SEGMENT REPORTING

6 Months Ended

Jul. 04, 2015

SEGMENT REPORTING

SEGMENT REPORTING

15.    SEGMENT REPORTING

The Company operates its kate spade new york and JACK SPADE brands through one operating segment in North America and four operating segments internationally: Japan, Southeast Asia, Europe and Latin America. The Company’s Adelington Design Group reportable segment is also an operating segment. The three reportable segments described below represent the Company’s activities for which separate financial information is available and which is utilized on a regular basis by the Company’s CODM to evaluate performance and allocate resources. In identifying the Company’s reportable segments, the Company considers its management structure and the economic characteristics, products, customers, sales growth potential and long-term profitability of its operating segments. As such, the Company configured its operations into the following three reportable segments:

· KATE SPADE North America segment – consists of the Company’s kate spade new york and JACK SPADE brands in North America.

· KATE SPADE International segment – consists of the Company’s kate spade new york and JACK SPADE brands in International markets (principally in Japan, Southeast Asia, Europe and Latin America).

· Adelington Design Group segment– consists of: (i) exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands; (ii) the wholesale operations of the licensed LIZWEAR brand; and (iii) the licensed LIZ CLAIBORNE NEW YORK brand.

The Company’s Chief Executive Officer has been identified as the CODM. The Company’s measure of segment profitability is Adjusted EBITDA of each reportable segment. Accordingly, the CODM evaluates performance and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; (iii) losses on asset disposals and impairments; and (iv) the $26.0 million charge incurred in the first quarter of 2015 to terminate contracts with the Company’s former joint venture partner in China. The costs of all corporate departments that serve the respective segment are fully allocated. The Company does not allocate amounts reported below Operating income (loss) to its reportable segments, other than adjusted equity income (loss) in equity method investees. The Company’s definition of Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The accounting policies of the Company’s reportable segments are the same as those described in Note 1 – Basis of Presentation. Sales are reported based on a destination basis. The Company, as licensor, also licenses to third parties the right to produce and market products bearing certain Company-owned trademarks.

Dollars in thousands	Net Sales		% to Total		Adjusted EBITDA			% of Sales
Six Months Ended July 4, 2015 (26 weeks)
KATE SPADE North America	$	431,316	80.4	%	$	55,853		12.9	%
KATE SPADE International	93,186		17.4	%	8,422			9.0	%
Adelington Design Group	11,932		2.2	%	1,601			13.4	%
Totals	$	536,434	100.0	%
Six Months Ended July 5, 2014 (27 weeks)
KATE SPADE North America	$	372,135	76.0	%	$	48,484		13.0	%
KATE SPADE International	102,606		21.0	%	1,427			1.4	%
Adelington Design Group	14,871		3.0	%	(10		)	(0.1	)%
Other (a)	--		--	%	(595		)	--	%
Totals	$	489,612	100.0	%

Dollars in thousands	Net Sales		% to Total		Adjusted EBITDA			% of Sales
Three Months Ended July 4, 2015 (13 weeks)
KATE SPADE North America	$	235,730	83.9	%	$	37,781		16.0	%
KATE SPADE International	40,718		14.4	%	3,433			8.4	%
Adelington Design Group	4,670		1.7	%	(77		)	(1.6	)%
Totals	$	281,118	100.0	%
Three Months Ended July 5, 2014 (13 weeks)
KATE SPADE North America	$	208,382	78.3	%	$	32,240		15.5	%
KATE SPADE International	49,231		18.5	%	(48		)	(0.1	)%
Adelington Design Group	8,385		3.2	%	382			4.6	%
Other (a)	--		--	%	(531		)	--	%
Totals	$	265,998	100.0	%

^(a) Other consists of expenses principally related to distribution functions that were included in Juicy Couture and Lucky Brand historical results, but are not directly attributable to those businesses and therefore have not been included in discontinued operations.

The following tables provide a reconciliation to (Loss) Income from Continuing Operations:

	Six Months Ended						Three Months Ended
	July 4, 2015 (26 Weeks)			July 5, 2014 (27 Weeks)			July 4, 2015 (13 Weeks)			July 5, 2014 (13 Weeks)
In thousands
Reportable Segments Adjusted EBITDA:
KATE SPADE North America	$	55,853		$	48,484		$	37,781		$	32,240
KATE SPADE International (a)	8,422			1,427			3,433			(48		)
Adelington Design Group	1,601			(10		)	(77		)	382
Other (b)	--			(595		)	--			(531		)
Total Reportable Segments Adjusted EBITDA	65,876			49,306			41,137			32,043
Depreciation and amortization, net (c)	(22,418		)	(22,281		)	(10,872		)	(11,144		)
Charges due to streamlining initiatives (d), brand-exiting activities, acquisition related costs and loss on asset disposals and impairments, net	(26,953		)	(18,165		)	(7,899		)	(5,038		)
Joint venture contract termination fee	(26,000		)	--			--			--
Share-based compensation (e)	(12,756		)	(26,032		)	(6,753		)	(5,808		)
Adjusted equity loss (income) included in Reportable Segments Adjusted EBITDA (f)	2,671			173			1,933			(125		)
Operating (Loss) Income	(19,580		)	(16,999		)	17,546			9,928
Other (expense) income, net (a)	(3,218		)	88			(1,823		)	241
Loss on settlement of note receivable	(9,873		)	--			--			--
Loss on extinguishment of debt	--			(16,914		)	--			(16,914		)
Interest expense, net	(8,708		)	(15,996		)	(5,344		)	(6,474		)
Provision for income taxes	2,931			2,570			1,130			764
(Loss) Income from Continuing Operations	$	(44,310	)	$	(52,391	)	$	9,249		$	(13,983	)

^(a) Amounts include equity in the adjusted (losses) earnings of the Company’s equity method investee of $(2.7) million and $(0.2) million for the six months ended July 4, 2015 and July 5, 2014, respectively and $(1.9) million and $0.1 million for the three months ended July 4, 2015 and July 5, 2014, respectively.

^(b) Other consists of expenses principally related to distribution functions that were included in Juicy Couture and Lucky Brand historical results, but are not directly attributable to those businesses and therefore have not been included in discontinued operations.

^(c) Excludes amortization included in Interest expense, net.

^(d) See Note 12 – Streamlining Initiatives for a discussion of streamlining charges.

^(e) Includes share-based compensation expense of $0.2 million and $16.9 million in the six months ended July 4, 2015 and July 5, 2014, respectively, and $0.6 million in the three months ended July 5, 2014 that was classified as restructuring.

^(f) Excludes joint venture restructuring expense included in equity losses of $0.1 million in the six and three months ended July 4, 2015.

GEOGRAPHIC DATA:

Dollars in thousands	Net Sales		% to Total
Six Months Ended July 4, 2015 (26 weeks)
Domestic	$	427,181	79.6%
International	109,253		20.4%
Totals	$	536,434	100.0%
Six Months Ended July 5, 2014 (27 weeks)
Domestic	$	379,268	77.5%
International	110,344		22.5%
Totals	$	489,612	100.0%

Dollars in thousands	Net Sales		% to Total
Three Months July 4, 2015 (13 weeks)
Domestic	$	229,597	81.7%
International	51,521		18.3%
Totals	$	281,118	100.0%
Three Months July 5, 2014 (13 weeks)
Domestic	$	211,775	79.6%
International	54,223		20.4%
Totals	$	265,998	100.0%

There were no significant changes in segment assets during the six months ended July 4, 2015.