FAIR VALUES

3 Months Ended

Apr. 06, 2013

FAIR VALUES [Abstract]

FAIR VALUES

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:

· 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 or had certain financial assets and liabilities that are required to be measured at fair value.  These include:

· the assets and liabilities of The Jones 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 calculated by comparing foreign exchange forward rates to the contract rates discounted at our incremental borrowing rate,   which fall within Level 2 of the fair value hierarchy;

· interest rate swap and cap contracts, which have or had fair values calculated by comparing current yield curves and LIBOR rates to the stated contract rates adjusted for estimated risk of counterparty nonperformance,  which fall within Level 2 of the fair value hierarchy;

· long-term debt that was hedged by interest rate swaps as a fair-value hedge, calculated by comparing current yield curves and LIBOR rates to the stated contract rates of the associated interest rate swaps, which falls within Level 2 of the fair value hierarchy; and

· consideration liabilities recorded as a result of the acquisition of Moda Nicola International, LLC ("Moda") and Stuart Weitzman Holdings, LLC ("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 March 31, 2012, December 31, 2012 and April 6, 2013.

(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)
March 31, 2012:
Rabbi Trust assets	Prepaid expenses and other current assets	$	8.5	$	8.5	$	-	$	-
Interest rate swaps	Other long-term assets		5.9		-		5.9		-
Interest rate cap	Other long-term assets		0.1		-		0.1		-
Total assets		$	14.5	$	8.5	$	6.0	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	8.5	$	8.5	$	-	$	-
Interest rate swaps	Other long-term liabilities		0.3		-		0.3		-
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		0.2		0.2		-		-
Acquisition consideration	Current portion of acquisition consideration payable		226.9		-		-		226.9
5.125% Senior Notes  due 2014	Long-term debt		262.6		-		262.6		-
Hedged portion of 6.875% Senior Notes due 2019	Long-term debt		151.3		-		151.3		-
Acquisition consideration	Acquisition consideration payable, net of current portion		5.8		-		-		5.8
Total liabilities		$	655.7	$	8.7	$	414.3	$	232.7
December 31, 2012:
Rabbi Trust assets	Prepaid expenses and other current assets	$	8.4	$	8.4	$	-	$	-
Interest rate cap	Other long-term assets		-		-		-		-
British Pound – U.S. Dollar forward contracts	Prepaid expenses and other current assets		-		-		-		-
Canadian Dollar – U.S. Dollar forward contracts	Prepaid expenses and other current assets		0.2		-		0.2		-
Total assets		$	8.6	$	8.4	$	0.2	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	8.4	$	8.4	$	-	$	-
Deferred director fees	Accrued expenses and other current liabilities		0.2		0.2		-		-
Acquisition consideration	Current portion of acquisition consideration payable		30.3		-		-		30.3
Acquisition consideration	Acquisition consideration payable, net of current portion		6.0		-		-		6.0
Total liabilities		$	44.9	$	8.6	$	-	$	36.3
April 6, 2013:
Rabbi Trust assets	Prepaid expenses and other current assets	$	8.1	$	8.1	$	-	$	-
British Pound – U.S. Dollar forward contracts	Prepaid expenses and other current assets		0.5		-		0.5		-
Canadian Dollar – U.S. Dollar forward contracts	Prepaid expenses and other current assets		0.4		-		0.4		-
Interest rate cap	Other long-term assets		-		-		-		-
Total assets		$	9.0	$	8.1	$	0.9	$	-
Rabbi Trust liabilities	Accrued employee compensation and benefits	$	8.1	$	8.1	$	-	$	-
Deferred director fees	Accrued expenses and other current liabilities		0.2		0.2		-		-
Acquisition consideration	Current portion of acquisition consideration payable		20.8		-		-		20.8
Acquisition consideration	Acquisition consideration payable, net of current portion		3.2		-		-		3.2
Total liabilities		$	32.3	$	8.3	$	-	$	24.0

The following table presents the changes in Level 3 contingent consideration liability for the fiscal three months ended March 31, 2012 and April 6, 2013.

(In millions)	Acquisition of Moda			Acquisition of SWH			Total Acquisition Consideration Payable
Beginning balance, January 1, 2012	$	14.8		$	195.6		$	210.4
Payments		-			(2.3	)		(2.3	)
Total adjustments included in earnings		(3.1	)		27.7			24.6
Balance, March 31, 2012	$	11.7		$	221.0		$	232.7
Beginning balance, January 1, 2013	$	7.4		$	28.9		$	36.3
Payments		(2.5	)		(8.9	)		(11.4	)
Total adjustments included in earnings		(0.4	)		(0.5	)		(0.9	)
Balance, April 6, 2013	$	4.5		$	19.5		$	24.0

The following table represents quantitative information about the Level 3 contingent consideration liability measurement for the acquisition of Moda at April 6, 2013.

(In millions)	Fair Value at April 6, 2013		Valuation technique	Unobservable inputs	Range (Weighted Average)
Acquisition of Moda	$	4.5	Discounted projection of financial results	Net sales growth Gross margin multiplier Discount rate	7% - 11% (9.4%) 1.44 12.0%

The valuation processes for the contingent consideration liability for the acquisition of Moda is based on the associated acquisition agreement.  Our inputs include probability-weighted projections of financial results for the acquired business and a discount rate based on our weighted average cost of capital.  We internally calculate the estimated liability using projected financial information provided by the operating divisions.

The significant unobservable inputs used in the fair value measurement of the Moda contingent consideration liability are net sales growth, a gross margin multiplier (as defined in the acquisition agreement) and a discount factor.  An increase in the net sales or gross margin multiplier inputs would increase the fair value of the liability, while an increase in the discount rate would decrease the fair value of the liability.  There is no interrelationship between the unobservable inputs.  Changes in the fair value of the Moda contingent consideration liability are reported as adjustments to SG&A expenses in the domestic wholesale sportswear segment.

The remaining contingent consideration liability related to the acquisition of SWH has been determined to be $19.5 million, based on adjusted earnings before interest, taxes, depreciation and amortization as defined in the acquisition agreement ("EBITDA") for the year 2012 and an EBITDA multiplier at the contractual maximum of 9.0 as specified in the acquisition agreement.  Changes in the fair value of the contingent consideration liability for SWH are reported as adjustments to interest expense.  Of the remaining liability, $18.5 million was paid in April 2013 and payment of the remaining $1.0 million will be deferred until certain conditions are met.

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 March 31, 2012 and April 6, 2013, 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 three months
At March 31, 2012:
Property and equipment		$	-		$	-		$	-		$	-		$	0.4
At April 6, 2013:
Property and equipment			0.8			-			-			0.8			6.2

During the fiscal quarters ended March 31, 2012 and April 6, 2013, property and equipment utilized in our retail operations with a carrying amount of $0.4 million and $6.6 million, respectively, were written down to fair values of zero and $0.8 million, respectively, primarily as a result of our decision to close underperforming retail locations.  These losses were recorded as SG&A expenses in the domestic 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 quarter ended April 6, 2013, leasehold improvements with a carrying value of $0.4 million in a facility to be sublet were written down to a fair value of zero, as we will incur a loss on the sublease.  This loss was recorded as an SG&A expense in the domestic wholesale footwear and accessories 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 and swap agreements.  We do not use financial instruments for trading or other speculative purposes.  At April 6, 2013, we had outstanding foreign exchange contracts to exchange Canadian Dollars for a total notional value of US$12.1 million at a weighted-average exchange rate of 0.986 maturing through November 2013 and to exchange 6.0 million British Pounds for U.S. Dollars at an exchange rate of 1.623 maturing in December 2013.

At April 6, 2013, March 31, 2012 and December 31, 2012, 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 estimated fair values of other financial instruments subject to fair value disclosures were valued using market comparable inputs.  These inputs include broker quotes, quoted market prices, interest rates and exchange rates for the same or similar instruments.  The fair value and related carrying amounts for items not disclosed elsewhere are as follows:

(In millions)	April 6, 2013						March 31, 2012				December 31, 2012
	Fair Value Level		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior Notes, including hedged items recorded at fair value		1	$	922.5	$	903.6	$	822.4	$	750.2	$	924.3	$	884.5
Other long-term debt, including current portion		2		9.6		8.9		10.1		9.0		10.2		9.3
Note receivable from GRI		2		-		-		10.0		10.0		-		-
Other notes receivable		2		-		-		1.7		1.5		-		-

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.