ACQUISITIONS

6 Months Ended

Jul. 02, 2011

Acquisition [Abstract]

ACQUISITIONS

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 domestic wholesale sportswear segment. At July 2, 2011, the liability was $16.4 million, with $(6.5) million and $5.1 million recorded as SG&A expenses during the fiscal six months ended July 2, 2011 and July 3, 2010, respectively.

        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 domestic wholesale sportswear segment.

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

(In millions)	Weighted-average 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 for the fiscal quarter and six months ended July 3, 2010 subsequent to the acquisition.

(In millions)		Fiscal Quarter Ended July 3, 2010		Fiscal Six Months Ended July 3, 2010
Total revenues	$	2.1	$	6.5
Loss before provision for income taxes		6.1		6.7

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. We recorded all SWH's identifiable assets, SWH's liabilities assumed and the noncontrolling interest at fair value under the acquisition method. Due to our obligation to purchase the remaining 45% interest, the noncontrolling interest is classified as a liability, with adjustments to the liability recorded as interest expense. We recorded a liability of $181.8 million for the initial value of the projected payments 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. At July 2, 2011, the fair value of the liability was $211.8 million, with $31.8 million and $0.1 million recorded as interest expense and $11.0 million and $0.7 million of payments recorded during the fiscal six months ended July 2, 2011 and July 3, 2010, respectively.

        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 domestic wholesale footwear and accessories and international wholesale segments, its retail business is reported in our domestic retail and international retail segments, and its 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)	Weighted-average 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, 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 for the fiscal quarter and six months ended July 3, 2010 subsequent to the acquisition.

(In millions)		Fiscal Quarter and Six Months Ended July 3, 2010
Total revenues	$	21.7
Loss before provision for income taxes		2.8

KG Group Holdings Limited

        On June 2, 2011, we acquired 100% of the equity interests in KG Group Holdings Limited ("Kurt Geiger"), a privately-held wholesaler and retailer of luxury footwear and accessories, for $150.0 million in cash and the assumption of $174.1 million of debt, which was immediately repaid. Kurt Geiger markets products under four of its own brands - Kurt Geiger, KG by Kurt Geiger, Carvela, and Miss KG - and over 100 other luxury brands in more than 200 retail locations, including concessions in Europe's leading department stores, including Harrods, Selfridges, Liberty, House of Fraser, Fenwick John Lewis and Brown Thomas, as well as company-operated stores.

        Approximately $10.2 million of the purchase price payable to certain selling shareholders who are senior managers of Kurt Geiger has been rolled over into 5% Loan Notes (the "Loan Notes"), which are payable in approximately four years and are subject to forfeiture in the event of termination of employment under certain circumstances. This amount will be recorded as compensation expense over the term of the Loan Notes and is not reported as a component of the cost of the acquisition.

        We pursued the acquisition of Kurt Geiger to increase our international presence and further extend our reach into the designer footwear business. Kurt Geiger will serve as our hub in Europe. Kurt Geiger's wholesale footwear business is reported in our international wholesale segment and its retail business is reported in our international retail segment.

        The following table summarizes the fair values of the assets acquired and liabilities assumed from Kurt Geiger on June 2, 2011.

(In millions)	Weighted-average amortization life (in months)		Fair Value
Cash		$	6.9
Accounts receivable			19.7
Inventories			55.1
Other current assets			9.5
Property, plant and equipment			27.0
Intangible assets:
Trademarks - nonamortized			95.1
Trademarks - amortized	120		0.1
Goodwill			99.3
Customer relationships	232		125.7
Order backlog	9		2.8
Favorable lease agreements	99		6.8
Total assets acquired			448.0
Accounts payable			30.6
Other current liabilities			28.5
Long-term debt			174.1
Unfavorable lease agreements	100		0.2
Deferred taxes			64.6
Total liabilities assumed			298.0
Total purchase price		$	150.0

        The gross contractual accounts receivable acquired from Kurt Geiger was $19.8 million.

        The acquisition resulted in the recognition of $99.3 million of goodwill, which is not expected to be deductible for tax purposes. Goodwill largely consists of expected synergies resulting from the leveraging of the combined networks of partners, infrastructure and strong department store relationships to expand product distribution worldwide, as well as 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 Kurt Geiger business included in our results for the fiscal quarter and six months ended July 2, 2011 subsequent to the acquisition.

(In millions)		Fiscal Quarter and Six Months Ended July 2, 2011
Total revenues	$	37.3
Loss before provision for income taxes		6.2

        The following table provides pro forma total revenues and results of operations for the fiscal quarters and six months ended July 2, 2011 and July 3, 2010 as if Moda and SWH had been acquired on January 1, 2009 and Kurt Geiger had been acquired on January 1, 2010. The unaudited pro forma results reflect certain adjustments related to the acquisitions, such as amortization expense on intangible assets acquired from Moda, SWH and Kurt Geiger 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, SWH or Kurt Geiger. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed at the indicated dates, nor are they indicative of the future operating results of the combined companies.

(In millions, except per share amounts)	Fiscal Quarter Ended				Fiscal Six Months Ended
		July 2, 2011		July 3, 2010		July 2, 2011		July 3, 2010
Total revenues	$	942.6	$	956.3	$	1,978.9	$	1,960.5
Net income		9.1		28.5		28.3		67.5
Earnings per common share attributable to Jones
Basic		0.11		0.33		0.33		0.78
Diluted		0.10		0.33		0.33		0.78

        The pro forma earnings for the fiscal quarter and six months ended July 3, 2010 were adjusted to exclude $4.5 million and $5.6 million, respectively, of acquisition-related expenses related to the acquisitions of Moda and SWH incurred during the respective periods and $2.9 million and $4.3 million, respectively, of nonrecurring expense related to the fair value of acquisition-date order backlogs. The pro forma earnings for the fiscal quarter and six months ended July 2, 2011 were adjusted to exclude $4.9 million of acquisition-related expenses incurred related to the acquisition of Kurt Geiger and $0.5 million of nonrecurring expense related to the fair value of Kurt Geiger acquisition-date order backlogs. The pro forma earnings for the fiscal quarter and six months ended July 3, 2010 were adjusted to include $0.9 million and $2.5 million, respectively, of nonrecurring expense related to the fair value of Kurt Geiger acquisition-date order backlogs.

Acquisition Expenses

        During the fiscal six months ended July 3, 2010, pretax charges totaling $0.6 million and $5.0 million were recorded for legal expenses and other costs related to the Moda and SWH acquisitions, respectively. During the fiscal six months ended July 2, 2011, pretax charges totaling $4.9 million were recorded for legal expenses and other costs related to the Kurt Geiger acquisition. 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.