SEGMENT REPORTING

6 Months Ended

Jul. 02, 2016

SEGMENT REPORTING

SEGMENT REPORTING

11.    SEGMENT REPORTING

The Company operates its kate spade new york and JACK SPADE brands through one operating segment in North America and three operating segments internationally: Japan, Asia (excluding Japan) and Europe. 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, Asia (excluding Japan), Europe and Latin America).

· Adelington Design Groupsegment – consists of: (i) exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands and (ii) the licensed LIZWEAR and LIZ CLAIBORNE NEW YORK brands.

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 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; the resulting royalty income is included within the results of the associated segment.

				Adjusted
Dollars in thousands	Net Sales		% to Total	EBITDA		% of Sales
Six Months Ended July 2, 2016 (26 Weeks)
KATE SPADE North America	$	490,055	82.5%	$	71,980	14.7	%
KATE SPADE International		92,300	15.5%		12,590	13.6	%
Adelington Design Group		11,758	2.0%		3,107	26.4	%
Totals	$	594,113	100.0%
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%
Three Months Ended July 2, 2016 (13 Weeks)
KATE SPADE North America	$	271,378	84.9%	$	47,393	17.5	%
KATE SPADE International		43,417	13.6%		4,053	9.3	%
Adelington Design Group		4,896	1.5%		922	18.8	%
Totals	$	319,691	100.0%
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%

The following tables provide a reconciliation to Net Income (Loss):

	Six Months Ended				Three Months Ended
	July 2, 2016		July 4, 2015		July 2, 2016		July 4, 2015
In thousands	(26 Weeks)		(26 Weeks)		(13 Weeks)		(13 Weeks)
Reportable Segments Adjusted EBITDA:
KATE SPADE North America	$	71,980	$	55,853	$	47,393	$	37,781
KATE SPADE International (a)		12,590		8,422		4,053		3,433
Adelington Design Group		3,107		1,601		922		(77)
Total Reportable Segments Adjusted EBITDA		87,677		65,876		52,368		41,137
Depreciation and amortization, net (b)		(22,157)		(22,418)		(11,436)		(10,872)
Charges due to streamlining initiatives (c), brand-exiting activities, acquisition related costs and loss on asset disposals and impairments, net		(844)		(26,953)		(638)		(7,899)
Joint venture contract termination fee		—		(26,000)		—		—
Share-based compensation (d)		(16,156)		(12,756)		(8,246)		(6,753)
Adjusted equity loss included in Reportable Segments Adjusted EBITDA (e)		3,248		2,671		2,007		1,933
Operating Income (Loss)		51,768		(19,580)		34,055		17,546
Other expense, net (a)		(3,340)		(3,218)		(3,093)		(1,823)
Loss on settlement of note receivable		—		(9,873)		—		—
Interest expense, net		(9,933)		(8,708)		(4,937)		(5,344)
Provision for income taxes		3,020		2,931		1,466		1,130
Discontinued operations, net of income taxes		2,934		(2,370)		2,214		(708)
Net Income (Loss)	$	38,409	$	(46,680)	$	26,773	$	8,541

^(a) Amounts include equity in the adjusted losses of the Company’s equity method investees of $3.2 million and $2.7 million for the six months ended July 2, 2016 and July 4, 2015, respectively and $2.0 million and $1.9 million for the three months ended July 2, 2016 and July 4, 2015, respectively.

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

^(c) See Note 8 – Streamlining Initiatives for a discussion of streamlining charges.

^(d) Includes share-based compensation expense of $0.2 million in the six months ended July 4, 2015, that was classified as restructuring.

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

GEOGRAPHIC DATA:

Dollars in thousands	Net Sales		% to Total
Six Months Ended July 2, 2016 (26 Weeks)
Domestic	$	482,365	81.2	%
International		111,748	18.8	%
Total	$	594,113	100.0	%
Six Months Ended July 4, 2015 (26 Weeks)
Domestic	$	427,181	79.6	%
International		109,253	20.4	%
Total	$	536,434	100.0	%
Three Months Ended July 2, 2016 (13 Weeks)
Domestic	$	264,175	82.6	%
International		55,516	17.4	%
Total	$	319,691	100.0	%
Three Months Ended July 4, 2015 (13 Weeks)
Domestic	$	229,597	81.7	%
International		51,521	18.3	%
Total	$	281,118	100.0	%

There were no significant changes in segment assets during the six months ended July 2, 2016.