (5) sell assets, (6) enter into sale and leaseback transactions, (7) enter into swap agreements, (8) make certain restricted payments (including dividends and other payments in respect of capital stock), (9) enter into transactions with affiliates, (10) enter into restrictive agreements, and (11) amend material documents. The Credit Facility is secured by a first priority lien on substantially all of our personal property.

On October 27, 2010, we announced that our Board of Directors had declared a quarterly cash dividend of $0.05 per share to all common stockholders of record as of November 12, 2010 for payment on November 26, 2010.

Economic Outlook
Due to the current and expected future economic relationship between the United States and China, we may experience increased risk related to changes in foreign currency exchange rates should China allow the Yuan to rise in value against the Dollar. Should this occur, increased production costs for our goods manufactured in China could result.

The recent economic environment has resulted in lower consumer confidence. This trend may lead to reduced consumer spending, which could affect our net sales and our future profitability. Additionally, reduced consumer spending, combined with the potential for rising costs related to changes in exchange rates between the U.S. Dollar and the Chinese Yuan and increasing Chinese labor and commodity prices, may reduce our gross profit margins. Should these factors occur, they could have a material adverse effect on our business.

When adverse economic conditions exist in the United States or abroad, we may experience increased risk related to the collectibility of our accounts receivable, and we may increase our provision for doubtful accounts in the future should any of our wholesale customers experience significant financial difficulties. If such conditions lead to defaults that are individually or cumulatively significant, we could experience a material adverse impact on our financial condition, results of operations and/or liquidity.

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The economic turmoil in the credit markets over the past several years and the negative effects of the economic environment on our business may negatively impact our ability to borrow funds in the future. However, we believe that available cash and cash equivalents, funds generated by operations and the Credit Facility will provide the financial resources sufficient to meet our foreseeable working capital, dividend, capital expenditure and stock repurchase requirements and fund our contractual obligations and our acquisition liabilities and commitments. Although there can be no assurances, we believe that the participating banks will be willing and able to loan funds to us in accordance with their legal obligations under the Credit Facility.

New Accounting Standards

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

We have entered into interest rate swap and cap agreements that effectively convert a portion of our fixed-rate debt to a variable-rate basis to take advantage of the current low interest rate market. By using these derivative financial instruments, we are exposed to both credit risk and market risk. Credit risk is the risk that the counterparty to the interest rate swap and cap agreements will fail to perform under the terms of the agreements. We attempt to minimize the credit risk in these agreements by only entering into transactions with credit worthy counterparties. However, we do not expect the counterparties, which presently have satisfactory credit ratings, to fail to meet their obligations, if any. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

We also have interest rate exposures on our secured revolving line of credit with respect to United States and Canadian short-term interest rates. We had $651.5 million of such variable-rate credit facilities available at October 2, 2010, under which $16.3 million of cash borrowings and $40.4 million of letters of credit were outstanding at October 2, 2010.

We are also exposed to market risk related to changes in foreign currency exchange rates. We have assets and liabilities denominated in certain foreign currencies and our Canadian subsidiary purchases a portion of its inventory from suppliers who require payment in U.S. Dollars. To minimize our exposure

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to changes in exchange rates between the Canadian Dollar and the U.S. Dollar, we hedge a portion of our forecasted foreign-currency denominated inventory purchases. We believe that these financial instruments should not subject us to undue risk due to foreign exchange movements, because gains and losses on these contracts offset losses and gains on the assets, liabilities, and transactions being hedged, up to the notional amount of such contracts. We are exposed to credit-related losses if the counterparty to a financial instrument fails to perform its obligation. However, we do not expect the counterparties, which presently have satisfactory credit ratings, to fail to meet their obligations, if any.

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

Item 4. Controls and Procedures

As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that both our disclosure controls and procedures and our internal controls and procedures are designed to provide and are effective in providing reasonable assurance in timely alerting them to material information required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in these periodic filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that our internal controls are effective in ensuring that our financial statements are fairly presented in conformity with generally accepted accounting principles.

We have made changes to our internal controls and procedures over financial reporting to address the implementation of SAP, an enterprise resource planning ("ERP") system. SAP will integrate our operational and financial systems and expand the functionality of our financial reporting processes. We began the process of implementing SAP throughout The Jones Group Inc. and our consolidated subsidiaries during the fourth quarter of 2006. During the third fiscal quarter of 2010, our jewelry business was converted to this system. We have adequately controlled the transition to the new processes and controls, with no negative impact to our internal control environment. We expect to continue the implementation of this system to all locations over a multi-year period. As the phased implementation occurs, we will experience changes in internal control over financial reporting each quarter. We expect this ERP system to further advance our control environment by automating manual processes, improving management visibility and standardizing processes as its full capabilities are utilized.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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Item 5. Other information

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This Report includes, and incorporates by reference, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding our expected financial position, business and financing plans are forward-looking statements. The words "believes," "expects," "plans," "intends," "anticipates" and similar expressions identify forward-looking statements. Forward-looking statements also include representations of our expectations or beliefs concerning future events that involve risks and uncertainties, including:

those associated with the effect of national, regional and international economic conditions;
lowered levels of consumer spending resulting from a general economic downturn or lower levels of consumer confidence;
the tightening of the credit markets and our ability to obtain capital on satisfactory terms;
given the uncertain economic environment, the possible unwillingness of committed lenders to meet their obligations to lend to borrowers, in general;
the performance of our products within the prevailing retail environment;
customer acceptance of both new designs and newly-introduced product lines;
our reliance on a few department store groups for large portions of our business;
our ability to identify acquisition candidates and, in a competitive environment for such acquisitions, acquire such businesses on reasonable financial and other terms;
the integration of the organizations and operations of any acquired business into our existing organization and operations;
consolidation of our retail customers;
financial difficulties encountered by our customers;
the effects of vigorous competition in the markets in which we operate;
our ability to attract and retain qualified executives and other key personnel;
our reliance on independent foreign manufacturers;
changes in the costs of raw materials, labor, advertising and transportation;
the general inability to obtain higher wholesale prices for our products that we have experienced for many years;
the uncertainties of sourcing associated with an environment in which general quota has expired on apparel products but litigation and political activity seeking to re-impose quotas have been initiated;
our ability to successfully implement new operational and financial computer systems; and
our ability to secure and protect trademarks and other intellectual property rights.

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All statements other than statements of historical facts included in this Report, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such expectations may prove to be incorrect. Important factors that could cause actual results to differ materially from our expectations ("Cautionary Statements") are disclosed in this Report in conjunction with the forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise.

Item 6. Exhibits

See Exhibit Index.

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SIGNATURES

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

THE JONES GROUP INC.
(Registrant)

Date: October 27, 2010

By /s/ Wesley R. Card
WESLEY R. CARD
Chief Executive Officer

By /s/ John T. McClain
JOHN T. McCLAIN
Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
3.1*	Articles of incorporation, as amended.
10.1*	Summary Sheet of Compensation of Non-Management Directors of The Jones Group Inc.⁺
12*	Computation of Ratio of Earnings to Fixed Charges.
31*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32^o	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase.
101.LAB*	XBRL Taxonomy Extension Label Linkbase.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase.

____________
* Filed herewith.
^o Furnished herewith.
⁺ Management contract or compensatory plan or arrangement.

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